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Why is the issue of agricultural subsidies such a contentious issue in WTO negotiations?

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Why is the issue of agricultural subsidies such a contentious issue in WTO negotiations? BACKGROUND 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 themselves. 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) ...read more.


And to make matters worse for developing countries, the high guaranteed price of EU sugar leads to overproduction in Europe. This excess production is then dumped (sold below cost) on the world market so that the world price is depressed to around �121 per tonne. Peace clause comes to end: Hundreds of billions of dollars of largesse that governments bestow upon their farmers could not be contested at the WTO. Until now the so-called "peace clause", agreed nine years ago, gave most agricultural subsidies immunity from the WTO's punishments and procedures for settling disputes. But the clause expired on December 31st. Now countries have started accusing each other on the issue of subsidies. For example EU has come under attack by various countries related to sundry goods. Countries that import food (many of them poor) benefit from the largesse of rich-world subsidies, but agricultural exporters suffer. They are no longer willing to suffer in silence. The 17 countries of the Cairns Group, which includes Australia, Brazil and Argentina, have campaigned long and hard against export subsidies. ...read more.


Domestic production serves as an insurance against these risks associated with imports. And high import tariffs are essential to ensure the survival of farmers. The Road Ahead If the EU,US and the developed world want to wrap up Doha round, they will have to respond to G-20's justified demands on agriculture. The EU and US argue that the developing countries need to reduce their tariffs that act as very strong non-trade barriers. But if we see the figures, the applied tariff rates for developing countries are quite low. Also developing countries face market access problems due to the subsidies given by the developed countries like Japan and EU. The countries cannot compete with the relatively low prices prevalent in these developed countries and thus lose out on some markets. Though the AoA agreed upon during the formation of WTO, required a 36% reduction in agricultural tariffs, the developed countries used already inflated rates as a base point for calculating reduction levels. The use of this technicality resulted in the actual decrease being much less than the stipulated figure. Given the disputes which can arise due to above mentioned differences in policies, agriculture is going to remain a contentious issue in foreseeable future. ...read more.

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