Washington Insider - Thursday

Carbon Tax Fights

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

Russia Bans US Corn, Soybeans from Feb. 15

Russian will ban imports of U.S. soybeans and corn (used for popcorn production) from Feb. 15 due to what they say are phytosanitary concerns, according to several media reports quoting Russia’s ag watchdog agency Rosselkhoznadzor.

According to a report by the TASS news agency, Russia held discussions with U.S. officials Tuesday on the matter, warning they reserved the right to block the products, Alexey Alekseenko, assistant of the head of the regulator, said. In a phone conversation Tuesday, Alekseenko said Russia asked the U.S. side for “official written explanations” of what Russia said were phytosanitary violations.

Russian officials said that the popcorn imported from the U.S. often has dry rot and the corn could be used for transgenic crops in Russia. On soybeans, Russia said there were 64 cases where soybeans from the U.S. were infected with seven kinds of quarantine objects, with four cases noted in January.

It is important to know that Russia only uses the term “corn” to describe the products although some earlier reports on the situation did describe the product in question “used for popcorn production.” USDA export sales and other data show no U.S. sales or shipments of yellow corn to Russia; popcorn is included in products considered to be a processed food product.

As for soybeans, typically Russia has not been a large buyer of U.S. soybeans. Prior to the 2013-14 marketing year, Russia ranked no higher than 25th. In 2013-14, its purchases of 449,700 metric tons put the country in the 12th spot and Russia declined to 18th in 2014-15 with 316,900 metric tons. So far in 2015-16, Russia has imported 395,682 metric tons, with no outstanding sales. That currently puts the country as the 10th largest buyer of U.S. soybeans but with seven months remaining in the marketing year.

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Next Steps for WTO after Doha Emerge

Pursuing plurilateral trade agreements, addressing outstanding Doha Development Agenda (DDA) issues and discussing the implications of granting China market economy status are issues expected to dominate the World Trade Organization’s (WTO) agenda going forward.

The Nairobi WTO ministerial meeting concluded without a text reaffirming the Doha Round of trade talks, as many members indicated that they felt it is time to move beyond the constraints of the Doha framework. During the Dec. Kenya meeting, over 50 WTO members did agree to reduce tariffs on 201 information technology products, which could contribute as much as $190 billion to the global gross domestic product (GDP).

Given the recalcitrance of some WTO members to engage in earnest negotiations for lowering trade barriers, other nations including the U.S. are looking toward more multilateral trade pacts like the recently-completed Trans-Pacific Partnership (TPP), as well as the Transatlantic Trade and Investment Partnership (TTIP) currently being negotiated between the US and European Union (EU).

Potential areas to be addressed by future trade negotiations include electronic commerce, small and medium-sized companies and subsidies which lead to overfishing. A number of plurilateral trade deals are close to being concluded, particularly the Environmental Goods Agreement (EGA) and the Trade in Services Agreement (TiSA).

Ag issues represent a significant portion of DDA items which remain unresolved following the Nairobi ministerial, with how to address issues like subsides and tariffs for emerging economies among the primary issues.

Granting China market economy status, in accordance with a provision of the country’s 2001 WTO ascension protocol, is another issue facing WTO members. The EU and U.S. have expressed reservations about treating China as a market economy during antidumping investigations, given the large influence the Chinese government plays in the economy.

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Washington Insider: Carbon Tax Fights

The Washington Post tends to find critics for many, perhaps most initiatives the administration has in mind, it seems. So, it was interesting this week after the White House announcement that it would pursue a $10-a-barrel tax on oil to see the Post’s report of both the wave of “instant denunciations” from many politicians and its focus, at least briefly, on reasons why such a policy might make sense.

Among critics cited was Rep. Bill Flores, R-Texas, who said the “proposed tax will do nothing more than raise costs on consumers, who are still struggling with stagnant wages.” Others expressed similar sentiments. And, the Post added, “much research suggests that gasoline taxes (and the proposed oil tax) are very unpopular,” likely opposed by more than two thirds of Americans, it said.

Then, it noted another view—and that “a large number of economists are convinced that taxes on fossil fuels in general are a pretty good idea…to address, in economist speak, the negative externality that is greenhouse gas emissions.” The Post cited Harvard’s Gregory Mankiw, who has written about a “Pigou Club” of economists who agree that taxing negative externalities is a good idea, as well as Lawrence Summers, who called for a carbon tax in a column for The Washington Post, referring to low oil prices roughly a year ago.

There are key differences between Obama’s proposed policy and a nationwide carbon tax, the Post thinks. The administration only takes aim at part of the total of carbon-based fuels used in our lives and would not go where some economists believe it should, to reduce other, less economically justified taxes. Instead, the goal is to be able to spend more on improving our transportation infrastructure.

However, the Post pursues the question of just how many economists support carbon taxes. It cites expert panels convened by the University of Chicago’s Booth School of Business who asked economists whether they agreed that taxes on the carbon content of fuels would be a less expensive way to reduce carbon-dioxide emissions than a collection of policies such as corporate average fuel economy requirements for automobiles.” An amazing ninety percent of respondents either agreed or strongly agreed, the Post says, and suggests that economists might support Obama’s policy similarly.

In another angle, the Post notes that Alan Krupnick, an economist at the think tank Resources for the Future, said recently that a carbon tax could be more politically palatable if it were used not for new spending but to reduce other taxes.

He thinks that could lead to a number of benefits, including the reform of corporate taxation, and a reduction in the corporate income tax. He also thinks “the political costs of rejecting such an approach out of hand could be high enough to at least give a pause to opponents.”

The bottom line, the Post says is that while the carbon tax “doesn’t seem to be in the cards,” but if it were, this might be an appropriate time, when oil and gasoline prices are “radically’ low. It would be “about as timely as it is ever going to be.”

Well, that may be among the weakest arguments you will hear; that the time is ripe, even if the proposal is toxic. However, it is not surprising that the Post finds interest in support for raising carbon’s contribution to environmental cleanup. Despite their many powerful enemies, efforts to cut greenhouse gas emissions have some heavy duty supporters, as well.

Increasingly, it seems that the nation is edging toward climate change fights on several fronts, even as EPA’s emission constraints on coal generators are temporarily blocked in the courts—a protracted legal fight that may take years to settle.

In the meantime, it is not out of the question that the fight over tax allocation could focus on how to share tax burdens more equitably. Clearly, the Post is right in its view that a carbon tax is not likely now—but, that it may well be part of a more serious conversation in the fairly near future, Washington Insider believes.


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(GH/CZ)