Lawmakers may have made the United States more vulnerable to new world trade suits this week when they voted to increase some subsidy rates and give new support to the cotton industry, analysts said on Friday.
Late on Thursday, the House Agriculture Committee voted to approve its version of the 2007 farm bill, a sweeping law that will set subsidy, conservation, nutrition and food aid policy for the next five years.
It's unclear what the final law will look like, but Gary Blumenthal, a former agriculture official and analyst at World Perspectives, sees Congress banking on more record crop prices as they chart a course for US agriculture.
That's all very well if prices remain high, Blumenthal and other observers say, but the United States is in danger of exceeding WTO subsidy limits if commodity markets slump and price-triggered crop supports surge.
"The raising of support rates would appear to encourage future dispute settlement challenges but that assumes that more money is spent and that's all dependent" on prices, he said.
Still, Blumenthal believes "the United States is going to get challenged either way" as disgruntled countries pile on to complain about US farm policy at the World Trade Organisation's Dispute Settlement Body.
This year, Brazil and Canada have put forward separate challenges to US farm subsidies, contending that the United States has exceeded its annual WTO spending limit in recent years and has improperly classified some supports among those that don't significantly distort world markets.
It was the second major challenge of US farm subsidies from Brazil, which already won a landmark case filed that forced the repeal of some cotton supports. A WTO panel is expected to decide on July 27 whether Washington has sufficiently reformed its cotton program.
The Bush administration contends that US farm programs comply with trade rules, and promises to fight any challenges. And Rep. Collin Peterson, who chairs the House committee drafting the new farm law, has consistently vowed that US farm policy will be written in Washington, not Geneva.
But more cases may be in the works from Mexico and other countries. One industry source, speaking on the condition of anonymity, said the farm bill could be steering things in a worrying direction. "It's a stick in the eye of countries that might already be annoyed," he said.
The bill passed this week spurns advice from the Bush administration, for example, to remove crop restrictions on direct payments made to farmers - restrictions some trading partners argue make the payments trade distorting. "One of the things that is certain is that the bill doesn't reduce our vulnerability," the source said.
Aid and advocacy group Oxfam, which has long pushed for reform of cotton subsidies in the United States, which supplies 40 percent of world cotton exports, said the bill takes US farm policy "from bad to worse."
"By refusing to reform programs that fuel overproduction, raise land prices here and lower commodity prices abroad, the Committee has sold out American family farmers and leaves struggling farmers in developing countries in the dust," said Raymond Offenheiser, the group's president.
Oxfam complains that one measure in the bill, which introduces a payment to US cotton mills, mimics a support repealed after Brazil's WTO victory. The cotton industry says the payment doesn't favour only US cotton. The industry source said "it's still a subsidy to processors (who) mainly process domestic cotton."