Let’s step back and look at NAFTA, not as one agreement, but as three separate agreements: one between Canada and Mexico, one between the U.S and Mexico, and one between the U.S. and Canada. NAFTA simply incorporated the old Canada-U.S. Trade Agreement (CUSTA). That agreement exempted much of agriculture, allowing Canada to preserve a number of it’s quirky regimes, such as the Canadian Wheat Board, the quota system for milk production, and schemes that protect Canadian poultry and egg producers, for example. It also preserved U.S. sugar import quotas, U.S. and Canadian antidumping laws, and our own dairy regime. (It's hard to have free trade internationally when you don't even have it within your own country; that is the case within the U.S. fluid milk market, and with Canada for wheat and historically in beer, for example.)

CUSTA -- and therefore NAFTA -- did not really meet the requirement that trade be completely liberalized in substantially all sectors. Between the U.S. and Canada, agricultural trade is still not free and open. Canada has successfully excluded dairy from all FTA negotiations, including the Canada-Chile treaty. As a demonstration that economics works even if trade agreements don't: a large amount of milk and butter has been purchased in Buffalo, Detroit and elsewhere and carried back north in the trunks of cars to dodge Canada’s artificially high support prices.

In contrast, the U.S - Mexico agreement, and Mexico’s agreement with Canada, virtually opened the agricultural sector in Mexico to unfettered competition from its two northern neighbors. The result has been a large expansion of trade and a modernization of Mexico’s commercial agriculture. Mexico deserves a lot more credit than it gets for undertaking this tough political transition to an open economy in agriculture as well as most other sectors. Nothing ensures competitiveness like competition, and their economy has grown rapidly as a result.

While NAFTA encapsulates the current situation of trade between Canada, the United States and Mexico, the future of our trade will revolve around the potential of two additional trade agreements: one anticipated by WTO talks, and the FTAA.

As we approach the WTO agricultural negotiations, the three NAFTA countries have a lot in common. We all have as a primary target the elimination of EU export subsidies. We also recognize the area of great difficulty will be domestic supports. But we need to clear up one misperception. While Canada points to the U.S. as an unfair competitor in this regard, this chart demonstrates that Canada and the U.S. are in approximately the same league as far as overall government support for agriculture. This varies, of course, by sector. The U.S. support is higher than Canada’s in grains, but is lower in some other commodities such as poultry.

We in the U.S. wheat industry, of course, have a distinct difference with Canada over the continuation of their state trading enterprise, the Canadian Wheat Board, that needs to be addressed. In the interest of time, I won’t go over the myriad of problems with the CWB, but suffice it to say that the few such remaining monopolies are anachronisms that have no place in a modern world of open trade and competition.

Turning to the FTAA… This is a huge opportunity for all of our trading partners. But there is also a potential downside to regional agreements, in that regional agreements can be used to restrain trade rather than to facilitate it. While there is a legitimate role for regional trade agreements to remove distortions in trade between member countries, they should not, under any circumstances, create new barriers to goods from nonmembers.

At their best, regional agreements can eliminate artificial barriers to trade. To the extent that regional trade agreements promote further trade and trade liberalization, without detriment to third countries, they should be supported and encouraged. However, we must guard against regional trade agreements being used as isolationist and protectionist economic blocks. Trade diversion occurs when a country replaces imports from the rest of the world with imports from a member country because of preferential treatment. Mercosur is one regional pact that runs the risk of becoming trade diverting.

For instance, what would happen if Venezuela joined Mercosur? The U.S. has a long standing wheat trade relationship with Venezuela. Over the years, Venezuelan wheat buyers have kept wheat sales pretty even between Canada and the U.S. Now, if Venezuela joined Mercosur, both the U.S. and Canada would face higher tariffs than the wheat from Argentina, to the tune of 12 and a half percent versus zero under current Mercosur rules -- so even though Argentine wheat is of lower quality and has to be shipped for a longer distance than U.S. wheat shipped from the gulf, Argentina would have an artificial trade advantage. When that advantage is based on nothing but preferential treatment, it is setting up an exclusionary situation. It is not creating new trade. It is artificially diverting trade from long-standing trading partners. It is a trade distortion.

If we are to develop a successful FTAA, free from such distortions -- a truly open trading regime and a model for the rest of the world -- we need to eliminate essentially all barriers to trade in all sectors. To do that, we’ll have to return to some of the issues that were not solved in NAFTA. The U.S. has to resolve problems with our sugar, corn sweeteners, and anti-dumping laws, and Canada has to put on the table the state trading enterprises and the production regimes for dairy, poultry and eggs, and then there is the tough soft wood lumber issue. Canada should not expect to waltz into the FTAA with the same broad protection for its agriculture that it was able to successfully carry forward into NAFTA, and at the same time Canada and Mexico can use this opportunity to pressure the U.S. on some of our programs.

Another key player I’d like to focus on for a moment is Brazil. Brazil borders on ten of the other twelve nations in South America. The fifth largest population country in the world, it has half of South America’s land mass, half of its people, and half of its economy, and it imagines itself the continent’s leader. It is trying to consolidate its position to negotiate FTAA with the U.S. from a position of strength. Unfortunately, Brazil has a number of protectionist tendencies and has attempted to use the Mercosur, for example, as a stick to bring the rest of South America to heel. One particularly stark example is its threat to keep Chile out of Mercosur if Chile proceeds with a bilateral agreement with the U.S.

These issues will not be resolved, from the U.S. perspective, with a helter skelter approach. It has never been more important for the U.S. to get its act together, to get Trade Promotion Authority passed, and to get going on FTAA. The WTO talks are apt to run for years -- the last round took seven years -- and it will generate important improvements in world trade. I suggest we place our highest priority on the FTAA. With the FTAA we have the opportunity to essentially eliminate all barriers to trade for a third of the world's economy and create an open market from Hudson’s Bay to Tierra del Fuego.

Agriculture in North America will benefit as South America is a deficit producer of just about everything we produce except for soybeans , sugar, and oranges. But most of all, a successful FTAA with a growth for South America that should follow Mexico’s sterling example, will provide a model for the rest of the world and prove the benefits of free and open trade. Proof positive of these benefits will, in turn, bolster our efforts to create further global openness through the WTO.

And while we’re doing all of this we should begin to tackle a free trade agreement with the Pacific coast of Asia, home to half of the world’s humanity. But that’s a topic for another day.