FAO GENEVA SYMPOSIUM

on

THE EXPERIENCE WITH IMPLEMENTING THE WTO AGREEMENT ON AGRICULTURE AND SPECIAL AND DIFFERENTIAL TREATMENT TO ENABLE DEVELOPING COUNTRIES TO EFFECTIVELY TAKE ACCOUNT OF THEIR DEVELOPMENT NEEDS, INCLUDING FOOD SECURITY AND RURAL DEVELOPMENT

Geneva, 2 October 2002

Paper No. 3

Developing country experience with the implementation of the Uruguay Round Agreement on Agriculture: Synthesis of the findings of 23 Country Case Studies: Executive Summary

Commodities and Trade Division

Developing country experience with the implementation of the Uruguay Round Agreement on Agriculture: Synthesis of the findings of 23 country case studies

EXECUTIVE SUMMARY

I. INTRODUCTION

1. FAO initiated a major exercise to evaluate the impact of the Agreement on Agriculture (AoA) on agricultural trade and food security in developing countries in 1999. Fourteen country case studies were commissioned and an overview paper synthesising these experiences and the lessons to be learned was prepared.¹. FAO has now updated this exercise, drawing on a wider set of countries and more recent data. Sixteen country case studies were commissioned by FAO at the beginning of 2002 to review national experiences. In some cases, the case studies revisited countries included in the 1999 sample but the opportunity was also taken to widen the sample by including additional countries. Table 1 shows the countries included in this exercise. This note draws on the countries included in both sets of studies – 23 in all – to develop a synthesis of their experiences.

The overview chapter summarised here and the accompanying case studies set out to provide answers to four questions concerning the impact of the AoA on developing countries:

Have the AoA commitments led to changes in domestic agricultural policy in developing countries?

Did the AoA commitments have an impact on trade flows (imports and exports) of developing countries?

Has implementing the AoA commitments had an impact on food security?

What are the priorities and main concerns of the case study countries in the negotiations?

II. IMPLEMENTATION OF AOA AND OTHER WTO AGREEMENTS

2. The focus of this section is on the experience with implementing commitments on market access, domestic support, export subsidies and the SPS Agreement – and not on the effects of their implementation.

3. While bound tariffs are high on average, there are several exceptions. Not all developing countries have high bound tariffs on some or all agricultural products – contrary to prevailing views – despite the option they had to offer ceiling bindings generally. Further, applied rates are, on average, much lower than bound rates. On a very approximate calculation, the bound rate for those countries in the sample for which data are available averaged 86 percent, while the applied rate averaged 19 percent.

4. Another striking feature is that developing countries, in many cases, have opted to continue reducing applied tariffs in the post-AoA implementation period. While these continued reductions were due in one or two cases to loan conditionality, in most cases these reductions were deliberately pursued by developing countries themselves as part of their chosen economic development strategies. Regional integration has been an important impetus in this regard.

5. While applied tariffs in many developing countries are often relatively low and falling, the dispersion of tariffs discussed in a number of case studies showed that some countries had difficulty “living with” the ordinary tariff in its simplest form for a number of products. Food staples feature prominently among the ‘sensitive’ commodities, but the list also includes dairy products, meat particularly poultry meat, sugar and alcoholic beverages. In fact, a number of developing countries apply particularly low duties to imported staple foods.

6. The large differences between bound and applied rates imply that most developing countries could continue to offer concessions on bound rates without this requiring further changes in applied rates. However, the evidence on higher tariffs on ‘sensitive commodities’ implies that, in most countries, there are usually some commodities where applied rates are very close to bound rates. This suggests that developing countries might be interested in a tariff-cutting formula which targets an average cut but allows lower cuts on sensitive commodities. However, if the same formula applies to developed countries, the exception might be used by them to minimise tariff reduction on products of particular export interest to developing countries. Each developing country must undertake its own analysis whether it is more likely to gain or lose by exempting sensitive products from general tariff-cutting formulae.

7. For those few countries where data were presented, it appears that tariffs tend to escalate by degree of processing, thus providing considerably higher effective protection to the processing sectors involved. Such countries should be aware of the trade-offs (between protecting the import-competing agricultural processing industry and creating additional opportunities for added value in export-competing sectors) implicit in different tariff-cutting formulae which differentiate between low and high tariff rates.

8. The evidence from the case studies suggests that quantitative restrictions (QRs) as a trade measure in developing countries are now a thing of the past. Regarding State Trading Enterprises (STEs) with monopoly import powers, the case studies suggest that relatively limited use is now made of them.

9. The case studies demonstrate that tariffs are often the primary, if not the only, trade instrument open to developing countries to stabilise domestic markets and to safeguard farmers’ interests in the face of sharp swings in world prices or a surge in imports. This is despite the fact that most case study countries have now implemented trade remedies legislation to address dumping and the use of subsidies by trading partners as well as legislation making possible the use of the general GATT Safeguards.

10. Despite evidence that some of the case study countries are able to successfully implement anti-dumping actions, extensive procedural requirements and conditions make these mechanisms difficult to use. Even the few case study countries which have access to the Special Safeguard Clause in the AoA have hardly used it to date. This may be due partly to the technical conditions required to make use of it. More important, possibly, is the wide margin which many developing countries enjoy between their applied and bound tariffs, thus allowing tariffs to be increased without having to appeal to the special safeguard clause. The relatively limited number of cases quoted in the case studies where developing countries have altered applied tariffs upwards may be because they experienced relatively few import surges of the kind where safeguard action would be appropriate.

11. The evidence from the case studies suggests that WTO disciplines have not proved constraining to the domestic support policies that developing countries want to implement. Budgetary constraints and previous commitments under SAPs appear to be much more important in limiting these interventions. Although there were no cases of countries currently breaching the AoA rules and commitments, the case studies identified a number of particular issues of significance for the future. A particular issue is the number of countries which have yet to make any notification of their domestic support outlays to the WTO.

12. Export subsidisation was generally not an issue among the case study countries. Most countries did not have the right to grant export subsidies, but this limitation was not generally seen as a problem, as export subsidies are not affordable for most developing countries.

13. However, a potential problem with the non-availability of export subsidies was raised where countries operate stock-holding schemes for price stabilisation purposes. The inability to sell abroad at less than the domestic price can become a binding constraint where surplus stocks build up and costs accumulate.

14. Most case studies identified that countries had a range of general export assistance schemes in place which were also available to agricultural exporters. A number of case studies mentioned the importance of continuing the developing country exemption which allows them to grant subsidies to reduce the cost of domestic marketing and international freight.

15. The case studies indicate that many developing countries have either upgraded or reorganised their national SPS systems in response to the introduction of the Agreement. There is greater awareness of the need for vigilance in protecting consumers from potentially unsafe food and of the need to protect plant and animal health.

16. The case studies reported only a very limited number of cases where SPS measures taken by developing countries had been challenged by other WTO Members.

III. REVIEW OF AGRICULTURAL AND FOOD TRADE

17. The acid test of the AoA is whether it actually impacted on trade flows. Did the market access instruments, the disciplines on export and domestic subsidies and the attempt to achieve greater certainty and transparency in the operation of SPS rules lead to improved export opportunities for developing countries? Did the commitments undertaken by developing countries on tariff bindings and domestic support lead to increased food imports by these countries?

18. Export values increased significantly between the pre- and post-AoA periods (Table 2). If the export performance of the 23 countries is examined in terms of the change in export values in constant prices, a less favourable picture emerges. However, no inferences can be drawn from these trends about the direct impact of the AoA given the possible role of other factors.

19. What these aggregate figures conceal is the extraordinary diversification in the basket of agricultural export commodities which many developing countries have achieved in the past decade. Attempts at both horizontal and vertical diversification, however, still face many market access barriers in importing countries.

20. Despite the general growth of agricultural exports in most of the case study countries, few case studies were able to make a link to improved market access under the AoA. In some countries, the improvement in exports in the post-AoA period was due to improved domestic conditions or world market conditions unrelated to the AoA. Some countries had their export earnings increasing as a result of devaluation of national currency while, in others, the reason was improved weather conditions.

21. Where market access had improved, this appeared to occur under regional trade arrangements or as a result of preferential schemes rather than resulting from the AoA. One or two studies emphasised the adverse implications of MFN tariff reductions for countries receiving trade preferences under the Generalized System of Preferences.

22. Many of the case studies reported that SPS measures taken by importing country markets had adversely affected their exports. In a number of cases, it was accepted that these measures were justified. In these instances, problems include failures in domestic supervision, lack of awareness of importing country requirements on the part of exporters and the problem of consistency of domestic SPS standards with the standards of the importing countries. A well-developed national SPS system can provide an important stimulus to success in penetrating export markets.

23. SPS standards are becoming increasingly complex. Sometimes, this leads to products being treated inconsistently in different markets. Foot-dragging on the part of the SPS authorities in the importing countries in approving processing facilities for export appears to be a further problem. There were also a number of documented examples where SPS measures appeared to be arbitrary and did not appear to be justified.

24. In a number of cases, lack of resources and technical expertise in the SPS authorities of the developing country have been a problem in meeting SPS standards in importing country markets. A major technical assistance and training programme accompanied by financial support for the least developed countries is required to ensure the necessary changes are now made.

25. Despite the importance of continuing trade barriers, in some countries domestic constraints led to a failure to exploit market access opportunities. These experiences from the case studies emphasise the importance of appropriate domestic policy regimes if exporters are to take advantage of new trade opportunities.

26. The fact that almost none of the case studies draw a link between improved export performance and the AoA does not necessarily mean that the commitments obtained by the developing countries from their trading partners in the Uruguay Round were valueless. There were difficulties in estimating both the significance of the tariff reductions which were made as well as the greater certainty and transparency of market access in assisting the export growth which has been observed. As export volumes grow, the AoA provisions enhance security of access to these markets, particularly for the newer export commodities arising from diversification where competition with producers in developed countries is often greater than in the case of the traditional export commodities of developing countries.

27. Expenditure on food imports increased significantly in nearly all countries in the sample comparing the pre- and post-AoA periods (Table 2). Countries generally paid more per unit for their food imports in 1995-2000 than they did in 1990-94. Inferences from this growth in food imports can be either positive or negative. If food imports add to domestic production and to domestic food availability, the consequences for food security may be positive. The consequences may also be positive even where food imports displace domestic production, provided that those displaced from food production are absorbed into more productive employment opportunities in other sectors. Negative impacts can be anticipated where food imports displace domestic food production and where those displaced remain unemployed or underemployed.

IV. FOOD SECURITY IMPACTS

28. For all countries in the sample food security is an important objective. Has implementation of the Agreement facilitated countries in achieving greater food security, or has it made reaching this objective more difficult? The same methodological problem observed in the case of agricultural trade flows, that it is difficult to isolate the impact of the Agreement from the many other factors at work which influence food security, makes it difficult to reach definitive conclusions.

29. In 12 of the 22 countries for which data were available, more than 20 percent of the population were undernourished in the second half of the 1990s. However, the situation has been improving in the majority of countries, even though it is not possible to isolate the impact of the AoA in contributing to this situation.

30. A close link was found between the prevalence of undernutrition and per caput food availability. Ninety per cent of the differences between the sample countries in the proportion of their population undernourished can be explained by differences in average per caput calorie intake. Eighty-seven percent of the change in the percentage point prevalence of undernutrition can be explained by changes in per caput food availability. Based on the experience of the sample countries during the 1990s, for every 100 calories improvement in per caput calorie intake, the prevalence of undernutrition fell by 6.5 percentage points.

31. From a food security viewpoint, it may be significant whether the increase in food availability per caput is provided by domestic production or imports. A situation where increased per caput food availability is due to increasing domestic production accompanied by falling imports, or even by increasing imports, may be seen as strengthening food security. On the other hand, a situation where per caput food availability is decreasing because of falling domestic production, or even where it is increasing but only because per caput food imports are growing even more rapidly, may be seen as unsustainable in the longer term without a concomitant rise in export earnings.

At least with respect to cereals, some of the case study countries appear to have become more trade dependent in the last part of the decade. This is also evident by examining trends in self-sufficiency ratios (SSRs) for key staple products. The cereals SSR declined between 1990-94 and 1995-2000 in 12 out of 23 countries, the vegetable oils SSR in 16 countries, the sugar SSR in 13 countries but the meat SSR in just 7 countries. Individual countries have not necessarily become more dependent on imports for their food supplies in the post-AoA period and there is clearly a wide variety of specific experiences. The individual case studies explore these differences in more detail.

32. Food imports accounted for 12.4 percent of total exports of goods and services in 1985-89, for 11.5 percent in 1990-94 and for 11.6 percent in 1995-1999. The trend is clearer when debt service payments are taken into account. The share of food imports in the three time periods is then 17.1 percent, 15.6 percent and 15.0 percent. Thus, the capacity to pay for food imports has generally improved in the case study countries over the past decade, despite a gradual hardening of the prices of those foods most often found in the import basket of developing countries.

33. Nonetheless, this average statement is not necessarily true for all countries in the sample. For 14 of the 23 countries in the sample, the burden of paying for food imports has risen in the 1995-99 period compared with 1990-94 (Table 2). For the low-income countries in this group, food aid flows can be important in helping to ensure increased food availability at the national level. Food aid flows to the sample countries, however, have been falling. Many of the individual case studies noted that the Marrakesh Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries has not been implemented.

34. Trends in the incidence of poverty and the number of households in poverty may be the best indicator to capture the totality of effects on the food security of low-income households. To understand trends in poverty rates and the reasons for differences between countries would require a much broader study than that undertaken in the case studies. However, it should be noted that in the majority of countries studied there has been some reduction in the incidence of poverty in a period when trade liberalization has occurred. The studies do not address the question of a causal link between these two developments.

V. NEGOTIATING ISSUES AND CONCERNS

35. Gaining improved market access, particularly in the developed countries which historically have had the highest levels of trade-distorting support to domestic agricultural production, and removing the unfair competition caused by export subsidies remains a key objective in the current negotiating round. In most developing countries, the import substitution strategies of the past have been replaced by development policies which emphasise the gains from integration into the global economy. However, these gains will not be realised if trade barriers continue to inhibit and restrict the growth of sectors where developing countries have a comparative advantage.

36. Most of the case studies argue the case for an appropriate safeguard mechanism against low import prices and import surges, in order to allow for further trade liberalisation while guarding against incurring unduly high social costs. There is a widespread perception that the general GATT safeguards are too difficult and cumbersome to be used because injury must be shown. A modified version of the Special Safeguard provision, to be available only to developing countries, is seen as a more effective alternative.

37. The Marrakesh Decision is widely seen as ineffective and some strengthening of its provisions will be essential to gain the support of low-income food-importing countries in the current negotiations.

38. Many of the case studies pointed to the need to ensure that AoA rules did not prevent developing countries from protecting and supporting domestic food production. The evidence from the case studies suggests that WTO disciplines have not proved constraining to the policies that developing countries want to implement. However, many of the case studies indicate that developing countries are uneasy about the implications of the current disciplines for future policy options. Many developing countries want greater flexibility than the current provisions in the AoA allow.

39. The more likely users of additional flexibility are middle-income developing countries where industrialisation has taken hold and where the absolute numbers engaged in agriculture are falling. Given the likely pressures for increased farm transfers in the future in these countries, the question for developing countries is whether to accommodate these pressures by seeking greater flexibility to provide production-related farm transfers. There are important lessons to be learned from the developed country experience where the scope for protection tends to be captured by producer groups and is not necessarily in the overall national interest.

40. An alternative strategy, more favoured by low income developing countries, is to retain or increase the flexibility to take border measures to protect domestic food production. There is a permanent tension between raising prices to benefit rural food producers and lowering food prices to enhance the food security of food consumers. The benefits of price support tend to go predominantly to the larger, commercial producers who produce the bulk of the marketed food supply. Many of the rural poor are agricultural workers and net purchasers of food. In some cases, the elimination of over-valued exchange rates would increase incentives for domestic food production without introducing the distortions associated with a tariff policy, but special measures to help poor consumers following devaluation may also need to be taken. Future tariff policy also needs to take into account regional integration commitments undertaken by individual countries.

41. As the negotiations proceed and the particular negotiating trade-offs become clearer, developing countries will need to undertake specific and detailed analyses of how they might be affected by individual issues under negotiation. Also, many developing countries are negotiating regional integration arrangements simultaneously with multilateral trade liberalisation which puts a further burden on their policy capabilities. While some countries had benefited from technical assistance under the Joint Integrated Technical Assistance Programme and the Integrated Framework for Trade Related Technical Assistance to LDCs, there is a continued need for technical and financial assistance to improve the capacity for policy analysis, particularly in the least developed countries.

Table 1. The sample countries included in this study

Notes:

LIFDC - Low Income Food Deficit Country, defined by FAO as those countries with a GNP per caput less than $1 445 (2000) and which are net importers of food defined on a calorie basis.

LDC – Least-Developed Country, as recognised by the UN.

NFIDCs – Net Food Importing Developing Countries, as defined by the WTO Committee on Agriculture.

^a/ See FAO (2000), Agriculture, trade and food security: issues and options in the WTO negotiations from the perspective of developing countries, Vol. II: Country case studies, FAO, Rome.

^b/ World Bank classification, World Development Indicators CD-Rom 2002.

Table 2. Agricultural exports and food imports of the sample countries, 1990-2000

Source: FAOSTAT; and World Development Indicators 2001.

¹ FAO (2000), Agriculture, trade and food security: issues and options in the WTO negotiations from the perspective of developing countries, Vol. II: Country case studies, FAO, Rome.