While progress has stalled in the House of Representatives in recent weeks, the pending new five-year US Farm Bill will have important implications for agriculture. A new paper by Professor Carl Zulauf from the Ohio State University and IFPRI Senior Research Fellow David Orden, published by the International Center for Trade and Sustainable Development (ICTSD), looks at the competing bills coming out of the Senate and House of Representatives Agriculture Committee in light of their relationship to WTO limits on domestic support.

US Farm Policy and Risk Assistance: The Competing Senate and House
Agriculture Committee Bills of July 2012
finds that both bills aim to reduce or eliminate annual fixed direct payments to farmers and strengthen the subsidization of crop insurance and other risk assistance programs. In recent years, US policy has moved away from price-based programs with fixed targets in favor of programs based on revenue loss and risk assistance. In 2011, insurance payments to farmers totaled $5.6 billion and accounted for the largest share of US farm assistance.

The move away from price-based programs toward more risk-based programs and away from fixed targets toward targets that move with the market will be seen by some as a way for the US to skirt the intent of the WTO domestic support limits. It could also have implications for future WTO negotiations. As the US moves away from WTO green box measures and toward amber box measures, it could result in higher amber box expenditures. This means that the US could make it difficult for tighter constraints to be negotiated in the future.

While the view that the US is attempting to get around WTO limits is a common one, the paper also points out that the pending Farm Bill could be viewed in another light. Specifically, the issues raised by the US Farm Bill's use of fixed versus market-driven targets and price-based versus risk-based programs highlight some important shortcomings in the WTO classifications themselves. While different types of targets can impact international markets and trade differently, the WTO currently does not differentiate between these targets. Nor does it differentiate between different kinds of risk. Thus, the new US Farm Bill could provide an important opportunity for the WTO to examine these issues more fully.

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