The World Trade Organization on Thursday upheld a decision that condemns U.S. cotton subsidies, putting more pressure on the federal government to limit farm payments.
The ruling was a blow to California's cotton growers, who received more than $300 million in federal payments in 2003. Cotton is one of the most heavily subsidized crops, and both Congress and the Bush administration are considering trimming the program.
The WTO rejected the U.S. appeal of a ruling last year, in response to a complaint filed by Brazil, that found payments to American cotton growers violate global trading rules. The international trade body said the government subsidies distorted world prices and blocked the goods of developing nations from reaching the market.
The U.S. could ignore the ruling, instead allowing Brazil to raise tariffs on U.S. exports as compensation. But most trade and farm experts expect the Bush administration to reach some sort of accommodation with the WTO and Brazil, which could include reducing or changing subsidies.
"We will study the report carefully and work closely with Congress and our farm community on our next steps," said Richard Mills, a spokesman for acting U.S. Trade Representative Peter Allgeier.
Robert Stallman, president of the American Farm Bureau Federation, expressed disappointment with the final ruling, but conceded "ultimately we will have to comply one way or another."
The federal farm payment program topped $16 billion for all commodities in 2003. Cotton farmers received $2.7 billion, according to the Environmental Working Group, a Washington-based nonprofit that tracks the data.
There is increasing political pressure to ratchet back federal farm programs, said Daniel Sumner, director of the UC Davis Agricultural Issues Center.
The budget proposed by Bush last month would cut farm subsidies by $587 million in fiscal 2006 and envisions reducing farm aid by $5.7 billion over 10 years. Moreover, two politicians from important farm states, Sens. Charles E. Grassley (R-Iowa) and Byron L. Dorgan (D-N.D.), introduced legislation three weeks ago calling for tighter limits on agricultural payments.
As a result of the WTO's action there's also likely to be more support in the 2007 farm bill for industry marketing programs, payments that improve water or land conservation and initiatives that reduce pollution or pay farmers to protect wildlife habitat, said Ken Cook, president of Environmental Working Group, a critic of current agricultural subsidies.
"I am liking the odds for reform better than I ever have before," Cook said.
The WTO ruling took particular aim at programs that provide financial incentives for farmers to grow cotton, which it said increased production and lowered worldwide prices.
Such programs include loan guarantees that allow developing nations to purchase U.S. cotton on favorable financial terms, to the detriment of other producing nations. Another program ruled in violation by the WTO subsidizes the sale of U.S. cotton to fabric mills and exporters when the domestic price exceeds the prevailing world rate.
Although the WTO decision dealt only with cotton, it is likely to set a precedent that would extend to other U.S. commodity programs and even to Europe, said Scott Andersen, an attorney who represented Brazil before the Geneva-based trade body. Addressing such subsidies will take on more urgency for negotiators heading into the next round of trade negotiations under the Doha Development Agenda, Andersen said.
Stallman of the Farm Bureau said growers were frustrated with efforts both internationally and domestically to change payment programs before 2007, when new farm legislation is scheduled. "We should not be changing rules in the middle of the game," he said.
He also defended subsidies, noting they were ubiquitous internationally. "Part of this is defensive," he said. "In Europe, subsidies average more than $300 an acre, at least six times what American farmers get."
Although it is unclear how quickly fallout from the WTO decision will trickle down to the farm, growers in California are braced for change. California cotton farmers sold $761 million of the fiber in 2003. The state trails only Texas in domestic cotton production.
"A spotlight has been turned on the whole subsidy issue," said Cannon Michael, a co-owner of Bowles Farming Co., which plants 6,000 acres of cotton in Los Banos.
California growers have invested heavily in land and infrastructure, Michael said, allowing them to produce high yields of high-quality cotton sought after on world markets. California cotton "sells out every year," he said, even now, when there is a worldwide glut of the fiber.
"There might be some restructuring, but I have the confidence we could continue," Michael said. "We have a very marketable product."