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Destruction of US credibility at WTO

Originally published by Live Mint on 09/08/2015

The tenth ministerial conference of the World Trade Organization (WTO), to be held in Nairobi on 15-18 December, is already mired in discord, with negotiators unable to agree on a mandated post-Bali work programme.

At issue are US and European Union (EU) proposals to scrap the texts agreed to thus far in this interminable round of trade negotiations. Yet again, the developed world led by the US and the EU are pitched against developing countries led by India, China and Indonesia, who have over the past two years tried unsuccessfully to move towards the promise—made at the ninth ministerial conference in Bali in 2013—of a permanent solution to the public stock-holding issue in food security, while advancing the stalled Doha development round.

The irony that a country such as India, which witnessed more than a quarter of a million farm suicides between 1996 and 2014, has to fight to retain its farm subsidies, which are a fraction of what the US and the EU provide their farmers, is not lost on most observers. Nor is US intransigence in refusing to consider a proposal from the group of 33 countries (G-33) to resolve the stockholding issue simply by bringing the WTO agreement into line with 21st century prices.

The 2014 US farm bill is one of the main reasons the US government is walking away from the post-Bali agriculture negotiations. Studies show that the US is likely to exceed the subsidy limits agreed in Doha negotiations in 2008, and it will probably exceed even current WTO limits.

US Congress thumbs its nose at WTO

The 2014 farm bill, which takes effect this crop year and will be in effect for five years, is decidedly more trade-distorting than its predecessor. It eliminates direct payments to producers, which were considered less trade-distorting than price or production-based programmes. It replaces them with production and price-based programmes that offer producers of supported commodities a choice between payments to compensate for low prices (price loss coverage or PLC) or payments to compensate for revenues lower than the recent five-year revenue average (agricultural risk coverage or ARC). On top of that, producers get subsidized crop insurance from the federal government, and special or different programmes support dairy, cotton and other crops.

How do these programmes work? Producers opt in to one of the programmes for each crop for the five-year terms of the farm bill. The price-based coverage is much like the US’s previous countercyclical payments (CCP), setting a price trigger and compensating producers when prices fall below that level, up to a fairly high limit. Wheat producers, for example, would be covered for prices below the PLC price of $202 per tonne.