by Aileen Kwa for Southeast Asian Food and Fair Trade Council
The review of the WTO Agreement on Agriculture (AoA) will commence by November 1999, at the time of the 3rd WTO Ministerial Conference. The informal process of putting forward recommendations and views, the ‘Analysis and Information Exchange’ (AIE) is currently in progress (see following article). This process allows open discussion between countries on future areas of negotiation without forcing countries to commit themselves to positions.
The process, however, is likely to be concluded by the second quarter of 1999, as the Committee on Agriculture will begin negotiating a text for approval at the 3rd Ministerial Conference to be held in November 1999. This final text will set the framework for the negotiations.
Countries therefore must put forward their positions now, if they want to see their interests reflected in the review. While the AIE process has generated a fruitful amount of discussion between countries, developing countries have unfortunately been very passive participants, with approximately only 2 papers out of about 30 coming from developing countries (not including Cairns Group members).
This calls for great concern since developing countries have paid the highest price as a result of the Uruguay Round Agreement on Agriculture as the ‘liberalisation’ instituted has generally condoned the high subsidies of the OECD countries, while forcing developing countries to open their markets. As Am. Narayanan of India recently pointed out, the existing WTO agenda is such that ‘developing countries are being forced to open their own markets, but markets for developing country products with export potential remain completely closed or are open only partially’. The unequal competition in the area of agriculture has aggravated the food security position of many developing countries.
This paper presents a pro-food security strategy / position which developing countries can put forward in the current AIE process. Implicit in the strategy presented are two important considerations:
How has the AoA Instituted Unfair Competition?
As it stands, the GATT Agreement on Agriculture disadvantages developing countries in numerous ways. The rules were basically watered down to suit the interests of developed countries.
Market Access:
Dirty Tariffication:
Many developed countries set their tariffs at levels much higher than their non-tariff equivalents, hence restricting access to developing countries’ exports.
Tariff Peaks Due to Selective Tariff Reductions:
The required unweighted average of 36 per cent tariff allowed countries to reduce low tariffs by significant percentages, while reducing only slightly the existing high tariffs if the product was of trade importance. Hence in many instances, tariff reductions by developed countries have not been meaningful in trade terms to developing countries.
Manipulation of Trigger Prices to Sanction Use of the Special Safeguard Provision:
The EU, for example, manipulated with the calculation of trigger prices such that they could more frequently qualify to use the Special Safeguard Provision and hence slow the flow of imports coming their way.
Domestic Support:
Increases of domestic support above the de minimis level are illegal for all:
This is an outright imbalance since the majority of developing countries declared zero AMS. They are not allowed to increase their AMS support above the de minimis 10% level while developed countries need only reduce slightly their high AMS levels. That is to say, most developing countries which were taxing their agricultural sector are bound never to provide subsidies to any significant degree.
Endorsement of direct and decoupled payments in the GATT-legal Green Box:
This is a major loophole in the AoA which benefits the developed countries. These payments are legalised on the pretext that they are non-trade or production related, yet they provide farmers with additional revenue, hence changing input levels and thus increasing farmers’ production. Without them, many farmers in the US, EU and other OECD countries would find farming scarcely profitable. Furthermore, the developed countries, such as the EU are reinstrumenting their support policies in line with expected AoA ‘liberalisation’, so that other forms of support which may have to be phased out are converted to direct and decoupled payments. Developing countries do not have the resources to provide the same supports. These subsidies therefore skew competition in favour of the rich developed countries.
Including production-limiting programme payments in the Base AMS but excluding them from Current AMS calculations:
Subsidies provided by the US, EU and other developed countries under production-limiting programmes were included in the Base Aggregate Measure of Support (AMS). However, these production-limiting programme payments are excluded from Current AMS calculations. The result is such a huge drop in the Current AMS level in comparison to the Base AMS that it has meant that the US and EU have not needed to made real reductions in their AMS support level to meet their AoA commitment. The high levels of AMS support developed countries have traditionally provided are therefore not in reality being reduced. Therefore, while markets of developing countries are forced open, developed countries’ agriculture continue to be highly subsidised.
Shifting supports within a broad aggregate:
AMS reductions are not product specific but sector wide. This has made it possible for developed countries to maintain or even increase their AMS supports in sensitive sectors, even to levels above the base period. For example, the EU changed the composition of their assistance to the cereals and oilseeds sectors, while assistance is maintained or increased for commodities such as sugar, beef and fruit and vegetables.
Export Subsidy
Dumping of agricultural products is still legal within the AoA:
Even though the AoA stipulates that dumping subsidies, euphemistically termed export subsidies must be reduced by 21% for developed countries, it still means that developed countries are able to continue up to 79% of their base period level of dumping. Dumping on the other hand is illegal for non-agricultural products. Again, it is the developed countries that have the resources to provide significant amounts of subsidies for export dumping, creating further unequal competition with developing countries on the world market. This form of dumping has had a detrimental effect on millions of small farmers of developing countries since prices are lowered and small farmers are pushed out because they are unable to compete.
Substituting export subsidies with other support instruments:
Though developed countries are supposedly cutting down on ‘export subsidies’, there is evidence to suggest that government supports are merely being shifted to other AoA-legal programmes. For example, the EU is shifting towards increased decoupled payments, and the US is providing new forms of support such as credit guarantees to their exporters allowed under the Green Box.
Limiting the effect of dumping subsidy reductions through aggregation:
Developed countries have also been able to get around the painful cuts in their export subsidies by concentrating their subsidies on key products most important to their economy.
Due Restraint Provision
The due restraint provision, brokered between the US and EU at Blair House enabled the conclusion of the agricultural negotiations. This provision sets a 9-year period during which domestic supports and export subsidies are protected from
dispute challenges and the imposition of countervailing duties by affected countries.
For example, the EU’s export subsidies are largely non-actionable under this provision until 2003. This is obviously unfair since developing countries are required to open their markets in the face of unfair competitive practices, such as dumping, and have no avenue of recourse.
Agreement on Sanitary and Phytosanitary Measures (SPS)
The SPS Agreement which was crafted at the same time as the AoA is also biased against developing countries. It has enforced mandatory food standards according to those of the Codex Alimentarius, a joint UN/WHO organisation.
Where there is no international standard, countries wishing to block imports on the grounds of SPS must base their objections on ‘sound science’. However the country wanting to block the imports must establish the proof, rather than the exporter.
SPS is problematic for developing countries because
1) Codex is largely dominated by the developed countries and their corporations. Developing countries are not represented in Codex’s committees and have in the past not been actively involved in the standard setting processes of Codex. They find themselves now having to abide by standards that have already been predetermined and which are usually too high.
2) Since the bottom line at Codex and with the SPS Agreement is ‘scientific evidence’, it excludes developing countries from participation at Codex as they often lack such scientific resources and expertise. The food processing corporations, on the other hand, have the higher hand with their up-to-date expertise.
3) Putting the onus of proof on receiving countries is therefore unfair given the resource limitations of developing countries. This system obviously works to the interests of exporters from developed countries, particularly the corporations.
Negotiating For Food Security
Given the current inequalities in the rules of the AoA, developing countries can take the following negotiating positions (in sequence) in order to protect and enhance food security in their countries:
Position 1: No Further Liberalisation, ie., a standstill position until implementation issues are completely reviewed and redressed. This is an appropriate position for the 1999 review.
When a thorough review of the impact of the AoA has been completed, countries can then ask for the following:
Position 2: A Food Security Box which allows countries wanting to nurture their agricultural production the capacity and space to do so. The Food Security Box will also be a re-balancing of the AoA rules between developed and developing countries.
Position 1: No Further Liberalisation - a Standstill Position
In the current AIE process and the coming review, developing countries as well as developed countries wanting a minimal level of food self-reliance should take the position that there should be no further liberalisation of the Agreement on Agriculture until a thorough review of the results of implementation has been conducted. The review should therefore only be a review, and not the reopening of negotiations. Once negotiations are reopened, it is likely that developed countries will push through further liberalisation disciplines (along the lines of the US’ and Cairns Group position) without taking into account the imbalances of the present AoA, as elaborated in the section above. This will further damage developing countries’ food production systems and render them increasingly dependent on food imports.
The effect of the AoA must be carefully studied in relation to the following issues: import flows and local production levels; levels of AMS governments provide and whether these governments are utilising the Green Box, input and investment subsidies of the Special and Differential Treatment clause; levels of food aid received in the country; rural and urban peoples’ access to food; food prices; stability of food supply; quality of food; rural employment and quality of life; biodiversity.
Upon the completion of a thorough review of the AoA implementation in all countries, there should then be serious re-examination of the food security needs of countries. Food security and rebalancing of the AoA are to some extent addressed below in the proposed Food Security Box.
Position 2: Food Security Box
Food security has been raised repeatedly in the AIE process as an important non-trade issue by developing and even developed countries. It is obvious that for many members, the existing AoA is lacking and has even detrimental effects in this area.
Food Security Today
The FAO forecast on food security is bleak. By the year 2000, FAO predicts that there will be a substantial increase in world agricultural trade. Despite the gains in trade, and the ability of the world’s productive capacity to meet the global demand for food, there will be no improvement in food security. The International Food Policy Research Institute (IFPRI) also estimates that up to 2020, there will be very little reduction in the number of malnourished children in the developing world as a whole. Whilst in Sub-Saharan Africa and South Asia, the number of malnourished children may actually increase.
These projections have been made before the onset of the Asian and now global economic crisis. The current turmoil has drastically worsened the food security situation in Southeast Asia and Russia, and is currently threatening to also severely affect the Latin American countries. Up to 98 million people are facing serious food shortages in Indonesia alone.
This is therefore a critical moment to seriously look at the way we have designed our agricultural policies in the past, and implement the necessary changes. Governments in Southeast Asia are already channelling support to this sector in various ways, in the realisation that food self-reliance is crucial. Fortunes can turn so that once available foreign exchange to purchase food may not be available tomorrow. However, policies at the macro level must be equally supportive.
How the current AoA deals with Food Security:
The current Agreement on Agriculture addresses the food security issue in various ways.
Food Security Box
As is clear from the above, the AoA is lacking when it comes to responding to the food needs of developing countries.
We therefore recommend that developing countries call for the introduction of a Food Security Box in the AoA when implementation studies are completed, or should Position 1, the standstill position not be possible for the 1999 review due to excessive pressure by the US and Cairns Group to reopen negotiations and further liberalisation.
The Food Security Box can either be added to the Green Box, or it can stand as an article on its own. Alternatively, it could also be included as a series of textual amendments throughout the new agreement.
For Whom?
Those allowed to use the Food Security Box can include the following:
Food Security Box Provisions
The Food Security Box should include the following measures:
Market Access:
1) Variable tariffs and other non-tariff barriers such as quotas to ensure
that developing countries’ farmers are not squeezed out when producing for
their own local and domestic economies due to competition with subsidised
imports into their country. Countries will be allowed to use tariffs and other
border measures as they see fit to counter the influx of cheaper imports so
as to ensure rural employment and food sovereignty.
2) The minimum access commitments in the current AoA which states that developing countries have to permit a minimum access of 1% rising to 4% by the year 2000 should be waived for these countries.
3) The use of the Special Safeguard Provision by developed countries must be re-evaluated. Very high trigger prices (for example, used by the EU) as a result of manipulating with the trigger price calculations must be readjusted.
Domestic Support
4) There should not be a limit to the level of AMS support these countries
provide. Since most of the countries implementing this Food Security Box clause
will be developing countries, there is little to fear that AMS levels will
sky-rocket. Most developing countries after all declared zero AMS in the base
period, whilst developed countries continue high levels of AMS support. It
is therefore fair that the AoA allow developing countries and those wanting
to nurture their food production system for local consumption, the space to
do so.
Export Dumping
5) Export dumping should be made illegal even for agricultural products. That is, all export subsidies should be eliminated.
6) The due restraint clause which exempts export subsidies and domestic supports from countervailing challenges should be removed so that developing countries can seek protection against dumping. Also, the process of establishing dumping must be simplified for developing countries. At present, it is too expensive for developing countries to invoke anti-dumping procedures. It is slow and difficult to prove harm to a sector, especially as the sector may consist of millions of subsistence farmers dotted around a country. Developing countries must also be helped to protect themselves against the use of anti-dumping measures by developed countries obviously motivated by protectionist ends.
Agreement on Sanitary and Phytosanitary Measures
7) The use of Codex’s standards should be voluntary and countries must be allowed to refuse the entry of products with standards they do not agree to. Our knowledge of food standards and the implications on human health remain incomplete. Current scientific proofs are not infallible. Hence countries wishing to establish alternative standards from those accepted in Codex must be allowed to do so. The US intends to tighten up on the SPS Agreement in order to ensure that their biotechnology food products can be exported to all countries, without the need for ‘rigid labelling requirements’. Not only in the EU, but people in many developing countries are not in favour of this. It is both an unknown threat to human health, as well as a serious threat to plant biodiversity.
Appendix 1: US’ Agenda for the 1999 AoA Review
Priority Areas:
Other Goals:
The US wants no pause in negotiations. They want a round, but do not want all issues to be held up until others are concluded.
Appendix 2: Cairns Group Agenda for the 1999 AoA Review
In general, their position is similar to the US. They want more cuts in export subsidies, domestic support and border protection. They are perhaps most concerned over export subsidies because of the projected rise in the use of these subsidies. This is due to recent developments in the global market which are diving prices down and increasing the pressure in favour of subsidies.
According to Murphy (IATP), the Cairns Group have been hostile to the NFIDCs requests for compensation under the Marrakesh Decision when food import prices were high in 1995/6, stating that the AoA had no effect on world prices.
The Cairns Group are divided on the US’ line to discipline State Trading Enterprises as many of them operate them (Murphy 1998).
Some of the Cairns group are for a comprehensive round, others are opposed to it.
Australia (the main Cairns group spokesman) supported by other Cairns group members including Argentina, Uruguay and Chile, has asked that the preparatory process address the scope, structure and time-frame of the negotiations.
NZ has asked for the following changes:
This is similar to US’ concerns although the US has not called for a disaggregation of the AMS, which has benefited mainly themselves and the EU.
Appendix 3: EU’s Agenda for the 1999 AoA Review
The EU is preparing for CAP reforms - ‘Agenda 2000’ - in expectation of pressures put on them in the coming review. Fairly central to their reforms is the introduction of the concept of multifunctional agriculture. They want this added to the Green Box.
They are also moving towards increased use of decoupled payments in place of market price supports. Prices will therefore be more in line with world market prices. They also intend to increase controls on output levels.
Murphy (1998) points out that in terms of a food security strategy, the EU may be a good ally not only because they are a strong presence in the WTO, but also because they also recognise the need to support agriculture in terms of fostering rural communities and for environmental reasons. There is scope to expand this concept of multifunctionality so that includes developing countries’ concept of food security, that agriculture provides food, employment, preserves biodiversity etc. Therefore while the EU must be challenged on its abuse of export subsidies, it may be worthwhile for developing countries to work with them in the coming review to ensure a food secure agenda.
Appendix 4: Developing Countries’ Agenda for the 1999 AoA Review
Only a small handful (not in the Cairns Group) have spoken up.
They have pointed out that developing countries continue to face difficulties in accessing developed country markets, including high tariffs against their products, as well as the failure of the developed countries to fulfil their commitments of special and differential treatment.
Pakistan, India, Mauritius, South Africa and several others have raised the issues of ‘non-trade’ concerns of food security. They have said that the hypothesis of liberalisation did not take into account the realities faced by many developing countries.
India’s paper presented to the Committee on Agriculture in November 1998, ‘Food Security - An important Non-trade Concern’ found resonance with developing countries (South Africa and Mauritius), as well as developed countries (EC, Japan, South Korea). These countries made comments to support this viewpoint.
India pointed out that a significant proportion of the population in developing countries are not only dependent on agriculture for their livelihoods, but also for survival just around the poverty line. The paper pointed out that a purely market -oriented approach whereby liberalisation is seen as the panacea for all ills of the agriculture sector will not respond to developing countries’ problems. India therefore proposes a ‘market-plus’ approach whereby non-trade concerns such as maintenance of the livelihoods of agrarian peasantry and production of sufficient food to meet domestic needs are taken into consideration. The issue of food security must importantly include peoples’ access to food supply.
An major feature of food security India is proposing is agricultural self-reliance, which ‘is a vital underpinning for the growth of GDP of agrarian developing economies, since good agricultural production provides purchasing power to a large majority of the population and in turn spurts industrial growth’.
The paper also points out the need for governmental supports in the use of inputs in irrigation, electricity, fertilisers, infrastructure etc., to develop the agricultural sector. Government supports to alleviate poverty must therefore be allowed and differentiated from those given to ‘carve out a niche in the international trade ‘.
In short, India has insisted that unlike what happened in the Uruguay Round, the implementation problems of agriculture, and the concerns and shortcomings, particularly those facing developing countries, should be faced upfront. These should be discussed in the Committee on Agriculture and should not be limited to a rigid time-frame.
Egypt has underscored the need for some modesty in ambitions and for realistic expectations. Egypt stressed the importance of non-trade concerns of the net-food importing countries. Egypt complained that the US and NZ papers for agriculture treated the Special and Differential Treatment issue as a peripheral one.
LDCs and NFIDCs which together account for just under 1 billion people and remain below other developing countries when measured by most indicators of social development, have been anxious, in the discussions, that their special positions recognised in the Marrakesh decision is not diluted or undercut.
* Aileen Kwa is a researcher with focus on the Global South