WTO food fight in Bali? By Martin Khor

Trade
WTO food fight in Bali?

Bali, 2 Dec (Martin Khor*) A routine, non-negotiating meeting of Trade Ministers from around the world, intended when scheduled to be held here a year ago, may instead turn out to be a week of tense battle at the WTO's mandated biennial ninth Ministerial Conference at Bali, when the World Trade Organisation holds its ninth Ministerial Conference.

Almost all the first six Ministerial (starting in 1996 at Singapore) were tense affairs, with major developed countries usually attempting to arm-twist developing countries to agree to negotiate or set up new legally binding rules, and the developing countries (sometimes a few, sometimes many) resisting.

The risks of failure became too high as the world media would then proclaim a "collapse of WTO talks." This happened in 1999 (Seattle) and 2003 (Cancun). "Collapse" was also proclaimed for so-called mini-Ministerial convened by the then Director-Genera Pascal Lady in Geneva in 2006 and 2008.

Perhaps to avoid the danger of media proclamations of more traumatic failures, the last two WTO Ministerial meetings, held in Geneva in 2009 and 2011, were set up as non-negotiating affairs. Ministers who came, took part in roundtable discussions rather than negotiations with implications for rule-making. It was agreed (among key delegations, meeting at ambassadorial level among themselves, without the DG) that all issues would be settled before hand, and Ministers would not be put through the stress of poring over difficult texts and issues, and facing the risk of failure.

This year, trade diplomats in Geneva tried hard, but could not agree on a package (socalled Bali deliverables') of agreed texts on the three main issues: a new Trade Facilitation treaty, changes in agriculture rules relevant to food security, and benefits for LDCs (least developed countries.)

In the run-up to Bali, the WTO Director-General, Mr Roberto Azevedo, repeatedly stated in Geneva, that Bali would not be a negotiating conference. He pointedly said it again on 26 November at the General Council meeting and a press conference when the GC ended.

However, in the last few days after the GC, some Members and officials have been pushing Azevedo to convene negotiating sessions in Bali to conclude a deal. If negotiations are conducted here, in whatever format, in an attempt to get final agreements, Bali will turn out to be a tense and unpredictable meeting after all.

If negotiations take place, food security will be a major issue. The group of 33 countries (G33) put forward at Geneva a proposal to clarify or change the present WTO rules that constrain the ability of developing countries' governments to purchase food from small farmers and stock them.

The proposal incidentally is a para from the draft Agriculture Modalities text of 2008, a consensus text (in WTO terms, no Member at the meetings had objected or said NO), that the chair of the Special Sessions of the Agriculture Committee (the Doha Round Negotiating Committee on Agriculture) had tabled. The US, EU, Pakistan, Uruguay, Thailand, Paraguay and others now objecting are all part of the consensus when the text was tabled.

Government purchase (and stockholding) of rice, wheat and other foods is important in many developing countries. Such schemes assist poor farmers by giving them more certainty of sales at certain price levels. It also promotes national food security.

(See also separate article on the call to the WTO Ministerial Conference by the UN Special Rapporteur on Right to Food, that the Bali package must allow ambitious food security policies' of developing countries. SUNS)

However the present WTO rules are a hindrance to such schemes, and these rules need to be changed, according to a report of the South Centre, "The WTO's Bali Ministerial and Food Security for Developing Countries", {www.southcentre.int) by several trade experts of developing countries.

They include Rubens Ricupero (former Secretary General of UNCTAD), S. Narayanan (former Ambassador of India to the WTO), Ali Mchumo (former Managing Director of the Common Fund for Commodities and former Ambassador of Tanzania to the WTO), Li Enheng (Vice Chairman, China Society for WTO Studies), Nathan Irumba (former Ambassador of Uganda to the WTO), Deepak Nayyar (former Vice Chancellor of Delhi University and former Chief Economic Advisor to the Indian government), Prof. Carlos Correa (University of Beunos Aires), Yilmaz Akyuz (Chief Economist, South Centre and former UNCTAD Director), and Chakravarthi Raghavan (Editor Emeritus, South-North Development Monitor).

Public stockholding for food security purposes is included as one of the items under the Green Box of the WTO's agriculture agreement, but with certain conditions.

The Green Box lists the types of domestic subsidies that are considered to be minimally or non-trade distorting. WTO Members are allowed to use these measures, usually without limitations.

But in the case of public stockholding, significant conditions, causing enormous problems to developing countries, have been attached.

One condition is that food purchases by the government shall be made at current market prices and sale from public stockholding shall be made at prices not lower than current domestic market price.

But the rules also say that if the price paid by the government is higher than the external reference price, the difference is considered a trade-distorting subsidy which is then placed in and counted as part of the Red Box. Developing countries' Red Box subsidies cannot exceed 10% of the production value of the entire product (not merely the government acquired product).

The problem is that reference price has been defined as the average international market price, not the current, but of 1986-88.

Food prices were much lower 25-30 years ago. For some items they are 200 or 300 per cent higher today. It is thus illogical and most unfair to accuse a government that buys rice from its farmers at today's market price of unfairly subsidising farmers on the ground it should have bought it at the 1986-88 average price!

Consider this example. The farm price of a food item was 30 cents in 1987 and rose to 100 cents today. If rice is bought from farmers at 100 cents, logic would suggest that it should not be considered a trade-distorting' subsidy at all.

Yet the WTO's rules stipulate that in such a case there has been a subsidy' of 70 cents. And this is to be counted towards the country's total allowed subsidies.

With such a calculation, it won't take much procurement from farmers for the country to reach the 10% subsidy limit. Anything above that is considered illegal, opening the country to WTO dispute cases from other countries. If the others win, they can demand rolling back of such ^subsidy', and until it does levy counter-vailing' and/or take other retaliatory measures to hit the purported subsidising' Member.

Among the affected countries is India whose new Food Security Act obliges the government to spend over US$20 billion to buy foodgrains especially rice and wheat from poor and marginal farmers, and to provide from such stocks, 5 kilos of foodgrains per month to eligible poor households, which in India accounts for two-thirds of the population.

The Group of 33 proposed a change in the WTO rules, that acquisition of foods by developing countries to support poor farmers should not be considered a trade-distorting subsidy.

According to the South Centre experts' report, the G33 proposal if adopted would enable developing countries to have such schemes to help their poor producers or families without the present restraints.

"It would advance the cause of national food security, promotion of small farmers' livelihoods as well as fulfilling the Millennium Development Goals of reducing hunger and poverty," says the report.

In the last months' negotiations in Geneva at the WTO, this proposal was rejected, especially by developed countries like the United States which incidentally have subsidies of their own totalling hundreds of billions of dollars much more than those of all the developing countries.

The current WTO rules are so riddled with double standards that these huge subsidies are allowed for developed countries (since they were there in the past), while the subsidies of developing countries are severely capped because they did not previously subsidise (or only a little) as they could not afford to do so.

During the talks at Geneva, a counter-proposal, a socalled peace clause', was put forward and negotiated (one of the many smaller consultations, and the text is now on the table. The centrepiece of this is that countries having public stockholding schemes would not face disputes against them. But this "peace clause" would only be temporary, expiring at the 11th Ministerial Conference in four years, unless it is renewed or a permanent solution found (very uncertain as any decision would presumably require a consensus).

Moreover, the temporary "peace clause" would only apply to the Agriculture Agreement but not the WTO's agreement on Subsidies and Countervailing Measures; thus, disputes can still be raised against a country. The countries using the "peace clause" may also have to show that the measures are not trade distorting.

Meanwhile, during the 4-year peace-clause' period, there would be negotiations for a "permanent solution", but no guarantee that such a solution would be found or adopted.

Also, the draft text includes procedural elements. Those countries that have exceeded their allowed subsidy level, including due to the unfair calculation and definition of "subsidies", have to own up, show how much they have exceeded, give details of the purchase and stocks, and also show how the operation of the scheme is not trade distorting.

The whole peace clause' package is so limited in benefit and complicated to use, that many analysts sympathetic to the plight of developing countries have concluded that it is problematic and of little if any use.
Last week, the Indian Cabinet decided that they would agree to a "peace clause", but only if it lasts till a permanent solution is adopted, and also if the peace clause applies to both the WTO's agriculture and subsidies agreements.

If there are negotiations in Bali, and India puts this proposal forward, the major developed countries (perhaps supported by some developing countries too) are likely to oppose it.

The Bali Ministerial could then turn out to be a tense and messy affair, especially since the Trade Facilitation issue will also be negotiated.

Will these issues be negotiated as a package, and the balance of benefits and costs for various parties among these issues be considered? Will all Ministers be allowed to take part, or only a select few, as in the past? Who selects the countries in the decision-making process, and what if non-selected countries insist on being in the room? Will the entire membership agree with a deal that only the few struck, at the last hour of the conference?

All these questions, which in the past have hovered over past Ministerial as they take place, and after the Ministerial have haunted the WTO with questions of legitimacy of decisions taken, may well re-emerge.

The Director General and many countries had vowed last week that this kind of risky do-or-die, take-it-or-leave-it situation, prevalent in Ministerial of the past, would not be repeated. But with some Members attempting on the eve of the Ministerial to build momentum for negotiations to take place at Bali after all, it remains to be seen what will happen this week in Bali. 

* Martin Khor is Executive Director of Geneva-based South Centre

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