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.

NAFTA Nations Receive a 'D' in Animal Welfare

A United Kingdom-based organization called World Animal Protection does not think much of the animal welfare standards in effect in Canada, Mexico and the United States, the three members of the North American Free Trade Agreement. WAP has just released its "Animal Protection Index" for 2014, a document that gives the NAFTA nations a grade of "D," while awarding top honors to Austria, New Zealand, Switzerland and the UK.

WAP points out that North America's 'D' ranking puts it alongside Kenya, South Africa, Columbia, Peru and other countries with much lower gross national products. We do come in ahead of China (on the next rung down), Egypt, Russia and Vietnam (two steps down) but far ahead of Azerbaijan, Belarus and Iran, all three of which earned the previously unheard of grade of "G."

WAP says that the problem for the United States is that while there has been some progress made on the animal welfare front in specific states, there is no federal legislation to protect the welfare of farm animals during rearing. And, it also focuses attention on the fact that U.S. humane slaughter legislation does not extend to plants that exclusively slaughter poultry, as well as problems it sees with animal transportation. WAP says these issues "would best be addressed by federal legislation."

There is increasing awareness of animal welfare issues among members of the public and in Congress. Interest in how livestock are produced will only grow in the coming months and years as animal rights supporters seek to raise our animal welfare grade.

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House May Consider 'Tax Extenders' Bill This Week

House Republicans are moving toward a vote this week on legislation that would revive dozens of lapsed U.S. tax breaks and extend them, but only through the end of this year. The move comes following last month's failure to make permanent some major business tax breaks, including the research-and-development tax credit and expanded capital write-offs for small businesses.

The House's move toward a temporary patch that would expire Dec. 31 shows lawmakers' desire to wrap up the congressional session as quickly as possible and minimize disruption to the beginning of the tax-filing season in January. The Internal Revenue Office has warned that unless there is a clear signal soon from Congress that the package of tax breaks will apply to 2014 tax returns, this year's tax filing season will suffer major disruptions.

The tax package that is likely to move to the House floor this week would cost the government $44.7 billion in lost revenue over a decade, according to the Joint Committee on Taxation. Absent cuts in spending (or a new source of revenue to replace that which was lost), the $44.7 billion would be tacked onto the overall federal debt.

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Washington Insider: COOL Fight Intensifies

Mexican trade officials told the press last week that they will fight a U.S. appeal of the recent World Trade Organization ruling on country of origin labeling for meat.

Mexico's Economy Ministry, which oversees the country's trade issues, announced last week that it will not cave in to U.S. pressures as others have done, and that it will continue fighting U.S. efforts to impose its COOL law. The announcement came late last week in reaction to the WTO's acknowledgement that it had received a U.S. appeal of the ruling in favor of Mexico and Canada.

"Mexico and Canada had hoped, in conformance with the World Trade Organization's ruling, that the United States would fulfill its international obligations, and for this reason, Mexico regrets learning about the decision to postpone the decision through a lengthy appeals process," the Economy Ministry told the press.

The COOL rules are also controversial in the United States, too, where both consumer groups and the meat industry are split over possible effect on cross-border trade.

For example, the National Cattlemen's Beef Association calls COOL "a failed program that will soon cost not only the beef industry, but the entire U.S. economy, with no corresponding benefit to consumers or producers."

Mexico's Economy Ministry said it plans to argue before the WTO appeal board that the U.S. rules make it prohibitively expensive for Mexican ranchers by requiring a burdensome level of paperwork and segregation of animals. "This is in complete violation of WTO rules."

"The amended COOL measure increases the original COOL measure's harm to the competitive opportunities of imported livestock in the U.S. market, because it necessitates increased segregation of meat and livestock according to origin; entails a higher recordkeeping burden; and increases the original COOL measure's incentive to choose domestic over imported livestock," the WTO Compliance Panel wrote in its Oct. 20, 2014 report.

In fact, U.S. trade officials seem to be stuck with an argument that the need to provide U.S. consumers with information regarding where an animal was born, raised and slaughtered justifies the trade practice. However, that argument was specifically rejected by the WTO panel "The detrimental impacts caused by the amended COOL measure's labeling and recordkeeping rules could not be explained by the need to convey to consumers information regarding the countries where livestock were born, raised, and slaughtered," the Compliance Panel wrote.

Mexican trade officials said if the WTO appeal board rules in favor of Mexico and Canada, it will then ask for a suspension of trade benefits against the United States, estimating that Mexico loses more than $500 million annually from the current U.S. policy. "Mexico will continue to defend its industrial interests and use all means possible to ensure that the United States fulfills its international obligations," the Economy Ministry said.

So, it seems increasingly clear that the United States has written trade rules that discriminate against animals from Mexico and Canada and that these important trading partners intend to hammer a broad range of exporters until the rules are changed.

Furthermore, there appears to be no real fix to the COOL policies under construction. Agriculture Secretary Tom Vilsack, ever sensitive to the political demands of upper Midwestern producers, probably could have proposed rules that stopped short of requiring 100% domestic content before U.S. produced meats were eligible for labels that satisfied the "buy American" efforts of some producers. But Vilsack he now denies that there is any way he can meet Canadian and Mexican demands and thus lessen the risk of exporters who have no real stake in this fight. His position seems to signal a costly trade policy confrontation he seems unlikely to win — but one costly to exporters.

So, where do we go from here? There are powerful meat industry lobbies hard at work now to hammer out legislative solutions, and the sanctions that are in the works in Mexico and Canada certainly should serve to hurry all that along.

Critics argue that it is Vilsack's job to sniff out this kind of self-serving effort and to use the tools at his disposal, including the bully pulpit that he enjoys as secretary to highlight the value of open markets and free trade. This is a task he seems to avoid when he can, perhaps at some considerable cost to ag and to U.S. interests, Washington Insider believes.

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(GH/CZ)

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