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The so-called 'drastic' cuts in farm subsidies promised by the US and EU in the run up to the Hong Kong Ministerial in December are, in reality, merely an eye wash and based on the expectation of further market liberalisation in developing countries, writes Devinder Sharma.
6th November 2005, Devinder Sharma ~ STWR
In a desperate bid to ensure that the ongoing negotiations on the critical issue of opening up of agriculture trade do not lead to a collapse of the forthcoming WTO Ministerial at Hong Kong in December, the United States and European Union have come up with proposals promising a ‘drastic’ cut in farm subsidies.
At the face of it, the proposals look very promising. After all, the US has offered to cut its ceiling on trade-distorting subsidies by 60 per cent prompting the EU to reciprocate the gesture with an assurance of 70 per cent reduction in the same category. To remove confusion, let me clarify here that the US and EU proposal does not mean reduction in farm subsidies by 60 to 70 per cent but a reduction in the ‘ceiling’ on trade-distorting subsidies. As far as the overall reduction is concerned, it does not translate into more than two per cent of the domestic support being provided.
These promised cuts however are based on an expectation that developing countries will open up their markets still further.
In reality, what the US Trade Representative Robert Portman and the EU Trade Commissioner Peter Mandelson have proposed is a merely an eye wash. It is perhaps the biggest hoax that the two countries have played before the 148-country theatre. These proposals are even more absurd than the letter the former EU Trade Commissioner Pascal Lamy (now the director general of WTO) had written to the WTO some years back promising to make a drastic cut in domestic support provided the US were to reciprocate.
The WTO theatrics, matching the histrionics of Janet Jackson or Brittany Spears, has all the ingredients of a Hollywood blockbuster. Selling a utopian dream, the Agreement on Agriculture also seduces the developing country farmers by promising them an opportunity to be like an American or European farmer once they open up their markets. But if the impact the developing countries have felt from the free trade liberalisation imposed under the WTO agreements since Jan 1995 is any indication, farmers in developing countries have suffered to the tune of US $ 24 billion a year from agricultural subsidies and protectionism that the rich countries have. Millions of farmers have lost their livelihoods as a result of cheaper imports.
The UN Human Development Report 2005 states that the developed country support to its agricultural production now stands at a staggering $ 350 billion or $ one billion a day. The winners of the annual cycle of multi-billion dollar subsidies are large-scale farmers, corporate agri-business interests and landowners.
The illusion that the US is creating by promising a ‘drastic’ reduction in agricultural subsidies is also aimed at furthering the destruction wrought by cheap dumping of farm produce. The US proposal, for instance, will only bring down the level of support by a figure that is less than a statistical error – down from $ 74.7 billion it spent last year to $ 73.1 billion. For the EU, it does not mean any reduction in the existing farm support to its farmers.
The clever manipulation is the outcome of an economic jugglery that hides more than what it reveals. It is all the handiwork of trade negotiators who continue to befool the world with faulty images of projected growth outcomes. All that has been done is to move the subsidies from one box to another – from the trade-distorting ‘amber box’ to ‘blue box’ and subsequently to the ‘green box’ – where all the direct payments to farmers are locked. In America, the huge subsidies doled out by President George Bush under the notorious Farm Bill 2002, equalling $ 180 billion to be provided in a ten years period, have for instance been shifted from the ‘amber box’ and placed under the ‘blue box’. With the definition of the ‘blue box’ now revised under the July Framework 2004, the US farmers (read agribusiness corporations) have nothing to fear.
Interestingly, while Portman tries to convince the world of the ‘honesty’ of his subsidy reduction proposals, the US is expected to provide a record federal support to farmers this year. The outlook for such a record spending on farm subsidies has been triggered by the latest forecast by US Department of Agriculture for corn, soybeans and cotton, thereby signalling that crop prices will sink low enough for many farmers to receive far bigger federal checks than they did last year.
EU on the other hand has always been a master in statistical jugglery. The well-known French agricultural analyst Jacques Berthelot says that the EU has been cheating with its false calculations on subsidies. Since the reforms initiated in 2003-04 under the Common Agricultural Policy, the EU has already transferred bulk of the ‘blue box’ subsidies to ‘green box’ thereby ensuring that its non-trade distorting subsidies are kept at bare minimum. Green box subsidies include direct payments and single farm payments and these are considered to be non-trade distorting. The EU therefore has already ensured the ‘drastic cut in subsidies’ actually mean no change for its agriculture.
The theatrical absurdities however have not made any impact on the developing country positions. Instead of exposing the rot in negotiations, which for some strange reasons WTO chief, Pascal Lamy, refuses to see, the G-20 group of large developing countries have come out with a paper outlining new proposals on market access and domestic support. The G-33 countries are conspicuously quiet on the US and EU proposals for subsidy reduction, and are busy complaining that the developed countries are not according due importance to special and differential treatment for the developing countries.
G-20’s proposal on market access is contrary to the existing ground realities. The developing countries have already met the obligations enshrined under the WTO on phasing out the tariffs and removing the quantitative restrictions. Unfortunately, G-20 countries, led by India, Brazil and Argentina, appear more eager to open up their already open markets thereby putting at stake the very survival of millions of small and marginal farmers. Accordingly, the developed countries should make an average tariff cut of 54 per cent while the developing countries should follow it up with 36 per cent.
Any further movement in the ongoing negotiations of the Doha Development Agenda should be targeted only at disciplining the agricultural subsidies. To make a meaningful cut in domestic support, developing countries must insist on:
agricultural subsidies to be classified under two categories: one which benefits small farmers and the remaining which goes to agri-business companies and the big farmers/landowners.
Since 20 per cent of the US $ 1billion farm subsidy being doled out every day only benefits genuine small farmers, the remaining 80 per cent subsidies need to be outrightly scrapped before proceeding any further on agriculture negotiations.
Even though both the US and EU are keen to see that their empty proposals make the developing countries reciprocate with a real cut in tariffs providing more market access, the developing countries will only end up betraying their farming populations and destroying the food security, by not reading the writing on the wall. The demand therefore of doing away with 80 per cent of the subsidies being provided now is the only way forward.
The developing countries must keep the fundamental issue of food security, livelihood security and the acerbating hunger in the developing countries in focus before agreeing on any commitment on opening up their markets. Failure to do so will only result in a political backlash, the outcome of which would be detrimental to the multilateral trade regime. Since the US and EU continue to be the spoilers of the multilateral trade negotiations, no-agreement is better than a bad-agreement. The demand from the civil society for taking agriculture out of the WTO therefore is aptly justified.
Devinder Sharma is an award-winning food and agriculture
policy analyst and a regular contributor to STWR. His writings focus on the
links between biotechnology, intellectual property rights, food trade and
poverty.
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