Subsidies Small Part of WTO Deal

USTR says initial 20% reduction in trade-distorting domestic programs won't weaken safety net. Jacqui Fatka

Published on: Aug 9, 2004

In the beginning of August the World Trade Organization members were able to agree on a draft framework to allow trade talks to continue. For U.S. producers the biggest request the world made was for a 20% reduction in trade-distorting subsidy programs.

At first glance the 20% reduction appears to be a deep cut to domestic producers' farm safety net. However, after further explanation from the U.S. Trade Representative (USTR), the present framework will have only a minor affect on 2002 farm bill programs.

Sen. Tom Daschle, D-S.D., wrote a letter to U.S. Trade Representative Robert Zoellick expressing his disappointment that "the Bush Administration's trade representatives negotiated a drastic cut to the safety net enacted as part of the 2002 farm bill," a statement from the Senator said.

Daschle says, "The proposed cuts seriously jeopardize the increased loan rates, the updated bases and yields and the counter-cyclical payments that I fought for as majority leader during the 2002 farm bill." Zoellick wrote a letter back to Daschle that explains "the 20% reduction in domestic support applies to all forms of trade-distorting domestic support, which is more than double our current $19.1 billion ceiling for one category of our domestic support."

In the Uruguay Round of negotiations, the WTO agreed on a $49 billion spending cap for subsidies in four categories of trade-distorting subsidies. The largest of those categories is for $19.1 billion, while the other three are $10 billion each. According to the USTR, the United States "isn't spending anywhere near that amount" so producers won't feel the 20% cut in subsidies.

Congress will likely replace trade-distorting programs in the next farm bill with ones that are not based on production output, such as conservation programs. The WTO framework protects counter-cyclical payments because the program is not based solely on production, but allows a safety net when prices are low.

Developing countries are challenging many trade-distorting programs to the WTO court system. WTO has ruled against U.S. cotton and Europe sugar price support programs. The next farm bill will provide an easy transition into the WTO agreement (if a final one is reached) and preventing the world from challenging any other U.S. subsidy programs. If a WTO agreement is reached, it won't be until at least 2006 before it is implemented.