TWN Info Service on WTO and Trade Issues (May08/22)
22 May 2008
Third World Network

Trade: US Farm Bill passed, will cast shadow on Doha talks
Published in SUNS #6476 dated 19 May 2008

Geneva, 16 May (Martin Khor) -- The 2008 US Farm Bill, passed by both Houses of Congress and sent to President George Bush, will cast a long shadow over the WTO's Doha negotiations at a time when WTO delegates are struggling against a tight deadline to complete modalities of agriculture and non-agriculture market access.

The US Senate passed the bill with a 85-15 vote on 15 May while the House of Representatives passed it with a 318-106 margin on 14 May. The margins are big enough to be "veto-proof" - if Bush vetoes the bill (as he promised), it is expected to become law anyway as both Houses can over-ride the veto with a two-thirds vote.

The fiercest critics of the Bill seem to be Bush and his top agriculture officials, who have publicly stated that it will damage the Doha talks and goes against what the US administration has tried to do at the WTO.

It is also bound to increase the fears of other WTO members that the offers the US negotiators may make or want to make at the forthcoming modalities talks may not be in line with the Farm Bill, and if so then a Doha deal may not be acceptable to this or the next Congress.

Bush himself has said that the bill contradicts the US attempts at the WTO talks. Threatening to veto the bill, Bush said in a statement on 14 May that it has at least $10 billion in hidden spending, subsidizes millionaire farmers and contradicts the free-market reforms the United States seeks in world trade talks, according to a Reuters report.

His top agriculture officials were even more blunt and dismayed at how the bill will inflame relations with the US' trading partners and stir up a hornet's nest of problems at the WTO, as another Reuters report put it.

The Deputy Agriculture Secretary Chuck Connor said, in a briefing to agriculture groups: "This farm bill heads in the wrong direction in terms of our international obligations... It's no secret our current farm programs under the current law have come under enormous fire. How does this bill respond? This bill responds by increasing trade-distorting supports on 17 out of the 25 of the commodities that we provide."

He added that the US' trade partners "are going to get incensed and we would expect them to protest in every way they can."

The US agriculture officials, in the briefing, said that the measures that could bring problems for the US at the WTO include rules benefitting US sugar producers, a $4 billion standby disaster fund and a new cotton incentive similar to the one that the WTO panel has ruled illegal, according to the Reuters report by Missy Ryan.

Added the report: "Farm leaders in Congress paid little attention to the WTO negotiations while writing the farm bill, saying they will revise it if the Doha round succeeds. But the bill also could fan trade partners' fears that a Congress so protective of farm programs might try to obstruct or dismantle a deal if sent to Capitol Hill for approval."

Another report in Inside US Trade elaborated what Conner and another Administration official said was wrong with the bill. They "criticized the sugar protocol which would lock in the right of US producers to supply 85% of the market create a program to convert surplus sugar to ethanol. Conner also said the thresholds for cutting off farm subsidies in the bill amounted to window dressing.

"The officials also criticized the farm bill for the marketing loan provisions, which do not mirror the administration's proposal for ensuring that farmers cannot lock in their loan deficiency payment when prices are low but sell their crop when prices are higher. They also criticized the increase in target prices and loan rates."

Lori Wallach, director of Public Citizen's Global Trade Watch, said the farm bill, which contradicts the US Doha Round agriculture positions, was passed by such large majorities in both Houses that it is veto proof.

"Absent some unimaginable development, this means that what is in the Farm Bill now is what will be US policy for the next four years. And Doha proposals that conflict with this will face significant built-in opposition from those who just voted for these funding levels in the Farm Bill.

"Which is to say that the emperor not only has no clothes (no authority, Fast Track or otherwise) but has just been shown rather embarrassingly to be making proposals at WTO it knows would not be passable in Congress."

This thesis seems to be supported by the response of the House Agriculture Chair Colin Peterson who was a key leader in the Congress negotiations on the bill, on the question of the impact of the bill on the WTO talks. "I've had it with the WTO," he was quoted in the Wall Street Journal (14 May). "We should scrap the Doha deal and just start over."

Said the WSJ article: "The farm bill will do little to lift the chances of the Doha Round... The impact of the farm bill is a secondary concern for many lawmakers."

The Farm Bill is estimated to cost $289 billion over a five-year period. Of this, about $200 billion (or 66% of the total) goes to domestic food aid (food stamps) and other nutrition programs (such as emergency food assistance) make up the largest portion These are placed in the "Green Box" category of WTO, which are supposed to be non trade distorting and not subject to reduction disciplines.

Foreign food aid is estimated at less than $200 million, or less than 1% of total cost. Disciplines on food aid have been under discussion in the Doha talks under the export competition pillar. The other components of the Farm Bill are more contentious in the context of the Doha talks on domestic subsidies, as most of them fall under the "trade distorting" categories of amber and blue boxes.

Commodity-based subsidies for rice, cotton, corn, soybeans, wheat and other crops will take up $43 billion, or 14% of the total. Crop insurance to help farmers protect against losses will be about $23 billion, or 8% of the total. And conservation programmes to set aside or protect environmentally sensitive farmland will have $27 billion, or 9% of the total.

In a strong attack on the Farm Bill, President Bush (in a statement on 13 May) said: "This is an appropriate time to better target subsidies and put forth real reform. Farm income is expected to exceed the 10-year average by fifty percent this year, yet Congress' bill asks American taxpayers to subsidize the incomes of married farmers who earn $1.5 million per year. I believe doing so at a time of record farm income is irresponsible and jeopardizes America's support for necessary farm programs.

"Congress claims that this bill increases spending by $10 billion, but the real cost is nearly $20 billion when you include actual government spending that will occur.

"Instead of fully offsetting the increased spending, the bill resorts to a variety of gimmicks, such as pushing commodity payments outside the budget window. Adding nearly $20 billion in additional costs to the current ten-year spending level of approximately $600 billion is excessive, especially when net farm income is at a record high and food prices are on the rise. My Administration clearly identified numerous reforms as essential to justify even a $10 billion increase in spending, yet this bill includes none of those reforms in full.

"Crop prices have averaged a 20% increase since just last year. Still, Congress wants to raise payment rates for most crops and create new subsidies which can be triggered even at very high prices. The bill fails to stop the practice of collecting subsidies even when crops are sold later at a higher price; it restricts our ability to redirect food aid dollars for emergency use in the midst of a global food crisis; and it falls short of the Administration's conservation proposals.

"By increasing trade-distorting subsidies, the bill undermines our ability to open foreign markets to American agricultural goods. The bill creates an egregious new sugar subsidy program that will keep sugar prices high for domestic consumers, while making taxpayers subsidize a handful of sugar growers. These are just a few of the reasons why I cannot support this bill."

US Agriculture Secretary Ed Schafer, on 14 May, after the House of Representatives passed the bill, also gave a strong attack, complaining that "Congress chose a different path, and today they passed a bloated, earmark laden bill that spends nearly $20 billion over its original cost and continues to balance subsidy payments to the wealthy on the backs of the middle class taxpayer.

"The bill passed today is a farm bill in name only. It does not target help for the farmers who really need it, and it increases the size and cost of government while jeopardizing the future of legitimate farm programs by damaging the credibility of farm bills in general.

"At a time of record setting income for farmers, it sends the wrong message to the rest of the country who are not experiencing the boom of the agriculture sector. This bill is loaded with taxpayer funded pet projects at a time when Americans are struggling to buy groceries and afford gas to get to work.

"Congress will send a bill to the President that is trade distorting and fails to provide meaningful reform to the adjusted gross income limit, beneficial interest or the international food aid program. However, it is better late than never for the beneficiaries of the massive earmarks in this bill, like the $170 million for the salmon fishermen on the West Coast, or $250 million for a single entity land buy in Montana, just to name a few.

"Reckless spending like this is not what farm bills should be about. Congress had a real chance to implement reform and strengthen farm programs for the next decade. This reform could have allowed for savings to be reinvested in future agriculture needs, such as energy and research. Instead, they decided to spend billions upon billions of taxpayer dollars to grow government and invest in the tired status quo."

If the country's top political leaders are so devastating in their critique of how the Farm Bill continues and increases unjustifiable domestic support for the US farms, could their WTO negotiators be able to justify their offers and demands in the agriculture talks coming days and weeks at the WTO?

While it may be still too early for an in-depth analysis of the Farm Bill, the following are the main areas of criticism.

Firstly, the Bill fails to set realistic limits to which farmers can receive subsidies. Bush had proposed limiting farm subsidies to those earning less than $200,000 a year. However, under the farm bill, even millionaires can receive the hand-outs.

-- There are no thresholds for counter-cyclical and marketing loan subsidy programmes (which in WTO terms are trade distorting) so all farms can receive these irrespective of their income.

-- For direct payments, those with individual farm income up to $750,000, or $1.5 million income for married farmers are eligible for subsidies. Direct payments are also restricted to single farmers with non-farm incomes under $500,000 or $1 million for married farmers. This has given rise to a complaint from a Congress member during the debate that a family with income up to $2.5 million could still receive subsidies.

Secondly, the farm bill eliminates limits to commodity payments, according to a report of the conservative Heritage Foundation. It says that farmers currently face limits of $180,000 apiece in annual commodity payments ($360,000 for those on multiple farms and double for married couples). The bill reportedly eliminates the payment limits. Specifically the $75,000 limit for the marketing loan programme, which has been subject to the most abuse, would be repealed, according to Heritage.

Thirdly, the handsome payouts are coming at a time when farmers and food companies are already getting massive income increases due to rising prices. Net farm income will rise to $92.3 billion this year, or 56% above 2006, according to the US agriculture department. The bill misses the opportunity of reducing subsidy levels at a time when high prices and high farm incomes enables it to do so without pain.

Fourthly, the bill increases the subsidy rates for many crops. Under the counter-cyclical and/or marketing loan programmes, the bill raises the subsidy rates for over a dozen crops, according to a report of the neo-conservative Heritage Foundation. Under the programmes, subsidies are given when crop prices fill below target prices set in the bill. Raising the target prices means any drop in crop prices will trigger the payment sooner and increase the subsidies as compared with the current level.

Also, the bill introduces four new crops (dry peas, lentils, small chickpeas and large chickpeas) to the counter-cyclical program.

For example, prices have shot up for the five most subsidized crops, but the 2008 farm bill is maintaining or increasing subsidies for most of them, according to data in the Heritage report.

-- The rice price has shot up from $3.88 per cwt during the 2002 farm bill debate to $14.80 during the 2008 farm bill debate (or by 281%), but there are no significant cuts in the subsidy level in the 2008 farm bill.

-- The average wheat price rose 256% in the same period (from $2.84 to $10.10 per bushel) but the 2008 bill increases the subsidy rate.

-- The price of corn rose 169% (from 1.91 per bushel to $5.13, but there are no significant cuts.

-- The price of soybean rose 164% (from 4.47 to $11.80 per bushel) but there is an increase in subsidy rates.

-- The price of upland cotton rose by 105% (from $0.29 to $0.60 per lb.) but only one subsidy was trimmed merely by 1.5%.

Fifthly, Congress' pay-as-you-go rule requires that the entitlement and tax legislation remain deficit-neutral over 10 years. But, according to Heritage, the bill reportedly increases spending by $10 billion over the next decade, plus up to $10 billion more in "gimmicks". Thus, the subsidies can go higher than what they seem to be.

Sixthly, the bill continues direct payments to farms irrespective of the price of the crops. Annual direct payments are to total more than $5 billion, with allocations of $2 billion to corn farms, $1 billion to wheat farms and $2 billion to farms of other crops, according to the Heritage report. Thus, the payments are not related to falling prices or falling incomes but can be given out, as like now, even in times of rising prosperity.

These payments are not based on farm incomes, crop prices or such criteria and farmers are not required to grow the listed crop; to get the subsidy, they only have to have grown it in the past. Although prices have shot up since the last farm bill, the bill reportedly reduces direct payments by only 2%, which would then be restored in the final year to preserve the spending baseline.

Seventh, the bill establishes a new and permanent disaster aid programme, which will be at $3.8 billion over five years. This is in addition to the $3 billion crop insurance subsidies. Under the new programme, many farmers who suffer crop losses could collect double payments - crop insurance payments as well as disaster payments, according to the Heritage report.

Eighth, there will be an especially "sweet deal" for sugar. The bill will increase price supports, plus give a guarantee of 85% of the domestic sugar market at these guaranteed prices, according to the Wall Street Journal. Surplus sugar is to be bought at 23 cents a pound by government and sold to ethanol producers (for a mixture with corn) at around 3 cents a pound.

With the new farm bill having such features, it is going to be difficult, to say the least, for US negotiators to persuade other WTO members to make sacrifices or concessions so that the US President or Congress will find it worthwhile to sign on to a Doha deal. +