The Hindu Business Line : WTO accord: Faulty frame, rude reality

THERE is much brouhaha over the framework agreement reached by World Trade Organisation members in Geneva last week, with the developing countries in an exult over the concessions drawn from the developed nations. Nothing could be farther from reality.

Though the WTO Director-General, Dr Supachai Panitchpakdi, may not be even aware how the wool was pulled over the eyes of the developing nations, the US Trade Representative, Mr Robert Zoellick, and the outgoing European Union's Trade Commissioner, Mr Pascal Lamy, have sent them back with the empty promise of reducing the contentious monumental agricultural subsidies. Further, they have got the approval of the developing countries to increase subsidies.

A look at the political ramifications. Agricultural subsidies had been, and will remain, the bone of contention, with the developed countries refusing to cut the sops that run to $320 billion every year. So much so that the issue led to the collapse of the WTO Cancun Ministerial in September 2003. So what made the rich change their stand and so soon?

It is accepted that any move to significantly cut farm subsidies can be politically suicidal for the rich countries. The US President, Mr George Bush, would not even think of contesting after agreeing to chop subsidies for farmers. The European nations, especially France, Germany, and the Nordic countries, would have been in a turmoil if the framework agreement indeed means any drastic cut in subsidies.

The devil, as they say, is in the detail. Paragraph 7 of the Framework for Establishing Modalities in Agriculture (July 31 final draft) says: "As the first instalment of the overall cut, in the first year and throughout the implementation period, the sum of all trade-distorting support will not exceed 80 per cent of the sum of final bound total AMS (Aggregate Measurement of Support) plus permitted de minimis plus the Blue Box at the level determined in paragraph 15." Reading this together means that, first, far from removing the trade-distorting Blue Box, the mechanism stands strengthened. The developed countries can shift a chunk of its agricultural subsidies (under the Green and Amber Boxes) to the Blue Box. In other words, the advantage the developing countries had gained with the termination of the Peace Clause on December 31, 2003 (under which the developing countries could not challenge agricultural subsidies in the rich countries) has been negated. They will now be confronted by an equally detrimental Blue Box.

The framework actually provides a cushion to the US and the EU to raise farm subsidies. The draft makes it obvious that the first instalment of a cut in subsidies by 20 per cent is not based on the present level of subsidies but on a much higher level now authorised based on the three components — the final bound total AMS, plus permitted de minimis plus the Blue Box. For the EU, this should come to euro 95.76 billion and after applying the first cut, the subsidies that can be retained will be euro 76.63 billion. Adding all the components, as specified in the WTO framework, the EU subsidies now will total around (including the under-notified coupled support) euro 55.8 billion, far less than what it is supposed to reduce. In other words, the EU gets enough leverage to increase its subsidies. No wonder the so-called phase-out of subsidies has not snowballed into a political crisis in Europe.

Further, the EU has Blue Box subsidies of euro 14.31 billion. This is a large amount and, therefore, the framework states: "In cases where a Member has placed an exceptionally large percentage of its trade-distorting support in the Blue Box, some flexibility will be provided on a basis to be agreed to ensure that such a Member is not called upon to make a wholly disproportionate cut." The EU, therefore, has nothing to worry about cutting the Blue Box subsidies.

The US, on the other hand, wants to shift the counter-cyclic payments of $180 billion that it has provided to farmers under the notorious Farm Bill 2002 (70 per cent of this amount is to be spent in the first three years, before Mr George Bush goes to elections) to the Blue Box. Since the WTO will now specify the historical period from which the Blue Box implementation will begin, it means that the US can protect the yearly instalment of its counter-cyclic payments to farmers. In the case of cotton subsidies where the US provides a daily support of $10.7 million to its 25,000 growers, and where the ruling of the WTO dispute panel has gone against the US cotton subsidies, the WTO refused to act. All that the WTO General Council has done is to "instruct the Director-General to consult with the relevant international organisations, including the Bretton Woods Institutions, the Food and Agriculture Organisation and the International Trade Centre, to direct effectively existing programmes and any additional resources towards development of the economies where cotton has vital importance."

Special and differential treatment was intended to give implementation concessions to the developing countries, given the varying levels of development. However, the S&D measures came to be used only by the developed countries. Instead of dispensing with these measures, the framework legitimises their application for the rich countries. The only redeeming feature is the promise to the developing countries a special safeguard mechanism. As if the massive subsidies are not enough, the developed countries have used high tariffs to block imports from developing countries. They have resorted to special safeguards measures (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. On the other hand, only 22 developing countries can use SSG. These SSG measures remain under negotiations, which means these will continue for quite some time.

The question of market access assumes importance in the light of the special and differential treatment, special safeguard measures and the domestic support (including Green Box subsidies) remaining intact in the developed countries. Using a tiered formula, the developed countries have managed to seek overall tariff reductions from bound rates and "substantial improvements in market access will be achieved for all products". The only defence the developing countries have is to brand some of their important agricultural products as `sensitive' and bring some others under the `special product' category. But, then, the developing countries have already opened their markets by phasing out or removing quantitative restrictions or lowering tariffs.

Also,the developed countries have been allowed the same provisions, which means that they can term some crucial commodities as sensitive and, thereby, deny market access. For instance, the US, the EU, Japan and Canada maintain tariff peaks of 350-900 per cent on food products such as sugar, rice, dairy products, meat, fruits, vegetables and fish, which can be readily brought under the category of `sensitive' and some 25-40 of the sensitive tariff lines under the tariff quota can be easily protected under this category. In any case, a country such as India cultivates some 250 different crops a year, whereas Europe does not grow more than 25. . For Europe, getting a score of crops protected under `sensitive' and `special products' will be justified. But to expect WTO to accord `special product' status to over 200 crops from India would be asking for the impossible.

If one is wondering as to why the developing countries still agreed to reach an agreement and that too within five days of intense negotiations, a look at what transpired before the meeting. The G-20 leader Brazil was among a number of developing countries thrown a sugar-coated bait just a week before the negotiations entered the decisive phase. On July 23, the US announced its sugar quota allocation for 40 countries. This system allows these countries to export a fixed quota to the US at a lower tariff rate. According to international NGOs, the EU had withdrawn aid to Kenya, the most vocal of the African countries. It may be recalled that the Kenya walkout at Cancun had led to the collapse of the WTO Ministerial. This time, the EU withdrew $60.2 million aid to Kenya on July 21 under the pretext of `bad governance'.

The UK Trade Minister, Ms Patricia Hewitt, is on record that the UK was using its influence to persuade developing countries. Moreover if `bad governance' is the EU's legitimate concern, there seems to be no justification in joining hands with the US at such international negotiations after the US' illegal war in Iraq. Despite the World Bank painting a picture of the gains from the implementation of the WTO trade agenda, the fact remains that surging food imports have hit farm incomes and impacted the employment scene in many developing countries. Unable to compete with cheap food imports, and in the absence of adequate protection measures, income and livelihood losses have hurt women and poor farmers the most. The resulting loss in livelihood security and the speed-march towards hunger and destitution can only lead to large-scale displacement of farming populations in the developing world.

(The author is a New Delhi-based food and trade policy analyst. He can be reached at dsharma@ndf.vsnl.net.in)