WTO and Agriculture: Once More with Vengeance C.P. Chandrasekhar

Developed country negotiators and officials at the World Trade Organisation, the powerbrokers in global trade, are striving hard to impose a limited “consensus” on members of the organisation. Holding out the threat of the breakdown of the multilateral trading system and the emergence of damaging bilateralism, they are seeking an agreement on the framework for the next round of global trade talks before a self-imposed “drop-dead deadline” of July 31. For the last few days WTO director general Supachai Panitchpakdi has been warning the organisation’s 147 member countries that a “failure this month means the continuation of an unsatisfactory status quo, certainly for the remainder of this year and next and possibly for years to come.” Trade negotiations are known to extend way beyond the deadlines that members set for themselves. This makes the alarmist statements of the dangers of dissent from interested parties like the director general difficult to understand.

The Doha round sought to be launched in November 2001, was expected to go on stream soon after, so that details of an agreement could be reached by January 1, 2005. But, half way through 2004 even the framework for the talks has not been agreed upon. This makes the original deadline impossible to meet, even if consensus on a framework could be forged by the end of July. So why failure to reach a framework agreement by that date implies the end of the road is not immediately clear.

The real concern of those pushing for an immediate agreement on the framework is that unless such an agreement is struck the new round is not even launched, given the partial agreement at Doha and the failure at Cancun. As Peter Sutherland, former Director General of the WTO put it: “failure this month would mean we had not moved one jot from the Doha Declaration. The Doha round would, in effect, be dead. When meaningful negotiation is again possible in the WTO – say, in a year from now – we will be looking at a complete relaunch. It might take several years to achieve consensus on a new agenda.”

What is more, if negotiations are not formally launched in July delays driven by politics in the developed countries is inevitable. First, the impending American elections rule out any deal being struck by US negotiators after this General Council meeting on July 27 till late into next year. Second, the impending appointment of a new European Commission in November would introduce new uncertainties about the European position and render consensus on the framework and modalities of a new round elusive.

Thus the “consensus” being sought just now is limited to one which declares that the Doha round is on. It requires countries to commit themselves to reviving the aborted negotiations and agree to a framework of rules that would govern the conduct of those talks. Once the framework is in place, the modalities can be worked out and a new multilateral consensus negotiated. That would take time, but global trade barons could at least be certain that they are still in the game of shaping a new, more liberal regime.

The problem is that the developed countries are willing to give very little while demanding too much of the developing countries as the price for their endorsement of a framework agreement. This is not surprising, since they want to load the agenda from the very beginning with rules and caveats that ensure that their interests are protected and advanced, if and when the final agreement for the Doha Round is arrived at. Given the influence which the developed countries wield in global trade in general and over the WTO in particular, the framework agreement, drafted through a quasi-formal process that was by no means transparent and released barely 10 days before the General Council meeting on July 27, reflects in large measure the bias in favour of the developed countries. Not surprisingly, controversy surrounds the draft – released on July 16 – of even this preliminary agreement.

The lack of transparency reflects the many hurdles that those pushing for a limited agreement have to manoeuvre in a divided world. The stumbling blocks to consensus include: the unwillingness of the developed countries to accept substantial trade liberalisation in areas crucial to each one of them; the consequent divisions within the developed-country camp; the disappointment in the developing world with the actual implementation and the results (that have fallen far short of promises) of the Uruguay round as well as the position being adopted by the developed countries on old and new issues; and the unwillingness of the developed world to prioritise redressing of the existing equities in the multilateral trading system rather than seek new advances on the liberalisation front.

Given these constraints, the only way an agreement can be pushed through is to appease the powerful and pressure the weak into quiescence. This precisely what the General Council chair Shotaro Oshima, WTO director general Supachai Panitchpakdi and EC trade commissioner Pascal Lamy, have been attempting to do in recent months. Their problem, however, was that obtaining endorsement from the major trading powers itself has proved extremely difficult. As in the Uruguay Round, the main bone of contention within the developed country camp was the $600 billion global market for agricultural commodities.

During the Uruguay Round, besides the device of defining certain measures of support to agriculture as “non-trade-distorting” and including them in a permissible Green Box, European endorsement of the Agreement on Agriculture (AoA) was won through the Blair House Accord, which was an in-house deal struck at an informal meeting between the developed countries. The accord involved the creation of the Blue Box, into which a set of support measures that were officially defined as trade-distorting could be incorporated and exempted from reduction commitments, allowing the developed countries, especially the EU, to provide substantial protection for their farming community. Further, while provision was made for the phasing out of the Blue Box at then end of implementation period of the Uruguay Round, it was agreed at Blair House that the AoA would explicitly specify a Peace Clause that prevented countries from challenging those measures during the implementation period. In the event, the focus of agricultural reform in the developed countries, especially the US and the EU, has been the transformation of the nature of agricultural support into measures that fall in the Green and Blue Boxes, so that the support that would be subject to reduction commitments would shrink. By pressurising developing countries into accepting these patently protectionist instruments, a global consensus that yielded the AoA and the WTO was forged.

This time around too, an important step to progress on a framework agreement remains a consensus between the developed countries on agriculture. If at all the developed countries were to be seen as making new concessions towards freeing trade in agriculture, they had to agree to do away with export subsidies on agricultural products, accepted larger market access commitments than required of developing countries, and substantially reduce overall support provided to their agriculture through various Blue and Green Box measures. However, with the EU relying heavily on Blue Box support, it was unwilling to consider any framework agreement which did not retract the Uruguay Round commitment to phase out such measures. So the negotiations have focused on what the EU would give in areas like overall support reduction and reduced export subsidies in return for the retention of the Blue Box.

The first signs of a partial consensus within the developed-country camp came when the EU trade commissioner, Pascal Lamy, offered to end EU export subsidies if the US eliminates subsidised food aid and export credits, and Australia, Canada and New Zealand curb state trading monopolies in agriculture. Lamy also confirmed that the EU had softened its position on US farm export credits and might be willing to accept less than their total elimination.

Annex A of the draft agreement, dealing with agriculture, makes clear how much the EU has got in return, creating an extremely imbalanced framework for establishing modalities in agriculture and damaging in the process the interests of developing countries and agricultural exporters. The draft declares that the Annex details the elements that “offer the additional precision required at this stage of the negotiations” in pursuit of the objective of establishing “a fair and market-oriented trading system through a process of fundamental reform”. But it is quick to correct itself and states that “the final balance will be found only at the conclusion of these subsequent negotiations and within the Single Undertaking.”

This formulation clearly uses the Single Undertaking notion to provide for the possibility of a compromise. In the language of the draft, too much precision is not possible in the current stage, especially given the need for a quick consensus. Since the single undertaking idea requires countries to take all or nothing, they are expected to make compromises, accepting less in some areas and gaining more in others. Countries are expected to give and take in the agricultural area, for example, in lieu of offers and demands in other spheres, so that the final balance remains tentative. The underlying assumption is that special interests of individual countries vary enough to allow for a consensus to emerge through the Single Undertaking route.

It should be obvious that a framework of this kind should be relatively flexible in all areas, and equally so, in order to provide space for compromise. This, however, is not the case. In agriculture the minimum bounds of a possible compromise in terms of reduced support by the developed countries has been fixed at a relatively high level, reducing the space for negotiation. In other areas, however, the floor to which countries can be expected to proceed has either been made flexible (as in the case of non-agricultural market access or special and differential treatment for developing countries) or rendered non-existent.

This bias becomes clear in the discussions on the ‘three pillars’ of domestic support, export competition and market access. The massive domestic support for agriculture in the US, EU and Japan that adversely affects global prices of agricultural commodities as well as the access of developing country exporters to developed country markets is now well known. According to the OECD Secretariat, the level of support provided to agricultural producers expressed as the monetary value of transfers from consumers and budgetary payments to producers (the Producer Support Estimate or PSE) amounted to $230 billion in 2002 and $257 billion in 2003. This was equal to a third of the current OECD gross farm receipts. Reacting to these (or even higher) levels of support, countries have been demanding substantial reductions overall domestic support.

What the draft framework does is to divert attention from the need to do adopt such policies as part of the effort to move towards a fair trading system and focus on the quantum of support which is being provided under heads other than the Green Box. The issue in focus is not the principle or the nature but the quantum of support. As a result there are three different measures of support that are recognised as acceptable and discussed. These are the aggregate measure of support (AMS), which covers only those payments made through means that are expressly considered trade-distorting; the de minimis level of support, which permits all countries to retain some degree of support through trade-distorting measures independent of their level of AMS in the benchmark year; and third the total trade-distorting support, which includes support being provided through these means as well as through the adoption of Blue Box measures.

This leads up to a set of recommendations. The first is the need for substantial and effective reduction in the overall level of trade distorting support, defined as the sum total of these three.

The second is the adoption of a tiered formula for reduction in domestic support: countries with higher levels of allowed support will be expected to make deeper cuts. This tiered reduction approach will also be followed for reduction of the final bound level of aggregate support or total possible AMS, and product specific caps would be specified at their average levels during an agreed historical period, to prevent transfer of unchanged domestic support between categories.

The third is the reduction of the permissible de minimis level.
The fourth is a cap on the level of Blue Box support as a percentage of the average value of agricultural production. This implies the retention of the Blue Box which was to be phased out by 2004, as a viable means of agricultural reform. There is no talk of phasing out these measures even by the end of the Doha Round, if such a Round were to begin. What is more, the draft calls for some flexibility to ensure that members providing a high share of trade distorting support through Blue Box measures would not have to make disproportionate cuts.

Finally, even though there is mention of the need to review Green Box measures to ensure that they have no, “or at most minimal”, trade distorting effects, it has been made clear that the basic concepts, principles and effectiveness of the Green Box should remain.

The concessions offered in return for the right to protect are in the area of export subsidies for agriculture that are to be phased out. Since this affects the EU disproportionately, given the its current use of such measures, an effort is made to elicit parallel commitments form other countries. There is to be a parallel elimination of trade distorting elements of export credits and export credit guarantees (that are to be on commercial terms), of practices adopted by State Trading Enterprises in export sales, and of food aid that can used as a mechanism of surplus disposal. But even here, the schedule for implementing new obligations, commitments and disciplines “will take into account the need for coherence with internal reform steps of Members”. While concerns of the developed are consistently thus addressed, the only special concession being provided to developing countries in this area is a longer implementation period.

Even in the area of market access there is to be single approach for developed and developing countries, with differentiation based only on the current level of tariffs using a tiered tariff reduction formula in which there would be deeper cuts in the case of higher tariffs. While LDCs are to be exempted from a contribution, special and differential treatment for developing countries is recognised as “an integral part of all elements” but left unspecified.

Finally, a reference to “flexibilities” for sensitive products, which has pleased Japan, have been made, but concessions to developing countries for Special Products impinging on issues of rural development, livelihood security and food security is mentioned but left undefined and their accommodation left to the “post-Framework stage”

In sum, the concern in the agricultural area during the framework stage has been to take on board the sensitivities of the developed countries, particularly the European Union, while postponing any special specification relating to the developing countries. But even this does not seem to ensure full support from within the developed country camp. French President Jacques Chirac has declared that the draft framework is “unacceptable”, and Prime Minister Jean-Pierre Raffarin has warned the European Commission that “France cannot give its agreement to a negotiation concluded on this basis.” Resentment about the role played by French Commissioner Lamy runs high, and he is unlikely to get official backing either for continuing in the Commission or finding a slot in other international institutions. But the European Union as a group has implicitly endorsed the draft, which is being pushed because France does not have a veto.

Having partially cleared the developed-country stumbling block, the effort of the developed countries seems to be to split the developing country camp so as to prevent any attempt by them to unite and stall the Doha round. Interestingly, on July 13, before the release of the draft framework, trade officials from the US, the European Union, Brazil and India, issued a statement urging ministers of the Group of 90 (G90) developing countries meeting in Mauritius, to back the effort to arrive at a framework agreement by the end of July. The ability to win support from India and Brazil can be attributed to efforts by these countries to use a new round to win concessions in areas relevant to them, such as cross-border supply of services in the case of India. This combined plea of two leading developing countries, in collaboration with the developed countries, put pressure on the G90 to dilute some of its demands including the demand to separately negotiate, independent of the overall negotiations on agriculture, American subsidies on cotton that affect the livelihoods of their peasantry extremely adversely. The draft framework states that the cotton question “will be addressed ambitiously and expeditiously as an integral part of the negotiations”. It deserves a mention, in the WTO’s view, but not special treatment.

Earlier in May, Pascal Lamy made a controversial effort to drive a wedge into the developing country camp, by proposing that weak and vulnerable countries, which are part of G90, should be offered the benefits of a new round “for free”, by exempting them from making any liberalisation commitments. A similar proposal has come from the EU, which calls for channelling the benefits of its preferential trade scheme more to the poorest countries, giving them advantages relative to larger developing countries like China and India that are now the major beneficiaries of the preferential trading scheme. The intention is clearly to divide sections of developing countries and weaken their opposition to the specific form in which the developed country camp wants to push ahead with the Doha Round.

Whether such tactics would work and we would see a replay of the Uruguay Round drama remains to be seen. But as of now the only hope that remains is that the patently unequal and biased framework draft makes it impossible for developing countries to succumb to a strategy that relies on power rather than reason to realise imperial ambitions dressed in the rhetoric of economic rationality.