US must do more on cotton subsidy reforms: WTO

US must do more on cotton subsidy reforms: WTO

Washington: The US continues to flout world trade rules with cotton supports, the World Trade Organization (WTO) said on Tuesday, in the latest turn of a landmark case that has exposed chinks in US farm programmes.

The ruling from a WTO panel opens the way for Brazil, which brought the original case in 2002, to seek billions of dollars in retaliation against Washington, and gives fodder to critics who contend the generous subsidies deepen poverty of struggling cotton farmers the world over. The compliance panel concluded in its 204-page report that “US marketing loan and counter-cyclical payments have led to an increase in US production and exports of cotton that have then suppressed world prices".

The panel ruled that the US, the world’s largest cotton exporter, remained in violation of world trade rules even after it repealed its “Step 2" payment to cotton mills and exporters in August 2006.

Gretchen Hamel, a spokeswoman for US trade representative Susan Schwab, said the Bush administration was “very disappointed" by the ruling, and would consider an appeal.

She said that cotton subsidies and export credit guarantees were “fully consistent with our WTO obligations". The subsidies under scrutiny include the marketing loan and the counter-cyclical payment, which provide producers a payment cushion when prices drop below a certain level.

Cotton prices have been below that level—$0.52 per lb (Rs20.6 today per 0.45kg)—for most of the last decade. Total cotton subsidies were $4.5 billion in fiscal 2005, and averaged $2.5 billion a year from fiscal 1999 to 2005, according to the US agriculture department. Step 2, meanwhile, averaged less than $350 million a year in that period.

But cotton prices have been climbing as part of a wider commodity boom and in line with smaller acreage. Prices for the 2007 crop are expected to jump by up to a quarter.

“The international cotton market is strong, demand is exceeding production, world prices are up, and exports in countries such as India and Brazil are dramatically rising," the National Cotton Council of America said in a statement. “It is not credible to assert that US cotton is currently causing serious prejudice to anyone."

While the panel found the subsidies bring “significant" price depression, it did not say by how much. Critics such as advocacy group Oxfam have long argued that US cotton subsidies could depress world prices by up to 14%, hitting growers in West Africa especially hard. The final ruling comes as the US Congress closes in on a new umbrella agriculture law.

Jonathan Lynn contributed to this story.