DEIP Reactivation Agitates Trading Partners

When Secretary of Agriculture Tom Vilsack announced dairy product volume allocations under the U.S. Dairy Export Incentive Program (DEIP) last month, he called direct export subsidies reintroduced earlier this year by the European Union a contributing factor to the erosion of U.S. dairy market share. The backlash from USDA's move and the secretary's comment has been swift and vocal, particularly from the EU.

EU Agricultural Secretary Mariann Fischer-Boel called Vilsack's announcement "unfair" and noted that EU export subsidies introduced at the beginning of the year did not cover the gap between international and EU prices. Other member nations of the World Trade Organization also criticized the DEIP reactivation, saying it could start "subsidy wars" and encourage protectionism at a time when the global economy needs open trade to pull out of the worldwide recession. Countries condemning the DEIP reactivation include Brazil, New Zealand and Australia.

Under DEIP, USDA provides export subsidies to commercial exporters for certain dairy products. This announcement was for the current DEIP year which ends June 30, 2009, and includes allocations for up to 150.4 million pounds of nonfat dry milk, 46.5 million lbs of butterfat and 6.7 million lbs of cheese. The announcement also included the regions of the world and specific countries for which exports are eligible to receive DEIP subsidies.

USDA has provided no indication whether another allocation announcement for the next DEIP year, which begins July 1, 2009, will be forthcoming.

U.S.-Panama FTA Put on Hold for Foreseeable Future

Assistant U.S. Trade Representative for the Americas Everett Eissenstat made it clear last week that the Obama administration is not ready to send the Panama-U.S. Free Trade Agreement to Capitol Hill for approval.

Speaking before the Senate Finance Committee, Eissenstat said President Obama has called for a new "trade framework" for the United States that will be announced soon. The administration wants to ensure that all pending trade agreements, including the one with Panama, align with the new, broader framework before moving forward.

Congress continues to remain split on the pact. Following the mostly positive comments voiced at the Senate hearing, a coalition of House caucuses representing nearly 60 legislators sent a letter condemning the U.S.-Panama agreement to Speaker Nancy Pelosi (D-CA).

"This move by the Obama administration sends a clear signal that free trade agreements will move much more slowly through the approval process," said Clay Hough, IDFA senior group vice president.

When he announced his trade policy in March, President Obama said Panama was the one trade agreement he wanted to move "relatively quickly." Among the pending U.S. agreements, including South Korea and Colombia, Panama is considered the least controversial and relatively small. U.S. dairy exports to Panama in 2008 accounted for $24.5 million, while combined export values for South Korea and Colombia reached nearly $110 million last year.

Eissenstat did not give any timetable for when the administration might revisit the U.S.-Panama FTA or other trade agreements.

Read Eissenstat's testimony here.

G-20 Members Propose Measure to Stop New Trade Barriers

Going against the tide of DEIP reactivation and the Panamanian trade pact standstill, a group of World Trade Organization finance leaders recently proposed a new measure to stop member countries from imposing new barriers to trade or investment. The proposal would encourage increased global trade while curbing a growing trend of tightened borders and heightened trade barriers.

Known as the Group of 20 or G-20, finance leaders representing the EU and 19 of the world's largest economies signed a pledge last November to avoid protectionist measures. Since that time, however, 17 have implemented 47 measures that restrict trade at the expense of other countries. During its spring summit in London, the G-20 decided further action was necessary.

Echoing IDFA's position on international trade, the G-20 announcement highlights the Doha Development Round as one of the key hopes for discouraging protectionist trade practices. The leaders believe that a successful conclusion to this round of trade negotiations would be an effective tool to promote export growth and shield against harmful trade practices.

"With dairy exports hitting the $3.82 billion value mark in 2008, pro-export growth measures are a welcome step forward for IDFA and its members," said Katie Sparrow, IDFA manager of international affairs.