WTO faces crunch in sowing seeds for tariff-free harvest
The rice in your lunchbox may look plain, but how it gets there is expected to be one of the complex issues on the agenda for the sixth World Trade Organisation ministerial conference in Hong Kong.
The stakes for the Hong Kong WTO meeting in December are high. Arguments over rice and other agricultural goods led to the collapse of trade negotiations at Cancun in Mexico in 2003. British charity Oxfam this week warned in a report on the rice trade: 'If the Hong Kong meeting collapses, the WTO risks becoming irrelevant.'
Rich countries such as the United States, where the rice industry received US$1.3 billion in subsidies in 2003, argue all nations should cut tariffs and subsidies. The US wants its rice producers to gain greater access to overseas markets, but argues most countries' rice farmers would also benefit.
Moving towards free trade without subsidies and tariffs can deliver benefits for many countries, rich and poor. Had free trade in rice been introduced in 2000, net importing countries would have gained US$5.4 billion annually, according to an economic model in the World Bank's latest report on agriculture. Net exporters would have gained US$2 billion.
While total free trade is a pipe dream, developing countries can benefit from lower tariffs and subsidies. But they also have a lot to lose if tariffs are cut too quickly, while rich nations keep high levels of subsidies. Cheap imports could flood in from the US that would put their weaker domestic farmers out of business. Successful exporting countries such as Vietnam built their rice business behind trade barriers first, and then cut tariffs.
Developing countries such as China - where 100 million farmers dependent on rice are protected by a 65 per cent tax on imports over five million tonnes - want to continue setting tariffs on key crops. Such demands are now unacceptable to wealthier nations.
Reaching agreement in Hong Kong will be difficult, but attempts have started. The WTO's agriculture negotiations chairman - and Hong Kong's former permanent representative at the WTO - Stuart Harbinson, has proposed a compromise requiring countries with higher tariffs to make bigger cuts. Certain products for developing countries would be exempt, but it is unclear how.
The WTO aims to have a draft list of exempt products in July. Naturally, rich countries want few exemptions and poor nations demand lots. Oxfam has said that if rice is not exempt, the cuts in Mr Harbinson's proposal are too steep for poor countries. China would need to cut its tariff by a minimum of 16 to 49 per cent.
'If the rice tariff were cut and if the tariff rate quota... were expanded, the potential increase in low-cost imports could jeopardise the livelihoods of [China's] rice farmers,' the Oxfam report said.
Developing countries also fear becoming reliant on imported rice which may make their food supply less secure. Some countries may have trouble generating enough foreign currency to pay for imported rice, especially if a crop they export has a bad harvest. Also, if the US slashed rice subsidies, prices would soar.
China - which is a net exporter of rice - avoids these risks mainly through high tariffs. Other protectionist measures have been tried, but to little effect. Last year, farmers were subsidised to raise rural incomes and grain production. But the 11.6 billion yuan spent was a relatively small figure, given about half the workforce is in agriculture.
However, high tariffs to support farmers and improve food security mean consumers miss out on cheap, heavily subsidised rice from overseas - a point made by America. 'US agricultural exports can help China achieve its nutritional goals, and at much lower costs,' said Alan Larson at Peking University last October, when he was US undersecretary of state for economic, business and agricultural affairs.
'Food security is best achieved through interdependence and co-operation, not through futile attempts to mandate self-sufficiency. Each of us should be reliable suppliers and reliable customers.'
WTO director-general Supachai Panitchpakdi echoed these sentiments in Rome this week: 'A common policy for governments seeking to enhance food security via self-sufficiency is to maintain high border protection and high internal prices to encourage domestic production.
'This, however, has adverse impacts on food security. High internal prices can act as a regressive tax. Poorer consumers tend to be hardest hit by high food prices, reducing their purchasing power and undermining their food security.'
Oxfam agrees in its report that tariffs in developing countries may make rice more expensive for consumers. But given the benefits of tariffs to rice farmers, developing countries should resolve the conflict of interest themselves, the charity argues. Given the volatility of rice prices, they should have a free hand to raise or lower them depending on market conditions.
Oxfam also urges countries such as China to be more accountable and ensure the poor benefit. Some rice companies have little competition and do not pass on the benefits of low-cost imports to consumers. 'That policy must be backed by increased accountability to the public to guarantee that poor people genuinely benefit from state intervention,' the report says.
Rice is far from being the only product to be discussed in Hong Kong. Issues of similar complexity for products - such as poultry, maize and wheat to name a few - will have to be resolved between the 148 member economies taking part. For the WTO to choose Hong Kong, which has next to no trade barriers, as a venue for ministers to haggle over high tariffs shows a certain sense of irony.
