USDA Reports Trade-Distorting Payments

June 25, 2001

USDA Friday announced its decision to submit to the World Trade Organization (WTO) notification of U.S. domestic support payments for the 1998-99 marketing year, listing $10.4 billion in trade-distoring "amber box" supports. The action so angered House Agriculture Committee Chairman Larry Combest (R-TX) that despite his party affiliation with the Bush administration, he withdrew as a cosponsor of the trade promotion authority legislation currently before Congress.

"The United States takes its trade obligations seriously, and we expect our trading partners to do exactly the same," said Agriculture Secretary Ann M. Veneman. "Today's U.S. submission reaffirms the credibility of the United States at the WTO and strengthens our ability to achieve the ambitious goals we have set for WTO negotiations on agriculture."

In the WTO notification, the United States reported $10.4 billion in trade-distorting "amber box" support provided to U.S. producers through market price support programs, loan deficiency payments, and marketing loan gains under commodity loan programs. This figure does not include non-trade-distorting "green box" support for U.S. farmers and ranchers that is not subject to limitation.

"Under WTO rules, these market loss assistance payments must be classified in the amber box," Veneman said. "By classifying them properly, we set the right precedent for other nations in the way they classify their own trade-distorting subsidies, and we set an open and above-board tone as we move toward a challenging new round of trade negotiations in the WTO."

The U.S. notification of $10.4 billion is half of the permitted WTO ceiling for the United States during that year. "In no way does this notification jeopardize our continuing flexibility to support American farmers and ranchers in the future," Veneman said.

WTO rules require that any domestic support payments linked to prices or production be considered as trade-distorting and, therefore, amber box. Amber box support over a specified level is subject to WTO Uruguay Round disciplines.

American Farm Bureau President Bob Stallman supported the action. "This was not an easy action for USDA to take, but it was the right one. These payments were clearly made to farmers because of low prices. Under WTO rules, that link with price qualifies them for the so-called amber box category of domestic support payments. Putting these payments in the amber box will ensure these payments do not count against our overall spending caps," Stallman said.

"We are now operating in a world of international trade rules," Stallman continued. "All countries should live by these important rules. Because we are a member of the WTO, our farmers can be assured that other countries' domestic support spending is capped at agreed upon levels, that minimum market access commitments will be upheld, and that sanitary and phytosanitary measures must be based on science.

"As we enter into a new round of trade negotiations, it is critically important that the United States - and other countries - live up to their WTO commitments," Stallman continued. "The credibility of the system is at stake. And the ability of our farmers and ranchers to count on those rules being enforced cannot be undermined by the rules not being followed."

Combest, however, saw it differently. He insists that payments made after producers have made their planting decisions cannot distort trade by enticing the production and marketing of certain crops. "USDA's decision to classify the 1998 payments as trade distorting is equivalent to a unilateral disarmament that cedes ground and gains nothing in return," said Combest. "The USDA decision creates a precedent for classifying assistance that will apply to payments also made in 1999 and 2000, as well as restrict our ability to make these payments in the future."

He also maintains that since market loss payments are based on Agricultural Market Transition Act payments, the action could call into question the placement of non-trade distorting AMTA payments in the WTO green box. "This decision will have a profound impact on U.S. farmers and on the ability of Congress to help farmers deal with financial stress," he continued in a letter to Veneman. "The United States has strong adversaries in the international agricultural trade arena and therefore must be resolute in its pursuit of free and fair trade. Abandoning the principle of assistance to our farmers does not instill any faith that the outcome of trade negotiations will be fair to United States agriculture."