Exposed: EU, US paying $13 billion in illegal agricultural subsidies
The European Union and the United States are illegally subsidizing their production of corn, rice, sorghum, fruit juice,
canned fruit, tomatoes, dairy products, tobacco and wine, according to new research published today by international
agency Oxfam.
The EU and the US must do more to deliver a development deal ahead of a crucial WTO Ministerial meeting on December
13-18 otherwise they could end up facing a mountain of litigation, Oxfam says, because developing countries will be left
with no other options.
Of the 11 commodities studied, the US and the EU pay out total annual farm subsidies worth $9.3 billion and $4.2 billion
respectively which help to distort world trade. Oxfam found that 38 developing countries are suffering from unfair
competition as a result, including larger countries such as Mexico and Brazil as well as poor countries like Malawi and
Mozambique.
Oxfam consulted legal experts who concluded that the affected countries could bring multiple cases against the EU and
the US and win.
“The WTO cases that the EU lost on sugar subsidies and the US lost on cotton subsidies are just the tip of the iceberg,”
said Phil Bloomer, head of Oxfam’s Make Trade Fair campaign. “Oxfam is not against all subsidies but we’ve always said
that the worst of them lead to dumping. We now know that many of these harmful subsidies are not only unfair but also
illegal under WTO rules.”
Oxfam’s report says that the WTO’s dispute settlement mechanism is expensive and complicated and is therefore an option
of last resort. “The way to reform global trade rules in order to promote development is across a negotiating table, not
in a courtroom,” Bloomer said.
But rich countries are not doing enough at the current WTO talks. The EU and the US are even demanding immunity from
prosecution under the so-called ‘Peace Clause’. Oxfam says that rich countries should not get immunity but instead
should implement the agreements they’ve already signed, and offer deeper concessions to cut their trade-distorting
subsidies and open up their markets. If not, developing countries should reject their deal.
“Unless the EU and the US live up to their promises at the WTO they will leave developing countries no option but the
dock,” Bloomer said. “Poor countries shouldn’t be forced to seek development through the courts.”
Oxfam’s new research found that the EU and the US were breaking the WTO’s Agreement on Subsidies and Countervailing
Measures. The subsidies are either prohibited because they are contingent on the use of domestic products over imported
ones or actionable because they displace developing country exports, suppress market prices and harm other countries’
domestic industries.
Oxfam found that the US has paid $25b to its corn farmers over the past five years for a crop that would otherwise have
lost $20b over the same period. Without subsidies, in 2004 alone, US production would be down 15%, its exports would
have disappeared and world prices would have been 7% higher. Farmers from the likes of Paraguay, Argentina or South
Africa – or those from countries where US corn is dumped, including Ecuador, Honduras, Peru and Venezuela – could have
gained an extra $4b.
The US also pays subsidies of around $1.2b a year to its rice farmers, representing 99% of the value of the total US
crop. Major rice exporters such as Thailand, Uruguay, Guyana, India and Suriname could all have strong claims against
the US relating to third country market export sales, as could countries into which US rice is dumped such as Haiti,
Zambia, Mexico, Ghana and Costa Rica.
The EU pays €300m a year to tomato processors mainly in Greece, Italy, Spain and Portugal, representing 65% of the value
of the entire crop, enabling them to be the world’s leading exporters of tomato paste. Growers in South Africa, Chile
and Tunisia are among those losing out.
The EU subsidises its fruit-juice processing industry, mainly in Italy and Spain, at a rate of more than 300%, or €250m
a year. Growers from Argentina, Brazil, Costa Rica and South Africa could earn $40m a year more if the EU removed its
subsidies and the world juice price rose by just 5%.
The EU also protects its dairy regime from competition and subsidises its dairy producers by €1.5b a year. Argentina,
Brazil and Uruguay could export butter if EU export subsidies weren’t depressing world prices. EU butter is dumped
directly into Egypt, Morocco and South Africa.
Previous Oxfam research has shown that the EU and the US are not doing enough at the WTO talks to cut their farm subsidy
payments; in the case of the EU, it could even increase its support by $13b a year under the current offer. Oxfam has
also shown that the vast bulk of EU and US subsidies go to their biggest producers and largely by-pass their smaller
farmers. Subsidies should be reformed so that they support smaller farmers, rural development and environmental
protection.
Oxfam says the EU and the US should stop paying prohibited subsidies on the basis of their “local content” only. They
should reduce their trade-distorting support by more than they have offered so far and accept additional disciplines on
those subsidies that remain. The US should stop all distorting support for cotton and the EU should eliminate all export
support by 2010.