Domestic-support issue splits “liberalizer” camp too

Recent WTO talks on reducing farm subsidies have not bridged the gaps between the various protagonists’ positions on this contentious area of agriculture trade, with differences now surfacing even among the “pro-liberalization” countries themselves.

by Chakravarthi Raghavan

GENEVA: The Special Session of the WTO Committee on Agriculture, where the agriculture negotiations are taking place, concluded another round of discussions and presentation of views and papers on 23-25 September, this time focussing on domestic support, with not only various protagonists as far apart as ever, but with differences among the “liberalizers.”

The Cairns Group of countries led by Australia (and including such countries as Canada and some of the East Europeans, like Hungary), along with the United States, are usually put in the “liberalizers” camp.

On domestic support, particularly on the issue of the reduction or elimination of the Aggregate Measurement of Support (AMS), several of the developed countries, like Australia and Canada within the Cairns Group and the US itself, came out only in favour of reduction in the AMS as a whole, the so-called reduction of non-specific support, which enables these countries to shift around the support to protect particular products depending on the world market prices. They were either silent or clear in their opposition to any product-specific cuts.

Most developing countries, including several in the Cairns Group - Argentina, Thailand and Malaysia, for example - specifically came out asking for product-specific reductions in domestic support.

The Cairns Group proposal merely asked for reduction to zero over specific periods of the AMS.

Earlier sessions of the Agriculture Committee had discussed proposals on the two other pillars of agriculture reform: export support and market access. There will be another Special Session in November to focus on the “cross-cutting” issues including on special and differential (S&D) treatment and net food-importing developing countries.

According to the deadlines and schedules set at last year’s Doha Ministerial Conference, the modalities for the agriculture negotiations are to be settled by 31 March 2003.

In terms of the original programme agreed in March at the Trade Negotiations Committee and the Special Session on agriculture, the chairman of the Special Sessions is to produce by 18 December an overview paper, in effect a first approach to the modalities for the negotiations, which is to be discussed in January, followed by a drafting exercise to produce the first draft of a modalities document.

There are to be informal/formal meetings in February  (24-28 February) to discuss the first draft and  draw up a second, and a March meeting (25-31 March 2003) to   agree   on   the   modalities.

Trade diplomats from developing countries said that the US and the Cairns Group are keeping up the pressure on Stuart Harbinson, the chair of the Special Sessions, on the overview paper and his making a first attempt at a modalities paper, but that the EC does not want the overview to be anything more than a summary or statement of positions.

The EC thinks that until it is able to sort out internally the issues of reform of its Common Agricultural Policy (CAP), on which there is a deep split within the EU, they cannot move forward on the modalities or present their proposals.

The split is such that France, which is opposed to any drastic reforms and changes, has recently received the open support of Spain, Italy, Luxembourg, Portugal, Belgium, Austria and Ireland.

The recent election outcome in Germany (a big net contributor to the EC funds), which saw Gerhard Schroeder and the Social Democrat-Green combine winning even by a narrow majority, now puts Germany in the opposite camp. If the Christian Democrat Edmund Stoiber had won, there would have been an entrenchment.

With such deep divisions in Europe, and with Japan digging its heels, the outlook in some ways is gloomy for major and drastic reforms, trade observers say.

For the cows

In some general comments at the end of the Agriculture Committee discussions on domestic support, the EC, Japan and Switzerland said that overall the reform proposals being pushed by some protagonists were “ambitious, unrealistic and unhelpful” and would make it difficult for them to reform the agriculture sector and trade. It would be difficult for them to go ahead on their reform paths in the face of calls for drastic reforms, such as an end to all domestic support, including what they considered to be non-trade distorting (the “green-“ and “blue-box” supports), or elimination of the “amber box” (see below). Switzerland in particular said that some of the proposals would be unacceptable to it, since it would involve changes to its constitution.

To put the provision of farm support into some perspective, the OECD countries notified the WTO of their support and this totalled up to $210 billion.

The Paris-based OECD (Organization for Economic Cooperation and Development), in adding up other support to agriculture not required to be notified to the WTO, comes to a figure of $329 billion as producer subsidy equivalents.

In the total notified to the WTO of $210 billion in 1998, about 41% fall under the AMS category (subject to reduction commitments), 46% under the green-box category (no disciplines at all), 12% under the blue box, and 1% de minimis levels.

The EC support is split into 55% AMS, 22% green box, and 23% blue box. Norway, another big user of blue-box support, has 48% AMS support, 18% green box and 34% blue box.

It is difficult for ordinary people, even in the industrialized world, to understand the subsidies provided, running as they do into the billions of dollars and making newspaper headlines.

However, in the context of the controversies in the UK over the “rural alliance” march on London in the week of 23 September (and the support it got from Prince Charles and couched  in some racist overtones  about blacks and gays facing  less discrimination), there has been some debate on the EC farm support.

A report in the Guardian quoted several charity groups and NGOs as saying on 25 September that with the amount of support provided by the EU, all the 21 million European cows could travel round the world by plane in first-class, with several stopovers and spending money to boot! The average European cow has a higher income than half the world’s population.

Domestic-support policies fall under three categories in WTO discussions:

*           The green-box support falling under Annex 2 of the Agreement on Agriculture (AoA), which supposedly do not distort trade or at most cause minimal distortion. They have to be government-funded, and not by charging consumers higher prices, and must not involve price support.

Generally they are claimed to be non-distorting, not directed at particular products, and include direct payments to producers (paragraph 5 of Art. 2), income support or so-called “de-coupled” support (para 6 of Art. 2), government financial support for income insurance and income safety-net programmes (para 7) and other supports defined in the other paragraphs of that annex.

A number of developing countries have said that because of the large amounts paid as direct income support to farmers, and as a result of the constant shifting of the base years for calculations, these subsidies are in fact trade-distorting. They are also asymmetric, given that developing countries, because of their budgetary positions, cannot even provide such support to their farmers.

Some of those providing such support argue that these green-box measures need to be expanded and made more flexible.

*           A second category of support measures is the blue box - support provided to farmers under conditions such as requiring them to limit production, by tying the support to acreage or heads of cattle (for dairy or beef production). These are set out in paragraph 5 of Art. 6 of the AoA.

A number of countries, including the Europeans and Japan, want to maintain and expand this kind of support, while others want to abolish it and move all such support to the amber box.

*           Amber-box support measures, viewed as trade-distorting and set out in Art. 6 of the AoA, are subject to reduction commitments now (under the Uruguay Round agreements). These are non-specific and require cuts in the Aggregate Measurement of Support.

The support measures falling in this category are subject to de minimis limits (5% for the developed countries and 10% for developing countries). Some 30 countries whose aggregate support at the conclusion of the Uruguay Round was more than the de minimis levels were required to reduce them.

The various proposals for reduction in the current round of negotiations range from continuing more or less on the same pattern, through reductions over five years and elimination by an agreed period (the US), to complete phase-out in five years (Cairns Group).

A number of developing countries, including those in the Cairns Group, have also called for cuts in product-specific support, leading to elimination. The present aggregation method (the compromise that the US and the EC quietly agreed to in the Uruguay Round and forced on others, to enable them to continue support for their sensitive sectors and shift support from one product to another depending on market conditions) is unfair and creates uncertainty from year to year. In this view these developing countries demand product-specific cuts.

However, neither the US nor Canada, a Cairns Group member, wants product-specific cuts.

The current rules governing domestic support, including those in Art. 6.2 of the AoA, exempt  some  developing-country subsidies from reduction commitments. There is not much controversy over this, though some of the Cairns Group members (like Australia, Argentina, etc.) want to gradually get even other developing countries to reduce or cut them and move to “market-oriented agriculture.”

A number of developing countries have called for its expansion under a so-called “development box.”

In other general discussions and comments, Thailand raised the question of “mandatory” labelling requirements and how  far  they acted  as  trade  barriers.

Switzerland requires labelling, for example, on grounds of animal welfare etc., so that consumers can decide for themselves. For example, it claims to ban all battery-farmed chickens in the country but does not prevent others from whatever method they use, but insists on labelling.

There were also comments from countries that require what they characterize as “export-enhancing domestic support” to be brought under discipline.

As some trade diplomats and negotiators see the dynamics of these talks up to next September’s WTO Ministerial Conference in Cancun and beyond, though there is much talk that the EC will trade off concessions on agriculture etc for some benefits on investment and other new issues, the real tradeoffs would not be along these lines.

While the EC will hold out and use such tactics to get investment into the ambit of the WTO, it would not produce any benefits for developing countries nor make concessions as in agriculture.

Citing the indications they have had in some informal discussions, both bilateral and plurilateral, these diplomats think that the EC would not do very much more than along the lines of the current Uruguay Round approach, and even then market access and others will be ‘traded off’ against concessions from other members on specific rules on “food safety” and “environment”-related issues in this area.

The US, as well as several Cairns Group countries and other developing countries, are opposed to this, since they see a potential for discriminatory and protectionist actions. They argue that the present provisions in the GATT are sufficient. (SUNS5199)                                

From Third World Economics No. 291 (16-30 September 2002)