II. Agreement on Agriculture

PURPOSE

The objective of this module is to describe various provisions of the Marrakesh "Decision" and to highlight difficulties faced in its implementation, so that these elements can be taken into account in the next round.

CONTENTS

9.1 Introduction

9.2 The main provisions of the Decision

9.3 The food situation in the least-developed (LDCs) and net food-importing developing countries (NFIDCs)

9.4 What is happening with implementation of the Decision

9.5 How can the Decision be made more effective?

KEY POINTS

• Recognizing that net food-importing (NFIDCs) and least developed countries (LDCs) may face difficulty in accessing adequate supplies of basic foodstuffs from external sources on reasonable terms, the Decision identifies four specific responses to this difficulty.
• Recent FAO research shows that the food situation in LDCs and NFIDCs remains precarious and that there is a justification for the special attention given by the Decision to these groups of countries.
• Reviewing progress with the implementation of the Decision is difficult because it does not have quantifiable parameters nor a timetable for implementation.
• There are a number of issues which developing countries could raise to make the Decision more effective in the next round of negotiations which are discussed in the module.

9.1 INTRODUCTION

The Decision intended as a safety-net for vulnerable countries

The Decision on Measures Concerning the Possible Negative effects of the Reform Programme on the Least-Developed and Net Food-Importing Developing Countries (the Decision, in short) was adopted by Ministers at Marrakesh as an integral part of the Uruguay Round (UR). While recognizing that implementation of the results of the UR as a whole would generate increasing opportunities for trade expansion and economic growth to the benefits of all participants, the Decision also recognizes that during the reform programme leading to greater liberalization of trade in agriculture, least-developed and net food-importing developing countries (LDCs and NFIDCs, respectively, see Box 1 for the criteria and list) may experience negative effects with respect to supplies of food imports on reasonable terms and conditions. The Decision responds to this possibility by establishing some mechanisms for assistance. The Decision itself is referred to in Article 16 of the Agreement on Agriculture (AoA), where developed country Members are called upon to take action as is provided for within the framework of the Decision.

Box 1: List of LDCs and WTO NFIDCs

This module covers the following aspects:

• the key provisions of the Decision;
• a perspective on the continuing food problem faced by the groups of countries covered by the Decision;
• how the Decision is being monitored at the WTO's Committee on Agriculture (CoA); and
• issues related to the implementation of the Decision and some thoughts on how it can be made more effective.

9.2 THE MAIN PROVISIONS OF THE DECISION

Contains four main provisions

The main problem addressed by the Decision, stated in its paragraph 2 (see Box 3), is essentially that the LDCs and NFIDCs may face difficulty in accessing adequate supplies of basic foodstuffs from external sources on reasonable terms, including financing. It mentions four specific responses to this difficulty: food aid; favourable treatment with export credits; concessional financing facility for food imports; and technical and financial assistance to increase agricultural productivity and production. What are these?

Food aid: Paragraph 3 covers food aid, with an expressed concern that the implementation of the results of the UR on trade in agriculture may adversely affect the availability of sufficient amount of food aid. Its sub-paragraphs address three issues. First, it calls for reviewing periodically the level of food aid established by the Committee on Food Aid under the Food Aid Convention 1986 (Box 2).

Box 2: Article IV of FOOD AID CONVENTION 1986

Box 3: Decision on measures concerning the possible negative effects of the reform programme on least-developed and net food-importing developing countries

Source: WTO (1994). The Results of the Uruguay Round of the Multilateral Trade Negotiations, Legal Texts.

Second, it calls for negotiations to establish commitments for sufficient levels of food aid. Third, it urges the adoption of guidelines on the concessionality of food aid, particularly for the two groups of countries mentioned in the Decision. The Singapore Ministerial Conference made two other recommendations: that in establishing the level of food aid, efforts are to be made to cover as wide a range of donors and donable foodstuffs as possible; and that guidelines be developed to improve the effectiveness and positive impact of food aid. Some other provisions on food aid are also found in Article 10 of the AoA, Prevention of Circumvention of Export Subsidy Commitments.

Agricultural Export Credits. In paragraph 4 of the Decision, Ministers agreed to ensure that any agreement relating to agricultural export credits makes appropriate provision for differential treatment in favour of the LDCs and NFIDCs. This arrangement itself is addressed in Article 10 of the AoA, where it is said that WTO Members undertake to "work towards the development of internationally agreed disciplines to govern the provision of export credits, export credit guarantees or insurance programmes and, after agreement on such disciplines, to provide export credits, export credit guarantees or insurance programmes only in conformity therewith". This work is underway at the OECD.

Financing Facilities. In paragraph 5 of the Decision, the Ministers recognized that as a result of the UR certain developing countries may experience short-term difficulties in financing normal levels of commercial imports and that these countries may be eligible to draw on the resources of international financial institutions under existing facilities, or such facilities as may be established, in the context of adjustment programmes, in order to address such financing difficulties. Apart from the obvious remark that these countries may draw from existing facilities, this paragraph makes one new point - the possibility of new facilities.

Technical and Financial Assistance under Aid Programme. In paragraph 3(iii), Ministers agreed to give full consideration, in the context of their aid programmes, to requests for the provision of technical and financial assistance to LDCs and NFIDCs to improve their agricultural productivity and infrastructure.

9.3 THE FOOD SITUATION IN THE LEAST-DEVELOPED AND NET FOOD-IMPORTING DEVELOPING COUNTRIES

Food situation in vulnerable countries remains precarious

In a recent FAO study (FAO, 1997), the food situation of these two groups of countries has been reviewed, also quantifying how they compare with a reference group - the rest of the developing countries. Several indicators were used to analyze the food situation, e.g. food energy intakes, cereal production (level, growth rate and variability), the burden of the food import bill and ability to import food. The study clearly showed that the food situation of the LDCs and NFIDCs remains precarious, both in an absolute sense and relative to this reference group (Table 1). The overall conclusion of the study was, thus, that there was a justification for the special attention given by the Decision to these groups of countries.

Table 1: Indicators of the food situation in least-developed, net food-importing developing countries and rest of the developing countries

Source: FAO (1997).

9.4 WHAT IS HAPPENING WITH THE IMPLEMENTATION OF THE DECISION

System of notifications to monitor implement-ation...

WTO's Committee on Agriculture (CoA) has the responsibility of monitoring the implementation of the Decision. This is done on the basis of notifications concerning actions taken by developed country Members within the framework of the Decision. Other international organizations that are observers in the CoA, notably IMF, World Bank, International Grains Council, World Food Programme and FAO, also provide information relevant to the assistance provisions in the Decision.

The CoA has developed a format for the notification of measures taken by Members in connection with the Decision. This has four parts.

• quantity of food aid - total and the share to LDCs and NFIDCs;
• indication of the proportion in fully grant form or appropriate concessional terms;
• technical and financial assistance under paragraph 3(ii) of the Decision; and
• other relevant information with respect to actions taken within the framework of the Decision.

On food aid, notifications include the total level of food aid as well as the amount that is given to the two groups of countries. Also indicated is the proportion of food aid in fully grant form or in concessional terms. For 1995/96 and 1996/97, eight food aid donors made such notifications. The second main area for notifications is aid programmes. Here, the information provided by donors has included - total aid level, the institutions through which these were channelled (e.g. bilateral, development banks), indication of the various sectors of assistance (e.g. agriculture, health etc.). The notifications have not been as comprehensive in indicating the level of assistance to the two groups of countries to improve their agricultural productivity and infrastructure, presumably for statistical reasons. There has been very little discussion at the CoA itself on export credits, as modalities are being negotiated at the OECD. Only then, when such an agreement is reached, is the CoA expected to review the work in the context of the Decision. Finally, in the case of financing facilities, the monitoring at the CoA has been limited to presentations by agencies administering the facilities.

...but lack of targets and timetable makes this difficult

Reviewing the progress with the implementation of the Decision is much more difficult. The Decision does not have quantifiable parameters nor a timetable for implementation. In the case of food aid, a new Food Aid Convention (FAC) has been concluded in 1999. On export credits, no agreement itself has been reached as yet on the modality of the assistance; implementation would have to wait at least until then. As regards financing facilities, this is not a new activity as the facilities have been there for many years. Moreover, what the Decision has done here is simply a recognition that the two groups of countries facing difficulties "may be eligible to draw on the resources". But this is saying very little new, because most of the Decision countries already have access to these resources. The new element in the Decision is the indication of a possibility of establishing new facilities. On this, very little discussion has taken place at the CoA.

Finally, on aid programmes, the Decision does not bind any country nor give any specific guideline on how "full consideration" is to be given to requests for technical and financial assistance to improve their agricultural productivity and infrastructure. Thus, "full consideration" is something that cannot be monitored. Does it mean or imply that a specific percentage of aid programmes is to be channelled to agriculture? Or is it simply that donors should treat requests for such assistance more favourably than before? Or relatively more favourably for the two groups of countries?

9.5 HOW CAN THE DECISION BE MADE MORE EFFECTIVE?

There is a widely shared concern, as well as frustration among potential beneficiaries, over the slow pace of implementation of the Decision. To a large extent, this owes to its very nature - it represents a promise for assistance and is not legally binding. Moreover, as noted above, the monitoring of the implementation of the Decision is fraught with difficulties - in some cases, initial agreements are yet to be reached.

The Decision could be made more effective...

Despite the delays and difficulties, the Decision is accepted as a clear promise for compensation and offers some potential to benefit the LDCs and NFIDCs. Moreover, it is a part of the AoA and so is in the built-in agenda of the next round. This underscores the importance of a constructive review of the Decision as part of the preparations for the next round. What follows are some considerations towards furthering this process.

...by a clearer trigger mechanism...

Some ambiguities in the Decision require clarification. There are several of these. First, for example, how does one detect the "negative effects" that would trigger the assistance, i.e. what is the trigger? Higher food import bills? Reduced export earnings? Difficult balance-of-payment situation? Second, is the Decision only a best endeavour clause, i.e. a promise, or is there something to it that is also binding? Third, is it a temporary or a (more) permanent measure - until the end of the reform process in agriculture? Fourth, what is meant by the statement that the Decision was adopted on the understanding that "being listed would not as such confer automatic benefits since, under the mechanisms covered by the Decision, donors and the institutions concerned would have a role to play"? Does it mean that the assistance would be provided to only those that face the negative effects? If so, the statement seems fair. But if this means that the resources mentioned in the Decision are administered by individual donors and international organizations, according to their own set of rules and conditionalities, the statement would seem to go against the spirit, as well as the wording, of the Decision, because it does not mention a conditionality other than the negative effects.

...by clearer rules on access to financing facilities...

Concessional financing facilities - is conditionality the main issue? This seems to be the case, going by the statements made to the WTO's CoA (see WTO, 1995b) by agencies administering these facilities where it is stressed that the facilities are subject to conditionality, most notably the balance-of-payments difficulty. It has also been stated to the CoA that the assistance in dealing with any transition costs related to the UR would depend on the country undertaking sound liberalization of its agricultural or trade policies. But what is not clear is the definition of a "sound" liberalization - would reforms that fully comply with the UR commitments be considered sound, or would deeper reforms be required before a country qualifies for the facilities? But others, notably the potential beneficiaries, have maintained that the Decision did not put any conditionality on access to the facilities.

A second issue here is whether additional similar facilities are required, a possibility left open by the Decision. Here also views seem to be divided. One holds that the existing facilities are adequate to deal with any possible difficulties arising out of the implementation of the UR. Others, however, feel that there may be problems with the access to the existing facilities. As an example, it is said that very few countries utilized, during the price spike of 1995-96, IMF's Compensatory and Contingency Financing Facility, which comes closest of all existing facilities for the sort of problem addressed by the Decision.

...and by a clearer definition of food needs

Ensuring that legitimate food aid needs are met and its supply made more responsive to variable needs. One challenge here is estimating the "legitimate needs" of the developing countries (leaving aside emergency needs). This is complicated further by the wording of the Decision which makes reference to legitimate needs during the reform programme without defining these needs. One narrow interpretation of legitimate needs would be those that relate to the reform process itself, i.e. needs that are over and above those that would have emerged in the absence of the reform programme. Clearly, this interpretation would require establishing a counterfactual scenario, i.e. what would have been the case in the absence of the UR? Attempts to quantify a counterfactual scenario face many problems and it would be difficult to substantiate legitimate needs on the basis of such an approach.

But are there alternatives that can be adopted? For example, one approach that goes some way to meeting this "narrow" requirement is to define a world price trigger level, above which a country would be eligible for assistance under the Decision for a proportion of its food import bill. However, in establishing this price trigger level, it would not be possible to base it on that part of a world price increase which is due to liberalization and the part due to contingent events in a given year. To be realistic, the price trigger would have to be based on a percentage above a base period, beyond which price increases would be considered unreasonably high. Elsewhere in the Final Act, the unit values of imports in the base period 1986-88 have been used as the point of departure. Alternatively, the average unit values for the three-year period before the beginning of the implementation of the Uruguay Round - say 1992-94 - could be used. Another possibility is a moving average.

A second, broader definition of legitimate needs, would be one that does not limit them to those directly linked to the reform programme. In that sense such needs could be defined as those that would be required to supplement supplies so that countries would be able to maintain adequate levels of food consumption during the reform process. Such an interpretation would be valid if the aim of the Decision were to alleviate any undue hardship which would compromise the success of the reform programme. However, again it is unlikely that the intention of the signatories of the Decision would have been to address needs that would be so encompassing and loosely defined.

As regards the supply of food aid, one problem has been the declining levels of food aid in recent years. The minimum annual commitment of donor countries under the 1995 Food Aid Convention (FAC) itself has been substantially reduced, from 7.52 million tons (in wheat equivalent) established in 1986 to 5.35 million tons in the 1995 Convention and to 4.895 million tons (plus $130m) in the 1999 Convention. This contrasts with the goal set by the FAC to reach the target of 10 million tons of food aid annually to developing countries as called upon by the World Food Conference.

A second challenge is to ensure that food aid levels do not fall when these are needed most - this is a challenge because the record has been that food aid levels have generally been lower when world market prices were higher, i.e. precisely when more assistance was required.

REFERENCES

FAO. 1997. The Food Situation in the Least Developed and Net Food Importing Developing Countries. Rome.

Konandreas, P., Sharma R. & Greenfield, J. 1998. The Uruguay Round, the Marrakesh Decision and the Role of Food Aid. Paper presented to the Workshop on Food and Human Security: the Role of Food Aid and Finance for Food, Lysebu, Oslo, April 1998. (Commodities and Trade Division, FAO, Rome).

WTO. 1998. Annual Report 1998. Geneva.

WTO. 1996. Report by the Committee on Agriculture on the Marrakesh Ministerial Decision on Measures Concerning the Possible Negative effects of the Reform Programme on the Least-Developed and Net Food-Importing Developing Countries. Report for the Singapore Ministerial Conference, Document G/L/125. Geneva.

WTO. 1995a. The results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts. Geneva.

WTO. 1995b. Decision on Measures Concerning the Possible Negative effects of the Reform Programme on the Least-Developed and Net Food-Importing Developing Countries: The Director-General's Consultation with the International Monetary Fund and the World Bank, Documents G/AG/W/12 and G/AG/W/12/Add.1. Geneva.