Financial Times:WTO appeal judges declare US cotton subsidies illegal

WTO appeal judges declare US cotton subsidies illegal
By Frances Williams in Geneva
Financial Times

World Trade Organisation appeal judges yesterday upheld a ruling declaring illegal billions of dollars in subsidies to US cotton farmers.

Trade experts and development campaigners said the decision was likely to intensify pressure on the US and the European Union to cut farm subsidies in the current round of global trade talks, a central demand of developing nations.

A WTO panel in September backed a complaint by Brazil that US cotton subsidies violated fair trade rules by depressing world prices and breaching WTO subsidy limits.

The verdict marks a moral victory for poor African cotton producing countries, which blame US subsidies for destroying the livelihoods of millions of farmers in west and central Africa.

It could also pave the way for legal challenges to subsidies on other US products, such as soyabeans, rice, oilseeds and grains. Brazilian soyabean producers are already studying a possible complaint. A panel verdict condemning EU sugar subsidies, in a case brought by Brazil, Thailand and Australia, is currently under appeal.

Washington, expressing disappointment with the judgment, made clear it had no intention of quickly withdrawing the offending subsidies. "We continue to believe that negotiation, not litigation, is the most effective way to address distortions in agriculture," Richard Mills, spokesman for the US trade representative's office, said.

"We will study the report carefully and work closely with Congress and our farm community on our next steps."

However, Oxfam, the UK-based charity, said African farmers could not wait for the conclusion and implementation of a final WTO farm trade agreement. Noting that cotton prices had again fallen after a brief recovery last year, it estimated that African producers were losing more than $400m (€305m, £210m) a year because of distorted cotton markets.

The group called for speedy action by the US to dismantle cotton subsidies, including "substantial reform" before the WTO's ministerial meeting in Hong Kong in December.

To comply with yesterday's ruling, Washington will have to slash the more than $3bn a year it pays its 25,000 cotton farmers, and act swiftly to axe its costly export credit programme for cotton and certain other commodities that the WTO has judged an illegal export subsidy. Otherwise Brazil may be authorised to retaliate with sanctions against US goods.

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Prudent Investor comments...

Government intervention has massively distorted the demand-supply equilibrium in favor of developed countries. With this WTO decision and its successful implementation to abolish subsidies, we can expect global prices of commodities to smoothen out and reflect its underlying economics. The Philippines too may be expected to benefit from these global market reforms.