1. Towards the 1999 Review
2. How the AoA Instituted Unfair Competition: Market Access; Domestic Support; Export Subsidy; Due Restraint Provision; Agreement on Sanitary and Phytosanitary Measures
3. Negotiating for Food Security
4. Position 1: No Further Liberalisation – a Standstill Position
5. Position 2: Food Security Box: Food Security Today; How the Current AoA Deals with Food Security; Food Security Box; For Whom?; Food Security Box Provisions
Towards the 1999 Review
The review of the WTO Agreement on Agriculture (AoA) will commence by November 1999, at the time of the 3rd WTO Ministerial Conference. The informal process of putting forward recommendations and views, the ‘Analysis and Information Exchange’ (AIE) is currently in progress (see following article). This process allows open discussion between countries on future areas of negotiation without forcing countries to commit themselves to positions.
The process, however, is likely to be concluded by the second quarter of 1999, as the Committee on Agriculture will begin negotiating a text for approval at the 3rd Ministerial Conference to be held in November 1999. This final text will set the framework for the negotiations.
Countries therefore must put forward their positions now, if they want to see their interests reflected in the review. While the AIE process has generated a fruitful amount of discussion between countries, developing countries have unfortunately been very passive participants, with approximately only 2 papers out of about 30 coming from developing countries (not including Cairns Group members).
This calls for great concern since developing countries have paid the highest price as a result of the Uruguay Round Agreement on Agriculture as the ‘liberalisation’ instituted has generally condoned the high subsidies of the OECD countries, while forcing developing countries to open their markets. As Am. Narayanan of India recently pointed out, the existing WTO agenda is such that ‘developing countries are being forced to open their own markets, but markets for developing country products with export potential remain completely closed or are open only partially’. The unequal competition in the area of agriculture has aggravated the food security position of many developing countries.
This paper presents a pro-food security strategy / position which developing countries can put forward in the current AIE process. Implicit in the strategy presented are two important considerations:
Implementation issues developing countries are facing must be seriously addressed, unlike the way in which it has been glossed over in the past. The inequalities of the system have to be adequately dealt with before further inroads in liberalisation can take place.
Food security must be a central issue in the architecture of agricultural trade policy. It must be addressed in a way that is responsive and meaningful to the realities of people rather than corporations.
We define food security as having adequate nutritious food which is accessible to all people at all times. An important feature of being food secure is that countries and regions have at least a minimum level of are food self-reliance. That is, as much as possible, food should also be locally, nationally, or regionally produced. This of course may not be possible immediately, but it is an important long term developmental goal. The emphasis should be on the domestic market, rather than production for exports. This ensures that food production will be responsive to local needs, agriculture can continue to be the main source of rural employment, and countries and people do not have to incur debt in order to buy food. It is also a system of agriculture that is more environmentally sustainable as it cuts down the need to transport food across continents.
Such a concept of food security is quite different from the current rationale driving the ‘Washington consensus’ as well as many WTO trade liberalisation proponents, which focus on agricultural production based on the principle of ‘comparative advantage’. Adequate food is measured by food availability at the global level. It assumes that countries and people will have the resources and earnings to pay for imported food. This is of course erroneous. When food is imported, rural farmers are put out of their jobs and do not have the financial means to buy the imported food, even though it may be cheaply priced. Imported food therefore means the importation of unemployment and hence rural poverty.
How has the AoA Instituted Unfair Competition?
As it stands, the GATT Agreement on Agriculture disadvantages developing countries in numerous ways. The rules were basically watered down to suit the interests of developed countries.
Many developed countries set their tariffs at levels much higher than their non-tariff equivalents, hence restricting access to developing countries’ exports.
Tariff Peaks Due to Selective Tariff Reductions:
The required unweighted average of 36 per cent tariff allowed countries to reduce low tariffs by significant percentages, while reducing only slightly the existing high tariffs if the product was of trade importance. Hence in many instances, tariff reductions by developed countries have not been meaningful in trade terms to developing countries.
Manipulation of Trigger Prices to Sanction Use of the Special Safeguard Provision:
The EU, for example, manipulated with the calculation of trigger prices such that they could more frequently qualify to use the Special Safeguard Provision and hence slow the flow of imports coming their way.
Increases of domestic support above the de minimis level are illegal for all:
This is an outright imbalance since the majority of developing countries declared zero AMS. They are not allowed to increase their AMS support above the de minimis 10% level while developed countries need only reduce slightly their high AMS levels. That is to say, most developing countries which were taxing their agricultural sector are bound never to provide subsidies to any significant degree.
Endorsement of direct and decoupled payments in the GATT-legal Green Box:
This is a major loophole in the AoA which benefits the developed countries. These payments are legalised on the pretext that they are non-trade or production related, yet they provide farmers with additional revenue, hence changing input levels and thus increasing farmers’ production. Without them, many farmers in the US, EU and other OECD countries would find farming scarcely profitable. Furthermore, the developed countries, such as the EU are reinstrumenting their support policies in line with expected AoA ‘liberalisation’, so that other forms of support which may have to be phased out are converted to direct and decoupled payments. Developing countries do not have the resources to provide the same supports. These subsidies therefore skew competition in favour of the rich developed countries.
Including production-limiting programme payments in the Base AMS but excluding them from Current AMS calculations:
Subsidies provided by the US, EU and other developed countries under production-limiting programmes were included in the Base Aggregate Measure of Support (AMS). However, these production-limiting programme payments are excluded from Current AMS calculations. The result is such a huge drop in the Current AMS level in comparison to the Base AMS that it has meant that the US and EU have not needed to made real reductions in their AMS support level to meet their AoA commitment. The high levels of AMS support developed countries have traditionally provided are therefore not in reality being reduced. Therefore, while markets of developing countries are forced open, developed countries’ agriculture continue to be highly subsidised.
Shifting supports within a broad aggregate:
AMS reductions are not product specific but sector wide. This has made it possible for developed countries to maintain or even increase their AMS supports in sensitive sectors, even to levels above the base period. For example, the EU changed the composition of their assistance to the cereals and oilseeds sectors, while assistance is maintained or increased for commodities such as sugar, beef and fruit and vegetables.
Dumping of agricultural products is still legal within the AoA:
Even though the AoA stipulates that dumping subsidies, euphemistically termed export subsidies must be reduced by 21% for developed countries, it still means that developed countries are able to continue up to 79% of their base period level of dumping. Dumping on the other hand is illegal for non-agricultural products. Again, it is the developed countries that have the resources to provide significant amounts of subsidies for export dumping, creating further unequal competition with developing countries on the world market. This form of dumping has had a detrimental effect on millions of small farmers of developing countries since prices are lowered and small farmers are pushed out because they are unable to compete.
Substituting export subsidies with other support instruments:
Though developed countries are supposedly cutting down on ‘export subsidies’, there is evidence to suggest that government supports are merely being shifted to other AoA-legal programmes. For example, the EU is shifting towards increased decoupled payments, and the US is providing new forms of support such as credit guarantees to their exporters allowed under the Green Box.
Limiting the effect of dumping subsidy reductions through aggregation:
Developed countries have also been able to get around the painful cuts in their export subsidies by concentrating their subsidies on key products most important to their economy.
Due Restraint Provision
The due restraint provision, brokered between the US and EU at Blair House enabled the conclusion of the agricultural negotiations. This provision sets a 9-year period during which domestic supports and export subsidies are protected from
dispute challenges and the imposition of countervailing duties by affected countries.
For example, the EU’s export subsidies are largely non-actionable under this provision until 2003. This is obviously unfair since developing countries are required to open their markets in the face of unfair competitive practices, such as dumping, and have no avenue of recourse.
Agreement on Sanitary and Phytosanitary Measures (SPS)
The SPS Agreement which was crafted at the same time as the AoA is also biased against developing countries. It has enforced mandatory food standards according to those of the Codex Alimentarius, a joint UN/WHO organisation.
Where there is no international standard, countries wishing to block imports on the grounds of SPS must base their objections on ‘sound science’. However the country wanting to block the imports must establish the proof, rather than the exporter.
SPS is problematic for developing countries because
1) Codex is largely dominated by the developed countries and their corporations. Developing countries are not represented in Codex’s committees and have in the past not been actively involved in the standard setting processes of Codex. They find themselves now having to abide by standards that have already been predetermined and which are usually too high.
2) Since the bottom line at Codex and with the SPS Agreement is ‘scientific evidence’, it excludes developing countries from participation at Codex as they often lack such scientific resources and expertise. The food processing corporations, on the other hand, have the higher hand with their up-to-date expertise.
3) Putting the onus of proof on receiving countries is therefore unfair given the resource limitations of developing countries. This system obviously works to the interests of exporters from developed countries, particularly the corporations.
Negotiating For Food Security
Given the current inequalities in the rules of the AoA, developing countries can take the following negotiating positions (in sequence) in order to protect and enhance food security in their countries:
Position 1: No Further Liberalisation, ie., a standstill position until implementation issues are completely reviewed and redressed. This is an appropriate position for the 1999 review.
When a thorough review of the impact of the AoA has been completed, countries can then ask for the following:
Position 2: A Food Security Box which allows countries wanting to nurture their agricultural production the capacity and space to do so. The Food Security Box will also be a re-balancing of the AoA rules between developed and developing countries.
Position 1: No Further Liberalisation – a Standstill Position
In the current AIE process and the coming review, developing countries as well as developed countries wanting a minimal level of food self-reliance should take the position that there should be no further liberalisation of the Agreement on Agriculture until a thorough review of the results of implementation has been conducted. The review should therefore only be a review, and not the reopening of negotiations. Once negotiations are reopened, it is likely that developed countries will push through further liberalisation disciplines (along the lines of the US’ and Cairns Group position) without taking into account the imbalances of the present AoA, as elaborated in the section above. This will further damage developing countries’ food production systems and render them increasingly dependent on food imports.
The effect of the AoA must be carefully studied in relation to the following issues: import flows and local production levels; levels of AMS governments provide and whether these governments are utilising the Green Box, input and investment subsidies of the Special and Differential Treatment clause; levels of food aid received in the country; rural and urban peoples’ access to food; food prices; stability of food supply; quality of food; rural employment and quality of life; biodiversity.
Upon the completion of a thorough review of the AoA implementation in all countries, there should then be serious re-examination of the food security needs of countries. Food security and rebalancing of the AoA are to some extent addressed below in the proposed Food Security Box.
Position 2: Food Security Box
Food security has been raised repeatedly in the AIE process as an important non-trade issue by developing and even developed countries. It is obvious that for many members, the existing AoA is lacking and has even detrimental effects in this area.
Food Security Today
The FAO forecast on food security is bleak. By the year 2000, FAO predicts that there will be a substantial increase in world agricultural trade. Despite the gains in trade, and the ability of the world’s productive capacity to meet the global demand for food, there will be no improvement in food security. The International Food Policy Research Institute (IFPRI) also estimates that up to 2020, there will be very little reduction in the number of malnourished children in the developing world as a whole. Whilst in Sub-Saharan Africa and South Asia, the number of malnourished children may actually increase.
These projections have been made before the onset of the Asian and now global economic crisis. The current turmoil has drastically worsened the food security situation in Southeast Asia and Russia, and is currently threatening to also severely affect the Latin American countries. Up to 98 million people are facing serious food shortages in Indonesia alone.
This is therefore a critical moment to seriously look at the way we have designed our agricultural policies in the past, and implement the necessary changes. Governments in Southeast Asia are already channelling support to this sector in various ways, in the realisation that food self-reliance is crucial. Fortunes can turn so that once available foreign exchange to purchase food may not be available tomorrow. However, policies at the macro level must be equally supportive.
How the current AoA deals with Food Security:
The current Agreement on Agriculture addresses the food security issue in various ways.
The Green Box can in fact be likened to a Food Security Box for developed countries such as the US and the EU. It allows governments to provide without limits, supports such as general services ranging from infrastructural, research and marketing services etc.; direct payments; decoupled payments or payments which are not related to production etc. (See Annex 2 of the AoA). This form of outright financial support, however, is not feasible for developing countries as they do not have financial resources. Developing countries therefore require other non-financial means to protect and support their farmers.
Special and Differential Treatment clause
The AoA allows developing countries to provide
– investment subsidies (credits at favourable interest rates) as well as
– input subsidies generally available to low income and resource poor producers. These supports are not subject to reduction, but they are limited to 1992 levels (due restraint clause). For developing countries, this is again limited in usage, especially as countries may lack the administrative capacity to put the targeting into practice.
De Minimis Support
Developed and developing countries are allowed to maintain a certain level of de minimis support of 5% for developed countries and 10% for developing countries. This is important, however, it again means that developing countries support agriculture through financial means.
The Marrakesh Decision or Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least Developed and Net Food-importing Developing Countries.
The Marrakesh Decision, passed in conjunction with the AoA has so far been a cosmetic appendage to the AoA, providing least developing and net-food-importing developing countries (NFIDCs) with a false sense of security. The Decision in theory should provide financial assistance, food aid, and technical assistance to NFIDCs should the implementation of the AoA adversely affect them.
However, developed countries have chosen not to activate the Decision despite the fact that world cereal prices more than doubled in 1995/6. Their rationale was that there was no evidence that high cereal prices were due to AoA implementation. In fact, the AoA has been directly responsible for the decrease in the US and EU’s public stockholding and therefore a decrease in food aid levels. As is, the Decision is weak regarding concrete implementation measures, and there seems little political will or interest to improve things.
Food Security Box
As is clear from the above, the AoA is lacking when it comes to responding to the food needs of developing countries.
We therefore recommend that developing countries call for the introduction of a Food Security Box in the AoA when implementation studies are completed, or should Position 1, the standstill position not be possible for the 1999 review due to excessive pressure by the US and Cairns Group to reopen negotiations and further liberalisation.
The Food Security Box can either be added to the Green Box, or it can stand as an article on its own. Alternatively, it could also be included as a series of textual amendments throughout the new agreement.
Those allowed to use the Food Security Box can include the following:
Countries which do not export agricultural products or if they do, only export less than 5% of their own consumption for the product in question as well as only 10% of their total consumption of all agricultural products. They must also not provide any export subsidies. This category could include developed or developing countries. (This will allow countries such as Japan and South Korea which wish to remain self-sufficient in rice to do so)
Net-food-importing developing countries (NFIDCs)
Least developed countries (LDCs)
Countries that are predominantly agrarian economies (the category that India is proposing to introduce)
Food Security Box Provisions
The Food Security Box should include the following measures:
1) Variable tariffs and other non-tariff barriers such as quotas to ensure that developing countries’ farmers are not squeezed out when producing for their own local and domestic economies due to competition with subsidised imports into their country. Countries will be allowed to use tariffs and other border measures as they see fit to counter the influx of cheaper imports so as to ensure rural employment and food sovereignty.
2) The minimum access commitments in the current AoA which states that developing countries have to permit a minimum access of 1% rising to 4% by the year 2000 should be waived for these countries.
3) The use of the Special Safeguard Provision by developed countries must be re-evaluated. Very high trigger prices (for example, used by the EU) as a result of manipulating with the trigger price calculations must be readjusted.
4) There should not be a limit to the level of AMS support these countries provide. Since most of the countries implementing this Food Security Box clause will be developing countries, there is little to fear that AMS levels will sky-rocket. Most developing countries after all declared zero AMS in the base period, whilst developed countries continue high levels of AMS support. It is therefore fair that the AoA allow developing countries and those wanting to nurture their food production system for local consumption, the space to do so.
5) Export dumping should be made illegal even for agricultural products. That is, all export subsidies should be eliminated.
6) The due restraint clause which exempts export subsidies and domestic supports from countervailing challenges should be removed so that developing countries can seek protection against dumping. Also, the process of establishing dumping must be simplified for developing countries. At present, it is too expensive for developing countries to invoke anti-dumping procedures. It is slow and difficult to prove harm to a sector, especially as the sector may consist of millions of subsistence farmers dotted around a country. Developing countries must also be helped to protect themselves against the use of anti-dumping measures by developed countries obviously motivated by protectionist ends.
Agreement on Sanitary and Phytosanitary Measures
7) The use of Codex’s standards should be voluntary and countries must be allowed to refuse the entry of products with standards they do not agree to. Our knowledge of food standards and the implications on human health remain incomplete. Current scientific proofs are not infallible. Hence countries wishing to establish alternative standards from those accepted in Codex must be allowed to do so. The US intends to tighten up on the SPS Agreement in order to ensure that their biotechnology food products can be exported to all countries, without the need for ‘rigid labelling requirements’. Not only in the EU, but people in many developing countries are not in favour of this. It is both an unknown threat to human health, as well as a serious threat to plant biodiversity.
Appendix 1: US’ Agenda for the 1999 AoA Review
Tighter disciplines on the Technical Barriers to Trade. They want to remove the use of technical measures, such as unnecessarily rigid labelling requirements. Special emphasis will be placed on technical and regulatory trade restrictions.
More clearly define and tighten rules on sanitary and phytosanitary (SPS) measures ‘to ensure fair competition’ (Glickman, March). They want to ensure that ‘science, not internal politics or protectionism, is the basis for public, animal and plant heath rules’. The goal of the US is to reduce ‘red tape’ when countries erect sanitary and phytosanitary barriers. Because of their experience with the EU’s tighter health and safety requirements, the US wants to push for ‘lower standards’ – but this they term ‘greater international harmonisation’ on the basis of more clearly defined rules on technical barriers.
US main aim is to promote biotechnology. They want food safety standards to be transparent, based on scientific principles and provide for a clear approval process in a timely fashion for the products of biotechnology. (US’ argument for the need for biotechnology is that the world’s population is expanding at 2 per cent annually, so that there are 80 million more mouths to feed each year. Global demand for food will triple within the next 50 years. By 2030, Asia’s population will be 4.5 billion and the average daily consumption of animal protein will quadruple to 60gs. The middle classes of Latin American and other countries are demanding higher quality diets.) Their interest is obviously export driven.
As Scher sees it, SPS barriers become more attractive as a means to restrict access. ‘We must guard against the increasing use of SPS barriers as the ‘trade barrier of choice’.
US intends to ‘make aggressive use WTO consultation and dispute settlement procedures to push for the removal of these SPS barriers.’ (Scher 1998 March).
Broader market access through substantial reductions in tariffs. The average non-agricultural tariff is 4 per cent, the average agricultural tariff is 56 per cent. Tariffs on some products exceed 300 per cent. Want major tariff reductions and the highest tariffs to be reduced most.
Substantial increase or ‘effective elimination’ of tariff-rate quotas by reducing the tariff rate on products traded above quota levels.
Reduce and eliminate trade-distorting subsidies as a blue box deficiency payments. US wants the decoupling of domestic support from domestic production.
Continued reforms in domestic supports. (This may include reducing AMS, and maybe tightening up on the Green Box)
Rigorous disciplines on State Trading Enterprises. US intends to move aggressively in this area. The reason given is that STEs operate behind ‘a veil of secrecy’ and can undercut exports based on open market transactions and restrict imports. US seeks greater transparency in the operation of STEs – both import and export monopolies. They are working closely with the WTO Working Party on State Trading Enterprises to identify practices that need to be disciplined in the upcoming negotiations.
Establish a schedule for the phase out of export subsidies. Work on defining export subsidies. EU budgeted US$6.1 billion in export subsidies in 1997. This, the US feels provides a strong case for cuts in this area.
The US wants no pause in negotiations. They want a round, but do not want all issues to be held up until others are concluded.
Appendix 2: Cairns Group Agenda for the 1999 AoA Review
In general, their position is similar to the US. They want more cuts in export subsidies, domestic support and border protection. They are perhaps most concerned over export subsidies because of the projected rise in the use of these subsidies. This is due to recent developments in the global market which are diving prices down and increasing the pressure in favour of subsidies.
According to Murphy (IATP), the Cairns Group have been hostile to the NFIDCs requests for compensation under the Marrakesh Decision when food import prices were high in 1995/6, stating that the AoA had no effect on world prices.
The Cairns Group are divided on the US’ line to discipline State Trading Enterprises as many of them operate them (Murphy 1998).
Some of the Cairns group are for a comprehensive round, others are opposed to it.
Australia (the main Cairns group spokesman) supported by other Cairns group members including Argentina, Uruguay and Chile, has asked that the preparatory process address the scope, structure and time-frame of the negotiations.
NZ has asked for the following changes:
Market access – including tariffs (methodologies and time frame for further reductions, tariff peaks, tariff escalation, prohibitive tariffs and entry price mechanisms).
Tariff quotas and guidelines on them – including transparent administration and treatment of preferential access and imports from non-WTO members within such tariff quotas
Special safeguards and import monopolies
Disaggregation of AMS by product, technical issues of base periods of external reference prices, time-frame for further reductions
Production limiting programmes and greenbox criteria
Export subsidies and time frames for further reductions, circumvention of export subsidy commitments
Special and differential treatment and export restrictions
This is similar to US’ concerns although the US has not called for a disaggregation of the AMS, which has benefited mainly themselves and the EU.
Appendix 3: EU’s Agenda for the 1999 AoA Review
The EU is preparing for CAP reforms – ‘Agenda 2000’ – in expectation of pressures put on them in the coming review. Fairly central to their reforms is the introduction of the concept of multifunctional agriculture. They want this added to the Green Box.
They are also moving towards increased use of decoupled payments in place of market price supports. Prices will therefore be more in line with world market prices. They also intend to increase controls on output levels.
Murphy (1998) points out that in terms of a food security strategy, the EU may be a good ally not only because they are a strong presence in the WTO, but also because they also recognise the need to support agriculture in terms of fostering rural communities and for environmental reasons. There is scope to expand this concept of multifunctionality so that includes developing countries’ concept of food security, that agriculture provides food, employment, preserves biodiversity etc. Therefore while the EU must be challenged on its abuse of export subsidies, it may be worthwhile for developing countries to work with them in the coming review to ensure a food secure agenda.
Appendix 4: Developing Countries’ Agenda for the 1999 AoA Review
Only a small handful (not in the Cairns Group) have spoken up.
They have pointed out that developing countries continue to face difficulties in accessing developed country markets, including high tariffs against their products, as well as the failure of the developed countries to fulfil their commitments of special and differential treatment.
Pakistan, India, Mauritius, South Africa and several others have raised the issues of ‘non-trade’ concerns of food security. They have said that the hypothesis of liberalisation did not take into account the realities faced by many developing countries.
India’s paper presented to the Committee on Agriculture in November 1998, ‘Food Security – An important Non-trade Concern’ found resonance with developing countries (South Africa and Mauritius), as well as developed countries (EC, Japan, South Korea). These countries made comments to support this viewpoint.
India pointed out that a significant proportion of the population in developing countries are not only dependent on agriculture for their livelihoods, but also for survival just around the poverty line. The paper pointed out that a purely market -oriented approach whereby liberalisation is seen as the panacea for all ills of the agriculture sector will not respond to developing countries’ problems. India therefore proposes a ‘market-plus’ approach whereby non-trade concerns such as maintenance of the livelihoods of agrarian peasantry and production of sufficient food to meet domestic needs are taken into consideration. The issue of food security must importantly include peoples’ access to food supply.
An major feature of food security India is proposing is agricultural self-reliance, which ‘is a vital underpinning for the growth of GDP of agrarian developing economies, since good agricultural production provides purchasing power to a large majority of the population and in turn spurts industrial growth’.
The paper also points out the need for governmental supports in the use of inputs in irrigation, electricity, fertilisers, infrastructure etc., to develop the agricultural sector. Government supports to alleviate poverty must therefore be allowed and differentiated from those given to ‘carve out a niche in the international trade ‘.
In short, India has insisted that unlike what happened in the Uruguay Round, the implementation problems of agriculture, and the concerns and shortcomings, particularly those facing developing countries, should be faced upfront. These should be discussed in the Committee on Agriculture and should not be limited to a rigid time-frame.
Egypt has underscored the need for some modesty in ambitions and for realistic expectations. Egypt stressed the importance of non-trade concerns of the net-food importing countries. Egypt complained that the US and NZ papers for agriculture treated the Special and Differential Treatment issue as a peripheral one.
LDCs and NFIDCs which together account for just under 1 billion people and remain below other developing countries when measured by most indicators of social development, have been anxious, in the discussions, that their special positions recognised in the Marrakesh decision is not diluted or undercut.
* Aileen Kwa is a researcher with focus on the Global South