The Issue of Agricultural Subsidies in WTO Negotiations
In the early(till 1960s) years of WTO, most countries were not keen on
bringing in agriculture under the gamut of trade. That was because
most of the countries were keen on protecting their domestic trade. So
the countries were free to provide subsidies and domestic support to
their farmers, esp. because the US was keen on doing so.
CHANGE IN ATTITUDE
But in 1960s two things forced US and other countries to change their
attitude towards the inclusion of agriculture in GATT:
1. Large stocks of food that US had when brought to the market,
lowered the prices which infuriated US farmers.
2. Soviet Union had become a major importer of food, which created a
panic amongst US farmers. This was because they thought it would lead
to shortage of food, hence farmers raised barriers to protect
All this uncertainty led to countries renewing the multilateral
efforts to improve rules in agriculture, which ultimately led to a
group of food exporting countries (also called Cairns countries) to
demand the inclusion of agriculture in the WTO agenda, during the
Uruguay Round in 1986.
BONE(S) OF CONTENTION
North South divide
Agriculture is an important contributor in the GDP (25%) and
population employed (75%) in South as compared to North in which GDP
(1.5%) and population employed is 34%.
The role of agriculture in the economy of the so called South is
basically one of subsistence. It is seen that the number of people
dependant on agriculture is nearly 70% in South. Also agriculture is
huge contributor to these nations' GDP. So the nature of agriculture
is subsistence as far as South is concerned.
On the other hand, North is not dependant on agriculture for
employment. Also the share of agriculture in GDP is low. And the
nature of agriculture is export oriented in North.
Trade distorting subsidies
The OECD, a club of rich nations, reckons that the agricultural
subsidies of its members cost consumers and taxpayers of those
countries about $380 billion in 2003 alone. The European Union, the
United States and Japan were to blame for about 80% of those
A simple illustration would be the prices of sugar. In Europe the cost
of producing a tonne of sugar is £319, but the farmer is guaranteed
£415. The difference being paid to the farmer comes out of Europe's
In developing countries production costs are much lower at around £183
per tonne. In normal circumstances, it would be expected that sugar
from developing countries have a ready market in Europe. But in Europe
a 140% tariff is put on imports of sugar. And to make matters worse
for developing countries, the high guaranteed price of EU sugar leads
to overproduction in Europe. This excess...