US farm subsidy programmes are in direct violation of the country's agreement with the World Trade Organisation, both in amount spent and the effect on market prices, according to a study published on Monday by a policy think tank.
Reform of rich nations' agricultural trade supports is a hot topic because it occupies a central position in world trade and development talks. WTO member countries, which meet next week in Hong Kong, are struggling to agree how to cut farm subsidies and import duties as part of a broad plan to lower trade barriers globally.
The study by the Cato Institute said the United States has an extra incentive to overhaul its farm spending programmes because it is vulnerable to challenges from other countries. Its conclusions mirror a report from Oxfam last month which said both Washington and Brussels risk being hauled before the WTO over billions of dollars in illegal farm subsidies.
"I don't think the US WTO negotiating team or the staff on Capitol Hill would disagree with the general thrust of either one of the studies," said Daniel Sumner, author of the Cato Institute report and director of the University of California Agricultural Issues Center. "If you look at the congressional testimony of the (Agriculture) secretary, he has said to US farm organisations that we've got some vulnerabilities here and the time to deal with them is in these (WTO) negotiations," Sumner added.
The Cato Institute advocates smaller, limited federal government and free markets. No one from the US Trade Representative's office or the Agriculture Department was immediately available for comment.
Sumner advised Brazil in its successful WTO cotton case against the United States. The WTO ruled early this year that US cotton subsidies totalling some $4 billion a year broke trade rules, depressed world prices and hurt Brazilian farmers.
He said the cotton case clarified proper classification of US farm subsidies into "amber" and "green" boxes of the WTO agriculture agreement, referring to trade-distorting and non-trade-distorting subsidies, respectively. The upshot is that the United States has likely been exceeding the $19.1 billion cap on trade-distorting, "amber box" subsidies that it agreed to abide by under the Agriculture Agreement, Sumner said.
"Total US amber-box subsidies to be included under the cap amounted to $29.1 billion in 2000 and $25.3 billion in 2001 and will likely total about $26.3 billion in 2006 - all far in excess of the $19.1 billion limit," Sumner wrote.
US farm programmes may also be suppressing market prices in violation of the WTO agreement on subsidies, the study said.
American subsidies depress world corn prices by 9 to 10 percent, world wheat prices by 6 to 8 percent, and world rice prices by 4 to 6 percent, according to economic simulations, Sumner said. "Those price effects, together with other data on subsidy rates and costs of production, are large enough to raise concerns about serious prejudice to the interests of other WTO members," he concluded.
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