Washington Insider--Thursday

Currency Manipulation and the WTO

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

Immediate Costs, Delayed Benefits Greatest Enemy of Climate Change Preparations

The focus on short-term results is affecting how the nation responds to climate change, said Stanley Meiburg, acting deputy administrator of the Environmental Protection Agency. Speaking earlier this week at the 2015 Climate Leadership Conference in Washington, Meiburg said the perception is that "the costs of actions to address climate change are tangible and present, while the benefits [of doing so] are in the future."

Meiburg and other speakers at the conference focused more on what they called "climate-resilient infrastructure" than on steps that could be taken to reduce greenhouse gas emissions. For example, a participant representing a New Orleans-based energy company said every dollar the company invests in protecting its facilities from future hurricanes will yield an estimated $5 in avoided losses.

It is relatively easy to convince most policymakers, legislators and members of the business community that a $1 investment that increased profits by $5 is a good deal. More challenging will be to convince them that a $1 investment can cut future losses by $5 also is a good deal.

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Sen. Markey Curious About Who is Funding Climate Change Skeptics

Sen. Ed Markey, D-Mass., this week told Bloomberg BNA he plans to investigate whether oil and other fossil fuel companies, industry groups and others funded research designed to cast doubt on the role of human activity in climate change. "We just want to continue to be pointing out how much funding comes in from these sources that have a stake in denying climate change and trying to make that public," Markey told the news service. "To have a debate on science requires the science be unimpeachable, in terms of its source."

One of the better known of the climate change skeptics is a man called Wei-Hock (Willie) Soon, an aerospace engineer who is a "part-time researcher" at the Harvard-Smithsonian Center for Astrophysics, according to a Smithsonian statement. Over the past decade, Soon reportedly has received more than $1.25 million from Exxon Mobil, Southern Co., the American Petroleum Institute and a foundation funded by conservative groups for his research. Greenpeace obtained the documents through a Freedom of Information Act Request.

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It is too early at this point to know whether Sen. James Inhofe, R-Okla., who denies any human role in climate change and chairs the Senate Environment and Public Works Committee, will hold hearings to determine whether the fossil fuels industry has paid for past climate change research and testimony by climate change skeptics before a number of congressional committees, including Inhofe's.

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Washington Insider: Currency Manipulation and the WTO

The administration has recently boosted its visibility in the fight for Trade Promotion Authority -- the "fast track" process that would give the president the power to negotiate trade agreements which then would be submitted to Congress for an up-or-down vote on a fixed schedule. Without it, new agreements have become nearly impossible to complete, experts say. The main focus now is the Trans Pacific Partnership, a huge 12-nation free-trade pact that appears to be nearing completion.

At the same time, protectionist efforts to oppose the policy have grown steadily and now are focusing on what has long been an outlying issue, currency manipulation.

The effort is modestly bipartisan as lawmakers in both chambers of Congress are pushing for "strong and enforceable" language in forthcoming legislation covering both TPA and with the TPP. Among other things, this "strong and enforceable" language seeks to force the World Trade Organization treat "currency manipulation" as a violation of international trading rules and to "punish" countries that practice currency manipulation.

Sen. Sherrod Brown, D Ohio, for example, supports adding a provision to TPA legislation that would allow the Commerce Department to impose duties on products from countries that manipulate exchange rates.

The opposition argues that currency concerns are far more complex than the trade regulations typically looked after by the WTO and that drafting workable currency rules not only would have unexpected consequences but also is beyond the capacity of WTO to enforce. As a result, Senate Finance Committee Chairman Orrin Hatch, R-Utah, has pointed out he doesn't believe "we can do the full currency manipulation in that particular bill and expect it to pass." Hatch chairs the panel that oversees the Treasury and said he will work with Democratic Sen. Chuck Schumer of New York on a "separate bill, at least we'll do what we can on currency manipulation."

Observers suggest the issue has become both extremely political and powerful, to the point that a growing number of lawmakers argue that not including currency manipulation language trade bills will give protectionist lawmakers "cover" to vote against either the TPA or the eventual vote on the TPP trade agreement.

At the same time, it is widely argued that any currency language in trade provisions could encroach on the Treasury's traditional role as foreign-exchange negotiator. And, experts argue that including currency issues in trade agreements could be counterproductive.

On that issue, Sen. Hatch "firmly believes that currency policy falls under the purview of the Treasury Department," said Julia Lawless, a spokeswoman for the senator. Congressional action to address currency manipulation should be "done carefully and not in a way that could threaten the health of the nation's economy or constrain the nation's ability to respond to changing economic circumstances," she added.

In addition, Federal Reserve Chair Janet Yellen told a Senate hearing Tuesday that she "would really be concerned about a regime that would introduce sanctions for currency manipulation into trade agreements." That could expose the United States to international challenges to Fed monetary policy which Yellen maintained "is not currency manipulation."

In spite of potential to harm important U.S. monetary policies, U.S. politicians have found it useful to accuse China, among others of currency manipulation and insist on tough sanctions as a result -- in spite of growing signs in recent months that China has scaled back currency interventions. Treasury Secretary Jack Lew, under questioning from Schumer at a hearing earlier this month, said China has responded to U.S. pressure on exchange-rate manipulation.

Nevertheless, Schumer and several other senators introduced legislation this month that would allow the Commerce Department to impose duties on products from countries that manipulate exchange rates, effectively offsetting any advantage they had sought. The senators would like to see the bill passed as part of any deal on fast track.

The Trade Promotion Authority proposal Sen. Hatch sponsored in the last Congress included language on currency manipulation that was weaker than the enforceable provisions some senators are currently promoting. It called on U.S. trading partners to "avoid manipulating exchange rates" to boost their competitive advantage but did not specifically list either possible violations or enforcement measures. Lawmakers seeking stronger language call this approach "too weak" and argue that the Treasury Department has not been aggressive in pursuing currency manipulations by trading partners.

This is not a new fight but it is important. Increasingly, trade advocates believe it has little to do with actual currency problems but is a political tool being used to undercut support for fast track, which has always been a hard sell to the Congress.

In general, the politics and economics of trade are complex, although, for agriculture, trade is extremely beneficial with clear cut benefits. Thus, the intense fight over TPA, and the eventual completion of the Trans-Pacific Partnership trade agreement should be watched closely by producers as it progresses, Washington Insider believes.


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