May 21, 2004
- Brazil challenged U.S. cotton subsidies at the World Trade Organization and won its case.
- This ruling will have significant ramifications for the entire system of global agricultural subsidies.
- Western Canadian farmers will benefit from the judgement, as will the environment.
WTO Cotton Ruling Victory
In mid-May, the World Trade Organization (WTO) brought down a ruling on U.S. cotton subsidies. It has important implications for Canadian agriculture and for the environment,
Launched by Brazil, the case challenged the three billion dollars the U.S. government sends to its 25,000 cotton farmers, which works out to a staggering $120,000 per farmer. By ruling that these massive subsidies distort trade, the WTO sent a powerful signal to governments that it intends to take a hard line on support programs that artificially increase agricultural production.
Such subsidized production plays havoc with world markets, as desperate governments try to get rid of the “wine lakes, butter mountains and cotton-filled warehouses” that the subsidies create. Flooding world markets at giveaway prices grossly impedes the ability of developing countries to “grow” their agricultural sectors.
Not only that, the evidence demonstrates that direct production-based support programs, of which Canada has almost none, actually harm the rural communities who are the intended beneficiaries. These subsidies are capitalized into inflated land values. Jacking up the price of land puts it beyond the reach of many young farmers and helps to accelerate the decline of rural communities.
Last year, the Economist magazine published two maps. One showed American farm counties with the highest rates of federal transfers, mainly production subsidies. Another displayed rural counties with the highest rates of depopulation. The maps were nearly identical.
Ironically, the cotton subsidies aren’t even good for American cotton farmers, who were just starting to benefit from China’s entry into the WTO. As reported by Edward Gresser of the Progressive Policy Institute, “In 2000 American cotton farmers earned $46 million from selling cotton to China. Then China joined the WTO. In 2003 [they] earned $733 million from cotton to China and in just the first 2 months of 2004 earned $428 million.”
That staggering increase in cotton trade and U.S. exports occurred simply because China joined the WTO and agreed to play by the rules. It’s time for the U.S. to play by the rules as well. The Western Canadian farm belt is one of the most trade dependent regions in the world, with over 80% of our production exported and the United States our major customer. Our dependence on the American market has certainly hit home with the BSE crisis. Reining in their subsidy programs will help stabilize Canadian farm incomes.
It is also interesting to note that the WTO and world trade rules in general have taken a very positive view of farm support programs that encourage better environmental practices. The key is that such programs cannot distort trade by increasing production since there are “better” farm practices that also have the happy consequence of being more environmentally sound. Rest rotational grazing comes to mind. Other measures on private land, like wetland conservation, may only cost the producer money. In these cases, the WTO has concluded that farm support programs that also conserve wetlands are justified.
This is the basis of “The Farmer’s Conservation Plan” or Alternate Land Use Services (ALUS) advocated by Keystone Agricultural Producers (www.kap.mb.ca). Let’s hope that such sensible ideas are adopted by our governments.
Robert Sopuck, Senior Fellow
is a modern environmentalst whose interests include solving environmental problems without reducing human freedom. He is a natural resource policy consultant with a special interest in rural issues who lives and works at Lake Audy, Manitoba. He received his B.Sc. from the University of Manitoba and Masters from Cornell University. His first career was in fisheries management. He later coordinated the sustainable development initiative for the province of Manitoba and was on the Canadian delegation to the Earth Summit in Rio de Janeiro in 1992. He was Manitoba's observer on the Board of the International Institute for Sustainable Development. In October 2007 he was appointed to the federal government's National Round Table on the Environment and Economy.