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The European Community and U.S. Farm Exports
In January 1973, the European
Community (EC) enlarges its
membership from six to nine to
become the world’s largest
trading bloc.
With the addition of Britain,
Denmark, and Ireland, EC-9 will
account for nearly two-fifths of
the world’s imports, more than
twice the U.S. figure. And the
nine countries take close to a
third of U.S. agricultural exports.
Thus, the newly expanded
community is of considerable
significance to the U.S. farmer.
First - and perhaps foremost - it
will mean the extension of a
basically protectionist
agricultural policy to Britain, one
of the largest food importing
nations in the world: In fiscal
1972, Britain bought $430 million
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worth of farm products from the
United States.
Farmers are concerned about
the impact such an extension
could have on U.S. exports. The
question is especially relevant at
a time when U.S. farm exports
are skyrocketing: During the last
fiscal year we reported a record
$B.O billion worth of agricultural
products. Our $2.0 billion
favorable balance in farm trade
during fiscal 1972 was the highest
in five years. Keeping that figure
up is vitally important to the
Nation’s balance of payments.
Specialists at USDA have
therefore been studying the
matter in order to pinpoint
problem areas and make way for
possible solutions.
The new members, including
Britain, will have until the end of
1977 to adjust to the EC’s Com
mon Agricultural Policy (CAP).
Although development of the
CAP and how it works has been
explained often, it is not always
fully understood.
High rigid prices in the Com
munity stimulate uneconomic
production and curtail demand.
These prices are protected under
the CAP by variable levies and
other devices which deprive
outside exporters - such as the
United States - of the competitive
advantage they might have, and
thus reduce imports.
Products that cannot be
disposed of through protected
markets inside the EC become
exports almost automatically
through export subsidies. Outside
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countries, including the United
States, thus lose export markets
two ways.
This is not to suggest that all
our trade will be adversely af
fected. But there is no question
that certain commodities will be
hit.
The impact on tobacco will be
one of the most important. In
fiscal 1972 the United States
exported $l3O million worth of
tobacco to the new members
($lOO million to Britain and $3O
million to Denmark and Ireland).
Special EC arrangements exist
with tobacco producers such as
Greece, Turkey, Tanzania,
Uganda, Malawi and Zambia.
These countries are already
important suppliers to the
Community and the U.K., and
they are expanding production.
Also, the “no additive”
requirement of Britain, which
has made it necessary to use
high-quality American tobacco,
is being lifted. This means British
processors will be able to use the
lower quality leaf available
elsewhere. It also means that in
the long run, U.S. tobacco sales to
the new members will be less.
Wheat and feed grains will also
be affected. U.S. feed grain sales
to Britain totaled $62 million in
fiscal 1972, with wheat sales
totaling $3B million (excluding
transshipments). When the U.K.
joins the Community, higher EC
grain prices will be extended to
Britain. This is likely to result in
a substantial rise in grain
production there.
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With strong pressures for in
creased production in other EC
countries as well, the likelihood is
that U.S. grain sales to the EC-9
will decrease.
In the case of lard, a squeeze
will be felt immediately.
Britain is the_ largest world
importer of lard and accounts for
the bulk of U S. lard exports ($l6
million worth went to Britain
last fiscal year). The EC, on the
other hand, has a high variable
levy protection against imports
of lard. Assuming that present
EC protection is extended to
Britain, it is likely that virtually
all lard imports for food use from
the United States will be
eliminated.
Rice exports are apt to ex
perience a pinch. Britain and the
other new member countries now
admit rice either duty free or at
rates not exceeding 5 percent.
However, the EC system for
rice includes high producer
prices without production con
trols. The CAP provides for very
high variable levies against rice
imports, in addition to high ex
port subsidies.
The cost of imported U.S. rice
($lO million worth went to
Britain in fiscal 1972) is therefore
expected to rise sharply in the
U.K. and other new member
countries.
The fresh and canned fruit
market will also probably be hurt
somewhat. The United States
supplied Britain with about $l3
million worth of fresh, dried and
canned fruit, and fruit juice, in
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fiscal 1972. A combination of
higher internal prices, steeper
duties, and preferential
arrangements will not favor
these exports following
enlargement.
While all this may sound bleak
to the American farmer, it is by
no means without bright spots.
Soybeans, an increasingly im
portant U.S. crop, will continue to
enter the Community virtually
duty free after enlargement. This
means that the fiscal 1972 figure
of close to $75 million in U.S.
soybean exports to the new
members is likely to increase.
Other products, such as pulses
and hides and skins, should not be
adversely affected, though they
do not rank in importance with
soybeans.
The enlarged EC promises to
be a powerful force in the world
economic community that can
adversely affect the U.S. foreign
trade picture.
In testimony before a U.S.
House of Representatives sub
committee last year, a high
USDA official conceded that
“without reform of the CAP the
outlook is not a happy one.”
International trade experts at
USDA are looking to continuing
negotiations in order to deal with
the new situation after ex
pansion.
Among the top priority items in
such negotiations are U.S.
recommendations that present
EC protective devices, such as
variable levies and quotas, be
replaced by fixed duties.
Whatever emerges from the
negotiations, there is no question
that the American farmer has a
great stake in the outcome.