Bridges Weekly Trade News Digest • Volume 11 • Number 34 • 10th October 2007

After Long Delay, US Notifies 2002-2005 AG Subsidies to WTO

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The US on 4 October announced that it has notified the WTO of its domestic support payments to farmers for the years 2002 to 2005, with a senior official insisting that Washington had remained within the spending limits imposed by its obligations to the global trade body.

Following years of criticism for the notification delay, the US’ payment claims are now likely to be closely scrutinised by trading partners.

Uncertainty about exactly how much Washington doles out in trade-distorting subsidies has been an irritant in the Doha Round negotiations on cutting farm support, as well as in WTO disputes launched by Brazil and Canada.

Joe Glauber, the US’ lead agriculture negotiator, told reporters on 4 October, that US payments on overall trading-distorting support (OTDS) amounted to $16.3 billion in 2002, $10.2 billion in 2003, $18.1 billion in 2004, and $18.9 billion in 2005.

These figures are all considerably lower than Washington’s current WTO spending entitlement of $48 billion for such support. They are also well within the future spending cap of $22.5 billion formally tabled by the US in the Doha Round, suggesting that this ceiling could be achieved with few changes to existing practice.

However, many WTO Members have called this US subsidy offer inadequate. The chair of the Doha Round agriculture negotiations, Ambassador Crawford Falconer (New Zealand), suggested in July that a potential consensus deal could require the US to cap OTDS between $13 billion and $16.4 billion. The US later indicated that it could accept these figures as a basis for negotiations - so long as the EU and major developing countries could accept the paper’s terms for agricultural market access as well as the cuts to industrial tariffs set out in a companion text by the chair of the latter negotiations.

One of the sticking points in the talks has been the extent to which the US’ cuts would affect its actual spending levels. Glauber argued that, because notified OTDS levels would have exceeded the upper limit of Falconer’s suggested range in five out of the past eight years, they did represent the ‘effective’ cuts in overall support to which Members are committed.

Some members of the G-20 developing country bloc have insisted that the US should cap subsidies at a level close to the $11 billion which they estimate it to have spent last year, although the group’s formal proposal is for a $12 billion ceiling. Since Falconer circulated his draft negotiating text in July, the group has been calling for a figure in the ‘low teens’.

Trade-distorting ‘amber box’ spending fluctuating wildly

Glauber also unveiled figures for the share of US subsidies notified as ‘amber box’ - a component of OTDS that includes the most heavily trade-distorting types of support, usually linked directly to prices or production levels. According to the US Department of Agriculture, this was notified as being $9.6 billion in 2002, falling to $6.9 billion in 2003, before rising again to $11.6 billion in 2004 and $12.9 billion in 2005.

The senior farm trade negotiator emphasised that US amber box spending remained below the $19.1 billion ceiling in its WTO obligations. This has been disputed recently by Brazil and Canada, who have filed near-identical WTO challenges against US farm subsidy spending going back to 1999 (see BRIDGES Weekly, 18 July 2007). Both charge that the US had only stayed within its amber box limits by improperly excluding payments under several different types of farm programmes from its calculations.

The US has claimed that fluctuating commodity prices prevent it from accepting a substantially reduced cap on subsidy spending, since it wants the freedom to boost farm payments should prices fall in the future. However, prices for commodities like maize and wheat have been consistently high for some years, and have nonetheless coincided with dramatic fluctuations in notified OTDS.

According to a paper released last month by the German Marshall Fund of the United States, actual US spending on trade-distorting farm subsidies would be unlikely to intersect even the lower $13 billion OTDS cap in Falconer’s text until 2013, barring a substantial fall in commodity prices. The authors, David Blandford and Tim Josling, based their projections for future spending on the farm bill currently in the US Congress. They said that the OTDS ceilings that Falconer set out for the EU and US could be met by both "without major additional changes in domestic agricultural policies." The authors nonetheless suggest that Falconer’s proposed new subsidy ceilings "would exert pressure" on Brussels and Washington to continue reducing trade-distorting domestic support, and prevent back-sliding in the future. Under the terms for extra-deep cuts to cotton subsidies, US cotton payments would face real reductions from the outset of Doha Round implementation.

Minimally trade-distorting ‘green box’ subsidies rise dramatically

As for ‘green box’ payments, which ostensibly cause no more than minimal trade distortion and are hence exempt from cuts under the Doha Round, US expenditures have been rising dramatically. While in 2000 and 2001 these were a little more than $50 billion, they rose to $58.3 billion in 2002, $64.1 billion in 2003, $67.4 billion in 2004, and $71.8 billion in 2005.

A number of developing countries, including the G-20, have called for tightening the rules that determine what constitutes green box spending, arguing that some payments currently deemed ‘green’ can significantly distort production and trade. Ballooning green box subsidies by the US may give them little cause for comfort. However, Glauber argued that the growth reflects increases in domestic anti-hunger programmes for food stamps and child nutrition, which are generally not controversial.

Brazil may seize on the fact that the US has notified its ‘direct payments’ under the green box category, even though these were ruled ineligible for the green box during the two countries’ WTO dispute over US cotton subsidies. The Appellate Body decided that direct payments to US cotton farmers could not be categorised as ‘decoupled’ from production decisions, as the green box demands, since producers would have been ineligible to receive the payments if they planted fruit or vegetables instead (see BRIDGES Weekly, 9 March 2005).

Timing of the announcement

Carin Smaller, the Geneva-based director of the Trade Information Project at the Institute for Agriculture and Trade Policy (IATP), said that the US’ decision to notify its subsidy spending now came as no surprise.

"The US is playing a little public relations game," she said. "There are mounting cases against US subsidies and unless Washington coughs up the figures there will be negative inferences at the WTO about the legality of US farm spending." She pointed out that the actual amounts in the notification would have looked quite different if direct payments had not been classified in the green box, as per the cotton ruling.

Smaller added that the timing of the announcement also allowed the US to argue that Falconer’s proposed cuts on OTDS would represent a real concession.

She also noted that subsidy payments for 2006 were omitted from the announcement. Although this could possibly be because official data is not yet available, low OTDS figures for the year could undercut Washington’s claims about facing real reductions in spending.

The US notification (G/AG/N/USA/60) is available at http://docsonline.wto.org.

ICTSD reporting.