The battle on agriculture

Agricultural issues, over which there were sharp differences of opinion between the developed and developing worlds, would have spelt the end of the Ministerial had the Singapore issues not intervened.

THE big surprise from Cancun is that agriculture did not live up to its pre-conference billing as the pivot around which the prospects of a deal revolved almost entirely. The official honour of deal-breaker finally went to the Singapore issues. But there is little doubt that agriculture dominated the discussions for much of the five-day conference and was only overshadowed towards its last hours. And there is much substance in the argument that the Singapore issues proved the deal-breaker only because many countries did not want the talks to clear that hurdle, which would have brought the focus of discussions perilously close to their strong protectionist interests in agriculture.

Arguments and recrimination had begun prior to Cancun, with European Union Agriculture Commissioner Franz Fischler going into the conference with the characterisation of the position advanced by several developing countries (the G20+) as "cheap propaganda". On the immediate eve of the conference, he proved a little more conciliatory, talking about the need for all proposals to be cast in the same basic framework. Talks could not progress, he pleaded, if WTO members remained in two different orbits. Furthermore, the E.U. would not be amenable to a deal that would effectively create two WTOs, with completely distinct rules and disciplines for developed and developing countries.

Developing country attitudes were summed up by South African Trade Minister Alec Erwin at a press conference on the opening day: The balance that had been struck in the submission of the G20+ was entirely appropriate, since it placed the major burden of adjustment on domestic support and export subsidies handed out by developed countries.

The basic position of the G20+ was that developed countries should reduce domestic support sharply on a product-specific basis. Where the product in question was exported and accounted for more than a specified level of world trade, the reduction in domestic support needed to be at the upper end of an agreed scale. Income support decoupled from production was to be eliminated and the so-called "green box" payments, which were ostensibly non-trade distorting, were to be examined closely to see how far the claims made on their behalf were true.

While making these demands on developed countries, the G20+ proposal showed appropriate sensitivity to the situation in developing countries. The E.U. and the U.S. had been insistent that they would cut their subsidies only in return for assurances of substantially improved market access. Although they were willing to make some concessions for developing countries and, in particular, for the least developed country group, this was a difference of degree rather than kind.

The G20+ proposal though, was built on the premise that developing countries that had large communities dependent on agriculture could not afford to provide unfettered market access. Cheaper produce flooding in from abroad - much of it subsidised - would wipe out domestic agriculture. And with production and incomes collapsing, purchasing power and the market would be wiped out in the very process of granting market access.

It was no accident that the G20+ included a large number of countries from the Cairns group, which has traditionally argued a strong case for the liberalisation of agricultural trade. The calculation underlying this partnership was clear: The Cairns group countries had little interest in the relatively poor markets of the developing world. Rather, the main focus of their attention was on the affluent markets of the industrialised West, where agricultural communities were minuscule and would not suffer serious dislocation from the curtailment of domestic support and export subsidies.

The E.U. and the U.S. responded with proposals that would cap domestic support at a certain percentage of the total value of agricultural production and eliminate, over a defined time period, export subsidies in products of special interest to developing countries. Midway through the Cancun conference, the E.U.'s responses to the chair's original draft was leaked, indicating a quite, deliberate design to delete all references to the objective of phasing out export subsidies with a view to their ultimate elimination.

Spokespersons for the E.U. and the U.S. made their joint proposal for agricultural trade sound like a significant achievement and a favour to developing countries, though they were clearly discomfited by the reactions it had set off. As U.S. Trade Representative Robert Zoellick put it, the U.S. had taken on the "unenviable and inevitable task" of seeking to draw as much ambition as possible out of the E.U.'s proposed reform of the Common Agricultural Policy (CAP). The joint proposal was formulated without the benefit of much time and with an eye on avoiding the impression that the U.S. and the E.U. had ganged up to produce a shoddy deal just on the eve of the Cancun conference.

Just prior to that E.U. Trade Commissioner Pascal Lamy had credited the joint proposal with "energising" the discussions on agriculture. But he was clearly unprepared for the aggressive response of the G20+. Unlike the U.S., which had aggressive interests in securing market access, the E.U. was playing a defensive hand on agriculture. The difference showed in the tactical approaches taken by the WTO's two heavy-hitters. The E.U. argued for a balance and then shifted the terrain of contention to the Singapore issues. The U.S. used its considerable clout to shape the terms of the debate to its convenience, though not always successfully.

THE first indication that the U.S. would not have things entirely its way came when the facilitators were compelled to take on board all proposals rather than confine discussions to the chair's draft transmitted from Geneva. By the evening of the first day at Cancun, the G20+ seemed adequately reassured that its paper had not been superseded by the chair's text.

It was accepted with little qualification that export subsidies constituted the most egregious form of trade distortion. The U.S. took some of the heat in this debate but was able, in the final instance to take shelter behind the obvious fact that the E.U. was the greater offender. In the case of cotton though, the U.S. was proven to be the sole offender, whose subsidies were causing a direct loss of income running to over $6 billion to farmers in four west and central African countries - Chad, Benin, Burkina Faso and Mali. The demand tabled by the four countries with the explicit endorsement of the African Union was clear: The U.S. should phase out its massive subsidies on cotton cultivation and, over the period of transition, pay appropriate compensation to the countries that suffered its worst effects.

Faced with a simple and rather straightforward demand, the U.S. changed the subject. Zoellick argued that quotas on textiles and garments exports were scheduled to end by January 2005 and this provided cotton-growing countries with great opportunities for diversification. If the U.S. proposal on cutting all tariffs on textiles and clothing were also accepted, the market would gain a fresh stimulus. U.S. consumers, for their part, accounted for 22 per cent of all cotton textiles purchased worldwide, according to a fact-sheet put out by the Office of the United States' Trade Representative (USTR). While demand in much of the world declined through the 1990s, U.S. consumption increased by the order of 70 per cent. Without this important source of demand, world cotton prices would have been depressed by up to 17 per cent, according to USTR estimates.

The implications of this line of argument were clear. U.S. cotton subsidies undoubtedly hurt the farmers in Africa but without the U.S. consumers, cotton growers everywhere would be plunged into acute distress. This presumably gave the U.S. the right to dictate what the solution to the problem should be: An initiative coordinated across the WTO discussions on agriculture, non-agricultural market access and rules, to "address the impact of distortions that exist in the trade of cotton, man-made fibres, textiles and clothing to ensure comprehensive consideration of the entirety of the sector".

Quite transparently bowing to U.S. clout, the language of the draft declaration on cotton was almost exactly as dictated. The African states that had tabled the demand on cotton were outraged and made no secret of it. Eager to gain some favourable notice from developing countries, the E.U. entered a strong endorsement of the African position. But this cut little ice. And there is little question that the failure of the conference chairman in choosing obfuscation, rather than work out a simple solution to a simple problem, damaged the credibility of the negotiations rather seriously. A representative of the African cotton growers said: "We are used to hardship, disease and famine. Now the WTO is against us. This will stay in history."

As the negotiations on agriculture reached a deadlock, U.S. Senators and Congressmen weighed in with their own admonitions. Senator Chuck Grassley, chairman of the Committee on Finance, warned nations that were "reluctant to embrace the future" of free trade and open markets against adopting the "failed dialogue of the past" which sought to divide the world into "north and south, rich and poor". The "so-called G-21" (sic) came in for special mention, with Grassley chastising the supposedly opportunistic gang-up for seeking ambitious cuts in developed country subsidies while giving nothing in return in market access. The U.S. administration, he suggested, would do well to remind these countries that their chances for bilateral free trade arrangements had perhaps been irreparably damaged by their participation in the councils of developing countries.

The second revision of the Ministerial draft declaration on agriculture was received with equanimity by the U.S., though the E.U. warned that it transgressed too many red lines for its comfort. Developing countries led by Brazil and India were equally dismissive, branding the provisions on subsidy reductions as mere tokenism and the market access demands placed on developing countries as excessively burdensome. African countries were incensed by the entire package and appalled at its convoluted formulations on cotton. The stage had been set for a climactic battle on agriculture, which would surely have spelt the end of the Cancun Ministerial conference had not the Singapore issues intervened.