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Farm Subsidies, So-Called Free Trade & The WTO Ministerial Meeting: Much Ado About Nothing

From: <>
Dissident Voice - Santa Rosa,CA,USA
The WTO Hong Kong Ministerial: Much Ado About Nothing
by Devinder Sharma

December 28, 2005

We were made to believe that everyone cannot be fooled all the time. Ten
years after the World Trade Organization (WTO) came into existence, and
looking at the outcome of the sixth Ministerial Conference at Hong Kong, it
is time to bury that adage under the heaps of trade drafts.

For the sixth time in a row, the trade ministers of the developing world --
representing issue-based coalitions like G-20, G-33 and G-90 -- have been
duped to believe that trade is for development. Despite making loud noises,
threatening and fuming over the injustice done to the poor and developing
countries, the trade ministers of the G-110 countries, comprising the entire
developing world, finally bowed before the rich and mighty.

Ten years after the WTO came into existence, and after six ministerial
conferences, developing countries have failed miserably to force the rich
industrialized countries to remove even one dollar from the massive
agricultural supports they provide to agribusiness corporations in the name
of farmers. Unable to make any dent in the citadel of unfair trade -- US $1
billion a day in farm subsidies -- developing countries have time and again
taken refuge behind an illusionary smoke screen. After each of the
ministerial conferences, they have returned ³victorious², and the price has
been paid by millions of small farmers edged out of farming.

The Hong Kong Ministerial (Dec 13-18, 2005) was no exception. Much was made
over the elimination of export subsidies by 2013. This is the first time
developing countries have managed even a mention of reduction in subsidies.
At present, export subsidies do not even constitute one percent of the total
support of US $360 billion that the richest trading block, 30 countries
forming the Organization for Economic Cooperation and Development (OECD),
provide for agriculture. In any case, the UN Food and Agriculture
Organization (FAO) projects that export subsidies have been steadily on the
decline, falling from US $7.5 billion in 1995 to US $3 billion in 2001.

The European Union (EU) provides 90 percent of the global export subsidies.
Over the years, it has very conveniently shifted the export subsidies to be
part of the domestic support. Still worse, export subsidies have to be
phased out over a period of eight years. Some estimates point out that the
EU does not shell out more than US $1.2 billion as export subsidies. As the
French economist Jacques Berthelot explains: ³Formal export subsidies to EU
cereals were reduced from Euro 2.2 billion in 1992 to 121 million in 2002.
But domestic support in the form of direct payments that helped exported
cereals rose from 117 million euros in 1992 to 1.3 billion euros in 2002.²

Not only export subsidies, but other export measures with equivalent effects
such as export credits, guarantees and insurance in excess of 180 days have
to also be eliminated. These pertain essentially to the US, which provides
95 percent of such global export measures. Developing countries have
probably forgotten that the former US Trade Representative, Robert Zoellick,
had suggested a flexibility formula for phasing out the export credit
programs, which the EU and other members charge is a form of an export
subsidy. To eliminate the subsidy component of export credits, all he had
promised was his willingness to reduce repayment periods from 36 months to
six months on the loans provided for buyers of some commodities.

In turn, developing countries have agreed to a ³high level of ambition for
market access in agriculture and non-agriculture goods.² The text links
market access in both areas, stating that the ³ambition is to be achieved in
a balanced and proportionate manner.² This is exactly what the developed
countries had been keenly looking forward to, and this is where the
developing countries gave in. Step by step, developed countries have been
able to get more market access from the developing countries, without
showing an equal reciprocation.

Another key achievement is the promise of elimination of much-maligned US
cotton subsidies. Let me first make it clear, it is not the cotton subsidies
that the US has promised to remove by 2006. It is the export subsidies on
cotton that the US is willing to do away with. In reality, as some estimates
show, it does not translate to more than $30 million, which is not even a
drop in the ocean for American cotton growers. The US provides barely 1.4
percent of the global export subsidies.

Let me explain. For the 20,000 cotton growers in America, it will be
business as usual. In 2004, US cotton farmers got federal support to the
tune of $4 billion, which means $10.1 million a day. In 2005, the UN Human
Development Report 2005 states the cotton growers were paid an additional
$700 million thereby jacking up the total subsidy to reach a staggering
figure of $4.7 billion. It is this huge subsidy support, much of it
considered non-trade distorting, which actually causes the global prices to
slump. Indian cotton growers, or for that matter cotton farmers in western
Africa, are thereby priced out of the international market.

The Hong Kong declaration does not talk about reduction in domestic support
in the case of cotton. All it says is: ³as an outcome of negotiations, trade
distorting domestic subsidies for cotton production should be reduced,²
which in trade terms means practically nothing. In fact, the contentious
issue of domestic support for agriculture has remained untouched. And that
is where the US, EU and Japan have succeeded. They have emerged unscathed
from a negotiating position that could have derailed the Hong Kong
Ministerial. Developing countries term this as a ³success².

Let us not forget that in the first three years of the notorious Farm Bill
2002, America provided an additional support of at least US $125 billion (70
percent of the total allocated budgetary support of US $180 billion) to its
estimated 900,000 farming families. These counter-cyclic payments -- again
considered non-trade distorting -- have already filled the bank accounts of
the agribusiness companies and the elite in the American society. And yet,
the US is getting ready with another version of the Farm Bill that should
come into vogue in 2007. On top of it, there is no provision in the Hong
Kong declaration that can stop the developed countries from further
increasing their agricultural subsidies. Under the July Framework 2004,
developing countries have now legally permitted the developed countries to
increase their agricultural subsidies

When asked, India¹s Commerce Minister Kamal Nath replied: ³The US has
already offered to reduce domestic support by 53 percent while the EU offer
is for 70 percent.² This was actually a commitment that the US and EU had
made in mid-October. Interestingly, the minister had then lashed out: ³What
the US proposed last month is not real cuts in agriculture subsidies. The
real cuts would be when there is decline in the support provided by the US
treasury.² But post-Hong Kong, for some strange reason the minister agreed
to the same commitment!

The US/EU offer pertained to cut the ceiling on trade-distorting subsidies
by 60 percent and 70 percent, respectively. Let me clarify here that the
US/EU proposal did not mean reduction in farm subsidies by 60 to 70 percent
but a reduction in the ³ceiling² on trade-distorting subsidies. As far as
the overall reduction is concerned, it does not translate into any reduction
in the domestic support being given.

Kamal Nath probably thought that public memory is too short. In just a
matter of ten days, he made a complete U-turn in his stand on agricultural
subsidies. This is exactly what he did at the time of accepting the July
Framework. Two days before the final draft was accepted in Geneva in the
early hours of August 1, 2004, he had publicly rejected it. And then, for
reasons that remain unexplained, accepted the same draft (with hardly any
changes) two days later and called it a ³victory² for India.

There is no denying that the biggest culprit is the July Framework 2004. It
provides a cushion for the developed countries to raise farm subsidies from
the existing level. It also is the foundation for future negotiations under
the Doha Development Round. But if you read the draft carefully, it is
obvious that the developing countries had been taken for a ride. Instead of
re-opening the framework agreement, developing countries continue to
negotiate on a faulty structure. It is because of the framework agreement
that the developed countries are promising to cut domestic support, which in
reality is only on ³paper².

The first installment of a cut in subsidies by 20 percent under the July
Framework is not based on the present level of subsidies but on a much
higher level that has been now authorized based on the three components: the
final bound total AMS, plus permitted de minimis, plus the Blue Box. In
other words, developed countries have been allowed enough leverage by the
developing countries to increase their subsidies. How can the developing
countries justify this? How could they forget that as long as agricultural
subsidies remain, protecting food and livelihood security in developing
countries is not at all possible?

Allowing developing countries to select its own list of special products,
which would be outside the ambit of tariff reduction formula, along with
special safeguard mechanisms (SSMs) is being touted as an adequate safeguard
to protect farmers from income levels falling due to unfair competition from
subsidized imports. SSMs enable governments to raise import duties on
agricultural products if there is a surge in imports or fall in world

We need to understand this. Developed countries have used special safeguards
(SSGs), only by 38 rich countries so far, to restrict imports from
developing countries. They have already been taking advantage of this
flexibility by reserving the right to use the SSGs for a large number of
products: Canada reserves the right to use SSGs for 150 tariff lines, the EU
for 539 tariff lines, Japan for 121 tariff lines, the US for 189 tariff
lines, and Switzerland for 961 tariff lines.

For the EU, just using SSGs for 20 tariff lines protects 40 percent of their
agriculture import market. By exercising the flexibility to designate 539
tariff lines under SSGs, the EU has for all practical purposes blocked
whatever can be imported from the developing world. A similar categorization
(20 tariff lines) in the US would provide a protective shield for 38 percent
of the imports. And the US reserves the right to use SSGs for 189 tariff

The only redeeming feature is that the developing countries will now be
allowed to use the same measures, and this is where these countries can
assert on re-imposing tariffs and countervailing duties to meet food
security concerns. These measures however are temporary and would only come
in place after the importing countries have actually felt the aftershock of
import surges.

As far as special products are concerned, not all products or tariff lines
can be protected under the SP category. The draft very clearly states that
at present the offer is to classify anything between 1 to 20 percent of the
total tariff lines as special products. For a country like India, which
grows 260 crops a year, and has 680 tariff lines in agriculture, not more
than 60-80 tariff lines can be protected under the SP category. What would
happen to the remaining 600 tariff lines? Isn¹t it a fact that each tariff
line is linked to the livelihood of thousands of farmers?

This ³benevolence² therefore is no justification for the developing
countries to rejoice. The fact is that the developed countries have also
been allowed a similar provision under the July Framework. Developed
countries can term some crucial commodities as ³sensitive² and thereby deny
market access. For instance, the US, EU, Japan and Canada maintain tariff
peaks of 350 to 900 percent on food products such as sugar, rice, dairy
products, meat, fruits, vegetables and fish, which can be easily brought
under the category of ³sensitive² and some 25-40 of the sensitive tariff
lines under the tariff rate quota can be easily protected under this

It is now abundantly clear that while the developing countries have got
Special Products and SSMs, the developed countries have almost an equal and
parallel provision of Sensitive Products and SSGs. If the developed
countries had felt satisfied with the two provisions -- Sensitive Products
and SSG -- to protect their agriculture, there would have been no need to
provide the monumental farm subsidy support. The fact that developed
countries, adequately armed with the safeguard provisions (besides
non-tariff barriers and phytosanitary measures), are still not willing to
eliminate agricultural subsidies, clearly shows where the key to a fair
trade in agriculture lies.

Unless agricultural subsidies are removed there is no way developing
countries can escape the harmful impacts of cheaper and subsidized food
surges. Highly subsidized imports from the developed countries have already
done irreparable damage to the agricultural production potential of the
developing countries. Between 1995 and 2004, Europe alone has been able to
increase its agricultural exports by 26 per cent, much of it because of the
massive domestic subsidies it provides. Each percentage increase in exports
brings in a financial gain of US $3 billion.

On the other hand, a vast majority of the developing countries, whether in
Latin America, Africa or Asia, have in the first 10 years of WTO turned into
food importers. Millions of farmers have lost their livelihoods as a result
of cheaper imports. If the WTO has its way, and the developing countries
fail to understand the prevailing politics that drives the agriculture trade
agenda, the world will soon have two kinds of agriculture systems: the rich
countries will produce staple foods for the world¹s six billion plus people,
and developing countries will grow cash crops like tomatoes, cut flowers,
peas, sunflowers, strawberries and vegetables.

In reality, the WTO would ensure that the reins of food security are passed
into the hands of rich and developed countries -- back to the days of
³ship-to-mouth² existence. Developing countries have no one to blame but

Devinder Sharma is a New Delhi-based food and trade policy analyst. He can
be reached at: