Global Trends by Martin Khor

Monday, 23 September 2013

Pot calling the kettle black!

A fight taking place in the WTO shows how the rules on agriculture allow rich countries to continue huge subsidies whilst penalising developing countries’ farmers.


Food is one of the most important and emotive of all issues.  As consumers, we can’t survive without it. 

Agriculture also employs the most people in most developing countries. Ensuring farmers have enough income is key to development and social stability. 

Some countries that did not achieve this have faced first rural disgruntlement and then upheaval.  

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 development goals adopted by governments at the United Nations.

Against this background, there is a remarkable discussion now taking place at the World Trade Organisation, 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 outstanding example of the how the agriculture rules of the WTO favour the rich countries whist 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 liberalization 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% 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 trick played by the rich 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 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 US$61 billion in 1995 (when the WTO started) to US$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 in 2006 and 79 billion in 2009. 

A broader measure of farm protection, known as total support estimate, shows the OECD countries’ agriculture subsidies soared from US$350 billion in 1996 to US$406 billion in 2011.

The effects of continuing rich-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’ from 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, they are not allowed to give any, except for a small minimal amount (10 per cent of total production value).

In other words, if you have given $100 billion subsidy, you have to bring it down to $80 billion and you can transfer the rest to the Green Box, but if you haven’t given any before, you cannot give one dollar, except for the minimum allowed.   

This is where the present WTO controversy comes in.  The developing countries 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:  that any subsidy element in this purchase scheme should be considered a trade-distorting subsidy which for most developing countries is limited to this minimum amount (10% of production value).

Other Green Box subsidies, that developed countries mostly use, do not carry such a condition.

The developing countries merely seek to remove the unfair condition that in effect prevents them from adequately helping their poor to get sufficient food. 

For example, India’s 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 US$20 billion-plus the government will spend annually may exceed the small minimum amount of subsidy it is allowed, because India was not a big subsidiser before the WTO rules came into force.

Other developing countries that provide subsidies to their farmers and consumer, 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 US$407 billion a year 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.