After Doha failure, U.S. farmers brace for lawsuits

WASHINGTON (Reuters) - U.S. farmers could be battered with a new wave of litigation challenging generous farm subsidies as commodity prices fall and the repercussions from the collapse of the world trade talks are felt around the world.

Last week's failure by World Trade Organization members to agree on farm trade reforms gives Brazil and other agriculture exporters a new incentive to challenge U.S. farm programs as illegal under global trade rules.

If successful, they could force the United States to make cuts in its farm subsidy programs without developing countries opening their markets in return, as Washington has been demanding in the nearly seven-year-old Doha trade round.

"If I were a U.S. farmer I think my concern would be how much litigation lies ahead," said Gary Blumenthal, a trade analyst with World Perspectives. "There are many countries that are gunning for U.S. agricultural policy."

The United States lost an appeal at the WTO in June in its long-running dispute with Brazil over subsidies for cotton farmers, clearing the way for Brazil to seek approval for more than $1 billion a year in sanctions on U.S. imports. Canada and Brazil also have filed another case which asserts that a host of U.S. subsidies break WTO rules.

Developing countries argue that large U.S. farm subsidies encourage overproduction which floods the world market, making it harder for their own farmers to make export sales.

That did little to sway farm leaders in Congress who rebuked calls to drastically reduce multibillion-dollar subsidies when they enacted the 2008 farm bill this spring.

Despite lawmakers' claims that the legislation brought meaningful reform, diplomats pointed instead to a litany of provisions they believe could violate world trade rules.

Those include a new subsidy for the cotton industry and protections for the biofuels industry.

FALLING FARM PRICES

After setting record highs this year, corn has dropped by 25 percent during the past month, and wheat has plunged by 40 percent since February.

The concern among U.S. agricultural groups is that if commodity prices continue to fall then traditional price support mechanisms kick in, and it becomes far more tempting for other countries to attack U.S. farm policy.

"Certainly having weak prices any time in the future is bad news, whichever way to look at it," said David Blandford, an agricultural economist at Penn State University.

For now, U.S. agricultural shipments have been surging, with exports rising annually since 2000.

Farm exports during fiscal-year 2008 are forecast to rise to a record $108.5 billion, according to recent data from the Agriculture Department, lead by higher crop and meat prices across the board, a weak dollar and growing demand for biofuels.

"It's not a massive blow to agricultural trade today that the (Doha) agreement did (not happen)" said Rosemarie Watkins, director of international policy at the American Farm Bureau Federation. "Our trade has continued to be important and continues to grow," she added.

Watkins remained hopeful that additional trade could still be obtained from deals floundering in Congress.

The White House and the Democratic-lead Congress have been at odds over a series of trade pacts with Colombia, Panama and South Korea.

President George W. Bush savored one trade victory last December after an agreement with Peru was passed. The four deals could bring U.S. farmers around $3 billion a year in new exports once they are fully in place, according to the Farm Bureau.

Rebecca Bratter, who follows trade for U.S. Wheat Associates, which promotes exports, said there is no guarantee commodity prices are going to remain strong, and U.S. farmers would benefit more under a system that creates universal rules and regulations for conducting global trade.

"All of U.S. agriculture is disappointed that talks failed," said Bratter. "An agreement that offers new market access is the best chance for all of us to achieve any new export growth," she said.

The negotiations for a global trade deal began in 2001, shortly after the September 11 attacks, in hopes of boosting the world economy and helping poor countries. But reaching a breakthrough on key tariff-cutting formulas and other elements of a deal has eluded negotiators.

"Part of the problem with the Doha negotiations has been that economic circumstances have been so good that there hasn't been the necessity to make the hard political decisions that are required for a trade agreement," said Blumenthal.

(Reporting by Christopher Doering, editing by Matthew Lewis)