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Agricultural Trade Factors
As the Doha talks continue, Financial Times writer Alan Beattie has provided a more in-depth look at issues associated with a potential shift away from negotiation and towards litigation in the context of world trade disputes. Mr. Beattie noted that, “To its defenders, this trend represents rule and reason constraining power politics. To its critics, it means runaway jurists subverting democracy.”
I. Closer Look at Trade Litigation
II. Report on a More Market Oriented Farm Bill
III. Farm Policy Issues: Spending & Ethanol
I. Closer Look at Trade Litigation
Alan Beattie reported today at the Financial Times Online that, “As the so-called Doha round of World Trade Organisation global trade talks sputters, more and more of the work of trade relations has shifted away from negotiation and towards litigation and arbitration. To its defenders, this trend represents rule and reason constraining power politics. To its critics, it means runaway jurists subverting democracy.”
Mr. Beattie indicated that, “A series of cases has highlighted the ability of a country – and increasingly, at the Icsid [International Centre for the Settlement of Investment Disputes, housed at the World Bank in Washington, which rules on disagreements between governments and private foreign investors] and similar ‘investor-state’ tribunals, a company – to force a government to act in politically sensitive areas. A succession of cases brought by WTO members including Brazil, the European Union and even tiny Antigua and Barbuda (population 83,000) has forced the US Congress to rewrite corporation tax law, reform subsidies to cotton farmers and revise bans on internet gambling.”
The FT article explained that, “WTO panels comprise three from a roster of part-time panellists that includes trade officials, diplomats and academics. Some, oddly, are moonlighting from day jobs as national ambassadors to the WTO, meaning they are negotiating over trade deals one day and ruling on their meaning the next. They do not have to be lawyers, though there is a separate appellate body whose members must have legal expertise. Panels rely heavily on advice from the WTO’s small secretariat to interpret legal questions.”
However, “Lawyers active in the system are staunch in its defence….Andrew Shoyer, a partner in [the international law firm, Sidley Austin’s] Washington office, says, ‘Insisting that all panellists be full-time would mean that only those at the end of their careers would serve…The advantage of having mid-career part-time panellists is that the quality of the judgment reflects the experiences they are having as trade officials every day.’”
Mr. Beattie also noted that, “Gary Hufbauer, senior fellow at the Peterson Institute think-tank in Washington, says the panel he sat on was superbly supported by the WTO’s secretariat. But he adds: ‘It is better than having nothing, but it is becoming unbalanced, and that will be even more evident if Doha fails. Litigation is not a great way of negotiating agricultural support [subsidies] and market access.’”
Concluding, the article stated that, “If Doha fails, American farmers are braced for a broadside of WTO litigation over their subsidies. Canada has already filed a new case over corn. Various other countries, such as Uruguay with rice, have potential cases that their lawyers are confident they can win.
“Such victories would bring short-term gains to the complainants. But if they erode the legitimacy of a dispute settlement system that has two rare and precious properties – enforceable rulings and the ability of tiny poor countries to take on big rich ones – their costs will be higher than they appear.”
Meanwhile, a Reuters news article reported earlier this week that, “German Finance Minister Peer Steinbrueck said on Friday he was more pessimistic about making headway in talks on the Doha round of trade liberalisation after meeting US Congress members in Washington.
“Trading powers have been locked in behind-the-scenes efforts to galvanize the World Trade Organisation (WTO) negotiations, with WTO chief Pascal Lamy repeatedly warning time is running out for a deal. ‘After my talks in Washington, I am more pessimistic,’ Steinbrueck told investment bankers in New York, adding US Congress members were under strong pressure from lobby groups.
“The Doha talks have been mired for years in sharp differences over agricultural subsidies and tariffs on farm goods. The US National Farmers Union, which represents smaller farm interests, is lobbying for a complete withdrawal from Doha. The American Farm Bureau Federation, the country’s biggest farm lobby, supports a new trade deal, as long as it delivers new customers for US products.”
The article also pointed out that, “Germany holds the European Union’s rotating presidency for the first half of this year. A senior EU diplomat said on Wednesday the bloc wants a breakthrough in struggling global free trade talks by mid-April, but the United States seems in no rush. [WTO Director General Pascal Lamy] says the WTO must reach a full scale pact on trade liberalisation by the end of June or risk the talks being put on ice for years or even collapsing.”
In a related item regarding international trade and government support of agriculture, the Organisation for Economic Co-operation and Development (OECD) indicated in a news release from last week that, “Government support to agriculture is far lower in the major emerging economies than on average in the developed countries of the OECD. But it is nevertheless rising as pressure mounts to protect farmers in an increasingly competitive global marketplace, says a new OECD report.
“Agricultural policies in non-OECD countries looks at eight nations which between them produce nearly one third of the world’s agricultural output – Brazil, China, India, South Africa, and the formerly planned economies of Russia, Bulgaria, Romania and Ukraine. In most of these countries the share of gross farm revenue made up of government support and subsidies is less than half the OECD average of 30%.
“However this share is on the rise in most of the countries in the study and much of the support goes into propping up prices, the least efficient and most trade distorting form of government subsidy, according to the OECD.”
To listen to an OECD podcast that highlighted a review of Brazil’s agricultural policy, which was included in the release, just click here (MP3).
A Reuters news article, which highlighted the OECD report, stated that, “Emerging economies had increased trade-distorting subsidies for farmers, though their overall level of agricultural support was far less than in rich countries, an Organisation for Economic Co-operation and Development (OECD) study showed.”
II. Report on a More Market Oriented Farm Bill
As multiple issues, including international trade, put pressure on the development of the 2007 Farm Bill, a recent study, which was commissioned by the Government of Australia, entitled, “Looking Forward: A More Market-Oriented 2007 Farm Act,” provided a detailed look at the future direction of U.S. ag policy. The study was issued last month and was completed by Informa Economics.
After background regarding the 2002 Farm Bill and the current policy environment were established, the report moved to look at “Options for a More Market-Oriented 2007 Farm Act” on page 34.
“The policies put in place in the 2002 Farm Act reflect the past more than they do the future. Many of them were designed in response to the depression-era needs of the 1930s while others were aimed at ameliorating the effects of the most recent farm recession of the 1980s. Policies offered to protect small, struggling farmers against persistently low prices and incomes are increasingly ill-suited to the needs of today’s modern, commercial agricultural sector in an era of stronger but more volatile markets. The result is that policies increasingly constrain, rather than support, the sector’s future development” (page 37).
The report explored the idea of revenue insurance on page 38, looked at farm savings accounts on page 39 and examined at a variety of other risk management tools beginning on page 40.
The report’s conclusion, which starts on page 47, noted in part that, “The U.S. faces a ‘policy crossroad’ in the coming 2007 Farm Bill debate. It must choose among competing visions—one focused on growing and changing markets, and a developing, more prosperous sector; and a second focused on policies that protect and isolate.
“Farm policy should ultimately be about improving farm productivity, competitiveness and farm returns.”
III. Farm Policy Issues: Spending & Ethanol
In his press briefing yesterday, White House Press Secretary Tony Snow commented on the war supplemental, which as Michael Doyle recently noted, contains additional funding for farmers: “Sweetening the pot for rural lawmakers, Democratic leaders packed some $4 billion in emergency aid for farmers into the Iraq bill.”
In his opening comments, Mr, Snow stated that, “Now, the responsible thing to do for Congress right now is to send a bill that provides for our troops, gives General Petraeus the funding and flexibility he needs to get the job done, and to remove purely domestic spending items from the package. These should be taken up in the normal appropriations process. Just for a little context, this would include $74 million for peanut storage costs — there are many more than these, I’m just giving you some highlights — $283 million for the milk income loss contract program; $500 million for emergency wildfire suppression, even though the Forest Service right now has on hand $831 million for this purpose; $400 million for rural schools; $10 million for the International Boundary and Water Commission — that’s a U.S.-Mexico commission for Rio Grande flood control and rehabilitating the flood control system.
“As the bill is presently constituted, the President would have to veto it.”
And with respect to ethanol, a key factor that has lead to lower projected farm subsidy payments, Jason Hill and G. David Tilman noted in an Op-Ed published recently in the Minneapolis Star-Tribune that, “In a recent issue of Science, we published research showing that mixtures of native prairie plants grown on marginal land are a good source of biomass for biofuel. Our study, based on 10 years of biodiversity experiments at Cedar Creek Natural History Area near East Bethel, demonstrated that ethanol made from mixed prairie plants can provide more usable energy per acre than either corn ethanol or soybean biodiesel.
“In addition, mixed prairie plants are highly productive and easy to grow. As they are perennial, they don’t need to be replanted each year. Certain species in these mixtures, such as legumes, interact with soil bacteria to ‘fix’ their own nitrogen from the atmosphere just as soybeans do. These diverse mixtures also prevent soil erosion and don’t require pesticides, herbicides or irrigation. They remove carbon dioxide from the air, storing carbon in their massive root systems as organic matter and in the soil itself. This actually adds fertility to degraded lands.
“Less than 2 percent of Minnesota’s precious native prairie ecosystem remains, and planting more land to diverse prairie would restore valuable wildlife habitat if it is managed and harvested properly. How can we use this diverse prairie biomass to produce biofuels? The cellulose in the leaves and stems can be converted into ethanol much as we make ethanol from the starch in corn. However, breaking down cellulose is a more complex and currently more expensive process than breaking down starch. Many private entities and public research groups are pursuing cost-effective technologies for producing ethanol from cellulose, and although it is unlikely to be available for five or more years, we should begin establishing the infrastructure of this new industry today.”
The authors also noted that, “The new U.S. farm bill, which is the first in this nation’s history to consider fuel as well as food crops, provides an excellent opportunity for promoting prairie biomass. We would like to see this legislation include incentives for farmers to begin shifting our biofuel industry from food to perennial plants as its main input.
“For example, the Conservation Reserve Program (CRP) now pays farmers to leave pieces of their land uncultivated for reasons such as erosion control. The increase in corn prices created by ethanol production is causing many farmers to consider taking their land out of this program and planting it back into corn. As an alternative, we propose a pilot program for using this land to restore diverse native prairie in a way that achieves the environmental benefits this ecosystem offers while providing us with a valuable energy source.”
And, a Dow Jones article posted yesterday at the DTN Ethanol Center reported that, “Investments of $1.2 billion into six plants that will convert grasses, trees and agricultural byproducts into ethanol, a key gasoline component, are the U.S.’ best hope in developing the technology necessary to increase alternative-fuel output, a top U.S. bioenergy official said Monday.
“The U.S. Department of Energy’s goal of having cellulosic-ethanol production commercially viable in three years is ‘aggressive but achievable,’ Michael Pacheco, director of the National Bioenergy Center at the DOE’s National Renewable Energy Laboratory, or NREL, said on the sidelines of the National Petrochemical and Refiners Association annual meeting.
“‘It’s our belief that by 2012, (the projects) can demonstrate that cellulosic ethanol can compete with corn-derived ethanol,’ Pacheco said. NREL sees cellulosic ethanol as adding to the available pool of corn ethanol, production of which is estimated at a maximum of about 20 billion gallons a year. Currently, corn ethanol production is about 5 billion gallons a year.”
According to a news release issued last week from Sen. Byron Dorgan (D-ND), “U.S. Senators Byron Dorgan, D-N.D., and Larry Craig, R-Idaho, introduced the Security and Fuel Efficiency (SAFE) Energy Act of 2007 today. The legislation follows closely many of the policy recommendations of the Energy Security Leadership Council, which released its ‘Recommendation to the Nation on Reducing U.S. Oil Dependence’ report in December 2006. A number of Council members joined Dorgan and Craig at the press conference announcing the legislation.”
The release also noted that, “The legislation includes four titles focusing on: increasing fuel efficiency of the transportation sector; growing use of alternative fuels and infrastructure; expanding access to certain Outer Continental Shelf Resources; and managing international energy security risks. Specific details are available in the attached summary of the legislation.”
In part, the summary of the legislation stated that, “This title calls for a total renewable fuels standard of 30 billion gallons by 2020, with the condition that the 2020 mandate must include 15 billion gallons that are not just conventional corn-starch based, but will include cellulosic and other feedstocks.”
Separately, a very short item posted yesterday at the Staunton News Leader (Virginia) noted that, “The nation’s appetite for farm-grown ethanol will drive up food costs, Congressman Bob Goodlatte, R-6th, said Monday at an ag conference at the Frontier Culture Museum.
“Corn and soybean producers are making record profits, he said, but higher grain prices have already hit livestock and poultry producers — and will be passed on to consumers — until less wasteful fuel technologies emerge.”
-Keith Good
