Iowa Public Television


U.S. Defends Farm Programs After WTO Panel Rules Against Cotton Subsidies

posted on April 30, 2004

Hello, I'm Mark Pearson.

The economic recovery that seems under way remains tinged with apprehension. The government this week again issued positive economic news, but the specter of higher interest rates and some inflationary trends still lingers.

Here are the details: The economy grew at an annual rate of 4.2 percent in the first three months of the year, a slight pickup over the previous quarter. Consumer confidence and spending are on the upswing, thanks in part to the gradually improving job market. In fact, the number of people filing new claims for jobless benefits dropped by 18,000 last week.

In farm country, meanwhile, the buzz is on another component of the economy that's near and dear to the hearts of agribusiness  international trade. In what was intended to be a secret preliminary decision, the World Trade Organization ruling against U.S. cotton subsidies triggered widespread concern over the future of U.S. farm trade.

U.S. Defends Farm Programs After WTO Panel Rules Against Cotton Subsidies Brazil, the world's fifth-largest cotton producer, claims the subsidy payments unfairly boost U.S. production and exports while lowering world cotton prices. In a preliminary ruling, the WTO agrees, saying the subsidies are hurting the interests of producers in other countries.

According to the Christian Science Monitor, the U.S. government gives some 4 billion dollars to American cotton interests in return for a crop that's valued at only 3 billion dollars. Yet, U.S. growers are able to command more than 40 percent of global cotton exports.

John Beghin, ISU economist: "Those subsidies tend to induce more production and exports of U.S. products than free markets basically provide. And, we are distorting world markets with our subsidies and cotton is the best example of that."

Monday's WTO decision concerns many lawmakers and farm groups, who worry it could have a far-reaching impact on all U.S. farmers benefiting from government support. Some economists say cotton is an extreme case.

John Beghin, ISU economist: "The likelihood of seeing other commodities enter the WTO is less likely for other crops than for cotton. Given that the cotton market is a small market, worldwide, it's worth 20 billion dollars in terms of world production. It's not as bad for other crops"

Even so, the Bush Administration says it will appeal the WTO ruling.

U.S. Trade Representative Robert Zoellick: "We believe U.S. farm programs are fully consistent with WTO rules. Now, if this comes out in final form, you can be 100 percent sure we are going to appeal this."

Zoellick says the U.S. is trying to negotiate a worldwide agreement to lower agricultural subsidies and tariffs in order to expand global trade. But, he points out the U.S. is willing to cut only if other countries do the same. Europe's farm subsidies are even higher than those in America.

Farm subsidies have long been a sore spot in international trade negotiations between wealthy and developing nations and have been a major stumbling block in current WTO talks, known as the Doha Round. Some experts worry the interim cotton ruling will make these talks even more difficult, while, others view it as a positive start.

John Beghin, ISU economist: "The European Union and the U.S. have been dragging their feet in the sense of their willingness to decrease the subsidies. I think this preliminary ruling of the WTO is providing a very good impetus to the process and is going to push the U.S. towards a more leading role, a more positive role to reach an agreement."

The WTO's final ruling is scheduled for release on June 18.

Tags: agriculture Brazil cotton markets news South America trade