WTO rules American cotton subsidy illegal
Wednesday April 28, 2004
Brazil has won a landmark victory at the World Trade Organisation that could spell the beginning of the end of rich countries' subsidy payments to their farmers.
The WTO, based in Geneva, has ruled that $1.5bn (?830m) of annual subsidies given by the United States government to its 25,000 cotton farmers are mostly illegal.
The provisional ruling is confidential, but trade sources said pubic confirmation would be available as soon as next month and could start a domino effect whereby much of the ?300bn in subsidies lavished on the rich world's farmers might tumble.
"This could be the first domino," one said.
The ruling is the first time a developing country has won such a decision from the WTO when arguing against one of the big trade powers.
The European Union is also under pressure from countries such as Brazil, Australia and Thailand over the massive subsidies it makes available to sugar beet growers.
The agricultural subsidies attracted by farms in the richer nations have been one of the main sticking points in the latest round of world trade talks, known as the Doha round, which collapsed spectacularly in Mexico last year.
The US is poised to appeal against the WTO ruling and keep the issue of its subsidies to cotton farmers off the agenda until after the November presidential election.
Few appeals against WTO rulings, which the US urges other countries to respect, have succeeded. Analysts said, however, that, even if the US Congress agrees to scale back cotton subsidies, implementing the changes could take up to two years.
A spokesman for the US trade representative, Robert Zoellick, said America considered all of its foreign programmes to be fully consistent with WTO obligations.
"We think this should be dealt with at a multilateral level through the broad WTO trade talks. And the US government was the first to propose measures to reduce annual, global, trade-distorting domestic measures by $100bn," he said.
But campaigners were not convinced. Matt Griffith, a trade policy analyst at the charity Cafod, said: "That Brazil brought this case is a sign of desperation that so little has been done to tackle rich-country subsidies. It sets a valuable precedent in an attempt to call the US and other lavish subsidisers to book."
Oxfam spokeswoman Celine Charveriat agreed: "This would be a huge victory, not just for Brazil but particularly for 10 million poor African farmers whose livelihoods have been crippled by unfair competition."
Minneapolis-based thinktank the Institute for Agriculture and Trade Policy said the WTO decision should prompt a rewriting of American farm policy to lift market prices and bring a halt to agricultural dumping.
"This ruling points to the disastrous results of US farm policy, which is designed to drive down commodity prices and then make up the difference in subsidies," said spokesman Ben Lilliston.
The thinktank calculates that the US accounts for more than 40% of world cotton exports, up from 24% in 1996.
The effect of the increase has been to depress cotton export prices by two-thirds over the same period to 37 cents a pound, 61% below the cost of production.
This "dumping" hits cotton farmers hard in poorer countries by depressing prices they are paid for their produce.
As well as sugar, many other American and European crops - such as soya beans, wheat, maize, rice, beef and dairy produce - could be the target of similar WTO action.
Ultimately the US is likely to use the ending of subsidies to its own cotton farmers as a lever in negotiations with other major trading powers to persuade them to reduce subsidies seen as hurtful to American interests.http://www.guardian.co.uk/wto/article/0,2763,1204996,00.html