By Aileen Kwa
Non-Papers

AIE/1 Administration of Tariff Quotas – Australia (13 May 1997)

AIE/2 Circumvention of Export Subsidy Commitments – US (16 May 1997)

US says that at least 5 members have reported violations of their scheduled export subsidy reduction commitments. There should be a general review of Members’ compliance, and circumvention in the context of negotiating further commitments to advance the long-term objective of substantial progressive reductions in support and protection.

AIE/3 Data Supplied Through Notifications – US (16 May 1997)

AIE/4 ‘Green Box’ Domestic Support – Australia

AIE/5 Tariff Quota Administration – NZ (12 August 1997)

AIE/6 Issues of interest to developing countries – Pakistan, Peru and Dominican Republic (19 September 1997)

Paper suggests that

Step 1: The Committee on Agriculture study the following – these include collection of trade data etc.

1) Special and Differential Treatment for developing countries

2) Market Access: Developed countries should provide greater improvement of opportunities and terms of access for agricultural products of interest to developing countries – including full liberalisation of trade in tropical agricultural products.

3) Marrakesh Decision – look into follow-up action of the this Decision.

Step 2: Analyse information and actual experience of developing countries.

These studies would lead to fuller participation by developing countries.

AIE/7 Administration of Tariff-Rate Quotas – US (22 October 1997)

AIE/8 Uruguay (24 October 1997)

Uruguay asks that the Committee on Agriculture undertake a study on the trade consequences of the high tariffs that were implemented as a result of tariffication, leading in some cases to the prevention of trade. In some cases, therefore, these tariffs did not eliminate protective border measures.

AIE/9 Tariff Quota Administration: First-come First Served – Australia (29 October 1997)

AIE/10 Article 6.5: Direct Payments Under Production-Limiting Programs – US (31 October 1997)

US wants the elimination of the Article 6.5 – Direct Payments under production-limiting programmes. The reason given is that Article 6.5 was merely a transitional mechanism to encourage countries to move from the most trade distorting measures to less trade distorting measures. They say that most countries such as the US have already changed their policy instruments from production-limiting programmes to GATT legal supports such as those outlined in Annex 2. Furthermore, US says that these payments serve to maintain government intervention in farm production, which is inconsistent with trade liberalisation.

Comment: In truth, it is really because the US itself has no more use of Article 6.5 and wants the EC to discontinue its use of such programmes.

AIE/11 State Trading Enterprises – Single Desk Buyers and Single Desk Sellers – US (31 October 1997)

US questions the purpose of state trading enterprises (STEs), claiming that STEs restrict or distort trade in the following ways: 1) lack transparency 2) enforce import policy measures 3) interfere with end-users 4) enforce burdensome requirements on imported products 5) apply mark-ups 6) procure emergency stockpiles. These practices raise domestic prices and impair market access opportunities for exporters. The US defines STEs as monopoly importers and exporters.

AIE/12 Cuba (18 December 1997)

Cuba calls for a study into

1) The effects of the AoA on prices of the main import products for developing countries

2) The effects at the end of the implementation period, and likely scenarios if the liberalisation process continues. Cuba also asks for a study of the impact on imports of NFIDCs as a result of negative price effect due to the AoA reform programme. Also, it suggests that a new mechanism be devised covering import shortfalls for NFIDCs as a result of the AoA.

AIE/13 Special Agricultural Safeguard: Data and Analytical Issues – US (19 Jan 1998)

According to the US, there have been little use of the Special Safeguard Provision (SSG) since tariffication already led to high duties. They suggested a report be compiled by the WTO, to assess the level of protection afforded by the SSG, the need for the SSG and the extent to which the SSG has restricted trade.

AIE/14 Direct Payments under Production-Limiting Programmes – EC (20 Jan 1998)

The EC counters the US in this paper stating that in the Uruguay Round, direct payments under Article 6.5 were not conceived as transitional mechanisms. They state rather that these payments are an important instrument when ‘adjusting market price supports’. It is, the EC counters, a key element of agricultural policy for major trading partners.

AIE/15 Article 6.5: Direct Payments under Production Limiting Programs – Australia (27 Jan 1998)

Australia writes to support the US’ position that direct income payments under Article 6.5 should be considered a transitional measure and that its future should be evaluated.

AIE/16 State Trading Enterprises: Single Desk Buyers and Single Desk Sellers – Australia (27 Jan 1998)

Australia counters the US’ paper on STEs stating that STE practices are not unlike other private enterprises.

AIE/17 NZ’s comments on the US’ Paper on State Trading Enterprises (AIE/11) – NZ (5 February 1998)

NZ says US’ one-size-fits-all’ approach to STEs is inappropriate. The debate should focus on ‘actual trade-distorting measures’ rather than the existence of STEs themselves. These would include prohibitive tariffs, production-linked domestic policies, export subsidies and export credits. There is no need to invent new disciplines for STEs as there are already existing rules.

AIE/18 Paper Based on NZ’s Comments (20 Jan 1998) on the Secretariat Background Paper on Export Subsidies (AIE/S3) (5 Feb 1998)

NZ wants the eventual elimination of export subsidies. They point out too that only a few members use export subsidies. (25 out of 132 Members gained the temporary right in the Uruguay Round to continue to use export subsidies for agricultural products). They point out in their paper that only 80% of the temporary rights to subsidise beef exports are held by just 2 countries (or country groupings). 93% of the total export subsidy volume commitment for wheat and wheat flour is accounted for by the entitlements of just 3 countries. Similarly, in dairy, 94% of the butter commitments are held by just 3 countries and 92% of rights to subsidise volumes of cheese are also held by 3 countries.

AIE/19 Domestic Support Policy Reform: The Federal Agriculture Improvement and Reform Act of 1996 – US (4 March 1998)

AIE/20 Article 5: Special Safeguard Provision (SSG) – NZ (5 March 1998)

NZ paper highlights the problems related to the SSG. So far, 6 Members have used the SSG. They are Japan, Korea, US, EC, Slovak Republic and Poland. 2 countries, Japan and the Slovak Republic used it under the volume-based SSG, and 5 countries under the price-based trigger (Japan, US, EC, Poland, and Korea).

There are, however, problems with the application of the SSG. It can very easily be invoked, which provides opportunities for abuse. The problems relating to the activation of the volume-based SSG include: the fact that the current methodology can result in a trigger level of zero; that tariff quota imports alone can trigger the SSG; and the large range of products covered by a single volume trigger. The utilisation of price-based SSG have been associated with the following problems: additional duties have been applied to minuscule quantities of imports and in many cases trigger prices are higher than external reference prices. In applications of both volume-based and price-based SSGs, the lack of information available to inhibits transparency. NZ says that if the SSG provisions are to continue, these issues will have to be addressed.

Also, NZ contends that through the SSG provisions, agriculture is provided with a trade protection measure unavailable to every other economic sector. There already exists a mechanism through which Members can protect their domestic producers from surges of imports of all types of products viz., normal safeguard action as set out in the Agreement on Safeguards. This mechanism takes into account specific market conditions and injury to domestic producers in determining whether safeguard action can be taken. On the other hand, SSG actions are in many cases implemented automatically, with no consideration given to the actual impact that imports are having on the domestic market.

AIE/21 Sectoral Trade Liberalisation – Canada (17 March 1998)

AIE/22 Non-trade concerns (NTCs) in a multifunctional agriculture: Implications for Agricultural Policy and the Multilateral Trading System – Norway (2 June 1998)

Norway states that agriculture is multifunctional and that NTCs such as food security, viability of rural areas and environmental protection are public goods for which subsidies are necessary and justified. They state that subsidies per se are neither good nor bad, but must be evaluated according to their corresponding benefits. It is therefore difficult to compare the level of support between different countries without taking into account the overall benefits that result from such support. Food security is an important public good. Norway is about 57% food self-sufficient and this is considered a minimal level.

The other point they make is that decoupling substantial amounts of support payments is not the best policy. It can lead to suboptimal production adaptations (whatever that means) and may have serious implications for farmers’ identities as food producers and harm the future recruitment to the sector.

AIE/23 Annex 2: Domestic support measures exempted from reduction commitments – Canada (2 June 1998)

Canada questions whether or not conditions in Annex 2 really have ‘no or at most minimal, trade distorting effect or effects on production’. Canada even questions whether exempting measures under Annex 2 from reduction commitments is consistent with the long term objective of reductions in agricultural support and protection. (Basically, they are questioning if Annex 2 should stay as it is and whether countries should be allowed to get away with keeping up large amounts of supports). Canada suggests that decoupled payments are in fact trade distorting. Farmers are likely to behave differently when they receive payments even though they are decoupled since the payment would lessen farmers’ constraints on production ie., allow them to produce more.

They therefore question whether the green box should be allowed exist with no reduction commitments indefinitely, as it is virtually impossible for domestic support measures to be completely decoupled from production and trade. Agricultural production, consumption and trade, market prices etc. cannot be absolutely dissociated from one another. They always will be affected in some way by the presence of domestic support measures. Perhaps if the amount of support given is small, the effect would be minimal. However, higher levels of support are likely to have significant trade distorting effects.

There should also be a process of assessing conformity with Annex 2 – upon request by a member. This is to provide greater clarity, certainty and rigour to the disciplines of Annex 2.

Due Restraint Article (Article 13)

Canada’s paper also suggests that the due restraint article be continued beyond 2003, when it is due for consideration. This is because it encourages countries to convert their supports from more trade distorting instruments to green box instruments which are exempted from challenge under Article 13. It therefore encourages the use of supports which are less or minimally trade distorting.

AIE/24 Export Restrictions and Taxes – Canada (2 June 1998)

Canada suggests that export restrictions and taxes should be subject to disciplines. So far, Canada says that the disciplines are too lax. While GATT 1994 Article XI prohibits export prohibitions or restrictions, Article XI: 2(a) permits quantitative export restrictions or prohibitions to be ‘temporarily applied to prevent or relieve critical shortages of foodstuffs or other products essential to the exporting contacting party’. What is a critical shortage? What products are considered foodstuffs and what products are considered essential? In practice therefore, these provisions have not had strong disciplines on export restrictions.

There can also be export restrictions (Article XX(j)) when there is general or local short supply in a product.

Export taxes can have the same commercial impact on markets as direct export quotas, restrictions or prohibitions, insulating a domestic market from international price changes. This can have the effect of providing an artificial inducement to additional processing activity in the domestic market, with exports of processed products, rather than raw products, encouraged. An export restriction or tax on an input to a processed product can have the same trade effects as an export subsidy on the processed product.

The paper also asserts that export restrictions and taxes can have spillover effects in other industries – they can lower the domestic price of inputs relative to what they would otherwise be, thereby providing indirect support to other agri-food sectors.

They suggest that the conditions under which Members restrict exports of food stuffs in times of food shortages should be limited. The solution they give is that countries should find alternative sources of available supply, rather than impose an export tax. If indeed they do apply ‘short supply’ restrictions, they have to do so proportionately in relation to their domestic and export markets.

(Comment: This is directly antithetical to the food security needs of developing countries.)

AIE/25 Non-Trade concerns on Agriculture – Japan (2 June 1998)

Japan’s paper on ‘Non-trade Concerns on Agriculture’ basically highlights all the parts of the Agreement on Agriculture which acknowledges the need to respond to countries’ non-trade concerns. It also points out the discussions on non-trade concerns since the Uruguay Round – especially parts of the Rome Declaration of the World Food Summit and the OECD Meeting of the Committee on Agriculture. The latter looks into the multifunctionality of Agriculture.

AIE/26 Equivalent Measurement of Support – United States (2 June 1998)

AIE/27 Reforming Domestic Support for Agriculture – Australia (5 June 1998)

Australia wants

1) Further reductions in AMS

2) Look into calculation of AMS as an aggregate which allows countries to increase supports in some areas despite overall reductions.

3) Wants reductions even for de minimis support and production-limiting programmes

4) Australia questions whether Annex 2 measures are really minimally or non-trade distorting. Since the Uruguay Round, members have adopted a variety of measures they claim meet the definition included in Annex 2. There is uncertainty about the validity of these claims. eg., there is a need to identify decoupled mechanisms that are truly decoupled. It makes a criticism of US’ production flexibility contracts – these are relatively decoupled from production and prices – however, ‘it remains an open question whether they are or are not market distorting because of their investment and risk reducing effects’.

5) Blue Box: Australia also sees the blue box as a transitional step towards the reduction of domestic supports. It is important, they say, to assess the impact blue box provisions have on the level of agricultural production and trade. Where they are production and trade distorting, there is no reason why blue box payments should be exempt from reduction commitments.

Australia suggests that Members look into severing the link between production levels and supports, and reduce blue box payments over time.

AIE/28 Side Effects of Agricultural Policies and Production – New Zealand (9 June 1998)

New Zealand argues that the term ‘multifunctionality’ is as old as the hills. But it has been recently used by various parties to protect an industry or sector. Multifunctionality is the same as externalities which arise from any given activity. NZ encourages decoupling of support and targeting support specifically at policy objectives. For example a policy has the objective of requiring those with control over rural resources (including farmers) to meet certain minimum standards in order to protect rural landscape. However, the government instead gives payments linked to production levels – this may lead to increasing the use of arable area and more intensive livestock farming – hence destroying the environment rather than protecting it. Therefore supports should be decoupled and specifically targeted at the relevant objective.

AIE/29 Domestic support policy reform: the role of Article 6.5 Direct Payments – European Community (19 June 1998)

EC supports the use of direct payments under production-limiting programmes. The paper basically highlights its use of these programmes through the conversion of market price support policies to production limiting policies – it emphasises that trade distortions have decreased as a result.

AIE/30 Issues of interest to developing countries – India (23 June 1998)

1) In the preamble, the AoA mandates that developed countries should provide greater opportunity and market access to the agricultural products of interest to developing countries. It is unclear if this is in fact happening. According to a World Bank Policy Research Working Paper ‘Agricultural Trade Liberalisation in the Uruguay Round’, a number of sensitive commodities in many industrialised countries have tariffs which are higher than the actual tariff equivalents of all border measures which existed in 1986-1988. For a particular group of countries, tariffs in rice has increased by as much as 207%. India asks if the Secretariat could provide more data for specific products, so better analysis on the AoA can be carried out.

On food security, India stresses that ‘It would be too simplistic to assume that agricultural trade liberalisation would by itself be able to overcome the problem of food security. Free trade in agriculture is not without its long term social and economic ramifications.’

AIE/31 Trade Liberalisation: Sectoral and ‘Across the Board’ Initiatives – Brazil (6 July 1998)

Brazil agrees that sectional talks are good, but should be complemented by ‘across the board’ process of liberalisation.

Brazil also brings up the issue of tariff peaks, where some countries converted their non-tariff barriers to tariffs exceeding 200% which in practice limits market access to the existence of tariff rate quotas. On the other hand, products such as soybeans have tariffs closer to zero, which stimulates trade. Brazil makes the observation that these differences in tariffs generates an imbalance in the conditions of market access between ‘protected’ and ‘liberalised’ products. It wants to see a correction of this imbalance so that economic growth in developed and developing countries is not undermined.

AIE/32 Non-Trade concerns in the next agricultural negotiations – Argentina (27 July 1998)

Hitting out at the EC’s concept of multifunctionality, Argentina says that condoning market price supports will not protect the environment. Instead, it leads to the intensification of agricultural production, hence damaging the environment. Subsidies amounted to US$280 billion in 1997. Only 20% got to the pockets of farmers. The rest was capitalised into land values or fell into the hands of input suppliers. In a highly intensive agricultural situation, this means more fertilisers, more herbicides, more pesticides, more energy, more irrigation, and therefore more environmental degradation.

Subsidies provided in rich countries may have global harmful effects. Brazil concludes by saying that they are not implying that if the richest countries were to remove the subsidies that encourage production and exports, socially optimal outcomes would follow. There is a need to cope with market failures, as pointed out by Norway. However, the best place to begin is ‘to eliminate those subsidies which prevent prices from reflecting private costs of production.’ This will have positive consequences for the environment (reduce overexploitation), for trade (enhance market opportunities for countries that cannot afford subsidising local production) and for development (reduce rural poverty and increase food security in developing countries).

AIE/33 The effect of inflation on Reduction commitments – South Africa (29 July 1998)

There is no provision in the AoA which allows for the Current Total AMS to be adjusted for inflation. The higher the inflation rate, the more onerous is the effective reduction of support to agriculture. It has a further effect on the real value of direct payments of domestic support as well as on the value of export subsidy commitments.

AIE/34 Non-Trade concerns and Agriculture – United States (2 Sept 1998)

US is of the view that Annex 2 is sufficient and adequate in allowing countries to respond to their non-trade concerns (NTCs). In particular, Annex 2 includes provisions for public stockholding for food security purposes and payments for environmental programs, and that many Members have used the green box to address NTCs. Annex 2 policy categories also include other NTCs such as:

– pest and disease control

– infrastructural services

– public stockholding for food security purposes

– domestic food aid

– decoupled income support

– producer and resource retirement

– investment aids

– environmental programmes

– regional assistance measures

US believes that Annex 2 generally meets Members needs in the context of NTCs. It gives members enough latitude in developing appropriate policy responses to address real problems, while minimising trade distortions and production.

US concludes that resorting to border measures and subsidies linked to production or prices, rather than addressing basic needs associated with NTCs, shifts the burden of these policies on to consumers and producers in other countries. Interventions that distort market forces are not generally cost effective.

(Comment: US does not consider that some countries do not have the financial means to provide Annex 2 type supports).

AIE/35 Decoupling Domestic Support – Australia (4 September 1998)

Australia believes that a comprehensive and rigorous analysis of all permitted green box measures should be undertaken to ensure their consistency with the principle of no or minimal distortions. In particular, the following should be reconsidered:

Decoupled income support: Under paragraph 6, eligibility for income support payments shall be determined by clearly defined criteria, such as income, status as a producer or landowner, factor use or production level in a defined and fixed base period, and that payments cannot be contingent on production. However, relating payments to production in a base period still results in the coupling of production levels. At a minimum, adding a requirement that the base period be ‘historical’ would be useful to help further reduce this linkage. It would also be useful to develop criteria that completely remove the linkages between payments and production levels, and which encourage greater use of generally available income support instruments – such as social security and tax systems.

The type of structural adjustment assistance covered in Annex 2 include producer retirement programs, resource retirement programs, investment aids. The purpose of investment aids is to assist the financial or physical restructuring of a producer’s operations. The difficulty is that it is hard to know if the aid is provided for a genuine need for structural assistance.

Payments under environmental programmes: these should focus on environmental issues at the national and local levels rather than at the individual farm level.

Payments under Production Limiting Programs – Article 6.5: These programmes requiring farmers to set aside their land may not be efficient – farmers may set aside their poorest land.

Suggestions: payments which adopt a broad rather than a commodity specific approach, time limited and diminish over the life of the program, will help increase decoupling.

One worry at the moment is that while members meet their reduction commitments – they are, however, not reducing overall support levels. Instead, they are channelling support to this blue box. (Comment: this of course is targeted at the EC). The blue box is assuming greater importance as a means of compensating producers for reductions in market price support.

Australia wants to see the tightening of eligibility requirements to ensure the greatest possible decoupling of allowable production limiting programmes, and to subject payments to reduction commitments.

AIE/36 Non-Trade concerns – Australia (4 September 1998)

This paper is written in response to Norway’s paper promoting the need for subsidies if these are to protect the multifunctional nature of agriculture. Australia says Norway’s approach is one-dimensional. Norway’s subsidies are coupled to production. These will therefore push the adjustment burden onto other countries, including the agricultural development of developing countries. Norway should instead use targeted transparent policies which are fully decoupled from production to address each of their concerns.

Norway says that the market alone cannot bring about food security, rural employment, environmental protection etc. (ie. market failure). Australia, however states that while it is true that in some cases, government intervention to correct market failure is necessary, ‘the most effective, efficient government interventions are targeted to specific objectives’ (and thus decoupled from production).

Australia also makes the argument that Norway’s type of subsidies are depressing world agricultural prices and therefore reducing the viability of agriculture in many developing countries.

Norway argues that agriculture is the backbone of employment in the rural areas. Australia counters that this is the case in most countries. A certain amount of structural adjustment is an inevitable part of contemporary agriculture. Governments have a role in minimising the pain of adjustment. But ‘there are a range of factors (Comment: although Australia does not say what these are) giving rise to change, and agricultural policy alone cannot be expected to overcome the trend. Experience has shown that the use of policies such as market price support to offset the decline in farm numbers is not effective. Australia therefore addresses farm adjustment issues through a number of programmes tailored to the specific nature of the problems and groups affected.

AIE/37 Article 13: Due restraint provisions – United States (15 September 1998)

The paper gives an overview of the Due Restraint Provision, and its relation to the Agreement on Subsidies and Countervailing Measures (SCM). US is basically reminding members that the transition period for ‘due restraint’ provision ends on 31 December 2003. In 2004, agricultural subsidy programmes that had been shielded from challenge could be exposed to challenge. Export subsidies, domestic subsidies, including Annex 2 programs will be vulnerable to serious prejudice and impairment challenges. (Comment: US doesn’t state what it wants, although the implication seems to be that it wishes the Due Restraint provision to be extended).

AIE/38 Domestic Support: Responses to AIE/23 and AIE/27 – United states (15 September 1998)

US responds to Canada and Australia’s suggestion of the need to evaluate whether of not Annex 2 policy criteria need to be revisited. US agrees it needs some fine-tuning, but do not see the need for ‘major surgery’.

US disagrees with Canada that Annex 2 policies should be subject to reduction commitments. US says that rather than shutting rural areas out of assistance programmes, governments should aim to ensure the support provided is not trade distorting.

Canada questions if delinked income support is not actually trade distorting. In response, US say: ‘we believe that decoupled payments are an important policy option, and would argue, based on research in the OECD and other organisations, that payments delinked from production and prices have no effect on trade.

US also responds to Canada’s criticism of US’ production flexibility contract payments. Canada had asked if these payments have price support effects or involve transfers from consumers. US claims that these payments do not involve transfers from consumers and are not linked to prices, type of output or factors of production. Hence they do not have the effect of providing price support.

With regards to the blue box, US agrees with Australia that this was designed as a transitional mechanism to help countries move towards less trade-distorting forms of support. There is now no economic rationale to maintain them.

US also wants to tighten up disciplines on the AMS supports. Data by the Committee on Agriculture shows that few countries are seriously constrained by their AMS ceilings. The US is therefore hopeful to make expeditious progress in tightening disciplines here.

AIE/39 Non-Trade concerns in net food-importing countries – Republic of Korea (22 September 1998)

Korea points out that while it is stated in the preamble of the AoA that non-trade concerns (NTCs) should be taken into account in the reform process, only a few articles in the AoA actually embrace NTCs. In this respect, the AoA is ‘somewhat unbalanced and biased’.

Developed countries argue that NTCs are incorporated in the Green Box. However, Korea states that the specificity of the requirements prevents, de facto, many member countries from effectively addressing their NTCs.

Many of the structural adjustment aid Korea has implemented under the Green Box has not worked out – these include installing advanced facilities, new farming technologies etc. Restructuring has not produced what is originally expected because of the difficulties of low mobility of production factors – aged labour force and farmland. With the financial crisis, Korean now has cut down on investments in the area, causing much pain to farmers – hence there are risks inherent here.

Korea also agrees that agriculture has multifunctional qualities and that the market system cannot fully internalise their true values. A recent study notes that the monetary value of flood control by rice paddy in Korea is $10 billion (the cost of building the dams to absorb the excess waters). This far exceeds the total rice output of $7.8 billion in 1993.

Food security is one of the most important features of agriculture’s multifunctionality. With the financial crisis, Korea’s banks lost credit and agricultural import completely stalled. Due to the government’s assiduous pursuit of self-sufficiency in rice, Korea had enough rice stocks through the crisis. Without which, the country would have faced severe social unrest.

Korea makes the case that relying on global supplies is risky since world demand is projected to increase by 40% by 2020, and arable land area to decrease. Also weather anomalies threaten food security. ‘Considering the possibility of sudden adverse changes and the pessimistic outlook in global supply and demand, free trade alone may not always be an optimal solution. Thus it would be essential for each member country to secure a reasonable level of domestic production under any circumstances’.

AIE/40 The Multifunctional Character of Agriculture – EC (28 September 1998)

The paper provides a fairly detailed look at the multifunctional facets of agriculture especially maintenance of cultural landscape, biodiversity, and prevention of the land from erosion. According to the paper, land which has been used over a long period, when left alone does not go back to its original wild state but simply gets run down. Continued usage is therefore necessary for maintaining its environmental value.

AIE/41 The Negative Effects of Export Subsidies on Developing Countries – South Africa (26 Oct 1998)

The paper argues that developing countries are adversely affected by developed countries’ export subsidies. World prices will be depressed, which discourages production according to comparative advantage. Farmers in importing countries will suffer.

Actually very few countries account for most of the export subsidies granted world wide. Only 25 out of 132 current WTO members (19%) gained the right to use agricultural export subsidies as a result of the UR agreements. ‘However, it is these countries that dominate agricultural trade in terms of both volume and value. For example, 75% of the agreed reduction in the amount of wheat subjected to export subsidies (19 million tons) is accounted for by the 3 largest exporters – EC, the US and Canada.

Export subsidies affect the food security of low-income food deficit countries. If the developing country has a comparative advantage in the production of the imported commodity, and production is depressed due to subsidised imports, then the net welfare effect is negative. It is safe to say that low-income countries will see the incomes of already poor rural inhabitants fall.

AIE/42 External Reference Price Adjustment – Iceland (27 Oct 1998)

AIE/43 Tariff Peaks and Tariff Escalation for Agricultural and Agri-food Products and their Effects on Developing and Least-Developed Countries – Uruguay (4 Nov 1998)

Uruguay submitted a joint UNCTAD/WTO study which shows that high tariffs are still widespread. Even after full implementation of the Uruguay Round concessions, a substantial number of high tariffs will remain, affecting exports from developing countries.

The Quad countries maintain a large variation in tariff rates. Their tariff peaks reach, in extreme cases though for important products, 350% and more. The majority of tariff peaks range from 12 – 30%. However, 1/5 of the peak tariffs of the US, 1/4 of those of the EU, 30% of Japan and about 1/7 of those of Canada exceed 30%.

Developing countries apply rates above 12% more frequently than the Quad countries, but have fewer extremely high rates.

The most important areas with the highest frequencies and highest rates are the major agricultural staple foods – meat, sugar milk, butter, cheese and cereal. Tariffication of former quantitative restrictions and other non-tariff protection measures resulted in extremely high rates exceeding in most cases 30% above tariff quotas.

While tariff quotas are intended to safeguard traditional trade flows and create minimum access opportunities for the trade of all WTO members, there has been a lack of dynamism in their use. Quotas are usually allocated to traditional partners. Tariff quotas are also often narrowly defined, exclude standard trade qualities, or are provided for industrial use. There are even important cases where tariff quotas carry peak rates or even rates exceeding 30%.

According to an FAO study (1997), more than 80% of tariff wedges between raw materials and their processed products have decreased in nominal terms, creating some opportunities for developing countries to diversify their exports into higher value processed products. However, for more than half of the commodities selected, a positive tariff escalation will remain in application and retain an important dimension. On average, the Effective Rates of Protection (ERP), or the index used to measure tariff escalation is 17% for the 3 markets – US, EU and Japan.

The study concludes that tariffs and tariff escalation may be an important obstacle preventing developing countries from diversifying exports to developing counties. The exports of developing countries are mainly concentrated in the first stage of processing. More advanced food industry products make up only 5% of the agricultural exports of LDCs and 16.6% of those of developing countries as a whole, against 32.6% for developed countries. FAO concludes that tariff escalation is an important reason preventing developing countries from vertical diversification.

AIE/44 Food Security – An Important Non-trade Concern – India (16 Nov 1998)

India says that agricultural liberalisation will not address the food security needs of agrarian developing countries. Instead, ‘agricultural self-reliance forms a vital underpinning for the growth of the GDP of agrarian developing economies since good agricultural production provides purchasing power to a large majority of a population, which in turn spurts industrial growth.’ In arguing its case, India makes the following points:

1) Attention must be given to food security especially to developing countries with a large population dependent on the agricultural sector not only for its livelihood, but who are also surviving just around the ‘poverty line’. The agricultural sector maintains the livelihood of the agrarian peasantry and also ensures that sufficient food is available for domestic needs.

2) A basic objective of governments in agrarian countries is to ensure food security, ie. the access of the population to sufficient food to meet its nutritional requirements. Food security issues cover availability and stability of food supplies, but importantly, also issues of access to this supply. That is, resources may be needed to procure the required quantity of food.

3) Because of these important concerns – countries need a certain flexibility and autonomy in determining their domestic agricultural policies. They need to be allowed to provide domestic support in the agricultural sector to meet the challenges of food security and be able to preserve the viability of rural employment.

4) Policies that need to be in place include:

– improving productivity

– enhancing income levels

– reducing vulnerability to market fluctuations

– ensuring stability of prices etc.

5) The majority of farmers in large agrarian developing countries are small-scale farmers producing for their own subsistence or for simple barter. They have few resources, are vulnerable to weather conditions, and are at risk of loosing their land to the encroachment of industries. Farmers in agrarian developing countries therefore need support in withstanding the pressures they are facing.

6) Governments need to ensure that a minimum level of their annual food requirement is produced domestically, if not immediately, at least in the time to come. In order to achieve this, government subsidies would be necessary especially in providing inputs – irrigation, electricity, fertilisers, pesticides, technical know-how, high yielding varieties, infrastructural development, market support etc.

AIE/45 The Future Treatment of Domestic Support Commitments in the Case of Transition and Post-Transition Economies – Bulgaria, the Czech Republic, Hungary, Poland, the Slovak Republic and Slovenia (18 Nov 1998)

These transitional economies state that in the process of restructuring their agricultural sector to be ‘fully-fledged market systems’, they face two challenges:

1) High levels of inflation –

Between the process of buying inputs, and sale of produce, inflation has already soared, leading to drops in the real income of farmers. ‘Some possibilities should be created to alleviate the difficulties of the farmers stemming from this.’

2) Farmers in these economies have to adjust to a new economic environment. Small farming units have emerged, resulting in the fragmentation of agricultural land. To restore the viability of agricultural production, ‘an adequate level of investment into agriculture needs to be promoted’.

At the moment, the green box is only useful to them by allowing them structural adjustment assistance through investment aids. All the other measures are irrelevant – such as blue box or producer /resource retirement. Even decoupled income supports, income insurance and safety net programmes require administrative or private mechanisms which these countries do not have.

* Aileen Kwa is a researcher with Focus on the Global South