Devinder Sharma: The tricks of the WTO trade

Once again, the developed countries are the winners. Not only have the developing countries let them walk away with all their trade-distorting farm subsidies intact, their protective ring around agriculture has emerged unscathed as well.

It is now official. The US will not reduce its huge financial support to farmers (and agribusiness companies) even after the 20 per cent cut in trade-distorting subsidies promised in the first year of implementation.

The European Union (EU), too, has got a waiver. It does not need to make any cut in agricultural subsidies from the existing level. Nor will the export subsidies be removed for another 10 years or so. All that the developing countries have got in return is a lollipop "" some imports to be protected under the category of "special products".

The July 31 World Trade Organisation (WTO) framework agreement, agreed upon by 147 members after a five-day gruelling exercise in Geneva, has drawn a structure that needs to be implemented for furthering the Doha Development Agenda.

The WTO director general had, therefore, hailed the framework agreement as "historic" and the developing countries "" G-20 and G-33 (and the least developing countries under the banner of G-90) "" had returned claiming "victory". But as soon as the details were analysed, it became clear that the developing countries had not only been duped but robbed in broad daylight.

"The new global trade agreement protects US farm subsidies when prices for wheat, corn or soybeans drop," US Trade Representative Robert Zoellick was quoted in a news report.

"A pledge by the US to reduce farm subsidies by 20 percent won't undercut payments Congress promised in a $ 125 billion bill in 2002," he added.

He was replying to a letter Democratic leader Tom Daschle of South Dakota had written to President George Bush. "This reduction will not weaken our ability to support our farmers, as you erroneously claim," Zoellick replied.

Zoellick's colleague, and the chief US agriculture negotiator Allen Johnson told reporters: "The United States succeeded in shifting farm subsidies to a new WTO category (read "Blue Box") to avoid actual reductions."

Accordingly, the American government has paid its farmers about $ 23 billion annually over the past three years. Under the current WTO rules, the maximum annual subsidy is $ 49 billion, meaning the US could lower that cap without actually having to cut the payments. The 20 per cent reduction will not have any impact on US subsidies since it would be from an "authorised" ceiling and not the actual payments.

The chairman of the US Senate Finance Committee Charles Grassley has reassured American farmers saying that the framework agreement entails only shifting of subsidies from the Amber Box of trade-distorting supports to the Blue Box of subsidies that are decoupled from production and are considered less trade-distorting.

No wonder the WTO framework has been welcomed by 53 American groups and companies, including Monsanto. Bush, as a result, does not face any political embarrassment from the powerful farmers' lobby in the run up to the presidential election slated for November.

While the framework provides a cushion to the US/ EU to raise farm subsidies from the existing level, it has, for the first time, turned the tables shrewdly against the developing countries.

Except for supporting the resource-poor farmers, developing countries too will have to reduce their subsidies.

Interestingly, developing countries are being asked to cut domestic support for agriculture at a time when most of the 3 billion farmers in the majority world earn less than half of what a European or American cow gets as subsidy "" $ 3 a day.

It is also widely accepted that developing countries do not have the means to provide direct farm support to farmers. Which makes the developing counties' goof-up even more difficult to accept.

If you read the draft carefully, it becomes obvious that the first instalment of a cut in subsidies by 20 per cent is not based on the present level of subsidies, but on a much higher level that has now been authorised and is based on three components "" the final bound total aggregate measure of support, plus permitted de minimis , plus the Blue Box.

For the EU, this should come to euro 101.6 billion and after applying the first cut, the subsidies that can be retained will be euro 81.3 billion. I had earlier worked out the actual reduction that the EU will have to bring about, which in essence means it gets a leverage to further increase the subsidies.*

The sigh of relief that greeted the elimination of export subsidies is also likely to be brief. Export subsidies have always been considered trade-distorting and except for the talk for reducing these, no definite time schedule had ever been spelled out.

The July 31 framework also reiterates the old position without making any definite commitment. French Agriculture Minister Herve Gaymard has made this abundantly clear when he informed the media that it would not be before 2015 or 2017, when export subsidies are completely eliminated.

By the time these subsidies are actually removed, developing countries would have become an open dump for cheap and highly-subsidised agricultural imports, thereby destroying millions of livelihoods and further marginalising the farming communities.

The framework also provides more protection measures for the rich and industrialised countries. Special and differential treatment, special safeguard measures and, to top it all, the provision for designating some key products under the category of "sensitive" products makes the domestic market security more solid.

Jim Grueff, assistant deputy administrator for trade policy in the US Department of Agriculture, has already assured the American Sugar Alliance that the US is "very likely" to designate sugar as a "sensitive" product.

Despite an interim WTO ruling against the EU for subsidising its sugar producers at levels far in excess of what the EU had committed to provide as part of the Uruguay Round, the EU, too, is likely to follow the same path. This makes a mockery of the ruling handed in a petition filed by Australia, Brazil and Thailand against EU sugar subsidies.

For the developing countries, the blame would rest mainly with the big two "" Brazil and India "" that were part of the NG-5 (comprising the US, the EU, Australia, Brazil and India).

They behaved like the big boys, bullying their way and showing utmost contempt to the positions taken by the other developing countries, including the least developed nations.

They were part of the compromise that forced the rest of the developing world to remain quiet at the faulty frame being imposed. While the US, the EU and Australia have walked back with the cake, Brazil and India have only lost their credibility and will no longer be trusted by the developing world. They deserve the brickbats.

(Devinder Sharma is a New Delhi-based food and trade policy analyst. Email: dsharma@ndf.vsnl.net.in)

* Devinder Sharma: "WTO: Faulty Frame, Rude Results" Hindu Business Line, Chennai/ New Delhi and several other places in India. August 5