Vermont Commission on International Trade and State Sovereignty

1
Vermont Commission on International Trade and
State Sovereignty

• Overview of
• International Trade
• and Its Impact on
• Vermonts Agricultural Sector
• Vermont Legislative Council
• December 18, 2007

2
What Is International Trade and What Are
International Trade Agreements? (1)

• International trade is the exchange of goods and
  services across international boundaries or
  territories.
• International trade traditionally was conducted
  according to agreements between two countries,
  referred to as bilateral agreements.

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What Is International Trade and What Are
International Trade Agreements? (2)

• In 1944 at Bretton Woods, trade began to be
  considered in a global manner and global
  economic institutions were created to help
  regulate its conduct.
• These organizations include
• The World Bank
• The International Monetary Fund (IMF)
• The Global Agreement on Tariffs and Trade
  (GATT)

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What Is International Trade and What Are
International Trade Agreements? (3)

• In 1994, the Uruguay Round global trade
  discussions were completed and the World Trade
  Organization (WTO) was created. The WTO now has
  149 members.
• WTO agreements include
• Goods
• Services
• Government procurement
• Agriculture
• Intellectual property rights
• A binding dispute resolution system
• More than a dozen separate agreements

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The International Trading System in the U.S.

• In 1974, Fast Track authority was established,
  streamlining congressional consideration of
  trade bills.
• In 1979, the office of U.S. Trade Representative
  (USTR) was created by Executive Order. USTR is
  part of the Executive Office of the President.
  It is not subject to Freedom Of Information Act
  (FOIA) requests.
• The USTR consults states through
• the Inter-Governmental Policy Advisory Committee
  (IGPAC) one of 36 advisory committees and the
  only one with members from state and local
  governments
• State Single Points of Contact (SPOCs) appointed
  by the governor in each state.

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International Trade AgreementsEnacted since the
Uruguay Round

• North American Free Trade Agreement (NAFTA)
• U.S.Singapore Free Trade Agreement
• U.S.Chile Free Trade Agreement
• U.S.Australia Free Trade Agreement
• Central American Free Trade Agreement (CAFTA)
• U.S.Peru Trade Promotion Agreement

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Agriculture at the WTO (1)

• Disciplines on Agriculture exempted from the
  first six rounds of GATT trade talks (late
  1940smid 1980s)
• Uruguay Round establishes WTO (1995)
• Built-In Agenda at the WTO includes talks on
  agriculture, services, and intellectual property
  rights
• Binding dispute resolution system at the WTO
• Negotiating blocs Cairns Group, G-77, G-20,
  The Quad

8
Agriculture at the WTO (2)

• Disagreements on agriculture were major reason
  for collapse of WTO ministerial meetings in
  Seattle and Cancun
• Collapse of Doha Round avoided through adoption
  of new Framework Agreement (July 2004)
• WTO ministerials December 2005 (Hong Kong)
  Doha round scheduled for completion in December
  2006
• Doha beyond completion date negotiations continue

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Trade Context How WTO Dispute Resolution Works

• Initial Consultations
• Resolved at this stage? If no
• Formation of a Dispute Resolution Panel (DRP)
  under WTO auspices
• Submissions by both WTO parties to the DRP (U.S.,
  Brazil)
• Initial DRP decision
• Decision appealed? If yes
• Appellate Body decision
• Claim upheld? If yes
• Certification of decision by WTO Dispute
  Settlement Body
• Options for retaliation by winning party

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Trade Context WTO Brazil Cotton Case

• WTO Dispute Resolution Panel (DRP) ruling
• U.S. subsidies cause serious prejudice to
  Brazilian cotton producers
• 1.5B doesnt qualify as Green Box
• Step Two payments are prohibited subsidy
• U.S. appeals decision
• Appellate Body upholds DRP findings
• Dispute Settlement Body (DSB) adopts Appellate
  Body report
• U.S. eliminates Step Two programs and changes
  export subsidy programs says changes mean U.S.
  now in compliance with WTO ruling
• Collapse of Doha Round
• Brazil requests that WTO set up compliance panel
  to review whether U.S. has implemented DSB ruling

June 2004 October 04 3 March 05 21 March
05 early 2006 July 2006 Sept 2006
With respect to some of the rulings, the U.S.
has adopted no implementation measures at
all. Brazil Trade Ministry
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Trade Context Brazils Retaliation

• Cotton sanctions aimed at non-agriculture sectors
  amount to 3 billion of intellectual property
  rights (pharmaceutical patents, software,
  industrial design, etc.)
• Weakness of U.S. agricultural sector in trade
  negotiations

U.S. economy 79 services 19 industry
1 agriculture
U.S. rural economy 3.1 agriculture
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Next Steps in US-Brazil Cotton Case

• United States says it will comply with WTO ruling
• Compliance mechanism is domestic legislation
  Farm Bill, appropriations process
• Butcompliance choices are difficult
• Cut cotton subsidies specifically?
• Broad-based reduction in spending?
• Preserving amber/blue box subsidies at the
  expense of green box programs?
• Dont comply, take the hit from Brazils
  retaliation?

13
Equity in US Farm Support Programs

• Current supports are skewed
• By region
• By crop
• By farm size

Farms in the Northeast produce 7 of U.S.
agricultural products yet receive less than 1
of federal subsidies Producers of just five crops
have secured more than 90 of federal farm
handouts Nationally, just 10 of farmers collect
more than 70 of subsidies In New England, only
11 of farmers receive federal support
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WTO Consistency Box Shifting
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Green Box Programs that Help Vermont Farmers

• CREP (Conservation Reserve Enhancement Program)
• EQUIP (Environmental Quality Incentives Program)
• Funding for Lake Champlain and impaired watershed
  cleanup
• FPP (Farmland Protection Program)
• AMA (Agricultural Management Assistance)
• Specialty crop block grants
• Organic Certification Cost Share
• Organic Transition Assistance
• Fresh Fruit and Vegetable Program
• Renewable Energy for America Programs
• Rural Development Grants

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Vermont Programs That Could Be Challenged

• Buy Local Campaign
• Farm To School Programs
• State Purchase Preference
• Dairy Target Price Program
• CWT (Cooperatives Working Together) Export
  Program
• State of Vermont Pure Maple Syrup Trademark
• Federal MILC (Milk Income Loss Contract) Program

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U.S.Peru Trade Promotion AgreementBenefits to
New England Farmers (1)

• Exports support 4,900 on- and off-farm jobs in
  food processing, storage, and transportation. In
  2006, 434 million in agricultural exports
  generated 2.3 billion in farm cash receipts.
• Dairy exports of 41 million generated 573
  million in farm cash receipts. All Peruvian
  duties on dairy products will be eliminated
  within 17 years, some earlier.
• Fruit generates 52 million in cash receipts.
  Peruvian duties on apples will be eliminated.

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U.S.Peru Trade Promotion AgreementBenefits to
New England Farmers (2)

• Beef generates 80 million in farm cash receipts.
  Duties on Prime and Choice cuts will be
  eliminated. Limited quantities of offals
  immediately become duty-free greater quantities
  phase into being duty-free.
• Maple products generate 22 million in farm cash
  receipts. Peru will immediately eliminate duties
  on maple syrup and maple sugar. Current duties
  are 12 and, under WTO rules without USPTPA,
  could rise to 30.

USDA Foreign Agricultural Service web site, Fact
Sheet U.S.Peru Trade Promotion Agreement -
New England Farmers Will Benefit, November 2007
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Advantages and Challenges Facing U.S. Products
in Peru (1)

• Advantages
• Upcoming U.S.Peru TPA will grant duty free
  access to two-thirds of U.S. food and
  agricultural products
• Open market for previously banned products (beef,
  offals, poultry, pork)
• Growing food processing and HRI sectors that will
  demand more food ingredients
• Proactive supermarket industry that will result
  in increased demand for high-value products

• Challenges
• Peru negotiating trade agreements with other
  countries, which could lessen competitive
  advantage of the U.S.
• Consumer habits Peruvians prefer meals based on
  fresh products and spicy seasonings
• Lack of brand awareness among consumers
• New local food brands appearing in the market at
  very low prices

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Advantages and Challenges Facing U.S. Products
in Peru (2)

• Advantages
• Increased tourism creates new opportunities for
  food service development
• Fast food chains expanding in major cities
• Appreciation for U.S. food quality and culture
• People are becoming aware of diet, lite and
  healthy food products through media

• Challenges
• Relatively small market due to limited purchasing
  power 76 percent of Peruvian population are
  low-income consumers
• Supermarkets, the main source of imported food
  products, account for only 24 percent of total
  retail food sales in Lima
• Government Buy Peruvian campaign encourages
  purchase of local products
• Smuggling

Source USDA Foreign Agricultural Service GAIN
Report PE6022
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Potential Problems for Peru (1)

• Agriculture generates 31 of all employment and
  7.6 of GDP in Peru
• Women comprise 50 of Perus agri-export
  (flowers, asparagus, artichokes) workforce
• Common complaints include the up-to-12-hour work
  days, temporary contracts, a ban on unions,
  violations of reproductive and labor rights
• Challenges for Peruvian agricultural workers
  include lack of alternative employment, limited
  access to markets and credit, lack of basic
  services, adverse climatic conditions, and
  geographic isolation

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Potential Problems for Peru (2)

• Lacking economic alternatives, farmers may turn
  to coca cultivation
• Special products for Peru are rice, maize,
  wheat, oil seeds, sugar, meat, cotton, dairy
  products, and barley. These products provide an
  income for millions of farmers in rural areas.
• Special products that have been protected by
  the price band system would be threatened by U.S.
  subsidized agricultural imports.

Source Song of the Sirens, Oxfam Briefing
Paper, June 2006
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The Commission on International Trade and State
Sovereignty Shall (1)

• annually assess the legal and economic impacts of
  trade agreements on state and local laws, state
  sovereignty, and the business environment
• provide a forum for citizens and legislators
• make recommendations to the general assembly,
  governor, and congressional delegation that are
  designed to protect the states job and business
  environment and state sovereignty from any
  negative impacts of trade agreements

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The Commission on International Trade and State
Sovereignty Shall (2)

• work with interested groups from other states to
  resolve the conflicting goals and tensions
  between international trade and state sovereignty
• on request from the governor or the general
  assembly, develop recommendations regarding
  challenges and opportunities posed by a
  particular agreement
• submit an annual report

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The Commission on International Trade and State
Sovereignty May

• recommend legislation or preferred practices
• develop recommendations regarding challenges and
  opportunities posed by a particular agreement