In practice, GMO labeling has not given EU consumers greater choice, because food processors in Europe have recombined ingredients away from GMOs to avoid labeling. As suggested by comments from meat packers, the same pattern may develop with COOL. Just as intended, COOL is a non-tariff barrier to trade; this does not necessarily mean that it will be challenged at the WTO, but it could be vulnerable to such a challenge, or subject to negotiation. At the WTO, country-of-origin labeling is covered as a technical regulation subject to the WTO Agreement on Technical Barriers to Trade which states that countries are allowed to take measures to protect human health or prevent deception of consumers, subject to the requirement that countries are not unjustifiably discriminated against, and that measures do not constitute a disguised restriction on trade.In NAFTA, country of origin labeling is allowed, but requirements must be minimally difficult and costly. Concerns about meeting this requirement may have been what initially prompted Secretary of Agriculture Ann Venneman to speak positively about the suggestion that a “North American” label could be appropriate . COOL compliance may be most costly for developing country suppliers to the U.S. market who lack record keeping infrastructure to maintain audit trails. To this extent, COOL directly conflicts with the spirit of trade liberalization in the Doha Development Agenda, which aims to give preference to the trade agendas of developing countries. To justify the continued existence of the Export Enhancement Program, which purports to offset subsidies and other trade-distorting practices used by other countries, Congress expanded its list of unfair trade practices to include “unjustified trade restrictions or commercial requirements, such as labeling, that affect new technologies, including biotechnology” .
The irony of this new requirement in the same bill mandating country-of-origin labeling will not be lost on U.S. trading partners where consumer distrust of biotechnology, whatever its scientific merits,vertical grow system is an important phenomenon. Challenging labeling of GMOs at the WTO may be more difficult after the passage and implementation of the 2002 COOL regulation.The 2002 Farm Bill roughly doubles annual federal expenditure on environmental programs, including the Environmental Quality Incentive Program , the Conservation Reserve Program and the new Conservation Security Program , from $2 billion to $4 billion, over 1996 levels.Each of these programs benefits producers in California.EQIP provides technical assistance, cost sharing, and incentive payments for producers that undertake qualifying practices that provide environmental benefits. The new CSP provides incentive payments of about $300 million per year for the maintenance or implementation of soil, water, and air quality conservation activities. By paying producers to maintain practices they have previously found to be profitable to undertake, CSP payments are not necessarily intended to internalize environmental externalities but are certainly intended to support agricultural incomes. The continued exemption of environmental payments from support ceilings makes payments for environmental benefits an attractive program for policy makers wishing to subsidize agriculture while meeting WTO obligations. International trading rules have only recently become potential constraints on the form and content of U.S. domestic support to agriculture. The Uruguay Round Agreement on Agriculture introduced a major reform that the U.S. must take into account when setting domestic agriculture policy: a ceiling on so-called trade distorting domestic support for agriculture.
All support for agriculture must be classified as trade distorting, minimally trade distorting, or non-trade distorting, and, while total support levels are unconstrained, trade-distorting support must fall at or below a negotiated cap that declines over time. “Amber box” support is trade-distorting and counts towards countries’ negotiated cap, and “green box” support is deemed not trade-distorting and may be allowed without limits.14 Since supposedly non-distorting “green box” spending is not subject to a cap on support expenditure, identifying support measures that can qualify as “green box” is valuable from the perspective of policymakers wishing to both subsidize agriculture and meet WTO obligations. Green box support includes income support not related to production decisions , environmental and land retirement program payments, domestic food aid, research and extension services, and export promotion programs like the MAP. Over 80 percent of U.S. domestic support for agriculture in 1998 was defined as “green box” by the USDA in 1998 .From 1995 to 1998, U.S. aggregate measure of support to agriculture declined while Green box support grew slightly.While the rules for some of the environmental programs, in particular the CSP, are still being developed, in general, environmental payment programs can be designed for inclusion in the WTO green box, making increased funding for these programs attractive. Domestic support qualifies for the WTO green box if the measure, is paid for by federal government revenues , does not provide price supports, and does not distort trade or has minimal effects on trade. Environmental payments in particular must be limited to the extra cost or loss of income incurred as a result of participation in the program. Some authors have argued that, whatever its merits as a negotiating position, subsidies for agriculture as a means of generating desirable joint outputs or environmental benefits is poor public policy . This is principally because subsidies for agriculture or payments to agricultural producers for environmental services do not directly target the production of the desired nonfood outputs but do so indirectly.
In general, less transparent programs lacking clear environmental goals are unlikely to be cost-effective means of achieving desired environmental outcomes. Bohman et al. give the example of beautiful meadows to illustrate this claim. Meadows are desirable, and one way of creating them is to provide support to dairy farmers; in this case, meadow existence is indirectly supported. A more transparent policy, more closely targeted to meadow creation, would be to compensate people for maintaining meadows. Dairy farmers may or may not be the most efficient providers of the desired good. More generally, other social objectives can be accomplished by broader development initiatives , and environmental externalities can be internalized through targeted and transparent regulations and taxes. The key empirical question, on which further research is needed, is which desirable nonfood outputs are genuinely joint outputs of food production, and which of these would be supplied at a socially inefficient level if food production were not subsidized . Too often, proponents of multi-functionality may overstate the extent to which positive environmental or social externalities are truly joint outputs of food production as an excuse to avoid the politically difficult task of reducing subsidies to agriculture. Environmental goals might be more cost-effectively achieved with policies not intended to subsidize agriculture.California agricultural producers cannot all win from increased trade liberalization. Ending government support for agriculture and lowering tariff barriers will inevitably benefit some more than others. On the whole however, California producers sell high value competitive products, and their major markets, especially Japan and the EU,cannabis plant growing remain protected and difficult to penetrate. Coordinated liberalization that affords California increased access to these markets, even if at the expense of increased competition from China and Mexico, could be an important opportunity. This is all the more true because most of California’s agricultural producers have few subsidies to give up. Even the loss of the export promotion programs would not be very costly; these programs provide little benefit to the industries they support. Because California agricultural producers as a whole stand to gain from global trade liberalization, if the 2002 Farm Bill jeopardizes the possibility of wide ranging reform at the WTO, it may be correct to conclude that the Farm Bill was costly to California farmers. Negotiations are currently stalled; largely over disputes about government support to agriculture in the U.S. and EU. The international response to the 2002 Farm Bill has generally been negative; the Bill has been characterized as politically motivated, and a violation of the spirit, if not the law, of the U.S. commitment to reduce domestic subsidies for agriculture undertaken in the URAA and at the commencement of the Doha round of negotiations.
It does appear that the U.S. will not violate its support cap of $19 billion as a result of the 2002 Farm Bill , although this depends on whether the U.S. commits explicitly to reducing support outlays in the event that a violation appears likely. Yet there is some suggestion that the moral authority of the U.S. as a proponent of liberalization at negotiations has been compromised. Others argue that new provisions of the Farm Bill may represent bargaining chips that can be used in negotiations to encourage other developed countries to reduce their own support for agriculture . The current U.S. negotiating position, announced in July 2002, proposes further tariff reductions, an end to export subsidies and a somewhat tighter cap on amber box domestic support . Despite the negative international reaction to the Farm Bill, there remains a relative consensus, at least in the popular press, that the EU’s CAP is possibly more damaging to developing country agriculture than U.S. farm policy. In addition, as recently as January 2003, the French government reaffirmed its commitment to protect French farms from international competition. It is difficult to predict how this unapologetic stance, in contrast to the continuing claims by U.S. representatives at the WTO that their country is committed to reform, will impact WTO negotiations. The U.S. balancing act between a stated commitment to trade liberalization at the WTO and the 2002 Farm Bill also contrasts with the position of the Cairns Group of countries at the WTO.17 The Cairns Group countries , provide little domestic support for agriculture and are relatively competitive producers expected to benefit from trade liberalization. The Cairns group has called not only for substantial reductions in distorting domestic support and an end to export subsidies, but also a stricter interpretation of the rules for including support measures as green box support. The group’s negotiating proposal states that “since the conclusion of the Uruguay Round the green box has been abused” .18 Certainly, it is plausible that, even if individual programs in a country’s green box claim do not distort trade, the total level of green box support may do so. Given the wide differences between the visions of the EU and the Cairns Group, with the U.S. somewhere in between, trade negotiations will continue to be difficult. 19Government influences agriculture everywhere. This chapter reviews some of the most significant governmental programs that influence California agriculture and highlights similarities with and differences from agricultural policy elsewhere. The chapter describes government programs that support California commodities and attempts to quantify that description. We present new producer support estimates building on the work of Sumner and Hart. Federal government programs and some California state programs support California agriculture. The central legislative basis for federal farm programs is now the Farm Security and Rural Investment Act of 2002 . The law affects program crops and provides a framework for government support of some conservation programs that affect a wider array of commodities. We also discuss the implication of implementation of the Uruguay Round Agreement on Agriculture , which became effective in 1995. Federal budget outlays that support California agriculture are also covered. The most important of the California state policies that we cover is the milk marketing order. However, we also discuss other state marketing orders and state outlays for agricultural support.Other chapters in this book have dealt with environmental and resource policies that are particularly important in California. Labor market policy is also important and the subject of a separate chapter. Here we focus the discussion mainly on farm commodity programs, but other governmental policies that provide support to agriculture are also included in the review. As noted throughout this book, one of the most striking aspects of California agriculture is the breadth of commodities produced. This breadth makes it nearly impossible to deal with each of the policies or programs that may be important for government support for agriculture. We highlight major programs that affect the most important handful of the commodities grown commercially in the state. Government’s overall effect on agriculture includes the impacts of a variety of policies that affect business in general. These policies include taxes on sales, income, excise, and real estate property, as well as provisions of infrastructure, education, and other government services. In addition, regulation of certain other businesses may affect agriculture indirectly. While these general policies pertaining to business may be important, they will be dealt with here only to the extent that agriculture is treated differently from other industries.