Report Says U.S. Farm Programs Violate International Obligations

U.S. commodity programs at risk of future challenges if new WTO deal isn't brokered soon and includes a peace clause. Compiled by staff 

Published on: Dec 6, 2005

United States farm subsidy programs are in direct violation of its agreement with the other members of World Trade Organization, according to a new study released Monday by the Cato Institute.

USDA Chief Economist Keith Collins warns that trade cases against U.S. commodity programs are looming. U.S. cotton programs were defeated in a case brought by Brazil defeated U.S. cotton programs in a WTO court and Uruguay and Canada producers hope to do the same with rice and corn programs respectively.

Without a successful Doha Round, Collins says the situation will only get worse. U.S. agriculture is fighting for an agreement with a "peace clause" to restrict trade cases from attacking more U.S. farm programs.

In Cato's Trade Policy Analysis "Boxed In: Conflicts between U.S. Farm Policies and WTO Obligations," Daniel A. Sumner, the director of the University of California Agricultural Issues Center and Brazil's economic consultant in the WTO cotton case, argues that in order for America to conform with its WTO obligations, a major reform of farm subsidy policy needs to implemented.

According to Sumner, a recent WTO ruling against U.S. cotton subsidies has thrown a spotlight on this conflict between U.S. farm programs and its international obligations, and numerous other U.S. commodities besides cotton are vulnerable to WTO challenge.

The author's research shows that that the U.S.'s total trade-distorting subsidies far exceed and will continue to exceed the WTO cap. Based on his calculations, the farm programs totaled $29.1 billion in 2000, $25.3 billion in 2001 and are projected to total $26.3 billion in 2006. These subsidies greatly surpass the $19.1 billion limit set by the WTO.

Moreover, U.S. farm programs for a variety of commodities may be suppressing market prices in violation of the WTO Agreement on Subsidies and Countervailing Measures.

Sumner predicts that U.S. subsidies depress world corn prices by 9 to 10%, world wheat prices by 6 to 8%, and world rice prices by 4 to 6%. "Those price effects are large enough to raise concerns about serious prejudice to the interests of other WTO members," he writes.

The paper urges Congress to "seize the opportunity to make real and durable improvements in agricultural policy when the current farm bill expires in 2007."