Business & Policy
All Things Considered: January 2007
By Jim Knisley
New Challenge Faces WTO. There is likely to be an increase in tension over Canada-U.S. farm trade.
U.S. voters’ reaction to the handling of Iraq may have put Canadian poultry producers' fear over a new World Trade Organization agreement to rest.
In early November, the Democratic Party took control of both houses of the U.S. Congress from the Republicans. Trade policy and agriculture were not at the top of the agenda during the campaign nor much on voters’ minds when they went to the polls.
But both issues will come to the fore, perhaps briefly, in the next two years.
First up will be the WTO. President Bush’s authorization for sending any WTO deal to the Senate for voting expires at the end of July and is unlikely to be extended.
For all practical purposes any WTO deal must be struck by April at the latest if it has any hope of getting to the Senate for a vote before this authorization expires. Anything submitted after that could run into full-blown Senate hearings and potential amendments, which would effectively kill any deal.
Faced with this sort of deadline, perhaps WTO negotiators will sprint to the finish and cobble together something. But sprinting doesn’t seem in the WTO’s makeup. It usually has difficulty hitting a snail’s pace.
Even if some kind of deal does come before the Senate, the likelihood of anything substantive passing is less than prior to the U.S. election. A Republican-controlled Senate might have bowed to presidential leadership and passed it. A Democratic controlled Senate is unlikely to be so politically obliging.
Another factor is that many of the Senate’s leaders now come from the trade-skeptic side of the Democratic Party. Many of them come from states where more open trade is held responsible for closed factories, lost jobs and depressed farm incomes.
These representatives are more likely to argue and vote for measures supporting so-called fair trade than free trade. They are very concerned about the American trade deficit and are particularly concerned about the trade deficit with China.
They are likely to be more insistent that other countries remove all barriers to U.S. goods and services before any WTO deal is signed. Interestingly, the Democrats also seem to be stronger supporters of financial support and trade action to protect agriculture than the Republicans.
There is little chance that any measures to cut U.S. farm program spending could get through the new Senate. That alone could be enough to stop any WTO agreement in its tracks because cuts in U.S. spending on agriculture programs seems to be the bottom line for Brazil and a host of other nations.
Adding to the froth is a new farm bill that will have to make its way through Congress this year. Colin Peterson, from Minnesota, is seen as most likely to be Chairman of the House of Representatives agriculture committee. Peterson is regarded as a conservative and moderate Democrat, but he also comes from the wheat producing part of the state and is a strong supporter of farm programs.
With Peterson setting the agenda for the committee, observers see little chance of any significant reduction in U.S. farm program spending. The same is true in the Senate, where two Democratic senators from North Dakota will have significant influence, as will other senators from across the U.S. Midwest.
There is also a possibility that there will be more political pressure out of Congress to limit, or control the flow of farm products from Canada. Many American farmers believe that Canadian imports cut their incomes and that Canadian products are unfairly subsidized. The politicians who represent them have adopted that view.
They believe that the Canadian Wheat Board gives prairie producers an unfair advantage on world markets. They are also deeply upset by any imports of products that compete with what they produce.
Simply put, they see the Canadian Prairies as competitors and a threat and have few qualms about using government power to counter that threat. It must be remembered that if you look north from North Dakota, eastern Montana or western Minnesota you don’t see the wide-open spaces and sparse population that rests in Canadian minds. From their perspective you see powerful and (in the case of Alberta) wealthy competitors.
Regina, Calgary, Edmonton and Winnipeg, are much larger than any city in North or South Dakota. The economic bases of the provinces are stronger and more diversified than neighbouring states. Many farmers in those states believe they need protection even if they don’t call it protectionism.
Canadians have seen a steady stream of trade actions against wheat, hogs and cattle over the years. Those actions are unlikely to cease and could intensify.
While all of the implications of the recent U.S. election will take time to sort out, it is likely that the new Congress will be more assertive on agriculture policy than the last Congress. It is likely that it will be more difficult for any WTO deal to gain U.S. approval. It is likely that a new farm bill will resemble the last farm bill, with perhaps changes on how money is spent, but few changes in the amount distributed. One change that can be expected is greater support for ethanol and other alternative fuels made from grain and oilseeds.
There is likely to be an increase in tension over Canada-U.S. farm trade. But that will most likely be focused on the big-ticket items of wheat, cattle and, to a lesser degree, hogs. Supply management may not come under direct attack, but could be used as a rhetorical bargaining chip. This is especially true for dairy products.
One can also expect to see organic production get a higher profile and U.S. policy change to address the needs of organic producers. In part this will come because of the growth in consumer demand, but also because the new senator from Montana, Jon Tester, is an organic farmer.
The world may not have been turned upside down by the recent U.S. election, but voters did shove hard enough to tilt it a bit.