Washington Insider -- Wednesday

Bypassing the WTO

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

US Agricultural Export Value Eased in January as Imports Rose

The value of U.S. agricultural exports slipped to $12.351 billion against imports that rose to $10.11 billion for a monthly trade surplus of $2.241 billion, according to USDA's U.S. Agriculture Trade Update.

In December, the value of U.S. agricultural exports was at $12.923 billion against imports of $9.735 billion for a surplus of $3.187 billion.

The January trade surplus is the smallest of Fiscal 2017 and the lowest since September 2016 when it was $2.233 billion.

Monthly imports topped $10 billion for the first time since March 2016 and only the sixth time that has happened based on USDA data back to Fiscal 1976. But the $10.11 billion figure for January is still under the record level of $10.616 billion in March 2015.

So far in Fiscal 2016, the value of U.S. agricultural exports totals $53.779 billion against imports of $38.949 billion for a cumulative trade surplus of $14.829 billion. The trade surplus for Fiscal 2017 is already within $1.7 billion of the total agricultural trade surplus for Fiscal 2016 of $16.617 billion.

USDA forecasts the Fiscal 2017 agricultural trade surplus at $21.5 billion as exports are expected at $136 billion against a record $114.5 billion in imports.

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USDA Confirms Full Subtype of HPAI in Tennessee Case

The full subtype for the highly pathogenic H7 avian influenza reported in Lincoln County, Tennessee, has been identified as North American wild bird lineage H7N9 HPAI (highly pathogenic avian influenza) based upon full genome sequence analysis of the samples at USDA's National Veterinary Services Laboratories (NVSL).

"All eight gene segments of the virus are North American wild bird lineage," USDA's Animal and Plant Health Inspection Service (APHIS) said in an update. However, the agency stressed, "This is NOT the same as the China H7N9 virus that has impacted poultry and infected humans in Asia. While the subtype is the same as the China H7N9 lineage that emerged in 2013, this is a different virus and is genetically distinct from the China H7N9 lineage."

USDA continues to work with the Tennessee Department of Agriculture on the joint incident response. Birds on the affected premises have been depopulated, and burial is in progress. An epidemiological investigation is underway to determine the source of the infection.

Federal and state partners continue to conduct surveillance and testing of poultry within an expanded 10-mile radius around the affected premises to ensure all commercial operations in the area are disease-free, USDA said. Plus, strict movement controls are in place within an established control zone to prevent the disease from spreading.

As of March 6, all commercial premises within the surveillance area had been tested, and all of the tests from the surrounding facilities were negative for disease, APHIS said. Officials will continue to observe commercial and backyard poultry for signs of influenza, and all flocks in the surveillance zone will be tested again.


Washington Insider: Bypassing the WTO

It seems now in the midst of the Twitter political wars that the media may be ratcheting up its scrutiny of various policy proposals. For example, this week the Washington Post carried an academic article by McGill University Political Science scholar Krzysztof Pelc that presents analyses of previous experiences with some current trade policy proposals.

Professor Pelc writes he has studied trade dispute settlement closely and thinks that bypassing the WTO dispute settlement system by the United States would be a mistake. He concludes that "History shows that the U.S. has had more success getting trade concessions through multilateral channels."

The article notes that the administration's March 1 trade report to Congress presents its Trade Policy Agenda for 2017 and lists "defend U.S. national sovereignty over trade policy" as a first priority.

However, Professor Pelc argues that his research shows that "unilateralism just doesn't work very well, even with all of U.S. market power behind it." One reason, he says, is that the main U.S. unilateral trade tool, Section 301 of the 1974 Trade Act, has serious drawbacks.

Section 301 was created in a political setting that sounds familiar -- at the end of the Nixon era, an overvalued dollar contributed to a growing U.S. trade deficit. Many Americans saw the rise of Japan's industrial power as a threat and Congress grew disenchanted with the General Agreement on Tariffs and Trade (GATT) multilateral trade system. So Congress pushed for an aggressive mechanism to go after perceived foreign violations, without the procedural burdens associated with the multilateral trade regime.

The U.S. said it would decide on its own whether a foreign measure was a trade violation, in which case it would promptly retaliate.

In response, trade officials around the world criticized Section 301 as an "an irreparable act of folly" and a "war against all," the article says. The trade representative of India called it a move to appoint the U.S. "judge, jury, and executioner." The European representative called it a "commercial nuclear bomb," warning that the U.S. itself "would not be spared."

Yet the U.S. used Section 301 for more than two decades until the WTO system came into effect. It retaliated by cutting off trade partners from its large markets in one-sixth of these challenges. By comparison, retaliation never occurred under the multilateral system during the same period. Section 301 was finally "defanged" when a WTO panel ruled on its legality in 1999, following a challenge by European countries.

The reactions at the time offer a sense of how U.S. trade partners might respond to a return to unilateralism today, the article says: "Unilateralism in trade generates overwhelming resistance in targeted countries, and this resistance makes any concessions unlikely."

Professor Pelc reports that he examined the success rate of U.S. Section 301 actions and compared those to that of 189 similar actions brought under the multilateral system. Despite the far more potent threat of retaliation, "the U.S. was 34% less likely to secure concessions in the targeted countries when it opted for the unilateral route."

The author concludes that the reason for this lack of impact seemed to be that the targeted countries, particularly Japan, saw "resisting U.S. unilateralism as an investment in the future." They believed that conceding to a unilateral threat would bring more threats, much as hostage negotiators work to avoid incentives for further hostage taking.

U.S. trade partners feared that concessions would both embolden the United States and lead others to follow suit. By contrast, conceding to legitimate multilateral challenges "showed countries to be good global citizens." That's why trade challenges conducted via multilateral channels proved more effective, Professor Pelc says.

This is important, the article says, because China's relative power today is greater than Japan's even at its peak in the 1980s so there is "every reason to be skeptical of the U.S. ability to push the Chinese unilaterally to amend their policies."

In addition, China has recently emerged as the "unsuspected champion of the WTO" Professor Pelc says, and Beijing has systematically complied with adverse WTO rulings.

Thus, by opting for the "unilateral option," the United States could be jeopardizing this significant achievement of assimilating China into global trade rules.

He also thinks the administration should be especially wary of "unilateralism" now, since the last administration launched several WTO disputes, including multiple filed against China, and has every chance of winning these, since it did so in the past.

So, Professor Pelc's warning is that following a unilateral path on trade policy risks abandoning the fruits of a half-century of institution-building, as well as leading to "disproportionate resistance." Certainly, the U.S. trade policy debate is just now being seriously joined concerns policies that are vital to U.S. agriculture, and should be watched closely by producers as it emerges, Washington Insider believes.


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