Stuck

The final round of the US-Aus­tralia free trade agree­ment nego­ti­a­tions restart tomor­row in Wash­ing­ton with the nego­ti­at­ing teams now lead by Cab­i­net mem­bers on both sides. The talks were stuck, last week, on the lib­er­al­iza­tion of agri­cul­tur­al trade: par­tic­u­lar­ly beef, dairy, sug­ar, peanuts and some hor­ti­cul­tur­al prod­ucts. The hope on the Aus­tralian side is that Pres­i­dent Bush will direct his Trade Rep­re­sen­ta­tive to agree on elim­i­na­tion of bar­ri­ers to these products—probably over a decade or more—to allow the con­clu­sion of a com­pre­hen­sive agree­ment. If there is not a com­pre­hen­sive free trade plan then both sides might have to back away: nei­ther wants to set a prece­dent for a plan that does not include free trade in agri­cul­ture. That would fur­ther weak­en their com­mon demands for glob­al lib­er­al­iza­tion of farm trade in the WTO nego­ti­a­tions. The pol­i­tics of import lib­er­al­iza­tion in the US farm sec­tor is com­pli­cat­ed by the vari­able ten­den­cy of Con­gress over many decades to pro­vide US farm­ers with soft options when they should have been adjust­ing to com­pe­ti­tion. Farm sub­si­dies and, to a less­er extent, import pro­tec­tion have kept many dairy, cot­ton, sug­ar, peanut and lamb farm­ers in busi­ness when glob­al mar­ket prices told them they should have been mov­ing on to more prof­itable crops or out of farm­ing entire­ly. In a glob­al round of trade nego­ti­a­tions the pain of adjust­ment to low­er US import bar­ri­ers will be reduced for many of these farm­ers because glob­al farm trade lib­er­al­iza­tion will “lift world prices(link to results of Iowa State-INA mod­el: PDF file about 60k)”:http://www.iaae-agecon.org/conf/durban_papers/papers/026.pdf for dairy, sug­ar, oilseeds, wheat and cot­ton and prob­a­bly for US beef and lamb, too. Imports will enter the US mar­ket at prices much clos­er to cur­rent US prices than to the cur­rent (low­er) world price. None of these com­pen­sa­tions accom­pa­ny a US-Aus­tralia bilat­er­al trade deal.

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