Washington Insider --Wednesday

The U.S. Assault on the WTO

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

USDA's Perdue Warns Agency Faces Bigger Budget Cut Than 5%

While the final Fiscal Year (FY) 2020 budget proposal from the Trump administration is not yet public, the effort will include a five-percent reduction for non-defense discretionary spending.

However, USDA Secretary Sonny Perdue acknowledged the cut for USDA will be larger than that. But he would not say what percentage reduction would be proposed for USDA when asked if it would be 10%. "We are not going to get ahead of the president and his budget," Perdue remarked. "I wish they would give a five-percent cut."

The plan from the administration is a "conservative budget," Perdue explained. "We have done our best to advocate for farmers in that way and we will continue to do that."

The administration proposed cuts to the USDA budget for FY 2019 that were rejected by Congress and with Democrats in control of the House, the plan will not be adopted by Congress.

Commerce Secretary Ross Floats Hope for Spring USMCA Approval

While most U.S. officials are not willing to put any timeline on the potential approval of the U.S.-Mexico-Canada trade deal, Commerce Secretary Wilbur Ross is not one of them.

He told a gathering of U.S. governors Monday afternoon that the USMCA would get a vote in Congress “hopefully this spring” — and he pledged the Trump administration would work to ensure its approval.

“It will generate a new era of North American investment,” he said. “And we will be doing everything in our power to make sure it is approved by the U.S. Congress.”

However, the presence of the steel and aluminum import duties on Mexico and Canada and their retaliatory responses against U.S. products, including agricultural goods, has many in Congress reluctant to support the deal at this stage.

Plus, the administration has yet to provide the implementing legislation to Congress, a step that must precede the eventual up-or-down vote in Congress with no amendments allowed.

Washington Insider The US Assault on the WTO

While many of the world’s trade policy concerns now feature the U.S.-China dispute and the border wall fight, Bloomberg is reporting that there is more. The administration’s attack on the World Trade Organization “has U.S. farmers worried that the president’s ‘America first’ foreign policy approach will hamstring efforts to defend their interests.”

The report says that the United States is “strangling the ability of the WTO, which oversees the rules for nearly $23 trillion in commerce every year, to resolve disputes among its 164 members.” But when the WTO’s appellate body becomes incapacitated, as it may later this year, even the U.S. cases – of which there are at least two pending meant to protect American agriculture – would be derailed.

“The entire global trading system and the WTO dispute resolution process have been good for U.S. agriculture,” Ben Conner, the vice president of policy at the Washington-based US Wheat Associates, told Bloomberg. If the two U.S. claims are appealed, they “could be among the first to get stuck in legal limbo without a functioning appellate body.”

Bloomberg noted that ag has become “a contentious political issue given Trump’s strong support in farm states,” as global players such as China and the European Union use their huge consumption of American commodities as leverage in negotiations. The trade war has led the USDA to predict that farm exports will fall by $3 billion in 2019 and caused the Trump administration to authorize a $12 billion aid package to help farmers affected by the dispute.

The context of the report is the decision by the administration to withhold appointments to the WTO’s appellate body to protest what it says are abuses by the dispute settlement authority. The seven-member panel has been reduced to three, the minimum number required to hear an appeal. The panel won’t have sufficient members to consider new rulings after Dec. 10.

The WTO is one of several fronts in the administration’s assault on the global trading system that the president argues is tilted against American interests. The Trump administration is locked in negotiations with Beijing aimed at extracting concessions to reduce the US trade deficit with China. He’s also threatened to put tariffs on imports of cars and parts that economists warn would disrupt an international auto industry that spent decades building global supply chains.

The Geneva-based WTO is expected to issue decisions this year on two U.S. dispute cases that allege Beijing deployed $100 billion worth of illegal farm subsidies and imposed unfair import quotas that harm US corn, rice and wheat producers. Both cases are “pretty much slam dunks” for the U.S., Jennifer Hillman, a former WTO judge who now teaches trade law at Georgetown University, told Bloomberg.

“We really have to fix the appellate body now,” she said. Without it you may “lose the ability to collect your winnings because there won’t be a binding way to force other countries to come into compliance.”

A ruling against China in either case could force Beijing to reform its agricultural policies – something that could help make America’s farmers become more competitive.

“If we win those cases, we would expect China to appeal,” said Floyd Gaibler, the director of trade policy for the Washington-based U.S. Grains Council. That would leave the status of those claims uncertain and “we are very concerned about this,” he said.

In 2017, China imported a total $24.2 billion in American agricultural products. Combined purchases slumped by a third to about $16 billion last year as China’s retaliatory tariffs on American farm goods reduced imports.

The administration’s message to farmers is “to be patient and be patriotic – but they are getting very concerned and anxious that they are not seeing an end to this,” Hillman said.

Lawmakers like Representative Kevin Brady, R-Texas, are urging the Trump administration to fix the WTO’s dispute settlement problems rather than precipitate its paralysis.

“We want that appellate body dispute resolution approach, we want that to work,” Brady said recently in in Washington. “And we need to make reforms to do that.”

It is unlikely that the administration will ever be a fan of the WTO or its dispute settlement system, but the international trade regulations are widely perceived as very important to several sectors of the U.S. economy – and pressure to achieve reforms without abandoning the basic structure likely will be intense. This is an important issue that producers should continue to watch closely as this fight intensifies, Washington Insider believes.

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