Oxfam International, June 29, 2006
Title: “US Seeks ‘Get-Out Clause’ for Illegal Farm Payments”
Financial Times UK, January 9 2007
Title: “Canada Launches WTO Case on US Subsidies”
Author: Eoin Callan
Student Researcher: Cedric Therene
International Business Evaluator: Tim Ogburn
On July 24, 2006, after nearly five years of global trade negotiations, talks at the meetings of the World Trade Organization collapsed—perhaps permanently, say some economic analysts. In January of 2007, trade ministers from the United States, the European Union, Brazil, India, Japan, and Australia said they remained hopelessly stalemated, mostly on the contentious issue of farm trade. US negotiators blamed the breakdown on E.U., India, and Japan for balking at the unrestricted opening of markets to agricultural products.1
What went uncovered in mainstream news sources was any analysis of the content of the negotiations—what exactly the countries involved were offering, and what they expected in return.
Of utmost importance to the Bush Administration was that the US receive immunity from lawsuits by poor countries before Bush’s special “fast track” trade negotiating powers expired at the end of June, 2007.
In a last-minute proposal, one not included on the original agenda, the US suddenly insisted that all trade agreements include a special clause called a “Peace Clause” that would make its use of illegal farm subsidies immune from prosecution by the countries affected. Between 1994 and 2003, such a Peace Clause had denied developing nations any legal recourse in the face of the “dumping” of cheap foreign products that had devastated their agricultural communities.
According to international NGOs such as Oxfam International, the Peace Clause gives rich countries like the US and the European Union free rein to provide huge subsidies to their farmers. Such practices benefit the economies of already-wealthy nations, while damaging the agricultural communities of poorer nations. According to a 2003 Oxfam report, thirty-eight developing countries have suffered from unfair competition as a result of illegal subsidies in the US and EU.
Events following expiration of these legal protections make it clear why the US was so eager to reintroduce a new version of the Peace Clause (and why it was done so slyly). Following its expiration in 2003, Brazil took the US to the WTO court charging that US cotton subsidies had depressed world prices, hurting cotton producers in Brazil and around the world—and Brazil won! In 2005, the WTO agreed with Brazil’s charge, ordering that the US immediately discontinue its distribution of illegal agricultural subsidies. Fearing that other developing nations would follow suit, US negotiators were driven to reintroduce the proposal for protections they had enjoyed under the Peace Clause.
More recently, following the July 2006 collapse of the Doha trade talks, Canada has asked the WTO to review charges that the US is continuing to use illegal and “trade-distorting” agricultural subsidies. The charges focus on payments made to American corn farmers, but also challenge the total level of US agricultural subsidies. This is the most significant challenge to the structure of US agricultural subsidies since the landmark WTO ruling in favor of Brazil in 2005.
In June of 2007, The Canadian government asked the WTO to establish a dispute settlement panel to investigate the allegation.2 Under WTO rules, the United States can provide up to $19.1 billion annually in subsidies that are considered trade-distorting. Canada says the United States broke the rules every year from 1999 to 2005 except for 2003.
Gretchen Hamel, a spokeswoman for the US trade representatives, parroted the position taken previously by US officials addressing the Brazil dispute. She said, “Negotiation, not litigation, is the path to removing trade distortions in agriculture and improving opportunities for farmers and producers all around the world.”2 The US says that it needs the Peace Clause renewed in order to protect itself from litigation while it “is in the process of reducing its trade-distorting subsidies.” But Oxfam notes that, proposals included in the new Peace Clause would actually allow the US to increase its farm support from under $20 billion to almost $23 billion. The EU proposal would allow an increase in farm subsidies from $23 billion to $33 billion. Poor countries, with no surplus to supplement their farmers’ income shortfalls, would have nothing to respond with—no global support, no economic power, and no legal appeals.
1. Paul Blustein, “Trade Talks Fail After Stalemate Over Farm Issues; Collapse Comes With Finger-Pointing,” Washington Post, July 25, 2006.
2. Phillip Brasher, “Canada attacks US subsidies at WTO,” Des Moines Register, June 8, 2007.