US Trade Policy Review Highlights New Farm Bill, Economic Recovery

18 December 2014

The rebound in the US economy, along with the enactment of the February 2014 Farm Bill and the recent rise in American trade remedy investigations were in the spotlight this week as WTO members began their two-day biennial review of Washington’s trade policies on Tuesday.

Under WTO rules, the global trade body conducts a review of the four largest traders – currently the US, EU, Japan, and China – every two years. Smaller traders are reviewed on a less regular basis. In addition to a report issued by the WTO secretariat, the document also includes a report provided by the trader being discussed.

This year’s US Trade Policy Review, or TPR, drew over 1600 questions, said the country’s WTO Ambassador, Michael Punke on Tuesday, in what set a new record for Washington.

Economy making a comeback

The secretariat-produced report notes that the US economy has “largely recovered” from the recession seen in 2007-2009, with nominal GDP hitting US$16.8 trillion last year. The report cited factors such as well-developed infrastructure and a sound business environment as part of what continues to make the US a “growing and diversified economy.”

The country’s US$2.1 trillion manufacturing sector is credited with playing a significant role in the US recovery, with over 700,000 jobs created since 2010. Part of the success of the manufacturing sector, the WTO report notes, comes from lower energy prices that have resulted from a “boom” in the production of shale oil and gas.

The rapid increase in the production of these energy products has largely been credited to practices such as “hydraulic fracturing,” known also as fracking, a controversial method that has been criticised by some for its potential environmental impacts.

Meanwhile, US export growth has seen a slowdown, which the WTO report notes is largely as a result of weak global economic growth and the continued slowdown and reduced import demand in Europe, with whom the US shares the world’s largest trading relationship.

The WTO’s previous review of Washington’s trade policies in 2012 had come during a very different climate, one that featured more tentative recovery signs amid warnings of the US potentially going over a “fiscal cliff,” At the time, various trading partners had expressed concern over what repeated domestic political fights over spending and national debt levels could mean for the growth of other economies. (See Bridges Weekly, 19 December 2012)

2014 Farm Bill

The WTO report released on 16 December noted that the new US Farm Bill enacted in February 2014 – essentially outlining the level and composition of American agricultural spending policies for the next five years – was “one of the most significant trade policy developments” during the period under review.

The US legislation, clinched after a nearly two-year effort, continued a trend toward shifting away from traditional commodity and disaster payments – and the elimination of “direct payments” to farmers, which fall under the WTO’s “green box” of non-trade-distorting support – toward subsidised crop insurance schemes, such as the Agriculture Risk Coverage (ARC) and Price Loss Coverage (PLC) programmes.

Approximately 80 percent of Farm Bill spending is geared toward nutrition programmes, such as the Supplemental Nutrition Assistance Program (SNAP), known otherwise as food stamps. (See Bridges Weekly, 30 January 2014)

“The EU notes that under the new Farm Bill some subsidies provided to the agricultural sector depend on the evolution of world prices,” said EU Ambassador Angelos Pangratis on Tuesday, noting that the 28-member bloc is studying the legislation “with interest” to see how it fits with broader agricultural trade reform.

Trade remedies

At the end of last year, the US had in place 294 anti-dumping and countervailing measures, an 18 percent increase from 2010 levels. These, the report noted, were particularly concentrated on emerging markets, with China making up 40 percent of all duty orders in 2013.

Of the 294 measures in place last year, 123 were on China, with the EU’s then-27 members tied with India for second, at 23 measures each. Chinese Taipei and South Korea followed at 18 and 15 measures each, respectively.

The report also notes some changes in the way that the US conducts its trade remedy investigations, such as a final rule on using market economy input prices when dealing with non-market economies.

Role of services

According to the WTO report, commercial services are the main contributors to the US’ output, accounting for 65 percent of GDP. The US is also the world’s top services exporter, with the EU being the main recipient of such exports. Other large export markets include Canada, Japan, China, and Mexico.

Various services sectors underwent reforms during the review period, including establishing new standards in the realm of financial services aimed at strengthening financial institution regulation and supervision.

“US financial firms in general have strengthened their position over the last few years,” the report noted, while calling for more progress in areas such as “too big to fail” banks.

The entry into force of various provisions of the 2010 Patient Protection and Affordable Care Act, known colloquially as Obamacare, are expected to “affect supply and demand of healthcare and health insurance services, and hence have an effect on trade,” the WTO report said, particularly given how many health services-related commitments the US has made under the General Agreement on Trade in Services (GATS).

The US healthcare legislation has been one of the more controversial elements of US President Barack Obama’s tenure, facing both domestic legal challenges and continued threats of repeal by opposition lawmakers.

Bilateral, regional deals

The US’ push in recent years to reach bilateral and regional trade deals with select groups of partners – such as the 12-country Trans-Pacific Partnership (TPP) Agreement or the Transatlantic Trade and Investment Partnership (TTIP) negotiation with the EU – has long been a subject of scrutiny by some of its trading partners.

Washington’s last TPR was held just as three other major trade deals – those with South Korea, Colombia, and Panama – were entering into force.

While some have expressed concern that third countries could suffer from being excluded from such deals, others have asked whether these major negotiating initiatives could distract from the US’ participation in talks at the global trade body.

The WTO report notes that no new reciprocal trade pacts have been concluded since the 2012 TPR. However, it does acknowledge both the US’ leadership efforts at the WTO, as well as the ongoing TPP and TTIP negotiating efforts. The study finds that the share of US imports under its reciprocal arrangements grew from 16.4 to 18.3 percent of total imports between 2011 and 2013.

“Let us reassure members – we are deeply committed to producing outcomes through these efforts that will reinforce and complement the multilateral trading system,” the US’ Punke told fellow WTO members on Tuesday.

The bilateral and regional deals, the US Ambassador explained, “offer the opportunity to contribute to a more dynamic and open global trading system and the possibility of building on them to pursue future ambitious trade and investment liberalisation in the WTO.”

ICTSD reporting; “Fracking Gives U.S. Energy Boom Plenty of Room to Run,” WALL STREET JOURNAL, 14 September 2014.

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