International Economic Law and Policy Blog

The Farm Bill and the U.S. Trade Policy Review

Reader R.V. Anuradha points me to this Reuters report on the forthcoming U.S. Trade Policy Review done by the WTO:

In agriculture, some programs may provide incentives that are inconsistent with market signals and affect trade when supported output reaches world markets, it said. “The expiration of the 2002 Farm Act, and the current environment of high commodity prices, offers a favorable juncture to introduce policy change aimed at further improving the market orientation of the agriculture sector to the benefit of both consumers and taxpayers,” the WTO said.

From everything I've read about it, it seems like the new Farm Bill was a missed oppotunity in this regard.

Obama and McCain on Farm Subsidies

The U.S. Senate approved the farm bill today.  The bill is now off to the President for an expected veto, but there appear to be enough Congressional votes to override the veto.

What do the candidates think of it?  Well, neither McCain nor Obama was there for today's vote, but here is what they have said on the issue:

-- From McCain:

"I have to give you a little straight talk about the farm bill that is wending its way through Congress," McCain said Thursday at the Polk County Convention Center in Des Moines. "I do not support it. I would veto it," he said. "I would do that because I believe that the subsidies are unnecessary."

-- As for Obama, I haven't found anything specific he said recently, but late last year he was supportive of the overall package as it stood at the time.  See here and here.  Here's an excerpt:

I was disappointed to see that important improvements and solutions for our family farmers in this bill fell victim to partisan politics and obstructionism. Those who stood in the way of this bill stood against our farmers and a clean energy future. While the bill that passed committee didn't include everything I would have liked, including specific reforms to help family farmers instead of big agribusiness, it did take much-needed steps to invest in conservation, nutrition, specialty crops and rural development. It provided funding for renewable energy and recognized farmers who are working to reduce our dependence on foreign oil. And it included a packer ban, which is so important for market transparency.

More on what's in the bill here: http://ap.google.com/article/ALeqM5hKiCUGVmDQJYT51475bq5PwW3aXwD90LMH2G0

ADDED:  I spoke too soon.  Here is an Obama press release from today:

"I applaud the Senate's passage today of the Farm Bill, which will provide America's hard-working farmers and ranchers with more support and more predictability."

"The bill places greater resources into renewable energy and conservation. And, during this time of rising food prices, the Farm Bill provides an additional $10 billion for critical nutrition programs. I am also pleased that the bill includes my proposal to help thousands of African-American farmers get their discrimination claims reviewed under the Pigford settlement."

"This bill is far from perfect. I believe in tighter payment limits and a ban on packer ownership of livestock. As president, I will continue to fight for the interests of America's family farmers and ranchers and ensure that assistance is geared towards those producers who truly need them, instead of large agribusinesses. But with so much at stake, we cannot make the perfect the enemy of the good."

"By opposing the bill, President Bush and John McCain are saying no to America's farmers and ranchers, no to energy independence, no to the environment, and no to millions of hungry people."

ADDED #2:  And more from McCain:

“The American taxpayer has been told before that Farm Bills and their thirst for subsidies were a necessary evil to provide our county—and the world—with affordable, abundant food. Today, as food prices reach historic highs, they’re being told the same thing. We must challenge that notion as grocery bills soar, food banks go bare, and food rationing occurs on a global scale. We must question policies that divert over 25 percent of corn out of the food supply and into subsidized ethanol production. Do Americans really want a support system that costs consumers $2 billion annually in higher sugar prices? Will we truly reduce our dependency on foreign oil by extending tariffs that make it too expensive to invest in sugar ethanol production? Can we honestly demand fair and free trade at Doha while domestic cotton growers dump subsidized cotton on the world market?

“The Farm Bill conference report is expected to cost taxpayers around $289 billion dollars. According to the Congressional Budget Office, this bill will exceed the government’s budget by $10 billion. But the Administration points out that with clever accounting made famous by Congressional budget dodgers, the real cost of the bill will exceed the government’s budget by about $18 billion. And even though Democrats and Republicans in both chambers have promised to rein in pork barrel spending, this bill betrays that promise. Buried within its hundreds of pages are special favors like:

§ $170 million dollar bailout for the West Coast salmon industry included at the insistence of the Speaker of the House.

§ $93 million in special tax treatment for race horses.
$260 million in tax cuts for the timber industry.

§ $15 million for asparagus growers. During debate on the Senate farm bill last year, my colleague Senator Gregg offered an amendment, which failed, to strike this provision. This is a crop that has never before received farm subsidies.

§ $175 million would be transferred to Bureau of Reclamation for activities at three Nevada lakes.

§ $500,000 to the Walker River Paiute Tribe for legal and professional services in support of settling tribal water claims. Other tribes have dealt with water rights without a half million dollar earmark.

§ $5 million for joint planning and development activities for water, wastewater, and sewer facilities by the city of Fernley, Nevada, and the Pyramid Lake Paiute Tribe.

§ The bill authorizes a myriad of grant programs including grants for research into pig genetics, grants for the preservation of historic barns, and $300 million for the Sun Grant Program, which provides grants to 6 universities and science centers that conduct bioenergy research.

§ $20 million goes to the collection and storage of seeds for research purposes.

§ $75 million for a crop research facility in El Reno, Oklahoma.

§ $35 million to promote the production of “hard white wheat.”

§ A $4 billion dollar disaster assistance package on top of an existing crop insurance program that’s subsidized by the federal government.

Global Food Crisis and the Doha Negotiation

It seems all of sudden, the world is facing a food crisis. Food prices are rising and food shortages growing in different parts of the world. According to news reports, many food producing countries have recently imposed ban, quota or taxes on the export of rice, wheat, barley, and soybeans, including Brazil, Argentina,Thailand, Vietnam, China, India, Egypt, Indonesia, Russia, and Kazakhstan. The situation has prompted the United Nations, World Bank, IMF and WTO to issue a joint call for countries to lift export restrictions on agricultural products.

WTO members may impose temporary export restrictions on foodstuffs under GATT XI:2(a) and, if the member is a developed country, in compliance with the notification requirement under the Agricultural Agreement, art. 12. It appears, therefore, that the above identified countries are within their rights to impose the export restrictions.

The question I have is: if the food shortages are not temporary but structural in nature, as indicated by some experts, then how would this situation affect the Doha negotiations on agriculture? Indeed, here is an interesting article from AFP: "Food crisis sparks role reversal in WTO".

Peter Gallagher on the New Agriculture Text

Peter Gallagher looks at the latest WTO agriculture text and finds that it comes up short in many ways.  I enjoyed his closing part:

The zombie vampire award in this catalog of half-way-measures goes to the “Commodities” section of the text. Here we find a proposal that the WTO’s Aid For Trade initiative should encourage funding for ‘commodity agreements’—including producer-only commodity agreements—designed to “stabilize prices”. Good grief! Is there any reason to think that such proposals are now more feasible in globalized markets than they were in the quasi-cartelized commodity trades of the 1970s? Is there no-one in Geneva who remembers that ‘stabilization’ plans for coffee, cocoa, rubber, tin, iron ore etc. were all expensive (and frequently corrupt) attempts to fix markets that ended in complete failure?

More at the link.

How Sweet It Is

Sugar is fairly big down here in Palm Beach County.  My local paper just ran a story on the recent lobbying efforts to moderate the effect of free trade in sugar between the U.S. and Mexico pursuant to NAFTA, by putting up various new trade barriers.  The article notes the following concerns expressed by sugar producers:

On one side of the battle are the sugar industries of the U.S. and Mexico. They say that unless the NAFTA provision, which went into effect last month, is modified to sharply limit the sugar trade, there's a prospect of "market chaos" leading to a crash of sugar prices in both countries.

...

Jack Roney, director of economics and policy analysis for the American Sugar Alliance, said implementing NAFTA as written could cause "a downward price spiral" for sugar in both countries.

I couldn't help thinking:  Wasn't a "crash of sugar prices" and "a downward price spiral" the whole point?

Where's the Beef?

Argentina is limiting its beef exports:

Taming inflation was [former President Nestor] Kirchner's goal when he banned most [Argentine] beef exports last year. This year, exports were capped at 480,000 metric tons, down from nearly 700,000 tons in 2005.

Kirchner's wife, the newly elected President Cristina Fernandez, has promised to maintain a high export tax that makes outbound beef too costly for many foreign buyers. So ranchers must keep selling 80 percent of their meat to swamped local markets where profits as well as prices are low.

As an occasional beef consumer, I don't like the higher beef prices I pay as a result of this. The problem, of course, is that foreign producers are happy with the diminished competition, so they are never going to complain.  Isn't there some country that consumes a lot of beef, but does not produce much, that might challenge this under WTO rules?  Could the Argentine beef industry pay some other WTO Member to bring a complaint?

(And yes, I admit I did this post mainly because the post title was too perfect to pass up.)

Senator Calls for Unilateral Tariff Lowering

No, it's not a headline from The Onion.  It actually happened:

Sen. Charles Schumer said Sunday that rising demand for the corn-based fuel additive ethanol is contributing to a spike in milk prices and called for lifting the 54-cent-per-gallon tariff on ethanol imports.

Schumer, D-N.Y., said rising milk prices have been caused by, among other factors, a nationwide increase in demand for ethanol. The same corn used for ethanol is used in animal feed.

He called for the immediate lifting of the tariff on foreign ethanol imports to increase the supply of the federally mandated fuel additive, reduce pressure on the corn market, and bring down milk prices.

You don't see that everyday.  (Maybe he wants cheap fuel so he can drive one of these.)  No doubt there will be a good deal of resistance to the idea, though.  I wonder what the Presidential candidates will say.  Now that the Iowa caucuses are over, they might not feel the need to be quite so pro-ethanol subsidies.

Trade Talk from the Final Republican Debate

The final Republican primary debate was held last week in Iowa.  There were a few references to trade issues, many of which were vague and difficult to characterize (e.g., the usual references to "free and fair trade").  But this statement from John McCain jumped out at me:

[Question:] Some of our big trading partners commit human rights violations.

Considering that poverty and abuse are often blamed for fostering terrorism, should we alter trade policies with those countries?

Senator McCain.

SEN. MCCAIN: Well, obviously we should make sure that every nation respects human rights, and we should advocate that and try to enforce it. But I will open every market in the world to Iowa's agricultural products. I'm the biggest free marketer and free trader that you will ever see.

And I will also eliminate subsidies on ethanol and other agricultural products. They are an impediment to competition; they are an impediment to free markets. And I believe that subsidies are a mistake, and I don't believe that anybody can stand here and say that they're a fiscal conservative and yet support subsidies which distort markets and destroy our ability to compete in the world, and destroy our ability to get cheaper products into the United States of America.

He didn't really answer the question very directly, but it's the latter part that's of more interest.  This was quite a bold statement in opposition to agriculture subsidies.  Remember, he said this in Iowa!  If the trade ministers of U.S. trading partners could vote, I think they'd vote for McCain.

From Last Night's Republican Debate

Some trade questions from last night's Republican Presidential debate:

On agriculture subsidies:

Ted Faturos: Hi, I'm Ted Faturos from Manhattan Beach, California.

Mmmmmm, nothing says delicious like cheap corn subsidized by the American taxpayer. For a lot of Americans, however, a bitter taste is left in their mouth when they learned about how the U.S. taxpayer bankrolls billions of dollars in farm subsidies that mostly go to large item business interests.

I'm curious which candidate could label themselves fiscally responsiblee, will endorse the elimination of farm subsidies if they are elected president in 2008.

Cooper: Governor Romney, a lot of folks in Iowa interested in this answer.

(Laughter)

So I hear.

Romney: Not to mention Kansas, Missouri, North Dakota, South Dakota and so forth. We don't want to find ourselves, with regards to our food supply, in the same kind of position we're in with regards to our energy supply. And so it's important for us to make sure that our farmers are able to stay on the farm and raise the crops that we need to have a secure source of food. And so I believe in supports that will allow us to do that.

And the same time, I recognize that we're also investing in new technologies to get ourselves energy independent. And I happen to believe that some of the best sources for having renewable energy come from the farm. And so we're investing with subsidies in those areas to create new technology that otherwise wouldn't be ready for the market yet. So I support these programs.

And finally, I'd say this. We have, in our nation, about one out of three acres that are planted are for sale overseas.

We send products around the world. We're competing with European and Brazilian and other farmers, and we're competing in a marketplace where they are heavily subsidized, at great disadvantage for our farmers. And so, if we're going to change our support structure, we want to make sure that they change their support structure.

And we do this together, as opposed to unilaterally saying: We're going to put our farmers in a tough position and have the farmers in the rest of the world continue to be subsidized.

So, open markets, let our goods go around the world and secure our source of food.

Cooper: Mayor Giuliani, 30 seconds.

Giuliani: The governor's right. It isn't a level playing field. The subsidies in Europe are far higher than they are in the United States. We could reduce subsidies here if they would do it there. But we shouldn't do it on our own.

And also, we have to be very aware of the fact that we have to have our own supply of food. We can't be dependent on foreign countries for our food.

So, both of those reasons would say that although simplistically, it might seem like you'd want to get rid of all the subsidies, you've got to do this very carefully, and you have to do it in concert with these free-trade agreements and other agreements you're making so that European countries reduce their much heavier subsidies.

Key points:  (1) no reduction unless the Europeans do it; (2) must have a secure food supply; and (3) must protect farmers' incomes.

On the safety of Chinese imports:

LeeAnn Anderson: My name is LeeAnn Anderson and I am from Pittsburgh, Pennsylvania, and these are my kids Evan and May. Maya is from China and we adopted him to give her a better life. We never dreamed that she would that she'd be exposed to lead after leaving China, and now we find trains like this that are covered with lead in our home.

My question for the candidates are, what are you going to do to make sure that these kind of toys don't make their way into our homes and that we have safe toys that are made in America again and we keep jobs in America?

Cooper: Congressman Tancredo, you have 90 seconds.

Tancredo: It is illegal to import that kind of thing. The problem is, of course, no one really pays a lot of attention to a lot of our laws, with regard to immigration of both people and, now in this case, of course, items, goods and services.

I voted against permanent normalized trade relations with China -- this is one reason why. It wasn't -- that was never devised simply to be a place for us to sell our products; it was devised to be a place where we could get cheap labor to then import products to the United States.

So, one of the things you'd have to do, and I certainly would intend to do, is to change our trade arrangement entirely -- with China, by the way, in particular, but with other countries, as well, that violate those agreements.

Cooper: Congressman Hunter, you have 30 seconds.

(Applause)

Hunter: China is cheating on trade, and they're using that $200 billion trade deficit over the United States to buy ships, planes and missiles. They are clearly arming.

And it's in the interest of the United States...

(Applause)

... to stop China's cheating. My bill, incidentally, that's up right now would do that.

But what we all ought to do in this Christmas season, with about a month to go before Christmas is buy American.

That might hire the young person. That'll result in a...

(Applause)

You know, that just might keep your neighbor from losing his job, and it might help that young person coming back from Iraq and Afghanistan in uniform to have a job when they get back.

Let's buy American this Christmas season.

It's too bad Romney and Giuliani didn't get to answer this latter question.