AGRICULTURE: New Fight Over Subsidies in WTO

By Marcela Valente Reprint | | Print |

Marcela Valente

BUENOS AIRES, Mar 17 2000 (IPS) - Although slumping prices of farm commodities and the fact that the United States is caught up in an election year look like unrelated issues, they have combined to provide an inauspicious backdrop for the renewal of farm talks in the World Trade Organisation (WTO) next Monday.

After the “fiasco” of the WTO ministerial summit in the US city of Seattle, Washington last December, trade delegates must still comply with the mandate to reinitiate negotiations on agriculture and services, which they will do next week in Geneva.

Last month, the WTO General Council decided that the talks would take place in the context of the Committee on Agriculture, which holds four ordinary sessions a year.

Thus, instead of launching a specific round of talks on agriculture, the discussions on freeing up trade in farm products will take place parallel to the Committee’s ordinary meetings.

A preview of what can be expected came from European Union Agriculture Commissioner Franz Fischler early this week in Geneva, after he met with WTO Director-General Mike Moore to agree on the terms of the debate.

Fischler said the talks should not ignore issues like the need for measures to support production, access to markets and export subsidies.

Nor should they overlook the social role played by agriculture, its contributions to conservation of the environment and to long- term food security, he added – a reference to aspects covered by the concept of “multifunctional agriculture.”

That theory argues that agriculture plays a number of roles in addition to its primary function of producing food, including the preservation of cultural heritage, land, and the agricultural landscape.

But countries with efficient agricultural production that is virtually not subsidised, which are demanding the liberalisation of trade in farm products, argue that the theory of multifunctionality is merely an intellectual construct created to justify subsidies.

“We are not very optimistic,” admitted economist Raúl Rocatagliata, with the Argentine Rural Society agribusiness association.

He said the prospects for freeing up trade in the sector were not helped by the slump in international commodity prices and the lack of a clearly defined leadership in the United States, which is in the midst of the campaign for the November presidential elections.

“The European Union and the United States basically decide on these issues,” he told IPS.

So, “if the United States, which apparently looks more kindly on the question of lifting subsidies, is in the midst of the process of changing governments, the weight of the European bloc will be felt more strongly in the talks,” said Rocatagliata.

Statistics supplied by the Organisation for Economic Cooperation and Development (OECD – the “club of rich nations”) indicate that the countries of the industrialised North spend 360 billion dollars a year on farm subsidies, which means agriculture has become the biggest recipient of public subsidies in those countries.

Spending aimed at protecting local farm production in developed countries is, on average, 10 times higher than on subsidies for trade in industrial goods. In the case of some products, it is up to 40 times higher.

For example, the EU slaps a 215 percent duty on beef imports, while Japan charges a 280 percent duty on dairy imports.

A study published late last year by the Argentine Foreign Ministry’s Centre on the International Economy found that the proportion of global trade represented by food exports shrunk from 18 to seven percent from 1968 to 1998.

But that sector is the main source of foreign exchange for many countries, a large number of which shell out practically no subsidies for farmers because they have the geographic and climatic conditions and the technological capacity for efficient production.

That situation, they complain, gives rise to unfair competition in global trade in farm products.

The nations that do grant subsidies support not only farmers but agricultural exports as well. The EU accounts for 91 percent of the world’s subsidies for farm exports.

The United States, which also subsidises exports, but to a much lesser degree, has indicated willingness to eliminate such support.

A number of agricultural exporting countries – Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Fiji, the Philippines, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, South Africa, Thailand and Uruguay – which virtually do not subsidise farmers, banded together in the Cairns Group in 1986.

The aim of the group was to put agriculture on the multilateral trade agenda, and to push, in the resultant negotiations, for the liberalisation of global trade in farm products.

With US support, the Cairns Group successfully established a framework for reform in trade in agricultural products in the Uruguay Round of multilateral talks (the WTO’s predecessor).

Meanwhile, the countries sitting on the WTO Agriculture Committee have failed to agree on the election of a chairperson for the meeting that starts on Monday in Geneva. The EU has rejected all of the candidates from Cairns Group member countries.

Besides the stand-off between the two blocs of countries, the global context in which the talks will get underway is unfavourable as well, due to the 30 to 40 percent crash in grain prices since the financial crisis that broke out in Southeast Asia in mid-1997.

This week, soybean and corn prices suddenly climbed due to the continuing drought in the United States. However, the five percent rise did not bring the prices anywhere near the levels seen in the mid-1990s.

The crash in commodity prices and the market glut compounded the negative impact of subsidies on the global market, while weakening agricultural exporting countries and making it difficult for them to take a strong, united stance against industrialised nations.

The outlook has not left much room for optimism in the talks, said Rocatagliata. He added that “perhaps if George Bush wins in the United States, the creation of a Free Trade Area of the Americas (FTAA) will receive a new impulse, and that will lead the EU to feel a greater interest in closer ties with Latin America.”

The late 1999 study by the Centre on the International Economy said the prospects for greater liberalisation of trade in farm products were still uncertain in terms of the immediate future. The report stated that “subsidy schemes in industrialised countries seem to have become a structural element.”

However, the report’s authors believe that the mutual concessions and compromises needed before a new round of multilateral trade talks can be launched could contribute to expanding the range of issues to be negotiated, above and beyond the touchy question of trade in agriculture.

In this sense, reducing the discussions to the Agriculture Committee would seem anything but an auspicious beginning.