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.

Vilsack: No Regulatory Fix on COOL

"We've done a 360-degree look and I can tell you that we do not think there's a regulatory fix that would allow us to be consistent with the (country of origin labeling -- COOL) law, which I've sworn to uphold, and to satisfy the WTO," USDA Secretary Tom Vilsack said. COOL, the May 24, 2013, USDA rule forces retailers and meatpackers to detail where the livestock from which the meat came was born, raised and slaughtered.

Meat producers in Canada and Mexico challenged the legality of the rules at the WTO, saying the labels unduly burden them by making their livestock less appealing to U.S. meatpackers, which have to separate and label meat not raised in the U.S. The WTO on Oct. 20 ruled against the U.S., calling the rule a "technical barrier" to trade, adding it discriminates against meat imports. Mexico and Canada have threatened trade sanctions on U.S. products in retaliation.

The U.S. could still appeal the WTO's decision, and U.S. negotiators could still come to an agreement around the rules with Mexico and Canada. Alternatively, Congress could change the rules. Congress could, Vilsack said, "give us different directions that would allow us to comport with the WTO ruling to prevent whatever potential retaliation may occur." Changing COOL standards would likely anger the coalition of groups that support the COOL rules.

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Lawmakers Discussing Tax Extenders Compromise

Lawmakers want to act before the end of the year to extend some, if not most, of the more than 50 tax incentives that expired at the end of 2013, including the biodiesel and equipment expensing tax incentives popular in farm circles. But several potential deals are under discussion.

Of those, three options seem to be gaining the most favor: A two-year retroactive package, a one-year retroactive package, or a hybrid of the House and Senate approaches that would extend most of the expired breaks for two years while permanently renewing a handful of others.

A two-year package, through 2015 and based on the Senate's preferred measure (S 2260), is "not really an option" for House negotiators at this point, Ways and Means Committee Chairman Dave Camp, R-Mich., said on Nov. 14. "We've had big bipartisan votes on these things," said Camp, suggesting the House may wait for the Senate to pass its own bill. "I mean, the House has spoken; the Senate hasn't voted on any of this stuff yet."

House Majority Leader Kevin McCarthy, R-Calif., said the next step would be up to the Senate but that House Republicans hope work on extenders is completed before the lame-duck session ends Dec. 11. "Negotiations are still going on in the Senate," he said.

The Senate will likely carve out one of the dozen House-passed extender bills and replace it with the Finance Committee's $84 billion package temporarily renewing the tax breaks to send it back to the House.

Senate Majority Whip Dick Durbin, D-Ill., said there would probably be some horse trading as Senate Democrats push for a permanent extension of their own favored breaks -- including the Earned Income Tax Credit and the Child Tax Credit -- in exchange for including a permanent renewal of the research and development credit.

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Washington Insider: Cotton Policies and the Future of Trade

More than a decade ago, Brazil and other developing country cotton exporters challenged U.S. cotton subsidies in the WTO and won. A WTO dispute settlement panel ruled against the United States on a number of specific claims, and in mid-2009, the WTO found that U.S. programs had damaged developing-country farmers. Last month, the United States reached a deal with Brazil to accept a one-time payment of $300 million to the Brazilian Cotton Institute "to settle the case."

As a result, the industry, Congress and USDA officials, among others, heaved a huge sigh of relief that the long, long cotton case was finally over.

However, some observers suggest the implications of the cotton case are far from over and that the spectacle of a rich country buying off a challenge by a poorer country without actually making the policy changes won through litigation certainly could attract notice by other trading partners.

So, it was no surprise that Turkey has begun an anti-dumping investigation against U.S. cotton exporters, and is sending questionnaires to shippers that are to be completed in just over one month, according to the National Cotton Council.

Turkey is a large cotton producer, but also was the second-biggest cotton importer behind China in 2013-14, buying 924,000 metric tons, according to USDA. The United States is the biggest exporter, shipping 2.29 million tons of cotton in 2013-14.

Still, the current investigation is unusual in that it was initiated by the Turkish government, "apparently without a request from the Turkish cotton industry," the National Cotton Council told the press. The investigation is specific to exporting companies and the U.S. government is not a party to the case, the council said.

Experts suggest that WTO guidelines to support anti-dumping duties require that Turkey would have to find: That U.S. cotton was dumped there; that Turkey's domestic industry has been damaged; and it can be demonstrated that any injury was a direct result of the U.S. cotton sales.

If the investigation confirms dumping, duties could be applied for as much as five years and would be company specific, the council said.

Critics charge the United States has not paid adequate attention to trade policies in recent years and also suggest there may be another component involved. In the Brazil case, the United States decided to use public funds to pay off a challenger without making the policy changes Brazil had won the right to impose and which, presumably, could have ended the litigation without U.S. payment. Observers suggested initially this was too good a deal for the Brazilian producers to pass up. So, while differences in the market positions of Brazil and Turkey may make it hard for Turkey to build on Brazil's WTO victory, the precedent set might make it worth the candle to try.

The United States has traditionally been a large and successful ag products exporter, assisted in recent years by policies that have supported U.S. global leadership in broader market access for the industry as a whole. However, in the recent farm policy debates, the task of re-fashioning commodity safety nets away from direct payments toward subsidized, insurance-based instruments drew most of the attention. At least partly as a result, U.S. protections were increased in several areas.

In the old days, the Uruguay Round provided a "peace clause" against litigation concerning trade policies approved under those 1990-era rules. However, that protection has expired and is unlikely to be reinstated, opening the possibility of trade litigation.

At the same time, the U.S. ag sector is deeply involved in free-trade negotiations in both the Atlantic and Pacific regions, and the stakes are high for producers in both. Trade likely will have greater support in Congress now for stronger negotiating tools and possibly better support from the administration as well.

It may be time to consider what is needed to make U.S. products more competitive and to expand market access throughout the hemisphere, in addition to the ongoing regional talks. This would require producers to consider what is needed to reassert U.S. leadership in the push for broader market access once again, Washington Insider believes.

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(GH/CZ)

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