Trade agreements not quite what they seem

Benefits are more a back-to-the-future reality for agriculture

Will-Verboven3CALGARY, AB, Mar 16, 2014/ Troy Media/ – If the government PR spin surrounding recent free trade agreements is to be believed, agriculture and food exports from Canada to Europe and South Korea are going to skyrocket by the hundreds of millions of dollars. News releases from governments and agriculture commodity groups trot out data touting all the potential sales now that tariff barriers are being reduced or eliminated.

But like most issues that have political agendas, there is more to the story. And more so with agriculture, which is the most politicized industry in world trade.

The reality is that every country that favours free trade also protects some sector of its domestic agricultural production from foreign imports and competition. Although that may seem hypocritical to free market purists, agriculture and food are fraught with domestic political aspects, economic realities and cultural/historical considerations. Most of those factors trump free trade principles and are frustratingly impossible to resolve. The underlying issue with agriculture is food security, and that’s hard to negotiate away.

The most political are clearly beef and dairy products. In the recent Canada/European Union (EU) free trade understanding, the Europeans maintained their ban on hormone-added beef and merely increased its beef import quotas; that’s not free trade. They agreed to consider simplifying their complex beef import permit process which acted as a non-tariff barrier to any increases in beef imports from North America. Even the much praised North American Free Trade Agreement has not prevented the Americans from restricting Canadian cattle imports through a labelling non-tariff barrier.

The recent South Korea agreement reduces tariffs on Canadian grain and oilseed imports but they were already relatively low and any savings are likely to be captured by marketers and food processors. For Canadian beef and pork exports, the agreement basically offers what was already contained in the USA/South Korea Free Trade Agreement. That would be a 15 year tariff reduction schedule, the only difference being the Americans are two years ahead of Canada.

That means Canadian beef exports will be at a tariff disadvantage to American beef until the schedule is completed. Only a devalued Canadian loonie can level that situation. In the end, all the deal will do is restore the share Canada had of the Korean beef trade it had before the American/Korean free trade agreement. Any increases will be incremental and due more to hard-fought competition by Canadian exporters.

Another misleading aspect of free trade agreements is that they open up vast new markets for Canadian exports. That would be true if those vast new markets were not already being served by other suppliers that are competitors to Canadian products. What both recent agreements actually do is allow Canadian agriculture and food exporters the privilege of competing for markets against other foreign marketers on a more or less level playing field. That provides for more potential exports, but does not guarantee the hundreds of millions in increased sales the government likes to tout.

South Korea already had free trade agreements with the USA, Australia and the EU. One can expect that all of those agreements will basically treat every country equally by allowing them all to compete fairly with each other to supply the South Korean market with food products. The much-promoted Canada/EU understanding is far behind the recent Korean agreement; it’s yet to be ratified by EU member countries and faces further excruciating negotiations over the details. In the end no one expects the Canadian agreement to be any different from the pending USA/EU trade agreement when it comes to more agricultural exports to the EU. You can also expect that traditional food suppliers to the EU like Australia, New Zealand, Brazil and Argentina will all be demanding their own free trade agreements with the EU to protect their traditional market shares.

Free trade agreements are a positive development in world trade as they strive to level the field for exporting countries. But that doesn’t always apply to the agriculture and food trade where domestic considerations can overrule common sense and science. Canada plays that game in protecting our dairy and poultry industries by controlling the supply and prices.

Trade liberalization is a slow process for agriculture and food. The unknown is whether an increasing world population with money to spend will expedite that process through an increase demand for food products.

Will Verboven has spent the last 20 years writing about virtually every issue that affects the agriculture industry from production to marketing to trade to industry politics. His columns and editorials have appeared in daily newspapers, rural weeklies, and industry trade journals in Canada and the U.S.

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