WorldCity Business Magazine

Watching the clock

by Jeffrey Sparshott

While the United States is mired in trade rule negotiations, foreign countries are looking for subsidy satisfaction in another arena: the courts.

The longer negotiations at the World Trade Organization drag on, the more vulnerable will be U.S. farm programs, estimated worth $21.7 billion in 2006.

Brazil already has brought, and won, a case at the WTO. The South American country challenged subsidies to American cotton farmers, forcing the U.S. Congress to consider paring back a portion of the $3.6 billion in cotton payouts.

Uruguay is considering a case against rice subsidies, and Canada may take on U.S. taxpayer support for corn farmers.

Those are the trade policies on the table as the WTO’s 148 members negotiate new global rules for commerce. The Bush administration is willing to give up some subsidies if other countries open their markets to U.S. goods, but the talks are making scant progress. That means other nations are looking to do in court what they cannot accomplish at the negotiating table.

“Unless the E.U. and the U.S. live up to their promises at the WTO, they will leave developing countries no option but the [court] dock,” says Phil Bloomer, head of Oxfam’s Make Trade Fair campaign. “Poor countries shouldn’t be forced to seek development through the courts.”

Subsidies distort trade by encouraging overproduction, thus lowering world prices. Because of subsidies, lower prices are available on U.S. and E.U. exports, leaving Third World exports unable to compete and farmers in developing nations robbed of income.

Oxfam, an international charity that usually sides with poor countries, late in 2005 outlined a series of U.S. and European Union programs that it alleges violate WTO rules.

For major agricultural players like Brazil, it is a commercial equation, but for the poorest countries, such as Guatemala or Haiti or Ghana, it can mean lost livelihood for subsistence farmers trying to eke out a living.

Brazil so far has been most active in court, mounting and winning the cotton complaint, as well as a case against E.U. sugar subsidies. Oxfam’s report outlines eight E.U. commodities including tomatoes, canned fruits, wine, tobacco and dairy products that are open to further challenge by a host of nations. In addition to corn and rice, Oxfam also says U.S. sorghum subsidies violate global trade rules.

The Bush administration knows it is in trouble, and that the WTO talks are the best chance to head off litigation.

“There are some who argue somehow this is going to turn out and the world will be fine if we don’t get a result from the WTO process. But the reality is, the world isn’t fine today. We are getting challenged on our programs,” says U.S. Agriculture Secretary Mike Johanns.

In fact, before the Brazil case was settled the administration proposed a reduction in farm subsidies including programs like food stamps that don’t distort trade and do not violate WTO rules as a way to save a few billion dollars. It was the first suggestion that the 2002 farm bill, which expires in 2007, was flawed.

Johanns traveled from coast to coast on a “farm bill” tour in 2005, listening to producers. The goal was to create an administration proposal for spending after the existing bill runs out. Johanns has not yet outlined a specific proposal, but it is becoming clear that the administration is seriously rethinking the largesse packed into the 2002 bill. In particular, the agriculture secretary is fond of pointing out that two-thirds of U.S. farmers receive almost no subsidy, and that 90 percent of payments go to just five crops: corn, soybeans, cotton, wheat and rice.

That leaves out Florida’s fruit and vegetable growers, who at their hearings asked for things like assistance to the poor so that more families could buy their goods, as well as help marketing, obtaining better insurance and implementing better land conservation programs.

”[We’re] looking specifically into ways that we can recommend to you and to the Congress on how this industry can and I’ll use the term get a fair share of the distribution of farm benefits in this next farm bill,” said one speaker at a September event in Orlando.

Those types of programs are generally legal under WTO rules, while three of the big five commodity programs may be dismantled at the WTO. At the same time, almost all farmers rely on global trade and could be hurt by continuing attacks.

“I’m not saying the WTO should write our farm bill or it should be written in Geneva or whatever. I’m just saying 27 percent of our ag receipts do come from trade, like it or not. Debate it, discuss it, and cuss it, but the reality is, 27 percent of our receipts come from trade,” Johanns says.

There is certainly going to be some cussing if the WTO talks sputter and other nations look to pick apart U.S. farm programs in court.