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July 5, 2002 - International Trade News

Support Building to Oppose US Protectionist Measures

On July 2, 2002, the Grocery Manufacturers of America (GMA) commended the members of the US House of Representatives who voiced their opposition to a sugar amendment attached to the pending Trade Adjustment Assistance (TAA) legislation. The GMA referred to a June 28 letter to Ways and Means Committee Chair, Bill Thomas and Trade Subcommittee Chair, Phil Crane. The letter, signed by 60 members of the US Congress, outlined the harmful implications of the sugar provision, which would disrupt trade and hurt U.S. food companies and workers. Canadian producers of refined sugar and sugar containing products remain very concerned that should this amendment pass the legislative process, Canadian exports of legitimate products like iced tea, gelatine, confectionery and other products will face further US trade restrictions.

According to the GMA, the “Breaux” amendment “not only contradicts the overall intent of the trade legislation, but also overhauls current US customs laws.” While the Breaux amendment alleges to deal with products that “circumvent” current quotas, language in the bill is very broad and gives discretion to the US Secretary of Agriculture to reclassify freely traded products into a trade-restrictive category. According to GMA Senior Vice President, Mary Sophos, “The Breaux amendment is in direct violation of NAFTA and WTO trade commitments and its passage could incite retaliation against US agricultural exports to the detriment of US producers of goods other than sugar."

The Canadian sugar industry continues to support the efforts of Canadian Embassy officials in Washington who are seeking assurances from US Congressional leaders that this trade restrictive measure does not become law. Earlier this year, Canada’s Ambassador to the US, Michael Kergin, stated in a letter to the US Senate (February 28) that, “Should the bill be passed, Canada would take steps to defend its interests, including the option of an immediate challenge under the relevant provisions of international trade agreements.”

US Farm Bill Continues to Generate Global Concern

Earlier this year (May 13, 2002) the US passed its new Farm bill offering increased subsidies for its farmers and creating anxiety for farmers and international trade policy makers around the world. The total estimated spending under the 2002 bill is $190 billion for the next 10 years -- $83 billion in additional spending over the 1996 bill. Last month, Canadian Agriculture Minister Lyle Vanclief, joined colleagues from nine countries around the world expressing concern about the impact new US farm subsidies will have on world producers, particularly those in developing economies. These countries are closely watching the United States to ensure that this protectionist farm policy does not undermine the US commitment to seek substantial reform of agricultural trade policies in the WTO agriculture negotiations.

In a 2002 report released by the Australian Bureau of Agriculture and Resource Economics (ABARE), US government support for agriculture was criticized because it “depresses and destabilises world agricultural prices . . . and harms overseas producers. Most US support has gone to the wealthiest farmers and the least to the poorest.” The lion’s share of government payments is directed at program crops; e.g. wheat, feed grains, rice and cotton, with substantial additional support to soybeans. However, the value of the US budgetary outlay underestimates total support that includes consumer funded price support for dairy products and sugar. In fact, producer support estimates for US milk and sugar industries is well above levels for the program crops – 61% in the case of sugar and 55% for dairy.

The ABARE report, “2002 US Farm Bill: Support and Agricultural Trade” can be downloaded.

Sugar in the 2002 US Farm Bill: Unlike the program crops, support to the US sugar industry is in the form of market price support (averaging 2 times the world price). To protect these prices, the US maintains import restrictions on sugar and sugar-containing products in the form of tariff quotas. In recent years, support prices in the US have created excess supply problems and imports have been reduced to minimum levels permitted under international trade agreements. The new bill does not address the causes of this excess supply situation and effectively increases the US sugar support price. This will serve to increase tension at the border and is particularly worrisome for Canadian exporters of refined sugar and sugar-containing products who already face restrictive quotas. As summarized by ABARE, the sugar provisions in the new farm bill are “a last ditch and highly inefficient approach to addressing policy created market distortions.”

The mood reflected in the Farm bill highlights the need for careful attention to multilateral trade reform in the WTO. That is the only forum that can bring sense to the trade distorting policies of the US (and the EU). Canada needs to adopt thoughtful positions that help ensure that progress towards more liberalized trade is not lost to the inward looking domestic agenda in the US.

The Farm Security and Rural Investment Act of 2002, which governs Federal farm programs for the next 6 years, was signed into law on May 13, 2002. For more information on the sugar provisions in this legislation, visit: http://www.ers.usda.gov/Features/FarmBill/Analysis/sugar2002act.htm.