Harmonization And Convergence Of Canadian And U.S. Grain And Oilseeds Policies: 1985-1996

The United States and Canada share the longest common border and largest bilateral trading relationship in the world. Recent trading agreements--CUSTA, NAFTA and WTO--have enhanced trade by encouraging elimination of many remaining trade barriers. However, one cause for concern about the effectiveness of these trade agreements has been the frequency of Canadian-U.S. trade disputes over bilateral wheat and barley trade arrangements and trade flows. To some extent, these disputes have arisen because of differences in and lack of harmonization between the domestic and trade policies implemented by the two countries, although other political factors have also clearly been important causes of these disagreements. Since 1986, many dimensions of the agricultural policies of both countries have undergone radical changes, perhaps especially with respect to small grains and oilseeds. Here we provide assessments of whether important aspects of the two countries' domestic and trade grains and oilseeds have converged toward harmonization since implementation of the Canada-U.S. Free Trade Agreement in 1989. It should also be noted that many of the changes in each countries' agricultural policies cannot be attributed to free trade agreements. Rather, they reflect government responses to budgetary pressures, commitments under international trade agreements, changes in the relative political importance of rural and urban voters, and other factors. Changes in General Levels of Support Producer Subsidy Equivalents are indicators of the proportion of total revenues from sales of a crop resulting from government subsidies and other income support policies such as tariffs. U.S. producer subsidy equivalents for wheat and other grains have declined substantially from their 1993-1995 average levels as a result of the decoupling of income support payments under the 1996 FAIR Act. Similarly, the average wheat, other grains and oilseeds producer subsidy equivalents reported for Canada over the same period overstate current producer subsidy equivalents because of the elimination of Canadian grain transportation subsidies in 1995. Thus, generally, levels of government support for wheat and small grains have fallen quite considerably both in the U.S. and in Canada, indicating some movement in the direction of policy harmonization for these commodities. Farm Income Supports Over the past twenty years, farm income support in Canada has been delivered throughseveral different programs. Increasing budgetary pressures and a greater focus on market orientation led to the elimination of the Gross Revenue Insurance Program and the western grain transportation subsidies by 1996. The only current direct income support program is the Net Income Stabilization Account (NISA), which provides modest subsidies on interest rates paid to farmers on moneys they themselves pay into an income stabilization account. In the United States during the 1980s and early 1990s, changes were made to the deficiency payment/loan rate farm income support programs for wheat and small grains that tended to reduce the size of government payments to wheat and barley producers. Then, in 1996, the FAIR Act changed the entire farm income support mechanism, largely decoupling direct government payments to producers of those crops from current production decisions. In summary, the distortionary effects of Canadian and U.S. income support programs for wheat and other grains have been substantially curtailed, especially over the past three years. Similarly, the distortionary effects of Canadian income support programs for oilseeds have also been reduced toward the relatively modest levels associated with the U.S. oilseeds program, which has changed relatively little over the past ten years. There has been convergence in this area of farm policy. Grain Marketing and Export Subsidy Programs To the extent that U.S. export subsidy programs have become subject to GATT disciplines and funding for the U.S. export enhancement program has been reduced, the U.S. has moved toward a less distortionary set of trade policies for grains and oilseeds. The removal of freight subsidies has also moved Canada's grains trade policy in a less distortionary direction. However, Canada's export marketing board policy for wheat and barley (operated through the Canadian Wheat Board) has not changed in recent years. With respect to export credit guarantees, both countries operate roughly comparable programs, although under the GSM-103 program, the U.S. is able to offer somewhat longer term (3-7 year) lines of credit. These programs have been subject only to relatively modest changes over the past ten years. On balance, there has probably been less harmonization of U.S. and Canadian export policies than of the two countries' income support programs. Thus, export policies, particularly the existence of the U.S. export enhancement program and the marketing powers of the CWB, will continue to be part of bilateral trade issues.