Sunday, December 7, 2003

U.S. and European agricultural subsidies, worth billions of dollars to farmers, will be open to attack at the World Trade Organization as soon as next month.

Trade analysts do not foresee an onslaught of disputes but do expect some countries to challenge subsidies on specific commodities or to throw up barriers against subsidized products. The threat of a WTO case also offers leverage in ongoing trade negotiations.

“I think U.S. and European subsidy policies are subject to legal challenge at the WTO. There are billions or tens of billions of dollars in consequences,” said Richard Steinberg, a law professor at the University of California at Los Angeles.

Mr. Steinberg co-authored a paper on the so-called peace clause that expires Dec. 31. He is considered a leading authority on its legal implications.

The clause protects countries that use agriculture subsidies from WTO dispute resolution, the global trade equivalent of a lawsuit. Subsidies generally are illegal, but the 1992 clause grants an exemption for farm payments.

Most rich countries offer some support to farmers, with the European Union, Japan and the United States leading the way. South Korea, Norway, Switzerland and Iceland also offer significant payments to producers.

“We are entering into some uncharted territory. What we would hope to see … is that people focus on working to move WTO negotiations forward so that we can achieve some comprehensive global trade reform,” said Richard Mills, spokesman for the U.S. Trade Representative’s Office.

WTO delegates are scheduled to meet in Geneva Dec. 15 to try to revive global trade talks, but expectations for the meeting are low. Negotiations collapsed in September partly because of a fight over agriculture subsidies.

“We definitely have our problems. … We’re already beginning to see some challenges occurring,” said Chris Garza, a trade specialist at the American Farm Bureau Federation, an industry group.

Mr. Garza said U.S. producers are not worried. Cases would play out over several years as countries develop the information necessary to mount a case, and then as attorneys battle over the law.

Countries and groups already are angling over technical interpretations of the clause, with some arguing it does not actually expire until sometime in 2004 or that subsidies below 1992 levels do not violate rules.

Developing countries face political pressure and technical barriers that deter filing a case, said Sophia Murphy, trade program director of the Institute for Agriculture and Trade Policy, a free-trade skeptic.

“It is hard to put a case together,” she said.

But farm-subsidy programs face risks on both sides of the Atlantic.

“I do think it’s a big deal,” Mr. Steinberg said.

The United States paid farmers almost $15.7 billion in subsidies during 2002, and the U.S. Agriculture Department projects $18.7 billion for 2003. Subsidies, which rise and fall opposite market prices, peaked in 2000 at $32.3 billion, the USDA said.

The 15-nation European Union annually spends roughly $50 billion, nearly half its annual budget, on its common agricultural policy and rural development.

Japan is another heavy subsidizer, but U.S. and EU payments are widely considered to have the harshest impact abroad and to be likely targets.

Brazil, joined by Argentina and India, already has attacked U.S. cotton subsidies, arguing that the United States broke the peace clause by exceeding allowable subsidy levels.

The WTO convened a panel to hear the case in March and expects to issue its final report in May.

“This cotton case with Brazil is very significant, in terms of where things are going to go. Watch that case very carefully,” said a former U.S. trade official who asked not to be named.

Farmers in developing countries complain that the subsidies reduce world prices and rob them of a decent living. Protectionism and subsidies by industrialized nations cost developing countries about $24 billion annually in lost income, says a study by the International Food Policy Research Institute, a D.C. group funded partly by the World Bank.

“The evidence is that [wealthy] countries are driving down prices… so compensation would be allowed to offset harm,” said David Orden, a senior research fellow at the institute.

“It would be very similar to the steel case,” he added, referring to a WTO case that the United States lost. President Bush Thursday lifted tariffs on foreign steel, citing changed economic circumstances, but the United States also was facing more than $2 billion in trade sanctions from the European Union alone.

Mr. Steinberg said the most likely challenges would come from groups of countries against specific commodities.

“One big qualification: Predicting the outcome of WTO cases is very dicey because the appellate body has shown that it is willing to be at times creative in its interpretation of WTO law. That said, I think it’s more likely than not that many U.S. and EU subsidies will be found to contravene [global trade] provisions,” he said.

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