US must reform agricultural subsidy program

“Trade-distorting subsidies are not just unfair, they are illegal”
Gawain Kripke
Oxfam
Published: 31 August 2006

Cotton Subsidies Violate Trade Agreements and Hurt Poor Country Farmers

Brazil's decision today to begin moves toward trade-related retaliation against the US is a direct result of the US failure over the past year to make sufficient reforms to its $5 billion-cotton subsidy program, said international agency Oxfam.

Oxfam said that the US is still paying billions of dollars in trade-distorting subsidies to its cotton farmers, despite having lost a WTO case against Brazil in 2005. The US Congress must now make more meaningful reforms to agricultural subsidies in order to comply with international trade rules and to stop harming developing country farmers.

“Trade-distorting subsidies are not just unfair, they are illegal,” said Gawain Kripke, senior policy advisor for Oxfam’s Make Trade Fair campaign. “With the Farm Bill expiring next year, Congress has the opportunity to reform agriculture policies to ensure that supporting US farmers does not undermine the livelihood of millions of poor farmers in Africa and other developing countries.”

In 2005, the WTO ruled that US cotton subsidies harmed Brazilian cotton farmers and violated WTO rules. It gave the US until September 2005 to reduce its trade distorting subsidies. Today, Brazil has asked for a WTO “compliance panel” to determine whether the US has done enough to comply with the ruling. The panel has 90 days to make its decision.

“It should be little surprise that a new global trade agreement – the Doha Round - has stalled considering that the US has failed to abide by rules of the last agreement,” said Kripke. “Brazil is certainly within its rights to pursue sanctions, especially since the US refused to negotiate serious reforms to US cotton subsidies.”

In June 30, 2005, the US Department of Agriculture partly reformed US export credit programs to comply with the ruling, while the US Congress eliminated Step 2 payments at the beginning of this year, which took effect last month. But these programs represent only 10% of the cotton subsidy program and some of the most trade distorting programs, like the counter cyclical payments were left untouched. The US continues to pay billions of dollars in trade distorting subsidies to the largest of its 25,000 cotton producers. In 2005, US cotton subsidies reached almost $5 billion for a crop that was worth less than $4 billion. These subsidies help to depress world cotton prices, hurting developing country cotton farmers including more than 20 million African farmers who rely on cotton for their livelihood.

“The case against trade distorting US subsidies has been proven again and again but US taxpayers are still doling them out, increasing the wealth of the biggest producers, encouraging overproduction and undermining production in developing countries,” said Kripke. “But even as Brazil is pushing forward on retaliation, some vested interests and their ready and willing friends in Congress, are calling for a Farm Bill extension to protect the gargantuan amount of taxpayer subsides that go overwhelmingly to a small group of large farming operations.”

The suspension of Doha Round negotiations cannot be used as an excuse to delay reforms of the Farm Bill. Oxfam warns that the Brazil cotton case demonstrates how trade distorting US farm programs are vulnerable to challenge. New litigation at the WTO on other commodities, such as rice or corn, may be brought if reforms are not made.

For example, the US has paid over $25 billion to corn farmers over the past five years for a crop that would otherwise have lost $20 billion over the same period. Those subsidies have depressed world prices and caused losses of up to $4 billion for countries like Argentina, Paraguay, and South Africa. Rice farmers in the US receive over a billion dollars a year in subsidies, which equals the total value of the US crop. Major rice exporters such as Guyana, India, Suriname, Thailand, and Uruguay could all have strong claims against the US.

“The WTO mechanism for settling trade disputes is an expensive, complicated option of last resort,” said Kripke. “Poor countries shouldn’t have to seek development through litigation, but with the collapse of the Doha round and the unwillingness of the US to take its international obligations seriously, litigation is one of the few options available.”

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