'Greening' farm subsidies

["Ian Murray" <seamus2001@xxxxxxxx>]

Thursday September 6 1:04 PM ET

'Green' Farm Payments May Run Afoul of WTO
By Charles Abbott

WASHINGTON (Reuters) - The ``green'' payments touted as the new path
for U.S. agricultural supports could run afoul of world trade rules,
the same peril facing the billions of dollars in new crop subsidies
proposed in a bill awaiting a vote in the House of Representatives.

Environmentalists see this year's overhaul of U.S. farm policy as
their best chance in a decade to expand soil, water and wildlife
conservation programs. They hope to capture a larger share of the
$73.5 billion bill than now offered.

In particular, they trumpet the potential of ``green'' payments to
growers who integrate conservation into their daily operations. There
are more than 900 million acres 364 million hectares of ``working''
lands on U.S. farms and ranches.

Lawmakers and farm analysts said the bill now awaiting debate in the
House could exceed World Trade Organization rules that limit outlays
on trade-distorting farm subsidies.

``There is some chance,'' House Agriculture Committee chairman Larry
Combest agreed during a Reuters interview.

WTO MEETING TO MULL SUBSIDIES

U.S. lawmakers are tackling the issues of environmental payments and
bigger farm subsidies as the WTO prepares for a November meeting to
launch world trade talks. Farm subsidies will be a key issue for the
meeting in Qatar.

The United States seeks elimination of export subsidies, removal of
import barriers and deep cuts in trade-distorting domestic farm
subsidies. But other nations have criticized the United States for its
export credit program and $30.5 billion in bail-out payments to
American farmers since 1998.

U.S. analysts said a plan for new ``green'' payments could require
skillful drafting to avoid WTO strictures, although proponents are
confident their programs are allowed.

``Any kind of conservation spending is going to fit into the green
box,'' said a spokesman for Rep. Ron Kind, Wisconsin Democrat and
sponsor of a ``working lands stewardship'' plan that could cost $3.6
billion or so a year.

In WTO parlance, ``green box'' programs have little impact on farm
production or trade and are permitted. The United States agreed to
spend no more than $19.1 billion on ``amber box'' -- or trade
distorting -- subsidies linked to farm production.

Craig Thorn, of the consulting firm DTB Associates, said care would be
needed to assure a conservation program satisfied WTO rules.

``It's possible to create these (green box) programs,'' Thorn said.
``You just have to be careful when you're doing it.''

For example, WTO rules on agriculture say environmental payments
``shall be limited to the extra costs or loss of income'' due to
requirements of a government program, ``including conditions related
to production methods or inputs.''

Some House Agriculture Committee staff workers say that language would
disqualify the hefty payments envisioned by Senate Agriculture
Committee chairman Tom Harkin. The Iowa Democrat is a leading advocate
of paying growers up to $50,000 a year if they follow a variety of
conservation practices.

Thorn said Harkin's plan might fit within other WTO rules allowing
direct payments to farmers, or ``decoupled'' income supports that are
not linked to crop or livestock production.

``You'd have to look at the details of the program to figure out if it
would be green box,'' he said.

NEW SUBSIDIES FOR US FARMERS

Agricultural economist Dave Orden of the Virginia Polytechnic
Institute said proposals for green payments, ``may suffer from the
same weak WTO constraints as the House bill does.''

The bill written by the House Agriculture Committee would trigger an
estimated $37 billion in so-called deficiency payments over the next
decade when prices received by farmers fell below target prices set by
Congress.

Those payments probably would be classified as ``amber box,'' analysts
said.

Combest said the threat of exceeding WTO spending limits could be
eased by shifting some farm aid into decoupled payments, which also
are part of the farm bill. Other routes might be available too, the
Texas Republican said.

But the debate over WTO compliance obscures the question of whether an
emphasis on conservation would be good policy and what benefits it
would bring, said agricultural economist Bruce Gardner of the
University of Maryland.

``You may well overpay,'' Gardner said, citing the high rents
initially paid bring land into the long-term Conservation Reserve to
combat erosion and protect water purity. ``It's possible we've already
done the most cost-effective stuff.''

On the other hand, Gardner said, a more finely tuned program might
bring more desirable results.

``What will be proposed in the details?'' he asked.

U.S. actions on farm policy could be scrutinized closely by other
nations preparing for world trade talks.

Virginia Tech's Orden said the lavish U.S. farm bailouts since 1998
sapped the drive for global reform. It ``would not do well'' to
embrace legislation flouting WTO rules.

But consultant Thorn said it could be difficult to say definitively
before enactment if a provision violated WTO rules, considering
disagreements over how to interpret them and disputes over how much
actually would be spent.

``If a country makes a genuine attempt to design a green box program
and move away from price-based supports ... it's really not likely
they would be challenged,'' he said.