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F I S C A L I M P A C T R E P O R T

SPONSOR Foley

DATE TYPED 3/8/05

HM 42

SHORT TITLE Neutral Federal Foreign Exchange Policy

SB

ANALYST Rosen

APPROPRIATION

Appropriation Contained Estimated Additional Impact Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

NFI

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

Department of Agriculture (DA)

Economic Development Department (EDD)

No Responses Received From

Taxation and Revenue Department (TRD)

State Investment Council (SIC)

SUMMARY

Synopsis of Bill

House Memorial 42 requests the U.S. Congress and the President to set foreign exchange policy

which will be neutral and without favoritism toward any economic, geographic, or business sec-

tor.

Significant Issues

According to EDD, this memorial states that agricultural producers in the United States are un-

competitive in both domestic and foreign trade due to an “artificially strong dollar” which hurt

parts of the financial services industry. U.S. taxpayers are currently subsidizing foreign produc-

ers of agricultural products who directly compete with U.S. producers. The World Bank is util-

ized as the primary method of transferring subsidies from the U.S. to foreign recipients through

reconstruction and development loans. EDD reports New Mexico agricultural producers are suf-

fering financial consequences from these foreign subsidies as a great many of the products are

produced in this state (chile peppers, nuts, beef, poultry, pork, lamb, other meats, roses, fruit,

vegetables, wool, cotton, corn, soybeans, and wheat.

House Memorial 42-- Page 2

EDD indicates changing the United State’s foreign policy to provide more equal status to our

agricultural producers with their foreign competitors should serve to enhance the financial condi-

tion of our businesses. EDD believes the dollar’s decline against foreign currencies since 2002

and the increasing U.S. foreign agricultural subsidies has had a very negative financial effect on

U.S. producers.

OTHER SUBSTANTIVE ISSUES

EDD reports a change in foreign policy may affect other international relations projects.

DA reports the United States is a member of the World Trade Organization (WTO) and the WTO

is the only global international organization dealing with the rules of trade between nations. At

its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading na-

tions and ratified in their parliaments. The goal is to help producers of goods and services, ex-

porters, and importers conduct their business. The United States, through the Office of the

United States Trade Representative and United States Department of Agriculture continue par-

ticipation in the negotiations and current negotiation of the Doha Development Agenda which

began in Doha, Qatar in 2001. The United States has taken a stance that American export tariffs

be removed to level the playing field and allow other governments to live up to international

commitments on domestic subsidies.

ALTERNATIVES

According to EDD, alternatives include providing subsidies to agricultural producers in the

United States who may be in direct competition with foreign producers currently receiving

World Bank subsidies. Additional alternatives may include various forms of financial remunera-

tion to compensate for the World Bank subsidies and the decline of the dollar against foreign

currencies (tax abatements, credits, etc.).

WHAT WILL BE THE CONSEQUENCES OF NOT ENACTING THIS BILL.

EDD indicates that without a change in the U.S. foreign policy for subsidizing agricultural prod-

ucts producers in this country will continue to lose competitive trade advantages.

JR/lg