Farm Subsidy Reform: Major Economies in WTO Spotlight

23 June 2016

As developing country groups tabled two separate papers for WTO talks on farm subsidy reform, trade sources told Bridges that the reactions of major economies are likely to determine how negotiations now evolve.

One of the informal submissions was put forward on 17 June by a group of Latin American farm exporting nations, and sets out four options which the sponsors say could help guide the discussion in the negotiations.

The other, which was circulated by the group of least developed countries (LDCs) and is dated 21 June, asks questions about the volume and type of farm support that countries have provided, and how this might evolve in the future.

However, officials in Geneva told Bridges that it remained to be seen how trade heavyweights would respond.

“What’s important is what’s accepted by China, India, and the US,” suggested one trade official from the G-33 group of developing countries with large populations of smallholder farmers. “All the rest will go along with this.”

Countdown to 2017 ministerial

The paper by Latin American farm exporters, which was co-sponsored by Brazil, Argentina, Colombia, and Paraguay, identifies the global trade body’s eleventh ministerial conference (MC11) next year as a key stepping stone in the process of reforming farm subsidies.

“Working with the immediate horizon of MC11 in 2017, we consider trade-distorting domestic support a systemic priority and an essential component of any package of possible deliverables,” the paper says.

Similarly, the LDC submission asks members what should be “the appropriate timeline to reach a concrete decision on this issue by MC11?”

The chair of the WTO agriculture negotiations, New Zealand Ambassador Vangelis Vitalis, said in March that the “overwhelming bulk” of the organisation’s members see domestic support as a clear priority in the talks, with many viewing it as a potential outcome for the upcoming ministerial meeting. (See Bridges Weekly, 10 March 2016)

But trade sources told Bridges that the US in particular might be uncomfortable with this timeline.

“There are elections in the US: we’ll see what happens,” one negotiator said. The US presidential election, slated for November this year, is due to cast uncertainty over the negotiating process on trade at least for several months to come.

Capping trade-distorting support

The paper by Brazil and three other co-sponsors asks how WTO members should go about designing new disciplines on trade-distorting farm support.

One option is whether countries should negotiate a cap on overall trade-distorting support – and if so, what this would look like.

The draft Doha deal under negotiation in 2008 included a ceiling of this sort, by disciplining the sum of heavily trade-distorting “amber box” support, plus a share of support falling below a threshold of the value of production, known as “de minimis” at the WTO, plus production-limiting “blue box” payments.

A second option raised by the co-sponsors would be to explore new rules on “each or some of” the types of domestic support set out under the existing Article 6 of the Agreement on Agriculture.

Paragraph two of this article currently allows developing countries to provide input and investment subsidies without having to count these towards their overall ceiling on support at the WTO. Likewise, an annex to the agreement identifies other types of support that can be excluded from counting towards countries’ commitments – dubbed “green box” support by trade negotiators.

A third option would be to establish disciplines on trade-distorting support directed at specific products.

“Caps per product would avoid concentration of expenditures and therefore limit the potential for distortion,” the co-sponsors argue.

Mixing and matching

Finally, a fourth option could be to develop “alternative ideas” – such as looking at exports of domestically subsidised products, or market share “and the potential to affect international prices.”

One delegate from an agricultural exporting country warned that the first two options had not led to much progress to date. The US has been adamant that China should make some kind of concession on its permitted levels of trade-distorting support, while Beijing has refused to go beyond the commitments it made when joining the global trade body in 2001.

However, the source suggested that the four options should not be seen as mutually exclusive.

“You can mix and match,” the official said.

Dearth of data

In their paper, the LDCs argue that more information is needed before members can begin meaningful discussions on new farm subsidy rules.

“LDC members need clear and updated information on the amount and type of domestic support granted by members since their latest notification,” the group’s paper says.

Vitalis recently called upon WTO members to improve their efforts to provide the trade body with current data on farm subsidy levels, citing “embarrassing and troubling” reporting delays. (See Bridges Weekly, 12 May 2016).

Although the US and Russia both recently notified more recent support figures, all major economies are still behind in their reporting. (See Bridges Weekly, 2 June 2016)

The LDC group’s submission asks which farm goods received the highest amount of domestic support over the last four years, and what form the support was provided in.

The group also calls for more information on cotton subsidies, and on how falling prices since 2011 have affected outlays.

Although a one-off support programme for cotton was announced in the US recently, farm subsidies for cotton have long been a thorn in the side of poor cotton-producing countries at the global trade body. (See Bridges Weekly, 16 June 2016)

One trade source told Bridges that there was a dearth of data on farm subsidy levels for the last four years, “which is when a lot of countries have introduced reforms.”

Negotiators have pointed out, for example, that there is no clarity on how Washington will officially notify subsidies under the 2014 Farm Bill.

Appetite for progress?

Uncertainty over the outcome of the US elections this coming November, and slow progress towards ratification of the 12-country Trans-Pacific Partnership (TPP), meant that some delegates remained downbeat about the prospects of progress in the WTO talks in the near-term.

“It’s a very foggy sky at the moment,” one source told Bridges.

However, others remained hopeful that progress in the talks could still be made.

Trade sources told Bridges that the chair of the farm trade talks was expected to convene an informal meeting with all WTO members in the third week of July, although no formal announcement had yet been made.

The new submissions from the Latin American countries and the LDCs could provide new momentum to the talks, trade sources said.

“We need to know what is the appetite on domestic support,” said one.

In particular, a more structured discussion by July could increase the probability that members are ready for more substantive engagement when they return in September after the WTO’s traditional summer break.

“If everyone concentrates on this, we may deliver something,” another official said.

ICTSD reporting.

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