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U.S. Farm Subsidies and the Expiration of the Wto's Peace Clause

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U.S. Farm Subsidies and the Expiration of the Wto's Peace Clause U.S. FARM SUBSIDIES AND THE EXPIRATION OF THE WTO'S PEACE CLAUSE MATTHEW C. PORTERFIELD* TABLE OF CONTENTS 1. IN TRODUCTION .......................................................................... 1002 2. SUBSIDIES PROGRAMS UNDER THE FARM BILL ........................ 1004 2.1. Pre-1996 Farm Subsidy Programs ................................... 1004 2.2. The 1996 Farm Bill ........................................................... 1005 2.3. The 2002 Farm Bill ........................................................... 1006 3. THE PRINCIPLE WTO AGREEMENTS APPLICABLE TO FARM SUBSIDIES: THE AGREEMENT ON AGRICULTURE AND THE AGREEMENT ON SUBSIDIES AND COUNTERVAILING MEASURES ........................ 1007 3.1. The Agreement on Agriculture ......................................... 1008 3.2. The Agreement on Subsidies and Countervailing Measures ........................................................................... 1013 4. THE UNITED STATES' STRATEGY FOR PROTECTING FARM SUBSIDIES IN THE DOHA ROUND OF WTO NEGOTIATIONS ... 1024 4.1. The B lue B ox ..................................................................... 1026 4.2. The G reen Box ................................................................... 1028 4.3. The Amber Box and Total Trade-DistortingSupport ...... 1030 4.4. The Peace Clause............................................................... 1033 5. GUIDELINES FOR DRAFTING A WTO-COMPLIANT FARM BILL THAT MAINTAINS THE CURRENT BASELINE ............................ 1034 5.1. Eliminate or Limit Price-ContingentPrograms ............... 1037 5.2. Avoid ConcentratingBenefits on Particular Com m odities ..................................................................... 1039 5.3. Support "Non-Specific" Rural Development and Environmental Programs ................................................. 1040 6. C O N CLUSIO N ............................................................................. 1042 * Senior Fellow and Adjunct Professor, The Harrison Institute for Public Law, Georgetown University Law Center. Andrene Smith and Ryan Woodward pro- vided valuable research assistance for this article. Published by Penn Law: Legal Scholarship Repository, 2014 1000 U. Pa. J. Int'l Econ. L. [Vol. 27:4 1. INTRODUCTION The broad objective of the World Trade Organization ("WTO") is "progressive liberalization" -i.e., the gradual reduction of trade barriers over the course of successive rounds of trade negotiations. Consistent with this goal, the WTO's Agreement on Agriculture identifies as one of its primary objectives the "substantial progres- sive reduction" in trade-distorting farm subsidies.1 In the Doha Round of trade negotiations, however, the United States has been attempting to deliberalize some of its commitments under the cur- rently applicable rules on agriculture subsidies while at the same time seeking further concessions on agricultural tariffs from its trading partners. This posture by the United States, as much as any other factor, is responsible for the current impasse in the Doha Round negotiations, which were suspended indefinitely in July 2006.2 During the Uruguay Round trade negotiations, which were completed in 1994, the United States agreed to reduce its overall level of trade-distorting "Amber Box" subsidies to $19.1 billion. Perhaps more significantly, the United States also agreed to subject its farm supports to the generally applicable restrictions on subsi- dies contained in the Agreement on Subsidies and Countervailing Measures ("SCM" Agreement) after the expiration of the Agree- ment on Agriculture's so-called "Peace Clause" at the end of 2003. 3 As a result of that expiration, all trade-distorting farm subsidies can be challenged under the SCM Agreement, including marketing loan program payments, counter-cyclical payments, and, to a lesser extent, direct payments.4 The WTO's Dispute Settlement Body has already ruled against U.S. subsidies for upland cotton in a case bought by Brazil; similar challenges against supports for other ma- jor U.S. export commodities (e.g., corn, wheat, rice and soybeans) appear likely. 1 Agreement on Agriculture, Apr. 15, 1994, Marrakesh Agreement Establish- ing the World Trade Organization, Annex 1A, 1867 U.N.T.S. 410, reprinted in THE LEGAL TEXTS: THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS 43 (1999), available at http://www.wto.org/ Eng- lish/ docs-e/legale/14-ag.pdf [hereinafter Agreement on Agriculture]. 2 See infra Section 4. 3 See infra Sections 3.1.1. & 3.1.3. 4 See infra Section 5.3.2.1. https://scholarship.law.upenn.edu/jil/vol27/iss4/2 2006] FARM SUBSIDIES AND THE WTO'S PEACE CLAUSE 1001 In the Doha Round, however, the negotiating position of the Office of the United States Trade Representative ("USTR") has re- flected more the significant pressure from Congress to protect farm subsidies than the substantial commitments that the United States has already made during the Uruguay Round. The USTR has sought to minimize the reductions that the United States would be required to make in Amber Box subsidies and to offset any reduc- tions by reclassifying programs under "Blue Box" and "Green Box" categories that are not subject to the $19.1 billion limit. Moreover, the USTR has been pushing -unsuccessfully -for a new Peace Clause to protect farm subsidies from challenge under the SCM Agreement. 5 Although the USTR had made some limited progress in winning acceptance for its box-shifting strategy before the col- lapse of negotiations, there appears to be virtually no support for a new Peace Clause among the other 148 Member Nations of the WTO.6 Accordingly, U.S. commodity subsidy programs are likely to remain vulnerable to challenges under the SCM Agreement re- gardless of the eventual outcome of the Doha Round. A more viable strategy for addressing the potential for conflict between U.S. farm supports and the WTO subsidy disciplines would focus not on attempting to negotiate a relaxation of the rele- vant rules but rather on drafting a new Farm Bill that concentrates funding for a wide range of programs- including rural develop- ment, infrastructure, conservation, alternative energy, and food programs-that are not subject to challenge under the SCM Agreement. This approach would avoid further WTO disputes over U.S. agricultural subsidies while permitting Congress to maintain the current baseline of Farm Bill funding. Section 2 of this Article discusses the evolution of the U.S. sys- tem of farm supports and describes the primary subsidy programs in the current Farm Bill. Section 3 provides a brief overview of the relevant WTO rules on agricultural subsidies contained in the Agreement on Agriculture and the SCM Agreement and suggests two relatively simple criteria for predicting whether a particular subsidy program is likely to be found to be impermissibly trade distorting. Section 4 examines the United States' strategy for pro- tecting farm subsidies in the Doha Round negotiations and ex- 5 See infra Section 4.4. 6 See id. Published by Penn Law: Legal Scholarship Repository, 2014 1002 U. Pa. J. Int'l Econ. L. [Vol. 27:4 plains why it is unlikely to succeed. Section 5 provides broad guidelines for drafting a WTO-compliant Farm Bill and identifies some existing Farm Bill programs that satisfy these guidelines. 2. SUBSIDY PROGRAMS UNDER THE FARM BILL 2.1. Pre-1996 Farm Subsidy Programs From the 1930s through the 1990s, U.S. farm policy focused on maintaining the stability of commodity prices through a system of production restrictions and price-linked loan and payment pro- grams. 7 The production restrictions, such as payments to farmers to remove land from production, limited supply and accordingly supported prices. The loan programs effectively guaranteed pro- ducers of certain commodities a set price by providing them with "non-recourse loans." These loans allowed farmers to forfeit their crop to the government's Commodity Credit Corporation in lieu of repayment if market prices were below a pre-set target price for the relevant commodity. 8 The deficiency payment program paid farmers when market prices were lower than the target price con- tingent upon their compliance with an acreage reduction program, which limited the number of acres that could be planted with a given commodity. 9 In the mid-1990s, the U.S. approach to agricultural subsidies changed dramatically as Congress attempted to adapt its farm pol- icy to new pressures and opportunities presented by international trade. In 1994, Congress approved the results of the Uruguay Round negotiations, which created the WTO and for the first time subjected U.S. agricultural subsidies to significant restrictions un- der global trade rules. 10 Most conspicuously, the United States agreed to reduce its domestic support subsidies to $19.1 billion." 7 See Jon Lauck, After Deregulation:Constructing Agricultural Policy in the Age of "Freedom to Farm," 5 DRAKE J. AGRIC. L. 3, 9-19 (2000) (providing a history of pre- 1996 farm policy in the United States). 8 See id. at 13. 9 See ECON. RESEARCH SERV., U.S. DEP'T OF AGRIC., AGRIC. INFO. BULL. No. 624, PROVISIONS OF THE FOOD, AGRICULTURE, CONSERVATION, AND TRADE ACT OF 1990, at 6-7, 9 (1991) available at http://www.ers.usda.gov/Publications/aib624/ aib624a.pdf. 10 See WTO Secretariat, WTO Agriculture Negotiations- The Issues, and where we are now 5 (Dec. 1, 2004), http://www.wto.org/english/tratop-e/agric-e/agnegs- bkgrnde.pdf (explaining agricultural issues negotiated at the WTO between 2000 https://scholarship.law.upenn.edu/jil/vol27/iss4/2
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