US pitches subsidy plan to sidestep WTO feuds

WASHINGTON, Feb 1 (Reuters) US agriculture officials unveiled a plan to shield farm subsidies from legal battles, shuffling some of the 87 billion dollars they want to spend over the next decade into programmes they hope won't run afoul of World Trade Organization rules.

The threat of costly, drawn-out legal challenges at the WTO, like Brazil's landmark case that forced Washington to dismantle some support for cotton farmers, makes reform an urgent necessity, said Agriculture Secretary Mike Johanns yesterday.

The risk ''is real,'' Johanns told reporters as he rolled out the administration's proposal for the 2007 farm bill, the umbrella law that sets subsidy, environment and nutrition spending.

US agriculture officials hope Congress will take their pitch seriously when lawmakers sit down to write a replacement for the current farm bill, which expires this fall.

For months, Johanns had been touting the farm bill as a chance to retool subsidies, which now cost about 20 billion dollars a year, and ensure they're in line with WTO rules.

To make that happen, USDA wants to increase funds for ''direct payments,'' which calculate subsidies based on the crops farmers grew in the past, to 5.5 billion dollars over the next 10 years. Direct payments are now 5 billion dollars a year.

Cotton, critics' emblem for costly, trade-distorting subsidies, would get a boost of 66 per cent.

US farm supports have become a crucible in the Doha round of world trade talks, which broke down in July in an impasse over agriculture. Critics believe the subsidies drove down prices and lock out poor farmers in the developing world.

If the round proves fruitless, it is believed more WTO lawsuits, like the Brazil cotton challenge, will pile up.

''Without meaningful reform ... the US will continue to face legal challenges,'' Raymond Offenheiser, president of aid group Oxfam America, said in a statement.

FIRST BRAZIL, THEN CANADA If the 2005 Brazil ruling wasn't troubling enough, US agriculture got another jolt this month when Canada took a step to challenge US subsidies for corn and other crops.

Over half a dozen countries joined Canada in arguing US corn subsidies hurt foreign producers. Ottawa also contends Washington has exceeded its overall WTO spending limit.

Funneling more money into direct payments would give US cotton farmers the same level of support, but do it in a way that would be safe from legal challenge, USDA officials said.

USDA's proposal would also allow farmers to grow crops that haven't traditionally received support, like fruits, vegetables and wild rice, on subsidized land, which USDA believes is another way to ensure subsidies can't be 'linked' to prices or production in WTO challenges.

Only time will tell if Congress accepts USDA's plan and if a new farm bill can deflect legal challenge, said Steve Suppan, an analyst at the Institute for Agriculture and Trade Policy.

Trading partners will closely watch US negotiators, as well, to see if the farm bill debate prompts any new farm trade offers in the Doha talks, Suppan said.

The American Farm Bureau Federation, an influential farm group, said the proposed changes were a step toward protecting US supports from WTO challenges, but, president Bob Stallman warned: ''There's no way to give a 100 percent guarantee.'' Neither is it clear, Stallman added, if the USDA plan would do enough for American farmers, another key concern.

Brazil, meanwhile, insists that the United States hasn't reformed its cotton subsidies sufficiently. A WTO panel is expected to rule on that issue this summer.

Reuters SBA VP0710