Free trade a dilemma for Chile

TEMUCO, Chile — The U.S.-Chilean free-trade agreement signed by officials this month will mean greater opportunity for some in this South American country. Successful export products such as wines and fresh fruit will consolidate their access to the lucrative U.S. market.

But for the more than 200,000 farmers in southern Chile who specialize in wheat, dairy products, beef and beets — produced mainly for the domestic market — free trade with the United States spells economic disaster. These growers, who make up about 70 percent of Chile’s farm sector, have joined environmental groups, unions, small businesses and others in campaigning to defeat the accord when it comes to a ratification vote by the Chilean Congress in the fall.

One such farmer is Nicolas Garcia, 47, whose family has been growing wheat and oats just north of Temuco for more than a century. Mr. Garcia says the region has developed a wonderful lifestyle and excellent farming but that free trade with the United States will force tens of thousands of wheat farmers in the region off their land and out of work.

“It’s a case of the biggest and strongest eating the smallest. We just cannot compete with U.S. agricultural subsidies,” Mr. Garcia said.

Chilean and other farmers around the world were aghast last year when President Bush signed into law a farm bill raising U.S. agricultural supports by $180 billion, equivalent to an 80 percent increase in farm subsidies in each of the next 10 years.

The subsidies keep the cost of U.S.-grown wheat and other commodities low.

In 2001, says the Minnesota-based Institute for Agriculture and Trade Policy (IATP), citing government figures on production and transportation subsidies, U.S. agribusiness sold wheat abroad at 44 percent less than what it cost to produce it. Below-cost U.S. grain exports are pushing down world prices and thereby undercutting competition in poorer, developing countries, which cannot compete in a subsidy war.

“Family farms in the U.S. don’t want to rely on government handouts. They would prefer that the market be restored,” said Sophia Murphy, trade director for the IATP. “But big agribusiness lobbies for subsidies on Capitol Hill to keep prices as low as possible, and for those who depend on those prices for their livelihood in the developing world, it’s generating a social crisis.”

To counter such distortions in the global market, Chile has since 1983 used a system called the “price band” to stabilize the price of wheat and sugar imports. The price band is set according to the average international price of these products during the past five years. For example, if the price of the imported product is low in relation to the price band, tariffs are set higher.

However, U.S. negotiators insisted on eliminating the price band in the U.S.-Chilean free-trade agreement. Chile gave in at the final round of negotiations in December in exchange for the eventual elimination of tariffs on all products of both countries. The price band is to be phased out beginning in 2008.

Osvaldo Rosales, Chile’s chief trade negotiator, said the government gave in because it believes the country will be ready. “There is a sufficient lapse of time so that we would be capable of initiating projects to improve our productivity, technology, finance so that our farmers can be competitive with the United States,” he said.

That’s not true, says the Southern Agriculture Consortium (CAS), which represents growers in southern Chile. The CAS says Chile is competitive and points to studies showing that the country has the world’s highest productivity per acre for sugar beets and is sixth worldwide in wheat.

In addition, because of the climate, only wheat, sugar, dairy products and livestock grazing are economically feasible in Chile’s south. This means these Chilean farmers do not have the option of growing alternative crops if their market disappears.

“Our government has cheated us. They promised not to remove the price band in this free-trade agreement,” said Manuel Riesco, president of the CAS and a farmer.

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