05-18-2002

ECONOMICS: The Farm Bill Can Till New Trade Fields

The hail of criticism, both domestic and foreign, that is falling on the
new U.S. farm program-which commits a record $180 billion to agricultural
subsidies over the next decade, an 80 percent increase over current
spending-is entertaining diplomatic and political theater. But this
sideshow is really a distraction from the Bush Administration's more
central challenge: how to keep the international dialogue on reforming
farm policy moving forward.


Critics warn that the farm legislation dooms meaningful agricultural
negotiations in the new Doha Round of multilateral trade talks set for
June and September in Geneva. Maybe. But trade negotiators are masters at
playing the cards they are dealt. New American subsidies can usefully
remind foreigners that Washington has deep pockets and that European and
Japanese taxpayers will rue the day they got into a spending contest with
the United States. And passage of the agriculture bill may help
negotiators focus even harder on their work, or lead them to recast the
talks on some narrower but more attainable objective.


In the end, for all the criticism of the new farm legislation, nothing in
that bill explicitly constrains the Bush administration from aggressively
pursuing its free-trade agenda on agriculture. The task is simply to make
lemonade out of these lemons.


Other countries have been particularly harsh in attacking the new U.S.
farm supports. "The emphasis on price-based subsidies and the
introduction of country-of-origin labeling certainly looks more like a
drive toward protectionism than trade liberalization," griped
Canadian Minister of Agriculture and Agri-Food Lyle Vanclief, in
sentiments echoed by the Europeans and the Brazilians.


Domestic critics have noted that the new farm program will simply boost
production and drive down commodity prices further, thus triggering even
greater government payments to farmers. Such increases pose a one-in-five
risk that the United States will exceed international limits on farm
subsidies, according to estimates by the Food and Agricultural Policy
Research Institute at Iowa State University.


Bush administration officials argue that strong congressional backing for
the farm bill merely signals that Washington will not unilaterally disarm
in the international farm subsidy war. Moreover, they say that the
legislation underscores the need for meaningful cuts in European export
subsidies and for increased U.S. access to foreign markets if American
farmers are to ever wean themselves from the federal dole.


So what are U.S. trade negotiators' options as they prepare for the next
round of international farm talks in Geneva?


* Lower expectations. Given the new, higher level of U.S. farm spending,
negotiators have to achieve a dramatic 30 percent cut in current support
programs merely to return U.S. subsidies to last year's levels. But a
unique set of circumstances drove enactment of the new farm legislation:
low commodity prices; an overvalued dollar; new international competition;
a federal budget surplus (at least when the bill-crafting process began);
and the political leverage held by farm states crucial to GOP hopes of
regaining the Senate this fall. Until and unless those conditions change,
U.S. negotiators in Geneva may have little choice but to aim low. Europe
and Japan won't complain; they have never been that enthusiastic about
agricultural reform anyway.


* Go on the offensive. "The farm bill is designed to meet our World
Trade Organization obligations, and while we're committed to the Doha
objectives, it's not unhealthy for other countries to understand we stand
up for our national interests," said Allen Johnson, the chief U.S.
agricultural negotiator. Facing the prospect of being outspent, Europe and
Japan may finally decide that they have little choice but to agree to
major cuts in their farm support. But this shot-across-their-bow strategy
reverses two decades of U.S. international leadership in the effort to
lower trade-distorting farm subsidies, and it could expose Washington to
charges of hypocrisy. "Building up our subsidies doesn't enhance our
leverage, it undermines our credibility," argued Craig Thorn, a
partner in DTB Associates, an international trade-consulting firm and a
former U.S. farm negotiator in Geneva. In international talks where U.S.
officials always have the difficult task of convincing foreigners that
Congress will ultimately bless American concessions, U.S. negotiators'
credibility is a precious commodity.


* Recast the negotiations. Some experts say that coming at the
negotiations in a new way may do the trick. Peter L. Scher, a partner at
Mayer, Brown, Rowe & Maw and a former special trade negotiator for
agriculture, suggested that the negotiations be speeded up in some
fashion, with the new U.S. farm bill serving as the impetus. "I think
we should sit down and think about how to move the agricultural issues
ahead on a more ambitious time frame," Scher said. Alternatively, as
my CongressDaily colleague Jerry Hagstrom has suggested, negotiators might
refocus their energies on channeling more U.S. and foreign farm support
into conservation programs, a move that the Europeans would back and which
is permissible under international rules.


The 2002 farm bill clearly demonstrated that Washington is more than
willing to use the power of its ample purse to support American farmers.
Now the challenge facing the Bush administration is to accommodate its
negotiating position in Geneva to that new reality and to exercise some
creative leadership so that it can still accomplish America's longtime
goals of opening foreign agricultural markets and reducing
trade-distorting farm subsidies.


Bruce Stokes

National Journal