People's Democracy

The Battle Over Agricultural Trade

C P Chandrasekhar

SIGNS are that the ongoing effort to fashion a new Doha Round agreement on further freeing world trade would not be completed by the deadlines set at Doha. This is not because of the failure to persuade the developing countries to accept such a Round even though their experience with the Uruguay Round Agreement has been disappointing to say the least. It is because the developed countries themselves are unable to come to some agreement on the what should be done with the regime of rules and regulations governing world agricultural trade. 

FACTORS IMPOSING URGENCY 

Initiated in early 2000, under the mandate provided by the Uruguay Round’s Agreement on Agriculture, negotiations for further liberalising global agricultural trade have been underway for close to three years now. Three factors have now imposed a degree of urgency on that process.

First, the Doha Ministerial Declaration had set March 31, 2003 as the deadline for working out numerical targets, formulas and other “modalities” through which countries can frame their liberalisation commitments as part of a new agreement. That deadline is approaching and late January witnessed more discussions in Geneva to complete the “modalities” stage in time. This is required to ensure that the Doha commitment to submit final proposals before the Cancun Ministerial meeting (scheduled for September 2003) is met.

Second, the Doha declaration made agricultural negotiations one part of a ‘single undertaking’ to be completed by January 1, 2005. That is, in a take ‘all-or-nothing’ scheme, countries had to arrive at and be bound by agreements in all areas in which negotiations were to be initiated in the new round. This means that if agreement is not worked out with regard to agriculture, there would be no change in the multilateral trade regime governing industry, services or related areas either and no progress in new areas, such as competition policy, foreign investment and public procurement, all of which are crucial to the economic agenda of the developed countries.

Third, it is now becoming clear that even more than last time, forging an agreement in the agricultural area is bound to prove extremely difficult, since disagreement prevails within the camp of the developed countries itself.

AGENDA OFLIBERALISATION

Some countries, especially the Cairns group of exporting countries (Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, Philippines, South Africa, Thailand and Uruguay) have proposed an ambitious agenda of liberalisation in the agricultural area. Tariffs are to be reduced sharply, using the “Swiss formula”, which would ensure that the proportionate reduction in tariffs in the next Round would be larger, greater the higher is the currently prevailing bound or applied tariff in a country. The formula arrives at the level to which tariffs in a country would be reduced by multiplying the existing (bound or applied) tariff by a numerical factor, and dividing the result by the sum of the current tariff rate and the numerical factor. The factor for developed countries proposed by the Cairns group is 25. Thus, a country with a tariff rate of 100 per cent on a particular product would have to reduce the rate to 20 per cent (2500/125), whereas a country with a 75 per cent tariff rate would have to reduce it proportionately less to 18.75 per cent (1875/100). Further, in keeping with the Special and Differential treatment requirement, the factor for the developing countries is proposed at 50, making their reduction requirements much smaller (to 33.3 and 30 per cent respectively in the case of a 100 and 75 per cent tariff).

Besides tariff reduction, the Cairns group has called for an enhancement of the minimum import levels of particular commodities by using lower tariffs (tariff rate quotas), argued for a sharp reduction the aggregate support that can be provided using impermissible support measures, supported the scrapping of the so-called Blue Box measures fashioned during the Uruguay Round to appease the EU countries, and recommended stricter guidelines for assessing whether particular measures of support fall under fully permissible Green Box provisions.

DEADLINE MAY NOT MATERIALISE

These ambitious demands notwithstanding, it is clear that an agreement on modalities in time for the March 31 deadline is unlikely to materialise. Around the time of the January 22-24 meetings of the agricultural negotiators, the European Union Agricultural Commissioner Franz Fischler made it clear that that the late March deadline will be missed. Fischler reportedly declared that the March 31 deadline set at Doha was for the chairman of the agricultural negotiating group to present his proposal for modalities and that did “not mean automatically that the next day all members of the WTO will agree to that proposal.” In any case, with discussions on the reform of the EU’s Common Agricultural Policy expected to continue well into the summer, the EC does not yet have a fully formulated position to adopt in the course of the negotiations. Thus, the March 31 deadline cannot be met.

Till such time as these issues are cleared it is not at all certain that an agreement on agriculture, which is a prerequisite for the completion of the ‘Doha Round’ of trade negotiations, can be ensured by 2005. Those in a hurry to get to that goal are in for a disappointment. But that prospect is not new. WTO members have already missed a December deadline for an agreement on patents and the supply of essential commodities, because of US intransigence. They have also missed the deadline to work out modalities for special and differential treatment of developing countries.

In the media’s blame game seeking to identify the culprit holding up progress towards an agreement on agriculture, once again the lead contender is the European Union. The grounds for this focus on the EU are, however, shaky. The United States too offers substantial support to its farmers, and has significantly hiked this support through the Farm Security and Rural Investment Act of 2002. Outlays on farm programmes in the US, principally income and price support programmes, averaged more than 15 billion dollars a year between 1996 and 2002, and had touched a high of 32.3 billion dollars in 2000. The 2002 Act promises on paper to keep this high support going, by authorising expenditures totalling 118.5 billion dollars over a six-year period ending 2007. The actual figure is expected to be much higher. It is well known that this support goes disproportionately in favour of a few large commercial farms, which are the ones accounting for a majority of supplies to the US and international markets.

In as much as such support, even if provided in the form of direct income payments “decoupled” from actual production, indirectly affects farmers’ production and pricing decisions, they influence availability and prices in world markets. That is they do distort world trade, even if the UR round agreement claims they do not. What the 2002 Farm Act indicates is that the US has no intention of cutting back on such support, and is unlikely to accede to any agreement that warrants such a cut. The reason why this implicit stance of the US does not lead to its identification as a bottleneck in the current negotiations on agriculture is that almost all of this support is in the form of Green Box measures, or measures of support that are acceptable under the Uruguay Round agreement because they are ostensibly “non-trade distorting”.

THE US PROPOSALS

Not surprisingly, the US proposals advanced in the course of the work programme that began in March 2002, combine (i) a plea for export subsidy abolition; (ii) recommendations for increased market access through quota abolition, tariff reduction and enhanced tariff-rate quotas (or a minimum level of imports of each commodity that needs to be ensured with lower tariffs); and (iii) a case for either doing away with domestic support that does not fall in the Green Box category or the substitution of such support with outlays on new Green Box measures. That is the US proposals are clearly not in the direction of reducing state support for agriculture, but of manipulating the agricultural support regime in the direction of what was defined to be non-trade distorting in the course of the Uruguay Round.

Seen in this background the new stand on agricultural support still being discussed among EU members is by no means bizarre. The European Commission’s recently released proposals for reform of the Common Agricultural Policy (CAP) do not promise any cut in total spending. But they do not point to any substantial increase either, since the EU leaders agreed last year to a 1 per cent ceiling on annual increases in the farm budget. In addition, the proposals currently being discussed make an effort to link subsidies less directly with production, thereby rendering them non-trade distorting.

The difficulty the EU faces is that of mooting and then winning agreement among its members on doing away with export subsidies and on making a complete transition to Green Box measures. Since the support afforded to agriculture in EU countries is large and multifarious, a complete transition is not easy to achieve. France, for example, which receives more money from the CAP than any other country is vehemently opposed to that transition, with vocal support from President Chirac. As a result the EU in its proposals submitted in December to the agricultural negotiations committee has called for retaining the Blue Box and for continuing with the Peace Clause, which protected Blue Box measures from being challenged during the implementation period of the Uruguay Round. That is the EU wants the right to openly and transparently support and protect its farmers, and wants adequate elbowroom within the agreement to do so. But the fact that it is unwilling to go the US way, by opting for less transparent support measures that have been defined as acceptable helps those who paint it as the stumbling block on the road to free trade.

MANOEUVRES DURING THE URUGUAY ROUND

The reason for the peculiar situation is that through the manoeuvres made during the Uruguay Round, especially the famous Blair House accord, the rich nations managed to obtain Cairns group concurrence and developing country support for an agreement that provided inadequate market access and little reduction in protection in the developed countries in the agricultural area. This they did by holding out the threat of trade chaos if no agreement was reached and by promising (i) that this was an interim arrangement which would be assessed starting a year before the completion of the implementation period; (ii) that the worst form of domestic support such as the blue box measures would be dropped at that point; and (iii) liberalisation would be further intensified starting in 2000.

Unfortunately, not only has the experience with the implementation of the not-so-liberal Uruguay Round Agreement on Agriculture been wanting on many counts, but there is strong pressure to continue with the manoeuvring by dressing up all support measures in Green, as is the case with the US, or by just refusing to meet the Uruguay Round commitments, as is true of the EU. This makes it extremely difficult to once more win Cairns group concurrence and developing country support for a new Agreement on Agriculture, which offers merely a small advance along an older protectionist route.

Unfortunately for the developed countries they had gone for the “single undertaking”, all-or-nothing strategy with the hope that they can use small concessions in areas like agriculture, drug patents and Special and Differential treatment to win major battles in the areas of competition policy, foreign investment and public procurement. But with no agreement among them even on those concessions and an agreement on agriculture proving a stumbling block, those visions born of greed are threatening to blur. The threat to the forces of corporate globalisation comes not just from the anti-globalisation movement outside. An important enemy seems to lie within, as well.