Free trade versus fair trade.

• Author: Stencel, John

1. INTRODUCTION

   Time and time again American farmers have been told the key to economic freedom and prosperity is the export market. Since the mid-1980's, agribusiness, politicians, commodity groups, processors and some farm groups have been successful in tying agriculture's current and future prosperity to the export market. Along with glowing forecasts of a sustained export-driven prosperity for agriculture, the United States adopted the free market philosophy for agriculture.

   Exports are important to agriculture. However, farmers and ranchers are only being told part of the trade story. National Farmers Union policy (compiled and voted on by grassroots producers) (1) says that the World Trade Organization framework will perpetuate a never ending race to the bottom in producer commodity prices, pitting farmer against farmer and country against country for the one commodity all humans must have: food. (2)

2. IS THE FARMERS UNION OPPOSED TO FREE TRADE?

   Farmers Union has always been a proponent of fair trade. As trade agreements have been negotiated, and as federal farm policy has shifted to the "free market" approach, Farmers Union has remained steadfast in its call for fairness, accountability, and benchmarks for success in trade negotiations. Farmers Union policy implies they support free trade, as long as it is fair trade. (3)

   National Farmers Union supports a fair trade system that protects the economic well-being, health and environmental concerns, working conditions and labor rights of our country's producers as well as producers in all other countries. (4) In the race to become the world's least-cost producer, individual farmers and ranchers are left to fend for themselves in global markets, while the processors and consumers enjoy the benefits of cheap commodities.

   After the breakdown of the World Trade Organization (WTO) negotiations in 2003, (5) the United States' trade negotiators have instead tried to complete free trade agreements with many other countries and regions in bilateral and multilateral agreements, namely the Dominican Republic-Central American Free Trade Agreement, (6) the Australia Free Trade Agreement, (7) and the Free Trade Area of the Americas. (8) While each of these may seem to be minor in overall scope, collectively they could do great damage to our country's agricultural economy.

   Many times in recent years, Farmers Union has been a lone voice in the agriculture community, the only purveyor of reason and perspective when it came to agricultural trade. Yet, the influence of the free trade ideology continued to grow and pervade our public policy decisions.

3. THE WORLD TRADE ORGANIZATION

   The World Trade Organization today leads much of the discussion of free trade initiatives in the world. The United States and 150 other member countries have joined together since 1995 in an effort to improve the trading climate and opportunities in international markets. (9) The WTO replaced the GATT (General Agreement on Tariffs and Trade) organization that had been working on trade issues since the 1940s. (10)

   Since 1995, there have been major initiatives called "rounds" or "agendas" in which member nations attempt to reach new trade agreements. There was the Uruguay round of discussions in the 1990s, (11) and in recent years, the Doha Agenda has been driving talks between nations. (12) Periodically, "ministerial" conferences are held throughout the world to negotiate specific initiatives or rules. One of the most recent ministerial conferences was in Cancun, Mexico, in September 2003, (13) but it ended in the failure of developed and developing countries to reach any consensus on many agricultural trade issues. (14)

   Prior to the Cancun talks, and especially since the talks failed, the United States has also been negotiating with specific countries trying to achieve bilateral trade agreements. The United States has negotiated agreements with Chile (15) and Singapore, (16) and proposed agreements with Panama, Peru and other South American countries. (17) The U.S. Trade Representative, appointed by the President and working within the Commerce Department, primarily leads trade negotiations. (18) However, most of our trade representatives have not had an agricultural background, and have usually not understood the uniqueness of agricultural commodity markets.

   Very recently, twenty-one Asia-Pacific trade ministers discussed the Doha round of trade liberalization negotiations in Cairns, Australia. (19) There, the effort focused on reviving the Doha round, which some have said is on its deathbed. (20) Ultimately, the United States trade representative stated that the Doha round would never meet its development promise "unless and until there is sufficient new market access in agriculture and manufacturing and services." (21)

4. AREN'T EXPORTS THE KEY TO AGRICULTURE'S SUCCESS?

   For years, agri-businesses, processors, politicians, commodity groups and some farm groups have perpetuated the belief that farmers and ranchers could export their way to prosperity by allowing the free market, not government, to negotiate agriculture and trade. American farmers and ranchers were told the key to economic freedom is the export market. (22) Many believed, and many still do, that free and expanding trade through NAFTA and WTO, along with Fast Track Authority (now called Trade Promotion Authority (23)) and even "Freedom to Farm," (24) would liberate farmers to reap the rewards of the unfettered global market place.

   However, it was not the absence of good farm policy or the presence of bad trade deals that were blamed for hurting farmers and ranchers. Rather, the explanation was always an unforeseen aberration in the export market that could be fixed with more free trade agreements and less government interference. (25)

   The most frequently touted solution for an ailing agricultural sector is expanding trade for U.S. agricultural products. (26) However, many times the export problems we identify, and the free trade answers we seek, simply do not reflect the realities of global trade or address the fundamental problems faced by American agriculture. In addition, whenever we have negotiated fewer trade barriers in foreign countries, we have usually opened the door to an even larger amount of imports to compete with our production. Since many countries have lower environmental standards and far lower wages for workers, we end up exporting jobs and importing greater amounts of foreign products.

   Let us beware of falling exports. One of the most persistent myths surrounding "Freedom to Farm's" failure was that a collapse in the export market undermined the farm bill's ability to work the way it was intended. (27) After the so-called "collapse", commodity groups and politicians scurried about looking for scapegoats. They wagged their fingers at state trading enterprises, decried not using export enhancement programs, and called for further trade liberalization to make up for losses suffered in the export crash.

   The question is whether the export markets really collapsed. The answer depends on how exports are defined. There seems to be some confusion between export value, which is the dollar value of exports, and export volume, which represents the quantity or amount of commodity exported. (28) The difference between the two is important.

   Export values experienced a spike in 1996 due to higher commodity prices around the time "Freedom to Farm" was enacted. (29) Export values then dropped in the latter part of the 1990s. (30) However, one should not confuse export values with export volumes, which have remained relatively constant. Export volumes have, in fact, remained flat for nearly two decades compared to the volatility of export values. (31)

   However, even the spike and subsequent fall in export value that occurred around the time of "Freedom to Farm" was really no more dramatic than fluctuations in other years. In other words, the value "crash" that occurred was not an unprecedented or even unforeseeable event. (32) It was a market fluctuation, not a cataclysmic fall. Therefore, a collapse in the export market did not cause the failure of "Freedom to Farm."

   Is the difference between value and volume significant? Distinguishing between export values and volume challenges the U.S. trade mindset. Our current agriculture and trade policy is built around opportunities in export values, but it is also based on unrealistic expectations of future growth in export volume. We have been talking apples when we should have been talking oranges. In simple terms, a change in the value of our exports does not necessarily mean there has been a change in the amount exported. Values may go up and down, but the quantity traded may stay about the same. (33)

   Export volumes were relatively flat even during the early days of "Freedom to Farm." (34) When there was a spike in the value of exports, volume remained constant. (35) This is a significant point because it dramatically undermines the current public policy mindset. Despite export volumes remaining flat for nearly two decades, compared to the volatility of export values, (36) the United States has highlighted opportunities in export values to build an agriculture and trade policy based on an unrealistic expectation of future growth in export volume.

   If the intent of our agriculture and trade policy is to increase export volumes in order to reduce U.S. stocks, policymakers should take note of an interesting fact, brought to light by economist Daryll Ray. Dr. Ray points out that the United States has only experienced three periods of dramatically high export volume-driven prosperity in the last century, after both world wars and once during the late seventies. (37) Exports remained strong into the early eighties, but have remained fiat ever since. (38) Unfortunately, we have been waiting for over two decades for export markets to rebound. In the meantime, the United States has...