May 2, 2002

Free Trade Area Would Have Mixed Results

Negotiations to establish a Free Trade Area of the Americas (FTAA) could create the largest single market in the world, with mixed results for Northern Great Plains agricultural producers, according to projections by the Center for Agricultural Policy and Trade Studies at North Dakota State University.

Jeremy Mattson, research assistant with the center, says the goal of FTAA negotiations, which involve 34 nations from the Western Hemisphere, is to progressively eliminate trade and investment barriers within the area.

"Such an agreement could have significant effects on U.S. agriculture; it could create an opportunity to increase U.S. exports of agricultural commodities. It could also increase U.S. imports of agricultural commodities produced in other Western Hemisphere countries," Mattson says.

The increase in exports could likely include wheat, corn, soybeans and possibly meat, which would benefit producers in the Northern Plains. On the other hand, he says, the increase in imports would likely include sugar, which could be harmful for U.S. sugar producers.

Mattson, along with Won Koo, director of the center and professor of agribusiness, analyzed U.S. trade with Western Hemisphere countries, examined factors influencing trade with these countries and attempted to determine the effect of removing tariffs on agricultural trade.

Free trade agreements can affect trade through trade creation, trade diversion and income effects and generally lead to increased income in member countries, Mattson says. In the long run, the FTAA could stimulate growth and efficiency of production in member countries.

The resulting increased economic well-being of trade partners could result in increased demand for U.S. agricultural products and an increase in U.S. exports, he says.

Projections show that reduction or elimination of tariffs on agricultural products would increase U.S. exports more than U.S. imports, because tariffs are higher in Latin American countries than they are in the United States, Mattson says.

"As with any free trade agreement, there will be winners and losers. To create a trade agreement that benefits every sector may be impossible," he says.

For a copy of Report No. 478, "U.S. Agricultural Trade with Western Hemisphere Countries and the Effect of the Free Trade Area of the Americas," contact Beth Ambrosio, P.O. Box 5636, Fargo, ND 58105, telephone (701) 231-7334, e-mail beth.ambrosio@ndsu.nodak.edu . The report is also available at: http://agecon.lib.umn.edu .

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Source: Jeremy Mattson,(701) 231-8945, jeremy.w.mattson@ndsu.nodak.edu
Editor: Gary Moran, (701) 231-7865, gmoran@ndsuext.nodak.edu