WTO Must Link Tariff and Subsidy Reductions

OTTAWA - Apr 14/05 - SNS -- A recent study prepared for the Dairy Farmers of Canada argues Canadian negotiators must link reductions in subsidies with reductions in import duties so as not to perpetuate existing trade imbalances.

Using the example of the U.S. dairy industry, which they say derives 40% of its income from government subsidy programs, the study by Peter Clark, of Grey, Clark, Shih & Associates said those producers can not only better weather any reduction in import tariffs, their subsidies make it impossible for imported dairy products to effectively compete in U.S. markets.

Clark said empirical data shows subsidies in countries like the U.S enable their farmers to better absorb a drop in tariffs. U.S. dairy farmers had access to US$13.8 billion in direct and indirect support from federal, state and local government subsidies in 2003. These subsidies effectively limit access to the U.S. market. The US advocates tariff cuts because it can limit access while trying to increase U.S. exports to other markets.

"The WTO's approach amounts to a one-size-fits-all solution that simply won't work," said Peter Clark, principal author of the study. "My point is we have to negotiate both subsidies and tariffs at the same time. Cutting tariffs without eliminating subsidies effectively punishes countries like Canada that do not have the financial resources to subsidize and rewards richer countries that have a tradition of deep pockets support of their farmers."

During the WTO negotiations, the focus seems to be more on slashing tariffs than on cutting domestic subsidies. This weighs in favor of rich countries like the U.S. that have provided heavy subsidies to their agricultural producers, year after year.

"Agriculture Minister Andy Mitchell suggested recently that we need to restructure our agricultural sector. Canadian farmers are facing the brunt of price pressures from US subsidized products which are easily imported into Canada," says Clark, who has done two previous studies on U.S. subsidies since 1990.

"This unrestrained domestic support is like importing the 'beggar thy neighbor' tariff policies of the 1930's into the 21st century. The U.S is condemning farmers in poor countries to destitution and poverty. Canada should not give in to these illegal practices," he explained. "It would be far better to exercise our rights and challenge these subsidies at the WTO as Brazil has done with cotton. We gave the government a road map to do this two years ago but they have not picked up the ball."