UNION OF SMALL AND MEDIUM SCALE FARMERS OF NIGERIA (USMEFAN)

1. UNION OF SMALL AND MEDIUM SCALE FARMERS OF NIGERIA (USMEFAN) The agricultural negotiations at the WTO: mechanisms and tricks 9 April 2007 Jacques Berthelot, Solidarité

3. OUTLINE Introduction: from the GATT to the WTO I – Origin and justifications of the liberalisation of agricultural policies II – Analysis of the WTO's Agreement on Agriculture III – The strategy of the main groups of WTO Members IV – The Doha Round stalled negotiations since Hong-Kong V – The mechanisms at work beyond Northern subsidies: the role of prices and supply management

4. Introduction: from the GATT to the WTO Close to the end of the 39-45 war, which had killed 50 million people on the 5 continents, the Allies met in Bretton Woods (North-East of the US) in 1944 to lay the foundations of Insti- tutions in charge of regulating the international economic relations, convinced that this conflict had largely been caused by the protectionist moves of Western countries in the 1930s in order to face the strong rise in unemployment generated by the great crisis triggered by the Wall Street krach of 1929.

5. Introduction: from the GATT to the WTO They have therefore created the IMF to lend strong currencies to countries unable to import, the World Bank to finance on the medium and long run the reconstruction of countries devas- tated by the war then the developing countries' needs, but they did not yet agree to create an International Trade Organisation (ITO). After a preparatory meeting by 23 countries in October 1947 in Geneva, an international conference has gathered in 1948 more than 50 countries in Cuba which have signed the Havana Chart creating the ITO.

6. Introduction: from the GATT to the WTO But the US Congress has refused to ratify it, because it foresaw a coordination of interven- tion mechanisms on the prices of raw mate- rials which would have worked against the "free play of market forces", and therefore the other countries did not ratify it either. But the 23 countries (including some DCs) which had signed the chapter 4 of the Chart in Geneva, related to a General Agreement on Tariffs and Trade (GATT) have become the Contracting Parties of a mere intergovernmental Agreement and not of a constraining Treaty.

7. Introduction: from the GATT to the WTO The GATT contains the principles leading to free trade, by reducing tariffs progressively, during periodical trade rounds. Already 8 of them where negotiated before the Doha Round. It was at the end of the Uruguay Round negotia- tions (1986-93) that the WTO (World Trade Orga-nization) has been created the 15 April 1994 in Marrakech, in order to coordinate the trade in goods and services and to judge the trade disputes arising among its Members States (125 in Marrakech, 150 to-day and negotiations are going on with 30 more).

8. Introduction: from the GATT to the WTO The WTO has been created to coordinate the smooth working of the 21 multilateral Agreements signed in Marrakech – of which the Agreement on Agriculture (AoA), the Agree- ment on Sanitary and Phytosanitary Measures (SPM) and the Agreement on Trade Related Intellectual Property Rights linked to trade (TRIPS) – and this through the Dispute Settle- ment Body (DSB) which runs the complaints between Members through panels. The minis- terial conference meets every other year and the General Council according to needs.

9. The WTO's exhibited objectives According to the preamble of the Agreement creating the WTO, the worldwide sustainable development requires the growth of trade in goods and services through "the substantial reduction of tariffs and other barriers to trade". Why? Because the premise or "Washington consensus" is laid downthat trade barriers prevent the maximization of world growth, of world "welfare", when all countries can implement their "comparative advantages".

10. Trade liberalization is supposed to increase world welfare It is claimed that the "consumers'surplus" is then maximized – they are supposedly benefiting from world prices lower than the domestic prices – and is higher than the sum of the losses in the producers' surplus– their prices drop given the increase in cheaper imports – and the government's surplus, following the drop in tariffs. However we will see that the cut in agricultural prices is not transmitted to consumers.

11. The decision-making process at the WTO Despite the theoretical rule 1 Member=1 vote, the generalisation of the decision-making process per consensus had actually given the guidance powers to the QUAD: EU, US, Japan, Canada. Since Cancun, the QUAD has turned into the G-4 with Brazil and India replacing Japan and Canada. During the Rounds, notably now in the Doha Round (DR), the decisions are prepared in infor- mal meetings restricted to 20-30 Members, known as "mini-ministerials" outside the WTO Minis- terial Conferences and as "green rooms" during them, excluding the majority of DCs.

12. I – Origin and justifications of the agricultural policies liberalisation Up to 1995 – with the implementation of the WTO's Agreement on Agriculture (AoA) –, the agricultural prices and market policies remained a purely national concern since the GATT, created in 1947 to liberalize the trade in goods, admitted exceptions for agriculture, notably the right to impose quantitative restrictions – which was positive – but also to subsidize exports, which was not !

13. I – Origin and justifications of the agricultural policies liberalisation As long as protecting agriculture met the US interests, international organizations (OECD, WB, IMF, GATT) and the mainstream econo- mic theory put up very well with it, in the name of the specificity of agriculture In the mid 80s the US interests, whose agricultural exports had shrunk due to a too strong $, converged with those of the EU to launch a new trade Round (the Uruguay Round) in order to integrate into the GATT agriculture (for the US) and the services linked to trade (for the EU)

14. I – Origin and justifications of the agricultural policies liberalisation The liberalisation of agricultural policies has been fostered under the pressures of large agri- food corporations (agro-industries and large food chains), with the main objective of a conti- nuous slump in the prices of agricultural products, which constitute their raw materials The priority has been given to the slump in the prices of feedstuffs (COP: cereals, oilseeds and pulses) in order to reduce the production cost of animal products (meats, eggs and dairy)

15. I – Origin and justifications of the agricultural policies liberalisation The international institutions and neo-liberal economists have then accentuated their pro- paganda on the benefits of free-trade for agricultural products and predicted a high increase of world agricultural prices. To such an extent that a "Decision on measures concerning the possible negative effects of the reform programme on least-developed and net food-importing countries" was adopted at Marrakech the 15 April 1994 which compelled developed countries to compensate poor and net food deficit DCs forthese expected prices increases.

16. I – Origin and justifications of the agricultural policies liberalisation The increased liberalisation of agricultural trade has been a disaster for family farmers worldwide since agricultural products are not ordinary goods and their markets do not self-regulate. Facing a stable demand in the short run, agri- cultural production fluctuates along with climatic vagaries, and even more agricultural prices and incomes so as consumers' prices. That is why all countries since the Pharaohs have run agricultural policies to regulate the supply at the import level and through stockholdings.

17. I – Origin and justifications of the agricultural policies liberalisation Agri-food corporations have been very cunning, avoiding to push themselves forward in the media and arguing that this would benefit consumers first and foremost. Agricultural prices have collapsed without any transmission to consumers' prices which have continued to increase, at least in developed countries, and the profits of agri-food corporations have increased greatly.

18. I – Origin and justifications of the agricultural policies liberalisation Whereas coffee and cocoa prices had reached their lowest level, Nestlé, the 1st world corpo- ration in agri-food, has realized a net profit of 21% in 2001, 22% in 2002, 17% in 2003, 17.4% in 2004,18% in 2005 on a shareholders’ equity doubled from $19.9 billion to $40 billion Kraft Foods, 2nd world corporation in agri-food, has got a net return of 13.1% on its $25.8 billion of shareholders' equity (SE) in 2002 although it dropped to 8,9% on a SE of $29.6 bn in 2005

19. The earlier and larger agricultural liberalisation imposed to DCs since the 80s 98% of farmers are living to-day in DCs In DCs the liberalisation of agriculture has been imposed in the early 80s by the structural adjust-ment policies (SAPs) of the IMF and World Bank to increase the competitiveness of their products in order to reimburse their foreign debts by exporting more and importing less: reducing import protection and subsidies to farmers and consumers, devaluation, privatising marketing boards, reducing State interventions upstream and downstream farms level.

20. The earlier and larger agricultural liberalisation imposed to DCs since the 80s Whereas the Agreement on Agriculture (AoA) had been negotiated practically between the EU and US according to their interests, DCs have been obliged to sign even if they did not want it. Indeed WTO negotiations are concluded by the obligation to sign all Agreements ('single undertaking') or to get out of WTO, which has become impossible since it regulates now practically all international economic relations. Besides, being a WTO Member is a requirement of developed countries and the WB and IMF.

21. The quasi-religious brainwashing on agri- cultural liberalisation: IMF and World Bank The dogma: if the liberalisation of agriculture has not fulfilled all the promises made at the time of signing the WTO in 1994 – notably higher world agricultural prices –, it is because it has not be sufficient and one should therefore brought it quickly to completion The high-priests: the WB and IMF are dominating more and more the WTO, with an annual meeting of its General Council on the "coherence" of their policies, and being observers in all WTO Commit- tees, notably the Committee on agriculture.

22. The quasi-religious brainwashing on agri- tural liberalisation: IMF and World Bank The WB has declared at the Committee on agriculture the 15-11-04: "Unfortunately... the concept of food security has been used in the Doha negotiations primarily to suggest that developing countries should be allowed to maintain high barriers to imports of food products as a means of increasing national production, under the rubric of 'special products' or as a component of the 'develop- ment box'… This kind of policy is likely to have only very limited short-term benefits to farmers - and to be counter-productive to the objective of long-run structural food security."

23. The EU and US have imposed complemen- tary bilateral free-trade agreements to DCs The EU and US have negotiated since 1995 many free-trade agreements with DCs. Notably the EPAs (Economic partnership agreements) decided by the Cotonou Agreement (2000) for the 1st January 2008 with ACP countries (see the second file). To show it is a model WTO Member, the EU has adopted the Decision "Everything but arms" in 2001 for LDCs, but the incentive to export rather than protect the domestic market would have detrimental effects on LDCs.

24. The disarray of most family farmers in the world is not a North-South issue For the farmers' organisations of Via Campesina, the agricultural trade liberalisation promoted by the WTO, the WB and IMF is not opposing Northern farmers to Southern farmers but agri- cultural policies and agricultural production systems designed in the sole interest of agri- food corporations, which are eliminating the small family farmers, even if those from the South are the most numerous and suffer more.

25. II – Analysis of the WTO Agreement on Agriculture 1) The mythology of boxes at the WTO 2) That typology of boxes is theoretically mystifying and politically a major swindle 3) The lack of control by the WTO has allowed the EU and the USA to cheat massively 4) The EU's blue box and Single Payment Scheme are coupled and should be in the amber box

26. 1) The mythology of boxes at the WTO a) The distinction between support and subsidy b) The OECD's indicators of agricultural support c) Coupled support or trade-distorting support d) The hierarchy of boxes at the WTO e) Reductions of support according to categories of WTO Member countries

27. a) Distinction between support and subsidy If any subsidy – a public expenditure financed by tax-payers – is a support, the reverse is not true: support is a broader concept than subsidy since it encompasses "the market price support", which results first from the import protection increasing the gap between the domestic and world prices but also from other measures limiting the production put on the domestic market: - export subsidies - administered prices with public stockholding - set aside of agricultural lands - external and domestic food aid - subsidies to private stockholding

28. b) OECD's indicators of agricultural support Since for OECD, the main 'think tank' of Western countries promoting free-trade, consumers are entitled to pay their food at the world prices, and since import protection prevent them to do so, they are suffering a negative consumers' surplus, measured by the gap between the domestic and world prices, considered as a trade distortion and as a "transfer from consumers to producers", assi- milated to a subsidy ofconsumers to producers.

29. b) OECD's indicators of agricultural support For OECD, the total support estimate (TSE) to farmers of Western countries has reached $330 billion on average from 2001 to 2003, i.e. almost $1 billion per day, but the truth is $186 billion since the market price support (gap between domestic and world prices) has been $148 billion. The TSE is equal to the GSSE (general services support estimate), which groups together the collective subsidies in kind plus the PSE. The PSE (producer support estimate) has reached $241 billion from 2001 to 2003 but, deducting the $148 billion of market price support, actual indivi- dual subsidies to farmers have reached $94 billion.

30. b) OECD's indicators of agricultural support • The idea that consumers are deprived from their • 'right' to pay their food at the world prices is all the • less founded that: • This world price is a dumping price, lower than • the production cost of all countries. • 2) The slump in world prices is generally not • transmitted to consumers. • 3) The drop in domestic agricultural prices is even • less transmitted, as the experience has shown in • the EU and US, where farmers sell rarely directly • to consumers but mainly to agri-food companies • which have been able to increase their margins.

31. c) Coupled or trade-distorting support For the free-traders, any support linked to the level of price or production of the current year is a coupled support. Therefore coupled supports group together: 1) The border supports: import protection and export subsidies. 2) The domestic coupled supports: administered (or intervention) prices triggering public purchases and stocks; subsidies linked to production or prices (e.g.: marketing loans in the US) and subsidies on inputs and investment.

32. d) The hierarchy of boxes at the WTO There is a hierarchy of supports according to their degree of 'trade-distortion' or coupling to the production or price of the current year 1) red box: a) forbidden import supports other than tariffs b) coupled border supports: tariffs and export subsidies 2) amber box: domestic supports coupled to the current price or production levels 3) blue box: partially decoupled fixed domestic subsidies 4) green box: allegedly fully decoupled domestic subsidies 5) gold box ignored by the WTO: non agricultural subsidies

33. 2) Coupled border supports*: - import protection - export subsidies * most people put them in the amber box The red box of forbidden and border supports • Forbidden supports: import protec- • tion other than tariffs: quotas, • variable levies…

34. The amber box of domestic coupled supports 3) de minimis: as long as supports remain lower than 5% of the production value (10% for DCs), they are not taken into account in the product- specific AMSs and the non product-specific AMS • 1) Product specific supports: • market price support linked to admi- • nistered prices: they are meaningless ! • subsidies to production or prices 2) Non product specific subsidies: subsidies on inputs (feedstuffs, credit, insurances, irrigation…) and on investment of farmers and agri-food industries

35. Why product-specific AMSs linked to administered prices are meaningless Product-specific market price supports linked to administered prices such as the EU's inter- vention prices account for 90% of its total AMS in 1995-2000 and 86.2% in 2001-04. However they would not have had any impact on domestic prices without coexisting with much more determining market prices supports such as import protection, export subsidies, production quotas, set aside and foreign and domestic food aid.

36. Why product-specific AMSs linked to administered prices are meaningless The product-specific AMS linked to an adminis- tered price (intervention price in the EU) is com- puted as the gap between the present adminis- tered price and the world reference price of the 1986-88 base period, gap multiplied by the present production. As long as this administered price does not change, neither the AMS does, although the actual price support changes (through other measures) since the world price is always changing. The AMS linked to an administered price is therefore like a thermometer remaining fixed despite the temperature variations.

37. Why product-specific AMSs linked to administered prices are meaningless The 1st July 2002 the EU has eliminated its intervention price on bovine meat (BM), reducing from one day to the other its BM AMS by €9.7 billion and its total AMS by 30%, without any change in the domestic price nor in the farmers' income since the 1999 CAP reform had increased largely their direct payments. And, as there is no longer any BM AMS, this elimination has opened a de minimis allowed support of €1.021 billion (5% of the BM production value). What is presented as a cut in domestic support ends up as an increase!

38. The blue box of fixed partially decoupled subsidies • Subsidies based on programmes • limiting production and: • Either on fixed areas and yields • Or on at most 85% of the production • level of the base period • 3) Or on fixed bovine heads

39. Definition of the blue box: AoA article 6.5 • "(a) Direct payments under production-limiting • programmes shall not be subject to the commitment • to reduce domestic support if: • such payments are based on fixed area and • yields; or • (ii) such payments are made on 85 per cent or less • of the base level of production; or • (iii) livestock payments are made on a fixed number • of head. • (b) The exemption from the reduction commitment • for direct payments meeting the above criteria shall • be reflected by the exclusion of the value of those • direct payments in a Member's calculation of its • Current Total AMS" (AoA article 6.5).

40. The green box of fully decoupled subsidies Subsidies supposedly without any effect on prices or production or a minimal one • Fully decoupled payments, without • obligation for farmers to produce • 2) Agri-environmental payments • 3) Subsidies to farmers in deprived • areas • 4) Subsidies for natural disasters

41. The higher present competitiveness of the North stems more from the past agricultural and non agricultural high import protection and subsidies than from the present agricultural subsidies alone The gold box ignored by WTO: non agricultural subsidies It contains all present and past non- agricultural subsidies: • efficient transport and communica- • tion infrastructures • general education and research • health and pensions of farmers • financed by the nation • wealthy consumers able to pay fair • prices for their agri-food products, etc.

42. e) Reductions of support according to countries categories

43. Overwhelming domination of Western countries for the various types of agricultural supports

44. 2) That typology of boxes is theoretically mystifying and politically a major swindle a) False conception – much too restrictive – of what protection actually means b) Scandalous definition of dumping by the GATT c) The WTO Appellate Body's precedents reconsidering the GATT definition of dumping d) Why import protection is the least protectionist type of agricultural support e) The import protection of basic food products is higher in the more industrialised countries f) Comparison of tariffs in the EU and in WAEMU for its most sensitive products

45. a) False conception – much too restrictive – of what protection actually means For economists, any government measure which increases the competitiveness of national products relatively to foreign products is a form of protection

46. b) The scandalous definition of dumping by the GATT and the AoA For economists and the man in the street there is dumping if exports are made at a price lower than the average production cost of the exporting country For the GATT and the AoA, there is no dumping as long as exports are made at the domestic price, even if it is lower than the average production cost

47. The scandalous definition of dumping by the GATT and the AoA Exporting at a price lower than the domestic price is only possible in rich countries where farmers are receiving direct payments authorized by the WTO to complement their low prices This has been the main reason of the CAP reforms in 1992, 1999 and 2003-04: reducing by steps agricultural prices to the world price level will allow to export EU's agri- cultural products without export subsidies

48. The scandalous definition of dumping by the GATT and the AoA This definition of dumping has also been the main reason of the US Farm Bill in 1996 and 2002: as the world prices of grains are aligned on the US FOB prices (at the border), reducing the later was a means to reduce the former so as to eliminate the US competing exporters, unable to compen- sate their farmers through domestic subsidies as the US was able to do without using specific export subsidies.

49. c) WTO Appellate Body's precedents are reconsidering the GATT definition of dumping In the "Dairy products of Canada" case, the WTO Appellate Body has ruled the 3 December 2001 that dumping should take into account all domestic subsidies to exported pro- ducts: "The distinction between the domestic support and export subsidies disciplines in the Agreement on Agricul- turewould also be eroded if a WTO Member were entitled to use domestic support, without limit, to provide support for exports of agricultural products (paragraph 91)…The potential for WTO Members to export their agricultural pro- duction is preserved, provided that any export-destined sales by a producer at below the total cost of production are not financed by virtue of governmental action (par.92)".

50. c) WTO Appellate Body's precedents are reconsidering the GATT definition of dumping The Appellate Body has confirmed the 20-12-02 in the same case: "If governmental action in support of the domestic market could be applied to subsidize export sales, without respecting the commitments Members made to limit the level of export subsidies, the value of these commitments would be undermined. Article 9.1(c) addresses this possibility by bringing, in some circumstances, governmental action in the domestic market within the scope of the "export subsidies" disciplines of Article 3.3 " (paragraph 148). This precedent has been confirmed in the Appellate Body's rulings on cotton (03-03-05) and sugar (28-04-05).