SUNS | By Chakravarthi Raghavan | February 26, 2004
Geneva, -- The agricultural negotiations at the WTO would need to address not only the issue of export subsidies, but also the other two pillars of agricultural reform, market access and domestic support, including the whole range of domestic subsidies including discussions on the green box, which the Industrialized Countries are not even ready to discuss, as also the blue box, according to UNCTAD Secretary-General Rubens Ricupero.
Ricupero was answering questions at a press conference to release the UNCTAD's report on Economic Development in Africa.
Welcoming the recent public declaration of the US Trade Representative, Mr. Robert Zoellick, putting on record well-known US positions for setting a date for total elimination of all export subsidies, and offering in that context to address the issues of US export credits and some aspects of its food aid programmes, Ricupero said the elimination of export subsidies was not the most important or serious aspect of the agriculture trade negotiations and reforms.
It was essential to have action also on the other two pillars of market access and domestic support and subsidisation, including the whole question of the 'green box' which the industrialized countries currently were not even willing to discuss, and also the question of the 'blue box', Ricupero said.
The UNCTAD report, "Economic Development in Africa: Trade Performance and Commodity Dependence", echoes the declaration of French President Jacques Chirac for an end to the "conspiracy of silence" on commodity issues, and calls for an unambiguous recommitment by the international community to address all aspects of the commodity problem.
The majority of African countries, the report says, are boxed into a trading structure that subjects them to secular terms-of-trade losses and volatile foreign exchange earnings, which in turn stunts capital formation and diversification into more productive activities in these countries and adding to their debt overhang.
The report calls for a three-pronged approach to solving Africa's commodity dependence by combining measures to strengthen domestic institutional capacities with more balanced international trade arrangements and more generous and innovative international financing schemes.
The report links African commodity dependence and indebtedness to the stalled agriculture negotiations at the WTO, and calls for accelerating the negotiations for reducing and phasing out agricultural subsidies. Until these subsidy problems are tackled, the African countries suffering income losses on their commodity sector should be compensated through a fund, the report says.
The UNCTAD head was asked about what he envisaged at the WTO in terms of the agriculture negotiations, and whether the developing countries should use the expiry of the peace clause to fight the issue of agriculture subsidies.
Ricupero said that he envisaged several interesting possibilities.
On the most pressing issue of cotton subsidies and its impact on African countries, where the President of Burkina Faso (speaking also on behalf of other African cotton producers) came to the WTO to raise the issue, and called for compensation to the African countries until the subsidy problem was resolved, Ricupero said that institutions like the World Bank were currently looking into the possibilities of financial compensation to these countries and possible corrective measures.
But the real solution to the problem of agriculture and agriculture commodities, Ricupero said, depended on the way the agriculture negotiations would resume at the WTO. In this matter, although much is said about the export subsidies, "the worst damage is done by domestic subsidies."
Though export subsidies played a very negative role and increased the problems arising from domestic subsidies, "the real issue was how to reach meaningful agreements in the agricultural negotiations which this time would address all the three pillars of agriculture reforms," he said.
Referring in this connection to the public statement of Zoellick, at a press conference in Geneva on 20 February, calling for setting a fixed date to end all export subsidies, and in that context offering to tackle some other aspects relevant to the US practices - export credits and some aspects of food aid, which he considered to be trade-distorting - Ricupero hoped that this would act as an encouragement to the European Union to go a little bit ahead.
The official EU position so far, he noted, was that it was ready to address the case of subsidies that affect products of particular export interest to developing countries - but without any precision on how this would be done. Which would be the developing countries whose interests should be protected, whether the choice of particular products by them would be accepted or would need to be discussed? In some previous discussions when the EU made this proposal, Ricupero recalled, the countries concerned wanted to start with sugar, whereupon the EU said that sugar was off the negotiating table. When they turned to dairy products, again the EU response was that this too was off the negotiating table.
So if there was to be a gradual or progressive approach, as the EU envisaged, and which would be acceptable to others for starting the work of elimination of subsidies, it would be necessary to know how this would be done, who would be in charge of the choice of subsidies and on what basis or criteria? Would it be on the basis of the quantum of money spent on specific products, where the distorted effect is well documented or what would be the other basis? This question would first need to be addressed.
"However, in my opinion, this is not the most important or serious aspect," Ricupero said. "The other two pillars of market access and domestic support, the level of domestic subsidies, are the essential elements to be tackled.
"If we accept the current extremely high level of subsidisation to domestic production, we will continue to have the same situation that has been well-documented," he said, drawing attention to the report (see SUNS #5510) from the Minnesota-based Institute of Agriculture and Trade Policy (on US Agricultural Dumping). The IATP report has shown the list of agricultural products exported by the US and the difference in each case between the cost of production and the impact of the US domestic subsidy. In many cases, he noted, the products did not need any export subsidy, since they benefited from domestic support and were able to continue domestic production irrespective of international prices.
Ricupero added that the agriculture talks would need to tackle "the whole question of domestic subsidy, including the serious problems of the green box, which at present the industrialized countries are not even willing to discuss, and the blue box which is also looking as a serious problem in the agriculture negotiations."
All these revolved around the question of how the stalled WTO trade negotiations would resume and on what basis. Would it keep the level of ambition set at Doha or would it change what had been proposed at Doha, asked Ricupero.
Besides the question of the resumed negotiations, there was also the question of dispute settlement mechanism, where some interesting cases were coming up - the dispute raised by Brazil against the US on subsidised upland cotton exports, and the case by Brazil against the EU on subsidised sugar exports. These were highly symbolic cases and would should show what the possibilities were at the DSU on the basis of current rules, which were not very good. The outcome of the Uruguay Round Agreements were not capable of creating a level playing field.
But even in this context of admittedly unfavourable rules, what would be the possibilities under the dispute settlement mechanism to prove the abuse of the rules in the cases of cotton and sugar?
These disputes did not touch the issue of the peace clause, but would offer an indication to the international community of the real possibilities of using the DSU to try to correct the situation created by the dispute settlement mechanism long ago, in the 1950s, when through an interpretation of the term 'primary products' to include processed products, the agricultural subsidy problem had been created.
Ricupero thought that countries would not rush to a decision on using the expiry of the peace clause and raise disputes, before they had a clear picture of what would happen in the negotiations. Although it would be tempting to use the DSU in a situation of stalemate, Ricupero wondered whether it would be possible to solve by judicial means a problem that had proved difficult to solve through political means? The effort to solve through judicial means would put the whole system to a severe test, and Ricupero thought that countries would take no decision on this until they had a clear view that nothing more was possible in the context of negotiations to change the system.
Earlier, Ricupero had been asked about some of the recent studies that had brought out the sharp differences in the reactions of farmers in the poor and the rich nations, the'perverse' reactions contrary to market theories. A dairy farmer in the US, with his fixed overheads, adding cows to his herd, to increase milk production and augment his earnings during periods of dairy price falls, and selling off a few cows when prices rose. A farmer in Ethiopia growing food crops, or the cotton farmer in Burkina Faso or even India, faced with drop in prices, cut back his production and incurred debts and suffered. Even the three or four decades-old development advice for commercialisation of agriculture and increasing productivity in developing countries would merely result in driving farmers off the land, but with no prospects of their being absorbed in industry.
The UNCTAD head said this went to the core of the whole problematic - the role of state intervention in trying to cope with the perverse negative effects seen in some sectors. When these issues of need to revitalize the multilateral treatment of commodities were raised at the international level, the standard answer was that it should be dealt with by market forces. But this was in stark contradiction with the practice of the very same countries internally in agriculture. In the US, the EU, Japan, Korea, Norway or Switzerland, it was now a well-established tradition for state intervention to keep a minimum level of income of the farmers who would otherwise be victims of market forces.
"The arguments of market forces do not apply here, and least of all in the very scandalous cases like the case of cotton, where heavy subsidies are used to sustain income levels in some countries, at the same time as denial by these countries of international cooperation to address the consequences of these problems at the international level."
This was not an issue confined to cotton, Ricupero observed, and cited the cases of dairy products, sugar, beef, and in several kinds of preparations of tomato paste where the minimum prices for tomato in the EU and the export subsidies for tomato paste, had resulted in elimination of several industries in Senegal.
"There is a long list of perverse effects in concrete cases, showing the incoherence between use of state intervention internally in countries with the necessary means and the denial of the possibilities of state intervention in the name of market forces internationally." +SUNS:
