Canada has opened the 2007 bidding at the WTO by requesting consultations with the United States under the dispute settlement understanding on subsidies to US maize farmers. Canada is unhappy about both the domestic (Amber Box) payments and export payments that the US grants to its producers. Canada contends that US agricultural subsidy programs are causing serious economic problems to Canadian farmers by depressing the world market price for maize.
The Canadian action is strategically timed for two inter-related reasons. Firstly we know that the WTO’s Doha Round of trade talks remain stalled following the impasse that arose last July. Granted that there have been some encouraging bilateral discussions between the US and the European Union over the past weeks, but a breakthrough is not imminent, not least because the WTO now consists of 150 Members. It has been speculated to what extent WTO Members would hold off on agricultural disputes, in the hope that the subsidies matter would be addressed and resolved through the negotiation process. The negotiating impasse thus provides an impetus to re-look at dispute options. In addition turning to dispute settlement has some impetus in prompting negotiators to resume the negotiations in order to settle subsidy rules that suit them as opposed to being placed in a position of having to tailor domestic policy to suit the outcome of adjudication. The second related element involves domestic policy considerations. The US legislation that enables the subsidy regime is the Farm Bill which is periodically updated. The next update is due to be before Congress later this year. The Canadian move is thus also tactically placed to influence the look of the 2007 Farm Bill.
The US Agriculture Secretary Mike Johanns is acutely aware of the international dimensions of the Farm Bill as he has been intimately involved in the Doha negotiations. Johanns told the American Farm Bureau last week that with only 40% of US farmers receiving subsidies (on the so-called programme crops) the new Farm Bill would ideally need to be more equitable in its support and interestingly also serve to minimize US vulnerability to international challenges on trade issues. This is perhaps not surprising given the US’s last unhappy experience in agricultural dispute settlement in Upland Cotton. In the cotton dispute the WTO found many of the US programmes that also apply to maize to be incompatible with US commitments. The US made some reforms but Brazil contends these are insufficient. Brazil also held off in pursuing the matter in deference to the ongoing negotiations, but decided to take up the cotton dispute settlement process again at the end of last year (in the compliance phase) also in response to the stalled progress in the negotiations. Canada will rely on many of the same arguments and precedents followed by Brazil if they pursue the maize action.
South Africa has a substantial and highly efficient maize sector which operates literally free of any subsidies or even tariff protection. Notably maize is a critical crop to the South African small commercial and subsistence farming sector. Opposing agricultural subsidies is an established part of South Africa’s trade policy as evidenced by our Membership of the Cairns Group of countries that negotiate for trade free of distorting subsidies (note not all subsidies are offensive). Canada is a leading Member of the Cairns Group and it is not unlikely that it would approach the other Cairns Group members to support them in the dispute. South Africa would thus be a natural ally for them. Argentina would be another likely ally. This support would be undertaken via what is called 3rd party participation in the dispute. Third parties have a somewhat less onerous task as they do not take the lead in the dispute, but still have the benefit of making official submissions to the WTO panel and having their interests ‘fully considered’ in the proceedings. South Africa has not done this before and has in fact never been involved in any WTO disputes. Some consideration was given to the matter in the sugar dispute brought by Brazil against the EU in recent years, but the step was politically too complex at that time as several of South Africa’s neighbours in fact benefit from the artificially high prices then present in the EU through their preferential ACP sugar quotas. Conditions are different now in fact other Southern African countries also suffer in the face of depressed world prices. For example, the OECD reported in a study on the maize market in sub-Saharan Africa that the elimination of OECD subsidies could lift the world price by 12.8%.
Canada and the US are old adversaries in the grain sector on WTO turf. Ironically in their previous skirmish it was the US who challenged the alleged distorting effect in the operation of the Canadian Wheat Board (the CWB incidentally also looks after maize). The US lost that dispute. The WTO consultation process will run for 60 days, and after this period Canada can make a further request for the actual establishment of a dispute settlement panel. To date there was been an overwhelming interest in the matter with almost 40 other WTO Members indicating that they want to join the proceedings. South Africa is positively inclined, but as yet officially undecided. However, it is locally reported that farmer organization Grain SA has indicated that they would like South Africa to become involved.