Potential Challenges to U.S. Farm Subsidies in the WTO

Prior to its expiration on January 1, 2004, the World Trade Organization's (WTO's) Peace Clause (Article 13 of the Agreement on Agriculture) provided protection from trade remedy consideration and WTO dispute settlement for domestic farm subsidies provided they met certain compliance conditions. Absent the Peace Clause, challenges to U.S. farm subsidies now appear to confront a lower threshold for success, that of establishing "serious prejudice" under Articles 5(c) and 6.3 of the Agreement on Subsidies and Countervailing Measures (SCM). In particular, the criteria for establishing serious prejudice claims include demonstrating (1) the magnitude of a commodity's subsidies either as a share of returns or as an important determinant in covering production costs; (2) the relevance of the subsidized commodity to world markets as a share of either world production or world trade; and (3) a causal relationship between the subsidy and the adverse effect in the relevant market. Evidence of these criteria favors a successful challenge ruling by a WTO panel, as demonstrated by Brazil's successful WTO challenge of the U.S. cotton program.--