The International Herald Tribune | By Elizabeth Becker | April 28, 2004
The White House said Tuesday that it would work with Congress and the U.S. agriculture sector to defend America's agricultural interests after the World Trade Organization ruled that the government's multibillion-dollar subsidies to the U.S. cotton industry violate global trade rules.
The landmark case could compel Washington to cut farm subsidies and force the United States, Europe and other wealthy economies to make greater concessions to poor countries at global trade talks. It was the first successful challenge of a wealthy nation's domestic agricultural subsidies.
"We believe that United States farm programs were designed to be and are fully consistent with our WTO obligations," said the White House spokesman, Scott McClellan, after the WTO ruled in favor of Brazil's complaint that U.S. cotton subsidies lower world prices and price developing nations' goods out of markets.
"We will be defending U.S. agricultural interests in every form we need to," he said, "and have no intention of unilaterally taking steps to disarm when it comes to this."
The European Union, a third party in the case in support of Brazil, said it would have no comment. But the reaction in Washington and in the American cotton industry was swift. Some officials worried in private that the decision, if upheld, could undermine the American farming system.
In public, officials argued that other countries had their own unfair trading practices, like high tariffs and differing scientific standards for agricultural imports. These, they said, should be the subject of negotiations, rather than be adjudicated before the WTO.
Representative Bob Goodlatte, Republican of Virginia, and Representative Charles Stenholm, Democrat of Texas, the senior members of the House agriculture committee, said the decision had to be appealed.
"Changes to countries' agricultural policies should come through the give and take of negotiations, not through decisions that do not appear based on WTO rules," they said in a statement.
But Brazilian officials said they had brought the case against the United States out of frustration, saying that all attempts by poorer nations to negotiate a reduction of the subsidies had failed.
The $300 billion in annual farm subsidies and supports paid by the world's wealthiest nations have been the bane of third world farmers and have blocked an agreement liberalizing global trade for more than a year.
The United Nations, the World Bank and charities like Oxfam have said their elimination or reduction would provide the single biggest improvement possible for the economies of poor countries made up of subsistence farmers.
Brazil was joined in the WTO case as third parties by Argentina, Australia, Benin, Canada, Chad, China, the European Union, India, New Zealand, Pakistan, Paraguay, Taiwan and Venezuela.
A final ruling against the United States could lead to stiff penalties if the Bush administration fails to change its practices. In another case involving imported steel, President George W. Bush chose to remove tariffs rather than face the penalties. The case could also affect the way the United States and other nations dole out subsidies for other farm commodities.
"This could mean problems for all domestic subsidy programs, for corn, wheat, rice, everything that receives big direct payments from the United States Treasury," said Ken Cook, president of the Environmental Working Group, a nonprofit organization that posted a database of subsidies on its Web site that was used by Brazil.
The ruling was not publicly disclosed, and America and Brazil have agreed not to discuss the findings in detail until the final decision is made in June. But at a news conference in Brasilia, top government officials said they were pleased and gratified. "This is a precedent; this is a war that must continue," said Roberto Azevedo, the top legal adviser to Brazil's Foreign Ministry.
Brazil accused the United States of breaking trade rules that limit to $1.6 billion the amount of subsidies it can pay American cotton growers every year. The United States defended the additional financing as domestic subsidies that do no harm to global markets.
But using data from the U.S. Department of Agriculture, Brazil argued that the programs led to increased American cotton production that destroyed Brazil's export markets and undermined farmers. Without the subsidies, Brazil estimated that U.S. cotton production would have fallen 29 percent and that American cotton exports would have dropped 41 percent. That would have led to a rise in international cotton prices of 12.6 percent, which would have helped Brazil's cotton farmers.
Brazil also said that the United States was providing illegal export subsidies to American agribusinesses and manufacturers, who were given $1.7 billion to buy American cotton.
The 15-nation European Union agreed last week to start dismantling protections for hops, olive oil and cotton in 2006. Under the agreement, production-linked payments for cotton will be cut by 60 percent.
American farmers have benefited handsomely from the expansion in world trade, and their exports have exploded over the past few years. One out of every three acres in the United States is now planted for exports. The cotton subsidies have helped make the United States the world's top cotton exporter, with more than 40 percent of the world market.
Poor nations have long contended that this expansion is based unfairly on subsidies that fuel overproduction and drive down world prices. Those prices do not harm big farmers in the United States because they are subsidized.
The United States argued that its subsidies were not linked directly to cotton production and, therefore, did not distort trade. But the ruling Monday night threw that argument into doubt, calling into question the basis of much of the domestic agricultural subsidy system.
The existing subsidies for American cotton farmers -- $10 billion over seven years -- were partly responsible for the breakdown in global trade talks in Cancun, Mexico, in September.
West African countries made cotton a test case of the WTO's commitment to remove barriers to poor nations' ability to trade their farm products. But the United States offered, instead, to study the cotton issue and consider reducing subsidies as well as removing nontariff and other trading barriers on cotton, synthetic fibers, textiles and clothing.
With the United States and Europe vowing to revive those stalled trade talks over the summer, the question of agricultural subsidies and supports, especially for cotton, will be back on the agenda.International Herald Tribune:
