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THE IMPACT OF WTO LAW ON THE RIGHT TO FOOD

THE IMPACT OF WTO LAW ON THE RIGHT TO FOOD. Experts meeting of 16 and 17 June 2008. Rebuilding the Agreement on Agriculture on food sovereignty to implement the right to food. Jacques Berthelot, Solidarité Jacques.berthelot4@wanadoo.fr http://solidarite.asso.fr/home/Agriculture06.php.

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THE IMPACT OF WTO LAW ON THE RIGHT TO FOOD

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  1. THE IMPACT OF WTO LAW ON THE RIGHT TO FOOD Experts meeting of 16 and 17 June 2008 Rebuilding the Agreement on Agriculture on foodsovereignty to implement the right to food Jacques Berthelot, Solidarité Jacques.berthelot4@wanadoo.fr http://solidarite.asso.fr/home/Agriculture06.php

  2. OUTLINE I – The tricky nature of protection, dumping and subsidy concepts has allowed the EU and the US to cheathugely on the Agreement on Agriculture rules II – The increased agricultural and food dependency of developing countries III – The broadlines of a new Agreement on Agriculture based on foodsovereignty

  3. INTRODUCTION The best way for the WTO to contribute to the implementation of the right to food for the 830 million of chronically hungry people in DCs, achieving at the same time the Agreement on Agriculture (AoA) long- term objective "to establish a fair and market- oriented agricultural trading system" is to rebuild the AoA rules on food sovereignty. And this trough recognizing that its main tool – import protection – is, paradoxically, the least protectionnist type of agricultural support.

  4. To understand this we must show the tricky nature of the basic AoA concepts – particularly those of protection, dumping and subsidy – and that, beyond the iniquitous nature for DCs of the AoA rules devised essentially between the EU and US, these two Members have been cheating massively on the rules. However the WTO Secretariat claims not to be allowed to report it to other Members.

  5. I – The tricky nature of protection, dumping and subsidy concepts has allowed the EU and the US to cheathugely on the Agreement on Agriculture rules The distinction between support and subsidy If any subsidy – a public expenditure financed by taxpayers – is a support, the reverse is not true: support is a broader concept than subsidy since it encompasses "the market price support" (MPS), which results from the import protection increasing the gap between the domestic and world prices.

  6. OECD considers import protection as a subsidy For OECD, consumers are entitled to buy their food at world prices, and since import protection prevent them to do so, they are suffering a negative consumers' surplus, measured by the gap between domestic and world prices, gap considered as a trade distortion and as a "transfer from consumers to producers", assimilated to a subsidy ofconsumers to producers. This gap has reached $156 billion on average from 2002 to 2004, over a PSE (producers support estimate) of $254 billion and a TSE (total support estimate) of $346 billion (of which $61 billion for the GSSE (general services support estimate). Therefore the actual subsidies to individual farmers have "only" reached $98 billion.

  7. Generalized confusion between support and subsidy The media have taken up the statements of the Chiefs of all international institutions: United Nations, IMF, World Bank, OECD, FAO, UNCTAD, and large NGOs (Oxfam, Third World Network, Focus on Global South…). Jean Ziegler himself spoke in his report on the right to food of 10 January 2008 of "The heavy production and export subsidies that OECD countries grant their farmers – more than US$ 349 billion in 2006 or almost US$ 1 billion per day –". Happily enough the English and Spanish versions of his speech are less worrying than the French one, which translates: "The heavy production of OECD countries and the huge export subsidies they grant their farmers" (the rest without change). Here it is clear that, for him, all agricultural "subsidies" are not for export only.

  8. Tariffreductions are hardlybenefittingconsumers • The idea that consumers worldwide are deprived from their entitlement to buy their food at world prices is all the less founded that: • This world price is a dumping price, lower than the production cost of all countries (the more so if we add the social and ecological dumping). • 2) The fall in world prices, thus in the prices of imported products, is hardly transmitted to consumers. • 3) The fall in domestic agricultural prices do not benefit them either in the EU and US where farmers are selling very little directly to consumers but to traders and agroindustries which increase their margins (EU's Court of Auditors).

  9. Why domestic market price supports linked to administered prices are meaningless Over the €48.5 billion in EU total AMS (aggregate measure of support) notified to the WTO from 1995 to 2000, the actual subsidies have only reached €4.8 billion against €43.7 billion in product-specific market price support (MPS) linked to intervention prices. And the US MPS has reached 56.9% of its total AMS notified for the same period ($5.9 billion over $10.4 billion). Yet these domestic MPS would not have any impact on domestic prices without coexisting with much more determining MPS such as import protection, export subsidies, production quotas, set aside and foreign and domestic food aid.

  10. Why domestic market price supports linked to administered prices are meaningless The product-specific AMS linked to an administered price (intervention price in the EU) is computed as the gap between the present administered price and the world reference price of the 1986-88 base period, gap multiplied by the present production. As long as this administered price does not change and the production level hardly changes, neither the AMS does, although the actual price support changes (through other measures) since the world price is always changing. The AMS linked to an administered price is therefore like a thermometer which does not change according to temperature.

  11. Why domestic market price supports linked to administered prices are meaningless The EU and US offers to cut their allowed AMS by 70% and 60% respectively at the end of the Doha Round implementation period can be explained essentially by this fake MPS which will allow them to increase their actual authorized subsidies of the blue and green boxes while the trade-distorting domestic support falls formally. The 1st July 2002 the EU has eliminated its intervention price on bovine meat (BM), reducing from one day to the other its BM AMS by €9.7 billion and its total AMS by 30%, without any change in the domestic price nor in farmers' income, to the contrary, since the 1999 CAP reform had increased largely their direct payments.

  12. The false conception – much too restrictive –of what protection, protectionism, actually means For economists, any government measure increasing the competitiveness of national products relatively to foreign products is a form of protection. The scandalous definition of dumping by the GATT and the Agreement on Agriculture For economists and the man in the street there is dumping if we export at a price lower than average production cost. For the GATT and the AoA, there is no dumping as long as exports are made at the domestic price, even if it is lower than the average production cost.

  13. The scandalous definition of dumping by the GATT and the Agreement on Agriculture Exporting at a price lower than the domestic price is only possible in rich countries where farmers are receiving direct payments authorized by the WTO to complement their low prices. This has been the main reason of the CAP reforms in 1992, 1999 and 2003-08: reducing by steps agricultural prices to the world price level will allow to export EU's agricultural products without export subsidies.

  14. The scandalous definition of dumping by the GATT and the Agreement on Agriculture This has also been the main reason of the Farm Bill reforms of 1996, 2002 and 2008: as the US is "price maker" for the world prices of grains (cereals, oilseeds and pulses), reducing the US prices was the means to eliminate US competitors, unable to compensate their farmers through domestic subsidies. The WTO Appellate Body's precedents reconsidering the GATT definition of dumping AB's rulings in "Dairy products of Canada" (03-12-01) & 20-12-02, US cotton (03-03-05) and EU sugar (28-04-05). In the 3 cases, the AB has ruled that dumping should take into account domestic subsidies to the exported products.

  15. Why import protection is the least protectionist type of agricultural support "Free-trade is not anti-protectionism. It is the protectionism of the mighty" Vandana Shiva, 1997 Import protection is the only support affordable to poor countries, which do not have the means to subsidize significantly their farmers, the more so as their represent generally the majority of the active population (2/3 in Sub-Saharan Africa). All types of subsidies, even of the green box aimed at protecting the environment, are reducing the production cost and have a dumping effect for exported products.

  16. Why import protection is the least protectionist type of agricultural support Only rich countries can use subsidies to protect their domestic market fromimports without using specific measures at the import level: by compensating, through allowed blue and green subsidies, the reduction of domestic prices down to their world level, the agri-food corporations have no longer any incentive to import. Having a limited budget, DCs prioritize coupled supports which have a more direct effect on the production and price levels (FAO encourages them to do so). Coupled supports may maintain domestic prices above world prices and do not imply that the country exports, but blue and green subsidies allow to reduce the domes- tic prices below the national average production cost and have a dumping effect if the products are exported.

  17. Why import protection is the least protectionist type of agricultural support Decoupled subsidies of the green box, being authorized without limit, are even more protectionist than export subsidies, which are more transparent and permit antidumping measures or countervailing duties when they exceed the allowed ceiling. Even export subsidies would not be a real issue if every country could protect itself at the import level. However, given that most DCs cannot increase their import protection as a result of the insuperable IMF and WB pressures, eliminating explicit and indirect export subsidies remain a priority.

  18. Why import protection is the least protectionist type of agricultural support Import protection is the only means to rebuild market oriented agricultural policies, where the bulk of agricultural income is based on remunerative prices, but on domestic prices, not on the highly volatile and dumped world prices which are below the average production cost of all countries, and furthermore which fluctuate with the exchange rates. The objection that import protection prevents countries with "offensive interests" to "access the domestic market" of other countries is unacceptable: each country should have the right to define its defensive interests as it fits the best, as long as it does not harm other Members through offensive actions. Trade is not war and an appropriate import protection is not autarchy.

  19. Import protection of basic foodstaplesis all the higherthat countries are developed Among EU's agricultural tariff lines (TL) with a positive tariff, that of frozen meat (bovine, porcine and poultry) is 66% but 66 TL exceed 100%. The average tariff is 87% for dairy products but 41 TL exceed 100%. For cereals and cereal products the average tariff is close to 50% but 13 TL exceed 100%. For sugar and sweeteners the average tariff is 59% but 8 TL exceed 100%.

  20. Import protection of basic foodstaplesis all the higherthat countries are developed Then those EU most protected products account for 68% of its total calories, 83% of its proteins and 49% of its lipids. Therefore the EU average agricultural tariff weighted by the share of products in its diet is much larger than its average agricultural tariff weighted by imports. That is why the EU has demanded to classify in the Doha Round 8% of its TL as sensitive products. Conversely in West Africa products with the largest imports and the lowest tariffs (cereals and milk powder tariffied at 5% in WAEMU) or low tariffs (meat and sugar tariffied at 20% in WAEMU) account for 59% of total calories, 57% of proteins and 30% of lipids.

  21. Import protection of agricultural productsis all the higherthat countries are developed All industrialized countries have protected agriculture at a high level: the US in the 19th century, Europe up to now, South Korea up to now, Brazil up to the early 90s' and India forced to lower its protection at the end of the 90s' after being sued by the US at the WTO, both maintainong high tariffs on sensitive products. To the contrary Sub-Saharan Africa has always had a low import protection during the colonial era and ever since independance. That is why it did not industria- lized, and its per capita GDP has dropped by 16% from 1975 to 2000 and agricultural production per agricultural worker by 12% from 1980 to 2000.

  22. 2) The lack of control by the WTO has allowed the EU and the US to cheat massively a) Cheatings on input subsidies b) Cheatings on agricultural investments c) Cheatings on export subsidies d) The WTO does not check the veracity of itsmembers' notifications e) The present CAP contradicts the AoArules f) The 2002 and 2008 Farm Bills contradict the AoA

  23. a) Cheatings on input subsidies About 60% of the production of COPs (cereals, oilseeds, pulses) in the EU and US are fed to animals, hence are inputs for animal products, and subject to reduction (AoA article 6.2). Therefore the majority of direct payments to COPs are coupled but the EU has notified them in the blue box (€9.7 billion per year in the 1995-00 base period) and the US has notified $1.7 billion in the green box (production flexibility contract payments). Now feed subsidies confer product-specific (PS) AMS to all animal products, which reduce the value of products without PS AMS, hence the allowed PS de minimis support and the allowed level of the "overall trade-distorting domestic support" that the EU has offered to cut by 53% and the EU by 70%.

  24. a) Cheatings on other input subsidies Irrigation subsidies: the US has notified $300-380 million (M) a year but the actual figure exceeds surely $2 billion. The EU does not notify any although they are at least of €1.2 bn. Subsidies to agricultural insurances: the US has under- notified them by average $813 M from 1995 to 2001. The EU has notified €21-102 M, but they are at least €500 M higher. Interest rates rebates on agricultural loans: the US has notified $49 M yearly to WTO but $561 M more to OECD. The EU has under-notified at least 200 M€. Taxes rebates on agricultural fuel: the US has notified to OECD $2.3 bn per year but 0 to the WTO, not even in the green box. The EU does not notify any to the WTO but they have been of at least €2 bn.

  25. b) Cheatings on agricultural investments The EU has notified in the green box €5.638 billion on average in the 1995-00 period, hence €33.828 billion in total, in investments subsidies of farmers, agri-food industries and marketing. Thus violating AoA's article 6.2, paragraph 4 of Annexe 4 and paragraph 13 of Annexe 3.

  26. c) The EU and US massive cheatings on export subsidies • The EU claims to have reduced sharply its export subsidies • on cereals from Ecus 2.16 billion in 1992 to €121 M in 2002. • Now, taking into account blue direct payments to exported • cereals, which have skyrocketed from Ecus 117 M in • to €1.28 billion in 2002, and given the halving of • exports, the subsidy per exported tonne has risen by 20%. The EU has granted €329 M/year from 1995 to 2000 in subsidies to exported poultry, ¾ of which are domestic subsidies. 62% of the €462 M/year to pig meat exports were domestic subsidies. It was also the case for 38% of the €2.7 billion/year of susbsidies to dairy products and for 52% of the €1.8 billion/year of subsidies to bovine meat exports.

  27. d) The US massive cheatings on subsidies to the exportedcotton On $5.1 billion in cotton subsidies in 2005, $4.8 billion are domestic subsidies of which $4.5 billion to farmers and the rest to textile industries. As 73.5% of cotton has been exported, $3.3 billion have been domestic subsidies to the exported cotton paid to farmers, i.e. 93% of the $3.6 billion of total subsidies to the exported cotton, the exporters having received $253 million. If the US has been condemned at the WTO to eliminate the 1st August 2006 its export subsidies to cotton, it has maintained 93% of subsidies to producers for the exported cotton, as being domestic subsidies. No wonder then that the cotton price has only risen by 25% from January 2006 to April 2008, against 180% for cereals.

  28. e) The 2002 and 2008 Farm Bills are contradicting the Agreement on Agriculture The DSB Appellate Body has ruled the 3 March 2005 that the US fixed direct payments are not in the green box because farmers have not a total flexibility of production (they cannot grow fruits and vegetable and wild rice) and Congress did not remove this interdiction in the 2008 Farm Bill despite huge USDA pressures.

  29. f) The 2003 CAP is not in line with the AoA • The EU "single payment scheme" (SPS) is not in the green • box, as it does do not abide by 3 of the 5 AoA rules of Annex • 2 paragraph 6: • Several productions are forbidden (fruits & vegetables; • milk and sugarbeet for farmers without production quotas; • wine without planting rights) or capped (rice, cotton, tobac- • co and olive oil; not beyond the milk or sugarbeet quotas). • Now the only interdiction to grow fruits & vegetables has • been enough to declare the US fixed direct payments are • not in the green box, then are in the amber box (AMS). • 2) It isbased on the level of direct paymentsreceivedfrom • 2000 to 2002, a criterion not mentionned in paragraph 6. • 3) It remainscoupled to the acreage. • 4) The majority of payments to COPsremain input subsidies. • 5) As the SPS cannotbeattributed to a givenproduct, all the • EU exported agricultural productscanbesued for dumping.

  30. 4) The WTO Secretariatis an actual accomplice of the cheatingMembers • The WTO does not check the • veracity of itsMembers' notifications b) The Chair of the special agricultural Committee on the Doha Round does not enlightenMembers on the absurd nature of some basic AoArules c) The WTO reports on Members' trade policyreview are alwayslaudatory d) The WTO Appellate Body rulings do not have a value of precedent (staredecisis)

  31. The WTO does not check the • veracity of itsMembers' notifications Having asked the WTO on this issue, Gabrielle Marceau, of the Dispute Settlement Body, replied: "The WTO has neither the resources nor the skills to act like "a regulator" of these notifications. It is up to each Member to do these verifica- tions… This is the very spirit of the whole disputes settle- ment system of the WTO: every Member country acts as a guard-dog of the system" (Internet forum of 27-02-2001) ! Haïti guard-dog of the US and Niger guard-dog of the EU?

  32. b) The Chair of the special agricultural Committee on the Doha Round does not enlightenMembers on the absurd nature of some basic AoArules The Chair is endorsing systematically the wrong interpre- tation of the AoA rules by the EU and US, for example on the allowed product-specific de minimis support which is not 5% (or the proposed 2.5%) of the value of the whole production but 5% (2.5%) of the production value of pro- ducts without specific AMS. This reduces much the allowed level of the "overall trade-distorting domestic support". c) The WTO reports on Members' trade policyreview are alwayslaudatory Because these reports are only based on information that Members are willing to transmit to the WTO. Such a laxbehaviour of the WTO Secretariatis strange for an institution claiming to berules-based!

  33. d) The WTO AppellateBody'srulings do not have a value of precedent (staredecisis) The WTO is proud, not without reasons, of the recognized quality of the panels and the rulings of its Appellate Body, which constitute its main mission. If the rulings of the Apellate Body had a value of prece- dents, this would reduce much the proceedings at the WTO, that most DCs have not the capacity to start, particularly against the EU and US cheatings. Let us be clear: in practice, the panels and Appellate Body take into account the interpretation given in previous cases. But the WTO Secretariat considers it has not the right to remind it to Members so that the Doha Round negotiations reproduce the past erring ways.

  34. Concludingcomments on subsidies, protection and dumping in the WTO rules The distinction made in the AoA and the Agreement on subsidies and countervailing measures between specific and non specific subsidies (when they are computable) and between subsidies of the amber, blue and green boxes has no scientific foundation and must be abolished: all types of subsidies reduce the average national production cost and increase the competi- tiveness of the benefitting products. Therefore they have a dumping effect when they are exported and have at the same time an import substitution effect. That distinction is particularly unfair vis-à-vis DCs which have very limited financial resources to subsidize their farmers and agro-industries.

  35. Concludingcomments on subsidies, protection and dumping in the WTO rules As long as agricultural products are not exported, Members have the right to use appropriate subsidies, given their development level. Coupled subsidies are much preferable as they allow to better regulate and focus on specific markets. This is even more obvious in DCs as they constitute a direct incentive to increase agricultural production and FAO has acknowledged it. The permanent claim by the EU Commission that decoupled payments allow farmers to produce according to market signals given by prices is astounding as these prices, much lower than their production cost without the huge subsidies, are no longer market prices.

  36. II – The increased agricultural and food dependency of developing countries DCs' agricultural and fooddeficits have worsenedsince the WTO Trade liberalization and deregulation have affected more Sub-SaharanAfrica The more countries are developed the lessthey are integrated in the world market in general and particularly in the world market of basic staples

  37. DCs' agricultural and fooddeficits have worsenedsince the WTO Agricultural trade of DCs has become in deficit since the middle of the 90s – since the WTO – and has fallen at -$11 billion in 2000, redressed at -$3 billion in 2004. However, without Argentine+Brazil+Thailand, the deficit of DCs' agricultural trade has been growing since 1972 and has plunged at -$49 billion in 2004. Food trade of DCs has kept a low surplus since 1961, except in the 1996-2003 period with a $5.8 billion deficit in 2000. However, without Argentine+Brazil+Thailand, the deficit of DCs' food trade has been growing since 1972 and has plunged at -$28.7 billion in 2004.

  38. Trade liberalization and deregulation have affected more Sub-SaharanAfrica The real prices of agricultural products have fallen by 2% a year from 1961 to 2002, the largest fall and volatility affecting products exported by DCs, particularly those of Sub-Saharan Africa (SSA) (coffee, cocoa, tea and agricultural materials). Yet the poorest DCs, particularly of SSA, were told that their struggle within UNCTAD to regulate the prices of tropical products was in vain and that joining the WTO to liberalize agricultural trade would solve this issue and bring them their much needed development. The harsh reality has been an increased impoverishment, a much lower increase in crops yields than in other DCs.

  39. The more countries are developed the less they are integrated in world trade in general and for basic foodproducts in particular In his speech of 3 June 2008 to the FAO conference on world food security Pascal Lamy has stated that a more open trade can reinforce the capacity of developing countries to face the food crisis, adding "let us look at the numbers". Actually the numbers show the contrary of the "Washington consensus": the degree of integration in world trade (ratio "imports+export" over GDP) is all the lower in 2006 that countries are developed, Germany, the 1st world exporter, being an exception.

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