Global Policy Forum

By Raúl Pierri

The congressional passage of a new farm bill increasing agriculture subsidies by nearly 80 percent in the United States, self-proclaimed champion of free trade, has unleashed a wave of indignation in South America and Europe.

Argentina and Brazil announced that they would seek action in the World Trade Organisation (WTO), while Uruguay, another agricultural exporter and their partner in the Mercosur (Southern Common Market) trade bloc, is still deciding what steps it will take.

The farm bill, which replaces the 1996 Freedom to Farm Law, designed to wean farmers off federal subsidies, will increase agriculture spending by close to 80 percent, to a total of around 170 billion dollars over the next 10 years. The bill, approved May 3 by the House of Representatives, made it through the Democratic-controlled Senate Wednesday by a vote of 64-35.

According to WTO limits, the United States can shell out no more than 19.1 billion dollars a year in federal aid to farmers. The new bill authorises the Department of Agriculture to keep subsidies within that limit. The farm bill guarantees U.S. farmers more stable incomes by increasing price supports for grain and cotton producers, reviving subsidies for honey, mohair and wool, and adding new ones for milk, peanuts, lentils and chickpeas.

It also boosts spending on soil conservation programmes by 80 percent, to benefit livestock and fruit and vegetable farms, which have historically received little federal support. President George W. Bush said he would sign the bill into law, despite protests from Australia, Canada, the European Union and South America's agricultural producers, whose development prospects largely depend on farm exports.

Agricultural commodities account for 52 percent of Argentina's exports. That proportion stands at 39 percent in Bolivia, 33 percent in Brazil, 15 percent in Chile, 37 percent in Colombia, 67 percent in Ecuador, 24 percent in Peru and 55 percent in Uruguay. A number of governments have complained about the contradiction between Washington's free-market rhetoric and its policies.

In September, the United States backed a call issued by the Cairns Group, made up of 18 agricultural exporting countries, for a profound reform of the international trade system, and the elimination of all forms of trade-distorting subsidies. U.S. Trade Representative Robert Zoellick said Tuesday that the farm bill should not throw into question the Bush administration's intention to eliminate export subsidies and improve market access.

Zoellick acknowledged, however, that Washington was not doing all it should for free trade. ''We deserve the criticism we've received,'' he said. Brazilian Foreign Minister Celso Lafer announced that his country ''won't hesitate to use all possible options of commercial defence to nullify the harmful effects of subsidised products,'' and that it would file a complaint against the farm bill in the WTO, due to the harm it will inflict on Brazil's exports, especially soy beans.

Brasilia estimated the losses it would suffer over the next four years as a result of the farm bill at 9.6 billion dollars, since the new U.S. law will drastically boost U.S. exports and lead to the loss of market share for South American exporters, while driving down commodity prices.

Argentine Agriculture Secretary Rafael Delpech said Wednesday that Buenos Aires ''is not going to just sit back doing nothing if our farm revenues plunge as a result of the huge U.S. agricultural subsidies.'' Delpech said the farm bill would cause ''profound damages to international trade,'' and added that his country would also take the case before the WTO.

Uruguayan Agriculture Minister Gonzalo González said he was still studying the new U.S. law. But Uruguay's farmers have complained loudly. ''The law makes us very sceptical regarding the negotiations that the United States was carrying out with Uruguay on a free trade agreement,'' the vice-president of the Uruguayan Association of Rice Farmers, Hugo Manini Rí­os, told IPS. ''They can't just close the door on a country that wants to work in the area where it is able to work. That shows a lack of sensitivity towards emerging economies, whose main chance for development lies in agricultural production. We must not be governed by the law of the strong,'' he added.

Manini Rí­os said the U.S. law would hurt Brazilian soy bean and cotton farmers, who may start growing rice instead, which would compete with Uruguay's production, thus triggering ''a vicious circle that will produce a disaster'' in the Southern Cone region. U.S. Nobel Economy Prize-Winner Joseph Stiglitz described the farm bill as ''the perfect illustration of the Bush administration's hypocrisy on trade liberalisation.''

The law has also irritated the United States' closest allies, like Canada, its main partner in the North American Free Trade Agreement (NAFTA). Canadian Minister of Agriculture and Agri-Food Lyle Vanclief said the increased subsidies would deal ''a serious blow to U.S. credibility'' in the next round of multilateral trade talks, launched at the fourth WTO ministerial conference last year in Doha, Qatar.

The subsidies could also affect Australia's competitiveness in Asia, the chief destination for many U.S. farm products. A number of Republican senators opposed the initiative, arguing that it was too expensive, and would mean a step backwards in the policy of trade liberalisation. Bush himself had even initially rejected it out of fear that it would cause overproduction.

But Bush could not ignore the bill's importance with a view to November's legislative elections, in which farm states like Arkansas, South Dakota, Georgia, Iowa, Minnesota and Missouri could hold the key to overturning the Democratic Party's one-vote majority in the Senate. Furthermore, in the 2004 elections, Bush needs to retain the votes he received in those midwestern and southern states in 2000.

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