Outside view: faulty frame, savage reality.

• Author: Sharma, Devinder
• Position: Economics Reconsidered

US Trade Representative Robert Zoellick and Pascal Lamy, the European Union's outgoing trade commissioner, have successfully managed to hoodwink developing country negotiators with the August 2004 World Trade Organization's (WTO) multilateral framework agreement. They have gone back more than satisfied with the empty promise of reducing contentious agricultural subsidies, but in reality have received a legal stamp of approval from developing countries that allows them to increase grants.

Let us first understand the political ramifications. Agricultural subsidies have been (and will remain) the bone of contention in the ongoing trade negotiations. Disputes over the West's agricultural subsidies, which amounted to $320 billion, led to the collapse of the WTO Cancun Ministerial in September 2003. The question is what made them change their stand during a US election year?

It is accepted that any move to significantly cut agricultural subsidies will be political suicide for rich countries. US President George W. Bush is unlikely to cut subsidies for his farmers during an election. European nations, especially France, Germany, and the Nordic countries, would have been faced with political turmoil if they made any drastic cut in subsidies. No political reaction in any developed country is enough of an indication rich countries have managed to protect their subsidies.

Paragraph 7 of the Framework for Establishing Modalities in Agriculture (July 31, 2004 final draft) says: "As the first installment of the overall cut, in the first year and throughout the implementation period, the sum of all trade-distorting support will not exceed 80% of the sum of Final Bound Total AMS (Aggregate Measurement of Support) plus permitted de minimis plus the Blue Box at the level determined in paragraph 15." And in paragraph 15, it adds: "In cases where a Member has placed an exceptionally large percentage of its trade-distorting support in the Blue Box, some flexibility will be provided on a basis to be agreed to ensure that such a member is not called upon to make a wholly disproportionate cut." Reading this together means all efforts made by developing countries to see the trade-distorting Blue Box is removed have been nullified. This allows developed countries to shift a large chunk of their agricultural subsidies (under the Green Box and Amber Box) to the Blue Box. In other words, the advantage developing countries gained with the termination of the Peace Clause on December 31, 2003 (under which the developing countries could not challenge agricultural subsidies in the rich countries) has been negated.

The framework actually provides a cushion to the United States and the EU to raise farm subsidies from the existing level. If you read the draft...