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New Farm Bill Leaves Open Possibility of Retaliation on Cotton Subsidies, Meat Labeling

Wednesday, January 29, 2014
Sandler, Travis & Rosenberg Trade Report

House and Senate agriculture leaders announced Jan. 27 a new five-year farm bill that leaves the door open to billions of dollars’ worth of retaliatory sanctions against U.S. exports in two separate cases being pursued at the World Trade Organization. The House is expected to pass the bill as early as Jan. 29 and the Senate could follow suit soon thereafter.

Sources indicate that the farm bill does not alter U.S. subsidies for cotton production sufficient to address the concerns of Brazil, which has been delaying the imposition of WTO-authorized punitive measures for several years based on assurances from Washington that the next farm bill would bring those subsidies into line with WTO rules. During that time the U.S. had been making compensatory payments of $12.25 million per month to Brazilian cotton producers, but those payments halted last October. Brazil has therefore resumed proceedings that could result in retaliatory sanctions and is currently engaged in a process to determine which U.S. goods it might subject to higher import tariffs and how to go about suspending intellectual property rights for U.S. movies, music, drugs and/or other goods. A final decision could come as early as Feb. 28, and the value of the potential retaliation would likely reach into the hundreds of millions of dollars.

The new farm bill also does not repeal a provision in the 2008 farm bill tightening the country of origin labeling requirements for certain meat products or a May 2013 Department of Agriculture rule modifying that requirement based on a WTO ruling that it discriminated against imported products. The WTO is expected to determine this spring whether the USDA rule, which is also being challenged in federal court, brings the COOL regulations into compliance with WTO rules. If that determination is negative, Canada, which claims that the COOL rules have cut its meat exports to the U.S. by 50% at a cost of $1 billion a year, and Mexico, which along with Canada filed the underlying WTO case, could be authorized to impose roughly two billion dollars’ worth of trade sanctions against U.S. exports. Some lawmakers and the U.S. meat industry wanted Congress to preempt that threat by directing USDA to change the COOL regulations, but Sen. Debbie Stabenow, D-Mich., said a decision will be put on hold until the WTO makes its determination. In the meantime the new farm bill extends the COOL requirements to venison and requires USDA to conduct an economic analysis of its May 2013 final rule within 180 days.

Other trade-related provisions in the new farm bill include the following.

Catfish. The bill retains a previous statute moving responsibility for inspecting imported catfish from the Food and Drug Administration to the USDA’s Food Safety and Inspection Service.

New USDA Official. The bill requires the secretary of agriculture to propose within 180 days, and implement within one year of that proposal, a reorganization of the department’s international trade functions for imports and exports. This change would include the establishment of an under secretary for trade and foreign agricultural affairs who would be expected to serve as a multiagency coordinator of sanitary and phytosanitary issues and nontariff trade barriers in agriculture with respect to imports and exports of agricultural products.

Produce. The FDA is required to include with its pending final rule on science-based minimum standards for the safe growing, harvesting, packing and holding of fruits and vegetables grown for human consumption an analysis of the scientific information used to promulgate that rule and the economic impact of the rule. However, the bill does not delay publication of that rule until those analyses are issued, as some lawmakers had sought.

In addition, USDA would have to make available to U.S. Customs and Border Protection technical assistance to help it identify produce represented as grown in the U.S. when it is not in fact grown in the U.S.

Textiles. The bill provides for a $16 million per year, five-year trust fund for pima cotton that aims to reduce the injury to domestic manufacturers resulting from tariffs on cotton fabric that are higher than tariffs on certain apparel articles made of cotton fabric. Funds are to be distributed as follows: 25% to one or more nationally recognized associations established for the promotion of pima cotton for use in textile and apparel goods, 25% to yarn spinners of pima cotton that produce ring spun cotton yarns in the U.S., and 50% to manufacturers who cut and sew cotton shirts in the U.S. who certify that they used imported cotton fabric during calendar year 2013.

There is also an agricultural wool apparel trust fund that is to be used to reduce the injury to domestic manufacturers resulting from tariffs on wool fabric that are higher than tariffs on certain apparel articles made of wool fabric. Funds (no more than $30 million) will be distributed to eligible manufacturers and successors-in-interest annually through 2019. In any year that the suspension of duty on wool fabrics provided for under HTSUS subheadings 9902.51.11, 9902.51.13, 9902.51.14, 9902.51.15 and 9902.51.16 is not in effect, the amount of any trust fund payment will be increased by an amount that USDA determines is equal to the amount the manufacturer or successor-in-interest would have saved during the calendar year of the payment if the duty suspension were in effect.

Finally, the bill provides $2.25 million per year through 2019 for wool research and promotion.

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