WTO Ministerial: Ensure food security and fair play in global trade
by Ashok B Sharma on 04 Dec 2013 0 Comment

Pride of political and economic supremacy dominates the spirit of the developed or industrialized countries. Driven by this selfish interest for maintaining hegemony they have been successful in derailing multilateral development agendas, be it the UN Millennium Development Goals (MDGs) or the Doha Development Agenda at WTO negotiations. The developing countries, on the other hand, have come forward to bail out the developed countries in their hour of crisis even though they were deeply impacted by their ill doings like the collapse of Lehman Brothers in US in August-September 2008 leading to global financial crisis which was aggravated by the Sovereign Debt Crisis in the Euro zone and Fukushima disaster in Japan.


The helping hand of the developing countries was not reciprocated. The promise to reform the International Monetary Fund (IMF), World Bank and the UN Security Council on the basis of contemporary realities seems to be a distant dream. So what can be expected at the on-going 9th WTO Ministerial Conference in Bali, Indonesia?


The developing countries have realised that they have fallen into the cobweb laid by the developed world, and are trying to come out of the trap. After years of efforts through the Uruguay Rounds of negotiations, the developed countries could ultimately succeed in their effort through Marrakesh Agreement leading to the setting up of the World Trade Organisation (WTO) in 1995, replacing the earlier arrangement – General Agreement on Tariffs and Trade (GATT).


The draft of the former Director General of GATT, Arthur Dunkel, in 1991, was an historic turning point in the negotiations for the Marrakesh Agreement. Dunkel’s deep understanding of technical issues combined with his shrewd diplomacy transformed hundreds of thousands of pages of diverse, often conflicting, proposals into a manageable single document of some 500 pages, distilling the essence of the future WTO. The developing and the least developed countries fell as easy prey to Dunkel’s diplomacy and allurement for a bright economic future under the so-called free and fair trade regime.


The Dunkel draft and the Marrakesh Agreement were heavily loaded in favour of the developed countries as it allowed them to protect their interests, particularly in agriculture. It allowed them to continue with their high subsidy regime which poor countries in the Third World can ill afford, and to maintain high tariff and several non-tariff barriers under different pretexts. These resulted in unfair trade practices and practically denied the Third World a level playing field.


After extensive negotiations at the 4th WTO Ministerial in Doha, Qatar, in November 2001, an agenda was set for improving the trading prospects of the developing countries to some extent, commonly known as Doha Development Agenda (DDA). Since then, four WTO Ministerial Conferences have been held, but could not undo the wrongs done to the Third World. Level playing field in global trade remains a distant dream as developed countries are unwilling to implement the Doha Development Agenda.     


Double Standards


The United States and the European Union have recently objected to India’s food subsidy and public stockholding of food meant to feed millions of hungry mouths. But before pointing fingers at India, they must know that those who live in glass houses should not throw stones. The European Union gives massive subsidy to the 5% citizens engaged in farming which generates just 1.6% of its GDP. EU’s Common Agriculture Policy (CAP) accounts for more than 40% of its annual budget. In 2013, the budget for direct for direct payments to farmers as subsidy and rural development – the twin pillars of CAP – is 57 billion euros (£49 billion), out of the total EU budget of 132.8 billion euros – 43% of the total. Strangely, subsidies are also given for keeping land fallow, citing environmental reasons.

At present, direct payments and price support account for more than 70% of the CAP budget, while rural development gets less than a quarter. Direct payments account for more than half of farmers’ income in EU. The average annual subsidy per farm is about 12,200 euro (£10,374). Large agri-business and big landowners get more from CAP than Europe’s small farmers who rely on traditional methods and local markets. About 80% of the assistance goes to about a quarter of EU farmers with large landholdings like the British royal family and European aristocrats with big inherited estates. The older 15 EU members benefit more than new members.

Milk quotas protect the income of dairy farmers. Though EU had promised to phase out this trade-distorting measure by 2015, it is raising the quota by one per cent each year so that a high level is reached before phasing out begins. The sugar industry is adequately protected by high guaranteed price.

The United States is not behind in the race. The US food stamp programme is pegged at $60 to 70 billion every year; and support to farmers is less transparent than in the EU. The 2013 US Farm Bill gives unlimited crop insurance subsidy. Some policyholders get more than $ one million annually in premium support and more than 10,000 policyholders receive more than $100,000 in subsidies. As there is no cap on crop insurance subsidies, the largest one per cent policyholders get about $227,000 annually, while the bottom 80% receive about $5,000. Crop insurance subsidies flows largely to agri-business corporations and farmers with large landholdings.

Unlike other farm subsidies, crop insurance subsidies are not subject to means testing or payment limits and farmers are not required to adopt basic environmental protects. The crop insurance scheme cost the taxpayers about $9 billion a year.

India’s food security at stake


Compared to the massive trade-distorting subsidies given by the US and EU, India’s subsidy under the new food security programme is only Rs 90,000 crore (as per Budget estimate which includes administrative expenses, stocking, transportation, purchase from farmers). This scheme is designed to feed 75% of the rural poor and 50% of the urban poor at subsidized rates. This gigantic scheme needs public stockholding. This involves purchase from farmers at minimum support prices (MSPs) which is necessary to give support to farmers. India’s programme is not trade-distorting in any way, but is meant to cater to the poor in line with the UN Millennium Development Goals.

The developed countries have claimed that India’s gigantic food security programme is likely to breach the 10% cap on subsidies under Aggregate Measures of Support (AMS) based on 1986-88 prices. But the 1986-88 base price is no longer relevant as the world economy has undergone changes. India and the developing world should, therefore, call for a correction in the base year for prices, instead to accepting a dangerous olive branch of Peace Clause for four years.  


Trade distorting game


Negotiations in the WTO reached deadlock due to the unwillingness of developed counties to forego their high trade-distorting farm subsidies which placed the farmers in developing nations at a serious disadvantage. The developing countries have long being demanding a level playing field in global trade, but to no avail. The new WTO Director General Roberto Azevedo has rightly remarked that the multilateral trade body since its inception in 1995 has not been able to produce a single agreed multilateral text.

Instead of reforming their policies to facilitate free and fair trade, the developed countries have become more protectionist in trade since the collapse of Lehman Brothers in US in August-September 2008, leading to a global financial crisis which was aggravated by the Sovereign Debt Crisis in the European Union and Fukushima disaster in Japan. The developed countries imposed high non-tariff and technical barriers to trade, including stringent and politically motivated sanitary and phytosanitary measures (SPS) to keep off exports from the Third World.


Developing countries with export-dependant development strategies like India suffered with increased current account and fiscal deficits, sluggish growth, growing joblessness and wage deflation. Rising oil and commodity prices at the global level have caused price inflation problems in developing countries. Though South-South trade has increased, it has its limitations. The developed countries also restricted the movement of professionals from the Third World.

Unconventional monetary expansion policies in the EU and US added to the problems of developing countries. A single announcement by the Chairman of the US central bank, Ben Bernanke, in May, that US may start to rein back its $85 billion-a-month bond-buying programme which would release cheap money into the system sent the Indian rupee, Brazilian rial, Indonesian rupiah and South African rand in a downward spin. It also caused the flight of hot capital from India as multinational companies began evading tax payments by citing operations elsewhere.

With the recent shutdown crisis in US, matters may turn out to be worse for India and other developing countries. G-20 Summit is over, as is the 68th UNGA Summit, with no solution in sight. Expansion of the UN Security Council is awaited. The promised reform in the IMF for increase in quota and voting rights of developing countries remains a distant dream. Negotiations on climate change for moving toward common but differentiated responsibilities on emission cuts are under deadlock. What remains is the forthcoming WTO Ministerial at Bali.

Choice left – demand food security box


In Bali, India and the developing countries should stress for a separate Food Subsidy Box to accommodate food subsidy for the poor, instead of bringing back the controversial Peace Clause which helped the developed countries to hide their trade-distorting subsidies. The Third World should demand phasing out of all trade-distorting subsidies and practices of the developed world. The 68th UNGA noted that the UN Millennium Development Goals will not be met by 2015, leaving one billion of the world’s poor in distress. The developed countries have not met their commitments under the Monterrey Consensus and Doha Declaration on Financing for Development. They are lagging behind their commitment of financing under ODA to the extent of 0.7% Gross National Income.

According to the World Bank, India now has a greater share of the worlds’ poorest than it did 30 years ago. The State of the World’s Mother Report-2013 says India has the highest number of deaths of newborns on the first day of life, estimated at 309,000. The UNICEF report says India has 43% of underweight children in the age group 0-5 years; the average in sub-Saharan Africa is 21%. According to official estimates, about 56,000 maternal deaths were recorded in 2008 and 11.64 lakh infant deaths in 2011. Neo-natal mortality rate was 31 per 1000 live births in 2011, indicating that 3.1% new-borns died within the first month of their birth.

Keeping these facts in mind, India’s negotiators at the WTO Ministerial in Bali should do appropriate homework and work along with other developing countries to negotiate a Food Security Box for the poor instead of buying back the controversial Peace Clause which would benefit the developed countries.


Among other items on the agenda for negotiations at the 9th WTO Ministerial in Bali is trade facilitation by removing delays in custom and port clearances. The developing countries have sought technical and financial assistance from the developed world and grace period for implementation. Other items are tariff rate quota (TRQ) administration, export competition and special consideration for goods from least developed countries (LDCs) by slashing custom duties. But the vision of a free and fair trade and development will remain a distant dream till a level playing field for the Third World is not ensured and food security for the poor is not given top priority.

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