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(DV) Sharma: The WTO Hong Kong Ministerial -- Much Ado About Nothing







The WTO Hong Kong Ministerial: Much Ado About Nothing
by Devinder Sharma
December 28, 2005

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We were made to believe that everyone cannot be fooled all the time. Ten years after the World Trade Organization (WTO) came into existence, and looking at the outcome of the sixth Ministerial Conference at Hong Kong, it is time to bury that adage under the heaps of trade drafts.

For the sixth time in a row, the trade ministers of the developing world -- representing issue-based coalitions like G-20, G-33 and G-90 -- have been duped to believe that trade is for development. Despite making loud noises, threatening and fuming over the injustice done to the poor and developing countries, the trade ministers of the G-110 countries, comprising the entire developing world, finally bowed before the rich and mighty.

Ten years after the WTO came into existence, and after six ministerial conferences, developing countries have failed miserably to force the rich industrialized countries to remove even one dollar from the massive agricultural supports they provide to agribusiness corporations in the name of farmers. Unable to make any dent in the citadel of unfair trade -- US $1 billion a day in farm subsidies -- developing countries have time and again taken refuge behind an illusionary smoke screen. After each of the ministerial conferences, they have returned “victorious”, and the price has been paid by millions of small farmers edged out of farming.

The Hong Kong Ministerial (Dec 13-18, 2005) was no exception. Much was made over the elimination of export subsidies by 2013. This is the first time developing countries have managed even a mention of reduction in subsidies. At present, export subsidies do not even constitute one percent of the total support of US $360 billion that the richest trading block, 30 countries forming the Organization for Economic Cooperation and Development (OECD), provide for agriculture. In any case, the UN Food and Agriculture Organization (FAO) projects that export subsidies have been steadily on the decline, falling from US $7.5 billion in 1995 to US $3 billion in 2001.

The European Union (EU) provides 90 percent of the global export subsidies. Over the years, it has very conveniently shifted the export subsidies to be part of the domestic support. Still worse, export subsidies have to be phased out over a period of eight years. Some estimates point out that the EU does not shell out more than US $1.2 billion as export subsidies. As the French economist Jacques Berthelot explains: “Formal export subsidies to EU cereals were reduced from Euro 2.2 billion in 1992 to 121 million in 2002. But domestic support in the form of direct payments that helped exported cereals rose from 117 million euros in 1992 to 1.3 billion euros in 2002.”

Not only export subsidies, but other export measures with equivalent effects such as export credits, guarantees and insurance in excess of 180 days have to also be eliminated. These pertain essentially to the US, which provides 95 percent of such global export measures. Developing countries have probably forgotten that the former US Trade Representative, Robert Zoellick, had suggested a flexibility formula for phasing out the export credit programs, which the EU and other members charge is a form of an export subsidy. To eliminate the subsidy component of export credits, all he had promised was his willingness to reduce repayment periods from 36 months to six months on the loans provided for buyers of some commodities.

In turn, developing countries have agreed to a “high level of ambition for market access in agriculture and non-agriculture goods.” The text links market access in both areas, stating that the “ambition is to be achieved in a balanced and proportionate manner.” This is exactly what the developed countries had been keenly looking forward to, and this is where the developing countries gave in. Step by step, developed countries have been able to get more market access from the developing countries, without showing an equal reciprocation.

Another key achievement is the promise of elimination of much-maligned US cotton subsidies. Let me first make it clear, it is not the cotton subsidies that the US has promised to remove by 2006. It is the export subsidies on cotton that the US is willing to do away with. In reality, as some estimates show, it does not translate to more than $30 million, which is not even a drop in the ocean for American cotton growers. The US provides barely 1.4 percent of the global export subsidies.

Let me explain. For the 20,000 cotton growers in America, it will be business as usual. In 2004, US cotton farmers got federal support to the tune of $4 billion, which means $10.1 million a day. In 2005, the UN Human Development Report 2005 states the cotton growers were paid an additional $700 million thereby jacking up the total subsidy to reach a staggering figure of $4.7 billion. It is this huge subsidy support, much of it considered non-trade distorting, which actually causes the global prices to slump. Indian cotton growers, or for that matter cotton farmers in western Africa, are thereby priced out of the international market.

The Hong Kong declaration does not talk about reduction in domestic support in the case of cotton. All it says is: “as an outcome of negotiations, trade distorting domestic subsidies for cotton production should be reduced,” which in trade terms means practically nothing. In fact, the contentious issue of domestic support for agriculture has remained untouched. And that is where the US, EU and Japan have succeeded. They have emerged unscathed from a negotiating position that could have derailed the Hong Kong Ministerial. Developing countries term this as a “success”.

Let us not forget that in the first three years of the notorious Farm Bill 2002, America provided an additional support of at least US $125 billion (70 percent of the total allocated budgetary support of US $180 billion) to its estimated 9,00,000 farming families. These counter-cyclic payments -- again considered non-trade distorting -- have already filled the bank accounts of the agribusiness companies and the elite in the American society. And yet, the US is getting ready with another version of the Farm Bill that should come into vogue in 2007. On top of it, there is no provision in the Hong Kong declaration that can stop the developed countries from further increasing their agricultural subsidies. Under the July Framework 2004, developing countries have now legally permitted the developed countries to increase their agricultural subsidies

When asked, India’s Commerce Minister Kamal Nath replied: “The US has already offered to reduce domestic support by 53 percent while the EU offer is for 70 percent.” This was actually a commitment that the US and EU had made in mid-October. Interestingly, the minister had then lashed out: “What the US proposed last month is not real cuts in agriculture subsidies. The real cuts would be when there is decline in the support provided by the US treasury.” But post-Hong Kong, for some strange reason the minister agreed to the same commitment!

The US/EU offer pertained to cut the ceiling on trade-distorting subsidies by 60 percent and 70 percent, respectively. Let me clarify here that the US/EU proposal did not mean reduction in farm subsidies by 60 to 70 percent but a reduction in the “ceiling” on trade-distorting subsidies. As far as the overall reduction is concerned, it does not translate into any reduction in the domestic support being given.

Kamal Nath probably thought that public memory is too short. In just a matter of ten days, he made a complete U-turn in his stand on agricultural subsidies. This is exactly what he did at the time of accepting the July Framework. Two days before the final draft was accepted in Geneva in the early hours of August 1, 2004, he had publicly rejected it. And then, for reasons that remain unexplained, accepted the same draft (with hardly any changes) two days later and called it a “victory” for India.

There is no denying that the biggest culprit is the July Framework 2004. It provides a cushion for the developed countries to raise farm subsidies from the existing level. It also is the foundation for future negotiations under the Doha Development Round. But if you read the draft carefully, it is obvious that the developing countries had been taken for a ride. Instead of re-opening the framework agreement, developing countries continue to negotiate on a faulty structure. It is because of the framework agreement that the developed countries are promising to cut domestic support, which in reality is only on “paper”.

The first installment of a cut in subsidies by 20 percent under the July Framework is not based on the present level of subsidies but on a much higher level that has been now authorized based on the three components: the final bound total AMS, plus permitted de minimis, plus the Blue Box. In other words, developed countries have been allowed enough leverage by the developing countries to increase their subsidies. How can the developing countries justify this? How could they forget that as long as agricultural subsidies remain, protecting food and livelihood security in developing countries is not at all possible?

Allowing developing countries to select its own list of special products, which would be outside the ambit of tariff reduction formula, along with special safeguard mechanisms (SSMs) is being touted as an adequate safeguard to protect farmers from income levels falling due to unfair competition from subsidized imports. SSMs enable governments to raise import duties on agricultural products if there is a surge in imports or fall in world prices.

We need to understand this. Developed countries have used special safeguards (SSGs), only by 38 rich countries so far, to restrict imports from developing countries. They have already been taking advantage of this flexibility by reserving the right to use the SSGs for a large number of products: Canada reserves the right to use SSGs for 150 tariff lines, the EU for 539 tariff lines, Japan for 121 tariff lines, the US for 189 tariff lines, and Switzerland for 961 tariff lines.

For the EU, just using SSGs for 20 tariff lines protects 40 percent of their agriculture import market. By exercising the flexibility to designate 539 tariff lines under SSGs, the EU has for all practical purposes blocked whatever can be imported from the developing world. A similar categorization (20 tariff lines) in the US would provide a protective shield for 38 percent of the imports. And the US reserves the right to use SSGs for 189 tariff lines!

The only redeeming feature is that the developing countries will now be allowed to use the same measures, and this is where these countries can assert on re-imposing tariffs and countervailing duties to meet food security concerns. These measures however are temporary and would only come in place after the importing countries have actually felt the aftershock of import surges.

As far as special products are concerned, not all products or tariff lines can be protected under the SP category. The draft very clearly states that at present the offer is to classify anything between 1 to 20 percent of the total tariff lines as special products. For a country like India, which grows 260 crops a year, and has 680 tariff lines in agriculture, not more than 60-80 tariff lines can be protected under the SP category. What would happen to the remaining 600 tariff lines? Isn’t it a fact that each tariff line is linked to the livelihood of thousands of farmers?

This “benevolence” therefore is no justification for the developing countries to rejoice. The fact is that the developed countries have also been allowed a similar provision under the July Framework. Developed countries can term some crucial commodities as “sensitive” and thereby deny market access. For instance, the US, EU, Japan and Canada maintain tariff peaks of 350 to 900 percent on food products such as sugar, rice, dairy products, meat, fruits, vegetables and fish, which can be easily brought under the category of “sensitive” and some 25-40 of the sensitive tariff lines under the tariff rate quota can be easily protected under this category.

It is now abundantly clear that while the developing countries have got Special Products and SSMs, the developed countries have almost an equal and parallel provision of Sensitive Products and SSGs. If the developed countries had felt satisfied with the two provisions -- Sensitive Products and SSG -- to protect their agriculture, there would have been no need to provide the monumental farm subsidy support. The fact that developed countries, adequately armed with the safeguard provisions (besides non-tariff barriers and phytosanitary measures), are still not willing to eliminate agricultural subsidies, clearly shows where the key to a fair trade in agriculture lies.

Unless agricultural subsidies are removed there is no way developing countries can escape the harmful impacts of cheaper and subsidized food surges. Highly subsidized imports from the developed countries have already done irreparable damage to the agricultural production potential of the developing countries. Between 1995 and 2004, Europe alone has been able to increase its agricultural exports by 26 per cent, much of it because of the massive domestic subsidies it provides. Each percentage increase in exports brings in a financial gain of US $3 billion.

On the other hand, a vast majority of the developing countries, whether in Latin America, Africa or Asia, have in the first 10 years of WTO turned into food importers. Millions of farmers have lost their livelihoods as a result of cheaper imports. If the WTO has its way, and the developing countries fail to understand the prevailing politics that drives the agriculture trade agenda, the world will soon have two kinds of agriculture systems: the rich countries will produce staple foods for the world’s six billion plus people, and developing countries will grow cash crops like tomatoes, cut flowers, peas, sunflowers, strawberries and vegetables.

In reality, the WTO would ensure that the reins of food security are passed into the hands of rich and developed countries -- back to the days of “ship-to-mouth” existence. Developing countries have no one to blame but themselves.

Devinder Sharma is a New Delhi-based food and trade policy analyst. He can be reached at:

Other Articles by Devinder Sharma

* Pascal Lamy: The Politics of Consensus
* Bhagwati, Globalization and Hunger
* Literacy and Child Deaths: The New Hindu Growth Rate
* WTO: The Dope Trick

WTO: Faulty Frame, Savage Results
* Stopping the Rot: Hunger is Reflection of Policies That Benefit the Few