Least Developed Countries Propose New Caps on Trade-Distorting Farm Subsidies at WTO

2 February 2017

WTO members must agree to cuts and new ceilings for trade-distorting farm subsidies, says a proposal from a group of dozens of the world’s poorest countries at the global trade body.

The submission from the group of Least Developed Countries (LDCs) was tabled by Benin on 13 January, but has not yet been discussed by negotiators, trade officials told Bridges. It identifies “urgent” actions to be taken ahead of the WTO’s ministerial conference in Buenos Aires this December, as well as a separate set of measures which the group believes need to be tackled in the longer term.

The proposal follows a flurry of submissions from other countries and groups that were tabled at the WTO in November. (See Bridges Weekly, 17 November 2016)

Trade-distorting support in agriculture continues to create unfair competition for LDC producers, the proposal says, noting that “the bulk of LDC farmers are small-scale or semi-subsistence farmers.” It also argues that the farm sector is “crucial” for export revenues, rural livelihoods, poverty reduction, and food security.

The LDC group is made up of 48 countries recognised as least developed by the United Nations, of which three dozen are WTO members, with another eight negotiating to join the organisation.

World leaders have said they will take steps to tackle trade restrictions and distortions in agricultural markets so that they can achieve the 2030 goal of ending hunger and achieving food security worldwide. This objective is one of the 17 Sustainable Development Goals (SDGs) that were adopted under the United Nations in 2015. (See Bridges Weekly, 30 September 2015)

“We are contributing to the debate,” one LDC negotiator told Bridges.

Call for “urgent” action

The LDC group says there is an “urgent need” for action on harmful agricultural subsidies before the Buenos Aires ministerial.

The LDCs propose that WTO members agree by the time of the conference to a limit on the sum of all trade-distorting support measures.

This would include highly trade-distorting payments currently classified as “amber box” under WTO rules, alongside similarly distorting support which is allowed under a “de minimis” clause so long as it does not exceed a certain minimal share of the value of production. Finally, the new cap would include support classified as production-limiting “blue box” payments at the WTO, which currently faces no limits under global trade rules.

Although the proposal does not specify exactly how the new limits would be calculated, sources familiar with the proposal said that such an approach could allow members to negotiate a new ceiling on the total level of trade-distorting support provided. Many countries currently provide support that is substantially below existing limits on amber box support under WTO rules. (See Bridges Weekly, 26 January 2017)

Trade-distorting support concentrated on specific products should also be disciplined, the group said, especially for products of specific interest to LDCs.

Trade officials at the global trade body have repeatedly said that the bulk of WTO members favour an outcome on domestic support at the Buenos Aires ministerial. (See Bridges Weekly, 24 November 2016)

Cotton: four options

The LDCs also single out cotton for particular attention by the time of the ministerial, suggesting four possible approaches for tackling distortions on global markets for the product.

For well over a decade, reform of cotton subsidies in wealthier nations has been a central negotiating demand of LDCs from four West African countries – Benin, Burkina Faso, Chad, and Mali – known collectively as the Cotton 4 or C-4. (See Bridges Weekly, 16 June 2016)

The LDCs propose that governments could agree a fixed numerical limit on domestic support for cotton, or a limit defined as a percentage of the value of cotton production.

They could also consider a limit on trade-distorting cotton support defined as a share of total product-specific support, or a cap on cotton subsidies as a percentage of gross agricultural revenue from cotton.

 “There’s a glaring need to deliver there,” one developed country negotiator told Bridges.

A high ambition agenda

Without specifying a timeframe, the group also argues that WTO negotiations need to deliver a binding overall limit to the sum of all trade-distorting domestic support, and “total elimination” of product-specific payments that exceed “de minimis” thresholds.

Currently, for both product-specific and non-product-specific support, these “de minimis” thresholds are set at five percent of the value of production for developed countries, and at ten percent for most developing countries – with China accepting a lower ceiling of 8.5 percent as part of commitments made when it joined the WTO.

Countries should agree to a “progressive decrease” in permitted support levels, the proposal says. While past WTO agreements required countries to make gradual cuts in trade-distorting support over an agreed implementation period, existing rules do little to incentivise countries to make further moves towards less trade-distorting types of farm support.

Furthermore, governments should agree to clarify criteria and disciplines for farm subsidies which currently can be provided in unlimited amounts on the basis that they cause no more than minimal trade distortion – dubbed “green box” support at the WTO. These green box subsidies include payments for “public goods,” such as research, pest and disease control, or environmental protection; however, they also include more controversial schemes such as decoupled income support programmes.

Negotiators should also agree to the total elimination of “all types of domestic support” that have distorting effects on the cotton market, the group says.

“The overall ambition is high,” one official familiar with the proposal told Bridges.

New WTO agriculture negotiating chair needed

New Zealand ambassador Vangelis Vitalis, the recent chair of the WTO agriculture negotiations, has now returned to Wellington to serve as Deputy Secretary in the Ministry of Foreign Affairs and Trade. The personnel change means that WTO officials are now consulting ambassadors to identify possible candidates who are likely to command consensus support from the trade body’s membership.

Sources said that Harald Neple, the Norwegian ambassador who chairs the WTO General Council, is overseeing the consultation process.

Negotiators are hoping that the selection process can be completed ahead of a meeting of the General Council that has been scheduled for the end of February.

Trade officials told Bridges that the LDC proposal is likely to be discussed in informal meetings of the WTO negotiating body on agriculture once the new chair has been appointed – although there is also nothing to prevent members from meeting among themselves beforehand.

Initial reactions

Trade negotiators from different world regions told Bridges that their initial reactions to the LDC proposal were positive.

“I think it’s good that the LDCs are taking this initiative,” one source said, adding that the group has “the strongest moral position to be advocating for reform.”

However, others cautioned that the response from countries that provide high levels of trade-distorting support would be critical.

Recently reported figures from the US government indicate that the country provided US$14 billion in trade-distorting agricultural domestic support in 2014, the most recent year for which data has been submitted to the WTO. Beijing has said it provided ¥123 billion (US$18 billion) in equivalent support in 2010, while Tokyo has reported ¥1140 billion (US$14 billion) in 2012. (See Bridges Weekly, 26 January 2017)

Some negotiators said they were concerned about the more protectionist trade stance and scepticism about multilateralism that some officials in the new US administration had expressed – with some also anticipating an increase in litigation under the WTO’s dispute settlement mechanism.

“People are very preoccupied, I think,” one negotiator told Bridges.

However, other sources said that countries that favour trade reforms would continue to call for action ahead of the Buenos Aires ministerial.

“I don’t think it makes any difference: you’re still going to see a push,” another negotiator said.

ICTSD reporting.

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