1 The debate in this country has focused on the export subsidies used by other countries. However, America's trading partners assert that U.S. use of domestic agricultural subsidies (e.g., deficiency payments to grain farmers) encourages a level of production so much greater than American consumption that a large percentage of the grain must be exported.

2 The U.S. Government has for several years criticized the system of export restitution payments which is a fundamental feature of the common agricultural policy of the European Economic Community. It is these payments which are the practice against which the current debate is directed. Our trading partners have for several years voiced, in a low-key manner, their view that America's P.L. 480 program is an export subsidy. More recently they have charged that the blended credit program is also an export subsidy.

3 This is the system used by the European Economic Community.

P roduction controls may be used in conjunction with either of the other systems mentioned. In the United States, currently and during other times of surplus, a farmer must comply with various acreage or marketing restrictions to be eligible for the income support payments. See, e.g., the provisions for marketing quotas for tobacco (7 U.S.C. 1312), sugar (7 U.S.C. 1112), corn (7U.S.C. 1326), wheat (7 U.S.C. 1332), cotton (7 U.S.C. 1342), peanuts (7 U.S.C. 1357). See also the provisions for acreage-poundage quotas for tobacco (7 U.S.C. 1314c), set-aside acreage for wheat (7 U.S.C. 1445b(f)). In the United States these programs are not to be used to discourage the production of food and fibers sufficient to maintain normal levels of domestic human consumption, nor are they to be implemented without "due regard to the maintenance of a continuous and stable supply of agricultural commodities from domestic production adequate to meet consumer demand at prices fair to both producers and consumers." 7 U.S.C. 1304. The current debate, with its emphasis on food surpluses, assumes that food surpluses are undesirable, although famine continues to exist in parts of the world, and it has been concluded that undernutrition will not be eliminated by the end of the 20th century. World Bank, 1980 World Development Report; FAO, Agriculture: Toward 2000. The failure to donate the surpluses to the needy on a large scale is partially attributable to the commercial desire to preserve normal channels of trade. See, e.g., 7 U.S.C. 1714(c).

5 In the United States the surpluses are disposed of on the domestic market (see, e.g., 7 U.S.C. 1446c and 1446c-l concerning dairy surpluses) and on international markets (see, e.g., 7 U.S.C. 1446c-l concerning dairy surpluses, 7 U.S.C. 1431 concerning disposition of commodities to prevent waste, and 7 U.S.C. 1431e concerning distribution of surplus commodities to special nutrition projects).

6 This is the system used by the United States.

7 See section 22 of the Agricultural Adjustment Act of 1933, 7 U.S.C. 624, for which the United States in 19SS obtained a waiver of the application of the rules of article XI of the General Agreement on Tariffs and Trade. See also section 204 of the Agricultural Act of 1956, 7 U.S.C. 1854, which is used to implement the import quotas on meat mandated by the meat import law, 19 U.S.C. 1202 note.

8 The Commodity Credit Corporation was established in 1933. Its authorities are set forth at 15 U.S.C. 714 note.

9 Agricultural producers have obtained a statutory contract sanctity provision and agricultural embargo protection. See 7 U.S.C. 1736j.

10 The basic rules of the common agricultural policy are at articles 38-47 of the Treaty of Rome. Regulations implement the common market organizations for the various products. See, e.g., Reg. No. 804/68, O.J. No. C18 concerning milk and dairy products.

11 Reg. No. 2727/75, 1 CMR 428B.

12 Reg. No. 804/68, 1 CMR 641B.

13 Reg. No. 805/68, 1 CMR 651 A.

14 Reg. No. 2759/75, 1 CMR 451c.

15 Reg. No. 337/79, 1 CMR 515c-l.

16 Reg. No. 1035/72, 1 CMR 501Q-1.

17 Council Decision 70/243, O.J. 1970(1).

18 The Economist, Jan. 8, 1983 at 69.

19 These measures may include subsidization such as when, under article XI:2(c) (ii), a country has in effect governmental measures which operate "to remove a temporary surplus of the like domestic product . . . by making the surplus available to certain groups of domestic consumers free of charge or at prices below the current market level." Cf. with regard to domestic subsidies, a 1955 Working Party Report which concluded: "So far as domestic subsidies are concerned. . . a contracting party which has negotiated a concession under Article II may be assumed, for the purpose of Article XXIII, to have a reasonable expectation, failing evidence to the contrary, that the value of the concession will not be nullified or impaired by the contracting party which granted the concession by the subsequent introduction or increase of a domestic subsidy on the product concerned." GATT, BISD, 3d Supp. 222 (1955).

20 A primary product, for the purpose of the rule on subsidies, is denned as "any product of farm, forest or fishery, or any mineral, in its natural form or which has undergone such processing as is customarily required to prepare it for marketing in substantial volume in international trade." GATT, Annex 1, Ad Art. XVI. The rule in the Havana Charter, the document drafted in connection with the ill-fated International Trade Organization or ITO, prohibited all export subsidies. Arts. 27, 28. Article 28:1 prohibited any subsidy whose effect is. to provide "more than an equitable share of world trade in that commodity."

21 Article XVI:2, which applies to subsidies on any product, adds another discipline: "The contracting parties recognize that the granting by a contracting party of a subsidy on the export of any product may have harmful effects for other contracting parties, both importing and exporting, may cause undue disturbance to their normal commercial interests, and may hinder the achievement of the objectives of this Agreement."

22 Executive Branch GATT Study No. 3: The Adequacy of GATT Provisions Dealing with Agriculture, Study Prepared for Senator Abraham Ribicoff, May 1973 at 2.

23 GATT, Annex 1, Ad Art. XVI:3, note 1. "The fact that a contracting party has not exported the product in question during the previous representative period would not in itself preclude that contracting party from establishing its right to obtain a fair share of the trade in the product concerned." This text was proposed by Brazil and Turkey. See GATT, BISD, 3d Supp. 226 (1955).

24 GATT, 3d Supp. BISD para. 19, at 226 (1955). In several proceedings instituted by the United States under the Subsidies Code and involving Community export subsidies, the Americans attempted to define a representative period to exclude the recent period of subsidization. The conclusions of the panel in the wheat flour case allude to but do not resolve the matter.

25 See appendix 1. This provision was adopted from article 27, paragraph 1 of the Havana Charter. According to John Jackson, any subsidy in connection with a price stabilization scheme falling within this exemption is almost certain to be exempt from countervailing and antidumping duties under article VI:7 of the GATT.

26 "The GATT provision on export subsidies on primary projects reflects the position taken by the United States on this matter when the GATT was reviewed in 1955." Executive Branch Study No. 3: The Adequacy of GATT Provisions Dealing with Agriculture, Prepared for Senator Abraham Ribicoff, May 1973 at 1.

27 Quoted in J. JACKSON, WORLD TRADE AND THE LAW OF GATT (1969) at 372. Almost every proceeding involving agricultural products brought by the United States against the Community under section 301 of the Trade Act of 1974 since 1979 involves competition between American and Community exports in individual, third-country markets.

28 GATT, 7th Supp. BISD 46, 53 (1958). The panel also found that, in addition to the consistently low prices, there was no inherent guarantee that the French system would operate so as to conform to the limits in article XVI:3.

29 GATT, 7th Supp., BISD 22 (1959). Australia and France subsequently entered into a bilateral arrangement concerning exports of wheat flour to Southeast Asia.

30 ln general, American agricultural interests objected to the inclusion of a material injury test in the countervailing duty law, an inclusion which was a major American concession during the negotiations. Prior to the MTN, the imposition of countervailing duties was triggered merely by a determination by the Department of the Treasury of subsidization by a foreign government or entity. Thus the standard, one relatively easy to meet, was contrary to article VI of the GATT. In the Trade Act of 1974, the Congress permitted the "waiver" of the imposition of countervailing duties. Many waivers were granted to imports of agricultural products. A greater discipline by others, particularly the Europeans, on their use of export subsidies was an American goal intended to placate domestic agricultural interests. The goal was considered a proper quid pro quo.

31 "Certain primary products" are those products defined in the GATT as primary products, with the exception of minerals. Subsidies Code, Art. 10, fn. 4.

32 The Subsidies Code is premised on controlling the effects of subsidies: "Recognizing that the emphasis of this Agreement should be on the effects of subsidies and that these effects are to be assessed in giving due account to the internal economic situation of the signatories concerned as well as to the state of internal economic and monetary relations." Preamble.

33 This language is substantively identical to the corresponding text of article XVI:3.

34 Special factors, such as a declining market, might indicate that a competitor's declining share still amounts to more than an equitable share.

35 The panel in the Australian/French wheat flour case concluded that in spite of the instability in the three Southeast Asian markets "it is nevertheless clear that French supplies have in fact to a large extent displaced Australian supplies in the three markets." GATT, 7th Supp., BISD 46, 55 (1958).

36 During the Tokyo Round Ambassador Robert Strauss, the U.S. Special Trade Negotiator, told the Europeans that the Americans did not seek to dismantle the common agricultural policy. This assurance has been relied upon by the Community and has been denied by the Americans. Recently other American officials outside the U.S. Department of Agriculture have made statements similar to that of Ambassador Strauss.

37 The final communique issued at the end of the ministerial meeting committed the participants to "refrain" from taking or maintaining measures inconsistent with the GATT. The Australian delegate, who had urged a standstill on agricultural subsidies, deplored the fuzzy language. The Europeans, thinking the document went too far, made an oral reservation saying they preferred to maintain the status quo on export competition.

38 A study of the applicability of the GATT to agriculture had been conducted by the GATT Secretariat in 1982. Its conclusion that agriculture effectively operates outside the GATT system was implicitly accepted in the work program of the Ministerial Declaration in which it is agreed to bring agriculture more fully into the multilateral trading system by improving the effectiveness of the GATT rules, to seek to improve the terms of access to markets and to bring unfair export practices under a greater discipline.

39 The sale was considered by some as retaliation for the Community's subsidized sales of wheat to Chile in late 1982, a Latin American market the United States considered a traditional American market.

40 Egypt imports approximately 1.5 million tons of wheat flour annually, largely from France. American exports had been limited to less than 500,000 tons of that market in sales through the Food for Peace Program of P.L. 480. These sales, plus the one million tons, which represents one-sixth of world trade, effectively preclude other suppliers from the market and exceed the annual average exports of 1.1 million metric tons.

41 A similar point was made on February 25 by a spokesman for the National Grain and Feed Association before the Committee on Agriculture, Nutrition and Forestry. In arguing against subsidized exports from the United States, the spokesman listed five problems: inconsistency with America's traditional free trade stance, probable retaliation, preference for foreign over domestic customers, possible interpretation that the policy will continue and "subsidies distort market pricing, making it difficult or impossible to determine the true market value of a commodity. In view of recent developments in the flour market, I wonder whether anyone can tell us what the price of a 20,000 ton shipment of wheat flour for export is today?"

42 See FAO, Principles of Surplus Disposal and Consultative Obligations of Member Nations.

43 GATT PLUS: A PROPOSAL FOR TRADE REFORM, at 33.