Development & Aid, Economy & Trade, Global, Global Geopolitics, Headlines, Latin America & the Caribbean

TRADE: Agriculture a Persistent Thorn in Global Talks

Mario Osava

RIO DE JANEIRO, Jul 31 2003 (IPS) - Agriculture has been playing second fiddle to industry for decades and represents a tiny portion of the global economy, but is solidly at the centre of dispute in international trade negotiations, usually pitting the developing world against industrialised countries.

If there are no major advances in talks on farm trade, there will be no new accord in the round of trade liberalising negotiations launched in 2001 by the World Trade Organisation (WTO) ministerial meeting in Doha, Qatar.

This is the opinion of the Cairns Group, 17 countries that rely heavily on farm exports and are leading the fight against agricultural subsidies. Brazil and eight other Latin American countries are members of this bloc.

Agriculture is victim of the "deterioration of the terms of trade", as states the refrain economists have been using for decades as they attempt to explain the "underdevelopment" of what was then termed the Third World.

Farming today represents around five percent of the global gross domestic product, half what it did in the 1970s and 1980s, according to calculations by Theotonio dos Santos, professor of international economics at Brazil’s Fluminense Federal University, near Rio de Janeiro.

In the past, the decline of agriculture was associated with the dominance of industry, but even industry’s weight in the economy has been reduced, standing at a third of what it was three decades ago, noted Dos Santos, who explained that the leading sectors today are finance, services and technology.

But farming is vital for developing countries, and the lack of equity in international agricultural trade is increasingly evident. Another important factor is the continued decline in farm commodity prices.

It is also clear that it will be difficult to convince wealth countries, particularly the United States and the European Union, to eliminate their agricultural trade barriers and farm subsidies.

Nevertheless, amidst the pessimism in the lead-up to the fifth WTO ministerial conference, to take place Sep. 10-14 in the Mexican resort city of Cancún, a ray of hope has emerged.

The EU announced in June a reform of its Common Agricultural Policy (CAP), described by Brazilian experts and officials as a "timid" step towards unblocking the Doha Round of trade negotiations that are slated to conclude in 2005.

Now it is essential that the EU "translate its reform into a concrete proposal" for reducing farm subsidies and trade barriers, says Antonio Donizetti, international trade expert with the Brazilian Confederation of Agriculture and Livestock.

Abolition or substantial reduction will be necessary, "not only of the classic export subsidies, but also of domestic support for farm production," what has trade-distorting effects on the international market, as is the case of U.S. cotton, Donizetti told IPS.

If the world’s trade ministers fail to make progress on negotiations in Cancún, "it would be a tragedy," particularly for agro-exporting countries, because the trade imbalances would persist and would threaten not only the Doha Round but also the entire multilateral trade system, he added.

The countries hurt by the farm subsidies distributed in Europe, the United States and Japan will soon have a weapon: the Peace Clause agreed in the previous negotiations known as the Uruguay Round, impeding formal complaints to be filed with WTO about subsidies at 1992 levels, expires Dec. 31.

There is no better agreement on the horizon, and all farm subsidies will be open for formal complaint as of Jan. 1, commented Donizetti, adding that it could unleash a "generalised war" that would threaten the foundations and the response capacity of the WTO.

He believes that an extension of the clause would only be accepted by developing countries if there are effective offers to open markets to their agricultural exports.

The industrialised countries together spend around a billion dollars a day on subsidies for their farmers.

The EU will present a concrete proposal "at the last minute" in Cancún, predicts Marcos Sawaya Jank, director of the Institute for International Trade Negotiations (ICONE), and professor at the University of Sao Paulo.

The EU’s CAP reform, which calls for ending production subsidies and would instead channel funds to promote rural environmental protection and quality of life, among other things, would allow the 15-member bloc to meet demands for domestic support cuts and would put the United States "on the defensive" on the subsidies issue.

But Jank points out that problems remain with regards to the EU, including export subsidies and the question of market access for developing countries.

Brazil is only interested in an agreement that marks progress in the three "pillar" areas: reductions of production supports, export subsidies and trade barriers, he said.

Trade ministers from 25 countries tried in Montreal this Monday through Wednesday to clear the way for successful trade talks in Cancún.

In the Canadian city the EU announced it is prepared to cut domestic farm support by 60 percent. But that is still "insufficient" according to the United States and the Cairns Group, of which the host Canada is a member.

On the matter of tariffs, the major exporters defend what is known as the "Swiss formula", which establishes a ceiling of 25 percent for farm imports.

A limit is of great interest to Brazil and other countries whose exports are blocked by "prohibitive" tariffs, which can be two or three times the price of the product, or even more, says Jank.

The EU is seeking a smaller reduction in tariffs – 36 percent on average – and has the support of dozens of countries, including some poor nations, who fear they would ultimately lose in a scenario that gets too close to true free trade in agriculture.

Many developing countries currently benefit from trade preferences to export to rich nations, such as under the Cotonou Agreement, which favours former European colonies in Africa, Caribbean and the Pacific.

The trend for Brazil and its allies is "improvements in the subsidies question" but greater difficulties in market access, because in addition to high tariffs for their most competitive exports, they will face bigger non-tariff barriers, such as environmental, sanitary and animal welfare rules, the CAP’s new priorities, predicts Jank.

Brazil’s Agriculture Minister Roberto Rodrigues said upon his return from the WTO meet in Montreal that he is optimistic about progress at Cancún and in the Doha Round in general, though admitted it would not be "of the desired magnitude".