Ministers from 159 countries who make up the World Trade Organization emerged Saturday morning, December 7, from their week-long 9th Ministerial Conference in Bali, Indonesia, declaring a successful conclusion and entrance into a “new era” for the organization.
For nearly two decades reaching successful agreements on multilateral trade negotiations were elusive to the WTO Ministers. Frustrated by this lack of success in the WTO, many countries including the U.S., the European Union and China began working on securing regional and bilateral agreements with multiple countries. For instance, since 2010 the U.S. has been engaged in negotiations of a regional, Asia-Pacific trade agreement, known as the Trans-Pacific Partnership (TPP) Agreement that includes 11 other countries. The lack of multilateral success at the WTO and focus on regional trade agreements like TPP were diminishing the significance of the WTO.
US Trade Representative Michael Froman issued a statement saying, “… indeed, the WTO has entered a new era. For the first time in its almost 20-year history, the WTO reached a fully multilateral agreement. WTO Members have demonstrated that we can come together as one to set new rules that create economic opportunity and prosperity for our nations and our peoples.”
But Is It Too Late For the WTO to be Relevant in Current U.S. Farm Policy Discussions?
The longevity of the WTO’s lack of success has come at a cost. With little-to-no consideration of WTO implications U.S. lawmakers have now adopted farm policies in both legislative chambers that maintain respective price supports for numerous eligible commodities. The Farm Bill passed in the Senate contains a program dubbed the Adverse Market Payment (AMP) program. The House version creates a Price Loss Coverage (PLC) program. Both programs are similar in that payments to producers are triggered when the average market price (using the entire market year for AMP, first five months of the marketing year for PLC) falls below legislated target (reference) prices. Where the AMP differs from PLC is, with the exception of the crops peanuts and rice, AMP uses 55% of a rolling five-year Olympic average of actual prices that will adjust over time. In addition, the AMP calculates payments to producers using 85% of historic base acres – acres previously planted to eligible crops on a farm. The PLC uses 85% of more current planted acres of eligible crops on a farm.
The Farm Bill is now before a House and Senate Conference Committee where lawmakers are debating the issue of using planted (vs. historic base) acres to calculate farm program payments. Last week leaders of the Conference Committee decided to alter the legislation by calculating payments to producers using the Senate version of base-acres with the target price levels in the House version of the PLC program. The Congressional Budget Office will provide budget scoring for the new proposal on Monday, December 9.
Have We Learned?
For years it has been known among Washington agriculture policy professionals that calculating payments to producers based upon more current planted acres is a policy that could trigger a trade dispute from WTO member countries. Such policies can impact producers current & future planting decisions. That’s why previous Farm Bills included commodity support payments to producers that are based upon historic base acres on a farm that are considered less trade distorting.
Moreover, in a more recent trade dispute at the WTO the U.S. did not fair well. Recall in 2004 the U.S. lost a trade dispute brought by Brazil over U.S. cotton subsidies. In 2010 Brazil threatened to impose over $800 million in sanctions on 100 (many non-agricultural) U.S. products. Brazil also considered lifting patent protections on U.S. products.
A temporary resolution was constructed where the U.S. would make annual payments totaling $147.3 million to the Brazilian Cotton Institute, an organization recently defined by the International Center for Trade and Sustainable Development as “finalizing its operating structure.” Both Republican and Democratic members of the House attempted to divert these payments to better uses by offering amendments during the floor debate on the FY 2012 Agriculture Appropriations Bill. In August of this year, U.S. Secretary of Agriculture Tom Vilsack travelled to Brazil and told Brazilian officials that he no longer had the authority to continue the annual payment due to budget sequestration.
Farm Policy Debate: Political, Economic Consequences
Without question the outcome of the commodity price support debate will determine whether or not U.S. lawmakers are influenced by Saturday’s WTO announcement of a successful multilateral trade conference. It may also foreshadow how leaders of U.S. agriculture intend to interpret and comply in the future with WTO rules.
With the WTO now trying to reassert itself amidst U.S. farm policy negotiations, it may prove ill-founded for lawmakers to construct policies without due consideration of WTO rules. Considering Brazil’s distaste for Secretary Vilsack’s summer announcement and congressional budget uncertainties, even a slight breach of WTO rules could convince Brazil to go ahead and impose the sanctions on U.S. products and intellectual property. Such sanctions in effect during a political election year could give rise to retaliation by voters as the economic consequences may be far reaching in the still-fragile U.S. economy.