Financial Post G7 Record

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[Financial Post G7 Record]

Financial Post, Weekly edition, Tue 10 Jul 90, page 8. Editorial.


Leaders must agree to reduce farm aid

Agricultural subsidies will pit the U.S. against the European Community countries at the economic summit in Houston. The summit won't address details, but hopefully it will provide the political will needed to make this round of General Agreement on Tariffs & Trade talks a success.

The U.S. favors sharp cuts in farm subsidies. The EC is reluctant to do so because of the social and political consequences. The U.S. is supported by developing countries for whom agricultural exports to the developed world might be a first step towards development. At present, many of those markets are blocked by protectionist measures or saturated by an over-supply encouraged and sustained by government assistance.

Whereas globalization has imposed significant structural improvements in the area of financial markets, foreign direct investment, taxation and competition policy, powerful national agricultural lobbies have managed to keep agricultural protectionist measures intact. A GATT study estimated those protectionist measures cost the OECD countries alone approximately US$250 billion per year.

Without progress on agriculture, as many as 40 developing countries will be in no mood to make concessions on other key issues, in particular, bringing trade in services and intellectual property under GATT rules and the current trade talks could end in failure.

The report by the chairman of the GATT negotiating group on agriculture, Aart de Zeeuw, provides a reasonable basis for an agreement on agriculture. The Canadian government has done the right thing in indicating its acceptance of that report.

Identifying agricultural export subsidies as ''the most trade-distorting support,'' the report calls for export assistance to be ''reduced effectively more than other forms of support and protection.'' Those export subsides have led to global oversupply, especially in grains, low prices and a subsidy war that governments - Canada's especially - cannot afford. The de Zeeuw report establishes sound and reasonable economic principles for the regulation of internal supports to agriculture. Aid should come from taxpayer-funded government programs, not from consumers's pockets. Internal supports should not be linked to production, and income safety-net schemes should not maintain incomes at more than a given percentage of the most recent three-year average. An aggregate measure of support should be used to compare levels of assistance in different countries and to ensure that agreed upon reductions are actually made.

The revised income safety net program being finalized by Canada's Agriculture Grain & Oilseeds Safety Net Committee, with its focus on comprehensive income of the individual farmer, will have a better chance of meeting the GATT report criteria than the old programs based on price or yield. However, supply management protectionist measures in certain sectors, including dairy, eggs and poultry, will be at risk if the report is accepted. To conform with the report, the subsidy that is provided these farmers through supply-managed higher prices should be converted to direct government assistance which would then have to be reduced at an agreed upon rate. And trade restrictions that allow prices in Canada to be substantially higher than in the U.S. would gradually have to be removed.

Quite understandably, Canadian farmers under supply management oppose the report. They have always argued that they are efficient producers but that they cannot compete against subsidized U.S. producers. However, if both governments remove assistance at the same rate, surely efficient Canadian farmers will survive.

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Revised: June 3, 1995

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