Academic journal article Competition Forum

The Evils of Agriculture Subsidy

Academic journal article Competition Forum

The Evils of Agriculture Subsidy

Article excerpt

EXECUTIVE SUMMARY

This paper examines why agricultural subsidies are so crucial and controversial for a successful outcome in WTO negotiations. We find that there remain serious structural flaws (such as scope for repackaging of subsidies from Yellow to Green or Blue to Green Box to disguise trade distorting subsidies) in the Uruguay Round Agriculture Agreement (URAA), which creates scope for WTO members to maintain their existing level of subsidies. The latest Doha Round talks collapsed because the developing world could not agree to see their markets as a dumping ground for developed countries' agricultural surpluses to the detriment of their local farmers.

Key words: Uruguay round agriculture agreement (URAA), distortion, subsidies

Introduction

Despite being an important sector, agriculture did not get much attention in the multilateral trading system until the signing of the Uruguay Round Agriculture Agreement (URAA). The Agreement on Agriculture came into being as one of the outcomes of the Uruguay Round (UR) to bring order and fair competition in agriculture trade. Although agriculture is a declining sector as a percentage of the GDP in both developed and developing countries, it has, however, remained at the centre of debate. The Uruguay Round Agreement could not complete as scheduled (it was delayed three years) due to disagreement over agriculture between the United States (US), the European Union (EU) and other agricultural exporting countries (Elliott, 2006; Baldwin, 2006).

The sector has again come to the forefront in the Doha Round over distortion in the sector. Production and export subsidies, and guaranteed prices for agricultural products, distorted the agricultural sector. It has been said that 'agriculture has no competitors for the title of most distorted sector of the global economy' (Elliott, 2006 p.5). While there are other reasons for the impasse in the Doha Round, agriculture has been identified as a contributing factor to the failure of the Cancun Ministerial Meeting of September, 2003, in Mexico (Anderson & Martin, 2007). During Cancun negotiations in the Doha Round, the G-20, a coalition of developing countries led by Brazil, China and India, walked out of talks over the refusal of the US and the EU to reduce agricultural subsidies and liberalize their agriculture markets. The Doha Ministerial Talks held in July 2008 failed because of disagreements between rich and poor countries over the removal of subsidies and the special safeguard mechanism (SSM).

Thus it seems that trade in agriculture has emerged as the make-or-break factor for current Doha Round negotiations (Subedi, 2006). Some pressing questions may arise as to why the URAA is so contentious in current WTO negotiations. What are the structural weaknesses in the Agreement? How did these weaknesses help developed countries keep their existing protective measures largely unchanged and immune from reduction commitments? How did the subsidies regime impact on developing country farming?

This article examines these questions to explain the weaknesses in the URAA modalities and to prescribe measures to remove some of the existing weaknesses in the URAA, with a view to helping reduce distortion in world agricultural markets. The focus of the paper is on understanding the mechanisms and obscurity in the URAA that helps countries to hide their trade distorting subsidies in the Green Box, as well as to maintain increased support to their farmers by high income countries.

First, we briefly describe the three pillars of the URAA. Next we describe the pitfalls of some components of domestic support (Green Box) measures. In section 3 we present a brief picture of subsidies provided by major providers, and their impact. Section 4 proposes some policy options to discipline domestic support.

The URAA Three Pillars

The URAA prescribed disciplines in three key areas ('three pillars'): market access, domestic support and export subsidies. …

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