[env-trinity] NY Times-W.T.O. Rules Against U.S. on Cotton Subsidies

[Tom Stokely]

W.T.O. Rules Against U.S. on Cotton Subsidies

April 27, 2004
 By ELIZABETH BECKER





WASHINGTON, April 26 - Brazil won a preliminary ruling at
the World Trade Organization on Monday night that could
force the United States to lower the subsidies it pays
farmers to grow cotton and, eventually, most subsidized
crops.

The decision supports Brazil's contention that the
subsidies paid to American cotton farmers violate
international trade rules. A final ruling against the
United States could lead to stiff penalties if it fails to
change its practices. In another recent case involving
steel, President Bush chose to remove subsidies and
therefore did not have to face the penalties.

The ruling also puts the Bush administration in a tight
bind in an election year, when Republicans are counting on
support from the Farm Belt. The largest American farmers
have grown dependent on the $19 billion they receive in
annual subsidies.

If the final decision in June goes against the United
States, the administration is expected to appeal, if for no
other reason than to delay action until after the election.
Nearly all preliminary opinions are eventually upheld by
the W.T.O.

As the first successful challenge of a wealthy nation's
domestic agricultural subsidies, the Brazilian case could
also force the United States, the countries of Europe and
other well-to-do nations to act this summer and offer new
compromises at global trade talks that have been blocked
over this agriculture issue for more than a year.

The $300 billion in annual farm subsidies and supports paid
by the world's wealthiest nations have been the bane of
Third World farmers. The United Nations, the World Bank and
charities like Oxfam have said their elimination or
reduction would provide the single biggest possible benefit
for the economies of poor countries with many subsistence
farmers.

Brazilian officials said they brought the case against the
United States out of frustration, saying that all attempts
by poorer nations to negotiate a reduction of the subsidies
had failed.

The ruling Monday night was not publicly disclosed, and the
United States and Brazil have agreed not to discuss the
findings in detail until the final decision is made in
June. At a news conference in Brasília, however, top
government officials said they were pleased and gratified
with the ruling.

"This is a precedent; this is a war that must continue,"
said Roberto Azevedo, the top legal adviser to Brazil's
Foreign Ministry.

The Brazilians accused the United States of breaking trade
rules that limit to $1.6 billion the amount of subsidies it
can pay American cotton growers every year. The United
States defended the additional financing as domestic
subsidies that do no harm to global markets.

But using data from the United States Department of
Agriculture, Brazil argued that the programs led to
increased American cotton production that destroyed
Brazil's export markets and undermined the livelihoods of
its farmers.

Without the subsidies, Brazil estimated that United States
cotton production would have fallen 29 percent and that
American cotton exports would have dropped 41 percent. That
would have led to a rise in international cotton prices of
12.6 percent, which would have helped Brazil's cotton
farmers.

Brazil also said that the United States was providing
illegal export subsidies to American agribusinesses and
manufacturers, who were given $1.7 billion to buy American
cotton.

Ken Cook, the president of the Environmental Working Group,
a nonprofit organization that posted a database of
subsidies on its Web site that was used by Brazil, said
that the ruling was putting into question how the
government would pay subsidies in the future.

"This could mean problems for all domestic subsidy
programs, for corn, wheat, rice, everything that receives
big direct payments from the United States Treasury," he
said.

A United States trade official said Monday night that the
administration would appeal the decision if the final
report remained unchanged.

"United States farm programs were designed to be and are
fully consistent with our W.T.O. obligations," said the
official, who spoke on condition of anonymity because of
the confidential nature of the ruling. "We have serious
concerns with aspects of the panel report."

American farmers have benefited handsomely from the
expansion in world trade, and their exports have exploded
over the last years. One out of every three acres in the
United States are now planted for exports.

The cotton subsidies have helped make the United States the
world's top cotton exporter, with more than 40 percent of
the world market.

Poor nations have long contended that this expansion is
based unfairly on subsidies that fuel overproduction and
drive down world prices. Those prices do not harm the big
farmers in the United States because they are subsidized by
American taxpayers.

The United States argued in its submission that its
subsidies were not linked directly to the production of
cotton and, therefore, did not distort trade. But the
Monday night ruling threw that argument into doubt, thereby
calling into question the basis of much of the domestic
agricultural subsidy system.

In its complaint, Brazil also accused the United States of
additional unfair subsidies - including the federal farm
program that pays American agribusinesses and manufacturers
$1.7 billion to buy the American cotton that is already
subsidized.

Brazil was joined in the W.T.O. case as third parties by
Argentina, Australia, Benin, Canada, Chad, China, the
European Community, India, New Zealand, Pakistan, Paraguay,
Taiwan and Venezuela.

The existing subsidies for American cotton farmers - $10
billion over seven years - were partly responsible for the
breakdown in global trade talks in Cancún, Mexico, in
September.

West African countries, some of the poorest in the world,
made cotton a test case of the W.T.O.'s commitment to
remove barriers to poor nations' ability to trade their
agricultural products. But the United States offered,
instead, to study the cotton issue and consider reducing
subsidies as well as removing nontariff and other trading
barriers on cotton, synthetic fibers, textiles and
clothing.

With the United States and Europe vowing to revive those
stalled trade talks over the summer, the question of
agricultural subsidies and supports, especially now for
cotton, will be back on the agenda. A compromise reached in
trade talks could be less painful than penalties from the
cotton case.

http://www.nytimes.com/2004/04/27/business/worldbusiness/27COTT.html?ex=1084
077400&ei=1&en=548fafa92408e5b0



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