Exposed: EU, US paying $13 billion in illegal agricultural subsidies

Published: 6 December 2005
The European Union and the United States are illegally subsidizing their production of corn, rice, sorghum, fruit juice, canned fruit, tomatoes, dairy products, tobacco and wine, according to new research published today by international agency Oxfam.

The EU and the US must do more to deliver a development deal ahead of a crucial WTO Ministerial meeting on December 13-18 otherwise they could end up facing a mountain of litigation, Oxfam says, because developing countries will be left with no other options.

Of the 11 commodities studied, the US and the EU pay out total annual farm subsidies worth $9.3 billion and $4.2 billion respectively which help to distort world trade. Oxfam found that 38 developing countries are suffering from unfair competition as a result, including larger countries such as Mexico and Brazil as well as poor countries like Malawi and Mozambique.

Oxfam consulted legal experts who concluded that the affected countries could bring multiple cases against the EU and the US and win.

“The WTO cases that the EU lost on sugar subsidies and the US lost on cotton subsidies are just the tip of the iceberg,” said Phil Bloomer, head of Oxfam’s Make Trade Fair campaign. “Oxfam is not against all subsidies but we’ve always said that the worst of them lead to dumping. We now know that many of these harmful subsidies are not only unfair but also illegal under WTO rules.”

Oxfam’s report says that the WTO’s dispute settlement mechanism is expensive and complicated and is therefore an option of last resort. “The way to reform global trade rules in order to promote development is across a negotiating table, not in a courtroom,” Bloomer said.

But rich countries are not doing enough at the current WTO talks. The EU and the US are even demanding immunity from prosecution under the so-called ‘Peace Clause’. Oxfam says that rich countries should not get immunity but instead should implement the agreements they’ve already signed, and offer deeper concessions to cut their trade-distorting subsidies and open up their markets. If not, developing countries should reject their deal.

“Unless the EU and the US live up to their promises at the WTO they will leave developing countries no option but the dock,” Bloomer said. “Poor countries shouldn’t be forced to seek development through the courts.”

Oxfam’s new research found that the EU and the US were breaking the WTO’s Agreement on Subsidies and Countervailing Measures. The subsidies are either prohibited because they are contingent on the use of domestic products over imported ones or actionable because they displace developing country exports, suppress market prices and harm other countries’ domestic industries.

Oxfam found that the US has paid $25b to its corn farmers over the past five years for a crop that would otherwise have lost $20b over the same period. Without subsidies, in 2004 alone, US production would be down 15%, its exports would have disappeared and world prices would have been 7% higher. Farmers from the likes of Paraguay, Argentina or South Africa – or those from countries where US corn is dumped, including Ecuador, Honduras, Peru and Venezuela – could have gained an extra $4b.

The US also pays subsidies of around $1.2b a year to its rice farmers, representing 99% of the value of the total US crop. Major rice exporters such as Thailand, Uruguay, Guyana, India and Suriname could all have strong claims against the US relating to third country market export sales, as could countries into which US rice is dumped such as Haiti, Zambia, Mexico, Ghana and Costa Rica.

The EU pays €300m a year to tomato processors mainly in Greece, Italy, Spain and Portugal, representing 65% of the value of the entire crop, enabling them to be the world’s leading exporters of tomato paste. Growers in South Africa, Chile and Tunisia are among those losing out.

The EU subsidises its fruit-juice processing industry, mainly in Italy and Spain, at a rate of more than 300%, or €250m a year. Growers from Argentina, Brazil, Costa Rica and South Africa could earn $40m a year more if the EU removed its subsidies and the world juice price rose by just 5%.

The EU also protects its dairy regime from competition and subsidises its dairy producers by €1.5b a year. Argentina, Brazil and Uruguay could export butter if EU export subsidies weren’t depressing world prices. EU butter is dumped directly into Egypt, Morocco and South Africa.

Previous Oxfam research has shown that the EU and the US are not doing enough at the WTO talks to cut their farm subsidy payments; in the case of the EU, it could even increase its support by $13b a year under the current offer. Oxfam has also shown that the vast bulk of EU and US subsidies go to their biggest producers and largely by-pass their smaller farmers. Subsidies should be reformed so that they support smaller farmers, rural development and environmental protection.

Oxfam says the EU and the US should stop paying prohibited subsidies on the basis of their “local content” only. They should reduce their trade-distorting support by more than they have offered so far and accept additional disciplines on those subsidies that remain. The US should stop all distorting support for cotton and the EU should eliminate all export support by 2010.

Contact Information

For further information or interview, including quotes and comments from expert trade lawyers, please contact:
Matt Grainger, OI Senior Media Officer, +44-(0)1865-339128, matt.grainger@oxfaminternational.org