Washington Insider - Thursday

By DTN's Washington Insider

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

European Processors, Feed Manufacturers Protest Continuing 'Ban' on GM Crops

Three European food and animal feed producers this week began a campaign to convince European Commission –– the European Union's executive branch –– to approve eight pending applications for genetically modified crops. Most of these already have been approved and are being grown in the United States, and the European groups says that EC approval would avoid serious "trade disruptions and legal consequences" for their industries.

The three say approval is urgent because of the upcoming harvest in North America and because the current European Commission is due to conclude by the end of October. The associations also have called for regulatory GM crop differences between the EU and the United States to be addressed via a mutual recognition agreement in the Transatlantic Trade and Investment Partnership (TTIP).

"Without a guaranteed supply of imported soybeans from traders to oilseeds processors, approximately 3 million tons of EU-produced vegetable oils and 10 million tons of protein-rich meal, GM and non-GM alike, would no longer reach food and feed manufacturers and their customers," said Kevin Brassington, the president of an organization that represents European seed and soybean crushers, meal producers, vegetable oils producers, refiners and bottlers. "The financial consequences and liabilities of this scenario would jeopardize the economic viability of our industry."

Consumer opposition to genetically engineered crops and foods containing those crops remains strong in Europe. If the Commission does approve the eight GM crops and allow them to be imported into the EU, it is unlikely that the opposition will lessen. What is clear is that the inability of European processors to source GM crops from the United States and other countries is placing them in an increasingly untenable economic position.

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Proposed Ethanol Mandate Likely to Rise Modestly as U.S. Gasoline Consumption Increases

With U.S. gasoline consumption on the rise, it is becoming more likely that the Environmental Protection Agency will require larger amounts of ethanol to be blended into fuel supplies in the next year than it included in a proposal the agency issued last November and that is still under consideration.

Speaking in New York earlier this week, EPA Administrator Gina McCarthy said the agency would release the Renewable Fuel Standard for 2014 soon, but declined to discuss any specific figures. But McCarthy did hint that the RFS could end up higher than outlined in the proposal because U.S. gasoline use is climbing.

A number of energy industry analysts are predicting that when EPA finally does release the figures for 2014 (they were supposed to have been issued by Nov. 30, 2013), they likely will be modestly higher than the 13 billion gallons of corn ethanol the agency proposed last year. "We think the upward revisions are probably going to be limited," one analyst told the press.

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Washington Insider: USTR's Hearing On Russian Adherence to WTO Rules

Two years ago, Russia joined the World Trade Organization with strong support of the United States. Now, Russian expansionist moves in Crimea and Ukraine and its ban on some western exports are raising new concerns about its future role as a trading partner.

A key aspect of Western worries is the threat that it may reverts deeply into Cold War trade restrictions, including those on agricultural products. Following its recent ban on selected Western ag imports, the country's agriculture ministry announced increasing funding available to the farm sector that will boost its earlier commitment by $18.3 billion in an effort to raise production and reduce dependence on imports over the coming five years. This would be in addition to the $44.2 billion in state support from Russia's federal and regional budgets. This is all couched in terms that imply compliance with WTO commitments, but raise concerns across the West nevertheless.

For example, Agriculture Minister Nikolai Fyodor recently presented details of the new plan for 2015-20 to Prime Minister Dmitry Medvedev. In 2010 Medvedev had set a similar goal for 80-90% of all food products to be "stamped Made in Russia" over a five-year period. More recently, observers suggest that policy has failed, but are struggling to estimate what the new effort might mean.

Now, in reviewing the nation's investment plans, Ag Minister Fyodor is stressing that Russia will comply with its commitments as a member of the WTO by increasing "green box" supports rather than "amber box" or, trade distorting support measures which are set to decline to less than $4.4 billion by 2017, a policy Fyodor says is still operational. The additional funds are slated for non-distorting green box measures such as infrastructure projects, wholesale and logistics centers, breeding and genetic centers, innovation, organization of domestic food aid and assistance to regions less favored to agriculture, he said.

However, Fyodor also called for subsidies for the production of poultry and pork to be extended until 2018, saying these were two industries best placed to replace imports with local production. The minister explained that without this extension, support for new poultry projects would come to an end in 2014 while pork support would end in 2016.

In a somewhat contradictory note, Fyodor also said that rather than becoming totally self-sufficient, the additional support is to help reduce meat and poultry imports from 2.5 million metric tons to less than 1 million under a "moderately optimistic" forecast. At the same time, he noted that disease problems and "structural problems with the dairy industry" may make those goals hard to meet."

Without the additional spending, Russia would still rely on imports for around a quarter of its dairy requirement, he said. With the extra funds however, he said structural problems could eventually be overcome and dairy targets reached by 2025.

One step the United States is taking now includes a scheduled review of Russia's implementation of its trade obligations. When Russia joined the WTO in 2012, it agreed to specific WTO rules and the Office of the U.S Trade Representative (USTR) is obligated to report annually to Congress on the extent to which those are being implemented. If the USTR concludes that Russian efforts are insufficient in any of these regards it is obligated to report the steps it is taking to encourage improvement — and what "enforcement actions" it has taken against Russia.

USTR's most recent evaluation found plenty to be unhappy about with Russia's efforts to bring its programs in line with relevant international standards. In addition, the new emergency programs to replace imports with domestic production are raising widespread concerns.

While the geopolitical tensions from Russia's threats against Ukraine go far beyond trade, the threats to trade are certainly far from trivial. The hope in 2012 that Russia would quickly conform to global trading rules now seems naive at best as tensions grow.

Recent efforts to bring Russia into the WTO network took nearly two decades, and appear to have faded in little more than two years. Even if Russia falls far short in its current efforts to replace Western products in its markets, it may well take a long, long time to rebuild trade with the West if it can be done at all, Washington Insider believes.

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