G-20 Criticizes U.S. Farm Bill Proposal, Calls for Doha Agriculture Deal by Summer

GENEVA--The Group of 20 developing country alliance has criticized the Bush administration's proposal for reforming U.S. farm subsidy programs, arguing that the changes would not lead to any real cuts in actual spending. In a statement due to be delivered to a Feb. 7 meeting of the WTO's ruling General Council, the G-20 argues that the proposals outlined by the U.S. Department of Agriculture Jan. 31 "do not seem to go as far as needed" to achieve reductions in actual spending and impose disciplines needed to prevent subsidies from being concentrated on a small number of commodities.

The G-20, whose members include major developing countries such as Brazil, China and India, also called for a breakthrough in the Doha Round talks "in the shortest possible time" in order to secure a deal on the formulas and figures for cutting farm tariffs and subsidies by the summer and the conclusion of the round by the end of 2007.

A breakthrough will not only depend on further flexibility by the United States in cutting farm subsidies, but also greater flexibility by the European Union and G-10 alliance (which includes Japan, South Korea, Taiwan, Norway and Switzerland) on market access issues, including the level of tariff cuts and the treatment of sensitive products, the group insisted.

"The G-20 is still assessing the impact of the proposed [U.S.] changes," the group declared. "Our preliminary view, however, is that although there are positive aspects in the proposal--including the fact that it throws some more light on the U.S. position--the volume of resources still available for trade distorting programs is not consistent with the need for effective cuts."

G-20 Wants More Reform

"The changes to be introduced in the current programs do not seem to carry the reform far enough," the G-20 added. "However, we understand that the outcome of the debate in the U.S. Congress on the farm bill will not prevent an ambitious outcome in the domestic support pillar, for the results of the negotiations will lead to changes in the next farm bill."

The G-20 statement follows similar criticisms from the European Union. The EU said in a statement Feb. 1 that proposed cuts in programs such as loan deficiency payments were "extremely modest" and that key trade-distorting programs for the highly subsidized sugar and dairy sectors "remain virtually untouched."

The EU also pointed out that USDA spending estimations were based on assumptions that commodity prices would remain at their current high levels. If prices were to fall, the EU noted, farm subsidy spending would increase.

The standing offer from the United States on subsidy cuts in the Doha Round of trade talks would limit overall U.S. trade-distorting support at $22.4 billion a year, with a $7.6 billion limit in the "amber box" of support (the current limit is $19.1 billion). In contrast, the EU is seeking a $15 billion annual limit on U.S. farm spending, while the G-20 wants spending capped at $12 billion or less.

Experts say it is difficult to say how far the U.S. proposal would go towards meeting the demands of trading partners for deeper cuts, partly because of the spending assumptions based on continued high commodity process and partly of because of the uncertainty surrounding the classification of U.S. programs under the WTO's amber, blue and green box categories of subsidies.

U.S. officials said that, under the USDA proposal, farm subsidies would fall by about $10 billion over five years. It would also cut back some subsidy programs that WTO rules consider to be most trade-distorting-the amber box--while it would increase direct payments to farmers for non-distorting "green box" programs.

Although the USDA proposal did not provide details, several of the proposed spending programs--such as $7.8 billion in increased conservation funding, $1.6 billion for research into ethanol fuels, and $5 billion for purchasing fruits and vegetables for school meals and other food assistance programs--would arguably qualify as green box programs and be exempted from WTO spending limits.

The green box covers exempted support considered to have little or no impact on trade and includes measures such as agricultural research, disease control, and environmental protection programs, regional assistance programs, restructuring aid, and certain forms of direct payments to farmers that are not linked to the type or amount of a crop being grown.

In its last notification to the WTO covering the 2001 marketing year, the United States reported $50.7 billion in green box spending. The bulk of the payments fell under the heading of "domestic food aid," including the Food Stamp Program ($19.1 billion), and child nutrition programs ($9.56 billion).

USDA Unclear on Countercyclical Payments

USDA also left unclear how proposed reforms to countercyclical payments would affect the classification of such support under WTO rules. The Bush administration has proposed converting the current price-based countercyclical program to a revenue-based program. Under the proposal, the revenue-based payment for a commodity would be triggered when the actual national revenue per acre for the commodity is less than the national target revenue per acre.

While some have suggested that the reforms could allow the United States to report countercyclical payments as production-delinked green box subsidies, others argue that the payments would have to be reported as amber box or blue box support.

While the United States has never formally notified its countercyclical spending amounts to the WTO--the program was created as part of the 2002 Farm Security and Rural Investment Act--U.S. officials have admitted that countercyclical payments in their current form would have to be categorized as amber box subsidies.

The United States succeeded in August 2004 in securing an agreement to modify the "blue box" category of support so that it would accommodate countercyclical payments. Under the new rules, payments that do not limit production, but which meet other blue box criteria (payments based on fixed areas and yields and in reference to past production, or on 85 percent or less of the base period of production) would qualify as blue box payments.

There are no existing limits on blue box spending. However, WTO members are considering new limits which would cap U.S. blue box spending at around $5 billion a year. According to the USDA's Economic Research Service, countercyclical payments were expected to total $4.2 billion in 2006.