WTO and Agriculture -
The Great Trade RobberyBy Devinder Sharma
15 September, 2003
As expected, the United States and the European Union have arrived at a new accord, just ahead of the fifth WTO Ministerial at Cancun, which in letter and spirit lays out a detailed road map for what can be called as the second phase of the great trade robbery.
The new framework - a "common vision" rather than a detailed plan - is aimed at further destroying whatever remains of the strong foundations of food self-sufficiency in some of the developing countries already wilting under the compound impact of the Agreement on Agriculture (AoA). For the small farmers and giant agribusiness in North America, Europe and the Pacific, it will however be business as usual. Rich countries subsidise agribusiness by allowing them to buy very cheap, with the government then making up some of the differences with direct payment to farmers.
So much so that the recipients of the US agricultural subsidies in 2001 also included Ted Turner and David Rockefeller - no wonder, the CNN continues to stifle the voice of the developing countries farmers. The richest man in the United Kingdom, the Duke of Westminster, who owns about 55,000 hectares of farm estates, receives an average subsidy of 300,000 pound sterlings as direct payments, and in addition gets 350,000 pounds a year for the 1,200 dairy cows he owns.
It certainly is an unequal world, and perhaps the most debasing and demeaning of all the world's inequalities is the manner in which the cattle in the rich countries are pampered at the cost of several hundred million farmers in the developing world. When I first compared the life of the western cow with that of the Third World farmer, I didn't realize that this would hit the sensibilities of at least some of the economists and policy makers. It has now been worked out that the EU provides a daily subsidy of US $ 2.7 per cow, and Japan provides three times more at US $ 8, whereas half of India's 1000 million people live on less than $ 2 a day.
Irrespective of the stark inequalities, the new agreement throws a stronger protective ring around the domestic producers in the richest trading block - Organisation for Economic Cooperation and Development (OECD). Unmindful of the negative consequences inflicted with impunity, the highway robbers are getting ready once again. Cancun provides them a perfect playground to arm-twist the developing countries into submission.
But first, let us get a glimpse of the extent of exploitation that the WTO has already inflicted - through the first phase of trade robbery -- on the poor and vulnerable ever since the Magna Carta for hunger, food insecurity and destitution was unleashed in January 1995. In the Philippines, agricultural export earnings were expected to increase by billions of pesos a year after 1994, generating 500,000 additional jobs a year in the Philippines. Instead, traditional exports such as coconut, abaca and sugar have lost markets. Corn production suffered significant negative growth between 1994-2000, partly because of cheaper subsidized grains. With incomes falling, the agricultural sector had lost an estimated 710,000 jobs, and another 2 million by the year 2000.
Trade liberalization has already exposed developing country farmers to ruinous competition, driving down prices, undermining rural wages and exacerbating unemployment. In the Philippines, opening up of corn market in 1997 reduced corn prices by one-third. At that time, US corn growers were receiving US $ 20,000 a year on average in subsidies, while Filipino farmers in Mindanao had average income levels of US $ 365. Between 1993-2000, cheap corn imports from US into Mexico increased eighteen times, leading to accelerated migration from rural areas to urban centres.
In Central America -- Colombia, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua - the price of coffee beans have fallen to just 25 per cent of its level in 1960, and the region lost an estimated US $ 713 million in coffee revenues in 2001. In these countries, traditionally dependent upon coffee exports, over 170,000 jobs were lost the same year with the loss in wages computed at US $ 140 million. The negative impact was also felt in sub-Saharan Africa, where Ethiopia and Uganda reported huge losses in export revenues. In 2000-01, Uganda exported roughly the same volume, but it earned the country $ 110 million, a steep drop from $ 433 million that it notched five years earlier in 1994-95. Ethiopia reported the export revenues dropping from US $ 257 million to US $ 149 million between 1999-2000. Ironically, in January 2002, the EU and USAID warned of increased poverty and food insecurity in Ethiopia not realizing that much of the fault rests with their own policies.
In Vietnam's Dak Lak province, farmers who were solely dependent upon coffee are now categorized as 'pre-starvation'. In India, coffee plantations have laid off over 25 per cent of the workers in the southern provinces of Karnataka and Tamil Nadu. In Brazil, low coffee returns have resulted in increased unemployment and hunger. In Honduras, such has been the terrible impact that the World Food Programme reported in March 2002 that the coffee crisis, coupled with prevailing drought, had left some 30,000 farmers in the hunger trap, with hundreds of children so malnourished that they needed to be hospitalised.
In 2001, the 25,000 US cotton growers received roughly $3.9 billion in subsidy payments, for producing a cotton crop that was worth only US$ 3 billion at world market prices (One Arkansas cotton grower received US$ 6 million, equal to the combined annual earnings of 25,000 cotton farmers in Mali). It's also more than the gross domestic product of several African countries and three times the amount the US spends on aid to half a billion Africans living in poverty. In 2002, direct financial assistance by a number of exporting countries, including China, European Union and the US, to the tune of 73 per cent of the world cotton production, destroyed millions of livelihoods in West African countries (Benin, Burkina Faso, Mali, and Chad). India and Pakistan too have been forced to lower import duties, allowing a surge of cotton imports thereby pushing farmers out.
In the dairy sector, the EU subsidized exports have hit the dairy industry in Brazil, Jamaica and India. While the Jamaican dairy producers have time and again split milk onto the streets, the Indian dairy industry too complains of export dumping. In 1999-2000, India imported over 130,000 tonnes of EU's highly subsidized skimmed milk powder. This was the result of Euro 5 million export subsidies that were provided, approximately 10,000 times the annual income of a small-scale milk producer. Butter export subsidy paid by the EU, for instance, is currently at a five-year high and butter export refunds have risen to an equivalent of 60 per cent of the EU market price. Consequently, butter oil import into India has grown at an average rate of 7.7 per cent annually. This trend has already had a dampening effect on prices of ghee in the domestic market. Ironically, India is the biggest producer of milk in the world, and does not provide any subsidy for the dairy sector.
Indonesia was rated among the top ten exporters of rice before the WTO came into effect. Three years later, in 1998, Indonesia had emerged as the world's largest importer of rice. In India, the biggest producer of vegetables in the world, the import of vegetables has almost doubled in just one year - from Rs 92.8 million in 2001-02 to Rs 171 million in 2002-03. Far away in Peru, food imports increased dramatically in the wake of liberalization. Food imports now account for 40 per cent of the total national food consumption. Wheat imports doubled in the 1990s, imports of maize overtook domestic production, and milk imports rose three times in the first half of the previous decade, playing havoc with Peruvian farmers
Looks shocking, but this is merely a peep into the destruction wrought by the 'disagreement' on agriculture. Everyday, thousands of farmers and the rural people in the majority world - without land and adequate livelihoods - constituting a reservoir of frustration and disaffection, trudge to the cities, their abject poverty contrasting vividly with the affluence of the urban centres. These are the victims - in fact, the first generation of the affected -- of the great trade robbery. These are the hapless sufferers, who are being fed a daily dose of promises - increase in poverty in the short-run is a price that has to be paid for long-term economic growth.
The complete impact on human lives - women and children in particular - and the resulting loss in livelihood security and thereby the accelerated march towards hunger and destitution cannot be easily quantified. Surging food imports have hit farm incomes and had severe employment effects in many developing countries. Unable to compete with cheap food imports, and in the absence of any adequate protection measures, income and livelihood losses have hurt women and poor farmers the most.
Farmers in the developing world have suddenly become the children of a lesser god. They are the neo-poor.
Through a variety of instruments, the rich countries have ensured complete protectionism. Trade policies therefore have remained highly discriminatory against the developing country farmers. Such is the extent of protection, that the benevolence OECD exhibits through development aid to all countries - totalling US $ 52 billion - dwarfs before the monumental agricultural subsidies of US $ 311 billion that these countries provided to its own agriculture in 2001. In reality, you don't even give by one hand to take back with the other. Rich countries effectively use development aid to convince the domestic audiences of their generosity towards human suffering, in essence using aid as the human face for 'ambitious' one-way trade - from the OECD to the rest of the world.
The colourful band of boxes - green box, blue box and amber box - have come in handy for the rich countries to protect its subsidies to agriculture, and at the same time dump the surpluses all over the world. Considering that the world commodity prices are far from adequate anywhere to provide them with a living, these subsidies are actually the cause of excessive supplies in the world markets, and thus resulting in low prevailing world markets. Still further, US is permitted under AoA to provide $ 363 million in export subsidies for wheat and wheat flour, and the EU can limit it to $ 1.4 billion a year. At the same time, the US incurs annually $ 478 million under its Export Enhancement Programme (EEP), which is not being subject to any reduction commitments.
With the availability of all such subsidies, agribusiness companies find it much easier and economical to export. Export credits, used primarily by the US, and not counted as export subsidies, doubled in just one year to reach US $ 5.9 billion in 1998. The export subsidies and credits are therefore cornered by the food exporting companies. In the US, for instance, more than 80 per cent of the corn exports is handled by three firms: Cargill, ADM and Zen Noh. The level of dumping by the US alone hovers around 40 per cent for wheat, 30 per cent for soybeans, 25 to 30 per cent for corn and 57 per cent for cotton. Further, each tonne of wheat and sugar that the United Kingdom sells on international market is priced 40 to 60 per cent lower than the cost of production.
The shocking levels of food dumping and its little understood but horrendous impact on the farming sector in the developing countries is the result of clever manipulations at the WTO. The US and EU were successful in ensuring that some subsidies -and that included direct payments -- have little or no impact on production levels and so have little or no impact on trade. Using sophisticated models and taking advantage of the un-preparedness of the developing country negotiators, they devised a complicated set of rules that termed only 'amber box' subsidies as 'trade distorting' that needs to be cut. As it turned out, these were the type of subsidies that the poor countries were also using.
On the other hand, 'green box' and 'blue box' subsidies categorise the farm support that only the rich countries were providing, and which the developing countries are not in a position to afford. Subsequently, in July 2002, the US proposed significant cuts in 'trade distorting' domestic support for all products and trade partners, with a ceiling of five per cent of the value of agricultural production for industrial countries and 10 per cent for developing countries. This however does not mean that the US will make any major cuts in its farm subsidy support, despite the US Farm Security and Rural Investment Act 2002, which provides for US $ 180 billion in subsidies to agriculture for the next ten years, with more than a third coming in the first three years.
New EU Common Agricultural Policy reform proposals that have been announced prior to the Cancun WTO Ministerial have also made no attempt to make radical changes in reduction commitments. Moving on US lines, it has shifted most of the 'blue box' subsidies to 'green box'. European agriculture will continue to be subsidised to the tune of Euro 43 billion for another decade, and that amount will increase further when the new members join in. Like a magician, both the US and EU have managed to juggle the farm support from one box to another without making any significant commitments. The magical trick is now being used to create an illusion of sincerity of the rich towards 'free' trade.
EU Trade Commissioner, Pascal Lamy, had made the 'hidden' intentions abundantly clear during his quick visit to India soon after the Doha Ministerial. "Who gave you the impression that we are going to reduce agriculture subsidies? Let me make it clear that EU will not be reducing farm subsidies in the years to come except for what has been agreed upon. I am committed to keep my seven million farmers on the farm," he told a group of civil society representatives. "And how will India gain if I reduce subsidies as a result of which the number of farmers in Europe climbs down to three million?" he asked.
When asked how will India protect the livelihood of its 600 million farmers if EU does not eliminate farm subsidies, he quipped: "That's for your government to decide".
As if the massive subsidies are not enough, developed countries have used high tariffs to successfully block imports from developing countries. They have used special safeguards (SSG), used only by 38 rich countries so far, to restrict imports from developing countries. Developed countries took advantage of this flexibility by reserving the right to use the SSG for a large number of products: Canada reserves the right to use SSG 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. On the other hand, only 22 developing countries can use SSG. A majority of the developing countries, whose trade in agricultural products take place under a tariff only regime, have no access to these instruments.
Interestingly, there is a talk of phasing out the SSG provisions in the next 5 to 7 years. By that time, the developing countries would have been forced to open up their markets still further with devastating impacts. The markets of the developed countries will however remain protected for the next seven years.
At the same time, these countries have managed to fulfil the technical requirements for tariff cuts under AoA without any meaningful reductions. Technically speaking the reductions in tariff cuts are in place, but in reality they have defied the letter and spirit of the agreement. Although the US, EU, Japan and Canada maintain tariff peaks of 350 to 900 per cent on food products such as sugar, rice, dairy products, meat, fruits, vegetables and fish the thrust of the ongoing negotiations remain on pierce opening the developing country markets to more subsidised exports.
The United States, for instance, is in a neck-to-neck race with the European Union on retaining the supremacy over agriculture trade. While steadily expanding foreign demand -- brought on by income gains, trade liberalization, and changes in global market structures -- have helped American exports double over the past 15 years to $53.5 billion estimated for 2002, its market share had dropped from 24 per cent of global agricultural trade in 1981 to 18 per cent in 2001. The EU, on the other hand, has increased its performance from 13.5 per cent to 17 per cent, in the consecutive period.
"Losing six points over 20 years may not sound like much, but every percentage point loss of market share amounts to $3 billion in lost export sales and a reduction of $750 million in agricultural income. But, the good news is that every percentage point we can recover will add $3 billion in export sales and $750 million to agricultural income each year," Mattie Sharpless, the then Acting Administrator, Foreign Agriculture Service of the US Department of Agriculture had told the Senate Agriculture Committee in 2002.
"Dollar for dollar, America export more meat than steel, more corn than cosmetics, more wheat than coal, more bakery products than motorboats, and more fruits and vegetables than household appliances," Sharpless had said, adding that agriculture is one of the few sectors of the US economy that consistently contributes a surplus to its trade balance. In fact, the US projections for 2002-03 were that 53 percent of its wheat crop, 47 percent of cotton, 42 percent of rice, 35 percent of soybeans, and 21 percent of corn to be exported. This has only been made possible by the heavy subsidies and the removal of trade barriers or QRs by the developing countries.
The US, therefore, has adopted an aggressive posture. After ensuring that the developing countries are made to conform to the WTO obligations of phasing out or lifting of quantitative restrictions that allow easy penetration of the American farm commodities and the processed products, it is now preparing for the final assault. The new policy is directed at the 600 million "new consumers" in Asia and Southeast Asia and another 400 million in Latin America and Central America. It also meets "an eye for the eye" with the EU's Common Agricultural Policy. And in this 'clash of civilisations' the battle is primarily between the developed and the developing countries, between industrial agriculture and food security, between value-added functional foods and growing hunger.
Keeping the economic interests of the developed countries in mind, the chair of the agricultural negotiations, Stuart Harbinson, had proposed a compromise formula that suggested creation of two new instruments: 'special products' and 'special safeguard mechanisms'. For crops which are crucial for food security needs, the proposal is to put them in the SP category for which the tariff reduction should on an average be of 10 per cent with a minimum reduction rate per tariff line of five percent. For the remaining products, tariff reduction should be between 25 to 40 per cent. The US-EU proposal however does not make a mention of the special products. The general feeling is that developing countries do require special safeguard measures that act as a partial protection rather than they be allowed a more permanent feature of resorting to 'special products'.
For all practical purposes, the concept of 'strategic products' or 'special products' is merely a proxy for the 'development box', a proposal that will eventually turn out to be more damming if implemented. Moreover, the negotiations are going to be centred around the number of 'special products' that a country can claim. In other words, the debate will very conveniently shift from the more contentious issue of agricultural subsidies in the west. The AoA does not realize that production of crops and its imports into developing countries cannot be equated with industrial production. What the developing countries need is a trading system that recognises their specific needs of food security and rural development based on the principle of production by the masses rather than production for the masses.
The hypocrisy of the developed countries has been echoed by the World Bank Chief Economist Nicholas Stern, while travelling through India recently, denounced subsidies paid by rich countries to their farmers as "sin ...on a very big scale" but warned India against any attempts to resist opening its markets. "Developing countries must remove their trade barriers regardless of what is happening in the developed countries." No wonder, while the negotiation continues and the developing countries are kept busy with diversionary tactics like 'special products', agricultural exports from the OECD countries continue to rise. Between 1970 and 2000, France increased its share from 5.7 per cent to 8.1 per cent, Germany from 2.6 per cent to 5.9 per cent and United Kingdom from 2.7 per cent to 4.1 per cent.
A true reform in agriculture is only possible when the global community accepts the guiding principle that food for all is an international obligation. It can only be achieved when the need for national food self-sufficiency becomes the cornerstone of the AoA. It can only be put into practice when the developed and the developing countries refrain from a battle of food supremacy to reorient efforts to bring equality, justice and human compassion in addressing the mankind's biggest scourge - chronic hunger and acute malnutrition.
Developing countries therefore cannot afford to be a silent spectator. If the rich industrialized countries can protect their agriculture, and take an aggressive approach, developing countries should not feel shy in doing the same. Instead of succumbing to pressure tactics that comes along with olive branch of a 'development box' or 'special products' that helps in partially protecting agriculture, the entire effort should be to demand the abolition of agricultural subsidies in the OECD countries. A collective stand based on the following three planks is the only route for developing countries to protect agriculture, the mainstay of their economies:
" "Zero-tolerance" on agricultural subsidies: Developing countries should make it categorically clear that the negotiations will move ahead only when the subsidies (under all 'boxes') are removed. The Agreement on Agriculture should wait till the subsidies in the west are grounded. Any agreement without the subsidies being removed will play havoc with developing country agriculture.
" Restoration of Quantitative Restrictions: Developing countries should demand restoration of quantitative restrictions (and special safeguard measures for those countries which did not follow the QR route). In fact, the removal of subsidies should be linked with the removal of quantitative restrictions. That alone will provide the necessary safeguard for developing country's agriculture and food security.
" Multilateral Agreement Against Hunger: Among the new issues to be introduced at Cancun, the developing countries need to strive for the inclusion of a Multilateral Agreement Against Hunger. This should be based on the guiding principle of the right to food and should form the basis for all future negotiations. Such a multilateral agreement would ensure that countries will have the right to take adequate safeguard measures if their commitment towards the WTO obligations leads to more hunger and poverty.
(Devinder Sharma is a food and trade policy analyst. Among his recent works include two books: GATT to WTO: Seeds of Despair and In the Famine Trap. He also chairs the New Delhi-based Forum for Biotechnology & Food Security. Email: [email protected] )