Thirty-five countries have filed complaints against Costa Rica for excessively subsidizing its rice industry and, as a result, unfairly affecting its trading partners.
Representatives from at least eight countries spoke out against the Central American nation during a meeting of the World Trade Organization’s Agriculture Committee on Sept. 23. They accused Costa Rica of violating international trade agreements and threatened to apply sanctions.
According to Foreign Trade Minister Anabel González, Costa Rica is allowed $15.9 million in annual domestic agricultural subsidies under World Trade Organization (WTO) rules. However, the country topped that number by providing $23 million in 2007, $62 million in 2008, and $92 million in 2009. For 2010, González projects subsidies to be at $100 million, more than six times the limit. The subsidies are concentrated in price supports for locally grown rice, which is the only agricultural product for which the government sets prices.
“This is a serious issue,” González said, “and it has to be dealt with seriously. We have obligations to the international community.”
U.S. trade representatives said the violation has passed from being within a “gray area” into clear noncompliance. Ronald Saborío, Costa Rica’s ambassador to the WTO, said the U.S.’s message was one of “extreme concern” as the subsidies have affected its exports to the Central American country.
“The United States said if Costa Rica doesn’t reduce its subsidies to internal markets to levels permitted by the World Trade Organization, it would result in a severe problem,” Saborío said.
The threats leave Costa Rica in a tough spot. On the one hand, it must heed the needs of local growers responding to dropping world prices and increased production in the country, but on the other, it has committed to a series of trade treaties.
“When a country commits to international agreements, when it has benefited from the agreements, when it knows the rules and when it has violated them, it stands to lose,” González said. “This does not mean that the country is without instruments (to fix the situation) … what we are looking for is a technical solution, which can also continue to bring support to the rice sector.”
According to Saborío, Costa Rica has convened a commission of top level officials within the Agriculture Ministry to suggest a series of responses. Costa Rica is also proposing that WTO countries adopt a flexible “special safeguard mechanism” to apply in situations relating to sudden import surges or price depressions.
The special safeguard mechanism (SSM) would allow them to protect “domestic farmers by temporarily imposing additional duties when import volumes surge or prices fall suddenly,” according to a statement published by the International Center for Trade and Sustainable Development.
In a conversation with The Tico Times on Tuesday, Oscar Campos, president of the National Assembly of Rice Producers, said rice farmers have never received subsidies.
The Costa Rican government did fix its price at $531 per ton in 2008, recognizing rice as “the most important product,” but Campos said the price just covers growers’ costs.
“Money in our pockets?” he asked. “None. Help from the government? Nothing.”
He said the WTO uses $223.78 per ton as the benchmark for rice and calls everything between that number and the amount Costa Rica pays for its rice “subsidies.”
“Where are the subsidies? Nowhere. Why? Because the only thing that exists is the cost of production,” Campos said. “At this moment, the farmer hasn’t gained anything.”
He accused the United States of launching a campaign against Costa Rica in the WTO, with the acquiescence of the Costa Rican government.
Because 98 percent of Costa Rica’s imported rice comes from the U.S., that country stands to benefit if Costa Rica is sanctioned. But Costa Rica’s central government will also benefit from tariffs collected on additional rice imports, Campos explained.
Right now, Costa Rica produces approximately 75 percent (273,000 tons) of the rice consumed in the country (350,000 tons), he said. The rest is supplied mainly by the U.S., which, under the terms of the Central American Free-Trade Agreement with the United States, is allowed to export 61,000 tons to Costa Rica tariff free. Anything more than 61,000 tons is taxed at 35 percent, money which goes to the central government.
He said if Costa Rica floats the price of rice, local farmers will no longer be able to compete with their North American counterparts and Costa Rica will be forced to import more rice from the United States.
“What (the government) wants to eliminate is the setting of prices and to do away with the role of the state,” he said. “Why? So that they can bring rice from outside.”