Washington Insider - Monday

By DTN's Washington Insider

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

Some House Farm-State Lawmakers Want to Open Up 2014 Farm Bill

Some lawmakers want to take a look at the conservation compliance requirement in the 2014 Farm Bill for the 2016 crop insurance year. Proponents say the provision simply defers penalty for a year to allow producers to certify compliance and USDA to adequately deal with the rule.

Lawmakers say no farmer should lose coverage due to a paperwork issue but apparently there producers who are not compliant due to paperwork glitches. An extra year would give USDA time to deal with this problem.

Others say that as written, the rule is like a strict liability provision – if a farmer is found out of compliance and finally determined to be so, even if he takes action to come back into compliance and does so before his next sales closing date, the producer would still be out of premium support for that crop reinsurance year.

Farm-state lawmakers want to bring growers back into compliance as quickly as possible. If these things are fixed, there is less reason for Congress to defer the penalty. Most observers say USDA has done a good job so far, but officials need to keep on that track and finish the job. If they do, there would be little reason to defer the penalty.

Another item up for debate is the restoring the use of commodity certificates for the marketing loan program, including not being subject to payment limits. This provision of the 2014 Farm Bill is primarily aimed at dealing with a cotton program issue.

The cotton marketing loan has been providing a floor under prices. But the marketing loan gains and LDPs are also creating a situation because marketing loan gains and loan deficiency payments will count against the $125,000 per-entity payment limit in the new law (double for eligible spouse).

When adding potential payments from the PLC or ARC programs for other crops, the total may exceed the payment limit. Cotton lobbyists have been in discussions with USDA, and they had been working on a methodology to try to track how many payments, how many marketing loan gains or loan deficiency payments are attributing to a producer’s individual limit. This is first time a limit applied to the marketing loan gain and LDP at the same time there has been direct attribution. The House provision addresses this problem, and there appears to be ample bipartisan support for this correction.

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Mercosur Teams Fail to Agree EU Market Access Offer

Members from the South American trading bloc met last week in Paraguay (August 18), hoping to come to a long-awaited agreement on tariffs for negotiations with the EU. But it was not to be.

Having stalled since 1999, talks on the EU-Mercosur pact revived in 2010, yet market access offers have still not been formally exchanged. The Mercosur countries (Brazil, Argentina, Uruguay and Paraguay, with Venezuela a member but not yet involved in the talks) have often disagreed about the level of ambition on a potential trade deal with the EU, which has held up talks.

Brazil, the last holder of the rotating Mercosur presidency, and Uruguay had previously been seeking a potential ‘two-speed’ approach to the negotiations, due to their desire for a deal on the one hand, and Argentina’s reluctance to open its markets.

EU and Mercosur negotiators met in Brussels in June to discuss progress on the trade deal. In a Joint Communiqué issued after the Ministerial Meeting, both sides admitted barriers remained but “the goal shall be to exchange market access offers within the last quarter of 2015.”

Despite the setback, German Chancellor Angela Merkel – in Brazil for two days of meetings – said August 20 that there was “new momentum” for an eventual EU-Mercosur pact to be reached. She said that while talks were indeed going very slowly, “Brazil and other countries are very ambitious”, and that she had confidence a deal would get done.

Brazil’s Agriculture Minister Katia Abreu recently said that the Mercosur bloc had “virtually agreed on the proposal” and that she expected an offer to be given to the EU by the end of the year, at the latest.

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Washington Insider: Fight Over Currencies

While the last week’s market meltdown may mean that all bets are off with regard to trade policy concerning China, a high stakes political debate was already underway on the same issue. The focus was a proposal by the Senate Democratic leader-in-waiting, Charles Schumer who says he expects to engage in a serious fight with the White House over his proposal to confront China’s currency policies using trade penalties.

Schumer wants House-Senate negotiators to include Senate-passed language constraining currency manipulation when conferees write compromise customs-enforcement legislation next month. He and other critics want to use tariff increases to punish China for its recent policy shifts. Schumer says he will insist on his provision.

“What China did last week makes fighting for currency reform even more important,” he told the press. Groups supporting his effort include the AFL-CIO, the Alliance for American Manufacturing and American Iron and Steel Institute.

Still, Schumer faces opposition from the White House and major business groups such as the US Chamber of Commerce. Although stopping short of threatening a veto the administration was sharply critical of the effort in its statement of administration policy in May.

This is actually an old argument. It would attempts to use tariffs measures to impose broader concerns that most experts think can only effectively be hammered out in broader international negotiations. Unilateral use of tariffs to attempt to regulate currency shifts is considered extremely risky since it typically has led other countries to retaliate. In addition, such a policy is considered virtually impossible to administer.

The two Republican chairmen who lead the conference committee- Orrin Hatch, R-Utah, of Senate Finance and Paul Ryan, R-Wis., of House Ways and Means--also oppose Schumer’s approach.

“Members are making good progress in their discussions to produce a strong customs conference report this fall,” Finance spokeswoman Julia Lawless told the press in the wake of China’s initial weakening of the yuan. “Chairman Hatch remains concerned about any legislative proposal on currency that could lead to trade sanctions or other countries imposing retaliatory tariff increases on US exports.”

The Senate’s No. 3 Democrat, Schumer is in line to become the party’s leader in 2017. The current leader, Harry Reid, has announced he will not stand for re-election.

China has tried to bolster its flagging economic growth using a devaluation of its currency that makes its exports cheaper—which US critics say has contributed to a $343 billion trade deficit with China last year. The Senate-passed version of the customs enforcement bill would establish a special process to deal with accusations of currency manipulation as subsidies that lead to tariff increases.

Ways and Means spokesman Brendan Buck says the House provisions, which don’t tie currency manipulation directly to tariffs, are sufficient.

Supporters of the Senate language acknowledge the difficulties they face including the fact that key Republican supporters of the use of tariff penalties were excluded from the conference committee. The Senate conferees are Hatch, John Cornyn of Texas, John Thune of South Dakota and Johnny Isakson of Georgia. Of these, only Isakson, support the tariff approach.

However, Finance Committee members and tariff penalty supporters Richard Burr of North Carolina, Mike Crapo of Idaho, Chuck Grassley of Iowa, Rob Portman of Ohio, Pat Roberts of Kansas and Tim Scott of South Carolina will not be part of the conference committee.

Currency shifts in value have long been tough problems for competitors, but rigid mechanisms intended to control variations in value like currency pegs or other arbitrary limits have proven to be extremely crude—and to risk creating spirals of retaliation. At the current moment, high market volatility makes the temptation for Congress to “do something” a strong political instinct. However, in extremely complex relationships like the ones between the United States and China, among others, it almost certainly will be far better to resist the easy fix and continue to rely on the tedious route of broad-gauge negotiations to deal with currency shifts, Washington Insider believes.

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(GH/CZ)

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