REINING in agricultural subsidies is a major issue in the ongoing agriculture negotiations because the Agreement on Agriculture (AoA), seen as the first step towards an eventual removal of agricultural subsidies, fell woefully short of its objectives. This was primarily because the AoA allowed WTO members to exempt from the discipline support that was presumed to be non-trade-distorting in nature. The biggest beneficiary of the AoA "discipline" on domestic support was the U.S. In fact, almost 70 per cent of U.S. domestic support granted in 2001 was designated as non-trade-distorting. And, ironically, the discussions on domestic support that WTO members have been engaged in thus far have largely focussed on the so-called "trade-distorting" forms of domestic support.
Preposterous was the farce that the U.S. and the E.U. conjured up during the past few weeks, while the rest of the WTO membership was reduced to mere spectators. In early October, the U.S. made a "Proposal for Bold Reform in Global Agricultural Trade", which spelt out its ambitions in the agriculture negotiations. The U.S. indicated its willingness to reduce its "trade-distorting support" by 53 per cent provided the E.U. and Japan reduced theirs by 75 and 53 per cent respectively. But while proposing a reduction in "trade-distorting" support, which would have amounted to about $10 billion, the U.S. sought three significant flexibilities. The first was that the spending on "Blue Box" support should be capped at 2.5 per cent of the value of agricultural production. For a country that has made no allocation under the "Blue Box" in the recent past, this flexibility would have given the U.S. the freedom to make an additional spending of more than $5 billion. The second flexibility sought by the U.S. was that there should not be any limit on "Green Box" spending. This flexibility would allow the U.S. to maintain its farm spending at high levels. And, finally, the U.S. proposed that the WTO members would not have the right to initiate a dispute as long as the "trade-distorting support" remained within the levels agreed to in the negotiations. This proposal, in effect, sought to deprive developing countries, most of which have major interests in agriculture, of their fundamental right to challenge the large subsidy-granting countries even when they suffered the adverse consequences of farm subsidies.
The E.U., on its part, expressed its readiness to reduce its "trade-distorting" support by 70 per cent, provided some of its conditions are met. The most significant of these is the E.U.'s ambitions on protection of geographical indications (GIs). Many countries are opposed to the linking of negotiations on agriculture to the issue of GIs, for they feel that the E.U. would be able to use them as non-tariff barriers.
It must, however, be noted that the positions of the U.S. and the E.U. on farm subsidies have been driven by the reality of farm politics on the two sides of the Atlantic. France has unequivocally rejected any proposal for major reform in the Common Agricultural Policy (CAP), which has governed E.U. agricultural policies for more than four decades. As for the U.S., the Chairman of the Committee on Agriculture, Nutrition and Forestry of the U.S. Senate expressed his deep concern that "the administration is using the current negotiations to reshape farm policy without the full input of Congress and grassroot support", even as the country's trade negotiator was presenting the latest proposals. In a letter addressed to the Agriculture Secretary, the Senator advised the Bush administration to take care "to ensure that resources currently committed to all titles of the farm bill remain available when it is re-authorised in 2007". He added that "it would be wise for the President and the Department of Agriculture to protect the current baseline for agriculture spending" and that while "the United States should commit to reduce trade-distorting domestic support in exchange for other forms... it should not reduce overall farm programme expenditures in the negotiations". It is obvious that both the U.S. and the E.U. lack the appetite to undertake policy reforms in agriculture, thus ensuring that the impasse over agriculture will persist.