Uncle Sam got slapped on the side of the head last month when a World Trade
Organization (WTO) panel ruled that multibillion-dollar subsidies by the US
to domestic cotton producers violated international trade rules.
"This is big stuff," says Clyde Prestowitz, president of the Economic
Strategy Institute in Washington.
That's because the WTO ruling might nudge forward reform of the world's
costly farm subsidy programs.
The ruling - an interim one - found that American subsidies encouraged US
cotton output, raised exports, depressed world cotton prices, and thus hurt
Brazilian cotton growers.
To trade experts, the decision by the Geneva-based organization is
important for three reasons:
* It pressures industrial nations to trim their farm subsidies.
* It may encourage the US to move forward in the Doha Round of world trade
negotiations. A fight between the rich North and poor South over farm
issues was a key reason a WTO meeting in Cancun, Mexico, last September
failed to make progress.
* It may require the reopening of the US 2002 Farm Bill.
Rich nations "should find a way of helping their own farmers without
hurting farmers in poor countries," says Gawain Kripke, a policy adviser in
Washington to Oxfam America.
The cost to consumers and taxpayers in rich nations is enormous - nearly $
1 billion a day, estimates the Organization for Economic Cooperation and
Development (OECD) in Paris. Taxpayers shell out roughly a third of that
sum in subsidies to farmers. The rest comes from higher prices that these
programs force on consumers.
For example: one way to keep food prices high at home is to keep foreign
food from coming in. So, not surprisingly, the average farm-product tariff
in the OECD (essentially, the world's rich nations) is extremely high - 116
percent on dairy products, 78 percent on grains, 82 percent for livestock,
and 64 percent for sugar and sweeteners.
Worse, the rich nations spend huge amounts to subsidize farm exports. The
European Union, by far the worst offender in this regard, has been spending
up to $ 6 billion per year.
US cotton is another case. America's share of world cotton exports is
expected to reach 42 percent this marketing year, up from 24 percent in
1996. In 2002, cotton was exported from the US at 61 percent below its cost
of production, the Institute for Agriculture and Trade Policy (IATP) found.
That has hit cotton-dependent West African nations hard, including Benin,
Mali, Burkina Faso, Chad, and Togo.
By hurting the farm exports of developing countries, agricultural
protectionism probably more than cancels out the positive effects of the $
60 billion or so that rich nations hand out in foreign aid each year.
But there's a catch. Whatever economic case one can make against farm
subsidies, there's a compelling political argument to continue them.
Farmers and agriculture-related lobbies are powerful and well-organized.
The WTO's cotton ruling, for example, didn't go down well in Washington. A
US trade negotiator promised an appeal, probably delaying a final WTO
decision until the end of the year. Two key congressmen, Rep. Bob Goolattee
(R), chairman of the House Agricultural Committee, and Rep. Charlie
Stenholm, ranking Democrat of the committee, complained in a joint
statement that "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." In an election year, politicians try to
avoid resolving trade issues that can annoy constituents. In this case,
there are 25,000 US cotton farmers, many in Mr. Goolattee's Texas.
The issues won't go away, however. Another WTO panel is expected to decide
soon on a Brazilian complaint about the European Union's protection of its
sugar-beet farmers. This could light a fire under the EU. The WTO would
like to see a "framework agreement" on farm issues worked out by the end of
June, with actual negotiations starting early next year.
The Doha Round is supposed to fully incorporate agricultural products into
the world system governing international trade. But successful negotiation
of a global trade round takes years. Mr. Prestowitz isn't sure the Doha
Round will end even in the next presidential term.
Surprisingly, even some US farmers who receive the subsidies grumble.
That's because most of the money goes to big farms, usually run by
corporations. Between 1995 and 2002, for example, a total of $ 1.68 billion
was paid to 285 cotton exporters and millers under one part of the cotton
program, according to a study by the Environmental Working Group, using
data obtained under the Freedom of Information Act. A handful of
corporations got an average of $ 80 million apiece. Allenberg Cotton Co. of
Cordova, Tenn., was paid $ 106.9 million.
Prestowitz criticizes the administration for talking a free-trade line but
acting in a protectionist manner by appealing the cotton case. The cotton
decision, says Dale Hathaway, an expert with the National Center for Food
and Agriculture in Washington, "will push in the direction of moving ahead
with subsidy reform."Christian Science Monitor:
