NOVEMBER-DECEMBER 1999

In This Issue:

Seattle: A Bang and a Whimper  by Randy Green
Final Emergency Farm Aid for 1999  by Richard Pasco
 

Seattle: A Bang and a Whimper

The United States had high hopes for the World Trade Organization's ministerial meeting in Seattle.  But in a twist on T. S. Eliot's famous line about how the world will end, Seattle began with a bang and ended with a whimper.

The bang came from drums beating in the ranks of protest marches that clogged the city's center and brought WTO proceedings temporarily to a dead halt.  Exploding tear-gas cannisters also went off with bangs – actually the sound was closer to a "boom" – when police moved to take control of the streets.

The whimper came at week's end, when the WTO meeting abruptly adjourned in apparent failure.  Officially, the meeting was "suspended" so WTO Director General Mike Moore could work to gain consensus on starting a new round of trade talks.  Few observers, however, predicted another ministers' meeting or a new round before U.S. elections next year.

Ironically, the bang may have had little to do with the whimper.  Street protests captured world attention but were probably not the proximate cause of the talks' breakdown.  In the popular mind, however, the colorful and occasionally violent protests November 30 and subsequent days will forever be linked to the embarrassing breakdown of the much-heralded WTO talks Friday.

In a larger sense, the breakdown and the protests were connected.  President Clinton's surprise statement on December 1 that the United States would favor trade sanctions to enforce core labor standards was widely seen as a crucial event that alarmed developing-country delegates and made them more willing to say no to new negotiations.  That statement, in turn, was not made in a vacuum.  The President had watched the protests, including the orderly march by some 20,000 union members whose enthusiasm will be critical to Vice President Gore's prospects in 2000.

That is not to pass judgment on the merits of the President's position.  (It is at least arguable that the protection of worker rights is as legitimate a goal for the WTO as the protection of intellectual property rights.)  Nevertheless, the United States discovered a new resistance on the part of developing countries to many of its demands, including that for a working group on labor rights.  Developing countries chafed, too, at being excluded from some closed-door sessions.  There seemed no doubt that many delegates wanted greater "transparency" – meaning a more public and inclusive style of operation for the WTO.

The talks' breakdown frustrated U.S. agricultural groups on several levels.  They had hoped for a comprehensive round, covering all industries, to facilitate the kind of cross-sectoral tradeoffs that will probably be required in order for the European Union to accept wide-ranging new agricultural reforms.  But the talks' breakdown resulted in a promise that the WTO's "built-in agenda" – previously-agreed negotiations on agriculture and services – would begin in January.  The success of stand-alone negotiations for agriculture is, in the view of most observers, questionable at best.

Another frustration was that negotiators had come close to agreement on the agricultural portions of the ministerial declaration that would have launched a new trade round – but not close enough to consider the text an agreed document.  Therefore, backsliding from previous concessions seemed likely in Europe, Japan and elsewhere.  Nor were U.S. farm groups pleased with everything that their own country's negotiators had agreed to put in the text.

There was also the frustration of shouldering some of the blame for failure, unfairly as farm groups saw it.  Agriculture was not, in the view of most observers, a major reason the talks broke down.  It seemed likely that if other negotiations had borne fruit, the agriculture text would not have stood in the way of a successful conclusion for the meeting.  But those other negotiations could not be concluded in time – indeed, had barely begun in some areas – whereas the agriculture talks were far advanced but not complete.  Nevertheless, some media coverage appeared to blame the talks' collapse mostly on the intractability of agricultural trade issues.

Perhaps the greatest frustration for U.S. agricultural groups was that the hope of greater market access and fairer competition had been, at a minimum, delayed.  Further trade liberalization has been a central rationale for U.S. farm groups' support of market-oriented domestic farm policies.  If government is leaving producers more exposed to the vagaries of the market, the logic goes, then it is essential for the government to devote even more attention to opening foreign markets and ending foreign export subsidies.  Now world agricultural trade policy reform is in limbo, and support for present U.S. farm policies may erode further as a result.

The Latest Text

When the WTO meeting ended December 3, agricultural negotiators had not met for several hours.  The last official paper before them had been a draft "Text on Agriculture" produced by the WTO secretariat on the basis of earlier discussions.  It was not an agreed text – the Europeans never gave it final blessing, wanting to assess the state of other negotiations, while the Japanese objected to its lack of the word "multifunctionality."  But U.S. farm lobbyists briefed by USTR officials in mid-afternoon on December 3, the talks' last day, got a clear sense that this text was the likely final product. Click here  for this text.

On each of the key issues that had motivated U.S. agricultural and food industry groups, the text had good and bad points – as is typical of a negotiated product.

Export Subsidies: The United States got a text that speaks of the "elimination" of export subsidies, though at the price of implicitly agreeing to negotiate on the subsidy elements of export credit guarantees.  The text says the "substantial reductions" in export subsidies will be "in the direction of progressive elimination of all forms of export subsidization."  Several observers interpreted this phrasing to mean that export subsidies need not be completely eliminated during the period covered by the new round.

Market Access: The market access goal for the new talks would have been  negotiations that were "comprehensive."  The negotiations were to begin "with no a priori exclusions," a phrase that mirrored corresponding language dealing with non-agricultural goods elsewhere in the draft text.  To exclude something a priori is to exclude it as a matter of first principles; the phrasing may permit exclusions that are not a priori but simply pragmatic consequences of subsequent negotiations.

Domestic Support: Some observers were surprised by the relative lack of attention to domestic support language, which chiefly covers those trade-distorting policies classified in the Uruguay Round's "amber box" category.  If negotiations actually advance to the stage of concrete proposals, the United States is likely to find itself more protective of its own "amber box" policies than would have been the case two or three years ago, simply because loan deficiency payments and marketing loans are included in the category.

Non-Trade Concerns: European and Japanese delegates wanted this phrase in the text to be "multifunctionality," an ill-defined term that recognizes the many non-economic sides of agriculture (ecology, tourism, etc.) and implies strongly that these factors justify additional trade barriers.  The United States and other countries successfully resisted using the offending term, but at the price of including a reference to "food safety" in the same section of the text.  That worried several U.S. agricultural groups because they thought the EU might use it to justify new restrictions on genetically modified organisms (GMOs).  The groups' negative reaction was exacerbated by the negotiators' failure to agree on a working party on GMOs.  Many countries had accepted the concept of establishing such a working group, but disagreed sharply about what should be the exact nature of its mandate.

Next Steps

In suspending the talks in Seattle, WTO officials noted that discussions on agriculture and services would begin in January as scheduled.  So far, however, no one has said definitively when these meetings will begin, or in what venue (the WTO Committee on Agriculture or some other).

In the aftermath of the talks' collapse, the United States and European Union offered strikingly different views on the starting point for future talks.  The U.S. position is that discussions should pick up where the Seattle bargaining left off – presumably, with the text discussed above.  European officials, by contrast, have said that since no agreement was reached in Seattle, new talks would have to start with a clean slate.

The European position is not only troublesome on its own terms, but has caused some U.S. agricultural groups to question the wisdom of accepting the Seattle draft agricultural text as the basis for further negotiation.  Perhaps, these groups say, the United States would be better advised to stake out a position closer to its original goals for the talks.  Otherwise, they worry, it is logical to suppose that further negotiations will result in an outcome that is weaker – from the U.S. standpoint – than the Seattle draft text.  That would be the classic trap of negotiating twice, always a danger in dealing with the EU.

Despite these considerations, most U.S. agricultural and food interests reacted in a basically positive way to  the Seattle text.  Almost all these groups agree they would have been better off with a broad-based trade round whose agricultural components were based on the Seattle draft text, rather than what actually happened: an embarrassing failure that raises troubling questions about the future of trade liberalization generally, and a juridical situation in which any agricultural talks that begin in the short term will offer few if any opportunities for the cross-sectoral trade-offs which U.S. farm groups believe are necessary.

U.S. negotiators put the best face they could on the end of talks in Seattle, seeking to paint them as less a failure than they initially appeared.  It is true that delegates made progress toward the terms of a new trade round.  It is also worth remembering that trade negotiations do sometimes appear to fall apart, only to be put back together later.  The U.S.-China agreement on Chinese WTO membership is the best recent example.

For all that, though, it is difficult to escape the conclusion that U.S. agriculture's interests suffered a significant setback in Seattle.  Further market-opening liberalization is delayed at best, scuttled at worst.

Congress will hold hearings on U.S. agricultural policies in coming months.  Disappointment with the results of the Seattle meeting is certain to affect the climate of those hearings – and could well make a difference in the future course of farm policy.

For a link to WTO Director General Mike Moore's statement after the ministerial was suspended, click here.

For a link to U.S. Trade Representative Charlene Barshefsky's statement at the closing WTO plenary meeting December 3, click here.

Final Emergency Farm Aid for 1999

The fiscal year 2000 Agriculture Appropriations bill (H.R. 1906) contains $8.7 billion in emergency farm assistance provided by Congress in 1999.  This farm aid package contains $7.5 billion to compensate farmers for low prices and $1.2 billion to farmers for disaster aid.

The House passed the conference report (H. REPT. 106-354) on Oct. 1, 1999, the Senate approved the measure on Oct. 13, 1999, and the President signed the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Act into law on Oct. 22, 1999 (P.L. 106-78).  This article briefly highlights the features of this year's farm aid.

It also is worth noting that the ink was hardly dry on this farm relief package and Congress approved another $576 million in emergency disaster aid to farmers.  Moreover, Agriculture Secretary Dan Glickman has stated that more money will be needed in year 2000 because of continued low prices.  Senate Minority Leader Tom Daschle (D-SD) has even announced that a failure to pass fundamental farm policy changes this year make it necessary to hold hearings early in 2000 on "urgently needed changes."

Crop Loss Assistance

Section 801 of P.L. 106-78 requires the Secretary of Agriculture to use $1.2 billion of Commodity Credit Corporation (CCC) funds "to make emergency financial assistance available to producers on a farm that have incurred losses in a 1999 crop due to a disaster, as determined by the Secretary."  This assistance is to provide relief to producers who have incurred losses for crops harvested or intended to be planted or harvested in 1999.  Losses qualifying for assistance include:  1) quantity losses, 2) quality losses, and 3) severe economic losses due to damaging weather or related conditions.

The level of assistance reflects the estimated need as stated by the Department of Agriculture prior to Hurricane Floyd.  While funds provided by the legislation shall be available for damage caused by Hurricane Floyd, it was recognized by the bill's conferees' that additional funds "may be needed to fully address all natural disaster losses in 1999."

Part of these funds can be used for:  1) additional loan deficiency payments for rice; 2) a one-year recourse loan program for honey; and 3) a one-year recourse loan program for mohair.  Farmers that harvested their "1999 crop of rice on or before August 4, 1999" are eligible for loan deficiency payments, if they also were eligible for or received Agricultural Market Transition Act (AMTA) payments.  For the honey and mohair recourse loans, producers must repay the federal government loans even if market prices fall below the loan rate.  The loan rate for any honey loans must be 85% of the average price of honey during the 5-crop year preceding the 1999 crop year, excluding the highest and the lowest year prices.

The conference report language urges USDA to "consider developing a method by which preliminary payments may be made to producers to allow at least minimal payments to be made expeditiously while avoiding depletion of funds before all producers receive assistance."  The report language further directs USDA to make final payments before January 31, 2000.

On Oct. 27, 1999, USDA announced that it will make an advance payment on the $1.2 billion disaster relief portion of the legislation.  Advance payments will equal 35% of verified losses and will be available as soon as a farmer's application is approved.  The balance of the disaster assistance payments will be made early in year 2000.  The delay of payment on the balance is necessary because the crop disaster funds were made available to cover 1999 losses.  Thus, farmers will receive their final payment after all applications have been received and approved.

The sign-up for cash payments for farmers who have suffered severe crop losses due to natural disasters began on Dec. 13.  To be eligible, farmers must have lost at least 35% of their 1999 crops because of natural disasters.  The deadline to file applications is Feb. 25, 2000.

Market Loss Assistance

Section 802 provides that the Secretary is not to use more than $5,544,453,000 of CCC funds "to provide assistance to owners and producers on a farm that are eligible for final payments for fiscal year 1999 under a production flexibility contract" pursuant to the Agricultural Market Transition Act.  This supplemental income assistance is equal to the market transition contract payments that producers already received for 1999, which makes it equivalent to a 100% increase over the 1999 payment.  Farmers will be able to collect 100% of the 1999 transition payment anytime this fiscal year.

The majority of the $5.54 billion in supplemental income assistance payments began on Oct. 25.  With the exception of the oilseeds payments, almost all income assistance payments are to be made by the end of the year.  Payments per commodity are:  $2.82 per hundredweight for rice, 63.7 cents per bushel for wheat, 36.33 cents per bushel for corn, and 7.88 cents per pound for cotton.

Assistance to Peanut Growers

Section 803(a) provides that USDA is to pay peanut producers an amount equal to 5% of the loan rate established for quota peanuts and additional peanuts, multiplied by the amount of quota and additional (i.e., non-quota) peanuts, respectively.  Quota peanuts are supported by a loan rate of $610 per ton and additional peanuts have a loan rate of $175 per ton.  Thus, the payment to peanut growers under this provision is about $42 million, with $30.50 per ton in support payments for quota peanuts and $8.75 per ton in payments for additional peanuts.

The conference report also contains language directing the Secretary "to utilize all funds collected and not yet transferred to the Treasury under the peanut marketing assessment from producer and first handlers to offset expected losses in area quota pools for the 1999 peanut marketing year."  This means that the $28 million in assessments that have been collected on the 1996, 1997 and 1998 peanut crops may be used to cover future losses from any loan forfeitures.  The conferees also direct "the Secretary to make payments to peanut producers based on projected yields for the 1999 crop year" and direct the payments to be made "to producers as soon as practicable and, in any case, within 60 days from the enactment of this legislation."

Marketing Assessment on Sugar Producers

Section 803(b) suspends the marketing assessment on sugar producers during 2000 and 2001.  This section provides that "none of the funds appropriated or otherwise made available by this Act...may be used to pay the salaries and expenses of" USDA personnel "to carry out or enforce section 156(f) of the Agricultural Market Transition Act."

Tobacco Producer Payments

Section 803(c) requires the Secretary to use $328 million from the CCC to make payments to states on behalf of tobacco producers whose production quotas were reduced.  To be eligible to receive a payment, a tobacco producer must have their tobacco allotment reduced from the 1998 crop year to the 1999 crop year, and must have used the tobacco allotment for the production of tobacco in either the 1998 or 1999 crop year.  The Secretary is to make allocations of funds to the states in proportion to the relative quantity of quota allotted to farms in the states "that was reduced from the 1998 crop year to the 1999 crop year."

Assistance to Oilseed Producers

Section 804 requires the Secretary to make payments of $475 million from funds of the CCC to oilseed (i.e., soybean, canola, and sunflower) producers.  These payments (estimated at about 15 cents per bushel) will be provided to farmers who produced oilseeds in 1999, but the benefits are based on their production in 1997 and 1998 (or 1999 production for new producers).  Such payments will be made in proportion to a formula based on the oilseed acreage in 1997 or 1998, and county or individual yields.

USDA has warned that payments to soybean producers are expected to take longer before they are made available because the program is complex and will require some rulemaking.  Farmers are given different year options, such as opting to use yields from 1997 or 1998 (with 1999 used for new producers), which means there can be no decisions made until the 1999 harvest is complete.

Assistance to Livestock & Dairy Producers

Section 805 requires the Secretary to use $325 million of CCC funds to provide assistance directly to livestock and dairy producers, in a manner determined appropriate by the Secretary, "to compensate the producers for economic losses incurred during 1999."  Livestock producers are to receive no less than $200 million "in the form of grants and or other in-kind assistance, but shall not include loans."  This relief is for those who have suffered 1999 economic losses  in counties in which a Secretarial or Presidential drought declaration has been issued.  Section 825 requires that the livestock assistance be available for "losses due to drought or other natural disasters."

USDA is to insure that a portion of the $325 million in assistance to livestock producers is provided in the form of livestock feed assistance.  A Livestock Assistance Program (LAP) will be implemented to provide grazing loss assistance through direct payments based on supplemental feed needs.  A Livestock Indemnity Program (LIP) will be implemented to provide relief to producers whose livestock perished due to natural disaster.

Dairy producers are to receive assistance of no less than $125 million for losses.  The bill also extends the dairy price support program for one year through 2000 at the current support price of $9.90 per hundredweight.  Funding for the Dairy Indemnification Program also is included in the legislation.

The conferees directed that crop and livestock producers "impacted by natural and economic disasters deserve to be treated as equally as possible."  In fact, in administering this new disaster program, "the conferees strongly urge the Department to provide livestock producers with assistance equivalent to that of grain producers."

Upland Cotton Producer Assistance

Section 806 provides assistance for cotton producers.  The cotton "Step 2" program, is reinstated for the life of the Federal Agriculture Improvement and Reform Act of 1996, at a cost of $200 million.  The President is required to carry out the Step 2 Upland Cotton User Marketing Certificate Program through the period ending July 31, 2003.  There is a limitation on the quantity of cotton entering the United States during any marketing year to not exceed the equivalent of 5 week's consumption of upland cotton by domestic mills.

Generic Commodity Certificates

Section 812 authorizes loan deficiency payments to be made with generic certificates.  This provision applies to all commodities that are placed under loan.  A grower may take a marketing loan gain in the form of a generic certificate, and then enter the secondary market with it and collect the money paid by the secondary market.  The buyer could then use the certificate to buy commodities that otherwise would be forfeited.  The intent is for the certificate to be used to redeem the commodity held under loan.  However, the Secretary is provided discretionary authority, which means this option may not be implemented.

Expanded Payment Limitation to $150,000

Section 813(a) doubles the current payment limitation of $75,000 per person for the 1999 crop year, so Loan Deficiency Payments (LDP) and Marketing Loan Gains (MLG) will now be subject to a payment limit of $150,000 per person.

Greater Flexibility in the Timing of Payments

Section 813(b) provides farmers with greater flexibility in the timing of receiving their loan deficiency payment or marketing loan gain.  Farmers are allowed to receive such payments or gains on the date of marketing or redemption.  Those producers who do not choose a payment option will receive their full payment near the end of FY 2000, which began Oct. 1, 1999, and ends Sept. 30, 2000.

Assistance for Purchase of Additional Crop Insurance Coverage

Section 814 requires the Secretary to transfer $400 million of CCC funds "to the Federal Crop Insurance Corporation to assist agricultural producers in purchasing additional coverage for the 2000 crop year."  These funds can be used for continuation of the 30% discount provision on premiums for farmers buying crop insurance on 2000 crops.

Mandatory Livestock Reporting

Section 901 contains the new mandatory livestock reporting requirements.  Meat packers must report prices they pay for livestock on a daily basis to USDA.  These reporting requirements apply to cattle plants that slaughter 125,000 head or more per year, and to swine plants that slaughter at least 100,000 hogs per year.  This threshold capacity requirement will cover 94% of the U.S. cattle and swine marketed.

Distribution of Benefits

Secretary Glickman expressed concerns about the method that Congress used to the distribute the supplemental transition payments, stating that the income loss assistance is inadequately targeted and will be unfairly distributed.  The legislation uses the actual transition payment structure to target "eligible" producers.  The Secretary has stated that "Congress opted for a system that links payments to producers' acreage going back nearly a decade and yields going back two decades."  He further stated that "some farmers will be compensated for a crop that's doing quite well...others for a crop they don't even plant anymore."

Additional Funding Provided by Congress Before Year-end Adjournment

As part of the year-end $385 billion omnibus supplemental spending bill, Congress provided an additional $576 million for emergency farm disaster aid and funding for a cottonseed assistance program.  The omnibus spending bill, which was renamed the Consolidated Appropriations Act of 1999, provides:

The omnibus spending bill gives the Secretary the authority to make direct payments to producers or first handlers of cottonseed.  The legislation also authorizes the Secretary to implement a program to expand the domestic and export markets for pima cotton through issuance of Step 2 certificates.

Total Assistance to Farmers

Total calendar year 1999 assistance to farmers -- this year's farm relief package combined with AMTA payments -- is a record $23 billion.  This level of assistance surpasses the previous high of $16.7 billion provided to farmers in 1987 during a serious farm credit crisis.

This year's $8.7 billion farm relief package together with the additional $576 million and last year's farm assistance appropriation of $5.9 billion, totals nearly $15.2 billion in new government funds to farmers in the most recent two years.