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Originally published Friday, March 4, 2005 at 12:00 AM

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WTO ruling threatens wheat subsidies

Ripple effect likely from cotton decision.

Seattle Times business reporter

A World Trade Organization decision yesterday saying the U.S. illegally subsidizes its cotton farmers could threaten millions of dollars paid to wheat growers in Washington, and possibly affect other farm subsidies here as well.

The case, brought by Brazil, is the first successful challenge to U.S. domestic farm aid under WTO and is likely to spur challenges to support for other crops, analysts said.

"It's clearly something that's going to have ripple effects on other commodities," said Glen Squires, an analyst with the Washington Wheat Commission in Spokane. "They're all going to probably come under the same scrutiny."

It's unclear how much of the multibillion-dollar array of U.S. farm subsidy programs could be affected by the ruling, which covered so-called direct payments and export-credit programs.

Some observers said the decision might prompt the U.S. to consider changing its policy on other crops, to bring it into compliance with the cotton ruling.

"It's likely if [Congress] changes the program for cotton, there'll be a debate about changing all of them," said Kenneth Cook, president of the Environmental Working Group, a Washington, D.C., advocacy and research group.

In Washington state, farm programs supplied $264 million to farmers in 2003, according to EWG. But only about $50 million of that likely would be threatened under the Brazil precedent, Cook said.

Wheat farmers receive most of that money. Programs supporting dairy, apple and lamb producers are unlikely to be challenged on the basis of yesterday's decision, Cook said.

In its decision, the WTO's Appellate Body upheld findings made last year that U.S. subsidies to cotton farmers broke trade rules, depressed world prices and hurt Brazilian producers. The trade judges rejected an appeal by the U.S., which now will have to bring its subsidies into line with the rules.

The ruling faulted the U.S. for exceeding limits on cotton payments that were set in 1994. Brazil also has challenged European sugar export support, and is threatening to bring a complaint over payments to U.S. soybean farmers.

The decision is a victory for developing countries and opponents of farm support, who say such payments unfairly favor farmers in rich countries. It also is likely to shake up trade talks, which have stalled over the reluctance of the U.S., EU and other developed countries to reduce their support for farmers unless others do the same. Indeed, the case might even provide a tool for the U.S. and EU to challenge each others' subsidies, Cook said.

"This isn't a death knell for U.S. farm programs, but it asks some important questions and gives a direction for where U.S. farm programs should be headed," said Gawain Kripke, a policy adviser at Oxfam America in Washington, D.C. "We need to be phasing out the trade-distorting subsidies."


Kripke said the payments create inequalities around the world and within the U.S. "Some farmers are harvesting checks from the government and others are getting nothing."

Alwyn Scott: 206-464-3329 or Information from Bloomberg and Reuters is included in this report.

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