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Mark Ritchie*
Minnesota, Feb (IATP) -- With the failure of the Seattle Ministerial meeting of the World Trade Organization, and as efforts are renewed to start the mandated negotiations for continuing the reform process in agriculture, an issue that arises is one relating to subsidized agricultural exports and how to deal with it.
One thing everyone seemed to agree on at the doomed World Trade Organization Ministerial meeting in Seattle (30 Nov to 3 Dec) was that some way has to be found to stop the dumping of food exports at prices below the cost of production.
Unfortunately, like a lot of other good ideas that enjoy widespread support, the WTO has not been willing to tackle this issue in the past and all signs are that it will ignore this serious problem for the foreseeable future.
The unwillingness of the WTO to enforce its own rules against export dumping is a troubling sign of an increasingly apparent disconnect between the rhetoric and promise of global institutions and the reality of their day-to-day actions and inactions.
One excuse used by WTO officials is that it is difficult to determine export dumping in agriculture. It is true that some countries, like the United States, use a complex web of public and private programs to subsidize agricultural trade - and most of these never show up on the US lists of official export subsidies.
But if we need to get rid of export subsidies in agriculture, one has to move beyond the argument over what does or does not qualify as a subsidy.
Fortunately, there is another approach to deal with the problem. We could begin the process of dismantling export subsidies by first eliminating export dumping.
The goal of all export subsidies is to capture more market share by lowering the price of exports, often below the cost of production. When the export price is set at below the full cost of production, (including the cost of marketing, the value of government assistance, and a reasonable profit) it is called export dumping.
Instead of continued arguments over what is or is not an export subsidy, trade negotiators could simply agree to phase-out and then eliminate export dumping. At some agreed date in the future, all food exports would be made at prices at or above the cost of production.
This would narrow the arguments to two areas. First, how to determine the full cost of production by which dumping would be judged. Second, what time period to use for phasing out dumping.
On the formula for calculating the full cost of production, there are two major components - the expenses paid by the producers themselves and those paid by the taxpayers. The average cost of production of producers is determined each year in all major exporting countries by the national government. In the United States, this is done by the U.S. Department of Agriculture.
The other part of the cost of production, the cash value of the expenses paid by taxpayers, has been calculated for most crops for each of the major food exporting countries by the Organization for Economic Cooperation and Development (OECD).
OECD uses a formula, often called the Producer Subsidy Equivalent, to determine the cash value of various government programs.
This Producer Subsidy Equivalent (PSE) formula is surprisingly comprehensive and accurate, given the elusive nature of most government farm programs. One downside is that neither the USDA nor the OECD try to determine the cost of the externalized environmental and social damage from these exports, but that could be incorporated into the cost at some later date.
This full cost of production for each crop would be determined by adding up all the expenses paid by farmers together with those paid by the taxpayers and then divide it by the total production in order to determine the average cost of production on a per pound, bushel, or tonnage basis. If this cost of production be higher than the average export price, it should be considered dumping and therefore subject to reduction over the agreed upon period of time.
On the time-period, there could be a five-year phase out. But the precise timing hardly matters as long as there is a schedule of commitment for eliminating export subsidies. Some countries and some crops might take longer. Some poor countries might get additional flexibility. Whatever the time-period, by the end all countries will stop dumping.
But what can be the remedy if a country refuses to commit itself to reducing dumping or, more likely, there is back-sliding on commitments?
The answer to this should be swift, simple and strictly WTO-legal action.
If an exporting country does not move towards eliminating dumping then importing countries should simply impose countervailing duties, as the U.S. government now does on imports into North America. This anti-dumping tariff would be large enough to bring import prices of dumped goods up to proper levels.
One of the many benefits of directly reducing dumping, rather than endlessly debating the definition of subsidies, is that it could bring immediate improvements for many producers in the Third World who have been devastated by export dumping from the United States, Europe, Canada, and others. Governments have endless ways to re-package and re-name subsidies and can play lots of tricks with currency manipulation. We can go on arguing about export subsidies for another Millennium or we can take a small but important steps towards eliminating export dumping.
The anti-dumping instrument under the WTO is on the one hand structured such that challenges are not easy, in that the assessment of the evidence by the domestic authority cannot be second-guessed by the dispute settlement system.
However, the prior procedures and evidence to be accumulated and presented, either by the wings of the government or authorities initiating the investigation and action, or by representative 'industry' is far too complicated for the large numbers of developing countries whose agriculture and subsistence farmers are the major victims of such a dumping.
The procedures and presumptions must be simple and provide quick relief to the farmers in the countries affected by the practices of the rich countries.
For e.g. if the export price is below the combination of the Producer Subsidy Equivalent (PSE) and the government-determined cost of production, then it could be presumed that there might be dumping.
All exporting countries could be asked to submit data on:
1. government estimates of national average costs of production by crop;
2. government estimates of producer subsidy equivalents by crop;
3. reported average export prices (FOB major port).
If 1 and 2 combined be greater than 3, there might be a dumping problem.
The details and how to frame the rules to achieve the purpose could be a matter of negotiations, that need to be transparent and open, and a democratic decision-making inside the WTO, so that the public outside could follow and be sure that the powerful are not creating 'shelters' for themselves. Some corresponding provisions may also be needed in terms of the agreement on subsidies and countervailing measures.
What is important is willingness and commitment to deal with the problem in a manner beneficial to the farmers and farming communities, rather than the big agricultural trading corporations and transnational corporations.
[* Mark Ritchie is the President of the Institute for Agriculture and Trade Policy and wrote this article for the SUNS.]:
