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Ethanol’s collision course with the WTO?

Do U.S. biofuels policies violate our international trade obligations?

It’s an interesting question, posed most recently by two academics in a new white paper published by the American Enterprise Institute.

Ethanol_graphic_05-2015Colin A. Carter and K. Aleks Schaefer, both at the University of California, Davis, note that the United States is a party to the 20-year-old World Trade Organization Agreement on Agriculture, which, as they point out, was designed “to curtail farm subsidies and lessen their distortive impact on international trade.”

They also note that U.S. biofuels policies, most notably the Renewable Fuel Standard (RFS), have had the effect of diverting huge amounts of agricultural production to producing ethanol. In 2014, more than 5 billion bushels of corn, amounting to 37 percent of the U.S. harvest and 13 percent of global corn production, were used to make ethanol.

The effect on global food prices has been dramatic. One study Carter and Schaefer cite suggests world corn prices are 30 percent higher than they otherwise would be because of the RFS, while another claims the law increases the price of staple foods more than 20 percent.

The authors express surprise that the Renewable Fuel Standard, with its obvious distortive effect on global food markets, has not yet been the subject of a World Trade Organization dispute.

Meanwhile, it’s worth noting that the environmental protection and national security claims made by supporters of the RFS have not been borne out, as a letter sent last week to U.S. senators from a coalition of non-governmental organizations makes clear. It’s therefore hard to see how such claims could be considered mitigating circumstances if a dispute over the RFS were taken before the WTO’s Dispute Settlement Body.

Whether a WTO challenge to U.S. ethanol mandates would succeed remains to be seen, of course.

Regardless of whether Washington’s biofuels policies violate the technical letter of the law, little doubt exists they are not in keeping with the spirit of the WTO and the international effort to reduce market distortions and to strengthen food security around the world.



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