June 2001

From Europe, to the US, to countless developing countries, traditional-style agricultural production has, and continues to be dismantled. Small farmers are being squeezed out as they find themselves out-competed by the giant food producers based in their own countries as well as overseas.

A large part of food production today is now industrialised. That is, with the help of technology, chemicals and biotechnology, animals and crops are the products of huge factories, and farmers are the workers in the production line. Furthermore, production is often geared towards exports, i.e. cash crops and high value crops rather than diversified production for subsistence or local consumption. This is true in both developed and developing countries. Big operators, integrators, agribusinesses are the new players. The industrialisation of agriculture has been sold to consumers as the necessary step to ensuring food security – so that there will be enough food to feed the rapidly increasing world population.

At the international trade and policy level, the stage for this radical change has been set by the various free trade arrangements between countries and regions, as well as by the loan conditionalities of the International Monetary Fund (IMF) and the World Bank. Many of these conditionalities or agreements have forced developing countries to take on structural adjustment policy changes. Twenty years of IMF and World Bank policies have eliminated or drastically reduced subsidies in developing countries. Tariffs and other protective mechanisms have also been dismantled, so that the markets of developing countries are already very open, with tariff levels on major agricultural products much lower than those of OECD countries.

The WTO’s Agreement on Agriculture (AoA) came into force in 1995 and reinforced the Bretton Woods adjustment policies for developing countries. Limits on tariff levels and subsidies are now binding, permanent and continue to be reduced. Countries in breach can be taken to the WTO Dispute Settlement and face trade sanctions from other members.

Not surprisingly, these sweeping policy changes have ignited intense concern and debate within communities and amongst WTO member countries, especially those that see agriculture as more than a pure business venture. The preamble of the Agreement on Agriculture refers to the fact that these reform measures should have ‘regard to non-trade concerns, including food security and the need to protect the environment’. However, the umbrella term ‘non-trade concerns’ (NTCs) has become a catchall phrase within trade circles, meaning something different for everyone. The EU defines NTCs as multifunctional agriculture – the need to protect the environment, particularly the rural and cultural landscape, and to ensure the long-term viability of rural communities. Given the different cultural, socio-economic and political contexts, developing countries’ NTCs differ. NTCs for developing countries include food security, agriculture as the main source of employment and livelihood, as well as the need for a basic level of food self-sufficiency since this is usually synonymous with access to food. Food self-sufficiency is also the means to ensure the economic and political sovereignty of countries.

While each region or country in theory is entitled to look after its own needs, the problem at hand is that with international trade policies such as the Agreement on Agriculture, world trade is shrinking into one single market place, so that one country or region’s subsidies and policies can impact heavily on another country or region’s agricultural sector, sometimes even to the extent of completely destroying the agricultural production capability in certain products. Due to the subsidised exports (exports sold at below costs, also known as dumping) by OECD countries to developing countries over the last twenty years, the structure of many developing countries’ agricultural economy has changed, so that increasingly, countries that used to be net-food exporters are now becoming net-food importers.

Even when the WTO’s Agreement on Agriculture was being negotiated between 1987 and 1994, some governments were already anxious about the impact of agricultural trade liberalisation and its non-trade effects, hence the mention in the preamble of the AoA that the reform programme should give regard to non-trade concerns.

The other reference to non-trade concerns is in Article 20, which stipulates that WTO members will reconvene negotiations for continuing the liberalisation process. This process will take into account inter alia, ‘non trade concerns… and other objectives and concerns as mentioned in the preamble to this Agreement’.

Five years following the implementation of the Agreement on Agriculture, non-trade concerns continue to be a very contentious and highly politicised issue both in developed and developing countries. The farm lobby particularly in Europe is politically strong and has been exerting immense pressure on EU governments to ensure that the multifunctional uses of agriculture is not jeopardised in the name of free-market efficiency.

A group of ‘like-minded’ developing countries have also been fairly vocal at the WTO about the need to ensure continued food security and also a certain level of self-sufficiency. India, for example, has argued that the country does not have sufficient foreign exchange in order to procure its food needs from the global market. Furthermore, it has argued that agriculture is the prime source of rural employment. If this sector is destroyed in the face of global competition and in the name of market efficiency, millions would be plunged into poverty and food insecurity due to lack of alternative sources employment for so many.

Developing country governments (with the exception of a few at the WTO that have special trade privileges with the EU) have shown deep suspicion of the term ‘multifunctionality’. As a developing country diplomat explained ‘We do not share the same concerns of preserving the rural and cultural landscape’. Furthermore, even though some countries supporting multifunctionality have brought in food security as an important aspect, there is a sense amongst developing country governments that food security concerns in the first and third world are of quite a different nature.

The other argument, which has been raised at WTO discussions, has come from the Cairns Group. Argentina (an active member of the Cairns Group, which advocates dismantling the high OECD subsidies and opening up agricultural markets) made the argument at an Analysis and Information Exchange (AIE) session of the WTO that

‘There are economic and environmental reasons to avoid ‘exporting’ our own ‘Non-trade concerns’ to our trading partners’.

Argentina argued that while some countries provide subsidies to address environmental concerns, the bulk of the several hundred billion in subsidies did not actually get into the pockets of farmers. Rather most of the subsidies were captured by input suppliers i.e. providers of fertilisers, herbicides, and pesticides, energy and irrigation. This means high intensity production and more environmental degradation.

The aim of this paper is to attempt to objectively evaluate if indeed, there is valid ground for the EU to push forward its multifunctionality agenda and subsidy programmes. Indeed, the concerns of especially small European farmers are very important. Ideally, countries that want to sustain a viable population of farmers should be free to do so, as well as those concerned about maintaining the rural environment and landscape, and a certain level of food security for strategic reasons.

The complication arises because the European Union’s Common Agricultural Policy (CAP) has already done much damage on developing countries’ agricultural sector. There are many examples whereby the dumping of cheap EU surplus has destroyed the livelihoods of farmers in the South, for example, the often quoted illustration are the beef farmers of West Africa in the 1980s.

Making the status quo even more problematic is that the WTO’s Agreement on Agriculture endorses such huge subsidies for those who had traditionally provided them (primarily European countries and the US), while prying open markets in the South, therefore endorsing and exacerbating unfair competition. How can developing countries survive open markets in the face of total subsidies amounting to $335 billion from the OECD countries a year?

The enormity of OECD subsidies is captured in UNCTAD’S observation, that the annual cost of support for agriculture in industrialised countries in 1996-98 was double the level of agricultural exports from developing countries during those three years.

Brussels provides European agricultural companies and farmers about 80-90 billion Euro annually in the form of services and direct payments. The result is that most EU products are being directly or indirectly subsidised. Indeed, subsidies account for over 40 per cent of total agricultural output. In fact, supports provided to some products which are of export interest to developing countries is several times the value of world trade in these items. In 1997, the OECD producer support to rice and meat was 4.11 and 6.18 times the value of world exports of these products.

The reality in the single world market today is that subsidies for one group is decimating and destroying the ‘non-trade concerns’ for another group. This should not be the case.

This study therefore attempts to take a closer look at the nature of non-trade concerns for both the EU as well as for developing countries. Is there a possibility of striking a balance within the AoA that could take into account the concerns on both sides, and still be beneficial and fair for all? Or does the AoA need to be changed substantially in order for both sides to protect their non-trade concerns?

Although agriculture has always been part of the General Agreement on Tariffs and Trade (GATT), agricultural trade operated outside of GATT rules. This was because both the US and the EU were fiercely protecting their markets. In the 1950s, a GATT Working Party found that the US had failed to remove import restrictions in dairy products and authorised retaliation. US responded by threatening to withdraw from the GATT. On that basis, US was granted a non-time-limited waiver on Article XI (this article prohibited quantitative restrictions on trade). Similarly, the EU blocked the adoption or refused to implement panel decisions that threatened its Common Agricultural Policy. This led to GATT’s lax enforcement of Article XI.

After World War II, the EU set up the CAP with the aim to become more self-sufficient in food production. Farmers were given subsidies in food production. The policy freedom in the GATT allowed the EU to develop its CAP policies based on tightly protecting the EU market. As a result of CAP subsidies, the EU was transformed from being a net food importer to a net food exporter by the 1970s. By this time, the CAP had already developed into ‘a complex web of price and sales guarantees, subsidies, and other support measures that largely insulated farmer’s incomes from market forces’. For most agricultural products, a minimum price was set to apply to all sales within the EU. Lower price imports were charged a variable import levy, which would bring the cost up to par with the Union price. In the face of guaranteed prices above world prices and no production controls, coupled with technological advances, EU surpluses expanded. There was no clear way about how to dispose of these surpluses. The EU resorted to paying exporters the difference between the high EU price and the world price. This enabled them to dump their excess food on the world market. By the 1980s, about 80 per cent of the EU budget was spent on agricultural programmes.

Experts Trebilcock and Howse (1999) concluded that

‘What is certainly true is that the CAP went from a programme that affected trade by keeping foreign producers out of the EU market to one that, at the same time, because of the massive surpluses being disposed of through the rebate scheme, made it increasingly difficult for foreign producers to sell their agricultural products in third-country markets’.

The central problem that remains today, is the disposal of these surpluses. By the late 1970s and early 1980s, the US and the EU were both increasing their supports in a ‘beggar-thy-neighbour’ subsidy war against each other in the attempt to capture third country markets (also largely markets in developing countries). It reached the point by the start of the Uruguay Round where clearly the costs were too high and were still increasing. It made sense for both the US and the EU to come to a truce about how to divide up third country markets between themselves, and at less cost for both parties.

The final Blair House Accord was therefore such a truce. It was an agreement between only the US and the EU, which was then presented for the wider GATT membership for agreement. While on paper, the final Agreement on Agriculture seems to be about liberalisation, there are countless loopholes, which seem to mandate liberalisation for developing countries but allow those countries, which have provided protection and subsidies before, (i.e. the OECD countries) to continue doing so.

Therefore while the EU today talks about multifunctionality and agriculture as not just a business concern, and the need to upkeep the viability of rural communities, it must be kept in perspective that the EU has been dumping its subsidised surpluses on to developing countries for over twenty years. In so doing, the EU has radically changed the structure of agricultural production in many developing countries, with devastating results (as will be illustrated later). From being previously fairly self-sufficient, in recent years, many developing countries’ domestic producers have not been able to compete with the subsidised imports. As a result, domestic production of traditional crops has collapsed. Some developing countries which used to be net-food exporters are now net-food importers.

By creating the rather unfair rules of the present AoA, both the US and the EU have provided themselves with an international policy environment, which guarantees agricultural markets for their products in developing countries. Countries that do not open up according to the rules will find themselves facing trade sanctions. At the same time, that same set of policies legitimises the huge subsidies these OECD countries provide, as well as the high tariff barriers that are also in place.

Agriculture is not just another sector of the economy for developing countries. The crucial role it plays in the majority of developing countries is that it continues to be the main source of employment and livelihood for most of the population. According to Amartya Sen, access to food depends on people’s access to entitlements – either land or inputs for food production, or employment and income that can be used to purchase food. For countries, which are largely agrarian, and with many surviving under or just around the ‘poverty line’, employment and income is scarce and the most accessible means to food is through production.

In India’s submission to the WTO ‘Food Security – An Important Non-trade Concern’, India makes the case for a minimum level of self-sufficiency due to macro-economic reasons. Importing food to meet local needs is not viable when many countries have foreign exchange constraints. Governments should therefore be given the freedom to support farmers in their food production. Furthermore, ‘agricultural self-reliance forms a vital underpinning for the growth of the GDP of agrarian developing economies since good agricultural production provides purchasing power to a large majority of a population, which in turn spurts industrial growth. Self-sufficiency in food production has therefore a specific developmental perspective as opposed to a purely commercial perspective’. The paper concludes that ‘it is our view that developing countries need to be provided the requisite flexibility within the AoA to pursue their legitimate non-trade concerns’.

In a similar vein, the FAO makes the observation that for a many developing countries, the agricultural sector remains largely underdeveloped in production both for domestic market and for exports. At the same time, in most of these countries, agriculture lies at the center of their economies. It

FAO concludes that for developing countries, ‘significant progress in promoting economic growth, reducing poverty and enhancing food security cannot be achieved in most of these countries without developing more fully the potential capacity of the agricultural sector and its contribution to overall economic development’ (our emphasis).

Agricultural production in developing countries is therefore important in ensuring people’s access to food, livelihoods and employment, as well as improving the larger economy in a country.

It is important to note that are vast differences between the agricultural sector of developed and developing countries. It is not the case that environmental issues and the EU’s rural landscape concerns are not shared by developing countries. Rather, they are of less priority as more immediate, basic needs issues top the agenda. The urgency for developing countries is due to the place of agriculture in developing countries’ economies, as highlighted above, as well as the socio-economic position of most developing countries. These differences are highlighted below:

The agricultural sectors of the rich industralised countries are well endowed. There is access to information, good infrastructure, access to local and foreign markets, as well as the availability of technology.

The situation is very different for many developing countries, especially the lower income countries, where farmers work with little capital, resources or technology. Many do not even have the infrastructure -- for example, the roads and transportation providing access to markets -- that is taken for granted in the developed world.

The subsidies given to producers in the OECD countries have been increasing, from US$247 billion a year in 1986-88, to US$274 billion in 1998. The protection and support given to the farmers throughout the years have enabled them to make significant technological and economic gains.

In contrast, the farmers of developing countries have traditionally been taxed rather than subsidised. Agriculture has been treated as just another facet of the economy from which taxes are collected.

Importantly, the average per capita income for farmers in developing countries is only a drop in the ocean of the income and the subsidies received by developed country farmers. For example, in the main maize-producing areas of Mindanao in the Philippines, average per capita income for farmers is about US$300 a year.

Due to the low level of resources, developing countries’ farmers have far less flexibility in shifting to other crops. With tariff levels coming down and cheap imports of major agricultural products flooding the local markets, many farmers in developing countries have been advised to shift towards high value cash crops or luxury products such as asparagus, cut flowers etc. Unfortunately, many such projects have failed as these crops generally require large financial outlays and technological know-how, which they have little access to.

The other stark difference between developed and developing countries is the numbers involved in agriculture. While developed countries have at most 5 -10% of their population involved in farming, agriculture on the other hand is the source of employment for up to 50- 90% of many developing countries, including those countries that are net-food importers. The majority of these are small farmers produce for subsistence. Farming is therefore their source of livelihood. Alternative sources of employment would be difficult to attain. Moving towards food imports for food security would mean the importation of massive unemployment.

Food shortages are unheard of in the developed world. However, this is the reality for over one-fifth of developing countries. 21 countries experienced shortfalls in food in the marketing year 1997/98 and required exceptional and/or emergency food assistance.

The percentages of the undernourished are also staggering, at about 40% in LDCs (48 out of 95 developing countries are LDCs). According to the FAO, this figure has been unchanged since the 1970s. For the 18 NFIDCs, the numbers of undernourished make up 28% of their population. That is, for two-thirds of the developing world, food insecurity is a reality for over a third of the population.

In almost half of developing countries, the trend today is one of widening trade deficits, with falling or stagnant growth rates. Where trade balances have improved, there has generally been a slowdown in economic growth and imports. UNCTAD notes that only a very small number of countries, notably China and Chile have been able to buck this trend by combining faster growth with improved trade performance. For lower income developing countries (particularly LDCs and NFIDCs), balance of payments deficits have increased i.e. become more negative.

The reasons for this trend are complex, but one of the key factors has been the falling terms of trade for developing countries. For non-oil developing countries, the decline in the terms of trade has been steady, at about 1.5 per cent per annum since the early 1980s.

Faced with a situation where their exports are not enough to pay for imports, and where more and more exports are needed to pay for a fixed amount of imports, the majority of developing countries end up borrowing increasing amounts of hard currency in order to buy food from the world market for their peoples. This situation is not only politically and economically unsustainable, but also puts peoples’ access to food in developing countries in a very precarious situation.

Due to the very different circumstances of people and the economy in developing countries, the problems that arise from agricultural liberalisation for developing countries are more immediate and pressing. The very basic needs of people – such as access to food - is dependent, often solely dependent, on the viability of the sector.

Agricultural liberalisation policies mandated by the Bretton Woods for developing countries were reinforced by the Agreement on Agriculture in terms of reducing subsidies, lowering tariffs and the elimination of other types of market access barriers.

The results of implementing the AoA have been varied, but in general, the impact has not been positive, particularly when NTC issues are taken into account. In a study of 14 country case studies, the FAO makes the following conclusions:

Therefore, the evidence emerging so far is that developing countries on the whole are not benefiting economically from agricultural liberalisation. In fact, the balance of payments situation has worsened. From a socio-economic perspective, the levels of food insecurity, unemployment and poverty have deteriorated.

The case studies below illustrate this point:

The EU’s 1992 CAP reforms as well as the latest Agenda 2000 have not benefited developing countries. In fact, the reforms to the CAP which were made in order to comply with the Agreement on Agriculture have led to an even more protected EU market, as well as to higher levels of subsidies.

According to an ESCAP study, the EU final tariff bindings for the year 2000 are almost two-thirds or 60 per cent above the actual tariff equivalent for 1989-93. For some products, tariffs are in the range of 250 per cent to 390 per cent.

Similarly, as mentioned above before, subsidy levels too have increased, rather than decreased. The Producer Support Estimate, the OECD measure of agricultural supports to producers show that support levels have increased by 28 per cent in 1998, as compared to the base 1986-88 period, from 90 billion ECU to 116 billion ECU. Supports in terms of percentage of production have remained more or less constant, at 46 per cent of production in 1986-88, it was 45 per cent in 1998.

The CAP and AoA reforms have also not lowered export subsidies in the EU, as illustrated in the chapter above. The EU is the largest provider of these subsidies, accounting for 84 per cent of the $7.6 billion used by all exporters.

What are the main effects of the CAP on developing countries’ agricultural sector? The chain effect can be summed as follows:

• EU subsidies lead to over-production that is dumped on the world market.
• Over-supply in the world market depresses world prices.
• With lowered tariffs in developing countries (as a result of the AoA or Bretton Woods conditionalities), EU subsidised imports enter developing countries’ markets.
• Farmers in these countries cannot compete and go out of business.
• Local agricultural production is destroyed, sometimes even completely. Importation of ‘cheap’ subsidised food replaces local food production.

A representative of the UK government, commenting on this process has noted that ‘Over-production in Europe has resulted in under-production in the rest of the world, particularly in developing countries’.

As a result of opening up developing countries markets to such unfair competition, the FAO has in fact estimated that by the year 2000, developing countries will be importing $225 billion worth of food. This is a 62 per cent increase over their import bill in 1988. African countries will be most negatively affected especially as food aid is declining.

Examples of the destructive effect of the CAP on developing countries can be seen in the case studies below:

From the above studies, it is clear that agricultural liberalisation, either as mandated by the Bretton Woods or the WTO, has opened developing countries’ economies and peoples to being very vulnerable to the dumping and unfair competition from the OECD countries, and specifically from the effects of the CAP.

The case studies illustrated the impact of EU dumping on developing countries. Ironically, it seems that EU dumping is destroying in developing countries, the very non-trade concerns that the EU is attempting to protect within the Union. Even the basic needs of people in developing countries are put in jeopardy.

The ‘multifunctional character’ of agriculture which is being destroyed in developing countries are precisely those which the EU had listed in an EU paper submitted to the WTO in September 1999, (AIE/73), entitled ‘Safeguarding the Multifunctional Role of EU Agriculture’. Agriculture’s multiple functions were:

1. producing food, feed and fibre (including industrial use of agricultural products;
2. preserving the rural environment and landscape
3. contributing to the viability of rural areas and a balanced territorial development.

For developing countries, the impact of the CAP has been negative in all of the above areas. In addition, other detrimental impacts include:

1. rendering a large number unemployed, with no alternative sources of employment or income
2. exacerbating food insecurity and people’s inability to access food
3. adding to countries’ macro-economic difficulties – in terms of increasing the trade deficit and foreign exchange constraints
4. diminishing the sovereignty of developing countries by making them much more vulnerable politically and economically to the countries on which they are dependent for food.

Is there a possibility of striking a balance within the AoA that could take into account the concerns on both the EU and developing countries, and still be beneficial and fair for all? Or does the AoA need to be changed substantially in order for both sides to protect their non-trade concerns?

This section will critique the EU’s decoupled green box and blue box payments in the light of how it is distorting trade and therefore affecting developing countries’ agriculture. This will be followed by a brief evaluation of whether the EU has, with its huge subsidies in recent years, been successful in meeting its multifunctional aims of agriculture.

Not only are EU’s export subsidies problematic for developing countries, as shown in the above chapter, even the subsidies which are supposedly ‘non-trade’ distorting or which have production limits do in fact affect production levels and pose problems for developing countries.

A breakdown in the types of supports provided by the EU is shown below:

As can be seen in the table above, the EU’s green box payments since the implementation of the AoA have more than doubled from the base period, illustrating that supports have been reinstrumented to this category. Decoupled payments fall under the Green Box category.

The reason why no limits have been set for Green Box payments (Annex 2) in the AoA is that according to conventional theory, it is possible to disengage farm production decisions from support. However, in practice, analysts have commented that it is quite difficult to break the links between income support and marginal costs and returns, which influence production. Significant amounts of decoupled payments are likely to be invested in the farm. These payments would therefore increase farm input use and allow access to improved technology, which in turn would increase production. Therefore, even with care taken to reduce the distortions arising from decoupled supports, these can be significant.

Furthermore, most efforts to decouple support actually fall short of full decoupling. Research on decoupled payments in the US and Canada have found that the wealth and insurance effects of many support programmes increase input levels even for supposedly decoupled programmes. Also, even when payments are made for ‘environmental goods’ along with food production, this can lead to substantial market distortions if they are paid on a large enough scale since ‘environment goods’ can be joint products of farm production. Therefore, payments based on ‘environment goods’ could affect production directly.

The OECD points out that despite being decoupled, green box payments in sufficiently large amounts do affect production levels because

1. they have an impact on the income and wealth of farmers, providing the means to invest more into production
2. they reduce producer perception of risks associated with future production
3. farmers will expect similar government responses in future periods of low prices
4. the 'top-ups' will create a 'long run incentive' to put resources into agricultural production.

The fact that EU Green Box payments are increasing is therefore a cause of concern for developing countries. While indeed, some forms of green box payments may be fully justified – for example in terms of food stamps to help the poor purchase food – there are many green box programmes which may in fact have the effect of subsidising production which is then exported.

While the blue box production limiting programmes may seem to be less trade distorting than market price supports, the present EU programmes, however, still have several significant loopholes.

For example, the proportions of set-aside have not been specified in the Agreement on Agriculture, and as illustrated in an earlier chapter, the percentage applied may be too low to effect any real reductions. Also, farmers are free to set-aside their poorest land, thus minimizing effects on production. Furthermore, payments are made for land set-aside based on regional areas. These regional area bases have been exceeded in several instances and the penalties in the legislation have not been fully applied.

The likely scenario is that EU farmers will use the support provided to increase production on the land not set-aside. It is therefore not surprising that yields are rapidly increasing, even despite expanding the set-aside percentage in the EU from 5 per cent to 10 per cent.

Europe is losing some 200,000 family farms a year. Since the CAP reforms of 1992, some 600,000 livestock farms have been shut down. In some parts of Europe, there are no longer any farming activity. Production is being concentrated in better-located areas. Agenda 2000 is projected to speed up the liberalisation process and the loss of farm jobs.

From an environmental prospective, the situation has also deteriorated. The industrialization of European agriculture, and intensive cultivation and livestock practices have resulted in detrimental effects on the environment, including the pollution of waterways, soil erosion and the destruction of landscapes. For example, 80 per cent of rivers in Breton, France, are polluted because of the excess waste from the industrial pig and chicken farms. The quality of food produced has also declined with the increasing use of additives and hormones in animals and foodstuffs.

Indeed, current EU programmes and subsidies seem to frustrate rather than the meet the multifunctional aims of EU’s agriculture. Analysts Trebilcock and Howse observe that

1)The gains to farmers in the EU from subsidies have been large. However, since they have mostly been provided in proportion to amount produced (market price support), or in accordance to land set-aside, it invariably results in the biggest farms, also the ‘industrial’ farms, rather than the small family farms which reap the lion’s share of subsidies.

2) Huge subsidies have also led to over-production. Agricultural protection does not appear to have prevented environmental and aesthetic degradation in rural areas. In fact, over-farming, intensive use of fertilisers and chemicals has contributed significantly to the degradation of the environment.

The prime reason why the EU spends so much and still does not achieve its environmental aims, as well as those of preserving the family farms, is that its supports primarily benefit the EU’s industrial farms and agribusinesses.

Where do we go in terms of meeting the non-trade concerns of the EU and of developing countries? Is it possible within the present structure of the Agreement on Agriculture? If not, how can the structure of the multilateral trading system / the WTO, as well as the AoA be changed so that both the EU and developing countries’ non-trade concerns can be achieved and their farmers comfortably co-exist.

From what we have explored above, it is clear that there is a direct contradiction between the current EU’s programmes and the non-trade concerns of developing countries. However, it is also the case that while the EU funds environmental programmes that might meet some of EU’s multifunctional concerns, the bulk of the EU’s CAP programmes and subsidies in fact go towards supporting industrial farming systems which are causing more environmental damage.

The most recent round of discussions and papers leading up to the agricultural negotiations that are commencing in 2001 took place during the Committee on Agriculture’s Special Session in June 2000. There were several significant developments both from the EU and from developing countries that are worth highlighting.

The EU submitted three papers. The first is entitled ‘The Blue Box and Other Support Measures to Agriculture’ whereby the EU argues that the Blue Box programmes are less trade distorting. The EU asserts that according to the findings of the OECD Policy Evaluation Matrix, supports given to producers in one country spills over to other countries through trade and world prices. However, the findings apparently show that spillovers vary significantly. The most trade distorting were price supports, and ‘there were substantially less spillover effects from area payments (blue box programmes) than from any other form of support studied’.

The other two papers by the EC, on ‘Food Quality – Improvement of Market Access Opportunities’ and ‘Animal Welfare and Trade in Agriculture’ have to do with market access issues. The EC basically argues that its protection of animal welfare and its quality of food should be recognized on the market since they carry consumer recognition and therefore economic value. Appropriate labeling should therefore be allowed. The prevention of this would be tantamount to a trade barrier.

In the animal welfare paper, however, the EC proposes the ‘development of multilateral agreements dealing with the protection of animal welfare. This approach would be facilitated by the achievement of greater legal clarity on the relationship between WTO rules and trade measures taken pursuant to provisions of multilateral animal welfare agreements’.

This point, if pushed further in the WTO, is likely to rouse tremendous concern and opposition by developing countries. While the EC insists that it is not suggesting this as a trade barrier, in practice it would amount to a huge barrier to the EC market for developing countries.

A group of eleven developing countries also put forward two papers. One of the Green Box and the other on Special and Differential Treatment. In these papers, they recommended structural changes to the Agreement on Agriculture which, if pushed through, will make the present AoA much more development friendly.

The Green Box paper recommends that all domestic support categories should be collapsed into one ‘General Subsidies’ box. A common level of supports should be allowed eg. 10 per cent of production for all countries. A set of criteria should be spelt out as to what should make up the programmes legal within this one box. According to the paper, the rationale for having only one box of subsidies is that the various categories in the AoA today have allowed the OECD countries to increase overall subsidies while decreasing subsidies on only certain types of programmes. The result is that dumping in developing countries continue even though subsidies fall under the legal non-trade distorting Green Box.

The Special and Differential Treatment paper recommended the inclusion of a Development Box to address developing countries’ rural employment and food security concerns. The aims of the Development box are to encourage developing countries to maintain or increase their present domestic production capability of foods consumed domestically, as well as to protect the livelihoods of small farmers.

The Development box should provide developing countries with flexibility of import controls, tariffs barriers and domestic supports for items which are already being produced in sufficient quantities or which countries would like produced in sufficient quantities locally.

Elements of the Development Box suggested in the paper included the following:

Firstly, rather than insisting on agricultural liberalization for all developing countries in all products, developing countries should be able to use a positive list approach to declare which agricultural products or sectors they would like disciplined under AoA provisions. That is, only the products which are declared by a developing country are subject to AoA commitments.

Secondly, developing countries should be allowed to re-evaluate and adjust their tariff levels. Where it has been established that cheap imports are destroying or threatening domestic producers, developing countries should be allowed to raise their tariff bindings on key products to protect food security. Furthermore, the OECD countries which continue to have very high tariff peaks and escalations should drastically reduce these tariff levels.

All developing countries should be allowed to invoke the Special Safeguard Clause, which to date has been used only by the developed countries. Developing countries should be allowed to raise their tariffs during times of low world prices. This Clause should not be used by developed countries.

The group also called for dumping in any form to be prohibited, and for competition policy in agriculture to be addressed in this review. ‘Developing countries must be given an easily accessible mechanism to protect themselves against the abuse of monopoly power and to seek compensation’.

The proposals by the developing countries represent quite a significant shift towards a much more development-friendly AoA, that would not put the crucial issues of food security and livelihoods at risk as a result of trade liberalization. However, this position contradicts with the EC position particularly on maintaining the blue box.

Leaving aside the issue of political feasibility for a moment, the way to reconcile both the EU and developing countries’ non-trade concerns may require a rethinking of the global food system for everyone.

The key to reconciling the non-trade concerns for the EU and for developing countries requires no less than rethinking and implementing an entirely different food system from the industrial-oriented system we have today, and also radically reforming the multilateral trading system and creating one that is much more development-friendly.

In the name of efficiency, the OECD governments and also governments in the South have aggressively pushed food production from small-holder farming systems, which are often more organic and more ecologically based, towards the industrial agricultural system. The fallacy being that industrial agriculture increases efficiency.

The greatest problem with that assumption is that efficiency is measured by capital output. The benefits of a small-holder, ecologically friendly farming system measures efficiency not only in terms of output, but also in terms of the social and environmental benefits.

Even in terms of output, the proponents of industrial agriculture have in recent years found that the miracle yields have not been sustained. For example, in the Philippines, yields in the areas that undertook the Green Revolution methods grew steadily in the 1970s and peaked in the early 1980s. However, they have been dropping ever since, due to long-term soil degradation. In India, years of using high-yield seeds that require heavy irrigation and chemical fertilizers have taken their toll on much of the farmland. At present, up to 6 per cent of agricultural land has been rendered useless. These same technologies are used in the EU with the same destructive results on the environment.

Rather than encouraging industrial agriculture, which is also export-oriented, the EU therefore should retarget its subsidies and programmes to protect and nurture small farms, and encourage the use of sustainable or ecological agricultural methods. In fact, the EU’s CAP already funds farmers for converting their lands to organic farming, or at least for farming with environmental improvements, with a view to reducing pesticide use and nutrient loss, and / or increase biodiversity. However, this only makes up a small portion of EU subsidies.

Changing the food production system from today’s intensive high input industrial system to an organic /sustainable / environmentally friendly agriculture will automatically resolve the many multifunctional issues around agriculture for the EU. It will solve EU’s concerns about preserving the rural environment and landscape, and even the concerns about food quality and animal welfare. Rural areas and rural communities will be revitalized. If planned well and given time for adjustment, food produced should be adequate for the EU’s needs. Organic agricultural methods in fact have been found to produce higher yields than industrial systems.

These recommendations do not mean that trade comes to an end. This would not be desirable or possible. However, behind this vision of a change in the global food system is that countries and regions should become much more self-reliant and self-sufficient in the production of their immediate needs, particularly in staples. Trade can and will continue, but preferably in the items which countries do not grow themselves, or for those countries which are absolutely unable to meet their own food needs (this should be a minority).

These are some recommendations to this end:

1. Supports to the big agribusinesses should be phased out. Instead supports should be retargeted towards the small family farms, especially when these farms convert to environmentally-friendly agricultural methods.

2. The subsidies to agriculture, which at the moment amount to about 45 per cent of EU production should be radically reduced to about 10 per cent if the EU chooses to continue exports. If, however, to meet certain multifunctional aims, such as sustaining the viability of rural communities or meeting the EU’s food needs, the EU has to increase subsidies over this level, it should not be allowed to export its surpluses in those sectors which have received the high supports.

3. All EU dumping must be stopped. With the retargeting of supports to the small farms, surpluses are likely to decrease. This should be accompanied by policies that restrain and phase out EU exports (particularly in the major food staples) over a certain time period.

4. The EU should support developing countries whose agricultural sectors have been damaged by EU dumping in the past 3-4 decades. Financial support in particular, should be provided to these countries to revive and revitalise their own food production capacity, as well as the conversion of industrial agricultural methods to organic and sustainable methods.

In order to institute this radical structural change in global food production, there must be support at the international policy level. The WTO has to radically change and become much more development friendly than it is at the moment. The proposals already put forward by the developing countries are a big step towards this direction. The following are extensions of the ideas already proposed:

Institutional reform issues have been on the WTO agenda since the Seattle Ministerial, which brought the world’s attention to the huge inequalities in the global trading system, and the large discrepancy in power between the industrial and developing countries at the WTO.

Amongst many institutional issues that need to be addressed, WTO members should rethink the WTO as a single undertaking. Before the formation of the WTO, the multilateral trading system was plurilateral in nature, whereby developing countries were free to be signatories of the various codes on an a la carte basis, in accordance to their needs and level of development. In contrast, the single undertaking nature of the WTO means that countries must sign up to all agreements or opt out of the system.

Unfortunately, the Special and Differential (S and D) clauses which should have been included in such a rigid structure were weak and in most cases, totally inadequate compared to the needs of many developing countries. The detrimental results of the single undertaking multilateral trading system, which puts liberalisation before development, is captured in UNCTAD’s latest Trade and Development Report. The Report states that ‘The predicted gains to developing countries from the Uruguay Round have proved to be exaggerated… Poverty and unemployment are again on the rise in developing countries… Leaving global economic integration to markets has not helped and that should hardly come as a surprise. Unbridled competition, particularly among unequals, has never, by itself, delievered faster growth and shared prosperity even in today’s developed countries, and it has at times been destructive’.

As civil society around the world, and governments rethink questions around rebalancing of power and equity in the multilateral trading system, it would be prudent to put this question of the single undertaking back on the agenda and seriously evaluate its benefits and drawbacks. An a la carte multilateral system for developing countries would be complex and even messy, but much more development friendly. Such as plurilateral system would

1. Give developing countries the sovereignty, autonomy and policy freedom that they need at this juncture to decide when and how to integrate into the world economy. This would also give developing countries’ industries adequate time to mature and become competitive before liberalisation;
2. Allow developing countries to opt out of agreements that are counter development, such as agriculture, TRIPS, TRIMS and various agreements in the GATT;
3. Avoid false Special and Differential Treatment (S and D) provisions which only serve to legitimate the first-world-biased liberalization agenda. S and D measures providing slightly lighter disciplines, longer transition periods, or even measures to offset the negative effects of liberalisation still mean that developing country economies must change structurally, as new areas are brought into the WTO. Opting out completely until an economy is ready is the best and perhaps even the only appropriate ‘S and D’ measure.

In agriculture, a plurilateral system would imply that developing countries are able to opt out of the AoA altogether if this best suits their circumstances, without having to opt out of the entire multilateral trading system. This would be very appropriate for countries in a variety of circumstances:

- Countries where the agricultural sector may have been very protected and are not able to withstand competition

- Countries that are largely agrarian and want to ensure that the livelihoods of their people in agriculture are not threatened by the vagaries of the market

- Countries that want their agricultural production capacity maintained and even increased

- Countries that would get into deeper deficit and balance of payments contrainsts if they were to import their food, including their staples.

The structure of WTO agreements today (apart from services) is that, unless specified, all products must follow the disciplines and rules in the relevant agreements. In the AoA, all agricultural items must abide by the rules. Tariff levels for example, can be set differently for the various products. However, the general rule is that tariff reductions must be complied with for all products.

In order to ensure that developing countries are able to protect their domestic food production, they should be allowed to list the items which they want liberalised. All other products which are not listed will not have to abide by the AoA disciplines. This will be suitable when countries that have products which are not ready to withstand competition from imports.

Putting agriculture, for example, on a positive list approach, allows developing countries to have the freedom to both protect their agricultural sector, particularly in staples, as well as participate in the multilateral trading system in sectors where they are competitive.

Is this new vision politically feasible? It is neither appropriate to be overly pessimistic or optimistic. However, these are some objective observations:

We, as a global community are today at a historical moment. Never before has so much attention been put on the multilateral trading system and its defects. If public attention on this highly problematic and unequal system continues, and this is likely, it would be very difficult for the WTO to continue its iniquitous agenda without meeting with increasing opposition from civil society globally.

Developing countries’ economies as a whole are in worse shape now than in the 1970s. This is evident from economic indicators. According to UNCTAD, the average growth rates (excluding China) have been lower by 2 per cent per annum as compared to the 1970s, and the trade deficit in the 1990s is higher than in the 1970s by almost 3 percentage points. The terms of trade for developing countries as a whole have fallen by more than 5 per cent per annum during the 1980s. For example, the prices of manufactures exported by developing countries fell relative to those exported by the EU by 2.2 per cent per annum from 1979 to 1994.

Despite good global agricultural performance with respect to yields in the last two decades, where food availability per person has increased by 11 per cent, the number of hungry people in the world (eliminating China from the analysis) have actually also increased by more than 11 per cent, from 536 million to 597 million, between 1970 and the early 1990s. In South America, where per capita food supplies rose by almost 8 per cent, the number of hungry people went up by 19 per cent. In South Asia, there was 9 per cent more food per person by 1990, but there were also 9 per cent more people who were hungry. Many analysts agree that today’s food insecurity is not a matter of agricultural limits, but a problem of masses of people not having access to food or the means to produce it.

Developing country governments now, more than before, are under little or no pretenses that the multilateral trading system has not benefited them. The Uruguay Round commitments have undone the economic advances made previoulsy, as evidence by UNCTAD. Many developing country governments today are therefore more prepared to challenge the multilateral system than they were at the time of the Uruguay Round.

Given these facts, it is possible that with commitment by civil society in the North and South, and in partnership with Southern governments, changes can be made incrementally towards a more development-friendly multilateral trading system and towards more humanly and environmentally sustainable agricultural production systems.