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The potential benefits of agricultural trade liberalization have been broadly recognized by developing as well as developed countries. However, there remains disappointment on the part of developing countries with the results of the Uruguay Round and a concern that the Doha Round should include due allowance for their special circumstances and needs. From the 2001 Doha Ministerial Declaration onwards it has been stressed that special and differential treatment for developing countries should be mainstreamed in the negotiations to provide for operationally effective recognition of their development needs including food security and rural development. The papers in this issue of the Commodity Market Review broadly relate to this theme. While special and differential treatment is an integral aspect of all three pillars of market access, domestic support and export competition, the papers here focus mainly on aspects of special and differential treatment under the market access pillar highlighted in the July 2004 Framework Agreement. They deal with a number of key issues - designation of Special Products, designation of Sensitive Products, establishment of a Special Safeguard Mechanism and the implications of preferences erosion. While the first two papers are cross-cutting in scope, the other four papers are commodity specific, focusing on particular commodities - rice, dairy products, sugar and bananas - which have proved problematic in international trade policy negotiations and debate.

The first paper, by Ford et al, deals with the designation of Special Products to provide increased flexibility to developing countries in applying agreed trade rules in consideration of their longer run economic and social development. WTO members accepted the importance of different treatment for some products and agreed that based on three criteria of food security, livelihood security and rural development needs developing country members should have the flexibility to designate an appropriate number of products as "Special Products". While it is clear that the broad criteria for designating products as "special" will relate to food security, livelihood security and rural development concerns, the precise operational definition and criteria for determining Special Products is problematic. The paper explores the meaning of Special Products and develops and demonstrates an approach and methodology for identifying them. Various indicators that can be used to measure each of the three criteria are calculated. Factor analysis of the interrelationships between them shows that several indicators are explaining the same criteria and hence only a subset is needed to identify special products. It is shown that products need only meet one criterion to qualify for Special Product status.

Current safeguard measures in place are generally either not available to all developing countries or are regarded as too complex to be effective. The July 2004 Framework Agreement proposed that a Special Safeguard Mechanism should be available to all developing countries to counter depressed import prices and import surges. It has been further suggested that this should be simpler in operation in the sense of incorporating simple price and volume trigger mechanisms without the need for extensive proof of damage suffered. The paper by Sharma contributes to one key building-block of such a Special Safeguard Mechanism - the trigger which elicits a safeguard response. Two alternative trigger schemes are evaluated - the Agreement on Agriculture’s Special Safeguard (SSG) formula and one based on moving averages of prices or imports.

The paper by Calpe and Prakash examines the prospect of rice being designated as a Special or Sensitive Product and looks at the possible implications this could have under liberalisation of the international rice market. More generally, they extend the discussion of the preceding papers to consider the nature of Sensitive Products. These raise similar issues to Special Products, but the right to designate Sensitive Products is not confined to developing countries. Designation of Sensitive Products would also be open to developed countries. Unlike for special products the criteria for designating sensitive products remain vague and subjective according to a country’s special interests so as with the special products, some limit on the number of products to be so designated is necessary. The paper discusses the criteria that could serve to guide the selection of rice products as Sensitive or Special, and using an Armington-type model, explores the implications of doing so. It shows that the effects of reform are considerably diminished as a result.

Cluff and Vanzetti look at the relevance of the categories of Special Products and Sensitive Products to the prospects for liberalization of dairy trade. Using the FAO-UNCTAD Agricultural Trade Policy Simulation Model, the paper assesses the possible impact on the prospects for market access liberalization in the dairy sector, using relevant aspects of the EU’s 28 October 2005 proposal as an example. It concludes that, as expected, Special Product exemption has limited impact on market outcomes, while that of Sensitive Product treatment could have significant implications. The mapping of tariff deviation from the general tariff formula to proposed scheduled tariff rate quota increases is seen as a critical issue.

The last two papers deal with commodities which share some of the characteristics and concerns of Special and Sensitive products but for which the key issue has been the erosion of preferences as a result of general progress towards liberalisation, and complaints in the WTO against the regimes supplying or implying them. Preferences raise certain particular complications given that while developing countries may benefit from preferences they are offered by developed countries and may be an adjunct to support and protection to the agricultural sectors of the developed countries that offer them. For countries holding preferences, the losses from preferences erosion are likely to be greater than the gains from liberalisation.

Conforti and Rapsomanikis analyse the potential impact of the EU sugar policy reform and the Everything But Arms initiative on the African, Caribbean and Pacific countries, the Least Developed Countries and the European Union. Radical changes in the Common Market Organization for sugar have recently been agreed by the EU agricultural ministers. These will interact with preferential trade initiatives and with the need to comply with the outcome of the trade dispute on export subsidies. Apart from EU sugar producers, the reform will affect developing countries and Least Developed Countries that depend on the preferential treatment they enjoy for sugar exports to the EU. The analysis is based on a partial equilibrium model for the sugar market and a gravity model to replicate Least Developed Countries’ bilateral trade with Europe. Domestic support and other policy instruments are included in the partial equilibrium model, whilst gravity is used to model the abolition of import tariffs for sugar originating in least developed countries subject to trade costs. The analysis indicates a significant decrease in unsubsidised exports from the European Union as sugar production contracts, and a significant reduction in the export revenues of African, Caribbean and Pacific countries.

The final paper by Arias et al. considers the case of bananas and specifically the impact of substitution of the current EU tariff rate quota banana import system by a tariff-only system in 2006 in response to a series of WTO rulings. It is shown that the concept of an "equivalent tariff is problematic where the different stakeholders - EU producers, ACP and Latin American exporters - have competing interests. A dynamic, non-spatial partial equilibrium model of the world banana economy is used to test various policy scenarios. The paper argues that the various policy objectives pursued under the current import system could not be simultaneously achieved under a tariff-only system, but would require additional policy instruments.

The need to address the particular concerns and development needs of developing countries has been highlighted in the Doha Round of trade negotiations, and it is generally recognised that this implies a need to strengthen provisions for special and differential treatment. The papers in this issue of the FAO Commodity Market Review are intended to contribute to this discussion by presenting relevant analyses of some of the issues involved, exploring aspects of the design and implementation of operationally effective mechanisms and illustrating the implications of particular reform scenarios for developing countries.

David Hallam
Chief, Raw Materials, Tropical and Horticultural Products Service
FAO Commodities and Trade Division
Editor, Commodity Market Review 2005-2006

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