Nick Smith, May 2, 2004

The World Trade Organization (WTO) issued a nearly 400 page preliminary decision on April 26 against U.S. farm subsidies. The decision, which is still subject to revision, will be released to the public in June. In my meeting with U.S. Trade Representative (USTR) Robert Zoellick and Agriculture Secretary Ann Veneman April 30, they outlined the substance of the preliminary decision and the next steps for American agriculture. I followed up with Chief USTR Agricultural Negotiator Allen Johnson, and Brazilian Embassy’s First Secretary Marcia Donner.

Brazil challenged domestic subsidies for all U.S. crops, and the "trade distorting" subsidies for cotton. This decision came as a surprise because the WTO agreement reached in 1992 has a so-called "peace clause" that stipulated that programs in effect in 1992 cannot be challenged. Brazil argued that the program for cotton had grown from $2.1 billion a year in 1992 to $4.1 billion now paid to America’s 25,000 cotton farmers, and that such a large expansion is tantamount to a new trade-distorting program outside of the peace clause. While subsidies have grown faster for cotton than other commodities, this opinion could call other American programs into question if it stands. The United States will appeal the decision.

If the decision is upheld, the U.S. will have to reduce cotton subsidies and possibly farm payments for other crops. It will take years before farmers will see the effect. It will probably take a year or more for the decision and any appeals to be finalized. Typically, a country found in violation will have several years to comply after that and will have the opportunity to reduce their subsidies gradually.

In Cancun, Mexico last year, I was a member of our Agriculture Committee delegation and saw those negotiations break down over U.S. and EU subsidies. This ruling will affect the ongoing negotiations. The EU spends more than three times as much on agricultural subsidies as the U.S., and more than six times as much per acre. The decision could end up putting as much pressure on EU subsidy programs as it does on ours. If we reach an agreement in the Doha Round, that could and probably would preempt the decision.

The entire controversy underscores the need for a more aggressive trade negotiation position on behalf of U.S. agriculture. Too often we’ve given ground on agriculture issues in trade negotiations in exchange for advantages in other areas. The results have been unfortunate for our farmers. Despite having much more efficient farms than most of the rest of the world, we have allowed advantages for the EU, Japan and other countries to be written into WTO agreements. At the same time, we end up as a target for the WTO’s first ruling ever on agriculture. We must do better for agriculture in the present Doha Round, and Amb. Zoellick has reassured me that we will.

We will know more when the final decision is released. Ultimately, there can be some advantage in reducing other countries’ subsidies that prevent our farmers from competing on a level playing field. Regardless, because of pressure from poor countries to stop high subsidies and because of our record high budget deficits, farmers can expect significant reductions in the next farm bill.

Congressman Nick Smith, a Republican, represents Michigan's 7th Congressional District, which includes Battle Creek and the counties of Branch, Eaton, Hillsdale, Jackson, Lenawee, Calhoun, and Washtenaw in south-central Michigan.