Historically, the Latin America and Caribbean region (LAC) has enjoyed a positive and increasing net agricultural trade balance, which in 1996 amounted to about US$20.2 billion. But the positive trade balance masks wide regional differences. Argentina and Costa Rica, for example, have export levels five to eight times their import levels, whereas the Bahamas, Haiti, Peru, and Venezuela carry trade deficits.
One of the most important developments of LAC agriculture in recent years has been the emergence of fruits and vegetables as the leading agricultural export (in value terms), displacing traditional commodities. Oilseed production has also increased, contributing to the surplus in net agricultural trade. Traditional exports such as coffee and sugar have decreased in importance.
Net imports of cereals and dairy products have grown due to increased demand. The resumption of economic growth, lower world prices, the opening up of the economies, and the surge in capital inflows leading to some appreciation in exchange rates in the region have been pushing imports up in the late 1980s and a good portion of the 1990s.
An important characteristic of agricultural trade in the region (in fact, of all international trade in the Americas) is the steady increase in the share of intraregional commerce. Abetted by regional pacts, such as the North American Free Trade Agreement (NAFTA) and Mercado Común del Sur (MERCOSUR), trade within the Americas (including the United States and Canada) rose from one-fourth of total agricultural exports in 1981–1983 to more than one-third by the mid 1990s. The trade liberalization that has taken place in LAC and the implementation of trade agreements have fostered agricultural trade and increased the exposure of the region’s agricultural sector to world markets.
The evolution of trade flows will depend on trade and agricultural policies in the Americas and elsewhere, and these policies in turn will be influenced by multilateral, regional, and bilateral agreements and negotiations. What follows focuses mainly on the continuation of the process initiated during the UR in the upcoming “millennium round.”
For LAC countries a key issue is the elimination of export subsidies in world agricultural trade. These subsidies act as taxes on agricultural producers in nonsubsidizing countries, which are the norm in LAC. Countries in the region also will be interested in increasing the transparency of disciplines on the practices of state trading enterprises. These practices may work as subsidies or dumping on the export side, or hidden trade barriers on the import side.
Several LAC countries also want to avoid loopholes and “gray areas” in the disciplines on export subsidies, export credits, and food aid. Accordingly they have urged the integration of these issues into a unified framework.
The patterns of trade and market access in the region will be influenced by the complex system of border measures resulting from the UR, NAFTA, and MERCOSUR agreements; the revitalization of the Central American Common Market, the Andean Pact, and the Caribbean Common Market; the possibility of creating a Free Trade Area of the Americas; and extra-regional negotiations such as those within the Asia-Pacific Economic Cooperation forum (APEC) and between MERCOSUR and the European Union (EU). The interaction of these different trade negotiations is of considerable importance to LAC.
To expand market access LAC countries will press for increases in the level of imports allowed under the current regime of tariff-rate quotas (TRQs); a more transparent and equitable implementation of those TRQs, for additional reductions in tariffs (particularly those that are still high for key products, such as fruits and vegetables, sugar, meat, and dairy products); for the elimination of tariff escalation (a practice that undermines the ability of LAC countries to generate local employment and increase the value added of their exported products); and for completion of the process of tariffication in the cases where exemptions were granted.
The final agreement on subsidies reached at the UR did not impose the disciplines initially envisaged because the measure of support was transformed from a product-based one to an aggregate value for the whole agricultural sector. Furthermore, the main subsidies of the U.S. and the EU were kept outside the UR disciplines in what is called the “blue box” (something in between the green box of allowed interventions and the amber box of those clearly prohibited).
LAC countries have dismantled or significantly reduced their own domestic support for agricultural producers for reasons mainly related to fiscal constraints. They have an interest, therefore, to push for further reform along these lines, particularly tightening the criteria for the green box, defining the measure of support by product, and eliminating the exemptions considered under the blue box. Although only the EU now has domestic subsidies in the blue box, the U.S. may face strong domestic pressures to revert to prereform farm subsidies if low world prices persist. LAC countries, especially net exporters, will try to keep on the table the issue of further discipline on trade-distorting domestic subsidies.
The regulatory frameworks for developing, adopting, and implementing measures to protect human, animal, and vegetal health from diseases, additives, or contaminants constitute an important area for agricultural negotiations. An objective and transparent SPS framework is crucial for LAC countries, given their expanded exports of fresh products, especially fruits and vegetables. The key issue negotiating countries will have to face is how to distinguish legitimate differences in the interpretation of scientific evidence from the protectionist uses of SPS measures. Rather than reopening the SPS agreement, many LAC countries will probably prefer to allow the process of dispute settlement to clarify the issues involved.
Several other challenges also will have important consequences for Latin American agriculture. Genetically modified agricultural products hold highly promising results for agricultural productivity but also raise questions regarding uncertain consequences for human health and preservation of biodiversity. The issue of the public or private nature of agricultural research and technology is also a central element in this debate. Decisions on these questions will have far-reaching consequences. Given the importance of agriculture and biodiversity in LAC, countries in the region should equip themselves with scientifically based, well-thought-out positions for the forthcoming negotiations. Debates over the links between trade, labor, and the environment will also require analytical efforts to separate legitimate concerns from the use of these issues for protectionist purposes.
The impact of trade and agricultural policy changes on poor consumers on the demand side and small and near-landless producers on the supply side is a matter of debate in LAC. Some have argued that trade liberalization may hurt both groups. Others have answered that greater productivity and growth coming from better trade and sectoral policies should help generate employment and income, given adequate overall economic policies and properly functioning markets and social institutions. The growth of exports of the fruit and vegetable complex, with its labor-intensive structure, is an example of LAC countries following their comparative advantages, which can only work if developed countries grant adequate access to their markets. Small producers will also be helped by the disciplines brought by the UR Agreement on Agriculture to subsidized and dumped exports. At the same time the agreement allows the implementation of a large variety of programs aimed at poor producers or consumers, including stocks for food security purposes and domestic food aid for populations in need. Adequate design and funding of domestic policies to achieve agricultural growth and poverty alleviation are essential and most certainly will not be helped by trade-distorting interventions.
What incentives and disincentives do the different LAC countries have to participate in the negotiations? LAC is a vast region, with exporters of agricultural products from temperate climates, exporters of subtropical and tropical goods, and net food importers. Some worry about domestic and export subsidies in cereals, oilseeds, and meat; others are concerned about quotas, tariffs, and the application of SPS measures in fruits and vegetables; yet others may be troubled by high barriers in tropical products such as sugar and tariff escalation in many other products. Countries like Barbados, Dominican Republic, Haiti, Mexico, Peru, Surinam, Trinidad and Tobago, and Venezuela, which are net agricultural importers, will worry about export taxes, export prohibitions, and other measures that may hamper their access to food supply at adequate prices and increase volatility in world markets.
LAC countries will have to consider carefully the political economy of the trade negotiations as well as the quantitative estimation of different trade scenarios in order to develop their negotiating positions.
The importance of macroeconomic policies for the agricultural sector is widely recognized. Economists have placed particular emphasis on the impact of exchange rate policy on agriculture, but, in fact, the whole macroeconomic program is relevant, including monetary and fiscal policies. Moreover, in a world with increasingly large financial markets, the dynamics of trade flows appear to be dominated by capital flows, contrary to historical tendencies. Adequately balanced macroeconomic policies at the world level may be more important for commercial flows, including flow of agricultural products, than trade negotiations.
Developments in capital markets may also affect price stability, including that of agricultural products. The challenge may well be to devise market-based schemes for income stabilization, using the far larger pool of financial resources and instruments in capital markets.
Eugenio Diaz-Bonilla and Lucio Reca are visiting research fellows at IFPRI.