Washington Insider-- Tuesday

By DTN's Washington Insider

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

ITC to Scrutinize Effects of U.S. Embargo on Cuba

As one of his last actions as chairman of the Senate Finance Committee, Sen. Ron Wyden, D-Ore., has asked the U.S. International Trade Commission to report back to Congress by Sept. 15 on the economic effects that U.S. restrictions on exports and travel to Cuba have had on the communist country in recent years. With Democrats moving into the minority in the Senate next month, Wyden will lose his chairmanship to Utah Republican Orrin Hatch.

Wyden says his intention is for the ITC study to "provide a foundation for reevaluating the current U.S. economic relationship with Cuba." Wyden asked that the ITC's report include: 1) an overview of Cuba's imports of goods and services from 2005 to the present, including identification of major supplying countries, products and market segments; 2) a description of how U.S. trade restrictions, including those on export financing terms and travel to Cuba by U.S. citizens, affect imports of U.S. goods and services by Cuba; and 3) for those sectors that are expected to be most affected, a qualitative and quantitative estimate of U.S. exports of goods and services to Cuba in the event that statutory, regulatory or other trade restrictions on U.S. exports, as well as on travel to Cuba, are lifted.

The ITC study could play a role in the coming debate about President Obama's intention to relax the U.S. economic restrictions that have been in place for more than 50 years. However, politics, not economics, will be the paramount factor that will decide whether and by how much to change current policy.

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President Promises Greater Involvement in Next Year's Tax Reform Efforts

President Obama said he wants to reach an agreement with the new Congress on reforming and revamping the U.S. tax code next year and that the administration would release a more detailed plan to achieve this in the near future.

Republicans in both Houses of Congress have indicated that reform of the U.S. tax code is high on their agenda for 2015, and the president said that staff-level conversations on the subject between the White House and Capitol Hill would take place before his State of the Union speech scheduled for Jan. 20. Obama said he would "make sure that we put forward some pretty specific proposals, building on what we've already put forward."

There is general agreement between the two sides that the corporate tax rate should be lower, but they disagree on many other details, particularly when it comes to individual taxation and whether high-income people should pay more. It is those details upon which reform efforts could founder next year. There clearly is a need to reform and simplify the U.S. tax code, but some question whether the 114th Congress will be up to such a major task.

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Washington Insider: Cargo Preference

Cargo preference is not a concept most people come across very often. It refers to the legal requirement imposed on some U.S. agencies to use of higher-cost, U.S. flagged vessels for purposes like shipment of food aid — and, to impose fines for violations.

That specific requirement has been higher or lower, but currently requires half of U.S. food aid products to be shipped on U.S. flagged vessels with U.S. crews. Although the rules contain exceptions for situations where U.S.-flag vessels are unavailable, shipper agencies may determine non-availability only with U.S. Maritime Administration (MARAD) concurrence.

The issue of requiring some commerce to use specific vessels has been around for a long time, and has been criticized since its inception by shippers who argue that it increases their shipping time as well as cost, and cuts into amounts of aid that can be delivered.

Originally, MARAD provided only advice to shipper agencies and did not attempt to compel compliance. However, that approach was deemed unsatisfactory by maritime interests, who pressed Congress to pass the Merchant Marine Act of 1970 which included specific rules for cargo preference for a number of agencies.

Like considering some banks too-big-to fail, the policy has been widely seen as too well dug in politically to challenge, but for a while, during the recent furor over the fiscal 2015 budget, the preferential requirement seemed likely to be removed. Sens. Bob Corker, R-Tenn., and Chris Coons, D-Del., were initially successful in their effort to strip the Coast Guard reauthorization bill of the requirement. The two had joined food aid groups’ efforts arguing that agencies such as the U.S. Agency for International Development need the flexibility to find the cheapest and most efficient way to move aid to the needy.

The change would have meant that aid agencies would be allowed to petition transportation officials for an exemption to the 50 percent rule. However, the Senate passed its own version on last week by unanimous consent with that provision removed. The House then passed it later that day on a voice vote.

The argument for the cargo preference rule is largely historical in terms of national reliance on the merchant marine during conflicts. At one time, MARAD was required to reimburse USAID and USDA for the extra costs of cargo preference rules, but the Budget Act of 2013 eliminated that provision.

In addition, the Government Accountability Office concluded that use of U.S.-flagged vessels for food aid did little to meet the law’s objective in spite of its adverse effects on operations of the aid programs.

Andrew Natsios, former USAID administrator, reported to the Congress recently that "in the last ten years, the U.S. government has spent more on transporting, storing, and distributing the food to other regions of the world than on the food itself." He further argued that reforms need to be implemented and said "no other industry benefits more from current U.S. food aid policy more than the U.S. flagged shipping industry, which is probably why they are the strongest opponents to reform."

Critics of cargo preference suggest that it constitutes a tax on an international relief program primarily for the benefit of the maritime unions and ship owners, and is widely regarded as poor public policy. This year, once again, it seems that any chance of using this approach to make U.S. aid more effective has disappeared — but, the effort that emerged raises the odds that the policy can be changed in the future, Washington Insider believes.

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