The Fate of WTO and Agriculture

John de Boer (Research Associate, GLOCOM)

Representatives from 146 countries are meeting in Cancun, Mexico between 10-14 September to try and reach a deal that would set up a new world trade agreement by 1 January 2005. According to many analysts, the failure to do so could mean the end of the World Trade Organization. More significantly, it would perpetuate the existing system of world trade that continually disadvantages the world's poorest countries.

The meeting in Cancun is a follow-up to the Doha round of trade negotiations (November 2001), which set out to rectify unfair trading practices with a commitment to placing development issues at the heart of negotiations. In Doha, a broad range of agreements were made, including a promise by industrial countries to eliminate agricultural export subsidies and trade distorting tariffs. However, two years after Doha none of the promises made have been implemented. According to Oxfam International, the Cancun meeting could be the "last chance for rich countries to deliver".

Agriculture remains the most contentious issue, primarily because relatively no progress has been made on farm subsidies. Industrialized countries, particularly the EU, Japan, and the US refuse to eliminate subsidies, which disadvantage poor countries. Rich countries were supposed to have reached an agreement that would phase out all forms of export subsidies by March 31, however, they failed to meet this deadline.

Industrialized nations continue to spend $300 billion a year on farming subsidies, which amounts to more than the gross national product of sub-Saharan Africa. These subsidies are particularly damaging because they target the only sector in which developing countries are potentially competitive. Northern subsidies generate large surpluses that are dumped on world markets at prices far lower than production costs. These subsidies give rich-nation farmers the upper hand in all markets. Not only do they force poor Southern farmers out of the international market, but also they make it impossible for these farmers to compete in their own markets. Most developing countries reckon that they would be much better off if their developed counter parts, in particular the EU, US and Japan, removed farm subsidies. Some such as South Africa go so far as to say that they would give up foreign aid if the farm subsidies were eliminated.

In addition to subsidies, the issue of tariffs is on the table. A recent Oxfam report indicates that tariffs in the industrialized world unfairly target the poor. As a rule, poorer states end up paying higher rates of tax in order to export goods. For example, the US tariff rate for imports from Britain, France, Japan and Germany are between zero and 1 percent while products from Bangladesh, Cambodia and Nepal are taxed 14 to 15 percent. Inevitably, textiles and farm products are taxed the most. Japan levies a tax of 490% on rice, causing farmers in Vietnam to suffer.

Protectionism and subsidies in industrialized nations costs developing nations $24 billion per year in lost agricultural and agro-industrial income according to the US based International Food Policy Research Institute. Indian based Research Foundation for Science, Technology and Ecology says that Indian farmers have lost $25 billion over the past decade after opening up their markets to subsidized foreign products. Even more alarming is their claim that 20,000 farmers have died during this period, most as a result of hunger or suicide.

As the United Nations has repeatedly stressed, it is clear that the phasing out of agricultural subsidies in the developed world is the most important factor in alleviating poverty in Asia and Africa. 80 percent of the poor live in rural areas, and as Hafiz Pasha (UNDP regional director for Asia-Pacific) points out, the fate of the poor "hinges on what happens to agriculture, particularly in terms of prices and levels of export" (News24, South Africa, 3 September).

The EU, Japan and the US are considered to be the main culprits of these trade-distorting measures. While these rich countries pressure developing ones to remove all forms of discrimination favoring domestic over foreign investors when it comes to foreign direct investment, they refuse to budge when it comes to their unfair agricultural practices. With Japanese, US and EU ministers labeling developing country demands for the removal of subsidies impossible to meet, Cancun will likely fail to hold industrialized countries to the promises they made in Doha. Instead of placing development at the heart of the negotiations, the discussions are likely to do the opposite by protecting the rich.

Some such as George Monbiot of the Guardian say that countries such as the EU and the US are out to destroy the WTO. With US Trade Representative Robert Zoellick stating that the US was prepared to pursue its own free-trade agenda if the WTO proved unable to do its job, this prediction may come true (EU Business, 6 September). Japan and the EU are also refusing to compromise. In these circumstances, it is hard not to recognize that Cancun has been set up to fail.