U.S. Farmers Get a Lesson In Global Trade
Cotton Ruling Demonstrates WTO's Power Over Markets
By Paul Blustein
It took Texas cotton farmer George Hoelscher a few minutes yesterday to get his mind around the news that a panel of judges sitting in Geneva, Switzerland -- one from Poland, one from Chile and one from Australia -- had issued a ruling that threatened his livelihood.
But upon learning that the judges were with the World Trade Organization, and that they had ruled U.S. cotton subsidies to be in violation of international trade rules, Hoelscher began to perceive some dark truths.
"We're losing our sovereignty in a lot of ways," said Hoelscher, who farms 1,200 acres of cotton near Corpus Christi and collects up to $15,000 a year in federal subsidies, depending on prices. "This is one more way, having these people dictate to us, along with the United Nations and so forth."
Hoelscher and the rest of the nation's 25,000 cotton farmers are getting a rude introduction to the rules of the global trading system, courtesy of the decision issued Monday by the Geneva-based WTO in a case brought by Brazil against the United States. The WTO panel, in a potentially major blow against the farm-subsidy programs run by rich nations, found that federal payments to cotton farmers unfairly depress world cotton prices.
By hitting the interests of people deep in America's heartland, the ruling drove home the fact that, as a member of the nine-year-old WTO, the United States has to bow to the organization's decisions -- even when, as in Monday's case, those decisions go against laws approved by the U.S. Congress. In return, the United States gets to use the WTO to pry open other countries' markets to U.S. goods and make them abide by the rules agreed upon among the 147 member countries.
It is a trade-off that even defenders concede involves some sacrifice of self-determination, just like any international treaty involving, say, the banning of biological weapons or nuclear bomb tests. The payoff for the United States, WTO supporters contend, is that other countries accept constraints on their sovereign powers as well -- and the value of those constraints far exceeds what Washington gives up.
"You can't have a workable set of international rules unless the biggest player in the system is willing to play by them," said David Rothkopf, a former top Commerce Department official in the Clinton administration. "What it assures us is that other countries won't do bad things to us" -- no small matter, he added, "since 95 percent of the world's consumers live someplace other than the United States."
WTO officials often emphasize that their organization can't force any member government to change its laws or regulations, and technically that's true. When one country wins a WTO case against another, the loser has a choice: It can eliminate the offending law or practice, it can pay compensation to the winner, or it can accept the imposition of duties against its products by the winner.
In one big case that the United States won, for example, the WTO ruled illegal the European Union's ban on imports of hormone-fed beef, and when the EU refused to open its market anyway, Washington slapped tariffs on a host of European goods.
In the cotton case, it is far from clear that the ruling will make Congress change its subsidy program, which paid American farmers about $4 billion in the crop year that ended July 31, 2002. The full WTO ruling hasn't been released, and it is subject to appeals that could take until the end of this year. "There is no immediate impact on our farm programs," Allen F. Johnson, the chief agriculture negotiator at the U.S. trade representative's office, said in a conference call with reporters.
But U.S. officials put high priority on compliance with WTO decisions even when they lose because the whole idea of creating the WTO, from Washington's standpoint, was to establish a global trade body with teeth. Before the WTO's founding in 1995, countries often ignored rulings by the General Agreement on Tariffs and Trade, which under the GATT's rules they were allowed to do.
So now that a stronger world trade arbiter exists, concerns about sovereignty have been amplified, just as they were when the North American Free Trade Agreement was established. One of the most controversial elements of NAFTA allows special tribunals to protect the rights of investors from member countries -- giving a Canadian or Mexican company operating in the United States, for example, the right to seek compensation for the cost of complying with state environmental regulations that are found to violate NAFTA rules.
Those sorts of issues have galvanized critics of trade agreements to argue that the pacts compromise the rights of countries to set their own rules and regulations, although left-wing critics acknowledged that Monday's WTO ruling generally pleased them. U.S. agricultural subsidies, they agree, unjustly enrich a small number of farmers and cause overproduction of crops, which get dumped on world markets and drive down prices, depriving peasants in poor countries of income.
"The WTO compromises U.S. sovereignty -- there's no question about that. At the same time, we're not in all cases opposed to it," said Jason Mark, a spokesman for Global Exchange, a San Francisco-based group. "Our problem with the WTO is that when it compromises U.S. sovereignty, it does so in a framework that only takes into account economic issues, or market values. Other values, like environmental protection, or human rights, or social justice, are left at the door."
In the very first case that the United States lost in the WTO, for example, the trade body ruled in 1996 that certain U.S. clean-air regulations unfairly discriminated against gasoline imported from Venezuela. Washington has lost 22 cases brought by other countries, according to the Web site of the U.S. trade representative's office.
But Washington has won an equal number of cases that it has brought against other countries, plus 21 more that were "resolved to U.S. satisfaction without litigation," according to the Web site.
These forced the elimination of foreign practices that kept American fruit out of the Japanese market, for example. Another decision went against Canada's subsidies for dairy farmers, which Washington said was leading to the dumping of cheap Canadian milk in the U.S. market -- a case remarkably like the one involving cotton, except with the United States in the role of complaining party.
Boosters contend that the WTO, by creating an enforceable system of rules, keeps trade disputes from degenerating into destructive trade wars. "You do give up some freedom of action," said Edward Gresser, a trade expert at the Progressive Policy Institute. "But we get foreigners to make the same sort of promises to us." As an illustration, he cited China, which joined the WTO in 2001.
"In 2000, American cotton farmers earned $46 million from selling cotton to China," Gresser said. "In 2003, they earned $733 million from selling cotton to China, and in just the first two months of 2004, they earned $428 million. This is because the Chinese agreed to join the WTO, and made a series of promises to open their markets to the world's cotton. So [even for] cotton farmers, there's a pretty big payoff in our being a member of this organization."
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