May 16, 2003

 

Free Trade, A Dream or A Possibility?

Despite the ‘big picture’ benefits of free trade, there will be winners and losers among individual producers, according to a North Dakota State University agricultural economist.

"We will, in the next few months, clearly see the costs of trade the way it is currently practiced," says Richard "Skip" Taylor, an agricultural economist at NDSU. "Imposing a four percent tariff on Canadian wheat, which works out to roughly 16 cents per bushel, will not necessarily stop the export of this wheat to the United States, and it may actually result in retaliatory tariffs against U.S. soybeans and corn."

"Whether or not the wheat will come into North Dakota or proceed to Canada’s west coast has more to do with freight rates for Canadian producers than anything else," says Taylor. "Now that the Canadian government can no longer subsidize the railways, it may still be more cost-effective for the wheat to come here."

According to Taylor, free trade is beneficial to the countries that practice it. Free trade enables each country to take advantage of its economic efficiencies to produce only those products and services that rely on each country’s strengths, whether an abundance of unskilled labor or advanced technology. The problem with free trade, Taylor says, is that, in each country, there are companies producing goods and services that are not able to compete with those of a trading partner. That concern also applies to agricultural producers.

"The individually owned and operated family farm has been declining for a while in the United States," says Taylor. "In a free trade system, government would play a much less significant role, as far as crop and agricultural support goes. That will hurt smaller producers. It also raises other issues. Government payments have worked their way into the value of land, and if they are no longer available, land values will take a hard hit, and that will be painful to producers and creditors."

There has been recent emphasis on free trade treaties and the liberalization of trade regulations, by many governments, particularly between the United States, Canada and Mexico. This trade liberalization is reflected mainly in the reduction of government support of crop prices, freight rates and other ways governments have found to protect their producers. The reality is that we have a long way to go, according to Taylor.

"Even granting that the United States and Canada, as well as most of the other exporting countries in this hemisphere no longer practice export subsidies, the European Union still does," Taylor says. "So right away, we are working at a disadvantage. There are also other issues that remain to be settled that will affect trade for possibly a very long time"

One of these issues, according to Taylor, is the genetically modified organism (GMO) debate.

"GMO products are banned from import by many countries," Taylor says. "We used to be almost the exclusive supplier of soybean oil to North Africa. Now, we can’t export there. And this is despite the fact that soybean oil doesn’t show any traces of genetic modification. There is a bias against GMO that hurts our exports. Especially when you consider that 75 percent of U.S. soybeans are GMO."

"The markets and economies of the world have become global," Taylor says. "Individual governments are losing the ability to implement internal policies effectively. If one market closes its door, then another will open to take advantage of price points, or whatever advantage they can take, and that makes it harder for governments to dictate to producers. Again, one of the more important factors that are going to decide the future of agriculture is the stand that markets decide to take on GMO crops. GMO is a tool for lowering the production costs. Profit margins are so narrow that producers need to take advantage of anything that will help lower costs. But what good will that do if there is no market for your GMO crop?"

Considering all of these factors, what is the future of free trade?

"Trade liberalization is probably going to continue, and countries will be able to make it work in a limited sense," Taylor says. "I think true free trade, however, is something that we will approach and strive for, but not actually reach. I just don’t think we are there yet, and may never get there entirely."

"Someone wrote that the border between the United States and Canada is very real," Taylor

says. "It is real in the sense that on either side of it, the markets, the economies, the emphasis on policies are truly different. We have to keep that in mind. We have 280 million people, and agriculture is only part of our economy; a relatively small part. In Canada, our closest neighbor, there are 31 million people for whom agricultural exports are a significant part of their economy. We are going to have times when we don’t necessarily see eye-to-eye. That is only going to be more true when dealing with any other country."

These and other issues will be examined in the upcoming Agricultural Competitiveness and World Trade Liberalization conference scheduled for May 29 and 30. The conference is hosted by NDSU, and will feature government, academic and producer representatives from the United States and Canada. For more information on the conference, please contact Beth Ambrosio, (701)231-7334 or beth.ambrosio@ndsu.nodak.edu.

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Source: Richard Taylor, (701)231-7990, staylor@ndsuext.nodak.edu
Writer: Scott Lowell, (701)231-7865, slowell@ndsuext.nodak.edu
Editor: Tom Jirik, (701)231-9629, tjirik@ndsuext.nodak.edu