The Hindu Business Line : Symbolism on subsidies

JUST DAYS AHEAD of the potentially crucial meeting of several states under the aegis of the Organisation for Economic Cooperation and Development in Paris comes the European Union's letter to members of the World Trade Organisation detailing its offer to scale-down market-distorting farm subsidies. The flexible stance of the EU could get going the complicated, and possibly vitiated, agricultural negotiations in the Doha Round. The Trade Commissioner, Mr Pascal Lamy, and the Agriculture Commissioner, Mr Franz Fischler, have expressed the EU's willingness to considerably reduce, if not eliminate, subsidies so that the stalled trade talks can move forward.

Huge subsidies given out by rich countries to encourage production and export of farm goods have been the bone of contention between the developed and developing world. The annual farm support programme of the OECD countries exceeds $300 billion; the EU itself spends over $50 billion annually on its agriculture policy. From time to time, the EU has been making noises about reducing farm support. In a major review of the Common Agricultural Policy last June, it agreed to delink income support from production. Yet, on the ground, little has changed in the global commodity markets. Several developing countries, especially those in Africa, still find markets inaccessible and prices unattractive. A recent interim ruling by the WTO in the case of US cotton support programme has lent more urgency to the issue of subsidies.

A closer look at the EU offer reveals that it is at best conditional, and may well raise more issues than solves. The EU wants its WTO partners (the US and Japan, in particular) to match its move and would reduce export subsidies if an acceptable offer emerges on market access and domestic support. The EU is unwilling to open up its market for `sensitive' items such as beef, sugar and dairy products, and wants to maintain import tariffs at levels that would protect domestic industries. In other words, the EU's unstated position is that it actually wants a concession to continue with protectionism — to maintain high import tariffs for sensitive products as a quid pro quo for removing export subsidies. Developing countries are unlikely to be swayed by such symbolic gestures. The group of 20 developing countries (G-20) led by Brazil, China and India has rejected the blended, or the quid pro quo, approach to agricultural trade negotiations. They must press ahead for genuine reforms. G-20 will now have to beware attempts to split it because the EU is considering improved market access for farm produce from Latin America (Mercosur countries).

Clearly, the policy environment is becoming increasingly complex for everyone. The dilemma facing most countries is how to match domestic priorities with international obligations. India is no exception and needs to play its card carefully. It would be disastrous to reduce tariffs and force resource-poor producers here to face unfair competition from low-priced subsidised imports, without sincere efforts to strengthen the domestic farm supply chain. For India, too much is at stake in agriculture. The new government has the unenviable responsibility of charting out a clear plan of action.