Washington Insider - Friday

By DTN's Washington Insider

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

Opposition to Trade Promotion Grows

Nearly 600 non-governmental organizations have signed on to a letter to Senate Finance Committee Chairman Ron Wyden, D-Ore., that asks Congress to drop pending legislative proposals to grant trade promotion authority (also called "fast-track") to President Obama. The groups say that as written, the bills introduced in both chambers fail to ensure participation by all groups as U.S. trade policy is developed.

The letter calls for "a new model of trade: one that protects communities and the environment while keeping the public engaged in the policy-making process." Among other things, the groups recommend that the "new model" include a congressional role in selecting trade partners, a set of mandatory negotiating objectives, enhanced transparency and congressional certification that negotiating objectives have been met before trade negotiations can conclude.

Many are predicting that the new model put forward in the letter could prove disastrous for future trade agreements. For example, requiring U.S. negotiators to adhere to a set of pre-approved negotiating objectives would eliminate their flexibility to bargain. Those on the other side of the table would know going into trade talks what the U.S. position –– and bottom line –– was on virtually every issue. And changing the U.S. position on any issue first would require congressional approval. That approach is unlikely to result in timely consideration of trade agreements.

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Trade Bills Unlikely to Move to House Floor Before Recess

There are several trade bills currently awaiting congressional action, but it is becoming increasingly unlikely that any will be voted upon before Congress adjourns to allow lawmakers one last shot at convincing their constituents that they deserve another term in office.

Some of the proposals are seen as noncontroversial, such as a measure to extend the Generalized System of Preferences through September 2015. Others, though, like a proposal to reauthorize the U.S. Export-Import Bank, remain mired in a partisan and legislative bog with no apparent way forward.

House Ways and Means Trade Subcommittee Chairman Devin Nunes, R-Calif., has said that Congress may need to approve a "trade package" of legislation in 2014 or early 2015, including possible elements of trade promotion authority, preference programs and tariff suspensions for manufacturing inputs. That looks like it won't happen before Congress adjourns later this month, and may not take place in a planned lame duck session that would begin in mid-November.

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Washington Insider: OECD on Trends in Farm Supports

As producer groups await the full implementation of the new Farm Act programs, there is still sensitivity in some quarters about the level of government support for the new safety nets. This has led to the argument that "everybody does it" with regard to supports by other countries — a somewhat tricky argument to make because programs are very different elsewhere and the available data are sometimes spotty and old.

Recently, the Organization for Economic Cooperation and Development reported its most recent findings on this subject and concluded that "Government support for agriculture in OECD member countries remained on a downward trend in 2013," although it continued to worry that too much of this intervention distorts markets.

The report's key finding was that its new 2014 study found that support to producers in 2013 amounted to 18% of gross farm receipts, down slightly from 2012 and far lower than the nearly 30% observed two decades ago. Half of the $258 billion total in 2013 was in "instruments that distort production and trade" the group concluded.

As a result, the organization called on governments to do more to break links between farm support and production and increase their focus is on improving agricultural productivity and sustainability. OECD said that recent high prices and high incomes in the farm sector have created the right conditions for deeper reform of agricultural policies and "much more needs to be done beyond fine-tuning." The group is particularly concerned that "production and trade-distorting support could inch back up in some countries if agricultural prices were to fall."

The report highlights the big differences among OECD countries in the level and composition of farm support and finds unequal progress in reform. Despite an overall trend of lower support and a shift to de-linking it from production, some countries still rely heavily on market interventions that can affect prices — while some others do not.

As is usually the case, Australia, Chile and New Zealand limit themselves to safety net measures, disaster relief and R&D, transferring less than 3 percent worth of gross farm receipts in support. By contrast, Iceland, Japan, Korea, Norway and Switzerland all have Producer Support Estimates above 40 percent of gross receipts.

The report recommends that governments make their farm policies more coherent with macroeconomic, trade, structural, social and environmental policies and should reduce impediments to structural adjustments to attract financial and human resources to the sector.

The organization also worries that some of the recent changes in programs appear to be backsliding, so it recommends for the future that countries consolidate past farm support reforms and avoid any recoupling with production. And, it urges that funds freed up by more efficient support practices be invested in education, infrastructure and research in the sector. It also urges governments to be bolder about prioritizing the environment and the sustainable use of natural resources.

Finally, the organization urges that payments to mitigate income risks not be allowed to crowd out market-based risk management tools and farmers' own management of normal business risks.

Several things need to be said about this report. The first is that most of the comparisons were based on the years 2011-13, which means that the new U.S. farm Act programs are not represented. And it is noteworthy how large the approximately 37 percent of gross returns gap is between high-support countries the low-support exporters.

It also is interesting that while supports in the European Union are slightly higher than the OECD average, those in the United States are far lower — about one-third of that average during the period.

At the same time, the key to how the United States is seen to rank in terms of government interventions in the sector in the future will depend on how OECD and other trade monitors evaluate the new insurance-based programs. This is especially relevant because OECD took pains to urge that risk mitigation payments not be allowed to crowd out producers' "own management of normal business risks." Critics are likely to argue that U.S. programs have moved sharply in that direction for at least some commodities.

This implies that the international organizations may well question what share of "normal business risk" competitive producers should expect to bear, and what levels of premium subsidies for risk management might be found "market distorting" and subject to challenge from trading partners now and in the future.

At this time, those criteria are less than crystal clear and how they are defined will be very important to U.S. producers who compete for important overseas markets, Washington Insider believes.

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