Johnson, D. Gale

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Case Western Reserve University School of Law

Case Western Reserve Journal ofInternational LawVolume 6 | Issue 11973Liberalizing Agricultural Trade between Canadaand the United StatesD. Gale JohnsonFollow this and additional works at: https://scholarlycommons.law.case.edu/jilPart of the International Law CommonsThis Speech is brought to you for free and open access by the Student Journals at Case Western Reserve University School of Law Scholarly Commons.It has been accepted for inclusion in Case Western Reserve Journal of International Law by an authorized administrator of Case Western ReserveUniversity School of Law Scholarly Commons.Recommended CitationD. Gale Johnson, Liberalizing Agricultural Trade between Canada and the United States, 6 Case W. Res. J. Int'l L. 60 (1974)Available at: https://scholarlycommons.law.case.edu/jil/vol6/iss1/8(Vol. 6: 60Liberalizing Agricultural Tradebetween Canada and the United StatesD. Gale Johnson*United States-Canadian trade in farm products is important toboth countries. The United States is the largest importer of Cana-dian farm products and Canada is the third largest importer ofUnited States farm products.' But it should be noted that thevalue of farm products exported from the United States to Canadaequals twice the value of farm products exported from Canada tothe United States.2The joint interest of the two countries would be much betterserved by world-wide liberalization of trade in farm products thanby further reductions in trade barriers between the United Statesand Canada. This is a theme you have already heard twice and Ithink you will hear at least once more. The reasons which supportthe conclusion that the joint interests of Canada and the UnitedStates in worldwide trade matters are now much more importantthan bilateral interests in the trade field can be briefly stated. MostAmerican farm exports to Canada, about 75o of total Americanexports to Canada, complement Canadian farm production.3  Pri-mary products that cannot be grown economically in Canada be-cause of climatic factors, such as citrus and lettuce, are importantexports. A wide variety of such products move from the UnitedStates to Canada in large numbers.Sixty percent of Canadian agricultural exports to the UnitedStates consists of meat, live animals, grains, and feed, with the pri-mary emphasis being on meat and live animals. 4  Both countriesmaintain severe, and I emphasize severe, quantitative controls over* Professor of Economics, Department of Economics, University of Chicago, Chi-cago, Illinois.1 U.S. DEP'T. OF AGRICULTURE, FOREIGN AGRICULTURAL TRADE OF THE U.S.,July, 1972, at 36.21d. at 32.o For a discussion of United States agricultural exports to Canada, see Sabattini, Ex-panding Trade with Canada, U.S. DEP'T OF AGRICULTURE, FOREIGN AGRICULTURALTRADE OF THE U.S., April, 1973, at 33.4 For a discussion of Canadian agricultural exports to the United States, see Sabattini,Farm Trade with Canada Up, Imports Growing Faster than Exports, U.S. DEP'T OFAGRICULTURE, FOREIGN AGRICULTURAL TRADE OF THE U.S., Nov., 1973, at 36; Per-kins, United States Trade with Canada, U.S. DEP'T. OF AGRICULTURE, FOREIGN AGRI-CULTURAL TRADE OF THE U.S., Nov., 1971, at 29.1973] UNITED STATES-CANADA TRADE LIBERALIZATION 61the imports of wheat and dairy products, and in Canada importa-tion of barley and oats is also controlled.5  Removal of such re-straints on bilateral trade between the United States and Canadawould increase border trade. Some products would flow from Can-ada to the United States at certain geographic points. Some prod-ucts would flow from the United States to Canada in a differentgeographic area, and there would probably be some saving of trans-port costs. This would be the primary benefit from removing re-strictions on a bilateral basis. The impact on the locations of pro-duction in either country as a result of removing bilateral restric-tions would be minimal. That is not to say that I think that theserestrictions should not be removed. I think that they should beremoved, but not because of the impact that removal would have onthe bilateral trade relationship. The major benefit to Canada andthe United States would be world-wide expansion of trade in farmproducts through general trade liberalization.The realization of such trade liberalization would be facilitatedif, first of all, the United States and Canada, and in addition Au-stralia, New Zealand and Argentina, could reach agreement onobjectives and goals of the forthcoming negotiations. I think thatis going to be very difficult to achieve, perhaps for political morethan economic reasons, but it is terribly important that these majorexporters of agricultural products (the low-cost producers in theworld) enter the negotiations with an understanding of each other'sproblems and with agreement on what they are really after. If theyfight each other for individual advantages, as has occurred in thepast, all are going to lose.It will be difficult for this group of countries to reach commonobjectives and goals. Focusing upon only Canada and the UnitedStates for purposes of illustration, both countries must be willing tomodify their domestic farm programs so that those programs areconsistent with trade liberalization. In the Kennedy Rounds, Can-ada and the United States had much the same approach to agricul-ture. Each attacked the EEC continuously. The United Stateswas never prepared to modify its own domestic programs. OrvilleFreeman ran around the country giving speeches claiming the UnitedStates would negotiate on anything,6 but he was not in a position to5 ECONOMIC RESEARCH SERVICE, U.S. DEP'T OF AGRICULTURE, CANADA, GROWTHPOTENTIAL OF GRAIN AND LIVESTOCK SECTORS, FOREIGN AGRICULTURE ECONOMICREPORT No. 77, 64-70.6 See 27 VITAL SPEECHES 757 (1961) and 29 VITAL SPEECHES 211 (1963).CASE W. RES. I. INT'L L.negotiate: nobody had done the homework necessary to concludewhat could be done with the feed grain program, the wheat pro-gram, the cotton program, and the dairy program. If I had beennegotiating for the EEC, I would have taken Freeman up on hisstatement that he could negotiate on anything and I would havesaid that free trade in agricultural production would be adopted.If each of the countries adopts the stance that it can only negotiateabout the restraints on its exports and does little or nothing to elim-inate quantitative barriers on imports and to reduce internal sub-sidies for products that are exported or would be imported in theabsence of barriers, and if the United States continues to embrace theposition it did in the Kennedy Rounds, then I think very little willbe achieved in the coming round of trade negotiations.Major changes are required in the farm programs of both theUnited States and Canada if general liberalization of trade aroundthe world is to become a reality. I will consider the United States'programs first, since it is always better to confess one's own sinsbefore criticizing another's. The United States has very restrictivetrade practices with respect to dairy products. The United States hasvirtually prohibited the importation of butter for the past 20 years,yet it subsidizes the export of butter because of excess accumula-tions. The United States clearly needs to reduce its price to worldmarket levels, but the Senate Agricultural Committee, in its wis-dom, recently included a provision in a bill which would increasedairy subsidies rather than reduce them.7 Quantitative restrictionson dairy products importation must be eliminated. The UnitedStates has a sugar program that is bad, although fortunately it is notone of the world's worst. I do not know why I say fortunately,because there is so much nonsensical control of sugar in the worldthat having controls not as bad as those of another nation doesnot necessarily make your controls very good. Throughout mostof the 1960's American internal sugar prices were about doublethe world price. Fortunately, the United States is such a high-costproducer of sugar that it still imports almost half of its sugar de-spite such price relationships.8 Someday I will write a paper onthe importance of being unimportant and the paper could includediscussions of three American farm programs, the peanut, rice, and7S. 3138, 93d Cong., 1st Sess. (1972) and S. 3357, 93d Cong., 1st Sess. (1972).8 ECONOMIC RESEARCH SERVICE, U.S. DEP'T OF AGRICULTURE, WORLD TRADE INSELECTED AGRICULTURAL COMMODITIES, FOREIGN AGRICULTURE ECONOMIC REPORTNo. 44, FOREIGN AGRICULTURE ECONOMIC REPORT No. 62 at 57-68, 104-165.[Vol. 6: 6019731 UNITED STATES-CANADA TRADE LIBERALIZATION 63sugar programs. The programs are very poor, but they are con-tinued because in total they do not cost very much. They are ter-ribly important to a few people but generally are not costly enoughto the rest of the public, the consumers and taxpayers, to generateany excitement.In the area of cotton, the United States, after 30 years of effort,is in a fairly satisfactory situation. Although the government con-tinues to make payments that amount to about two-thirds of themarket value of cotton, restrictions on the production of cotton nolonger exist (even though the program was originally a productionlimitation program). All one has to do to collect these paymentsis grow cotton; how much a farmer grows is up to him. The UnitedStates also maintains a nonsensical quantitative restriction on theimportation of cotton, in that its internal prices are the same as ex-port prices. Export subsidies no longer exist but the United Statescannot be convinced to lift the import quota. The United Statesneeds to forego the use of export subsidies, a practice which hascontinued much too long. Perhaps the 1972 trading transactionwith the Soviets made export subsidies so unpopular that it mightbe difficult to re-enact them. There is no rational economic groundfor the wheat export subsidies which have existed in the UnitedStates'since 1965. On one or two occasions the domestic price roseto the support level, but during most of this period the Americanmarket price of wheat has been above the price support level. Yet,two administrations have continued to use export subsidies with-out reasons for doing so other than the notion that "we've beendoing it for 20 years so why shouldn't we continue"?In the area of feed grains the United States is probably theworld's lowest cost producer. Yet, the United States administers afarm program that transfers a significant amount of income fromthe treasury to grain farmers, who are not, by and large, poor peo-ple. They may have been 15 or 20 years ago, but that certainly isnot the case today. Again, the United States is continuing a prokgram which has no real economic base. The United States hasalso established beef import quotas. They have now been suspended;but, in light of the rapid increase in beef prices, the suspension doesnot indicate any great economic insight. Beef import quotas wereactually passed by Congress while the Kennedy Round negotiationswere taking place; at the same time America was trying to induceother nations to reduce their trade barriers.The Canadian dairy situation is nearly identical to that of theCASE W. RES. J. INT'L L.United States. Canada has made importation of dairy products dif-ficult, if not impossible. Price supports are at roughly the samehigh level as in the United States. The Canadian sugar situationis also similar to the American situation, but Canada does not ex-ploit the consumers the way the United States does. Canada ex-ploits its taxpayers. Generally, I am probably in favor of exploit-ing taxpayers rather than consumers, since, on the average, tax-payers are a little better off than the average consumer of food.The Canadian sugar program has operated by paying a high priceto domestic producers and permitting the internal price to rise slight-ly above the world level. In the case of wheat, Canada has for some20 years transferred a significant amount of benefits to the PrairieProvinces' and I am sure Canada is going to argue for maintenanceof the same program in the coming round of trade negotiations.It will be argued that Canadian production has not increased to thesame extent it has through the EEC. A wartime measure to re-duce the cost of transporting feed grains from the Prairie Prov-inces to the East and to the West has been maintained. As manyprograms in the United States will evidence, so-called emergencymeasures develop a life of their own and it becomes virtually im-possible to get rid of them. Most of the United States farm pro-grams originated as emergency programs during the 1930's.These I think are the main programs the two countries shouldbe willing to discuss and subject to significant modifications. Infact, I hope the European Community and other countries pushvery hard in this direction, and I assume they will.There is a tendency in the United States to say the EuropeanCommunity really is not interested in our sugar program, so whyshould we do anything about modifying it as a part of trade liber-alization. It is true the common market sugar program is as badas the American program, but I do not think that this is the attitudethat America can or should take if it is really interested in the tradenegotiations for farm products. The United States and Canada dohave a very substantial advantage in the production of grain and Ithink in the long run both will have an advantage in the productionof beef. It is likely that by the end of this decade North Americawill become an important exporter of high-grade beef if there is asignificant liberalization of trade. North America will continue to bean important importer of low-grade beef, but with respect to high-9 CANADA, GROWTH POTENTIAL OF GRAIN AND LIVESTOCK SECTORS, supra note5, at 64-70.[Vol. 6: 601973] UNITED STATES-CANADA TRADE LIBERALIZATION 65grade beef I think it will become an important exporter. I think thisis fortunate for the American continent if it is willing to grasp theopportunity and transform many high-cost dairy producers into re-latively low-cost beef producers. But if the United States and Can-ada continue to maintain high dairy prices, both increase the dangerof permitting sectors of the agricultural economy employing a smallminority of the total resources to endanger the trade negotiationsthat I hope will get under way this summer or early fall.

Liberalizing Agricultural Trade between Canada and the United States

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Liberalizing Agricultural Trade between Canada and the United States

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