By Eric Wailes, Frank Fuller, Harjanto Djunaidi and Alvaro Durand

Rice is one of leading agricultural exports from the southern region of the United States. Approximately 50% of U.S. rice exports are shipped to Western Hemisphere nations. Yet competition for these markets is intensifying as production expands in Argentina, Uruguay, Brazil, and Guyana. The U.S. is also facing fierce competition from Asian rice exporters, Thailand, Vietnam, India and China. The U.S. has remained competitive in the Western Hemisphere in part because, unlike competitors, the U.S. is willing to export rough rice as well as milled rice. Many Western Hemisphere countries have preferential tariffs that favor rough rice imports relative to milled rice.

Regional trade agreements such as NAFTA have helped to sustain exports. However, the proposed Free Trade Area of the Americas (FTAA) would subject the U.S. to growing competition from the MERCOSUR nations for rice trade in the Western Hemisphere.

This study evaluates the potential of U.S. rice exports under the proposed the FTAA Agreement against the existing trade regimes of the region. It is anticipated that this agreement will provide preferences for U.S. rice relative to Asian competitors but competitors within the Americas will challenge the U.S. as the dominant export supplier.

The study results indicate that the FTAA agreement will have limited impact on the global rice market because the Western Hemisphere consumes and produces less than 10 percent of the world’s rice. It accounts for nearly 15 percent of rice trade. The agreement increases trade of all types of rice by degree of milling with the largest increase in paddy rice. Prices increase marginally for milled and brown rice but by nearly 10 percent for paddy. Trade creation exceeds trade diversion by 568 thousand mt, nearly three percent of world rice trade.

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By Mary A. Marchant, Tigran Manukyan and Won Koo

International trade in processed foods has been the most rapidly growing portion of world food and agricultural trade. Historically, bulk commodities accounted for the majority of U.S. agricultural exports. Another facet in the evolution of international trade is the way agribusinesses access foreign markets. Historically, the export market was the primary means of accessing foreign markets. Foreign direct investment by U.S. agribusinesses provides a market access alternative that can be viewed as “tariff jumping.” Foreign affiliate sales that stem from FDI are not subject to import tariffs or other trade barriers, in contrast to U.S. exports of similar products.

As the world becomes increasingly interdependent, the linkages between trade and FDI become increasingly important. A key question regarding U.S. competitiveness is whether FDI displaces or enhances exports? The overall objective of this research is to model the relationship between U.S. FDI and exports for processed food products in FTAA countries and to determine whether these market access strategies are substitutes or complements.

The analysis in this study focuses on key Free Trade Area of the Americas (FTAA) countries that import a significant portion of U.S. processed foods – Canada, Mexico, and Brazil. Empirical results indicate a bi-directional complementary relationship between FDI and exports into key FTAA countries. This implies that FDI influences exports and exports influence foreign direct investment and that U.S. agribusinesses should use both FDI and export strategies to access key FTAA countries.

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By Dale Colyer

The environment has become an important and controversial issue in trade agreement negotiations. The draft agreement for the Free Trade Area of the Americas does not specifically address environmental concerns, except for provisions prohibiting the use environmental regulations to attract business by member countries, allowing conservation payments for agriculture, and those addressing a few other, relatively minor, issues.

This paper examines environmental and trade issues in the context of the Free Trade Area of the Americas (FTAA). It includes a brief background discussion of general trade and environmental interactions, reviews the issue of combining trade and environmental agreements versus keeping them as separate processes, reports on analyses of the environmental effects of NAFTA (both from the viewpoint of how the increase in trade has affected the environment and the impacts/effects of including environmental issues as part of the agreement), and examines the environmental-trade nexus in the broader context of the FTAA negotiations.

There is little evidence that the FTAA negotiations are going to involve environmental issues to any significant extent due to opposition by nearly all of the member countries (exceptions are Canada and the U.S.). Most participants in the FTAA negotiations prefer to leave environmental considerations to the WTO, where it also has become a controversial issue. Strong support for inclusion may force FTAA negotiators to give greater consideration to the environment to obtain sufficient support of its approval.

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By Dale Colyer

U.S. agricultural trade with Mexico and Canada has increased since the implementation of the North American Free Trade Agreement (NAFTA). While NAFTA is primarily concerned with trade, environmental issues became an important factor in gaining support for its approval and, while covered to an extent in the main treaty, a side agreement–the North American Agreement on Environmental Cooperation (NAAEC)–was developed to further address those concerns. A result of this agreement was the creation of the Commission on Environmental Cooperation (CEC) with membership from Canada, Mexico and the United States. This was the first time that environmental issues became an important component of an international trade liberalization agreement.

This paper examines the environmental impacts of agricultural trade utilizing the CEC’s framework and related approaches. It focuses on U.S.-Mexico trade and impacts on the Mexican environment.

The paper concludes that the impacts are on the environment are mixed. Comparative advantage is promoting economic efficiency but changes in land and water use, chemicals, fertilizers and pesticides are having some adverse impacts in Mexico, with, perhaps some offsetting favorable impacts in the United States.

Improved technology from increased investment, especially in food processing, probably has produced some positive environmental impacts in Mexico, while the greater attention to environmental issue that resulted from the inclusion of environmental issues in the NAFTA agreements has been positive. Mexico has become more aware of environmental issues and problems and has improved its legal and regulatory mechanisms for handling environmental problems and expenditures for pollution abatement have increased. It also appears to have increased enforcement procedures to make its existing regulatory framework more effective.

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