Vermont Commission on Vermont Commission on International Trade and International Trade and

State SovereigntyState Sovereignty

Overview ofOverview of

International TradeInternational Tradeand Its Impact on and Its Impact on

Vermont’s Agricultural SectorVermont’s Agricultural Sector

Vermont Legislative CouncilVermont Legislative CouncilDecember 18, 2007December 18, 2007

22

What Is International Trade and What Is International Trade and What Are International Trade What Are International Trade

Agreements? (1)Agreements? (1)

• International trade is the exchange of International trade is the exchange of goods and services across international goods and services across international boundaries or territories. boundaries or territories.

• International trade traditionally was International trade traditionally was conducted according to agreements conducted according to agreements between two countries, referred to as between two countries, referred to as bilateral agreements.bilateral agreements.

33

What Is International Trade and What Is International Trade and What Are International Trade What Are International Trade

Agreements? (2)Agreements? (2)

• In 1944 at Bretton Woods, trade began to be In 1944 at Bretton Woods, trade began to be considered in a global manner and considered in a global manner and global economic institutions were created global economic institutions were created to help regulate its conduct.to help regulate its conduct.

• These organizations include:These organizations include:

The World BankThe World Bank

The International Monetary Fund (IMF) The International Monetary Fund (IMF)

The Global Agreement on Tariffs and The Global Agreement on Tariffs and

Trade (GATT)Trade (GATT)

44

• In 1994, the “Uruguay Round” global trade discussions In 1994, the “Uruguay Round” global trade discussions were completed and the World Trade Organization (WTO) were completed and the World Trade Organization (WTO) was created. The WTO now has 149 members.was created. The WTO now has 149 members.

• WTO agreements include: WTO agreements include:

Goods Goods Services Services Government procurement Government procurement Agriculture Agriculture Intellectual property rightsIntellectual property rights A binding dispute resolution systemA binding dispute resolution system More than a dozen separate agreementsMore than a dozen separate agreements

What Is International Trade and What Is International Trade and What Are International Trade What Are International Trade

Agreements? (3)Agreements? (3)

55

The International Trading System in the The International Trading System in the

U.S. …U.S. … • In 1974, “Fast Track” authority was established, In 1974, “Fast Track” authority was established,

streamlining congressional consideration of streamlining congressional consideration of trade bills.trade bills.

• In 1979, the office of U.S. Trade Representative (USTR) In 1979, the office of U.S. Trade Representative (USTR) was created by Executive Order. USTR is part of the was created by Executive Order. USTR is part of the Executive Office of the President. It is not subject to Executive Office of the President. It is not subject to Freedom Of Information Act (FOIA) requests.Freedom Of Information Act (FOIA) requests.

The USTR consults states through:The USTR consults states through: the Inter-Governmental Policy Advisory Committee the Inter-Governmental Policy Advisory Committee

(IGPAC) — one of 36 advisory committees and (IGPAC) — one of 36 advisory committees and the only one with members from state and local the only one with members from state and local governments governments

State Single Points of Contact (SPOCs) appointed State Single Points of Contact (SPOCs) appointed by the governor in each state.by the governor in each state.

66

International Trade AgreementsInternational Trade AgreementsEnacted since the Uruguay RoundEnacted since the Uruguay Round

North American Free Trade Agreement (NAFTA)North American Free Trade Agreement (NAFTA)

U.S.–Singapore Free Trade AgreementU.S.–Singapore Free Trade Agreement

U.S.–Chile Free Trade Agreement U.S.–Chile Free Trade Agreement

U.S.–Australia Free Trade Agreement U.S.–Australia Free Trade Agreement

Central American Free Trade Agreement (CAFTA)Central American Free Trade Agreement (CAFTA)

U.S.–Peru Trade Promotion Agreement U.S.–Peru Trade Promotion Agreement

77

Agriculture at the WTO (1)Agriculture at the WTO (1)

• Disciplines on Agriculture exempted from the Disciplines on Agriculture exempted from the first six rounds of GATT trade talks (late first six rounds of GATT trade talks (late 1940s–mid 1980s)1940s–mid 1980s)

• Uruguay Round establishes WTO (1995) Uruguay Round establishes WTO (1995)

• ““Built-In Agenda” at the WTO includes talks Built-In Agenda” at the WTO includes talks on agriculture, services, and intellectual on agriculture, services, and intellectual property rightsproperty rights

• Binding dispute resolution system at the WTOBinding dispute resolution system at the WTO

• Negotiating blocs: Cairns Group, G-77, Negotiating blocs: Cairns Group, G-77, G-20, The QuadG-20, The Quad

88

Agriculture at the WTO (2)Agriculture at the WTO (2)

• Disagreements on agriculture were major reason for collapse of Disagreements on agriculture were major reason for collapse of WTO ministerial meetings in Seattle and Cancun WTO ministerial meetings in Seattle and Cancun

• Collapse of Doha Round avoided through adoption of new Collapse of Doha Round avoided through adoption of new Framework Agreement (July 2004)Framework Agreement (July 2004)

• WTO ministerials: December 2005 (Hong Kong); Doha round WTO ministerials: December 2005 (Hong Kong); Doha round scheduled for completion in December 2006scheduled for completion in December 2006

• Doha beyond completion date; negotiations continueDoha beyond completion date; negotiations continue

““The Boxes”The Boxes” ““The Pillars”The Pillars”

Prohibited/Amber BoxProhibited/Amber Box Market AccessMarket Access

Blue BoxBlue Box TariffsTariffs

Green BoxGreen Box SubsidiesSubsidies

99

Trade Context: Trade Context: How WTO Dispute Resolution WorksHow WTO Dispute Resolution Works

• Initial Consultations Initial Consultations Resolved at this stage? If no:Resolved at this stage? If no:

• Formation of a Dispute Resolution Panel (DRP) under WTO Formation of a Dispute Resolution Panel (DRP) under WTO auspicesauspices

• Submissions by both WTO parties to the DRP (U.S., Brazil)Submissions by both WTO parties to the DRP (U.S., Brazil)

• Initial DRP decision Initial DRP decision Decision appealed? If yes:Decision appealed? If yes:

• Appellate Body decisionAppellate Body decisionClaim upheld? If yes:Claim upheld? If yes:

• Certification of decision by WTO Dispute Settlement BodyCertification of decision by WTO Dispute Settlement Body

• Options for retaliation by winning partyOptions for retaliation by winning party

1010

Trade Context: WTO Brazil Cotton Trade Context: WTO Brazil Cotton CaseCase

WTO Dispute Resolution Panel (DRP) ruling: WTO Dispute Resolution Panel (DRP) ruling:

• U.S. subsidies cause “serious prejudice” to U.S. subsidies cause “serious prejudice” to Brazilian cotton producersBrazilian cotton producers

• $1.5B doesn’t qualify as “Green Box”$1.5B doesn’t qualify as “Green Box”• Step Two payments are prohibited subsidyStep Two payments are prohibited subsidy

U.S. appeals decisionU.S. appeals decision

Appellate Body upholds DRP findingsAppellate Body upholds DRP findings

Dispute Settlement Body (DSB) adopts Appellate Dispute Settlement Body (DSB) adopts Appellate Body reportBody report

U.S. eliminates “Step Two” programs and U.S. eliminates “Step Two” programs and changes export subsidy programs — says changes changes export subsidy programs — says changes mean U.S. now in compliance with WTO ruling mean U.S. now in compliance with WTO ruling

““Collapse” of Doha RoundCollapse” of Doha Round

Brazil requests that WTO set up compliance panel Brazil requests that WTO set up compliance panel to review whether U.S. has implemented DSB to review whether U.S. has implemented DSB rulingruling

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

1111

Trade Context: Trade Context:

Brazil’s RetaliationBrazil’s Retaliation

Cotton sanctions aimed at non-agriculture sectors amount Cotton sanctions aimed at non-agriculture sectors amount to $3 billion of intellectual property rights to $3 billion of intellectual property rights (pharmaceutical patents, software, industrial design, etc.)(pharmaceutical patents, software, industrial design, etc.)

Weakness of U.S. agricultural sector in trade negotiations:Weakness of U.S. agricultural sector in trade negotiations:

U.S. economyU.S. economy

79% services79% services

19% industry19% industry

1% agriculture1% agriculture

U.S. rural economyU.S. rural economy

3.1% agriculture3.1% agriculture

1212

Next Steps in US-Brazil Cotton CaseNext Steps in US-Brazil Cotton Case

United States says it will comply with WTO rulingUnited States says it will comply with WTO ruling

Compliance mechanism is domestic legislation: Compliance mechanism is domestic legislation: Farm Bill, appropriations processFarm Bill, appropriations process

But…But…compliance choices are difficult:compliance choices are difficult:• Cut cotton subsidies specifically?Cut cotton subsidies specifically?• Broad-based reduction in spending?Broad-based reduction in spending?• Preserving amber/blue box subsidies at the Preserving amber/blue box subsidies at the

expense of green box programs?expense of green box programs?• Don’t comply, take the hit from Brazil’s Don’t comply, take the hit from Brazil’s

retaliation?retaliation?

1313

Equity in US Farm Support ProgramsEquity in US Farm Support Programs

Current supports are skewed…Current supports are skewed…

By regionBy region

By cropBy crop

By farm sizeBy farm size

Farms in the Northeast produce Farms in the Northeast produce 7% of U.S. agricultural products 7% of U.S. agricultural products yet receive less than 1% of federal yet receive less than 1% of federal subsidiessubsidies

Producers of just five crops have Producers of just five crops have secured more than 90% of federal secured more than 90% of federal farm handoutsfarm handouts

Nationally, just 10 % of farmers Nationally, just 10 % of farmers collect more than 70% of subsidies collect more than 70% of subsidies

In New England, only 11% of In New England, only 11% of farmers receive federal supportfarmers receive federal support

1414

WTO Consistency: Box ShiftingWTO Consistency: Box ShiftingProhibitedProhibited Export creditsExport credits

Domestic useDomestic use

Trade distortingTrade distorting Commodity subsidiesCommodity subsidies CottonCotton RiceRice CornCorn WheatWheat SoySoy

QuestionableQuestionableOpposed by G20 nations Opposed by G20 nations as trade-distortingas trade-distorting

Payments to farmersPayments to farmers Direct paymentsDirect payments

Counter-cyclical paymentsCounter-cyclical payments

Not trade distorting Not trade distorting NotNot opposed by G20 opposed by G20

Rural developmentRural developmentSupporting entrepreneursSupporting entrepreneursCapitalizing on-farm energy resourcesCapitalizing on-farm energy resourcesConservation and working landscapesConservation and working landscapes

Conversion

1515

Green Box Programs that Help Green Box Programs that Help Vermont FarmersVermont Farmers

CREP (Conservation Reserve Enhancement Program)CREP (Conservation Reserve Enhancement Program)

EQUIP (Environmental Quality Incentives Program)EQUIP (Environmental Quality Incentives Program)

Funding for Lake Champlain and impaired watershed cleanupFunding for Lake Champlain and impaired watershed cleanup

FPP (Farmland Protection Program)FPP (Farmland Protection Program)

AMA (Agricultural Management Assistance)AMA (Agricultural Management Assistance)

Specialty crop block grantsSpecialty crop block grants

Organic Certification Cost ShareOrganic Certification Cost Share

Organic Transition AssistanceOrganic Transition Assistance

Fresh Fruit and Vegetable ProgramFresh Fruit and Vegetable Program

Renewable Energy for America ProgramsRenewable Energy for America Programs

Rural Development GrantsRural Development Grants

1616

Vermont Programs Vermont Programs That Could Be ChallengedThat Could Be Challenged

• ““Buy Local” CampaignBuy Local” Campaign

• Farm To School ProgramsFarm To School Programs

• State Purchase PreferenceState Purchase Preference

• Dairy Target Price ProgramDairy Target Price Program

• CWT (Cooperatives Working Together) CWT (Cooperatives Working Together) Export ProgramExport Program

• State of Vermont Pure Maple Syrup TrademarkState of Vermont Pure Maple Syrup Trademark

• Federal MILC (Milk Income Loss Contract) ProgramFederal MILC (Milk Income Loss Contract) Program

1717

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

Exports support 4,900 on- and off-farm jobs in food Exports support 4,900 on- and off-farm jobs in food processing, storage, and transportation. In 2006, $434 processing, storage, and transportation. In 2006, $434 million in agricultural exports generated $2.3 billion million in agricultural exports generated $2.3 billion in farm cash receipts. in farm cash receipts.

Dairy exports of $41 million generated $573 million Dairy exports of $41 million generated $573 million in farm cash receipts. All Peruvian duties on dairy in farm cash receipts. All Peruvian duties on dairy products will be eliminated within 17 years, some products will be eliminated within 17 years, some earlier.earlier.

Fruit generates $52 million in cash receipts. Peruvian Fruit generates $52 million in cash receipts. Peruvian duties on apples will be eliminated.duties on apples will be eliminated.

1818

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

Beef generates $80 million in farm cash receipts. Beef generates $80 million in farm cash receipts. Duties on Prime and Choice cuts will be eliminated. Duties on Prime and Choice cuts will be eliminated. Limited quantities of offals immediately become Limited quantities of offals immediately become duty-free; greater quantities phase into being duty-duty-free; greater quantities phase into being duty-free.free.

Maple products generate $22 million in farm cash Maple products generate $22 million in farm cash receipts. Peru will immediately eliminate duties on receipts. Peru will immediately eliminate duties on maple syrup and maple sugar. Current duties are 12% maple syrup and maple sugar. Current duties are 12% and, under WTO rules without USPTPA, could riseand, under WTO rules without USPTPA, could rise to 30%. to 30%.

USDA Foreign Agricultural Service web site, Fact Sheet: U.S.–Peru Trade Promotion Agreement - New England Farmers Will Benefit, November 2007

1919

Advantages and Challenges FacingAdvantages and Challenges Facing U.S. Products in Peru (1) U.S. Products in Peru (1)

AdvantagesAdvantages

• Upcoming U.S.–Peru TPA will Upcoming U.S.–Peru TPA will grant duty free access to grant duty free access to two-thirds of U.S. food and two-thirds of U.S. food and agricultural productsagricultural products

• Open market for previously banned Open market for previously banned products (beef, offals, poultry, pork)products (beef, offals, poultry, pork)

• Growing food processing and HRI Growing food processing and HRI sectors that will demand more food sectors that will demand more food ingredientsingredients

• Proactive supermarket industry that Proactive supermarket industry that will result in increased demand for will result in increased demand for high-value productshigh-value products

ChallengesChallenges

• Peru negotiating trade Peru negotiating trade agreements with other countries, agreements with other countries, which could lessen competitive which could lessen competitive advantage of the U.S.advantage of the U.S.

• Consumer habits: Peruvians Consumer habits: Peruvians prefer meals based on fresh prefer meals based on fresh products and spicy seasoningsproducts and spicy seasonings

• Lack of brand awareness among Lack of brand awareness among consumersconsumers

• New local food brands appearing New local food brands appearing in the market at very low pricesin the market at very low prices

2020

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

AdvantagesAdvantages

• Increased tourism creates new Increased tourism creates new opportunities for food service opportunities for food service developmentdevelopment

• Fast food chains expanding in Fast food chains expanding in major citiesmajor cities

• Appreciation for U.S. food Appreciation for U.S. food quality and culturequality and culture

• People are becoming aware of People are becoming aware of diet, “lite” and healthy food diet, “lite” and healthy food products through mediaproducts through media

ChallengesChallenges

• Relatively small market due to Relatively small market due to limited purchasing power; 76 limited purchasing power; 76 percent of Peruvian population percent of Peruvian population are low-income consumersare low-income consumers

• Supermarkets, the main source Supermarkets, the main source of imported food products, of imported food products, account for only 24 percent of account for only 24 percent of total retail food sales in Limatotal retail food sales in Lima

• Government “Buy Peruvian” Government “Buy Peruvian” campaign encourages purchase campaign encourages purchase of local productsof local products

• SmugglingSmugglingSource: USDA Foreign Agricultural Service GAIN Report PE6022

2121

Potential Problems for Peru (1)Potential Problems for Peru (1)

• Agriculture generates 31% of all employment and Agriculture generates 31% of all employment and 7.6% of GDP in Peru7.6% of GDP in Peru

• Women comprise 50% of Peru’s agri-export (flowers, Women comprise 50% of Peru’s agri-export (flowers, asparagus, artichokes) workforceasparagus, artichokes) workforce

• Common complaints include the up-to-12-hour work Common complaints include the up-to-12-hour work days, temporary contracts, a ban on unions, violations days, temporary contracts, a ban on unions, violations of reproductive and labor rightsof reproductive and labor rights

• Challenges for Peruvian agricultural workers include Challenges for Peruvian agricultural workers include lack of alternative employment, limited access to lack of alternative employment, limited access to markets and credit, lack of basic services, adverse markets and credit, lack of basic services, adverse climatic conditions, and geographic isolationclimatic conditions, and geographic isolation

2222

Potential Problems for Peru (2)Potential Problems for Peru (2)

• Lacking economic alternatives, farmers may turn to Lacking economic alternatives, farmers may turn to coca cultivationcoca cultivation

• ““Special products” for Peru are rice, maize, wheat, Special products” for Peru are rice, maize, wheat, oil seeds, sugar, meat, cotton, dairy products, and oil seeds, sugar, meat, cotton, dairy products, and barley. These products provide an income for barley. These products provide an income for millions of farmers in rural areas.millions of farmers in rural areas.

• ““Special products” that have been protected by the Special products” that have been protected by the price band system would be threatened by U.S. price band system would be threatened by U.S. subsidized agricultural imports.subsidized agricultural imports.

Source: Song of the Sirens, Oxfam Briefing Paper, June 2006

2323

The Commission on International Trade The Commission on International Trade and and

State Sovereignty Shall (1):State Sovereignty Shall (1):

• annually assess the legal and economic impacts of annually assess the legal and economic impacts of trade agreements on state and local laws, state trade agreements on state and local laws, state sovereignty, and the business environmentsovereignty, and the business environment

• provide a forum for citizens and legislatorsprovide a forum for citizens and legislators

• make recommendations to the general assembly, make recommendations to the general assembly, governor, and congressional delegation that are governor, and congressional delegation that are designed to protect the state’s job and business designed to protect the state’s job and business environment and state sovereignty from any environment and state sovereignty from any negative impacts of trade agreementsnegative impacts of trade agreements

2424

• work with interested groups from other states to work with interested groups from other states to resolve the conflicting goals and tensions between resolve the conflicting goals and tensions between international trade and state sovereigntyinternational trade and state sovereignty

• on request from the governor or the general on request from the governor or the general assembly, develop recommendations regarding assembly, develop recommendations regarding challenges and opportunities posed by a particular challenges and opportunities posed by a particular agreementagreement

• submit an annual reportsubmit an annual report

The Commission on International Trade The Commission on International Trade and and

State Sovereignty Shall (2):State Sovereignty Shall (2):

2525

The Commission on International Trade The Commission on International Trade and and

State Sovereignty May:State Sovereignty May:

• recommend legislation or preferred practicesrecommend legislation or preferred practices

• develop recommendations regarding develop recommendations regarding challenges and opportunities posed by challenges and opportunities posed by a particular agreementa particular agreement