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Special and differential treatment of developing countries in agricultural trade[99]

1. Introduction

The main contribution of the Uruguay Round in agriculture was to start the process of subjecting agricultural trade to the same rules as trade in other products. The focus was reform in developed countries’ agriculture, not on how to increase agricultural production and trade in developing countries. But while the form of protection in developed countries changed, little progress was made in actually reducing its level: their export subsidies have been reduced, but they remain at levels that undermine developing country production and exports.[100]

Under the Agreement on Agriculture (AoA) developing countries are expected to adhere, with some exceptions, to the same rules as other countries. For example, they have had to bind all tariffs on agricultural products, which they did not have to do in manufactures. But more fundamentally, the philosophy of the Round was driven by the legitimate concern that agriculture in the developed countries was protected and given support. Thus, rules were designed on how to provide fewer supports, and in a more transparent and less trade-distorted way.

In a number of developing countries, however, agriculture was being penalized, rather than, supported, by government policy.[101] And where it was supported, the capacity of governments to provide such support through budgetary transfers was, and still is, quite limited. For them, the whole philosophy that drove the Uruguay Round was upside down. Although there were exceptions and special and differential treatment provisions, they were all permeated by this upside down philosophy. Indeed, many developing countries have argued that the AoA has continued, albeit on a reduced scale the special and more favourable treatment of developed countries in the international trading system.

The purpose of this paper is modest. It reviews and assesses the provisions for special and differential treatment (SDT) pertaining to agriculture, primarily incorporated in the AoA, in terms of their effectiveness in addressing developing country interests. It does not discuss these provisions deriving from the Ministerial Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-importing Developing Countries (NFIDCs) or the proposals to create a special safeguard to deal with import surges in developing countries. Those issues are discussed extensively in other papers in this volume. A number of conclusions are drawn and recommendations made that could be taken into consideration in the current WTO negotiations on agriculture in order to make the SDT provisions more responsive to developing country needs. However, the paper does not review all the issues that affect the interests of various developing countries and groups in the current Round of negotiations on agriculture.

2. The provisions for special and differential treatment

Summary of the provisions

The Agreement on Agriculture has a variety of provisions that call for different rules to be applied to developing country agriculture and trade. Some of these provisions are purely exhortatory and of the “best efforts” variety, such as those contained in the preamble to the Agreement, which commits developed countries to “take fully into account the particular needs and conditions of developing country Members by providing for a greater improvement of opportunities and terms of access for agricultural products of particular interest to these Members”. Others explicitly differentiate in the rules that apply to developing and least developed countries, on the one hand, and developed countries, on the other. The main S&D provisions are:

In addition, as noted earlier, the Ministerial Decision on LDCs and NFIDCs contains a number of additional provisions relating to those countries which are discussed elsewhere in this volume. Finally, the Agreement on Sanitary and Phytosanitary Measures also contains provisions on SDT of developing countries and the LDCs. These fall into three general categories: general statements to the effect that in setting standards the interests of the developing countries will be taken into account: provisions that call for a longer period of implementation of the commitments made by developing countries and the LDCs; and offers of technical assistance to implement the provisions of the Agreement.

Assessment of the provisions

As can be seen from the above listing, the SDT provisions in the AoA fall into the same broad categories and suffer from the same general problems as similar provisions in other WTO agreements. There are general “best efforts” commitments as well as offers of technical and other assistance, none of which are binding. There are also provisions offering more extended transition periods as well as greater flexibility, including lower or higher thresholds, in implementing various commitments by developing countries; in some cases there is even greater flexibility and there are fewer commitments as regards LDCs (Michalopoulos, 2000). Unfortunately, there is little to suggest that any of these less demanding thresholds or longer transition periods were defined with any reference to the reality of the situation in the developing countries concerned. They all appear to be the product of a bargaining process in which little consideration was given to the institutional constraints affecting developing country agriculture.

An effort was made to apply the provisions in a somewhat differentiated fashion regarding the beneficiaries: there was recognition, for example, of the different needs of the NFIDCs - although the commitments regarding them were mostly of the non-binding “best-effort” type; and the category itself does not adequately capture the groups of countries facing the largest food insecurity (Diaz-Bonilla et al, 2000). There was also recognition, in the context of export restraints, of the fact that some developing countries are major exporters. But most of the provisions lumped the developing countries (except LDCs) into a single group, which clearly they are not.

At least four groups of developing countries can be identified - often reflected in the support different countries provide for different proposals in the negotiations: first, there is the group of major exporters of agricultural commodities, member of the Cairns Group; second, there is a large group, consisting of the NIFDCs and of other countries, such as India, which have significant agricultural sectors responsible for the export of various agricultural products but which also import food; third, there are countries with small non-diversified agricultural sectors, which either because of climatic conditions or land constraints (for example, small island economies) face significant difficulties in competing in agricultural trade; and finally there is a small group of generally higher income developing countries that, like many developed countries, attach high priority to the many functions that agriculture plays in their society, irrespective of its efficiency or productivity.

The experience regarding specific aspects of the provisions was mixed: some provisions appear to have been useful and could be retained and strengthened in a future Agreement. Others may not have been very useful and could be amended or dropped or the objectives they aimed to attain pursued differently. Yet others may need to be introduced to address the needs of different developing countries.

Market access

There is little evidence that the general exhortatory language regarding liberalizing products of particular interest to developing countries has resulted in greater cuts in protection on such products in developed country markets. While the average tariffs developing countries face in developed country markets for some agricultural products are lower than overall agricultural tariffs, this appears to have been the result of earlier liberalization in tropical products. The remaining protection against imports from developing countries such as rice (in Japan), tobacco and groundnuts (in the United States) and grape juice (in EU) is staggeringly high (Youssef, 1999; Michalopoulos, 2001). It is unlikely however, that this central problem can be addressed by more verbiage and non-binding differential treatment commitments. The best way of addressing the issue of tariff peaks would be to adopt a formula approach, which results in more than proportional cuts in the tariff peaks prevailing in developed countries.

Flexibility in rules and disciplines

This is a key area on which future efforts on special and differential treatment should focus, since some of the problems affecting developing countries’ agriculture, because of inadequate institutional capacity, are fundamentally different from those facing developed countries.

The AoA provisions in this area call for flexibility in the provision of aggregate levels of support, of subsidies and other support to resource-poor farmers, and of export subsidies. There are also a number of food security provisions related to government stockholding and pricing for foodstuffs for the poor. Experience in implementing these provisions has been mixed. A significant number of developing countries have notified the use of these provisions in justifying their support of agriculture (WTO, 2002, Youssef, 1999). Probably the number of countries that have actually used these provisions is even larger than indicated by the notifications, since the latter have typically been rather incomplete in the case of developing countries (FAO, 2000).

But there are problems that derive from the overall philosophy permeating the AoA. In particular, the very important provisions which permit support provided through investment and input subsidies to poor farmers under Article 6.2 are to be found not in the “green” box of subsidies which are permanently permitted because they are non-distorting, but among the distorting measures of support which are temporarily permitted and which would have to be reviewed before they are continued - as if the problems afflicting poor farmers which justify government intervention could be solved in a matter of a few years.

Indeed, the subsidies referred to in Article 6.2 may be actionable under Article 13b, if they exceed the budgetary limit of subsidies decided in 1992. This means that, if a developing country provided its poor farmers subsidized credit in excess of that provided in 1992 and was successful in stimulating increases in their production so that it displaced some imports, previous suppliers to its markets could claim “serious prejudice” under the Agreement on Subsidies and Countervailing Measures or “nullification” or “impairment” under GATT Article XXIII. (see Michalopoulos, 2001 and Diaz-Bonilla et al, 2002). A developed country member which saw its exports decline under these circumstances might very well not complain in WTO, but that is not the point: the point is that the philosophy and legal basis of the AoA are not development-orientated.

One of the fundamental changes that developing countries should seek to establish in the new negotiations is that there are certain policies that may make sense in a development context to which they or at least some groups of them should always be able to resort. In other words, there should be a development box which would contain these policies (WTO, 2000a).

What policies should go into the box is something that would need to be discussed and negotiated. At the very least, the current SDT provisions regarding flexibility in the implementation of rules should be included, i.e. those regarding support to poor farmers, food security (government stocks) and prices. Given the problems affecting agriculture and the poor in most low income developing countries, government intervention would be necessary to strengthen institutions, improve market operations and provide support to the urban and rural poor in various ways, including support to expanding production of particular products.

Similarly, programmes in support of product diversification for small economies dependent on one or tow export crops should be specifically exempted from reductions in AMS. At present, such exemption on account of support for diversification in Article 6.2 is limited to diversification from “growing illicit narcotic crops”, primarily a developed country priority. On the other hand, small, low-income developing countries which clearly need to diversify their production and export structure in order to reduce their vulnerability to external shocks do not enjoy an exemption from the AMS for such programmes.

It is clear that operations of emergency food stocks should be included in some fashion in the development box. It may well be that some clarification of the existing provisions on this score should be considered (for details see Diaz-Bonilla et al, 2002). In addition, it may be helpful that in this calculation and in others the agreements start using more recent reference prices.

All these programmes should be considered as the right of developing countries to pursue. They should be included in a development box and should not be considered as aberrations or exemptions. As targeted programmes to help the poor may be of importance to developing countries irrespective of their levels of income or size, all of them should be allowed to pursue such programmes. The “diversification” exception, however, should be limited to small, low-income countries which are dependent on one or two crops for the bulk of their export earnings.

The concept of “low-income or resource-poor producers” to which the measures should apply is difficult to define in practice. Perhaps a more practical approach would be to exempt from the AMS those programmes that are targeted to all households below a certain poverty line (thus including households which may not “produce” something, but work in agriculture and be just as needy as, or even more so than, “resource-poor” producers).

Finally, the development box should exclude border measures. Tariffs and similar measures raise prices to consumers and fall harder on poor consumers (who spend a greater percentage of their incomes on food) while they benefit mostly the bigger agricultural (and food) producers, who have larger quantities to sell.[103]

The issue of export subsidies should be considered separately. They are obviously trade-distorting, perhaps even more so than many forms of domestic support, and cannot be afforded by most developing countries. The problem here is more political than economic. Economically, it may not make much sense to subsidize exports for any country. But since developed countries have been subsidising exports in the past, in contrast to most developing countries, reductions in their export subsidies from their high levels still leave developed countries with much greater opportunities to subsidise exports and thus gain a commercial advantage over developing countries. An attempt to correct this asymmetry was made in the past by allowing developing countries a slower rate of reduction in export subsidies. Greater differentiation in future commitments is probably needed in this area, not because export subsidies are something to be commended to developing countries use, but in order to create a more level playing field.[104]

The question of raising the de minimis limit is somewhat similar. There is no evidence that the 10 percent ceiling has constrained developing countries in providing the support needed by agriculture. If there is a well defined “development box”, it is unclear whether it is necessary to increase the de minimis provision from 10 percent to, say, 15 percent. Similarly, another proposal is to permit developing countries which have negative support for certain items, as a consequence of consumer food subsidies, to offset such support against positive support in the calculation of total AMS. Such a provision might not, however, be necessary, if the 10 percent de minimis level were to be increased, There is also the question as which developing countries should be eligible for the higher de minimis limit. Should the major developing exporting countries, members of the Cairns Group, enjoy this “benefit”, even though they do not need it?

Developing country proposals to increase the de minimis limit or establish a total maximum aggregate level of support (which includes “green box” measures) are to some extent driven by their desire to level the playing field so that they can enjoy the same freedom to provide supports to agriculture as developed countries have enjoyed in the past; not necessarily because they are presently able to finance such expenditure, or because it makes developmental sense to do so. It has been argued by some that developing countries do not need more flexibility but should use international rules to introduce more restraint into domestic policies. The argument would be more convincing if the developed countries had practised it consistently, instead of frequently establishing international trade rules for food and agriculture to accommodate their on domestic policies.

Sanitary and phytosanitary issues

The implementation of the new Agreement on the Application of Sanitary and Phytosanitary Measures gives rise to significant problems for developing countries. Some result from their lack of capacity to develop the institutional arrangements needed to meet their commitments under the Agreement. Even if the capacity exists, the commitments are costly to implement: standards along with testing and certification represent between 2 and 10 per cent of overall product costs. Thus, they impose a burden on developing country exports- even when the standards are used for legitimate reasons and the countries are able to meet them.

The greatest costs of the Agreement, however, may lie elsewhere. It may serve to legitimize developed country actions that result in substantial problems for developing country trade, even if the actions that result in substantial problems for developing country trade, even if the actions appear to be justified - on health grounds, for example. A recent paper estimated that a 1998 EC regulation which raised the standards for the minimum level for certain types of aflatoxin, a toxic substance found in foodstuffs and animal feed, to levels higher than those required by the Codex Alimentarius, resulted in a loss of close to $700 million revenue to African exporters of groundnuts (Otsuki et al., 2000).

It is difficult to argue against actions by developed countries to protect the health their consumers, but when they result in significant costs to developing country exporters, it would seem only fair that a country undertaking such action be legally bound to take steps that will help the affected developing countries meet the problem that the regulatory action has created. To this end, a new provision should be inserted in the Agreement under which, if a developed country finds that a particular export of a developing country does not meet a specific sanitary or phytosanitary standard and is consequently excluded from its market, it should have the obligation to provide the developing country with the assistance needed to bring the quality of the product up to the standard required. The EU has indeed provided such assistance to some developing countries in order to help them meet its fisheries standards. Ideally, the obligation should be legally bound under the WTO; but even a general reference that makes the link may be a useful first step.

3. Conclusions and recommendations

A true development Round of negotiations on agricultural trade has to address the legitimate concerns of developing countries, especially the low-income and least developed countries and those facing the greatest food insecurity, over how to develop their food and agricultural sectors. Provisions made to that end should not be in the nature of exceptions and special treatment, but should reflect legitimate objectives of general rule making. And there should be greater coherence between agricultural trade policy and aid to agriculture provided by the developed countries.

To this end, the agricultural negotiations should result in agreement on a development box of measures to support food and agricultural production of the rural poor in developing countries on a permanent basis. Included in this box should be the main elements of SDT that are covered by Article 6, paragraph 2, of the AoA. These should not be articulated as “exceptions” to reductions in AMS, but rather as developing country rights aimed at providing:

In addition to these basic “rights”, consideration should be given to increasing the de minimis level - for example to 15 percent - for low-income, food insecure or other vulnerable small economies.

There is a need to increase developing countries’ market access to developed countries as well as to phase out, with a view to ultimately eliminating, the latter’s export subsidies at a faster rate than that applied to developing countries. In addition, tariff peaks in agricultural products need to be addressed on an urgent basis - for example, through a formula approach whereby cuts of high tariffs are proportionately larger in developed countries.

Finally, there is a great need for increased coherence between agricultural trade policy and aid to food and agriculture in developing countries. This requires avoiding real incoherence, when donors on the one hand provide assistance to increase agriculture or food production in developing countries and on the other undermine their own and the developing countries’ efforts by disposing of surplus agricultural or food products at subsidized prices to developing country markets. It also requires proactive coherence between trade and aid policy such as would result from a commitment by developed countries to help developing countries meet SPS standards imposed in their import markets when these standards adversely affect developing country exports.


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[99] An earlier version of this paper was presented by Constantine Michalopoulos at the FAO Round Table on Special and Differential Treatment in the Context of the WTO Negotiations on Agriculture, Geneva, 1 February 2002. The author is a consultant to the World Bank. The views expressed in this paper, however, are solely those of the author and should in no way be attributed to the World Bank.
[100] There is an extensive literature on these issues. See, for example, Das (1998), Binswanger and Lutz (1999), Michalopoulos (2001) and the various submissions and proposals by developing countries in the context of the ongoing negotiations on agriculture.
[101] That was certainly the case a decade ago, when the Uruguay Round was being negotiated, and perhaps even more so in the 1980s, which are the reference years for the measurement of supports.
[102] Note that this may not be much of a concession, as it currently stands, as the difference between acquisition price and external reference price is supposed to be counted in the AMS.
[103] A case could be made for lower pace of tariff reductions by developing countries in the coming negotiations (see Diaz-Bonilla et al., 2002); but this is not an issue for the development box, but rather one of the overall negotiating principles to be used.
[104] There are, of course, a number of other important issues in the negotiations, such as the future rate of AMS reductions by developed countries, limitations on their use of “green” box subsidies, and limitations on their use of export credits, which are not discussed here as they are not SDT measures. Rather, they involve developing country proposals to level the playing field by having developed countries accelerate the dismantling of their trade-distorting policies.

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