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WTO rules American cotton subsidy illegal

07:13 / 28.04.04

Brazil has won a landmark victory at the World Trade Organisation that could spell the beginning of the end of rich countries' subsidy payments to their farmers.
The WTO, based in Geneva, has ruled that $1.5bn (£830m) of annual subsidies given by the United States government to its 25,000 cotton farmers are mostly illegal.

The provisional ruling is confidential, but trade sources said pubic confirmation would be available as soon as next month and could start a domino effect whereby much of the £300bn in subsidies lavished on the rich world's farmers might tumble.

"This could be the first domino," one said.

The ruling is the first time a developing country has won such a decision from the WTO when arguing against one of the big trade powers.

Full article in The Guardian

Is this the "first domino" as suggested in the article? Or will it just be repealed or drawn out over such a long period that the US will be able to turn it to their advantage anyway, as is suggested towards the end of the article?

15:18 / 28.04.04

I doubt it'll carry. Farm subsidies are basically untouchable here, which is sort of a shame.

On the other hand, I was just hearing a bunch of interviews on the NPR about the food crisis in China, and that's going to affect the way farm economics (at least for food crops & livestock) are handled here in deep and unpredictable ways.

Basically, the deal with *that* is that China doesn't grow nearly enough food to feed its 1.6 billion or so people. The stockpiles built up after the Cultural Revolution are just about gone now. So, starting next year, they're going to start buying food from other countries on a level never before seen in the world. Food prices are going to skyrocket... and the US is (on paper at least) the world's largest food supplier.

So the subsidies may no longer be "required" due to market forces -- the farmers will be paid for the food they grow, rather than just being farmers who don't actually have to grow food. (Which is the famous criticism of subsidies, although I don't understand the details.)

If that China thing plays out like it could, then it could clear the way for more subsidy-busting legislation from the WTO, since the deadly political equation of "subsidy=survival for farmers" wouldn't be true, at least in the short term.

But still, this'll be an interesting case to watch, just to see how the US can affect WTO rulings.

Somebody remember to check up on this in a month or two....

15:32 / 28.04.04

So the subsidies may no longer be "required" due to market forces -- the farmers will be paid for the food they grow, rather than just being farmers who don't actually have to grow food. (Which is the famous criticism of subsidies, although I don't understand the details.)

...what I remember from Grade 9 geography is that the government only wants, say, 25,000 acres of wheat grown in a year to keep prices stable. So in return for the farmers not growing wheat on the 250,000 acres they have, the government gives them cash equal to the lost revenue.

The one article I read mentioned that it could be years before Congress touches this, so it doesn't look good for third-world farmers in the short-term.

14:01 / 06.05.04

Of all places, New Scientist has a piece on this.

Following a complaint brought by Brazil, a panel at the WTO headquarters in Geneva decided that the $2 billion a year the US has been giving its cotton farmers is illegal under world trade rules, because it allows the US to unfairly increase its market share.

"The implications of the case are huge," says Ben Lilliston of the Institute for Agriculture and Trade Policy, a US think-tank in Minneapolis. Meanwhile, a decision is pending on another complaint to the WTO from Brazil, this time about the massive sugar subsidies the European Union pays.

...

If the decision on US cotton is upheld, and if the EU loses the sugar case, countries opposing farm subsidies would gain a powerful bargaining chip in the current trade talks. And if the US and EU are forced to end all trade-distorting subsidies, or at least make major cuts, the result would be a huge shift in agricultural production from richer to poorer countries.

I'm not sure how that follows. Are we talking about a lot of out-of-work farmers in developed countries all of a sudden? A redistribution of production?

Cheap. Easy. Cruel.

15:08 / 06.05.04

I don't think it will equate to a lot of out of work farmers, per se. Their crops will be worth a lot less though. They will have to work harder, for less. The subsidies are paying farmers to produce a specific amount. Since they get paid to grow that amount, they don't have to pass their production costs on to consumers, allowing them to undercut their competitors.

It will mean commodities will cost more because they will reflect the true price needed to grow them. On one hand, the higher prices will help third world farmers out by paying them more per acre. However, large farming concerns will still be able to produce more cheaply due to economies of scale. It may end up being no help to the small third world farmers after all. I think you might see some of the smaller scale domestic farmers, who depended on the subsidies for their livelihood, go under.

02:19 / 07.05.04

From what I understand, small farmers in developed countries are on the edge even *with* subsidies; mass agribusinesses aren't. So I think this will lead to a lot of the former going out of business. The latter will raise prices, and that will be across the board, so people will complain about the price of domestically-sourced meat going up. (It's artificially low anyway so I don't really have much sympathy there.)

Quite a lot of meat is imported though anyway so the hit to the consumer won't be that much.