President Bush stirred up the Group of Eight Summit this week by proposing that the EU drop all agricultural subsidies around $112 billion per year, given to the farmers by wealthy countries, by the year 2010 simultaneously.
The pretext for doing this is to benefit African countries by expanding access to developed countries' markets. This comes as WTO negotiators begin intense discussions on agricultural issues that could lead to a tentative agreement by early August.
That President Bush would make such a statement to reporters at the G-8 meeting shows the political importance of agricultural trade in the wider political agenda.
U.S. complaints about EU farm program spending are nothing new; that has been going on for over 30 years. A U.S. offer to drop its subsidies if the EU would is also nothing new. President Bush would likely not be able to get the U.S. Congress to drop all subsidies even if the EU did agree.
The statement was partially directed toward internal EU politics and WTO politics that now involve 148 countries, most of which are developing countries.
The EU continues to struggle with long-term budget issues. The Common Agricultural Policy (CAP) takes 45 percent of the budget. Germany and France are big winners in the EU budget and England is a big net contributor.
Bush's comments were welcomed by British Prime Minister Tony Blair's government. Blair was also pushing debt relief for Africa's poorest countries.
President Bush's comments also reflect the reality that a WTO agreement will not be reached without support from developing countries. The WTO works by consensus, and African and other developing countries can block any proposed changes unless they believe they gain from a new agreement.
The biggest challenge for those interested in a new WTO agreement is to keep the politics of trade reforms separate from the economics of trade reforms. President Bush talked about eliminating all agricultural subsidies, but that is not at the heart of the current WTO debate.
The WTO negotiators are most interested in “trade distorting domestic subsidies.” These are subsidies that directly influence production, price and trade to the detriment of producers in other member countries. The movement over the last ten years has been toward “decoupled payments.” Direct payments in the 2002 farm bill and the Single Farm Payments in the recent EU reforms are mostly decoupled and have a much smaller impact on trade than programs that establish minimum market prices for commodities and/or make payments to producers when market prices fall below guaranteed price levels.
The task for WTO negotiators and policymakers in developed and developing countries is to use the visibility that President Bush and other leaders have given to these issues to create a force for change in the WTO negotiations. These issues are much more complex than just saying that fewer subsidies for EU and U.S. farmers mean more market opportunities for low income farmers in Africa.
The World Bank, Oxfam and several advocates for farmers in Africa, Asia and Latin America said that subsidies in the US, EU and Japan depress prices for agricultural goods, putting out the farmers in poorer nations to make a profit.
However, farmers of the developed countries counters they require subsidies to compete with lower-cost agriculture in countries like Brazil, which is emerging as main grower of cotton and soybeans.
The Organization for Economic Cooperation and Development reported that Japan provided subsidies of $49 billion, and US subsidise $47 billion, However its is less when compared to EU, which provided the maximum support for its farmers of $100 billion in 2004.
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