US Agricultural Policy and the WTO1
Introduction
The Institute for Agriculture and Trade Policy (IATP) is a non-profit research and advocacy organization, founded just over 10 years ago, as the Uruguay Round discussions under the General Agreement on Tariffs and Trade (GATT) were getting under way. At that time, some US agricultural policy-makers and many US farmers were angered by the failure of their government to meet the needs of producers. This failure stood in sharp contrast to the government's continued strong support for US agribusiness. This discrepancy was further exacerbated by the trade talks instigated by the Reagan administration of the early 1980s on liberalizing agriculture under the GATT. IATP's founders created the institute to address these concerns.
IATP now has about 25 staff members. All our work is concerned with ensuring sustainable food security. We work on projects that range from trade in agriculture, to biodiversity and its links to intellectual property rights legislation, to tools for farmers interested in reducing agricultural pollution and building ecologically sustainable farms. Our primary constituency in the US is farmers, particularly from small and family-owned farms. Abroad, we work primarily with peasant-based organizations and NGOs concerned with the welfare of peasant and small farmers. It will perhaps not surprise anyone to hear that we have significant differences with the US government’s policies on agriculture, particularly as they involve trade.
Presentation
Today I want to give you our idea of what the agriculture agenda at the WTO holds, focusing especially on the US intentions, but also touching on other proposals.
I will present a thumbnail sketch of the structure of US agriculture and some of the important recent changes in domestic agricultural policy because of their bearing on the US position at the WTO. To understand the approach of the US in the coming multilateral negotiations on trade and agriculture, it is essential to understand the recent changes made in domestic agriculture policy.
Then I will comment on US Secretary for Agriculture Dan Glickman’s statements of US intentions for the upcoming review of the agreement, which the US administration hopes will be well underway by the end of 1999 at the latest. I will also say briefly what other countries are putting forward in this early stage of the process in Geneva.
Finally, I will mention some of the initiatives that NGOs, governments and multilateral organizations are engaged in. These are initiatives, like this meeting, that hope to at least improve the balance of interests on the table at the WTO. Many of them, more ambitiously, are also seeking to link the debates in Geneva with our concern for rural development and food security.
The Domestic US Farm Context
The US, as I will say more about tomorrow in the US case study presentation, has had to do relatively little to comply with its commitments under the WTO Agreement on Agriculture. This is perhaps not surprising, given the dominant role that the US plays in Geneva, but it does point to the need for a broader consideration of liberalization than can be gleaned from just the WTO compliance record.
For that reason, our case study on the US and its experience with the implementation of the agreement also reviews recent legislation called the Federal Agriculture Implementation and Reform Act (or FAIR), which passed into law in 1996. FAIR is an essential piece to consider to anticipate US agricultural strategy in the upcoming talks at the WTO. Again, I will review this legislation in more detail when I present the case study. Here I would like to bring your attention to two of the most important changes it introduced. Firstly, the elimination of deficiency payments to farmers.
This shift could be summed up in WTO slang, as moving US payments to their farmers from the blue box to the green box. To explain a little: deficiency payments was the tool used historically to subsidize domestic agricultural production in the US. These payments were from government to farmers to make up the gap between the price farmers received for their crops, by and large world market prices, and their actual costs of production, which were higher. These payments were clearly trade distorting but were allowed under the so-called "blue box" of the WTO Agreement on Agriculture. The blue box encapsulated the Blair House Agreement between the US and the European Union (EU) of 1992, and is found in article 6, paragraph 5 of the Agreement on Agriculture. The blue-box measures were acknowledged at the time of the Uruguay Round to distort trade, but attempts to limit these measures failed and a compromise was reached to enable the US and EU to come to an agreement on other aspects of liberalizing the agricultural sector.
Under the new agriculture legislation, FAIR, the US government replaced deficiency payments with Production Flexibility Contracts. These contracts make fixed payments to farmers, based initially on their past production levels. But the payments are not linked to either current or projected production, making them "decoupled" in the jargon. These payments are set to be reduced to zero over a period of 7 years, starting in 1996. These "decoupled" payments are allowed under annex 2 of the Agreement on Agriculture (also known as the "green box"), which are measures said not to distort trade. The point is that going into the review of the WTO agreement, the US no longer needs the protection of the blue box.
The second important impact of FAIR has been to reduce the number of strategies open to producers in the US. While seeming to help producers in other countries by removing production-enhancing subsidies for US farmers, the result has been an increase in the government’s reliance on export-intensive agriculture to keep producers in business. In the past, the government was paying farmers most of the difference between what their costs of production and what US agribusiness was willing to pay for their grain. Now the government has stepped out of this role, and farmers’ only available strategy is to increase production in an effort to realize efficiencies of scale.
A handful of US agribusinesses overwhelmingly dominate the purchase of commodities from US farmers. They are also the agents that sell US commodities in the world market. These companies are the primary beneficiaries of the subsidies, some of them hidden, in US agriculture. IATP argues these subsidies include exemptions from minimum wage labour laws and the price support structures that use taxes to pay the difference between the farm-gate price and the actual costs of production. They also include export subsidies, which reduce the risks and costs for exporters in their international operations. This last group is the only one actually on the WTO agenda.
The US and the 1999 Review of the Agreement on Agriculture
Coming back then to the WTO, what are the Clinton administration’s objectives in the review of the Agreement on Agriculture? At a recent presentation to the US House of Representatives Committee on Agriculture, US Secretary for Agriculture Dan Glickman said the following issues were key for the 1999 global agricultural trade talks at the WTO:
Secretary Glickman has also made repeated statements about the importance for the US of abolishing State Trading Enterprises through the WTO.
Let's take a look at some of these points:
Tariffs
The US has rarely resorted to high tariffs, except in a few
key sectors, and so it is on fairly strong ground here. Although
there are some products the US continues to protect, tariffs are
much less of a problem for exporters to the US than they are in
the European Union. By the same token, reducing or eliminating
tariff-rate quotas would not be difficult for the US since so few
commodities were tariffied under the WTO Agreement on Agriculture.
Export Subsidies
It is more difficult for the US to take a strong line on
export subsidies, despite the Secretary’s hard-line stance.
The US has increased the budget allocation for certain
agricultural export subsidies since the conclusion of the Uruguay
Round Agreements, although within the limits allowed. There are
further dimensions to this discussion, moreover, that the current
debate on subsidies at the WTO does not capture, but which are
clearly linked by the impact they have on the US share of the
world market. Consider the following statement from Dan Glickman
on why the US Congress should support the current request from
the IMF for further financial backing:
"The main reason we haven’t lost more exports to Asia is because the USDA extended US$2.1 billion in export credit guarantees. These guarantees, which depend on credit-worthiness, would not have been possible if the IMF had not stepped forward to help stabilize these economies and pushed countries towards serious financial reforms, greater market transparency, freer markets, and an end to cronyism. Without these IMF actions, another $2 billion in agricultural exports would have been at great risk in the short-term and far larger amounts in the long-term."2
The US has shown little leadership in the area of liberalizing export markets, as the above statement confirms. Its current strategy seems to be to even increase spending on export subsidies, although perhaps simply to have something more to give away as the next negotiations get started. IATP’s assessment is that the US would be willing to end its export subsidy programs, so long as the EU, in particular, agreed to do the same. In the meantime, the US is taking every opportunity it gets to use and extend this form of support, despite the clear if not technical agreement at the WTO to not extend subsidy use.
State Trading Enterprises and Competition
On state trading enterprises, there are again important
inconsistencies in the US position. While the US government has
targeted the state marketing boards of different countries for
causing trade distortions, the government is silent on the issue
of privately held monopolies and oligopolies. In April a front
page story in the Herald newspaper of Zimbabwe announced the
Zimbabwe State Grain Board is in negotiation with Glencore, a UK-based
grain company, for a deal that would give Glencore exclusive
rights to import maize into the country.3
Would such a move further competition and create more perfect
markets? It does not seem probable. Rather there seems to be a
simple substitution of a government monopoly with a private one,
one that controls some 80% of all the grain traded in the
southern African region.
Developing countries could consider taking the initiative on talks about competition policy at the WTO, to challenge the economic efficiency of private monopolies and oligopolies in various international markets. A recent paper by M. Keyzer and M. Merbis, working at the Centre for World Food Studies in the Netherlands cites evidence that:
"…while it has become more difficult for countries to keep producer’s prices high through protectionist measures on trade, it has become more attractive to seek and maintain monopoly power on international markets (as a result of the Uruguay Round agreements)."4
There is scope for developing countries to take the initiative on competition issues and to at least initiate discussions on these questions. The current debate on competition at the WTO, led by the developed countries, does not address these concerns, but instead is focused almost entirely on state-run enterprises.
Other Countries
Turning now to other countries at the WTO. Perhaps the most important grouping of countries on agriculture is the Cairns Group, so called because it first met in Cairns, Australia. This is a group of 15 countries, arguably led by Argentina and Australia, which also includes New Zealand, Canada, South Africa, the Philippines and others.5 It is a mix of developing and developed countries that export agricultural commodities. The group was formed to push for the liberalization of agriculture at the then-GATT and it continues to push for much tighter disciplines on agriculture as the review gets under way.
The Cairns Group argues that the EU and the US, their primary targets in promoting more liberal trade in agriculture, were able to get away virtually unaffected by the last agreement. Certainly for the US, although there were important effects on the domestic debate on agriculture, it is hard to disagree. As they approach the next round, the Cairns Group is therefore pushing to get rid of the blue box, the one I refered to earlier that allowed deficiency payments to continue, to amend the green box to restrict the programs considered not to distort trade, and to obtain further cuts on tariffs, export subsidies and domestic support measures.
While it is difficult not to agree with Cairns, that the US and the EU protected themselves rather well last time around, their insistence on further liberalization is very troubling for those of us concerned about food security, and especially for developing countries that did have to make significant changes to their agriculture sectors as a result of the last agreement. Not least, many countries found themselves barely able even to understand the complexities of the agreement, and there are many stories of countries inadvertently forgoing their right to implement tariffs or other measures, allowed under the agreement, because they failed to notify the WTO of their intentions in time.
For that reason, some developing countries are suggesting that we not take further liberalization measures until there has been a proper assessment of whether the agreement has met its objectives and what its impact has been. Many NGOs support this idea, and this gathering of case study presentations is a demonstration of that concern. Important issues, including price volatility and depleted reserves of food in many countries, including the US, have not yet been satisfactorily dealt with. For many countries, liberalizing agriculture has also meant tremendous upheavals for rural sectors and serious dislocation and impoverishment of small farmers.
Despite the fact that these last countries are in a majority, however, they are largely silent at the WTO Committee on Agriculture. There the agenda is dominated by disputes between the US and the EU, and to a lesser extent with Japan and Canada too, with some interventions from the Cairns Group. There has been little comment from the well over 100 other members of the committee. This is the silence we have to break.
Conclusion
In conclusion, I want to mention some important initiatives that are part of breaking this silence. We will come back to them on Saturday, for consideration in our working groups.
One is called the South and East African Trade Initiative on Negotiations and Implementation or SEATINI, which is a multilaterally-funded, NGO-run course for government diplomats to look at the issues currently on the table at the WTO. Its purpose is to propose some alternatives that would strengthen African countries’ negotiating positions. I recently attended the first meeting of this initiative, as an NGO resource person, and I think something similar for other groups of trade officials from developing countries could be helpful. An important reflection and recommendation from the meeting was that countries must hold real national debates on the issues before getting involved in another round of negotiations.
Many multilateral agencies, including the Food and Agriculture Organization (FAO) and the UN Conference on Trade and Development (UNCTAD) are also directly engaged in strengthening least developed countries negotiation skills and documenting the impacts of the WTO agreements so that the different reviews scheduled at the WTO are informed by proper assessments of their impact to date.
NGOs from around the world are themselves working on a series of policy options, looking at the agreement to see what room there is to increase the space available to governments to protect their agricultural sectors, and their farmers and small producers. An NGO workshop in Geneva on May 15 will start to review what some of these options are, with a view to preparing stronger positions through the autumn. Our sense is that the work on the review of the agriculture agreement at the WTO will begin in earnest come September of this year. Last time few NGOs and perhaps even too few governments even noticed what was going on in Geneva until it was too late. This time we must be better prepared.
References
1 A presentation by Sophia Murphy. Institute for Agriculture and Trade Policy (IATP), 2105 1st Ave. S., Minneapolis, MN, 55404. USA. Tel: +1-612-870 3454; fax: +1-612-870 3454; e-mail: smurphy@iatp.org. New Delhi, India, April 1998.
2 Inside US Trade, Release number 0089.98, Remarks of Secretary Dan Glickman. 1998 Agricultural Outlook, Washington D.C., February 23, 1998.
3 The Herald, (Harare, Zimbabwe), Friday April 3, 1998.
4 M. Keyzer and M. Merbis, Food Security and Strategic Trade, p.4, paper prepared for Markets and Institutions for Food Security seminar, European Commission and Solagral, Brussels, 10-12 December 1997.
5 The members of the Cairns Group are: Argentina, Australia, Brazil, Canada, Chile, Colombia. Fiji, Indonesia, Malaysia New Zealand, Paraguay, Philippines, South Africa, Thailand, and Uruguay.