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.

GOP Supports Obama's New Sanctions on Russia

In something relatively different for Washington these days, congressional Republicans are applauding President Obama’s announcement of new sanctions against Russia for its continued intervention in Ukraine, at least as far as those sanctions go. They also are calling for even more punishing measures, including military aid to Kiev. Those calls increased yesterday following the reported shooting down of a Malaysia Airlines passenger plane by separatists in eastern Ukraine.

Obama earlier stepped up the sanctions by targeting several defense and energy companies and large banks, after U.S. intelligence officials concluded that Moscow had not halted the supply of fighters and weapons to pro-Russian separatists across the border in eastern Ukraine. While the new sanctions don’t go after entire sectors of the Russian economy, as some U.S. officials had threatened, they target some of Russia’s most prominent businesses in the energy, banking and defense sectors.

Democrats also gave their support for the new sanctions but warned of tougher measures if Putin fails to halt his intervention in Ukraine.

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Food Stockpiling Continues a Sticking Point in 'Bali Package'

Time is rapidly running out for the 160 members of the World Trade Organization to approve the so-called "Bali package" that was developed last December at the Indonesian resort city and that must have unanimous approval by July 31.

One of the major sticking points is how the WTO will categorize food stocks acquired and held by governments. Some developing nations –– primarily India, China and Cuba –– want the money they spend for food security programs to be counted as "green box" subsidies that are exempt from WTO disciplines on domestic agricultural subsidies. The United States and European Union oppose the developing nations' plan, reasoning that those countries could use government food purchases as a backdoor subsidy for their farmers.

This is especially true for India, which in recent years has increased its exports of a number of farm products, thus indicating that India may not need to maintain food security stocks. However, India says that unless it can operate its stockpiling program, it will not agree to the Bali package. This would be yet another major blow to the WTO's Doha Round and a set-back that would take months, if not a year or more, to overcome.

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Washington Insider: More Nuances for Trade Policy

In an interesting article this week, the Financial Times cited global trade policy experts from the Organization for Economic Cooperation and Development, World Bank and the World Trade Organization in its argument that current trade talks are too old fashioned. New thinking is needed to adapt trade policy to reflect globalization, the experts warned. Countries need to do more to adapt trade policies to the 21st century realities of globalization and international supply chains.

The Times is probably right, but the argument is a subtle one. Trade deals and policy debates are too often caught up in discussions of old-fashioned concerns like tariffs, the economists warned in a joint report prepared for G20 trade ministers gathering in Australia this weekend. They warn that governments are increasingly flirting with "local content" and other policies that are likely to prove self-defeating by making it harder to create jobs linked to global supply chains.

"The way that trade policy is conceived requires adjustment," the three organizations said.

Most major companies now operate global supply chains involving dozens of suppliers in many different countries. Those suppliers are often linked via complex cloud-based IT systems that shepherd everything from the ordering and movement of parts to the payment of invoices, and are linked to new forms of trade financing. The result, the joint report says is that more than 70% of global trade is now in intermediate goods and services and capital goods.

But that reality is rarely reflected in trade agreements or in many governments' approaches to trade policy, both of which are frequently focused on bilateral trade relationships or the desire to protect local industries from increased competition.

Even when trade negotiations (such as those in the Pacific Rim to reach a 12-country Trans-Pacific Partnership and across the Atlantic between the European Union and United States) are billed as "21st century agreements," they often are bogged down in contentious discussions over issues such as tariffs on agricultural products.

The report argues that the economic rewards of being part of global supply chains outweigh the costs, with many small and medium enterprises often able to benefit hugely. But those global supply chains still face barriers that countries need to tackle if they want to reap the benefits.

Those include different regulatory standards in developed economies, a subject of discussion in the EU-U.S. talks now under way, and the often tightly controlled markets for services, which are increasingly seen as an important component of manufactured products. In developing economies long delays at borders due to access to reliable infrastructure also remains a major issue, the report said.

Angel Gurría, secretary-general of the OECD, said the role of global supply chains highlighted the need to implement the "trade facilitation" agreement to reduce red tape at borders which was struck by WTO members in Bali last December. Both India and South Africa, two G20 members, have in recent weeks said they were prepared to block the implementation of the trade facilitation deal because not enough was being done in the WTO to deliver on other things agreed in Bali.

But, most importantly, the report said, the debate on trade policy needs to shift away from the traditional focus on exports versus imports. Instead it needed to focus on how tariffs and other traditional trade tools need to change to ease the way for global supply chains.

The argument that trade negotiations need to elevate considerations of the effects agreements will have on global supply chains is important, but needs to be considered carefully. In agriculture, for example, substantial amounts of trade are still in bulk commodities that supplement domestic production in importing countries and direct restrictions like tariffs or quotas and indirect restrictions like local content rules are far from outdated and frequently are quite burdensome.

Thus, the modernizing features of "21st century" trade deals are important, but, the old bread and butter trade interventions –– including tariffs –– continue to deserve careful attention in an increasingly complicated world, Washington Insider believes.

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