WTO Ruling

April 27, 2004

The World Trade Organization dropped a bombshell last week which coincidentally could force dramatic change in farm support programs as we have known them.

Their ruling is only preliminary but it is likely to become permanent. The U.S. has vowed to appeal. The Congress will fight the decision as an infringement on our sovereignty.

Here is what happened. Brazil filed a case against U.S. cotton subsidies in the WTO arguing that our cotton subsidies distort international trade in cotton by encouraging excess production pushing down prices.There are about 150 nation members of the WTO. Most are developing, and believe that U.S. direct payments encourage too much production. Prices suffer and the poor farmers in the developing countries receiving no subsidies are forced out of business.

The significance of this ruling is the WTO is now saying that direct subsidies (not tied to production) distort production. We have argued all along with the Europeans, Japan and a few others that such payments do not and should not be subject to WTO jurisdiction. That is the so called green box. The green box may now be taken away. This ruling is on U.S. Cotton. But the WTO will rule soon on European sugar payments. (Probably against Europe.)

With apparent success in challenging U.S. cotton subsidies the next target could be U.S. com or Japanese rice.

The farm subsidy programs of developed countries will see the noose tighten and gradually strangle the rich government payouts. However, it could take years for this change to be forced upon the developed countries. In farm country the disenchantment of trade agreements will increase.

Yes, there will be opposition, but over time I believe this ruling signals major farm program reform.

Until next week. I am John Block from Washington.