Subsidy Spotlight: Thailand

May 24, 2012

The 2012 Farm Bill will include major funding cuts for America’s agricultural sector, and these reductions will come on top of the more than $15 billion in cuts made to farm policy in recent years to help Washington tame its crippling deficit.

The scene being played out in other countries, however, is much different.  While America is weakening policies designed to assist its agricultural sector, its foreign competitors are increasing subsidies at an alarming rate to gain a competitive advantage over U.S. farmers and ranchers.

In the case of Thailand, spending on subsidies and other trade distorting efforts has exploded and now appears to be in violation of World Trade Organization (WTO) subsidy limits, according to DTB Associates, a DC-based trade policy firm.

These WTO limits are based on what’s known as the Aggregate Measure of Support (AMS), a calculation by which the WTO measures subsidies and price supports to a country’s farmers.

WTO member countries, such as Thailand and the United States, are required to maintain subsidization within agreed-upon AMS caps.  Exceeding these caps constitutes a violation of WTO rules and can result in WTO-sanctioned punishments.

The United States is well under its cap, while many of our developing nation competitors are greatly exceeding their limits, DTB found.

Thailand-chart

Even based on Thailand’s own calculations sent to the WTO, they “came relatively close to violating its AMS obligations” from 2005-2007, DTB noted in its report.  And, “all of this notified AMS subsidy spending was for one commodity, rice.”

But DTB found that these calculations were way off and should have ranged from $15.2 billion to $17.1 billion, or more than 24 to 27 times the allowable level under the WTO agreement.

Among Thailand’s subsidy highlights:

  • Government support to the rice industry totaling more than $6 billion in 2010, including direct payments to producers and government commodity purchases to manipulate price.
  • Export subsidies, which are achieved by shipping government-owned rice at prices well below where they were acquired.
  • Price supports for sugar producers that totaled nearly $10 billion in 2010, as well as low-interest loans to sugar producers.
  • $500 million in price supports for Thai corn growers.

Unfortunately for U.S. producers, most of these subsidies have gone largely unnoticed, to date.

“[B]ecause the run-up in subsidies is a recent development, and because countries have not reported new programs to the WTO or have failed in their notifications to calculate properly the level of support, the changes have attracted little attention,” DTB Associates concluded in its report.

“We believe that when trade officials examine the developments, they will discover clear violations of WTO commitments.”

The question now becomes: Will Congress consider the foreign subsidies as it charts a course for American farm policy, and with it, agriculture’s future in the global marketplace?

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More information about Thailand’s subsidies can be found in a foreign subsidy database maintained by Texas Tech University.

Also, be sure to check out previous spotlights done on Brazil and India.