US farm bill gives one more blow to new round

Dramatic new increases in US agricultural subsidies have thrown the livelihoods of poor-country farmers in jeopardy, exposed the contradiction between Washington’s free-market rhetoric and its policies, and further undermined the credibility of trade-liberalization talks at the WTO.

by Chakravarthi Raghavan

GENEVA: The US farm bill to boost agricultural subsidies to US farmers, which was signed into law by President George W. Bush on 13 May, may not yet have killed the new round of WTO trade negotiations launched in Doha last year, but has made even less credible the claims about a “development agenda” at Doha and the demands under this agenda on developing countries to further liberalize and provide more market access whether in services or in the new issues.

At the Doha Ministerial Conference of the WTO in November last year, the US joined hands with the EC to launch the wide-ranging work programme and negotiations under a single undertaking, and got the support of the Latin American group of countries on the premise that the agenda in the new round of talks will enable the opening up of the markets of the EC and other European countries, Japan and Korea to agricultural exports.

The increased support now provided to US agriculture under the farm bill has to be seen in conjunction with the several collateral agreements and arrangements that the administration has agreed for special mechanisms of consultations (and virtual veto power) for special lobbies - agriculture, textiles and clothing and a range of other sectors - to get trade promotion authority (“fast-track” negotiating authority) for the administration.

The farm bill, which replaces the 1996 “Freedom to Farm” law designed to wean farmers off federal subsidies, will increase US agriculture spending by close to 80% to a total of some $190 billion over the next 10 years. The bill had earlier been approved on 3 May by the US House of Representatives and made it through the Democratic-controlled Senate on 8 May by a vote of 64-35.

The bill has sought to try to make it appear that the boost to farm support is technically within the limits set by the WTO Agreement on Agriculture (AoA) - for example, by asking the US Department of Agriculture, in providing support and subsidies, to remain within the limit of $19.1 billion set in the AoA and the US schedule of commitments.

The bill also increases by 80% the support to farmers via so-called soil conservation programmes that will benefit livestock and fruit and vegetable farms - and these will fall under the “green box” non-actionable subsidies in the AoA.

The increased support appears on first reading to fall foul of the “peace clause” of the AoA (Article 13), which provides that during the implementation period of the AoA (which lasts till the end of 2003), the support and subsidy provided, so long as it conforms to the provisions of the AoA, may not be challenged for violations of the WTO Agreement on Subsidies and Countervailing Measures (SCM).

Under Article 13(b)(iii) of the AoA, this protection afforded by the peace clause is available only if the support provided does not exceed the support level provided during the 1992 marketing year.

This provision could be used by Brazil and other South American members of the Cairns Group of agricultural exporting countries in raising a dispute against the US at the WTO.

However, the WTO members were never required to notify the levels of support they provided in 1992 and there has been resistance on the part of the industrialized countries to doing so. For more than a year now, Argentina has been trying to get the EC to provide the WTO Committee on Agriculture the figures of support provided by the EC in the 1992 marketing year. But the EC has argued it has no such obligation. The US too has not provided such figures.

In a dispute process, the complainant has to establish a prima facie case that the US spending has exceeded the 1992 level and, as a result, the support (whether within the AoA limits or not) may be challenged under the SCM Agreement or other provisions of the WTO agreements and rules.

Whether or not these countries are able to challenge the US successfully, however, the US increase in subsidies and support under the farm bill makes it more difficult to mount an assault on the EC and the latter’s Common Agricultural Policy and farm support in the new WTO round.

Wave of indignation

An IPS report from Montevideo adds: The new farm bill that increases agriculture subsidies by nearly 80% in the US, self-proclaimed champion of free trade, has unleashed a wave of indignation in South America and Europe.

Argentina and Brazil announced that they would seek action in the WTO, while Uruguay, another agricultural exporter and their partner in the Mercosur (Southern Common Market) trade bloc, is still deciding what steps it will take.

According to WTO limits, the US can shell out no more than $19.1 billion a year in federal aid to farmers. The new bill authorizes the Department of Agriculture to keep subsidies within that limit.

The farm bill guarantees US farmers more stable incomes by increasing price supports for grain and cotton producers, reviving subsidies for honey, mohair and wool, and adding new ones for milk, peanuts, lentils and chickpeas. It also boosts spending on soil conservation programmes by 80%, to benefit livestock and fruit and vegetable farms, which have historically received little federal support.

Bush signed the bill into law despite protests from Australia, Canada, the EC and South America’s agricultural producers, whose development prospects largely depend on farm exports. Agricultural commodities account for 52% of Argentina’s exports. That proportion stands at 39% in Bolivia, 33% in Brazil, 15% in Chile, 37% in Colombia, 67% in Ecuador, 24% in Peru and 55% in Uruguay.

A number of governments have complained about the contradiction between Washington’s free-market rhetoric and its policies.

In September, the US had backed a call issued by the Cairns Group for a profound reform of the international trade system and the elimination of all forms of trade-distorting subsidies.

US Trade Representative Robert Zoellick said on 7 May that the farm bill should not throw into question the Bush administration’s intention to eliminate export subsidies and improve market access. Zoellick acknowledged, however, that Washington was not doing all it should for free trade. “We deserve the criticism we’ve received,” he said.

Brazilian Foreign Minister Celso Lafer announced that his country “won’t hesitate to use all possible options of commercial defence to nullify the harmful effects of subsidized products,” and that it would file a complaint against the farm bill in the WTO, due to the harm it will inflict on Brazil’s exports, especially soybeans.

Brasilia estimated the losses it would suffer over the next four years as a result of the farm bill at $9.6 billion, since the new US law will drastically boost US exports and lead to the loss of market share for South American exporters, while driving down commodity prices.

Argentine Agriculture Secretary Rafael Delpech said on 8 May that Buenos Aires “is not going to just sit back doing nothing if our farm revenues plunge as a result of the huge US agricultural subsidies.” The US farm bill would cause “profound damages to international trade,” Delpech said, adding that his country would also take the case before the WTO.

Uruguayan Agriculture Minister Gonzalo Gonzalez said he was still studying the new US law.

But Uruguay’s farmers have complained loudly. “The law makes us very sceptical regarding the negotiations that the United States was carrying out with Uruguay on a free trade agreement,” the vice-president of the Uruguayan Association of Rice Farmers, Hugo Manini Rios, told IPS.

“They can’t just close the door on a country that wants to work in the area where it is able to work. That shows a lack of sensitivity towards emerging economies, whose main chance for development lies in agricultural production. We must not be governed by the law of the strong,” he added.

Manini Rios said the US law would hurt Brazilian soybean and cotton farmers, who may start growing rice instead, which would compete with Uruguay’s production, thus triggering “a vicious circle that will produce a disaster” in the Southern Cone region.

US Nobel Prize winner in Economics, Joseph Stiglitz, described the farm bill as “the perfect illustration of the Bush administration’s hypocrisy on trade liberalization.”

The law has also irritated the US’ closest allies, like Canada, its main partner in the North American Free Trade Agreement (NAFTA). Canadian Minister of Agriculture and Agri-Food Lyle Vanclief said the increased subsidies would deal “a serious blow to US credibility” in the new round of multilateral trade talks in the WTO.

The subsidies could also affect Australia’s competitiveness in Asia, the chief destination for many US farm products.

A number of Republican senators opposed the initiative, arguing that it was too expensive and would mean a step backwards in the policy of trade liberalization. Bush himself had initially rejected the bill out of fear that it would cause overproduction.

But  Bush  has  now changed his tune, with  an   eye  on November’s legislative elections, in which farm states like Arkansas, South Dakota, Georgia, Iowa, Minnesota  and  Missouri   could  hold  the key to overturning the Democratic Party’s one-vote majority in the Senate, and  looking  further  ahead  to  the 2004 elections, where he needs to retain the votes he received in those midwestern and  southern  states  in  2000.  (SUNS5117)                                 

From TWE No. 280 (1-15 May 2002)