Review of the EU agricultural distorting supports to rebuild fair and sustainable agricultural trade rules after the Doha Round hibernation

Introduction

1. Pascal Lamy's decision of 24 July 2006 to put the Doha Round negotiations into hibernation makes clear once more that agriculture remains their Achilles' heel. Unfortunately it would remain so even if the Doha Round is taken out of its brain-dead as long as the trade negotiators, very badly informed by the international institutions, their trade experts, some NGOs and therefore the medias, do not understand the fundamental tricks and flaws of the Agreement on Agriculture (AoA) rules on which there are negotiating.

2. The main comments made about the reasons of this breakdown underline the total lack of understanding of this agricultural issue. The US have been fingered at as the main responsible of the collapse of negotiations because of their refusal to lower their domestic trade-distorting supports beyond the level offered the 10 October 2005, but this is quite understandable since it could not even comply with this first offer, at least if it were to abide by the AoA rules, which it does not unfortunately, as we have shown in previous papers1. And the EU has also been accused of refusing to open more its domestic market and to lower more its domestic trade-distorting supports than its formal proposals of 28 October 2005, although here again it would have been unable to comply with this offer if it were to abide by the rules2.

3. Nevertheless, the 22 May 2006, Canada has circulated a report on "Agriculture domestic support simulations" (JOB(06)/151) with this introduction: "Representatives of Australia, Brazil, Canada, China, the European Communities, Egypt, India, Japan, Kenya, Malaysia, Norway and the United States have undertaken a data simulation exercise on various reduction options for the Total AMS and the Base for the Overall Commitments, using information provided by the European Communities, Japan and the United States. This effort was based on assumptions and indicators agreed by these Members for purposes of this statistical exercise alone. It was undertaken without prejudice to the positions of the Members involved. These Members would now like to share the results of this simulation exercise, including the data, assumptions and results, with the WTO Membership as a whole".

4. From that date on most Members, the media and NGOs have based their comments and negotiations on these simulations, without understanding their huge flaws. Indeed they were based not only on biased data transmitted by the US, EU and Japan, but they have also ignored the AoA rules, so that they have logically concluded that the EU and US could comply with their offers to reduce their domestic trade-distorting supports without putting their agricultural policies in jeopardy, and that they had even some leeway to increase them beyond their offers. A leeway confirmed by the fact that Peter Mandelson and Susan Schwab have given to understand in the last days of the negotiations that the EU and US could go beyond their October offers if the emerging DCs agreed to open more their domestic markets for industrial products and services and, for the US, if the EU agreed to open more its agricultural market.

5. One of the best evidence of the misunderstanding of the AoA rules and of its intrinsic flaws is the trite news story repeated again and again for years on the amount of subsidies granted to Northern farmers, based on a mix-up between fake market price supports and subsidies. Indian experts and media remain at the forefront for hawking this myth. Thus Biswajit Dhar, head of the Centre for WTO studies at the Indian Institute of Foreign Trade in New Delhi, repeated to the press the 27 July 2006 the mantra that "the total quantum of farm subsidies given by the developed OECD (Organization for Economic Cooperation and Development) countries works out to $340 billion a year or almost $1 billion a day"3. The Hindustan Times has even written that "Both the EU and the US spend over $440 billion annually as subsidies for their farmers, which makes it financially unviable for developing countries to export goods to their markets"4. The truth is that agricultural subsidies