The future of the agricultural trading environment: issues in the current round of negotiations on agriculture
The Uruguay Round of multilateral trade negotiations, concluded at Marrakesh in April 1994, brought a new quality to the rule-based international trading environment. It established the World Trade Organization (WTO) as an intergovernmental platform for trade negotiations and settlements of trade disputes, and it enhanced the disciplines on international trade policies in various sectors. One issue that received serious attention from the negotiating parties was the deeper integration of agriculture into the international trading system, based on market openness and free trade. The negotiations on agriculture were difficult but the final outcome did indicate the way forward.9 The negotiating parties finally agreed on improved disciplines as well as on comprehensive, binding and reduction commitments in the three broad areas of market access, export competition and domestic agricultural support. All of these were eventually incorporated in the WTO Agreement on Agriculture and in countries' schedules of specific commitments.10
However, the Uruguay Round did not completely eliminate the exceptional treatment of agriculture in the international trading system. The agriculture sector is still subject to various exemptions from general WTO disciplines. Export subsidies are still allowed within the limits specified in countries' schedules of commitments. Special safeguard provisions are foreseen in the area of market access. Under the so-called "Peace Clause" of the Agreement on Agriculture (Article 13, Due Restraint), some specific domestic subsidies to an enterprise or industry are non-actionable; in other words they enjoy immunity from challenges under the General Agreement on Tariffs and Trade 1994 (GATT 1994).11 Moreover, the Peace Clause calls for due restraint, at least up to the year 2003, in establishing countervailing actions and other GATT 1994 challenges against export subsidies and domestic subsidies that are in conformity with the provisions in the agreement and whose product-specific support does not exceed the amount granted in 1992.
WTO members stressed their willingness to continue the negotiations of substantial progressive reductions in support and protection as set out in Article 20 of the Agreement on Agriculture. Remarkably enough, not only does Article 20 set the starting point for the continuation of negotiations on further reform at one year before the end of the implementation period of the Uruguay Round provisions, i.e. 1999, but it also contains a specific list of subjects to be negotiated. WTO members agreed to take into account the experience gained from the implementation of the Uruguay Round commitments and their effect on world agricultural trade. They also committed themselves to focus on "non-trade concerns, special and differential treatment to developing country members, and the objective of establishing a fair and market-oriented trading system ...".12
At the Singapore Ministerial Conference, held in December 1996, WTO members launched an "analysis and information exchange" procedure as a platform for communication on agricultural matters in preparation for the continuation of the reform process. This procedure has been used extensively to circulate members' recommendations for revisions of the Agreement on Agriculture. Numerous countries have already come up with specific proposals on agricultural matters, in preparation for the Seattle Ministerial Conference in 1999, for example, and for the negotiations on agriculture that have been under way since March 2000.13 The debate has not yet gone beyond a more general exchange of views, but the parties have agreed to open negotiations on the details of future provisions and commitments in agriculture at the beginning of 2001.
The proposals submitted by countries so far differ significantly in their degree of specificity. However, none of the negotiating parties questions the need for the further liberalization of agricultural trade as such. The following sections give a preliminary overview of the status of discussions as of November 2000, first summarizing the discussion on "traditional" issues related to the Agreement on Agriculture - namely market access, export competition and domestic support - and then moving on to discuss non-trade concerns and development issues.
Box 1 SELECTED WTO TERMS Amber box measures Domestic agricultural support that is considered to distort trade and is therefore subject to reduction commitments. Blue box payments Payments made as part of certain domestic support policies (mainly those of the European Communities [EC] and the United States) that are specifically exempt from reduction commitments. Ceiling bindings Tariff bindings imposed by developing countries on commodities that were not formerly subject to binding commitments. De minimis payments Domestic agricultural support payments representing only a small percentage of transfer to producers (less than 5 percent of the production value for developed countries and 10 percent for developing countries). Even if the effects of de minimis payments are potentially production- or trade-distorting, such support is exempt from reduction commitments. Green box measures Support measures that are considered to have no, or minimal, trade-distorting or production-related effects. Such payments are therefore exempt from domestic support reduction commitments. MFN tariff A tariff applied on a most-favoured-nation basis and which, therefore, does not discriminate against individual suppliers. Special and differential treatment Exceptional treatment reserved for developing countries, allowing greater flexibility in establishing support and protection measures. Tariff escalation Increasing tariff protection on products in line with their stage of processing. Tariff escalation implies protection of the processing industry. Tariff rate quota A two-tier tariff system under which a given quota volume of imports is charged at an in-quota tariff rate, which is lower than the above-quota MFN tariff. Tariffication The transformation of non-tariff import measures (e.g. variable levies and quantitative import restrictions), formerly applied by WTO members, into ordinary customs duties. The calculation for this transformation was based on the price gap between the external and domestic market prices, including the price effects of the non-tariff measure during the base period (1986-88). |
The current debate on further reform in the area of market access concentrates on three key issues: i) most-favoured-nation (MFN) tariff bindings; ii) minimum access established through tariff rate quotas; and iii) special safeguard (SSG) provisions applicable to agricultural commodities in the event of import surges.
Regarding further reductions of MFN tariff bindings, two issues are of principal relevance: i) the scope of further reform, including the question of what to use as the starting-point; and ii) whether to follow an approach that covers all tariff lines, or whether to negotiate further reductions on a product-by-product basis, which would allow exemptions for individual and sensitive commodities. The supporters of the most liberal trade policies, notably the Cairns Group14 and the United States, propose a rather radical reform. A principal aim of the Cairns Group is to bring trade in agriculture on to the same basis as trade in other goods. Accordingly, it advocates deep cuts in all tariffs, using a formula approach that provides greater reductions of higher tariffs and includes a curtailment of tariff peaks and tariff escalation.15 Furthermore, the United States calls for substantial reductions, if not the elimination, of all tariffs. The same applies to tariff dispersion and tariff escalation. With regard to the starting-point for further tariff reductions, the United States advocates the use of applied rates rather than the binding commitments specified in the countries' schedules.16 Here, as well as in other areas of the Agreement on Agriculture, the United States also favours so-called sectoral initiatives, meaning more progressive liberalization in some.17 The EC proposes a more conservative approach and regards further reductions of market access commitments "as an ongoing process resulting in fundamental reform" but not as one that should be fully completed within the current round of negotiations.18 The Republic of Korea favours a "flexible and gradual approach" that would take into account the "special nature of agriculture".19 Japan takes a similar position but refers less to the special role of agriculture than to the characteristics and domestic importance of individual commodities. Japan calls for further reductions on a product-by-product basis, which could take into account the characteristics of individual sensitive commodities and the "necessity of maintaining a certain level of domestic agricultural production".20
India and other developing countries also ask for more flexibility in maintaining border protection as a means to address development concerns. For the same reason, however, they also call for substantial tariff cuts and the curtailment of tariff dispersion and tariff escalation of developed countries in order to improve the opportunities for their exports to enter these markets.21
Another key issue of concern in the area of market access is minimum market access, which has been ensured in the Uruguay Round through tariff rate quotas to encourage trade in products that have undergone tariffication. Most of the proposals submitted so far address both quota size and quota administration. Again, the United States and the Cairns Group advocate a substantial increase in quota volumes, in order to expand market access opportunities.22 They also call for improved disciplines in order to make quota administration more transparent and to ensure more competitive distribution of the rights to trade using the in-quota tariff.23 This would appear to conform with the proposal of the EC,24 although the EC has not yet addressed the question of quota increases. Japan and the Republic of Korea also remain silent on quota sizes but call for flexibility in applying different methods of quota administration.25 Various developing countries emphasize the need for a simplified, more transparent and equitable administration of tariff rate quotas established by developed countries in order to improve the opportunities for imports granted under the minimum access provisions.26
A similar picture emerges in the discussion on SSG provisions which, for the duration of the reform process, give countries the right to establish additional tariffs on agricultural products that have undergone tariffication, if explicitly defined trigger levels on import prices or import volumes are exceeded.27 The United States and the Cairns Group call for an elimination of such exceptional treatment, which would leave the more restrictive general contingency measures such as anti-dumping, countervailing and emergency safeguards as the only possible safeguards against agricultural imports. This is opposed by other WTO members, including the EC.28 Some developing countries, most of which do not have the right to establish SSGs because they were not required to engage in tariffication, are also calling for the opportunity to do so. India, for example, argues that SSGs would be "a must for sustainable agricultural development in developing countries" because they protect domestic farmers from "unfair competition".29
Packing fruit for export
Export competition is one of the traditional trade issues under debate in the current round of negotiations
FAO/20421/G. BIZZARRI
In the discussion on export competition, three categories of border measures play a key role: i) export subsidies;
ii) instruments such as export credits or actions undertaken by state trading enterprises; and iii) export taxes. The first category is already subject to rather comprehensive Uruguay Round binding and reduction commitments. For the second category, however, only rather general disciplines exist, which prohibit the circumvention of existing provisions and commitments. Export taxes are not currently subject to any commodity or measure-specific commitments.
For export subsidies, the United States, the Cairns Group and several developing countries advocate prohibition,30 arguing that they cause the most detrimental distortions on the world market and that the resulting depressed world market prices are particularly harmful to the competitiveness of their domestic agriculture sectors. The EC, whose share in world export subsidies granted in the past is by far the largest, is inclined to discuss further reductions on export subsidy commitments but only on the condition that there be improved disciplines on other export measures such as export credits or operations pursued by state trading enterprises.31 Some net food-importing developing countries such as Mauritius, however, express their concern that stricter disciplines on export subsidies, and the possible resulting increase in import prices, might increase their food import bills. These countries therefore call for a cautious and pragmatic approach.32
Stricter and more specific provisions on other instruments affecting export competition, such as export credits and state trading enterprises, are another key concern of many countries. As set out in the Agreement on Agriculture (Article 10, paragraph 2), WTO members agreed in the Uruguay Round to work towards stricter disciplines on export credits and export insurance programmes, but they have not yet made any progress in this respect. Some WTO members, such as the EC, make stricter disciplines on these instruments a condition for further reform of export subsidy commitments.33 The United States and members of the Cairns Group also address this issue. While the United States expresses its willingness to conduct negotiations on stricter disciplines within the Organisation for Economic Co-operation and Development (OECD),34 members of the Cairns Group appear to question the necessity of special disciplines. Some net food-importing developing countries regard export credits as beneficial. As for export subsidies, they call for a cautious approach in working towards stricter disciplines on this measure. They also oppose the idea of pursuing negotiations on these issues within the OECD, as this would exclude them from the negotiations.35
The third category of concerns in the area of export competition is export taxes. Because such taxes tend to keep domestic prices below the world market level, they could curb domestic production and export supply and cause price increases on the world market. Moreover, if export taxes are applied in a variable manner, i.e. if they insulate the domestic market from world market price fluctuations, these measures could also adversely affect world market price stability. The strongest supporters of stricter disciplines on export taxes are members of the Cairns Group and the United States.36 The latter even calls for a prohibition. They argue that export restrictions have negative effects on the food security situation of net food-importing countries and should therefore be disciplined. Some net food-importing developed countries also call for stricter rules on export taxes. Japan, for example, considers stricter rules on export competition, including export taxes and quantitative export restrictions, to be essential for a more balanced approach towards importers and exporters in the course of further reform.37 The EC has taken no position on export taxes so far, while some developing countries reject any ban on export taxes.38 Indeed, some developing countries apply export taxes to keep domestic prices below world market levels, thereby subsidizing domestic consumers. The importance of export taxes as a source of budget revenue may also play a role. In addition, in calling for a maintenance of export taxes, India for example has given supply management as a reason. Furthermore, some developing countries use such measures to discourage exports of raw materials with a view to offsetting the negative effects that tariff escalation - practised by some of their trading partners - may have on their domestic processing industry.
Here again, the Cairns Group and the United States have presented rather progressive reform proposals. The Cairns Group wishes all trade-distorting measures to be eliminated,39 while the United States calls for substantial reductions of support provided by trade-distorting domestic measures of the so-called amber box, the sum of which is already subject to reduction commitments.40 A rather new feature in the United States proposals is to reduce aggregate support to a fixed percentage of a member's total value of agricultural production. Such an approach would result in different reduction rates for individual countries. As regards the exemptions from such reduction commitments, the United States and the Cairns Group refer to the green box, which covers explicit criteria-based measures that are deemed to create no, or at least minimal, trade-distorting effects. The United States has also declared its readiness to negotiate the inclusion of additional exempt policies in the green box.41
Other members strongly reject limitations on domestic support policies, which are currently exempt from reduction commitments. The EC and other WTO members, such as Japan, Norway, the Republic of Korea and Switzerland , also call for a revision of their general and/or policy-specific green box criteria.42 They argue that maintenance, or even extension, of the set of exempt policies is essential in order to address non-trade concerns. The EC and Japan also advocate the maintenance of the blue box, covering measures under production-limiting programmes that are not decoupled from production, and which would thus not meet the requirements of the green box. They argue that such measures are needed in order to "facilitate conversion [of their domestic support policies] towards a market-oriented policy".43
Developing countries also advocate exemptions on domestic support measures, which they regard as essential to address specific development objectives. Some even call for a specific development box.44 Similarly, some transition economies consider the green box exemptions insufficient for their specific needs45 and favour specific exemptions that recognize and address their transition problems.
Non-trade concerns play a key role in the current phase of political debate on the future agricultural trading environment. They are explicitly mentioned in Article 20 of the Agreement on Agriculture as a matter for consideration in furthering reform in agriculture, and they are prominent in various proposals and recommendations that have been submitted to WTO so far. The notion of non-trade concerns refers to the existence of objectives other than the fundamental WTO objective of free trade, but which are also of relevance for a multidimensional welfare function of individuals, countries or the world as a whole. It is also implied that these other objectives may require a limitation of the primacy of free trade within WTO. The most prominent objectives under non-trade concerns are subsumed under the concept of the multifunctional role of agricultural production, which also covers environmental concerns and food security. The core question in the debate is whether these concerns justify departures from WTO's liberalization objectives, or whether they could also be achieved by other means that would not be in conflict with the objective of free trade.
The concept of the multifunctional role of agriculture (referred to in this section as multifunctionality) has been addressed by several, mostly developed, WTO members - notably the EC, Japan, Norway, the Republic of Korea and Switzerland. The concept of multifunctionality covers various specific policy objectives. For the EC, the main concern is the maintenance of the ability of the agriculture sector to supply public goods, especially with respect to the environment, and the viability of rural areas.46 Norway emphasizes the preservation of cultural heritage and of agrobiological diversity as well as the maintenance of "good plant, animal and public health".47 Switzerland mentions food security, the "needs of a scattered population", environmental and landscape preservation issues and food quality.48 The Republic of Korea mentions multifunctionality as an issue to be considered, but without referring to specific policies.49 The set of policy aims referred to by Japan is similar to that of the other countries, but particular emphasis is put on the role of domestic agricultural production in meeting food security objectives.50
The proponents of the multifunctionality concept stress that agricultural production creates positive externalities51 and produces intangible public goods52 in addition to its food supply function. They argue that the supply of these intangible goods would not be guaranteed by market mechanisms alone and that support to agriculture, including the maintenance of the exceptional position of agriculture within GATT/WTO, is therefore necessary to address them.53 Regarding the specific measures proposed to meet these objectives, the EC emphasizes direct payments with no, or minimal, trade impact, i.e. policies that may even meet the principal condition of the green box.54 Switzerland's proposal follows in the same direction.55 Norway only calls for separate treatment of these issues within the multilateral trading system, but - as is also the case for the Republic of Korea - provides no details on specific measures.56 Japan calls for a "certain level of interventions", and explicitly refers to tariffs as a means to address concerns with regard to the multifunctional role of agriculture.57
Other countries, notably the United States and various Cairns Group members, strongly oppose the inclusion of the concept of the multifunctional role of agriculture in trade negotiations. The United States does not question the legitimacy of governments addressing non-food concerns, but emphasizes the need for doing it in a way that is not trade-distorting.58 The United States notes that "WTO does not make judgements about countries' objectives. Rather, the WTO restricts countries' agricultural and trade policies based on the instruments they use to achieve these objectives."59 It argues that the achievement of objectives addressed by the proponents of multifunctionality would not require production-related domestic subsidies or even border measures and considers targeted and non-production related measures more appropriate for achieving these objectives and for avoiding adverse distortions in both domestic and external markets. Targeted and decoupled60 payments could reward farmers, or even non-farmers, directly for landscape preservation activities. Structural adjustment programmes designed to increase off-farm employment or to improve rural infrastructure are suggested as more effective means to address the viability of rural areas.61 Such measures should meet the principal conditions of the green box. If necessary, the United States would be willing to renegotiate or extend the list of specific policies given this category.
The Cairns Group calls for the elimination of the exceptional treatment of agriculture under GATT/WTO. Accordingly, they object to the introduction of multifunctionality considerations in the trade negotiations. Like the United States, the Cairns Group62 calls for domestic support measures to be "targeted, transparent and fully decoupled so that they do not distort production and trade".63
The discussion on food security has certain features in common with the multifunctionality debate. A group of mainly developed net food-importing countries, such as Japan, Norway, the Republic of Korea and Switzerland, puts strong emphasis on domestic, or national, aspects of food security. They argue that a certain level of self-sufficiency would reduce the negative effects of world market instabilities generated by changing climatic conditions and/or the influence of dominant exporters and importers on the world market.64 Such world market volatility is identified as being particularly detrimental to net food-importing countries and would thus require a certain level of domestic agricultural production to be maintained. Preserving national food security through domestic agricultural production would qualify as a non-trade concern and thus legitimize exceptional treatment of agriculture within WTO. In general, the proposals submitted so far focus on two aspects. First, the proponents call for exemptions on domestic and import measures that would allow them to establish production-related measures in order to meet the self-sufficiency goals. Second, they advocate stricter disciplines on export measures used by their exporting trading partners, namely export taxes, quantitative export restrictions, state trading enterprises and export subsidies.
Various developing countries also address food security as a non-trade concern.65 They also invoke the need for production-related measures, greater flexibility in adopting border measures, and even "moderately high tariffs".66 However, their claims in this regard are raised in the broader context of development issues, where food security is just one of many concerns.
The position of the United States and the Cairns Group on the proposed policies is different. In particular, they strongly oppose the notion of self-sufficiency as an appropriate means to address food security. They argue that food security is an issue that "involves the ability to purchase food, while self-sufficiency policies - policies aimed at supporting domestic production above market levels - often slow down economic growth, reduce incomes and fix resources in unproductive sectors of the economy".67 More targeted measures, such as public stockholding or the encouragement of unused production potential, would be more appropriate for addressing food shortages in times of crisis. Some countries also point out that food security is indeed a trade-related issue and that trade-distorting measures and restrictions would adversely affect the distribution of food, while border measures would destabilize the world market and thus have detrimental effects on food security.68
Development concerns have been part of multilateral trade negotiations since the establishment of GATT in 1947. Indeed, rules addressing these concerns are set out in the General Agreement as well as in other multilateral trade agreements under WTO. Under the provisions of so-called special and differential treatment, stipulated in Part 4 of GATT, developing countries are exempted from the reciprocity principle, i.e. they are not expected to grant other countries the same trade concessions that they themselves receive.
In agriculture, developing countries are also subject to less restrictive binding and reduction commitments, e.g. under the Agreement on Agriculture (Article 6), domestic support that forms an integral part of development programmes is exempt from the reduction requirement. Direct food aid, which is granted in conformity with Article 10. 4, is also not subject to any reduction commitments.69 These and other exemptions for developing countries reflect the GATT signatories' persisting perception that some member countries facing underdevelopment problems should be granted specific privileges in the international trading system.
For developing countries, "real, robust and operational [special and differential] provisions in agriculture"70 are a key concern. They emphasize the large contribution of their agriculture sectors to GDP, employment and foreign currency earnings. With reference to the significant role of subsistence farming in their countries, developing countries point out that measures promoting domestic agricultural production are also essential to overcome food security problems. In this context, some also take recourse to existing inefficiencies in their domestic infrastructure that would limit an adequate supply of imported food products. India puts it in more general terms: "their capacity to participate in the international trade is limited. Therefore, the prospects of trade-stimulating economic growth in such agrarian countries are not very significant in the short and medium term."71
India and other developing countries demand at least some protection of their domestic agriculture sector, including the option to grant production-related support, in order to meet their specific development concerns. They also emphasize that such privileges would be indispensable in order to overcome the negative effects arising from the ongoing subsidization by developed trading partners. The list of proposed policies addressing the needs of developing countries includes "moderately high tariffs" and the right to impose special safeguard measures.72 Some countries also call for a specific "development box", comprising exemptions for developing countries, such as the flexibility to raise tariffs on key products in order to safeguard against cheap imports from the world market, and an increase in the de minimis level for reduction-exempted domestic support levels from the current 10 percent to 20 percent of the value of domestic agricultural production.73 Some developing countries, however, stress that they should have full flexibility to adopt any measure they deem suitable to address the development of their domestic agriculture sectors.74
At the same time, in order to improve their international competitiveness as a key element for economic development, some developing countries (mostly net exporters) call for an elimination of agricultural export subsidies and domestic support granted by developed countries. They also demand improved market access opportunities through a substantial reduction of tariff barriers, tariff peaks and tariff escalation applied by their trading partners.75 As mentioned, net food-importing developing countries, on the other hand, call for a more cautious approach to implementing stricter or further disciplines on export subsidy and credit commitments.
It would appear that, in principle, all negotiating parties acknowledge special and differential treatment of developing countries as a legitimate means to overcome development problems, including that of food security. Some declare their willingness to discuss the issue in the course of the negotiations, while other negotiating parties refer only to certain aspects of special and differential treatment. The United States, for example, advocates the creation of additional criteria for exempt domestic support measures. Such measures should be part of specific programmes that are designed to improve domestic distribution, assist risk management at the farm level and foster productivity of subsistence farming.76 This approach, however, implies a rejection of the full flexibility proposed by India and other developing countries. It follows the same criteria-based and policy-specific approach that was established during the Uruguay Round and incorporated in the Agreement on Agriculture, Article 6.2, which currently exempts specific domestic support measures applied by developing countries from the reduction requirement. The Cairns Group proposals are more restrictive and refer to a longer implementation period and a continuation of current exemptions for developing countries only.77
As regards market access of developing countries, the United States is ready to discuss deeper tariff cuts on products of interest to developing and least-developed countries. Exemptions or full flexibility for developing countries to apply higher tariffs are not suggested. The Cairns Group's proposal is similar to that of the United States. It calls for cuts on all market access restrictions, and thus implicitly on market access restrictions of developing countries. However, Canada declares its willingness to discuss special and differential treatment in the area of market access after concrete ideas on exemptions for developing countries have been presented.78 The EC explicitly refers to least-developed countries and suggests the establishment of duty-free market access opportunities for products exported by these countries.79
At the end of 2000, the current WTO negotiations on agriculture were still in a phase of general political discussion and showed considerable differences among the negotiating parties' attitudes towards further reforms in this sector. This is understandable, given the different national interests and problems involved. What is remarkable, however, is the fact that none of the WTO members had questioned the need for further reform as such. The negotiating parties can refer to a comprehensive set of provisions and commitments established in the Uruguay Round as the starting-point for further reductions in protection and support to agriculture. Moreover, the notification requirements agreed in the Uruguay Round significantly improved the transparency of agricultural policies pursued by individual member countries. All these features form a strong basis for the continuation of the reform process and could certainly be regarded as assets in the ongoing discussion on further reform in agriculture.
To date, the recommendations and proposals submitted have been relatively general in nature, but they do show the direction that individual WTO members wish the negotiations to take. Three broad factions of WTO members can be identified: i) a group of developed countries calling for the elimination of WTO exemptions for agriculture, preferably to be concluded in the current round; ii) a group of more conservative developed countries which, in contrast to the first group, would like to preserve the exceptional role of agriculture under GATT/WTO; and iii) various developing country members who call for exemptions under the principle of special and differential treatment. This last group, in particular, is likely to play a more prominent role than was the case in the Uruguay Round, as suggested by their active participation in the current debate and the recognition given to their concerns in other countries' proposals.
The justifications for the individual attitudes towards further liberalization differ significantly. The first group regards the elimination, or substantial curtailment, of the exceptional role of agriculture as being important for achieving an expansion in world trade of agricultural products and consequent welfare gains. Members of the second group refer to their domestic agriculture sectors as a source of multiple outputs in addition to that of food supply. They argue that these other functions, such as the preservation of the environment, can only be guaranteed if the exceptional role of agriculture is maintained. Developing countries emphasize the dominant role of agriculture in their entire economies. They regard a differential treatment of their agriculture sectors in the international trading environment as essential for overcoming development problems such as poverty and food security.
This pattern of negotiating positions is likely to remain throughout the negotiations, but the parties can be expected to reach a compromise on the specific topics identified here in order to bring the negotiations to a successful end. It is to be hoped that scientific studies and substantive discussions will enable acceptable solutions to be found to the major issues.
