| Module 10 Trade and Food Security:
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The purpose of this Module is to address food security issues in the context of international trade and particularly within the WTO Agreement in Agriculture in order to assist countries in understanding the limits and flexibilities within the Agreement for pursuing food security policies.
10.1 Introduction
10.2 Food security and international trade
10.3 Food security policy options under the WTO
10.4 Some issues for the future
Whether UR Agreement needs to be modified to help countries pursue food security goals
The Uruguay Round Agreements provide a range of policy options for use by developing countries in pursuit of their food security goals. These options include, inter alia, policies to protect and support domestic production, to promote adequate consumption and to stabilize domestic markets. Despite the flexibility provided by the UR Agreements, many developing countries are concerned that certain provisions may limit the range of policy choices available in the area of food security. Thus it is critical to clarify the options that are available to them and to identify areas where additional flexibility may be needed.
This module covers the following aspects:
Food insecurity remains widespread
Despite significant progress in world agriculture during the past 40 years, food insecurity persists in many countries. FAO estimates that more than 800 million people, or 19 percent of the world's population, are chronically undernourished. After declining steadily during the previous two decades, the number of undernourished has increased slightly in the 1990s.1 The largest absolute numbers of undernourished people are in Asia, while the largest proportion of the population that is undernourished is in Africa, south of the Sahara.
Food security is defined by FAO as a situation in which all people at all times have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life. There are three dimensions implicit in this definition: availability, stability and access. Adequate food availability means that, on average, sufficient food supplies should be available to meet consumption needs. Stability refers to minimizing the probability that, in difficult years or seasons, food consumption might fall below consumption requirements. Access draws attention to the fact that, even with bountiful supplies, many people still go hungry because they are poor and unable to produce or purchase the food they need. In addition, if food needs are met through exploiting non-renewable natural resources or degrading the environment there is no guarantee of food security in the longer-term.
Food security can also be defined at different levels, for the world as a whole, or for individual nations, regions or households. Ultimately, food security concerns the individual or family unit, and its principal determinant is purchasing power - income adjusted for the cost of what that income can buy. Similarly, purchasing power at the national level - the amount of foreign exchange available to pay for food imports, adjusted for the price that has to be paid - is a key determinant of national food security.
Trade liberalization impacts on food security...
International trade and how it may be affected by multilateral trade agreements has a role to play at all levels of food security. Trade liberalization can alter not only trade flows between countries but also the incomes of producers of goods and services as well as the purchasing power of consumers. While there are important food security issues at the household and intra-household level that may, directly or indirectly, be affected by trade and trade liberalization in agriculture, the scope of this module is to address issues at the national and international level.
There are two broad options to achieve food security at the national level: food self-sufficiency or food self-reliance. Food self-sufficiency implies meeting food needs, as far as possible, from domestic supplies and minimizing dependence on trade. Food self-reliance on the other hand, takes into account the possibilities of international trade. It implies maintaining some level of domestic food production plus generating the capacity to import from the world market as needed.
Trade is the essential component of a food security strategy based on self-reliance. Trade contributes to food security in a number of ways: it augments domestic supplies to meet consumption needs; it reduces supply variability though not necessarily price instability; it fosters economic growth; it makes more efficient use of world resources; and it permits global production to take place in those regions most suited to it. But reliance on trade may also bring some risks. These include the risks and uncertainty of supplies and world market prices.
...through influencing the security of imported food supplies...
The world market is an indispensable source of supply for many developing countries, especially those countries where output is constrained by natural and other factors. Moreover, their dependence on trade is growing. For example, over the period 1970-90, food consumption grew 10 percent faster than production in the developing countries as a whole. In terms of cereals, imports accounted for some 14 percent of the domestic consumption of developing countries in 1994, up from less than 10 percent twenty years earlier.
To the extent that this growing reliance of developing countries on imports reflects an economic choice that can be sustained, it represents a normal development and there is no a priori reason for concern. The act of importing a commodity generally implies that it can be procured from abroad more cheaply than it can be produced domestically. While there can be specific reasons for some countries to aim at substantial food self-sufficiency, in general it makes better economic sense to follow a more flexible policy of food self-reliance. However, a couple of important qualifications are necessary in order to rely on such a strategy. The first concerns import capacity, that is the ability of developing countries to produce other goods and services and secure through trade the foreign exchange they need to import food. The second concerns the reliability of the world market as a source of affordable food supplies. It is important also to consider how these may be affected by trade liberalization.
As regards import capacity, it appears that developing countries have maintained or improved their capacity to finance food imports over the past few decades. While developing country food imports have been increasing in absolute terms, the share of food import expenditures in total imports has remained relatively unchanged in most developing countries and has fallen substantially in some of them. In South and Southeast Asia the share of food imports in total imports fell from 16 to 6 percent between 1970 and 1991; in Latin America from 11 to 10 percent; in West Asia from 14 to 12 percent; although in Africa it increased slightly from 14 to 15 percent. In general, therefore, developing countries have managed to spend less on food products out of their total expenditures on imports and by implication more on other goods and services.
As regards the agricultural export earnings of developing countries, the situation for traditional commodities has not been very favourable in recent decades. The net barter terms of trade between the traditional agricultural exports of developing countries and their imports of manufactures and crude petroleum declined almost 50 percent between 1979-81 and 1996-98. The export market in agricultural commodities, especially those of greater interest to developing countries, has changed considerably in recent years, independently of the Uruguay Round. Indeed, the main source of growth in agricultural exports of developing countries is increasingly from non-traditional commodities, from processed products, and from expansion into new markets. Thus, the opportunities for developing countries will increasingly come from exploiting diversification possibilities: geographically, i.e. expanding into fast growing import markets; horizontally, i.e. increasing the spread of commodities exported; and vertically, i.e. increasing the value-added of exported products. An important condition for developing countries to benefit from such import opportunities is gaining access to these markets. Important parameters in this regard are tariff escalation and the growing number of technical regulations affecting trade that would need to be overcome. An analysis done by FAO indicates that tariff escalation has been reduced somewhat as a result of the Uruguay Round (Lindland, 1997). Such a change in the tariff structure could offer developing countries new opportunities for export growth which are generally not reflected in assessments based on traditional commodities alone. An important consideration is also their ability to meet quality standards and the SPS/TBT requirements of the importing developed country markets (a subject also covered by the training programme).
The second qualification that we raised above is the reliability of world markets as a source of affordable food supplies. A country relying on food imports may face an additional supply uncertainty for reasons outside its control, although trends in grain markets suggest that these risks may have become lower than they were in the past. World grain markets are now more liquid than before and importers have a greater choice of suppliers. Yet, the risk of supply reliability has not been removed. Occasionally, food exporting countries have placed export restrictions or 'embargoes' for a variety of reasons. Also on this point, however, the Uruguay Round contains some positive elements. Article 12 of the AoA stipulates that exporting countries should give due consideration to the food security interests of importing countries before they consider imposing any export restrictions. There are also provisions for advance notifications on export restrictions, none of which we had before. Although clearly the risk of export restrictions is not fully eliminated by these provisions, the increased transparency that has been added in the world market could help.
In considering the modest projected increase in grain prices as a result of the AoA, it is important to recall that the generally depressed market conditions during the 1980s were largely a symptom of the disarray of world food markets. The levels of production and hence trade, especially in some of the developed countries, were heavily influenced by government subsidies. Although some importing countries benefited from such depressed prices, that was not a healthy situation for the food security of the majority of developing countries. It fostered a continued dependence on imported foodstuffs at prices which were artificially low and which fell to a level where many developing country farmers could not make a living. On this count the AoA, although limited, gives some reasons for hope. Many of the factors that have been blamed in the past as being responsible for the state of disarray in world agriculture and have adversely affected food security in developing countries are now subject to rules and disciplines. The reduction of distortions in the world market as a result of the Uruguay Round is likely to boost production in the developing countries. An important prerequisite, however, is that developing countries' farmers are given the opportunity to respond to the market signals. Many developing countries have taxed agriculture in the past, both through direct sectoral policies and indirectly through macro-economic policies, which were biased against agriculture. Nothing in the AoA would prevent them from continuing to do the same in the future.
...the price stability of imported food supplies...
The second element of food security is supply stability, and trade also has an important role to play here. Trade allows consumption fluctuations to be reduced and relieves countries of part of the burden from costly stock holding interventions. Even full reliance on trade, however, does not necessarily yield domestic price stability. In fact, some countries fear that the outcome may be the opposite as a more open trade regime would expose domestic markets to the vagaries of the world market. Therefore, the key consideration here is whether world market price variability would decrease or increase as a result of trade liberalization, and whether current domestic price variability is greater or less than future price instability.
The removal of quantitative restrictions and the reduction of tariffs implies that absorption of production shocks will be shared much more widely, thus having a stabilizing effect on the market. At the same time, the location of production may shift somewhat from countries with relatively high levels of protection to countries where protection is relatively low. If production is more unstable in the latter then overall variability of production could increase.
Another perhaps more important influence would come from the level and ownership of stocks. Reduced government intervention implies that the level of public stocks would be reduced and privately-held stocks may not increase sufficiently to fill the gap. Some work at FAO suggests that the degree of replacement of public stocks by private stocks is likely to be in the order of 40 percent. As a result, world total stocks are likely to be lower in the future than those experienced in the past. However, one would expect that, because a greater share of stocks would be in private hands, they would be more responsive to price changes than government stocks were in the past.
Thus, on the issue of price instability, there are four influences that have to be taken into account: a positive effect from tariffication; an uncertain effect from a shift in the location of production; a negative effect from a reduction in total stock levels; and a positive effect from an increased responsiveness of remaining stocks. The aggregate effect of these four factors is uncertain although there is a general consensus that in the longer term, when markets fully adjust to the new trading environment, world prices are likely to be more stable than prior to the Uruguay Round. However, during the transitional period some increased instability may be experienced.
Whether or not international price instability changes, a move to a tariff-only system, and in some cases, lower tariffs means that the domestic sector tends to be more open to international price movements. There are two factors that determine whether the domestic market is more or less unstable following the change. First, the extent to which domestic "shocks" to production and consumption have been offset by changes in the volume of trade or not in the past and secondly, the extent to which policy measures before the tariff-only reform acted to isolate the domestic market or not. On the first point, many countries have controlled trade volumes through, for example, licensing arrangements or the operation of parastatal marketing bodies. While there is nothing in the WTO Agreements which requires countries to deregulate their marketing systems, it is possible that international arbitrage to even out domestic price fluctuations may be easier or more effective under the post-Uruguay Round regime. Secondly, a movement towards tariff-only systems can be presumed to increase the transmission of external price changes to the domestic market. Many governments previously placed importance on price stability and used a variety of non-tariff policies to effect that policy (variable levies, quotas etc.). However, as is noted below, the new post-Uruguay Round regimes can also be used to stabilize prices. Thus, the two factors affecting the price stability resulting from a switch to a more open trading system based on tariffs only pull in different directions. It cannot, therefore, be said a priori whether domestic price instability will increase or not as a result of an opening of markets.
In the case that openness to world price instability proves unacceptable, the AoA contains a number of provisions that could be used by a country to protect itself from bearing the full brunt of market instability originating outside its borders. These include: the special safeguards clause of the AoA, i.e. the imposition of additional tariffs under certain conditions; varying the level of applied tariffs (what is termed as a "sliding scale of tariffs" within the ceiling bound level that a country has committed); and to a limited extent through maintaining food security stocks.
...and by influencing household incomes and their ability to acquire food
The third element of food security is access to food. International trade has a major bearing on access to food via its effect on economic growth, incomes and employment. While more open trade policies are generally assumed to contribute to economic growth over time, the main issue for food security is whether this economic growth reaches the poor. If the benefits of trade-induced growth are highly concentrated among the better-off, then household food security may worsen for many, despite higher overall rates of economic growth. However, some evidence suggests that in many developing countries export industries are more labour intensive than import substituting industries and thus employment tends to grow in outward-orientated economies.
Clearly, however, the situation differs from country to country and one cannot generalize. Overall, the linkages between trade, growth, employment and poverty are not clear-cut since each of these variables is influenced by other factors. The impact of trade on household food security is part of the wider issue of the impact of agricultural modernization and transformation on welfare and its distribution. Trade provides new opportunities for specialization and exchange, but the extent to which poor households can take advantage of them depends on their access to resources and the supportive role provided by the state. Where a problem exists, which limits the benefits of poor households from trade, it is more often a question of policy bias and institutional failure rather than due to trade per se.
In developing countries, export opportunities are usually better for non-food cash crops. Increased trade opportunities may therefore induce substitution of food crops by non-food cash crops. This can be favourable for the food security of producers if they can purchase food in local markets at fair prices. Food security could however be at risk if inefficiencies in the food marketing system result in high food prices. There are a number of examples where development of export cash crops has also resulted in an increase in food production because of the general improvement of input and service delivery to agriculture and the remaining effects on food crops of fertilizer used for cash crops.
In conclusion on this issue, one can say that, provided domestic policies are in place to spread around the gains and/or to compensate the losers, then trade liberalization can play an important role in improving access to food. Problems may occur in adjusting to the new trade regime. The difficulties that countries may face during the reform process have been recognized in the Uruguay Round, and developing countries have been given special and differential treatment, mainly in the form of longer periods to make adjustments and lower reduction commitments. The Final Act also recognizes that during the reform process food importing countries may experience negative effects in terms of the availability of adequate imported supplies of basic foodstuffs on reasonable terms and conditions. The Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries is a commitment to take action to mitigate such effects.
The AoA affects developing countries' food security policies
The specific commitments made by countries under the AoA have implications on the range of policies that they can pursue in the future. From the point of view of developing countries it is important to identify those provisions that enhance their flexibility in pursuing food security policies as well as those that may limit their options and may require some adjustments in the future. This section discusses options in the three main areas of domestic policy intervention, namely production, consumption and market stability. Each of these issues is discussed more fully in other Modules and will be treated here only in the context of food security.
Border measures are now constrained...
In general, there are two broad policy options for a country to support domestic production as part of a strategy for food security: border measures, i.e. through tariffs as long as these are within the tariff ceiling bound in the WTO; and domestic support measures, i.e. providing price and non-price support to farmers, again within the bounds of its WTO commitments.
Support through tariffs. Many developing countries have relatively high bound rates in basic foodstuffs. While the option of applying tariffs up to the bound levels is compatible with WTO commitments, in practice such a policy may have its limitations especially for the developing countries, most of which are food importers. Higher tariffs imply not only higher prices to domestic producers but also higher prices paid by domestic consumers. For many developing countries with large numbers of poor households, this may not be a feasible option. There are, however, some possible remedies to this dilemma, whereby customs revenues generated from tariffs could be used to target food insecure households, while at the same time allowing producers to benefit from higher domestic prices (see below). Such an option requires good administrative capacity to identify households in need (thus minimizing leakages) and infrastructure to implement resource transfers to them in a cost-effective manner.
...as are other market supports...
Domestic support. All countries have a variety of options to provide domestic support to agricultural producers. These include also production distorting policies, both product and non-product specific. Product specific support includes typically state procurement at guaranteed administered prices in excess of parity levels. Non-product specific support includes typically subsidies for credit and inputs such as fertilizers, irrigation, seeds etc., which aim at reducing the cost of production but are not explicitly targeted to specific crops. Both of these types of support are disciplined by the AMS and are available to countries that have claimed such support in their schedules for the base period. If they have not, then the upper limit for developing countries that applies to each of these two types of support is the 10 percent de minimis level (i.e. such support cannot exceed 10 percent of the farm-gate value of production).
...but Green Box policies provide some flexibility
All countries may also support domestic producers through Green Box policies, that is with policies considered to have no, or minimal, trade-distorting effects or effects on production. These include, inter alia: general services to agriculture such as research, pest and disease control, etc.; and direct payments to producers, such as de-coupled income support, income insurance and safety-net programmes, etc. Also included in the Green Box are food security stocks and domestic food aid programmes, which are discussed below. Finally, developing countries also have access to a special category of production support policies under Special and Differential Treatment (SDT), namely: generally available investment subsidies, agricultural input subsidies generally available to low-income or resource poor producers, as well as support to producers to encourage diversification from the growing of illicit narcotic crops.
Food consumption policies are not affected...
In general, the AoA is relatively permissive as regards policies that are directed towards supporting consumers. This is understandable because such support, although market distorting (it generally leads to higher overall food consumption than otherwise), is nevertheless trade-enhancing and thus it does not impinge on the export interests of trading partners. The main provision of the AoA related to consumer support is included under the "domestic food aid" category of the Green Box. This stipulates that eligibility to receive food assistance shall be subject to clearly-defined criteria related to nutritional objectives. However, there is an important exemption for developing countries to this general prescription, which allows them to provide foodstuffs at subsidized prices with the objective of "meeting food requirements of urban and rural poor in developing countries on a regular basis at reasonable prices". This is important for countries which provide subsidized food through fair price shops on a regular basis. Expenditures (or revenue foregone) in relation to consumer support are not subject to reduction commitments.
...while possibilities to pursue price stabilization remain
In general, more openness to trade would contribute to stability of world market prices especially when all countries liberalize. However, as discussed above there are several factors that affect market stability. At least in the short term until markets adjust to the new trade regime, instability may increase. However, there are several WTO-compatible measures that a country may use to mitigate the effects of market instability on food security.
Food security stocks. The use of food security stocks as a stabilization instrument must form an integral part of a food security programme identified in national legislation and there are specific provisions for the terms under which food security stocks are procured and released. In practice these provisions have been used with some flexibility. Many countries, both developed and developing, have declared their stockholding operations under the Green Box and thus exempt from the AMS limitations, without serious challenge from their WTO partners so far. To be effective, this needs to be combined with other measures at the frontier.
Safeguards. The special safeguards clause (SSG) of the AoA and the general WTO safeguards2 allow countries to levy additional tariffs under specific circumstances. However, because the SSG clause was reserved for products which were subject to tariffication, only a small number of developing countries have resort to this provision, as only a few used the tariffication formula to bind their tariffs. Further, the use of these measures or remedies, including on a provisional basis, is subject to extensive procedural requirements. Consequently, they have been of little practical use to developing countries (see Module II.6 on Safeguard Measures).
Tariffs. Countries may be able adopt a sliding scale of tariffs related inversely to the level of import prices, provided they keep the maximum rate of duty at a level no higher than their bound rate of duty. Countries with fairly high bound tariffs may be able to offset variations in import prices by reducing tariffs when prices rise and raising them when prices fall. In practice this can be achieved by a "price band" policy, whereby import tariffs are adjusted only when import prices go outside a range of floor and ceiling prices. The important point with such a scheme is that, provided that the price band is not too narrow, the world price signal is not completely annulled by offsetting tariff changes and domestic prices are allowed to move reasonably in line with world prices3.
Export prohibitions. Another provision of the AoA related to domestic market stability is on export prohibitions. At times of sharply rising world prices or sharply rising demand from a neighbouring country, Article 12 of the AoA allows a country to put limitations on exports providing other (the importing) countries' food security is taken into account. Finally, countries can consider using risk management instruments that mitigate the effects of price variability. Market-based instruments such as forward and futures price contracts and options are fully compatible with the WTO.
It is evident from the above that, in general, there is considerable flexibility in the AoA. Developing countries have at their disposal a variety of options that would allow them to pursue policies in support of producers and consumers, without violating their obligations under the WTO. Yet, independently of their WTO obligations, there is always the dilemma of how to reconcile producer and consumer interests in domestic agricultural and food policy when food security is the overriding objective. In most cases this would require a judicious combination of WTO-compatible instruments, as depicted graphically for food importing countries in Figure 1.
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"variable import duties" in which case it is not. Only a formal consideration of this issue, for example through WTO dispute settlement proceedings, could give a definitive interpretation. In practical terms, however, the extent to which price bands may be challenged formally at the WTO is likely to depend on the predictability and transparency of their implementation. |
In broad terms, the domestic market clearing price would be determined by the world market price plus a tariff within the committed bound ceiling level. For most importing countries, during years of normal prices, the applied tariffs are likely to be below the ceilings, with some variation from that level during years of low and high world prices. However, reliance on tariffs alone may be too blunt an instrument to achieve all the objectives of national agricultural and food policy and thus other complementary instruments may be needed. For example, prices effectively received by farmers can be maintained above import parity levels through the WTO-compatible transfers discussed above and in other Modules, such as product and non-product specific support (up to the AMS and de minimis limits), SDT and Green Box policies. Similarly, if the domestic market price is considered too high for a segment of the population, then targeted interventions can be put in place so that prices effectively paid by the targeted households are kept at levels they can afford. Use of such targeted interventions as well as other general income transfers allows countries to pursue consumption policies without adversely affecting production incentives.
Developing countries need flexibility to pursue food security policies
Article 20 of the AoA commits countries to work towards the objective of substantial progressive reductions in support and protection in agriculture. That Article contains a commitment for the continuation of the reform process in agriculture to be initiated in 1999, taking into account trade and non-trade concerns related to the implementation of commitments under the AoA. The definition of "non-trade concerns" given in the preamble to the AoA includes food security and the need to protect the environment. No further details are provided - e.g. about the definition of these terms or how these concerns are to be addressed. This subject is being increasingly debated in the context of international trade in different fora, where other concerns, inter alia, the viability of rural communities and ways of life, have also been added, and all together debated under the rubric of the "multifunctionality" of agriculture. These attributes of agriculture are claimed to be positive externalities and public goods, jointly produced with food and fibre, and thus the argument that agriculture deserves more support and protection as additional payments to these services.
While these other functions of agriculture are clearly all desirable, for the majority of developing countries food security is the fundamental function of agriculture. It is important to note that developing countries can pursue their food security goals within the scope of the AoA and without recourse to the broader concept of multifunctionality. In this context it is necessary to identify those provisions of the AoA that may require strengthening in the continuation of the reform process in the sense of allowing more flexibility to developing countries to pursue food security policies. Some suggestions on issues that are important to food security are listed below, along the three main blocks of the AoA, i.e. market access, domestic support and export subsidies.
Improved market access would help...
The remaining barriers to market access for the agricultural exports of developing countries limit their ability to pursue a food security strategy based on self-reliance by exploiting the advantages of international trade. Despite progress in the UR, some problems persist in the form of prohibitively high tariffs, tariff escalation and tariff dispersion. In some cases, non-tariff measures which were prohibited by the AoA (such as minimum import price regimes for some products) continue in practice. These remaining barriers are a serious problem as they affect the major growth sectors in agricultural trade, namely processed products and higher quality niche markets. Some desirable outcomes in this area may include:
Developing countries should bear in mind that tariff reduction formulae will apply equally to their own tariffs as well as those of their major export markets, subject to any Special and Differential Treatment which may be agreed.
...as would wider availability of the Special Safeguards Clause...
Given that many developing countries are net importers of foodstuffs for which markets are still subject to considerable distortion, the Special Safeguards Clause (SSG) may be of importance to these countries, especially those that have committed low bound tariffs. However, access to SSGs is not universal (neither in terms of products nor countries) and most developing countries do not have access to it, as they were linked to the tariffication process. Some desirable outcomes in this area may include:
...more generous Green Box exemptions...
Many developing countries did not systematically calculate their AMS and claimed a zero level which may prevent them from implementing certain support policies in the future. There are also issues related to the definition of eligible production for AMS calculations and the treatment of negative AMS as well as some genuine mistakes in the method used (e.g. base period, currency base, etc.). Desirable outcomes in this area may include:
Within the category of Green Box, some issues of concern to developing countries relate to the definition of policies that qualify to be included on the Green Box and in particular the meaning of "minimal effect on production and trade". Not all measures presently classified under the Green Box are neutral to production and trade. More importantly, the Green Box does not include certain policies that are easily implementable by the generally low administrative capacity of developing countries. Desirable outcomes in this area may include re-classifying exempted measures and creating a specific category of support which would address legitimate food security concerns of developing countries
...and tighter disciplines on export subsidies and restraints
Food dependency could also be induced by unfair trade practices like dumping or excessive export subsidies by trading partners which bring into the domestic market cheap food items against which local producers cannot compete. Disciplines on export competition were considered the most binding of all AoA commitments, although they have not been so during 1995-97 in view of high world prices. However, potential export subsidies remain high especially in certain developed countries. There is concern about circumvention of the rules to the detriment of many developing countries' ability to compete in the export market. Desirable outcomes in this area may include:
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2 Agreement on Safeguards, the Agreement on Subsidies and Countervailing Measures, Articles VI on Antidumping and Countervailing Duties; XII on Restrictions to Safeguard the Balance of Payments; XVI on Subsidies; XVIII on Governmental Assistance to Economic Development; XIX on Emergency Action on Imports of Particular Products; XX on General Exceptions; and XXI on Security Exceptions.
3 The legality of a "price band" policy is not entirely clear. On the one hand, countries implementing such a policy could argue that as long as their import tariffs stay within their committed bound levels, they are compatible with the AoA. On the other hand the footnote to Article 4.2 of the AoA prohibits "variable import duties" and similar border measures other than "ordinary customs duties". The issue is whether the price band mechanism is considered as an "ordinary customs duty" in which case it is WTO-legal or it falls under the category of "variable import duties" in which case it is not. Only a formal consideration of this issue, for example through WTO dispute settlement proceedings, could give a definitive interpretation. In practical terms, however, the extent to which price bands may be challenged formally at the WTO is likely to depend on the predictability and transparency of their implementation.
