US Senate Debates Potential for WTO Challenge to 2013 Farm Bill

23 May 2013

Agriculture committees in the US Senate and the House of Representatives cleared their respective versions of a potential 2013 Farm Bill last week, marking the first major advance in a process that had stalled last year. However, with the full Senate now in the midst of debating the legislation, some members of the chamber are raising questions on the impact of the new bill on trade and whether its provisions will indeed be WTO-compatible.

The new counter cyclicals?

Although the proposals under discussion have ostensibly cut trade-distorting counter cyclical payments - transfers to farmers when prices fall - a host of new programmes appear poised to take their place. The Senate, for instance, has proposed two schemes in its version of the Farm Bill: Adverse Market Payments (AMP) and Agricultural Risk Coverage (ARC). Representatives in the House, meanwhile, are assessing the merits of Price Loss Coverage (PLC) and the Revenue Loss Coverage (RLC).

Some, such as Senator Pat Roberts - a Republican from the US state of Kansas - have warned that the AMP could potentially be challenged at the WTO. In a statement, Roberts noted that "the WTO stove is hot" following the US' loss at the global trade arbiter in its cotton-related dispute with Brazil, and that the new Farm Bill should not be reason to "reach out to touch it again."

The Senate's two programmes use lower reference, or target, prices on average compared to those proposed in the House. With the exception of peanuts and rice, prices in the Senate bill are not fixed over the five-year Farm Bill period. Instead, they use an average that drops the highest and lowest values over a five-year period.

The AMP, Roberts told the Senate Agriculture Committee last week during a discussion on an amendment to cull the programme, is at best a trade-distorting WTO "amber box" programme and is "slowly growing red."

Payments to farmers under the AMP would be calculated using reference prices and the number of acres planted. Nick Paulson, an agricultural economist at the University of Illinois, told Bridges that, of the proposed programmes, anything based on planted acres has the potential to be more distorting, particularly if prices fall over the life of the Farm Bill.

Of these programmes, the proposed House PLC and RLC are the ones with the greatest likelihood of being trade-distorting, Paulson said, since they would guarantee payments based on fixed reference prices over the five-year Farm Bill period and reward farmers with greater outlays for planting more acres of a given crop, regardless of market conditions.

The battle in the Senate is being drawn along crop lines. Roberts, from corn, soy, and wheat-producing Kansas, wants peanut and rice farmers to leave "everybody else alone," fearing that the higher fixed prices for the Southern oil-seed and cereal would open the US up for WTO retaliation.

Others such as Senator Mike Johanns, a Republican from Nebraska - also a corn, soy, and wheat-producing state - noted that discussions with Brazilian officials have led him to believe that the dispute was about the US' entire approach to farm policy, and not just cotton. Johanns, who previously served as US Secretary of Agriculture, added that an AMP would be "exacerbating the situation" and that any WTO challenge would be "successful."

The amendment to remove the AMP from a final Senate Farm Bill failed to pass the agriculture committee, but the sentiment may still colour the discussions in the broader assembly. Senator John McCain, a Republican from Arizona, took the rare step this week of singling out a given crop, tobacco, for the elimination of subsidies.

Jim French of Oxfam USA told Bridges that farm interests traditionally maintain a common front and that differential treatment of crops was unusual. He added that the development NGO would be carefully looking at the proposals re-establishing reference prices, due to their potentially trade-distorting nature.

Crop insurance still key

Both chambers' respective agriculture committees have focused on crop insurance as the primary vehicle for reforming US agricultural spending, similar to the proposals tabled last year.

Beyond making crop insurance the centrepiece of reform, what is on the table now also reduces spending by eliminating direct payments, slashing nutrition support, and overhauling counter cyclical payments, among other programmes.

With regards to crop insurance reform, Senate Agriculture Committee Chair Debbie Stabenow, a Democrat from the US state of Michigan, is urging farmers to get some "skin in the game" - referring specifically to the need for shifting away from programmes that pay farmers unconditionally.

With the new expanded crop insurance programme, farmers would participate by paying insurance coverage premiums. Under the proposed bills, these insurance premiums would be subsidised up to 62 percent. Farmers could then be covered for "shallow" losses, or up to 80 percent.

Experts on crop insurance, such as Carl Zulauf at Ohio State University, have observed that the emphasis on insurance is a fundamentally different approach from previous farm bills. Others, such as Bruce Babcock of Iowa State University, have criticised the proposed system as being yet another way to provide otherwise politically unpalatable subsidies to farmers that have received record incomes in recent years.

Crop insurance programmes generally come under the aegis of the WTO's uncapped "green" box of minimally trade-distorting payments. The structure and specific composition of the US programmes may categorise them as trade-distorting "amber" box payments with fixed ceilings, argued Zulauf and David Orden of Virginia Tech in a recent paper for ICTSD, the publisher of Bridges.

Next steps

The Senate is expected to put its Farm Bill to vote before the end of May, while the House is likely to debate and vote on its version by summer's end.

Those pushing for significant reform of the Farm Bill expect to find sympathetic ears and a tougher time for the draft legislation in the House, given that that chamber has proportionately fewer members representing rural interests and is far more interested in the cuts made to nutrition programmes.

"We think the House is where the real fight will be," Dan Holler, a spokesman for Heritage Action, a conservative think tank, told Politico earlier this week.

Long-time Farm Bill lawmakers say that any final legislation will be written behind closed doors after both chambers pass their respective versions. "At the end of the day this bill is going to be written in conference," Collin Peterson, the Ranking Democrat on the House Agriculture Committee, told reporters in a telephone call last Friday, referring to the process where separate bills from the two chambers are reconciled with one another. "We just need to figure out how to get this to conference. That's the trick."

ICTSD reporting; "Senate debates farm bill," POLITICO, 20 May 2013; "Farm Bill; and the Ag Economy- Tuesday," FARMPOLICY.COM, 21 May 2013.

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