Good news for cotton is bad news for sugar
The View From Europe
By David Jessop
Stabroek News
May 2, 2004
On April 26, the World Trade Organisation (WTO) made a preliminary ruling that could well change the shape of global trade. It accepted a complaint by Brazil that subsidies paid by the US administration to cotton farmers in its southern states were contrary to the international rules of trade.
If confirmed, this landmark ruling suggests that Brazil has brought the first successful challenge by a developing nation to the extensive subsidies granted to farmers in advanced nations.
The WTO decision, which will not be announced formally until June 18, has extensive implications for the US, Europe and all other developed nations as it could well change the global structure of agriculture, making more balanced the world trade in farm goods.
The ruling also could lead eventually to far-reaching global compromises by the EU, US and other advanced nations in the presently stalled WTO Doha Development Round. What is more, at a hemispheric level it may well change the nature of the dialogue with the US and Canada in the negotiations for the Free Trade Area of the Americas (FTAA).
In both arenas, Latin America and the Caribbean have been seeking, so far to no avail, to have deep cuts in farm subsidies and better access for agricultural products entering developed markets in return for requests to open their economies to US and EU goods and services.
The Brazilian case was based on an econometrically- backed claim that US cotton subsidies - amounting to over US$2 billion in 2001 alone - were responsible for low world cotton prices. This Brazil suggested, had caused US cotton farmers to benefit at the expense of their Brazilian counterparts. In response the US had argued that its subsidies did not encourage over-production because they were 'decoupled' or not linked to production. According to reliable reports, this was the key issue on which the WTO ruling found against the US.
In a pre-emptive European response, the EC's Agricul-ture Commissioner, Franz Fischler, speaking in Brasilia on April 27, was at pains to note that Europe's subsidy system was "largely independent of production." As far as agricultural policy reform is concerned, he told his audience, "The EU is a long way ahead of the rest of the developed world."
Commissioner Fischler, with an eye also on trying to bring to a successful conclusion trade negotiations with Mercosur this year, argued that farm support in the EU is now tied not to the quantity, but instead to the overall quality of production. To qualify, he said, producers must observe basic environmental standards and follow animal welfare and food safety rules. The Commissioner was also reported as having suggested in Brazil that the EU was "prepared to make a considerable improvement on all requests made by Mercosur, not just some of them, which includes all sensitive products".
In the US, the WTO ruling on cotton is expected to create major problems for other heavily subsidised producers including those of rice, wheat, beef and maize. For this reason the final WTO ruling on cotton will be subject to appeal by the US so as to ensure that at the very least, implementation will be deferred until well after the November Presidential election.
For the Caribbean the WTO decision on cotton, other than in a global sense, offers nothing to cheer about. The ruling, if confirmed, has a direct relationship with aspects of a separate WTO complaint brought by Brazil, Australia and Thailand against the EU on sugar. This argues that the production and export subsidies granted under the European sugar regime to EU beet farmers are in contravention of WTO rules. If Brazil is also successful in this case, it is likely that among those who will suffer will be the Caribbean as by extension it benefits from the price linkage in the EU/ACP sugar protocol. This guarantees ACP producers the same subsidised prices paid to European producers. That is to say, prices much higher than those that prevail on the world market.
The EC has yet to make any formal proposal on how it will reform its sugar regime. However, speculation is now rife that during the life of the present Commission the EC will make new proposals based on the options it suggested in 2003. Senior officials suggest that the cotton ruling makes it less likely that a new Commission that will include the accession states can leave the issue for resolution in 2005. The consequent view in a number of key EU capitals is that the Trade Commissioner Pascal Lamy and the Agriculture Commis-sioner will be encouraged by some, but not all member states to put new EC proposals on the table in June or July of this year.
The WTO ruling on cotton suggests that very soon the EC will have to announce its plans for the reform of its sugar regime. This will most probably result in a hard-fought battle that creates a managed market in which guaranteed levels of access are retained for ACP producers but in which, over time and as with bananas, the price paid will for the Caribbean in particular, collapse to an unremunerative level. The long-term result will be that Brazil will be the global winner and most Caribbean nations will have to manage their way with external support out of sugar or move to value-added applications such as ethanol.
Speaking recently in Bridgetown, the Prime Minister of Barbados, Owen Arthur recognised the importance of establishing new mechanisms that could address the implementation of programmes for "sunset industries," such as sugar and bananas, which had depended on trade preferences.
He proposed the creation of a regional economic commission that would include leaders from the private sector, the labour movement, financial sector, public sector, NGOs and regional academics. The WTO ruling on US cotton subsidies and its relationship to a similar case on sugar brought by Brazil against the EU suggests that practical ways to manage change are now of pressing importance.