Agricultural policy issues in Agricultural policy issues in the 109the 109thth Congress Congress

Stephanie MercierStephanie Mercier

Senate Agriculture CommitteeSenate Agriculture Committee

July 25, 2005July 25, 2005

SummarySummary

WTO processWTO process

Other trade policy issuesOther trade policy issues

crop insurancecrop insurance

Other legislative issuesOther legislative issues

Concluding remarksConcluding remarks

Trade policy issuesTrade policy issues

19

60

65

70

75

80

85

90

95

20

00

0

10

20

30

40

50

60

70

U.S. agricultural trade, 1960-2005

$bill.

Exports

Imports

How is U.S. trade policy agenda How is U.S. trade policy agenda performing?performing?

Growth in imports occurring as result of Growth in imports occurring as result of demographic, income changes—relentlessdemographic, income changes—relentlessGrowth in exports more sporadicGrowth in exports more sporadic– Drop off in late 1990’s due to external causes Drop off in late 1990’s due to external causes

(Asian economic problems, strong U.S. dollar)(Asian economic problems, strong U.S. dollar)– Active trade policy effort may have forestalled Active trade policy effort may have forestalled

greater declinegreater decline

U.S. trade policy agenda involves multiple U.S. trade policy agenda involves multiple trackstracks

Doha Development AgendaDoha Development Agenda

Uruguay Round (1993) envisioned continuing Uruguay Round (1993) envisioned continuing negotiations to further reform agriculture, trade negotiations to further reform agriculture, trade in services in 1999in services in 1999Doha Round launched after WTO Ministerial Doha Round launched after WTO Ministerial meeting held in Nov. 2001meeting held in Nov. 2001Key issue areas:Key issue areas:– AgricultureAgriculture– Non-agricultural market accessNon-agricultural market access– Trade in servicesTrade in services– Implementation issues from Uruguay RoundImplementation issues from Uruguay Round– Trade in intellectual property rightsTrade in intellectual property rights

WTO framework agreementWTO framework agreement

Completed in July 2004Completed in July 2004Covers agriculture and other key areasCovers agriculture and other key areasLong on principles, short on numbersLong on principles, short on numbersReflects U.S. priorities of greater cuts from higher levels Reflects U.S. priorities of greater cuts from higher levels (harmonization) in domestic support and market access(harmonization) in domestic support and market accessNot clear if final deal possible if value of lost domestic Not clear if final deal possible if value of lost domestic support < value of market access opportunities gainedsupport < value of market access opportunities gainedUrgent need for capacity to do rapid analysis of Urgent need for capacity to do rapid analysis of implications of various proposals for reforming implications of various proposals for reforming agriculture in Doha Roundagriculture in Doha RoundSuccess in agriculture is linchpin for success in overall Success in agriculture is linchpin for success in overall RoundRound

Anticipated WTO timelineAnticipated WTO timeline

Complete `first approximation’ document Complete `first approximation’ document by end of Julyby end of JulyMinisters to approve broad agreement at Ministers to approve broad agreement at Hong Kong Ministerial in DecemberHong Kong Ministerial in DecemberFill out details (tariff lines, special product Fill out details (tariff lines, special product designations) in 2006designations) in 2006Final agreement in early 2007, coinciding Final agreement in early 2007, coinciding with last window for Congressional with last window for Congressional approval under TPAapproval under TPA

WTO Dispute SettlementWTO Dispute Settlement

Crucial aspect of Uruguay RoundCrucial aspect of Uruguay RoundU.S. frustrated with lack of enforcement U.S. frustrated with lack of enforcement mechanism under GATTmechanism under GATTU.S. single largest participant in WTO dispute U.S. single largest participant in WTO dispute settlement processsettlement process– Complainant in 69 cases (21 agric.)Complainant in 69 cases (21 agric.)– Respondent in 80 cases (11 agric.)Respondent in 80 cases (11 agric.)

Brazil cotton case pivotal for future of U.S. farm Brazil cotton case pivotal for future of U.S. farm policypolicy– First to call U.S. commodity programs into questionFirst to call U.S. commodity programs into question

Brazil cotton case: timelineBrazil cotton case: timeline

Case filed by Brazil in September 2002, asserting that:Case filed by Brazil in September 2002, asserting that:– U.S. forfeited peace clause protection by excessive spending on U.S. forfeited peace clause protection by excessive spending on

domestic support for cottondomestic support for cotton– U.S. cotton programs create serious price-suppressing effect on U.S. cotton programs create serious price-suppressing effect on

world cotton marketworld cotton market– U.S. must change or eliminate its price-related programsU.S. must change or eliminate its price-related programs

September 2004, initial panel found for Brazil on most September 2004, initial panel found for Brazil on most aspects of caseaspects of caseIn March 2005, WTO appellate panel issued report which In March 2005, WTO appellate panel issued report which upheld original panelupheld original panelIn June 2005 U.S. government accepted appeal verdict, In June 2005 U.S. government accepted appeal verdict, agreed to complyagreed to comply

Brazil cotton case--implicationsBrazil cotton case--implications

Panel report indicates quick action needed on export Panel report indicates quick action needed on export credit and cotton Step 2 programs—July 1, 2005credit and cotton Step 2 programs—July 1, 2005– USDA took regulatory steps to address concerns on GSM export USDA took regulatory steps to address concerns on GSM export

credit programscredit programs– USDA sent draft legislation to Congress on July 5 that would USDA sent draft legislation to Congress on July 5 that would

terminate cotton step 2 and make final statutory changes on terminate cotton step 2 and make final statutory changes on export creditexport credit

– Likely to be folded into Committee’s budget reconciliation Likely to be folded into Committee’s budget reconciliation package ($492 million in savings for 5 years)package ($492 million in savings for 5 years)

No firm deadline or guidelines on modification of No firm deadline or guidelines on modification of domestic support programsdomestic support programsPolitically, it would be difficult to reform domestic Politically, it would be difficult to reform domestic programs for cotton onlyprograms for cotton onlyFurther changes (if needed) could occur in 2007 farm billFurther changes (if needed) could occur in 2007 farm bill

At stake in trade negotiationsAt stake in trade negotiations

Trade promotion authority (Trade Act of 2002), Trade promotion authority (Trade Act of 2002), Congress delegates authority to the President, Congress delegates authority to the President, limiting its ability to influence provisions of trade limiting its ability to influence provisions of trade agreementsagreementsGreater opportunities for U.S. agriculture in Greater opportunities for U.S. agriculture in hemispheric (FTAA) and multilateral negotiations hemispheric (FTAA) and multilateral negotiations (WTO)(WTO)If double U.S. market share in current and planned If double U.S. market share in current and planned bilateral and sub-regional negotiations, gain of $3.3 bilateral and sub-regional negotiations, gain of $3.3 billionbillionIf 10 percent share increase in markets in FTAA and If 10 percent share increase in markets in FTAA and WTO, gain of more than $5.5 billionWTO, gain of more than $5.5 billion

FTA name Partners Value ag. trade

U.S. share

Morocco 1 $1.7 bill. 5%Australia 1 $2.8 bill. 14%CAFTA+DR 6 $3.3 bill. 46%Bahrain 1 $0.43 bill. 7%

Recently completed U.S. trade deals

CAFTA-DR in the balanceCAFTA-DR in the balance

Implementing legislation passed 54-45 in Senate Implementing legislation passed 54-45 in Senate on June 30: narrowest margin for FTA in Senateon June 30: narrowest margin for FTA in SenateVote expected in House before the end of July Vote expected in House before the end of July —outcome uncertain—outcome uncertainSpecific concernsSpecific concerns– Modest benefits from CAFTA-DRModest benefits from CAFTA-DR– Import-sensitive sectors such as sugar concerned Import-sensitive sectors such as sugar concerned

about impactabout impact– Lack of effective labor, environmental provisionsLack of effective labor, environmental provisions– Will agreement really help working class in Central Will agreement really help working class in Central

AmericaAmerica

CAFTA-DR and sugarCAFTA-DR and sugar

Text provides 110,000 tons additional access to CAFTA Text provides 110,000 tons additional access to CAFTA countries, expanding to 150,000 tons by end of phase-incountries, expanding to 150,000 tons by end of phase-inThis provision protested by U.S. sugar industryThis provision protested by U.S. sugar industryAssert that CAFTA undermines stability of U.S. sugar Assert that CAFTA undermines stability of U.S. sugar program, which is based on a support price dependent program, which is based on a support price dependent on limiting importson limiting importsSugar groups represent main opposition to CAFTA within Sugar groups represent main opposition to CAFTA within U.S. agricultureU.S. agricultureOpposition from sugar-state members could mean Opposition from sugar-state members could mean difference between winning and losingdifference between winning and losing– At least half of Senate Republicans who voted `No’ were from At least half of Senate Republicans who voted `No’ were from

sugar-producing statessugar-producing states

Ongoing U.S. trade negotiations

Name Countries Total Ag. Imports

U.S. share

WTO 145 $329 bill. 14%FTAA 33 $28.9 bill. 15%SACU 5 $2.1 bill. 5%Thailand 1 $2.8 bill. 18%Andean countries

3 $2.9 bill. 30%

Panama 1 $0.4 bill. 45%Source: USDA and FAO: based on 2001 figures

197075

8085

9095

20000.1

0.15

0.2

0.25

0.3

0.35

U.S. agricultural exports as share of total receipts

Source: Economic Research Service, USDA

Other trade policy issuesOther trade policy issues

BSE impact on beef tradeBSE impact on beef trade– U.S. border re-opened to live Canadian cattle on July U.S. border re-opened to live Canadian cattle on July

18 after court injunction over-turned18 after court injunction over-turned– 22ndnd U.S. BSE case (1 U.S. BSE case (1stst indigenous) may have indigenous) may have

complicated re-opening markets to U.S. beefcomplicated re-opening markets to U.S. beefSome markets closed in response to 2Some markets closed in response to 2ndnd case caseSome markets (Japan, Korea) remain closed since 1Some markets (Japan, Korea) remain closed since 1stst BSE BSE case (Dec. 2003).case (Dec. 2003).

Food aid issuesFood aid issues– WTO developmentsWTO developments– U.S. budget actionsU.S. budget actions

Other policy issuesOther policy issues

Crop insuranceCrop insurance– PRPPRP– Conflict of interest rulesConflict of interest rules

Soybean rustSoybean rust

LivestockLivestock– Price reportingPrice reporting– Animal IDAnimal ID– COOLCOOL

Energy billEnergy bill

Current effort is third try to get bill passed in last five Current effort is third try to get bill passed in last five yearsyearsNow in House-Senate conferenceNow in House-Senate conferenceKey agriculture-related provisionsKey agriculture-related provisions– Renewable Fuel standard (RFS)Renewable Fuel standard (RFS)– Biomass energy provisionsBiomass energy provisions– Renewable portfolio standard (RPS)Renewable portfolio standard (RPS)– Renewable energy production tax credits (wind, biodiesel)Renewable energy production tax credits (wind, biodiesel)

Sticking points in conferenceSticking points in conference– MTBE liability provisionMTBE liability provision– RFS RFS – RPSRPS– Tax provisionsTax provisions

Coments about farm bill processComents about farm bill process

Many provisions of the 2002 farm bill expire in Many provisions of the 2002 farm bill expire in September 2007September 2007USDA has already launched farm bill listening sessions USDA has already launched farm bill listening sessions this summer (45 total?)this summer (45 total?)House Ag. Committee could begin field hearings on farm House Ag. Committee could begin field hearings on farm bill yet this yearbill yet this yearNo urgency to finish early this time:No urgency to finish early this time:– wait for Doha processwait for Doha process– likely no new money at stakelikely no new money at stake

If AAEA members want to do research which could have If AAEA members want to do research which could have an impact on the farm bill process, now is the time to an impact on the farm bill process, now is the time to beginbegin

Concluding remarksConcluding remarks

While Committee work on farm bills is While Committee work on farm bills is cyclical, there are a lot of issues where cyclical, there are a lot of issues where there is always something going onthere is always something going on

Even if there is not specific legislation Even if there is not specific legislation needed, staff need to stay on top of all needed, staff need to stay on top of all developments that touch on U.S. developments that touch on U.S. agriculture, however tangentialagriculture, however tangential

A Hill staffer’s work is never doneA Hill staffer’s work is never done