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New farm bill seen adding fodder for trade feud

WASHINGTON (Reuters) - The $285 billion farm bill unveiled by Congressional leaders last week after months of negotiations may set the United States up for a hornet’s nest of problems at the World Trade Organization.

A farmer stands in a wheat field in Lincoln, Nebraska, May 5, 2008. REUTERS/Carlos Barria

If the plan for a massive new U.S. agriculture law is passed this week as expected, lawmakers face a promised veto from President George W. Bush. The White House says the bill does not sufficiently cut subsidies to wealthy farmers and ignores other reforms proposed by the administration.

If Congress can override a veto, administration officials and other critics warn the farm law will inflame relations with trading partners and spark challenges at the world trade court.

“This farm bill heads in the wrong direction in terms of our international obligations,” Deputy Agriculture Secretary Chuck Conner said in a briefing on the bill.

The administration’s problems with the bill go beyond crop subsidies to wealthy farmers.

Agriculture officials say measures that could bring problems at the World Trade Organization include: rules benefiting U.S. sugar producers, a $4-billion standby disaster fund and a new cotton incentive similar to one the world trade court already has ruled illegal.

“It’s no secret our current farm programs under current law have come under enormous fire,” Conner said. “How does this bill respond? This bill responds by increasing trade-distorting supports on 17 out of 25 of the commodities that we provide.”

Trade partners “are going to be incensed, and we would expect them to protest in every way they can,” he added.

The United States already has lost one major agriculture case at the WTO, filed by Brazil over cotton supports.

Washington now faces new challenges from Brazil and Canada, who believe the United States has roared past WTO subsidy limits in recent years and violated other trade rules.

Gary Blumenthal, a trade analyst at World Perspectives, believes the bill “fails to fix previously adjudicated problems ... let alone new areas such as the crop revenue program.”

“One can anticipate future trade cases related to this legislation,” he said.

Congress takes up the bill at a time of sky-high U.S. crop prices and roaring export demand. High prices mean some U.S. subsidies linked to prices are going unpaid, a convenient plus for lawmakers averse to large cuts in the programs.

U.S. farmers get about $5.2 billion a year in direct subsidies, which some countries contend the U.S. government improperly classifies as minimally trade distorting.

UNDERMINING DOHA CREDIBILITY?

Some trade experts believe high crop prices ensure that subsidy payments, even with proposed farm bill changes, will stay safely within WTO spending limits for the time being.

“But of course, if the prices don’t stay up, we’re going to run into some problems again,” said David Blandford, an agricultural economist at Penn State University.

“What I am concerned about is the signal this sends,” said Sallie James, an agriculture and trade expert at libertarian think tank the CATO Institute, “that the U.S. is not serious about really reforming its agriculture programs.”

That may or may not be a problem in the Doha round of world trade talks, now in a critical stage as negotiators seek to iron out stubborn agriculture issues and lay the groundwork for a deal before Bush leaves office.

Both the administration and diplomats in Geneva acknowledge that Congress would have to alter farm policy if a deal is to be had, especially since lower U.S. subsidy limits are a priority for developing countries.

Farm leaders in Congress paid little attention to the WTO negotiations while writing the farm bill, saying they will revise it if the Doha round succeeds.

But the bill also could fan trade partners’ fears that a Congress so protective of farm programs might try to obstruct or dismantle a deal if sent to Capitol Hill for approval.

Earlier this year, House Democrats derailed a bilateral trade deal with Colombia, a key Latin American ally.

The move, which set the traditional procedure for voting trade agreements on its head, infuriated free-traders and raised fears about growing iciness to trade deals in the Democratic-controlled Congress.

Blandford believes a Doha deal would require some painful concessions for certain sectors such as cotton, but says it should garner support because it will open new markets.

Editing by Russell Blinch and David Gregorio

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