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WTO food fight in Bali

Publication Date : 02-12-2013

 

Can developing countries promote food security schemes that aid small farmers and poor consumers? This is one of the issues at WTO’s ministerial conference this week:

An expected tame meeting of Trade Ministers in Bali, Indonesia this week may see a tense battle after all, when the World Trade Organisation (WTO) holds its ninth ministerial conference.

The diplomats in Geneva tried very hard but were ultimately unable to produce the completed texts for the three main issues — a new trade facilitation treaty, changes in agriculture rules relevant to food security and benefits for least developed countries.

The director-general of WTO, Roberto Azevedo, has repeatedly stated that Bali would not serve as a negotiating conference.

But in the last few days, some countries have been pushing Azevedo to convene negotiating sessions in Bali to conclude a deal.

Therefore, Bali may turn out to be a tense affair after all.

If negotiations take place, food security will be a major issue.

The group of 33 countries (G33) would like to clarify or change the present WTO rules, which constrain the ability of govern ments in developing countries to purchase food from small farmers and stock them.

Government purchase (and stockholding) of rice, wheat and other foods is important in many developing countries.

Such schemes assist poor farmers by giving them more certainty of sales at certain price levels.

It also helps to promote national food security.

However, the present WTO rules are a hindrance to such schemes and these rules need to be changed, according to a report of the South Centre by several trade experts of developing countries.

Public stockholding for food security purposes is included as one of the items under the Green Box of WTO’s agriculture agreement, but with certain conditions outlined.

The Green Box lists the types of domestic subsidies that are considered minimally or non-trade distorting. WTO members are allowed to use these measures, usually without limitations.

In the case of public stockholding, however, significant conditions have been attached.

One condition is that food purchases by the government shall be made at current market prices.

If the price paid by the government is higher than the external reference price, the difference is considered a trade-distorting subsidy and counted as part of the Red Box.

Developing countries’ Red Box subsidies cannot exceed 10 per cent of the production value of the product.

The problem is that reference price has been defined as the average international price not of the present but from 1986 to 1988.

Food prices were much lower 25 to 30 years ago. For some items, they are 200 per cent or 300 per cent higher today.

It is thus illogical and most unfair to accuse a government that buys rice from its farmers at today’s market price to have unfairly subsidised them because it should have bought it at the 1987 price!

Take this example. The farm price of a food item was 30 cents in 1987 and has since risen to 100 cents today.

If I buy rice from farmers for 100 cents, it should not be considered a trade-distorting subsidy at all.

Based on the rules set by WTO, however, it is considered that there has been such a subsidy of 70 cents.

And this counts towards the country’s total allowed subsidies.

According to such a calculation, it would not take many purchases from farmers for the country to reach the 10 per cent subsidy limit.

Anything that goes above that percentage is considered illegal, thus opening the country up to legal WTO cases from other countries.

If they win, they can block the exports of the guilty country up to the value of the “illegal subsidy”.

Among the countries affected by these rules is India, whose new Food Security Bill obliges the government to spend over US$20 billion to purchase food from farmers, and to provide the food cheaply or for free to two-thirds of its population.

The G33 proposed a change in the WTO rules — that acquisition of foods by developing countries to support poor farmers should not be considered a trade-distorting subsidy.

According to the South Centre experts’ report, the G33 proposal, if adopted, would enable developing countries to have such schemes in order to help their poor producers or families without the present
restraints.

“It would advance the cause of national food security, promotion of small farmers’ livelihoods as well as fulfil the Millennium Development Goals of reducing hunger and poverty,” says the report.

In the last months’ negotiations at the WTO, this proposal was rejected, especially by developed countries like the United States.

Incidentally, these countries have subsidies of their own totalling hundreds of billions of dollars — much more than those of all the developing countries.

 

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