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Cairns Group presents paper on ‘total trade-distorting support’

16 May 2014

According to a report published by the International Centre for Trade and Sustainable Development (ICTSD), an informal paper by the Cairns Group has found that “trade-distorting agricultural subsidies in developed countries are four times those of poorer countries, as a share of the value of production.” The paper looks at trends in 10 major farm trading countries, against the background of evolving WTO rules and debates.

According to the Cairns Group analysis, in terms of “amber box” spending, “farm support in the EU and US has declined dramatically.” “EU support fell from US$35.3 billion to US$8.5 billion from 2001 to 2010, while in the US payments fell from US$14.5 billion to US$4.7 billion from 2001 to 2011.” In the EU, this is attributed to the shift from price support to income support measures.

The analysis notes that, at the same time, both the EU and US have “greatly expanded their reliance on green box payments, which are exempt from any ceiling under WTO rules”, since nominally these are minimally trade-distorting. However, trade concerns arise with regard to the use of some “green box” instruments – for example, investment aids and decoupled income support payments, which are seen as having “a more significant impact on trade and production” than other forms of green box support, such as food stamps for poor consumers.

Overall, the paper suggested that total trade-distorting support (TTDS) in the EU had fallen from US$36.1 billion in 2001 to US$10.3 billion in 2010.

India and China objected to the use of the broader “TTDS” measure used in the Cairns Group paper, since it includes “investment subsidies to resource-poor, low-income producers”, which developing countries are allowed to use under WTO rules. This needs to be seen in a context where the Cairns Group paper highlighted an increase in TTDS in China “from US$320 million in 2001 to US$13.9 billion in 2008 and in India from US$8.2 billion in 2001 to US$37.6 billion in 2008”.

The ICTSD analysis notes that “while there is no precedent at the WTO for using TTDS to measure support, a draft deal negotiated under the Doha Round would have included cuts to overall trade distorting support – in other words, the sum of trade-distorting amber box, blue box, and de minimis payments.” It further notes that an earlier draft deal would have “provided for separate cuts to each of these categories, and new limits on product-specific payments”.

According to ICTSD, some trade sources consider the Cairns Group analysis “to be potentially relevant to the current efforts at preparing a Doha Round work programme”, since “substantial reductions in trade-distorting support were among the issues members had agreed to address” back in November 2001 when the Doha Round was launched.

Editorial comment

Getting to grips with the trade implications of changing patterns of domestic agricultural support can be seen as an important aspect of making the ongoing Doha Round negotiations more relevant. This is particularly the case, given that concerns related to the trade consequences of changing patterns of EU agricultural support have regularly emerged in ongoing EPA negotiations.

However, getting to grips with this issue is by no means straightforward. For example, the EU, while expanding its membership, has contained the expansion of its agricultural expenditures, but has at the same time moved to forms of assistance that much more effectively support farmers.

The actual impact of CAP payments on the production decisions of EU farmers, and the consequent trade outcomes, however, vary greatly from sector to sector. For arable crops, grown on mixed farms, planting decisions increasingly reflect relative market prices. Thus, direct aid payments have little direct impact on levels of sugar beet production, with relative prices having a far greater bearing.

Similarly, in the poultry sector, the EU trade regime has a far greater impact on EU production levels than budgeted CAP expenditures do. And it is changing patterns of meat consumption in the EU that largely drive the expansion of EU exports of poultry parts to African markets, rather than the use of specific agricultural support measures.

In this context, it is the impact of the totality of EU policy instruments on specific product trade flows to particular ACP markets that represents the more immediate short-term concern for ACP countries.

Analysis of the production and trade consequences of policy developments in the EU since 2001 could, however, provide some insights into issues that are likely to arise as major advanced developing counties such as China make a similar transition from price support measures to direct aid payments to farmers.


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