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5 Negotiating issues and concerns

The country case studies contain a concluding section, which discusses the negotiating issues and concerns. These reviews draw at times on the official submissions to the WTO Special Session of the Committee on Agriculture by the countries themselves, and in other instances on a more general discussion of the right and obligations of developing countries vis-à-vis the developed countries under the AoA. While, in this overview chapter, it is neither possible nor appropriate to summarize the detail of the individual country positions, some general points can be made in conclusion.

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, remain key objectives in the current negotiating round. In most developing countries, the import substitution strategies of the past have been replaced by development policies, which emphasize the gains from integration into the global economy. However, these gains will not be realized if trade barriers continue to inhibit and restrict the growth of sectors where developing countries have a comparative advantage. The difficulties are clearly seen in the Egyptian case study. With improved market access, Egypt would better adopt a strategy that is based on allocating increasing amount of resources to high-value exportable horticultural products in which Egypt has a comparative advantage. However, limited market access improvements will push Egypt to adopt an import-substitution strategy that focuses on food production, which implies a less efficient use of agricultural resources. Protectionism in the EU (as Egypt’s major market) is not an incentive to modify its position on food self-sufficiency as the means to food security.

Under the market access and competition headings, the particular problems raised in the case studies include: tariff peaks on the export products of interest to developing countries; tariff escalation which, although reduced in the UR, remains a deterrent to increasing value-added food processing activity in developing countries; increasing use of SPS measures and long delays in recognizing the equivalence of SPS measures put in place in developing countries; the problem of trade preferences; the need for larger TRQ volumes and more transparent administration of access to them; and the need to dismantle export subsidies.

Most of the case studies argue the case for an appropriate safeguard mechanism against low import prices and import surges, to allow for further trade liberalization while guarding against incurring unduly high social costs. Such a mechanism is also justified as a means to protect against the effect of high levels of subsidies and protection to agriculture in developed countries, which depress and destabilize world prices and create unfair competition on both international and domestic markets. 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.

The other concern raised particularly by food-importing countries is the fear of higher world prices and price volatility leading to upward price risk for importing countries. 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.

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. This concern partly arises from the perception that a high level of food self-sufficiency, particularly in staple foods, was necessary for national food security. It also arises from the fact that the bulk of poverty is found in rural areas, and there is thus the need to foster growth and employment opportunities in rural areas and agriculture as part of a food security strategy. Because small producers are often the most vulnerable in the process of trade liberalization, some kind of targeted support mechanism to increase small farm productivity and to stimulate rural economic diversification may also be required to prevent the marginalization of low-income producers. A third argument is one of equity: that the AoA rewarded developed countries for past heavy subsidization by permitting them to continue this practice, but now withholds from developing countries the same rights, simply because they were too poor to finance such subsidies in the past.

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. However, many of the case studies indicate that developing countries are uneasy about the implications of the current disciplines for future domestic support options. Many developing countries want greater flexibility than the current provisions in them AoA allow.

Some historical perspective on trends in support to farmers may be helpful in examining this concern. As countries develop, higher income levels are associated with greater levels of transfers to the domestic farming sector. There are both economic and political reasons why this has been the case historically. Economic growth is associated with a shift in employment opportunities from the farm to the non-farm sectors, and from rural to urban areas. This shift is associated with a growing disparity between average non-farm and farm incomes and, ultimately, with a decline in the absolute size of the farm labour force. Faced with declining relative incomes, farmers have an incentive to organize and to lobby politically for income transfers. At the same time, economic growth means that there is greater scope for the non-farm sector to bear the cost of growing transfers to farmers. Economic growth also means a change towards more meatbased diets with greater indirect consumption of cereals, often leading in the case of net-food-importing countries to a deterioration in the agricultural trade balance. Concerns that declining food self-sufficiency ratios imply diminished food security combine with equity concerns to raise the willingness of the nonfarm population to contribute to farm transfers. As the farming sector declines further in size, farmers become more effective in their lobbying efforts, while the cost of transfers to the increasingly numerous non-farm population declines in per capita terms. The result is escalating levels of farm support as a country’s per capita income grows. It is likely that the same economic and political forces will be at work, particularly in the middle-income developing countries, as their per capita income levels rise.

Evidence from the case studies shows that financial constraints in many developing countries, and especially low-income developing countries, mean that these countries will be unlikely to be able to make use of additional flexibility for domestic support outlays. The more likely users of additional flexibility are middle-income developing countries where industrialization has taken hold and where the absolute numbers engaged in agriculture are falling. Given these likely pressures for increased farm transfers in the future, particularly among middleincome developing countries, the question for developing countries is whether to accommodate these pressures by seeking greater flexibility to provide productionrelated 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.

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. Higher tariffs to protect domestic food producers do not incur government expenditure, indeed they may contribute to government revenues. 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. Indonesia provides a dramatic example where the incidence of poverty, having fallen steadily over the two decades 1976-1996, rose sharply as a result of the Asian crisis only to drop back to its pre-crisis level by 2000. Declining food prices, mainly driven by lower rice prices owing to trade reform, accounted for a large proportion of that improvement. In some cases, the elimination of over-valued exchange rates would increase incentives for domestic food production (as in Egypt recently) without introducing the distortions associated with a tariff policy, but special measures to help poor consumers following devaluation may also be taken. Future tariff policy also needs to take into account regional integration commitments undertaken by individual countries.

A number of the case studies raise specific issues for clarification in the agricultural negotiations other than those mentioned above. Examples of such issues include the status of irrigation subsidies, the methodology used to calculate the market price support element of the AMS and the position of the LDCs. Some countries would like AoA rules clarified to permit positive PS AMS levels, or positive NPS AMS levels, to be offset by negative PS AMS levels. Such a change would be relevant only to countries which have a bound AMS commitment. For countries whose AMS levels in future must be limited to “exempt” categories - and these are the great majority of developing countries - the offset possibility would not be meaningful because de minimis requirements cap the permitted AMS level to 10 percent of the VoP of each individual commodity, regardless of how high or low AMS levels are for other commodities.

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. Some countries have a need for technical and financial assistance to improve the capacity for policy analysis. A number of the case studies highlighted the inadequacy of the policy-making machinery in many countries to address AoA issues and the need for improved coordination, including the involvement of civil society organizations in the formulation of national negotiating positions. Also, many developing countries are negotiating regional integration arrangements simultaneously with multilateral trade liberalization. The need for developing countries to assess and update their AMS levels, not just to comply with the WTO process but as part of the domestic policy analysis process, was stressed in some studies. 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 LDCs.

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