Boxed In: Conflicts Between U.S. Farm Policies and WTO Obligations

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Farm subsidy programs have long been contentious both indomestic policy debate and in global policy forums. Now a recentWorld Trade Organization ruling against U.S. cotton subsidies hasthrown a spotlight on an additional problem: the conflict betweenU.S. farm programs and the international obligations of the UnitedStates as a member of the WTO. That problem is not confined tocotton. The subsidies conferred on numerous other commoditiesbesides cotton are vulnerable to WTO challenge as well. Inaddition, there is a strong argument that the United States hasbeen and will be in violation of its WTO commitments regarding theoverall level of trade‐​distorting subsidies.

The cotton case has clarified the proper classification of subsidies into the “green” and “amber” boxes of the WTOAgriculture Agreement. The upshot of that clarification is that theUnited States has likely been exceeding the $19.1 billion cap ontrade‐​distorting, amber‐​box subsidies that it agreed to abide byunder the Agriculture Agreement. According to the calculationsdescribed in this paper, total U.S. amber‐​box subsidies to beincluded under the cap amounted to $29.1 billion in 2000 and $25.3billion in 2001 and will likely total about $26.3 billion in2006 – all far in excess of the $19.1 billion limit.

Furthermore, U.S. farm programs for a variety of commodities maybe suppressing market prices in violation of the WTO Agreement onSubsidies and Countervailing Measures. Economic simulations basedon a model developed here show that U.S. subsidies depress worldcorn prices by 9 to 10 percent, world wheat prices by 6 to 8percent, and world rice prices by 4 to 6 percent. Those priceeffects, together with other data on subsidy rates and costs ofproduction, are large enough to raise concerns about seriousprejudice to the interests of other WTO members.

U.S. farm programs are in need of a major overhaul to bring theminto conformity with international obligations. Congress shouldtherefore seize the opportunity to make real and durableimprovements in agricultural policy when the current farm billexpires in 2007.

Daniel A. Sumner

Daniel A.Sumner is the director of the University of California Agricultural Issues Center and the Frank H. Buck, Jr. Professor in the Department of Agricultural and Resource Economics, UC Davis. He was also an economic expert for Brazil in the WTO cotton case. The views expressed here are his own and not attributable to others with whom he may be affiliated.