US Agricultural Trade with Western Hemisphere Countries and the Effect of the Free Trade Area of the Americas

Negotiations to create the largest single market in the world, the Free Trade Area of the Americas (FTAA), are in progress. Such an agreement could have significant effects on US agriculture; it could create an opportunity to increase US exports of agricultural commodities and products, and could also lead to an increase in imports. The objective of this study is to analyze US agricultural trade with Western Hemisphere countries and to determine the effects of hemisphere-wide trade liberalization. The Western Hemisphere contains important sources for US agricultural imports and important markets for US agricultural exports, though the hemisphere has been more important as a source for imports than as a market for exports. Results suggest that US agricultural exports within the hemisphere are positively influenced by real GDP in the importing country and negatively influenced by the strength of the US dollar and tariffs in importing countries. US agricultural imports are positively affected by the strength of the US dollar and negatively affected by US tariffs. A reduction in tariffs under the FTAA would have a greater effect on US agricultural exports than it would on US agricultural imports because tariffs are generally larger in other countries estimated elasticities show that US agricultural exports are more sensitive than agricultural imports to tariffs. Projections for US agricultural trade in 2010 show that exports to Latin American countries would be 15% higher under a scenario where tariffs are gradually reduced and 32% higher if tariffs are eliminated. Imports would be 2.4% higher under the scenario where tariffs are gradually reduced and 5.2 higher if tariffs are eliminated.