FarmPolicy.com

WTO Cotton Ruling Anticipated

Jagdish Bhagwati and Arvind Panagariya opined in Saturday’s Wall Street Journal that, “The WTO talks between the G-4 nations — Brazil, India, the United States and the European Union — have collapsed yet again. This time, the only surprising twist was that U.S. Trade Representative Susan Schwab put the blame primarily on India and secondarily on Brazil…In truth, the breakdown of the Doha Round in Potsdam, Germany, had less to do with India and Brazil’s protectionism than with the U.S.’s paralyzing inability to respond to long-standing, world-wide demands for the reduction of its (and the EU’s) agricultural subsidies. Until we confront this central fact, success will remain beyond our grasp.”

I. WTO / Doha
II. EU Farm Policy
III. Farm Bill

I. WTO / Doha

A Reuters news article from Friday (via DTN, link requires subscription) reported that, “Domestic producers are waiting for a trade court ruling this month amid charges by anti-poverty groups that U.S. subsidies bankrupt farmers in developing countries by distorting market prices.”

The article noted that, “But a World Trade Organization panel is expected to decide by July 20 whether the United States, which accounts for 40 percent of world cotton exports, has done enough to reform government cotton subsidies after an earlier ruling found the supports depress prices for foreign producers.”

More specifically, the article pointed out that, “At issue now are two remaining programs: marketing loans and counter-cyclical payments, price supports that are a bulwark for crops from cotton to corn to soybeans.

“Gary Adams, an economist with the National Cotton Council, said last month that the U.S. industry has been ‘worried throughout the process,’ but believes the United States has done enough to comply with the WTO’s earlier ruling.

“Dan Sumner, a University of California-Davis academic who provided advice to Brazil in its case, believes U.S. subsidies, largely the two price-support programs under scrutiny, depress world prices by 10 to 15 percent.”

With respect to potential consequences of the anticipated WTO ruling on the case, the Reuters article explained that, “The decision later this month will be an interim ruling, which may not be made public until the two countries have a chance to comment.

“But if the panel’s final decision supports Brazil, and the United States takes no action, Brazil will be authorized to apply trade sanctions.”

Meanwhile, a separate Reuters news item from Friday indicated that, “Indian Commerce Minister Kamal Nath said on Friday he believed it was ‘still possible’ to clinch a World Trade Organisation (WTO) accord in 2007 despite recent setbacks.

“‘Of course we can do it. We are still committed to the end of the year. It is still possible,’ he told reporters in Geneva after speaking to Brazilian Foreign Minister Celso Amorim, who is participating in developing-nation meetings at WTO headquarters.

“Nath said he would meet European Trade Commissioner Peter Mandelson in London on Saturday ‘to try to move this forward’, referring to the Doha round of talks, which were launched in the Qatari capital in 2001 with the aim of boosting global trade flows and helping poorer nations export more.”

In editorial perspective regarding the Doha round, Jagdish Bhagwati and Arvind Panagariya opined in Saturday’s Wall Street Journal that, “The WTO talks between the G-4 nations — Brazil, India, the United States and the European Union — have collapsed yet again. This time, the only surprising twist was that U.S. Trade Representative Susan Schwab put the blame primarily on India and secondarily on Brazil.

“In truth, the breakdown of the Doha Round in Potsdam, Germany, had less to do with India and Brazil’s protectionism than with the U.S.’s paralyzing inability to respond to long-standing, world-wide demands for the reduction of its (and the EU’s) agricultural subsidies. Until we confront this central fact, success will remain beyond our grasp.”

The authors stated that, “With its strong farm lobby, the U.S. could not permit meaningful reduction in its substantial subsidies simply in exchange for concessions in manufactures and services; it sought ‘sectoral reciprocity’ in agriculture itself. It’s not hard to see why the situation was unacceptable to India and Brazil. At Potsdam, Ms. Schwab refused to offer any real concessions on U.S. agricultural subsidies, while at the same time insisting that the poorer countries offer more. Even as the G-4 talks were in progress at Potsdam late last month, the agriculture subcommittee of the U.S. House of Representatives voted to retain the subsidy portion of the 2002 Farm Bill for another five years.

“Ms. Schwab cannot ignore that it is politically impossible for a democratic, developing country such as India to persuade the public that its farmers, often at the margin of subsistence, should agree to competition from rich-country farmers who enjoy heavy subsidies. Furthermore, contrary to what U.S. officials might like to believe, India is hardly a protectionist spoiler that refuses to make concessions on manufactures and services.”

Near the editorial’s conclusion, the authors noted that, “Instead of scapegoating and bluster, Ms. Schwab can choose options to help push Doha forward. Her problem is that currently there is no political support from either party in the U.S. for reducing agricultural subsidies. The Democrats are salivating to take the White House; the Republicans are terrified that they will lose it. Neither will risk the farm belt’s vote.

“There is one politically viable solution: Take the estimated $20 billion worth of these production-distorting subsidies and turn, for example, two-thirds into nondistorting ones — unlinked from production levels and given instead, for instance, to farmers for environmental purposes, today’s popular issue. That worked in far more protectionist Europe; let us try it here.”

II. EU Farm Policy

In more detail regarding EU farm policy, Philip Brasher reported in today’s Des Moines Register that, “So far, Europe’s overhaul of farm policy is paying off well for growers like Francois-Xavier Letang, who tends about 2,700 acres of wheat, potatoes, sugar beets and other crops.

“He’s collecting more than $300,000 in fixed annual payments each year no matter what he grows or how high commodity prices go, so he’s paying more attention to the markets in deciding what to plant.”

The article explained that, “Letang, who farms in the rolling Seine River basin near the medieval town of Provins, must rotate his crops every year. He can’t plant the same crop on the same acreage each year the way many Iowa farmers now do with corn. Another rule prevents him from leaving the ground bare after harvest. He must plant a cover crop to protect against erosion.

“If Letang violates those or other rules, he risks losing at least a portion of his subsidies.

“Welcome to Freedom to Farm, European style.”

After highlighting more details regarding changes in the 1996 Farm Bill that were implemented in 2002, Mr. Brasher stated that, “This year, Congress could take another step back. The chairman of the Senate Agriculture Committee, Iowa Democrat Tom Harkin, wants to cut the fixed payments to bolster the countercyclical subsidies and fund other programs.

“Harkin says the direct payments drive up land values and increase production costs by raising land rents.

“Direct payments ‘were never intended to be a permanent part of our agricultural program,’ Harkin has said.

“European Union officials say they copied their policy from the United States and plan to stick with it.

“‘We’re still in Freedom to Farm and we want to continue to be in Freedom to Farm,’ said Lars Hoelgaard, the European Union’s deputy director general for agriculture.”

Near the conclusion of his article, Mr. Brasher reported that, “The United States has far fewer farmers – 2 million compared with the EU’s 13 million – and has traditionally subsidized a smaller range of crops, mainly grains and cotton.

“European farmers view the U.S. policy of keeping subsidies tied to crop prices as unfair at a time when the EU is adopting the Freedom to Farm approach to payments and requiring growers to meet environmental and animal-welfare rules American farmers don’t face.”

(Note: Mr. Brasher traveled to Poland, Belgium, the Netherlands and France as part of a study tour organized by the German Marshall Fund of the United States. The nonpartisan Washington-based organization promotes understanding and cooperation between the United States and Europe. For more information on the study tour see these FarmPolicy.com updates- pictures and audio from the tour are included).

Recall that the EU Common Agricultural Policy (CAP) also includes a mandatory set-aside program that now includes about 8 percent of arable land in the EU. This program was set up in the 1990s when the EU was experiencing excess grain production.

According to a recent Dow Jones news article, some EU farm groups have been calling for a change in this policy as world grain stocks decrease and the prices of some commodities continues to climb.

For a more complete look at the EU CAP set-aside issue, see this FarmPolicy.com update from last week.

In other EU farm policy developments, Jack Thurston, who was quoted in Mr. Brasher’s Des Moines Register article, posted an update last week at the CAP Health Check Blog, which stated that, “Speaking at a meeting of the Parliamentary Agriculture Committee in Nicosia, Cyprus on 29 June, Agriculture Commissioner laid out her current thinking on the future of the CAP, in particular the changes she will be proposing later this year for the CAP Health Check.

“‘We will propose further moves towards more decoupling in the Member States which do not apply the Single Area Payments Scheme (SAPS). You can probably expect us to propose a higher level of compulsory modulation, to give us the funding that we need for our ambitious rural development policy. Furthermore, our work on cross-compliance will continue, following our report of March this year. A particular topic for the Health Check will be the scope of cross-compliance…. we will of course examine our various market instruments – intervention, quotas and so on. In particular, I have given a clear signal that we should not renew the milk quota system when it expires in 2015. Therefore, we need to think carefully about transitional measures to help give the sector a soft landing,’” the Agriculture Commissioner said.

And regarding EU perspective on renewable fuels, an Associated Press article from Friday reported that, “The European Union plans to give money to help developing countries grow energy crops rich nations want to use for transport fuel, the E.U. aid chief said Friday.

“Europe and the U.S. plan to use more low-carbon emission biofuels to reduce their dependence on imported oil and cut their contribution to global warming.

“The E.U. will allocate part of a EUR220 million foreign aid budget to offer countries investment and technical skills so they can jump on the biofuel bandwagon, E.U. Development Commissioner Louis Michel said. Officials were unable to give a precise figure at this time.

“He said the E.U. was studying how sugar producers from former European colonies in Africa, the Caribbean and the Pacific, or ACP, could turn to ethanol production while other regions could grow oilseed crops.”

III. Farm Bill

On Friday, the House Ag Committee issued a publication notice, which stated that, “The Chairman’s Markup documents for the 2007 Farm Bill were released today. They are available online at:
http://agriculture.house.gov/inside/2007FarmBill.html.

“The documents have been prepared in anticipation of the business meeting that will be held by the House Agriculture Committee starting on July 17 to consider the 2007 Farm Bill.

“These documents are intended for use as base text for the markup process and are subject to change prior to the relevant meeting.”

Prior to the Farm Bill draft(s) being considered by the House Ag Committee on July 17, 18 and 19, issues regarding Farm Bill timing are also appearing in the news.

Associated Press writer Henry C. Jackson reported on Thursday that, “U.S. Agriculture Secretary Mike Johanns said he is content with the pace of negotiations for the new farm bill, even if the bill hasn’t been sorted out as quickly as some would like.

“Many in Washington would like legislation completed this month, but Johanns cautioned that it might not be done until fall.

“‘No one is going to rush to the point of doing poor policy,’ he said Tuesday. ‘If we need time, we’ll take the time. A lot of work has been done on this.’

“Johanns’ comments came after criticism this week by some _ including Sen. John Thune, R-S.D. _ who have said the pace of negotiations might force Congress to renew the old farm bill, and possibly delay new legislation for two years because of the 2008 presidential election.

“Johanns said he doesn’t see that happening.”

And Associated Press writer Mary Clare Jalonick reported yesterday that, “Momentum is building in Congress for overhauling farm subsidies because of tight budgets and increasing enthusiasm for renewable fuels and conservation programs.

“Major change will not come easily. The current farm bill, which expires in September, provides payments and other help to supplement farmers’ incomes, support crop prices and manage supplies. Any cuts in subsidies will face resistance.

“President Bush sought similar reductions upon taking office. But he made little headway in the latest farm bill, which Congress wrote in 2002.

“Since then, Democrats have regained control of the House and energy prices have skyrocketed, leading to more calls for ethanol, which is derived from plants. Record prices for corn and other crops have some people questioning the need for subsidies.”

The AP article also noted a similar theme that was brought up in Mr. Brasher’s Des Moines Register article from today: “In an effort to cut back, some lawmakers want to reduce or eliminate direct payments, subsidies that are not based on current crop production or prices. The chairman of the Senate Agriculture Committee, Democratic Sen. Tom Harkin of Iowa, has supported this approach and encouraged spending more money on conservation programs.”

Keith Good

 Email This Post Posted by Keith Good • July, 8, 2007 • 6:10 am