URFIG-supported Document about Agriculture

WTO Members Fight Over Developing Countries’ Agriculture Markets:

An Ominous Outcome for the South?

by Aileen Kwa (Focus on the Global South , October 2002)

Agriculture liberalisation has contributed significantly to the silent crisis in the South, of hunger, malnourishment, poverty and rural unemployment. Unfortunately, the current negotiations at the WTO are not only ignoring this crisis in the developing world but look set to aggravate it.

Negotiators from the US, EU and Cairns (Australia / New Zealand etc) are busy fighting for developing countries’ markets, aggressively calling for another round of tariff cuts, and side-stepping the issue of reducing their enormous amounts of domestic supports. Their proposals will bring about an even more iniquitous agriculture agreement than the current one. For most of the developing world, further reductions in border protection, without eliminating OECD subsidies and dumping will plunge small farmers and the food insecure into a worse plight.

Agriculture, the most explosive issue on the WTO agenda, is predicted to make or break the WTO’s next Ministerial in Cancun. In this light, aggressive efforts are being made, by the WTO Secretariat Chair, Stuart Harbinson, as well as key WTO members, to push the controversial negotiations towards some conclusions. Southern Members, easily arm-twisted by Washington and the EU in capitals, are fearful that they will again be pushed against the wall to accept another raw deal.

The Agreement on Agriculture (AoA) has long been seen by many WTO analysts as one of the most imbalanced agreements in the WTO, alongside the notorious TRIPS agreement. Even usually diplomatic government officials from the South have termed it as providing Special and Differential Treatment to developed rather than developing countries!

Agriculture negotiators in Geneva have been very busy in the recent weeks. All the main issues in the Agreement – export subsidies, market access, domestic supports  - have been discussed. November will bring one more session before Chairman Harbinson produces his ‘overview paper’ by 18 December. This will then be negotiated, and the new agreement more or less knocked into place by March 2003. Based on the new commitments, countries will make their offers by the Cancun Ministerial in September.

The current negotiations do not bode well for the South. The developed countries are asking for more of the same ‘You liberalise, I subsidise’ provisions.

The proposals and concerns about small farmers developing countries have repeatedly made in the last two and a half years on food security, the crisis small farmers are facing, and arguing for a Development Box have not been taken seriously by the US, EU or the Cairns Group. Instead of the Development Box (allowing a carve out for the majority of agricultural products from the commitments of the Agriculture Agreement), the discussion gauging from the EU and Cairns Group, has been reduced to the possibility of having a temporary Safeguard measure. While such a measure will help developing countries deal with price volatility – and possibly only on selected products, this will not address in any structural manner, the rural crisis in the South, caused in large part by import liberalisation and the entry of dumped products[1] in domestic markets. Even more retrogressive than the EU and Cairns Group, the US does not even feign sympathy towards any development / livelihood concerns.

Developing Countries Sell the Family Silver For Elusive Gains in Agriculture?

Most developing countries have conceded that they are getting nothing from the broad Doha agenda that was launched in November 2001. They have little if any services to export and see themselves on the losing end of the GATS negotiations. This is also the case for industrial tariff negotiations, since their manufacturing sectors can scarcely compete with those of the developed countries. They acknowledge that if they should reap any benefits at all, it would be in agriculture. This has been the reason why some Latin American countries have quite willingly embarked on services negotiations and are not opposing EU’s desired expansion of the WTO’s mandate to include the new issues of investment, competition and government procurement. EU and Japan have indicated that they will only move on agriculture (reduction of export subsidies and distorting domestic supports) if there is agreement by developing countries to launch negotiations in these areas at the coming Cancun Ministerial.

How Low Can the EU Go: Holding S and D Hostage to Agriculture

Even as some pragmatic developing country negotiators are already planning to sell their family silver for elusive gains in agriculture, the EU is shifting the goalposts. Recently, EU negotiators have told some Southern delegates that any movement in the S and D Review promised to developing countries in Doha (for which they paid a heavy price for), will only have results if developing countries are willing to give in, in agriculture!  The July deadline for the S and D Review has been pushed back to December. To date, there is still no sign of the US or EU wanting to make any movement in this area.

Politics of Agriculture Negotiations:

The US and EU Will Come Together to Force Open Developing Country Markets?

For developing countries, the Uruguay Round has exacerbated the inequities of agricultural trade. Even as the South was made to lower their tariff levels, OECD supports to producers increased – from $247 billion in 1986-88 to $310 billion.

These imbalances look likely to be side-stepped in the present negotiations. The main objective of all the major players in the agriculture negotiations, US, EU and Australia (representing the Cairns Group) – is market access in developing countries. All three key players have called for another round of tariff reductions. The difference merely lay in the degree of reductions. There has not been a similar aggression in the area of bringing down domestic supports.

EU

EU, together with its allies, Japan, Norway and Switzerland are perceived to be the ‘bad boys’ in the negotiations because of their huge supports. EU subsidises to over 40% of the value of production. While the EU has domestic lobbies pushing for market access, they are on the defensive as far as domestic supports and export subsidies are being targeted for reductions. They have not to date put forward any proposals in the current phase of negotiations. The recent deal struck between Chirac and Schroeder, that agricultural policies will only be renegotiated after January 2006 does not put the EU in any position to make significant changes to their current support policies, beyond shifting between programmes .

In Geneva, the EU has been working hard courting the support of developing countries. They have been intensely holding bilateral meetings with Southern delegates on the issue of trade preferences, in order to get the support of the African-Caribbean and Pacific (ACP) countries. Many ACP countries enjoy guaranteed prices on the EU market. These preferences will certainly make it difficult for them to oppose EU’s position in the agriculture negotiations for fear of their removal. There may also be fears that should EU domestic supports go down, there could be internal pressures in a more competitive EU market not to provide the preferential access.

US

The US passed their Farm Bill in May, promising $190 billion in subsidies over the next 10 years which will increase, not decrease their protection. Yet despite this, Washington is blithely taking the moral high ground in the negotiations. US has called for extremely aggressive cuts in tariffs (maximum of 25% on all products), while presenting proposals on domestic supports which (with the loopholes) will allow their subsidies to increase! Clearly, Washington wants to have its cake and eat it. The main work the US seems to be doing these days is at capital level in developing countries. US ambassadors are calling upon Ministers and government bureaucrats to support their proposal, unfortunately, with some success.

Australia and the Cairns Group

The Cairns Group – of about 14 developed and developing countries led by Australia have had some of their worst fights in the recent weeks. The Grouping was in a state of shock when US passed its Farm Bill. If the US was going to pursue a protectionist position (as does EU and its allies), there would no longer be political momentum at the WTO for the agriculture liberalisation agenda Australia is pursuing. In recent weeks, however, it has become clear that some ‘understanding’ exists between Washington and Canberra. While Washington has come out ludicrously aggressive in market access negotiations (in step with the Cairns Group), Australia has become feeble on the issue of reducing overall subsidies, clearly pandering to the needs of the United States.

Not surprisingly, the Cairns Group is deeply split, with developing countries such as Philippines, Argentina and Columbia demanding that the developed countries such as Canada and Australia are more aggressive in calling for domestic supports to be brought down. Also on market access, Indonesia caused some waves because members of the Cairns Group (particularly those from Latin America) would not support their food security proposal calling for the exclusion of four staple crops from tariff reductions. Given the Cairns Group refusal to endorse Jakarta’s position, Indonesia did not sign on to the Cairns Market Access position, calling for ambitious cuts in tariffs across the board. This led to a spin-off of events, including pressures on Jakarta by Australia.

What Could be the Outcome?

Developing country negotiators here in Geneva predict that while the US and EU positions on the surface look very different, their domestic pressures and needs are not so different and that agreement between them would not be difficult to strike. The EU will drag its feet on export subsidies, and the US on export credits. Both US and EU have huge farm subsidies. As ‘trade distorting’ supports are being targeted for reduction in the negotiations, the US and EU will ensure that the new Agreement allows the Green Box (supposedly non-trade distorting subsidies) loopholes to continue and even to be strengthened. By so doing, they can conveniently shift supports out of the Amber Box (trade distorting supports) into the ‘Green Box’ (Green does not refer to the environment, but rather Green light). To the general public, the rhetoric looks great – trade distorting subsidies would have been reduced or even eliminated when in fact the subsidies provided are increasing! The main difference between the US and EU – how deep tariff cuts will go (US proposes deep cuts, EU proposes cuts which are less ambitious), could be worked out between them eventually.

US, and the developed countries in the Cairns Group – Australia, New Zealand and Canada - are aware that in the final analysis, they are not going to be able to penetrate the European market. Like the US, the main goal of the Cairns developed countries are developing country markets. Hence, even if domestic supports do continue in the US and EU, an aggressive tariff reduction agenda would already bring gains to them.

Philippines and Argentina’s Proposals on a Rebalancing Mechanism

In expectation that the giants will not be bringing down their subsidies to acceptable levels any time soon, and pressures will still be on them to reduce tariff levels, the Philippines (and Argentina informally) have put forward fairly similar proposals regarding a rebalancing mechanism. Such a mechanism would allow developing countries to apply additional duties on products exported by a developed country that have been subsidized through domestic supports or export subsidies. While this proposal is rather unambitious in that it does not address the root cause of the problem, and it is likely that these dumped products will simply be channeled to other developing countries that may be caught off-guard, it does give national governments at least a user-friendly defense tool.

Not surprisingly, the US has expressed some ‘nervousness’ over these proposals. Australia did not want to engage in discussions on this, and the EU has simply ignored it!

Developing Country Coalitions Are Being Dismantled

As the giants are hashing out their differences and laying out the game plan, they have not forgotten to also attack developing country coalitions. In the past months, these have been systematically weakened through both cooptation as well as political pressures. The LMG ministerial meeting, planned for September did not materialise due to some backroom pressures on key countries. The Pakistan Minister for instance sent a last minute message informing that he could not make it to Geneva. The African Group, which was the mouthpiece of the majority of poor members in the WTO before Doha has suffered under the current leadership of Kenya, whose Trade Minister Biwott, is clearly playing a double game. For instance, together with USTR Zollick, he attended the Cairns Ministerial meeting in Bolivia, even though Kenya is not a member of the Cairns Group.[2] Key members of the ‘Friends of Development Box’ coalition [3], the group that speaks on development concerns in agriculture have come under pressure. El Salvador, for instance, who was a signatory to the Development Box proposals publicly supported the US position in the September negotiations. Dominican Republic, Honduras and Pakistan, the leaders of the group have also been targeted by Washington. This has led to the conspicuous silence of the group in the past weeks. The politics of trade is not after all so distant from the politics of war. When Washington approaches developing country ministers, there is no room for compartmentalisation.

As the elephants come together in the weeks ahead, and Australia agilely dances to the rhythm of Uncle Sam, where will this leave developing countries, particularly their small farmers?

Aileen Kwa

Focus on the Global South

October 2002