WTO moves to banish export subsidies

WTO moves to banish export subsidies

WTO moves to eliminate export subsidies. Some nations exempt for years. Reaction to U.S. tax extender package.

Several positive late-year developments will help keep farmers’ collective stocking from being stuffed with coal.

Before high-tailing home for the year, lawmakers passed a tax package that included some important extenders. The oft-used Section 179 – used to help producers with equipment write-offs – now has a $500,000 limit (up from $25,000) and is permanent.

More good news: a five-year extension of bonus depreciation for property acquired from 2015 through 2019. The bonus is 50 percent through 2017 and then drops to 40 percent and 30 percent for the final two years.

Jumping to the international scene, on December 19 the World Trade Organization eliminated subsidies for farm exports.

The WTO announcement was met with a rather tepid response by Texas Rep. Mike Conaway, House Agriculture Committee Chairman. “The agreement reached in Nairobi was never expected to reduce the high foreign tariffs that obstruct much of our agricultural trade nor eliminate escalating foreign domestic farm subsidies. Efforts in regard to these two pillars of free trade have for many years now proved to be intractable as our trading partners have consistently refused U.S. offers to achieve meaningful reductions in these areas.”

Conaway also pointed to U.S. cotton’s continuing difficulties in the international arena. “The agreement also acknowledges the reforms to domestic cotton policy made by the United States. While I appreciate the recognition of our efforts, I am disappointed that some acknowledgment was not made concerning the deeply harmful impacts that China and India’s domestic cotton policies are having upon cotton farmers around the world, including farmers here at home and in least developed countries to which there appears to be no end in sight.”

According to the National Cotton Council, U.S. trade officials "resist(ed) pressure for further concessions on cotton" at the WTO conference.

“U.S. negotiators held firm with respect to any cotton specific outcomes, ensuring that the United States would not face any new restrictions on cotton domestic support,” said Sledge Taylor, NCC chairman and Mississippi producer and ginner. “While the overall outcome of the Ministerial is generally positive, there continues to be unwarranted pressure and focus on U.S. cotton policy by some WTO members. The NCC will continue to utilize the WTO forum to advance the recognition that the global cotton market has evolved significantly since 2003, when cotton was initially singled out as a separate agenda item at the Cancun WTO ministerial. Over the past decade, U.S. cotton farmers have experienced a decline in their safety net, while the surge in Asian polyester production has reshaped global fiber markets.”

Asked about the WTO move to eliminate export subsidies, Roger Johnson, National Farmers Union president, says “it remains to be seen what that means exactly. Overall, it should be a good thing.

“The United States ended export subsidies years ago. Getting this agreement to have other countries who continue to use export subsidies to cease is a positive development. However, none of us are naïve enough to believe that just because these countries tell the WTO they’ll stop, they won’t find creative ways to keep on. But it’s better to have the agreement than not to.”

Johnson also frets about “some questions about the under-developed countries in this agreement. I understand they have a very long time – perhaps open-ended – when they are required to stop using the export subsidies.”

In fact, while more prosperous WTO nations must remove export subsidies immediately, some developing countries will not face such an edict until 2023, or later.

“You always have these kinds of kinks when negotiating deals,” says Johnson. “You never end up quite where you were hoping for. Time will tell.”

Tax extenders

What about the tax extenders package passed by Congress?

“We’re generally quite supportive of what Congress did with the tax extenders package,” says Johnson. “If there’s one place we’re disappointed it is in the ethanol and biofuels area. There, they made what they call a two-year extension. However, it’s really a one-year extension because it’s retroactive to this year.

“They’ve been doing that for several years. The reason it’s different this time is those tax extenders will be left as orphans a year, or two, from now when Congress looks at them again. They’ll be left as orphans because they did a permanent extension on Section 179 and the like, which is fine. They added in solar and wind power.

“The point is all the other extenders were dealt with as a package and that provided enough political heft to get Congress to move. Now that Congress left all the biofuel extenders alone at two years and everything else is longer, it’ll be difficult to have more action when they’re up for debate a couple of years from now.”

Making Section 179 permanent, “is very important to have long-term certainty,” says Johnson. “You want folks to make business decisions that will generally help generate a more efficiently operating economy. That happens when folks know the rules and what they’ll be for some time to come.

“Frankly, in terms of Section 179 being used (in the short-term) it's more dicey. The whole ag economy is in some trouble. We have major price declines across the grain sector – that’s been going on for three years. Corn prices are half what they were just three years ago. Net farm income is projected to be half what it was two years ago. On the animal protein side, the sector saw prices collapsing significantly just this past year.

“When all that contraction is happening in agriculture because of big market price drops, there will be fewer people buying new farm equipment. So, the Section 179 provision will be more useful to growers long-term than short-term.

“The same argument can be used with what Congress did with bonus depreciation.”

Three things to watch

Going into 2016 what will NFU be watching on the Hill?

There are three big things, says Johnson.

  • Trade in general.

“We aren’t fans of TPP (Trans-Pacific Partnership) because it does nothing regarding currency manipulation. We think that’s a huge, fatal flaw. Going into its final year, the Obama administration has made TPP a high priority. So, that’s definitely going to be part of the 2016 narrative.”

  • Renewable energy.

“How do we deal with the biofuel sector in a meaningful way? How do we continue to support that sector in the face of a heavily-subsidized oil and gas industry? That will be a focus of ours.”

  • Farm bill defense.

“We must be vigilant. The fact that we managed to beat back attacks on crop insurance during the last month doesn’t mean there won’t be more cuts coming our way. And it isn’t just a concern for crop insurance, it’s all parts of the farm bill.

“When a farm bill is passed, you figure ‘well, that gives us five years of policy certainty, five years to breathe.’ Then, within a year, Congress starts making noise about nicking funds from parts of the farm bill.  I believe we’ll have to fight cuts to conservation programs, which will continue to rear up. There will like be continued attempts to cut crop insurance. There will be implementation issues, which we continue to fight case-by-case.”

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