Bush stokes trade war by signing farm subsidies Bill

Protests from America's main trading partners intensified yesterday after the Senate passed a farm Bill increasing agricultural subsidies by $70bn (£48bn).

The policy has already been passed by the House of Representatives, and President George Bush, who was initially opposed to the plan, says he will sign it into law. In a vote dominated by domestic politics in a mid-term election year, the Senate voted by 64 to 35 to approve the measure, which will cost an estimated $190bn (£130bn) over the next decade.

Foreign critics say it flies in the face of promises to remove subsidies that distort the market and level the playing field for poorer countries. It may also breach international trade rules.

Australia's Deputy Prime Minister, John Anderson, described the Bill as an "extremely unfortunate develop- ment" and warned of possible retaliation. He warned: "If it's possible to take action under the World Trade Organisation rules,we will do so."

Earlier, in a broadside from Brussels, the European Union commissioner for agriculture, Franz Fischler, said the move could call into question the liberalisation promises of the recent World Trade Organisation talks and would damage Washington's credibility. "We cannot negotiate on the basis of, 'Do as I say, not as I do'," he said.

The protests reflect increasingly widespread complaints of hypocrisy by the Bush administration – that while professing undying devotion to free trade and open markets, its deeds go in an exactly opposite direction. A first instance was the steel import tariffs imposed earlier this year, against which the EU is poised to retaliate.

Now, say EU officials, even as the US criticises the wastefulness of Europe's Common Agricultural Policy, America is increasing subsidies and support for its own farmers.

Ironically, a majority of Mr Bush's fellow Republicans in the Senate voted against the Bill. But it was overwhelmingly supported by Democrats, many of them from Midwestern farm states, who are facing tight re-election contests.

Mr Bush was strongly critical of the Bill at first, but if he wielded his veto now, he would only make it harder for Republicans to capture the single seat needed to regain control of the Senate.

Moreover the numbers alone make it highly doubtful that he could prevent the two-thirds majority of 67 votes required to override the veto.

Mr Bush also knows that a controversial veto would reduce his prospects of winning "fast-track" authority to conduct international trade negotiations. The policy which squeaked through the House but is badly bogged down in the Senate, allows Congress only a straight yes-or-no vote on trade agreements. Without it, foreign governments would refuse to negotiate deals if they are likely to be picked apart amendment by amendment, by the 535 Senators and Representatives.

A defiant and unrepentant Tom Harkin, the Iowa Democrat who heads the Senate Agriculture Committee, said: "This is a bill for US farmers, not for European farmers." As such it would give farmers "stability and predictability", he added. The legislation will raise subsidies for grain and cotton growers, reinstate subsidies for wool and honey and introduce new payments for milk, peanuts, lentils and dry peas. Falling commodity prices have meant the estimated cost over the next 10 years has risen from an original $170bn (£117bn) to $190bn.

Development economists say the new Bill will also damage the interests of the Third World, by encouraging US farmers to produce more, increasing a surplus that will make it harder for poor countries to sell agricultural goods.