The most heavily subsidized farm nations, like the United States, have made noise about cutting trade-distorting payments to producers. And this week, President Bush upped the ante by proposing the elimination of all agricultural subsidies.
European Union officials questioned the sincerity of the announcement, stressing that the reforms would have to be "genuine and far-reaching." The E.U. already has capped its farm payments until 2013 and decoupled the subsidies from production.
Farm trade negotiators are preparing for the next round of World Trade Organization talks next week in China. The administration's call to other G8 leaders to jointly eliminate farm subsidies sent a strong signal to other WTO members that the U.S. is serious about trade reforms.
Secretary of Agriculture Mike Johanns, who said the president's challenge was "right on target," noted that China has become a major purchaser of U.S. crops since joining the WTO in 2002. According to USDA, Chinese purchases of U.S. cotton have grown from $68 (m) million to $1.7 (b) billion in 2004.
Earlier in the week, Johanns sent Congress legislation which would eliminate some cotton subsidies and ensure that other cotton programs comply with a WTO decision against U.S. cotton subsidies in a case brought by Brazil.
But even when policy makers call for an end to subsidies, they typically mean payments and programs defined by the WTO as "trade distorting," which doesn't necessarily mean all government aid to farmers.
For example, Step-2, the U.S. cotton marketing program cited by the WTO, accounts for about 10 percent of the $3.5 (b) billion the U.S. government plans to spend this year on marketing loans, payments to growers and other cotton programs. Step-2 compensates exporters and domestic mills for buying higher-priced U.S. cotton.
The National Cotton Council said repealing the program would hurt the U.S. cotton industry in the midst of its marketing season.
Agricultural subsidies have been a key sticking point in WTO negotiations. Developing nations claim government support programs allow producers in the richer countries, especially the U.S. and the European Union to export their goods at artificially low prices, thereby discouraging foreign competition.