Contribution by Jacques Berthelot (Solidarité, OWINFS), March 5, 2013
Thursday 7 March 2013, by Carlos San Juan
I – The US is by far the largest provider of domestic food aid
II – The present provision that "the difference between the acquisition price and the external
reference price is accounted for in the AMS" is highly questionable
III – The issue of the "eligible production" benefitting from the administered price
IV – Comparing the administered prices with the fixed reference prices of 1986-88 is absurd
and totally unfair 4.1 – This comparison is absurd in a pure economic logic
4.2 – The US has deceived all WTO Members in notifying no MPS for grains in 1986-88
4.3 – Comparing the administered prices with the fixed reference prices of 1986-88 is totally
unfair as the low prices of 1986-88 were the result of the US and EU tremendous dumping
Annex: the US did not notify any MPS AMS for cotton, sorghum and barley in 1986-88
The $47.7 billion of US domestic food aid in US cereals products (including in animal products) to 47.7 million poor citizens is to be compared with the Indian $12.9 billion used to deliver 27.7 Mt of cereals food aid to about 500 million poor citizens in 2009-10.
Because the bulk of the US cereals food aid, coming from US cereals, is directly bought in agreed grocery stores without passing through a public procurement channel as in India, what is the logic that the WTO rules demand only to India and not to the US that "the difference between the acquisition price" and "the external reference price of 1986-88" be "accounted for in the AMS"? Indeed the US reference prices of 1986-88 were so low that the present US domestic prices of wheat (and rice) are much higher than those prices.
If the AoA rule would not be changed so that the gap between the minimum support price (MPS) and the reference price times the procured quantity should be counted in the AMS, the present rule would have permitted to maintain the Indian additional wheat AMS below the de minimis level from 2007-08 to 2010-11 but likely not in 2011-12 and 2012-13.
The eligible production to assess the market price support (MPS) component of the AMS linked to the administered prices (minimum support prices in India) should be the procured production and not the total production. However when a WTO Member has notified in its Schedule of commitments to the WTO that its eligible production was total production as the US did in 1993 for milk, it cannot notify afterwards only the share of the milk included in butter, non-fat dried milk and Cheddar cheese as the US has done since 2008.
Comparing the administered prices with the fixed reference prices of 1986-88 is absurd in a pure economic logic. Because administered prices by themselves cannot maintain high domestic prices without the intervention of most determinant factors: import protection, exports restrictions or subsidies, production quotas, land set-aside, phytosanitary rules, etc.
Above all the WTO Members should understand that the allegedly market-price support (MPS) represented by the gap between the present administered price and the fixed reference price of the 1986-88 period is a fake market price support which does not imply any subsidy. Therefore notifying these fake MPS has only blurred the Doha Round negotiations and misled WTO Members. The more surprising is that these AMS supports continue to be presented as the most trade-distorting ones. What they are clearly distorting is the understanding of the WTO Members! At least several of the prominent agricultural trade economists have denounced it.
Thus in the 1995-00 base period for the Uruguay Round commitments, the EU subsidy component of its average annual AMS has represented only 10% of its €48.425 billion notified AMS, 90% being a fake market price support, which was also the case for 56.9% of the US AMS.
Although the AoA rules – and particularly those on the MPS linked to administered prices of Annex 3 paragraphs 8 and 9 – were essentially devised by the US and EU, the US did not apply this rule for grains – wheat, corn, cotton, sorghum, barley and oats – so that its under-notified AMS reached an average of $7.985 billion from 1986 to 1988. And, as the US notified a zero MPS for these grains in this base period for the implementation of the Uruguay Round commitments, it did not notify any grains MPS ever since !
If the EU did notify an average AMS MPS for cereals of €14.259 billion or $15.731 billion for 1986-88 over a total AMS of €79.299 billion in that period, it managed to eliminate most of that AMS through successive CAP reforms so that its last notified AMS for 2009-19 collapsed to €8.764 billion despite its enlargement to 27 Member states (against 12 in 1986-88). This was achieved owing to the sleight of hands of transferring in the blue box and then in the green box most of the fake MPS linked to administered prices. One evidence that most of the AMS was a fake MPS is that the average CAP budget for 1986-88 was of €25.292 billion (including green box subsidies) when the total AMS only (amber box) was notified at €79.299 billion.
The very low world wheat prices of the 1986-88 are essentially due to the US and EU massive dumping through several channels: explicit export subsidies, share of their domestic subsidies having benefited to wheat and flour exports, export credit guarantees and the high level of their foreign food aid. During that period the average cumulative US+EU dumping rate of wheat and flour was 93.2%, of which 86.1% for the US and 129.9% for the EU. And given that the average total US+EU quantity of wheat and flour exports accounted for 53.2% of global exports we can understand their huge responsibility in depressing the world prices of wheat and wheat flour in that base period.
In that context it is imperative that the provisions on Public stockholding for food security purposes proposed by the G-33, and already included in the Draft modalities of 6 December 2008, be taken up for a formal decision by the WTO ministerial conference (MC9) in December 2013 in Bali.
But the analysis developed here suggests strongly that the WTO developing countries Members, particularly of the G-33, should impose much more drastic changes in the WTO rules on agricultural supports of Articles 1 (on the definition of AMS), 6 and 7 and of the annexes 2, 3 and 4.