TWN Info Service on Finance and Development (Oct13/01)
2 October 2013
Third World Network
talks show the pot calling the kettle black
Published in SUNS #7662 dated 26 September 2013
Geneva, 25 Sep (Martin Khor*) -- A fight taking place in the WTO negotiations
towards the Bali Ministerial shows how the rules on agriculture allow
developed countries to continue huge subsidies whilst penalising developing
Food security is one of the key issues now being negotiated at the
WTO as part of its preparation for the Ministerial meeting in Bali
For developing countries, food security and the livelihood and incomes
of small farmers are important priorities.
Especially for the poor, food is the main item in the household budget.
Agriculture also employs the most people in most developing countries.
Ensuring farmers have enough income is key to development and social
Increasing food self-reliance is a goal in many countries. Food security
became a high priority after global food prices shot up to record
highs in 2008, and there was a near-scramble for supplies of some
food items including rice because of potential shortages.
Also, reducing and eventually eliminating hunger worldwide is one
of the key Millennium Development Goals adopted by governments at
the United Nations.
In the present negotiations on formulating the Sustainable Development
Goals in the UN in New York, food security, nutrition and agriculture
are one of the key clusters of issues.
Against this background, there is a remarkable discussion now taking
place at the World Trade Organisation, as part of preparations for
its Ministerial Conference in Bali in December.
Developing countries grouped under the G33 are asking that their governments
be allowed to buy food from their farmers, stock the food and distribute
it to poor households, without this being limited by the WTO's rules
on agricultural subsidies.
However, their proposal is facing resistance, mainly from some major
developed countries, especially the United States, whose Ambassador
told the WTO earlier this year that such a move would "create
a massive new loophole for potentially unlimited trade-distorting
This clash is an outstanding example of how the agriculture rules
of the WTO favour the rich countries whilst punishing the developing
countries, including their poorest people.
It is well known that the greatest distortions in the trading system
lie in agriculture. This is because the rich countries asked for and
obtained a waiver in the 1950s from the liberalisation rules of the
GATT, the predecessor of the WTO. They were allowed to give huge subsidies
to their farm owners, some of who do not even carry out farm activities,
and to have very high tariffs.
When the WTO was set up, it had a new agriculture agreement that basically
allowed this high farm protection to continue. The rich countries
were obliged only to reduce their "trade distorting subsidies"
by 20% and could change the nature of their subsidies and put them
into a "Green Box" containing subsidies that are termed
"non trade-distorting or minimally trade-distorting."
There is no limit to the Green Box subsidies. So, the strategy of
the major developed countries has been to move most of their subsidies
to the Green Box, including subsidies that are not directly linked
to production, or that are tied to environmental protection. But studies
have shown that many of the Green Box subsidies are in fact trade-distorting
With this shifting around, the rich world's subsidies have been maintained
or actually soared. WTO data show that the total domestic support
of the United States grew from US$61 billion in 1995 (when the WTO
started) to US$130 billion in 2010.
The European Union's domestic support went down from 90 billion euro
in 1995 to 75 billion euro in 2002 and then went up again to 90 billion
euro in 2006 and 79 billion euro in 2009.
A broader measure of farm protection, known as total support estimate,
which is used by the OECD in its reports on agricultural subsidies,
shows that the OECD countries' agriculture subsidies soared from US$350
billion in 1996 to US$406 billion in 2011.
The effects of continuing developed-country subsidies have been devastating
to developing countries. Food products selling at below production
costs are still flooding into the poorer countries, often eating into
the small farmers' incomes and livelihoods.
Ironically, the developing countries, already the victims of the rich
world's subsidies, are themselves not allowed to have the same huge
subsidies, even if they can afford it. The reason is that the agriculture
rules say that all countries have to cut their distorting subsidies.
So, if a developing country has not given subsidies before, it is
not allowed to give any, except for a small minimal amount (10 per
cent of total production value) known as de minimis support.
In other words, if a country has given $100 billion subsidy in the
trade-distorting categories, it has to bring it down to $80 billion
and it can also transfer the remainder (or more) to the Green Box.
But if a country has been too poor in the past to provide subsidies,
or its subsidies are low, it cannot increase the level, except for
the minimum allowed.
This is where the present WTO controversy comes in. The developing
countries under the G33 are asking that food bought from poor farmers
and given to poor consumers should be considered part of the Green
Box without conditions.
The present rule sets an unfair condition. Although governmental stockholding
programmes for food security purposes in developing countries is placed
under the Green Box, there is however a provision that the subsidy
element in such a national purchase scheme should be accounted for
in the country's AMS (aggregate measurement of support), which is
the main category of subsidies considered to be trade-distorting,
and which for most developing countries is limited to the de minimis
amount (10% of production value).
Other Green Box subsidies, including those that developed countries
mostly use, do not carry such a condition.
The developing countries seek to remove this unfair condition that
in effect prevents them from adequately helping their poor to get
The unfairness of this condition is worsened by the way the subsidy
element is calculated in the Agriculture Agreement. It is defined
as the difference between the acquisition price and the external reference
The problem is that the acquisition price (i. e. the price which the
government pays for the farm produce) is the current price level,
whilst the ‘external reference price' is defined as the average world
price level in 1986-88 (during a period when the Uruguay Round that
led to the WTO was being negotiated).
Since 1986-88, global and local prices of food items have increased
tremendously. The 1986-88 price is thus obsolete and much too low
to be used to determine if a developing country government is subsidising
Using this, rather than a more rational yardstick, such as the global
price level of the food item in the most recent year or three years,
grossly exaggerates the extent of subsidy the government is providing.
It thus unfairly adds to the amount of subsidy that presently has
to be counted towards the country's AMS.
At such unfair rates mandated by the WTO rules, a developing country
will have its AMS maximum level exceeded fairly easily even if it
pays the farmer the present world price (since the reference price
is the 1986-88 world price and not the present price).
Countries that are in danger of exceeding their AMS or de minimis
maximum level include India. Its parliament has just passed a food
bill that entitles the poor (two thirds of the population) to obtain
food from a government scheme that buys the food from small farmers.
But the estimated US$20 billion-plus the government will spend annually
may exceed the allowed AMS and de minimis levels, because India was
not a big subsidiser before the WTO rules came into force.
Other developing countries that provide subsidies to their farmers
and consumers, such as China, Indonesia, Thailand, and Malaysia may
also one day find themselves the targets of complaints.
For rich countries who are subsidising a total of US$407 billion a
year (in the OECD's broad measure of agricultural support) to disallow
poor countries from subsidising their small farmers and poor consumers,
is really a specially bad form of discrimination and hypocrisy. An
outstanding case of the pot calling the kettle black!
Whether this controversy can be settled fairly before the WTO's Bali
Ministerial remains to be seen.
(* Martin Khor is the Executive Director of the South Centre.)