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.

IRS Commissioner Warns Senate on Tax Extenders

In recent months, Internal Revenue Service employees have been called before various congressional committees to answer a number of questions about their activities. This week, the shoe was somewhat on the other foot at IRS Commissioner John Koskinen reminded Senate Finance Committee Chairman Ron Wyden, D-Ore., that Congress needs to get to work on some tax bills or tax season will be delayed for millions of taxpayers.

At issue is a package of so-called tax-extenders, measures that would either renew current tax breaks or revive those that expired earlier.

In a letter to Wyden, Koskinen says Congress needs to act on tax extenders as soon as it returns for the lame-duck session in November to avoid delays in the 2015 tax season. "This uncertainty, if it persists into December or later, could force the IRS to postpone the opening of the 2015 filing season or delay the processing of tax refunds for millions of taxpayers," he says.

Wyden has said that addressing the tax issues will be his top priority in the lame duck session, although as with most everything else in Washington, the House and Senate remain at odds over the particulars of the issue.

The betting is that Congress will not adjourn this year without first addressing and voting on this issue.

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Home Heating Costs Could Fall This Winter

Unless there are particularly severe stretches of low temperatures this winter, consumers should see a break in their winter heating bills compared to a year ago, the Energy Information Administration said in its 2014-2015 winter forecast. However, one area that could be in for higher bills is the Northeast, particularly New England, where more natural gas is being used for electric generation and natural gas pipeline constraints still exist.

Retail electricity customers in the Northeast already have seen increases averaging up to 12% this year, and another extreme cold blast could send electricity prices up again, EIA said.

Based on expectations for overall lower heating demand nationally, the average natural gas household will pay $649 for the winter season (October through March), down 4.6% from a year ago, and $938 for electric heat, down 1.8%, EIA said. Because of falling oil prices, heating oil customers will pay $1,992 for the winter, down 15.4%. And propane users in the Northeast will pay $2,224, down 13%. And best of all for Midwesterners, propane users in that region will pay $1,500, down 34%.

The energy and fuel efficiency policies adopted over the past several decades have started to produce the types of results that had been predicted and that appear likely to continue this country's path toward energy independence.

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Washington Insider: Reactions to U.S.-Brazil Cotton Deal

A lot of ink is being expended on the U.S.-Brazil cotton deal these days and the primary reaction is relief at the end of a long, long dispute. But, there also are discussion about what the settlement might mean, and its implications for future trade deals, and more than a few of those are somewhat ominous for agricultural trade.

For example, the Washington Post was outraged, sort of, by the deal but largely because it sees it as protecting the U.S. policy of "showering federal funds on crop producers, including cotton growers."

It accuses the U.S. government of buying off Brazil's cotton farmers so that it could keep on buying off its own. "The deal is good news to the extent that it fortifies U.S.-Brazil relations on the eve of a new presidential term in that country and spares U.S. exporters from the threat of Brazilian retaliation, which could have reached a total of $829 million per year." Still, the agreement is criticized for perpetuating "the unhealthy status quo whereby the United States pays Brazil for the right to continue propping up a domestic cotton industry that can and should learn to compete on its own."

With regard to the cotton programs, the Post says the U.S. bought the right to guarantee cotton farmers between 70% and 90% of "expected" revenue for their area, as determined by USDA using "a formula no ordinary American understands." Even worse, federal subsidies cover 80 percent of the premiums for this "insurance," "which is how the handout has to be characterized so that it can be portrayed — questionably, to be sure — as WTO-compliant," the Post opines. And, the Act "contains no limit to the payout any individual cotton farmer can receive under the program," the Post notes.

Well, not so bad, you might say. The Post has a long record of hating farm programs. However, it is not just the Post this time. Another example is the Financial Times, which ran an opinion piece by its senior editor for financial and trade issues, Alan Beattie. He thinks the settlement may "undermine yet another part of the multilateral governance of trade."

Beattie says the deal means "the U.S. has thrown in the towel on persuading its cotton farmers to accept reform — and Brazil has taken the money and run." Then, the gloves come off.

Beattie says the United States has bribed its way out of a legal obligation because it does not have the courage to confront its own subsidy-addled cotton-growers. This "erects a flashing neon warning over the credibility of the WTO's dispute settlement system in achieving trade liberalization, and is particularly bad news given that the organization's negotiating arm is more or less defunct."

The dispute settlement system, he notes, is a legal arrangement with a public policy goal that allows governments to litigate on behalf of wronged groups against foreign governments that are violating WTO rules. It uses ad hoc panels, not necessarily lawyers, to make rulings. "The key difference with private arbitration is that the judgments always require defendants actually to change their policies rather than simply pay out damages," Beattie writes.

This, he thinks, will end abruptly if cash payments become the norm and rich countries will simply buy their way out of WTO obligations. The wider benefits of liberalization for defendant countries' taxpayers and consumers and to the functioning of world markets will be lost.

Beattie points out that there are only a modest number of cotton farmers in the U.S. nowadays and yet they have been able to prevent the U.S. from complying with the 2004 ruling. Cotton farmers have an outsize influence in Congress thanks to their location in several small southern states, each with its two senators. At the behest of the cotton lobby, Congress has scared successive administrations away from even trying to comply, he says.

Beattie also believes that the hope that the WTO dispute settlement system can be a tool to rebalance the world trading system towards the world's poorest countries has taken a serious blow. Still, it is hard to blame the Brazilians for settling: extracting three-quarters of a billion dollars from the United States with a single legal case is a remarkable achievement, he thinks.

So, the name calling intensifies and the possibility of future U.S. leadership in widening market access seems very likely to decline. Beattie thinks that the United States in this matter has proven that it prefers to buy its way out of legal obligations rather than to confront powerful producer groups, and to use taxpayer cash.

The suggestion is that the United States certainly has not heard the last of this settlement and that its implications on the global trading system may be felt for some time to come, Washington Insider believes.

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(GH/CZ)

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