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WTO Negotiations Facing New Realities

By USW Deputy Director of Policy Ben Conner

After attending a series of World Trade Organization (WTO) meetings in Geneva in September, it appears to me that member representatives are at the intersection of two trends influencing agricultural trade negotiations.

First, there is growing recognition that the Doha Round approach to future trade negotiations is not viable , so some countries are casting about for new approaches, while others are digging into seemingly unworkable positions. Second, more countries understand that the policy environment has shifted dramatically since the Doha Round started in the early 2000s. Many now see that the vast majority of trade distortions in agriculture now come from developing country policies.

This second point was felt like an earthquake in Geneva when the United States initiated a first-of-its-kind dispute against China’s price supports for wheat, corn and rice. U.S. industry and government officials had been talking about the problem of advanced developing country farm subsidies for years, but it was easy to ignore as long as no one thought anything would be done. What is hard to ignore now is this: one Chinese program covering three crops provides more than $100 billion in support, which is greater than the GDPs of more than 100 WTO member countries.

Negotiators are still digesting the potential impact of that case, but everyone should know that this is not simply symbolism meant to bolster the prospects of trade agreements like the Trans-Pacific Partnership (TPP). This reflects the serious problem of developing country subsidies that must be addressed. Any new negotiations need to be based on reality, particularly this reality. We at USW believe that developing country subsidies are by far causing the greatest distortions in world wheat trade today.

Outdated frameworks, in which the least ambitious participant dominated, have bogged down negotiators for years. Now, many countries are approaching the negotiations with fresh eyes, ready to tackle specific topics and go beyond the old multilateral model.

However, that is not to say that an agricultural outcome will have the effect of opening trade in wheat. In fact, the last two agriculture agreements actually had the opposite effect.

At the Bali ministerial meeting in 2013 and the Nairobi meeting in 2015, the agricultural agreements reversed some of the progress made by the WTO Agriculture Agreement. In Bali, India and other countries negotiated language, that masquerades trade-distorting price supports as food security programs. At Nairobi, WTO members notably agreed to eliminate all export subsidies but, at the same time, granted an eight-year, unlimited exemption for certain export subsidies commonly used by developing countries in violation of the original WTO Agriculture Agreement.

The next ministerial meeting will be in Buenos Aires in 2017. There, trade ministers will be under pressure to deliver something on agriculture. Again, certain advanced developing countries will try to reverse the progress already been made on trade liberalization and protect current trade-distorting programs.

The United States has clearly sent a strong signal with the China case that not following the existing rules will no longer be ignored. The top priority in Buenos Aires should be preventing further erosion of the trade liberalizing provisions of the WTO Agriculture Agreement, even if that means no new agreement on agriculture.

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Time to Apply the WTO’s Enforcement Power

By Ben Conner, USW Assistant Director of Policy

The power of the World Trade Organization (WTO) may seem somewhat dim these days. The Doha Round negotiations have been stalled for years and there are many flagrant violations of WTO rules that have been documented by groups like USW. Free trade agreements (FTAs) proliferate, while many see the multilateral system represented by the WTO as ineffective at best.

However, we should not overlook the strong foundations that the WTO creates for global trade —foundations that many take for granted today. In particular, the WTO Agriculture, Subsidies and SPS Agreements lay the groundwork for clear, consistent and appropriate state involvement in agricultural trade and production. FTAs go beyond the WTO for particular trade relationships, but the WTO rules undergird FTA rules. USW is encouraging use of this rules-based enforcement system to ensure countries meet their commitments. It is an under-used tool for advancing free trade through negotiations at the WTO and other settings, and pushing for enforcement when other avenues have failed.

The WTO agreements — along with advances in technology, peace and security in international waters, and flourishing economies across the world — helped spark a golden age of food and agricultural trade. While the world’s population has grown by 30 percent since the 1995 creation of the WTO, trade in agriculture is over 300 percent of its 1995 level. Today, there is a dizzying array of food products available around the world — an abundance unheard of mere generations ago.

Specialization and trade allow Japanese bakers to use flour milled from U.S. SW wheat to bake exquisite cakes, while Italian millers use our durum and hard red spring to create the crucial ingredients for some of the best pasta products in the world. In return, U.S. farmers can raise a glass of sake or chianti to celebrate the exchange. While it is a stretch to say that this would not be possible without the WTO, it is almost certainly the case that the scale and opportunity available to producers, businesses and consumers around the world would be vastly diminished.

Of course, not everyone can enjoy unhampered access to the world’s bounty. As most who engage in international trade understand, countries do not always act in a manner that is “clear, consistent and appropriate,” and often violate WTO rules in ways that have been both bizarre and blatant.

This all underscores the need for active enforcement of WTO commitments. If there is no fear of retaliation sanctioned by the WTO, countries will ignore the strong rules of the WTO agreements. If countries respect their agreements, it will result in a more conducive trade and regulatory environment for food and agriculture.

With very few exceptions, countries reform trade-distorting policies that are successfully challenged at the WTO. So for those who want a better global trading system, don’t scrap the WTO — we say use it more aggressively.

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USW Helping Customers Adjust to Columbia and Snake River System Upgrade

The Pacific Northwest (PNW) grain chain and U.S. wheat importers are aware that the Columbia Snake River System (CSRS) will close for extended maintenance beginning Dec. 12, 2016, and ending March 20, 2017. This will allow the U.S. Army Corps of Engineers to make essential renovations to all the navigation locks on the Columbia River and the Snake River. No barge traffic will be able to pass during this time.

U.S. Wheat Associate (USW) welcomes this investment as a critical part of our country’s long-term position as the world’s most reliable supplier to our customers. USW and supply chain participants take any customer concerns about supply, cost impact and logistical options seriously and is working with customers to help them minimize any possible impact before, during, and after the river system closure.

Such extended closures are unusual but, as our overseas customers learned during the last extended closure in 2010/11, the entire PNW system is fully capable of ensuring an uninterrupted supply of wheat to export terminals.

USW believes the industry will consider every logistical option to keep wheat, especially soft white (SW) wheat, flowing to export elevators. Significant changes will help make this closure more manageable. For example, total export terminal storage capacity on the Columbia River has grown substantially since 2011. The addition of an entirely new terminal, plus the construction of new storage at several others, has increased storage capacity from 564,000 metric tons (MT) to 866,000 MT today. The PNW’s total up-country grain storage capacity has also grown to 17.3 million MT from 16.4 MMT.

Rail shipments made up 54 percent of SW sourced by rail during the outage in 2010/11. Rail shipping will likely make up most of the barge capacity shortfall during this closure as well. An estimated 80 percent of hard red winter and 90 percent of hard red spring exported from the PNW are already sourced by rail. For SW to move west, rail sourcing will have to increase as much as 25 percent (see chart below). Fortunately, railroads have been investing in capacity and there are now four shuttle train loading terminals in eastern Washington, compared to two that were operational in 2010/11. The system is even better prepared to meet demand in 2016/17.

Knowing the CSRS will be closed during the upgrade, exporters, grain originators, barge operators, railroads, and trucking lines are already planning to minimize interruptions and costs. Alternatives include:

  • Pre-positioning the maximum number of barges to load SW before the closing (the Bonneville Lock and Dam should re-open after 8 weeks, which would open facilities up river to The Dalles, about 307 km east of Portland);
  • Moving more rail cars and locomotives into the region to handle increased demand from rail-loading interior elevators;
  • Coordinating truck and rail delivery from the Willamette Valley, south of Portland.
  • Buyers can help themselves by preparing for the maintenance period. USW believes there will be sufficient volume of all U.S. wheat classes normally available from the PNW. Buyers can also help lower the risk of interruption and minimize potential costs by taking a longer view of their purchase needs.

USW is advising its customers to consider:

  • Consulting with PNW exporters as early as possible to help give exporters more time to respond to your needs and to manage their logistical challenges.
  • Scheduling a meeting soon with the local USW representative to identify buying strategies that fit specific needs and capabilities;
  • Analyzing inventory needs and logistical capabilities;
  • Increasing SW wheat and/or flour storage;
  • Increasing SW purchase cadence in the harvest and immediate post-harvest period (July – November) before the closure;
  • Deferring as an offset some hard red winter (HRW) and hard red spring (HRS) shipments from the immediate post-harvest period into the maintenance period.

As an objective voice for U.S. wheat producers, USW greatly values the trust customers have in its products and service and remains fixed on helping buyers, millers, and wheat food processors learn how to grow their enterprises using U.S. wheat. The organization believes that, working together, the industry and customers will see wheat trade continue to flow.

About the Columbia Snake River System. The CSRS is a vital transportation link for wheat producers in the states of Idaho, Montana, Oregon, and Washington. The economies of these four states rely heavily on the commerce that flows up and down this system. The CSRS is the #1 U.S. wheat export gateway. The deep draft channel supports 46 million tons of cargo each year, valued at $20 billion. The inland system supports more than 9 million tons of cargo.

For more information, visit the Pacific Northwest Waterways Association online at www.pnwa.net.

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Welcome Progress on Trans-Pacific Partnership

By submitting the draft “Statement of Administrative Action” (SAA) to the U.S. Congress on Aug. 12, 2016, the U.S. Trade Representative moved one step closer to the final consideration of the Trans-Pacific Partnership (TPP). The SAA describes actions necessary to implement the provisions of TPP and contains details about how U.S. law would need to change to adopt TPP. The Trade Promotion Authority (TPA) bill passed in 2015 requires this submission before Congress can consider the agreement.

Under TPA, the President has the authority to conclude trade agreements and submit them to Congress for an up or down vote. This pre-empts legislative amendments from derailing the careful balance struck in trade agreement negotiations. Less well-known TPA provisions allow Congress to establish priorities in negotiations, specify necessary reports and provide timelines for consideration of agreements. TPA states that a draft SAA must be submitted to Congress at least 30 days before submitting the draft legislation that implements a trade agreement, setting up a potential vote on TPP this fall.

To continue compliance with TPA, the U.S. Trade Representative must still produce three reports detailing the agreement’s impact on key areas such as the environment, labor laws, and U.S. employment, and then work with Congress to submit the draft implementing bill for a vote. As work continues to address congressional concerns about the agreement that are predominately related to non-agricultural issues, the Administration has not yet signaled when the implementing bill will be ready.

President Obama maintains that final consideration and approval of the Trans-Pacific Partnership can and should be accomplished this year, despite increasingly negative rhetoric on trade coming from the U.S. presidential campaigns. TPP and the Asian and Latin American markets it affects are also key priorities for the wheat industry. The agreement stands as the only potential answer from the United States to competitors gaining more favorable trade access for their farmers within the Pacific Rim by continuing to negotiate and implement separate trade agreements. The submission of the SAA this month is a step in the right direction for U.S. farmers and their customers who need a wider variety of wheat classes and quality to meet the growing demand for new wheat foods.

Learn more about how USW supports free trade through multilateral, regional, and bilateral trade agreements. 

By Dalton Henry, Vice President of Policy

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A Diatribe on the Politics of Trade Agreements

By Ben Conner, USW Deputy Director of Policy

Few who followed U.S. politics as recently as last summer would have expected to see presidential candidates from both major parties taking a hard line against new and existing free trade agreements, but that is the world we now wake up to every day.

It has always been relatively easy to make the political case against free trade. Showing a closed factory or bemoaning jobs allegedly outsourced to “cheap foreign labor” gets too much attention compared to the positive, but more complex, story of positive trade benefits. The arguments against trade usually ignore the growth of technology (including the introduction of the personal computer and the Internet that occurred simultaneously with implementation of trade agreements and increased productivity), overlook the fact that manufacturing output in the United States is at record levels, and dismiss the dependence of farmers —especially wheat farmers — on international trade for their survival.

Another endlessly repeated concern is about a “growing trade deficit.” Trade deficits may matter, but not as much as opponents would leave us to believe. The perception that all deficits are bad stems partially from the almost exclusive focus by trade advocates on the benefits of trade agreements to exporting countries and industries. Let us use the elimination of import tariffs on U.S. wheat exports as an example. That situation does not mean that countries that import U.S. wheat are worse off because they decide they can afford to buy more U.S. wheat with lower tariffs. The purchase of U.S. wheat adds to the import side of the balance of trade, but that is only a bad thing if you assume that wheat itself has no value.

Likewise, when a U.S. farmer buys fertilizer that was extracted from foreign deposits, the U.S. trade deficit goes up, but the farmer is more likely to be pleased with improving quality and yields than alarmed by an abstract accounting measure published by the Bureau of Economic Analysis.

Another persistent objection raised by skeptics of free trade agreements is that foreign countries try to tip the scales against U.S. companies. And we know there is some truth in that. Much of USW’s trade policy work is devoted to off-agreement practices. More details about that work can be seen on the policy section on the USW website. The recourse to address such issues is in the enforcement provisions of trade agreements.

Trade agreements have the potential to create a level playing field where individuals, families and companies can make their own decisions about what to buy and sell. The moral response is to allow people to trade with whom they wish, and not tip the scales. The role of trade agreements is to provide that opportunity, and that benefits both U.S. wheat buyers and wheat producers.

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U.S. Wheat Associates and NAWG Joint Committees Meet in Fargo

By Dalton Henry, USW Vice President of Policy

The two joint farmer committees of USW and the National Association of Wheat Growers (NAWG) met last week in Fargo, ND, for a policy update and to consider key issues facing the wheat industry. The joint committees were created more than a decade ago to enable and ensure close collaboration between the two organizations on policy priorities in trade and technology.

The Joint Biotechnology Committee, which has broadened its agenda to include a number of technologies, heard updates from private breeding companies on non-GM products they are rolling out to growers. Many of these companies are working to help increase efficiency and drive additional productivity. Two major updates included the continual development of hybrid wheat and products to produce better seeding rate recommendations.

The committee also heard from a researcher from Cibus, a company that has a process for producing gene-edited plants that do not contain any foreign DNA, but can yield substantial improvements for both growers and end-users. Recently they have focused on flax and canola, but according to the speaker, while they do not any active wheat projects, the technology could be readily applied in the wheat industry.

The Joint International Trade Committee considered a range of updates on several priority trade issues for the wheat industry including foreign country domestic support, the Trans-Pacific Partnership (TPP) and possible future negotiations at the World Trade Organization (WTO).

Staff presented additional detail about the domestic support study that was released earlier this spring. The study focused on wheat support policies in China and their impact on U.S. producers and producers in other exporting countries. In the U.S., the total farm gate losses are now estimated at $653 million, an increase of about $100 million from over a year ago, caused by the continued decline of world wheat prices amid burgeoning Chinese wheat stocks.

NAWG staff discussed TPP and possible windows for Congressional consideration this calendar year. Staff were confident that the U.S. Trade Representative’s (USTR) office has been working closely and making progress with Congressional leadership to prepare for eventual introduction of the legislative text ratifying TPP, even though the negative rhetoric on trade has increased dramatically from many political candidates during the U.S. election season. TPP would lower tariffs and import restrictions on wheat to the benefit of U.S. wheat farmers and their customers overseas.

Committee members also briefly discussed the current negotiating status at the WTO. Though negotiations on agricultural market access have been largely stalled for some time, progress is being made in other sectors including services and environmental goods. Progress in these other areas may provide a template for future agricultural negotiations. The next WTO ministerial, the most likely target for an attempt at agreement on some portion of unresolved issues, will be in December 2018. The WTO remains a key body for liberalizing trade and ensuring a rules-based trading system exists.

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New Food for Progress Funding Reflects Food Aid Benefits

By Elizabeth Westendorf, USW Policy Specialist

Last week, USDA announced Food for Progress funding allocations for fiscal year 2016. A total of $153.2 million in funding will go to projects in eight countries that USDA estimates will reach over 3.8 million beneficiaries.

Half of the countries on the list (Burkina Faso, Ethiopia, Malawi, and Mozambique) are in Africa, where this Food for Progress funding will not only enable development projects in these countries, but will also raise money for those projects by providing U.S. commodities for sale in the local markets. All four of these countries are experiencing severe droughts that have hurt domestic food production. The monetized commodities through Food for Progress supplement locally produced food supplies that are currently not sufficient to fully meet their populations’ needs. They also provide economic stimulus to encourage continued development that can lead to more resilience in future food crises.

Studies show a strong positive correlation between food insecurity and political instability. When it seems like instability around the world is rising and there are more crises demanding U.S. foreign assistance, these food aid programs are more important than ever.

The United States is the largest provider of food aid worldwide. USAID funding has evolved to include new methods of reaching those in need, but U.S. wheat farmers believe traditional in-kind food aid will always have a place in both emergency and developmental humanitarian aid programs. New emergency aid tools like local and regional procurement and cash vouchers supplement the foundational aid tool of in-kind food aid.

USW is committed to supporting programs that help feed food-insecure people. In a world with political uncertainty and increasingly volatile climate conditions, U.S. wheat farmers are proud that their product is going to benefit food-insecure populations through USDA and USAID emergency and developmental aid.

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Brazilian Flour Millers Discuss Trade Policy with USW, U.S. Officials

An old adage suggests that two of the biggest influences on a market are weather and governments. Though there is not much that USW can do about the weather, government policies are one key area where we can work with our customers to help achieve beneficial outcomes for both. A leading example of that cooperative work was on display last week as two Brazilian flour millers joined USW staff in a series of meetings in Washington, DC, in hopes of securing more favorable access to U.S. wheat supplies.

Brazil is an agricultural powerhouse, and one of the world’s largest exporters of agricultural commodities. In addition to well-known production success in corn and soybeans, Brazilian farmers also produce between five and six million tons of wheat annually — about half of the 10 million metric tons (MMT) of wheat the Brazilian people consume each year. That leaves Brazilian flour mills in need of significant wheat imports each year.

The relationship between the U.S. wheat and Brazilian milling industries goes back several decades. In the 1980s, Brazil was a regular and large customer of U.S. supplies, purchasing between two and three MMT annually. The 1990s brought the formation of the Southern Common Market or Mercosur trading bloc, allowing wheat from Argentina to enter Brazil duty-free and leading to a subsequent decline in imports from the United States. During that time, Brazil agreed to a 750,000 metric tons (MT) zero-duty tariff rate quota (TRQ), allowing Brazilian millers access to a dedicated amount of wheat from the United States, Canada and other world suppliers on an even basis with Argentine wheat. Unfortunately, Brazil never implemented that TRQ and negotiations on a replacement for it remain open today.

Resolution of the outstanding TRQ could prove to be a win-win scenario for U.S. wheat producers and their Brazilian customers. Current discussions focus on applying a TRQ that will provide Brazilian millers more favorable access to world wheat supplies, while not directly displacing Brazilian wheat production.

The long-outstanding Brazilian wheat TRQ is a prime example that for markets to work we must have the right policies in place and we must collaborate with our customers around the world to influence those policies. USW will continue to seek the best possible outcomes when government policies hinder access to U.S. wheat supplies.

By Dalton Henry, USW Director of Policy

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USW Discusses Changes in Global Wheat Trade

USW President Alan Tracy joined the International Grains Council (IGC) for their 25th annual conference June 14 to present an overview of changes in global wheat trade, trade distorting government policies and the United States’ shift to quality-based wheat markets. More than 200 attendees at the conference in London, United Kingdom, came from grain importing and exporting countries around the world to hear updates on production prospects and discuss major issues facing the grain trade.

One of the biggest shifts in the world wheat market in the last 15 years has been the emergence of Russia as a major wheat exporter, averaging 17.9 MMT from 2011/12 to 2015/16. With that growth, Russia has become a primary supplier of wheat to price-sensitive markets across the Middle East and North Africa, displacing other traditional suppliers including the United States, Canada and the European Union (EU).

USW has narrowed its activities in markets now served mainly by Black Sea suppliers but increased its resources in growing quality-sensitive markets, primarily in Southeast Asia and Latin America. An increasing majority of flour millers and wheat food processors in those markets see wheat as a food ingredient with specific value, rather than as a bulk commodity sourced merely on price. Connecting with these new markets provides more value for overseas customers and, in turn, helps U.S. farmers capture more revenue per acre for the high-quality wheat they produce.

Tracy also discussed government policies that distort trade. Reflecting on previous IGC meetings, he recalled long-past discussions on the harm caused by rival country export subsidy programs — which are largely no longer in use. Today, instead of export subsidies, the biggest market distortion comes from domestic support programs, primarily in several advanced developing countries.

Every WTO member country has agreed to specific limits and rules on agricultural support programs. However, many countries exceed those limits and fail to report their programs accurately. When an importing country provides a government support price above world market prices, they encourage domestic production. That offsets imports to the detriment of the global trading system and to farmers in other countries.

USW has spent the last five years documenting and quantifying the effects from these programs. The forum presented an ideal place to share and discuss the data as out-of-compliance programs not only harm the United States, but also exporters around the world.

By Dalton Henry, USW Director of Policy

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Congress Acts on Key Funding Priorities for Wheat Production System

By Josh Tonsager, Legislative Director, National Association of Wheat Growers

Congressional action this year on policy priorities important to wheat farmers has taken some unexpected turns and the outlook for the legislative process is unclear. By now, this should not come as a surprise to anyone who has been following Congress the past several years. What should come as a surprise, though, is just how well critical programs for the wheat industry have fared thus far through the process Congress uses to appropriate federal funds.

Both the House and Senate Appropriations Committees have reported their respective versions of the FY 2017 Agriculture Appropriations bill, which funds the operations of USDA and the Food and Drug Administration (FDA). The National Association of Wheat Growers (NAWG), in conjunction with the National Wheat Improvement Committee, advocated for a funding increase for the U.S. Wheat and Barley Scab Initiative, which helps fund research intended to combat fusarium head blight. While the current Farm Bill authorizes up to $10 million per year for the program, actual funding has only been $6.7 million annually. Our organizations advocated for full funding, and we are pleased that both the House and Senate bills included an increase of $2 million. This is a significant step forward in the fight against a very costly wheat disease. This funding requires full House and Senate membership debate and approval, which could occur in June.

In addition to the Agriculture spending bill, NAWG is actively supporting transportation infrastructure investments through a broad coalition called the Ag Transportation Working Group. NAWG is working collaboratively to ensure continued support for inland waterways infrastructure, including the maintenance of our locks, dams and harbors through the FY 2017 Energy and Water Appropriations bill. The Senate approved its version of the bill on a 90-8 vote on May 12. It included the coalition’s request of the full use of funds through the diesel fuel tax (this has sometimes been limited) for the Inland Waterways Trust Fund as well as $3.17 billion for dredging, repairs, and operations to improve our waterways and help hold down basis cost for buyers and sellers.

The House version of the bill also includes full use of revenues available for the Inland Waterways Trust Fund and about $3.137 billion for dredging, repairs and operations. The status of the House bill, however, is unclear at this time. On May 26, a vote on passage of the bill failed on the House floor, reportedly because that version included a controversial provision that was unrelated to our priorities.

A healthy wheat production system, combined with an efficient waterway, rail and highway systems and continued funding for USDA/Foreign Agricultural Service export market development programs, are critical for the United States to remain the world’s most reliable supplier. NAWG, with input from USW, will stay engaged in the appropriations process in an effort to secure sufficient federal funding for the programs that ultimately benefit U.S. wheat farmers and their downstream customers at home and abroad.

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