Continuing the Reform Process in Agriculture:
The objective of this module is to introduce Article 20 of the Agriculture Agreement and to discuss the various points made in that Article for preparing for next round of negotiations on agriculture. It also explains how developing countries can prepare better and participate more effectively in the next round.
8.2 Article 20
8.3 Why further negotiations on agriculture?
8.4 Preparations envisaged under Article 20
8.5 An approach to successful reform
Article 20 sets the parameters for the agricultural negotiations...
The Uruguay Round Agreement on Agriculture provides for the continuation of the reform process in agriculture in its Article 20. This article bears analysis in detail because it sets the framework for the current multilateral negotiations on agriculture at the WTO. This module covers the following aspects:
Article 20 states,
"Recognizing that the long-term objective of substantial progressive reductions in support and protection resulting in fundamental reform is an ongoing process, Members agree that negotiations for continuing the process will be initiated one year before the end of the implementation period, taking into account:
the experience to that date from implementing the reduction commitments;
the effects of the reduction commitments on world trade in agriculture;
non-trade concerns, special and differential treatment to developing country Members, and the objective to establish a fair and market-oriented agricultural trading system, and the other objectives and concerns mentioned in the preamble to this Agreement; and
what further commitments are necessary to achieve the above mentioned long-term objectives."
...including the start date...
Taking this text section by section, the preambular part notes that countries agree to carry on their efforts that were begun in the Uruguay Round in order to meet the long-term objective of "substantial progressive reductions in support and protection resulting in fundamental reform". All the terms of this objective are strong: "substantial reductions" and "fundamental reforms". While the objective remains the basic message, it is qualified by what follows below in (a) to (c). The next preambular phrase refers to the date of fresh negotiations. They will be initiated one year before the end of the implementation period...". This is defined in Article 1(f) to mean, "the six year period commencing in 1995". The year before the end of the implementation period is therefore 1999 and the Seattle Ministerial Conference was envisaged as the opening step in the negotiation process.
...and the issues to be taken into account
Now the points (a) to (d) are considerations that have to be taken into account in the "1999" negotiations. (a) is discussed in Section 8.4.1 below and (b) in Section 8.4.2. Article 20 (c) is of great significance and is rather complex. The "non-trade concerns" are referred to in the sixth paragraph of the Preamble to the Agreement on Agriculture (AoA), where non-trade concerns are noted as "including food security and the need to protect the environment". These are discussed in 8.4.3 below. The "special and differential treatment to developing countries" of 20(c) is also referred to in the same sixth paragraph of the Preamble where it says special and differential treatment for developing countries, "is an integral element of the negotiations". This is discussed in 8.4.4 below. Finally, paragraph 20(c) goes on to refer to the "other objectives and concerns mentioned in the preamble to this Agreement". This could include a number of points depending on which ones countries wish to emphasize. Thus, the second paragraph of the Preamble refers to "the objective to establish a fair and market oriented agricultural trading system". The fifth paragraph of the Preamble spells out how to take into account the particular needs and conditions of developing countries and the "possible negative effects of the implementation of the reform programme on least developed and net food importing developing countries".
One final consideration is that, although Article 20 sets out a rather long list of issues and objectives for the negotiations, it is not an exclusive list. The probability is that other matters will also be negotiated, which are not explicitly mentioned. So, before examining in depth the various considerations and issues discussed above, it is well to turn to some of the deeper questions of why countries feel they need to negotiate.
The initiation of talks does not by itself mean that serious reforms will be immediately negotiated - these could be simply the beginning of a process that could last years. Thus it is worth examining what could encourage countries to successfully conclude negotiations on agriculture. It is useful to consider the position of different groups of countries on (i) the main legal reasons for being interested in negotiations and, (ii) the main substantive reasons for further negotiations.
A number of legal safeguards expire...
The main legal reasons are that certain articles in the Agreement on Agriculture will require negotiations of some sort before too long. These are Article 20, Article 5.9, Article 13 and Annex 5.5 and 5.8 - 5.10. Taking these one at a time, there will be much more to be said about Article 20 below but, for the time being, it is clear that countries, in signing the Agreement on Agriculture, have bound themselves to a continuation of the reform process which has as its long-term objective, "substantial progressive reductions in support and protection resulting in fundamental reform", and that negotiations on this process should start following 1999 and take into account a number of factors (on which more later). This text reflects the views of members of the WTO although they can clearly differ on such questions as to what is the "long term", how great is "substantial", and how much care is exercised in "taking into account a number of factors".
Turning to Article 5.9, which concerns the special safeguard provisions, this Article "shall remain in force for the duration of the reform process as determined under Article 20". This could be seen to mean that the SSG remains in force during the negotiations even if the latter are very protracted. Whether this would be terminated or extended would be decided during the negotiations of Article 20. Swinbank1 has argued that the SSG, "would lapse if the reform process provided for in Article 20 should falter".
The most important Article that requires negotiation is Article 13 - the Peace Clause. This only lasts during the implementation period presumably until 2003/4. This clause is of considerable importance as it stops members from bringing challenges againt export subsidies2 ; Green Box3 ; and Blue Box and de minimis payments4 . In other words, after this period5 , most of the subsidies that are allowable in the Agreement could become subject to challenge in the Disputes Settlement Mechanisms of the WTO if a member can show injury. This would surely be the reason why countries relying on the use of subsidies would have a strong interest in negotiating an extension of Article 13. On the other hand, countries that may be harmed by such subsidies would have a strong interest in insisting a termination of Article 13. This, therefore, provides a big subject for negotiation.
Annex 5 of the Agreement on Agriculture allows a few countries, notably Japan and the Republic of Korea, to avoid tariffication by offering higher market access commitments than otherwise. If these countries wish to extend this special derogation beyond the end of the implementation period this would need to be negotiated. However, it seems that Japan is now committed to tariffication of its border measures on rice so this particular concern is likely to be less important in the future.
Thus, as far as the legal requirements are concerned, a large number of countries have some interest in undertaking negotiations on agriculture, irrespective of negotiations on other sectors. This applies to most of the major countries where protection is still quite high. Two other groups of countries may be mentioned here. The Cairns Group has already made it plain that they wish negotiations to take place to further the reform process. On the other hand, a number of developing countries have argued in favour of completing the existing commitments before embarking on further negotiations (more on this below).
Turning to the substantive reasons for undertaking further negotiations, these can basically be said to relate to problems with the working of the existing agreement and the desire, or lack of it, for further trade liberalization.
…while practical problems with the current Agreement …
First, there have been a number of problems, widely discussed, in the implementation of the existing agreement. These concern mainly the administration of the tariff quota system, export subsidy reductions, domestic support, the question of export credits, state trading and the Ministerial Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries. These subjects and, no doubt, others are virtually bound to arise as it is the "experience … from implementing the reduction commitments" that members will have to review in undertaking Article 20 negotiations. See also Section 8.4 below. It is, however, to be noted that a wide range of countries have interests in these questions - both importing and exporting countries. Several of these issues figured in the Analysis and Information Exchange Process that went on under the aegis of the WTO Committee on Agriculture.
…and a desire for more market access and containment of budget costs provide further incentives
Secondly, many countries have vital interests in expanding their agricultural exports, through further trade liberalization. Protection of agriculture remains very high in many countries, with all the attendant costs to governments and consumers; and as governmental budgeting disciplines are everywhere tightening up, it is likely that there will increasingly be voices urging reductions in farm support.
All in all, there are plenty of reasons to expect negotiations on agriculture to be undertaken seriously in the next few years and therefore it is important to explore the steps needed by countries to prepare for such negotiations. This will be the major focus of the rest of this paper.
The UR Agricultural Agreement recognizes that to reach the long term objective of substantial and progressive reductions on agricultural support and protection there is a need to continue negotiations, taking into account: (a) the experience from implementing the reduction commitments; (b) the effects of the reduction commitments on world trade in agriculture; (c) non-trade concerns, special and differential treatment to developing country Members, and the objective to establish a fair and market-oriented agricultural trading system, and the other objectives and concerns mentioned in the preamble to the Agreement; and what further commitments are necessary to achieve the above mentioned long-term objectives.
Developing countries should review their WTO commitments…
This presumably means that each member of the WTO should assess the implications for itself of the implementation of its commitments, as well as those of other members. Some of the difficulties faced have been due to country specific shortages of trained personnel but others would be due to inherent difficulties in adapting the particular agricultural policy system to the new rules. In FAO's experience with assisting member countries adjust to the UR, difficulties have often been faced in calculating aggregate protection measures and implicit subsidies/taxes derived from non-price measures, as needed for notification to the WTO. Common implementation difficulties experienced include calculating the Aggregate Measurement of Support, sector by sector; calculating effective protection, i.e., taking into account dis-protection to the output of one good by protection of its inputs; and calculating export subsidies resulting from special marketing arrangements.
The other implementation issue that each country should review is its experience with how other countries have managed their own implementation strategies. Countries can draw upon the reviews undertaken in the WTO Committee on Agriculture and/or examine the notifications posted by members of the WTO6 . The Committee on Agriculture has looked in particular into market access issues such as tariff-rate quota regimes, questions related to "green box", AMS calculations and export subsidy reductions. Basically, it is in the interest of each country to review the policies of its major trading partners, i.e. what policies, what market access conditions and what export subsidies affect its interests. The trader's experience with the working of UR policy reforms in other countries needs to be tapped so that negotiators can press for changes in schedules of tariffs of trading partners and/or define clearly when trading policies of other countries are harming the domestic agricultural sector.
It must be understood that the very nature of this assessment is difficult to undertake because it is not clear what the situation would have been without the UR. It is particularly difficult to single out the net effect of the UR commitments vis-a-vis several other important developments that have impacted on world trade such as currency adjustments and the financial crisis in East Asia. However, international agencies including FAO, UNCTAD, World Bank and OECD, as well as some national agencies, provide background analysis on such trends, even if they initially involve a lot of judgement. The types of information that can be sought concern: (i) changes in world markets for agricultural commodities; and (ii) changes in the individual country's trade performance.
Regarding changes in world agricultural markets, two types of information can be assembled. One refers to the effect on price stability, and the other on its level. First, there are numerous studies put out by FAO and other organizations on the estimated impact of the UR on agricultural markets. These suggest that prices of temperate zone products on world markets would tend to be higher than otherwise due to the UR, but the extent of the increase would be small. The effect on world price variability is unsure but an FAO Expert Consultation on Price Instability found that, in the next few years, until the effects of reform work their way through the system, world prices of cereals would remain unstable. Similar work has not been done for other commodities but the presumption is that similar arguments would hold for livestock products but less so for the more tropical products. Another way that international market effects of the UR can be judged is by examining the level of trade, prices, stocks, etc., before and after the UR, e.g., comparing the trends (based on data before 1995) with the actual levels after 1995 to see whether there was any evidence of a change in trends. The trouble with this approach is that it does not distinguish UR related changes from others but at least it has the virtue of being measurable.
This task was recently undertaken and discussed at FAO's Committee on Commodity Problems. The study came to the following conclusions (FAO, 1999). First, for a number of agricultural commodities, notably cereals, meat and dairy products, the reasonably buoyant market conditions in 1995-97 can be partly attributed to the UR; for most other agricultural commodities, the impact of the UR was probably negligible. Second, part of the increased food import bill of the least-developed and net food-importing developing countries in the post-1995 period can be attributed to the UR effects or to the policy changes consistent with the UR requirements. Third, there was little evidence of any significant change in world price instability in the post-1995 period.
Regarding individual country trade performances, each country should have at hand the relevant data to distinguish between changes in trade flows due to internal factors (say due to weather-related production variations), and due to external factors such as a more competitive trading environment. Again, it would be appropriate to compare recent data such as area under food crops, and the evolution of domestic prices vis-a-vis world prices since 1995, with previous trends. The private sector should also be asked to provide inputs to this review so that the specific improvements and emerging problems can be identified.
…and their ability to address non-trade concerns in the framework of the present Agreement
Article 20 also refers to the need to take into account "non-trade concerns" which are elsewhere (in the preamble to the UR) defined to include food security and the need to protect the environment. While neither "food security" nor "environment" are explicitly defined in the various agreements signed at Marrakesh, countries should be prepared to discuss these matters in future negotiations.
Food security involves access to food, the adequate supply of food and stability in its supply. Access to food involves both physical and economic accesses. Physical access means that food is actually available to consumers, e.g., there are no impediments, legal or otherwise, to acquiring food. Economic access means that consumers have the resources - income, capital or credit - to purchase food. Food importing countries should certainly examine whether their recent experience has helped them with their access to food. Has there been any problem related to the trade reforms under the AoA, or due to other factors? Have their overall export earnings kept pace with their food import bills? Have existing facilities and credit arrangements been adequate to ensure that they would import adequate volume of food?
Food security also involves the stability of food supplies and countries may wish in this context to review the stability of food import prices and whether, in periods of particularly high prices such as 1995/96, they were able to maintain the required volume of food imports. They should review whether the trade safeguards open for this contingency are adequate. Related to this also, is that those countries classified as Least Developed and Net Food-Importing Developing Countries would also no doubt wish to review their experience with the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries, which was meant to assist them if the reform process led to any adverse consequences on their ability to import food.
Finally, food security involves an adequate supply of food. In this connection, countries should examine whether food production has been assisted by the experience to-date with the UR or whether their commitments represent undue restraints. Is there adequate flexibility to support domestic producers?
In examining the possible relation of the reform process to food security, it should be recalled that the existing set of UR-compatible policies are perceived to give countries adequate opportunities to sustain their agricultural production by a judicious mix of tariffs, input subsidies and "green box" support, but that their domestic food consumption policies to ensure adequate nutrition to the poor is often constrained by a lack of resources. At the same time, price instability can be alleviated by a suitable mix of safeguards at the frontier and risk reducing financial mechanisms. A review of how these provisions have been used in practice and what has been the most effective response to the problems so far would help in this. Perhaps the key to an improved food security-trade linkage is through the generation of higher incomes by way of improved access export markets, and in particular whether the products thereby assisted had a favourable effect on the incomes of the poor.
Finally, the inclusion of environmental concerns in Article 20 is foreshadowed by the establishment in the WTO of the Committee on Trade and Environment with its mandate to look into a wide variety of environment and trade linkages. Moreover, the SPS agreement addresses issues of food standards and the scope of measures to protect human health. As these matters are being covered in depth by these bodies, the main point to stress in this paper is for Ministries of Agriculture to keep abreast of developments there and be aware of how any eventual proposals would affect agriculture. The main areas of possible relevance for agriculture would be in the eventual expansion of the General Exceptions provision of the GATT 1994 (Article XX) to cover explicitly environment or more generally moves that would justify restrictions on trade in agricultural products on environmental grounds while meeting the essential needs of protecting the environment.
Other general concerns refer mainly to the need to take the special and differential treatment (SDT) of the developing countries into account. In the AoA there were several ways in which SDT treatment was addressed. They included smaller cuts and longer periods of adjustment (for implementation); the chance to offer tariff bindings rather than cut tariffs; special assistance under the Decision with food imports; technical assistance under the SPS agreement; and a special provision for the least developed countries7 . For the next negotiations, developing countries need to evaluate their experience with the SDT treatment and look into new SDT treatment areas such as improved safeguards (the Special Safeguards Clause benefits very few developing countries), the special issue of preferences (the value of which is eroded by multilateral trade liberalization), or deeper cuts in import tariffs of products of particular interest to this group of countries. Each of these issues will need careful preparation, including estimates of the costs and benefits to different groups of countries of the alternatives.
This review of experience demands specific capacities which may be in short supply…
Most developing countries, especially the least-developed, have limited capacity and resources to face all the challenges or take full advantage of the opportunities flowing from the UR while also preparing for the next round of multilateral trade negotiations. Recognizing this, the World Food Summit Plan of Action calls on FAO and other organizations to continue assisting developing countries in preparing for future multilateral trade negotiations so that they become "well informed" and equal partners in the negotiating process, thus enabling them to benefit fully from their participation and not be disadvantaged.
The most frequent problems confronted by developing countries in their efforts to keep pace with their MTN commitments and negotiations include:
What do countries need to do to participate effectively and realize their aims at the future negotiations on furthering the reform process?
…so capacities should be built up where necessary…
First, there is the need to strengthen administrative arrangements in the countries themselves. Unfortunately, it seems to be a common experience that Ministries of Agriculture played a small role in the negotiations on agriculture during the UR. The very least that Ministries of Agriculture need to do is to be adequately involved in national preparations for future negotiations. This could involve inter-ministerial co-ordination as well as having units familiar with WTO matters established in Ministries of Agriculture, where these do not exist8 . It is also important to involve the private sector in the preparations as they will eventually have to make the new policies work and take advantage of market openings negotiated.
…or shared with like-minded countries…
Second, countries need to seek allies among other countries to strengthen their hand at the negotiating table. Forming such alliances comes at some cost in terms of the loss of focus on special national interests but this should be offset by the greater negotiating weight of bigger groups. There are, of course, many possible candidate partners and so each possible line would need to be explored in identifying potential allies by identifying countries with broadly similar problems9 . The more similar the problems the less the difficulty over pooling of policy sovereignty and the greater the return from increased leverage. Nor need the searches for allies be limited to existing groups or be divided along traditional North/South lines. In fact the most active of such groups, Cairns Group, is a mix of both - new ones can arise as they did during the UR, such as the Group of Net Food Importing Countries or the Cairns Group.
Third, countries need to strengthen their information exchange capacity and their access to relevant studies by joining networks, commissioning their own studies, understanding the positions of the major actors, preparing fall-back positions against possible negative outcomes, seeking help from the international agencies, bringing in non-governmental experts and generally in raising awareness of the "1999" process. One good example of collaborative research/analysis in Africa is the series of thematic and country studies under the project Africa and the World Trading System, under the auspices of African Economic Research Consortium (AERC)10 .
…by participating as fully as possible..
Fourth, countries should actively participate in ongoing preparatory work at the WTO in the analysis and information exchange (AIE) process at the Committee on Agriculture. Obviously, it is not possible for developing countries with small representations in Geneva to participate in all meetings. But considerable progress may be made through, for example: ensuring that all relevant information from WTO meetings flow to appropriate units in the capitals; identifying like-minded countries or groups with effective representation at the WTO in order to develop a process of consultation with them and thereby obtain some assurance that their interests are reflected in the debates; and strengthening the capability in the capitals to provide necessary technical backstopping to the Geneva representation. Moreover, countries that are not members of the WTO should actively explore the advantages of joining, as this is probably the most effective way of protecting national interests in an organization where already 131 countries are members and other 31 have applied to join.
…while taking advantage of technical assistance
Last but not the least, countries should take advantage of technical assistance provided by international organizations, such as World Bank, WTO, UNCTAD and FAO. Furthermore, it is important to stress that technical assistance programmes are most effective where individual countries themselves articulate their training needs, rather than the other way around. On this, one tested approach could be for individual countries to form homogenous groups based on a commonality of issues and training needs. This is also a cost-effective way of providing training, in view of the economies of scale involved in the various technical tasks involved.
FAO has published a brochure on UR-related technical assistance activities of the Organization11 . It outlines specific areas in which the Organization provides technical assistance to developing countries, which include agriculture (including fisheries and forestry), SPS and TBT and TRIPS. Most recently, FAO has set up a site, called Agricultural Trade, within its Web site12 , with the aim of providing information on UR matters.
FAO. 1999a. Assessment of the Impact of the Uruguay Round on Agricultural Markets and Food Security. Update to CCP Document No. 99/12, October.
FAO. 1999b. FAO Trade Related Technical Assistance and Information. Rome. (Also available on the Internet at www. fao.org/ur).
Oyejide, T.A. 1998. Africa and the World Trading System: a Note on Some Preliminary Results of an AERC Project, Paper prepared for UNCTAD's Ad-Hoc Meeting of researchers and trade experts on future multilateral trade negotiations, Geneva, September 21-22 1998.
Swinbank, A. 1998. "Will Agenda 2000 meet current and prospective WTO Commitments". The University of Reading, 20 March 1998.
Wang, K. & Winters, L.A. 1997. Africa's Role in Multilateral Trade Negotiations: Past and Future. Washington D.C., World Bank.
WTO. 1999. Guide to the Uruguay Round Agreements, Kluwer Law International. Geneva, WTO Secretariat.
1 See Swinbank (1998).
2 Under GATT Articles VI and XVI and the Subsidies Agreement (Part III and Articles 3, 5 and 6).
3 Articles II, VI, XVI and the Subsidies Agreement (Part III and Part V).
4 Under GATT Articles II, VI and XVI and the subsidies Agreement (Part V and Articles 5 and 6).
5 Its status is not clear in the interim, i.e. during the negotiations (between 2004 and beginning of a new implementation period).
6 Notifications are available in the Document Dissemination Facility section of the WTO web site, at http://www.wto.org/wto/ddf/ep/public.html.
7 See WTO Secretariat (1999) and Module II.7 on "Special and Differential Treatment".
8 One institutional arrangement initiated by some developing countries is to set up a "UR Cell" at the Ministry of Commerce with sub-cells in other Ministries, including Agriculture. Besides government units, the cells include academia/research institutes as well as private sector.
9 A recent study on Africa shows that by acting in concert, blocs of countries would have greater "negotiating rights"(based on "principal supplier" argument). This was shown to be particularly the case with two regional trading blocks, UEMOA and SADC. See Wang and Winters (1997).
10 See Oyejide (1998). The project contains eight country case studies (Cameroon, Côte d'Ivoire, Ghana, Kenya, Mauritius, Nigeria, South Africa and Uganda).
11 See FAO (1999b).