AGRICULTURAL TRADE
Peter Kuperis
Senior Trade Policy Analyst
Alberta Agriculture and Food
(780) 415 –8608
peter.kuperis@gov.ab.ca
ARCHITECTURE OF TRADE
OVERVIEW

Trade is the exchange of goods and services
across national borders
 Trade operates at three different levels
– Global
– Regional/bilateral
– Internal

Trade agreements set the rules of trade
between two or more jurisdictions
OVERVIEW

Countries regulate trade through:
– Tariffs (tax on imports)
– Quotas (quantity or value limits)
– Regulations (health, packaging,consumer
protection)
– Export taxes
– And other methods
WTO

Global trade is governed through the World
Trade Organization (WTO)
– 150 members
– Began as GATT – General Agreement on
Tariffs and Trade
– Objective is to liberalize trade by reducing
tariffs and eliminating subsidies
– Agriculture was added to global trade rules in
1994
WTO

WTO gives its members a forum for settling
disputes
 Can challenge another country’s subsidy or
regulations through dispute settlement
 E.g. EU beef hormone ban, US cotton,
Canada dairy
WTO

WTO Agreement on Agriculture
– Contains tariff reduction commitments by
member countries

34% average reduction was agreed to in 1994
– Defines 3 types of subsidies – amber, blue,
green
– Limits export subsidies and gradually reduces
them
WTO

Amber
– Most trade and production distorting
– Amount of spending on amber programs is
limited


U.S. yearly limit is US$19.1 billion
Canada’s limit is $4.3 billion
– Example – pay farmers $3/bu of wheat
 Incentive to grow wheat regardless of price and
other market conditions
WTO

Blue
– aka “the blue box”
– Trade and production distorting programs BUT
limits are placed on production
– e.g. per head payment on cattle but number of
cattle per acre is limited
– Currently have no limits on blue box spending
– “Transition mechanism” away from amber
programs
WTO

Green
– aka “Green box”
– Least trade and production distorting
– Payments cannot be based on current prices or
production levels
– e.g. income support payments, environmental
programs, research, infrastructure
– No limits on spending
WTO

Export subsidies
– Payments contingent on export
– Most trade distorting type of subsidy
– E.g. EU “export refunds”
 Pays farmer difference between price received for
product exported and the domestic price
WTO

Also have rules on regulations to protect
animal, plant and human health (SPS)
 Rules on use of technical barriers to trade
(TBT)
– e.g. labelling, standards, packaging, grading)
WTO

New round of negotiations is underway
 Doha Round
– Launched in Doha, Qatar in Nov 2001
– Focused on 3 pillars – Market access, Domestic
support, Export competition
– Negotiations are still going on and agriculture
is one of the most difficult areas
– Hope to conclude negotiations in 2008
WTO

Market access
– Tariffs, tariff rate quotas, special safeguards
– Have agreement to reduce highest tariffs the
most (tiered formula)
– Members will be able to designate a certain
number of products as “sensitive” and make
smaller tariff reductions
– Tighter rules on use of safeguards
WTO

Domestic support
– Large reductions in amber spending under
negotiation


US limit could go from US$19.1 billion to US$7.4
billion
Canada from $4.3 billion to about $2 billion
– Cap on blue box payments
– No substantial change to green
WTO

Export Competition
– Export subsidies, export credits, food aid, state
trading enterprises
– Elimination of all export subsidies by 2013
– Tighter rules on export credits and food aid
– Rules on operation of state trading enterprises
(e.g Canadian Wheat Board)
WTO

Advantages of WTO
– Global – access to many markets
– Deals with subsidies (“level playing field”)
– Effective dispute settlement mechanism

Disadvantages of WTO
– Long, slow negotiations
– Slow, expensive dispute settlement
Bilateral/Regional

Agreements between two or more countries
 Bilateral agreements address market access but
usually don’t deal with subsidies
 Currently there ar380 bilateral agreements,
expected to grow to 400 by 2010
 Canada has bilateral agreements with many
countries:
– NAFTA (US, Mexico)
– Israel
Bilateral/Regional

Canada has agreements (cont’d):
– Costa Rica
– European Free Trade Association (Norway,
Switzerland, Liechtenstein, Iceland)
– Chile

Canada has/is negotiating with
– Dominican Republic & CAFTA (Honduras, Nicaragua,
El Salvador, Guatemala)
– Peru. Columbia
– South Korea
Bilateral/Regional

Canada has/is negotiating with (cont’d):
– Singapore
– CARICOM (Antigua and Barbuda, Bahamas,
Barbados, Belize, Dominica, Grenada, Guyana,
Haiti, Jamaica, Montserrat, Saint Lucia, St.
Kitts and Nevis, St. Vincent and the
Grenadines, Suriname, Trinidad and Tobago
– Jordan
Bilateral/Regional

Bilateral agreements usually govern:
– Tariffs
– Regulations
– Rules of Origin

Excellent tool for gaining market access but
don’t bring a “level playing field”
Bilateral/Regional

NAFTA has been a highly successful trade
agreement.
– Since 1994 the total value of Canada-US-
Mexico trade grew to US$ 845 billion in 2006
– Total Canada-US trade grew from US$199
billion in 1994 to US$509 billion in 2006
– Alberta ag exports to US grew from $1.9 billion
in 1995 to $2.6 billion in 2006.
Bilateral/Regional

Advantages of Bilateral agreements
– Faster, simpler to negotiate
– Market access

Disadvantages
– Don’t address subsidies
– Often have poor dispute settlement mechanisms
Bilateral/Regional

What should be priority countries for
bilateral trade agreements?
INTERNAL TRADE

Agreements governing trade within a country
 Canada has the Agreement on Internal Trade
(AIT)
– July 1, 1995
– Governs trade in many areas including agriculture
– Primarily deals with Provincial and Federal regulations
– Each sector has its own Chapter – its own rules
– Dispute settlement – no penalties for failure to comply

Quebec margarine
INTERNAL TRADE

AIT
– Currently under review

Alberta has 2 more inter-provincial trade
agreements
– Trade Enhancement Agreement on Agriculture
 BC, Alta, Sask, Manitoba, PEI, Yukon
 Expands agricultural trade beyond AIT
INTERNAL TRADE

Alberta agreements (cont’d)
– Alberta-BC Trade Investment and Labour
Mobility Agreement (TILMA)



April 1, 2007, transition to April 1, 2009
Governs trade in all sectors, one set of rules for all
sectors
Effective dispute settlement with monetary penalties
Alberta’s Trade Objectives

Trade Liberalization
– Maximum possible market access
– Lowest possible levels of trade-distorting
support
– Elimination of export subsidies
THE DEVIL’S DETAILS
WTO Disputes

EU beef hormone ban (SPS)
– Continued non-compliance and retaliation

Canada dairy (Export subsidies)
– Removed Canada’s ability to export dairy
products

Canadian Wheat Board (Subsidies)
 US corn subsidies
– Alleges US has exceeded its amber limits
Tariffs

Tariff parity between Canola and soybeans
 High tariffs and restrictive TRQ’s for beef
and pork
 Tariff escalation
– Tariff on processed product significantly higher
than on raw material
– E.g. tariff on canola seed – 10%, canola meal –
25%, canola oil – 80%
Regulatory Barriers

Beef market access post-BSE
 Potato cyst nematode
– US, Mexico

Ractopamine residues in pork
– China, Taiwan

EU regime for licensing genetically
modified organisms
Trade in Major Commodities

Wheat
– Canada had exports of $ 4.7 billion in 2007
– Top 5 markets in 2007 were the US, Indonesia,
Japan, Mexico and Iraq

Canola
– Canada exported $ 2.26 billion in 2007
– Top 5 markets: Japan, Mexico, China, US,
Pakistan
Trade in Major Commodities

Barley
– Exports of $ 765 million in 2007
– Top markets were: Saudi Arabia, US, China,
Japan, Columbia
– $315 million of this total was malt barley
– Top malt markets were: US, Japan, Brazil,
Venezuela, South Korea
Trade in Major Commodities

Fresh and frozen pork
– Exports of $ 2.7 billion in 2007
– Top 5 markets: US, Japan, Australia, South
Korea, Russia

Fresh and Frozen beef
– Exports of $ 1.2 billion in 2007
– Top 5 markets: US, Mexico, Hong Kong,
Japan, Macau
Trade in Major Commodities

Dairy
– Exports of $232 million in 2007
– Top 5 markets: US, UK, Egypt, South Korea,
Mexico

Poultry meat
– Exports of $ 238 million in 2007
– Top 5 markets: US, Hong Kong, South Africa,
Philippines, Macedonia
Trade in Major Commodities
Trade in Major Commodities
Case Study: Beef and Cattle

In 2002 beef exports were $ 2.2 billion and
exports of cattle were $ 1.8 billion
 In 2003 BSE was found in Canada
 Virtually all borders closed to Canadian
cattle and beef overnight
 Devastating impact on beef and cattle
industry
Case Study: Beef and Cattle

US also found BSE in late 2003 and experienced
the same border closures
 Due to a common policy of “one case and you’re
out”
 US and Canada began negotiating for renewed
access to markets
 Worked with other major beef exporting nations to
get a new set of World Animal Health
Organization (OIE) guidelines
Case Study: Beef and Cattle

New OIE guidelines say that if a country
has proper BSE safeguards in place then all
beef products are safe for trade
 Canada has slowly regained access to major
beef markets:
– US restored access in stages:
 Boneless UTM in August 2003
 All UTM and live UTM cattle in July 2005
Case Study: Beef and Cattle

US Access (cont’d)
– November 19, 2007 - Restored access for all
cattle born after March 1, 1999 for any purpose
– Effectively restores almost all of former trade
with US

Mexico
– UTM beef and dairy breeding cattle under 30
months of age
Case Study: Beef and Cattle

Japan
– Canada has access for boneless beef from
animals under 21 months of age

South Korea
– No access for beef or live cattle
– Negotiations very slow and difficult

China
– No access for beef or live cattle
Case Study: Beef and Cattle
Case Study: Beef and Cattle

Macau
– All beef

Hong Kong
– Boneless UTM

Taiwan
– Boneless UTM

Cuba
– Open to all beef and cattle
Case Study: Beef and Cattle

Negotiating approaches
– US – Access according to OIE and nothing less
– Canada – has taken a similar approach but less
aggressively
– Both countries accepted staged access in the
past

What to do with China and South Korea?
Case Study: Beef and Cattle

Other market access barriers for beef
– EU hormone ban
– High tariffs and a safeguard in Japan
– Likely to be designated as a sensitive product
by many countries
Case Study: Canola

In some markets soybeans are charged a
lower tariff than canola
– China charges a tariff of 9% on canola and 3%
on soybeans (temporarily reduced to 1%)

Canola also faces tariff escalation
– Japan: canola seed no tariff
canola oil
10.90 yen/kg - 13.20
yen/kg
Case Study: Canola

Tariff escalation (cont’d)
– Korea: canola seed
10%
refined canola oil 30%
soybean oil
5.4%
– Taiwan : canola seed
canola oil
soybean oil
0 – 9%
4.3% - 15%
5% - 8%
Case Study: Canola

How to address tariff parity?
 How to address tariff escalation?
 How to address regulatory barriers?
Case Study: Canola

Other canola access issues
– EU regulations on genetically modified
organisms
– Maximum residue limits on herbicides and
pesticides
– Quebec bans on coloured margarine and dairy
blends
“New Frontiers” of Trade

Genetically modified organisms
 Biofuels - An agricultural product or an
industrial product?
 Who matters – rising importance of China,
India and other emerging economies
 Production processes – organic, natural
 Geographic indicators – champagne,
parmesan
Conclusions

Trade operates on three levels:
– Global, bilateral, internal
– Global deal is best way to deal with subsidies
– Bilaterals focus on market access
– Internal trade primarily about regulations

Alberta government favours maximum
possible trade liberalization
CONCLUSIONS
Conclusions

Trade can be very complicated
– Combinations of tariffs, regulations and other
barriers

Small, open economies like Canada benefit
from a rules-based trading system
– Don’t have economic power to force borders
open
– Don’t have large enough population to be a
priority for other nations
Conclusions

Humans are very creative
– As traditional barriers come down (e.g. tariffs)
new ones are created
– New products and processes create demand for
new regulations and trade rules (e.g. biofuels)

Increasing trade also creates debates within
a country
– Winners and losers