The recent announcement by the Canadian government that they are requesting a WTO dispute settlement panel on U.S. trade-distorting domestic agricultural subsidies sounds like a broken record, but may be good if the case finally puts to rest the never ending argument about U.S. farm policy and WTO compliance. Brazil made a similar announcement, and it is assumed that both cases will be handled by the same panel. This is a fight about the past and has little connection to the likely farm policy and trade policy conditions of the next few years.
Canada claims that the U.S. exceeded its cap of $19.9 billion for the 1999 marketing year and $19.1 billion for subsequent years for trade-distorting domestic agricultural subsidies, better know as the Aggregate Measure of Support (AMS) for the amber box, in 1999, 2000, 2001, 2002, 2004 and 2005. Marketing year 2003 is excluded because that was a year with higher market prices, and government payments were significantly lower. In early October the U.S. had officially reported to the WTO its AMS for marketing years 2002, 2003, 2004 and 2005. For the six years in question the AMS as reported by the U.S. government was below the applicable yearly limit.
$ 9.6 billion
The cases by Canada and Brazil are arguments over which programs should be in the amber box, the amber de minimis category and the green box. Green box programs are considered to be minimally trade distorting and are not capped. Programs in the amber de minimis category are not counted in the AMS for the amber box as long as they total less than 5 percent of the value of production of all agricultural commodities.
The direct payments under the 1996 and 2002 farm bills were included in the green box because they are decoupled from current plantings and prices. That position was called into question by the WTO ruling against the U.S. in the Brazilian cotton case because planting of fruits and vegetables on farm program acres is prohibited unless the farm has a history of planting those crops. Direct payments have ranged from $4.1 billion to $6.2 billion per year for the years in question and could put the U.S. over the $19.1 billion per year limit in some years if they were considered to be trade distorting. Conservation payments are also in the green box as minimally trade distorting. They have been about $3 billion per year in recent years.
The amber box de minimis category includes counter–cyclical program payments and crop insurance which could be construed as regular amber box payments. Counter-cyclical payments were over $4 billion per year in 2004 and 2005. Net crop insurance payments as reported were $1.1 billion in 2004 and $0.760 billion in 2005, but were $2.9 billion in 2002. The two most difficult years may be 1999 and 2000 when the amber box AMS was almost $17 billion each year, the amber box de minimis category was over $7 billion and the decoupled direct payments were over $5 billion each year.
A logical question is what do farm program payments in 1999 and 2000 have to do with farm and trade policy in 2007 and the years ahead. The answer is not much; but, by design the WTO dispute resolution process is backward looking. A case cannot be filed until an impact from trade distorting subsidies is believed to have occurred. The goal is to prevent the re-occurrence of the impact in the future. The higher commodity prices of the past year and the expectation of continued high prices for the next few years have made the likelihood small of problems in the years ahead.
This does not mean that an adverse ruling in the case would not have an impact on farm policy. If the final 2007 farm bill maintains direct payments as now provided for in the House passed bill and the Senate bill proposed by the Agriculture Committee, a shift in those payments to the amber box could limit the amount of other payments that could be made under whatever the new yearly AMS cap may be under a new WTO agreement. If the payments are going to be considered amber box, Congress could consider making those payments price contingent to protect producers in low income years.
Shaping future farm policies based on winning or losing WTO cases on what happened eight years ago is a poor way to reshape U.S. domestic farm policy or the farm policy of other countries like Japan or South Korea. It would be wiser to hammer out a new WTO agricultural agreement that provides for more open trade with a realistic view of what is likely to happen in agricultural trade over the coming ten years.
The Canadian government has said it will request a dispute panel at the November 19, 2007 meeting of the WTO Dispute Settlement Body. The U.S. has the right to ask that the request be rejected at that meeting. At the following meeting on December 18 Canada can again request the panel and the U.S. cannot stop the process. Once members of the panel are chosen, it will take at least another six or eight months for the panel to gather information and issue a ruling. After that, there could be additional maneuvering that would push the process into early 2009.
Whatever comes out of the case will become precedent for future dispute settlements. The best that can be hoped for is that the ruling is relevant to trade policy and market conditions a few years from now and helps the continued movement toward freer international trade in agriculture.