Trade issues surrounding internationally traded agricultural products

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Trade Issues for Agricultural Products

With market liberalization and globalization, along came a multitude of issues which must be addressed and resolved. As such, since more and more countries are able to freely exchange their products, services, capital and even human resources, international organizations have been established to supervise these operations. Such an organization is the WTO, World Trade Organization, established in 1995 and headquartered in Geneva, Switzerland (Official Website of the WTO, 2008), which is aimed at regulating the international trade of all products and services, including agricultural products.

Product Description

The class of agricultural products encompasses a wide array of products destined for consumption and deriving from activities of working the land and raising animals. "Agricultural products, sometimes also referred to as "food and fiber" products, cover a broad range of goods from unprocessed bulk commodities like soybeans, feed corn, wheat, rice, and raw cotton to highly-processed, high-value foods and beverages like sausages, bakery goods, ice cream, beer and wine, and condiments sold in retail stores and restaurants" (United States Department of Agriculture, 2008).

The list of all agricultural products is far from being exhaustive, but it includes everything from milk and dairy, to vegetables, spice, sugar, meat to such goods such as the Christmas trees. A more detailed classification of the products in the agricultural sector is offered by the Nevada Legislature, which defines the types of products as well as the standards they must comply with in order to be considered qualitatively adequate and be able to be internationally traded. These standards are basically implemented at the time of crossing the border in order to ensure an export control (United Nations Economic Commission for Europe, 2008).

The most relevant standards require for the products traded to be "intact, sound, clean, free from pests, free from damage, abnormal external moisture and any foreign smell or taste; free from blemishes and rancidity and well formed" (United Nations Economic Commission for Europe, 2007).

4. History of trade disputes

Just like production, the trading of agricultural products is supported and supervised by numerous organizations, such as the International Food and Agricultural Trade Policy Council. The IPC is basically in charge of "agricultural trade negotiations, agricultural and rural development policies and food technology and standards" (Official Website of IPC, 2008). The international organization works in close collaboration with the WTO and supports the idea of a liberalized market for the trade of agricultural goods. The existence of such organizations is compulsory even more due to the rich history of agricultural trade and the numerous events and features affecting the actions.

Agricultural trade within the United States first commenced in the seventeenth century with the export of tobacco. A century later, the country was also exporting rice, indigo, grain, meat and meat products. During this time, the first tariff act came into force. In the nineteenth century, cotton becomes the most traded product and numerous laws are installed to protect and regulate its trade. At the end of the century, the agricultural product accounted for 73% of the country's total exports, with a total annual value of $703 million. Throughout the twentieth century, the exports continued to increase in significance and in total values and numerous acts came into force in order to protect the act of international trading, the products and the parties involved, including the manufacturers, the consumers and other intermediaries. At the end of the century, agricultural exports occupied no more than 15% of the total exports, but their value had increased to an annual amount of $35.6 billion (Agriculture in the Classroom).

But as the growth and development of international agricultural trade continued, the number of disputes increased. And "the number of trade disputes is likely to increase in the future - primarily from less developed countries, arguing that U.S. farm policy is a vehicle by which the United States is dumping export products abroad" (Schmitz, Koo and Moss, 2003). In other words, the United States is accused of exporting agricultural products at extremely low prices, placing as such the local manufacturers in the incapability to compete with the foreign products. This dispute is further more accentuated by a lacking legislature on the matter.

Another major dispute is related to the labeling of the agricultural products which make the subject of international trade. With numerous previous accusations on inadequate labeling, the Farm Security and Rural Investment Act introduced the COOL in 2002. The Country-of-Origin Labeling regulated the information which has to be contained by the products' labels; but this then generated increased costs - about $2 billion in 2004. The dispute regards the recipient of the labeling costs, since "the Food Marketing Institute believes that suppliers should bear the brunt of these types of costs, while many suppliers think the costs should be shifted to the retailers" (Schmitz, Koo and Moss, 2003).

Another important dispute is based on agricultural export subsidies, payments made by governments to support and encourage farmers to exports their products. This process is said to harm the manufacturers in the importing countries, which are then incapable to compete with the low prices of the imported goods. "One of the main export subsidy programs in the U.S. is called the Export Enhancement Program (EEP). Its stated purpose is to help U.S. farmers compete with farm products from other subsidizing countries, especially the European Union, in targeted countries. The EEP's major objectives are to challenge unfair trade practices, to expand U.S. agricultural exports, and to encourage other countries exporting agricultural commodities to undertake serious negotiations on agricultural trade problems. As a result of Uruguay round commitments, the U.S. has established annual export subsidy quantity ceilings by commodity and maximum budgetary expenditures. Commodities eligible under EEP initiatives are wheat, wheat flour, semolina, rice, frozen poultry, frozen pork, barley, barley malt, table eggs, and vegetable oil" (Suranovic, 2003).

The World Trade Organization is increasing their efforts to reduce subsidies in order to create a fair market, free from state interventions and where the rules are made by demand and offer. Currently, 25 countries (Australia, Brazil, Bulgaria, Canada Colombia, Cyprus, the Czech Republic, the European Union, Hungary, Iceland, Indonesia, Israel, Mexico, New Zealand, Norway, Panama, Poland, Romania, the Slovak Republic, Africa, Switzerland-Liechtenstein, Turkey, the United States of America, Uruguay and Venezuela) are allowed by the WTO to subsidize their exports, and only under strict promises and measures to reduce the subsidies in the future; countries which do not intend to reduce them are not allowed to subsidize their exports (Official Website of the WTO, 2008).

5. Present situation and the Doha Round

The Organization for Economic Cooperation and Development allows three measures for the protection and encouragement of agricultural products international trade:

Trade protection that ensures that domestic producer prices exceed international prices (so-called market price support), which accounts for about 62% of total protection in the OECD;

Direct production-related subsidies; and General support that is not directly linked to production, for example, research, training, marketing support, and infrastructure" (Beghin and Aksoy, 2003)

Following the Uruguay round, the Doha round attempted to resolve two major complaints from the participants to the international trade of agricultural products: large export subsidies and reduced access to the markets in high income countries. It stated that the future negotiations will "try to achieve substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support" (Beghin, Roland-Holst and Van Der Mensbrugghe, 2002).

6. Possible future developments

All in all, the topic on the international trade of agricultural products remains opened for further discussions; and the most likely outcome is an increase in the efforts made by the World Trade Organization to resolve the disputes and complaints of the participants in the meaning of reducing and even eliminating export subsidies, while in the same time easing the access to the markets in the high income countries.