Associated Press Worldstream | By NAOMI KOPPEL | December 23, 2003
The "peace clause" that for nine years has protected the US$1 billion in daily subsidies paid to farmers in wealthy nations is about to expire, and some countries are threatening to file their first legal challenges to the payments.
"We can be competitive in quality, in quantity and in packaging, but we cannot compete with the treasuries of big, rich countries," said Alfredo Vicente Chiaradia, ambassador of Argentina.
With the World Trade Organization clause expiring at the end of the year, the possibility of a series of multibillion-dollar disputes hangs over subsidies for sugar, cotton, soybeans and other major commodities.
Such disputes could seriously damage relations as WTO members struggle to bridge differences in the current "round" of negotiations that is supposed to lead to a new global trade treaty by the end of next year.
The 146 WTO nations spend much of their time arguing over the agricultural payments that developing countries regard as breaching the general rules on subsidies.
But the clause in effect since the body was created in 1995 has prevented governments from initiating proceedings in the WTO's dispute-settlement court.
The clause was introduced at the demand of the United States and the European Union during the Uruguay Round of trade liberalization negotiations because many of the subsidies that are allowed by the agreement on agriculture would be illegal under other WTO rules. These include direct subsidies on exports and many domestic farm payments.
WTO members have ignored demands from Washington and Brussels that the clause be extended, and pressure groups supporting poor nations are cheering its demise.
The clause has encouraged the dumping of agricultural commodities on world markets, say 30 aid groups.
"The results are devastating for peasant farmers in developing countries," the groups said in an open letter to the WTO.
The EU, the world's biggest subsidizer, has long insisted that it needs the clause if countries expect it to make big concessions as part of the current round of trade negotiations.
"A comprehensive agreement on agriculture, covering subsidies, has little - if any - value to those who contribute most in the absence of a peace clause," said Gregor Kreuzhuber, spokesman for EU Agriculture Commissioner Franz Fischler.
He said WTO members have to make a strategic choice.
"Either they believe that multilateral negotiations are the way forward to a fair and market-oriented trading system, or they believe WTO litigation is the way forward," Fischler's spokesman said.
Argentina's Chiaradia said many countries are willing to try negotiating awhile longer before they follow the route of legal challenges.
"Do not expect a flood of cases immediately after Dec. 31, but it is clear that we are studying this and we are going to keep this under review, and of course the evolution of the negotiations will be an important element."
He noted that some countries which might have to defend against legal challenges are urging a commonsense approach.
"And we are commonsensical," Chiaradia said.
Uruguayan Ambassador Carlos Perez del Castillo said it is difficult to predict what will result from the expiration of the clause.
"It will depend very much on the members' individual cases and also on the mood that the negotiations take during the early part of next year," said Perez del Castillo, who chairs the WTO's ruling General Council.
A fall in the price of commodities, which are currently at very high levels, could lead to more cases, analysts say.
"As prices come down - and they will come down because these are cycles - then there will be more cases that will be viable," said Scott Andersen a partner in the Geneva trade law practice Sidley, Austin, Brown & Wood.
He said very large U.S. and EU subsidies kick in when prices fall dramatically, keeping production at high levels.
"Those farmers will stay on the land and they will continue to produce the crops. It will be the developing country producers who will cut back on production," Andersen said.
Luzius Wasescha, the senior trade negotiator for Switzerland - one of the highest farm subsidizers but a small player internationally - said he was counting on success in the round to avoid the multiple trade wars that some have predicted.
"Even if you have a right to litigate, you aren't going to litigate if you are negotiating," he said.
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