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A Review of U.S. Trade Restrictions and
Grain Exports
Economic sanctions can be powerful foreign policy tools targeted to further U.S. foreign policy and national security objectives. Trade restrictions imposed by the U.S. Government, however well-justified, do impact U.S. commodity exporters and consequently the entire agricultural sector. Furthermore, the effects of these restrictions are not limited to just the markets that U.S. exporters are prohibited from trading with: other exporters change their marketing strategies to the detriment of the U.S.
Sanctions preventing trade are administered by the Department of the Treasury's Office of Foreign Asset Control (OFAC). Through various laws and acts, grain trade with Cuba, Iran, Iraq, Libya, and North Korea is restricted. While economic sanctions against these countries were implemented at differing times, all have been in effect since August 1990. Occasionally licenses for export are given, notably the broad-based "General License" given for exporters to participate in the US-supervised Oil-for-Food Program in Iraq, and "Specific Licenses" given to an individual company, as in the recently collapsed barter deal between North Korea and a U.S. exporter. Despite these and other occasional exemptions, the trade restrictions currently in force effectively reduce the size of the world market available to U.S. commercial exports.
WHEAT
After three years of decline, global wheat import
demand grew in 1996/97, and is expected to rise further in
1997/98. However, U.S. export prospects have not improved by a
commensurate amount as several growing markets are closed to
direct U.S. commercial wheat exports. Wheat imports by Cuba,
Iran, Iraq, Libya, and North Korea totaled only 5.3 million tons
in 1995/96, but are expected to reach 10.4 million tons in
1997/98, representing nearly 11 percent of world trade. This is
the largest percent of global wheat trade that the U.S. has been
excluded from due to self-imposed trade restrictions since the
1980 embargo on exports to the Soviet Union. Thus at a time when
U.S. producers are harvesting the second largest crop of the
1990's, U.S. exporters are facing the second lowest level of
serviceable import demand of the decade.
RICE
Of all grains exported by the United States, rice has been particularly hard-hit by trade restrictions. In 1962 the largest export market for U.S. rice was Cuba. The Cuban Assets Control Regulations issued on July 8, 1963 closed that market to U.S. exporters. The largest importer of U.S. rice in 1989 was Iraq, which was closed to U.S. exporters by Executive Order 12722 on August 2, 1990. In 1995 Iran was the largest export market for U.S. rice, despite trade being closed off on May 6 of that year by Executive Order. For 1997/98, when the U.S. is expected to harvest the third largest rice crop on record, more than 13 percent of projected global rice import demand will have restrictions placed upon it.
OTHER COMMODITIES, OTHER EFFECTS
With the exception of Iran, corn imports by these countries are quite minimal. Iran did purchase as much as one-half million tons of corn from the U.S. in 1994/95, but a recent tightening of the trade sanctions against Iran by Executive Order 12957 in May 1995 have stopped even this small amount of trade. Consequently, Argentina has significantly expanded shipments of corn to Iran, meeting over 75 percent of Iran's import needs in 1995/96 and 1996/97. Similarly, South Africa's corn shipments accounted for less than ten percent of all Iranian corn imports from 1988-1990, as compared to more than 25 percent in 1995/96 and 1996/97.
Economic sanctions have historically only affected U.S. companies, with the recent Helms-Burton Law concerning Cuba being a notable exception. However, other exporters, particularly single-desk countries, modify their sales programs pursuant to U.S. economic sanctions. For example, Canada for the three marketing years prior to 1990 exported on average less than one-half million tons of wheat to Iran. Since 1990, however, wheat exports by the Canadian Wheat Board to Iran have averaged over 1.3 million tons per year. Australian Wheat Board exports to these countries have remained relatively stable over the past 10 years.
Expanding market share is not the only, and perhaps not even the primary benefit of U.S. economic sanctions to U.S. competitors. Prices, particularly those charged by single-desk exporters, can take advantage of the lessened competition brought about by the removal of U.S. traders. Higher-than-prevailing market prices charged to several of the sanctioned countries have been reported by numerous sources. This in turn enables a board exporter to charge a lower price in a market where the U.S. can compete, and still maintain an average return. Thus not only is the U.S. kept from participating in the embargoed markets, but U.S. exporters must compete with lower bids in other markets.
So far, only sanctions imposed at the federal level have been mentioned. There has also been a recent flurry of unilateral sanctions imposed at the state, county, and city level. Included are resolutions and laws prohibiting trade with and travel to various countries. While the legality of these sanctions is in question, the negative publicity that may result from pursuing legal business activities doubtless has dampening effect upon export activities of industries and individuals within these localities.
As previously stated, unilateral trade and other economic sanctions are powerful foreign policy tools that exist to be used as deemed necessary by U.S. policymakers. However, they are not without cost to the U.S. agricultural sector.
For further information, please the Grains Division staff at gfd@usda.gov .
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