Global Trends by Martin Khor

Monday 2 December 2013

WTO food fight in Bali?

Will developing countries be allowed to promote food security schemes that buy food from small farmers and also help poor consumers?  This is one the issues at the WTO’s Ministerial Conference next week.


An expected tame meeting of Trade Ministers in Bali this week may see a tense battle after all, when the World Trade Organisation holds its ninth Ministerial Conference.

Almost all the first seven Ministerials (starting in 1996 at Singapore) were tense affairs, with

major developed countries usually attempting to arm-twist other members to agree to set up new legally binding rules, and the developing countries (sometimes a few, sometimes many) resisting.  

The risks of failure became too high as the world media would then proclaim a “collapse of WTO talks.”  This happened in 1999 (Seattle) and 2003 (Cancun). 

The last two Ministerial meetings in 2009 and 2011 were routine affairs. It was agreed all issues would be settled before hand, so that the Ministers would not be put through the stress of poring over difficult texts and facing the risk of failure.

This year, the diplomats in Geneva tried hard but could not produce the completed texts for the three main issues – a new trade facilitation treaty, changes in agriculture rules relevant to food security and benefits for least development countries. 

The WTO Director-General Roberto Azevedo has repeatedly stated that Bali would not be a negotiating conference.  But in the last few days some countries have been pushing Azevedo to convene negotiating sessions in Bali to conclude a deal. So, Bali may turn out to be a tense affair after all.   

If negotiations take place, food security will be a major issue. The group of 33 countries (G33) want to clarify or change the present WTO rules that constrain the ability of developing countries’ governments to purchase food from small farmers and stock them.

Government purchase (and stockholding) of rice, wheat and other foods is important in many developing countries. Such schemes assist poor farmers by giving them more certainty of sales at certain price levels. It also promotes national food security.

However the present WTO rules are a hindrance to such schemes, and these rules need to be changed, according to a report of the South Centre by several trade experts of developing countries. 

They include Rubens Ricupero (former Secretary General of UNCTAD), S. Narayanan (former Ambassador of India to the WTO), Ali Mchumo (former Managing Director of the Common Fund for Commodities and former Ambassador of Tanzania to the WTO), Li Enheng (Vice Chairman, China Society for WTO Studies), Ambassador Nathan Irumba of Uganda, and Deepak Nayyar (former Vice Chancellor of Delhi University and former Chief Economic Advisor to the Indian government).   

Public stockholding for food security purposes is included as one of the items under the Green Box of the WTO’s agriculture agreement, but with certain conditions. 

The Green Box lists the types of domestic subsidies that are considered minimally or non-trade distorting. WTO Members are allowed to use these measures, usually without limitations. 

But in the case of public stockholding, significant conditions, causing enormous problems to developing countries, have been attached.

One condition is that food purchases by the government shall be made at current market prices and sale from public stockholding shall be made at prices not lower than current domestic market price. 

But the rules also say that if the price paid by the government is higher than the external reference price, the difference is considered a trade-distorting subsidy which is then placed in and counted as part of the Red Box.  Developing countries’ Red Box subsidies cannot exceed 10% of the production value of the product.

The problem is that reference price has been defined as the average international price not of the present but of 1986-88. 

Food prices were much lower 25-30 years ago.  For some items they are 200 or 300 per cent higher today.  It is thus illogical and most unfair to accuse a government that buys rice from its farmers at today’s market price to have unfairly subsidised them because it should have bought it at the 1987 price!

Consider this example.  The farm price of a food item was 30 cents in 1987 and rose to 100 cents today.  If I buy rice from farmers at 100 cents, it should not be considered a trade-distorting subsidy at all. 

Yet the WTO’s rules consider that there has been such a subsidy of 70 cents. And this counts towards the country’s total allowed subsidies.

With such a calculation, it won’t take much purchase from farmers for the country to reach the 10% subsidy limit.  Anything above that is considered illegal, opening the country to legal WTO cases from other countries.  If they win, they can block the exports of the guilty country up to the value of the “illegal subsidy”.

Among the affected countries is India whose new Food Security Bill obliges the government to spend over US$20 billion to buy foods especially rice and wheat from farmers, and to provide 5 kilos of these per month to eligible poor households, amounting to two thirds of the population. 

The Group of 33 proposed a change in the WTO rules, that acquisition of foods by developing countries to support poor farmers should not be considered a trade-distorting subsidy.

According to the South Centre experts’ report, the G33 proposal if adopted would enable developing countries to have such schemes to help their poor producers or families without the present restraints. 

“It would advance the cause of national food security, promotion of small farmers’ livelihoods as well as fulfilling the Millennium Development Goals of reducing hunger and poverty,” says the report.

In the last months’ negotiations at the WTO, this proposal was rejected, especially by developed countries like the United States which incidentally have subsidies of their own totalling hundreds of billions of dollars – much more than those of all the developing countries.

The rules are so riddled with double standards that these huge subsidies are allowed (since they were there in the past), while the subsidies of developing countries are severely capped because they did not previously subsidise (or only a little) as they could not afford to do so.

During the WTO talks, a counter proposal was put forward, that countries having public stockholding schemes would not have cases taken against them for four years.  Meanwhile, there would be negotiations to find a “permanent solution.”

However, those countries that have exceeded their allowed subsidy level, including due to the unfair calculation and definition of “subsidies”, have to own up, show how much they have exceeded, give details of the purchase and stocks, and also show how the operation of the scheme is not trade distorting.

Last week the Indian Cabinet decided that they would agree to a temporary “peace clause” (agreememt not to take up legal cases), but only if it lasts till a permanent solution is adopted, and also if the peace clause applies to both the WTO’s agriculture and subsidies agreements. 

If there are negotiations in Bali, and India puts this proposal forward, the major developed countries are likely to oppose, supported also by some developing countries. 

The Bali Ministerial could then turn out to be a tense and messy affair.  Will all Ministers be allowed to take part, or only a select few, as in the past?   Who selects and what if non-selected countries insist on being in the room?  Will the entire membership agree with a deal that only the few struck, at the last hour of the conference?

The Director General and many countries had vowed last week that this kind of risky do-or-die, take-it-or-leave-it situation, prevalent in Ministerials of the past, would not be repeated. But it remains to be seen what will happen this week in Bali.