South must join China-India to rectify AoA asymmetries before MC11

While developed countries’ farm support schemes would remain largely untouched under several proposals advanced in the WTO agriculture talks, a joint Chinese-Indian proposal targets those subsidies it considers “the most trade-distorting element” in global agricultural commerce.

by D. Ravi Kanth

GENEVA: The developing and poorest countries must join forces with China and India to rectify the continued “asymmetries” in world farm production and trade ahead of the WTO’s eleventh Ministerial Conference in Buenos Aires, trade envoys told the South-North Development Monitor (SUNS).

Among the asymmetries they must work to eliminate are the most trade-distorting Amber Box subsidies of $160 billion in the developed countries.

As the WTO members resume work after their summer break, the European Union along with Brazil and other members of the Cairns Group of farm-exporting countries are stepping up their efforts for modest changes in the current WTO Agreement on Agriculture (AoA) while ensuring their ability to continue with their farm subsidy programmes.

The EU, Brazil, Paraguay, Peru and Colombia want some minimal tweaking of the provisions in the AoA while setting a floor for overall trade-distorting support based on total turnover of value of production with some flexibilities for developing countries, including a higher limit.

Brazil, which has almost sunk the G20 developing-country coalition that it had built over the years since August 2003, remains convinced along with the EU that the best option for the Buenos Aires meeting is to seek minimal changes that would not require the United States to make any new commitments.

Further, Brazil and the EU want to pursue the unresolved issues in the Doha Development Agenda on agriculture in the post-Buenos Aires work programme.

Brazil, which has turned a blind eye to the revised 2008 draft agriculture modalities that it had previously championed since 2009, is also eager to cap/reduce the de minimis support that is availed of by China, India and many other developing countries.

Some members of the Cairns Group – Australia, New Zealand, Canada and Paraguay – have called for “fixed caps” to meaningfully constrain future spending limits. They argued that floating limits, based on a percentage of the value of production (currently growing at over 10% on average for major members), as proposed by the EU and Brazil, would fail to address any meaningful changes.

In their proposal, the four members of the Cairns Group argued that “Introducing fixed caps on trade-distorting domestic support, expressed as numerical/monetary values, would provide global markets, exporters and Members with transparency and certainty on Members’ domestic support limits.”

Further, the “fixed caps would support the reform process without increasing the transparency burden on Members, as they do not entail any additional notifications.”

In short, the proponents – the EU and Brazil along with their partners, the Cairns Group, and even the G10 members – are seeking reforms in such a way that their current programmes remain intact. They are demanding cosmetic reforms while targeting the de minimis programmes in China, India and other developing countries. These proposals will also ensure that the farm programmes in the US based on Aggregate Measurement of Support (AMS) are left almost intact.

Joint proposal

It is against this backdrop that China and India jointly issued their proposal on “Elimination of AMS to reduce distortions in global agricultural trade” on 18 July.

The joint proposal says emphatically that the AMS is “the most trade distorting element in global trade in agriculture.”

In the previous Uruguay Round negotiations, “AMS entitlements were made available in the Agreement on Agriculture to developed Members and some developing Members”, said China and India. “Developed Members have more than 90% of global AMS entitlements amounting to nearly US$160 bn.”

Consequently, developed Members – the US, the EU, Japan, Canada, Norway and Switzerland, among others – “have access to huge amount of AMS beyond their de minimis”, the joint proposal pointed out. “In contrast most developing Members have access only to de minimis resulting in a major asymmetry in the rules on agricultural trade.”

Further, “most of the developing Members cannot provide product-specific Amber Box support exceeding 10% of the value of production of the agricultural product concerned,” China and India maintained.

Besides, “developed Members and some developing Members are not constrained by the 10% limit” as theoretically speaking, the product-specific support on any product can be as high as the AMS limit, they pointed out.

In short, the current Uruguay Round AMS commitments provide “significant flexibilities to these Members to provide support to their agriculture, thereby distorting production and trade”, China and India argued.

The flexibilities availed of by the developed countries include:

(i) providing significantly high amounts of subsidies compared with the value of production of the products concerned;

(ii) concentrating the subsidies in a few products; and

(iii) shifting the products in which the subsidies are concentrated.

Product-specific support

China and India said that, “based on an analysis of Domestic Support notifications of a few WTO Members, it is evident that in many products, the product-specific support is an extremely high proportion of the value of production of the product concerned.”

“In certain instances it even exceeded the value of production of the product concerned”, and “it is evident that not only are the farmers getting subsidies in excess of their value of production, in certain cases the subsidies are twice the value of production”, China and India stated.

They pointed out that “another distortion arises from the fact that Members with AMS limits have the flexibility to concentrate the subsidies in just a few products.”

The joint proposal showed how the US, the EU and Canada managed to provide product-specific subsidies and concentrate them for specific products since 1995.

In the US, for example, “in respect of 30 products, the product-specific support was 10%, or more, of the value of production of the concerned product in at least one year during the period 1995-2014”, the joint proposal said.

Some of the products with subsidies exceeding 50% of the value of production in the US include: dry peas (57%); rice (82%); canola (61%); flaxseed (69%); sunflower (65%); sugar (66%); cotton (74%); mohair (141%); and wool (215%).

Besides, mohair (11 years), wool (12 years), dairy (15 years) and sugar (20 years) are products that have consistently benefited from a very high level of subsidies as a percentage of value of production in the US, said China and India.

“In respect of mohair and wool in some years the product-support exceeded even the value of production” in the US.

More disturbingly, “in seven out of 20 years more than 50% of the total product-specific support was concentrated in just one product – dairy” – in the US.

Further, “in certain years more than 90% of the total product-specific support was concentrated in just two products – dairy and sugar” – in the US, the two developing countries argued.

As regards the EU, which is now spearheading the small group of countries with Brazil, the continued product-specific subsidies for 43 products were “10%, or more, of the value of production of the concerned product in at least one year during the period 2000-2013”.

In the EU, some of the products with subsidies exceeding 50% of the value of production include butter (71%); skimmed milk powder (67%); apples (68%); courgettes (51%); cucumber (86%); lemon (60%); pear for processing (82%); tinned pineapple (108%); tomatoes for processing (61%); rice (66%); olive oil (76%); white sugar (120%); tobacco (155%); and silkworms (167%).

Further, “barley (10 years), common wheat (9 years) and tobacco (9 years) are products that have consistently benefited from very high level of subsidies as a percentage of value of production” in the EU.

Also, despite losing a trade dispute to Brazil on sugar, the EU continues to subsidize white sugar along with tobacco, cotton and silkworms, and in some years the product support exceeded even the value of production.

For the EU, which is also known for its subsidized butter mountains, the value of production for butter was not provided in its domestic support notifications for recent years. “There is considerable concentration of product-specific support, in the range 38%-40%, in butter during 2010-2013,” China and India maintained.

For the EU, during 2010-13, the total product-specific support in the range of 64-68% was accounted for by just two products – butter and common wheat.

Canada, which is also a major farm subsidizer, has provided product-specific support for seven products to the tune of 10% of the value of production or more.

Canada’s subsidies are concentrated during 1995-2014 for milk (14 years), sheep meat (nine years) and corn (five years).

In eight years during the period 1995-2013, Canada provided more than 50% of the total product-specific support to just one product – milk. In 1997 it was as high as 73%.

Built-in imbalances

China and India said “it is clear that the imbalance in the existing AoA where only some Members have access to bound AMS allows them much more policy space.”

“On the other hand, most developing Members are strictly limited by their de minimis,” the two developing countries pointed out. “Any overall capping or reduction in their de minimis will further reduce their policy space.”

China and India issued a clarion call that “in order to achieve the long outstanding reforms in agriculture subsidies the AMS entitlements of developed Members must be eliminated as a pre-requisite for consideration of other reforms in domestic support negotiations.”

“Only in this way will it help reduce some of the inequities built into the WTO rules in favour of the developed Members,” the two countries maintained.

In short, the battle lines are drawn for the Buenos Aires meeting between China and India on one side, and major industrialized countries and their new-found partners in the developing world on the other.

The meeting offers a historic opportunity to all developing and poorest countries to wage a united battle to ensure that the most trade-distorting AMS is eliminated before any other reform in global farm trade, said a trade envoy who  asked not  to be quoted. (SUNS8523)                                            

Third World Economics, Issue No. 645, 16-31 July 2017, pp6-8