US Farm Bill is a "setback" for Doha negotiations

23 August, 2007

The United States' 2007 Farm Bill, which has been passed by the House of Representatives and will next be considered by the Senate, is likely to be a stumbling block in the negotiations to finalise the "modalities" in agriculture, when the World Trade Organisation resumes its work in early September.

Australia and India are two countries which have already publicly named the Farm Bill as an obstacle to a successful outcome of the Doha talks.

Speaking in Canberra last week, Australia's Trade Minister Mr. Warren Truss said that the bill is a "setback" to efforts to reach a new trade deal.

"The US farm bill, in my view, was a setback," he told Reuters news agency in an interview on 8 August. "The proposals currently in the Congress entrench subsidies at very high levels and that sends the wrong sort of signals to the rest of the world about the US willingness to make concessions."

According to the Reuters report, Australian Minister Truss said that the US farm bill was a long way from what is in the agriculture proposals.

He said that it was not enough for the US and European countries to sign up to big cuts in farm subsidies and tariffs if they created "a second wall of defense" by rewriting rules on farm support and by exempting sensitive goods from a deal.

A few days earlier, a senior Indian trade official in New Delhi named the US farm bill as one of three major factors that would decide if the Doha Round would be concluded. The other two factors are the expiry of the US fast track authority and the need to change the draft text on non-agricultural market access (NAMA).

Dr. Rahul Khullar, Additional Secretary of India's Commerce Ministry, said that the US Farm Bill 2007 would erode the position of the United States' trade negotiators in the Doha Round negotiations, because the legislation does not provide any scope for reducing its agricultural subsidies.

Dr. Khullar added that the US Farm Bill in its current form does not give WTO member countries the confidence that the US would be in a position to deliver what they may promise in the negotiations.

He was speaking at a forum organized on 3 August by the Confederation of Indian Industry (CII), and his remarks were published on the CII's website.

On the other two factors, Dr. Khullar said that there is need for a "fast track authority" for the US President in order for the Doha Round to conclude, but there was reluctance in the Congress to give him this authority; and the contents of the draft NAMA text (issued by the chair of the NAMA negotiating group Don Stephenson) had to be changed, keeping in mind the development aspect of the Round and the aspiration of developing countries.

The US Farm Bill was approved by the House of Representatives on 27 July, a few hours after the WTO General Council in Geneva had concluded its meeting, marking the start of the WTO's summer break. Delegations at the WTO have thus so far been unable to comment on the bill.

However, when the WTO negotiations resume on 3 September, starting with agriculture, the implications of the bill on what the US can credibly offer in terms of cuts in its domestic support are likely to figure prominently, given that two major countries (Australia and India) in the agriculture talks have already proclaimed their serious concerns.

The bill was adopted by a 231-191 vote by the House of Representatives. The Senate will discuss its own version of the Farm Bill, after the present vacation break. The House and Senate versions will have to be "reconciled" before sending a Bill to President George W Bush, who has already threatened to veto the House version.

The debate in the Senate will most likely take place at the same time as the most intense stage of the WTO negotiations on modalities in agriculture and NAMA, scheduled for the whole month of September.

The present farm bill expires at the end of September, and the new bill is to cover a new five-year period. The budget for the House 2007 farm bill totals $284 billion, or $56.8 billion a year on average. This is higher than the allocation of $49.5 billion annually in the current farm bill.

The new farm bill (as in the present one) covers subsidies to farms, as well as conservation and nutrition-assistance programmes (including food-stamp subsidies).

In order to properly analyze the implications of the new Farm Bill for the WTO negotiations, the categories in the farm bill budget (and the amounts in dollars in each category) will have to be "translated" into the WTO categories of domestic support, such as amber box, blue box, de minimis (these three forming the crucial overall trade-distorting support or OTDS), and the Green Box (which is supposedly non or minimally trade distorting).

The US has officially offered to place a cap on its OTDS at $22.7 billion a year (and unofficially has mentioned $17 billion a year). Critics of these offers point to the fact that the United States' actual or applied OTDS was at $19.7 billion in 2005 and reportedly just below $11 billion in 2006, and that the US offers (both the official and unofficial ones) are thus inadequate as they would not involve significant cuts to the applied levels, or any cut at all.

Some delegations are planning to work in August to undertake this "translation" of farm bill categories and budget amounts into WTO agricultural categories and subsidy amounts. The US delegation can thus be expected to face questions on what the Farm Bill means in terms of offers that the US can realistically make.

Meanwhile, there has been quite a heated public debate on the farm bill in the United States. Interestingly, the Bush administration has become perhaps the biggest critic of the House of Representatives' version of the bill, which it says it will veto.

The Secretary of Agriculture, Mike Johanns, said that the House bill would invite retaliation by the United States' trading partners, jeopardizing $78 billion in US agriculture exports. He urged the Senate to take a different course.

According to the Wall Street Journal (29 July), the Bush administration has complained "that the House measure would raise marketing-assistance loans for some crops, which could have the effect of artificially raising commodity prices. And in preserving a 'safety net' for US producers, the bill shows little retreat from the current subsidy level that has been criticized as excessive by pro-trade advocates."

The House's Agriculture Committee Chairman, Democrat Congressman Collin Peterson, has indicated that the framers of the farm bill cared little for the impact that the bill may have on the WTO negotiations.

Asked about a recent preliminary report of a WTO dispute panel that upheld Brazil's claim that the US has failed to comply with the earlier ruling against US cotton subsidies, Peterson said that the panel report would have little immediate impact on the farm bill. "We will deal with issues as they come up," he said.

Referring to the US Trade Representative's office, which negotiates at the WTO, Peterson added: "We just seem to be willing to give up subsidies before anyone else. The committee is going to do what they think is right, and a lot of times that is not in sync with the trade representative's office."

A senior Bush administration official last week strongly criticized the sugar provisions of the House farm bill, saying that it would open the US to challenges at the WTO.

Under-Secretary for Farm and Foreign Agricultural Services Mark Keenum said that the provisions would greatly limit the Administration's ability to effectively manage the US sugar programme.

According to a report in Inside US Trade, a Washington-based weekly, Keenum criticized the provisions for requiring the Administration to sell excess sugar only to ethanol producers even if other buyers were willing to pay more for the sugar.

He argued that this requirement would also be very costly, as the administration may have to buy the excess sugar at prices as high as 23 cents per pound, while the ethanol producers were willing to pay only 4 cents a pound for sugar in 2001.

According to the report, the House farm bill would establish that US producers supply 85% of US sugar demand, and that US imports would be limited to the minimum of the US tariff-rate quotas established in the WTO and under CAFTA (Central America Free Trade Agreement) in the first half of the quota year.

[According to an AP Dow Jones report, the US Department of Agriculture on 9 August set for the US fiscal year 2008 (year beginning 1 October 2007), a tariff rate quota for raw sugar imports at 1,231,497 short tons raw value (STRV), the absolute minimum that the US has to allow under its WTO agriculture schedule.

[Last year, anticipating stronger demand for imports and a domestic production shortfall, the USDA had set for fiscal 2007 raw sugar tariff rate quota of 1,481,497 STRV - 250,000 STRV more than the WTO minimum level.

[The USDA can always increase the tariff rate quota level to address shortfalls at a later date, something it has done in previous years. The USDA, however, has set its separate tariff rate quota for refined and specialty sugar at 94,251 STRV, higher than the WTO set minimum of 24,251 STRV.

[The level of the domestic food market (OAQ or overall allotment quantity) that the USDA will guarantee to US sugar producers for fiscal 2008 has been set at 8.45 million STRV: it is set at 4,592,575 STRV for beet sugar and 3,857,425 STRV for cane sugar.]

As of 1 January 2008, Mexico can export sugar to the US without tariff or quota restrictions. If Mexican exports exceeded US demand, Mexican sugar or the equivalent amount of US sugar would be sold for ethanol production with a subsidy from the US Department of Agriculture.

The subsidy would be the difference between the price that sugar producers demand and the price that ethanol producers would be willing to pay.

Keenum also criticized the farm bill for raising loan rates for sugar and other commodities, reiterating the Administration position that they increase trade-distorting subsidies and put the US at risk of WTO challenges, according to Inside US Trade.

Keenum said that the increases in loan rates for beet and cane sugar of approximately 0.5 cents can pose problems for the sugar industry, as it implies an elevation in the price floor for sugar in the US, which can result in widening the gap between US and world sugar prices and thus aggravate the trend of US manufacturers moving offshore.

The report also quoted the Sweetener Users Association (which represents US companies making candy, soft drinks and other products) as claiming that the shipping pattern requirements in the House bill may violate provisions in the General Agreement on Tariffs and Trade on the non-discriminatory application of quotas.

The Bush administration has already threatened to veto the bill.