Bali food security deal a first step towards WTO rule reform?

Jacques Berthelot contends that though the compromise struck at Bali on the issue of public stockholdings of food was an unsatisfactory one, it nevertheless can be the first step in reforming the inequitable WTO rules on agriculture.

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THE agricultural issues in the ninth WTO Ministerial Conference focused essentially on changing the current rules on public stockholding for food security purposes and, secondarily, on export competition. We will show that, despite an unsatisfactory result on the public stockholding rules, it is nevertheless a first step to changing totally the unfair rules for developing countries (DCs) under the WTO Agreement on Agriculture (AoA), provided that they change their mindset to adopt an offensive stance against the developed countries in the working group which will pursue the issue within the WTO Committee on Agriculture. For this to happen, the civil society of North and South should intensify their concrete support to the WTO developing-country members.          

An unsatisfactory result but a first step to changing the Agreement on Agriculture

India, on behalf of the G33 - a group of 46 DCs formed shortly before the WTO Ministerial Conference of September 2003 in Cancun and prioritising the protection of their domestic agricultural markets - proposed in the informal meeting of the Special Session of the WTO Committee on Agriculture of 14 November 2012 that the provisions on public stockholding for food security purposes, already included in the revised draft modalities of 6 December 2008, be taken up for a formal decision by the Ministerial Conference in Bali in December 2013.

India asked for modification of the last sentence of footnote 5 of paragraph 3 of the AoA Annex 2 as follows: 'Acquisition of stocks of foodstuffs by developing country Members with the objective of supporting low-income or resource-poor producers shall not be required to be accounted for in the AMS.' The AMS is the Aggregate Measurement of Support or 'Amber Box' of domestic agricultural supports regarded as trade-distorting and subject to a reduction of 20% from 1995 to 2000 for developed countries and of 13.3% from 1995 to 2004 for DCs other than the least developed countries (LDCs), which are not bound to any reduction because they have very little means to subsidise their farmers, the more so as they represent the majority of their active population.

More precisely what is considered a trade-distorting subsidy here is the difference between 'the acquisition price and the external reference price' - the average border price (the FOB price if the country was a net exporter and the CIF price if it was a net importer)1 from 1986 to 1988, base period for the calculation of reduction commitments of the Uruguay Round - multiplied by the quantity likely to benefit from the purchase price of food security stocks which are then distributed at subsidised prices to poor consumers. India proposed deleting 'the difference between the acquisition price and the external reference price is accounted for in the AMS'.

As the revised draft modalities of 6 December 2008 already reached an agreement on this issue, including by the US and the EU, its definitive adoption in Bali should have been a mere formality. But the US, followed by the EU and other developed countries, are not prepared to make concessions to DCs on some AoA rules, fearing that this would open all the rules to question and reduce their room for manoeuvre to impose an opening of DCs' domestic markets to US and EU exports of non-agricultural products and services. This is the ambiguity of the WTO negotiating rounds where all WTO members must accept all texts - the 'single undertaking' principle with adoption of all texts by consensus, which camouflages the huge pressures from developed countries on DCs - where each member is supposed to lose on some issues and gain on others. In fact, however, the developed countries are always winners and DCs are almost always losers, especially LDCs.

But the US and the EU found in front of them the Indian Minister of Commerce, Anand Sharma, who showed an extreme firmness in his statement to the Bali Ministerial Conference: 'For India food security is non-negotiable. Governments of all developing nations have a legitimate obligation and moral commitment towards food and livelihood security of hundreds of millions of their hungry and poor. Public procurement at administered prices is often the only method of supporting farmers and building stocks for food security in developing countries. Need of public stockholding of food grains to ensure food security must be respected.'2 This firmness is due to several factors: the implementation in India since 12 September 2013 of the National Food Security Act which expands to 820 million Indians heavily subsidised food aid of 60 kg of rice or wheat per year; strong political pressures due to legislative elections in May 2014; and the large mobilisation of civil society in India and of international civil society present in Bali, both within and outside the conference centre.

However, as India's firm stance in Bali was only supported by a score of other DCs, and this only softly and rarely publicly, Sharma eventually yielded to intense pressures from developed countries - a powerful US agribusiness delegation lobbied US Trade Representative Michael Froman - accepting concessions in the final text of the agreement, which remains ambiguous on several points, including the following:

  Will the 'peace clause' - during which WTO members commit themselves not to sue at the WTO over the subsidies related to public procurement of food commodities in DCs at administered prices higher than domestic prices - only last for four years? This is the dominant interpretation of media but also of many civil society activists advocating the closing down of the WTO or at least taking agriculture out of the WTO remit. But this interpretation is disputed by India and other delegations, including France.

Indeed, the text adopted in Bali says: 'Members agree to put in place an interim mechanism as set out below, and to negotiate on an agreement for a permanent solution  for adoption by the 11th Ministerial Conference . In the interim, until a permanent solution is found.' If really the intent was to limit the interim period to four years, this last phrase would have read 'In the interim, up to at most four years'. If a permanent solution is not found before the 11th Ministerial Conference in 2017 - these conferences are held every two years - the interim period will continue. Anand Sharma said during his press conference: 'My English is not very good but my English teacher was good and he told me that "interim" means not temporary but something that lasts until a permanent solution is found.' The four years before the 11th Ministerial Conference must therefore be understood as the period during which the working group to be set up within the Committee on Agriculture will seek a permanent solution satisfying the G33 and in particular India. However, it is doubtful that it will succeed, let alone in four years, without radically questioning the main AoA rules, including the definition of the different types of subsidies according to their alleged level of trade distortion.

  The peace clause will apply only to 'public stockholding programmes for food security purposes existing as of the date of this Decision'. Hence the DCs which do not run such programmes presently will not be able to implement them 'until a permanent solution is found', and those which run some, like India, cannot extend them to products other than 'primary agricultural products that are predominant staples in the traditional diet' of the population.

For Indian civil society, including the Right to Food Campaign, the text excludes pulses and oilseeds but this is questionable because the concept of 'predominant staples' is not defined and pulses (such as beans and lentils) are clearly staples complementing cereals in the daily diet of the poor. But it is true that these products are not subject to public procurement for stockholding in India, except on a small scale in some states like Chhattisgarh.

And the fact that the Bali agreement requires publication of very detailed statistics for the last three years of each public stockholding programme for food security purposes is a real threat to the possible expansion of products eligible for coverage under the peace clause. If there were not this requirement of statistics over the last three years, the text does not say explicitly 'programmes already implemented', so that one could extend them to all the provisions, including for the future, of the National Food Security Act - which is a 'programme existing as of the date of this Decision' - which, in Chapter 13, provides: '(2) Notwithstanding anything contained in this Ordinance, the State Government may continue with or formulate food or nutrition based plans or schemes providing for benefits higher than the benefits provided under this Ordinance, from its own resources.'

 Another constraint: 'Any developing Member seeking coverage of programmes under paragraph 2 shall ensure that stocks procured under such programmes do not distort trade or adversely affect the food security of other Members.' This is mainly because Pakistan had lobbied against the G33 request, claiming that India is dumping its public stocks of rice, outcompeting its own exports, which is highly questionable.3

Finally, if the agreement on export competition adopted in Bali did not change anything with regard to the statement already made at the Hong Kong Ministerial Conference of December 2005, it is appropriate to remember that the WTO Appellate Body condemned Canadian dairy exports in 2001 and 2002, US cotton exports in 2005 and EU sugar exports in 2005 on the basis that domestic subsidies have a dumping effect as well as explicit export subsidies.

Some excerpts of the Appellate Body's rulings:

 'The distinction between the domestic support and export subsidies disciplines in the Agreement on Agriculture would also be eroded if a WTO Member were entitled to use domestic support, without limit, to provide support for exports of agricultural products ... If domestic support could be used, without limit, to provide support for exports, it would undermine the benefits intended to accrue through a WTO Member's export subsidy commitments.'4

 'Article 9.1(c) addresses this possibility by bringing, in some circumstances, governmental action in the domestic market within the scope of the "export subsidies" disciplines of Article 3.3.'5

 'Upholds the Panel's finding, in paragraphs 7.1416 and 8.1(g)(i) of the Panel Report, that the effect of the marketing loan programme payments, Step 2 payments, market loss assistance payments, and counter-cyclical payments (the "price-contingent subsidies") is significant price suppression within the meaning of Article 6.3(c) of the SCM [Subsidies and Countervailing Measures] Agreement.'6

 'The effect of the mandatory price-contingent United States subsidy measures - marketing loan programme payments, user marketing (Step 2) payments, MLA payments and CCP payments - is significant price suppression in the same world market within the meaning of Article 6.3(c) of the SCM Agreement constituting serious prejudice to the interests of Brazil within the meaning of Article 5(c) of the SCM Agreement.'7

 'd) Upholds the Panel's finding, in paragraph 7.334 of the Panel Reports, that the production of C sugar receives a "payment on the export financed by virtue of governmental action", within the meaning of Article 9.1(c) of the Agreement on Agriculture, in the form of transfers of financial resources through cross-subsidization resulting from the operation of the European Communities' sugar regime.'8

However, if these precedents have not yet been used by DCs, they could do so after Bali.

Negotiations will begin, allowing challenge to the AoA's unfair rules

Despite all these constraints and limitations, the Bali decision on public food stockholding constitutes a first step: DCs have put a foot in the door of the AoA rules and they now have to open it completely in the post-Bali programme to rebuild all the rules. Every cloud has a silver lining: it is owing to this very ambiguous and incomplete agreement on food security stocks that a working group will be set up within the WTO Committee on Agriculture to find a permanent solution to the G33 request.

No doubt the US and the EU will put many hurdles in the work of the group so as not to jeopardise the other AoA rules which these two accomplices had concocted face to face during the Uruguay Round and which are very unfair to DCs. DCs must now take the offensive against the US and the EU, which have everything to lose because it is easy to show that they did not comply with the AoA rules to a huge extent, and this will encourage DCs, starting with India, to sue them at the WTO so as to force them to rebuild these rules on food sovereignty.

All the forces of civil society, including those such as Via Campesina which have campaigned to take agriculture out of the WTO or to put an end altogether to the WTO, should now become more realistic by joining all those which, particularly within the Our World Is Not For Sale network, support all DCs struggling within the WTO to change the rules in the direction of food sovereignty.

The first rules to change are related to administered prices. Paragraph 9 of the AoA Annex 3 states: 'The fixed external reference price shall be based on the years 1986 to 1988.' Indeed, the very low world prices of wheat and rice - the two cereals of the Indian food grain programme - in 1986-88 were due to massive US dumping of rice and wheat and EU dumping of wheat, with US dumping rates of 137% on rice and 89% on wheat and the EU dumping rate of 134% on wheat. As the US is a price maker worldwide for wheat and strongly influences the global price of rice, and as the US and EU accounted for 53.2% of global wheat exports in that period, to consider as a trade-distorting subsidy the gap between the current administered price paid to Indian small farmers and its CIF import prices of 1986-88 is economically absurd and politically unjustifiable. Moreover, the low world prices in dollars of rice and wheat in that period were also due in large part to a 23% dollar depreciation from late December 1985 to late December 1988, 30% of which was on the effective exchange rate for US rice exports.

One can also amend paragraph 4 of AoA Article 18 - 'Members shall give due consideration to the influence of excessive rates of inflation on the ability of any Member to abide by its domestic support commitments' - by deleting 'excessive', as recommended by the eminent Indian trade experts Anwarul Huda and Ashok Gulati. As inflation in India was 8% on average over the past 25 years, updating the 1986-88 border prices on the basis of this inflation rate would raise these prices to levels exceeding by 94% and 74% respectively the minimum support prices of rice and wheat in 2012-13, so that these highly negative AMS would not put at risk the implementation of the new National Food Security Act.9

But we must go beyond this by calling into question the very concept of administered prices, which is not defined in the WTO agreements and which works in opposite ways in developed countries and DCs. Whereas in DCs the administered prices are fixed above market prices to ensure remunerative prices to small farmers, particularly just after the harvest, and to oblige private traders to pay higher market prices, in developed countries they are minimum prices, fixed below the prevailing market prices in order to reduce their level. But - here lies the fundamental difference - these lower administered prices were accepted by Western farmers only because they were offset by domestic subsidies, including by the alleged decoupled fixed direct payments in the EU and US plus coupled subsidies, such as the US' various types of marketing loan benefits, countercyclical payments and insurance subsidies.10 In developed countries administered prices are always triggering subsidies, apart from the other means necessary to render them effective: import duties, export subsidies and restrictions, land set aside, production quotas, etc. Indeed the US Farm Bills and EU Common Agricultural Policy (CAP) reforms since the 1990s have consisted in lowering by steps their administered prices to increase their domestic and external competitiveness - importing less and exporting more - through massive compensatory alleged non-trade-distorting subsidies under the Blue and Green Boxes.11

So a balanced comparison between the US (EU) and Indian administered prices should be made by internalising in the US low administered prices the subsidies triggered by them. It is what the OECD has done in a 2011 report where the concept of domestic prices is defined as 'producer prices plus payments linked to the production of a specific commodity'12 - a concept that we propose to define as the 'comprehensive domestic farm price'. However interesting this approach might be, it is still too restrictive and biased because it does not take into account the decoupled subsidies that have substituted for more and more coupled subsidies since 1998 in the US and 2005 in the EU.

Similarly, an October 2013 report by the Food and Agricultural Policy Research Institute (FAPRI, a US research centre dependent on the US government) assessing the two Farm Bills adopted in 2013 by the House of Representatives and the Senate presents tables of the expected 'average crop revenue in dollars per acre' for several crops for the period 2014-18.13 In these tables coupled aids are added to market sales, which, divided by the yield per acre, gives the comprehensive price per crop, although FAPRI does not use this concept but that of 'revenue per acre'. And FAPRI expects that they would increase by 9% for rice and 6.6% for wheat over the period 2014-18, compared to the expected price if the current Farm Bill were not to change.

The combination of the high rate of US and EU dumping on wheat and US dumping on rice in 1986-88 with the large dollar depreciation in that period justifies updating the 1986-88 CIF prices of India (and of other DCs) by multiplying their levels by the US and EU dumping rate, which again would raise these updated CIF prices above the Indian minimum support prices for rice and wheat in 2012-13, thereby yielding negative AMSs which would not prevent India from implementing its National Food Security Act.

Violations of AoA rules by the US and the EU

Beyond these necessary adjustments of the AoA rules on public procurement of food security stocks, DCs must above all join forces, in the working group on that issue within the WTO Committee on Agriculture as well as outside, to denounce the huge violations of the AoA rules by the US and the EU. Without going into too much detail, let us enumerate the main ones:

1. As the US fixed direct payments were ruled by the WTO Appellate Body in 2005 as not being decoupled, hence not in the Green Box, it is clear that the EU's allegedly decoupled payments - mainly the Single Payment Scheme (SPS) - which reached 37.7 billion euros in 2012, would be much more easily ruled not to be in the Green Box, as will be the case from 2014 on for the new Basic Payment Scheme (BPS). And although both Farm Bills of the House of Representatives and Senate have eliminated the fixed direct payments, the House keeps direct payments on cotton for 2014 and 2015.

2.Contrary to the AoA Article 6.2 provision on input subsidies for developed countries, the US and the EU did not notify in the AMS their huge direct payments to feedstuffs - which reached 13.7 billion euros in 2009-10 in the EU27 - even though they are by far their main input subsidies which have conferred large AMSs to all their animal products (meats, dairy and eggs), especially in the EU where these subsidies are hidden in the allegedly decoupled SPS.

3.The US and the EU did not notify in their AMS the huge input subsidies to cereals and oilseeds processed into agrofuels, ethanol and biodiesel, the first being explicitly an agricultural product and the second an agricultural product by destination (AoA Annex 3 paragraph 7).14

4.We have seen that the WTO Appellate Body has ruled four times that domestic subsidies to exported agricultural products must be considered as export subsidies, so that practically all EU exports can be sued at the WTO on dumping grounds.

5.The WTO revised draft agricultural modalities of 6 December 2008, which are the base for pursuing the agriculture negotiations of the Doha Round, stated that the allowed product-specific de minimis15 exemption was 5% of the value of total production in developed countries (10% in DCs) when in fact the AoA Article 6.4 states that it is only 5% (10%) of the production value of each product having an AMS. This 'cheating' has a large impact on the level of the allowed overall trade-distorting domestic support (OTDS) in the base period 1995-2000 for the domestic support reduction commitments during the Doha Round implementation period. The OTDS is a new indicator of all trade-distorting domestic support decided by the WTO in July 2004 as the sum of the final bound total AMS at end 2000, the average product-specific de minimis, the average non-product-specific de minimis and the Blue Box in the same 1995-2000 period. 

6.The US is cheating each year since 2008 in its notifications of market price support on dairy products as it has reduced by $2.1 billion (or 42%) the level reported in previous years, after having decided in the 2008 Farm Bill not to notify any longer this dairy AMS on the basis of the whole milk production value but only on the basis of the production value of skimmed milk powder, butter and cheddar cheese. This change is not permitted by the AoA Annex 3 paragraph 5: 'The AMS calculated as outlined below for the base period shall constitute the base level for the implementation of the reduction commitment on domestic support.'

Conclusion

To conclude, despite its limitations, the Bali decision on food security stocks paves the way for an overhaul of the AoA. But, for this to happen, it is necessary that civil society of North and South join forces around this extremely important issue.

To be sure, it will be difficult for the European Coordination Via Campesina and its members such as the Confdration Paysanne in France to participate directly in this fight, given that denouncing the non-compliance of the EU's massive direct payments with the AoA rules and the Appellate Body rulings is obviously not a comfortable situation for their farmer members. Facing the risk of a collapse in their incomes, the EU farmers may react strongly by demanding that the EU authorities rebuild them on remunerative prices, on food sovereignty, as was the case up to 1992. But this would imply raising import protection and radically changing the AoA, coming back to the situation prevailing before the WTO, where the agriculture sector benefitted from exceptions to the GATT rules, without any constraint regarding the level and types of import protection, the EU having used extensively variable levies and the US import quotas. But this time the exception allowing unlimited use of export subsidies should be totally deleted.                        

Jacques Berthelot is a civil society activist based in Toulouse, France. He is an agricultural economist and a former lecturer in economics at Ecole Nationale Superieure Agronomique De Toulouse (ENSAT), and a former Jean Monnet Chair in European economic integration at the National Polytechnic Institute of Toulouse. This is a revised version of an article which earlier appeared in the South-North Development Monitor (SUNS, No. 7718, 16 December 2013).

Notes

1.FOB (free on board) price of the exported merchandise loaded on board, ready to leave; CIF (cost+insurance+freight) price of the imported merchandise still on board before paying port charges and import duties.  

2. http://www.wto.org/english/thewto_e/minist_e/mc9_e/stat_e/ind.pdf

3. 'Pakistan is shooting itself in the foot when it follows suit the developed countries' fight against the G-33 proposal' and 'Indian food security stocks of rice and wheat do not distort trade', Solidarit, 22 November 2013, http://www.solidarite.asso.fr/Papers-2013?debut_documents_joints=10#pagination_documents_joints

4. Paragraph 91, Dairy products of Canada, WT/DS113/AB/RW, 3 December 2001

5. Paragraph 148, Dairy products of Canada, WT/DS103/AB/RW2, 20 December 2002

6. US cotton case, WT/DS267/AB/R, 3 March 2005

7. US cotton case, paragraph 8.1(g)(i) of the panel report WT/DS267/R, 8 September 2004

8. EU sugar case, WT/DS265/AB/R, WT/DS266/AB/R, WT/DS283/AB/R, 28 April 2005

9. 'Updating the Indian CIF prices of 1986-88 is fully justified', http://www.solidarite.asso.fr/Papers-2013#pagination_documents_joints

10. A subsidy is 'coupled' when related to the production or price levels, and 'decoupled' in the opposite case.

11. The 'Blue Box' corresponds to the EU fixed direct payments per hectare (cereals and oilseeds), cattle head (bovines and ovines), or litre of milk decided by the CAP reforms of 1992, 1999 and 2004 to offset the reduction of guaranteed ('intervention') prices, but farmers received them only if they produced the corresponding products. The 'Green Box' covers two types of allegedly non-trade-distorting subsidies: 1) the traditional Green Box of in-kind aid to general agricultural services benefitting farmers collectively: agricultural infrastructure, schools, research, agri-environment, calamities, phytosanitary warnings, etc.; 2) the Green Box of decoupled income support in place in the US since 1999 and in the EU since 2005 where farmers continue to receive the average amount of Blue Box direct payments received in 2000-02 without being obliged to produce anything or being allowed to produce other products than those having benefitted from the Blue Box payments.

12.Jean-Pierre Butault, 'Evolution of Agricultural Support in Real Terms in OECD Countries and Emerging Economies', OECD, 2011, http://www.oecd-ilibrary.org/docserver/download5kgkdgf25x20.pdf?expires

=1385386110&id=id& accname=guest&checksum= 476FE82E1A92E7409C7AAE4E85F48958

13.http://www.fapri.missouri.edu/outreach/publications/2013/FAPRI_MU_Report_06_13.pdf

14.Jacques Berthelot, Rguler les prix agricoles, L'Harmattan, 2013.

15.When the calculated AMS of a product is lower than 5% of its production value in developed countries (10% in DCs), the product is considered without product-specific AMS as lower than the de minimis level. And when the non-product-specific AMS (e.g. interest on loans) is lower than 5% of the whole agricultural production value (10% in DCs), it is not counted in the total AMS. But these product-specific and non-product-specific de minimis are counted in the overall trade-distorting domestic support (OTDS).

*Third World Resurgence No. 281/282, January/February 2014, pp 39-43