U.S. World Trade Organization Obligations
Farm Security and Rural Investment Act of 2002

May 2002

U.S. policies governing production agriculture, rural development, and food assistance are set in legislation at intervals of about every 5 years. The newest farm legislation, called the Farm Security and Rural Investment Act of 2002 (2002 Act), was signed into law on May 13, 2002. It not only lays out domestic support for production agriculture, but also funds: activities that promote conservation practices and uses of natural and renewable resources, including agricultural land, pastures, and forests; the national nutrition and domestic food assistance programs, principally food stamps; animal and plant health and food safety activities; trade; research; and food aid.

History of the 2002 Act

More than a year ago, the U.S. Congress began seeking public input for a new Farm Bill to follow the Federal Agricultural Improvement and Reform Act of 1996 (FAIR Act). The authority for carrying out the major commodity programs of the FAIR Act expires with the 2002 crops now being planted.

The U.S. House of Representatives passed the Farm Bill on Oct. 5, 2001, and the U.S. Senate passed a different version on Feb. 13, 2002. The bill emerged from a House-Senate conference committee on April 26 and was required to be re-voted on by both houses of the Congress. The House voted 280-141 in favor of the conference bill on May 2, 2002, and the Senate passed the bill 64-35 on May 8, 2002. President Bush signed the bill into law on May 13, 2002.

As of May 2, 2002, the Congressional Budget Office (CBO) estimated additional spending for the 2002 Act to total $82.8 billion. The first three titles–Commodities, Conservation, and Trade–provide support to production agriculture. Additional spending on these three titles is estimated at $74.9 billion. A comparable baseline number for these three titles over 10 years is estimated at $107.2 billion.

The increase in spending in the new law institutionalizes the ad-hoc assistance payments provided to farmers since 1998. Over the past 4 years, Congress has augmented the baseline for farm payments by approving supplemental assistance totaling approximately $30.5 billion, or about $7.5 billion annually. The 2002 Act adds to the overall farm spending baseline by a similar amount annually.

Support to Crop Farmers Through Three Major Programs

Under a direct payment program that replaces the previous production flexibility contract payments, farmers receive direct payments based on historical, not current, production. Two other programs designed to provide a safety net for farmers respond to market conditions: loan deficiency payments under the commodity loan program are paid to farmers on actual production when market prices fall below a certain rate; and counter-cyclical payments are paid based on historical production when average prices (plus the direct payment) are below a target level for a period of time.

In the 2002 Act, loan rates increase for grains (corn, sorghum, barley, and wheat), but decrease for soybeans. The loan rates for cotton and rice remain unchanged. A maximum amount of support per farm is set for each program. The 2002 Act substantially revises the support programs for peanuts by ending the domestic quota system and providing a buy-out of the quota over 5 years. In addition to eligibility under the commodity loan program (but at a new lower loan rate), peanut producers may now participate in the direct payment and counter-cyclical payment programs similar to other program crops. The 2002 Act adds new programs for milk, pulses (dry peas, lentils, and small chickpeas), honey, wool, mohair, and apples.

An important theme of U.S. agricultural policy since the first farm bill in the 1930’s has been conservation. The 2002 Act expands existing programs, which retire fragile lands from active production, and creates new ones to encourage farmers to use environmentally friendly practices to conserve natural resources on land they continue to farm. Funding for these initiatives increases 80 percent or $17.1 billion. For the first time, the 2002 Act addresses the issue of renewable energy resources with several new programs funding research and development of processes and programs to use bio-based products as fuel sources.

The section in the 2002 Act that directly impacts the most people is not the support for production agriculture, but the domestic food assistance and nutrition programs. Annual spending for these programs is $34 billion and the 2002 Act authorizes additional funds of about $6 billion to reinstate the benefits for legal immigrants, food quality programs, and funds for eligible charitable public food assistance programs (soup kitchens).

In an effort to enhance life in rural areas through programs that are not tied to agricultural production, the 2002 Act funds programs to increase Internet access in rural areas and to train rural firefighters and emergency personnel. Research into food safety, nutrition, production, and conservation is also an important element of U.S. agricultural policy and of the 2002 Act.

The 2002 Act reauthorizes three food aid programs through 2007. It increases the minimum tonnage in the basic humanitarian program to 2.5 million tons from 2.025 million tons. This action further solidifies the U.S. Government’s position as the leading source of food aid (more than 50 percent) for needy people around the world.

The 2002 Act increases funding for the farmer-to-farmer program with emphasis on Sub-Saharan African and Caribbean Basin countries. It authorizes funding for the Food for Progress grant program, which provides support to countries working to expand their private agricultural sectors. It also mandates $100 million in fiscal 2003 to support a global school feeding pilot program.

Food aid programs will also be streamlined to assure quicker response to food aid needs. The 2002 Act makes contributions to meet international obligations in terms of developmental assistance, particularly in the scientific areas of production agriculture, food safety, and nutrition.

A great deal of attention, both domestically and internationally, has been focused on the compatibility of the 2002 Act with international trade obligations under the World Trade Organization (WTO). By devising programs to meet policy goals in a targeted, transparent manner, much of the spending in the 2002 Act is not trade distorting.

The 2002 Act contains a "circuit breaker," which requires the Secretary of Agriculture to ensure that the United States does not exceed its WTO limits. U.S. subsidies are already much lower than those of the European Union (EU) and the U.S. market is relatively open. The EU’s limit on trade-distorting domestic support under the WTO is more than $60 billion, more than three times the U.S. ceiling of $19 billion, while Japan’s limit exceeds $30 billion.

In addition, the EU spends more than $2 billion a year on export subsidies, accounting for 90 percent of the world total. The United States spends around $80 million -- more than 25 times less. While the average allowed tariff on agricultural products for WTO members is greater than 60 percent, the average U.S. agricultural tariff is only 12 percent. The EU’s average tariff is more than 30 percent, the Cairns Group of 17 Pacific Rim exporting nations is more than 30 percent, and Japan’s tariff is more than 50 percent.

The spending levels in the 2002 Act in no way diminish the U.S. commitment to its obligations under the 1996 Uruguay Round Agriculture Agreement nor the U.S. commitment to further agricultural trade liberalization. In June 2000 at the WTO agriculture negotiations, the United States submitted an ambitious proposal for broad agricultural trade reform to substantially reduce tariffs, increase market access, eliminate export subsidies, and reduce trade-distorting domestic support.

These goals were reflected in the U.S. position at the November 2001 WTO Doha Ministerial, which launched the new round of multilateral trade negotiations, called the Doha Development Agenda. Since then, various U.S. Government officials have reiterated this position numerous times.

The United States is fully committed to the objectives of the Doha Development Agenda. The challenge is for all WTO members to move forward in the WTO negotiations. All members, developed and developing, will benefit from increased market access, transparency, and predictability in the world trading system.

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Last modified: Thursday, October 14, 2004 PM