AGRICULTURE, TRADE AND FOOD SECURITY:
ISSUES AND OPTIONS IN THE FORTHCOMING WTO NEGOTIATIONS FROM THE PERSPECTIVE OF DEVELOPING COUNTRIES
Geneva, 23-24 September 1999
Options for enhancing the agricultural production, trade and food security of developing countries in the context of the forthcoming WTO negotiations on agriculture
Measures to enhance agricultural development, trade and food security in the context of the forthcoming WTO negotiations
Commodity Policy and Projections Service
Commodities and Trade Division
1. The rules and disciplines of the Uruguay Round (UR) Agreement on Agriculture (AoA) are intended to restrict the use by countries of policy measures that distort world agricultural markets. Nevertheless, countries still have, under the AoA, the flexibility to use a wide range of policy options to pursue national agricultural policy objectives. For each country, the exact range of this flexibility is determined by its specific commitments on market access, domestic support and export subsidies. With the next round of negotiations about to begin, concern has been expressed by many developing countries that their policy options for the future may be limited by the general provisions of the AoA as well as by their specific commitments. These concerns which are related to the issues at stake in the forthcoming negotiations were reviewed in Paper 4. This paper continues that debate and identifies measures that developing countries may pursue in the forthcoming round of negotiations on agriculture in order to ensure that they have sufficient flexibility to achieve their agricultural production, trade and food security goals.1
2. In the context of the AoA, a country has basically two broad policy options to support domestic production and agricultural development: border measures, i.e. through tariffs, as long as these are within the bounds committed at the WTO; and domestic support measures, i.e. providing price and non-price support to farmers, again within the bounds of WTO rules and commitments.
3. As regards border measures, in general, the bound tariffs of the developing countries on agricultural products are at a level sufficiently high to allow them considerable flexibility for stabilising domestic markets or for protecting producers2. However, there are some problem areas. For example, very few developing countries rationalised their bound tariffs and as a result a number of anomalies have been noted in their commitments3. For many net-food-importing developing countries with large numbers of low-income households, raising tariffs has also limitations for political economy reasons4.
4. As regards domestic support to agriculture, the AoA distinguishes several categories of measures: "amber" box measures (both product and non-product specific), "green" and "blue" box measures, and for developing countries a special category of agricultural development measures. Of these, quantitative limits have been set only for amber box measures (through the AMS) - the exact amount depending upon each country's reported base period (1986-88) AMS. Many developing countries reported a zero level base period AMS. Regarding other measures, no limits on outlays have been placed; but there is a lack of clarity in the definition of these measures. As with bound tariffs, the extent of the flexibility to support agriculture therefore depends upon what has been committed in the UR.
5. Besides the current WTO Members, flexibility for domestic support is needed also by developing countries negotiating their entry to the WTO, particularly taking into account their developmental and food security concerns.
6. On border protection and domestic support, the developing countries may need to pursue a two-pronged strategy: the first would be to remove some of the imbalances in existing provisions in the AoA that have allowed considerable production and trade distorting support by countries that can afford to do so. On this, the following reforms may be considered:5
· significant reductions in Total AMS as these have not been binding at all;
· further limitations on switching support between products, preferably making AMS reduction commitments product-specific;
· elimination or reduction of de minimis allowances for countries with large AMS levels;
· tightening up of the criteria for inclusion in the Green Box, including a more concise/measurable notion of what is "minimal effect on production and trade";
· acknowledging Blue Box measures as trade-distorting and counting them under Current Total AMS for reduction purposes;
· limitations on the applicability of Article 13 ("Peace Clause");
· pushing for a substantial reduction or elimination of export subsidies that displace domestic production, with due consideration of possible negative effects (e.g. strengthening the Marrakesh Decision) in order to help food importers adjust to the change.
7. The second component of the strategy would be to ensure that the developing countries have the necessary degree of flexibility to pursue agricultural development and food security policies. This may require clarifications/interpretations/adjustments to the AoA provisions as follows:6
· the option to re-calculate their AMS and revise their Schedules where deemed necessary
· higher de minimis allowances for non-product specific AMS, especially in cases of large negative product-specific AMS;
· some "credit" for negative product-specific AMS by excluding from the AMS calculation specific food security expenditures;
· extension of the Green Box to include food security measures specifically for developing countries on SDT basis;
· clarification of definitions and methodological problems, e.g. inter alia: eligible production, excessive inflation, "low-income" and "resource poor farmers" etc.;
· the option to rationalise better their tariff commitments on agricultural products and re-balance tariffs (raising some, e.g. on sensitive commodities, and reducing elsewhere);
· extending to all acceding developing countries the current flexibility on SDT on domestic support;
· more financial and technical assistance (through international financial institutions and specialised agencies) to help them develop human resources, to meet SPS standards and to strengthen legal and administrative capacity on trade issues.
8. For countries dependent on agricultural exports, increasing agricultural export earnings is essential to economic development and food security. This is all the more so for the developing countries as their combined share of agricultural exports is not only low (about 30 percent of the world total), but has also been stagnant, and many of them depend on the world market for a large share of their food needs. While the results of the UR have contributed to improving market access for products of export interest to developing countries, much remains to be done, including further reductions in tariff levels and tariff escalation, improved access to tariff rate quotas (TRQs), and curtailment of the use of safeguards and new non-tariff measures. Some reforms to be considered include the following:7
· reducing tariff peaks and tariff escalation on products of export interest to developing countries - this may require the use of a harmonisation formula for tariff cuts;
· eliminating the use of complex tariffs (including the banning of specific tariffs as these give more protection to lower-priced imports);
· expanding the TRQs and agreeing to some rule on setting the in-quota tariff rate;
· ensuring access to new TRQs for developing countries, also taking into account specific interests of developing countries currently benefiting from preferential access arrangements in developed country markets;
· considering ways for compensating the preference-receiving countries during the adjustment phase;
· making the administration of TRQs more transparent so that developing country exporters are able to take advantage of new trading opportunities;
· adding product specificity in minimum access commitments by disaggregating further the TRQs.
9. The reforms mentioned above to support the development of domestic production capacity should leave considerable room for increasing domestic food production. Improved market access and other related reforms should contribute to raising export earnings, which are fundamental for improving the capacity to import food, particularly by least developed countries (LDCs) and net food-importing developing countries (NFIDCs). In addition, complementary actions may be needed in a number of areas.
Domestic market stability
10. Although the reform process in agriculture, especially the reduction of production and trade distortions by the major trading nations, is expected to contribute somewhat to the stability of global agricultural markets, these markets are by nature volatile. The WTO has general provisions for stabilising domestic markets (e.g. anti-dumping and safeguard measures), but these are not useful for many developing countries. Rather, they would need more accessible and simpler instruments. Thus, the following reforms may be sought:8
· support the SSG as a permanent instrument available to all members but for a limited number of sensitive basic foodstuffs and perhaps with some tightening of "triggers" so that the SSG is not often abused;
· support the use of price bands as an instrument to cushion the impact of world market variability on the domestic market, i.e. for stabilisation and not for protection;
· seek exemption from AMS disciplines of expenditures related to the acquisition and maintenance of food security stocks;
· seek to strengthen Article 12 of the AoA by supporting the prohibition of export taxes in addition to export bans.
The Marrakesh Decision
11. The Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least Developed and Net Food Importing Developing Countries calls for assistance to be given to these countries in case they are adversely affected by the reform process of the AoA. To date, there has not been any concrete benefit stemming from the Decision. Accordingly, LDCs and NFIDCs could aim to include, in a revised Decision, provisions that would make it more effective and responsive to their needs:9
· establish the Decision as a legally binding instrument on an equal footing as
other commitments under the AoA;
· establish mechanisms that would allow LDCs and NFIDCs to become automatically eligible for assistance when world market prices rise above a certain level;
· seek to set up an on-going programme or fund to provide financial and technical assistance to LDCs and NFIDCs in order to improve agricultural productivity and infrastructure and reduce their dependence on food imports;
· seek to clarify the role of the WTO in the implementation and monitoring of compensating measures, involving, for instance, the creation of institutional mechanisms, mandating notification requirements, etc.
12. Finally, despite improvements in recent years, the participation of many developing countries in the process of multilateral trade negotiations remains weak and their capacity to implement the various agreements and to take advantage of trade opportunities is limited. Clearly, much needs to be done in this area to level the playing field. Technical and financial assistance on capacity building is essential. The following are some priority areas:10
· strengthening the capacity of developing countries in multilateral negotiations, assisting them to deal with problems they confront in their effort to keep pace with their WTO commitments and to take advantage of trade opportunities;
· assisting non-WTO Members to achieve accession on terms consistent with their development and food security needs;
· implementing the Integrated Framework for Trade-Related Technical Assistance to LDCs as recognised in the WTO Plan of Action for LDCs in 1996.
1 Many of the suggestions included in this paper were expressed by participants from developing countries in a series of regional and other seminars organized by FAO in 1998 and 1999.
2 High tariffs are not unique to the developing countries - developed country tariffs on many temperate-zone products are even higher.
3 For example, several of them committed an across-the-board tariff rate, often at relatively high rates, e.g. 100 percent. While higher tariffs could be useful for some sensitive products, they have no value for many other products. Similarly, some countries bound their tariffs at very low levels to the extent that border measures offer little room for stabilisation or/and protection in years of depressed world markets.
4 Higher tariffs imply higher prices not only for domestic producers but for consumers as well. It may be argued that a possible remedy for this dilemma is to use the customs revenues generated from tariffs to target food insecure households, at the same time allowing producers to benefit from higher domestic prices. Such an option, however, requires good administrative capacity to identify households in need (thus minimising leakage) and infrastructure to implement resource transfers to them in a cost-effective manner.
5 See footnote 1.
6 See footnote 1.
7 See footnote 1.
8 See footnote 1.
9 See footnote 1.
10 See footnote 1.