Tuesday, July 18, 2017
When it comes to agriculture and trade, few parties have been as intransigent in liberalizing trade in agriculture as the EU and the United States. Both parties, heavily dependent on agricultural subsidies to keep their agricultural sectors afloat, have stymied efforts by developing countries to level the playing field with respect to agricultural exports, an area in which developing countries would have a comparative advantage.
The WTO Agreement on Agriculture, part of the original 1995 WTO framework, was ostensibly a carrot to encourage the Global South countries to sign on to the WTO’s expanded framework, which included sticks such as TRIPs, which particularly impacted developing countries and their intellectual property sectors. In fact, the Agreement on Agriculture was so full of loopholes that it lacked any real teeth. The US and the EU Member States have continued to subsidize domestic agriculture and trade liberalization in that sector has remained elusive.
With the agreement of the Trade Facilitation Agreement in 2013, India used this first multilateral agreement since the establishment of the WTO in 1995 as a bargaining chip by vetoing it in 2014 until India received guarantees that stockholding for food security purposes would be exempted from the Agreement on Agriculture.
Food security is an area of growing concern. With climate change putting additional pressure on already strained agricultural lands, particularly in densely populated areas, many countries are one or two natural disasters away from famine. Stockpiling food allows countries to build a reserve to address such possibilities and to protect their populations from devastating crises.
In light of the Global North-Global South divide on matters of agriculture, it is, therefore, perhaps surprising that the EU and Brazil just announced a joint proposal to address food security by limiting farm subsidies. The proposal addresses the needs of developing countries, exempting least developed countries from any subsidy limits. The proposal is co-sponsored by Colombia, Peru and Uruguay.
Where does this newfound commitment to reducing subsidies on the part of the EU come from? Some of it is no doubt a result of Brexit. The Common Agricultural Policy (CAP), the EU’s agricultural subsidy program, is the costliest EU policy, representing 40% of the EU’s budget. With Brexit to leave a £10 billion shortfall in the budget, the EU may have now reached a point where maintaining CAP at its previous levels is simply untenable.
Some of it may be recognition by the EU that for any further trade liberalization to occur on a multilateral basis, the elephant in the room that is agriculture can no longer be ignored, although pragmatism seems a more likely answer. Whatever the reason, there will be no reductions to agricultural subsidies in the EU without a big fight from Member States.