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Africa: Trade Smoke and Mirrors

AfricaFocus Bulletin
Oct 15, 2005 (051015)
(Reposted from sources cited below)

Editor's Note

In an effort to give momentum to international trade talks, the United States and the European Union this week released new offers to cut widely-criticized subsidies to rich-country farmers. The proposals have already provoked opposition from defenders of subsidies, including U.S. legislators and French officials. But non-governmental analysts say in fact the concessions to developing countries are "smoke and mirrors."

While it is possible that more detailed negotiations on tiered tariff levels may provide benefits for some leading developing countries, such as India and Brazil, the new proposals included no plan to address the needs of African cotton producers, despite earlier promises. The subsidy reduction proposals themselves contain two principal kinds of loopholes that undermine their possible benefits to developing countries.

Instead of addressing reduction in actual subsidies, they typically refer to reduction in upper limits or ceilings which are already much above actual subsidies. Secondly, instead of actually reducing total subsidies, rich countries are relying on reclassifying subsidies from those regarded as trade-distorting ("amber box") into non-trade-distorting ("green box") or an intermediate category known as the "blue box."

Even if the new proposals prove politically feasible, given the political clout of the agribusiness and large farm lobbies, developing countries faced with multiple obstacles to competing effectively in agricultural commodities are likely to see few benefits, while being pressured to further open their markets to rich country competitors.

This AfricaFocus Bulletin contains statements on the latest U.S. and European Union proposals on agricultural subsidies, from the Institute for Agriculture and Trade Policy (IATP) and from Oxfam. It also contains excerpts from an earlier analysis by Oxfam of the strategy of retaining high levels of agricultural subsidies by reclassifying particular measures in less restrictive "boxes."

For earlier AfricaFocus Bulletins on trade issues, visit http://www.africafocus.org/tradexp.php

For issues affecting African cotton producers in particular, see
http://www.africafocus.org/docs04/cot0405.php,
http://www.africafocus.org/docs04/tr0409.php,
and http://www.africafocus.org/docs05/cot0503.php

More detailed and regularly updated discussions of the trade talks, from well-informed non-governmental observers, can be found at http://www.tradeobservatory.org (IATP) and
http://www.twnside.org.sg (Third World Network). For an August statement on the talks from the Africa Trade Network, a coalition of civil society groups, see
http://www.twnafrica.org/news_detail.asp?twnID=812

++++++++++++++++++++++end editor's note+++++++++++++++++++++++

U.S. Agriculture Proposal Falls Short at the WTO
Offer Includes Nothing for Development or a Stop to Agricultural Dumping

Institute for Agriculture and Trade Policy http://www.iatp.org, http://www.tradeobservatory.org

October 10, 2005

Contact: Ben Lilliston, 612-870-3416, blilliston@iatp.org Carin Smaller, in Geneva, 41-22-789-0734, csmaller@iatp.org.

Minneapolis - A proposal for new agriculture trade rules made today by the U.S. Trade Representative at the World Trade Organization (WTO) includes nothing to benefit developing countries. The proposal contains provisions and escape hatches that would continue a damaging farm policy that hurts family farmers in the U.S. and around the world, according to the Institute for Agriculture and Trade Policy (IATP).

"The U.S. proposal is supposed to be part of the so-called `Doha Development Round,' but it includes no protections for developing countries who have been hit the hardest by damaging WTO rules," said Sophia Murphy, Director of IATP's Trade Program. "The Bush Administration's vision of a world free of subsidies and tariffs would be a disaster for farmers, workers, the environment, and consumers. We need to find ways to keep borders open, but regulated. This misguided vision only helps transnational corporations who both export and import."

"This proposal does nothing to address dumping or excess production of commodities," said Carin Smaller, of IATP's Geneva office. "One of the major weaknesses of international agricultural trade is the absence of quick, simple rules to stop dumping. By pushing to strip away the appropriate use of tariffs to protect against below cost imports, the U.S. proposal takes us further away from finding a solution to dumping."

Other weaknesses in the proposal include:

  • It allows the fuzzy shifting of boxes for U.S. agriculture payments. The shift of approximately $7 billion worth of countercyclical payments into the Blue Box gives the U.S. much more flexibility to meet its proposed commitment and makes the proposed cuts less significant. In fact, as the 2007 U.S. Farm Bill is expected to shift more of current payments into the Green Box (where there are no limits on spending), the U.S. proposal would likely require little or no cuts in overall spending.
  • The food aid proposal, a major sticking point in WTO negotiations, does nothing to address the key problems in the U.S. program - namely the selling of U.S. food aid, and the shipment of actual food rather than donating money to allow countries to purchase food locally.
  • It ignores the power of the private sector in world agricultural commodity markets. It singles out the elimination of State Trade Enterprises (STE), but disregards transnational traders that have considerably more market power.
  • Although the July Framework states that Special and Deferential Treatment (SDT) for developing countries is an "integral element" of all aspects of the agriculture negotiations, the U.S. proposal fails to substantially address SDT.
  • The U.S. proposal has nothing to say about the cotton crisis of African cotton producers. The U.S. earlier called for a "comprehensive solution" on the crisis of African cotton producers but fails to say anything in the current proposals.


US farm subsidies offer 'smoke and mirrors''

Oxfam Press Release - 10 October 2005

http://www.oxfam.org.uk

The United States will have to make only negligible cuts to the subsidies it pays to farmers, despite a supposed breakthrough offer on agricultural reform at the World Trade Organisation (WTO), international agency Oxfam said today. Under its proposal made today, the USA would have to cut its spending on agriculture by only 2 per cent - from $74.7bn to $73.1bn at the end of the Doha round implementation period.

The USA said it would reduce the ceiling on trade distorting support to its farmers by 60 per cent, but Oxfam said that this would leave overall spending almost untouched and poor farmers in developing countries would not benefit.

The USA is also demanding that developing countries cut their tariffs more than rich countries at the WTO, in direct violation of the principle of special and differential treatment.

"It's a case of smoke and mirrors. If this offer goes ahead, trade distorting domestic subsidies will remain almost completely unchanged and dumping will continue. Meanwhile harsh concessions on market access will be wrung from developing country members in exchange for illusory progress," said Celine Charveriat, Head of Oxfam International's Make Trade Fair Campaign.

"If this were a game of limbo the USA would be agreeing to have the bar lowered to eyebrow level. It is simply shifting payments around from one place to another rather than cutting them significantly. This will make hardly any difference for the millions of poor farmers suffering from unfair US competition in sectors such as corn, rice, or cotton," she added.

The US proposal was put forward today in an article by the US Trade Representative, Rob Portman in the Financial Times. The proposal will be discussed in Zurich this afternoon at a meeting with other key countries including the EU, India, and Brazil.

The USA proposes an end date of 2010 for export subsidies, but hardly any of its payments are classified in this way. It says it will discipline food aid, which acts as a hidden export subsidy, but gives no detail of how it will do this.

Charveriat said, "On export subsidies the USA is essentially shooting with somebody else's bullet: committing to eliminate payments it doesn't have and failing to make meaningful commitments on the instruments it does use: export credits and food aid."

"What looks on the surface like a genuine attempt to move the talks forward is in fact a very clever piece of manoeuvring by the USA. This proposal would allow them to get away with doing next to nothing in return for some very painful concessions from developing countries. The devil is in the detail, and these details are very devilish indeed."


No real gains for poor in EU trade offer

Oxfam Press Release - 11 October 2005

http://www.oxfam.org.uk

Despite a supposed breakthrough reform offer, the European Union will not have to reduce the amount of money it pays its farmers by a single euro, said international agency Oxfam today.

The EU offered to cut trade distorting farm payments by 70% but Oxfam said thanks to flexibility at the WTO and recent changes to the European subsidy regime, they would not have to make significant cuts and could actually increase payments overall.

"They say that empty vessels make the most noise and the EU offer on trade reform is an example of that. There is little here that we haven't seen before and it seems more like creative accounting than radical reform," said Celine Charveriat, Head of Oxfam International's Make Trade Fair Campaign.

"The European Commission, under pressure from certain member states, has even failed to propose an end date for export subsidies, which is something that should have been agreed and acted on years ago," she added.

Following the 2003 reform of the Common Agricultural Policy (CAP), Europe is classifying its subsidies differently at the WTO. The bulk of subsidies are now immune to cuts because they supposedly do not distort trade. However, Oxfam is concerned that these new subsidies will still do damage to farmers in the developing world and should therefore be reformed.

Charveriat: "It's a case of the emperor's new clothes. The EU, like the US, is simply proposing to move payments from one place to another, rather than reduce them. We're very concerned that the losers from this renaming game will be poor country farmers."

The EU offer came after a similar proposal from the US, which Oxfam also criticized, saying that the US was proffering illusory subsidy reform and demanding big market access concessions from developing countries in return.

The EU offer on market access gives developing countries more flexibility to protect fledgling farm sectors. However, it holds out for the right to designate certain 'sensitive products' like sugar and dairy as subject to lesser cuts, which would dilute the real market access available. At the same time the EU fails to acknowledge that developing countries need to protect certain products vital for food security and livelihoods.

The EU proposals on services liberalisation and Non-Agricultural Market Access go directly against the needs of developing countries and fail to recognize the principle of special and differential treatment.

Charveriat: "The EU talks about the need for balance but we're very worried that developing countries are being pressured to give up far too much. With 900 million people living in extreme poverty in the rural sector of developing countries, the scales must be heavily tipped in their favour. This round of talks was meant to put the needs of developing countries first and deliver for poverty reduction."

High-level meetings continue today in Geneva and there will be a WTO General Council next week.


A little blue lie: harmful subsidies need to be reduced, not redefined

Oxfam International

21 July 2005

[excerpts: for full text visit
http://www.oxfam.org.uk/what_we_do/issues/trade/bn_bluebox.htm]

New criteria for 'Blue Box' agricultural subsidies under consideration by trade negotiators at the World Trade Organization will create large opportunities for trade-distorting agricultural subsidies. This would fundamentally undermine a key objective of the Doha Development Round negotiations: ' we commit ourselves to comprehensive negotiations aimed at substantial reductions in trade-distorting domestic support.'

...

Negotiators must face the truth: an expanded Blue Box will turn the promise of substantial reductions in trade distortion into a lie. Shifting definitions and parsing words will not change the underlying truth that rich countries maintain heavily subsidized agricultural production. Without strong new rules, agricultural dumping will continue, and the potential to reduce poverty and encourage development will be unfulfilled.

Punching holes in the Blue Box

The Blue Box is a category of agricultural subsidies created in the Uruguay Round of trade negotiations. The Uruguay Round negotiations established a hierarchy of subsidies, with the most trade-distorting subsidies requiring the highest levels of regulation and control. Most subsidies for agriculture are understood to distort trade, usually by encouraging increased production. These trade-distorting subsidies are categorized in the Amber Box. A separate category, the Green Box, was created for subsidies understood to be minimally distorting or non-distorting. At the last stages of the Uruguay Round negotiations, a new category of subsidies was introduced as a compromise measure: the Blue Box. As commonly understood, the Blue Box subsidies had two main aims:

  • to provide forms of agriculture support that are less trade-distorting than Amber Box support;
  • to support transitional programs enabling countries to move away from trade-distorting subsidies (Amber Box) and toward non-distorting subsidies (Green Box).

The WTO describes the Blue Box as the 'Amber Box with conditions' conditions designed to reduce distortion. Subsidies that would normally be in the Amber Box can be categorized as Blue Box if the subsidies also require farmers to limit production. Because Blue Box subsidies carry conditions, the Uruguay Round rules did not place quantitative limits on them, which means that countries are permitted to provide unlimited levels of Blue Box subsidies.

Historically, the largest user of Blue Box subsidies has been the European Union, which spent a little more than 20 billion Euros annually in production-limiting subsidies before its 2003 reform. This represented a significant proportion of EU subsidies, and about 10 per cent of the total value of EU agricultural production (prior to the addition of the newly acceded countries). In the Doha negotiations, the EU has very clearly stated that it regards preserving the existing Blue Box as a key negotiating objective.

Aside from Norway, no other WTO members currently report significant Blue Box subsidies. Prior to 1996, the USA used subsidies that qualified as Blue Box, but it has since eliminated them and does not currently report any Blue Box subsidies.

USA opens the box

The USA proposed to eliminate the Blue Box in its original negotiating position for the Doha Round in 2002. More recently, however, the USA has become the leading proponent of proposals to expand the definition of the Blue Box to permit other forms of agricultural subsidies. While the current Blue Box currently permits only subsidies that have a 'production-limiting' function, the USA promotes inclusion of subsidies 'that do not require production'. ...

For the USA, the apparent purpose of redefining the Blue Box is to permit the inclusion of counter-cyclical payments (CCPs). Counter-cyclical payments are subsidies that are paid to producers when commodity prices fall below specific levels. In this way, they resemble price-support subsidies, which distort trade and are subject to WTO reduction commitments in the Amber Box. Though the USA never officially notified the WTO about the nature of counter-cyclical payments since their creation in 2002, the USA is expected to classify these payments as trade-distorting in the Amber Box or as 'de minimis'. This is consistent with the findings of the recent WTO ruling in the Brazil/USA cotton dispute, in which the panel concluded that US counter-cyclical payments on cotton were trade distorting and had caused damage to other cotton exporting countries by encouraging US production and depressing world cotton prices.

Creating new criteria for the Blue Box would allow the USA to shield counter-cyclical payments from cuts to trade-distorting subsidies. Doha Round negotiations could cut the Amber Box and 'de minimis' subsidies by 50 per cent or more. If the USA is successful, the Blue Box will serve as a safety-valve against the pressure to reduce subsidies, and could make it possible to avoid any subsidy reduction at all. To justify this move, the US argues that counter-cyclical payments are of a hybrid nature. ... Subsidies that are completely unrelated to ('decoupled' from) production and prices are eligible for the Green Box and are not limited by WTO rules. According to the US line of reasoning, counter-cyclical payments belong to a middle category between Amber Box subsidies and Green Box subsidies, i.e. in a revamped Blue Box.

Counter-cyclical payments are the codification of a change of heart that politicians in the USA experienced after the enactment of the 1996 Farm Bill. This measure introduced new 'decoupled' payments, called 'production flexibility contracts', and generally set a path toward reduction of trade-distorting agricultural subsidies. However, the 1996 Farm Bill was enacted at a time when historically high prices of agricultural commodities prevailed. By 1998, prices had fallen dramatically, partly as a result of the Asian financial crisis, and the US Congress leapt into the breach with a series of ad hoc 'emergency' payments, as well as massive shipments of 'food aid'. These 'emergency' agricultural payments continued until 2002, when Congress wrote a new Farm Bill. Thus were born the counter-cyclical payments. When Congress enacted the 2002 Farm Bill, politicians described the legislation as a 'safety net' for US farmers ...

However, rather than providing a 'safety net' against low prices, the counter-cyclical payments set price targets so high that payments are perpetual, rather than cyclical. ...

In fact, counter-cyclical payments reflect very unrealistic projections for commodity prices in the future. For most covered commodities, the US Department of Agriculture does not expect that prices will reach the counter-cyclical target price through 2013 (when the estimates end). In most cases, the government agency projects prices to decline gradually - an expectation that is based on assumptions about growth in global demand, trade, and consumption.13 Target prices and the resulting counter-cyclical payments are set by political bargaining, not by any discernible policy foundation. ...

Conclusions

Agricultural dumping depresses global and local agriculture markets, distorts trade, and hurts local producers. Because most poor people rely on agriculture for their livelihood, this has a very harmful impact on them.

Unfortunately, the current negotiating proposal seeks redefinitions rather than reductions in trade-distorting subsidies. The USA seeks changes in the Blue Box so that counter-cyclical payments qualify for favored treatment. The burden should be on the USA, as the primary demandeur of Blue Box changes, to prove that an expanded Blue Box, and continued counter-cyclical payments, will lead to a reduction in trade-distorting subsidies.


AfricaFocus Bulletin is an independent electronic publication providing reposted commentary and analysis on African issues, with a particular focus on U.S. and international policies. AfricaFocus Bulletin is edited by William Minter.

AfricaFocus Bulletin can be reached at africafocus@igc.org. Please write to this address to subscribe or unsubscribe to the bulletin, or to suggest material for inclusion. For more information about reposted material, please contact directly the original source mentioned. For a full archive and other resources, see http://www.africafocus.org