Washington Insider--Monday

By DTN's Washington Insider

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

Congress Urged to Reject Currency Manipulation Provisions in Trade Pacts

As Congress considers granting the president renewed Trade Promotion Authority (TPA), it should not include provisions that would require the United States to treat currency manipulation as a violation of trade rules, according to 14 former White House chief economic advisers.

In a letter to congressional leaders, the 14 say they support renewal TPA, but add that “It is not desirable for trade agreements to include provisions aimed at so-called currency manipulation. This is because monetary policy affects the value of currencies. Attempts to penalize countries for supposedly manipulating exchange rates would thus impose constraints on U.S. monetary policy, to the detriment of all Americans.”

Allegations that other countries take steps to cause the value of their currencies to decline have circulated for years, and there are a significant number of members of Congress who will insist that this issue be addressed in any free trade agreement the United States negotiates in the future. The reason, they argue, is that countries that cause currency declines do so to make products they export to the United States less expensive for U.S. customers.

No president in recent memory has agreed that currency manipulation is a problem that can or should be addressed through trade agreements. In their letter to congressional leaders, the chairmen of the President's Council of Economic Advisers under presidents Gerald Ford, Jimmy Carter, Ronald Reagan, George H.W. Bush, Bill Clinton, George W. Bush and Barack Obama, as well as former Federal Reserve chairmen Alan Greenspan and Ben Bernanke, all agree with that assessment. It appears, therefore, that the edge likely will go to the economists over the politicians in this debate.

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Congressional Resolution Aims to Shut Down Global Sugar Subsidies

Rep. Ted Yoho, R-Fla., has introduced a non-binding resolution that would put Congress on the record as opposing all subsidies for sugar production and exports. The resolution also calls on the president to negotiate the repeal of those subsides with all major sugar producing and exporting nations.

Once the United States has convinced all other governments to drop their supports for sugar, Yoho’s resolution requests the president to report the details to Congress and then submit legislation that would terminate U.S. supports for domestic sugar producers. The U.S. sugar industry has indicated on a number of occasions that it is willing to go to a zero sugar subsidy policy once all other countries have done the same.

The United States has had laws to protect domestic sugar production since 1789 when country first imposed a tariff upon foreign sugar imports, but it was not until 1934 that a federal sugar program was enacted, according to the University of Florida’s web site. Over the years, other countries have followed suit. With such a rich and enduring history, supports for sugar production and trade likely will continue to be stoutly defended by governments around the world for the foreseeable future.

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Washington Insider: Pushback on Cairns Group Subsidies Report

While the Doha Round negotiations seem to be making some progress on the more technical aspects of trade rules, the divide between developed and lesser-developed countries on agricultural subsidies revived a heated debate during the ag committee meeting in Geneva the week of March 2.

The issue of domestic support for agriculture was a major reason for the stagnation of the negotiations during the early part of the last decade, and seems, once again, to raise the question of whether future multilateral agreements like the one in Uruguay will ever again be possible.

The discussion issue this time was thought to be fairly specific — the domestic ag supports during 2001 to 2013 for the top 10 global traders — Australia, Brazil, Canada, China, the European Union, India, Indonesia, Japan, Russia and the United States.

The Cairn Group of countries prepared a paper focused on rates of change in domestic supports and concluded developing countries had boosted supports faster than developed nations over the decade. That touched off a modest firestorm.

Several countries protested, including Bolivia, Brazil, China, India, Indonesia and the Philippines. They called the paper “unbalanced” on the grounds that it fell into a simple “numbers” problem by ignoring differences in the scale of support. The supports in developing countries increased from a low base, they argued. As a result, supports in developed countries actually remained much larger.

The difference in perspective threatens to stymie efforts to modernize WTO’s ag rules in line with the goals of the Doha Development Agenda.

In absolute terms, the report said, the total support of all 10 members increased between 2001 and 2012. However, how that should be interpreted proved to be a difficult problem.

For example, when compared to the value of production, support in developed countries was stable while in developing countries it grew, the paper emphasized. At the same time, it noted that support in developed countries remained significantly higher at the end of the evaluation period; more than 19 percent of the value of production, versus 12 percent for developing countries.

India and China observed somewhat angrily that support in developed countries is for large scale commercial farming, while in their countries it is for millions of poor farmers. India recalculated the data to emphasize that difference — and to show that in developing countries the support amounted to hundreds of dollars per person per year but, it increased by thousands or tens of thousands of dollars per person, per year in the developed nations.

Paraguay, Mexico and Uruguay said the amount of trade distortion created is a concern, no matter where that distortion comes from. Australia said India’s per capita figures were interesting but added that it remains concerned about the effects of increasing support in India, which had overtaken Australia as the seventh largest global agri-trader.

The EU delegation claimed, as it often does, that the data reflect the reforms it has undertaken to shift support from Amber to Green Box, that is, from highly trade-distorting to only modestly trade distorting. Argentina, however, argued that the scale of Green Box subsidies in developed countries is so large that it is causing distortion.

In a sense, it is strange that the trade-focused Cairns group would even attempted to assess relative protectionism on the basis of the crude metrics they used. An example of the built-in bias in WTO reporting toward large subsidizers is the almost endless hay the EU has made at the expense of the United States by hammering on Europe’s moderate reductions in amber box supports — while maintaining its own very, very high spending.

This confrontation suggests that developing countries are much tougher negotiators now and that, in the absence of the Uruguay Round peace clause, there seems little hope of ambitious multilateral agreements rationalizing the broad spectrum of protectionist interventions that now exist.

It is still an open question whether the Trans-Pacific Partnership can get organized enough to actually continue the Post World War II push toward increased market access for ag products. And, there seems to be nothing like the TPP that seems even remotely possible in the Atlantic region.

The recent WTO failure to even agree how to describe the negotiating problem seems to raise the market access stakes much above previous levels, a development producers should watch carefully, Washington Insider believes.

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