Rich and poor countries alike are locked in battle over farm subsidy spending in negotiations at the World Trade Organisation (WTO) in Geneva, where a 17 July draft text by the chair of the agriculture negotiations has sparked renewed controversy between delegates.
 
Sixty years of trade negotiations - under the WTO and its forerunner the GATT - have bequeathed only minimal controls on agricultural subsidies. While successive negotiating rounds established rules for other subsidy types and slashed industrial tariffs to all-time lows, ‘exceptional' treatment for agriculture meant that farm subsidies were not disciplined until the Uruguay Round of negotiations ended in 1994. Developing countries now complain that the trade-offs being asked of them in the current Doha Round are disproportionate. Their tariffs on industrial and agricultural goods must be subject to substantial cuts, say rich countries, if agricultural subsidies and tariffs in the developed world are to be reduced.
 
Unlike in past trade negotiations, developing countries have organised themselves into powerful coalitions aimed at reforming existing trade distortions. In particular, the G-20 - bringing together Brazil, India, China and 17 other developing countries - has insisted on reform of developed country subsidies as a condition for any deal.

The chair's text: attempting to find a compromise

The 17 July text from the chair of the farm trade talks reiterates provisional agreements on eliminating export subsidies by 2013, and details new disciplines on export credits and some of the more perverse effects of food aid. Although relatively small in size, these subsidy types are widely believed to distort trade the most.
 
More controversial have been the cuts in the maximum permitted levels of overall trade-distorting support (OTDS): for the US, the text proposes either a 66 or 73% reduction, bringing the cap down to $16.4 billion or $13 billion respectively. Although lower than the $22.5 billion ceiling which the U.S. has proposed formally, and the $17 billion figure it has broached unofficially, both levels remain higher than the roughly $12 billion cap sought by the G-20. They also exceed the $11 billion that the U.S. is estimated to have effectively spent on trade-distorting support last year. For the EU, the text foresees either a 75 or 85% cut - higher than the 70% cut proposed by Brussels. EU subsidies, although higher than those in the United States, have been seen as less controversial by trade delegates, mainly as the former are already being reduced through an ongoing reform process. While the larger cut would eat into actual EU spending levels, the smaller one would again enable existing spending to be maintained or even increased.

How can change occur?

For real reform to take place, agricultural trade policy needs to be influenced by domestic constituencies that favour change. The EU has undertaken a series of major reforms to its Common Agricultural Policy since 1994, moving from a price support system towards direct payments to farmers which it claims are not more than minimally trade distorting. No comparable process is underway in the U.S. Although the Freedom to Farm Act of 1996 introduced major reforms to agricultural policy in the United States, many of those reforms were later nullified in subsequent policy decisions. Indeed, the House of Representatives, the lower chamber of Congress, recently voted largely to continue and expand lavish agriculture subsidies over the next five years. The farm bill approved by the House now faces revision in the Senate and a veto threat from the White House, which has called for modest reductions in order to insulate farm spending from WTO challenges.

So what hope can the poor have for any change in the current rules? The mushrooming number of bilateral and regional deals offers no opportunity to ease subsidy spending, which can only be negotiated effectively in a multilateral setting. At the same time, WTO negotiations have shown themselves to be more successful at consolidating domestic reforms than at initiating them. In the absence of real subsidy cuts, a Doha deal would therefore only preclude future backsliding, preventing a return to the bloated farm support budgets of the past. If this happens, litigation under the organisation's Dispute Settlement Process might become the most promising avenue to prompt subsidy reforms: in particular, some now expect the Brazilian and Canadian challenges to U.S. cotton and other subsidies will provide an import spur to change.
 
Jonathan Hepburn and Christophe Bellmann, Agriculture Programme Officer and Programmes Director., International Centre for Trade and Sustainable Development (ICTSD)