Tuesday, April 27, 2004
WTO issues landmark decision denouncing US cotton subsidies
Associated Press Sao Paulo (Brazil), April 27
In a landmark decision against US subsidies for cotton farmers, the World Trade Organization (WTO) has sided with a complaint from Brazil claiming the payments unfairly boost US production and exports while lowering world cotton prices.
Details of the decision issued on Monday were not made public, but top Brazilian trade officials said they were pleased with a long-awaited report by three WTO experts. US trade officials plan an appeal if the report isn't changed.
Brazil, the world's fifth-largest cotton producer, says the United States has managed to keep its spot as the world's second-largest producer only because the US government paid $12.47 billion in subsidies to farmers between August 1999 and July 2003. China is the world's top producer.
The ruling is the first time that a country has been challenged over its domestic agricultural subsidies, and the first case that looks at the effect of export subsidies on agricultural products. And it is particularly important for Brazil, which has led Latin American efforts calling for the elimination of US crop subsidies that make it difficult for poor farmers in the hemisphere to compete with their richer American counterparts.
If it stands, the decision could have far-reaching repercussions for American farmers. Tamping down subsidies for cotton would mean support for other US crops could be vulnerable to trade challenges.
US farm support payments have been blamed for giving industrialized nations an unfair trade advantage and for stifling competition from developing countries. These support payments have long been a point of contention in trade negotiations and disagreement over them led to the collapse of world trade talks last year in Cancun, Mexico.
Clodoaldo Hugueney, a top economic official with Brazil's Foreign Ministry, said the report showed that the 147-nation WTO agrees with some of Brazil's key arguments against the cotton subsidies. "We're satisfied with the conclusion," he told reporters in the capital of Brasilia.
The United States, however, will appeal if the final version isn't changed when it is issued in June, said a US trade official in Washington, who spoke on condition of anonymity. "We believe US farm programs were designed to be, and are, fully consistent with our WTO obligations," the official said. "We have serious concerns with aspects of the panel report." Cotton production in Brazil has doubled over the last decade as South America's largest country turned itself from a cotton importer into a cotton exporter.
Brazilian officials say the country's cotton farmers could grow much more, but can't compete with American farmers because of lavish US cotton subsidies approved by Congress that breach international rules.
The United States insists that its level of subsidies is within the limit allowed by the WTO.
Neil Harl, an Iowa State University economist who sat on a panel appointed by the US Congress to examine limits on subsidies, said he had warned the commission last year that the United States likely would be forced to limit payments at some point.
"Eventually either the US budget or WTO will solve this problem, if we do not," he said he told the panel as it considered whether to recommend that Congress shrink the subsidy program. In the end, the panel, which included members of the farm industry, suggested that the US Department of Agriculture should close loopholes so that farmers are blocked from getting excessive payments.
Harl said that despite the WTO's latest decision, it could take years before Congress acts. "Until there are penalties, then Congress is likely not to do anything," he said.
US President George W Bush signed a $190 billion farm bill in 2002 that covers farmers until 2007. Under the program, an individual farm or farmer can get up to $360,000 on loans and subsidies.
Brazil first complained about US cotton subsidies in September 2002, and the panel was set up in March 2003. Three trade law experts from Poland, Chile and Australia reviewed the case. Brazil alleged cotton prices in the four-year period from 1999 to 1993 received by US cotton producers were on average 77 per cent below production costs. But US production continued to rise.
The United States insists that its payments to farmers are within permitted levels, claiming many are not subsidies as defined by the WTO and should not be included in the calculations. Many other countries are closely following the case and its outcome to determine whether to bring their own challenges against substantial subsidies paid to farmers in the United States and the European Union.
African cotton producers, for example say produce their crops much more cheaply than their competitors but complain that subsidies in the United States, the European Union and China hurt production and cause low prices because of a glut of subsidized cotton. The case could also have an impact on the current round of trade talks for a Free Trade Area of the America stretching from Alaska to Argentina.
Negotiations are bogged down in disagreement over agricultural goods and impact of subsidies on the international market in farm goods.
While Brazil has insisted the subsidies must be reduced to create the 34-nation trade bloc which would be the largest in the world, the United States has steadfastly maintained the WTO is the correct forum for agricultural issues.
© Hindustan Times Ltd. 2004.