US trade negotiators have been busy. Much like cowboys in the old west, their wagons are circled, but they are being attacked from two directions, one from the north and one from the south, and reinforcements are no where in sight. Trade negotiators from Canada and Brazil have both lodged complaints about US farm program payments going back to 1999. While the outcome is unknown, count on the complaints having an impact on the next Farm Bill.

The complaints are filed within the structure of the World Trade Organization, which governs rules of trade in most countries to ensure it is faire and oversee any punishment if someone steps out of line. The Congressional Research Service was asked by Congress for help in understanding the trade complaints, and the CRS report was just filed on the Canadian complaint as well as the Brazilian complaint.

The Canadian complaint.
The US and Canada exchanged over $533 billion worth of good in 2006, including $25.4 billion in agricultural trade. But the Canadian corn producers complained that the US was dumping US corn into Canadian markets that was lower than the cost of production and unfairly subsidizing it. After Brazil’s prior success in attacking the US cotton support program, the Canadians also wanted to influence the US farm program by reducing support levels received by US farmers. And the Canadian complaint was joined by Argentina, Australia, Brazil, the European Union, Guatemala, Nicaragua, Thailand, and Uruguay, which all contended US farm program subsidies for corn have hurt corn producers in other parts of the world between 1996 and 2006. Additionally, they complained the export credit program is too close to an illegal export subsidy program for all commodities. And lastly, the Canadians alleged that total farm spending was more than $19 billion per year and that was higher than the US was allowed. (The CRS agrees to some extent that the last complaint may be true.) The specific complaints are against the Counter-Cyclical payment program and the Production Flexibility Contracts, which are both based on production. Also, the complaint says the size of the Direct Payment program makes farm spending too much.

Former Secretary of Agriculture Mike Johanns has said the US would vigorously defend its positions, and the US Trade Representative said the Canadian complaint with regard to 2006 was unfair because corn prices were high because of market conditions. The head of Canadian trade says the complaint will not be pushed until the WTO resolves is agricultural trade negotiations, and would drop the complaint against corn.

The consensus is that the Canadian complaint about US farm programs will be first of many, unless something is changed in the 2007 Farm Bill, which puts pressure on Congress to create farm programs that do not include bushel-based subsidies that promoted increased production. The House version of the Farm Bill brings the export credit program into compliance with the WTO, but does not address total spending.

The Brazilian Complaint.
Brazil previously dismantled the Step 2 Cotton program, and shortly after the Canadian complaint was filed, lodged another complaint, similar to the two Canadian complaints that remain. And Brazil was joined by Canada, Guatemala, Cost Rica, the European Union, Mexico, Australia, Argentina, Thailand, India, and Nicaragua. Brazil’s complaint is based on its precedent-setting cotton complaint, but seeks a resolution in the dispute settlement process since the WTO negotiations on new trading rules are stalled. Brazil is also interested in influencing the 2007 Farm Bill to reduce the overall level of support to US farmers.

Brazil’s initial complaint is that total US farm support of more than $19 billion annually exceeds WTO limits, and the US contention that Direct Payments do not distort market prices are incorrect. Brazil also contends other programs that distort market prices are the non-insured crop disaster assistance program, the crop insurance program, emergency feed program, livestock indemnity program, and crop market loss assistance payments. Additionally, Brazil has complained that US farmers also illegally (under WTO rules) benefit from farm loan programs, fuel tax exemption programs, IRS Schedule F deductions, farm marketing and purchasing cooperatives, and Interior Department irrigation programs. Ethanol subsidies are expected to be added to the list. Brazil’s second complaint focuses on the export credit guarantee program.

As in the case with the Canadian complaints, the House version of the Farm Bill addressed the export credit program, but does not address the balance of the complaints, particularly the broad-based programs itemized by Brazil. Since the WTO is not expected to resolve its new trade rules prior to the authorization of the 2007 Farm Bill, the Brazilian complaint may have an impact on farm programs after they are implemented beginning with the 2008 crop year.

Summary:
Although Congress is writing new farm legislation, Canada, Brazil, and many other nations have lodged complaints about past US farm programs as distorting trade and providing too much financial support to US farmers. While some of the complaints will be addressed in the 2007 Farm Bill, not all of them will be resolved to the satisfaction of the WTO and US farm policy may be changing in coming years.