Financial Times (London, England)

July 6, 2005 Wednesday
London Edition 1

SECTION: THE AMERICAS; Pg. 10

LENGTH: 472 words

HEADLINE: US proposes end to cotton subsidy scheme

BYLINE: By EDWARD ALDEN

DATELINE: WASHINGTON

BODY:


The US yesterday proposed the elimination of a subsidy scheme that has paid more than Dollars 2.4bn to millers and exporters of US cotton over the past decade, saying that it intends to comply with a World Trade Organisation ruling in March that favoured Brazil.

The administration of President George W. Bush said it would propose to Congress the ending of a special scheme for cotton farmers known as the Step 2 programme. The WTO has said Step 2 is in violation of world trade rules, and has depressed global cotton prices, to the detriment of cotton farmers in Brazil and other developing countries.

The scheme has been critical to persuading US cotton buyers to favour domestic cotton over cheaper foreign cotton, and also allows US cotton to be competitive internationally.

The US also said on Friday it would change the terms of several export credit guarantee programmes, and has proposed ending others in order to comply with the WTO decision.

Mike Johanns, US agriculture secretary, said the move was "fully responsive" to the ruling. "This step is essential for the US to continue to be a leader in the WTO Doha negotiations, which are crucial to US market access and the long-term prosperity of our farmers and ranchers," he said.

The US response comes just a week after the European Union said that it would cut its subsidies to sugar growers in a similar WTO case brought by Brazil. Both actions indicate that developed countries with large agricultural subsidies may be prepared to use WTO rulings to try to reduce payments to politically powerful farmers.

The administration's proposal still faces many obstacles. Any changes to the programme must be made by Congress, where cotton and other agricultural interests have been highly effective at maintaining government support payments. Congress is set to begin work shortly on the 2007 farm bill, which will provide the framework for US agricultural subsidies over the next five years.

Brazil yesterday asked the WTO for the right to impose trade sanctions against the US if the subsidy schemes were not eliminated. The WTO's ruling in March called for the subsidies to be removed by July 1, and Brazil's action yesterday allows it to maintain the option to retaliate if it cannot reach an agreement with the US on how the subsidies should be removed. Brazil was set to issue its response to the US announcement late yesterday.

US cotton growers had no immediate response to yesterday's proposal by the administration, but are expected to fight any changes to the subsidy scheme.

US cotton growers received more than Dollars 14bn (Euros 11.8bn, Pounds 8bn) in government support from 1995-2003, according to the Environmental Working Group, which tracks farm subsidies. But the WTO ruling did not challenge domestic support payments, which comprise the bulk of those subsidies.

LOAD-DATE: July 5, 2005