The WTO and US Agricultural Policy: Intersections and Consequences

Abstract

Except during the Korean War and in 1959, US agriculture has recorded a positive trade balance on a fiscal year basis since the second year of World War II. Largely as a result of agricultural productivity growth during the 20th century, US agricultural production consistently exceeds the domestic demand for food, feed, and fiber, resulting in an increasing reliance by US agriculture on foreign markets for sales of US products. The US policy approach looks toward multilateral reform of agricultural policy under the auspices of the World Trade Organization (WTO) as a prime opportunity to achieve gains in market share. On the other hand, US agriculture also has been the beneficiary of federal farm spending over approximately the same period, intended to support prices and/or income of American farmers, with the stated objective of maintaining a healthy rural economy. Periodically, Congress re-examines legislation that authorizes such programs, commonly known as farm bills. The current farm bill is due to expire in 2007. Several key features of the US farm programs are regarded by trade analysts as highly distorting of trade and production due to their direct linkage to movements in commodity price and the volume of production or exports. The agricultural reform efforts in the Uruguay Round focused on reducing these types of policies. Both that round and the current negotiations to reform agricultural trade rules under the WTO have been focused on three main areas: (a) improving export competition by ending subsidization of exports, (b) improving market access by reducing tariff rates and eliminating non-tariff barriers, and (c) reducing use of the most trade-distorting forms of domestic support.1 Consequently, US support for trade reform within the WTO, if successful, implies changes in US farm programs—a process that should come to a head in the next few years.