Towards improving the operational effectiveness of the Marrakesh Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries[64]

Comments by Mr Amr Ramadan
Comments by Mr Grant B. Taplin
Comments by Ms Robin Jackson

1. Background

One of the subjects extensively debated during the Uruguay Round (UR) negotiations was the possible negative impact of agricultural trade liberalization on least developed and net food-importing developing countries. This reflected a concern that the impact would be relatively greater on world market prices of food commodities, which are imported in large and growing quantities by these countries, than on tropical agricultural products, which are the main agricultural exports of these countries. Other possible negative impacts were erosion of trade preferences as tariffs are reduced and the difficulties of LDCs and NFIDCs to increase agricultural exports because of supply-side constraints. Several studies have concluded that this group of countries could experience negative effects on account of these factors, at least during the reform process. Many of them are among the poorest and most food-insecure in the world.

These concerns were recognized at the political level. Thus the Marrakesh Ministerial Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries (henceforth referred to as the Decision) states that:

“Ministers recognize that during the reform programme leading to greater liberalization of trade in agriculture least developed countries and net food-importing developing countries may experience negative effects in terms of the availability of adequate supplies of basic foodstuffs from external sources on reasonable terms and conditions, including short-term difficulties in financing normal levels of commercial imports of basic foodstuffs.”

To deal with the possible negative effects, the Decision provided for action through four response mechanisms:

• Food aid;
• Short-term financing of normal levels of commercial imports;
• Favourable terms for agricultural export credits;
• Technical and financial assistance to improve agricultural productivity and infrastructures.[65]
• There are currently 49 countries that are recognized as LDCs and 19 as NFIDCs. All relevant statistics clearly differentiate these two groups from other developing countries with regard to food security and the capacity to import food.[66]

The implementation of the Decision has remained unsatisfactory and a matter of concern for all, both donors and beneficiaries, despite the political commitment that has been stressed from time to time at major international conferences, such as the World Food Summit, UNCTAD and the Ministerial sessions of WTO. Many analysts feel that failure to implement fully the Decision, even in a period such as 1995/96-1996/97, when world food prices rose sharply and food import bills surged (see Box 1), points to some inherent, serious problem with the very nature of the Decision.

Box 1. Cereals Import Experience of LDCs and NFIDCs in 1995-1998 World cereal prices increased sharply during 1995/96 and 1996/97 and there was an approximately 49 percent rise in the cereal import bill of LDCs and NFIDCs over the average of the previous two years. While most of the increase in the import bill was accounted for by higher import unit values, there was also a sharp decline in food aid shipments in this period (to 9 percent of total cereal imports from roughly 15 percent during 1993/94). The shortfall consequently had to be made up for by commercial imports at the higher world prices, which were no longer subsidized. With the decline in world market prices after 1997, cereal import bills have also fallen, though less than proportionately because of a rising volume of imports, continued low levels of food aid and reduced export subsidization. Thus, it appears that cereal import bills are now on a different and higher plateau than before the Uruguay Round. Source: See footnote 3.

In the context of the new agricultural trade negotiations, it is essential that a climate of confidence and trust be developed for continuing the reform process. The fulfilment of all commitments, the Decision included, is one way forward. For all food-insecure developing countries, food security remains a top priority. The availability of a contingent mechanism that can be trusted during difficult times would both create a conducive environment for the negotiations and encourage countries to liberalize further their food markets.

This paper puts forward some ideas for facilitating implementation of the Decision. It defines (in section 2) the nature of the “negative effects” alluded to in the Decision and provides a rough order of magnitude of the “excess” food import costs for the countries concerned. Section 3 provides information on the three instruments envisaged in the Decision for assisting them in dealing with short-term food import-related difficulties. Section 4 discusses two proposals for implementing the Decision.

2. Nature and magnitude of the food problem addressed by the Decision

Defining “negative effects”

The Decision defines the nature of the food problem in a general manner, stating that during the reform programme LDCs and NFIDCs “may experience negative effects in terms of the availability of adequate supplies of basic foodstuffs from external sources on reasonable terms and conditions”. The issue is thus clearly that of access to food in world markets “on reasonable terms and conditions”, which is indeed a widely recognized problem for many net food-importing developing countries. The Decision accordingly prescribes action through the three[67] response mechanisms listed above (in Section 1).

But what are “reasonable terms and conditions” and when are they unreasonable? Various definitions are possible, but a simple interpretation of “unreasonable” terms of access is if the terms involve food import bills over and above normal levels.

Triggering the response for assistance

Triggers are essential in order to decide when and how to respond. The text of the Decision provides some guidance in this respect. Specifically, it does not rest on a narrow interpretation of the negative effects arising from any single source of the problem, such as sharp rises in world market prices or sharp declines in food aid shipments, but refers in general terms to the overall negative effect of the reform programme as a whole.

These considerations suggest that the triggers should not be based on the individual factors that lead to the problem (e.g. higher world prices) but rather on the totality of the outcome itself, i.e. the unexpected increase in the food import bill. There is the further implication that the triggers refer to country-specific outcomes, such as exceptional increases in a particular country’s import bill. Thus, what seems to have been envisaged is the need for assistance specifically to those countries suffering negative effects in a given year (usually a different group of countries in any one year like 1995/96, when world cereal prices spiked), rather than to all LDCs and NFIDCs simultaneously.

Quantifying unreasonable or excess food import bills

Although cereals represent a high proportion of total food imports for most net food-importing developing countries, other foods, particularly vegetable oils, meat and dairy products, and sugar, are also important in the diet of poor people and constitute a significant share of the total food import bill. For the purpose of the present analysis, in order to demonstrate the order of magnitude involved, excess food import bills were computed on the basis of a narrow definition, covering cereals only (Food I) and of a broader definition, which also includes most basic food items, namely vegetable oils, dairy and meat products and sugar (Food II).

Two alternative thresholds were defined to measure the excess import bill: i) 105 percent of the trend level; and ii) 110 percent of the trend level.[68] The difference between actual import bills and these threshold values is considered to constitute an “excessive” or “unreasonable” import cost, to use the term of the Decision.[69]

In the calculations, the absolute values of the excess food import bills so defined are summed separately for 46 LDCs[70], and the 19 NFIDCs and for the two groups. The mean values shown in Table 1 are the averages of these totals during the 10 years covered (1989-1998). The maximum value shown in the table is the largest annual total. For example, on the basis of the 10 percent above trend rule, the mean excess import bill of the LDCs was US$179 million for Food I and US$224 million for Food II. The corresponding maxima were US$421 and US$441 million, in 1992 and 1996, respectively. On the basis of the 5 percent rule, the means and maxima were naturally higher. For the entire sample of 65 countries, under the 10 percent rule, the mean import bill was US$401 million for Food I and US$432 million for Food II. The maximum level reached was just over one billion dollars. In only three out of the 10 years did the excess import bill exceed US$500 million - in 1995 (US$984 million), 1996 (US$1 037 million) and 1998 (US$502 million). At the other extreme, the excess for all 65 countries taken together was lowest in 1991 (US$84 million).

For such a large sample, the value of excess imports would obviously vary widely from country to country, in a given year and also over time for a given country. What matters for a compensation scheme is that in any particular year only some countries face excess food import bills.[71]

Table 1. Food import bills of LDCs and NFIDCs in excess of 5 and 10 percent above the trend (million US$)

	In excess of 5% above trend		In excess of 10% above trend
	Mean	Maximum (year)	Mean	Maximum (year)
Food I (cereals only)
LDCs (46)	216	466 (1992)	179	421 (1992)
NFIDCs (19)	300	914 (1996)	222	714 (1996)
Total (65)	515	1 252 (1996)	401	998 (1996)
Food II (cereals and most other basic foods)
LDCs (46)	290	549 (1996)	224	441 (1996)
NFIDCs (19)	336	978 (1996)	208	647 (1995)
Total (65)	627	1 527 (1996)	432	1 037 (1996)

Notes: Mean is the average annual amount in 1989-1998 of imports in excess of the threshold. Maximum is the largest annual value during the same period. Food II comprises cereals, dairy and meat products, vegetable oils and sugar. The trend is for 1985-1998.

Source: Computed from FAOSTAT data.

In order to evaluate the alternative proposals discussed in the next section, it is important to understand how the three response mechanisms operate currently. This section provides relevant information.

Food aid

The Decision provides for action at two levels. First, Ministers shall review the level of food aid established periodically by the Committee on Food Aid under the Food Aid Convention (FAC) 1986 and initiate negotiations to establish a level of food aid commitments sufficient to meet the legitimate needs of developing countries during the reform programme. Second, it calls for adopting guidelines “to ensure that an increasing proportion of basic foodstuffs is provided to LDCs and NFIDCs in fully grant form and/or on appropriate concessional terms in line with Article IV of the Food Aid Convention”.

On the first point, the FAC 1999 determined 4 895 000 tonnes of eligible products (in wheat equivalent) (plus 130 million Euro in cash) as the minimum level. Actual levels of food aid have generally exceeded this minimum.

On the second point, which is the more important one in the present context, the 1999 FAC lists eligible recipients under four categories as follows: (a) all LDCs; (b) 24 low-income countries (of which 6 are NFIDCs); (c) 52 lower middle-income countries (of which 9 are NFIDCs); and (d) 4 NFIDCs not included in (b) or (c) - see Box 2.

Article VII of the Convention states that priority in food aid allocations shall be given to categories (a) and (b), i.e. LDCs and low-income countries (which include 6 NFIDCs) and sets out the conditions under which countries and territories in the other two groups are eligible for food and which include the remaining 13 NFIDCs.

Box 2. Eligible Recipients under the Food Aid Convention 1999 Article VII - Eligible Recipients “(a) Food aid under this Convention may be provided to the developing countries and territories which are listed in Annex B, namely: (i) least developed countries; (ii) low-income countries; (iii) lower middle-income countries, and other countries included in the WTO list of Net Food-Importing Developing Countries at the time of the negotiation of this Convention, when experiencing food emergencies or internationally recognized financial crises leading to food shortage emergencies, or when food aid operations are targeted on vulnerable groups. (b) For purposes of paragraph (a) above, any changes made to the DAC (Development Assistance Committee of the OECD) list of Developing Countries and Territories in Annex B (a) to (c) shall also apply to the list of eligible recipients under this Convention. (c) When allocating their food aid, members shall give priority to least developed countries and low-income countries.” Annex B - Eligible Recipients “Eligible food aid recipients under Article VII of this Convention refer to Developing Countries and Territories listed as aid recipients by the Development Assistance Committee (DAC) of the OECD, effective as of 1 January 1997, and to countries included in the WTO list of Net Food-Importing Developing Countries, effective as of 1 March 1999.” In accordance with these provisions eligible recipients are: (a) Least developed countries - all 48 countries listed; * (b) Low-income countries - 24 countries listed, including 6 NFIDCs (Côte d’Ivoire, Honduras, Kenya, Pakistan, Senegal* and Sri Lanka); (c) Lower middle-income countries - 52 countries listed, including 9 NFIDCs (Botswana, Cuba, Dominican Republic, Egypt, Jamaica, Morocco, Peru, Tunisia and Venezuela); (d) Four other NFIDCs listed by WTO (Barbados, Mauritius, St. Lucia, Trinidad and Tobago). * As noted above, Senegal has since been added to the list of LDCs.

From the standpoint of the Decision, it may thus be seen that the Convention did not treat all LDCs and NFIDCs equally in terms of priority and criteria for food aid allocation, and in consequence a situation could arise where the needs of the remaining 13 NFIDCs are not fully taken into account. Also, the allocation criteria applicable to groups (c) and (d) do not fully conform with those of the Decision; in particular the principle of compensation implicit in the Decision is related strictly to the reform process and not to considerations such as international financial crises and feeding vulnerable groups. It is consequently doubtful whether the FAC fully responds to the concerns reflected in the Decision.

Compensatory financing facility

In paragraph 5 of the Decision, Ministers recognized that “as a result of the Uruguay Round 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 the adjustment programmes, in order to address such financing difficulties”. The subsequent sentence refers to consultations by the GATT Director-General with the Managing Director of the IMF and the President of the World Bank. Attention has consequently focused on the existing facilities of the two Bretton Woods institutions, and in particular on the cereal financing facility of IMF. Very little debate has taken place so far on the other option stated above, i.e. “such facilities as may be established”. The main features of the IMF cereals facility are summarized in Box 3.

Box 3. The IMF Compensatory Financing Facility In 1963 a Compensatory Financing Facility (CFF) was established in IMF to help countries cope with temporary exogenous shocks affecting export earnings without resorting to undue and unnecessary adjustments. Coverage was expanded in 1981 to include excess cereal import costs. In 1998, this facility was integrated with a new External Contingency Mechanism (ECM) to create a new Compensatory and Contingency Financing Facility (CCFF). The ECM was, however, eliminated in early 2000 and the new facility again called CFF. The purpose of the CFF is to ensure timely assistance to members that are experiencing balance of payments (BoP) difficulties resulting from a temporary decline in export earnings (or rise in cereal import costs). The export shortfall and/or excess cereal import cost must be considered temporary, i.e. a deviation from trend that is expected to be reversed, and must be attributable to factors largely beyond the control of the authorities. Access limits (the amount of compensation) under the CFF for excess cereal imports is determined by: i) a member’s BoP position; ii) past cooperation with IMF to resolve its BoP difficulties; and iii) willingness to adopt adjustment policies that would meet the standards of upper tranche conditionality. Depending on these considerations, access limits can range from 10 percent to 55 percent of quota. Within these limits, access is determined by the size of the shortfall/excess and the member’s capacity to repay the loan. As originally conceived, the key features of the CFF were low conditionality and rapid processing of requests. Access was not, however, intended to be automatic - the country’s BoP position as a whole was recognized as important and not just that part deriving from the export shortfall or cereal import excess. The CFF facility has been relatively little used and its cereal component even less. Of the total compensation of SDR4.1 billion during 1993-1999, only 14 percent related so to the cereal imports. Only four countries were involved for cereals, for a total of six times in the seven years - Moldova, South Africa, Algeria and Bulgaria. None of them is either a LDC or a NFIDC. None utilized the facility in 1995, a year of cereal price spikes, and only Algeria borrowed in 1996. Source: The IMF Staff Review cited in note 9 of this paper.

The reasons why the CFF has been little used have a bearing on the implementation of the Decision. One key factor appears to be that drawings must be made “in the context of the adjustment programmes” and hence subject to conditionality. A recent review of the facility by the IMF staff confirmed that for most developing countries the eligibility criteria are difficult to meet:

“Indeed, recognition that it was rare in practice for a country to have an exogenous and temporary export shortfall without also having a more persistent BoP problem was the main reason why CFF conditionality was tightened in the 1980s and why the complex system of access limits under the facility evolved. It is notable in this respect that no country has been judged under the CFF to have a BoP problem limited exclusively to the effect of a temporary export or cereal import shock since the early 1980s, and that the great majority of purchases under the CFF have taken place in conjunction with other arrangements. These considerations would suggest that “stand-alone” CFFs would be suitable only for circumstances - where there is no need for adjustment - which are, in practical terms, unlikely to hold” (paragraph 15 of the review[72]).”

Another factor is that the CFF is limited to cereals only, whereas the Decision covers all basic foods. Also, the CFF explicitly links excess cereal imports to export earnings - compensation is possible only to the extent that the excess in cereal imports is not offset by an excess of export earnings. There are also problems of interpretation as to whether shocks are not only exogenous but also of a purely temporary nature (requiring no policy adjustments) or reflect more durable factors (requiring an adjustment programme).[73]

The cereals import facility has never fitted well into IMF’s various facilities, as its origin and continuity were linked to humanitarian and food security considerations. This too was recognized in the report cited above:

“The cereal import element was added in 1981 (to the original CFF), following the increased volatility of food prices in the 1970s, initially for a fixed term of four years. The Board had rejected this idea in 1978, out of concern that it was inappropriate for the Fund to single out food imports as a BoP problem, but reconsidered it upon receipt of requests from the World Food Council and the FAO, and giving weight to the human considerations associated with this issue. The cereal element has since been routinely extended”.[74]

Given these difficulties, the future of the CFF also seems to remain uncertain. A subsequent review of the facility by the IMF Executive Board summarized the situation as follows: “No Director has argued for retention of the CFF as it stands now, and the debate has focused on the two main options discussed in the staff paper: i) elimination of the CFF; or ii) substantial amendments to the facility, limiting it to cases where an arrangement is in place or no other BoP problem is present”. The conclusion reached was that “we leave the CFF for now, pending the broader review (of all facilities), on the understanding that if it is decided to retain the CFF in the context of that review, there is strong sentiment for modifying and streamlining it along the lines the staff has proposed.”[75]

To sum up, the CFF could require considerable modification if it were to be used in the spirit of the Decision. At the very least, that would involve: i) extending the coverage from cereals to all basic foods; ii) relaxation of the BoP and other adjustment conditionality, in recognition that shocks are exogenous and temporary; iii) uniform eligibility criteria for all LDCs and NFIDCs, in line with the Decision; and iv) increasing the amount of financing on concessional terms so as to make the facility more attractive, e.g. closer to the IMF Poverty Reduction and Growth Facility (PRGF).

Agricultural export credits

In the Decision Ministers agreed to “ensure that any agreement relating to agricultural export credits makes appropriate provision for differential treatment in favour of LDCs and NFIDCs”. Negotiations on an Understanding on export credits for agricultural products have been taking place in OECD for some years, but no agreement has yet been reached.

A recent OECD study showed that agricultural export credits provided by member countries have increased markedly in recent years, from US$5.5 billion in 1995 to US$7.9 billion in 1998, though the subsidy element involved was generally small (about US$300 million in 1998)[76]. Most export credits were for basic foods (mainly cereals), followed by vegetable products (including oilseeds and wheat flour) and livestock products. As regards recipients, the share in the total of agricultural export credits was very small for both LDCs and NFIDCs (0.2 percent and 9 percent, respectively). One implication of all this - also stressed in the study - is that current agricultural export credit programmes do not necessarily target countries facing liquidity constraints on their purchase of food in world markets, as is often claimed for their justification.

Reverting to the Decision’s call for “differential treatment” in favour of LDCs and NFIDCs in any eventual agreement, two points may be noted in particular. First, special attention may need to be given to the shares of LDCs and NFIDCs in total agricultural export credits, which are currently very small. Second, since it is the subsidy element of the credit, and not necessarily the volume of credit itself, that represents “assistance” in the true sense of the term, it is necessary to ensure that LDCs and NFIDCs enjoy a higher rate of subsidy (a sort of most-favoured-nation treatment, whereby, for example, a creditor country accords them the same terms as those granted to the most favoured borrower).

4. Implementing the Decision: Two alternatives

This section discusses two possible alternative ways in which the Decision could be implement. The first assumes implementation by donors/agencies in a decentralized fashion as currently but with some strengthening. The second envisages the creation of a Special Food Security Facility.

Alternative 1: Strengthening the current mechanisms

Each of the three short-term response mechanisms represents transfers from the donor to the recipient country. They function either on a multilateral basis (as when they involve the IMF facility or WFP- administered food aid) or bilaterally (export credits and food aid under the FAC). Each has a different time frame for disbursement and eventual repayments, if required, and different accounting procedures.

In order to relate the contributions under the various programmes to the needs of recipients under the Decision, some centralized accounting and reporting would be required, since each source of assistance has its own objectives to meet in addition to those stemming from the Decision: IMF facilities are for IMF members facing particular BoP difficulties; food aid is given not only to cope with exceptional import bills but also for a variety of other reasons (e.g. for nutrition programmes and emergency assistance); export credits are given for different commodities, on different terms and for varying reasons. To keep track of all these different forms of assistance and how they relate to the Decision requires some sort of monitoring mechanism so that the relevant WTO Committee is able to take appropriate action.

Box 4. A possible format for reporting on the implementation of the Decision (all assistance expressed in terms of the grant equivalent, in millions of US$)
Beneficiary country	Food aid	Financing facility	Export credit	Total assistance	Total needs
LDCs
Country 1
Country 2
.........
........
NFIDCs
Country 1
Country 2
.........
........

At the very least, all donors would have to pledge annually their assistance for meeting exceptional food import bills to some central secretariat, which would have the task of standardizing the data on a common reporting basis, expressed in comparable units of value (e.g. the grant element) compiled by donor and recipient and assessed against the estimated excess food import bill. This secretariat would report regularly to the WTO Committee on Agriculture. Box 4 illustrates a format for reporting this information. With this approach, there would be a good prospect of shortfalls in assistance for exceptional food import requirements being identified early enough in the year for donors to adjust their levels of assistance as appropriate. This format could also be useful to identify areas where improvements may be required, in the sense of fully matching assistance to the needs.[77]

A strong reporting mechanism of this kind should gradually lead to improvements as the gaps in assistance are identified and implementation difficulties noted. Yet, there is no guarantee about the predictability of resources, i.e. that the total made available would be adequate and timely to meet the needs arising under the Decision. Moreover, it is unlikely to lead to binding commitments in WTO and would involve only a "best endeavour " commitment, as at present.

It is these weaknesses in the decentralized approach that have led several countries to prefer a separate food security facility, with commitments bound in WTO and a disbursement system that results in an equitable sharing of the assistance for meeting exceptional food import bills.

Alternative 2: A special WTO Food Security Facility

Under this alternative a Food Security Facility (FSF), under WTO auspices, would be created solely for the purpose of implementing the Decision. Although details would have to be worked out, the FSF would operate broadly as follows:

A centralized implementation machinery

In contrast to the current, decentralized approach, the FSF would be a centralized machinery with its own resources, to be drawn upon as necessary, and with an administrative machinery for implementation. In addition, unlike at present, assistance commitments would be bound in WTO.

Financial requirements

The quantification of excess food import bills in Section 2 provides a basis for calculating the rough order of magnitude of the resources required for the Facility. The mean annual level of compensation was estimated to be roughly US$600 million. Assuming that the reform process lasts for six (ten) years, the total requirement would be US$3.6 billion ($6.0 billion). Donor commitments can be both in cash and in kind, (e.g. food aid), as assistance is expressed on a grant-equivalent basis.

Eligibility and level of compensation

The Facility would first have to verify that a country is eligible to make drawings up to its ceiling entitlement for a particular year, to which end it would have to compute the excess import bill for each beneficiary.

In order to avoid a situation where excessive drawings in a single year could undermine the viability of the Facility itself, it would probably be necessary to set a cap to the level of compensation for each country. That ceiling could be determined by, for example, a) the quantity of food imports in a reference period and the increase in current world prices over some threshold level, or b) the value of food imports in the reference period.

Control over the available resources

Full control of available resources by the FSF itself is the key underlying feature of this alternative. However, that may not necessarily require that it hold all the resources itself. They may be held by other bodies, as in Alternative 1, but in that case they would have to be committed for use by the Facility as necessary. This arrangement essentially requires that commitments are bound in WTO.

Reporting

Since the sole objective of the Fund is to implement the Decision, it would report directly to the Committee on Agriculture, which is responsible for monitoring implementation.

Annex I - Marrakesh Ministerial Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries

1. Ministers recognize that the progressive implementation of the results of the Uruguay Round as a whole will generate increasing opportunities for trade expansion and economic growth to the benefit of all participants.

2. Ministers recognize that during the reform programme leading to greater liberalization of trade in agriculture least-Developed and net food-importing developing countries may experience negative effects in terms of the availability of adequate supplies of basic foodstuffs from external sources on reasonable terms and conditions, including short-term difficulties in financing normal levels of commercial imports of basic foodstuffs.

3. Ministers accordingly agree to establish appropriate mechanisms to ensure that the implementation of the results of the Uruguay Round on trade in agriculture does not adversely affect the availability of food aid at a level which is sufficient to continue to provide assistance in meeting the food needs of developing countries, especially least developed and net food-importing developing countries. To this end Ministers agree:

[inceput284](i) to review the level of food aid established periodically by the Committee on Food Aid under the Food Aid Convention 1986 and to initiate negotiations in the appropriate forum to establish a level of food aid commitments sufficient to meet the legitimate needs of developing countries during the reform programme;

(ii) to adopt guidelines to ensure that an increasing proportion of basic foodstuffs is provided to least developed and net food-importing developing countries in fully grant form and/or on appropriate concessional terms in line with Article IV of the Food Aid Convention 1986;

(iii) to give full consideration in the context of their aid programmes to requests for the provision of technical and financial assistance to least developed and net food-importing developing countries to improve their agricultural productivity and infrastructure.

5. Ministers recognize that as a result of the Uruguay Round 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. In this regard Ministers take note of paragraph 37 of the report of the Director-General to the CONTRACTING PARTIES to GATT 1947 on his consultations with the Managing Director of the International Monetary Fund and the President of the World Bank (MTN.GNG/NG14/W/35).

6. The provisions of this Decision will be subject to regular review by the Ministerial Conference, and the follow-up to this Decision shall be monitored, as appropriate, by the Committee on Agriculture.

Annex II - An indicator of food import capacity of selected LDCs and NFIDCs

	Country	Food imports	XGS-Debt[78]	Import capacity indicator
		(a)	(b)	(a)/(b)
		US$ million		%
LDCs[79]
1.	Angola	235	3 401	6.9
2.	Bangladesh	766	4 385	17.5
3.	Benin	89	538	16.5
4.	Burkina Faso	60	260	23.2
5.	Burundi	11	55	20.0
6.	Cambodia *	60	862	6.9
7.	Cape Verde *	41	97	42.6
8.	Central African Republic	16	159	10.3
9.	Chad	19	192	9.7
10.	Comoros *	20	44	45.5
11.	Djibouti	44	193	22.7
12.	Equatorial Guinea*	8	100	7.8
13.	Gambia	55	179	30.9
14.	Guinea	143	600	23.9
15.	Guinea-Bissau	25	28	90.7
16.	Haiti	262	262	100.1
17.	Lao PDR *	21	408	5.1
18.	Lesotho	65	196	32.9
19.	Madagascar	62	673	9.2
20.	Malawi	121	320	37.8
21.	Maldives	24	364	6.7
22.	Mali	56	431	13.1
23.	Mauritania	150	353	42.4
24.	Mozambique	153	355	43.1
25.	Myanmar	156	1 308	11.9
26.	Nepal *	53	1 038	5.1
27.	Niger	61	264	23.2
28.	Rwanda	60	81	73.7
29.	Samoa *	20	71	28.4
30.	Sierra Leone	75	103	72.3
31.	Solomon Islands	15	205	7.3
32.	Sudan *	176	588	29.9
33.	Tanzania, United Rep. of	165	1 019	16.2
34.	Togo	46	461	9.9
35.	Uganda	62	572	10.8
36.	Vanuatu *	8	124	6.6
NIFDCs
1.	Barbados	47	1 134	4.1
2.	Botswana	157	2 430	6.5
3.	Côte d’Ivoire	279	3 535	7.9
4.	Cuba	459	n.a.	-
5.	Dominican Republic	319	6 193	5.1
6.	Egypt	2 546	11 589	22.0
7.	Honduras	97	1 502	6.5
8.	Jamaica	221	2 761	8.0
9.	Kenya	340	2 209	15.4
10.	Mauritius	173	2 296	7.5
11.	Morocco	950	6 266	15.2
12.	Pakistan	1 193	6 392	18.7
13.	Peru	923	5 095	18.1
14.	Senegal[80]	293	1 082	27.0
15.	Sri Lanka	449	4 746	9.5
16.	St. Lucia	36	339	10.7
17.	Trinidad and Tobago	137	2 447	5.6
18.	Tunisia	564	6 756	8.3
19.	Venezuela	785	16 590	4.7

Note: Data relate to the average for 1995-1998 or the latest four years available. An asterisk (*) indicates that the country is not a Member of WTO.

Source: Food imports: FAOSTAT (Basic Food as defined in the text, Food II); Exports and debt service: IMF, International Financial Statistics.

Comments by Mr Amr Ramadan

First Secretary, Permanent Mission of Egypt to WTO

The paper rightly describes the unsatisfactory manner in which the Decision has so far been implemented in respect of the four major elements it is meant to address: i) a sufficient level of food aid; ii) facilitation of short-term financing of normal levels of commercial imports; iii) favourable terms for agricultural export credits; and iv) technical and financial assistance to improve agricultural productivity and infrastructure in LDCs and NFIDCs.

To discuss the Decision is much more relevant today since there is a history of six years to judge whether or not there have been negative effects of the reform programme; it is no longer a question of “possible” effects in the future. The rise in the cereal import bill of LDCs and NFIDCs during the first three years of implementation of the Agreement on Agriculture was some 49 percent, though it is only fair to recognize that not all of the increase was due to implementation of the Agreement; there were also other reasons, such as the lack of subsidized exports and shortage of food aid. I am no expert on agriculture, and my comments do not necessarily reflect the views of the Government of Egypt. I agree with the approach of the paper, much of its analysis and more broadly with its recommendations. I shall nevertheless try to be the devil’s advocate:

Nature and Magnitude of the Food Problem Addressed by the Decision

It is true that one of the major deficiencies of the Decision relates to the definition or interpretation of some terms, particularly the term “negative effect". It is implicit in the Decision that the effects concern the ability to import sufficient food at high world prices. The paper argues that the emphasis should be on “economic access to food”, but this comes up against the same definitional problem. One may argue that the best approach would be a simple interpretation, like that alluded to in the paper, based on food import bills in excess of an average over five years or so in the base period.

The paper argues against what it describes as “individual factors” such as higher world prices constituting such a negative effect or triggering the response envisaged in the Decision. It prefers the concept of an “outcome”, like an increase in food import bills. In other words, it adopts an individual, or a country-by-country, approach to the negative effect rather than a global approach. This may seem reasonable, in so far as the paper points out that this approach would facilitate directing assistance to only those affected in a given year. But, it would open the door to eligibility criteria, which would require difficult negotiations.

The paper defines “basic foodstuffs” as cereals, dairy and meat products, vegetable oils and sugar (Food II) which is fair enough, but it also uses the term “excess food import bills”. There is no such terminology in the Decision and it is not needed, since the Decision already refers to the main problem of available foodstuffs on reasonable terms and conditions.

The Three Response Mechanisms provided for in the Decision

On food aid or the relationship between the Decision and the Food Aid Convention (FAC), the paper is very clear about the Decision’s classification of beneficiaries in the WTO context (LDCs and NFIDCs) and that of the FAC (48 LDCs, 24 low-income countries of which 6 are NFIDCs, and 52 lower middle-income countries, of which 9 are NFIDCs, while 4 other NFIDCs listed by WTO are left out (Mauritius, Barbados, St. Lucia and Trinidad and Tobago). Discussing the priority assigned to some groups in the FAC classification it doubts whether the Convention fully reflects the concerns of the Decision.

Another way of looking at this issue is that so far as the 48 WTO beneficiaries are concerned (30 LDCs and 18 NFIDCs), the Convention does indeed cover 44 of them one way or another in terms of food aid commitments. Modalities to refine allocation and to cover the remaining four countries can be worked out.

The paper illustrates well the IMF Facility, noting especially its limited product coverage (cereals only) and the difficult terms of conditionality. It rightly concludes that the Facility has no relevance to the Decision’s objectives. More importantly, one may argue that the Decision deals with effects arising from international factors, while the CFF addresses the issue of domestic policy adjustment. It would be interesting to hear the views of Mr. Taplin, the IMF representative, in this regard.

Implementing the Decision: Two Alternatives

In order to activate the three main response mechanisms called for in the Decision (food aid, access to financing facilities, and assistance to increase agricultural productivity), the paper puts forward two scenarios, namely allow the current situation to continue, but in a slightly modified manner, with centralized accounting and reporting, or create a special facility solely for the purpose of implementing the Decision.

However, the first scenario would still not bring together disparate functions or actions under one mechanism that would respond only to the provisions of the Decision, to the exclusion of any other factors or considerations, such as emergency assistance in cases of conflict, however important that may be. The paper recognizes that this scenario is unlikely to lead to binding and enforceable commitments in WTO, unlike the situation for other WTO Agreements and commitments.

The second scenario envisages a centralized machinery with its own resources. The paper estimates that compensation needed under the Decision would amount to some US$600 million annually. Nevertheless, it is not clear whether that figure relates to the level of liberalization deriving from the 1995 AoA or to future arrangements arising from the current phase of negotiations. It seems reasonable to expect that LDCs and NFIDCs will seek a much broader compensation mechanism as further liberalization takes place, now that they have learned their lesson.

As regards the resources of the proposed Facility, I agree with the concept that they should be controlled physically by it, even though a part of them - committed for the purpose of the Decision - may be held by other bodies. Reporting to the Committee on Agriculture should not impede making this kind of information available to other multilateral agencies involved.

Worth mentioning in this context is that 16 NFIDCs, including my own country Egypt, have recently submitted to the Committee on Agriculture a proposal (G/AG/NG/W/49, March 2001), in the context of the “Implementation Exercise” dealing with 1995 commitments. It calls for the establishment of an inter-agency Revolving Fund providing a financing facility and technical and financial assistance to LDCs and NFIDCs for specific projects linked to improving their agricultural productivity and related infrastructure.

Comments by Mr Grant B. Taplin

Special Representative to WTO and Assistant Director,
Office in Geneva, International Monetary Fund

The Fund’s Compensatory Financing Facility-Recent Developments

Today’s discussion focused on options for making more operationally effective the Marrakesh Decision. This Decision has often given rise to questions about the potential use of the Fund’s Compensatory Financing Facility (CFF). In November 2000 the Fund’s Executive Board, as part of the current undertaking to review all Fund facilities to adapt them to the current global and country situation, approved a number of changes to the Facility.

As has been pointed out in the various papers, there has been very little use of the CFF in recent years. The most recent purchase under the CFF was by the Former Yugoslav Republic of Macedonia in August 1997; as to the cereal component, the most recent purchase was by Bulgaria in April 1997. The infrequent use of the facility relates to a number of factors, including the conditionality (whether the shortfalls in exports or the higher cereal costs are caused by external factors, outside the control of the authorities), whether the shock was “temporary” (that is, could be viewed as reversible) or “permanent” (and thus requiring appropriate adjustment policies), and whether other financial-support facilities provide the flexibility to meet the country’s financing needs.

As a point of reference, it would be useful to itemize the changes to the CFF deemed necessary in the background papers for this Round Table for the Facility to conform to the Marrakesh Decision. The four adjustments mentioned are:

1. Coverage extended to all basic food imports;

2. Relaxation of conditionality;

3. Uniform eligibility between least developed countries and net food-importing developing countries; and

4. Making the resources concessional.

1. On commodity coverage, the CFF is still limited to cereal imports only. Moreover, developments in cereal imports are looked at in the context of the country’s balance of payments developments. At its inception in 1963, the CFF provided compensation only for temporary shortfalls in export earnings. In 1981, following a period of sharply rising international prices of basic food commodities, a separate component was added to cover the increased cost of cereal imports. This cereal component has always been considered “temporary” - i.e., subject to renewal by the Board every few years. Its sunset clause has been removed as part of the recent amendments to the CFF;

2. Conditionality has been strengthened by making it a part of arrangements for the vast majority of cases. Thus, access under the streamlined CFF will now be generally available only in the context of an arrangement under upper-credit-tranche conditionality. “Stand-alone” access to the CFF will be available only for members whose balance of payments position is satisfactory, apart from the temporary export shortfall or cereal import excess;

3. On eligibility, the Fund applies the principle of uniform treatment for all members, and thus the CFF is open to any Fund member with a balance of payments need and a willingness to accept the required conditionality;

4. Resources made available through the CFF are general resources, subject to the standard rate of charge. (In contrast, loans under the Poverty Reduction and Growth Facility (PRGF) currently carry interest rates of 0.5 percent per year.) CFF purchases are subject to repurchase expectations of 2 ¼ - 4 years, with each instalment 12 months in advance of the obligation schedule. A member is expected to make these early repurchases unless its request for an extension of the expectations has been granted by the Board.

First: presumably it is mainly low-income countries, with no, or very limited, access to capital markets that would be looking for such compensatory financing; countries with access to capital markets can in any case smooth over balance of payments problems that may result from increased food prices. As mentioned above, the Fund’s CFF is non-concessional, and hence not very appropriate for low-income countries, many of which are grappling with excessive external debt burdens. However, low-income countries with arrangements under the PRGF can request higher PRGF access to address balance of payments difficulties resulting from excess cereal import costs.

Second: the Fund is tasked by its Articles of Agreement to lend only with “adequate safeguards” for its resources, and in a way that ensures that its resources are used for the achievement of external viability and not to perpetuate balance of payments difficulties. In the most recent reexamination of experience with the CFF, the Fund’s Executive Board concluded that most countries are in need of some sort of adjustment and that it is more prudent to provide compensatory financing to such countries only in conjunction with a Fund-supported adjustment programme.

Third: there are questions as to what type of food import increases might result from liberalization. If, for example, multilateral trade liberalization leads to greater price volatility resulting at times in a balance of payments need in a member country, there could be a case for compensatory financing of the type provided by the Fund. But, if the increase in food imports is “permanent”, then the Fund’s task would clearly be to help the country adjust to it, rather than to provide unconditional financing.

There is nothing to preclude a new look at the CFF, should the Fund membership so wish. That would not seem to be the case in the near term, as the recent review was only completed a few months ago. It should also be noted that some members expressed a preference for the elimination of the CFF, rather than for any extension.

Comments by Ms Robin Jackson

Senior Policy Advisor, World Food Programme, Rome

WFP - Food agency of the United Nations

• WFP’s operating expenditures were US$1.7 billion in 2000. The Programme is present in about 85 countries;
• 87 percent of assistance went to LDCs and LIFDCs in 1999 (LIFDCs are a category used by FAO and WFP but correspond very closely to the “other low-income countries” classification used by the World Bank);
• 52 percent of total expenditures are directed to LDCs;
• WFP is responsible for approximately one third to one quarter of global food aid flows. The bulk of our assistance is for emergencies (75 percent in 1999, over 80 percent in 2000);
• All the assistance is targeted food aid - either project development food aid or emergency assistance

Global food aid flows

• Total food aid in 1999 amounted to 15 million tonnes, the highest amount in the last five years (1995-2000); it amounted to 10 million tonnes in 2000, or about the same level as in 1995;
• The share of LDCs in global food aid flows dropped from 1997 to 1999; provisional figures indicate an increase in the share in 2000, but only to much the same as it was in 1995;
• The goals of the Marrakesh Decision are not being met since it calls for increasing the share of LDCs in global food aid;
• Emergencies were responsible for 47 percent of global food aid in 2000, which is the highest proportion in the past five years: for example, WFP assistance for natural disasters was US$4 million in 1994 but US$49 million in 1999; such assistance is important in terms of the Decision because emergency food aid relief is life-saving. However, it is not the type of food aid referred in the Decision.

Types of food aid

It is important not to just look at which countries are receiving food aid, but to whom within those countries is being assisted. Food aid comes in different forms, and this determines who benefits from this type of assistance. In order to effectively implement the Decision these different forms are important to understand.

Programme food aid: this is aid from government to government, often concessional, and not targeted. The commodities are put on open markets, with the risk of destabilizing them.

Targeted food aid: this is what WFP does, along with many NGOs and some bilateral donors. The WFP believes that this is where you can obtain the best value for money in terms of compensation packages. It has greater value in terms of social stability and addresses much longer-term food security issues. It is grant assistance, targeted to the poorest and hence those who need it most; it is often targeted to women and children.

This type of food aid, which is more in the spirit of the Decision than programme food aid, takes three main forms:

• School feeding: attracts children to school, keeps them there, and helps them to learn while they are there. The link between education and food security has been proved to be very strong;
• FFW/FFT: these are activities where food is distributed to those who do not have enough, so that they can either participate in training or build community-based rural infrastructure to help domestic output for their long-term food needs;
• Nutrition programmes: these are programmes for small children and pregnant and lactating mothers.

All three contribute to longer-term food security, which is one of the issues that the Decision focuses on.

An added advantage of targeted food aid is that it involves local procurement or triangular transactions, which help stimulate local markets and contribute to local economies. WFP procures over 50 percent of its food in developing countries.

Conclusion

• Whatever mechanism is chosen to implement the Decision, there is need to think carefully about how food aid fits into it;
• We have laid out the advantages and disadvantages of targeted food aid and programme food aid, as well as their longer-term effects in terms of supporting food security for the poorest in LDCs;
• WFP strongly supports the use of targeted food aid as an appropriate response mechanism in the Decision.