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Texas Agriculture Archive

May 7, 2004

WTO ruling targets
U.S. cotton subsidies


By Lana Robinson
Field Editor

In late April, the World Trade Organization (WTO) ruled in Brazil's favor with respect to that country's contention that the subsidies paid to American cotton farmers violate international trade rules. Although it was a preliminary ruling, a final ruling against the United States could lead to stiff penalties if it fails to change its practices.

The Brazilians 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. Brazil also accused the U. S. of providing illegal export subsidies to American agribusinesses and manufacturers, who were given $1.7 billion to buy American cotton that is already subsidized.

"They are challenging the counter-cyclical program, and export subsidies that benefit cotton directly," said George Caldwell, Texas Farm Bureau associate director of Commodity and Regulatory Activities. "They say that gives the U.S. an undue advantage. Under this preliminary ruling, the WTO dispute settlement panel has said they have a valid point. It's a classified, confidential document, so we don't know specifically what it says. Overall, the WTO did rule favorable towards their complaint."

Brazil was joined in the WTO case as third parties by Argentina, Australia, Benin, Canada, Chad, China, the European Community, India, New Zealand, Pakistan, Paraguay, Taiwan and Venezuela.

The United States argued in its submission that its subsidies were not linked directly to the production of cotton and, therefore, did not distort trade. Officials maintain that U.S. farm programs were designed to be and are fully consistent with the nation's WTO obligations and vow to appeal if the final decision in June goes against them.

Citing the example of the process when the U.S. challenged Canada's dumping of wheat, Caldwell said, "One of the advantages of complying with the agreement is that it provides a complaint process and a chance to work out and negotiate trade problems through their structure. In this instance, I expect it will be tied up for several months to come, maybe even years before a final ruling.

However, nearly all preliminary opinions are eventually upheld by the WTO.

"It could be far reaching. It's aimed at cotton, but if it is upheld, the parts of the complaint that say it is affecting trade could impact the complete farm program. So many of the other commodities have similar counter-cyclical payments," Caldwell noted.

In a joint statement, House Agriculture Committee Chairman Bob Goodlatte and Ranking Member Charlie Stenholm, said they supported the Bush Administration's decision to appeal, but emphasized certain principles, stated as follows:

"Under the WTO rules, countries are permitted to support their farmers in ways that are the least trade distorting. WTO rules govern the amounts countries may provide their farmers. The United States abides by the WTO rules and is, and has been, in accord with its rules on agriculture.

"World trade in agriculture is highly competitive and barriers, such as high tariffs, are rampant. Countries regularly deny access for U.S. agricultural products for many reasons, including non-scientific barriers for U.S. beef, grains and fruits and vegetables. We have said repeatedly that gaining access for U.S. agricultural products is the most important objective of the ongoing WTO negotiations. Our agricultural tariffs are low; the average is 12 percent, while worldwide agricultural tariffs average 62 percent.

"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."