Washington Insider-Wednesday

Export-Import Bank Expires

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

Study Claims Cuts in Allowed Farm Subsidies Would Cause Little Pain for Most Countries

Most large agricultural exporting countries could agree to reduce their maximum permitted spending on agricultural subsidies without causing economic hardship for their producers, according to a joint paper prepared by Australia and Canada and presented to members of the World Trade Organization.

The paper looks at how much is being spent on agricultural supports in Brazil, China, the European Union, India and the United States and compares those numbers with the amount that each county is allowed to spend under WTO rules. For example, the paper, obtained by Bloomberg BNA, shows that the gaps between current WTO limits on total trade-distorting domestic support and the reported current trade-distorting support for the United States and China are $46 billion and $142 billion, respectively. "This means that the U.S. could increase its trade-distorting support under the Farm Bill by over four times what was reported in 2012 while still respecting this limit," the paper says.

A conclusion that can be drawn from the paper is that a number of countries could agree during the WTO's Doha Round to reductions in their permitted spending limits without affecting the actual support being provided to their agricultural sectors. However, gaining agreement on such cuts would be difficult, since negotiators are aware that a prolonged period of low prices for farm products could result in spending levels that could approach those permitted by the WTO.


States Challenge Administration's WOTUS Rule

The attorneys general of at least 18 states have filed legal challenges to a final rule clarifying the scope of Clean Water Act that was issued June 19. The final rule, also known as the waters of the U.S. (WOTUS) rule, was jointly published by the Environmental Protection Agency and the U.S. Corps of Engineers. It takes effect Aug. 25, but will be considered final on July 13 for the purposes of judicial review.

Alleging federal expansion over state waters, 18 states as of late June 29 had filed lawsuits in three different federal courts across the country. More lawsuits were expected not just from states, but also from regulated industries, including agriculture, many of which allege that the administration's WOTUS rule is unconstitutional.

Further complicating the issue is the fact that following the July 4 recess, the House is set to vote on the fiscal 2016 spending bill for the Interior Department and the EPA that includes a rider barring the agency from using funds to "develop, adopt, implement, administer, or enforce" any change to regulations or guidance in effect on Oct. 1, 2012, regarding the definition of "waters of the U.S." However, the president likely would veto the measure, leaving the issue unresolved for the foreseeable future.

Washington Insider: Export-Import Bank Expires

The Export-Import Bank is an 80-year-old federal institution which helps finance overseas projects involving U.S. companies. It has long enjoyed bipartisan support, but recently, it has become a target of the conservative wing of the GOP, which calls its services "corporate welfare." As a result, the bank has not yet been reauthorized and its charter expired at midnight.

The bank focuses on companies with somewhat risky investments abroad. It charges fees and interest, and claims these more than offset the cost of the funds received although its operations do expose the government –– and taxpayers –– to risks of defaults.

Supporters say the bank helps level the playing field for U.S. companies against competitors in Europe and China, that get significant help from their governments. Detractors call the bank crony capitalism and say that it mostly helps big business.

In addition, it appears that the bank has become a symbol in a proxy battle over the government's place in business — and, those who want government out of business seem to have won this battle for now.

During the Depression, President Roosevelt created the bank to generate U.S. jobs by supporting American companies' business abroad. Its role is to step in when private insurers can't or won't cover a somewhat risky investment.

For example, GE's head, Jeffrey Immelt, says that layer of support is crucial for helping his company win competitive infrastructure contracts abroad. Most companies in developed countries enjoy similar support from their governments, and, some get much more. If GE loses Ex-Im Bank support, Immelt says he will be forced to ship some jobs overseas to keep costs down.

Export-Import Bank President Fred Hochberg told the press that there will not be any immediate lay-offs at the bank, noting it is fully funded through Sept. 30, the end of the current fiscal year.

House Financial Services Committee chairman Jeb Hensarling, R-Texas, has emerged as the top opponent of the bank and is joined by members of House Republican leadership, including Majority Leader Kevin McCarthy of California. Hensarling wants to "make sure Ex-Im stays expired" and argues that "Ex-Im is a part of yesterday's economy." According to Hensarling, "Our focus needs to be on tomorrow's economy and on reforms that will give every American greater opportunity to succeed."

In a surprising political split, Democrats have aligned themselves with the business community, including the U.S. Chamber of Commerce and the National Association of Manufacturers on this issue. Nearly every Democrat in Congress, with the exception of Sen. Bernie Sanders, I-Vt., is backing reauthorization.

Tony Fratto, a former George W. Bush administration official says there is "broad and bipartisan" support for the bank in Congress, except for a "small group of reckless members who previously tried to shut down the government." He thinks the bank's lapse will "again embarrass the Congress."

The bank's critics say that once doomsday economic scenarios related to the bank's demise prove to be untrue, its supporters will be the ones embarrassed.

Several top-tier Republican presidential candidates have attacked the bank. Among them is Sen. Marco Rubio of Florida who criticized Ex-Im during a forum in New Hampshire last week, hosted by Americans For Prosperity.

"It is obscure, you don't hear a lot of conversation about it, and it certainly isn't a topic of conversation in the news or in the newspapers, and people don't know that it's there," Rubio said. Other critics suggest that other existing programs could fill in with business export financing if the bank lapses completely and permanently.

It is likely that Rubio is correct and that there is not much public concern about the bank — but that doesn't mean that there is no business community concern. Now, that community needs to mobilize its effort if it is to prevent a useful business tool from being dumped for the sake of party theology, Washington Insider believes.

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