[DEBATE] : WTO Ag: D Sharma - Much Ado about Nothing

[Riaz K Tayob]

  Much ado about nothing

For the sixth time in a row, the trade ministers of the developing world 
have been duped to believe that agricultural trade is for development. 
Despite making loud noises and fuming over injustice, the faulty 
framework that underlies the WTO remains very much in place, says 
Devinder Sharma.

http://indiatogether.org/2005/dec/dsh-hongkong.htm

27 December 2005 - Ten years after the WTO came into existence, and 
after six ministerial conferences, developing countries have failed 
miserably to force the rich industrialised countries to remove even one 
dollar from the massive agricultural support they provide to 
agribusiness corporations in the name of farmers. Unable to make any 
dent in the citadel of unfair trade – farm subsidy of US $ 1 billion a 
day – developing countries have time and again taken refuge behind an 
illusionary smoke screen. After each of the ministerial conferences, 
they have returned ‘victorious’, and the price has been paid by millions 
of small farmers edged out of farming.

The recently concluded Hong Kong Ministerial (Dec 13-18, 2005) was no 
exception. Much excitement has been over the promise by developed 
nations to eliminate export subsidies by 2013. This is the first time 
developing countries have managed to get a mention of reduction in 
subsidies. Except, at present, export subsidies do not even constitute 
one per cent of the total support of US $ 360 billion that the richest 
trading block – 30 countries forming the Organisation for Economic 
Cooperation and Development (OECD) – provide for agriculture. In any 
case, FAO projects that export subsidies have been steadily on the 
decline, falling from US $ 7.5 billion in 1995 to US $ 3 billion in 2001.
  EU provides 90 per cent of the global export subsidies. But over the 
years, it has very conveniently shifted the export subsidies to be part 
of the domestic support. Some estimates point out that EU does not shell 
out more than US $ 1.2 billion as export subsidies. As the French 
economist, Jacques Berthelot explains: "Formal export subsidies to EU 
cereals were reduced from Euro 2.2 billion in 1992 to 121 million in 
2002. But domestic support in the form of direct payments that helped 
exported cereals rose from 117 million euros in 1992 to 1.3 billion 
euros in 2002."

Other subsidies to be eliminated as part of the promise to developing 
countries include export credits, guarantees and insurance in excess of 
180 days. These pertain essentially to the US, which provides 95 per 
cent of such global export measures.

In return, developing countries have agreed to a "high level of ambition 
for market access in agriculture and non-agriculture goods." The text 
links the market access in both areas, stating that the "ambition is to 
be achieved in a balanced and proportionate manner." This is what 
exactly the developed countries had been keenly looking forward, and 
this is where the developing countries gave in. Step by step, developed 
countries have been able to get more market access from the developing 
countries, without showing an equal reciprocation.

Another key "achievement" developing countries are touting is the 
promise of elimination of much-maligned US cotton subsidies. Let me 
first make it clear, it is not cotton subsidies that the US has promised 
to remove by 2006. It is the export subsidies on cotton that the US is 
willing to do away with. In reality, as some estimates show, it does not 
translate to more than $ 30 million, which is not even a drop in the 
ocean for American cotton growers. In any case, the US provides barely 
1.4 per cent of the global export subsidies.

Let me explain. For the 20,000 cotton growers in America, it will be 
business as usual. In 2004, US cotton farmers got federal support to the 
tune of $ 4 billion, which means $ 10.1 million a day. In 2005, UN Human 
Development Report 2005 states the cotton growers were paid an 
additional $ 700 million thereby jacking up the total subsidy to reach a 
staggering figure of $ 4.7 billion. It is this huge subsidy support, 
much of it considered non-trade distorting that actually causes the 
global prices to slump. Indian cotton growers or for that matter cotton 
farmers in western Africa are thereby priced out of the international 
market.

  Despite the brouhaha about developing nations banding together, the 
Hong Kong declaration does not talk about reduction in domestic support 
in case of cotton. All it says is: “as an outcome of negotiations, trade 
distorting domestic subsidies for cotton production should be reduced," 
which in trade terms means practically nothing. In fact, the contentious 
issue of domestic support for agriculture has remained untouched. And 
that is where the US, EU and Japan have succeeded. They have emerged 
scathe-free from a negotiating position that could have otherwise 
derailed the Hong Kong Ministerial. Developing countries term this as a 
‘success’.

Let us not forget that in the first three years of the notorious Farm 
Bill 2002, America provided an additional support of at least US $ 125 
billion (70 per cent of the total allocated budgetary support of US $ 
180 billion) to its estimated 9,00,000 farming families. These 
counter-cyclic payments, again considered non-trade distorting have 
already filled the bank accounts of the agri-business companies and the 
elite in the American society. And yet, the US is getting ready with 
another version of the Farm Bill that should come into vogue in 2007.

On top of it, there is no provision in the Hong Kong declaration that 
can stop the developed countries to further increase their agricultural 
subsidies. Under the July Framework 2004, developing countries have now 
legally permitted the developed countries to increase their agricultural 
subsidies.

When asked, India's Commerce Minister Kamal Nath replied: "The US has 
already offered to reduce domestic support by 53 per cent while the EU 
offer is for 70 per cent." This was actually a commitment that the US 
and EU had made in mid-October. Interestingly, the minister had then 
lashed out: “What the US proposed last month is not real cuts in 
agriculture subsidies. The real cuts would be when there is decline in 
the support provided by the US treasury,” he asserted.

But post-Hong Kong, for some strange reasons the minister agreed to the 
same commitment!

The US/EU offer pertained to cut the ceiling on trade-distorting 
subsidies by 60 per cent and 70 per cent, respectively. Let me clarify 
here that the US/EU proposal did not mean reduction in farm subsidies by 
60 to 70 per cent but a reduction in the ‘ceiling’ on trade-distorting 
subsidies. As far as the overall reduction is concerned, it does not 
translate into any reduction in the domestic support being given.

  Perhaps Kamal Nath thought that public memory is too short. Just in a 
matter of ten days, he made a complete u-turn in his stand on 
agricultural subsidies. This is exactly what he did at the time of 
accepting the July 2004 Framework, too. Two days before the final draft 
was accepted in Geneva in the early hours of August 1, 2004, he had 
publicly rejected it. And then, for reasons that remain unexplained, 
accepted the same draft (with hardly any changes) two days later and 
called it a ‘victory’ for India.

There is no denying that the biggest culprit is the July Framework 2004. 
It provides a cushion for the developed countries to raise farm 
subsidies from the existing level. It also is the foundation for future 
negotiations under the Doha Development Round. But if you read the draft 
carefully, it is obvious that the developing countries had been taken 
for a ride. The first instalment of a cut in subsidies by 20 per cent 
under the July Framework is not based on the present level of subsidies 
but on a much higher level that has been now authorized based on the 
three components -- the final bound total Aggregate Measure of Support 
(AMS), plus permitted de minimis, plus the Blue Box. In other words, 
developed countries have been allowed enough leverage by the developing 
countries to increase their subsidies. (See: Theatre of the absurd.)

How can the developing countries justify this? How could they forget 
that as long as the agricultural subsidies remain, protecting food and 
livelihood security in developing countries is not at all possible? And 
instead of re-opening the framework agreement, developing countries 
continue to negotiate on a faulty structure.

Allowing developing countries to select its own list of special products 
(SP), which would be outside the ambit of tariff reduction formula, 
along with special safeguard mechanisms (SSM) is being touted as 
adequate safeguard to protect farmers from income levels falling due to 
unfair competition from subsidised imports. SSM enables governments to 
raise import duties on agricultural products if there is a surge in 
imports or fall in world prices.

We need to understand this. Developed countries (38 rich countries so 
far) have used special safeguards (SSG) measures to restrict imports 
from developing countries. They have already been taking advantage of 
this flexibility by reserving the right to use the SSG for a large 
number of products: For e.g., Canada reserves the right to use SSG for 
150 tariff lines, the EU for 539 tariff lines, Japan for 121 tariff 
lines, the US for 189 tariff lines, and Switzerland for 961 tariff lines.

For the EU, just using SSG for 20 tariff lines protects 40 per cent of 
their agriculture import market. By exercising the flexibility to 
designate 539 tariff lines under SSG, the EU has for all practical 
purposes blocked whatever can be imported from the developing world. A 
similar categorisation (20 tariff lines) in the US would provide a 
protective shield for 38 per cent of the imports. And the US reserves 
the right to use SSG for 189 tariff lines!

The only redeeming feature for the developing countries is that they too 
are allowed to use the same measures, and this is where these countries 
can assert on re-imposing tariffs and counter-veiling duties to meet 
food security concerns. These measures however are temporary and would 
only come in place after the importing countries have actually felt the 
after-shock of import surges.

Even so, this 'benevolence' is no justification for the developing 
countries to rejoice. Not all products or tariff lines can be protected 
under the SP category. The draft very clearly states that at present the 
offer is to classify anything between 1 to 20 per cent of the total 
tariff lines as special products. For a country like India, which grows 
260 crops a year, and has 680 tariff lines in agriculture, not more than 
60-80 tariff lines can be protected under the SP category. What would 
happen to the remaining 600 tariff lines? Each tariff line is linked to 
livelihoods of thousands of farmers.

  Further, developed countries also have a similar provision under the 
July 2004 Framework. They can term some crucial commodities as 
'sensitive' and thereby deny market access. For instance, the US, EU, 
Japan and Canada maintain tariff peaks of 350 to 900 per cent on food 
products such as sugar, rice, dairy products, meat, fruits, vegetables 
and fish, which can be easily brought under the category of ‘sensitive’ 
and some 25-40 of the sensitive tariff lines under the tariff rate quota 
can be easily protected under this category.

It is now abundantly clear that while the developing countries have got 
Special Products and SSM, the developed countries have almost an equal 
and parallel provision of Sensitive Products and SSG. Crucially, if the 
developed countries had felt satisfied with the two provisions – 
Sensitive Products and SSG – to protect their agriculture, there would 
have been no need to provide the monumental farm subsidy support. The 
fact that developed countries, adequately armed with the safeguard 
provisions (besides non-tariff barriers and phytosanitary measures), are 
still not willing to eliminate agricultural subsidies, clearly shows 
where the key to a fair trade in agriculture lies.

Unless agricultural subsidies in developed nations go, there is no way 
developing countries can escape the harmful impacts of cheaper and 
subsidised food surges. Highly subsidised imports from the developed 
countries have already done irreparable damage to the agricultural 
production potential of the developing countries. Between 1995 and 2004, 
Europe alone has been able to increase its agricultural exports by 26 
per cent, much of it because of the massive domestic subsidies it 
provides. Each percentage increase in exports brings in a financial gain 
of US $ 3 billion.

On the other hand, a vast majority of the developing countries, whether 
in Latin America, Africa or Asia have in the first 10 years of WTO have 
turned into food importers. Millions of farmers have lost their 
livelihoods as a result of cheaper imports. If the WTO has its ways, and 
the developing countries fail to understand the prevailing politics that 
drives the agriculture trade agenda, the world will soon have two kinds 
of agriculture systems – the rich countries will produce staple foods 
for the world’s 6 billion plus people, and developing countries will 
grow cash crops like tomato, cut flowers, peas, sunflower, strawberries 
and vegetables. In reality, the WTO system may ensure that the reins of 
food security are passed into the hands of rich and developed countries 
-- back to the days of ‘ship-to-mouth’ existence. Developing countries 
have no one to blame, but themselves.

In sum, for the sixth time in a row, the trade ministers of the 
developing world – representing issue-based coalitions like G-20, G-33 
and G-90 – have been duped to believe that trade is for development. 
Despite making loud noises, threatening and fuming over the injustice 
done to the poor and developing countries, the trade ministers of the 
G-110 countries, comprising the entire developing world, finally bowed 
before the rich and mighty.

We were made to believe that everyone cannot be befooled at all the 
times. Ten years after the World Trade Organisation (WTO) came into 
existence, and looking at the outcome of the sixth Ministerial 
Conference at Hong Kong, it is time to bury the age-old adage under the 
heaps of trade drafts. ?

Devinder Sharma
27 Dec 2005

Devinder Sharma is a food and trade policy analyst. He also chairs the 
New Delhi-based Forum for Biotechnology & Food Security. Among his 
recent works include two books GATT to WTO: Seeds of Despair and In the 
Famine Trap.