Cooking up a recipe for farming

Developing countries need to be persuaded that an outline deal in agriculture will not make them worse off, says David Kernohan

Next month's World Trade Organization (WTO) ministerial in Hong Kong is likely to mark a difficult stage in EU trade diplomacy. The most recent multilateral trade round, the Uruguay Round, concluded in 1994 and took eight years to negotiate. The Uruguay Round set the scene for the present extension of interest to the developing world, since it cut rich country agriculture tariffs for the first time (by 36%, a figure that holds to this day).

Eleven years later the WTO is attempting to conclude the most ambitious round yet. The Doha Development Round is specifically designed to help poor countries, but unfortunately it is not going too well.

The recent mood of the EU-US leadership is less cohesive and contrasts with the joint action that motivated the round in the early stages. More troubling still is the fact that, despite the enormous progress in the offers on the table from the EU and US at the WTO's offices in Geneva, the developing world is expressing differing levels of enthusiasm for achieving an agreement.

In some ways this is inevitable. The biggest developing countries gain little from anything but total dismantling of rich country agriculture - and must give such countries reciprocal access to their fledgling markets for manufactured goods in return. Meanwhile the poorest countries are too small to profit from any expanded agricultural opportunities - and cannot even take full advantage of the preferential treatment they already get under schemes such as the EU's 'Everything But Arms'. Worse still, the smallest Least Developed Countries (LDCs) may lose out even among themselves as their valuable preferences are eroded in value when other countries gain similar levels of rich country access via reduced protection offered to all under the WTO.

Fortunately there are a few reasons for remaining optimistic. First, the WTO negotiations are far from being just about agriculture, which is of diminishing importance as countries evolve. Yet agriculture often appears the key to achieving broad agreement, since all the WTO packages (such as agriculture, goods trade, services) must be agreed jointly by all WTO parties in a so-called single undertaking.

Second, any gains from a deal - while in absolute terms always tilted in the rich countries' direction because they are so large - benefit the small liberalising countries far more in relative terms. Of the estimated EUR 37.6bn world gain from increased market access, around one quarter would go to developing countries, which account for only one sixth of world gross domestic product (GDP).

So some way should be found to persuade these vulnerable countries that a deal in agriculture will not make them worse off. An adjustment assistance programme to assist LDC workers who lose jobs because of import competition and an 'aid for trade' programme to provide funds for those who fear that tariff liberalisation under Doha would erode the value of their existing preferences have already been proposed. So the outlines of a deal that would close the Doha Round are now discernible.

Better still, it is finally being acknowledged that another failure at Hong Kong might lose for ever the developing world's best vehicle for advancement. For in the absence of multilateralism there will not be a vacuum but a rapid acceleration of bilateral and regional deals in which the strong prevail outside the collegiality of the WTO.

Fortunately the historical perspective suggests that severe pessimism is not warranted. In agriculture for example, the widespread condemnation of rich-country subsidies as running at '$1bn a day' and 'causing overproduction' is an exaggeration that only makes the task of actually reducing subsidies more difficult.

The fair assessment should be that EU and US are making dramatic progress. When one omits the subsidies that are 'decoupled' from production and trade, the 'coupled' subsidies that distort production and trade are less than EUR 85.5bn. Within these, the export subsidies are in the range of EUR 2.55bn-EUR 4.25bn annually and both the EU and US are now prepared to negotiate their abolition. The argument has now moved on to tackling the coupled subsidies.

The EU, which spends more on farm support than the US (albeit deemed less trade distorting) is only committed to cuts in domestic subsidies of 70% and only on items believed to be trade distorting, while also offering a 60% cut in agricultural tariffs. Meanwhile, the US is asking the EU for an 83% cut in domestic farm support, taking into account the higher base of domestic subsidy in the EU.

In return the US proposals now offer a 60% reduction in their domestic farm support for trade distorting payments and are offering a 90% cut in tariffs. The former will require significant reform of the US Farm Bill due in 2007, while the EU proposals are made on the basis of an actual common agricultural policy (CAP) reform package made last year. Nevertheless, these positions are far from being irreconcilable and the concessions currently on offer by US and EU would have been completely unimaginable two or three years ago.

And the bigger developing countries such as India and Brazil have tariffs on manufactured goods that are significantly higher than the OECD average. Brazil has already indicated its willingness to put cuts on the table and India appears likely to follow.

In addition, big, efficient food producers such as Brazil and Mexico should be willing to support a deal that cuts their own high agricultural tariffs in return for long-desired access to the US market and 'sectoral reciprocity' for US farmers to export to them.

The question is whether the political will exists to assemble the ingredients in Hong Kong sufficient at least to set out a path towards a final WTO deal by the end of 2006 or early 2007.

• David Kernohan is a senior fellow and head of the Trade Policy Unit at the Centre for European Policy Studies (CEPS).

Major analysis feature in which the author suggests that although prospects for the December 2005 WTO Ministerial at Hong Kong to become a success were modest, there were reasons for the developing world to be optimistic. Article is part of a European Voice Special Report: 'WTO negotiations'.

WTO: The WTO: Ministerial Conferences: The Sixth WTO Ministerial Conference, Hong Kong, China, 13-18 December 2005 http://www.wto.org/english/thewto_e/minist_e/min05_e/min05_e.htm

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