According to preliminary FAO estimates, the value of trade in the principal primary agricultural commodities1 fell sharply in 1999 for the second year in a row. The value of global exports dropped by some $22 billion from 1998 to $146 billion. This represents a reduction of almost 13 percent and follows a 9-percent decline in the previous year. The export earnings of developing countries fell disproportionately more, by some 15 percent to $68 billion, a drop of about $12 billion (Table 1).
The reduction in the value of commodity export earnings in 1999 reflects a combination of falling prices and flat or declining trade volumes for many commodities. Continuing weak demand growth and ample harvests depressed commodity prices. The most severe declines in the value of export earnings were felt in beverage crops, sugar, rice, vegetable oils and oil meals. Indeed the decline in the value of exports was generalised across most commodities in 1999, with export earnings increasing significantly only for bovine meat.
The declines in export earnings generated by coffee and sugar were particularly acute, falling by 36 percent and 28 percent, respectively, at the global level. Coffee and sugar alone accounted for more than 40 percent of the total reduction in the export earnings of developing countries, amounting to losses of $3.7 billion and $1.4 billion, respectively. Already low prices for these crops were affected further by the 40-percent devaluation of the Brazilian real in early 1999 that stimulated demand for more competitively priced exports in the world market. This, coupled with continuing weak demand growth in a number of traditional import markets caused international prices and export earnings to plummet.
The value of global export earnings from cereals also fell substantially in 1999, by some $4 billion or about 11 percent. Most of this decline was felt in the rice market, where the value of exports dropped some 19 percent in 1999 (from the previous year's unusually high level) on the basis of both lower traded volume and falling prices. Rice production in a number of major consuming countries recovered in 1999, after the previous season's disappointing harvests that had boosted imports in 1998. The value of global wheat and coarse grains trade also fell in 1999, despite lower production world-wide and modest growth in export volumes. Prices for these grains fell in 1999, reflecting the existence of ample exportable supplies in the major exporting countries.
The value of exports of oilseeds, oils and fats, and oilseed meals and cakes fell 13 percent in 1999, by a total of $5.7 billion. Oils and fats represented more than half of the total reduction, some $2.9 billion, reflecting a pronounced decline in prices. Production of oils moved sharply upward in 1999 on the basis of favourable weather and in response to the previous year's unusually high prices relative to meals. Palm oil prices plunged 35 percent.
In the meat market, there was no significant change in overall export earnings, as a moderate increase in the volume of exports was offset by generally declining prices. There were, however, distinct contrasts in the evolution of the different meat categories. While the export value of most meat categories fell, the value of bovine meat exports increased substantially, by 14 percent or some $1.5 billion. Somewhat higher prices and larger traded volumes - supported by food aid shipments to Russia and the resumption of demand growth in Asia - pushed up the value of bovine meat exports. On the other hand, the value of ovine meat, pigmeat and poultry meat exports fell in 1999 for the second year in a row, reflecting generally depressed international prices. Similarly, the value of global dairy exports fell on lower prices and flat or declining volumes, as ample supplies in the main producing areas and reduced purchasing power in some important dairy importing countries combined to keep prices low.
The value of agricultural raw materials exports fell 7 percent in 1999, by some $1.3 billion, with cotton and rubber accounting for most of the reduction. These markets continued to suffer from the lingering effects of the economic slowdown of 1998, particularly in Asia, which reduced demand from the textiles and automotive industries and put downward pressure on prices for raw materials. Some recovery in demand was witnessed in 1999, however prices remained depressed due to the existence of large stocks that overhang the market, particularly for rubber.
In contrast with most agricultural commodities, world trade in forest products is estimated to have grown 5 percent in 1999 to almost $140 billion, more than recouping the decline suffered in 1998, as renewed demand growth in Asia boosted both traded volumes and prices. In 1998, trade in fishery products shrank by 5 percent to $49 billion. Although complete estimates are not available for 1999, there is some evidence of recovery in fishery products trade on the basis stronger volumes and rising prices, especially in the latter part of the year.
In 1998, the latest year for which complete trade statistics are available, the value of global exports of all agricultural commodities (excluding forest and fishery products) fell 7 percent in nominal terms to $308.6 billion, in contrast with zero growth in 1997 and 6 and 16 percent gains in the previous two years respectively. The contrac-tion in total agricultural export earnings in 1998 affected both developing and developed countries, with declines, respectively, of 3 percent to $132.5 billion, and 6 percent to $176.1 billion. The 1998 decline in the value of agricultural trade can be partly explained by the downward pressure of the Asian economic crisis both on global food demand and on the international prices of most agricultural commodities. Given the continuing slide in most commodity prices, it is likely that total agricultural export earnings fell again in 1999.
The decline in value of agricultural exports in 1999 was also reflected in lower expenditures for imports of staple foods (cereals, cassava and vegetable oils). Developing countries' imports of these staple foods are estimated to have fallen by about 7 percent in value terms to about $40 billion on 1999, below that of the 1995-96 cereals price spike. The decline in the value of staple food imports can be explained by the decrease in cereal prices and, to some extent, by the recovery of cereal production in many traditional importing countries, which reduced the volume of import demand. Higher food aid shipments also contributed, to a small degree, to the reduction in food import expenditures.
The index of nominal agricultural commodity prices fell 13 percent in 1999, to its lowest level in more than two decades2 (Figure 1). Prices for all commodity categories in the index fell, with cereals and raw materials prices dropping more than 15 percent; beverage crops, bananas and vegetable oils more than 20 percent; and sugar almost 30 percent. Of the primary major commodities, average prices fell in 1999 for all except bovine meat, jute and abaca.
These substantial price declines occurred because ample harvests boosted exportable supplies of many commodities, with little corresponding increase in demand, pushing prices downward. On the other hand, meat prices firmed somewhat in 1999 in response to the economic recovery in East Asia, because demand for this group of commodities is considerably more sensitive to changes in income. Currency exchange rates played a significant role in the price situation of some commodities, notably for coffee and sugar, where the sharp devaluation of the Brazilian real induced a large increase in export supplies from that country. Similarly, economic difficulties including substantial currency devaluations constrained the purchasing power of several large importers, such as the Russian Federation, dampening demand and depressing prices.
Figure 2 shows the development in nominal and real agricultural commodity prices over the 1990-99 period. Nominal prices have fallen considerably since the mid-1990s. Between 1994 and 1999, the index for aggregate agricultural commodity prices fell by some 23 percent. Over the same period, the index of export manufactures unit values (MUV) also declined, though less sharply than that of agricultural commodity prices. Consequently, the terms-of-trade for primary commodity exporters, fell in the aggregate by less than indicated by nominal prices since 1994.
Export prices of major agricultural commodities for developing countries declined more than for developed countries in 1999 (Table 3). This was largely due to the small share of meat in developing countries' export, and the small price decline for meat in that year. In addition, the declines in the cereals group, and in the beverage crops group were also larger for developing countries as a result of higher weights of rice and coffee in these respective indexes for developing countries, and the large relative declines in the prices of these products in 1999.
Price variations appear to have increased for a number of commodities during 1999, particularly cocoa, coffee, bananas, maize, rice, palm oil and some agricultural raw materials. These commodities were characterised by unusual supply fluctuations during the year. Maize production, for example, increased substantially despite lower planted area world-wide because unusually favourable growing conditions boosted yields unexpectedly. Similarly, crop damage and supply disruptions caused by natural disasters affected the markets for a number of commodities including coffee, cocoa and bananas. Palm oil prices were particularly volatile in 1999 because good weather boosted production unexpectedly, causing prices to fall from their unusually high levels of 1998.
The global economic situation strengthened substantially during 1999, with real GDP growth estimated at 3.3 percent for the year compared with 2.5 percent for 1998. Factors underlying this performance include particularly strong growth in North America. However, they also include a rebound in most of the crisis-hit Asian economies, a reversal of the downturns in Russia and Brazil, and a resumption of growth after the deep recession in Japan.3 Despite growth in demand and production, inflation has remained subdued in most regions, supporting the outlook for stronger economic expansion through 2000, currently forecast at the rate of 4 percent.
In the advanced4 economies, GDP growth in 1999 was estimated at 3.1 percent and is forecast to continue at a slightly higher rate, 3.4 percent, during 2000. Some slowing of the pace of economic expansion in the United States is expected to be more than offset by an acceleration of growth in the European Union and Japan.
For the developing countries, the pace of economic expansion accelerated from 3.2 percent in 1998 to 3.7 percent in 1999, and the forecast for 2000 is for further acceleration to 5.1 percent. Strong performance in the developing countries of Asia led the recovery in 1999, while growth actually slowed in the other regions. After the financial turmoil in the largest economies of Latin America that slowed economic output to virtually zero in 1999, growth is expected to resume in 2000, supported by comprehensive reform programmes.
For the countries in transition, growth recovered in 1999 and is forecast to continue in 2000 at 2.6 percent, as the long period of economic decline appears to have ended. Economic conditions remain uncertain in Russia following the sharp contraction there in 1998, but output is forecast to expand in 2000 by 1.5 percent.
The economic turnaround in Asia was particularly striking in 1999, well exceeding the pace of recovery predicted a year earlier. Japan underwent a dramatic recession in 1998, with a fall in GDP of 2.8 percent, which affected the export prospects for most of developing Asia. In response, the Japanese government implemented a major stimulus package in late 1998 with an emphasis on the implementation of large public investment programmes. As a result, growth picked up strongly in first quarter of 1999, although it fell during the next three quarters. According to the latest IMF forecast, positive growth is foreseen in the Japanese economy throughout 2000 at nearly 2 percent.
In the ASEAN-4 countries - where economic output fell in 1998 by 9.8 percent - every economy posted positive growth in 1999 except Indonesia. The Republic of Korea recovered at a fast pace in 1999 backed by sound macroeconomic policies, a high current account surplus and strong capital inflows. A competitive won is expected to support a further acceleration in growth in 2000. In Malaysia, a strong economic recovery is also underway in response to a significant strengthening of fiscal and monetary policies along with a pegging of the exchange rate at a competitive level, which may enhance the possibilities for growth from the export sector. Indonesia - the worst hit among the countries in the region - now has inflation under control, but still faces severe structural problems, which could dampen growth prospects in the coming years.
Overall for Asia, growth is expected to remain at about 6 percent in 2000. Asia's largest developing economy - China - is experiencing its lowest level of GDP growth in more than a decade, at 6.7 percent in real terms, due to increasing capital outflows and the effective appreciation of its currency caused by the earlier collapse of exchange rates among its major trading partners. In India growth is envisaged to remain robust in the coming years in part as a result of fiscal discipline, and in part because of a stimulus from the external sector, where reform has created a more open trading environment.
Despite the acceleration of economic growth at the global level, growth in many of the poorer regions of the world remained weak, particularly when measured in per caput terms. Indeed, among the developing countries, only Asia posted a significant expansion in per caput economic output in 1999. Per caput GDP fell by 1.9 and 1.5 percent respectively for the developing countries of the Middle East and Europe and the Western Hemisphere. In Africa it fell by 0.2 percent.
One overarching reason for the weak economic performance of these regions has been the fairly modest growth in world trade, which among other factors placed downward pressure on primary commodity prices and export earnings. Continued economic expansion, particularly if Russia and Brazil recover as expected and if growth in Asia is sustained, should boost import demand and prices for a broad range of commodities in 2000. As trade and commodity prices rise during 2000, so should income growth in the developing countries.
The Seattle WTO Ministerial Conference held from 30 November to 3 December 1999 was intended to mark the beginning of a new comprehensive round of multilateral trade negotiations. This goal was not reached as Ministers were unable to agree on a Declaration defining the scope and goals for the new round of negotiations. It was not possible in Seattle to bridge the differences amongst countries on some traditional trade issues as well as on whether certain new issues such as labour standards and environmental concerns should be brought more fully into the WTO negotiations.
In agriculture, groups of countries coalesced around various positions according to the degree and manner in which they support their agricultural producers; whether they are net importers or exporters of food and agriculture; and the extent to which they perceive agriculture as an inherently "multifunctional" activity requiring special treatment within the WTO.
The Ministers agreed to suspend the work of the Conference and to have the WTO Director-General consult with delegations and discuss creative ways in which to move the negotiations forward. Whether these discussions will ultimately result in a comprehensive round of trade negotiations or in a more narrowly defined agenda is difficult to say at the moment of writing (March 2000). However, at its meeting on 7 February 2000, the General Council of the WTO agreed to go ahead with the mandated negotiations to further liberalize trade in services and agriculture, as provided for in the Uruguay Round Agreements on these subjects. It was agreed that the negotiations would take place in special sessions of the Committee on Agriculture, the first of which was held on 23 and 24 March 2000.
The Special Session agreed a programme of work which implies two phases to the negotiation process. The first phase, which will last for about a year, will in essence be devoted to submissions and discussions of technical papers and negotiating proposals by participants within the framework of paragraphs (a), (b), (c) and (d) of Article 20 of the Agreement on Agriculture. This phase will end with a stocktaking meeting in March 2001. Thereafter, a second phase would involve the negotiations proper to reach a new agreement. The schedule for the first phase calls for the submission of negotiating proposals by the end of December 2000, although there will be flexibility to submit proposals after this date provided they are done well in advance of the March 2001 stocktaking exercise covering all proposals submitted. Special Session meetings to discuss technical papers and negotiating proposals are planned to be held back-to-back with the regular meetings of the WTO Committee on Agriculture in June, September and November 2000, with the possibility of a fourth meeting provisionally set for the last week of January 2001.
A draft Ministerial Declaration that emerged on the final day of the Seattle Conference provides some insights on the major issues at stake in the negotiations. Concerning agriculture, the draft Ministerial Declaration deals with matters pertaining to the implementation of the UR Agreements, such as measures to facilitate access of developing countries to tariff quotas and the development of internationally agreed disciplines to govern export credits, credit guarantees and insurance programmes. It also addresses issues relating to future negotiations, including whether the objective of the upcoming negotiations should be to integrate agriculture fully into GATT 1994, the extent to which export subsidies should be reduced in the next round, and whether the concept of multifunctionality should be considered in the context of non-trade concerns. 5
Many countries, most of which developing, stated that implementation issues need to be adequately addressed, before any further liberalisation is undertaken. A proposal was made that a thorough assessment be conducted before initiating negotiations in line with the provisions of the Agreement on Agriculture (AoA), in order to provide both developed and developing countries a clearer picture of the impact of agricultural trade liberalization under the existing WTO agreement so as to identify priorities for further negotiations. Such a review would also need to cover particular problems faced by WTO members in implement-ing the WTO Agreements in addition to their effects on trade.
· Imbalances in the existing agreements
Many developing countries pointed out that imbalances existed in several areas (e.g. domestic support, export subsidies and use of the special safeguard), which if not corrected precluded fair and truly competitive trade. For example, of the total base period value of the Aggregate Measurement of Support (AMS) of $198 billion, over 90 percent was accounted for by OECD countries. For 13 out of 17 developed countries or country groups, the total value of AMS was in excess of 20 percent of their agricultural GDP. Given the "standstill and roll back" principle underlying the AoA, this implies that developed countries have "rights" under WTO to use their remaining high levels of support and protection, while developing countries' "rights" to similar support and protection are constrained to their considerably lower levels.
A similar situation exists with regard to export subsidies. Over 90 percent of the WTO-permitted total outlay on export subsidies is "accessible" to developed countries. Yet another example is regarding the special safeguard. The special agricultural safeguard (or SSG) can be used for about 80 percent of the tariffied products of the OECD countries, thus providing additional border protection.
· Technical assistance and compensation
Many developing countries also expressed dissatisfaction with inadequate implementation, in their view, of the Marrakesh Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least Developed Countries and Net Food-Importing Developing Countries. One of the proposals called for the revision of the Decision (before the beginning of 2001) in order to ensure its effective implementation through the incorporation of concrete, operational and contractual measures, including provisions for technical and financial assistance. Provisions for technical assistance in the SPS/TBT Agreement were also explicitly noted in several proposals.
Implementation issues have also been central to many of the proposals for negotiations on agriculture. Broadly, two aspects were stressed: the need for correcting the various imbalances, as noted above; and assessment of the experiences to date with the implementation of the Agreement on Agriculture, as called upon in its Article 20. The quantitative benchmarks established in the UR, such as those relating to reductions in bound tariff rates, in the volume and value of export subsidies and in trade-distorting domestic support measures, provided a concrete basis for correcting some of the imbalances in these key components of the AoA, while reviews were called for to improve the situation regarding imbalances in other areas. As regards the actual experience with the implementation of the AoA, the developing country proposals have focussed on two points. First, there was a need for reviewing the difficulties experienced with implementing the provisions of the AoA. Many of these difficulties have been brought to the attention of the WTO Members largely in the meetings of the WTO Committee on Agriculture and in its Analysis and Information Exchange (AIE) process. Second, there was a need for an assessment of the impact on trade, which should identify difficulties faced by these countries in accessing import markets, with regard to both tariff and non-tariff measures.
The following outlines briefly some of the other prominent proposals on agricultural negotiations:
One of the results of the Uruguay Round was the Understanding on Rules and Procedures Governing the Settlement of Disputes, which provides a complete updating of the dispute settlement arrangements that had developed in the GATT over the preceding half-century. It contains detailed coverage of the initiation and conduct of the dispute settlement, in order to ensure that the rules-based system of the GATT/WTO works effectively and to enhance the predictability of the multilateral trading system. This section highlights some of the most recent agricultural disputes at the WTO. It is important to note that although the commodities concerned are agricultural and therefore the Agreement on Agriculture applies, the disputes nearly always cite inconsistencies with other agreements and GATT Articles as well; some of the cases do not even mention the AoA.
By mid February 2000, the total number of disputes brought to the Dispute Settlement Body (DSB) of the WTO since its formation in 1995 amounted to 189, thus averaging around 38 per annum, compared to only six cases per year prior to 1995. The most-often cited Agreements in these disputes are the Agreement on Sanitary and Phytosanitary Measures (SPS), Technical Barriers to Trade (TBT), Trade-Related Aspects of Intellectual Property Rights (TRIPS) and the Agreement on Agriculture.
Two recent issues, which relate closely to the Agreement on Agriculture, are discussed in the boxes below. Several other disputes cite one or more articles of the AoA, but the main concern
seemed to be with other agreements and GATT 1994. The first box deals with export subsidies and the second with market access. The boxes provide detailed information on these cases and their situation at the time of writing.
The first box discusses two disputes regarding Canadian dairy export policies. In Canada: Measures Affecting the Importation of Milk and the Exportation of Dairy Products, a case brought by the United States, inconsistencies are cited between the export subsidy rules of the AoA and Canada's commitments on export subsidies (plus some rules on tariff quotas). Canada: Measures Affecting Dairy Products, brought by New Zealand, also cites articles on export competition, in addition to GATT Article XI on quantitative restrictions. The second of these boxes highlights some salient features of the banana dispute (European Communities - Regime for the Importation, Sale and Distribution of Bananas), which has received considerable attention during the 1990s. It cites, among others, GATT Article XI on the general elimination of quantitative restrictions. Likewise, the administration of tariff quotas, widespread in agriculture, has been at the core of several disputes involving agricultural products (notably GATT Article XIII). The Agreement on Import Licensing is almost always cited together with complaints on tariff quotas, as quotas are usually administered with license (e.g. in the banana dispute).
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The disputes a) Canada - Measures Affecting the Importation of Milk and the Exportation of Dairy Products, complaint by the United States. The United States contended that export subsidies allegedly granted by Canada on dairy products and the administration by Canada of the tariff-rate quota on milk distort markets for dairy products and adversely affect US sales of dairy products. The US alleges violations of Article II, X and X1 of GATT 1994, Articles 3, 4, 8, 9 and 10 of the Agreement on Agriculture, Article 3 of the Subsidies Agreement, and Articles 1, 2 and 3 of the Import Licensing Agreement. b) Canada - Measures Affecting Dairy Products, complaint by New Zealand in respect of an alleged dairy export subsidy scheme commonly referred to as the "special milk classes" scheme. New Zealand contended that the Canadian "special milk classes" scheme is inconsistent with Article XI of GATT, and Articles 3, 8, 9 and 10 of the Agreement on Agriculture. In 25 March 1998, it was decided that the same panel established (see above) should examine this dispute. The decisions The Panel, established on 25 March 1998, found that the measures cited were inconsistent with Canada's obligations under Article II:1(b) of GATT 1994, and Articles 3.3 and 8 of the Agreement on Agriculture by providing export subsidies as listed in 9.1(a) and (c) of the AoA. The panel report was circulated on 17 May 1999. On 15 July 1999, Canada notified its intention to appeal certain issues of law and legal interpretations developed by the Panel. The Appellate Body reversed the Panel's interpretation of Article 9.1(a) and, in consequence, reversed the Panel's finding that Canada acted inconsistently with its obligations under Article 3.3 and 8 of the Agreement on Agriculture. However, the Appellate Body upheld the Panel's finding that Canada was in violation of Article 3.3 and 8 of the Agreement on Agriculture in respect of export subsidies listed in Article 9.1(c) of the Agreement on Agriculture. In addition, the Appellate Body partly reversed the Panel's finding that Canada acted inconsistently with its obligations under Article II:1(b) of GATT 1994. The report of the Appellate Body was circulated on 13 October 1999. At its meeting on 27 October 1999, the DSB adopted the Appellate Body report and the Panel report, as modified by the Appellate Body report. At the DSB meeting of 19 November 1999, Canada stated its intention to comply with the recommendations and rulings of the DSB. On 23 December 1999, Canada informed the DSB that, pursuant to Article 21.3 of the DSU and after having agreed to extend the time periods set forth in Article 21.3(b) of the DSU, Canada, the US and New Zealand reached an understanding on four discrete periods for the "reasonable period of time" to be accorded to Canada for an implementation process to comply with the recommendations and rulings of the DSB. According to the agreement, Canada must complete the last stage of the implementation process no later than 31 December 2000. Market implications Under its URA commitments, Canada will still be able to subsidize the export of a range of dairy products, although in terms of specific dairy products and total milk equivalent, this could be less than was exported under the "special milk classes" scheme. The main products affected are anticipated to be skimmed milk powder and cheese. In world terms, Canada accounts for less than 2 percent of dairy exports, therefore, should a reduction in exports occur as a result of this ruling, it would not have a significant impact on world trade; rather, the effects would be most apparent on Canada's domestic market, where production is limited by quotas, and would be dependent on growth, or otherwise, in internal demand for milk and dairy products and the level at which quotas were set. The Canadian dairy industry (as of February 2000) was involved in developing an operational system to comply with the WTO ruling. Until such as system is in place, industrial milk production is expected to remain at pre-existing quota levels. In a parallel measure, in Ontario, the main milk producing Province, the introduction of export contracts between farmers and processors is being examined. The milk producer's organization in Ontario believes that such a system could be WTO compliant and could allow exports in excess of Canada's URA commitments on subsidized exports. |
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European Communities - Regime for the Importation, Sale and Distribution of Bananas, complaints by Ecuador, Guatemala, Honduras, Mexico and the United States. The complainants allege that the EC's regime for importation, sale and distribution of bananas is inconsistent with GATT Articles I, II, III, X, XI and XIII as well as provisions of the Import Licensing Agreement, the Agreement on Agriculture, the TRIMs Agreement and the GATS. Following a ruling by the Dispute Settlement Body of the World Trade Organisation (WTO) in 1997 against the EC banana import regime, the European Community (EC) adopted a new regulation aimed at bringing those elements of the import regime found to be incompatible with WTO rules into line with their WTO obligations. This modified regime entered into force on 1 January 1999. The WTO Dispute Settlement Body then found that the revised regime was not fully compatible with WTO rules. The Panel condemned two elements of the new regime in particular. Firstly, it was found that using the historical reference period of 1994 to 1996 for the distribution of import licences perpetuated the distortions of the previous EC regime. Secondly the separate quota for countries of Africa, the Caribbean and the Pacific (ACP countries) was considered to be in violation of Article XIII of the GATT (i.e. Non-discriminatory Administration of Quantitative Restrictions). The Panel also ruled that the EC Banana Import regime had caused damages of US$191.4 million per year to banana interests in the United States (US), and authorised the US to remove tariff concessions from the EC for that amount. The US therefore withdrew import t |
