By Aileen Kwa
One person dies every four seconds because of hunger, 24,000 people die of hunger or hunger-related illnesses daily. (1) One in every five persons in the developing world is chronically undernourished; the majority women and children.
At the WTO, talks and more talks on agriculture trade are not likely to alleviate this trend, but to exacerbate it, yet world leaders and policy makers seem to have become desensitized to such suffering. Their focus remains steadfast on the profits of their agri-business corporations and the global markets they can pry open.
Four years of pleas by some developing countries’ negotiators for rules that will address their food security and rural employment problems have resulted nothing more than lip service paid to these issues at the WTO. It has already been revealed by studies that the currently iniquitous trade rules have exacerbated rural poverty and hunger. Instead of remaining steadfast in their demands for equity, or even the full right to defend themselves against the onslaught of subsidized food dumped on their doorsteps, developing country negotiators are scrambling to secure the crumbs that fall from the negotiating table at which the US, EU and the more powerful members of the Cairns Group are seated.
LET’S GET SOME FACTS STRAIGHT: DISTORTIONS IN THE WORLD MARKET AND THE IMPACT ON DEVELOPING COUNTRIES
Developing countries are becoming more dependent on food imports – especially in staple commodities. While cereals make up at least half of people’s calorie intake in the developing world, cereal production is increasingly moving towards the OECD countries and a handful of developing countries, such as Brazil and Argentina. And to make matters worse, it is these cereals and key staple commodities which are most heavily subsidized by the OECD governments and dumped in developing countries – wheat, soya, corn, rice, and also diary products. These are also the commodities Northern agri-business corporations are controlling – both in the developed as well as the developing world. That is, the same giant companies controlling the trade in cereals in the US are operating in Brazil, Mexico and Argentina.
This story can partly be gleaned from the trade figures. In the recent years, food imports to developing countries have surged, while exports by developing countries have more or less remained stagnant. Developing countries’ exports on the world market amounted to 26 per cent of trade in 1995-1997, about the same share as in 1980. Developing countries’ share of imports, while only 28 per cent in the 1970s, surged to 37 per cent in 1997. The import increases are even more stark for least developed countries (LDCs) and net food importing developing countries (NFIDCs) – with food imports for LDCs increasing by almost 50 percent between the early 1980s and 1997 (from US$3.9 billion to US$6 billion), and by 40 per cent for the 19 NFIDCs, from US$9.3 billion to $13 billion.
The food deficit in developing countries is increasing. Not only are developing countries increasingly dependent on imports for their basic food needs, sky rocketing food import bills are also becoming a major burden.
The US Farm Bill endorsed by President Bush in May 2002 raises US spending on agriculture by US$73.5 billion in the next decade, an increase of more than 63 per cent. The Bill provides supports mainly on eight crops – all important for livelihoods in developing countries – cotton, wheat, corn, soybeans, rice, barley, oats, and sorghum. Most of these supports will be provided in the form of direct payments. Today, US is already dumping produce in Third World markets, exporting corn at twenty per cent below the cost of production, and wheat at 46 per cent below cost. Cotton prices in the US have also been slashed by 66 per cent since 1995 to fifty cents a pound in order to undercut Third World producers, while US producers are receiving 75 cents in subsidies. The Farm Bill will aggravate such distortions.
In the parlance of the WTO, these are supposedly non-trade distorting subsidies since they are de-linked from production. The present Agreement on Agriculture (AOA) allows these subsidies (Green Box programmes) to be provided without limits. That they are non-trade distorting is patently untrue, since they obviously increase the income and lessen the risks for producers, hence encouraging more production. The artificially low prices make the commodities competitive on the world market. While farmers in the North are compensated for these low prices, Third World farmers, on the other hand, are being wiped out.
The European Union’s Common Agricultural Policy (CAP) is also little different. In fact, the explicit policy of the EU is to shift their export subsidies and, increasingly, their ‘production limiting supports’ (usually known as Blue Box payments) into direct payments (Green Box) which are presently legalized by the WTO. Like the US, the argument they use is that Green Box programmes distort trade less. The shift away from export subsidies in the WTO is presently well-received. However, developing countries should watch out for these subsidies re-emerging in another form. Experience is already indicative. The EU reduced export funding on cereals by 60 per cent between 1992 and 1999, from 2200 million euros to 883 million euros. However, cereal producers were given direct payments up to the tune of 2102 million euros during the same period. The total subsidies in fact increased by 36 per cent. (2) If in fact these direct payments were really non-trade distorting and de-linked from production, production levels should have contracted. The EU’s intervention price was after all fifty per cent lower. However, the increased levels of direct aid payments led to 25 per cent increase in EU cereals production.(3) Therefore, not only are subsidies increasing, but the mechanisms of export dumping are becoming much less transparent, making it much more difficult for developing countries’ policy markers to argue against such practices. Countries which have trade arrangements with the EU are particularly vulnerable, for example, the over 70 ACP countries where the EU is presently negotiating reciprocal trade agreements. ‘Competitively’ priced EU products will be flooding those markets and the ACP countries will effectively become the EU’s dumping ground.
The increasing dependence of developing countries’ on world markets for their food – and the increasingly distorted world markets – is extremely worrying. While only two per cent of the population are agricultural producers in the US, and five per cent in the EU, 75 – 80 per cent in China, 77 per cent in Kenya, 67 per cent in India, and 82 per cent in Senegal depend on farming for their livelihoods and source of food.
The FAO has concluded that increased trade is not sufficient to alleviate poverty.
‘For [the poor and food insecure in developing countries], economic access is assured only if they produce the food themselves or have economic means to purchase, which in the current state of their economies must come from increased food and agricultural production.'(4)
IMPLICATIONS OF THE HARBINSON TEXT AND THE MAIN FIGHTS IN AGRICULTURE
The main fight in agriculture is over market access. The food-producing giants, from the US to many in the Cairns Group, and also the EU, are hungry for markets. The Chair of the Agriculture Committee, Mr Harbinson, released a first draft of the ‘modalities’ paper of the new WTO Agreement on Agriculture on the 12 February, and a (marginally) revised version released on 18 March. Since then, the exporting giants have been in a brawl over exactly how deep tariffs cuts are going to be. Harbinson proposed these different brackets of tariff cuts:
1) Tariffs above 90 per cent should be cut by 60 per cent and a minimum of 45 per cent per tariff line. For developing countries, tariffs greater than 120 per cent will be slashed by 40 per cent on average, and a minimum of 30 per cent per tariff line.
2) Tariffs between 15 and 90 per cent should be reduced by 50 per cent on average, with a minimum of 35 per cent per tariff line. For developing countries, tariffs between 60 and 120 per cent should be reduced by 35 per cent, with a minimum cut of 25 per cent per tariff line, and tariffs between 20 and 60 per cent will be reduced by 30 per cent, with a minimum cut of 20 per cent.
3) Tariffs 15 per cent or lower are to be cut by 40 per cent, with a 25 per cent minimum cut per tariff line. For developing countries, tariffs lower than 20 per cent are to be cut by 25 per cent on average, with a minimum of 15 per cent per tariff line. The feeble peace offering handed out to developing countries is Harbinson’s idea of ‘strategic products’ (SP) ‘with respect to food security, rural development and/or livelihood security concerns’. Developing countries can declare some products ‘SP’ products, but these will still be subject to tariff reduction commitments – despite their sensitivity! Tariffs on SP products have to be reduced by 10 per cent on average, and a minimum of 5 per cent per tariff line over 10 years.
In current talks, positions are polarized – with the US and Cairns Group (Australia, New Zealand, Canada, Argentina, Brazil, Costa Rica, Malaysia, Thailand, Chile etc) on one side versus the EU and a large following of developing countries on the other. The US and the Cairns Group have complained that the tariff cuts in the Harbinson draft have not gone deep enough. They are pushing for more ambitious tariff reductions through the Swiss Formula. (5) The EU, reluctant to open up its domestic markets, is complaining that the cuts proposed by Harbinson are too steep. The EU has sensitive products in the 15 – 90 per cent tariff bracket. Japan, Norway and Switzerland on the other hand are most concerned about the tariff cuts above the 90 per cent bracket. To undertake the level of cuts proposed by Harbinson would threaten their ability to retain their domestic markets for their own producers. The EU and its allies instead are advocating a Uruguay Round formula, as was adopted in the last Agreement on Agriculture. At that time, developed countries were required to cut tariffs by 36 per cent on average, and a minimum of 15 per cent per tariff line. This led to many developed countries cutting their sensitive products only by the required 15 per cent per tariff line. They made deeper cuts on less sensitive products as well as products which had low tariff levels. (6)
In their attempts to garner support, the EU, Norway and Switzerland have embarked on a campaign to lobby developing countries on to their side in supporting the Uruguay Round formula approach. On 28 February 2003, they presented a statement with 75 signatures to the Committee on Agriculture endorsing a Uruguay Round formula to tariff cuts. This left the US and the Cairns Group stumped and feeling quite isolated in their pro-liberalisation approach.
Obviously, many of these signatories came from developing countries, particularly the ACP countries (which receive some preferential market access to the EU markets), as well as India. However, countries that have not endorsed the statement include Venezuela, Kenya, Zimbabwe, Sri Lanka, Pakistan, Dominican Republic and Honduras for a variety of reasons. Some declined to support the EU because they did not want to be seen as closely allied to the EU, since it may have implications on their position on domestic supports (Most developing countries want domestic supports lowered whereas the EU wants to maintain these). One negotiator explained that they had not endorsed the EU position since they could live with the Harbinson text as long as the SP concept is developed further. Another said that they could live with any formula as long as their sensitive low bound tariffs are not cut. These low bound tariffs seem to be threatened by both the Uruguay Round formula as well as an ambitious Swiss formula. Yet another said that the Uruguay Round approach would not target tariff peaks and escalations which developing countries have complained about for so long and despite attempts by the EU to get them on board.
To further complicate matters, exporting developing countries in the Cairns Group – particularly Argentina, Brazil, Malaysia, Thailand Costa Rica and Chile have joined hands with the US and Australia to push aggressively for market opening. In fact, developing countries attempting to protect the livelihood of small farmers, and hence requesting for the expansion of the SP category of crops are aggressively being opposed by these other developing countries arguing that such measures could impede South-South trade.
For now, the positions are so entrenched that the 31 March deadline for modalities to be agreed upon has been missed.
WHEREFORE DEVELOPING COUNTRIES: ROUND II OF AOA TRADE TRICKS?
Many trade tricks were employed in the Uruguay Round Agreement on Agriculture, which led to developed countries slipping out of any commitment to liberalise. It is well-known that domestic support levels since 1995 have increased significantly and that ‘dirty tariffication’ was employed so that tariffs increased rather than decreased in many developed countries. Small farmers, wiped out of their livelihoods, the rural poor and hungry, have paid the heaviest price. Unfortunately, the current Harbinson draft offers nothing but more of the same for them.
The tariff cuts proposed go much further than the last round, where developing countries had to cut tariffs by 24per cent on average and a 10 per cent minimum cut per tariff line. At the same time, absolutely nothing is being proposed to eliminate the distortions in the world market. The domestic support modalities Harbinson has proposed will only allow the status quo to continue, and in fact worsen. Developing countries have been repeating – like broken records — that the market access modalities and domestic supports and export subsidies modalities have to be linked. This has been ignored by Harbinson. Developing countries have called for a cap in overall domestic support levels, and particularly a cap on the Green Box. Again, these recommendations do not feature. Much has been made of Harbinson’s proposal to eliminate export subsidies over nine years. However, as mentioned above, it is already the explicit policy of the European Union (the main provider of export subsidies) not to remove these subsidies, but merely to shift them into the Green Box.
With these distortions set to continue, the SP concept proposed by Harbinson – hailed by some developing countries as a success since their food security and livelihood concerns have been reflected, albeit inadequately – is no more than wool being pulled over the eyes of trade negotiators and Ministers. It is a fictitious fig leaf offered to entice the less WTO savvy politicians in the developing world.
Firstly, tariff levels on SP products must also be cut – by an average of 10 per cent. This is no less than the 10 per cent minimum cut per tariff line developing countries had to take on in the last round. Any relief felt by negotiators is not likely to be echoed in the rural plains.
Secondly, the number of SP products each country can declare is already being disputed from all sides. Developed countries and Cairns Group developing countries have asked for strict criteria that would make the instrument quite useless as a defense mechanism when practically applied. For instance, developed countries could come up with a criteria that an SP product will have to account for 20 per cent of a country’s total production, or be a crop where a significant percentage of people depend on for the livelihood. This could work for certain countries which are highly dependent on two or three commodities. However, for others – particularly developing countries with diverse land and environmental conditions and hence a huge diversity of crops which small farmers depend on – many more crops need to be protected. The aggressiveness with which the Cairns Group is showing in opposing flexibility in the SP concept is also likely to limit its final utility.
The other issue developing countries have been lobbying for is a safeguard mechanism, which would allow them to increase their tariff levels when prices dip below a trigger price, or when there is an import surge. The complainant is not required to show that imports have caused injury before the mechanism is triggered. Developing countries have asked for such a mechanism in order to protect their small farmers against the volatility of world prices. An increase in tariffs would only be implemented temporarily. The existing safeguard mechanism is only available to 37 countries. Only seven countries – all developed countries – have actually made use of it. Developing countries have asked that the mechanism is applied only by developing countries.
The Harbinson draft deals a severe blow to developing countries’ safeguard request. Developed countries will eventually be graduated from being able to use this mechanism but only at the end of the five-year tariff reduction implementation period, or two years after this implementation period. At the same time, plans are being hatched to put very strict limitations on the number of products developing countries can apply a safeguard to – perhaps only a handful. Such limitations would be outrageous in comparison with the fact that the EU has 539 product lines that can avail of this mechanism at present, and the US 189 product lines. (See Annex 1 below.) Furthermore, informal consultations have been taking place about excluding the possibility of developing countries invoking the safeguard mechanism against other developing countries. This runs counter to the concerns of countries asking for such a mechanism, such as India, Sri Lanka, Indonesia, Pakistan etc. For them, any sudden import surge that might threaten rural livelihoods must be addressed, be it from a developed or developing country. In addition, developed countries wanting to avoid facing a higher safeguard tariff could easily send their exports via a developing country, if such a provision were instituted.
However, the present stalemate is a political one. The technical work in Geneva clarifying and sharpening all aspects of the modalities is in fact still very much underway. Judging from the present talks, what is needed in Cancun will be political endorsement by Ministers on a refined version of the present draft with the most critical political decision to be made in the area of tariffs (largely between the US and EU).
Whether it is an ‘ambitious’ or ‘less ambitious’ agriculture text for the European Union and the US, the lives of ordinary people in many developing countries will be threatened. Developing countries will be called upon to reduce their tariff levels even though the issue of dumping has been side-stepped by the major powers dictating the terms of the both global trade and politics.
38 WTO members currently have reserved the right to use a combined total of 6,072 special safeguards on agricultural products. The numbers in brackets in the table below show how many products are involved in each case, although the definition of what is a single product varies.
Table: WTO Members with the Current Right to Use Special Safeguard Measures
Australia (10); Barbados (37); Botswana (161); Bulgaria (21); Canada (150); Colombia (56); Costa Rica (87); Czech Republic (236); Ecuador (7); El Salvador (84); EU (539); Guatemala (107); Hungary (117); Iceland (462); Indonesia (13); Israel (41); Japan (121); Korea (111); Malaysia (72); Mexico (293); Morocco (374); Namibia (166); New Zealand (4); Nicaragua (21); Norway (581); Panama (6); Philippines (118); Poland (144); Romania (175); Slovak Republic (114); South Africa (166); Swaziland (166); Switzerland-Liechtenstein (961); Thailand (52); Tunisia (32); United States (189); Uruguay (2); Venezuela (76)
Between 1995 and 1999, the seven countries that have used the Special Safeguard are EU, Japan, South Korea, Poland, United States, Hungary and Switzerland.
* Aileen Kwa is a policy analyst with Focus on the Global South. She is based in Geneva.