The Hindu : Opinion / Editorials : WTO STRIKE AGAINST FARM SUBSIDIES

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Friday, Apr 30, 2004

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WTO STRIKE AGAINST FARM SUBSIDIES

THE PROVISIONAL RULING by a World Trade Organisation judicial panel that the current volume of U.S. subsidies to cotton farmers is illegal in international trade law has implications that go far beyond the interests of Brazil, the complainant in the case. The ruling threatens to cut the ground under the mountain of agricultural subsidies the U.S. provides to its farmers. It will also bring into question the large amount of farm support provided by the European Union, Japan and Switzerland, the three other economic powers that hand out substantial subsidies. The judgment will, in short, force all the advanced economies to rethink the $300 billion of agricultural subsidies they provide every year. A legal weapon has now been added to the economic and political arguments heard over the years against the extraordinary levels of farm aid in the rich countries. When these subsidies will be reduced is another matter. The WTO ruling is likely to complicate revival of the stalled negotiations of the Doha round, where farm subsidies have been a bitterly contested issue. But what is clear is that no longer will it be possible for the advanced economies to hide behind WTO regulations to justify the indefensible levels of aid they provide to a dwindling farm population.

American support for cotton farmers has been the most egregious example of rich country subsidies affecting agriculture in the developing countries. In 2001-02, some 25,000 cotton farmers received $4 billion of aid to produce a crop valued at only $3 billion. The aid politically powerful cotton farmers of the American South have received has enabled the country to become the biggest exporter in the world. It has, in the process, shut out exports by the numerically larger farming population of central and west Africa, who can produce cotton at lower cost but cannot dream of receiving the handouts their counterparts in the U.S. get. While this attracted considerable attention at the failed WTO meeting in Cancun in 2003, the legal complaint by Brazil was a more narrow one — that the U.S. violated WTO ceilings on support. The disputes panel has confirmed this transgression, which means that a substantial amount of subsidy that Washington had argued was permissible (`green box' in WTO parlance) will now be categorised as prohibited (`amber box') subsidies. These will have to be reduced since the total will cross WTO limits. This will have an impact on support levels for all other crops, a possibility U.S. farm groups and their political representatives have been quick to see. Washington can be expected to use every legal instrument to fight the interim judgment; it will need to be confirmed in June and then the appeal process can go on for a couple of years.

Brazil has recently filed a similar case on sugar subsidies against the European Union. The WTO could also end up striking down European aid for sugarbeet farmers. The regime of farm subsidies is now under siege. An early dismantling cannot perhaps be expected but it is now clear the system will have to go sooner or later. All developing countries will benefit as a result. Exporting countries should have improved access to world markets at better prices. Even countries such as India that are more concerned about the freedom to maintain high customs duties on agricultural products will gain, in terms of an easing of pressure in global talks to lower import barriers.

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