WTO ACCORD THREATENS SOUTH'S FOOD SECURITY

8:08 AM Feb 13, 1995

WTO ACCORD THREATENS SOUTH'S FOOD SECURITY
Geneva 10 Feb (Chakravarthi Raghavan) -- The Uruguay Round's final accord on agriculture is far tougher on developing countries than on the developed and the ability of the latter (particularly the US and the EU) to dump their excess production on world markets will endanger the livelihood of small-scale farmers in North and South, and endanger the food security and environment of the developing world.

In presenting this conclusion in a new report, the World Wide for Nature (WWF) has called on the World Trade Organization to take steps to prohibit export dumping of foodstuffs, review the agricultural package to identify countries that have been made vulnerable to export dumping, all developing countries to impose restrictions on some imports in order to promote sustainable agricultural production and reduced the farm subsidies of industrialized countries in a socially and ecologically responsible manner.

The WWF study has been done by Kevin Watkins and Michael Windfuhr.

The last minute compromises of the EU and the United States, incorporated into the Uruguay Agreement in December 1993, the study says, the cuts on domestic and export subsidies on industrialized country agriculture have been "far less dramatic" than expected.

As a result northern farmers can persist in farming intensively, produce too much food and dump the excess on developing nations who have lost the right to use non-tariff barriers to protect their domestic agricultural markets.

Two-thirds of the workforce in the developing world is engaged in agriculture and their livelihoods is now in jeopardy, the study warns.

The Uruguay Round negotiations on agriculture, and the thrust for "reforms" came against the background of the slump in world agricultural prices in the 1980s (the most protracted since the 1980s), brought about by the increased productions (through subsidies) in the US and Europe in the face of stagnant world demand. By 1990, the total Producer Subsidy Equivalent in OECD countries was $180 billion or almost half the total farm income. In the EU, by mid-1980s, the cost of storing the structural surpluses and transmitting them to the world markets absorbed around half of the EU's CAP budget.

The growing export dependence of agriculture in both the US and EU is the result of sustained increases in productivity, underpinned by price support for virtually unlimited output, giving farmers a permanent incentive to expand and intensify production. It has resulted in supply outstripping demand, environmentally-damaging land use and unequal distribution of support between large and small farmers.

Over 80% of EU's CAP price support goes to the largest 20% of producers, resulting in windfall gains for regions such as East Anglia in the UK and the Paris Basin in France. In contrast small-holders, in UK for example, have seen their livelihoods undermined.

The surplus production in the North, and the competitive export dumping by the US and EU have had negative impacts for trade and food security interests of the developing countries.

One of the most affected by the competitive dumping policies of the US and EU has been Argentina which saw exporting prices fall by 40 percent between 1980-1987 in cereals and oilseeds, reducing its foreign exchange earnings by three billion or half of its external debt.

Thailand was another which saw rice export prices slashed from $230 per tonne to $170 per tonne because of US subsidised rice exports.

The EU's dumping of sugar on world markets, coupled with contraction of import quotas on the US had slashed world market prices in sugar, causing widespread poverty and unemployment in the Dominican Republic and the Philippines.

The dumped exporting policies of the US and EU also resulted in increased imports of wheat and rice into sub-Saharan Africa while production of local food staples (cassava, sorghum and millet) declined. There was a loss of food self-sufficiency, and dependence on imports, in sub-Saharan Africa, parts of Central America and the Andean countries.

Problems of agriculture in the South were compounded by the policies of governments discriminating against domestic agriculture.

Viewing the Uruguay Round agreements against this background, the WWF study says that the 20% cut in domestic support (measured against the 1986-1988 AMS support) under the agreement, and the last minute compromise brokered by the US and EU, would prove irrelevant to future production trends.

According to the US Department of Agriculture, the 1990 Farm Act has already reduced subsidies to the levels required by the accord. The EU Commission also says that CAP restructuring has achieved similar results.

The exemption provisions to national subsidies, changes in the 'green box' introduced at the final phase, have expanded the parameters of the green box to exclude "direct payments under production-limiting programmes" from the commitment to reduce domestic support.

The EU's compensation payments, closely approximating to the US deficiency payments, do not conform to the original role envisaged for the green box and are partially delinked production subsidies based on the production potential of farms.

"Since part of the production they support will be destined for world markets, it is difficult to avoid the conclusion that they include an export subsidy component," the authors of the study stress, adding, "despite this, the 'peace clause' negotiated as part of the final agreement between the US and EU mean that the legitimacy of the CAP subsidies cannot be challenged in the GATT (WTO) until 2003 at the earliest".

Other aspects of the agreement will further reduce its effectiveness in reducing structural overproduction and export dumping, Watkins and Windfuhr argue.

The flexibility provisions gained by the EU, the ability to use average of 1991-1992 export levels (where they exceed the 1986-1990 levels) as the starting point for the volume cuts in subsidised exports, mean the EU will be able to export some 8 million tonnes more of cereals and 360000 tonnes of beef, while the US will be able to export seven million tonnes more of wheat.

"For practical purposes, the final agreement has institutionalized and legitimized export dumping through direct payments," the study says.

While it is too early to judge the effects on output of the 1992 CAP reforms, it is doubtful that they will reduce production. US set asides have been notoriously inefficient in reducing production, and the pattern may be repeated in the EU -- where in 1993 some 12% of cereal land was removed from cultivation, but reduced output only by three percent.

Projections of wheat production in 1994 suggest UK and French production increasing by respectively three and four percent. Compensatory payments offer an obvious mechanism for intensifying agricultural production to offset price cuts.

"If (EU's) productivity growth is not reduced to less than half the current annual two percent increase, the EU will not be able to meet even the modest export reduction targets envisaged in the GATT agreement."

In the absence of increased land set aside -- unlikely given the recent EC approval for the reduction of set aside from 15 to 13 percent -- the EU may in fact be forced to export a surplus in excess of its GATT quota. It would be able to do so "by reducing internal prices closer to world market levels, and transferring the effective export subsidy component onto the compensation payments to farmers."

This would drive down world prices and, if past practice be guide to the future, elicit an aggressive response from the US in terms of its own support for exports. The EU's move would also face challenges in the GATT (since the peace clause applies only to 1992 levels of payment). The only other constraint on the EU might be its domestic budgetary one.

Against this background, the authors say, it should come as no surprise that the Uruguay Round may at best have a modest effect in stabilizing world prices at higher levels and the price increases in world market will be very modest. The most recent estimates suggest that wheat and maize prices may rise by one percent a year over the lifetime of the agreement, beef prices by 1.5 percent and sugar prices by 3-5 percent over the next six years.

"These modest scale of price increases, predicted by even the most optimistic estimates, point to the fundamental failure of the Uruguay Round to address the interlocking problems of structural overproduction and export dumping," the study underlines.

The study says that while in theory the Uruguay Round anti-dumping rules could be used by exporting developing countries (against anti-dumping actions of the North), the tightening of the rules on use of such measures might make it much more difficult to developing countries to use them to protect their own farmers.

The peace clause would also prevent use of any measure against agreed level of subsidized exports for the EU and the US, and will deprive developing countries of the right to initiate anti-dumping measures against commodities which, by any rational definition, are being heavily subsidized.

The special and differential treatment provisions, in the agreement on subsidies and countervailing measures, offer some limited advantages to the developing countries. But the peace clause and the tightened rules on anti-dumping (and the standard of review) will make it even more difficult for developing countries to protect their producers from subsidized export practices of leading agricultural exporters.

The Balance of Payments provisions of the Agreement (which have not led to any modifications of existing rights of developing countries) could be used by developing countries to restrict imports quantitatively if their BOP situation deteriorates and offers a limited possibility to protect their internal market against low-priced imports (whether arising from comparative advantage or export subsidies), but only if the import bill is so big that a BOP problem arises.

Viewing the food security issue against the background of this analysis, the study says that the agreement will bring few benefits to agricultural exporters.

US-EU "hostilities" on the export front will continue, it says and points to the September 1994 pledge of the US Secretary of Agriculture to use the US Export Enhancement programme for market expansion and promotion.

While the specific exemption of food aid, and the disposal of intervention stocks of 8 million tonnes of wheat and 360,000 tonnes of beef under the peace clause will increase food availability in the short-term.

But in the long-term the most serious food security implication for developing countries derive from the disciplines imposed on market interventions by governments who will be forced to cut domestic support, though at more modest rate and a longer period. The LDCs, and developing countries with domestic support of 10% or less than value of production would be exempt from cuts, and could also get credits for subsidy reduction under the Fund/Bank SAPs they have undertaken.

But in terms of the future, their capacity to shift the focus of farm support away from market intervention towards direct budget transfers is very limited. Any such transfers will run up against budget deficit targets fixed under the IMF/World Bank programmes.

The GATT agreement will effectively lock them into the type of policy framework associated with structural adjustment programmes of these agencies and their narrowly defined economic efficiency arguments exposing the smallholder producers in the South to world market price signals which will continue to be artificially depressed by EU and US export dumping.

Since the post-Uruguay Round 'level playing fields' in agriculture will however "continue to run all the way downhill" from Europe and North America into the food markets of developing countries, "there is a powerful case for governments retaining the right to protect their producers on both social and economic grounds".

The study points out that US would not have been able to enjoy its current status as a major agricultural exporter without the massive investments in water supply, research and half-a-century of protection since the New Deal.

"Set in this context, it is ironic in the extreme that the GATT should now be used to deny developing country governments, most of which historically taxed their agricultural producers, opportunities to intervene in the markets".

In a series of recommendations, the study calls for:

* review of the balance in terms of agricultural subsidy reductions for developed countries and restrictions on import controls by developing countries so as to identify countries and situations in which the agreement may increase socially and ecologically damaging food dumping.

This would require monitoring of current and projections of future shifts in world market prices and changes in trade flows, allied to national level studies which should be undertaken by relevant UN organizations UNDP, UNEP, UNCTAD, UNICEF, FAO and IFAD) with participation of WTO and NGOs.

* further study of economic, social and environmental effects of food dumping to identify the most serious impacts, circumstances in which they occur and the remedial measures to be undertaken.

Any future WTO negotiations in agriculture should be directed to achieve a prohibition of export subsidies which cause socially and ecologically damaging food dumping.

Any future agreement should also include a broad food security exemption for developing countries and differentiation of policy measures by developing countries to address long-term food security and environmental protection.

International trade rules should be framed to encourage socially, environmentally and economically responsible farm policy reforms in the North. These should start from a recognition of the need to reduce intensity of agricultural production and bring output into line with domestic consumption and unsubsidized foreign demand.

There should be effective exemptions for subsidies or trade measures that support this process of de-intensification and far more emphasis, in future negotiations, to link price support to ecologically sensitive forms of agriculture -- such as ceilings on use of pesticides and chemical inputs -- and restricting output through appropriate taxation (such as special tax on nitrogen fertilizers).

The US and EU should also set strict upper ceilings on volume of production to be supported through public subsidies and thus create conditions for an effective anti-dumping code to prohibit sale of agricultural commodities at prices below the effective intervention price.