FarmPolicy

April 20, 2019

Canada & Brazil- WTO Activity on U.S. Farm Subsidies

Lee Berthiaume, in an article posted yesterday at The Embassy Online (Canada), reported that, “Canada and Brazil are working to get a World Trade Organization dispute panel to hear their respective complaints about American agricultural subsidies at the same time.

“‘Canada’s focus is on advancing the potential alignment of the Canadian and Brazilian cases given that both countries share the same concerns and same objectives of disciplining and reducing U.S. trade distorting subsidies,’ said International Trade spokeswoman Renée David.

On Jan. 8, the Canadian government announced it was requesting consultations, alleging the United States has been distorting corn prices through unfair subsidies that averaged $9 billion over the past two years.”

The article explained that, “In the weeks that followed Canada’s request, a number of countries–including Argentina, Australia, Guatemala, Nicaragua, Thailand, Uruguay and the European Union–asked for and were granted third-party observer status in the consultations, highlighting the importance of the case.” [A January 23 FarmPolicy.com update on that development is available here].

“Brazil, which has successfully challenged American cotton and EU sugar subsidies, was granted observer status.”

Yesterday’s Embassy article went on to note that, “On June 8, [related FarmPolicy.com update from June 9 available here] after the consultations failed to resolve the dispute, Canada announced it had planned to ask for the establishment of a WTO dispute settlement panel to examine the total level of U.S. trade-distorting agricultural subsidies as well as American export credit guarantees, which subsidize the export of certain agricultural goods.

“The U.S., however, blocked Canada’s request at the June 20 meeting of the WTO Dispute Settlement Body [more background on this U.S. action was noted in this June 21 FarmPolicy update.]. Under WTO rules, a request can be blocked once, though the complainant country can make a second request at a future DSB meeting.”

Yesterday’s article added that, “On July 11, Brazil requested consultations with the U.S., its own concerns closely reflecting Canada’s complaint. The Latin American country, a major ethanol producer, also raised concerns about American export credit guarantees, and also alleged the U.S. had exceeded its $19.1 billion limit on agricultural subsidies. [see related Dow Jones News article from July 10 for more background].

“Canada was one of a number of other countries that requested third-party status for the U.S.-Brazil consultations, which were held on Aug. 22 in Geneva without a successful resolution. [related Dow Jones News article from Aug. 22 available here].

“Brazil is now free to request the establishment of a dispute settlement panel at any time as the requisite 60-day consultation period expired on Sept. 11, while Ms. David said Canada can request a panel at the next DSB meeting, scheduled for Oct. 22.

“‘Canada has major concerns with U.S. agricultural subsidies and intends to pursue this case,’ she said.”

Meanwhile, recall that the Associated Press reported last week that, “Brazil will ask the World Trade Organization for a formal investigation of U.S. farm subsidy programs, which it says includes payments for ethanol production, a senior Brazilian official said Wednesday [Sept. 12].

“The South American country, which has already won a series of WTO rulings over U.S. cotton subsidies, will make its request for an investigative panel soon, said Roberto Azevedo, the Brazilian Foreign Ministry’s trade chief.”

The AP article noted that, “The two countries held consultations last month after Brazil accused the United States of exceeding the $19.1 billion that it is permitted under WTO rules to spend on the most controversial forms of farm subsidies in six of the past eight years. Brazil also accuses the U.S. of giving illegal export credit guarantees, largely echoing an earlier complaint by Canada.”

Yesterday’s Embassy article added this interesting perspective, “Ernesto Araujo, a counsellor at the Brazilian Embassy in Ottawa, said the two cases are significant because they directly address one of the main obstacles to completion of the WTO’s Doha round of talks, namely U.S. resistance to curbing agricultural subsidies.

“While the cases will not replace the negotiations, they ‘tend to be a reproduction of the negotiations under a different perspective,’ he said.

“Mr. Araujo said the Canadian complaint ‘more or less opened people’s eyes to the possibility–or to the necessity–of going this way.’

“‘While there may not have been a direct influence on the [Brazilian government’s] decision-making process, it was a very strong point of reference for our process,’ he said. ‘It would be something very different if we were alone and nobody was with us.’

“Canadian and Brazilian officials have met several times, mainly in Geneva, to iron out how they will proceed with their cases, Mr. Araujo said, and while a plan hasn’t been set in stone, ‘there is a common willingness to co-operate,’ he said.”

Near the conclusion of the article, Lee Berthiaume stated that, “The Canadian Corn Producers industry association, which recently dropped its own case against U.S. corn subsidies after the Federal Court of Appeal dismissed its complaints, supported Canada and Brazil working together.

“Earlier this month, the CCP decided to drop its own challenge of U.S. corn subsidies after the Federal Court of Appeal upheld a Canadian International Trade Tribunal ruling dismissing the producers’ complaint. [For more background on this issue, click here].

“Rather than appeal the decision, which U.S. producers point to as proof the subsidies and aid they receive has not distorted trade, to the Supreme Court, the CCP said it would throw its support behind Canada’s challenge at the WTO.”

As potential WTO litigation moves forward, the Associated Press reported yesterday that, “Breathing life into struggling world trade talks, the U.S. has signaled its willingness to limit trade-distorting farm subsidies to a level between $13 billion and $16.4 billion, the WTO’s lead farm trade negotiator said Wednesday.

“Crawford Falconer of New Zealand said Washington made the move contingent on other countries accepting proposed cuts in agricultural tariffs.

“The U.S. has never said publicly it could accept a cap on payments to U.S. farmers below around $23 billion. The question of rich countries’ farm subsidies has been a major stumbling block in the WTO’s six-year effort to liberalize world trade.”

The AP article added that, “Several WTO diplomats present at the meeting confirmed that chief U.S. farm trade negotiator Joe Glauber said Washington accepted the proposed subsidy range if other countries agreed to Falconer’s plan for cutting tariffs on farm products. For the 27-nation European Union, for example, that would mean a reduction of its highest farm tariffs by 66% to 73%.

“Peter Power, spokesman for E.U. Trade Commissioner Peter Mandelson, said he hoped Washington’s move would spark other countries to offer concessions. ‘This shows that like the E.U., the U.S. has the will to negotiate and conclude the round successfully,’ he said from Brussels, Belgium.”

The article also noted that, “Washington spent only $11 billion on trade-distorting subsidies last year, but the Bush administration wants flexibility in the event that greater assistance to farmers is needed because of a decline in world agricultural prices.”

For more details on U.S. agricultural payments, click here; see also this graphical depiction of government payments from 1997 through a 2007 estimate.

Meanwhile, Reuters news reported yesterday that, “There is enough political support from key developed and emerging countries to forge an agreement this year to conclude the Doha round of trade talks, World Trade Organisation (WTO) chief Pascal Lamy said on Wednesday.”

The article indicated that, “‘Are things moving? Yes, they are. Are we there yet? No we are not there yet. Do we have the necessary political support? Yes,’ Lamy, in Manila for the second of three regional trade conferences which kicked off in Peru last week, told reporters.

“‘We know the direction. Developed countries have to do more than what they have proposed in terms of reducing farm subsidies and their agricultural tariffs,’ Lamy said.

“‘They have agreed to that. The only remaining question is how much are the ranges,’ he said.”

In a commentary item published today at The Wall Street Journal Online, Pascal Lamy and Haruhiko Kuroda wrote that, “We may be at the ‘make-or-break’ moment for global free trade. Although bilateral trade deals are becoming more common, consensus on the multilateral Doha Round is still elusive. Many leaders have called for progress on Doha, but rallying political support at home for dramatic trade liberalization is always challenging.

“So at this critical juncture, it is most important that we continue to give special attention to those economies that can actually benefit most from the Doha Round — the least developed countries and smaller states. Opening markets and expanding trading opportunities stimulate economic growth and higher living standards. But for countries still isolated from the global trading system there are large adjustment costs to opening their markets. And that is why the new Aid-for-Trade initiative — launched at the World Trade Organization Ministerial meeting in Hong Kong in 2005 — is so important. The U.S., European Union and Japan pledged initial contributions of about $15 billion to kickstart the initiative through 2010.

“Aid-for-Trade will help these least-developed and smallest countries benefit from new trading opportunities by building the necessary capacity to trade effectively and efficiently — with donor support coordinated through multilateral partnerships with institutions like the WTO, the World Bank and regional development banks.”

In conclusion, the articles noted that, “Aid-for-Trade is about giving developing countries the tools to take advantage of market-opening opportunities, especially those that would result from the successful conclusion of the WTO Doha Round — to better harness trade as an engine of economic growth and development. It is a necessary complement to the Doha Round, but not a substitute. A successful conclusion to the Doha Development Round is the most important contribution that we can make to accelerating economic growth, promoting development and contribute to reducing poverty.”

***

Reuters writer Charles Abbott reported yesterday that, “The chairman of the Senate Finance Committee said he has not nailed down the finances for the multibillion-dollar disaster relief program that he insists must be part of the new U.S. farm subsidy law.” [For more detail on the Finance Chairman’s funding ideas, see this press release from Sept. 11.]

“Chairman Max Baucus said on Wednesday he intended to settle the matter by early October, also the informal target for the Agriculture Committee to draft a farm bill.

“Creation of an ever-ready disaster program is a top priority for senators from the Plains and the West. It would be an expensive item at a time when funding reserved for agricultural programs in the farm bill is down sharply, the result of high market prices.” [A related paper on agricultural prices and Farm Bill budget issues is available here].

“Baucus said he plans to create a trust fund for disaster relief by using tariff receipts that now go into the federal general fund.”

Mr. Abbott added that, “On Tuesday, Senate Agriculture Committee Chairman Tom Harkin, Iowa Democrat, said a ‘modest’ disaster program would fit in the bill if a revenue protection plan was optional.

“‘I think it (the farm bill) is coming together,’ said a farm lobbyist, because of common views about elements for the farm bill, which could require billions of dollars in new funding.

“The lobbyist, who asked not to be named, said the Senate farm bill probably would resemble the bill passed by the House on July 27. The House bill would make minor changes in crop support rates and boost funding for public nutrition, biofuels, land stewardship and specialty crop programs.”

The “Washington Insider” section of DTN stated yesterday (link requires subscription) that, “Senate Finance Committee Chairman Max Baucus, D-Mont., has not yet scheduled a markup session for legislation that would provide $8 to $10 billion in tax-related budget offsets for additional farm bill spending. Initially, it was believed the panel would meet Wednesday, but it now appears that Baucus will wait until the first week of October, which would be just before Congress is scheduled to take a one-week Columbus Day recess.

“The Baucus tax package is intended both to create conservation tax credits for farmers and raise enough revenue to allow for a permanent agriculture disaster fund costing at least $1 billion annually.”

And Congressional Quarterly writer Catharine Richert reported yesterday that, “Senate Finance Committee Chairman Max Baucus, D-Mont., plans to mark up a farm tax-credit bill on Oct. 3, but he is still searching for offsets for a disaster relief trust fund that would help farmers deal with droughts, floods and fires.

“The Montana Democrat said Thursday he hopes to fill the $5 billion trust fund with tariffs collected on agriculture imports. But if he diverts those revenues to the fund, he will have to replace them one way or another.

“A disaster trust fund has long been a priority for Baucus and Sen. Kent Conrad, D-N.D. The current combination of crop subsidies and crop insurance doesn’t provide adequate coverage, they say.”

Also yesterday, Philip Brasher, in an update posted at The Des Moines Register Cash Crops blog, reported that, “Sen. Kent Conrad, D-N.D., insists that he’s working with the chairman of the Senate Agriculture Committee on writing a farm bill.

“There has been wide speculation that Conrad is going around Harkin to work with other senators. Certainly, Conrad worked with Sen. Max Baucus, D-Mont., to develop a disaster relief fund, an idea that Harkin first resisted and now has embraced.

“‘I’ve been working very close with the chairman, developing options,’ Conrad told reporters before a news conference Wednesday.

“Conrad made clear he wants to keep ‘the basic structure of the current farm bill that has worked so well.’

“Harkin is pushing for bigger changes in policy than many of the major farm groups want.

“The American Soybean Association, National Cotton Council and National Association of Wheat Growers signed on to a letter recently urging the Senate to use the House-passed farm bill as a “starting point” for its legislation.”

***

The Associated Press reported in today’s Washington Post that, “U.S. Agriculture Secretary Mike Johanns is expected to resign Thursday to clear the way for a Senate campaign in 2008, giving Republicans a welcome dose of good political news.”

Philip Brasher provided more background and analysis on this development in an article published in today’s Des Moines Register, click here for details.

Keith Good

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