EU, Brazil Call for New WTO Rules on Farm Subsidies, Food Security

20 July 2017

The EU, Brazil, and three other Latin American countries have tabled a new proposal on farm subsidy reform for negotiation ahead of the WTO’s eleventh ministerial conference in Buenos Aires, Argentina, this December.

Colombia, Peru, and Uruguay also co-sponsored the proposal, which was submitted ahead of a 19 July meeting of the WTO’s negotiating committee on agriculture. Those countries are all agricultural exporters that favour faster liberalisation of global farm trade.

The proposal coincided with three other submissions charting alternative approaches, and a new proposal from Singapore on transparency in agricultural export prohibitions or restrictions.

Many countries see updated global rules on domestic farm support as a key topic for the Buenos Aires ministerial. However, negotiators are also looking at options beyond that meeting, such as a work programme, given the limited time remaining between now and December. (See Bridges Weekly, 8 June 2017)

Malmström: An “ambitious and realistic” proposal

Along with outlining proposed new upper limits on trade-distorting agricultural domestic support, the new EU-Brazil proposal suggests ways for WTO farm subsidy rules to account for food bought by developing country governments for public stocks, along with recommending special treatment for cotton.

The topics are seen as linked by many countries, although trade ministers have agreed that WTO negotiations on these issues would be addressed under separate tracks. (See Bridges Daily Update, 19 December 2015)

"Together with Brazil and other countries we are demonstrating our staunch support for a global trading system based on rules, at an important time for the World Trade Organization,” said EU Trade Commissioner Cecilia Malmström in astatement on the new proposal. She called the proposed approachboth “ambitious and realistic.”

Capping trade-distorting support

The EU-Brazil paper calls for capping agriculture subsidies as a share of farm output. Developing countries would be able to provide more support than developed countries, or introduce new ceilings at a later date. There would be no constraints on trade-distorting support provided by least developed countries (LDCs).

Under a “de minimis” clause within WTO agriculture rules, developed countries can provide up to five percent of the value of production through product-specific support, and another five percent as non-product-specific support, such as subsidies for fertilisers. Most developing countries can provide twice that amount, although China accepted a lower limit of 8.5 percent for both types of support when it joined the WTO in 2001.

However, provisions on “amber box” support allow many developed countries to give additional trade-distorting support up to a level that was agreed under the Uruguay Round of trade talks, and which is usually much higher than current support levels. Developing countries such as those in the African, Caribbean and Pacific (ACP) Group have called for lower ceilings. (See Bridges Weekly,17 November 2016)

The new EU-Brazil proposal would cover trade-distorting support in both the amber box and de minimis categories, with exact limits for developed and developing countries subject to negotiation. Another category of trade-distorting support – production-limiting “blue box” payments – would be subject to further negotiations at the twelfth ministerial conference, likely set for 2019.

Members should also continue to respect the existing domestic support ceilings under the WTO’s Agreement on Agriculture, such as commitments in absolute monetary terms on amber box spending, the co-sponsors say.

Governments would also provide the WTO secretariat with additional information on their support schemes. Calculations of the value of production would be based on the average of the three most recent years of data that have been submitted to the WTO’s Committee on Agriculture.

One trade source familiar with the proposal told Bridges that this requirement was intended to incentivise countries to report their farm subsidy levels – including the value of production – to the committee more regularly, given current backlogs. (See Bridges Weekly, 12 May 2016)

Public stockholding for food security purposes

India, China, and other WTO members in the G-33 coalition of developing countries have argued that farm subsidy rules should give greater flexibility to developing countries that buy food at minimum prices as part of their public stockholding programmes for food security purposes. The new EU-Brazil submission puts forward what the co-sponsors say could provide a lasting solution in this area.

The proposal builds on an agreement from the WTO’s Bali ministerial conference in 2013, shortly after several price spikes caused many developing countries to fear that the associated food price inflation could cause their support programmes to exceed WTO limits. (See Bridges Weekly, 7 December 2013)

When countries buy traditional staple food crops at minimum prices as part of these public stockholding programmes, the co-sponsors say that there should be circumstances where this support would not count towards WTO ceilings in the amber box or de minimis, or towards the proposed new limits expressed as a share of the value of production.

Support provided by LDCs would be exempt from these limits, while support provided under food stockholding programmes in place at the time of the 2013 Bali deal would also not count towards the existing and proposed limits – provided that countries also respect the other requirements outlined in the Bali agreement, such as improved transparency.

Support under new stockholding programmes would also be exempt, though the value of the stocks procured must not exceed 10 percent of the average value of production in the three most recent WTO domestic support notifications.

Cotton: tighter new rules

The new EU-Brazil proposal also recalls that trade ministers at previous WTO ministerials have agreed to address cotton “ambitiously, expeditiously and specifically,” at the behest of some West African countries which argue that their farmers are adversely affected by trade-distorting support elsewhere.

The co-sponsors propose that all trade-distorting support for cotton face a new overall limit, expressed as a share of the value of cotton production, that would be negotiated by WTO members.

They would also agree to review by 2019 how this product-specific limit affects trade, to determine next steps in phasing out such support.

Fixed or floating limits?

Another negotiating submission from Australia, Canada, New Zealand, and Paraguay argues instead for new domestic support disciplines based on fixed limits, rather than floating ones such as those tied to the value of production.

“It is essential that exporters and producers be able to predict the upper limits of members’ domestic support outlays, allowing them to predict market behaviour and hedge against risk,” the four countries say.

They also caution that floating limits based on this criterion will grow annually, given that the value of agricultural production in most countries has tended to increase.

They add that fixed support caps would allow members to focus on addressing the WTO notifications backlog, “without having to grapple with additional notification requirements.”

Eliminating amber box support?

An informal China-India submission also diverges from the EU-Brazil approach, but for different reasons. The two Asian trading powers argue that imbalances in countries’ existing entitlements to provide trade-distorting “amber box” support are unfair, and call for eliminating these “Aggregate Measure of Support” (AMS) commitments as a “pre-requisite” for looking at other domestic support reforms.

They also call for developing countries to be allowed to maintain their existing “de minimis” flexibilities, without any new ceilings or cuts, according to a copy of the proposal seen by Bridges.

The paper includes data to support the argument that existing “amber box” ceilings have allowed developed countries to provide significant levels of trade-distorting support, drawing on figures for Canada, the EU, and the US.   

G-10 countries advocate for caps

The informal China-India paper appeared to diverge from the approach put forward by Switzerland, Japan, and other G-10 countries. Their submission argues that WTO members’ existing entitlements for amber box and “de minimis” support should be a starting point for new disciplines.

The group indicates that it would be willing to consider an overall cap for these types of support, perhaps by converting countries’ entitlements in these areas into monetary terms.

The G-10, which includes countries with highly protected farm sectors, also warns against WTO members pursuing talks on new product-specific limits that would help prevent trade-distorting support from focusing on a limited number of farm goods. (See Bridges Weekly, 24 May 2017)

ICTSD reporting.

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