The outgoing European Union's Trade Commissioner Pascal Lamy and his American counterpart, the United States Trade Representative Robert Zoellick, are at it once again. Mastering the art of deft manipulation and shrewd public deception, they have once again come out with a series of proposals, which if accepted will exacerbate the mass displacement of farmers from agriculture in the developing world.
To 'inject new momentum into the WTO talks', Pascal Lamy as well as his colleague, Franz Fischler, the EU Agriculture Commissioner, wrote a letter on May 9, repeating their willingness to 'move on export subsidies' provided other industrialised countries do the same. At the same time, they are making the elimination of export subsidies conditional to 'an acceptable outcome on market access and domestic support'. In other words, if developing countries open up more of their markets, the EU is willing to negotiate for the removal of export subsidies.
Lamy's letter has been much debated in the corridors of the Geneva secretariat of the World Trade Organisation. It is being hailed as a very positive offer from the rich countries, and the developing countries are being asked to match this in generosity. What is not being said and for obvious reasons is that Lamy's letter actually establishes the failure of the European countries to cut agricultural subsidies as per the obligations under the Agreement on Agriculture. It is tantamount to a deliberate effort to disobey the rules of the rule-based agreement and therefore should be subject to a severe penalty.
Lamy's offer of putting the export subsidies (mind you, he is not talking of all farm subsidies) on the table and linking these with further opening up of markets in developing nations is therefore fraught with dangers. Developing countries have already met the obligations of the Agreement on Agriculture in letter and spirit and have already lowered or phased out trade barriers. India, for instance, has phased out or removed quantitative restriction on 824 agricultural products thereby becoming an open field for agricultural imports. Already food imports have multiplied by four times in the past four years. On the other hand, the corresponding reduction in agricultural subsidies by the United States, European Union, Canada, Japan and Switzerland hasn't taken place. Lamy's letter therefore is merely aimed at stuffing wool in the eyes of the trade negotiators and gullible politicians.
The US Trade Representative Robert Zoellick has been travelling to most of the important developing countries after the failed Cancun Ministerial in September 2003, coaxing and arm-twisting them into submission. Blamed squarely for the infamous Farm Bill 2002 that provided an additional US $180 billions of federal support for the next ten years - the bulk of it to be consumed in the first three years - he is now distracting attention by saying that new farm bill expected in 2006 will conform to WTO obligations.
The US/EU position is also being very strongly supported by the Washington-based International Food Policy Research Institute (IFPRI), which is supposed to make policy recommendations that help sustainable agriculture and food security in the developing countries. In reality, the IFPRI does just the opposite. Zoellick surely knows what he is talking about. It is expected that in the first three years (before George Bush goes for elections in November), the Farm Bill has provided an additional support of at least US $ 125 billion to its estimated 900,000 farming families. With such high doles in their bank accounts, the American farmers are surely ready to suffer the pangs of international free trade.
In other words, Zoellick has already ensured that the American farmers are not negatively impacted. These subsidies are being very conveniently shifted to the non-trade distorting 'blue box'. At the same time, he is unwilling to make any substantial concessions in market access, and doing away with special safeguards. For instance, among the flimsy offers being made to pacify the WTO members, Zoellick has suggested a flexibility formula for phasing out the export credit programs, which the EU and other members charge is a form of an export subsidy. To eliminate the subsidy component of export credits, all he has promised is his willingness to reduce repayment periods from 36 months to six months on the loans provided for buyers of some commodities!
The ongoing debate is lost in a maze of formulas being tossed around. The 'Harbinson formula' as proposed by the former chairman of the special session of the committee on agriculture, Mr Stuart Harbinson, met with stiff criticism as being too soft on the developed countries. Another formula put forward by Switzerland, popularly called as the 'Swiss formula', guaranteed that high tariffs would be disproportionately cut more than low tariffs. On the other hand, the US and European Union continue to defend the 'blended formula' for cutting tariffs that was part of the draft framework floated at the failed Cancun ministerial last year.
The club of the dirty four - as the Quad group of countries, comprising US, EU, Japan and Canada - are called, maintain peak tariffs of 350-900 per cent on crucial agricultural products, including sugar, dairy and the likes. On the other hand, countries like India, maintain an average tariff of 115 per cent, with a peak of 300 per cent on edible oils except soyabean oil. The 'Harbinson formula' would have reduced India's tariffs by an average of 43 to 80 per cent, whereas the US and Australia would have to reduce the import tariffs by just 5 and 1.6 per cent from their respective base year tariffs under consideration.
The blended formula, as part of the "Derbez Draft' would however reduce the peak tariffs in the US by some roughly 300 to 400 per cent. But even this is not enough given the realities of the prevailing trading system that provides all kinds of special and differential treatment to only the developed countries. For the developing countries, the challenge therefore is not to accept any formula that does not cut the peak tariffs in the US, EU and Japan to a level of less than 50 per cent.
The US/EU position is also being very strongly supported by the Washington-based International Food Policy Research Institute (IFPRI), which is supposed to make policy recommendations that help sustainable agriculture and food security in the developing countries. In reality, the IFPRI does just the opposite, and has recently even gone to the extent of proposing humanitarian food aid to be brought under WTO control.
Developing countries should stand up solidly to demand a severe penalty on the rich OECD (Organisation for Economic Cooperation and Development) countries for willful infringement of the agricultural agreement. Developing countries,which have already lowered the import tariffs, are in the process being forced to remove whatever little protection they have against cheaper and subsidised imports, thereby virtually turning them into banana republics. G-20, the group of major developing countries that stood up to the bullying tactics of the US and EU at the Cancun Ministerial, are already showing signs of buckling under pressure. Much of the dismay is being attributed to the softening of India's position.
Interestingly, market access is a hot issue for the simple reason that both the US and EU trade chiefs want to retire with the feeling they managed a framework approach to breakthrough the deadlock in agricultural negotiations. In return, the more contentious and politically sensitive issue of agricultural subsidies is being pushed to the background. Removal of agricultural subsidies should be a pre-requisite to any further movement on the WTO agricultural negotiations. If the ongoing negotiations at WTO Geneva are any indication, developing countries are to blame themselves for sacrificing their economic interests merely to ensure that Pascal Lamy and Robert Zoellick walk away with a favourable report-card.