Washington Insider -- Friday

CRS: US Programs Vulnerable to WTO Challenge

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

Millions Being Poured into Oregon, Colorado Referenda on Biotech Food Labeling

New reports filed with the Oregon Elections Division show that Measure 92, the ballot initiative to require labels for any food containing genetically modified ingredients, is now the costliest in state history. As of last weekend, the opposing sides in the battle had raised $16.7 million on Measure 92, a record for a voter initiative in Oregon, the Portland Tribune reported.

By far, the biggest cash contributor on the "no" side of the Oregon referendum is Monsanto, which has donated more than $4 million to defeat Measure 92. On the "yes" side, Dr. Bronner's Magic Soaps leads the way with contributions totaling $1,150,000, while the Center for Food Safety Action Fund also donated slightly more than $1 million.

In Colorado, the other state where a similar GMO-labeling initiative is on the ballot, approximately $20 million has been spent so far by the measure's opposing sides, the Rocky Mountain News reported. Just as in Oregon, and in California in 2012, the bulk of that money has come from corporate interests that oppose GMO labeling.

If the Colorado and Oregon proposals are approved, it won't be due to lack of effort by their opponents. But the millions being spent on both sides of this issue give a good indication of how important food labeling has become.

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Reduced Trade with U.S. Holding Back Economic Growth in Canada, Says Bank of Canada

For years, Canadian exporters have been warned against relying too extensively on the United States to buy their products. And, while that recommendation has been taken to heart by a number of Canadian industries, it apparently hasn't been enough to insulate the overall economy.

In a report this week, Bank of Canada Governor Stephen Poloz blamed a decline in international sales of goods that are primarily exported to the United States for an "output gap" that will limit Canada's economic growth prospects. Canadian companies see an improving outlook for Canada's exports, largely due to the recovery of the U.S. economy and a lower Canadian dollar, but the export sector is clearly "less robust" than in previous recovery periods, Poloz said.

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The detailed report identifies nearly 500 sub-sectors of the Canadian economy that have been under-performing, with the value of their combined exports down more than 75% since 2000, Poloz said. More than one-third of the overall decline in the sub-sectors that are clearly under-performing has resulted from lower exports of heavy trucks, but notable declines have also been reported for train locomotives, small passenger automobiles, wooden furniture, and knitted fabrics, the report says. Many of those products are exported primarily to the United States.

If Canadian exports of crude oil and natural gas to the United States were to increase significantly, as has been predicted if more pipelines are built, Canada's energy economy would likely see a major boost. Whether the infusion of more cash into the energy sector would trickle down to the larger economy of the country –– absent greater exports to the United States –– remains to be seen.

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Washington Insider CRS: US programs Vulnerable to WTO Challenge

As the United States has shifted its ag policy focus toward domestic markets rather than trade, it has become increasingly vulnerable to trade litigation, according to the bi-partisan Congressional Research Service in a recent report.

CRS notes that proposals currently under discussion in the World Trade Organization Doha Round talks could create pressures to significantly lower certain types of US domestic farm support and eliminate export subsidies. However, US producers also could gain wider access to foreign markets under proposed Doha agreements, CRS says.

With respect to agriculture, WTO trading partners are discussing new disciplines concerning domestic agricultural support, export competition and market access. Specifically, the talks have attempted to secure tighter spending limits on trade-distorting domestic support, the elimination of export subsidies and expansion of market access through increased quota commitments and limits to the use of import safeguards and other trade barriers, according to the report.

These changes, CRS says are part of the current set of Doha Round proposals relating to agriculture include agreement on specific spending limits for on amber box (trade-distorting) domestic agriculture programs. For example, WTO notifications data indicate that the US, EU and Japan collectively accounted for 85% of global domestic support outlays between 1995 and 2010. In 2008, the US accepted a proposed reduction to its overall trade-distorting support from $48.2 billion annually to $14.5 billion.

The report says that current US programs could be accommodated by the proposed limits with few to no changes under recent market conditions. However, weaker markets with prices substantially below support levels for an extended period could push spending over the limit. For example, USDA estimates outlays for its Price Loss Coverage and Agricultural Risk Coverage programs could reach as high as $10.9 billion in 2016 according to CRS.

Some analysts are forecasting a substantial increase in government payments to farmers much higher than the amounts estimated earlier. For example, Vincent Smith, director of the Agricultural Marketing Policy Center at Montana State University, says that based on lower market prices for a number of crops, government payments this year could reach $6.5 billion or about $4 billion more than lawmakers anticipated in the farm bill.

The Doha draft on export competition also would require developed countries to eliminate their agricultural export subsidies. While the US has the second-largest level of permissible export subsidies under current WTO standards, the report said, global elimination of agricultural export subsidies has long been an objective of US trade policy and the US has since 2008 revoked legislative authority for the Export Enhancement Program for wheat and the Dairy Export Incentive Program.

So, does this actually mean new pressures on the new 2014 ag Act programs? The Doha Round began in Doha, Qatar, in 2001 with only spasmodic progress since that time. The talks currently are stalled because WTO members failed to meet a July 31 deadline for opening the Trade Facilitation Agreement for domestic ratification by the members.

This was largely due to India's objection that the organization was not doing enough to reach a permanent solution on the issue of food security, a major issue for India. Since progress in the Round, including the step now under consideration requires 100% agreement from the WTO membership, any single country can block the process as far India has done so far.

Now, as new programs are implemented under the new US Act, the question is whether the United States will continue its long-standing push toward more open markets, along with global elimination of export subsidies, strong disciplines on domestic market interventions and broad dependence on science-based sanitary-phytosanitary regulations under the Trans-Pacific Partnership, the US-EU FTA and other bilateral trade deals.

In fact, the prospects for better global access to growing markets seem bleak just now. The outlook for an ambitious wrap-up for Doha seem remote and many critics charge that the US has lost interest in trade amid the push by commodity groups and others for more protections. Increasingly, the US has found itself on the defensive in trade litigation over labels the WTO says are discriminatory; on cotton programs that were found to violate earlier US agreements; on Mexican Truck access to US buyers negotiated in NAFTA two decades ago; over sugar from Mexico, among other trade fights.

In addition, the lack of "fast track negotiating authority" for the President raises challenges even in the high priority talks underway in the Atlantic and Pacific regions.

Thus, the CRS warning that the United States could be in violation of earlier agreements if markets weaken needs to be taken seriously. This is especially true since trading partners seem fully aware that strong US political pressures can be mobilized by the imposition of heavy trade sanctions following successful litigation.

Many observers have argued for some time that trade policy has been an "empty chair" in recent policy debates. Now, evidence seems to be mounting that the empty chair policy has significant weaknesses that should be kept fully in mind, Washington Insider believes.


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