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Impact of WTO Cotton Decision on Billions in USDA Subsidies to Corn & Soybean Farmers

From: <www.Farmpolicy.com March 31, 2006

Frequently Asked Questions About the W.T.O.

Dr. Robert L. Thompson <http://www.farmdoc.uiuc.edu/thompson/index.html ,
the Gardner Chair in Agricultural Policy at the University of Illinois, has provided an excellent recap summary and explanation addressing eight frequently asked questions about the W.T.O., which was posted recently at the University's farmdoc webpage
<http://www.farmdoc.uiuc.edu/policy/ag_policy_briefs/abp_06-01/apb_06-01.htm l .

The last question addressed, "Is there a link between the WTO cotton decision and future corn and soybean programs?," is certainly one that is on the mind of many Midwestern producers.

"In looking towards the 2007 farm bill, it is important to keep one other thing in mind related to the WTO. In 2003, Brazil took a case to the WTO against the U.S. cotton program, alleging among other things, that marketing loans, LDPs, and counter-cyclical payments had stimulated larger production of cotton in the U.S. than would otherwise have occurred, and that, when this cotton was pushed out into the world market, it had depressed the world price of cotton and in turn hurt Brazil's cotton producers, who get their entire income from the market. The U.S. lost this case, and the WTO agreed with Brazil on all of these points," Dr. Thompson said.

"While the Midwest doesn't produce cotton, this case has very real implications for it because the corn and soybean programs have many of the same features as the cotton program that were found to be inconsistent with current agricultural trade rules as defined in the Uruguay Round Agreement of Agriculture. If the Doha Round should fail to come to closure, there is a significant possibility that other countries will take cases to the WTO against other U.S. commodity programs, including rice, corn and perhaps soybeans. One possible scenario is that the U.S. can either give these features up in the negotiations and receive concessions from other countries in exchange for them, or risk losing them through litigation and get nothing for giving them up."

And in conclusion, the piece stated that, "The WTO decision on the Brazil cotton case has one other important implication for the 2007 Farm Bill. The WTO found that the United States ' direct payments violate the definition of decoupled (green box) payments (of which, parenthetically, the U.S. was the principal author). For payments to come in under the definition of green box payments, there can be no relationship whatsoever between the payment and production of any specific commodity. Under current U.S. farm policy a farmer cannot receive direct payments if he/she grows fruits or vegetables on the land for which the payment is received. This exclusion will need to be eliminated in the next farm bill, or all the money American farmers receive in the form of direct payments will have to be counted under the U.S. amber box cap."