Eliminating Export Subsidies: One Way Forward

There seems to be only one thing everyone can agree upon in run-up to the World Trade Organization Ministerial—we must end food export subsidies. Although there is widespread support for this idea, there has been little progress on how to accomplish this in the real world. Endless arguments over exactly what is and what is not an export subsidy have been, well, endless.

For example, here in the United States, we use a complex group of public and private programs to subsidize agricultural trade—most of which never show up on our lists of official export subsidies. I could list them but then I would have to get into a shouting match with my own government about whether or not they were actually export subsidies or not. I could also draw up similar lists for Brazil, Australia, Chile, Canada, New Zealand, France, the UK, The Netherlands, Thailand, and every other food exporting country.

If we want to get rid of export subsidies in agriculture we have to move beyond the argument over what does or does not qualify as a subsidy. Fortunately, there is another approach. We could begin the process of dismantling export subsidies by first eliminating export dumping.

The goal of all export subsidies is to capture more market share by lowering the price of exports, often below the cost of production. When the export price is set at below the full cost of production, (including the cost of marketing, the value of government assistance, and a reasonable profit) it called export dumping. Instead of continued arguments over what is or is not an export subsidy, negotiators could simply agree to phase-out and then eliminate export dumping. At some agreed upon date in the future all food exports would be made at prices at or above the cost of production.

This would narrow the arguments into two areas. First, how to determine the full cost of production by which dumping would be judged. Second, what timeline to use for phasing out dumping.

On the timeline, my suggestion is a five-year phase out but it hardly matters. As long as there is a schedule for eliminating export subsidies the actual timeline is not crucial.

On the formula for calculating the full cost of production, there are two major components—the expenses paid by the producers themselves and those paid by the taxpayers. The average cost of production paid by producers is determined each year in all major exporting countries by the national government. In the United States, this is done by the U.S. Department of Agriculture.

The other part of the cost of production, the cash value of the expenses paid by taxpayers, has been calculated for most crops for each of the major food exporting countries by the Organization for Economic Cooperation and Development (OECD). OECD uses a formula, often called the Producer Subsidy Equivalent, to determine the cash value of various government programs. This Producer Subsidy Equivalent (PSE) formula is surprisingly comprehensive and accurate, given the elusive nature of most government farm programs. One downside is that neither the USDA nor the OECD tries to determine the cost of the externalized environmental and social damage from these exports, but that could be incorporated at some later date.

This full cost of production for each crop would be determined by adding up all of the expenses paid by farmers together with those paid by the taxpayers and then dividing the total production in order to determine the average cost of production on a per pound, bushel, or ton basis. If this cost of production was higher than the average export price, this would be considered dumping and therefore subject to reduction over the agreed upon period of time.

Countries would commit themselves to reducing the gap between the full cost of production and the export price over an agreed upon period of time. Some crops might take longer, some poor countries might get additional flexibility, but overall this would be applied against all exporting countries. If the phase out is over five years, then by the end both the U.S. and Europe (and practically everyone else) would have eliminated all export subsides and dumping.

One of the many benefits of directly reducing dumping, rather than endlessly debating the definition of subsidies, is that it could bring immediate improvements for many producers in the Third World who have been devastated by export dumping from the United States, Europe, Canada, and others. Governments have endless ways to re-package and re-name subsidies and lots of tricks they can play with currency manipulation. We can go on arguing about export subsidies for another Millennium or we can take a small but important steps towards eliminating export dumping. Myself, I favor progress over stalemate.

Monday 29 November: some agriculture-related events to look for:

1. International Federation of Agricultural Producers, Westin Hotel, 9am to 6:30 pm.

2. Global Environment & Trade Study (GETS) breakfast with Tran van Tinh and James Cameron, Renaissance Hotel, 8-9:30 am.

3. "Hands Off My Genes: WTO vs. Biosafety Protocol", 2-3 pm, Plymouth Congregational Church.

Mark Ritchie, President, Institute for Agriculture and Trade Policy

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