February 1999 Editorial - Ontario Corn Producer

IN THE MEANTIME

Speakers at two recent conferences which focused on the status of WTO negotiations (the Canada Grains Council/Grain Growers of Canada Symposium in Ottawa Nov 26-Dec 2; and the AAFC/OMAF WTO conference in Toronto, December 6-7) presented varying opinions on the prospects for success and timeliness. Canadian presenters demonstrated that uniquely Canadian ability to speak out of both sides of their mouth at the same time. They exuded optimism that a successful outcome will achieve improved market access while preserving protections for supply managed commodities; that trade-distorting domestic supports will be reduced, but not impair a nation's ability to assist sensitive products and producers; that tariffs will be reduced or eliminated in a prescribed manner by all nations, but self-declared developing nations will not have to abide by the same rules. What all agreed is that a final conclusion cannot be anticipated before 2007 at the earliest, and that implementation will take years beyond that. The question is "what do we do in the meantime?"
Consider this. Mr. Kevin Brosch, a U.S. trade lawyer (and speaker at a previous OCPA Annual Meeting), stated that the U.S. only complies with the law and that legislative proposals require a 2/3 majority in Congress to become law. Current Presidential 'fast track' authority (actually called Trade Promotion Authority) expires in mid-2007, so a WTO settlement acceptable to Congress on a one-time 'yea or nay' vote had better be forthcoming before then. No vote, no law, no compliance. Whether an agreement of meaningful substance is reached by then is problematic. The question remains, "what do we do in the meantime?" Consider this. The root of the income problem for Ontario grains and oilseed producers, indeed for all Canadian grain and oilseed producers, lies not so much in restricted export market access but in the price-depressing impact of U.S. domestic subsidies. Exporting more at artificially depressed prices is not a recipe for success; better to remove those factors depressing price in the first place. But as Mr. Brosch hinted, and another speaker, Mr. John Weekes (a trade negotiator from Geneva) explained, a successful WTO negotiation is not likely to remove that factor anytime soon. Current proposals actually permit an increase in U.S. WTO-consistent spending! U.S. spending within the "Amber" box could increase from the $16.8 billion actually spent in 2000 (and spending in 2003 was less than that which permits an even larger increase) to a permissible WTO ceiling of $19.1 billion. U.S. "Blue" box spending could increase from $0 in 2000 to $9.5 billion under the WTO proposal. U.S. "Diminimis" spending would increase from the actual $7.8 billion in 2000 to $19.0 billion and could be up to 10% of productive value. Total U.S. trade distorting domestic WTO-compliant spending could increase from $24.6 billion actually spent in 2000 to $47.6 billion! Worse yet, U.S. "Green" box spending (supposedly non-production distorting programs) which was $49.5 billion in 2000 could increase without a ceiling! Moreover, the U.S. is fond of declaring much of its domestic spending "Green" when it truly is not. For example, in the recent successful WTO suit Brazil launched against U.S. cotton subsidies, the WTO ruled that neither Direct Payments under the 2002 U.S. Farm Bill, nor their predecessor Production Flexibility Contract payments under the 1996 U.S. Farm Bill, met the criteria for inclusion under "Green" box spending where the U.S. had listed them. Yet in the current WTO negotiations, the U.S. is busily trying to expand the definition of eligible spending that could be included in the "Green" Box category (which of course would have no ceiling on spending). It seems to this writer that it is entirely possible the proposed WTO settlement:

could eliminate single-desk agency marketing (the Canadian Wheat Board),

could significantly erode supply management as a marketing option (and Brazilian chicken can almost economically come into Canada now despite the current very high tariff let alone after an imposed sharp reduction),

could claim victory in eliminating export subsidies when they are almost gone anyway,

could open some export markets that do not remain closed in self-declared developing nations such as Brazil and India, or are not excluded through self-declaration as "sensitive" products (and the WTO is considering a list of 1,400 such products),

permit an increase in U.S. domestic subsidies which artificially depress prices for grain and oilseed producers in Ontario, Canada, and the world.

Keep in mind that the Brazilian WTO case found "significant price suppression" caused by both the Marketing Loan Payment program and the Counter-cyclical Payment program. The WTO Court found "serious prejudice" through price depression resulting in loss of market share and loss of investment. Sound familiar? (The U.S. appealed all aspects of the case and a WTO Appellate Court will reach judgement in March; most observers expect Brazil to win on all counts.) Are we supposed to be enthused about prospects for Ontario grain and oilseed producers in this new WTO-world? It boils down to this. Do you seriously believe that the U.S. would reduce support for agriculture in 2007 just before the 2008 elections when the mid-west votes "red?" Moreover, the WTO proposal as currently constituted would permit an increase in actual U.S. spending. How is that going to resolve the systemic problem of artificially low incomes for Ontario grain and oilseed producers? But that is years away, "what do we do in the meantime?" The first step is to recognize that financial injury to Ontario grain and oilseed producers resulting from the artificial depression of price caused by U.S. domestic subsidies is real and continuous. The next step is to gather the political will to offset that chronic, long-term injury through a new, adequately-funded program that would end when meaningful reduction in U.S. spending occurs. We are close on the first step; but miles away on the second.