U.S., Europe Still Deadlocked Over Farm Subsidies

Europe criticizes American food aid as thinly disguised farm subsidy. Mike Wilson

Published on: Dec 14, 2005

Hong Kong - Activists who came by the thousands to Hong Kong this week to protest globalization at the World Trade Organization meetings can rest easy. At least for now, world trade talks remain deadlocked over market access and farm subsidies among the world's richest countries. And there's little reason to believe anything will change before the meetings conclude Dec. 18.

The WTO had originally planned to make Hong Kong, a city known for its free trade history, a cornerstone in an ambitious agenda to reduce trade barriers among the 149 member countries. This round of talks is called the Doha Development round, named in part for a stated mission to help lift developing countries out of poverty by lowering trade barriers world wide. But those hopes were dashed weeks ago when it became clear the United States and the EU were not even close to an agreement on reducing tariffs and farm subsidies. The EU has refused to offer more than an average 39% cut in tariff barriers, and that has been blamed by many farm goods exporters, most notably Brazil and the United States, for a stalemate in these talks. 

With no real chance to make headway in agriculture, EU leaders focused instead on the U.S. for its food aid practices to poor countries. Europe specifically criticized Washington for its policy of buying grain from American farmers and giving it away to poor countries. "The large structure of U.S. in-kind food aid is designed, in reality, to give support to U.S. agricultural producers," claimed European Union Trade Commissioner Peter Mandelson. "It distorts trade and depresses local production."

In response, the United Nations placed a newspaper advertisement that says restrictions on food donations to the U.N., including those from the United States, would leave children hungry. Mandelson says it was "shocking" that the U.N. would support the U.S. policy. U.S. Trade Representative Rob Portman also reacted. “I sense there is an obsession in the EU about how do we stop food aid. It’s a bit misplaced,” he says.

The Americans, meanwhile, have tried to keep attention focused on what they consider the real issue: lowering tariffs so poor countries could gain market access.

“We’ve got to have a breakthrough in market access here,” Portman says. “It’s not about the EU market but the global market. It’s not just for our economy – the analysis shows the U.S. may or may not benefit. The World Bank says 93% of any gains in trade will come from market access. Market access… should be something we all want."

The EU has also tried, with some success, to keep pressure on the U.S. for its cotton export subsidies. The WTO has already ruled the program must be discontinued because it distorts world prices for cotton.

There's also talk here that the developed countries might sign off on an agreement that would allow the poorest countries to have quota-free, duty-free trade with some exceptions for certain products.

U.S. political leaders back home hope those things won't become the focus of the talks.

"I understand that those issues are important to some WTO members, and the United States is willing to negotiate on those issues as part of a comprehensive package," says U.S. Sen.Chuck Grassley, R-Iowa. "But in the end, the least developed countries, other developing countries, and developed countries will all benefit from the lowering of tariffs on all agricultural products. We need to keep the focus on market access for agriculture."

The Doha Development round was launched shortly after the terrorist attacks of 9/11 in a well-intended attempt to answer critics who says WTO was nothing more than a rich countries' fraternity. In fact these talks are called the Doha Development Round because they are set to explicitly focus on the needs of developing countries. Any agreement on agriculture is to focus on three pillars: market access, domestic support (subsidies and other programs including those that raise or guarantee farm gate prices and incomes); and export subsidies.

Unfortunately talks in Cancun two years ago broke down. Then this fall the U.S. put together a dramatic proposal that would reduce some domestic subsidies in exchange for better market access by the Europeans. Mandelson and the EU insist their proposal already makes necessary cuts in protectionist policies.