Is a positive outcome on trade-distorting subsidies possible at the Twelfth Ministerial Conference (MC12)?
As the World Trade Organisation (WTO) is gearing up for the 12th Ministerial Conference (MC12) in November/December 2021, an outcome in the agriculture negotiations is high on the agenda. Historically, the agriculture negotiations have been difficult due to conflicting views and interests as well as the sensitivities attached to the agriculture sector in most WTO member countries. Additionally, for some countries, progress in other areas of the negotiations is determined by progress in the agriculture negotiations.
There are a number of issues that are prioritised in the WTO agriculture negotiations. These include the elimination of trade distorting domestic subsidies including for cotton negotiations, as well as, issues related to public stockholding for food security purposes, market access, special safeguard mechanism, export competition and export restrictions. Notwithstanding the number of issues under negotiations, the majority of the WTO members have prioritized the elimination of trade distorting domestic subsidies for an outcome at MC12. For most developing countries, a meaningful outcome in agricultural domestic support is vital to boost agricultural potential and increase their economic development.
Similar to other discussions in the WTO, talks on domestic subsidies are fraught with divergent views between developed and developing countries. Traditionally, developed countries provide financial assistance to their farmers to keep the prices of their agricultural products low. This gives agricultural products from developed countries an unfair advantage over agricultural products from developing countries, resulting in unfair competition in the international markets.
Agricultural products from many African countries have been displaced in the global markets due to unfair competition from subsidized products. Cotton from the C4 countries (Benin, Burkina Faso, Chad and Mali) is one such example. The C4 countries are among the lowest-cost producers of cotton. Despite this comparative advantage, these countries are losing world markets due to artificially depressed prices from the big cotton subsidizers.
The WTO Agreement on Agriculture (AoA) allows developed countries to continue using harmful domestic subsidies that existed prior to the conclusion of the Uruguay Round trade talks. The majority of developing countries, on the other hand are not allowed under the AoA to use some of these harmful domestic subsidies. These are some of the inherent imbalances in the AoA that are a cause of concern to many developing countries. In the main, developing countries provide domestic subsidies to resource poor farmers for food security purposes.
Some argue that China and India have become major providers of farm subsidies in the recent past, alongside EU, US, Japan, Switzerland and Canada. Conversely, in per capita terms, the monetary value of farm support provided by China and India is relatively low, due to the large number of farmers that receive farm subsidies. According to South Centre (2017) in 2013, China paid about $348 per farmer per year in farm subsidies. During the same period India paid $306 per farmer per year while the US paid $68,910 per farmer per year. Additionally, farm subsidies provided by China and India are used for input subsidies and for food security purposes. Both China and India have a huge number of peasant farmers who benefit from these farm subsidies. These types of farm subsidies fall under the category of non-trade distorting or minimally trade distorting subsides under the category of the Green Box. In Agriculture negotiations, subsidies are categorized by three color-coded boxes, i.e. Amber (trade-distorting subsidies), Green (non-trade distorting subsidies), and finally, Blue (subsidies that are tied to programmes that limit production).
There is no limit to the Green Box subsidies. This has opened loopholes for exploitation by developed countries through box shifting. Box shifting occurs when WTO members record their subsidies under the Green Box, including subsidies that are trade distorting.
The stalemate in the current talks on farm subsidies emanates from conflicting views about the types of domestic subsidies that should be eliminated. Various iterations of proposals recently circulated by developed countries advocate for reforms in three areas of the AoA. These are on Article 6.2 of the AoA, on Special and Differential Treatment (S&DT) for developing countries, as well as, on de-minimis support. Article 6.2 of the AoA encompasses development programmes for developing countries, investment subsidies and agricultural input subsidies for low-income or resource-poor producers in developing countries. Similarly, the S&DT measures are provided only to low income and resource poor farmers in developing countries and least developed countries. These include investment subsidies e.g. subsidies for tractors, farming equipment and agricultural inputs such as fertilizer. De-minimis support is a minimum level of trade distorting subsidies – Aggregate Measure of Support (AMS) that can be given by a country to its agricultural sector. A de-minimis subsidy is expressed as a percentage of the country’s agricultural Gross Domestic product (GDP), which is called Value of Production (VoP). The de-minimis level is 5 per cent of the VoP for developed countries and 10 per cent of the VoP for developing countries. The de-minimis for China is 8.5 per cent of the VoP as agreed in their terms of accession to the WTO.
Developing countries on the other hand seek to start with the amber box (the most trade distorting domestic subsidies) first by eliminating the AMS, which is highly harmful to farmers from developing countries. This would be followed by setting product specific limits for subsidies, meaningful S&DT for developing countries and least developed countries, and a road map for blue box and green box reforms. As mentioned above, blue box support covers subsidies that are tied to programmes that limit production. These subsidies limit production by imposing production quotas or by demanding that farmers set aside part of their land for a specific product. It covers payments directly linked to acreage or animal numbers. The blue box measures are exempt from reduction commitments.
Despite the high priority attached to the domestic support pillar in the WTO agriculture negotiations, achieving an outcome in this area is very unlikely. This is due to different views on the types of subsidies that need to be eliminated. Developed countries have prioritised Article 6.2, which accommodates exemptions of production-related support to low-income and resource-poor farmers. Additionally, developed countries seek to reduce de-minimis support, in an effort to target those developing countries whose farm subsidies have increased, particularly China and India. Developing countries are concerned that developed countries seek to reduce demands for reforms by those that have historically provided the greatest levels of trade distorting support, while raising demands on developing countries. Developing countries have proposed to start with the AMS under the amber box, which is the most harmful support given to farmers in developed countries. In short, developing countries have become impatient with the failure to address the structural inequalities built into the AoA.
In an effort to steer the members towards an outcome on agriculture at MC12, in July 2021 the Chair of the Committee on Agriculture in Special Session (CoASS) has circulated a draft negotiating text. The draft text intends to guide members towards concrete outcomes. Although textual proposals on all issues that are negotiated have been included in the draft text, the possibility of an outcome at MC12 looks bleak due to widening gaps in members’ positions. At best, an outcome in the agriculture negotiations could be a future work programme.
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