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It took seven long years, but in April 1994, more than 120 governments spanning the globe finally had a deal. The largest trade negotiation in history, known as the Uruguay Round, concluded and participating nations agreed to liberalize trade in hopes of promoting freer commerce and kick starting the global economy.
At the heart of the package was a 22,500-page catalogue of individual countries’ trade commitments on specific goods and services. Filling each page were pledges to roll back thousands of product tariffs, which are custom duties on imports, or price hurdles erected to give domestic goods an advantage over foreign competitors.
The first step to freeing global markets under the Uruguay agreement was to “bind” existing tariff rates by creating enforceable caps and making rates difficult to raise in the future. Step two was to convert other import restrictions, such as quotas, into “bound” tariffs through a process called “tariffication.”
The final step was to begin the gradual process of tariff rate reduction over a six-year period for developed economies like Europe and the United States, and a 10-year timeline for developing nations throughout the rest of the world. Even then, countries retained the right to impose emergency barriers, or “safeguards,” if domestic producers were seriously injured by imports.
The transition to freer trade was painfully slow for many buyers and sellers. To speed up the process, some governments sought to accelerate rate reductions and lower barriers further through bilateral and regional trade pacts. The North American Free Trade Agreement (NAFTA) between Canada, Mexico and the United States is one of the best known deals.
NAFTA proved to be a boon to U.S. grain producers, with most recent numbers available from USDA showing that Mexico is the top market for U.S. corn and barley and the second largest for U.S. distiller's dried grains with solubles (DDGS) and sorghum. These numbers also show Canada is the second largest market for U.S. barley; the sixth largest for U.S. corn and DDGS; and the fourteenth largest for U.S. sorghum on a value basis.
And NAFTA was just the beginning. Free trade agreements with Central America, the Dominican Republic, Panama, Peru, South Korea, Singapore, Chile, Jordan, Morocco, Oman and others followed. By 2014, U.S. agricultural exports hit a record high of $150 billion, with coarse grains totaling $12.5 billion. Today, agricultural exports back 1 million U.S. jobs, account for nearly a third of gross farm income and assist in creating a $43 billion trade surplus.
In other words, decades of investments in tariff reductions are paying off. However, there is a lot more work to be done.
Just last year, the U.S. Trade Representative’s (USTR) office noted “a growing trend among our trading partners to impose localization barriers to trade.” Included in the USTR’s nearly 450-page National Trade Estimate Report on Foreign Trade Barriers was a whole slew of tariffs that need addressing.
USTR is taking steps to provide relief, including the successful completion of the 12-country Trans-Pacific Partnership (TPP) and the ongoing negotiation with Europe in the Transatlantic Trade and Investment Partnership (T-TIP).
But TPP is not yet the law of the land and has run into some political resistance at home, despite its documented upside for the U.S. economy. Opponents would be wise to recognize that it is impossible for the United States to root out trade distortions and open markets by sitting on the sidelines. There are more than 260 trade agreements in the world today, yet the United States is party to just 20 of them.
“Trade agreements hold the key to opening markets and resolving tariff and non-tariff barriers to allow the movement of coarse grains, co-products in all forms and other agricultural exports to where they are demanded,” the Council concluded in its recent testimony before the U.S. International Trade Commission (ITC). “With effective policies in place and followed, trade works – and the world wins.”
Click here to read more about the Council’s work on trade policy.