Farm Subsidies: Cairns Group Paper Riles India, China

27 March 2014

An informal paper by the Cairns Group of farm exporters has found that trade-distorting agricultural subsidies in developed countries are four times those of poorer countries, as a share of the value of production. However, the paper, which was presented at an informal WTO meeting last week, has sparked concern from India and China, who question the methodology used to calculate their own farm support levels.

Trade sources told Bridges that the two developing country trading powers were upset that the Cairns Group analysis conflated subsidies that are capped under WTO rules with others that are not subject to any current ceiling on spending.

"China and India strongly objected to the approach," one negotiator said.

The Cairns paper shines a spotlight on agricultural subsidy trends in ten major farm trading countries, by looking at how these domestic support patterns have evolved over time. The WTO members included in the analysis are Australia, Brazil, Canada, China, the EU, India, Indonesia, Japan, the US, and Russia.

Data gaps

The Cairns Group noted that backlogs and delays in official data reporting to the WTO have meant that significant holes remain in the analysis.

"The lack of complete and timely notifications makes it difficult to observe current trends in domestic support," they said.

For example, Indonesia "is currently working to fill in certain gaps," the sponsors explained, in particular by providing information on its public stockholding programmes.

At the WTO's ninth ministerial conference in Bali last December, members agreed to refrain from bringing trade disputes over public stockholding programmes for food security purposes in developing countries, so long as they provide new data on spending levels to the global trade body. (See Bridges Daily Update, 7 December 2013)

However, to date no country has formally asked to take advantage of the additional flexibility that was agreed at the conference. Members have also pledged to work towards a "permanent solution" to the constraints on public stockholding identified by developing countries in the run-up to the Bali meeting.

How green is "green"?

Farm support in the EU and US has declined "dramatically," the group finds, when defined as the current total aggregate measure of support - in other words, the "amber box" spending, including "de minimis" support, that is seen as most trade distorting under WTO rules.

EU support fell from US$35.3billion to US$8.5 billion from 2001 to 2010, while in the US payments fell from US$14.5 billion to US$4.7 billion from 2001 to 2011.

Trade-distorting payments in the EU have fallen as successive reforms have moved the bloc away from market price support and "coupled" farm payments that link subsidies to production, and towards decoupled income support payments. (See Bridges Weekly, 27 February 2014)

In the US, high prices for farm goods in recent years have also meant that government schemes to support farmers when prices drop have not paid out as they have in earlier periods. (See Bridges Weekly, 16 January 2014)

At the same time, both trading powers have greatly expanded their reliance on green box payments, which are exempt from any ceiling under WTO rules, on the basis that they cause not more than minimal trade distortion.

While some green box schemes, such as food stamps for poor consumers, are widely seen as minimally trade-distorting, other types of payments - such as investment aids or decoupled income support payments - are viewed by some analysts as having a more significant impact on trade and production.

Low-income, resource-poor producers

India and China have objected to the use of a new measure of "total trade distorting support" (TTDS) to calculate subsidy levels, trade sources said.

"The paper creates a new term - a new concept," one trade official said.

While current WTO rules allow developing countries to provide unlimited amounts of input and investment subsidies to resource-poor, low-income producers, the Cairns Group figures include these payments along with other types of farm support that would be capped by the "de minimis" ceiling on trade-distorting support.

This is set at ten percent of the value of production for most developing countries, with separate provisions for payments that are product-specific and those that are not. Exceptionally, China is subject to a lower ceiling of 8.5 percent.

Both China and India have large populations of small farmers, although to date only India has made substantial use of the provisions allowing developing countries extra leeway to provide input and investment subsidies to these producers.

Cairns members report that TTDS levels in China rose from US$320 million in 2001 to US$13.9 billion in 2008, and in India from US$8.2 billion in 2001 to US$37.6 billion in 2008.

Using the same measure, they found that support in the EU fell from US$36.1 billion in 2001 to US$10.3 billion in 2010, and in the US from US$21.5 billion to US$14.4 billion between 2001 and 2011.

While there is no precedent at the WTO for using TTDS to measure support, a draft deal negotiated under the Doha Round would have included cuts to overall trade distorting support - in other words, the sum of trade-distorting amber box, blue box, and de minimis payments. It would also have provided for separate cuts to each of these categories, and new limits on product-specific payments.

Reinvigorating Doha

While the Cairns paper was shared with members as a contribution to the normal review process in the WTO's Committee on Agriculture, some trade sources consider its analysis to be potentially relevant to the current efforts at preparing a Doha Round "work programme" by end-2014.

"Substantial reductions" in trade-distorting support were among the issues members had agreed to address when the talks were launched in the Qatari capital in November 2001.

A recent report from New Zealand ambassador John Adank, the chair of the WTO agriculture negotiations, warned that discussions on a Doha work programme are still at an "early stage" of renewed engagement.

"Many members do not yet have definitive views on a range of issues to which they are now turning their minds after a gap of some years," the chair observed.

Although negotiators came close to striking a deal in 2008, the talks languished for several years, until the prospect of a breakthrough on a "small package" of measures in Bali re-energised discussions.

Adank has now invited all WTO members to an informal meeting this Friday to exchange views on how to achieve further progress.

ICTSD reporting.

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