Industrial countries grant preferential market access to developing countries for a wide range of products. Better access is provided through tariffs (lower than the MFN (most favoured nation) rates) and tariff rate quotas (TRQs). These trade preferences were originally conceived as a means to increase production and exports of developing countries, so they would eventually become internationally competitive.
Trade preferences, a departure from the MFN principle of GATT, are provided for under the Generalised System of Preferences (GSP). At present, there are 15 GSP schemes offered by 29 preference-giving countries. These schemes differ widely in product eligibility, product coverage and preferential tariff margins. In light of the Uruguay Round results, industrial countries have adjusted their GSP schemes and expanded their product coverage in agriculture.
Recently, there has been a vast increase in bilateral and regional trade agreements between developing countries and industrial countries. According to WTO rules, such agreements, unlike GSP schemes, have to be reciprocal and cover substantially all trade. Past special preferential schemes such as the EU’s Lomé Convention (now the Cotonou Agreement) and the USA Caribbean Basin Initiative (CBI), which provided preferences for limited groups of developing countries, did not meet these criteria and hence needed a waiver from the rules.
In response to the need for restructuring the special preferential schemes, a number of industrial countries have recently granted comprehensive tariff and quota-free access to LDCs. Most prominent of these is the EU’s Everything But Arms (EBA) initiative. Similar schemes of duty and quota-free market access for LDCs have also been adopted by other developed countries, including New Zealand, Norway and Switzerland. The US Africa Growth and Opportunity Act (AGOA) offers similar access for African countries.
Given that MFN tariffs are still high for many agricultural products (see Table 1), and depending on the rate of reduction in the current round of negotiations on agriculture, there likely remains substantial scope for maintaining and expanding trade preferences in agriculture. In many low-income, vulnerable countries, products receiving preferential treatment, such as sugar, bananas, fruit and vegetables, represent a major source of foreign exchange, employ a large proportion of the rural poor and contribute significantly to food security and rural development.
Thus, while the aggregate value of preferences from individual schemes is not considered to be high (in the range of US$1-3 billion) relative to the value of trade is highly significant for several, agriculture-dependent countries - as high as 10 percent of the GDP in some cases.
Table 1: Tariff peaks in selected developed countries *
|
Commodity Group |
Average of tariff peaks |
Meat Dairy Coarse grains Cereals Oilseeds and oil Sugar Fruits & Vegetables Cocoa Coffee |
145 153 124
115 83 120 117 70 |
Note: A tariff peak is defined as a tariff which exceeds 20 percent on an ad valorem basis. * Australia, Canada, Czech Republic, EU-15, Hungary, Iceland, Israel, Japan, New Zealand, Norway, Poland, Romania, Slovenia, South Africa, Switzerland, and United States of America. Source: FAO document CCP 01/12 (2001) and AMAD. | |
Multilateral liberalisation on an MFN basis would erode the preference margins and result in loss of market share and income. FAO estimates that the aggregate preference margin enjoyed by all ACP countries for all agricultural products under the Lomé Convention has fallen by 16 percent between 1995 and 2000, due to the tariff reductions during the Uruguay Round implementation period. With the further reduction in bound tariffs anticipated in the Doha Round, the current preferential margins will shrink further. This would entail adjustment costs in these countries, which will be especially large for countries with a narrow export base.
Many of the preference-receiving developing countries have benefited substantially from preferential access for their exports of sugar, bananas, fruit and vegetables. Maintaining and/or deepening trade preferences for these countries can help them to cope with the new changes and to focus on strengthening supply capacities and increasing competitiveness in both domestic and export markets.
In light of these issues, the draft of the negotiating modalities by the Chairman of the WTO negotiations on agriculture makes the following proposals:
Key challenges
