2.1 The proposals
Most negotiating proposals by developing countries speak of the importance of some form of SDT tariffs; many proposals by developed countries also made similar statements or supported the idea in general as a matter of an accepted principle. It is most probable that one form of SDT will be, as in the Uruguay Round, a lower reduction rate and longer implementation period for the developing countries. While this will be the approach for generalized tariff cuts, several proposals placed stress on some special treatment for selected products vital for food security, rural livelihoods and agricultural development.1
Two proposals in particular made the SDT argument on tariffs as part of a package of instruments within what is called as a Food Security or Development Box. One of them, tabled by Cuba and 10 other countries (G/AG/NG/W/13), 2 made the following proposals on tariff:
• All developing countries to be allowed to use a positive list approach to declare which agricultural products or sectors they would like disciplined under the AoA provisions (i.e. the rest of the products are to be exempted from the disciplines).
• Allow developing countries to re-evaluate and adjust their tariff levels.
India's comprehensive proposal (G/AG/NG/W/102) called for two similar instruments on tariffs for its Food Security Box:
• Appropriate level of tariff bindings to be allowed for developing countries as SDT, keeping in mind their developmental needs.
• Also to be taken into account in setting these tariffs is the high distortions prevalent in international markets, i.e. the bindings are to be related to trade distortions on market access, domestic support and export competition practised by the developed countries.
• Low tariff bindings in developing countries, as could not be rationalised in the earlier negotiations, should be allowed to be raised to the ceiling bindings for similar category of products committed during the Uruguay Round.
Similar proposals have been made by several other countries or country groups, but not necessarily mentioning the above Boxes. For example, Egypt proposed that developing countries should have greater flexibility to re-evaluate and adjust their tariff schedules, with a view to overcome the negative effects of cheap subsidized agricultural imports (W/AG/NG/107 Rev. 1). Namibia proposed that developing countries with low bound tariff rates are to be exempted from making further reductions until such a time that other countries catch up (G/AG/NG/W143). Nigeria called for flexibility for developing countries in reducing tariffs, particularly on sensitive products (G/AG/NG/W130). Jordan proposed that small developing economies should have appropriate differential commitments and modalities, including the possibility of exemption from further tariff reductions, particularly in circumstances where substantial liberalization has already been undertaken (W/AG/NG/140). The CARICOM proposal (G/AG/NG/W/102) called for rates of reduction for developing countries that are functions of the extent of subsidization (both export subsidies and domestic support) by developed countries, a point also made in the Indian proposal above.
Green and Priyadarshi (2001) summarise many of the arguments and instruments in these proposals and goes on to rationalize a Development Box and instruments therein for safeguarding the livelihood, food security and development of low-income resource-poor farmers in developing countries. On tariffs, the following proposals were made:
• Exempting basic food security products from reduction commitments on the basis of a “negative list”, which individual developing countries will submit3. For this, Annex 5 of the AoA (Special Treatment) already provides a precedent for distinguishing between staples and other products.
• Low tariff bindings in developing countries to be allowed to be renegotiated in relation to food security products.4
• Countries with total domestic support at or below the de minimis level (which includes most developing countries) to be allowed to maintain appropriate levels of tariff bindings as a SDT in view of food security/development needs, as well as in view of the high distortions prevalent in international markets.
The arguments and justification for these proposals, which are found in the preamble section of the negotiating proposals, are largely similar. They are based on one or more of the following four arguments. First, food security products are vital to food security, livelihoods and agricultural development of the developing countries. A reading of the proposals shows that these food security products are mainly basic foods such as cereals, vegetable oils, sugar, dairy and meat products. Second, these basic food products are import-competing, i.e. they are both produced and imported by developing countries. They are grown mainly by small farmers who are vulnerable to external shocks as these sectors are underdeveloped. Market stability is also essential for the urban poor. Third, this vulnerability is exacerbated by the fact that world markets of most of these products continue to suffer from high levels of support and protection, mainly by rich countries. These are not hypothetical risks - there are several recorded instances of market openings associated with an increased frequency of import surges which have damaged or threaten to destroy viable domestic production. This vulnerability will increase as countries reduce tariffs and bind them at low levels. Several proposals have stated that reduction commitments by developing countries should be linked to sharp reductions of trade-distorting measures by developed countries. Fourth, in terms of the means to respond to these difficulties, the countries lack capacity to resort to WTO-compatible trade remedy measures and financial resources to compensate farmers through other means, options that are feasible for rich countries only.
In this context, many proposals have cited the findings from a recent FAO report based on 14 country case studies on experiences with the implementation of the Agreement on Agriculture, as well as recent reports by international and national non-governmental organizations documenting import surges and negative effects.5 It is for all these reasons that these countries see the level of the bound tariff as being of immense significance for them.
In the WTO framework, there is a distinction between tariff and safeguard. The former is typically an instrument for protection, while there are several trade remedy measures for the purpose of safeguard against shocks. The special agricultural safeguard (SSG) in particular was designed to respond to precisely the types of problems noted above, i.e. depressed import prices and import surges. Ideally, countries would use both instruments - maintain low tariffs for protection and safeguard when shocks are too much to bear. In the Uruguay Round, access to the SSG was made conditional on tariffication and the outcome was somewhat awkward - SSGs were accessible for products that also had high bound rates, rather than the other way around. The ongoing round provides an opportunity to “rationalize” border measures, both in terms of fairness (by extending SSGs to all, or to none) and to induce countries to lower bound tariffs by making access to the SSGs conditional on that (FAO 2001c; also Valdés and Foster 2002 for related issues).
It is well known that applied tariffs in developing countries are much lower than bound rates. For a sample of 32 developing countries the simple average applied rate on agricultural products was about 20 percent versus 84 percent for the bound rate (Sharma 2002). Actual protection measured with price gap (the nominal protection rate) is most probably even lower than what the world price plus the statutory applied tariff would indicate. The evidence presented in Krueger, Schiff and Valdés (1988) for the 1980s also point to the same conclusion - that protection through sector-specific policies was only modestly positive, and it is unlikely that the situation has changed much. This is also for the reason that many of these countries could not politically afford to keep food prices high with tariffs.6 Therefore, the main motivation for the “appropriate” level of bound tariff does not seem to be protection but to have the option to use the tariff as a safeguard. In fact, tariff variation is quite common and widespread, responding mainly to changes in world market prices (Sharma 1996; FAO 2001b). To be able to do that, “water in the tariff” or a high bound rate is essential.
If that is the case, which is not clear in the negotiating proposals, the implicit assumption seems to be that SSG or similar safeguards would not be available to them, as happened in the Uruguay Round. In this case, many countries see the value of tariff for two purposes (i.e. protection as well as safeguards). In estimating appropriate tariffs in this paper, a similar assumption is implicit, i.e. the purpose of the tariff is to safeguard domestic markets against external shocks, as well as to provide some protection.7
1 It is interesting to note that some proposals by developed countries also support similar special treatment for themselves as well. For example, Japan calls for an approach that is "flexible to individual products" while Norway proposed exceptions, or flexibility to set bound tariffs for sensitive products on grounds of inter alia, multifunctionality of agriculture.
2 The symbol G/AG/NG/W/* indicates a negotiating proposal, with the asterisk* for the document number, e.g. the Cuba+10 proposal is numbered 13. These are available on-line at the WTO web site.
3 Note that this is "negative list" approach versus the "positive list" in the Cuba+10 proposal.
4 Current WTO rules allow that, but the proposal presumably means without going through the complicated process of tariff re-negotiation.
5 The often-quoted FAO conclusion reads as follows: "… the case studies showed that tariffs were often the primary, if not the only, trade instrument open to these countries for stabilizing domestic markets and safeguarding farmers' interests in the face of sharp swings in world prices or a surge of imports. With virtually no safety-net measures, no access to the much simpler Special Safeguard (SSG) provision of the AoA and practical difficulties in resorting to the general WTO safeguards, tariffs were frequently varied to cope with sharp swings in world market prices and, in some cases, changes in exchange rates. By contrast, many high-income countries do have the option to use additional, non-tariff instruments to cope with price or other risks, e.g. relief payments, subsidized emergency loans and risk management instruments. One lesson is that tariffs play a much broader and important role in developing countries for lack of other trade instruments and alternative safety-net measures - hence the importance of the bound rates." (FAO 2000, p. 9, emphasis original).
6 Again, the exception would be some higher-income countries among them.
7 Real life, i.e. deciphering the motives and arguments made in the negotiating proposals, is not as simple. Many proposals are made for strategic reasons, both by developing and developed countries, and do not necessarily make sense when viewed otherwise. For example, very few proposals would admit explicitly that the first best outcome would be low bound tariffs plus SSG for all countries. In some proposals, high bound tariffs are justified because of high domestic subsidies elsewhere.