US farm subsidies a blow to poor countries

Despite its pledge at the Doha WTO Ministerial meet to ensure that the new round of multilateral trade negotiations would take into account the concerns of the developing countries, the US recently dropped a bombshell when it announced tariffs of up to 30% on steel imports and a massive increase in US farm subsidies. The latter move will particularly hit the developing countries hard and makes a mockery of the US commitment to multilateral trade agreements.

Hardev Kaur

THE poor developing countries were shortchanged, given a raw deal and ended up holding the wrong end of the stick as the outcome of the Uruguay Round did not yield the benefits they were promised.

Even so they have been constantly lectured, pushed and pressured to open their markets, reduce tariffs and remove subsidies.

Free trade is good for you, they are told, and removal of the trade-distorting tariffs and non-tariff barriers will open up and unlock the potential for economic development, reduce poverty and generate employment.

At Doha, Qatar, participating countries, including the US, made a commitment to work towards another world trade round that will keep in focus concerns of developing countries. And the new round of multilateral trade negotiations is to be labelled The Development Round with a view to dealing with developing-country concerns.

But recent moves by Washington to offer protection to its steel industry with a 30% tariff on imports and massive farm subsidies, make it difficult to believe that it will live up to its commitments or that the new multilateral trade round will indeed keep in focus the development needs of poor countries.

Hitherto, it has been the US that has led the charge against the EU and Japan on their farm policies and especially the subsidies. It was the Americans who insisted on putting agriculture on the agenda of the Doha Round. They had cited their 1996 Farm Bill that cut farm subsidies and uncoupling the remaining ones that Washington claimed were less trade-distorting.

But the 2002 Farm Bill signed by President George W Bush throws his argument out the window. It sends signals to the rest of the world that Americas commitment to free trade under the Bush Administration shrivels when it runs into political pressure at home.

The new Bill raises the level of subsidies by more than 80% and increases subsidies for soyabeans, wheat and corn - products that are important to developing countries. It also introduces new subsidies for dairy farms, peanuts, chickpeas and lentils. According to reports the Bill reintroduces programmes for honey, wool and mohair that had been killed in 1996.

Domestic issues take centre stage in the US and Washingtons unilateral policies give rise to even greater concern among its trading partners and poor countries. The trade restrictions, tariffs and non-tariff barriers, cut off access for goods from developing countries into one of the major export markets.

The new US subsidies per farm raise the level by some three to four times that of the Europeans. The major beneficiaries are the large farms as it is estimated that 75% of the subsidy will go to 10% of farmers who account for less than 2% of the US population. This leaves very little for the small farmers.

It is thus ironical that President Bush declared that the Farm Bill will promote farmer independence, and preserve the farm way of life for generations. It helps Americas farmers, and therefore, it helps Americans.

The Europeans - who have come under severe criticism for their Common Agricultural Policy (CAP) which subsidised agriculture and resulted in rivers of milk and mountains of butter - point out that the US Farm Bill risks calling into question the reform promises of Doha.

The Bretton Woods Institutions - the World Bank and the International Monetary Fund (IMF) - also expressed similar concerns. Just as arguments on the need to move away from trade-distorting measures are beginning to be accepted, the US is seen as doing an about turn and heading in the opposite direction.

(Malaysia announced a reduction in agriculture subsidies the same week that President Bush signed in the new Farm Bill raising the level of protection and subsidies for American farmers.)

Bush, with an eye on the mid-term elections, signed a Farm Bill authorising a massive increase - of US$100 billion - in federal support for US farmers and hailed it as a generous and reliable safety net. The political clout that the agricultural states have over the elections has, according to the Economist, lawmakers falling over themselves to dole out cash to farmers.

The entire aid budget to developing countries from the developed world is US$50 billion. Then again the US also falls short of the UN targets for development aid to developing countries of 0.7% of GNP.

Digby Jones, director-general of the Confederation of British Industries (CBI), writing in the Times of London, says, Taking action that plays only to domestic pork-barrel policies in the US and hurts efficient, competitive and restructured businesses... turns the clock back 50 years and is certainly no way to treat your friends.

The Farm Bill and the steel tariffs are contrary to the claims made by the Bush Administration for free trade. It marks a blow for the credibility of US policy in the WTO, according to Franz Fischler, the European Unions Commissioner for Agriculture, Rural Development and Fisheries.

The move raises doubts and questions about Washingtons commitment to free trade and multilateral agreements. It also sends the wrong signals to developing countries which have been lectured on trade not aid.

Yet markets in developed countries and in the US are increasingly closed to them as new and additional subsidies and protectionist measures are implemented. Increasingly, these are for products that are critical to the majority of the population in poor countries.

Not only do the subsidies shut out imports from developing countries. They also provide direct competition for developing-country products in their own domestic markets.           

Hardev Kaur is Assistant Group Editor of the New Straits Times Press in Malaysia. The above article originally appeared in the New Straits Times (14 June 2002).