Farm Bill Implementation and the International Trade Agenda

1. Farm Bill Implementation and the International Trade Agenda National Cotton Council Board of Directors September 12, 2002 Memphis, Tennessee J. B. Penn Under Secretary Farm and Foreign Agricultural Services

2. Introduction • Remarks today will focus on: • Farm Bill Implementation • International Trade Agenda

3. I. Farm Bill Implementation • Enormous attention given development of new farm bill – over 2 years in the making. • Focus now on implementation – applicable to the 2002 crops – in an election year! • USDA anticipated much – began early – steady progress since passage.

4. Farm Bill Implementation • Two aspects to implementation • The Internal Aspects– Enormous behind the scenes work to get to the public part • The Public Aspects– Announcements/Information

5. Farm Bill Implementation Internal Aspects • USDA-wide Implementation Coordination Team • Expedite decisions; prioritize regulations; coordinate negotiations with OMB; etc. • Streamline process to extent possible.

6. Farm Bill Implementation Internal Aspects cont. • Stakeholder Meetings • Expedited/Compressed process • Opportunity to be heard – numerous meetings • Deliberately vague language – USDA in the middle

7. Farm Bill Implementation Internal Aspects cont. • Instructions/Guidance • Program handbooks, rules, directions • Unprecedented training • Software/IT, e-Gov directive

8. Farm Bill Implementation Internal Aspects cont. • Resources • Decade–long trend reversal

9. Farm Bill Implementation Progress • Loan rates for 2002 crops – market oriented • Acreage Bases and Yields Updates • Information development • Signup begins Oct. 1 – Payments Thereafter • Direct: Oct. 1 (Final 2002); Dec. (1st 2003) • CC: October; December; February • Dairy (new); Peanuts (new); Pulses (new); Sugar; Apples; F&V regs; etc.

10. Farm Bill Implementation Progress • Generally on schedule – on track to meet targets (internal and legislative) • Generally well pleased with progress • Appreciate producer patience and cooperation with county office personnel

11. II. The Policy Environment • Playing much larger role than in mid -1990s • Promises to remain important – perhaps in different ways • New developments: • US farm bill • New farm laws elsewhere • The trade agenda • New US WTO proposal

12. Farm Security and Rural Investment Act of 2002 • Generated unusual barrage of criticism – at home and around the world • Much of the criticism is unfounded – used by others to support their agenda or deflect criticism • USG mounted aggressive defense

13. Farm Security and Rural Investment Act of 2002 • Major Criticisms: • Will depress prices to the detriment of global farmers • 4-year funding unchanged – so, no supply response surprises – output changes marginal, at most • Is protectionistic – not so: changes no tariffs, quotas, market access whatsoever • Violates URAA WTO Agreement – not so! Stays within allowable limit – US relatively low: $19.1B vs $62B EU, $32B Japan – “circuit breaker”

14. Farm Security and Rural Investment Act of 2002 • The real concern • Would the US still be able to provide strong leadership for Doha Round? Would we be compromised – have lost our zeal for reform? • U.S. remains a strong leader. New US WTO proposal is evidence enough!

15. Domestic Farm Policies Elsewhere • Japanese (recent) • Multifunctionality • Food self sufficiency • Canadians • Decided shift • Multifunctionality – Fed to provincial • EU (Mid-term Review) • Decided shift • Budget/EU Expansion • Multifunctionality

16. The Policy Environment – the Overall Trade Agenda • Ambitious in scope and schedule • 3 major thrusts • Multilateral: Doha Development Agenda • Regional: FTAA and CAFTA • Bilateral: FTAs – Singapore – Chile in negotiation; growing waiting list (Morocco, S. Africa, Australia, etc.) • “A competition for liberalization” - If progress stalls on one, shift attention and efforts to others

17. U.S. WTO Agriculture Proposal • Comprehensive reform “package” – addresses all 3 pillars: export competition, market access, and domestic support. • Results in: • reductions in trade barriers • greater equity across world agriculture; and • expanding sales opportunities for low cost producers

18. U.S. WTO Agriculture Proposal • Export Competition • Elimination of export subsidies in 5 years • Market Access • Reduce all tariffs using Swiss 25 formula approach over 5 years – global avg. 62% to 15% - maximum 25% • Increase TRQ’s 20% over 5 years • U.S. market already open – avg. tariff 12%; Japan 50%; Cairns 32%; EU 30%.

19. U.S. WTO Agriculture Proposal • Domestic Support • Reduce trade distorting support to 5% of value of ag production over 5 years • Negotiate Date Certain – termination of all tariffs and domestic supports.

20. Proposed Tariff Reductions

21. Proposed Domestic Support Reductions

22. Negotiations Timeframe • Ambitious overall • Doha 1 Jan 2005 • FTAA 1 Jan 2005 • FTAs As completed • Doha Round • March 31, 2003: Establish Modalities • September, 2003: 5th Ministerial – Cancun, Mexico • January 1, 2005: Negotiations conclude • Trade environment could be significantly changed in relatively short time:

23. III. Summary Observations • Implementation of new farm bill • Trade Agenda has considerable momentum – significant potential change possible in near future.

24. Farm Bill Implementation and the International Trade Agenda National Cotton Council Board of Directors September 12, 2002 Memphis, Tennessee J. B. Penn Under Secretary Farm and Foreign Agricultural Services