Trade for U.S. farmers is no longer a luxury, but a necessity. Over the past four years, the United States has taken an aggressive trade agenda. But the most important trade agreement now lies in the hands of Congress, waiting for action.
Congress is beginning to posture for the heated fight for passage of the Central American-Dominican Republic Free Trade Agreement (CAFTA). Meanwhile the Administration is trying to get out the message that this agreement has great potential for agriculture and will level the playing field.
CAFTA/DR nations have a total population of 44 million with expanding economies. U.S. ag exports to those nations totaled $1.8 billion in 2004. "But when CAFTA is passed and those markets are open on a fair and equitable basis, we could well double U.S. exports to those countries," says Secretary of Agriculture Mike Johanns. The American Farm Bureau Federation (AFBF) estimates that the agreement could generate an additional $1.5 billion in agricultural exports.
Watch tariffs level out
Johanns says that 99% of the CAFTA nations' products can now enter the United States duty-free under other agreements. "But our farmers and ranchers don't have the same access to CAFTA markets. Currently Central American countries and the Dominican Republic are allowed to charge very high tariffs, limited only by WTO commitments, which would allow the tariffs to even go higher," he says.
The current WTO levels are on average 42% in Costa Rica, 41% in El Salvador, 40% in the Dominican Republic, 49% in Guatemala, 35% in the Honduras, and 60% in Nicaragua.
"The numbers are equally as concerning for specific commodities. For example, soybean duties are as high as 20%, while the WTO permits duties as high as 90. Import duties on U.S. beef range up to 30%; the WTO permits duties as high as 79%. Cotton tariffs could rise to 60% depending upon the country," Johanns says. "Now CAFTA will change all of that. Under the terms of the agreement tariffs will be phased out based on country and specific commodity."
Johanns says that American beef producers will see duties on prime and choice cuts eliminated immediately on Central American countries. U.S. cotton farmers will benefit from zero tariffs that the agreement locks in immediately for markets worth more than $55 million. Costa Rica and the Dominican Republic immediately eliminate their yellow corn duty.
Sugar leads the opposition
Johanns reports that 50 major ag industry and trade groups have already publicly come on board to support CAFTA. The sugar industry on the other hand, is leading the move to defeat the agreement. Sugar growers say CAFTA opens their markets up to a flood of sugar imports.
Chief Agricultural Negotiator Allen Johnson says that several special accommodations were made for the sugar industry during the negotiations. First, the over-quota tariff on sugar is roughly about 100% and will continue at that. Secondly, sugar producers can be assured that the amount of sugar that will enter the U.S. is manageable. Johnson says it is equal to about one day's production or about a little bit over 1% of U.S. consumption of sugar.
An unprecedented provision prevents sugar from other nations to be sold through CAFTA nations. If any of this minor increase in sugar has an impact on domestic programs or the industry, Johnson explains there is a Stocks Management Program that could prevent these nations from sending us sugar if we compensate the countries.
Failure to pass sends weak message
What is the implication to U.S. leadership if an agreement that we sign with six of our neighbors, friends, allies both in economic and trade policy as well as security and terrorism and narco trafficking and immigration policy-- what's the implications to our leadership around the world?" questions Johnson. "I think it's very serious, " he answers.
Johnson, who deals daily with ongoing WTO negotiations, says that if U.S. leadership is unable to pass CAFTA, it could deter progress on WTO talks. "U.S. leadership will be seriously questioned if an agreement that is so clearly good for the United States and good for U.S. agriculture, somewhere in the neighborhood of an 8 to 1 ratio of increased agricultural exports over imports under this agreement, can't get through our Congress," he says.
Although WTO talks provide the "biggest bang for the buck" in negotiations, individual agreements with countries such as Thailand, Korea or Columbia. "Bilateral agreements could also be weakened because countries aren't going to step up to give us their bottom line if we don't honor the agreements that we've already signed."
"If there's a perception that the U.S. is not of one mind in trying to open these markets and address these concerns it's going to encourage those around the world who want to inhibit our access to their markets," Johnson warns.
Three of the Central American countries have already stepped up to the plate to approve the agreement. The U.S. Congress is expected to look at the agreement sometime late spring or early summer if Republican leaders feel confident that they have the votes to approve the measure.