Washington Insider -- Wednesday

By DTN's Washington Insider

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

Congress Still Searching for Short-Term Funding for Highways

By some estimates, the Highway Trust Fund (HTF) that pays to maintain many of the nation's roads and bridges will run short of money as early as next month or in August at the latest. Members of Congress on both sides of the Capitol and in both political parties agree that something needs to be done to provide a short-term infusion of cash to keep transportation infrastructure projects up and running. But there remains major disagreement on how to accomplish that goal.

House Speaker John Boehner, R-Ohio, says he does not expect the House to vote on a new source of money for the HTF before Congress leaves Washington Thursday for its week-long Independence Day recess. Earlier, Boehner had told his caucus that he hoped to pass a short-term solution before the coming recess.

An earlier proposal to use savings gained from terminating Saturday mail delivery by the U.S. Postal Service has been dropped. A plan to increase the per-gallon federal excise tax on gasoline has been floated, but it reportedly has been shot down by House Republicans. The Ways and Means Committee is scheduled to hold a regular weekly meeting later Wednesday, during which panel members are expected to put forward a number of options for funding the HTF for the next six to 12 months. Getting legislation through Congress and onto the president's desk before the HTF runs short of cash will prove challenging.

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Russia Takes First Steps Toward WTO Action Against U.S.

Russia has filed a notice with other members of the World Trade Organization that alleges the United States is failing to meet its international trade obligations, the first move in what is likely to be a Russian challenge to U.S. economic sanctions at the WTO.

Russian Prime Minister Dmitry Medvedev called the U.S. sanctions against Russia -- imposed in retaliation for Russia's actions in and around Ukraine -- inconsistent with WTO rules and international law. Medvedev specifically pointed to what he characterized as the "illegitimacy" of unilateral, politically motivated sanctions.

The prime minister added that Russia has decided to challenge the sanctions through the WTO's dispute resolution mechanism, an action that he said would provide "an opportunity for us to see whether this dispute resolution mechanism is impartial and unbiased." A WTO ruling on whether economic sanctions meet international trade requirements would clear the air somewhat. The organization has never been asked to interpret this part of the WTO's agreement.

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Washington Insider: Paying Off Brazil on Cotton

More than a decade ago, Brazil and four African cotton producers challenged the United States at the World Trade Organization over its cotton subsidies, arguing that the programs reduced world prices and unfairly hurt cotton producers. Observers suggested cotton was singled out over other field crops in part because its subsidies were as high as 50% of market revenues and far higher than for other crops. After long debates, the WTO panel ruled in Brazil's favor and told the United States to modify several policies.

When the United States failed to respond "adequately," Brazil was allowed to impose heavy sanctions on U.S. trade interests valued at more than $800 million. The sanctions were broad, and upped the political ante beyond agriculture, so the Bush administration sought a compromise and modified several U.S. programs. Later the Obama administration committed to pay Brazil $147 million annually until "successor legislation" had a chance to rein in the subsidies.

In the 2014 farm debate, direct payments to farmers were ended and safety net programs strengthened. A revised countercyclical program was offered to complement the pre-existing crop insurance program. Although not part of the original U.S.-Brazil cotton dispute, crop insurance now accounts for about 47% of total cotton subsidies (up from an average of 9% before 2009).

Cotton producers note that subsidies for the cotton subsector are running significantly lower than they were at the time the dispute was litigated. Also, the new 2014 policies allow the cotton loan rate to fall with market prices while excluding cotton from the Price Loss Coverage (PLC) and Agricultural Risk Coverage (ARC) subsidies. These changes likely mean future cotton subsidies relative to other crops could continue to decline -- and to be well below rates for all of agriculture in OECD countries. In addition, the effects of U.S. cotton subsidies on world markets are declining as U.S. production declines to just over 12% of the world total in 2011, down from 20% in 2000.

So, the conclusion by some analysts is that trading partners should accept that the current changes in the U.S. cotton program satisfy their earlier demands and terminate the WTO litigation.

However, it appears the case is still active and while Brazil recognizes current subsidy reductions, it apparently believes U.S. programs still interfere with global markets. Inside U.S. Trade, a respected publication that follows trade matters closely, recently reported: "The United States has signaled it is willing to pay Brazil additional financial compensation to finally settle the WTO dispute over subsidies to U.S. cotton farmers and other agricultural exporters." However, the publicans also reports that the two sides continue to haggle over the amount -- not a posture expected from the United States if it assumes it holds a winning hand.

Brazil, by contrast, apparently thinks it still has the upper hand in this dispute and the United States is especially eager to avoid a WTO panel on the cotton issue that might lead to reopening other sections of the new farm Act to broader scrutiny, especially the new safety net programs.

Most ag observers continue to believe cotton has too much clout to be singled out for domestic subsidy reductions and the government will pay Brazil once again to give U.S. programs a pass. This may well be satisfactory to the ag leaders who raised little complaint the last time it was done. However, such a policy still seems like a scandal to many observers and may get even more prominent attention if, as many expect, the new safety net programs prove to be significantly more expensive than the Congressional Budget Office is predicting, Washington Insider believes

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