Michigan State University Extension
Extenstion International Trade Res. - 01279603
03/31/96
Section 4: International Programs Author: US Department of Agriculture Series-info Document-date: Wed May 10 10:00:00 EST 1995
INTERNATIONAL PROGRAMS
The performance of the U.S. agricultural economy is highly dependent on international markets. Consequently, U.S. foreign, trade, and economic policies are as important as farm programs in creating a healthy farm economy because of their effects on exports. Export success is essential to the prosperity of U.S. agricultural producers because growth in domestic demand will be inadequate to absorb the growing productivity of U.S. agriculture. Ninety-six percent of the world's population lives outside the United States. The fastest growing economies and markets for U.S. agricultural exports are the countries in Asia and Latin America.
Currently, more than $48 billion worth of agricultural products are exported annually, accounting for one-fifth of farm production. High-value and value-added products have been fastest growing among export commodities. In addition to supporting farm prices and farm income, agricultural exports increase employment and they help to offset the negative trade balance in other sectors of the economy.
The historic North American Free Trade Agreement (NAFTA) and the Uruguay Round (UR) of the General Agreement on Tariffs and Trade (GATT) trade agreement will continue to expand U.S. agricultural export opportunities. Because the UR agreement does not eliminate export subsidy competition or eliminate all restrictions on market access, U.S. producers will continue to face some, although more limited, subsidized competition and some high tariff levels that may limit their export opportunities. Moreover, regional trading blocs such as NAFTA are proliferating.While agreements such as NAFTA are net gains for U.S. agricultural producers, other agreements to which the United States is not a contracting party, such as the expected continued enlargement of the European Union, could put U.S. agricultural exports at a disadvantage.
USDA's involvement in agricultural trade includes five primary program categories: export subsidies, market development, export credit guarantees, food aid, and technical cooperation programs.
In addition, USDA's Animal and Plant Health Inspection Service (APHIS) protects U.S. agriculture from imported pests and diseases and ensures that plant and animal products exported from the United States meet pest and disease requirements of importing countries.
The export subsidy programs include the Export Enhancement Program (EEP), Dairy Export Incentive Program (DEIP), Sunflowerseed Oil Assistance Program (SOAP), and the Cottonseed Oil Assistance Program (COAP). EEP is the largest of these programs, accounting for 89 percent of the $1.29 billion of export price subsidies in FY 1994. More than 84 percent of EEP subsidy awards in FY 1994 were for wheat and wheat flour exports.
Export subsidy programs increase exports by enabling U.S. agricultural commodities to be sold at competitive prices in foreign markets. These programs have been used to counter export subsidies and unfair trading practices by competitors.
Market development programs include the Foreign Market Development Program (FMD) and the Market Promotion Program (MPP).The FMD program was established in 1955. Its goals are to develop, maintain, and expand long-term foreign markets for U.S.agricultural exports. FMD expenditures in FY 1994 were $38.6 million. The MPP replaced the Targeted Export Assistance (TEA), program which was established by the 1985 Act. The prime goal of MPP is export promotion and market development. The program level for MPP in FY 1995 is $86 million--down from $100 million in FY 1994. Both programs engage in export promotion activities such as trade servicing (e.g. newsletters, public relations, and trade missions), technical assistance, and consumer promotions.
Export credit guarantee programs include GSM-102 and GSM-103 which provide USDA guarantees of repayment of private credit extended for the purchase of U.S. commodities. These credit guarantees increase the availability of private sector credit in some cases at lower interest rates than would otherwise be possible, because the Commodity Credit Corporation (CCC) assumes most of the risk of nonpayment.
The main U.S. food aid programs are the P.L. 480 program, the Food for Progress program, and Section 416(b) of the Agricultural Act of 1949.
EXPORT ENHANCEMENT PROGRAM Issue USDA operates the Export Enhancement Program (EEP), a direct subsidy program, to encourage the export of a variety of commodities, including wheat and wheat flour, barley and barley malt, rice, poultry, eggs, and vegetable oils. Under the program, cash bonus payments are made available to exporters of U.S. commodities to enable them to price such commodities competitively and, thereby, make sales in targeted overseas markets. The EEP could be made more cost effective in its operations and more responsive to changing market conditions.
Discussion:
Under the Uruguay Round (UR) agreement, the United States must reduce export subsidies by 21 percent in volume and 36 percent in value from the 1986-90 base period. Wheat and wheat flour receive the largest share of EEP subsidy awards--more than $968 million in FY 1994 which accounted for 84 percent of total EEP awards. By FY 2001, export subsidies for wheat and wheat flour will be limited to $364 million. The Administration committed to Congress during consideration of the UR implementing legislation to use export subsidies to "the fullest extent permissible under GATT." In addition, the Congress authorized the use of EEP to encourage the commercial sale of US agricultural commodities in world markets at competitive proces, not just to discourage unfair trade practices.
In view of declining resources and a broadened authority for EEP, the Administration will explore options to increase flexibility in operations and procedures in order to make the program more responsive to world market conditions. Such changes would also increase the program's efficiency and effectiveness.
Guidance:
Consistent with UR value and volume reduction commitments, USDA will pursue changes in procedures by which bonuses are awarded to exporters. USDA will seek to:
Increase the cost-effectiveness of export subsidy programs by encouraging the lowest possible subsidies to achieve the maximum level of subsidized volume;
Increase the flexibility of exporters to respond to changing market conditions; Reduce administrative complexity and cost; Provide safeguards against fraud and exports of non-U.S. products; and Be consistent with U.S. trade policy goals.
This spring, the Trade Policy Review Group will develop proposals for comment that include a quarterly auction of subsidized export volume commitments, by region and commodity, or an equivalent system. Under a competitive tender system, exporters would include in their bids a dollar amount of export subsidy and the quantity of commodity to be exported. USDA would allocate the subsidies to the lowest bidders. USDA could award these export subsidy rights in the form of tradeable certificates.
If USDA accepted its offer, an exporter would be required to export the agreed-upon quantity during a specified period of time. Exporters would be free to allocate the subsidies across individual sales in any way they wished. The program would be managed in a manner that ensures GATT compliance.
EXPORT CREDIT GUARANTEES
Issue Commodity Credit Corporation (CCC) export credit guarantees promote the export of U.S. agricultural commodities and products by facilitating the extension of commercial export credit to importers in developing and middle-income countries who would not otherwise be able to purchase commercially. Export credit guarantees could do more to increase agricultural exports by targeting higher credit risk emerging markets and encouraging exports of high-value products.
Discussion
CCC export credit guarantees include short-term (GSM-102 up to 3 years) and longer-term (GSM-103 up to 10 years) guarantees.
Provisions of the Agricultural Trade Act of 1978, as amended by the 1990 Act, prohibit CCC from making export credit guarantees available for sales to any country the Secretary of Agriculture determines cannot adequately service the subsequent debt. For some countries, economic and political reforms result in potentially high market growth, but the countries may still present a somewhat higher credit risk. Greater flexibility in the evaluation of creditworthiness could increase exports to these emerging markets.
The GSM-103 export credit guarantee program could be made more effective for market promotion by assisting in the provision of credit for potential high-growth and higher-risk emerging markets. Greater programming flexibility to target export credit guarantees to such emerging markets could also be achieved by authority to consider the longer-term economic growth and development potential of a country when making credit allocations. Primary indications of future growth and development are economic policy reforms that promote market-oriented and long-term economic development that are carried out in conjunction with international financial institutions such as the International Monetary Fund and World Bank.
The export credit guarantee programs could also be more effective in promoting sales of U.S. high-value and value-added products if products with limited non-U.S. content could be covered under the programs. At present in nearly all instances, only 100 percent U.S.-content products can be covered under the programs. Since 1986, U.S. exports of high value products have doubled, reaching a record $25.9 billion in fiscal year 1994 and accounting for 60 percent of total agricultural exports. Because only products with 100 percent U.S. content are eligible in nearly all instances for export credit guarantees, many high-value products that have even minimal non-U.S. components, such as imported sugar and spices, are ordinarily not eligible.
Guidance To increase the export promotion and market development effectiveness of CCC export credit guarantees the following changes should be implemented:
Current statutory guidelines for making available GSM-103 export credit guarantees would be broadened to target emerging, but somewhat higher credit risk markets.
Eligibility for the guarantees would be based on economic policy reforms carried out in conjunction with international financial institutions. Any increased export credit subsidy costs associated with targeting emerging markets could be offset by a reduction in the overall level of export credit guarantees
Domestic content requirement for GSM programs would be reduced, allowing a broader range of products to be exported. Limiting CCC guarantee coverage to the U.S. content only could be considered. This proposal would increase the potential for export of U.S. high value and value-added products. In addition, it should encourage the production and processing of such products and the ssociated economic activity.
EMERGING MARKETS
Issue
USDA has several authorities under which it carries out agricultural technical assistance and cooperation activities. These are not closely linked to USDA's primary international mission of promoting trade and expanding markets for U.S. agricultural commodities and products. However, there is increasing recognition of the linkage between technical assistance activities, such as the development of marketing systems and infrastructure, and growth in imports. By refocusing these activities on emerging markets and by linking them to USDA's other export programs, they could make a much greater contribution to meeting export expansion goals.
Discussion
Provisions of the 1990 Farm Bill established a program for sharing U.S. agricultural technical expertise with emerging democracies (E (Kika) de la Garza Agricultural Fellowship Program). The Secretary of Agriculture is authorized to provide U.S. expertise to these countries to assess their food and rural business systems, to recommend measures needed to improve those systems, and to identify specific opportunities and projects for doing so. The authority, which is intended to establish, maintain, or expand U.S. agricultural exports, has been used extensively to provide technical assistance to the Newly Independent States (NIS) of the former Soviet Union and to countries in Eastern Europe and Central America. More recently, the program has been expanded to include several countries in sub-Saharan Africa, including South Africa.
While this "emerging democracies" program has provided useful assistance to these countries, the current authority is limited in certain important respects (e.g., requires a Presidential determination as to whether a country is an emerging democracy), including the countries and types of activities which can be targeted for assistance. Limiting the program to emerging democracies has proven particularly onerous due to a lack of precision and common understanding of its definition. Moreover, while the authority is intended to support the development, maintenance, and expansion of overseas markets for U.S. agricultural products, countries which offer the most promising market development prospects are not necessarily emerging democracies and thus not eligible for the program. USDA also administers the Cochran Fellowship Program which provides agricultural training in the United States for foreign agricultural specialists, government officials, and business managers. The fellowships are intended to give recipients knowledge and skills to help participating countries develop agricultural systems and to strengthen trade linkages between the eligible countries and the United States. The program is limited to middle-income countries, emerging democracies, and the NIS. As for the emerging democracies, these countries may not necessarily be the most promising for export expansion purposes.
Both the emerging democracies program and Cochran Fellowship Program could be made more effective in developing overseas markets if their statutory authorities were changed to place greater emphasis on "emerging markets." Countries which qualify as emerging markets would be determined by the Secretary, consistent with the USDA's long-term market development and strategic planning efforts. More emphasis on emerging markets would also facilitate the use of these programs in conjunction with other trade promotion programs, such as CCC facilities financing guarantees and the P.L. 480 Title I program.
Guidance
Current statutory authorities for agricultural technical assistance and cooperation activities could make a greater contribution to the Department's trade promotion and market development objectives.This could be accomplished by revising these authorities to provide for the following:
The "emerging democracies" program could be
refocused on "emerging markets." These markets would be
determined by the Secretary of Agriculture consistent
with USDA's long-term market development and strategic
planning efforts, in consultation with the Secretary of
State.
The types of technical assistance and cooperation
activities authorized under the emerging markets program
could be broadened so that program activities are
tailored to the specific needs and characteristics of
participating countries.
The Cochran Fellowship Program could be more closely
linked to USDA's trade promotion and market development
efforts by including "emerging markets" among the
countries eligible to participate. These countries might
be the same as those designated by the Secretary of
Agriculture for the emerging markets program.
Activities carried out under both the emerging markets program and the Cochran Fellowship Program could be more closely linked to other USDA activities appropriate for these countries, such as P.L. 480 Title I credit sales and CCC facilities financing guarantees. This would increase their effectiveness as trade promotion and market development tools.
P.L. 480 FOREIGN FOOD ASSISTANCE PROGRAMS
Issue The majority of U.S. foreign food assistance is provided through the P.L. 480 programs that are administered by USDA and the Agency for International Development. The statutory authorities for these programs were rewritten in the 1990 Farm Bill; however, further changes could improve their effectiveness and enhance the United States' ability to assist countries meet their food import requirements and respond to international food emergencies. The ood Security Wheat Reserve was established in 1980 for use in P.L. 480 programming when U.S. domestic supplies of wheat are tight and in response to urgent humanitarian needs in developing countries. The Food Security Wheat Reserve could also be more effective if it were authorized to include a wider range of basic food commodities.
Discussion Title I of P.L. 480 authorizes the sale of U.S. agricultural commodities to developing countries through long-term concessional financing, i.e. up to 30 years repayment with concessional interest rates. Provisions of the 1990 Farm Bill revised the Title I program to place greater emphasis on its export promotion and market development objectives, while retaining its other goals of assisting countries meet their food import requirements and enhance their food security. Additional changes in the Title I program, designed to increase its usefulness for developing long-term trading relationships with participating countries, could further increase its effectiveness as an export promotion and market development tool.
Consistent with these changes, each country-program would be subject to a review by the Secretary of Agriculture after five years to measure progress toward the market development objective. Potential changes include more flexible credit terms to match country financial situations better; a wider variety of commodities available for programming; modifications in statutory provisions to lessen confusion as to the goals of Title I (e.g. increased emphasis on export promotion and market development and less on developmental requirements); and simplification of procedures to facilitate commerce. Because of declining funding for foreign food aid activities, the ability to fully satisfy the needs of recipient countries is limited; therefore, Title I authority should be broadened to include agreements with private sector entities as well as governments. Appropriate safeguards to ensure a fair and competitive selection process for such private entities would be included in these authorities.Greater emphasis on private entities is consistent with the emerging post-Uruguay Round market environment.
The Title II program provides humanitarian assistance to foreign countries in response to malnutrition, famine, and other situations requiring extraordinary relief. The assistance is provided primarily through private voluntary organizations(PVOs), cooperatives , and international organizations, including the World Food Program (WFP) of the United Nations. These organizations incur substantial administrative costs in distributing Title II commodities and these costs have increased in recent years because of logistics and infrastructure limitations as more countries in sub-Saharan Africa have become food aid recipients. Provisions of the 1990 Farm Bill amended P.L. 480 to provide for the use of $10-$13.5 million of Title II funds annually to meet administrative costs incurred by PVOs and cooperatives in distributing food aid commodities overseas. The effectiveness of Title II programming, particularly in emergency situations, could be enhanced if this authorization were expanded to include WFP administrative costs and if the annual amount of Title II funds authorized to meet these costs were increased. Some technical changes also could be made to help AID simplify and improve the administration and operation of this program.
P.L. 480 Title III provides food assistance on a grant basis to least-developed countries through overnment-to-government agreements. Its purpose is to help countries improve their food security and promote economic development. The donated commodities may be sold on the domestic market of the recipient countries. The revenue generated from the sales is used to support development programs. The program has proven effective in contributing to improved food security and in meeting economic development objectives in countries such as Bangladesh and Sri Lanka.
The Food Security Wheat Reserve was established to help the United States meet international food aid commitments. Wheat may be released from the 4-million ton reserve for use in P.L. 480 programs when U.S. domestic supplies of wheat are tight and wheat would not otherwise be available for programming. In addition, up to 300,000 metric tons of wheat may be released in any fiscal year for use in Title II to provide urgent humanitarian assistance in any developing country suffering a disaster in cases where wheat needed for relief cannot be provided in a timely manner in more customary channels of trade . The reserve has proven valuable for U.S. efforts in responding to international food aid needs. However, much of the demand for emergency food aid has recently been in Africa where corn, grain sorghum, and rice may be preferred over wheat. The usefulness of the Food Security Wheat Reserve could be enhanced if there were authority to include other bulk food commodities in addition to wheat. Procurement of these commodities could be accomplished through exchange of wheat from the reserve. Using this mechanism, the cost of the program would not be increased.
Guidance
The effectiveness of U.S. food aid efforts could be increased by providing for the following:
In reauthorizing the Title I program, objectives would benarrowed to make it a more effective tool for market development through the introduction of a wide variety of U.S. commodities to establish long-term trading relationships. Programming would be tied to other USDA activities to develop trading relationships, such as technical assistance to improve food and rural business systems and training of agricultural specialists, government officials, and business managers. Title I operations and procedures would be streamlined to facilitate participation by recipient countries, importers, and exporters. Potential changes include more flexible credit terms to better match country financial situations; a wider range of available commodities; and simplification of procedures to facilitate commerce, such as elimination of purchase authorizations and redundant letters of credit. Because funding for foreign food aid is declining, the ability to satisfy the needs of recipient governments is limited; therefore, authority would be broadened to include targeting concessional credit to private entities as well as to governments. Greater emphasis on private entities is consistent with the emerging post-Uruguay Round market environment. Appropriate protection to prevent fraud and abuse would have to be included, as would specific benchmarks.
In reauthorizing the Title II program, current
authority to use Title II funds for PVO and cooperative
overseas administrative expenses would be increased to a
maximum of $28 million per year and broadened to include
WFP administrative expenses.
The Title III program would be reauthorized as currently structured. In reauthorizing the Food Security Wheat Reserve, the commodities authorized for the reserve would be broadened to include other basic commodities appropriate for food aid programming, such as corn, grain sorghum, and rice.
SANITARY AND PHYTOSANITARY STANDARDS
Issue Future agricultural trade opportunities will continue to accrue to those countries which can objectively demonstrate that their commodities meet science-based sanitary and phytosanitary standards.
Discussion:
Sanitary and phytosanitary standards will play an increasingly important role in marketing agricultural products abroad under GATT and NAFTA. USDA's Animal and Plant Health Inspection Service (APHIS) protects U.S. agriculture from imported pests and diseases and ensures that plant and animal products exported from the United States meet pest and disease requirements of importing countries. More effective and environmentally sound approaches to managing pest and disease threats within the United States will improve the competitive position of U.S. agricultural products in global markets. The success of export market development is, to a large extent, dependent upon the perceived competence of organizations responsible for animal and plant health and their reliability in reporting pest and disease situations. Many commodities move internationally under some type of certification from appropriate authorities. Technical competence in providing certification results in greater reliability of those certifications, which is interpreted at destination as providing greater protection. USDA is well established in providing leadership in resolving sanitary and phytosanitary barriers to establish access to new markets, expand existing markets, or retain threatened markets.
USDA's phytosanitary program strives to reduce production costs attributable to pest management and pest losses by reducing reliance on pesticides. Actions which reduce pesticide use can enhance the confidence of global consumers in U.S. foods.
Area-wide pest management strategies which include education as well as pest control can be most successful, as exemplified by the achievements in the control of the boll weevil.
Guidance Endorse the use of area-wide pest management strategies, area-wide pest delivery strategies, funding authorities, or demonstration projects.
Authorize USDA to work with other Federal agencies to control many nonindigenous species (e.g. noxious weeds, aquatic nuisance species, and biocontrol organisms) that could negatively affect U.S. agricultural production. These species have not historically been addressed by USDA because no clear authority exists to control them.