On May 13 President Bush signed into law a new farm bill that provides a huge increase in subsidies to U.S. agricultural producers. Two days later the Senate approved Trade Promotion Authority for the Administration with severe qualifications aimed at protecting U.S. industries from foreign competition.

Critics in Europe and the developing world are accusing the U.S. of practising protectionism at home while preaching free trade abroad.

The farm bill authorises US$173.5 billion in subsidies for a 10-year period, $73 billion for 2002-2007 alone, an increase of 70 per cent over the previous level.

Existing subsidies are increased for soya bean, wheat and corn. New subsidies are introduced for peanuts, lentils, chickpeas and dairy farms.

Previously abandoned subsidies for honey, wool and mohair have been restored.

The effect on the agricultural exports of developing countries is expected to be severe.

The subsidies will support large increases in U.S. domestic production, which will shut out a large part of foreign imports. And as the U.S. accounts for 19 per cent of world agricultural exports, the prices of these agricultural commodities on world markets will fall by between 10 and 15 per cent, according to experts.

Brazil stands to lose US$9.6 billion in exports to third countries over the next four years. Argentina's annual losses in export income are estimated at $1.5 billion. Chile, Ecuador, Peru and Uruguay are also counting the cost.

Among the countries of the Association of Caribbean States (ACS), 63 per cent of agricultural exports went to the U.S. market in 1999. The smaller economies in Central America and the Dominican Republic will be the most affected.

Mexico and Colombia are also significant exporters to the U.S.

Apart from the direct impact, there is the credibility effect on global and regional free trade negotiations.

The U.S. exerted great pressure on the EU to reform its agricultural subsidies regime as part of the agreement reached at the Doha WTO Ministerial meeting last November. Now the EU commitment to that section of the Doha Declaration, extracted after considerable arm-twisting, will be in even greater doubt.

Already, the EU is contemplating lodging a complaint on the U.S. steel tariffs with the WTO (World Trade Organisation). The new agricultural subsidies could bring U.S. subsidies per farm to between three and four times European levels, according to the Economist magazine.

Within the hemisphere, the question is what will this do to the FTAA (Free Trade Area of the Americas) negotiations.

The farm bill will confirm the worst fears of Brazil and its MERCOSUR partners about the willingness of the U.S. to open its markets to imports that are of greatest interest to the Southern Cone countries.

These fears will be reinforced by the insistence of the U.S. Senate, in last week's resolution, that Trade Promotion Authority granted to the President will be conditioned by a Congressional right of veto over specific provisions of trade agreements that change antidumping and other laws aimed at protecting U.S. producers from so-called unfair trade practices.

While WTO and FTAA negotiation meetings are continuing, the global climate for trade liberalisation has been drastically changed by these developments.