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Africa: Trade Smoke and Mirrors
AfricaFocus Bulletin
Oct 15, 2005 (051015)
(Reposted from sources cited below)
Editor's Note
In an effort to give momentum to international trade talks, the
United States and the European Union this week released new offers
to cut widely-criticized subsidies to rich-country farmers. The
proposals have already provoked opposition from defenders of
subsidies, including U.S. legislators and French officials. But
non-governmental analysts say in fact the concessions to developing
countries are "smoke and mirrors."
While it is possible that more detailed negotiations on tiered
tariff levels may provide benefits for some leading developing
countries, such as India and Brazil, the new proposals included no
plan to address the needs of African cotton producers, despite
earlier promises. The subsidy reduction proposals themselves
contain two principal kinds of loopholes that undermine their
possible benefits to developing countries.
Instead of addressing reduction in actual subsidies, they typically
refer to reduction in upper limits or ceilings which are already
much above actual subsidies. Secondly, instead of actually reducing
total subsidies, rich countries are relying on reclassifying
subsidies from those regarded as trade-distorting ("amber box")
into non-trade-distorting ("green box") or an intermediate category
known as the "blue box."
Even if the new proposals prove politically feasible, given the
political clout of the agribusiness and large farm lobbies,
developing countries faced with multiple obstacles to competing
effectively in agricultural commodities are likely to see few
benefits, while being pressured to further open their markets to
rich country competitors.
This AfricaFocus Bulletin contains statements on the latest U.S.
and European Union proposals on agricultural subsidies, from the
Institute for Agriculture and Trade Policy (IATP) and from Oxfam.
It also contains excerpts from an earlier analysis by Oxfam of the
strategy of retaining high levels of agricultural subsidies by
reclassifying particular measures in less restrictive "boxes."
For earlier AfricaFocus Bulletins on trade issues, visit
http://www.africafocus.org/tradexp.php
For issues affecting African cotton producers in particular, see
http://www.africafocus.org/docs04/cot0405.php,
http://www.africafocus.org/docs04/tr0409.php,
and http://www.africafocus.org/docs05/cot0503.php
More detailed and regularly updated discussions of the trade talks,
from well-informed non-governmental observers, can be found at
http://www.tradeobservatory.org (IATP) and
http://www.twnside.org.sg (Third World Network). For an August
statement on the talks from the Africa Trade Network, a coalition
of civil society groups, see
http://www.twnafrica.org/news_detail.asp?twnID=812
++++++++++++++++++++++end editor's note+++++++++++++++++++++++
U.S. Agriculture Proposal Falls Short at the WTO
Offer Includes Nothing for Development or a Stop to Agricultural Dumping
Institute for Agriculture and Trade Policy http://www.iatp.org,
http://www.tradeobservatory.org
October 10, 2005
Contact: Ben Lilliston, 612-870-3416, [email protected]
Carin Smaller, in Geneva, 41-22-789-0734, [email protected].
Minneapolis - A proposal for new agriculture trade rules made today
by the U.S. Trade Representative at the World Trade Organization
(WTO) includes nothing to benefit developing countries. The
proposal contains provisions and escape hatches that would continue
a damaging farm policy that hurts family farmers in the U.S. and
around the world, according to the Institute for Agriculture and
Trade Policy (IATP).
"The U.S. proposal is supposed to be part of the so-called `Doha
Development Round,' but it includes no protections for developing
countries who have been hit the hardest by damaging WTO rules,"
said Sophia Murphy, Director of IATP's Trade Program. "The Bush
Administration's vision of a world free of subsidies and tariffs
would be a disaster for farmers, workers, the environment, and
consumers. We need to find ways to keep borders open, but
regulated. This misguided vision only helps transnational
corporations who both export and import."
"This proposal does nothing to address dumping or excess production
of commodities," said Carin Smaller, of IATP's Geneva office. "One
of the major weaknesses of international agricultural trade is the
absence of quick, simple rules to stop dumping. By pushing to strip
away the appropriate use of tariffs to protect against below cost
imports, the U.S. proposal takes us further away from finding a
solution to dumping."
Other weaknesses in the proposal include:
- It allows the fuzzy shifting of boxes for U.S. agriculture
payments. The shift of approximately $7 billion worth of
countercyclical payments into the Blue Box gives the U.S. much more
flexibility to meet its proposed commitment and makes the proposed
cuts less significant. In fact, as the 2007 U.S. Farm Bill is
expected to shift more of current payments into the Green Box
(where there are no limits on spending), the U.S. proposal would
likely require little or no cuts in overall spending.
- The food aid proposal, a major sticking point in WTO
negotiations, does nothing to address the key problems in the U.S.
program - namely the selling of U.S. food aid, and the shipment of
actual food rather than donating money to allow countries to
purchase food locally.
- It ignores the power of the private sector in world agricultural
commodity markets. It singles out the elimination of State Trade
Enterprises (STE), but disregards transnational traders that have
considerably more market power.
- Although the July Framework states that Special and Deferential
Treatment (SDT) for developing countries is an "integral element"
of all aspects of the agriculture negotiations, the U.S. proposal
fails to substantially address SDT.
- The U.S. proposal has nothing to say about the cotton crisis of
African cotton producers. The U.S. earlier called for a
"comprehensive solution" on the crisis of African cotton producers
but fails to say anything in the current proposals.
US farm subsidies offer 'smoke and mirrors''
Oxfam Press Release - 10 October 2005
http://www.oxfam.org.uk
The United States will have to make only negligible cuts to the
subsidies it pays to farmers, despite a supposed breakthrough offer
on agricultural reform at the World Trade Organisation (WTO),
international agency Oxfam said today. Under its proposal made
today, the USA would have to cut its spending on agriculture by
only 2 per cent - from $74.7bn to $73.1bn at the end of the Doha
round implementation period.
The USA said it would reduce the ceiling on trade distorting
support to its farmers by 60 per cent, but Oxfam said that this
would leave overall spending almost untouched and poor farmers in
developing countries would not benefit.
The USA is also demanding that developing countries cut their
tariffs more than rich countries at the WTO, in direct violation of
the principle of special and differential treatment.
"It's a case of smoke and mirrors. If this offer goes ahead, trade
distorting domestic subsidies will remain almost completely
unchanged and dumping will continue. Meanwhile harsh concessions on
market access will be wrung from developing country members in
exchange for illusory progress," said Celine Charveriat, Head of
Oxfam International's Make Trade Fair Campaign.
"If this were a game of limbo the USA would be agreeing to have the
bar lowered to eyebrow level. It is simply shifting payments around
from one place to another rather than cutting them significantly.
This will make hardly any difference for the millions of poor
farmers suffering from unfair US competition in sectors such as
corn, rice, or cotton," she added.
The US proposal was put forward today in an article by the US Trade
Representative, Rob Portman in the Financial Times. The proposal
will be discussed in Zurich this afternoon at a meeting with other
key countries including the EU, India, and Brazil.
The USA proposes an end date of 2010 for export subsidies, but
hardly any of its payments are classified in this way. It says it
will discipline food aid, which acts as a hidden export subsidy,
but gives no detail of how it will do this.
Charveriat said, "On export subsidies the USA is essentially
shooting with somebody else's bullet: committing to eliminate
payments it doesn't have and failing to make meaningful commitments
on the instruments it does use: export credits and food aid."
"What looks on the surface like a genuine attempt to move the talks
forward is in fact a very clever piece of manoeuvring by the USA.
This proposal would allow them to get away with doing next to
nothing in return for some very painful concessions from developing
countries. The devil is in the detail, and these details are very
devilish indeed."
No real gains for poor in EU trade offer
Oxfam Press Release - 11 October 2005
http://www.oxfam.org.uk
Despite a supposed breakthrough reform offer, the European Union
will not have to reduce the amount of money it pays its farmers by
a single euro, said international agency Oxfam today.
The EU offered to cut trade distorting farm payments by 70% but
Oxfam said thanks to flexibility at the WTO and recent changes to
the European subsidy regime, they would not have to make
significant cuts and could actually increase payments overall.
"They say that empty vessels make the most noise and the EU offer
on trade reform is an example of that. There is little here that we
haven't seen before and it seems more like creative accounting than
radical reform," said Celine Charveriat, Head of Oxfam
International's Make Trade Fair Campaign.
"The European Commission, under pressure from certain member
states, has even failed to propose an end date for export
subsidies, which is something that should have been agreed and
acted on years ago," she added.
Following the 2003 reform of the Common Agricultural Policy (CAP),
Europe is classifying its subsidies differently at the WTO. The
bulk of subsidies are now immune to cuts because they supposedly do
not distort trade. However, Oxfam is concerned that these new
subsidies will still do damage to farmers in the developing world
and should therefore be reformed.
Charveriat: "It's a case of the emperor's new clothes. The EU, like
the US, is simply proposing to move payments from one place to
another, rather than reduce them. We're very concerned that the
losers from this renaming game will be poor country farmers."
The EU offer came after a similar proposal from the US, which Oxfam
also criticized, saying that the US was proffering illusory subsidy
reform and demanding big market access concessions from developing
countries in return.
The EU offer on market access gives developing countries more
flexibility to protect fledgling farm sectors. However, it holds
out for the right to designate certain 'sensitive products' like
sugar and dairy as subject to lesser cuts, which would dilute the
real market access available. At the same time the EU fails to
acknowledge that developing countries need to protect certain
products vital for food security and livelihoods.
The EU proposals on services liberalisation and Non-Agricultural
Market Access go directly against the needs of developing countries
and fail to recognize the principle of special and differential
treatment.
Charveriat: "The EU talks about the need for balance but we're very
worried that developing countries are being pressured to give up
far too much. With 900 million people living in extreme poverty in
the rural sector of developing countries, the scales must be
heavily tipped in their favour. This round of talks was meant to
put the needs of developing countries first and deliver for poverty
reduction."
High-level meetings continue today in Geneva and there will be a
WTO General Council next week.
A little blue lie: harmful subsidies need to be reduced, not
redefined
Oxfam International
21 July 2005
[excerpts: for full text visit
http://www.oxfam.org.uk/what_we_do/issues/trade/bn_bluebox.htm]
New criteria for 'Blue Box' agricultural subsidies under
consideration by trade negotiators at the World Trade Organization
will create large opportunities for trade-distorting agricultural
subsidies. This would fundamentally undermine a key objective of
the Doha Development Round negotiations: ' we commit ourselves to
comprehensive negotiations aimed at substantial reductions in
trade-distorting domestic support.'
...
Negotiators must face the truth: an expanded Blue Box will turn the
promise of substantial reductions in trade distortion into a lie.
Shifting definitions and parsing words will not change the
underlying truth that rich countries maintain heavily subsidized
agricultural production. Without strong new rules, agricultural
dumping will continue, and the potential to reduce poverty and
encourage development will be unfulfilled.
Punching holes in the Blue Box
The Blue Box is a category of agricultural subsidies created in the
Uruguay Round of trade negotiations. The Uruguay Round negotiations
established a hierarchy of subsidies, with the most
trade-distorting subsidies requiring the highest levels of
regulation and control. Most subsidies for agriculture are
understood to distort trade, usually by encouraging increased
production. These trade-distorting subsidies are categorized in the
Amber Box. A separate category, the Green Box, was created for
subsidies understood to be minimally distorting or non-distorting.
At the last stages of the Uruguay Round negotiations, a new
category of subsidies was introduced as a compromise measure: the
Blue Box. As commonly understood, the Blue Box subsidies had two
main aims:
- to provide forms of agriculture support that are less
trade-distorting than Amber Box support;
- to support transitional programs enabling countries to move away
from trade-distorting subsidies (Amber Box) and toward
non-distorting subsidies (Green Box).
The WTO describes the Blue Box as the 'Amber Box with conditions'
conditions designed to reduce distortion. Subsidies that would
normally be in the Amber Box can be categorized as Blue Box if the
subsidies also require farmers to limit production. Because Blue
Box subsidies carry conditions, the Uruguay Round rules did not
place quantitative limits on them, which means that countries are
permitted to provide unlimited levels of Blue Box subsidies.
Historically, the largest user of Blue Box subsidies has been the
European Union, which spent a little more than 20 billion Euros
annually in production-limiting subsidies before its 2003 reform.
This represented a significant proportion of EU subsidies, and
about 10 per cent of the total value of EU agricultural production
(prior to the addition of the newly acceded countries). In the Doha
negotiations, the EU has very clearly stated that it regards
preserving the existing Blue Box as a key negotiating objective.
Aside from Norway, no other WTO members currently report
significant Blue Box subsidies. Prior to 1996, the USA used
subsidies that qualified as Blue Box, but it has since eliminated
them and does not currently report any Blue Box subsidies.
USA opens the box
The USA proposed to eliminate the Blue Box in its original
negotiating position for the Doha Round in 2002. More recently,
however, the USA has become the leading proponent of proposals to
expand the definition of the Blue Box to permit other forms of
agricultural subsidies. While the current Blue Box currently
permits only subsidies that have a 'production-limiting' function,
the USA promotes inclusion of subsidies 'that do not require
production'. ...
For the USA, the apparent purpose of redefining the Blue Box is to
permit the inclusion of counter-cyclical payments (CCPs).
Counter-cyclical payments are subsidies that are paid to producers
when commodity prices fall below specific levels. In this way, they
resemble price-support subsidies, which distort trade and are
subject to WTO reduction commitments in the Amber Box. Though the
USA never officially notified the WTO about the nature of
counter-cyclical payments since their creation in 2002, the USA is
expected to classify these payments as trade-distorting in the
Amber Box or as 'de minimis'. This is consistent with the findings
of the recent WTO ruling in the Brazil/USA cotton dispute, in which
the panel concluded that US counter-cyclical payments on cotton
were trade distorting and had caused damage to other cotton
exporting countries by encouraging US production and depressing
world cotton prices.
Creating new criteria for the Blue Box would allow the USA to
shield counter-cyclical payments from cuts to trade-distorting
subsidies. Doha Round negotiations could cut the Amber Box and 'de
minimis' subsidies by 50 per cent or more. If the USA is
successful, the Blue Box will serve as a safety-valve against the
pressure to reduce subsidies, and could make it possible to avoid
any subsidy reduction at all. To justify this move, the US argues
that counter-cyclical payments are of a hybrid nature. ...
Subsidies that are completely unrelated to ('decoupled' from)
production and prices are eligible for the Green Box and are not
limited by WTO rules. According to the US line of reasoning,
counter-cyclical payments belong to a middle category between Amber
Box subsidies and Green Box subsidies, i.e. in a revamped Blue Box.
Counter-cyclical payments are the codification of a change of heart
that politicians in the USA experienced after the enactment of the
1996 Farm Bill. This measure introduced new 'decoupled' payments,
called 'production flexibility contracts', and generally set a path
toward reduction of trade-distorting agricultural subsidies.
However, the 1996 Farm Bill was enacted at a time when historically
high prices of agricultural commodities prevailed. By 1998, prices
had fallen dramatically, partly as a result of the Asian financial
crisis, and the US Congress leapt into the breach with a series of
ad hoc 'emergency' payments, as well as massive shipments of 'food
aid'. These 'emergency' agricultural payments continued until 2002,
when Congress wrote a new Farm Bill. Thus were born the
counter-cyclical payments. When Congress enacted the 2002 Farm
Bill, politicians described the legislation as a 'safety net' for
US farmers ...
However, rather than providing a 'safety net' against low prices,
the counter-cyclical payments set price targets so high that
payments are perpetual, rather than cyclical. ...
In fact, counter-cyclical payments reflect very unrealistic
projections for commodity prices in the future. For most covered
commodities, the US Department of Agriculture does not expect that
prices will reach the counter-cyclical target price through 2013
(when the estimates end). In most cases, the government agency
projects prices to decline gradually - an expectation that is based
on assumptions about growth in global demand, trade, and
consumption.13 Target prices and the resulting counter-cyclical
payments are set by political bargaining, not by any discernible
policy foundation. ...
Conclusions
Agricultural dumping depresses global and local agriculture
markets, distorts trade, and hurts local producers. Because most
poor people rely on agriculture for their livelihood, this has a
very harmful impact on them.
Unfortunately, the current negotiating proposal seeks redefinitions
rather than reductions in trade-distorting subsidies. The USA seeks
changes in the Blue Box so that counter-cyclical payments qualify
for favored treatment. The burden should be on the USA, as the
primary demandeur of Blue Box changes, to prove that an expanded
Blue Box, and continued counter-cyclical payments, will lead to a
reduction in trade-distorting subsidies.
AfricaFocus Bulletin is an independent electronic publication
providing reposted commentary and analysis on African issues, with
a particular focus on U.S. and international policies. AfricaFocus
Bulletin is edited by William Minter.
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