The United States and the European Union (EU) are two of the world’s largest agricultural producing. consuming. and trading entities. The bilateral trade relationship in agricultural products is among the world’s largest. while the two countries also compete for export markets for many agricultural commodities. The commodity makeup of agricultural production iii the two countries, productivity and competitiveness of each country’s producers, tastes and preferences, and agricultural and trade policy determine to a large extent the level and composition of U.S. and EU aricuÍtura1 trade. At the same time, both countries’ agricultural sectors and agricultural policies are changing in response to the dynamics of the world market and to the growing importance of regional trade agreements. Differences between the two countries may contribute to agricultural trade disputes an(I could account br fundamental differences in their approaches to agricultural trade liberalization in the World Trade Organization (WTO).

Both the United States and the EU have undertaken significant changes to commodity policy in the past decade. They share many of the same goals for farm policy. and in some cases. have moved toward similar approaches to meeting those goals in recent years. The two countries face similar pressures from tight budgets. trade constraints, and increasing public connection of agricultural policy with issues beyond traditional goals for supporting production agriculture.

The U.S. 2002 Farm Act introduced additional new policies, while the EU has enacted reforms that, if applied to all commodities. would fundamentally restructure the Common Agricultural Policy (CAP). Their corn modity policies remain different in significant ways—particularly their differing reliance on income versus price support, their use of surplus disposal and supply control, and their reliance on border measures. With the recent adoption of EU policy reforms, U.S. and EU commodity policies arc becoming more similar, with increased emphasis on decoupled income Support and greater focus on the interactions between agriculture and the environment.

As the European Union reduces price support for some commodities and contemplates further reforms, its producers, policymakers, and others are considering the need foi’ and the avail ability of risk management instruments for agricultural commodities. Policy changes that have increased exposure to world market prices appear to have stimulated