Creative Accounting Lets West Dump Grain

LONDON - Jun 15/05 - SNS -- Creative accounting by the United States, European Union and other rich countries is allowing them to dump highly subsidized agricultural production into poor countries, while using the WTO to prevent poor nations from countering this economic threat.

This is the key conclusion of an Oxfam report on the world agricultural situation and the ongoing Doha Round of negotiations, which the international agency believes is "gain giving rich countries a free ride to continue dumping subsidized produce on poor countries. Oxfam believes that the WTO meeting in Hong Kong must put an end to this hugely damaging practice."

Oxfam said the United States and European Union must, "at the very minimum, agree to the following reforms in farm subsidies at the WTO:

"An end date of 2010 for export subsidies. This should be achieved by cutting permitted levels of export subsidies by equal instalments every year."

Oxfam said the two should also agree:

"A pro-development implementation of the cotton and sugar rulings by the time of the Hong Kong Ministerial.

"Deeper and quicker cuts for explicitly distorting domestic support, and the full elimination of trade-distorting support on cotton. At the minimum, the USA should cut all Amber Box support by 60%, and the EU by 70% by the end of the implementation period. The permitted Blue Box level should be cut by 50% and capped at 2.5% of the total value of a country's agricultural production. The de minimis exception should be halved for developed countries.

"The Blue and Green Boxes must be further disciplined. The current Blue Box criteria must not be loosened.

To improve transparency, all WTO members should fully notify their subsidies to the WTO secretariat each year.

Food aid must only be provided in the form of grants, except in exceptional circumstances.

"Developing countries should not be obliged to reduce their domestic agricultural support programs. They are very few and most of them serve important development purposes.

"Developing countries should also be allowed to use trade defence measures against dumped products.

"A food import financing facility should be made available to net food importing developing countries to help them subsidize the purchase and production of food.

"Developed countries should stop negotiating Regional Trade Agreements (RTAs) with developing countries and concentrate instead on delivering a fair multilateral trading system at the WTO. In their current form, RTAs force developing countries to grant market access to rich countries, without any guarantee that the subsidies that lead to dumping will be eliminated at the WTO."

Oxfam charges that the current course of negotiations on reforming international trade in agriculture will result in no change in the situation faced the world's wealthiest farmers.

"At the end of the Doha Round, neither (the United States nor European Union) will be obliged to cut a single dollar from the subsidies they pay their farmers. Meanwhile, developing countries will have had numerous concessions, for instance on market access, wrung from them in return for illusory progress.

"On paper it will appear that rich countries' commitments to reduce subsidies are genuine. But because of the WTO's rigged rules, Europe will not actually have to make any more cuts to its dumping-inducing subsidies. In fact, both the USA and the EU will actually be able to increase their trade-distorting subsidies -- utterly defying the point of the round," Oxfam said.

While rich countries have apparently agreed to get rid of the most nefarious subsidies of all -- export subsidies -- in reality they will be able to keep the bulk of their other forms of support that act as a hidden export subsidy or lead to the overproduction of many agricultural products of interest to developing countries. This will be devastating for poor country farmers. In West Africa alone, thousands of cotton farmers are forced to abandon their land every year due to unfair competition from the USA.

The result of the Doha Round will be that dumping -- which Oxfam defines as exporting goods at a price lower than it cost to produce them -- will continue, putting farmers in developing countries out of business, and increasing poverty and suffering.

Europe and the USA claim to have cut their subsidies over the years but, to date, there has been no substantial reduction, merely a relabelling of existing support.

Since the Uruguay Round started in 1986, overall farm support in developed countries has virtually remained the same (more than $250 billion per year in real terms, according to the OECD).

Despite the lack of reduction in actual levels of support, developed countries benefit from enormous flexibilities within the current Agreement on Agriculture because of the way rules were designed in 1994. Europe, for example, could increase its expenditure on export subsidies for wheat by more than ten times, and still be within the allowed limits.

Creative accounting has been justified by introducing a distinction between 'good' (non, or minimally trade-distorting) and 'bad' (trade-distorting) domestic subsidies. But the distinction is largely an artificial one, as the EU's own impact assessment and the WTO panel on cotton have found. Many of the subsidies classified as 'minimally trade-distorting' are no such thing and remain harmful to developing countries.

For instance, the Uruguay round was designed to reduce export subsidies substantially. However, because of the restrictive way in which export subsidies were defined, the European Union and the United States were able to use hidden export subsidies while still abiding by the letter of the agreement.

Oxfam has calculated that the EU and USA are massively understating the real levels of export subsidization. The USA is providing 200 times more support in hidden export support than it declares, equivalent to $6.6 billion (€5.2 billion) a year. The EU pays out the equivalent of €4.1 billion ($5.2 billion) in hidden export support -- four times what it reports to the WTO.

Oxfam said the price at which crops sell tells this story clearly. Thanks to an array of different support mechanisms, the USA is able to export its cotton and wheat at 35% and 47% respectively of their cost of production. The EU exports sugar and beef at 44% and 47% respectively of their internal cost of production.

Moreover, despite the EU and US commitment in the current talks to eliminate all kinds of official export subsidy, most would not completely disappear before 2016. In addition to encouraging exports at artificially low prices, many domestic subsidies currently allowed under the Agreement on Agriculture distort trade, leading to overproduction in sectors of interest to developing countries and reducing the export potential of developing countries to the North.

OXFAM reveals that the EU and the USA could actually increase their actual levels of trade-distorting support by €28.8 billion and $7.9 billion respectively, if they get their way in the current agricultural negotiations.

Far from improving this grossly unfair situation, proposed changes in the Doha Round, such as enlarging the Blue Box category for subsidies, will give rich countries even more rules behind which they can hide their subsidies that hurt the poor.

The EU would be able to expand its room to provide WTO-defined trade-distorting support by €28.8 billion per year from current levels.

The USA would be able to increase its trade-distorting support by $7.9 billion per year from current levels.

The EU and the USA have already made reforms to their domestic subsidy programs and use this as an excuse not to make further meaningful changes. However, we now know that dumping takes place beyond the narrow WTO definition that has driven subsidy reforms in the past.

"Because of this chicanery, rich countries are now on course to sign an agreement that appears to be radical, but which has been designed explicitly to allow the USA and EU to continue with their harmful agricultural policies," Oxfam said.

"All this directly contradicts one of the core purposes of the WTO, and the agricultural talks in particular: to cut market-distorting support. But the EU and the USA continue to attempt to force poor countries to give up their trade protection and agricultural support measures, while keeping their own in place."

The recent WTO cotton and sugar panels legally established that rich countries have even failed to abide by the loose rules on subsidies that they crafted during the Uruguay Round, a longstanding claim of developing countries. This gives developing countries an important moral and legal victory, and a precedent that should serve to strengthen their hand in the trade talks.

"These negotiations can now be turned around in one of two ways," Oxfam said. "Either developed countries can stick to the spirit of the WTO process, and devise an agreement that genuinely gives a fair deal to developing countries, at the same time as allowing subsidies to remain for supporting small farmers, rural development, and environmental protection in the North, or they must get ready to face more legal challenges.

"Cases could be brought against other sectors where both subsidies and exports are huge -- like corn and rice. Of course, regulating the use of subsidies through litigation would only be a 'second-best' solution compared with improved and clarified rules negotiated as part of the Doha round.

"Panels take a lot of time, are costly, and are not always implemented. As a result, they do not guarantee consistency and predictability in the rules. Nevertheless, if the rich countries continue to paralyze negotiations and rig the rules on agriculture, panels constitute a viable alternative for those developing countries capable of taking a case to the WTO and tired of waiting for real trade reform."