What will the Doha round deliver?
By Jonathan Hepburn and Chistophe Bellman

Rich and poor countries alike are locked in battle over farm subsidy spending in negotiations at the World Trade Organisation (WTO) in Geneva, where a July 17 draft text by the chair of the agriculture negotiations has sparked renewed controversy between delegates.

Trade-distorting farm subsidies in developed countries tend to depress world prices, thereby undercutting both small farmers and exporters in developing countries who cannot compete with European or US treasuries. Although the scale of the problem is hard to ascertain, developed countries are estimated to have spent US$378 billion in total farm support in 20041. WTO statistics indicate that from 1995-2001 three subsidisers were far ahead of the pack: the EU (US$96bn), the US (US$66bn) and Japan ($42bn), with no other country spending more than $8bn.2 Payments tend to be heavily concentrated on a handful of crops, and represent a large share of farmers’ overall income (see figure 1): in the US, wheat, rice, corn, soybean and cotton accounted for 93 percent of total commodity programme payments from 2002-053. Despite public perceptions to the contrary, they also disproportionately favour large farms, which receive the lion’s share of subsidies in both the US and EU.

Agriculture at the WTO: sixty years of trade distortions

Sixty years of trade negotiations - under the WTO and its forerunner the GATT - have bequeathed only minimal controls on agricultural subsidies. While successive negotiating rounds established rules for other subsidy types and slashed industrial tariffs to all-time lows, ‘exceptional’ treatment for agriculture meant that farm subsidies were not disciplined until the Uruguay Round of negotiations ended in 1994. Developing countries now complain that the trade-offs being asked of them in the current Doha Round are disproportionate. Their tariffs on industrial and agricultural goods must be subject to substantial cuts, say rich countries, if agricultural subsidies and tariffs in the developed world are to be reduced.

Unlike in past trade negotiations, developing countries have organised themselves into powerful coalitions aimed at reforming existing trade distortions. In particular, the G-20 – bringing together Brazil, India, China and 17 other developing countries – has insisted on reform of developed country subsidies as a condition for any deal.

The chair’s text: attempting to find a compromise

The July 17 text from the chair of the farm trade talks reiterates provisional agreements on eliminating export subsidies by 2013, and details new disciplines on export credits and some of the more perverse effects of food aid. Although relatively small in size, these subsidy types are widely believed to distort trade the most.

More controversial have been the cuts in the maximum permitted levels of overall trade-distorting support (OTDS)4 : for the US, the text proposes either a 66 or 73 percent reduction, bringing the cap down to $16.4bn or $13bn respectively. Although lower than the $22.5bn ceiling which the US has proposed formally, and the $17bn figure it has broached unofficially, both levels remain higher than the roughly $12 billion cap sought by the G-20. They also exceed the $11 billion that the US is estimated to have effectively spent on trade-distorting support last year. For the EU, the text foresees either a 75 or 85 percent cut - higher than the 70 percent cut proposed by Brussels. EU subsidies, although higher than those in the US, have been seen as less controversial by trade delegates, mainly as the former are already being reduced through an ongoing reform process. While the larger cut would eat into actual EU spending levels, the smaller one would again enable existing spending to be maintained or even increased (see figure 2).

Figure 2: The chair’s text: cuts envisaged in EU and US trade distorting support

*EU: OTDS actual spending levels for 2008 are estimated to be €26 billion for EU-25, based on the Fischler CAP reform. ** US: OTDS actual spending levels for 2006 are estimated to be US$10.8 billion, based on trading partners’ estimates.

How can change occur?

For real reform to take place, agricultural trade policy needs to be influenced by domestic constituencies that favour change. The EU has undertaken a series of major reforms to its Common Agricultural Policy since 1994, moving from a price support system towards direct payments to farmers which it claims are not more than minimally trade distorting. No comparable process is underway in the US. Indeed, the House of Representatives, the lower chamber of Congress, recently voted largely to continue and expand lavish agriculture subsidies over the next five years. The farm bill approved by the House now faces revision in the Senate and a veto threat from the White House, which has called for modest reductions in order to insulate farm spending from WTO challenges.

So what hope can the poor have for any change in the current rules? The mushrooming number of bilateral and regional deals offers no opportunity to ease subsidy spending, which can only be negotiated effectively in a multilateral setting. At the same time, WTO negotiations have shown themselves to be more successful at consolidating domestic reforms than at initiating them. In the absence of real subsidy cuts, a Doha deal would therefore only preclude future backsliding, preventing a return to the bloated farm support budgets of the past. If this is the case, litigation under the organisation’s Dispute Settlement Process might become the most promising avenue to prompt subsidy reforms: in particular, some now expect the Brazilian and Canadian challenges to US cotton and other subsidies to succeed in spurring change.

Further Information:
The July 17, 2007 text by Ambassador Crawford Falconer, chairperson of the agriculture negotiations, is available from the WTO at: http://www.wto.org/english/tratop_e/agric_e/chair_texts07_e.htm

Background explanations of many of the issues and technical terms in the agricultural negotiations are available at the WTO website at: http://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd00_contents_e.htm