Deal or No Deal? WTO Deadline Nears

Commentary, Trade, Rolf Penner

Like a bizarre incarnation of Howie Mandel, World Trade Organization (WTO) Director-General Pascal Lamy is now crisscrossing the globe in a last-ditch effort to salvage something from the last five years of trade talks. Like hapless quiz show contestants on “Deal or No Deal” who push their chances to the limit, member countries are about to find out how bad a deal “No Deal” really is.

Canadian farmers should brace themselves for the global orgy of subsidies likely to follow the imminent collapse of the current round of negotiations, whose final deadline is the end of this month. After that, countries will legally be able to ramp up the amount of support given to their farm sectors, a process that could make the current $280 billion spent annually by OECD countries look like a pittance (all amounts in US dollars).

The United States, for example, will be able to increase certain types of support by a full third, from the current $14.4-billion level to $19.1 billion. It could also shell out another $409 million a year to subsidize grain exports, as well as more than $1,200 per tonne of beef and pork exported. Europe can raise its level of spending from its present $52 billion to well over $80 billion, and pay another $2.7 billion to subsidize grain exports. On top of this, they will all be free to spend an unlimited amount on direct-payment schemes based on historical acreages and yields. That’s as long as they keep the subsidies down to 85 per cent of production, with a sweet little caveat of no limit on the amount paid per production unit.

Aside from subsidies, a bigger problem may come from countries that further raise tariff walls and make it too expensive to export into those markets. Many have high tariff levels written into the current agreement, but apply them at low levels. They have the right at any time, without warning, to increase these to the full amounts allowed.

Colombia, for instance, has a 15% tariff on wheat that can go to 124%. India has a 10% rate on flour it can move to 150%. Japan’s 44% tariff on wheat can climb to 250%. Numerous other examples can be found throughout the list of 149 WTO countries.

Blame for the failure of negotiations lies everywhere. The U.S. is culpable for not showing flexibility on domestic subsidies and the EU for its intransigence on market access. Canada is no Boy Scout, either, with our hypocritically stubborn stance on retaining outrageously high dairy and poultry tariffs (up to 290%), all the while demanding more access for our exports.

Critics who claim that Canada has given up too much in previous talks and is already subsidizing less than other countries are mistaken. As a percentage of gross income, support for our farmers averages out at 20%. The U.S. is at 17%, and countries like New Zealand and Australia are down to 4%. E.U. farmers do get more, but not much, with 33% of their gross income composed of subsidies.

Unsurprisingly, those critics mostly come from the supply-managed dairy and poultry industries, which get a disproportionate share of price support through high tariff walls on those products. Although they make up just 11% of farmers, they receive 42% of the total benefit of our government’s efforts to protect the farm sector.

Successive federal governments have been reluctant to alter these arrangements because most producers reside in Ontario and Qu├ębec, and politicians believe their votes are necessary to form a government. Because the payoffs from supply management are so concentrated, those industries spend a lot of money to keep governments on their side.

But our insistence on keeping these arrangements intact is hurting the rest, the nearly 90% of Canadian farmers who export 80% of what they produce. Every year they give up billions of dollars in lost sales, thanks to the impact of existing international subsidies. If global protectionism increases, they are poised to lose even more.

Ironically, even our tiny dairy and poultry sectors, for which negotiators have gone to the wall, may no longer be safe. The “peace clause,” which limited the amount of trade lawsuits countries could bring against each other, expired earlier this year. With it gone, countries like New Zealand, Australia and Argentina, who produce the cheapest dairy products in the world, could finally force their way into the Canadian marketplace, a reality which American cotton and European sugar producers recently faced.

Plan B for Canada is an increase in the number of bilateral agreements, like the North American Free Trade Agreement (NAFTA), we sign with other nations. It’s not much of a plan. Our limited population base makes it difficult to compete with the largest, most lucrative world markets. Agriculture invariably gets pulled off the table in such talks, resulting in no further market access for our goods. Worse, bilaterals do not address the subsidies that cause low prices.

The broader impact for Canada extends beyond agriculture. While WTO processes are far from perfect, they are the best way of settling international trade disputes and the only way of systematically lowering barriers. A loss of credibility and effectiveness for this
process is not in the interest of smaller economies like Canada’s. The alternative is that trade terms are dictated by larger countries, often to our disadvantage.

If he fails, Canada will look like the unfortunate “Deal or No Deal” contestant who picks one case too many. But the losses will be multiplied throughout our farm belt. Stephen Harper should help end the brinkmanship by shouting, “Deal,” as loud as he can, before it’s too late. The G-8 meeting this weekend in St. Petersburg would be the perfect place to do so.

Versions of this article appeared originally in the Winnipeg Free Press, the Calgary Herald and the Edmonton Journal.