Congress asked to repeal subsidy

ASSOCIATED PRESS

The Bush administration asked Congress yesterday to repeal a federal cotton subsidy in an effort to comply with a World Trade Organization ruling against the program.

The move has implications beyond the original dispute between Brazil and the United States. U.S. officials see their response as critical to global-trade talks being held by the WTO and its 148 member nations.

“This is a very serious effort,” J.B. Penn, undersecretary for the Agriculture Department’s Farm and Foreign Agricultural Services, told reporters yesterday.

“People are critical of the U.S.; they’re critical of our support system. But here is where we’re making a very big effort to abide by the rules, and I think it should be seen by the international community as that.”

Late yesterday, Brazil reached an agreement with the U.S. to suspend efforts to retaliate. Brazil had filed a WTO request for permission to retaliate, but the U.S. trade representative said the request was procedural and, because of the new agreement, will not be approved at a July 15 WTO meeting.

“The parties have jointly agreed to suspend WTO arbitration of the retaliation amount at the earliest possible moment,” said Richard Mills, a spokesman for U.S. Trade Representative Rob Portman.

The legislative proposal that the Agriculture Department sent to Congress would eliminate a cotton marketing program in which the government compensates exporters and domestic mills for buying higher-priced U.S. cotton.

Called “Step-2,” the program is just a small portion — about 7 percent — of the $3.7 billion the government expects to spend on cotton programs next year. Growers would see a minimal drop in prices and export sales, and use of domestic textiles would shrink slightly if the program were repealed, the department said.

The WTO ruling cited two types of subsidies — the Step-2 program and government export programs — as violations of WTO rules. The Agriculture Department changed its export guarantee programs last week to try to comply with the ruling.

A U.S. analyst expressed doubts that Congress would eliminate the program this year, despite Bush administration wishes.

“I really do not expect that to happen, because these cotton people are very influential, and there’s a lot of money at stake,” said Gary Hufbauer, an economist and trade expert with the Washington-based Institute for International Economics. “The lobbying will be intense, and I don’t think that as a stand-alone [bill], it can happen.”

He said Congress is more likely to address the program when lawmakers begin writing a new farm bill next year.

Farm subsidies are key to the current WTO negotiations, referred to as the “Doha round.” Developing countries want subsidies cut in the U.S. and other wealthy nations to let farmers in poor countries compete.

The U.S. has a lot riding on the negotiations, according to Ken Cook, president of Environmental Working Group, which lobbies against subsidy programs. U.S. producers need access to foreign markets to sell their crops because they grow more than Americans can eat, he said.

The talks make it less likely that the next farm bill will contain such generous subsidies, Mr. Cook said. “You can’t support globalization and have the subsidies at the same time.”

In its complaint to the WTO, Brazil contended that the U.S. used subsidies to cotton growers to sustain its dominance as the world’s No. 1 cotton exporter and second-biggest cotton producer.

The U.S. said its payments to farmers fall within levels allowed under WTO rules, arguing that many of the payments do not meet the WTO definition of subsidies and should not have been considered government aid.