A new US farm bill signed into law by US President George W. Bush on 13 May has met with severe disapproval by a number of the country's trading partners. Mercosur -- the largest trading bloc of agricultural exporting countries in Latin America -- is considering a challenge at the WTO of the US legislation, which is estimated to increase subsidies to the agricultural sector by 80 percent to the tune of at least $US82 billion over the next decade. Other WTO Members and US government officials have also highlighted possible inconsistencies between the bill and the US' obligations under WTO rules. The bill comes at a time when the US is under increasing criticism for its trade policies, most notably its recent decision to impose tariffs on steel imports of up to 30 percent (see BRIDGES Weekly, 16 April 2002).

Bush's signature of the farm bill follows approval by the US House of Representatives on 2 May (see BRIDGES Weekly, 2 May 2002) and of the US Senate on 8 May. "This bill is generous and will provide a safety net for farmers, and it will do so without encouraging overproduction and depressing prices," Bush said in a ceremony at the White House. Commenting on international concerns over the new legislation -- which is expected to raise total US agricultural subsidies to $US180 billion over ten years -- Chair of the Senate Agriculture Committee and a major proponent of the new policy Tom Harkin said the new farm legislation "is not for European farmers and South American farmers. This is for our farmers."

Mercosur considers WTO challenge

According to diplomats, Mercosur members Argentina and Brazil are considering a challenge at the WTO against the bill, arguing that it would enable US producers of commodities such as soy, cotton and cereals to offer their products at prices below those they currently offer on international markets. Both official and private accounts forecast the two countries to suffer combined losses of some $US3.9 billion per year due to a drop in exports caused by the expected price distortions. The new farm bill will particularly affect the soy exporters of the Mercosur countries, according to Argentina's Agriculture Secretary Rafael Delpech.

Commenting on the farm bill's passage through the US Senate, Argentine President Eduardo Duhalde said, "the United States preaches free trade but then are the most obscene protectionists." For its part, Brazil criticised the bill for being detrimental to international trade, while Mercosur member Paraguay described the new farm legislation as "a big step backward" in meeting the WTO targets. A top farm group official of the fourth member of the South American bloc -- Uruguay -- accused Washington of "telling two different stories" at international fora, adding that the US "clamours against subsidies but, when push comes to shove, it opts for protectionism."

Brazilian news agency Agencia Brasil reported on 9 May that Brazil would file a request with the WTO's Dispute Settlement Body on consultations with the US over the subsidies the US government was expected to adopt for soybean crops. Brazil's Foreign Ministry, however, has not yet confirmed whether Brazil will also formally challenge the new US farm bill itself at the global trade body. The US is the world's largest producer of soy, with a 30 percent share at the world market, followed by Brazil, Argentina and Paraguay.

Trade experts see development at risk

The World Bank, which has persistently advocated cutting agricultural subsidies in OECD nations, called 13 May "a sad day for world farmers". According to its data, cotton exporters in West and Central Africa alone would gain further $US250 million in revenues per annum if the US -- the world's biggest cotton producer -- stopped subsidising domestic cotton production. But the increase in US farm support, analysts forecast, could further depress world commodity prices, making imports cheaper than local products in the developing world and ultimately forcing domestic farmers out of business.

The US government, together with the Bank, the International Monetary Fund (IMF) and the WTO, has previously urged poor countries to open up their markets for products from rich nations by cutting tariffs and reducing non-tariff barriers. Moreover, the newly negotiated Doha Declaration -- dubbed by many the 'Doha Development Agenda' -- requires Members to negotiate towards "substantial reductions in trade- distorting domestic support" as well as "reductions of, with a view to phasing out, all forms of export subsidies."

The farm bill "may not yet have killed the new round of trade negotiations, but has made even less credible the claims about a 'development agenda' at Doha," a Southern trade expert commented.

More criticism from inside and outside US

Strong criticism of the bill was also voiced from a number of other trading partners. Australia expressed its disappointment with the new US farm policy, which it said would jeopardise international efforts to reform the global agricultural trade regime. According to Trade Minister Mark Vaile, Australia will now assess the US farm bill in more detail to establish whether it is allowed under international trade rules. "We are going to critically analyse the elements and we reserve the right to ensure it is compliant with US obligations under the WTO," Vaile said. The EU also reportedly said it might challenge the US farm subsidies at the WTO. Furthermore, Canada expressed its concern, saying that the new law contradicted US calls for freer farm trade.

According to WTO provisions, US farm subsidies notified under the so- called 'Amber Box' cannot exceed $US19.1 billion annually. The new farm legislation authorises the US Department of Agriculture to adjust subsidies to stay under the WTO cap. Several farm bill critics, however, have voiced their doubts whether the USDA would take such politically unpopular steps simply to avoid a breach of the US' WTO commitments.

Criticism of the bill was also voiced from inside the US. Senior Republican Senator Charles Grassley warned that the bill would undermine efforts by the US to reduce agricultural subsidies in Europe and other countries. "I cannot think of a more effective way to undermine everything we have worked for, and everything we hope to accomplish at the negotiating table during the next three years, than to pass a farm bill that we know might break our WTO obligations," he said.

The four Mercosur partners (Argentina, Brazil, Paraguay and Uruguay) and Australia are members of the Cairns Group of agriculture exporting WTO Member States. The Cairns Group has been the key demandeur in the GATT/WTO agriculture negotiations, calling for the elimination of export subsidies, opening up markets and reducing subsidisation in the global agriculture sector. Traditionally, the US has been a supporter of Cairns Group positions.

"Opponents Unite To Decry US Farm Subsidies," IPS UN JOURNAL, 14 May 2002; "US Farm Bill Poses 'Threat' To Trade Talks," FT, 13 May 2002; "Bush Returns To Subsidies To Support Farmers," FT, 13 May 2002; "Mercosur Prepares Offensive Against Increased US Farm Subsidies," EFE via COMTEX, 10 May 2002; "The Americas: Senate Approval For Farm Subsidies Boost," FT, 9 May 2002; "Farm Bill Gains Senate Approval," WASHIGTON POST, 9 May 2002; "Brazil To Appeal To WTO Over Soybean Subsidies," KYODO NEWS, 9 May 2002; "Australia To Check US Farm Bill Complies With WTO Rules," REUTERS, 13 May 2002.