Nothing free or fair about it

A complicated and veiled system of tariffs allows Western countries to protect their tiny farming populations while millions of farmers in developing countries are swamped under a tide of cheap imports. Such systemic hypocrisy in international trade must be confronted for the sake of the global poor.

At the inaugural ceremony of the 2002 World Food and Farming Congress, held recently in London, I found myself sandwiched at a dinner between the two poles – a former United States ambassador for agriculture to the World Trade Organisation (WTO) and Zimbabwe's permanent representative. Since this was the closest I had ever been to the trade negotiators, I summoned up the courage to ask a question of the former US ambassador: "Tell me, how do you arm-twist developing countries into submission?"

The former ambassador was taken aback. "Who gave you this idea that we arm-twist developing countries?" he asked. "This is propaganda, a figment of imagination of the international NGO community". I corrected myself, "You do not have to feel embarrassed. I am aware of how you have brought India to its knees. But tell me, how did you do it to the other two giants, China and Brazil?" Without flinching, the ex-diplomat replied, "Actually, China and Brazil are not the problem. The real problem is India".

A few days later, the US secretary of agriculture, Ann Veneman, who had earlier served on the board of Calgene, the first company to market genetically engineered foods, spoke at the International Food Policy Research Institute in Washington, DC. "Some developing countries argue that they should not have to open up markets until the developed countries first make domestic support reductions", Veneman said. "This is a formula for failure". Echoing the same brand of hypocrisy, World Bank Chief Economist Nicholas Stern, while travelling through India, while denouncing subsidies paid by rich countries to their farmers as "sin… on a very big scale", warned India against resisting the opening of its markets. "Developing countries must remove their trade barriers regardless of what is happening in the developed countries".

"There is no way we can reduce tariffs on agricultural products unless the rich nations cut their domestic support subsidies as well as export subsidies", was the response to these words of economic 'wisdom' by India's agriculture minister, Ajit Singh. He was speaking to journalists at the end of his four-day January visit to Geneva, just weeks before the 31 March deadline on agreeing to modalities of the agricultural negotiations set at Doha. These negotiations of the Doha round are taking place in special sessions of the agriculture committee. Singh met WTO Director-General Supachai Panitchpakdi and the chairman of the special sessions, Stuart Harbinson, as well as other protagonists – the US, the European Commission, members of the Cairns Group (see box) and some of the African group countries – and said that he had put forward India's position, an outcome of countrywide deliberations and discussions.

Such a stand has not just been taken by India – many other developing countries have time and again stood up against the hegemony of the so-called free trade regime. But tactical arm-twisting by the US, the European Union, Australia and Japan has always thwarted the building up of the collective power of underdeveloped countries. In the current alignment, what is significant in the context of ongoing negotiations is not what developing countries say in the absence of a collective stand, but how the EU reacts to American proposals. All other positions are reduced to insignificance. India, China and Brazil each, all large states, have histories of surrendering in the final stages of negotiations. The outcome of the ongoing agricultural negotiations, despite their serious implications for several hundred million small farmers, will not be any different.

Subsidising inequality

Developing countries must wake up to what is at stake. The 2002 US farm bill, for instance, which provides additional support of USD 180 billion over the next 10 years to the minuscule American farming population, is an indication of how unserious the industrialised countries are about meeting their obligations under the agreement on agriculture. The legislation also includes USD 15 million to be spent every year on promoting genetically modified foods. With Organisation for Economic Cooperation and Development (OECD) countries already providing their agricultural sectors with USD 311 billion in annual support.

The sheer scale of 'green box' subsidies in developed countries ensures the distortion of trade (see box). For example, the US spent USD 1.3 billion on income support for rice farmers in 1999-2000 when its total rice production was worth only USD 1.2 billion. Likewise, Japan's farmer subsidies are greater than the entire contribution made by agriculture to the nation's economy. Total transfers to Japanese agriculture amounted to 1.4 percent of GDP in 2000, even though the sector only represented 1.1 percent of GDP. Japan defends its massive agricultural subsidies along similar lines as the US and the EU, claiming that it needs to protect its industry to ensure against disruptions of international supply. Japan, the world's largest importer of food, already brings in 40 percent of its food from international sources.

The US justifies additional federal support by saying that it remains committed to reducing 'trade distorting' subsidies by 5 percent a year. The EU, which subsidises agriculture at a level comparable to the US, employs the logic of agricultural 'multi-functionality' to justify its support, much of which comes by way of direct payments. 'Multi-functionality' is agriculture subsidisation camouflaged under the garb of protecting rural landscapes and lifestyles, as well as the welfare of livestock, even if the policies are not efficient. The EU has been lobbying India to support this 'multi-functionality' argument.

Uruguay's Roberto Bissio, global coordinator of Social Watch, a social policy monitoring group, deems this argument a hoax. "With European Union subsidies it would be possible to send every European cow around the world on a business class ticket", he explains. In any case, the USD 2.7 per day per capita subsidy received by European and American cows is more than twice the average daily income of small and marginal farmers in the developing world. Such is the state of the world's disparities that OECD cows are fed according to their bodily needs while over 800 million people are malnourished in the rest of the world, a third of them in India alone. And yet dairy subsidies are justified on the grounds that they help mitigate nutritional deficiencies in the developing world.

A subsidy by any other name

All subsidies are not explicitly made. Many are so carefully interwoven into nations' agricultural policies through an approach called cross-subsidisation that it would take a special mission to uncover them, much like United Nations weapons inspectors in Iraq. A recent decision of the WTO appellate body, for instance, found the Canadian government's supply management system for the domestic market-subsidised production of export milk a trade-distorting export subsidy. This verdict, which reverses an earlier decision, offers one example of the countless hidden subsidies yet to be addressed in international fora. It is expected to drop substantially Canadian dairy exports from their current level of USD 278 million. Meanwhile, India, the world's largest producer of milk, is unable to export the product given its inability to subsidise production to overcome the low international market price. India, which has no dairy subsidies, is now forbidden from offering government support under the terms of WTO agreements.

In addition to subsidies, Europe and America have also extended refunds, a result of which is the depression of global market prices, which in turn hurts domestic producers. The EU butter export subsidy, for instance, is currently at a five-year high, and butter export refunds have risen to an amount equal to 60 percent of the EU market price. Consequently, the import of butter oil into India has increased at an annual rate of 7.7 percent. This has negatively impacted the domestic market price of ghee.

Such is the reality of cross-subsidisation that American wheat is available in Chennai at a price much lower than that of Indian grain. Food processing units in south India, where wheat cannot be grown, find it cheaper to import wheat rather than transport it in from the northern parts of the country. The curious result is that while the wheat surplus of northwest India rots in the open, traders and food processors rely on imports. Meanwhile, wheat growers in India's north suffer, and many have gone bankrupt. The government is reluctant to purchase any more wheat, thereby contributing to an unprecedented crisis in the farming community.

Food dumping has now become a global phenomenon. Consider, for instance, the British method of dumping cheap wheat on the global market. In 2000, when the global market price of wheat stood at USD 116 a tonne, wheat production costs in the United Kingdom came to USD 180 a tonne, though UK wheat sold for USD 112 a tonne. In other words, UK wheat's selling price per tonne was USD 68 lower than its production cost. As explained by former Indian ambassador to GATT, BL Das, this was accomplished through large subsidies paid by the government in the form of direct payments – wheat farmers received USD 327 per hectare in 2001 in compensation for reductions in previous price supports – and through subsidies for 'set-asides', which came to another USD 327 per hectare. In 2000, the British government paid USD 731 million for 2 million hectares of wheat and another USD 203 million to set aside another 550,000 hectares.

Producer subsidies are also being converted into processor subsidies so as to fulfil the obligations of WTO subsidy reduction commitments, at least on paper. According to one estimate, in 1995-96 the EU provided USD 48 billion in 'amber box' subsidies and another in USD 40 billion in 'blue' and 'green box' subsidies. In 2002, it juggled its figures to provide USD 34 billion in 'amber' box and USD 52 billion in 'blue' and 'green box' subsidies. Net subsidy levels did not reflect any major change and in fact remained almost constant: USD 88 billion dropped to USD 86 billion. For farmers in developing countries, such permutations and combinations do not mitigate the misery and suffering of being dependent on market forces.

Hopes dashed

Gaining access to developed country markets has proved as elusive as the delivery of other commitments. Exports from developing countries are blocked with tariffs or sanitary and phytosanitary pretexts. Developed country exports have increased in comparison to developing country exports to the industrialised world.

Such is the level of sensitivity to imports from developing countries that even minor horticultural produce is blocked. The US, for example, greeted Argentine honey with 66 percent tariffs in November 2002, effectively shutting it out of the market and dealing a serious blow to the livelihood of thousands of farmers. Argentine orange exports earlier met a similar fate. And a few years before that, cut flower exports from India to Europe attracted a hefty import duty, thereby clipping the growth of India's nascent flower industry.

Yet despite all this, there seems to be no respite. Developing country cries of foul play have fallen on deaf ears. As the president of Nigeria, Olesegun Obasanjo, recently told an international gathering in Rome, "Hopes for fairer markets have been dashed by the strategic protection given by the developed countries to their agriculture through export subsidies, tariffs, quotas and other restrictions on commodity imports from developing countries". With the political leadership of the world's majority clearly divided or too weak to stand up, the EU, the US and the Cairns group of countries continue to take advantage of global markets to the detriment of the global South.

Regardless of the impacts on the world's poor, the powerful continue to strengthen inequalities. They develop their own rules of the games, while developing countries are expected to passively submit. The US, for instance, favours the 'Swiss formula' to lower trade-distorting domestic support to an amount equal to 5 percent of the value of a country's total agricultural production. This would, in theory, reduce domestic subsidies in countries that currently have the highest levels of trade-distorting support, and would reduce EU subsidies in this category from USD 62 billion to USD 12 billion and US support from USD 19 billion to USD 10 billion. Of course, this is just on paper, while the shifting of subsidies to more suitable 'boxes' is already occurring.

The EU's proposal, which is still to be endorsed by each of the member countries, would reduce direct payments to farmers by 3 percent a year up to a total reduction of 20 percent, leading to estimated savings of between USD 500 million and USD 600 million by 2005. The proposal also aims to cap direct payments to individual farms at USD 300,000. Many will say that the EU proposal is a step ahead and argue that while the phase-out is in progress developing countries should open up. This of course ignores the fact that the direct payment proposed by the EU as the upper limit is more than the annual income of more than that of 1000 farming families in India's hinterland.

The Cairns group has called for tighter definitions of eligible 'green box' programmes. These food-exporting countries have been fighting for the elimination of farm subsidies and the unconditional opening of markets. But some food-exporting countries such as Indonesia, also part of the Cairns group, have serious reservations about reducing tariffs that would increase imports and effectively price domestic producers out of the market. Such a move would prevent the country from feeding its population of 200 million through domestic production. Indonesia recently faced a glut of cheap rice imported from Vietnam at the same time its own producers could not sell stocks. India is also under tremendous pressure to join the Cairns group, not realising that what the country requires is a food management system utilising its abundant manpower and natural resources to build a self-reliant food economy.

The various proposals advanced by developed countries share one underlying aim – how to protect their own food industries. The very survival of millions of small and marginal farming communities in the South is not even a remote concern to them. The phasing out and removal of tariffs has already flooded 14 countries with cheaper imports, with increases ranging from 30 percent in Senegal to 168 percent in India (as compared between 1990-94 and 1995-98). Food import costs have doubled for two giants, India and Brazil, and increased by 50 to 100 percent for Bangladesh, Morocco, Pakistan, Peru and Thailand. When one considers that importing food is equivalent to importing unemployment, increasing imports contributes to the destruction of agriculture-based economies. Food imports have a strong negative impact on the livelihoods of small and marginal farmers in South, a fact that is widely acknowledged but commonly ignored.

A strategy for the South

Developing countries cannot afford to be silent spectators to this process. Globalisation has to be on equal terms, based on principles of equity and justice and not on economic might. If Western countries can protect their agriculture sectors, there is no reason why developing countries should feel shy about doing the same? Instead of succumbing to pressure tactics that accompany the proposed 'development box' package that help to minimise food security damages while protecting Western agriculture subsidies, a collective stand based on the following two planks appears to be the only way to protect agriculture, the mainstay of developing economies:

  • 'Zero-tolerance' on agricultural subsidies: Developing countries should make it categorically clear that negotiations will move ahead only when subsidies under all 'boxes' are removed. Any agreement that does not tackle Western subsidies will wreak havoc on developing country agriculture. Linking the elimination of quantitative restrictions with subsidy elimination is the only safeguard that can protect developing countries.
  • 'Agriculture shields' for developing countries: Following Mexico's example of an 'agriculture shield' to protect Mexican farmers from unfair competition with US crops, developing countries should unilaterally adopt similar approaches. The Mexican plan involves compensatory tariffs to balance US goods that enter duty-free. Such actions comply with WTO policies allowing nations to take protective steps when the viability of agricultural sectors is threatened by foreign competition.

The Cairns group

Founded in 1986, the Cairns group is an alliance of 17 food-exporting countries collectively responsible for one-third of global agricultural exports. It has pushed for the liberalisation of international rules governing the export of agriculture, and was instrumental in placing agriculture on the Uruguay round's agenda. The Cairns group countries are Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, the Philippines, South Africa, Thailand and Uruguay.

Shading subsidies

Under the terms of the WTO's Uruguay round, certain categories of agricultural subsidies are allowed, provided that they fall into one of three 'boxes' – green, blue or amber. Green box exemptions are subsidies that are deemed to have little potential for distorting production or trade. There are 11 sub-categories within this exemption, but all green box allowances must be government-funded programmes (outlays or forgone revenue) that do not involve transfers from consumers or have the effect of providing price support to producers. Blue box exemptions cover direct-payment production-limiting programmes and must satisfy one of three secondary requirements: be linked to fixed areas or yields; be made on 85 percent or less of the base level of production; or, be based on a fixed number of livestock head. Finally, the amber box category, also known as the de minimus clause, allows certain subsidies provided that they do not cumulatively exceed a low threshold. In this category, developed countries may provide product-specific domestic support if it does not exceed five percent of the country's "total value of production of a basic agricultural product during the relevant year", as well as provide non-product-specific domestic support if it does not exceed five percent of a member state's total agricultural production. Subsidies that do not fall in a green, blue or amber box are calculated toward the state's total allowed subsidies under WTO agreements.

Loading content, please wait...
Himal Southasian