SEPTEMBER-OCTOBER 1998
More Than Just an Appropriations Bill -
The Fiscal Year 1999 Agricultural Appropriations Legislationby Stephen Frerichs Agriculture, like the majority of appropriations bills this session, is included in the omnibus consolidated and emergency supplemental appropriations bill for fiscal year 1999. Unlike many of the other titles in the omnibus bill, the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies conference report did pass both the Senate and House, only to be vetoed by the President. The majority of the bill, as vetoed by the President, was unchanged as it became section 101(a) of the omnibus appropriations bill. The obvious exception is Title XI -- Emergency and Market Loss Assistance, which drew the Presidential veto and was subsequently modified. The Omnibus Appropriations bill is more than an ordinary appropriations bill. It provides a $6 billion package of emergency assistance to farmers, changes several principles of farm policy, and prevents the implementation of several provisions of the Federal Agriculture Improvement and Reform Act of 1996 (the FAIR Act) and the Agricultural Research, Extension, and Education Reform Act of 1998. While most of these changes are for only one year, the magnitude and scope of the changes could signal a new direction in farm policy. Moreover, they call into question whether the most significant change in farm policy since the Great Depression will stand. The level of additional farm income support, over $3 billion, calls into question whether Congress and the President will allow the freedom-to-farm principles established in the FAIR Act to survive with a continued depressed level of market prices. The $2.575 billion in disaster assistance calls into question whether Congress and the President will continue to rely on crop insurance as the major means of protecting crop producers from disaster. The answer to this latter question will be partially determined by how the Secretary of Agriculture chooses to administer the disaster relief provisions of the legislation. If he delivers it in a way that detracts from the crop insurance program, he will deal a large blow to the Administration's policy, implemented in the Crop Insurance Reform Act of 1994, of relying on the Federal Crop Insurance Program to protect farmers against natural disasters. If he uses the discretion provided by the law to deliver the disaster benefits in a way that complements the crop insurance program, he will signal that the Administration is committed to crop insurance as the primary risk management safety net for farmers.
Title I: Agricultural Programs
The largest increases in Title I are for the Agricultural Research Service, up $41 million at $785.5 million, compared to $744.6 in FY 1998 and the Cooperative State Research, Education, and Extension Service, up $50 million at $481.2, million compared to $431.4 million in FY 1998. The increases in part offset the prohibition of Departmental employees from implementing the $120 million Initiative for Future Agriculture and Food Systems (General Provision 732), the new competitive research grants that were part of the research bill. Other programs receiving significant increases include the Extension Service (+$15 million), the Food Safety Inspection Service (+$28 million) and the Farm Service Agency Salaries and Expenses (+$14 million) from 1998 enacted levels. The largest decreases from1998 funding levels are found in the ARS buildings and facilities account (-$25 million), the Economic Research Service (ERS, -$6 million) and the National Agricultural Statistics Service (-$14 million). Research of the child nutrition, WIC, and food stamp programs remains with ERS, although $2 million of the amount provided to ERS is to be transferred to the Food and Nutrition Service.
Titles II and III: Conservation and Rural Economic and Community Development Programs
Conservation programs receive minor increases from FY 1998 appropriated levels. For example, Conservation Operations are increased $8 million to $641 from $633 million. The Wetlands Reserve Program is limited to no more than 120,000 acres (General Provision 730) which compares to 140,000 in 1998. The Environmental Quality Incentives Program is limited to $174 million, down from $200 million (General Provision 725). In addition, General Provision 740 prohibits the Department from implementing the Conservation Farm Option Program. Two rural development accounts were increased substantially relative to FY 1998. The Rural Community Advancement Program increased $71 million to $723 from $652 million, predominately for rural water and wastewater loans and grants (up $68 million) and Rental Assistance Grants were increased $42 million to $583 from $541 million. These increases for rural development programs more than offset the prohibition of Departmental employees from implementing the Fund For Rural America ($60 million in spending blocked, General Provision 725). The bulk of the Fund for Rural America has been obligated for rural wastewater grants and loans in the past. The increase for Rental Assistance Grants reflects the increasing volume of renewal for 5 year rental assistance contracts that USDA enters into with private developers to support its multi-housing loan program. The Rural Utilities muni-rate electric loan program is cut from $500 million in loan authority to $295 million in response to higher subsidy rate estimates for the program. The reduction is offset with an increase of $400 million in the direct FFB loan program level, ($700 million compared to $300 million in FY 1998). The subsidy rate for the FFB loan program is substantially lower than that of the muni-rate program. Borrowers pay a higher interest rate through the FFB program (Treasury comparable maturities plus one-eighth), which given the current interest rate environment is below 6 percent.
Titles IV and V: Domestic Food Programs and Foreign Assistance and Related Programs
The Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) is funded at the same level in FY 1999 as in FY 1998 at $3.924 billion. In addition, the act provides $22.6 billion for the Food Stamp Program compared to $25 billion in FY 1998. The reduction reflects the decreased demand for Food Stamps resulting from a stronger economy. The emergency food assistance program is limited to $90 million (General Provision 730) compared with $100 million in FY 1998. The Foreign Agricultural Service is funded at $136 million, roughly equal to FY 1998. Title I of P.L. 480 is reduced by $23 million from FY 1998 to $203.5 million and a commensurate reduction is made in appropriated ocean freight differential costs. Title II of P.L. 480 is funded at the FY 1998 level of $837 million and Title III is reduced by $5 million from FY 1998 to $25 million.
Titles VI and VII: Related Agencies and the Food and Drug Administration and General Provisions
The Food and Drug Administration is funded at $1.1 billion, which is an increase of $154 million from the FY 1998 level. The increase includes additional user fee collections of $41 million above 1998 levels. The FDA’s buildings and facilities account is cut by $10 million from FY 1998 to $11.4 million. There are 66 general provisions in the 1999 appropriations bill compared to 35 in 1998. Several of the general provisions have been described above. There are too many to include all of them in this article. Aside from the general provisions mentioned above, other significant provisions include: General provision 738 prohibits the Secretary from issuing the final rule to implement the amendments to the Federal milk marketing orders as required by the 1996 Farm Bill. General provision 741 waives the statute of limitations with respect to discrimination alleged against the Department of Agriculture. Many of the discrimination complaints against the Department are being filed under the Equal Credit Opportunity Act which has a two year statute of limitations. In many cases the two years has since expired. The waiver reinstates many of the claims pending against the Department and permits new claims if they are filed not later than two years after enactment of this act. General provision 748 reduces the administrative fees for catastrophic insurance policies to a total of $60 per crop per county. General provision 756 reduces departmental spending for computer expenses from the Commodity Credit Corporation to $188 from $193 million and limits expenditures in FY 1999 to no more than $65 million. General provision 760 prohibits the Commodity Futures Trading Commission from regulating hybrid instruments or swap agreements before March 30, 1999.
Titles VIII, IX and X: Agricultural Credit, India-Pakistan Relief Act and Under Secretary of Agriculture for Marketing and Regulatory Programs
Title VIII makes permanent amendments to the direct and guaranteed farm loan programs. Borrowers who have received debt forgiveness were previously ineligible for an additional direct or guaranteed loan. These borrowers are now eligible for additional loans if they are current on payments under a confirmed reorganization plan. In addition, borrowers may now have received debt forgiveness on up to three occasions and still remain eligible for additional loans. The amount of direct ownership and operating loans outstanding are also increased from $300,000 and $400,000 respectively to $700,000. Title IX allows the President to waive for a period not to exceed one year any sanction or prohibition contained in section 101 or 102 of the Arms Export Control Act, section 620E(e) of the Foreign Assistance Act of 1961, or section 2(b)(4) of the Export Import Bank Act of 1945 with respect to India or Pakistan. The waiver provision is funded through an emergency designation. Title X establishes a new Under Secretary for Marketing and Regulatory Programs within the Department.
Titles XI, XII and XIII
Like two bidders at a farm auction bent on outbidding each other, Congress and the President settled on a final offer of $6 billion in emergency assistance for farmers. This is a dramatic increase from the initial House passed agricultural appropriations bill which included no emergency relief and the Senate passed bill which included $500 million for emergency assistance. Moreover, it is a substantial increase above the $4.2 billion conference report vetoed by the President. In the end, Title XI provides $2.575 billion for disaster assistance, of which $1.5 billion is available to assist producers with 1998 crop losses; $875 million is available to provide assistance to producers who have suffered a multiple year crop loss; and $200 million is available through a livestock feed assistance program. The bill also provides $3.057 million in market loss assistance payments to producers eligible for Freedom to Farm contracts. The payment represents roughly 50% of the Production Flexibility Contract payment received by producers in fiscal year 1998. From the amount allocated for market loss assistance, dairy producers will receive payments totaling $200 million. Title XII provides market loss assistance to soybean producers who are not eligible for market loss payments provided under Title XI. The biodiesel language amends the Energy Policy Act of 1992 to provide fuel use credits to operators of vehicle fleets who use fuel containing at least 20 percent biodiesel by volume. Congressional estimates calculate that this will create sufficient demand to increase soybean prices by up to 14 cents per bushel. Title XIII provides additional emergency appropriations. The Farm Service Agency receives an additional $40 million for salaries and expenses. The farm loan programs are increased by $540 million in new lending authority. From this amount, $150 million is for unsubsidized guaranteed loans and $157 million is for subsidized guaranteed loans. A Dairy Production Disaster Assistance program is funded at $3 million and the Forestry Incentives Program received an additional $10 million. Viewed in the aggregate, the 1999 agricultural appropriations bill could be seen as an assault on existing farm policy. The provisions of existing farm policy were deemed to be inadequate in 1998. Along the way, significant principles of farm policy have been thrown into question. "Freedom-to-farm", the hallmark of the 1996 Farm Bill was found to provide insufficient income protection in times of worldwide deflation of commodity prices. An additional $3.057 billion is provided as Market Loss Assistance Payments to assuage farmers facing low market prices. The bill also provides emergency crop loss payments without an offset ($2.575 billion) – in direct conflict with the 1994 Crop Insurance Reform Act which established an offset requirement for future crop loss disaster payments. In addition, the appropriations bill makes farmers who signed a waiver (Farm Service Agency Form 570) foregoing emergency crop loss payments, eligible for such assistance. The waiver was established by the 1996 Farm Bill to help minimize demand for emergency crop loss assistance bills. Moreover, farmers who were not eligible for direct and guaranteed farm loans because of their inability to pay have had their eligibility reinstated. These changes are temporary one-year adjustments, not permanent solutions. The emergency designation allows additional spending without offsets, not wholesale changes in farm law. What happens next is not clear. The conditions that brought the 1999 emergency payments: multi-year disease problems in the upper Midwest, weather related disasters, low commodity prices for feed grains, wheat, and soybeans, and significant reductions in agricultural exports are likely to persist. However, next year will not be an election year. Permanent solutions through the authorizing committees are presumably still subject to pay-as-you-go rules. Whether agriculture will be able to garner permanent solutions through spending the budget surplus is an open question. Certainly, however, farm policy debate will be lively and active in 1999.
Stephen Frerichs is an economist specializing in budgetary issues that relate to agricultural programs. Before coming to McLeod, Watkinson & Miller, he was a budget analyst at the Office of Management and Budget for eight years. Mr. Frerichs currently represents crop insurance companies.
Does the Defeat of Fast Track Signal The Meltdown
of the Bipartisan Consensus for International Trade Liberalization?by Dale McNiel On September 25, 1998, the U.S. House of Representatives voted down a bill to provide fast-track negotiating authority to the President. The bill had been strongly supported by the Agriculture Coalition for Fast Track as well as the U.S. Chamber of Commerce and many corporations, associations and individuals. The vote of 180 ayes and 243 noes was a resounding defeat for a bill supported by the Republican leadership, although no one expected the bill to muster the votes to pass. It remains to be seen whether this was simply a pre-election skirmish that will fade from memory with the 105th Congress, or whether it signals the end of the post-World War II bipartisan coalition for trade liberalization that will return to haunt the fate of fast-track in the new Congress and damage the bargaining strength of U.S. negotiators. This was the second time that this Congress failed to put together a sufficient bipartisan coalition, and it leaves President Clinton without fast track negotiating authority for the last 4˝ years, since the conclusion of the Uruguay Round.
What is Fast Track?
Fast track is a set of procedural rules for passage of legislation necessary to implement major trade agreements which precludes amendments as well as the various delaying tactics used to stall or kill bills in committees or on the floor. A bill presented pursuant to the fast-track provisions is subject to a yes or no vote for approval by both houses of Congress by a short deadline (generally a maximum of 60 legislative days). Congress does not enact the trade agreement into U.S. law but merely amends or adds to existing laws such changes necessary to bring the United States into compliance with the terms of the trade agreement. Fast track legislation tends to strengthen the President's negotiating credibility by reassuring foreign trading partners that Congress will consider promptly the trade agreements negotiated in good faith by the President and will not subject such agreements to modifications that would force a return to the bargaining table. Following the Wall Street crash in 1929, Congress enacted the Smoot-Hawley Tariff Act of 1930 which raised tariff rates to an average of almost 60 % ad valorem and virtually stopped international trade. Shortly thereafter, President Roosevelt persuaded a chastened Congress to pass the Reciprocal Trade Act of 1934, which authorized the President to negotiate and proclaim tariff reductions. Since then, there has been a bipartisan consensus on trade liberalization which resulted in the United States leading the major countries of world toward eventual free trade. A result was the creation of the General Agreement on Tariffs and Trade (GATT) in 1947 and eight rounds of multilateral trade negotiations that culminated in the creation of the World Trade Organization. Fast-track was originally authorized by the Trade Act of 1974. It was expressed in general terms and valid only for 5 years and was specifically intended to cover the results of the ongoing Tokyo Round of multilateral trade negotiations under the auspices of the GATT, which lasted from 1973 until mid-1979. Although previous GATT rounds of multilateral trade negotiations had been expressly authorized by Congress, the results of those rounds was subject to Congressional approval under the procedures applicable to ordinary bills. The Trade Agreements Act of 1979 extended Presidential fast-track negotiating authority for an additional 8 years, to 1987. The Trade and Tariff Act of 1984 limited fast-track authority to only the negotiation of the bilateral free trade agreement with Israel. The Omnibus Trade and Competitiveness Act of 1988 approved fast-track authority for the ongoing Uruguay Round of GATT negotiations as well as for bilateral trade agreements until June 1, 1991, or if extended by the President, until June 1, 1993. The deadline was later extended to December 15, 1993. Fast track procedures have been used to implement the trade agreements negotiated during the Tokyo Round and Uruguay Round under the GATT. The Tokyo Round yielded a few significant tariff concessions for U.S. agricultural exports, such as the European Community’s tariff quota for high quality beef, and multilateral arrangements on dairy and beef trade. The Uruguay Round Agreement on Agriculture resulted in the conversion of non-tariff barriers, such as quotas or restrictive licensing systems, to tariff equivalents and tariff reductions on average by 36 percent and requires WTO members to reduce export subsidies and tradedistorting domestic support. In response, the United States converted U.S. quantitative restrictions to tariff quotas for dairy products, sugar, sugarcontaining products, peanuts, cotton, and beef; exempted all WTO members from section 22 import quotas; repealed the Meat Import Act of 1979, and provided for the reduction of export subsidies under the Export Enhancement Program and Dairy Export Incentive Program. Fast track procedures were also used to implement the U.S.-Israel Free Trade Area Agreement, the U.S.Canada Free Trade Agreement (FTA), and the North American Free Trade Agreement (NAFTA). The U.S.Canada FTA provided for the elimination by January 1, 1998 of tariffs on all agricultural commodities and processed products as well as all other goods. However, the FTA did not prohibit quotas or other quantitative barriers on agricultural trade. The NAFTA provides for the phased elimination of virtually all tariffs on trade between the United States, Canada, and Mexico. The NAFTA incorporates the tariff reductions agreed to in the U.S.Canada FTA with the exception of certain agricultural tariff-rate quotas resulting from the tariffication of the previously exempted quotas. With respect to bilateral trade between the United States and Mexico, most tariffs will be eliminated by 2004, although some tariffs for importsensitive agricultural products and other items will not be eliminated until 2009. However, in the past two Presidential campaigns there have been candidates such as Pat Buchanan and Ross Perot who have strenuously opposed trade liberalization, and President Clinton had considerable difficulties getting the Congress to approve the North American Free Trade Agreement (NAFTA) and the Uruguay Round Agreements. There also have been annual struggles to renew most-favored-nation (MFN) (now referred to as “normal trade relations”) with the People’s Republic of China and to extend the Generalized System of Preferences (GSP). If Congress had enacted the fast track bill this year, it would be used to implement the results of the negotiations for the Free Trade Agreement of the Americas and the “Millennium Round” under the Word Trade Organization (WTO). Expanding export markets is absolutely critical to the future prosperity of American farmers because U.S. agricultural production is increasing more rapidly than domestic consumption and federal government transfer payments are declining. The U.S. Department of Agriculture (USDA) estimates that agricultural exports already account for 30% of farmers’ cash receipts and constitute one out of every three acres of crops planted in the United States, and the trend is unmistakable. With domestic commodity prices plummeting this past year, farmers and politicians have been clamoring for trade expansion.
Trade Liberalization Is Critical for Agriculture
zation that affect agricultural trade flows, such as the financial collapse in many Asian countries, the recent appreciation of the U.S. dollar or the devaluation of the Mexican peso, and even major weather phenomena such as El Nino3. But government policies continue to be major impediments to expanding U.S. exports. Of course, trade liberalization can result in increased agricultural imports that compete with U.S.produced commodities and food products at the expense of the economic interests of some domestic producers and processors. Nevertheless, most farmers and agribusiness interests agree that the United States must vigorously increase efforts to expand international markets through the negotiation of new trade agreements to reduce foreign import barriers and trade distorting domestic and export subsidies. The objectives for agriculture expressed in the fast track bill were as follows: (6) Reciprocal trade in agriculture. The principal negotiating objective of the United States with respect to agriculture is to obtain competitive opportunities for United States exports in foreign markets substantially equivalent to the competitive opportunities afforded foreign exports in United States markets and to achieve fairer and more open conditions of trade in bulk and value added commodities by (A) reducing or eliminating, by a date certain, tariffs or other charges that decrease market opportunities for United States exports (i) giving priority to those products that are subject to significantly higher tariffs or subsidy regimes of major producing countries; and (ii) providing reasonable adjustment periods for United States import sensitive products; (B) reducing or eliminating subsidies that decrease market opportunities for United States exports or unfairly distort agriculture markets to the detriment of the United States; (C) developing, strengthening, and clarifying rules and effective dispute settlement mechanisms to eliminate practices that unfairly decrease United States market access opportunities or distort agricultural markets to the detriment of the United States, particularly with respect to import sensitive products, including (i) unfair or trade distorting activities of state trading enterprises and other administrative mechanisms; (ii) unjustified trade restrictions or commercial requirements affecting new technologies, including biotechnology; (iii) unjustified sanitary or phytosanitary restrictions, including those not based on sound science in contravention of the Uruguay Round Agreements; (iv) other unjustified technical barriers to trade; and (v) restrictive rules in the administration of tariff rate quotas; (D) improving import relief mechanisms to recognize the unique characteristics of perishable agriculture; (E) taking into account whether a party to the negotiations has failed to adhere to the provisions of already existing trade agreements with the United States or has circumvented obligations under those agreements; (F) taking into account whether a product is subject to market distortions by reason of a failure of a major producing country to adhere to the provisions of already existing trade agreements with the United States or by the circumvention by that country of its obligations under those agreements; and (G) otherwise ensuring that countries that accede to the World Trade Organization have made meaningful market liberalization commitments in agriculture. In addition, in an attempt to increase support of the members on agriculture committees, the bill directed the President to consult with the House Committee on Agriculture and the Senate Committee on Agriculture, Nutrition, and Forestry before initiating negotiations to reduce United States tariffs on import sensitive agricultural products.
Labor & Environmental Issues Are a Problem
The major issue in the recent fast track debate as well as last summer’s debate was the treatment of labor and environmental issues in the future trade negotiations. The bill set forth negotiating objectives for these issues as follows: The principal negotiating objective of the United States regarding labor, the environment, and other matters is to address the following aspects of foreign government policies and practices regarding labor, the environment, and other matters that are directly related to trade: (A) To ensure that foreign labor, environmental, health, or safety policies and practices do not arbitrarily or unjustifiably discriminate or serve as disguised barriers to trade. (B) To ensure that foreign governments do not derogate from or waive existing domestic environmental, health, safety, or labor measures, including measures that deter exploitative child labor, as an encouragement to gain competitive advantage in international trade or investment. Nothing in this subparagraph is intended to address changes to a country's laws that are nondiscriminatory and consistent with sound macroeconomic development. Nonetheless, domestic labor and environmental groups have opposed extending fast track to new negotiations. Labor unions have severely criticized the NAFTA in particular as having caused a loss of factory jobs in the United States, and environmental groups have been displeased by the decisions of GATT and WTO dispute settlement panels that have concluded that the U.S. measures to protect offshore dolphins and sea turtles have violated U.S. international obligations. As a result, the debate focused as a referendum on the effects of trade agreements on U.S. workers and the environment. At the same time, it has become apparent that some Congressional Democrats are unwilling to support trade liberalization due to the influence of organized labor and environmentalists in getting democrats elected. Led by Vice President Gore and Congressman Gephardt, most Democrats opposed the fast track bill, with only 31 of 206 Democrats in the House voting in favor. Congressman Matsui, a veteran Democrat on the House Ways and Means Committee, estimated that about 80 democrats were pro trade and charged that “the Republicans have managed to destroy the bipartisan consensus on trade” by failing to negotiate for those votes. At the same time, Speaker of the House Gingrich could manage to get only 65% of House Republicans to support the passage of fast track, with only 149 of 228 voting in favor. Although only 38 more votes in favor would have tipped the balance, it is not obvious where those votes would come from.Future of Trade Liberalization In Doubt
With the disintegration of the traditional bipartisan consensus for trade liberalization, the fate of fast track in the new Congress remains uncertain. The election of new members may change the outcome, or the leadership and the President may negotiate for additional switched votes. If a new majority in favor of trade liberalization cannot be assembled, it is unlikely that any new multilateral trade negotiations can be seriously conducted, and the United States will be left to watch as the European Community and other competitors negotiate regional free trade agreements at the expense of U.S. interests.
Dale McNiel is a partner in the firm and he specializes in international trade law in agriculture. Mr. McNiel was recently a senior counsel in the office of the General Counsel at the U.S. Department of Agriculture. Among Mr. McNiel’s trade clients are the American Peanut Product Manufacturers, Inc. and the Coalition for Sugar Reform.