This week we shall continue our examination of explanations offered in the overseas financial and economic press for the dramatic collapse of the recent WTO Ministerial Conference held at Cancun, Mexico. The explanations we have looked at so far carry strong overtones of conspiracy, deception, treachery and manipulation. In one of these explanations the “abominable no-men” of France and Mexico were supposed to have conspired to promote the breakdown; France through its actions in the European Union and Mexico through its actions in the developing world. Both countries, it is alleged, pursued their narrow national interests under the guise of broader objectives. In another explanation, the “Not for Sale” network of NGO activists was supposed to have manipulated Third World negotiators to join them in an “unholy alliance” to confront the rich countries and to cause the talks to breakdown and that this was their original intent all along. Meantime it has also been alleged that the US had pressed the Mexican Chairman to declare a breakdown of the talks and bring them to a premature close, because it no longer had confidence in a global multilateral approach to trade talks.

It is left for readers to form their own judgment on these explanations. My own conclusion is that, neither separately, nor collectively, do they constitute real reasons for the collapse. This week we begin an examination of another class of explanations. These focus on the content of the negotiations, and the contradictions and conflicts generated so far. In their reporting most of the media emphasise negotiations in three areas as crucial. These are agriculture, the application of special and differential treatment to developing countries, and the so-called “Singapore Issues” or new areas for extended negotiations being championed by the European Union. We shall examine these in that order.

Agriculture: The “Litmus Test”

At its 2001 Doha Ministerial Conference, Members of the WTO committed to make trade negotiations focus on the development concerns of developing countries as its priority. The Cancun Ministerial last month was designed to be the half-way reporting stage of the negotiating round, which has come to be known as the Development Round. In this round there is the ambitious goal to place global agricultural production and trade substantially under market disciplines. To most observers, whether this is achieved or not is the litmus test of progress in making the WTO a development-oriented organisation.

Why is this considered to be such an ambitious goal? The answer is that prior to the formation of the WTO, with one significant exception, it was routine and normal practice for Governments to intervene in the production and marketing of agricultural products in their countries. Agriculture was seen by some governments as serving many functions other than the purely economic in the society. Its output is, unlike that of other sectors, “multifunctional”. Furthermore, many countries were concerned about the security of their food supplies, and sought to protect their domestic agriculture against foreign competition, which could undermine it and leave them vulnerable. There were also those countries that saw their agriculture and rural development, as the backbone of their cultural and social robustness. This intervention occurred internationally as well, as a number of international commodity agreements were established to regulate agricultural supply, demand and prices.

One exception

The one exception to this practice of massive government intervention in agricultural production and trade relates to those developing countries that were undergoing structural adjustment programmes (SAPs) with the IMF and World Bank, for example, Guyana. These programmes contained conditionalities that required governments to liberalise their agricultural production and trade. Thus agricultural subsidies were mandatorily curtailed, domestic marketing boards abolished, subsidised inputs brought to a halt, and even special purpose financial institutions serving the agricultural sector wound up. Readers would be aware that Guyana went through such a SAP. This type of liberalisation, which these countries undertook is known as “autonomous liberalisation”, meaning that it took place “before” it became an obligation under the WTO.

Of particular note is the fact that while this “autonomous liberalisation” was taking place under pressure from the IFIs, the developed countries had started a vigorous programme of expansion of subsidies offered to their own domestic farmers. The result is today that the rich countries’ farming subsidies is now about US$350 billion per year, or approximately US$1 billion per day. The biggest offenders are the European Union and the United States. These two account for about 60 per cent of the total subsidies. The EU has a larger absolute amount, but the US has a higher amount per farmer.

Although it is claimed in the rich countries that their agriculture receives government support because of special factors associated with it, so strong is the farm lobby that the bulk of the subsidies in these countries go to the richest farmers. Thus in both the European Union and the US, over 50 per cent of the expenditure on subsidies is paid out to only 7 per cent of the farming population.

Of course the developing countries also offer subsidies to their agriculture sector, but nowhere on the scale of the rich countries. In the rich countries these subsidies are also combined with high levels of protection against agricultural imports from poor countries.

This agricultural protection is 4-7 times higher than that placed on manufactures. In poor countries there is a similar discrepancy, but the difference is 2-3 times as large. To these barriers we can add the sanitary and phytosanitary regulations and standards, which we had discussed earlier in this series that are used as barriers to deny market access for “new agricultural products” emanating from poor countries.

There are of course many, many other considerations that space would not permit us to explore here. Among these are the effects of agricultural protection in rich countries on world prices. Very often the subsidised output of the rich countries is dumped onto the world market at low prices. Sugar is an excellent example of this. At one period of time the European Union was both the world’s largest exporter of sugar and the world’s largest importer! Sugar prices are high on its domestic market and at the same time its surplus product is being sold cheaply in the world market. This has disadvantaged sugar exporters elsewhere even as it has made some sugar exporters dependent on its import market for within-quota sales. Their extra output however, as well as that of other exporters face un-remunerative prices in world markets.

Next week we continue this discussion.