TRADE: The Trans-Atlantic Subsidies Game

By IPS Correspondents Reprint | | Print |

Stefania Bianchi*

BRUSSELS, Jul 28 2003 (IPS) - In a seemingly endless cycle of finger-pointing, United States and the European Union trade officials are insisting that the success of upcoming global talks in Mexico will hinge on the other party’s commitment to cut billions of dollars in farm subsidies.

In a seemingly endless cycle of finger-pointing, United States and the European Union trade officials are insisting that the success of upcoming global talks in Mexico will hinge on the other party’s commitment to cut billions of dollars in farm subsidies.

EU ministers issued a statement last week essentially saying that policy concessions made June end were good enough, and that they expected reciprocal action from the United States.

The reforms maintain the budget of the EU’s Common Agriculture Policy (CAP) at 50 billion dollars a year until 2013. The CAP overhaul includes cutting incentives for farmers to produce surplus food for export, and moving instead to a fixed subsidy system over two years.

But it is generally accepted that the reform will benefit only a handful of non-European countries, particularly producers of cereals and milk goods. African countries, which do not produce corn, milk, or butter for exports are not expected to gain.

”The reform will be to the advantage of relatively rich non-European countries – Australia, New Zealand, Indonesia, Argentina, and Brazil,” commented the French economic daily newspaper La Tribune.

President George W. Bush chastised the EU during his recent trip to Africa. The subsidies given by Brussels to European farmers were ”undermining their (African farmers’) capacity to become self-sufficient in food,” he said.

U.S. Trade Representative Robert Zoellick and Secretary of Agriculture Ann M. Veneman have urged the EU ”rapidly transform the CAP reform into significant proposals at the WTO".

EU Trade Commissioner Pascal Lamy promptly turned the tables, saying "it’s the U.S.’s turn to show the colour of their money. This means that they have to considerably reduce their subsidies, outlined by the Farm Bill."

Signed into law last year, the Farm Bill – the U.S. equivalent of the CAP – boosted federal support for U.S. farmers by 70 percent, to some 190 billion dollars over the next 10 years.

The U.S.’s key defence is that its subsidies are much smaller than those of the EU.

According to the U.S. Department of Agriculture, overall domestic support for farming is 19.1 billion dollars, compared to the EU’s ”ceiling of about 60 billion dollars and Japan’s ceiling of 30 billion dollars”.

But European farmers are not buying the U.S. argument.

At a Jun. 11 meeting with Lamy in Brussels, farmers called on the European Commission to send a strong message to the United States and other countries that the EU had gone to the limit in CAP reform and that not one euro more would be conceded at the WTO meeting.

”The EU must demand that the U.S. put its full farm subsidy budget on the table including its export support loans,” said John Dillon, president of the Irish Farmers’ Association.

”For 20 years, the Americans had castigated and tried to undermine the Common Agricultural Policy at every opportunity. From now on, Europe must go on the offensive and pursue all American subsidies,” said Dillon.

Such statements mark the latest round in a high-profile battle between the EU and the United States over the elimination of generous farm subsidies. Each party insists that the other side take the first step – and this despite the fact that several recent studies have been pleading for doing away with farm subsidies.

The World Bank says that ending all the subsidies worth 350 billion dollars, mainly in North America and Europe, would boost the income of developing countries by 150 to 400 billion dollars within five years.

Duncan Green, a trade analyst for the Catholic Agency for Overseas Development (CAFOD), a British-based development agency, says that the issue must be resolved as soon as possible.

”A deal on agriculture is crucial if the Doha round (of the WTO – World Trade Organisation) is going to succeed," he told IPS.

Other analysts said that a fair degree of hypocrisy and double-speak is permeating the debate.

”Contrary to their rhetoric in support of global free trade, the United States and Europe have long subsidised domestic agricultural products,” Susan Rice, a former assistant secretary of state for African Affairs under President Bill Clinton, wrote in a recent editorial lambasting both sides.

”Bush is using a technicality to hammer European perfidy and obscure his own. Bush called for the elimination of export subsidies, a popular and damaging European device much in need of revision, but failed to mention American production subsidies and price supports, which encourage U.S. farmers to overproduce and dump excess supply on the world market,” she said.

As the trans-Atlantic food fight drags on with no end in sight, even the ”rich nation club”, the Organisation for Economic Co-operation and Development (OECD) – whose 30 members, including the United States and EU, shell out an estimated one billion dollars a day in subsidies to their farmers – are becoming weary.

”The U.S. uses trade-distorting subsidised export credits as the source of 97 percent of the world’s trade-distorting export credit subsidies. The EU says its system of export subsidies is transparent and has fallen from 25 percent to five percent today," an OECD spokesperson told IPS.

”The U.S., on the other hand, believes itself the victor in the ‘mine is smaller than yours’ game since it used OECD producer support estimates of subsidy payments. This figure shows the European Union gives double the U.S. payments,” the spokesperson said.

For James Shikwati-a prominent African writer and activist, and director of the NGO Inter-Region Economic Network (IREN) in Kenya, ”the U.S. and EU are playing a dangerous game”. They are simply being tactical because they have to appease their farmers and fear strikes and demonstrations if they reduced farm subsidies.

”If the U.S. and EU are honest in their quest to assist Africa, then entrepreneurship ought to be on the forefront,” he told IPS.

”This cannot happen when they distort international prices of agricultural products through subsidies or when they impose technical barriers as a way of evading outright shutting out of products from poor countries,” Shikwati said.

UN Secretary-General Kofi Annan, one of the strongest critics of agricultural subsidies, is expected to personally carry his anti-subsidy message to the Cancun meeting in September.

For many years now, Annan says, developing nations have been encouraged to eliminate their own subsidies in getting fiscal affairs in order.

”Yet the developed countries persist with agricultural subsidies and tariffs of their own against the exports of developing countries, offsetting or undoing the benefits of other forms of cooperation with those same countries,” he added.

Meanwhile, in a report released last week, the U.N. Economic Commission for Africa (ECA) warned that increased U.S. subsidies for its crop and dairy industries will almost certainly undermine Africa’s efforts to achieve the goals of reducing poverty and hunger set by the U.N. Millennium Summit in 2000.

* With Thalif Deen reporting from U.N. headquarters in New York.