Sep 3, 1998

Bangkok 1 Sep (Focus-on-Global-South) -- The Second Ministerial Meeting of the World Trade Organisation affirmed the intention of member states to begin the review of the Agreement on Agriculture in 1999. But that seeming consensus masked increasingly bitter conflicts in what continues to be the most contentious sector covered by the GATT-WTO. 

Agriculture was the main sticking point that held up the Uruguay Round.

It again poses the same threat of derailing the expected "Millenium Round" of trade negotiations that may follow the 1999 review. 

Prior to the Uruguay Round, agriculture was de facto outside GATT discipline, mainly because the United States had sought in the 1950's a waiver from Article XI of the GATT, which prohibited quantitative restrictions on imports. With the US threatening to leave GATT unless it was allowed to maintain protective mechanisms for sugar, dairy products, and other agricultural commodities, Washington was given a "non-time-limited waiver" on agricultural products. This led to GATT's lax enforcement of Article XI on other agricultural producers for fear of being accused of having double standards.  

The US and other agricultural powers not only ignored Article XI but they also exploited Article XVI, which exempted agricultural products from GATT's ban on subsidies. One effect of these moves was the transformation of the EC from being a net food importer into a net food exporter in the 1970's. By the beginning of the Uruguay Round in the mid-eighties, the EC's Common Agricultural Policy (CAP) had developed into what experts Michael Trebilcock and Robert House described as "a complex web of price and sales guarantees, subsidies, and other support measures that largely insulated farmers' incomes from market forces."  

With domestic prices set considerably above world prices and no controls on production, European farmers expanded production. The mounting surpluses could only be disposed off through exports, sparking competition with the previously dominant subsidized US farmers for third-country markets. The competition between the agricultural superpowers turned fierce, but it was not so much their subsidized farmers that suffered. The victims were largely third world farmers, such as the smallscale cattle growers of West Africa and South Africa who were driven to ruin by low-priced EU exports of subsidised beef. 

With state subsidies mounting to support the bitter competition for third country markets, the EU and the US gradually came to realise that continuing along the same path could only lead to a no-win situation for both. By the late eighties, for instance, close to 80% of the EU's budget was going to support agricultural programs, and the US had inaugurated a whole new set of expensive programs like the Export Enhancement Program, to win back markets, such as North African wheat market, from the EU.  

This mutual realisation of the need for rules of engagement in the struggle for third country markets is what led the US to press for inclusion of agriculture in the Uruguay Round, and the EC acquiesced. Rather than seriously advancing a mechanism to advance free trade, the two superpowers resorted to the rhetoric of free trade to regulate a condition of monopolistic competition, with each seeking advantage at the margins.  

The manner in which the Agreement came into being lends support to this interpretation. The final Agreement was essentially the Blair House Accord, negotiated only between the US and the EU in 1992 and 1993, promptly relabelled the GATT Agriculture Agreement and tossed to other GATT members by the two superpowers in 1993 end on a take-it-or-leave-it basis. Understandably, many of the other countries, particularly those belonging to the so-called Cairns Group of 15 developing and developed country agricultural exporters, felt that they were practically coerced into signing the Agreement. 

The Agreement provided for: 

• quantifying all the domestic support into a common measure, the so-called Aggregate Measure of Support (AMS), to be reduced by 20% over a six year period beginning in 1995, with 1986-88 as the base period.
  But some domestic subsidies in the industrial world, including direct income payments to farmers (the so-called "Green Box" and "Blue Box" measures), were exempted from cuts.
• reducing all export subsidies over a six-year-period, by 21% in volume and 36% in total value, with members agreeing not to expand export subsidies beyond the levels reached at the end of the six-year period.
• converting import quotas into tariffs (tariffication), and cutting them over a period of six years by an average of 36 per cent, with a 15% minimum per tariff line, again with the base being the "tariff equivalents" of these quotas in 1986-88.
• Countries would pledge "minimum access volume" (MAVs) to agricultural imports, starting at 3% of 1986-88 consumption and rising to 5% in 1999.
• developing countries were to be subject to only two-thirds of the cuts in tariffs, domestic support, and export subsidies applied to developed countries, and given a grace period of 10 years, instead of six years, to put these into effect. 

By 1999, the accord will have been in effect for four years, but, so far, it appears to have had little effect, in terms of effectively reducing the protection and subsidisation enjoyed by agriculture in the developed countries, and this is due to a number of factors. 

First, the levels at which the AMS, export subsidies and tariffs were bound, the 1986-88 levels, were quite high relative to the levels in 1995, when WTO came into force, so that the actual reduction in subsidies and tariffs so far have been minimal relative to 1995 levels. 

In the case of the US, for instance, between 1992 and 1996, the simple average tariffs for agriculture and livestock production rose from 5.7 percent to 8.5 per cent, for food products from 6.6 to 10.0 per cent, and for tobacco products from 14.6 to 104.4 per cent. Also, the Uruguay Round's requirement that import quotas be transformed into tariffs has been abused by the EU and the US, with the latter, for instance, levying an ad valorem duty of 350% for above-minimum-access imports of tobacco products.  

Second, because of the loose rules for achieving the 36% average tariff reduction, countries could meet the WTO requirement through minimal tariff cuts on sensitive or valued product lines and deep cuts in non-sensitive products, and by "backloading" their already minimal tariff cuts on the valued products toward the end of the six-year-period.

Third, major subsidies to farmers in the North, such as direct income payments to make up for the vagaries of the market, have been exempted from cuts. This was a major blow to the hopes of many countries that the Agricultural Accord would serve as a mechanism for freer international trade in agriculture. Such payments were excluded on the specious grounds that they were "decoupled from production" and thus "non-trade distorting."  

In the EU, these direct income payments are mainly based on output, the bulk of them via a "land set-aside program" which entitles each farmer to a subsidy when he/she withdraws 15% of his/her land from cultivation. The idea behind the set-aside program is to restrict output, thus raising prices. In the US, direct income subsidies have taken the form of "deficiency payments," which bridged the gap between a guaranteed floor intervention price (usually the market price) and a politically determined target price to support farm incomes.  

Deficiency payments made up the difference between a target price set by the United States Department of Agriculture (USDA) and the actual market price for the year, so that if the target price was $16 a bushel and the market price was $12, farmers are awarded $4 by the USDA.

Under the 1996 US Farm Bill, this variable rate has been replaced by a flat rate, so that farmers will get the same level of subsidy in good and bad crop years. Deficiency payments are projected to average $5.1 billion a year between 1996 and 2000. 

These direct payments to European and US farmers are anything but decoupled from production; without them agriculture would scarcely remain profitable. Deficiency payments, for instance, make up between one-fifth and one-third of US farm incomes. Thus, in advancing the notion of decoupled payments and enshrining them as untouchable subsidies in the Green Box, the US and the EU were shifting from indirect subsidization of their agriculture via price intervention in agricultural markets to direct subsidization of farmers as the main mechanism of state support for agriculture. 

The combination of these has had the predictable result of raising the total agricultural subsidies in the OECD countries, since the WTO came into force -- from $182 billion in 1995 to an astounding $280 billion in 1997, with the major share of this figure accounted for by the EU and the US. Over 40% of the total value of production in the OECD countries is now accounted for by different forms of producer subsidies.  

In contrast to this massive subsidization in OECD countries, farmers in many developing countries have not only had little financial support from government; they have actually been penalized by policies that have brought about the "negative subsidization" of their agricultural sector. One study estimates that for 18 developing countries, "taxation" or the transfer of value from agricultural production as subsidies to other sectors of the economy amounted to an average of 30% of the value of production. Yet it is the farmers of these countries of the South that will be forced to bear the burden of adjustment to the new agricultural regime since their lack of subsidies is paralleled by their clear commitments to give greater market access to Northern farming interests, whose runaway subsidization continues to push them to create mountains of commodities seeking export outlets.  

A 1997 report to the EU farm ministers anticipated the surplus of wheat rising from 2.7 million tonnes to 45 million by 2005, and total cereal surplus shooting up to 58 million tonnes. The solution to this condition of subsidized overproduction, said EU Agriculture Minister France Fistula, was intensified efforts to export grain. Continuing subsidization has also deepened US agriculture's dependence on massive exports, with US Trade Representative Charlene Barshefsky admitting that "one out of every three farm acres in America is dedicated to exports: 50% of our wheat acres, 57% of our rice acres, 24% of our corn acres, 35% of our fruit and vegetable acres and 42% of our cotton acres are dedicated to producing for export." Barshefsky concluded that "given the limitations inherent in US demand-led growth, we must find new markets for American agriculture. We must open new markets to support the increasingly productive US agricultural sector." 

The unequal burden of adjustment institutionalised in the Agreement on Agriculture was perhaps best summarised by the Philippines' Secretary of Trade and Industry Cesar Bautista in his speech at the Second Ministerial: "The Agricultural Agreement as it now stands provides for firm and transparent disciplines and meaningful commitments in market access but with respect to domestic support measures and export subsidies, the disciplines have been less defined and the commitments less substantial. This has perpetuated the unevenness of the playing field which the WTO system has been seeking to correct. Moreover, this has placed the burden of adjustment on developing countries relative to countries who can afford to maintain high levels of domestic support and export subsidies."  

Nevertheless, the positioning of countries in the run-up to the review of the Agreement does not follow strict North-South lines. The US and Europe are engaged in a global struggle for markets where coalitions with other countries are needed by the (trade) superpowers to outmanoeuvre one another.  

The EU has united with South Korea and Japan behind the position that the 1999 review should be just that - a review of the implementation of the Agricultural Agreement, addressing the problems encountered in the process. This group is strongly against using the review to launch new negotiations that would lead to any more cuts in subsidies and domestic support than were agreed upon in the Uruguay Round. The common position nevertheless hides a basic difference between the EU and South Korea and Japan. While all three are highly protectionist, Japan and South Korea are not agricultural exporters and are mainly concerned with saving their farmers from extinction. The EU not only seeks to insulate its agriculture from global competition but to consolidate and expand its capacity to dump its growing surpluses on foreign markets. 

To the Cairns Group of 15 developed and developing country agro-exporters, the review will be an opportunity to press their long-standing demands for abolition of export subsidies and direct income payments in the EU, US, and other highly subsidised OECD countries.  

Manoeuvring as usual to isolate the EU, the US has backed the Cairns Group's call for the abolition of export subsidies, and for an end to direct income payments tied to "land set-aside" programs - the main channel of direct subsidisation of EU farmers. That this move is opportunistic rather than a principled opposition to direct income support is indicated by the fact that Washington has not offered to eliminate its own system of direct income support without which its agriculture would cease to be profitable in many commodities: the $5 billion a year system of deficiency payments that currently entitles US farmers to a flat rate of direct income support.  

Washington also wants the review to cover countries' adherence to the Agreement on Sanitary and Phytosanitary Standards (SPS), to make sure, in the words of Agriculture Secretary Dan Glickman, that these standards are being really used to pursue "legitimate health and safety concerns" rather than serving as another mechanism of protection.

Again, the EU appears to be the main target here, in the light of two celebrated battles where EU authorities tried to prevent, on public safety grounds, the entry of two controversial imports from the US: hormone-treated beef and genetically modified soybeans. 

The US has also made clear that it is prepared not only to use the review to confront Europe but to employ all mechanisms to wrest more markets from the EU, including increasing its own subsidies - a move which would subvert the ostensible objectives of the Agreement. Thus on the eve of the Second Ministerial, Glickman reactivated the Export Enhancement Program for US poultry exports to the Middle East, using as an excuse, the "US lack of access to European markets." He warned further that "I intend to aggressively use all the tools in my trade arsenal to ensure a level playing field around the world for US agriculture."  

The fourth player in the coming review is the vast majority of developing countries. Some are, like the developing country members of the Cairns Group, both key exporters and importers of agricultural commodities. Thus, they worry that new negotiations might end up forcing them into granting even greater market access without significant new openings to their exports in the key OECD markets.  

A great many are concerned about the impact of trade liberalization on the incomes of their farmers and food security. With increasing volatility in the supplies of key grains like rice in world markets owing to factors such as El Nino-induced climate shifts, food security or the ability of a country to have access to food at reasonable prices to feed its population is increasingly a key consideration in the developing countries' attitude toward new negotiations. In some countries, there are influential farmers' groups, such as Via Campesina, that are calling for the withdrawal of agriculture from WTO coverage altogether on the grounds that agriculture is not just a system of production but a way of life, so that at stake in further trade liberalization is the very survival of farming communities.  

Still other developing countries are severely food deficit countries that depend greatly on concessional food prices and food aid. Their main concern is that the stronger emphasis on market power and the threat of tighter rules on food aid in another round of global trade liberalization will confront them with increased food import bills, a reduction in concessional food imports, and lower availability of food aid.  

The upshot of the fears of this diverse group of countries is great reluctance to support further trade liberalization. For some, the review should not be aimed at more liberalization but at institutionalising safeguards such as implementation of the 1994 Marrakesh Decision to protect the severely food deficit countries from the impact of agricultural trade liberalization; or adding to the Agreement a "Food Security Box" in the Accord, which would specify legitimate protective mechanisms that countries can activate to assure their food security, promote a degree of self-sufficiency in food production, and preserve their agricultural communities.  

These countries of the South - were largely bystanders during the Uruguay Round - except for a few big countries like India. Their lack of organisation allowed the EU and the US to give short shrift to their concerns. Now, there are some efforts afoot to constitute them as a lobby.  

Whether such efforts will bear fruit remains to be seen. What is clear though is that without some form of collective organisation, the South will again be a helpless bystander in the 1999 review and the negotiations that are likely begin in the year 2000. 

[*Dr. Walden Bello is co-director of Focus on the Global South, a program of research, analysis, and advocacy of the Chulalongkorn Social Research Institute in Bangkok and professor of sociology and public administration of the University of the Philippines.]