Battle on Farm Subsidies

The U.S. Senate has voted billions of dollars of emergency financial aid to farmers suffering from the twin plight of drought and record low commodity prices. U.S. trade officials insist that none of the money is aimed at subsidizing the dwindling exports of American farm produce. But other big food exporters, including the European Union, Canada and Australia, are not convinced, and it will be difficult for Clinton administration officials at the next round of trade liberalization talks to persuade these countries to stop distorting food trade with government supports.

No country, including the United States, will go into the World Trade Organization negotiations, which open in November at Seattle, with clean hands. All the major food-producing countries prop up exports to a degree, and all have laws protecting domestic markets from imports. Washington, for example, has imposed strict limits on the imports of sugar and peanuts and levies prohibitive tariffs on lamb.

Moreover, relations between the main adversaries in the WTO negotiations--the United States and the European Union--have been strained by bruising disputes over trade in bananas, hormone-treated beef and genetically altered grains. Bumper crops are increasing supplies of soybeans, corn and rice, but the Asian financial crisis has depressed demand. That has pushed prices of these commodities to record lows and brought pressure on governments to bail out their suffering farmers.

In an effort to eliminate distortion in the world food market, the United States passed a law in 1996 to dismantle the Depression-era farm subsidies program by gradually diminishing payments to farmers and uncoupling those payments from production. The idea was that farmers would grow crops according to market demands, not according to the level of government support. But now market dislocations have driven government aid to farmers to levels unseen since the mid-1980s. If the $7.6-billion Senate measure is enacted as expected, U.S. farm subsidies will balloon to $16.6 billion this year. Perhaps as much as half that amount would go to supporting the prices of wheat, rice, feed crops and oil seeds, and price supports are potentially among the most trade-distorting subsidies of all.

Still, Washington, which seeks dismantlement of export subsidies worldwide, will go into the WTO talks with a strong case. U.S. price supports are being made in the form of cash payments to farmers after the harvest. They are aimed at easing their dire financial woes, rather than influencing their planting decisions.

The 15-nation European Union, which pays about $50 billion a year to its farmers, spends close to $9 billion in direct export subsidies. That accounts for 80% of aid subsidies worldwide, compared with 2% for the United States.

Clearly, the WTO can expect a fight over agriculture, the most sheltered sector of all developed economies. The domestic clamor for greater government spending in the United States and elsewhere will not make it any easier. But it is a fight worth having if the aim is to assure the world an adequate supply of food at affordable prices.