The Obama administration's Interagency Trade Enforcement Center (ITEC) has begun a sweeping investigation into whether other countries are providing farm subsidies that violate World Trade Organization (WTO) rules, according to U.S. trade officials.
Many believe the probe is long overdue, given the obvious escalation of farm subsidies in developing countries and their apparent indifference to their WTO commitments, as outlined by the 2011 study on the issue by DTB Associates. That study unearthed a rapid run-up in farm subsidies in countries like Brazil, Thailand and India that put the countries in direct violation of internationally agreed-upon subsidization limits.
Crop support prices in many key developing nations are higher than in the United States and since the countries involved are major producers and consumers of agricultural products, the trade-distorting effects of the subsidies are being felt globally, DTB explained.
The DTB Associates study was consistent with the detailed handbook of foreign farm subsidies published by Texas Tech University which noted that the United States ranked low on both the tariff and subsidization scale when compared to its competitors.
Despite this, U.S. farmers have uniquely been the subject of trade discipline by the WTO. For example, even though according to the Texas Tech study the Brazilian government has a minimum support price for cotton at $.75/lb, they were able to win a WTO case against the U.S. Government which has an equivalent marketing loan rate of $.52. Their case was essentially that the U.S. loan rate was suppressing the world market and harming farmers in Brazil, but U.S. production has been in decline while Brazilian production has skyrocketed.
Veteran trade advisor and former Assistant U.S. Trade Representative Donald M. Phillips says the investigation should prove to be a useful tool in international trade negotiations and a basis for pursuing corrective actions.
Phillips says the disturbing trend also serves as a strong argument for the importance of keeping America's agriculture policies intact as Farm Bill negotiations continue.
"Given the obvious escalation of farm subsidies in developing countries, often in violation of their WTO commitments, it makes no sense for the U.S. to unilaterally disarm by crippling the safety net programs for U.S. farmers," Phillips said.
According to Phillips, the pernicious effects of developing country farm subsidies are particularly evident in the world sugar market -- a "dump" market normally characterized by prices well below cost of production of most suppliers.
Phillips noted that with respect to Brazil, four decades of lavish subsidies to the sugar/ethanol complex in addition to lax labor and environmental standards has helped the country gain dominance of global sugar exports. Today, Brazil controls 50 percent of the export market. By comparison, Saudi Arabia controls 19 percent of the world oil market.
"We hope this probe will explore the huge impact that government programs have had on the expansion of production and exports by dominant players in the world sugar market, notably Brazil and Thailand," Phillips said.