Arguable nontrade concerns: International debate, U.S. policy

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WASHINGTON – Among the topics of discussion in the World Trade Organization negotiations on agriculture, nontrade concerns remain one of the most argumentative, according to the USDA’s Economic Research Service.

In the organization’s words, nontrade concerns include a range of issues that are related to agriculture but are not strictly linked to traditional trade measures like tariffs. Nontrade concerns include environmental protection, rural development and food security.

According to the research service, nontrade concerns have emerged as a trade issue because of a number of factors converging.

There is growing public realization that international trade and trade rules can have impacts beyond the flow of goods and services. A second issue causing the emergence of concern is that public demand for environmental protection is putting farm production practices in the spotlight.

Incidents of food-borne disease raising public awareness of food safety is another reason the issue has emerged, according to the research service.

Agriculture can be closely tied to cultural identity, and some may feel that liberalizing trade threatens this identity, the research service reported.

Most countries accept that agriculture provides services and outputs beyond food, fiber and forestry.

These outputs may include socially desirable goods (open space, wildlife habitat, biodiversity, flood prevention, pleasing rural landscapes, cultural heritage, viable rural communities and food security) and negative environmental impacts (soil erosion, water pollution, loss of habitat and loss of biodiversity).

According to the research service, these issues become arguable in the larger discussion of agricultural policy reform. The World Trade Organization provides general exceptions from trade provisions for measures necessary to protect human, animal, or plant life or health, or to conserve exhaustible natural resources.

In the Doha Declaration that launched the new round of trade talks, organization members confirmed their intent to discuss these concerns, but they did not agree on how to address them.

International debate. The debate over nontrade concerns has taken place primarily in the context of agricultural trade negotiations.

According to the research service, the crux of the international debate is the presumption that, besides food production, agriculture creates noncommodity spillover benefits and costs. These benefits or costs are not provided or controlled by the marketplace and represent either outside factors or public goods.

Countries widely agree on the existence of public goods and outside factors in agriculture, and most have policies to support the positive benefits and limit the negative impacts from agriculture.

The other side. Opposing countries may contest the economic rationale that these outputs are public goods that require government intervention, citing examples where the market can provide these outputs.

According to the research service, these countries cite the fact that organization members agreed to limit the level of trade-distorting support and that trade agreements require countries to consider the effects of domestic policy on global markets.

These countries favor addressing nontrade concerns through green box policies. Green box policies are considered to be minimally trade distorting for organization purposes. They are therefore exempt from reduction commitments.

These policies include environmental, domestic food aid and certain regional assistance programs. Countries that have been the strongest advocates of this viewpoint include Australia, United States New Zealand and other Cairns Group members.

The U.S. proposal for negotiations on agriculture recognizes the importance of policies that address nontrade concerns, the research service reported. At the same time, the United States has expressed its view that nontrade concerns are best met through nontrade-distorting means, in order to avoid imposing the costs of achieving these objectives on other countries.

These costs can be considerable. A 2001 study by USDA’s Economic Research Service estimated that price-distorting agricultural policies – market access limitations, domestic support to producers and export subsidies – cost the world economy $56 billion annually in lost welfare or consumer purchasing power.

Nation’s experience. Many of the concerns cited in the international debate are already prominent in U.S. agricultural policy.

Moreover, these benefits are also provided in the United States through a combination of private actions and public policies.

According to the research service, environmental protection, rural landscape and cultural heritage and strong rural communities are some of the nontrade concerns addressed by U.S. policy.

Environmental protection. Americans value the environmental benefits offered by agriculture, such as habitat for migrating waterfowl, but also recognize the potential negative impacts of agriculture on land and water resources, according to the research service, the research service reported.

Conservation programs have been part of U.S. farm policy since the 1930s. Today’s environment concerns include the impacts of animal waste, nutrients and pesticides on surface and groundwater quality; the impacts of agriculture on coastal resources; and the preservation and restoration of ecosystems.

Some U.S. conservation programs create benefits including wildlife habitat, improved water quality due to filtering of agricultural runoff, and floodwater control by taking environmentally sensitive land out of production. The largest program is the Conservation Reserve Program.

The Wetlands Reserve Program assists landowners in returning farmed wetlands to their original condition through easement payments – voluntary legal agreements that restrict production, development, or other specified activities on farmland – and restoration cost sharing.

More examples. Preserving traditional agricultural landscapes in many areas of the United States is closely linked to preservation of the region’s historical and cultural heritage, the research service reported.

Farmland preservation is relevant when farming faces development pressure in the urban fringe. Farms in metropolitan areas comprise one-third of all farms in the United States.

Arguments for preserving these farms are linked to issues of urban revitalization, transportation policy, environmental policy and judicious use of infrastructure, including schools, roads and sewers.

Preserving farmland in order to maintain the rural landscape might be seen as an argument for joint production, according to the research service. However, most policies aimed at preserving farmland do not require that such lands produce agricultural goods, and many protect farmland through means that would qualify as green box policies.

Preservation. A range of public policies and private actions seek to preserve agricultural lands, as well as to promote other objectives. Some examples of public policies include:

* Purchase of development rights. These are primarily state and local programs that purchase conservation easements on agricultural land and thereby prevent it from being converted to commercial or residential uses.

* Federal Farmland Protection Program. This program uses federal funds to match state and local funding designated for purchasing permanent easements.

* Governments may place restrictions on the type of activity that can occur in a geographic area. These essentially prohibit agricultural land from being converted to urban or suburban development.

* Many states give tax breaks to agricultural landowners in an effort to keep agricultural land from being converted to other uses as property values rise.

Private action. Several private groups have formed at the national level for the purpose of raising and pooling funds to purchase land, including the National Preservation Trust, Ducks Unlimited and The Nature Conservancy.

Private conservation organizations also purchase development rights to land or may seek donations of property. Governments may be a partner in these efforts by offering tax benefits for donations, providing an example of how public policy can complement private actions.

Market-based initiatives can help develop and promote solutions to preserving agricultural lands, the research service reported. Agritourism provides another source of income for farmers and thus may help preserve farmland.

Governments may assist in developing market-based solutions through marketing assistance and promotion activities, extension and technical assistance.

Community-based agriculture, whereby consumers purchase shares of a farm’s crop and receive a weekly delivery of fresh produce in return, can help sustain small producers and preserve farmland in the urban fringe.

Strong rural. According to the research service, rural communities face a number of challenges, including lagging incomes, lack of economic opportunities and an inability to attract new businesses because of relatively poor infrastructure.

While some proponents of nontrade concerns claim that agricultural production is needed to ensure the viability of rural areas, developing strong rural communities requires policies that target a range of objectives beyond those strictly related to agriculture.

According to the research service, farming is no longer the main economic activity in rural America. A mix of manufacturing, services and other nonfarming activities now dominates the majority of rural counties in the United States.

Many farm households, particularly those on intermediate-sized and smaller farms, are reliant on these local, mixed economies because they depend on off-farm earnings for a majority of their income.

Many public policies are geared toward providing general services, including public education, employee training and physical, social infrastructure, transportation, housing and technical assistance to sustain rural communities.

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