Action is heating up on the next farm bill, as the Senate Agriculture Committee today completed its markup of their bill which will go to the Senate for consideration. The House is scheduled to release its markup on Wednesday. No surprise – the Senate bill is replete with subsidies and support programs that cost tens of billions of dollars.
Yesterday, in anticipation of the markup, eleven taxpayer and policy groups sent a letter to the House and the Senate with its listing of the “Terrible Twelve” – the twelve most egregious farm policies. The groups urged policymakers to reform or eliminate these costly and distorting programs:
- Direct payments
- Federal crop insurance
- Shallow loss program
- USDA Trade Promotion programs
- Sugar program
- Diary Market Stabilization Plan
- Target prices
- Rural broadband
- Mandatory assessments
- Cotton program
- Ethanol’s Feedstock Flexibility Program
- Biomass Crop Assistance Program
Last week, a coalition organized by CEI sent a letter to policymakers urging reform of the U.S. sugar program, which costs consumers an estimated $4 billion a year in extra costs.
Amendments are likely to be introduced on the floor in both the House and the Senate to reform some of these wasteful programs. But the farm programs are a classic example of concentrated benefits and dispersed costs. In addition, because nutrition and food stamp programs make up the majority of the costs of the farm bill, both urban and rural policymakers form an unholy bipartisan alliance to push farm bills through. Bipartisanship isn’t all it’s cracked up to be.
The Hill picked up our coalition’s release on reforming the U.S. sugar program. The letter, sent to all Senate and House offices, was pretty blunt in its assessment of sugar policy:
The program is an outdated relic of the 1930s that has outlived its purported usefulness. It is a central planning scheme that—
—Allocates the domestic supply
—Restricts imports of sugar
—Sets prices substantially higher than the world price
—Buys up surplus sugar and sells it at a loss to ethanol producers
Ten taxpayer, advocacy, and public policy groups signed on to the missive, which also pointed out who benefits and who loses:
The U.S. sugar program is a classic public choice case of concentrated benefits and dispersed costs: of how special interests can trump the public interest. A small number of sugar producers receive enormous benefits, while the costs are spread across the U.S. economy, hitting consumers and the sweetener-using industries.
The groups urged policymakers to reform or eliminate the program.
A high-level panel of experts yesterday pointed out the mutual economic benefits of a broad transatlantic trade pact between the United States and the European Union. At the event, co-sponsored by Meridian International Center, the U.S. Chamber of Commerce, the Spanish think tank Foundation for Analysis and Social Studies (FAES), the Center for the Study of Presidency and Congress, and the Ronald Reagan Building and Trade Center, the speakers emphasized the significant contributions to jobs and growth a trade agreement between the two parties would bring. They noted that the title of the proposed agreement endorsed by both the U.S. and the EU is “The Transatlantic Trade and Investment Partnership.”
Leading off the program was the former president of Spain, José María Aznar, who spoke of the need to bring the U.S. and the EU together in a trade partnership to formalize the strong economic and cultural ties that already exist and to remove still existing trade barriers. He noted that such an agreement would not only enhance the competitiveness of these developed countries, but also could help promote the free exchange of goods and services throughout the world. Aznar pointed to the just-published report by FAES, “TAFTA: The Case for an Open Transatlantic Free Trade Area,” which provides a roadmap for removing tariff and non-tariff barriers.
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A possible bump in the road toward a U.S.-EU trade agreement emerged today as a parliamentary committee of the European Commission voted to begin trade talks with the U.S. but to allow a “cultural exception” for film and audio-visual subsidies. That means that the EU would be carving out this exception early on, possibly creating an obstacle to real progress on eliminating non-tariff trade barriers between the two parties.
The amendment to allow this exception was pushed by France, which wants to continue to receive substantial subsidies for its film industry and to limit the amount of foreign programs shown in France. German film subsidy bodies also endorsed the need for EU countries — in the name of “cultural diversity” — to subsidize their domestic film industries. The European Commission in its assessment of state aid to the industry endorses the cultural significance of the industry:
Audiovisual works, particularly films, play an important role in shaping European identities. They reflect the cultural diversity of the different traditions and histories of the EU Member States and regions. Audiovisual works are both economic goods, offering important opportunities for the creation of wealth and employment, and cultural goods which mirror and shape our societies.
If the EU includes this exception in its negotiating mandate, which the trade ministers will vote on in June, it could undermine the talks going forward. The U.S., for example, could try to carve out its own so-called sensitive products, and the negotiations could falter in tearing down barriers that limit the free flow of goods and services.
The chairman of the EU trade ministers has already expressed his concern about setting out exceptions in the trade talks. Vital Moreira of Portugal was quoted as saying:
If we start to exclude chapters from the negotiations, of course the other side will do the same. Room for negotiations is already very limited and I am convinced this is not helpful.
It doesn’t seem like an encouraging start to what is being heralded as one of the most significant trade and investment agreements to be negotiated.
Today, the Acting U.S. Trade Representative announced that the U.S. has agreed to let Japan enter negotiations on the Trans-Pacific Partnership Agreement, subject to consensus agreement by the other 10 members of the TPP. U.S. Ambassador Demetrios Marantis noted that this agreement results from lengthy consultations with Japan that were aimed at resolving specific issues between the U.S. and Japan:
Since November 2011, the United States has been engaged in consultations with Japan focused on Japan’s readiness to meet the TPP’s high standards for liberalizing trade and investment, and to address specific bilateral issues of concern in the automotive and insurance sectors, as well as other Japanese non-tariff measures.
With Japan’s entry into the TPP, the 12 countries would account for nearly 40 percent of global GDP and about one-third of all world trade, according to the USTR.
The sticky issues have been and probably will continue to involve the automotive and insurance industries and other non-tariff measures.
In a statement, the USTR said that Japan agreed to double the number of U.S. motor vehicles allowed into Japan under its Preferential Handling Procedure (PHP), which provides U.S. manufacturers with a less complex certification method.
In return the U.S. would phase out its tariffs on Japanese automotive imports. But that’s not going to happen quickly. Their agreement says that the phase-out will equal the longest staging period for any product in the TPP, and the phase-outs would occur at the end of that period. Since the TPP negotiations haven’t been completed for all products, the exact time frame isn’t yet known.
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To comply with a World Trade Organization ruling in a tuna-dolphin complaint brought by Mexico, the U.S. proposed new regulations that would tighten the requirements for allowing tuna to be labeled “dolphin safe.”
The proposal was issued for comments by the National Oceanic and Atmospheric Administration on April 5. It would revise the Dolphin Protection Consumer Information Act (DPCIA) of 1990, which established a dolphin-safe labeling standard for certain tuna products.
Under the original rule, a “dolphin-safe” label could be used only for tuna that was caught without using purse-seine, encircling methods. But for tuna caught in the Eastern Tropical Pacific Region (ETPR), additional certification was required that “no dolphins were killed or seriously injured” while catching the tuna.
In the U.S. regulations, NOAA also established a domestic tracking and verification program that provides for the tracking of tuna labeled dolphin-safe.
In a case brought by Mexico in 2008, Mexico challenged in the WTO the U.S. dolphin-safe labeling system as violating provisions of the WTO’s General Agreement on Tariffs and Trade 1994 and its Agreement on Technical Barriers to Trade (TBT Agreement).
Mexico’s tuna fishermen catch their fish in the ETPR using purse-seine vessels and complained to the WTO that the U.S. rules unfairly discriminated against Mexico. In the case, US-Tuna II, the WTO Dispute Settlement Body on June 13, 2012, adopted earlier WTO reports finding that the U.S. labeling system did indeed discriminate against Mexican tuna and violated the WTO Agreement on Technical Barriers to Trade.
In its proposed rule, NOAA would expand its current requirements so all tuna products labeled dolphin-safe — not just tuna harvested by large purse seines in the ETP — would be required to have verification statements from captains, and in some cases observers, that “no dolphins were killed or seriously injured” while harvesting the tuna. In addition, there are new storage requirements so tuna caught using gear designated as dolphin-safe has to be stored separately from tuna caught in non-dolphin-safe gear from the time of capture through unloading.
This case is an important one as some countries use non-tariff barriers to protect their domestic industries or to advance environmental goals. (See a 1996 CEI article about the Basel Convention’s impact on international trade.)
I was intrigued with Virginia Postrel’s article today in Bloomberg on a new BBC television show — “Mr. Selfridge” — that celebrates retailing and the creation of the modern department store as a place that helped change the role of women. Virginia notes that Émile Zola had much earlier focused on that theme in his late-nineteenth century novel The Ladies’ Paradise, which also is the basis for a new BBC series.
I was intrigued because I had recently read Zola’s Au Bonheur des Dames on a friend’s recommendation and posted this comment January 19 on my Facebook page:
Just finished reading a paean to capitalism’s creative destruction — Émile Zola‘s Au Bonheur des Dames — or as I read it — The Ladies Paradise. The owner of a huge department store in Paris uses marvelous displays, advertising, sales commissions, refunds, home delivery to lure women into buying fabrics, clothing, accessories — while the small shops that haven’t changed or adapted go out of business. Yet the main female character points out who benefits from the megastore — the consumers who get a wider variety of goods available at affordable prices.
Virginia points out that even Ayn Rand didn’t celebrate retailing as a pioneering social development. As Virginia notes, department stores helped liberate women:
Yet like railroads and telegraphs, the department stores of the late 19th and early 20th century were socially and economically transformative institutions. They pioneered innovations ranging from inventory control and installment credit to ventilation systems, electric lighting and steel construction, along with new merchandising and advertising techniques. They brought together goods from all over the world and lit up city streets with their window displays. They significantly changed the role of women, giving them new career opportunities and respectable places to meet in public. They popularized bicycles, cosmetics, ready-to-wear clothing and electrical appliances. They even invented the ladies’ room.
In Zola’s novel based on the innovative Parisian store Le Bon Marché, the aristocratic ladies could go by themselves to shop and socialize with friends – outside the confines of their homes or accompanied by their spouses. The shop girls who waited on them, many from the country and some from factories, learned better manners and how to speak and dress better by mingling more closely with their “betters.” They also could earn decent wages and commissions from their sales and gain advancement. Those jobs gave them some independence and greater social mobility.
Yet, as Virginia says, those insights about shopping and consumption aren’t widely accepted:
Despite these connections, today’s respectable academics still have trouble acknowledging that consumption can have meaning. “Feminists are the worst,” says Rappaport. “They won’t admit that it’s an important part of their lives.” After academic lectures, she often finds herself approached by feminist scholars who want to talk about their love of shopping. “They don’t feel they can say that publicly,” she says. “It’s never a public question. It’s always after.”
A couple of TV shows won’t by themselves change that. But they do serve as reminders that in a full understanding of commercial culture, shopping is more than an embarrassment or an afterthought.
There’s an excellent Letter to the Editor in the Financial Times today (“Trade is now about participation, not competition”), which points out that the mercantilist approach to trade “exports good, imports bad” is an antiquated view given the globalized supply chain for products and services.
The letter states:
Conventionally, nations tend to believe that export is a virtue and import a vice. This mercantilism has lost its relevancy these days since an increasing number of companies, not states, must import various components to export their final products in the global value chains. After all, it is not that nations compete against each other in a game of trade, but that private companies participate in a collective project of trade.
Lots of important points in that one paragraph including the importance of imports for inputs in manufacturing and the fact that it is companies that engage in trade, not countries.
CEI has long pointed out the dangers of promoting trade by promoting mercantilism here, here, and here, for example.
Earlier today, the Office of the U.S. Trade Representative sent a notice to Congress that the Obama administration would begin negotiating a trade partnership agreement with the European Union. In the letter to House Speaker John Boehner, Acting USTR Demetrios Marantis noted that official talks would begin no earlier than 90 days from the transmittal of the letter.
The agreement would be the largest trade pact to date. The two trade power houses together represent 30 percent of global trade. As the letter stated:
Last year the United States exported $458 billion in goods and services to the EU, estimated to support more than 2.2 million U.S. jobs. The stock of U.S. and EU investment in each other’s economy totaled nearly $3.7 trillion in 2011, and EU affiliates in the United States employed an estimated 3 million Americans in 2010.
While tariffs already are very low or have been eliminated on most goods, there are still some so-called sensitive products where talks about reducing tariffs could get sticky. However, the biggest hurdle in reaching an agreement will be non-tariff barriers to trade, particularly those relating to differing regulatory approaches to health and safety, and standards.
It’s expected that the negotiations would be fairly lengthy — taking several years. On the regulatory front, the two parties have to figure out whether to take an approach that involves mutual recognition or one that seeks to “harmonize” the regulations. CEI has cautioned against regulatory harmonization, particularly since the EU has adopted the precautionary principle as the basis for much of its risk assessment.
A Financial Times article today focuses on possible negotiations for a bilateral trade agreement between the U.S. and the European Union and some of the potential sticking points in completing such a pact. Chief among these, the article notes, are “behind-the-border” domestic regulation, such as differing technical standards in areas such as pharmaceuticals, medical services, and advanced electronics, as well as “safety regimes for conventional cars” and foodstuffs.
In dealing with differing regulatory standards, the U.S. Chamber of Commerce cautioned that the parties, however, shouldn’t aim for full regulatory convergence:
“The aim in many instances is not to drive immediately for full regulatory convergence but to try to make sure that regulators on both sides of the Atlantic are making decisions with their eyes wide open,” says Sean Heather, vice-president of the chamber’s centre for global regulation.
CEI made that point strongly in its comments on February 3, 2012 to the U.S. Trade Representative on possible negotiations on a U.S.-EU trade agreement:
Often policymakers on both sides of the Atlantic, in reviewing the regulatory state’s complexity and lack of uniformity, call for “harmonization” of regulations. However, such harmonization can lead to conformity and stagnation – resulting in superior alternatives not being explored. Rather, policymakers should look to competition among regulatory regimes. This “discovery process” is a better way to reduce transaction costs and thus increase voluntary wealth creation.
Providing companies with a choice of regulatory regimes often works better than a single uniform regulatory structure or a harmonized system. Centralized regulators can suffer from limited information and pressures from special interest groups. Dispersed regulatory structures can satisfy different preferences, try varied approaches to regulating, gain information about what works and what doesn’t, and provide feedback to learn more about the cost effectiveness of specific rules. Regulatory competition provides these benefits.
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