The World Bank concludes that direct payments distort trade
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CTA. 2003. The World Bank concludes that direct payments distort trade. Agritrade, December 2003. CTA, Wageningen, The Netherlands.
Permanent link to this item: http://hdl.handle.net/10568/52819
A recent World Bank 'Trade Note' has reviewed the WTO approach...
A recent World Bank 'Trade Note' has reviewed the WTO approach to the disciplining of domestic agricultural-support programmes and found that some countries have exploited loopholes in order to meet their WTO obligations. It notes that 'domestic subsidies to farmers have increased substantially since 1986-88, but that there has been a switch of support towards the green box', which is exempt from WTO disciplines. 'There is evidence that high levels of direct payments to farmers for some programs in the green box … [like those in the USA and the EU] do in fact distort trade'. It concludes that the Uruguay Round Agricultural Agreement 'has not reduced trade-distorting domestic-support measures in many instances' The paper seeks to: review the level, composition and trends in domestic support; outline the problems with current disciplines on domestic support; provide a synopsis of issues confronting negotiators and the options available for making more effective disciplines on trade-distorting support. It also notes that production-related subsidies are notoriously inefficient in transferring income to farmers with only around a quarter of support finding its way into farmers' pockets, and then mainly larger rather than smaller farmers. According to a recent study '7% of crop farmers in France received 77% of all direct payments'. Significantly the paper notes that 'the objective of decoupling subsidies is to increase farm income without distorting current or future production', but it raises some serious questions as to 'how effective the green box or so called 'decoupled' payments have been in meeting this objective'. Comment: The inefficiencies of production support in transferring income to farmers means that direct aid payment schemes represent a much more efficient way of supporting farm incomes and hence sustaining agricultural activities. From this perspective the question arises: has the EU basically found through CAP reform a way of getting more trade distortion per euro of agricultural support? Will the reforms strengthen the export competitiveness of EU agricultural producers and food processors at less expense to European tax payers? If this is the main outcome, then the existing process of CAP reform would appear to offer few benefits to ACP agriculture-based economies.