Pot calling the kettle black
A fight taking place in
the WTO negotiations shows how the rules on agriculture allow developed
countries to continue huge subsidies while penalising developing
countries' farmers.
By Martin Khor
Food security is one of the key issues now being negotiated at the
WTO (World Trade Organisation) as part of its preparation for the
Ministerial meeting in Bali in December. For developing countries, food
security and the livelihood and incomes of small farmers are important
priorities.
Especially for the poor, food is the main item in the household
budget. Agriculture also employs the most people in most developing
countries. Ensuring farmers have enough income is key to development and
social stability.
Increasing food self-reliance is a goal in many countries. Food
security became a high priority after global food prices shot up to
record highs in 2008, and there was a near-scramble for supplies of some
food items including rice because of potential shortages.
Also, reducing and eventually eliminating hunger worldwide is one of
the key Millennium Development Goals adopted by governments at the
United Nations.
In the present negotiations on formulating the Sustainable
Development Goals in the UN in New York, food security, nutrition and
agriculture are one of the key clusters of issues. Against this
background, there is a remarkable discussion now taking place at the
WTO, as part of preparations for its Ministerial Conference in Bali in
December.
Developing countries grouped under the G33 are asking that their
governments be allowed to buy food from their farmers, stock the food
and distribute it to poor households, without this being limited by the
WTO's rules on agricultural subsidies.
However, their proposal is facing resistance, mainly from some major
developed countries, especially the United States, whose Ambassador told
the WTO earlier this year that such a move would "create a massive new
loophole for potentially unlimited trade-distorting subsidies".
This clash is an outstanding example of how the agriculture rules of
the WTO favour the rich countries whilst punishing the developing
countries, including their poorest people. It is well known that the
greatest distortions in the trading system lie in agriculture. This is
because the rich countries asked for and obtained a waiver in the 1950s
from the liberalisation rules of the GATT, the predecessor of the WTO.
They were allowed to give huge subsidies to their farm owners, some of
who do not even carry out farm activities, and to have very high
tariffs.
When the WTO was set up, it had a new agriculture agreement that
basically allowed this high farm protection to continue. The rich
countries were obliged only to reduce their "trade distorting subsidies"
by 20 percent and could change the nature of their subsidies and put
them into a 'Green Box' containing subsidies that are termed "non
trade-distorting or minimally trade-distorting."
There is no limit to the Green Box subsidies. So, the strategy of the
major developed countries has been to move most of their subsidies to
the Green Box, including subsidies that are not directly linked to
production, or that are tied to environmental protection. But studies
have shown that many of the Green Box subsidies are in fact
trade-distorting as well.
With this shifting around, the rich world's subsidies have been
maintained or actually soared. WTO data show that the total domestic
support of the United States grew from $61 billion in 1995 (when the WTO
started) to $130 billion in 2010.
The European Union's domestic support went down from 90 billion euro
in 1995 to 75 billion euro in 2002 and then went up again to 90 billion
euro in 2006 and 79 billion euro in 2009.
A broader measure of farm protection, known as total support
estimate, which is used by the OECD in its reports on agricultural
subsidies, shows that the OECD countries' agriculture subsidies soared
from $350 billion in 1996 to $406 billion in 2011.
The effects of continuing developed-country subsidies have been
devastating to developing countries. Food products selling at below
production costs are still flooding into the poorer countries, often
eating into the small farmers' incomes and livelihoods.
Ironically, the developing countries, already the victims of the rich
world's subsidies, are themselves not allowed to have the same huge
subsidies, even if they can afford it. The reason is that the
agriculture rules say that all countries have to cut their distorting
subsidies.
So, if a developing country has not given subsidies before, it is not
allowed to give any, except for a small minimal amount (10 percent of
total production value) known as 'de minimis' support.
In other words, if a country has given $100 billion subsidy in the
trade-distorting categories, it has to bring it down to $80 billion and
it can also transfer the remainder (or more) to the Green Box. But if a
country has been too poor in the past to provide subsidies, or its
subsidies are low, it cannot increase the level, except for the minimum
allowed.
This is where the present WTO controversy comes in. The developing
countries under the G33 are asking that food bought from poor farmers
and given to poor consumers should be considered part of the Green Box
without conditions.
The present rule sets an unfair condition. Although governmental
stockholding programs for food security purposes in developing countries
is placed under the Green Box, there is however a provision that the
subsidy element in such a national purchase scheme should be accounted
for in the country's AMS (aggregate measurement of support), which is
the main category of subsidies considered to be trade-distorting, and
which for most developing countries is limited to the 'de minimis'
amount (10 percent of production value).
Other Green Box subsidies, including those that developed countries
mostly use, do not carry such a condition. The developing countries seek
to remove this unfair condition that in effect prevents them from
adequately helping their poor to get sufficient food.
The unfairness of this condition is worsened by the way the subsidy
element is calculated in the Agriculture Agreement. It is defined as the
difference between the acquisition price and the external reference
price.
The problem is that the acquisition price (i. e. the price which the
government pays for the farm produce) is the current price level, while
the 'external reference price' is defined as the average world price
level in 1986-88 (during a period when the Uruguay Round that led to the
WTO was being negotiated).
Since 1986-88, global and local prices of food items have increased
tremendously. The 1986-88 price is thus obsolete and much too low to be
used to determine if a developing country government is subsidising its
farmers.
Using this, rather than a more rational yardstick, such as the global
price level of the food item in the most recent year or three years,
grossly exaggerates the extent of subsidy the government is providing.
It thus unfairly adds to the amount of subsidy that presently has to be
counted towards the country's AMS.
At such unfair rates mandated by the WTO rules, a developing country
will have its AMS maximum level exceeded fairly easily even if it pays
the farmer the present world price (since the reference price is the
1986-88 world price and not the present price).
Countries that are in danger of exceeding their AMS or 'de minimis'
maximum level include India. Its parliament has just passed a food bill
that entitles the poor (two thirds of the population) to obtain food
from a government scheme that buys the food from small farmers.
But the estimated $20 billion-plus the government will spend annually
may exceed the allowed AMS and 'de minimis' levels, because India was
not a big subsidiser before the WTO rules came into force.
Other developing countries that provide subsidies to their farmers
and consumers, such as China, Indonesia, Thailand and Malaysia may also
one day find themselves the targets of complaints.
For rich countries who are subsidising a total of $407 billion a year
(in the OECD's broad measure of agricultural support) to disallow poor
countries from subsidising their small farmers and poor consumers, is
really a specially bad form of discrimination and hypocrisy. An
outstanding case of the pot calling the kettle black.
Whether this controversy can be settled fairly before the WTO's Bali
Ministerial remains to be seen.
- Third World Network Features
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