Agriculture - A Test Case for WTO

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If the US and EU continue to support multilateral negotiations, they will have to respond to the G20's far-reaching and justified demands to end all farm subsidies and be granted full market access

By Tahir Hasnain

While it is widely argued that agriculture was, in fact, a test case for the multilateral trading system when for the first time it was included into the Uruguay Round of General Agreement on Trade and Tariff (GATT) in 1994 [signed as World Trade Organization (WTO) in 1995], agriculture still remains a test case if WTO continues to exist after the collapse of recently held 5th WTO Ministerial Conference at Cancun-Mexico.
 

This article argues that USA was the only WTO member country, which forced rest of the members to slot in agriculture into the WTO in 1994, and USA along with the EU, even now, wants to continue with imbalanced and unfair Agreement on Agriculture (AoA).
 

• Cancun Episode
• Lessons from Cancun
• Agriculture: Test Case for a Re-Launch
• WTO: The Way Ahead
   

It came as no surprise that consensus between the 146 government delegations was impossible; not just because of the number of participants, but also because of fundamental disagreement on what should be negotiated. The developing countries wanted, first of all, a definitive end to unfair trade practices in agriculture, like export subsidies and barriers to the markets of the North. They expected the developed countries to fulfill their promises made in the previous meeting of the WTO in Doha two years ago.

The dominant trading blocks, namely the US and the EU, wanted a broader panorama of negotiations. In a common move they had put aside their transatlantic trade disputes and insisted on talking about new issues, which suited their interests such as trade in services, rules for investments and competition. The US-EU move meant that negotiations on agriculture and other urgent issues could not even begin before the developing countries had accepted the enlarged agenda. It was this pressure, which convinced the South to form a common front against the power play of the two 'trade elephants'.

This is, thus, evident that both agriculture and Singapore Issues were equally responsible for the collapse of Cancun talks, and the world has witnessed a complete divide between the South and North.

The group of 21 developing countries (G21), led by Brazil, India and China, represented a critical grouping, which empowered the developing world into being able to reject unfair conditions and pressures. From this point of view, Cancun has strengthened the international community. It has raised self-confidence among delegates from the South and encouraged more South-South co-operation. The challenge now remains to move from a common opposition against the unfair to the achievement of fairer agreements.
 

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The future of multilateral trade agreements depends on a fair and inclusive process in the WTO. While, from a point of view of sustainable human development, there is no proper alternative to multilateral trade agreements, the on-going international trade is still unfair and new bilateral agreements are not likely to improve the lives of the people most in need. With the collapse of Cancun talks, the future of WTO is uncertain.
 

The other message in the developing country perspective is that united we can stand and divided we will fall. Developing countries are in bulk and can resist unfair trade practices if they stand together. Developed countries have so far been able to create splits in the groups of developing countries, and that is the reason we are having an unfair trading system at the moment. Agriculture is a major common issue of developing countries and unity among them is inevitable.
 

Another message we get from Cancun is that 'one size fits all' approach of the free trade ideology is not practical. Collapse of the Cancun talks very clearly tell that developing countries want separate rules (justified in their perspective) in agriculture in which they specialise; while, the developed world would like to have different rules against services, technology, investment, competition, etc in which they have comparative advantage.
 

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Cancun ended without a common resolution and developing countries do not want to make 'Derbez Draft Agriculture Text' as the base for further negotiations. What this implies is that WTO needs starting of negotiations again. That makes WTO in a very difficult stage and agriculture remains a serious question. The US has recently shown flexibility to eliminate export subsidies in steps but there is much more to do for a balanced agriculture pact.
 

Peace clause in AoA, which so far kept the WTO members from fighting trade wars or taking "revenge" for trade distorting measures, has been phased out without any decision about its prolongation. Theoretically, it is argued that trade peace will be over by the end of this clause. Whether in practice some countries will turn smoldering disputes into new trade battles, depends on the strategic conclusions they draw from the Cancun experience. Thus, future of AoA stands again very uncertain.

If the US and EU continue to support multilateral negotiations, they will have to respond to the G20's far-reaching and justified demands to end all farm subsidies and be granted full market access. At the same time the EU must respect the specific agreements with smaller countries in Africa, the Caribbean and the Pacific (ACP), which contain preferential but limited access to the EU market. Yet again, the EU is bound to the compromise recently reached on the reform of the Common Agriculture Policy (CAP).

EU, for instance, has security and protection in their systems and will never be able to end agricultural protection one or the other way and will continue cosmetic changes to an existing policy of dumping. Question remains, how will then developing countries be able to progress on agricultural talks.

During the Cancun talks, there was also very little interest in the inclusion in the trade negotiations of any 'non-trade concerns' such as food safety and environmental and social considerations. Remembering the high priority that the European Commission had allocated to these concerns, the project of making the CAP WTO-compatible seems to have missed its goal and EU will find this very difficult to proceed on agriculture.

For developing countries, on the other hand, agriculture is vital as it is the main source of people's livelihood, income, employment, and goes deep into their culture.

Data given below reveals value of the agriculture to developing countries and the space to compromise.
 

Agriculture for South and North

                                                               North                                      South

- Employment                                            70%                                         4%

- Contribution to GDP                                 34%                                         1.5%

- Foreign exchange                                    27%                                         8.3%

- Nature of Agriculture                                Subsistence                              Export-oriented

Furthermore:

As compared to developed world, food consumption is the large share of expenditure in developing countries.

As per FAO study (covering data of 1990-94 and 1995-98), food import bill in Pakistan, Bangladesh, etc increased by 50-100% and it almost doubled for India and Brazil.

Any change in agriculture will lead to a mass socio-economic disorder in developing countries.

AoA has design and implementation-related imbalances as it institutionalises trade-distorting practices under blue box, green box subsidies other than what has been mentioned above. It has also been unfairly supporting developed countries through Special Safeguards and Peace Clause. The principle of "special and differential treatment", which many developing countries referred to, does recognise the imbalances between North and South.
 

Subsidies in OECD countries went on to $330bn, which is an increase over 9% as compared to 1986-88. Thus, North has clearly been dumping their agricultural products in poor countries. Tariff peaks in developed countries, for instance Rice 550% (Japan), Grape juice 215% (EU), Milk powder with sugar 179% (US), also show implementation-related imbalances.

Few rich countries, especially the USA, seem to have the policy of control. While, they are in the process to economically control the world through power, technology, services, capital etc, they also seem to control food of the world as well. Earlier their notorious Green Revolution Technology made cost of agricultural production of developing countries extremely high and, eventually, uncompetitive in the international market, and now through Genetically Modification Technology they are in the process to snatch seed from farmers of developing countries and give seed patents to the multinational companies (MNCs) originating from USA. The way agriculture was deliberately kept out of the GATT from 1947-94, it was only included into WTO under USA pressure; and the way genetic resources were stolen from the South, it is obvious that multinational food companies are behind this and want to control world's food.

This whole WTO pact needs to be examined to judge this argument as various WTO agreements, one way or the other, target agriculture in favour of developed countries. For instance, the patent rights on biological resources given in the Trade Related Aspects of Property Rights (TRIPS) agreement and Northern standards imposed through Sanitary and Phyto-Sanitary (SPS) agreement also support the argument that agriculture is being snatched from developing countries in favour of MNCs of USA and other OECD countries.
 

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In the backdrop of the above-mentioned facts, it is obvious that tough decisions are needed to give life to the multilateral trading system. Developing countries cannot just wait against promises made by the developed countries during Uruguay and Doha Round. Regarding agriculture, developed countries do not have comparative advantage in this and should shift as per the free trade ideology to make WTO fair and transparent. And if this is not possible agriculture must be decoupled from WTO pact.

As mentioned above, the experience tells that OECD countries, especially the EU, will never be able to totally stop protection to their agriculture sector, which is against the free trade ideology. Agriculture, on the other hand, is a vital sector for developing countries and they will never compromise. Thus, the future of an agriculture pact as well as other WTO agreements containing agriculture sensitive clauses remains uncertain. If member countries continue to keep a fair multilateral trading system, which is crucial to improve lives of the people across world, they will have to take agriculture out of the WTO to give life to the system. Future negotiations will mark that how and how early will this happen?


Ref link: http://www.jang.com.pk/thenews/feb2004-weekly/nos-29-02-2004/pol1.htm#7

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