May 2012

Today, as Ryan Young noted in his post, negotiations collapsed in the ninth day of talks to resuscitate the World Trade Organization’s Doha Round. Irreconcilable differences between the U.S. and India and China on what are called in trade-speak “special safeguard measures” are blamed for the bad ending to this session. SSMs are actions that developing countries can take to raise tariffs on agricultural goods when there in a surge in imports.

In a press statement, U.S. Trade Representative Susan Schwab said:

“Regrettably, our negotiations deadlocked on the scope of a safeguard mechanism to remedy surges in imported agricultural products.

“Any safeguard mechanism must distinguish between the legitimate need to address exceptional situations involving sudden and extreme import surges and a mechanism that can be abused.

“In the face of a global food price crisis, we simply could not agree to a result that would raise more barriers to world food trade.

Schwab said that the position of some of the members would have moved the WTO backwards instead of advancing more open trade.

Although some WTO members said the talks should begin again, WTO Director General Pascal Lamy said that the breakdown represents a serious setback. Trade analysts aren’t too sanguine about the chances of countries reaching final agreement before the U.S. presidential election. Time is short and the differences are great between powerhouse “developing countries” such as India, China, and Brazil, and the developed world, seeking to gain greater access to those markets.

Rather than trying to fight individual violators of copyright, the MPAA is creating a website with links to legitimate movie sources, like local movie theaters, iTunes, Netflix, etc. It just goes to show Cord Blomquist’s point that copyright holders will need to move towards new models of distribution to adapt to changing technology.

Disagreements over farm subsidies have caused the current round of WTO negotiations to collapse.  Developing countries are upset that subsidized farmers from rich countries are hard to compete against in the world market.

India’s proposed solution is to trigger a raise in their own farm subsidies if imports rise above a certain level. Other countries found this unacceptable, hence the current impasse.

Rather than fret about unfair competition, developing countries could just sit back and welcome imports from subsidized farmers. Consider it a gift from U.S. and EU taxpayers.

Or better yet, all nations rich and poor could drop their market-distorting subsidies altogether. In the long run, the way to freer trade — and fuller stomachs — is fewer subsidies, not more. All that’s in the way is political inertia.

Unfortunately, in politics as well as in physics, inertia always wins.

Ars has a good discussion of the US Patent and Trademark Office’s recent switch in policy towards software patents. Before, the USPTO would issue patents willy-nilly, causing massive lawsuits and stifling competition amongst software makers. Now, the USPTO is moving towards a more moderate policy, increasing scrutiny of patents to make sure they’re really original. The USPTO should be applauded for its attempt to strike a healthy balance between encouraging innovation and ensuring competition, not lamented.

Last year, AT&T submitted to the FCC a petition for forbearance from some old reporting requirements that were designed back in the days of Ma Bell and monopoly telephone service. CEI is currently preparing comments on the petition, which we believe should be approved.

Ryan Radia had an excellent post on the issue back in April. Radia points out that the reporting requirements, known as ARMIS, only apply to big telcos. But competition is increasing among phone companies and alternatives to landline phone service like wireless, VOIP, and cable telephony. The market conditions under which ARMIS was formed just do not exist any more.

The regulations cost a lot – $11 million annually to AT&T alone – and that makes phone service more expensive, distorting market prices. Moreover, the requirements are useless. The ARMIS data are used by competitors to push for further regulation of incumbent telcos. They are not used by customers. Rather, customers turn toward private, much more readable and useful, sources like J.D. Power and the University of Michigan’s American Consumer Satisfaction Index for information about telephone service quality.

Let’s hope that the FCC takes CEI’s comments seriously and that AT&T’s petition for forbearance does not receive the same treatment as Qwest’s did today.

I reported last Thursday that the FCC was set to approve the long-ignored XM-Sirius merger. Yesterday, it finally came through… but hampered by significant restrictions like price controls. Ars has a good summary of the regulations, or you can read the FCC’s news release for a more complete rundown.

A year and 90 days ago, Qwest gave the FCC a request for forbearance from complying with some outdated price controls. The FCC had a year and 90 days to respond, or the petition would be granted automatically. Unfortunately, the FCC decided at the eleventh hour to deny Qwest’s request.

The FCC’s vote signals the Commission’s unwillingness to consider revisiting any obsolete and anti-competitive regulation passed by Congress. But chucking old regulation is exactly what the forbearance provision of the Telecommunications Act of 1996 was designed to do! By allowing the FCC to grant forbearance from regulation, Congress sensibly – an adverb I don’t get to use much when describing Congress’s actions – recognized that their regulations would not be necessary forever. Now that there is increasing telephone competition from sources Congress could not have dreamed of in 1996 – wireless, VOIP, cable telephony, etc. – the price controls are an even worse idea than they were in ’96.

So, Congress also built in a safety valve – if the FCC can’t get its act together and give a good reason for denying petitions for forbearance, such petitions are automatically granted after a certain time. This keeps the FCC from just stringing companies on forever, never responding to their requests (since failure to respond cannot be appealed).

The FCC’s move goes against Congress’s intent. The Commission is up to its old tricks to hold onto as much power as it can.

With a lot of attention focused on the unintended consequences of ethanol policy in raising the costs of food, here’s another example of those spiraling costs. Tyson Foods says higher feed costs led to a big drop in fiscal third quarter profits. The company said that for this quarter its grain costs for chicken feed were $140 million more than a year ago. For this fiscal year, it expects grain costs to be a whopping $550 million higher than the previous year.

According to Tyson’s Investor Fact Book, “Corn and soybean meal are major production costs in the poultry industry, representing about 40 percent of the cost of growing a chicken.” And, with 25-30 percent of the corn crop diverted to ethanol production, and more farmland diverted from other crops such as soybeans to feed the corn maw, the effect on Tyson’s is only one example of the perversity of ethanol policy.

A just-released working paper from the World Bank, “A Note on Rising Food Prices,” points out that the increased production of biofuels has been “the most important factor” in the rapid rise in food prices internationally since 2002. It notes that much of the increase resulted from government policies promoting biofuels in the U.S. and the EU — subsidies, mandates, and tariffs on imports.

Here’s the abstract of the paper:

The rapid rise in food prices has been a burden on the poor in developing countries, who spend roughly half of their household incomes on food. This paper examines the factors behind the rapid increase in internationally traded food prices since 2002 and estimates the contribution of various factors such as the increased production of biofuels from food grains and oilseeds, the weak dollar, and the increase in food production costs due to higher energy prices. It concludes that the most important factor was the large increase in biofuels production in the U.S. and the EU. Without these increases, global wheat and maize stocks would not have declined appreciably, oilseed prices would not have tripled, and price increases due to other factors, such as droughts, would have been more moderate. Recent export bans and speculative activities would probably not have occurred because they were largely responses to rising prices. While it is difficult to compare the results of this study with those of other studies due to differences in methodologies, time periods and prices considered, many other studies have also recognized biofuels production as a major driver of food prices. The contribution of biofuels to the rise in food prices raises an important policy issue, since much of the increase was due to EU and U.S. government policies that provided incentives to biofuels production, and biofuels policies which subsidize production need to be reconsidered in light of their impact on food prices.

Check out CEI’s early warnings here and here and elsewhere on how such policies distort markets and have severe consequences, and visit CEI’s website on the issues, www.FactsAboutEthanol.org