WTO food fight before and at the Bali Ministerial

The “food security” issue dominated the first several days of the WTO’s Bali Ministerial conference. This article gives the background to the “food fight” at the WTO.

By Martin Khor

Before and at the WTO’s Bali Ministerial Conference, “food security” was a major issue. The group of 33 countries (G33) wants to clarify or change the present WTO rules that constrain the ability of developing countries’ governments to purchase food from small farmers and stock them.

Government purchase (and stockholding) of rice, wheat and other foods is important in many developing countries. Such schemes assist poor farmers by giving them more certainty of sales at certain price levels. It also promotes national food security.

However the present WTO rules are a hindrance to such schemes, and these rules need to be changed, according to a report of the South Centre by several trade experts of developing countries.

They include Rubens Ricupero (former Secretary General of UNCTAD), S. Narayanan (former Ambassador of India to the WTO), Ali Mchumo (former Managing Director of the Common Fund for Commodities and former Ambassador of Tanzania to the WTO), Li Enheng (Vice Chairman, China Society for WTO Studies), Ambassador Nathan Irumba of Uganda, and Deepak Nayyar (former Vice Chancellor of Delhi University and former Chief Economic Advisor to the Indian government).

Public stockholding for food security purposes is included as one of the items under the Green Box of the WTO’s agriculture agreement, but with certain conditions.

The Green Box lists the types of domestic subsidies that are considered minimally or non-trade distorting. WTO Members are allowed to use these measures, usually without limitations.

But in the case of public stockholding, significant conditions, causing enormous problems to developing countries, have been attached.

One condition is that food purchases by the government shall be made at current market prices and sale from public stockholding shall be made at prices not lower than current domestic market price.

But the rules also say that if the price paid by the government is higher than the external reference price, the difference is considered a trade-distorting subsidy which is then placed in and counted as part of the Red Box.  Developing countries’ Red Box subsidies cannot exceed 10% of the production value of the product.

The problem is that reference price has been defined as the average international price not of the present but of 1986-88.

Food prices were much lower 25-30 years ago.  For some items they are 200 or 300 per cent higher today.  It is thus illogical and most unfair to accuse a government that buys rice from its farmers at today’s market price to have unfairly subsidised them because it should have bought it at the 1987 price!

Consider this example.  The farm price of a food item was 30 cents in 1987 and rose to 100 cents today.  If I buy rice from farmers at 100 cents, it should not be considered a trade-distorting subsidy at all.

Yet the WTO’s rules consider that there has been such a subsidy of 70 cents. And this counts towards the country’s total allowed subsidies.

With such a calculation, it won’t take much purchase from farmers for the country to reach the 10% subsidy limit.  Anything above that is considered illegal, opening the country to legal WTO cases from other countries.  If they win, they can block the exports of the guilty country up to the value of the “illegal subsidy”.

Among the affected countries is India  whose  new  Food  Security   Bill obliges the government to spend over US$20 billion to buy foods especially rice and wheat from farmers, and to provide 5 kilos of these per month to eligible poor households, amounting to two thirds of the population.

The Group of 33 proposed a change in the WTO rules, that acquisition of foods by developing countries to support poor farmers should not be considered a trade-distorting subsidy.

According to the South Centre experts’ report, the G33 proposal if adopted would enable developing countries to have such schemes to help their poor producers or families without the present restraints.

“It would advance the cause of national food security, promotion of small  farmers’  livelihoods  as  well  as fulfilling the  Millennium  Development Goals of reducing hunger and poverty,” says the report.

In the last months’ negotiations at the WTO, this proposal was rejected, especially by developed countries like the United States which incidentally have subsidies of their own totalling hundreds of billions of dollars – much more than those of all the developing countries.

The rules are so riddled with double standards that these huge subsidies are allowed (since they were there in the past), while the subsidies of developing countries are severely capped because they did not previously subsidise (or only a little) as they could not afford to do so.

During the WTO talks, a counter proposal was put forward, that countries having public stockholding schemes would not have cases taken against them for four years.  Meanwhile, there would be negotiations to find a “permanent solution.”

However, those countries that have exceeded their allowed subsidy level, including due to the unfair calculation and definition of “subsidies”, have to own up, show how much they have exceeded, give details of the purchase and stocks, and also show how the operation of the scheme is not trade distorting.

Just before the Bali Ministerial, the Indian Cabinet decided that they would agree to a temporary “peace clause” (agreement not to take up legal cases), but only if it lasts till a permanent solution is adopted, and also if the peace clause applies to both the WTO’s agriculture and subsidies agreements.

The Indian Minister put this proposal forward at Bali, and after several days of negotiations involving India, the US and the WTO Director General, a text was arrived at, basically agreeing to a peace clause until a permanent solution but only for existing programmes and only in relation to the Agriculture Agreement (thus not covering the subsidies agreement). It is thus of limited value. Negotiations will now have to take place at the WTO to find the “permanent solution.” It should be done soon, and it should be an effective solution that is easy to use, to correct what is an unfair component of the WTO’s agriculture rules.