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Unpublished Paper
Think Big and Ignore the Law: U.S. Corn and Ethanol Subsidies and WTO Law
ExpressO (2008)
  • Phoenix X. Cai
Abstract

Phoenix X.F. Cai

Think Big and Ignore the Law: U.S. Corn and Ethanol Subsidies and WTO Law

Abstract:

International trade law is currently confronting a substantial challenge arising from tensions over U.S. subsidies to its domestic agricultural producers. Because of three recent developments, nations with competing agricultural economies are increasingly likely to pursue litigation against the U.S. challenging those subsidies. First, Brazil’s success in its recent challenge to U.S. cotton subsidies in the Upland Cotton case will likely embolden these nations to undertake similar suits. Brazil based its claim on legal arguments that will apply equally to U.S. corn and ethanol subsidies, making these subsidies extremely vulnerable to future litigation. The second development is the recent stalling of the Doha trade talks, through which the international community sought to redefine the WTO regime applicable to agricultural subsidies. Third, the U.S. Congress recently passed a 2007 Farm Bill which does not comply with existing WTO rules on subsidies. In light of these events, developing and middle-income nations are increasingly likely to pursue litigation against the U.S. to challenge other subsidies, and this litigation will probably produce more victories in the WTO. When nations win cases at the WTO, the remedy is the imposition of tariffs and import restrictions on the losing nation. In the current economic recession, limits on U.S. exports would result in more economic hardship.

At the heart of this Article is an in-depth exploration Brazil’s victorious challenge to U.S. cotton subsidies in the Upland Cotton case. The case is doctrinally significant in that it advances our understanding of WTO subsidies. It is also likely to be used as template for future challenges. Beyond the exploration of the doctrinal and practical implications of the Upland Cotton case, this Article also makes a number of broader theoretical and policy points. The article argues that agriculture provides a unique opportunity for the members of the WTO to reverse a trend of political capitulation. The WTO membership, through its trade ministers, can easily fix the subsidies problem by negotiating new rules and limits on subsidies. However, they have failed to do so (the Doha Round collapsed yet again on July 30, 2008), thereby capitulating in their defined roles. The result is a shift of power to the judicial branches of the WTO. This type of increase in judicial power is not contemplated by the WTO’s constitutive documents and is problematic for a number of reasons. First, it results in piece-meal and ad hoc problem solving which imposes uncertainty costs to the trade regime. More importantly, this judicialization will be harmful to the WTO’s legitimacy by reversing a positive trend towards greater transparency, democratic input, and accountability in political decision-making.

On the one hand, this Article tackles a specialized field of international trade law. On the other, its sweep is much broader. The agricultural subsidies debate is highly salient in the current political context of high food costs, high fuel prices and Doha development round sensitivities. 2008 has seen rocketing food and fuel prices, food rationing in many countries, and the controversial passage of the 2007 Farm Bill over a presidential veto, all of which has brought agricultural policies greater attention than in the past. Meanwhile, the Doha Round ministerial negotiations may be revived. One of the goals of Doha is to significantly reform the agricultural subsidies regime, among other things, in order to ensure that the world trading system more fully benefits developing countries. If the controversy over agricultural subsidies is not resolved, it will greatly weaken the entire WTO system. Thus, the subject of this article is timely, salient and politically relevant.

Keywords
  • Trade,
  • WTO,
  • Agriculture,
  • subsidies,
  • cotton,
  • corn,
  • ethanol,
  • dispute settlement,
  • Doha Round
Disciplines
Publication Date
August 15, 2008
Citation Information
Phoenix X. Cai. "Think Big and Ignore the Law: U.S. Corn and Ethanol Subsidies and WTO Law" ExpressO (2008)
Available at: http://works.bepress.com/phoenix_cai/1/