Effect of lower prices felt in developing world
Saturday, 3 November 2007
Alan Bealtie
THE effects of the farm bill are felt well beyond the borders of the US, largely in lower prices for subsidised basic commodities such as rice, corn and cotton that might benefit consumers but undercut farmers in other countries, particularly in the developing world.
But the drafters of the farm bill say they are not working with the US's international obligations -- particularly those to the troubled "Doha round" of global trade talks -- primarily in mind.
The precise mapping from the proposed version of the farm bill to the US's current offer to restrict farm subsidies in Doha is not clear cut, not least because there are disagreements about how certain subsidies should be classified under World Trade Organisation(WTO) rules. But JR Penn, former deputy secretary of agriculture and now chief economist at John Deere, the farm machinery manufacturer, says: "If there is a deal in Doha they will have to restructure the farm bill as passed by the House. The programmes just don't fit inside the subsidy limits that are being talked about."
In the Doha talks the US has offered to restrict the most distorting forms of subsidy to a ceiling of $7.6bn (euro5.4bn, £3.8bn) a year. Early this month, releasing estimates of its actual farm subsidy payouts from 2002-2005, the US argued it would have breached that ceiling in seven of the past eight years.
Mr Penn says plausible estimates for the proposed farm bill are that plans for the so-called "marketing loan programme", a system of support prices, could set a ceiling of $7.0bn-$8.0bn, and separate dairy and sugar programmes about $5.0bn -- leaving a total well above the $7.6bn ceiling. Counter-cyclical payments to compensate farmers for falling prices would likely cost another $7.0bn-$8.0bn, above a separate $4.8bn ceiling for less-distorting subsidies that the US has offered.
Susan Schwab, US trade representative, says that the farm bill can be rewritten later if necessary. "This farm bill is not our Doha round offer," she says. "It never will be. Our negotiating partners need to understand that."
But most officials and lobbyists think offering US farmers more now makes it harder to get a deal. Mary Kay Thatcher, farm policy specialist at the American Farm Bureau, says: "If you were writing a farm bill to help advance the Doha round, it wouldn't look like this. But when you have Doha stalling as it has been, there is very little enthusiasm in Congress for going out of their way to help it. Congress has pretty much discounted Doha."
In theory the US farm programmes could be unpicked by a wave of litigation in the WTO, just as reform was forced on its cotton programme in a case brought by Brazil. Canada has already brought a case against US corn subsidies and Brazil is threatening actions over rice, wheat and ethanol. But as Scott Andersen -- who, as a partner at the law firm Sidley Austin in Geneva, led Brazil's cotton case -- told a seminar recently, prices of commodities such as rice are so high at the moment that it could be hard for affected countries to show their farmers have actually been hurt.
In such a case the trade sanctions authorised by the WTO for breaking its rules could be nugatory. As one US trade official says: "You might have an interesting case where, even if they won, they would not have much of a remedy."
FT Syndication Service
THE effects of the farm bill are felt well beyond the borders of the US, largely in lower prices for subsidised basic commodities such as rice, corn and cotton that might benefit consumers but undercut farmers in other countries, particularly in the developing world.
But the drafters of the farm bill say they are not working with the US's international obligations -- particularly those to the troubled "Doha round" of global trade talks -- primarily in mind.
The precise mapping from the proposed version of the farm bill to the US's current offer to restrict farm subsidies in Doha is not clear cut, not least because there are disagreements about how certain subsidies should be classified under World Trade Organisation(WTO) rules. But JR Penn, former deputy secretary of agriculture and now chief economist at John Deere, the farm machinery manufacturer, says: "If there is a deal in Doha they will have to restructure the farm bill as passed by the House. The programmes just don't fit inside the subsidy limits that are being talked about."
In the Doha talks the US has offered to restrict the most distorting forms of subsidy to a ceiling of $7.6bn (euro5.4bn, £3.8bn) a year. Early this month, releasing estimates of its actual farm subsidy payouts from 2002-2005, the US argued it would have breached that ceiling in seven of the past eight years.
Mr Penn says plausible estimates for the proposed farm bill are that plans for the so-called "marketing loan programme", a system of support prices, could set a ceiling of $7.0bn-$8.0bn, and separate dairy and sugar programmes about $5.0bn -- leaving a total well above the $7.6bn ceiling. Counter-cyclical payments to compensate farmers for falling prices would likely cost another $7.0bn-$8.0bn, above a separate $4.8bn ceiling for less-distorting subsidies that the US has offered.
Susan Schwab, US trade representative, says that the farm bill can be rewritten later if necessary. "This farm bill is not our Doha round offer," she says. "It never will be. Our negotiating partners need to understand that."
But most officials and lobbyists think offering US farmers more now makes it harder to get a deal. Mary Kay Thatcher, farm policy specialist at the American Farm Bureau, says: "If you were writing a farm bill to help advance the Doha round, it wouldn't look like this. But when you have Doha stalling as it has been, there is very little enthusiasm in Congress for going out of their way to help it. Congress has pretty much discounted Doha."
In theory the US farm programmes could be unpicked by a wave of litigation in the WTO, just as reform was forced on its cotton programme in a case brought by Brazil. Canada has already brought a case against US corn subsidies and Brazil is threatening actions over rice, wheat and ethanol. But as Scott Andersen -- who, as a partner at the law firm Sidley Austin in Geneva, led Brazil's cotton case -- told a seminar recently, prices of commodities such as rice are so high at the moment that it could be hard for affected countries to show their farmers have actually been hurt.
In such a case the trade sanctions authorised by the WTO for breaking its rules could be nugatory. As one US trade official says: "You might have an interesting case where, even if they won, they would not have much of a remedy."
FT Syndication Service