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Oxfam says U.S. must reform illegal cotton subsidies, or lose credibility, following WTO panel ruling

By Oxfam

WASHINGTON — The United States must act immediately to reform its trade distorting cotton subsidies, otherwise its credibility as an international trading partner will be undermined, and significant damage will be done to the multilateral trading system, said Oxfam today in response to a WTO panel ruling that confirmed that the U.S. has failed to reform its program sufficiently.

Oxfam said that the U.S. is still paying billions of dollars of such subsidies to its cotton farmers, despite having lost a WTO case against Brazil in 2005, with no encouraging signs of reform coming from the U.S. Congress. There is little time for the U.S. Congress to make more meaningful reforms to agricultural subsidies in order to comply with international trade rules before facing possible retaliation from Brazil.

"This ruling reinforces the need for reductions in U.S. cotton subsidies in both the context of the Doha Round and the 2007 Farm Bill," said Isabel Mazzei, head of the Geneva office of Oxfam International. "The U.S. cannot continue to ignore the WTO and the effects of cotton subsidies on global markets and, ultimately, the livelihoods of poor farmers in the developing world."

In 2005, the WTO ruled that U.S. cotton subsidies violate WTO rules and gave the U.S. until September 2005 to reduce them. In response, the USDA agreed to reform export credit programs to comply with the ruling, and Congress eliminated the Step 2 cotton export subsidy program in 2006. But these programs represent only 10% of the overall cotton subsidy programs and some of the most trade distorting programs, like the counter cyclical payments were left untouched. In September 2006, Brazil asked for a WTO “compliance panel” to determine whether the US has done enough to comply with the ruling. Today, the WTO has confirmed that the U.S. has failed to reform its agricultural subsidies enough to comply.

“Not only did the House of Representatives completely ignore the WTO ruling in passing its version of the 2007 Farm Bill, but it elected to take the brazen step of reinstating subsidies for cotton that were eliminated by the previous Congress, parsing the language to try to slide the subsidy under the WTO screen," said Raymond C. Offenheiser, president of Oxfam America. "Indeed, the cotton lobby, representing about 20,000 mostly large producers, has continued to fare well at the expense of the American taxpayer and family farmers both here and in Africa.”

According to a recent study conducted by Dan Sumner and others at the University of California Davis for Oxfam, reforming U.S. cotton subsidies would increase world cotton prices by 6-14%, resulting in additional income that could feed an additional million children for a year or pay school fees for at least two million children living in extremely poor West African cotton growing households. A typical cotton-producing household in West Africa has about 10 family members, an average life expectancy of about 48 years and an adult literacy rate of less than 25 percent. Cotton is often the only source of cash income for these families who live on less than $1 a day per person.

"The House-passed Farm Bill will not pass muster with the WTO," said Offenheiser. "If the U.S. is unwilling to live up to its international trade commitments, how can it expect other nations to comply with the same rules? It is now up to the Senate to rally the political will to finally align our agricultural programs with these international rules."

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