The Hindu Business Line : WTO rejects agri-subsidies

A LANDMARK RULING by the World Trade Organisation that the multi-million dollar US cotton subsidies violate international trading rules has at once generated tremendous enthusiasm among developing nations and, of course, consternation in the US, and possibly in the European Union. On a complaint filed by Brazil more than a year ago, the WTO's dispute settlement body, in its interim ruling, has held that US cotton subsidies pushed down global prices and hurt Brazilian growers. Some 25,000 farmers in the US produce a fifth of the world cotton output and control 40 per cent of global exports for which they receive $3 billion in support. In addition, the panel held that export credits for cotton were in violation of WTO rules. Indeed, export credit and credit guarantee schemes are operated by the US not only for cotton, but also for soyabean, wheat and rice.

This is the first time the WTO has ruled on agricultural subsidies — the major bone of contention between developed and developing countries in the Doha Round of negotiations. The OECD countries together spent $318 billion in farm support in 2002, up from $311 billion a year earlier. Many are in no mood to relent on the demand of the developing nations to pare subsidies that distort global trade, depress commodity prices and deny the already resource-poor growers of developing countries such as in Africa and Asia remunerative prices in overseas markets. Belief that the latest outcome could prompt further challenges to agricultural subsidies around the world is now gaining ground. Interestingly, already one case is engaging everyone's attention. Australia, Brazil and Thailand have filed a claim against the EU's sugar subsidies. With the mood among developing countries turning positive, the possibility of the Doha Round taking a new direction seems real.

While cotton sets a strong precedent for other farm-subsidy cases winding through the dispute process, it would be naïve to expect that the ruling goes unchallenged by the US. The appeal process is sure to take several months, if not longer. The US has a huge stake in agriculture, and production of major crops such as cotton, soyabean, maize and other grains is significantly export-oriented. Farm goods export earnings are in excess of $50 billion a year or over $1 billion every week; and without subsidies, many of the US crops are likely to lose the competitive edge in the export market. No wonder, subsidies have become an integral part of the US farm programme. Last year, the country gave rice, wheat, cotton and other farmers more than $19 billion in various forms of aid.

While the ruling on cotton subsidy is welcome, there is no need for India to get carried away. By itself, Indian cotton is far from competitive because of a host of reasons including low yields and sub-standard quality. The entire supply chain needs strengthening with the active participation of all stakeholders. The work of the Technology Mission on Cotton is surely showing results, but the cotton sector has still a long way to go to become globally competitive.

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