John Madeley

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The Observer

Sunday 7  September 2003


Developing nations fight for level playing field

John Madeley


The European Union and the United States last month placed a fig leaf over their long-running dispute about agricultural issues to try to present a united front to developing countries. But they are at loggerheads over what constitutes a trade-distorting subsidy. The US claims that the EU system of linking payments to farm production causes distortions, while the EU claims the US method of income support has much the same effect. 


Whatever the method, the end result is the same - overproduction in the EU and the US and the dumping of surpluses on the world market, to the detriment of developing countries' farmers.


Western countries dump - sell below cost of production - their surplus wheat, rice, sugar, dairy produce, cotton and other products in developing countries, where they can sell for a fraction of the cost of local farm produce. (There will be less surplus wheat this year due to the dry weather and reduced yields). Millions of Third World farmers have been driven into destitution as a result. British Prime Minister Tony Blair has acknowledged that farm subsidies are a disaster for developing countries. But much-heralded reform of the EU's Common Agricultural Policy last June has failed to mollify the developing world.


Ironically, it was in Cancun, at a 22-nation summit of world leaders in 1981, that the seeds of these disputes over agriculture were planted.


The then president of Tanzania, Julius Nyerere, challenged American president Ronald Reagan to think again about what Nyerere called the US's 'magic of the market' philosophy. Whereas the US intervened in the market to give its farmers all kinds of support, argued Nyerere, it subjected the developing world to the free play of economic forces, thereby operating a double standard. Nyerere urged that intervention be extended to international agricultural markets to stabilise the prices of basic commodities of vital interest to developing countries.


Nonplussed at the time, Reagan eventually decided to do something - but not in the way Nyerere hoped. If there was to be a single standard, felt Reagan and his advisers, it should be based largely on market forces.


The following year, the US proposed that agriculture should come under the rules of the General Agreement on Tariffs and Trade (Gatt), the WTO's forerunner, and that trade-distorting subsidies be dismantled.


American farmers didn't mind so long as they received much the same overall level of support as before, but they made it clear: 'Remove our agricultural support and you remove our political support'. The free play of economic forces had its limits.


Successive US administrations then began a process which culminated in the 1996 Farm Bill of decoupling payments from production and supporting the incomes of farmers instead. Overall support to US farmers increased rather than declined - although in the 1995 international trade agreement at the end of the Gatt Uruguay round, the US was committed to reducing payments.


Two years ago, at the last WTO Ministerial in Doha, the US and EU signed a declaration calling for 'substantial reductions in trade-distorting domestic support'. But under a new US Farm Bill last year, payments to US farmers are set to soar higher still, while payments to EU farmers under Common Agricultural Policy reforms will decline only marginally and not until 2006.


In a paper for the Cancun meeting, 17 influential developing countries, including Brazil, India, China, Mexico, Thailand and South Africa call for an end to export subsidies that encourage dumping and for a cap on direct payments to producers. It urges that 'all developed countries shall achieve reductions in trade-distorting support significantly larger than in the Uruguay round', and for special exemptions from WTO rules for low-income, resource-poor farmers in developing countries.


The paper - which is likely to win support from most of the WTO's 146 member countries - also proposes a formula for tariff cuts that would force developed countries to do more than developing countries. These proposals counter a US-EU paper for the Cancun meeting, which includes a suggested reduction in the most trade-distorting domestic support measures 'in the range of { }% - { }%'. (No figures are given and, especially in view of the EU and US record on farm subsidies, the paper was heavily criticised by developing countries.) WTO rules permit special treatment for certain developing-country products, but the US-EU paper does not allow for this.


'It does not take into account our farmers' interests,' said KM Chandrasekhar, India's ambassador to the WTO. Developing countries will press in Cancun for the WTO's theory of special treatment to be translated into reality. A successful outcome could depend on whether it is possible to reach some kind of compromise.








John Madeley is a best-selling author, journalist and broadcaster, specialising in economic and social development issues. 

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