fao papers on selected issues relating to the wto ...pdf.wri.org/ref/fao_02_dependence.pdfselected...

FAO PAPERS ON SELECTED ISSUES RELATINGTO THE WTO NEGOTIATIONS ON

AGRICULTURE

Commodities and Trade DivisionFOOD AND AGRICULTURE ORGANIZATION OF THE UNITED NATIONS

Rome, 2002

SELECTED ISSUES RELATING TO THE WTO NEGOTIATIONS iii

PREFACE

The papers in this volume were originally prepared by FAO staff or byconsultants for submission to Round Tables organized in Geneva in 2001and early 2002. Edited for publication, they also include comments bypanellists in some cases.

The Round Tables were attended mainly by country representatives/negotiators in WTO, by representatives of interested internationalorganizations and NGOs and by policy advisors. The papers are beingpublished as a collection for the convenience of the interested reader andto facilitate their dissemination.

iv SELECTED ISSUES RELATING TO THE WTO NEGOTIATIONS

SELECTED ISSUES RELATING TO THE WTO NEGOTIATIONS v

TABLE OF CONTENTS

Preface iii

Some issues relating to food security in thecontext of the WTO negotiations on agriculture 1

Incorporating food security concerns in a 18revised Agreement on Agriculture

Rural development: some issues in the context 29of the WTO negotiations on agriculture

A Special Agricultural Safeguard (SAS): buttressing 45the market access reforms of developing countries

Comments by Mr D. Hathaway 61

Food aid in the context of the WTO negotiations on agriculture 62

Comments by Mr W. Thompson 86

Agricultural state trading enterprises and developing countries:some issues in the context of the WTO 89

Summary of paper on the future of preferential 102trade arrangements for developing countries and thecurrent round of WTO Negotiations on agriculture

Comments by Ms K. Brown 108

Towards improving the operational effectivenessof the Marrakesh Decision on Measures Concerning thePossible Negative Effects of the Reform Programme onLeast-Developed and Net Food-Importing Developing Countries 116

vi SELECTED ISSUES RELATING TO THE WTO NEGOTIATIONS

Comments by Mr A. Ramadan 139

Comments by Mr G. Taplin 143

Comments by Ms R. Jackson 147

Revolving fund for the purpose of implementing the WTO 150Marrakesh Decision

Extending special and differential treatment (SDT)in agriculture for developing countries 169

Special and differential treatment of developing countriesin agricultural trade 205

Dependence on single agricultural commodity exports indeveloping countries: magnitude and trends 219

Small developing economies: characteristicsand vulnerability 240

The WTO negotiations on agriculture: post-Seattlemajor issues, analytical needs and technicalassistance requirements 255

SELECTED ISSUES RELATING TO THE WTO NEGOTIATIONS 1

Some issues relating to food security in the context of theWTO negotiations on agriculture1

1. Introduction

This note highlights some salient issues for consideration in thecontext of the WTO negotiations on agriculture in relation to incorporatingfood security concerns in a revised WTO Agreement on Agriculture. Itpresents recent data on the state of food insecurity, the basic objective andrequirements for enhancing food security in those parts of the world(countries) with large proportions of food insecure people, and discussesthe requirements for enhancing food security in relation to the WTOAgreement on Agriculture.

Food security as defined by the 1996 World Food Summit is asituation in which all people at all times have physical and economicaccess to sufficient, safe and nutritious food to meet their dietary needs andfood preferences for an active and healthy life. Indicators of food securitycan be defined at different levels – for the world as a whole, for individualcountries, or for households. Ultimately, however, food security concernsthe individual and its principal determinant is the individual’s entitlementto food – ability to produce and/or purchase food.

At the national level, adequate food availability means that onaverage sufficient food supplies are available, from domestic productionand/or imports, to meet the consumption needs of all in the country.Similarly, as in the case of individuals, purchasing power at the nationallevel – the amount of foreign exchange available to pay for food imports –is a determinant of national food security.

The opposite to food security is food insecurity. Food insecurity canbe transitory (when it occurs in times of crisis), seasonal or chronic (when it

1 Prepared for the FAO Geneva Round Table on Food Security in the Context of the WTONegotiations on Agriculture, 20 July 2001.

2 SELECTED ISSUES RELATING TO THE WTO NEGOTIATIONS

occurs on a continuing basis). A person can be vulnerable to hunger eventhough he or she is not actually hungry at a given point in time. 2

2. The state of food insecurity

An indication of the absolute and relative number of people livingwith hunger and fear of starvation (chronic food insecurity) in developingcountries is presented in Table 1. The data, which are based on the latestestimates of undernourishment (as an indicator of chronic food insecurity)around the world by the Inter-Agency Working Group on Food Insecurityand Vulnerability Information and Mapping System (FIVIMS), indicatethat 792 million people in 98 developing countries were not getting enoughfood to lead a normal, healthy and active life.

Another 34 million people in the industrialized countries andespecially in countries in transition also suffer from chronic foodinsecurity. Overall, the bulk of the chronically food insecure people(undernourished) live in countries with very low per capita incomes, withcountries in sub-Saharan Africa and South Asia having the highestproportion of undernourished.

3. The link between food security and povertyThe common bond of undernourished and vulnerable people is

poverty. Their incomes are too low to provide adequate nutrition.Table 1 also provides information on the proportion of people, by

country, living on less than $2 a day, a benchmark defined by the WorldBank as the upper poverty line.3 As will be noticed, there is a high degreeof correspondence between the proportion of people below the poverty lineand the proportion of undernourished people across countries.

2 FAO (2000), The State of Food Insecurity in the World 2000, gives the example of Benin,where close to half the population is vulnerable to hunger whereas only one seventh of thepopulation is undernourished, using the FAO estimate of undernourishment.3 World Bank, (2001), World Development Report 2000/2001: Attacking Poverty (NewYork: Oxford University Press), Table 4.


Similar information is also provided in Table 2, by region, on thenumber of people living on less than $1 a day, which is the World Bank’slower poverty line. In 1998, about 1.2 billion people were below this lowerpoverty line, 98 percent of whom were in developing countries. Sub-Saharan Africa and South Asia had the highest proportion of poor people,respectively 46 percent and 40 percent of their populations.

4. Policy priorities for countering chronic food insecurityTo combat hunger and food insecurity at the national, as well as

the global level, the ultimate solution is to provide undernourished peoplewith opportunities to earn adequate incomes and to assure an abundantsupply of food from either domestic production or imports, or both.

With 70 percent of the world’s extremely poor and food insecurepeople living in rural areas, the role of agriculture, which is thepredominant economic activity in rural areas, is crucial in the eradicationof poverty and food insecurity. The rural poor depend on agriculture forboth their incomes and their food entitlements. More generally, in mostcountries with a high incidence of food insecurity, agriculture is themainstay of the economy. It accounts for a large share of gross domesticproduct (GDP), employs a large proportion of the economically activepopulation, represents a major source of foreign exchange and supplies thebulk of basic foods (see Table 3).

Thus chronic food insecurity can only be addressed effectivelythrough policies that accelerate agricultural productivity growth and foodproduction – the rapid development of agricultural potential.

The contribution of food imports to food availability at thenational level is limited by the foreign exchange earning capacity of thecountry. Thus, closing the widening food gap through commercial importsis not a realistic possibility for most countries that have poor prospects forsubstantial increases in foreign exchange earnings and/or already faceheavy external debt burdens.

As the information provided in Table 3 indicates, for somecountries, food imports accounted for more than 50 percent of total exportearnings, minus debt servicing. Food aid, which has been in the past used


in some cases to meet uncovered market demands as well as to feedhungry people directly, has been on the decline and in any case is not asustainable solution.

In sum, policies that raise incomes of the poor, accelerateagricultural productivity and food production and enhance the ability ofthe country to import food (by strengthening its export earningpossibilities) are crucial for confronting food insecurity in manydeveloping countries.

5. The WTO Agreement on Agriculture and food securityThe focus of the WTO Agreement on Agriculture (AoA) is not

food security. Its objective is to establish “a fair and market-orientedagricultural trading system” through “reductions in agricultural supportand protection”. The expectation is that this would result in “correctingand preventing restrictions and distortions in world agricultural markets”.As is well known, the focus of the framers of the AoA was a perceivedneed to correct a situation of mounting production surpluses in a numberof food products produced in a number of developed countries throughrising levels of budgetary support and import protection. The most directtrade-distorting aspect of this situation was the escalating use of exportsubsidies (subsidy “wars”) to dispose of these mounting surpluses onworld agricultural markets.

On the other hand, for the vast majority of developing countriesthe situation was different. Rather than excessive support and risingproduction surpluses, their situation was one of inadequate production andinsufficient support to raise agricultural productivity and food productionin line with their food needs and agricultural potential. Hence, the situationof many food insecure countries is fundamentally different, and,accordingly, requires a different approach from that of reducing support toagriculture.


6. Lessons from the history of agricultural developmentSeveral lessons from the history of agricultural development, in

different parts of the world, are worthy of note. First, hardly any countryhas been able to initiate and sustain modern economic growth without firstexploiting and developing its agricultural potential. The initial effects wereto raise rural income, assure a growing food supply and increase thenational standard of living through reductions in poverty and foodinsecurity (undernourishment).

Secondly, a successful take-off to sustained agricultural growthwas achieved through a judicious mix of subsidies (e.g. inputs and watermanagement subsidies), pricing polices and border measures, as well asother institutional and infrastructural support measures (agriculturalcredits, extension services, land reform as needed, seed banks, cropinsurance, storage facilities, road and transport, market and distributionsystems) which provided the incentives and the means for peasant farmersto produce and innovate, albeit on a limited scale initially.

Thirdly, if the goal of agricultural policy is to raise agriculturalproductivity and production (e.g. in the case of a developing economy),then “coupled” rather than “decoupled” policies are the most effective forproviding rapidly the intended results. For example, one dollar spent oncoupled policies would produce more outputs than the same dollar spenton decoupled measures.

7. The relative effects of policies and countries on distortion inworld agricultural marketsA related relevant issue is the relative contribution of various

policy measures and countries to distortions in world agricultural markets.The “policy criteria” approach, which implicitly was used in theAgreement on Agriculture, is to classify policy measures into boxes(“amber”, “green”, “blue”) based on a pre-assignment as to their minimalor otherwise trade distorting nature. Another approach is to focus on thepolicy impacts of individual countries on markets.

The policy classification approach, because it is not based onactual policy impacts, can lead to anomalies. For example, some countries


can technically be in compliance with their commitments under the AoAby shifting, i.e. re-instrumenting, their support from the amber to the greenbox with basically the same effects on markets. On the other hand, someother countries, because of their negligible size in world agriculturalmarkets, either as exporters or as importers, could utilize policies classifiedas highly trade-distorting without creating any discernible distortion ofworld agricultural markets. This raises the question of the best approach toreducing distortions while allowing non-“offending” countries to continueto have policy flexibility.

In any event, even if a relatively large food insecure developingcountry does create a discernible distortion of world agricultural markets,there needs to be an evaluation of the trade-off between this minimaldegree of distortion and the enhanced food security of several hundredmillion people.

8. Policy implications in the context of the WTO negotiations onagricultureAs has been seen, there are large differences in food insecurity

between richer WTO members and poorer ones. Given the extent of foodinsecurity in the poorer countries, there is a need for increased, rather thandecreased, support to agriculture in these countries in order to accelerateagricultural productivity and production growth. Increased support in thesecountries would in all probability have negligible effects on “distortions inworld agricultural markets”. In any case, the benefits of improvement inliving standards and reduction in food insecurity (undernourishment) arelikely to far outweigh the cost of any distortion in world agriculturalmarkets.

Accordingly, food insecure countries (i.e. those with a highproportion of undernourished population and/or people living inhouseholds that consume less than US$1 or US$2 per day) should beexempted, as currently are LDCs, from reduction commitments under arevised Agreement on Agriculture. Their policy flexibility should beunconstrained, unless it can be demonstrated, on a country-specific basis,that the use of otherwise prohibited policies have led to their obtaining an


increased share in world trade, in a particular product, above a defined deminimis level.

Table 1. Indicators of hunger and poverty for selected WTO members

Region/Country Numberof under-nourishedpeople a1996-98(million)

Share ofunder-

nourished intotal popula-tion a1996-98

(percent)

People living on lessthan $2 a day b

(percent ofpopulation) (year)

Africa 146.5Angola 5.0 43 ...Benin 0.8 14Botswana 0.4 27 61.4 1985-86Burkina Faso 3.5 32 85.8 1994Burundi 4.3 68 ...Cameroon 4.1 29Central African Republic 1.4 41 84.0 1993Chad 2.7 38Congo 0.9 32 ...Côte d'Ivoire 1.9 14 49.4 1995Dem. Rep. of the Congo 29.3 61 ...Egypt 2.6 4 52.7 1995Gabon 0.1 8 ...Gambia 0.2 16 ...Ghana 1.9 10 ...Guinea 2.1 29 ...Kenya 12.2 43 62.3 1994Lesotho 0.6 29 65.7 1993Madagascar 5.8 40 88.8 1993Malawi 3.2 32 ...Mali 3.4 32 90.6 1994Mauritania 0.3 13 22.1 1995Mauritius 0.1 6 ...Morocco 1.4 5 7.5 1990-91



Share ofunder-


(percent)



Mozambique 10.7 58 78.4 1996Namibia 0.5 31 55.8 1993Niger 4.5 46 85.3 1995Nigeria 8.6 8 90.8 1997Rwanda 2.3 39 84.6 1983-85Senegal 2.0 23 67.8 1995Sierra Leone 1.9 43 74.5 1989Swaziland 0.1 14 ...Tanzania, United Rep. of 12.7 41 59.7 1993Togo 0.8 18 ...Tunisia 0.1 * 11.6 1990Uganda 6.0 30 77.2 1992Zambia 3.9 45 91.7 1996Zimbabwe 4.2 37 64.2 1990-91

Asia 334.3Bangladesh 46.8 38 77.8 1996India 207.6 21 86.2 1997Indonesia 12.3 6 66.1 1999Jordan 0.2 5 7.4 1997Korea, Republic of 0.5 *



Share ofunder-


(percent)



Latin America and theCaribbean

54.6

Argentina 0.4 * ...Bolivia 1.8 23 38.6 1990Brazil 15.9 10 17.4 1997Chile 0.6 4 20.3 1994Colombia 5.2 13 28.7 1996Costa Rica 0.2 6 26.3 1996Cuba 2.1 19 ...Dominican Republic 2.2 28 16.0 1996Ecuador 0.5 5 52.3 1995El Salvador 0.6 11 51.9 1996Guatemala 2.5 24 64.3 1989Guyana 0.2 18 ...Haiti 4.8 62 ...Honduras 1.3 22 68.8 1996Jamaica 0.2 10 25.2 1996Mexico 5.1 5 42.5 1995Nicaragua 1.5 31 ...Panama 0.4 16 25.1 1997Paraguay 0.7 13 38.5 1995Peru 4.4 18 41.1 1996Suriname 0.0 10 ...Trinidad and Tobago 0.2 13 ...Uruguay 0.1 4 6.6 1989Venezuela 3.7 16 36.4 1996

Eastern Europe and CentralAsia

5.7

Albania 0.1 3 ...Bulgaria 1.1 13 7.8 1995Croatia 0.5 12 ...Estonia 0.1 6 17.7 1995Georgia 1.2 23 ...



Share ofunder-


(percent)



Kyrgyzstan 0.8 17 ...Latvia 0.1 4 8.3 1998Poland 0.3 * 10.5 1993Romania 0.3 * 27.5 1994Turkey 1.2 * 18.0 1994

Memo item:

Non-WTO members 275.8Afghanistan 14.6 70 ...Algeria 1.4 5 15.1 1995Cambodia 3.4 33 ...China (incl. Taiwan Province) 140.1 11 53.7 1998Eritrea 2.2 65 ...Ethiopia 28.4 49 76.4 1995Iran, Islamic Rep. of 4.1 6 ...Iraq 3.5 17 ...Korea, Dem. People’s Rep. 13.2 57 ...Lao PDR 1.5 29 ...Lebanon 0.1 * ...Liberia 1.1 46 ...Libyan Arab Jam. 0.0 * ...Nepal 6.2 28 83 1995Saudi Arabia 0.6 3 ...Somalia 6.6 75 ...Sudan 5.1 18 ...Syrian Arab Rep. 0.2 * ...Viet Nam 16.5 22 ...Yemen 5.7 35 35.5 1998Yugoslavia 0.3 3 ...

Armenia 0.7 21 ...Azerbaijan 2.4 32 ...Belarus 0.1 *



Share ofunder-


(percent)



Bosnia Herzegovina 0.4 10 ...Kazakhstan 0.7 5 15.3 1996Moldova Rep. 0.5 11 32 1992Russian Fed. 8.6 6 25.1 1998Tajikistan 1.9 32 ...Turkmenistan 0.4 10 59 1993Ukraine 2.6 5 77.2 1992Uzbekistan 2.6 11 26.5 1993

Developing countries 791.9 18 ...

Notes:a The term “undernourished” in the context of the World Food Summit 1996 refers topersons whose food consumption level is inadequate in terms of calories consumed relativeto requirements on a continuing basis.b $2 a day refers to the upper poverty line as defined by the World Bank (2001), WorldDevelopment Report 2000/2001.* - less than 2.5%... - data unavailableSource: FAO (2000), The State of Food Insecurity in the World 2000, Rome: FAO, Table 1;World Bank (2001), World Development Report 2000/2001: Attacking Poverty, Table 4.


Table 2. Estimates of poverty, by region, 1998

Region Number of peopleliving on less than $1 a

day in 1998(million)

Share intotal

population(percent)

East Asia 278.3 15.3Eastern Europe and Central Asia 24.0 5.1Latin America and the Caribbean 78.2 15.6Middle East and North Africa 5.6 1.9South Asia 522.0 40.0Sub-Saharan Africa 290.9 46.3

Total 1 198.9 24

Source: World Bank (2001), World Development Report 2000/2001: AttackingPoverty (New York: Oxford University Press), Table 1.1.


Table 3. Relative importance of agriculture in selected WTO membercountries, 1999

Region/ Country Share ofagriculture in

GDP(percent)

Agriculturalpopulation as

% of totalpopulation

Food imports asa percentage of

total exportearnings minus

debt serviceAfricaAngola 12.3 72.1 9.2Benin 38.6 55.0 21.0Botswana 3.6 44.7 9.8Burkina Faso 33.3 92.2 27.7Burundi 54.2 90.4 26.1Cameroon 42.4 60.6 5.9Central AfricanRepublic

52.6 73.5 10.1

Chad 39.8 76.1 7.8Congo, Rep. 11.5 41.5 6.6Côte d’Ivoire 26.0 50.3 5.3Dem. Rep. of theCongo,

57.9 63.7 6.3

Djibouti 3.6 na 39.7Egypt 17.5 34.0 19.5Gabon 7.3 39.2 3.1Gambia 27.4 79.2 41.8Ghana 10.4 57.1 14.6Guinea 22.4 84.2 19.5Guinea-Bissau 62.4 83.1 49.7Kenya 26.1 75.9 11.8Lesotho 11.5 38.2 44.0Madagascar 30.6 74.7 naMalawi 35.9 83.3 18.7Mali 46.9 81.5 11.8Mauritania 24.8 53.0 56.4Mauritius 8.6 12.2 7.4Morocco 16.6 36.9 26.6



GDP(percent)





debt serviceMozambique 34.3 80.8 46.7Namibia 10.0 42.1 2.7Niger 41.4 88.1 27.2Nigeria 31.7 34.2 13.3Rwanda 47.4 90.5 55.7Senegal 17.4 74.0 28.9Sierra Leone 44.2 62.7 80.3South Africa 4.0 9.9 1.9Swaziland 16.0 34.3 6.4Tanzania, Un. Rep. of 45.7 80.9 18.6Togo 42.1 60.3 14.4Tunisia 12.4 25.0 6.3Uganda 44.6 80.6 38.5Zambia 17.3 69.9 8.5Zimbabwe 19.5 63.2 na

AsiaBangladesh 22.2 56.7 26.8India 29.3 60.1 11.5Indonesia 19.5 49.1 8.8Jordan 3.0 11.7 18.9Korea, Rep. of 4.9 10.6 2.3Kuwait 0.4 1.1 5.0Malaysia 13.2 19.4 2.4Mongolia 32.8 24.9 5.5Myanmar 53.2 70.5 naPakistan 26.4 47.5 19.7Papua New Guinea 24.4 74.7 6.3Philippines 16.9 40.2 4.9Singapore 0.1 0.2 1.0Sri Lanka 21.1 45.8 9.3Thailand 11.2 57.2 1.2



GDP(percent)





debt serviceUnited Arab Emirates 2.2 5.0 5.0

Latin America and theCaribbeanArgentina 5.7 10.0 3.6Bolivia 15.4 44.5 5.9Brazil 8.4 17.3 22.5Chile 7.4 16.0 4.1Colombia 13.5 21.0 7.1Costa Rica 15.2 20.7 2.9Cuba na 14.5 naDominican Republic 11.6 17.4 7.4Ecuador 12.9 26.5 4.6El Salvador 12.1 29.7 10.7Grenada 8.4 na 19.4Guatemala 23.3 46.7 11.3Guyana 34.7 18.3 6.3Haiti 30.4 62.9 62.7Honduras 20.3 32.6 naJamaica 8.0 21.0 10.4Mexico 4.9 22.1 4.5Nicaragua 34.1 20.8 33.8Panama 7.9 20.8 7.6Paraguay 24.9 34.8 2.1Peru 7.1 30.7 13.7Suriname 26.0 19.2 naTrinidad and Tobago 1.8 9.0 7.1Uruguay 8.5 12.8 3.0Venezuela 5.0 8.4 5.7



GDP(percent)





debt serviceEastern Europe andCentral AsiaAlbania 54.4 48.9 58.6Bulgaria 18.7 7.5 2.9Croatia 8.9 9.1 4.2Estonia 6.3 11.6 4.0Georgia 26.0 20.5 naKyrgyzstan 46.0 26.3 14.5Latvia 4.7 12.2 5.4Lithuania 10.4 12.8 2.4Poland 4.9 22.2 2.1Romania 16.4 15.9 3.7Turkey 17.6 46.9 2.5

Memo item:Developed countriesBelgium 1.1 1.9 naCanada 2.7 2.4 1.1Czech Republic 4.2 8.5 1.0Denmark 4.0 3.9 2.2Finland 4.0 5.8 1.1France 2.3 3.5 2.2Germany 1.1 2.6 1.8Hungary 6.0 11.1 1.1Iceland 11.2 8.3 1.7Ireland 5.6 10.6 1.9Israel na 2.8 2.5Italy 2.6 5.6 3.0Japan 1.7 4.3 2.9Liechtenstein na na naLuxembourg 0.8 2.2 0.4Malta 3.2 2.0 4.2



GDP(percent)





debt serviceNetherlands 3.1 3.5 3.3New Zealand 7.4 9.1 1.8Norway 2.0 4.7 0.8Portugal 3.9 13.2 5.2Slovakia 4.4 9.3 1.7Slovenia 4.0 2.2 2.1Spain 3.5 7.7 2.5Sweden 2.2 3.3 1.0Switzerland na 4.3 1.1United Kingdom 1.8 1.8 2.5United States 1.7 2.2 1.0


Incorporating food security concernsin a revised Agreement on Agriculture1

This paper argues that the Agreement on Agriculture does notfully recognize that the role of agriculture in enhancing food security indeveloping countries differs significantly from that in developed countries.Greater flexibility than is currently provided by the Agreement is thereforerequired for developing countries, particularly the food-insecure ones, inorder for them to pursue agricultural modernization and meet their foodsecurity objectives.

1. The role of domestic agriculture in enhancing food security indeveloping countries

In 1996-98, 826 million people were estimated to beundernourished, of whom about 792 million were in developing countries.Although the number fell by 40 million between 1980-82 and 1995-97,this improvement was uneven, being attributable to a reduction of 100million in 37 countries, whilst in the remaining countries the numbersincreased by 60 million. Although food availability for direct humanconsumption grew by 19 percent between 1960 and 1994-1996, there isconsiderable variation among countries. For example, per capitaagricultural production in LDCs has been on a downward trend over thepast 40 years, whereas it has increased by 40 percent in the developingcountries as a whole.2 From 1980 to 1996, it declined in 29 of the 42cereal-producing LDCs.

Analyses of the major factors underlying these trends (asexemplified by 14 case studies) have led FAO to state that “significantprogress in promoting economic growth, reducing poverty and enhancingfood security cannot be achieved in most cases without developing more 1 Prepared by the FAO Commodities and Trade Division, on the basis of a longer paper byRichard Pearce and Jamie Morrison, for the FAO Round Table on Food Security in theContext of the WTO Negotiations on Agriculture, Geneva, 20 July 2001.2 OECD (2000), Issues at Stake in Agriculture for Emerging and Transition Economies inthe Multilateral Trade Negotiations. (COM/AGR/APM/TD/WP(2000)24), Paris.


fully the potential capacity of the agricultural sector and enhancing itscontribution to overall economic development”.3 This view is supported bya number of recent studies4 which have demonstrated that in many poorerrural areas, increasing the productivity of agriculture often has the greatestpotential for poverty-reducing growth, either through direct incomebenefits and indirect expenditure linkages from the production of tradablecommodities or through consumer benefits in the production of non-tradables.5 Therefore, indicators of food security are often directlyinfluenced by the relative success of rural development initiatives in termsboth of increasing the availability and stability of national food suppliesand of enhancing individual access to food.

The liberalization of trade is justified in part by the incentives it isexpected to provide to producers in developing countries, therebyimproving prospects for rural development. However, for some developingcountries there is unlikely to be an immediate benefit because of supplyconstraints and the inability of producers to take advantage of new tradingopportunities as well as to compete in the domestic market with imports,some of which still benefit from subsidies and other non-competitivepractices.

3 FAO (2000), Agriculture, Trade and Food Security: Issues and Options in the WTONegotiations from the Perspective of Developing Countries. Vol. II - Country Case Studies.Part One, p.5. Rome.4 Kydd, J., Dorward, A., Morrison, J.A. and Cadisch, G. (2001), The Role of Agriculture inPro Poor Economic Growth in Sub-Saharan Africa. Paper prepared for the United KingdomDepartment for International Development.5 The ability to pursue rural development objectives with a view to enhancing food securityis a central theme of many recent proposals. The Indian proposal calls for additionalflexibility for providing subsidies to farm inputs “wherein productivity levels are below theworld average”. Further, it suggests that “all measures taken by developing countrymembers for poverty alleviation, rural development, rural employment and diversificationof agriculture should be exempt from any form of reduction commitments” (See WTOdocument G/AG/NG/W/102, 15 January 2001, pp. 3-41). Similarly, Cuba and otherspropose supports for improving competitiveness and expanding domestic productioncapacity of developing countries. In calling for the creation of a “Development Box” thisproposal suggests exemptions for measures that protect and enhance developing countries'domestic food production capacity, particularly in key staples.


2. Policy measures for enhancing food security

Development experience over the last 50 years has amplydemonstrated that vast rural poverty and food insecurity in developingcountries have largely been the result of development strategies thatoverlooked the importance of the agricultural sector, particularly asregards the production of staple foods. 6 Experience has also shown thatenhancing food security in developing countries requires a well-designedand adaptable package of policies that address in an integrated manner thesupply, distribution and consumption aspects of the food chain.

The policy options available to contemporary poor countries areconstrained by a number of factors including: (a) limited resources forpublic spending programmes; (b) the dilemma between remunerativeprices for producers and prices that a large number of poor households canafford, thus making the option of border protection less attractive, despitehigh bound tariffs,7 (c) seriously limited foreign exchange availability,leading to pressure to boost production of export crops. The channelling ofresources to export sectors may not, however, always guarantee adequateforeign exchange for food imports.8 Hence, from the food security point ofview, import substitution is often a better option than export promotion.

What follows is a brief description of some specific policymeasures that countries have used to enhance the food security ofhouseholds or individuals, both directly (through programmes to boostfood consumption and that provide targeted assistance) and indirectly viatheir farm programmes and trade policy. The most important of these

6 See FAO (2000), The State of Food and Agriculture 2000: Rome.7 Indeed, there is a large difference between applied and bound tariff rates in developingcountries. See, for example, WTO (2000), Committee on Agriculture (Regular Meetings),General Council Overview of WTO Activities (G/L/417), Geneva, p. 52.8 It has been shown that countries need to increase foreign exchange earnings by more than1 percent to finance a 1 percent increase in food imports. See, for example, Food SecurityAssessment, USDA Economic Research Service. Situation and Outlook series GFA-11,Washington DC, 1999.


policies are those that, given price support, affect input use and areconcerned with boosting food consumption.

Price support

Price support is provided either by border measures alone orborder measures in combination with domestic price arrangements (e.g.procurement prices, minimum guaranteed prices, target prices). Sometimesa border policy (e.g. a limitation on exports) that lowers farm prices in aneffort to keep domestic food prices at a level that consumers can afford ispartially offset by administered prices, allowing farm prices to risesomewhat. Usually, however, the border measure (e.g. tariffs)complements administered prices, and in consequence consumer pricesmay be higher than the corresponding world prices.

Depending on the combination of border and domestic pricepolicies, various groups in society can find their food security affecteddifferently. Thus, arrangements that lead to higher domestic market pricesbenefit farmers and hit consumers. The impact can be mitigated throughtargeted domestic food aid policies (e.g. rationing, fair price shops, incometransfers to the poor) but only at a considerable cost to the budget, which isscarcely possible in poorer, food-insecure countries. Maintaining worldprices for the consumer but paying subsidies to the farmer places a similarstrain on the government budget, but which can to some extent be offset inthe case of imported foodstuffs by the revenue raised by import duties.

The situation for export products is similar to that for importedgoods. Exports have often been taxed in the past to help keep downdomestic prices (e.g. Thailand’s rice policy in the 1970s and Indonesia’spalm oil variable export tax), but this is usually at the expense of thewelfare of farmers who in many cases may be poorer than the urbanconsumer. By contrast, policies that boost exports through subsidies canraise farm incomes but at the expense of both the government budget andconsumers. Export subsidies can be used to promote market access and arealso a useful option for disposing of an unusual surplus in good harvest


years.9 Although their use is relatively widespread in developed countries,most developing countries do not resort to export subsidies.

Despite all the complications for food security of pursuing anactive price policy, it must be noted that for imported food products acombination of tariffs to sustain farm prices and the use of the revenuederived therefrom to fund domestic food aid policies can be compatiblewith the WTO rules and efficient in terms of reducing rural poverty andfood insecurity. Whether, however, the revenue so raised would beadequate to tackle the extent of domestic consumer food insecurity in thepoorer countries is a matter of doubt; most likely extra resources would berequired to strike the right balance. All other policies discussed belowcome with a price tag that may be prohibitive in many cases.

Input subsidies

Input subsidies are often used to offset low producer prices.Typically, they are used for items such as fertilisers, seeds and fuel.However, if not targeted, their use can bypass the poor producer and resultin uneconomic transfers to better-resourced farmers. The effectiveness oftargeted subsidies is demonstrated by developments in maize production inMalawi when output prices were liberalized in the early 1990s andfertiliser subsidies reintroduced. The result was a 70 percent increase inmaize production by the small-scale sector and a substantial rise infertiliser use.10

Facilitating the purchase of fixed capital stock (such as importedmachinery and on-farm storage facilities) can both enhance productivityand reduce post-harvest losses. Examples include Zambia’s Agricultural

9 Morocco, for example, has experienced a problem with AMS commitments over the useof a storage subsidy to cope with good harvests which may have been alleviated byrecourse to export subsidies.10 Pearce, R. (1997). Incentive policies for domestic small-farm agricultural production. InKonandreas, P., Lindland J., Pearce, R. and Wilkin, K., eds. The Uruguay Round andAgriculture in Southern Africa: Implications and Policy Responses. FAO, Rome.


Investment Programme that provides (with donor assistance) matchinggrants to groups of farmers for building on-farm infrastructure.

Whilst infrastructure investment is currently exempt from AMSinclusion, it often provides a form of subsidy to producers. In Sri Lanka,for example, the construction and maintenance of irrigation facilities areprovided free of charge to farmers. It has been estimated that in 1995irrigation subsidies comprised 3 percent of the total value of paddyproduction. In Egypt the adoption of advanced irrigation technology isseen as being essential to increasing water use efficiency.11 Investment ininfrastructure can also be for the purposes of conservation. For example, inSouth Africa, subsidized or low interest-loans have been provided underthe Conservation of Agricultural Resources Act.

Intervention to correct for institutional failure

Where markets do not function well - for example, when there ispoor market information, a monopolist-monopsonist situation or politicalinterference - the expected supply response may not occur. In suchcircumstances, the promotion and/or strengthening of institutionsgoverning access by poorer producers to input and output markets may behighly rewarding at a relatively low cost to the government. Strengtheningcredit institutions by influencing the incentives faced by marketintermediaries and financing of their costs can result in the provision ofmore reliable seasonal finance.12 Land tenure and rural finance institutionsare often quite important, the former in allowing access to more productiveland, investment in land, better decisions about land use, and greaterconsumption linkages, and the latter in promoting investment, particularlyin seasonal inputs.13 Overall, the provision of improved institutions,

11 See the FAO source cited in note 3, Part Two, p. 106.12 For a full review see Dorward, A.R., Kydd, J. and Poulton C. (1998), Smallholder CashCrop Production under Market Liberalisation: A New Institutional Economics Perspective.Wallingford, CAB International: pp. 56-112.13 Dorward, A. and Morrison, J. (2000), Lessons for LDCs on agricultural developmentexperience of the past 30 years. Imperial College at Wye, Paper prepared for FAO.


regulatory frameworks and training are possible but they may initiallyrequire subsidies.

Food consumption policies

One of the most widely used food security policies over the yearshas been assistance to public food stocks. To be compatible with the AoA,volumes and accumulation must correspond to predetermined targetsrelated solely to food security. Food purchases by governments must bemade at current market prices and sales from stocks must be at not lessthan the current domestic market price of the product and quality inquestion. For developing countries stocks may be acquired and released atadministered prices, provided that the difference between the administeredand external reference price is accounted for in the AMS calculation. Inreality this does not constitute any special treatment, since any country canpursue such a policy provided that the associated expenditure is counted inits AMS.

Such schemes attract additional costs to the government in termsof accumulation, storage, price monitoring and distribution. The promotionof private storage and marketing by, for example, reducing barriers toentry, improving infrastructure and market information may provide amechanism for passing on such costs.

Though widely used in the past, these policies have come undercritical scrutiny more recently because of their relatively high costs. But insituations where physical availability of food is at risk, such stocks, inconjunction with trade policies, can have a valuable role to play.

The provision of food, or of means to allow eligible recipients tobuy food, at market or subsidized prices is not subject to WTO disciplines,largely because the measures involved are not prejudicial to exporters,since they are trade-enhancing. Although leakage can be reduced viatargeting, this is generally associated with higher administrative costs. Theefficiency of consumer subsidies often depends upon the type of foodchosen. For example, in Brazil $1 spent on subsidizing bread transferredabout $0.18 to low-income consumers, whereas the same amount spent on


legumes transferred about $0.39.14 Subsidizing inferior grades can enhancethe effectiveness of a food subsidy.

There are a number of other policies used to provide food safetynets in developing countries. Examples include targeted employmentprogrammes, or food-for-work, which can also create assets such as ruralaccess roads, storage facilities and irrigation infrastructure. However, thecost is often high and there is a need to take into account the scarcity offinancial resources of developing countries in setting the criteria for suchprogrammes.

3. Meeting food security objectives: distortion versuseffectivenessThe preceding discussion indicates that a variety of policy

instruments can be used to increase production in support of the foodsecurity objectives of developing countries. The focus then falls onidentifying mechanisms for raising support for domestic production in anefficient manner under existing domestic constraints, while at the sametime preserving the option of using more costly measures if greaterresources become available in the future.

The major criteria against which to assess alternative policymeasures are efficiency, effectiveness, cost and equity. Efficiency relatesto changes in the volume of trade resulting from any change in domesticproduction and any impact on the level and variability of the domestic orworld market price. Effectiveness relates to the impact on food security atthe national and household levels in the short run, and the extent to whichit promotes rural development more generally and hence food security inthe long run. The costs of different policies may be evaluated in terms ofthe burden on government and on consumers and producers. The impacton equity considers the extent to which the various measures target poorproducers and consumers. 14 Reutlinger, S. (1987), The nutritional impact of agricultural projects. In Gittinger, J.P.,Leslie, J. and Hoisington, C. eds. Food Policy: Integrating Supply, Distribution andConsumption. EDI Series in Economic Development. Johns Hopkins Press for the WorldBank, Washington DC.


Most policies will have some impact on trade volumes eitherdirectly or by enhancing incentives to domestic producers. However, indetermining the significance of the relative effect of policies on trade, it isnecessary to consider the “size” of a country, or group of countries, inworld markets. It is assumed that the food-insecure countries, includingLDCs, will in general be too small to have a distorting impact on mostagricultural commodity markets. Where that is not the case recourse couldvalidly be made to the type of market share cap envisaged in theAgreement on Subsidies and Countervailing Measures, Article 27.

In addition to the type of capping of market shares suggestedabove, there is the question whether developing countries, other than thefood-insecure countries and the LDCs, with competitive large-scaleagricultural sectors that produce significant shares of their exports orimport substitutes, should be excluded from exemptions made on the basisof food security. Several typologies of developing countries in terms of theimpact of trade liberalization have been developed, but none investigatesthe structure of agriculture within these countries.15 As demonstratedabove, the contribution of agriculture to rural development and hence long-term food security is significant and therefore it can be argued thatexemptions should be made not on the basis of a country’s net tradeposition or agrarian structure, but of its current level of development ascharacterised by the extent of its food insecurity.

In terms of their impact on food security, price policies can havemixed effects, as discussed above, depending on whether those sufferingfrom food insecurity are mainly net producers or net consumers of food,given the often high budgetary outlays required to reconcile differentinterests. Policy measures that promote productivity improvements with nodetrimental effect on consumers are therefore likely to be preferred.Subsidies on inputs, if targeted to specific crops, can be less costly but may 15 See, for example, Diaz-Bonilla, E., Thomas, E., Robinson, S. and Cattaneo, A. (2000),Food Security and Trade Negotiations in the World Trade Organization: A Cluster Analysisof Country Groups. Trade and Macroeconomics Division Discussion Paper No. 59,Washington, D.C. and Valdes, A. and McCalla, A. (1999), Issues, Interests and Options ofDeveloping Countries, paper delivered at conference on Agriculture and the New TradeAgenda from a Development Perspective: Interests and Options in the WTO 2000Negotiations, Geneva.


distort resource use. Such distortions may, however, be weighed againstthe benefits from increasing the supply of a crop which contributessubstantially to food security. Interventions to correct for market failuresappear to provide low-cost opportunities for enhancing household andnational food security in both the short and the longer term, particularlywhen they remove distortions that discourage production. Border measuresand market price support are likely to be relatively inequitable in that tradepolicy favours marketed commodities and therefore the more prosperousfarmers. Subsidies on non-tradables and on inputs have a more equitableimpact on food security at the micro level.

In sum, measures used to strengthen institutions governing accessto inputs, which may be associated with the provision of input subsidies,are likely to provide the most cost-effective, and least distortionary, way ofenhancing food security. Policies implemented to support the productionof domestic food staples are likely to be preferable to those focusing onexportables. Where required, measures which provide enhanced incentivesto producers via the output price are likely to be more effectivelyimplemented via border measures than by subsidies on output prices,which are more complex to administer. However, the greater impact ofproducer incentives on consumer prices may limit their use unless offsetby targeted consumption subsidies. A judicious combination of thesemeasures may be the most appropriate approach to achieve the best resultin terms of efficiency, effectiveness, cost and equity.

4. Increasing policy flexibility of the developing countries

The preceding analysis makes a prima facie case for the wider useof policies to promote agriculture in developing countries so as to increasetheir food security. How far would such policies be compatible with arenegotiated AoA?

A number of recent proposals from developed countries call for atightening of exemption criteria. The proposal of the United States is forsimple differentiation of support between measures that are market-distorting and those that are not and for the establishment of criteria for thelatter to ensure that they are targeted, transparent and truly not distortive of


trade. Norway has suggested that policies involving expenditure to beincluded in the AMS calculation be divided into two categories: (i) supportto production for the domestic market, which would be subject to lessstringent reduction commitments and (ii) support to export-orientedproduction (incorporated in the calculation of AMS), which should besubject to further reductions. By contrast, most developing countries,notably India, have called for exemptions that are more responsive tospecific developing country needs. 16

Although a classification of measures along the lines proposed bythe United States or Norway may provide more clarity and less scope forviolation within the existing AoA rules, a case can be made for a moreflexible mechanism for developing countries that recognises fundamentaldifferences among them in their food security objective. Considering thatnot all developing countries are faced with the problem of food security,while all of them can be presumed to need to foster their ruraldevelopment, two different types of policy response at the WTOnegotiations may be considered:

(a) Food-insecure developing countries could be granted the sameexemptions as are already granted to LDCs, thus allowing them to increasetheir AMS for commodities critical to food security, unless that results in ashare of the world market for a particular commodity above a certain level,in line with Article 27 of the Agreement on Subsidies and CountervailingMeasures.

(b) All other developing countries could be allowed to raise the existing deminimis level (perhaps limited to commodities critical to food security) toan agreed new level and extend input and investment subsidies to allfarmers producing commodities critical to food security. Also, tariffbindings for food crops could be renegotiated without their having to makecorresponding concessions elsewhere; they should also be granted accessto the SSG for food commodities.

16 See the statements made by these three countries as contained respectively in WTOdocuments G/AG/NG/W/32, 182 and 114.


Rural development: some issues in the contextof the WTO negotiations on agriculture1

Rural development is one of the central non-trade concerns beingtaken into account by WTO Members in the current negotiations onagriculture. This paper reviews some of the key issues for consideration. Itnotes that the major objective of rural development is the alleviation ofrural poverty, highlights the role of agriculture in this respect, andexamines the critical features of the WTO Agreement on Agriculture thatmay influence policy formulation for rural development.

1. Rural development, poverty and agriculturePoverty is largely a rural problem. More than 75 percent of the

world’s poor live in rural areas and a majority of the poor will continue tolive in rural areas well into the 21st century. Although internationallycomparable statistics on rural poverty are limited, it is clear that invirtually all developing countries, the rural poor outnumber the urban poor,often by a factor of two or more (Table 1). The rural poor suffer deeperlevels of poverty than their urban counterparts and have much morelimited access to basic social services such as sanitation, safe water, healthservices and primary education; thus they suffer disproportionately fromhunger, ill health and illiteracy. In many countries, furthermore, theincome gap between urban and rural areas is widening. Clearly, the ruralpoor face overwhelming obstacles in breaking the cycle of poverty.2

Agriculture is the key to alleviating rural poverty. Agricultureemploys more than half of the total labour force in developing countriesand almost three quarters in lower-income developing countries. Most ofthe world’s extreme poor depend on agriculture for their livelihoods.Agriculture has strong backward and forward linkages to the rural non-farm sector, purchasing inputs such as seeds and implements, supplyingraw materials for agro-based industries and generating demand for local

1 Based on a paper prepared by R. Pearce and J. Morrison for the FAO Commodities andTrade Division, 2001.2 For an elaboration of these issues, see IFAD (2001), Rural Poverty Report 2001: theChallenge of Ending Rural Poverty, Rome.


goods and services such as housing, furniture and clothing.3 Hence,agricultural growth can increase the income of the rural poor both directly,through increased production and additional demand for farm labour, andindirectly, through linkages with non-farm productive activities in the ruralareas. An extensive body of research on economic growth and povertyalleviation in developing countries confirms that agricultural growth hasstronger effects on poverty alleviation than growth in other sectors and thatrural growth reduces both urban and rural poverty.4

Sustainable agricultural growth and rural development can beachieved. The key ingredients to this end include: (i) access or entitlementto assets (e.g. land, water, farm animals and technology); (ii) access to fairand competitive markets - both domestic and international - for farmproducts; and (iii) the necessary information and physical infrastructure toreach these markets.5 Governments have an important role to play infacilitating the development of and access to national agricultural assetsand in correcting market failures and distortions to domestic markets.

The international agricultural trading environment. The currentinternational trading context for agriculture affects rural development indeveloping countries in various ways, in particular through marketdistortions arising most often from subsidized competition from developedcountries and from market access barriers to the agricultural exports of thedeveloping countries. In addition, attempts to reform international trade inagriculture by disciplining national policies may also constraingovernments of developing countries in their efforts to promoteagricultural growth, since they limit the types of support policies that maybe implemented. The WTO negotiations on agriculture, therefore, are of

3 Among the various directly productive activities in the rural areas, agro-industry rankssecond to primary agriculture in importance, and the two sectors are highly interlinked. See,for example, Mellor, John (2001), Reducing Poverty and Buffering Economic Shocks –Agriculture and the Non-Tradeable Economy. First Expert Meeting on the Documentationand Measurement of the Role of Agriculture in Developing Countries, FAO, Rome.4 See for example, Datt, G. and Ravallion, M. (1998), Why have some Indian States donebetter than others at reducing rural poverty?, Economica 65: 17-38, and Timmer, P. (1997),How well do the poor connect to the growth process? CAER II Discussion Paper No. 17.Harvard Institute for International Development (HIID), Cambridge, MA.5 IFAD, op.cit.


crucial importance to developing countries in their pursuit of sustainablerural development.

2. Priorities for accelerating rural developmentMany developing countries have considerable unfulfilled potential

in agriculture. Smallholder farmers in many parts of the world reachproductivity levels that are only about one third of potential yields. Mostdeveloping countries are at an early stage of agricultural technology andstill have the considerable potential to increase productivity and diversifyproduction. Furthermore, the agricultural sector in many developingcountries is handicapped by the prevalence of market imperfections,poorly functioning institutions and natural monopolies. Depressedagricultural prices - resulting in part from subsidy-induced overproductionand trade barriers in developed countries - exert an important constraint oninvestment in the sector.6

Priorities for accelerating agricultural growth and ruraldevelopment in most developing countries include: (i) developing theproductive potential of the agricultural sector; (ii) diversifying withinagriculture and into non-farm productive activities; (iii) and safeguardingrural livelihoods from unfair competition and excessive fluctuations inworld and domestic markets.7 The basic thrust of policies and strategies inthe agricultural sector is on enhancing productivity through themodernization of farming practices.

Mobilizing significant new investments in rural infrastructure,agricultural research and extension services is essential to help farmers andrural agribusinesses overcome the handicaps they face and acquire the

6 In 1999 the combined price index of agricultural commodities, deflated by the price indexof manufactured exports of developed countries, was one half of the average for 1979-1981, which was about the same as the average for 1970. For tropical beverages and basicfood, the decline was steeper. See the report by UNCTAD, World commodity trends andprospects, distributed to the United Nations General Assembly under cover of A/55/332,August 2000, sect. II.7 In many industrialized countries income parity between urban and rural populations is anexplicit policy goal pursued through direct income transfers, but this is not generally thecase in developing countries; indeed, it cannot be since the majority of their people live inrural areas.


technology and skills they need to raise productivity and improve theircompetitiveness. As a result of constraints on public expenditure andinadequate private capital flows, developing countries have increasinglyrelied on foreign aid to fund investments in the agricultural sector.However, the proportion of official development assistance going toagriculture has been on the decline since the late 1980s, the annual averagehaving fallen from 24 percent in 1981-90 to 16 percent in 1991-99. In viewof the importance of agriculture for rural development and povertyreduction, initiatives to provide financial and technical assistance toimprove agricultural productivity and rural infrastructure, including thosein the Marrakesh Decision on Measures Concerning the Possible NegativeEffects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries, should be fully followed up. In thisregard, the lending practices of international financial institutions anddonors should be made more compatible with WTO guidelines on supportto agriculture. It is also important to recognize that public and privateinvestments in agriculture are complementary – not competitive –activities.8

Providing government support through appropriate publicsubsidies is a legitimate and necessary means of correcting market failuresand countering unfair competition. Sustained agricultural growth has beenachieved in several developing countries through a judicious combinationof input subsidies (mainly in the form of fertiliser prices, credit schemes,fuel subsidies and water management), output pricing policies and bordermeasures. Some countries have used price policies effectively toencourage adoption of new technologies or diversification into new crops.While such subsidies are less efficient than direct payments to farmers,they have an important place in a clearly defined development strategywhere the policy goal extends beyond simply transferring income. Giventhe important multiplier effects of agricultural growth on ruraldevelopment, these public subsidies not only encourage rural farmers to

8 Foreign aid has played a major role in almost all success stories of agriculturaldevelopment. Its role was critical in the Green Revolution, and it has always been a keyelement in developing and strengthening rural institutions. IFAD, op. cit.


produce and innovate but also enhance the profitability of private ruralnon-farm activities and stimulate sustainable rural development.9

Safeguarding rural livelihoods from unfair competition andexcessive fluctuations in world and domestic markets is also necessary forsustainable rural development. Given their high dependence on agriculturefor incomes and the large share of food in their household budgets, ruralpeople are vulnerable to external agricultural market instability and toimport surges that could eliminate otherwise viable rural productionactivities. The effort to protect the livelihoods of small rural farmers mayrequire the use of border control measures such as tariffs and safeguardmeasures to attenuate the adverse impact of subsidized imports and worldprice fluctuations.

3. Rural development and the WTO Agreement on AgricultureWhile the focus of the WTO Agreement on Agriculture (AoA) is

not on rural development per se the Agreement has significant implicationsfor the livelihoods of rural people in developing countries. Ruraldevelopment, like food security, has been identified as a major non-tradeconcern in the negotiations on agriculture. Much has been said about howthe AoA can contribute to food security, especially in the developingcountries, and many negotiating proposals have been tabled on thissubject.10 Without repeating those arguments, it is important to stress thatmany of them are fully valid for rural development.

The AoA has direct bearing on the development of agriculture andrural non-farm activities in the developing countries as well as on theability of these countries to stabilize and sustain rural incomes. In view ofthe overriding role of agriculture in the predominantly rural-baseddeveloping economies, it is crucial for their rural development, and for 9 An important lesson of recent policy reforms in developing countries is that market forcesalone cannot always drive the rural restructuring process forward. The majority of small tomedium producers and rural non-farm families are poorly prepared to either reap thebroader benefits of the new reforms or respond to previously unknown competitors.10 For a discussion on food security in relation to the WTO Agreement on Agriculture, seethe first paper in the present volume, Some issues relating to food security in the context ofthe WTO Negotiations on Agriculture.


their socio-economic development in general, to enhance their domesticcapacities of agriculture, improve access to foreign markets and guardagainst unfair competition and excessive market fluctuations.

Domestic supports to promote rural development. The AoAcommitments on domestic support were designed to solve a problemdeveloping countries do not have; namely, that of over-production. On thecontrary, the central thrust of agricultural policy in most developingcountries is to boost productivity in order to harness the full potential ofthe agricultural sector as an engine for sustainable rural development.Although the current AoA commitments give developing countriesconsiderable policy freedom, the basic thrust of the Agreement is towardlimiting the use of production-enhancing supports. Briefly, they aregranted the 10 percent de minimis exemptions for product-specific andnon-product-specific supports, exemptions for support provided under thegreen box or Annex 2 criteria, and exemptions for support provided underspecial and differential treatment (SDT) for developing countries.Although these provisions, taken together, constitute a wide range ofmeasures to address the particular nature of agriculture in developingcountries, many such countries view them as falling short of what isnecessary and as failing to provide the requisite policy flexibility. Whilemost developing countries are not currently constrained by their domesticsupport commitments, some may find their rural development policyoptions limited in the future.

Most developing countries also lack the financial andadministrative capacity to implement measures covered by the green box,such as income safety-net programmes, and therefore may need recourse toprice-based supports. As discussed above, public support in areas such asagricultural credit, fertilisers, transport, irrigation and fuel are importantaspects of the development strategies of many developing countries, andadditional flexibility in their use may be needed. Furthermore, manydeveloping countries made mistakes – of strategy or out of ignorance – inthe preparation of their Uruguay Round schedules on domestic support; forexample, they failed to notify subsidies under the Aggregate Measurementof Support or the amber box. Developing countries should be allowed torectify these and similar mistakes.


Market access and safeguards. The market access provisions ofthe AoA influence the ability of developing countries to protect theirdomestic markets from excessive volatility in world market conditions orfrom subsidized production and exports from other countries. (Fewdeveloping countries have the administrative capacity to enforcetraditional anti-dumping measures or countervailing duties). Althoughprice instability on world markets affects all countries, the consequencescan be much greater for the rural population in developing countries. Manyof their farmers have difficulty in competing with cheaper importedproducts in their domestic market, in part because of subsidies used abroadand in part because of the underdeveloped character of local productionand marketing. To counter the effects of subsidies and excessive pricefluctuations, developing countries need access to a simple WTO-compatible safeguard or contingency measure.11 A moderate level ofborder protection may also be desirable for countries that are attempting todevelop the full capacity of their agricultural sector, including the agro-processing industry, notably for certain countries where anomalies in thetariff structure have left some basic food commodities and potentiallycompetitive processed products with very low bound tariffs. For suchcountries it may be desirable to allow some “rebalancing” of their boundtariffs.

The provisions of the AoA also influence the ability of developingcountries to gain secure access to the markets of other countries. Therequirement of a 15 percent minimum and 36 percent average cut in theagricultural tariffs of developed countries (10 percent and 24 percent,respectively, for developing countries) left many instances of high tariffpeaks and tariff escalation. Other distortions and problems in marketaccess include: the complexity of the tariff structure, the low ceilings onTRQs and prohibitive tariffs above those ceilings, lack of transparency inthe administration of the TRQs, and eroding and unstable preferentialaccess conditions. If developing countries are to use agricultural exports asa means of supporting agricultural growth and rural development, they

11 For a discussion of this issue, see the paper in this volume on a Special AgriculturalSafeguard.


need transparent and reliable access to the markets of developed countriesand higher-income developing countries.Export subsidies constitute unfair competition with producers in countriesthat do not provide such subsidies. They depress prices in the recipientcountry and in world markets, and displace the produce of more efficientproducers. Other forms of export competition, such as export creditsubsidies and food aid abuse, can have similarly negative impacts onproducers in recipient countries and other potential suppliers. All forms ofexport competition should be disciplined. This does not negate theimportant role that genuine food aid can play in recipient countries,particularly in net food-importing developing countries and leastdeveloped countries suffering from recurrent food production deficits andother emergencies.

4. ConclusionsThe rural development concerns of developing countries,

particularly those with large, poor rural populations should be reflected inthe structure, framework and long-term objective of the WTO Agreementon Agriculture. They may require special treatment in order to achievetheir agricultural, rural development and food security goals, as regardsparticularly domestic support, border protection, and access to foreignagricultural markets. In addition, special provisions for technical andfinancial assistance should be incorporated in the Agreement to help thesecountries build their rural capacities and thereby take full advantage of thenew trading opportunities so as to ensure that the implementation of theAgreement does not adversely affect the livelihood of their ruralpopulations.


Table 1. Rural population in developing countries: selected indicators

Country Totalpopulation

(000s)

2000

Ruralpopulationas percent

of totalpopulation

2000

Agriculturalpopulationas percent

of totalpopulation

2000

Percentageof poor in

ruralpopulation(latest yearavailable) a

Rural-urban

povertyratio (latest

yearavailable)a

WTOMembers

AfricaRwanda 7 733 94 90Burundi 6 695 91 90Uganda 21 778 86 79 48 2.96Malawi 10 925 85 78Burkina Faso 11 937 82 92 51 3.21Niger 10 730 79 88 66 1.27Chad 7 651 76 75 67 1.06Guinea-Bissau

1 213 76 83

Lesotho 2 153 72 38Tanzania,United Rep.of

33 517 72 78

Dem. Rep.of Congo

51 654 70 63

Madagascar 15 942 70 74 77 1.64Mali 11 234 70 81Gambia 1 305 68 79Guinea 7 430 67 84Kenya 30 080 67 75 47 1.62Togo 4 629 67 60Angola 12 878 66 72Zimbabwe 11 669 65 63 63 4.21Swaziland 1 008 64 34Sierra Leone 4 854 63 62Ghana 20 212 62 56 34 1.28



(000s)

2000


of totalpopulation

2000


of totalpopulation

2000



Rural-urban


yearavailable)a

Mozambique 19 680 60 76CentralAfrican Rep.

3 615 59 73

Mauritius 1 158 59 12Namibia 1 726 59 49Benin 6 097 58 54Nigeria 11 1506 56 33 68 1.18Zambia 9 169 55 69 75 2.2Egypt 68 470 54 37Côte d’Ivoire 14 786 53 49Senegal 9 481 53 74 40 2.46Cameroon 15 085 51 53 32 0.73Gabon 1 226 45 38Morocco 28 351 45 37 18 2.37Mauritania 2 670 42 53 59 3.10Congo 2 943 37 41Tunisia 9 586 34 25 22 2.43Botswana 1 622 26 44Djibouti 638 17 79

Asia and thePacificPapua NewGuinea

4 807 83 77

SolomonIslands

444 80 73

Bangladesh 129 155 79 56 40 2.78Thailand 61 399 78 49 16 1.52Sri Lanka 18 827 76 46 38 1.34India 1 013 662 72 55 34 1.23Maldives 286 72 27



(000s)

2000


of totalpopulation

2000


of totalpopulation

2000



Rural-urban


yearavailable)a

Myanmar 45 611 72 70Pakistan 156 483 63 51 37 1.32Indonesia 212 107 60 44 22 1.24Fiji 817 58 40Malaysia 22 244 43 18 19 1.35Philippines 75 967 41 39 51 2.28Mongolia 2 662 36 24BruneiDarussalam

328 28 1

Jordan 4 970 26 12Oman 2 542 16 36Korea,Republic of

46 844 14 9

United ArabEmirates

2 441 14 5

Bahrain 617 8 1Kuwait 1 972 2 1Singapore 3 567 0 0

Europe andCentral AsiaAlbania 3 113 61 48Kyrgyzstan 4 699 60 26Croatia 4 473 42 8Romania 22 327 42 16Georgia 4 968 39 20Poland 38 765 34 20Bulgaria 8 225 30 8Cyprus 786 43 9Turkey 66 591 25 31



(000s)

2000


of totalpopulation

2000


of totalpopulation

2000



Rural-urban


yearavailable)a

Latin Amer-ica and theCaribbeanSaint Kittsand Nevis

38 66 24

Haiti 8 222 65 63Antigua andBarbuda

68 63 24

Saint Lucia 154 62 23Guyana 861 62 18Grenada 94 62 23Guatemala 11 385 60 50 72 2.13Belize 241 54 31El Salvador 6 276 53 33Honduras 6 485 53 35 51 0.72Barbados 270 50 4Costa Rica 4 023 48 21Suriname 417 48 19SaintVincent

114 46 24

Paraguay 5 496 44 41 45 6.04Jamaica 2 583 44 21Panama 2 856 42 23Ecuador 12 646 38 28 47 1.88Nicaragua 5 074 35 22Bolivia 8 329 35 43 82 2.42DominicanRep.

8 495 35 18 30 2.73

Dominica 71 30 24Peru 25 662 27 30 65 1.45Trinidad andTobago

1 295 26 9 20 0.83



(000s)

2000


of totalpopulation

2000


of totalpopulation

2000



Rural-urban


yearavailable)a

Mexico 98 881 26 24Colombia 42 321 25 21 31 3.9Cuba 11 201 22 16Brazil 170 115 19 17 42 3.14Chile 15 211 15 16 15 2.63Venezuela 24 170 13 10 73 1.6Argentina 37 032 11 11Uruguay 3 337 9 11

Non-WTOmembers

AfricaEthiopia 62 565 82 82 46 1.19Eritrea 3 850 81 78Somalia 10 097 73 71Comoros 694 67 74Sudan 29 490 64 61Sao Tomeand Principe

147 53 64

Liberia 3 154 52 68EquatorialGuinea

453 52 70

Seychelles 77 42 79Algeria 31 471 41 24 30 2.06Cape Verde 428 38 23Saint Helena 6 33 50Réunion 699 29 3Libyan ArabJam.

5 605 12 6



(000s)

2000


of totalpopulation

2000


of totalpopulation

2000



Rural-urban


yearavailable)a

WesternSahara

293 4 36

Asia and thePacificTokelau 2 100 50Wallis andFutuna Is.

15 100 33

Bhutan 2 124 93 94East Timor 885 93 82Nepal 23 930 88 93 44 1.91Vanuatu 190 81 37Viet Nam 79 832 80 67 57 2.11Afghanistan 22 720 78 67Samoa 180 78 34Lao PDR 5 433 77 76 53 2.21Cambodia 11 168 77 70 40 1.90Micronesia 119 70 27China 1 284 958 65 67 17 4.24Kiribati 83 63 27Yemen 18 112 62 50 19 1.03Guam 168 60 29Tonga 99 54 34Niue 2 50 50Tuvalu 12 50 33AmericanSamoa

68 47 34

Syrian ArabRep.

16 125 46 28

N Marianas 78 45 27FrenchPolynesia

235 43 34



(000s)

2000


of totalpopulation

2000


of totalpopulation

2000



Rural-urban


yearavailable)a

Iran, IslamicRep. of

67 702 38 27

Korea, Dem.People’sRep. of

24 039 37 30

NewCaledonia

214 36 36

Cook Islands 20 35 35MarshallIslands

64 28 27

Palau 19 26 26Iraq 23 115 23 10Saudi Arabia 21 607 14 10Lebanon 3 282 10 4Qatar 599 8 1Gaza Strip 1 120 5 19ChristmasIslands

1 0 0

CocosIslands

1 0 0

Nauru 12 0 25NorfolkIslands

2 0 0

Latin Amer-ica and theCaribbeanAnguilla 8 88 25Montserrat 11 82 27Turks Caicos 17 59 24US VirginIslands

93 54 23



(000s)

2000


of totalpopulation

2000


of totalpopulation

2000



Rural-urban


yearavailable)a

Br VirginIslands

21 38 24

Aruba 103 33 23Puerto Rico 3 869 25 3FrenchGuiana

181 22 18

Bahamas 307 12 4Martinique 395 5 4Guadeloupe 456 0 3Bermuda 65 0 2CaymanIslands

38 0 24

FalklandIslands(Malvinas)

2 0 0

Memo item:Developingcountries

4 748 497 60 52

Developedcountries

1 306 556 26 8

World 6 055 053 52 43

a Various years, 1979-99. Rural poverty data are not strictly comparable among countriesbecause of methodological and definitional differences. For details see IFAD (2001).

Source: FAOSTAT, (2001). FAO, Rome; and IFAD (2001), Rural Poverty Report 2001:The Challenge of Ending Rural Poverty, Annex Table 2.1.


A Special Agricultural Safeguard (SAS):buttressing the market access reforms of developing countries1

Agricultural markets are by nature cyclical and subject to widefluctuations due, among other things, to weather variability. Thesubsidizing of agricultural production and exports, as well as the anti-competitive behaviour of trading firms (both state-owned and private), alsoaffect the orderly development and flow of trade. As countries reducetariffs and bind them at low levels, they become increasingly vulnerable toexternal agricultural market instability and to import surges that couldwipe out viable, well-established or nascent, agricultural productionactivities. Vulnerability to such external shocks is of particular concern todeveloping countries that are endeavouring to develop their agriculturalpotential and diversify production in order to enhance their food securityand alleviate poverty.

There are numerous instances of the implementation of reductioncommitments by developing countries being associated with more frequentimport surges which have damaged or threaten to damage or displaceviable domestic production.2 To cope with this situation, some countrieshave reacted, where applied tariffs are below bound levels, by varying(raising) duties within the limits of their bound levels or imposing orvarying other charges.3 However, as bound rates are brought down, thescope for such action is correspondingly reduced. Indeed, because of thereal risk of import surges, many countries that do not have access to aneffective safeguard instrument are reluctant to reduce further their bound

1 Paper prepared by the FAO Commodities and Trade Division for the FAO Round Tableon Selected Agricultural Trade Policy Issues, Geneva, 21 March 2001.2 Three examples are Jamaica, with respect to chicken, Kenya with respect to dairyproducts, and Senegal with respect to tomato paste (see FAO (2000), Agriculture, Tradeand Food Security: Issues and Options in the WTO Negotiations from the Perspective ofDeveloping Countries, Vol. II - Country Case Studies. Rome). Other examples includeChile, Morocco and Peru.3 For example, a price-band policy has been used in Peru, a threshold-price-based formulafor determining import tariffs in Morocco, suspended duties (surcharges) in Kenya andadditional stamp duties in Jamaica (ibid).


tariffs, in particular below levels which would impede them from varyingapplied tariffs as an effective safeguard instrument.

Within WTO there are two safeguard instruments – Article XIX ofGATT 1994 (and its elaboration in the Uruguay Round Agreement onSafeguards) and the special safeguard (SSG) provisions under theAgreement on Agriculture (Article 5). Both instruments were designed toaddress the problem of sudden increases in imports that cause or threatento cause serious injury to viable domestic producers.4 The first of these twoinstruments is concerned with the possibility of a surge in importsfollowing tariff cuts. In such cases, in order to allow domestic producerstime to adjust gradually to the increased competition, the importingcountry may revoke the tariff concession in whole or in part for temporaryperiods if, after investigations carried out by competent authorities, it isestablished that the increase in imports is such as to cause serious injury todomestic producers of like or directly competitive products. Suchmeasures should be applied on an MFN basis to imports from all sourcesfor a maximum period of 8 years for a particular product (10 years in thecase of developing countries).

The country proposing to revoke its tariff concessions under theseprovisions is expected to offer trade compensation to countries whosetrade interests would be adversely affected. If agreement on adequatecompensation cannot be reached, the affected countries may takeretaliatory action, normally in the form of suspension of a concession orother obligation to which the country applying the safeguard measure isentitled. Overall, while Article XIX and the Agreement on Safeguardsallow safeguard action against a surge of imports threatening domesticproducers, in practice there are limitations in resorting to these provisions.Few developing countries have the resources and the institutional and legalcapacity to apply such measures which, in addition, require proof of injury 4 Contingency measures are also provided for in other WTO Agreements - e.g. to deal withinjuries resulting from i) dumping by foreign enterprises (GATT Article VI and theMinisterial Decision on the review of Article 17.6 of the Agreement on implementation ofthat Article); and ii) governmental subsidies (GATT Articles VI and XVI and theAgreement on Subsidies and Countervailing Measures).


and involve a lengthy and costly legal process. Simplifications andimprovements in these provisions are necessary if they are to become aneffective safeguard instrument for developing countries.

Another possibility could be to improve the present SSGprovisions, which are designed to deal with the specific nature andproblems of the agricultural sector. Because of the negotiating history ofthe Uruguay Round, the provisions were agreed to in conjunction withtariffication as a package, and recourse to SSG was limited to thosecountries undertaking tariffication. However, in the current tariffs-onlytrade environment faced by all WTO members, there is now the anomalythat some (see annexes I-III) have the right to use the agriculturalsafeguard to deal with import surges, whereas others, including manyvulnerable developing members, do not. The right to make use of the SSGprovision has been reserved by 36 WTO Members, and for a limitednumber of products in each case. As many of the developing countries didnot tariffy, offering “ceiling bindings” instead, few of them have access tothis provision. Moreover, there are also issues involved in the modalities ofits application.

At present there are two types of contingencies for whichsafeguard action is authorized: a surge in the volume of imports or a sharpfall in import prices. Corresponding quantity and price triggers are definedas well as the amount of additional duties that may be levied above thebound ceiling level.

Under the volume-based SSG, the trigger volume is derived from:i) actual imports averaged over the preceding three years; ii) the share ofimports in domestic consumption over the same period; and iii) theabsolute volume change in consumption over the most recent year forwhich data are available (see Box 1). The trigger level is higher (and theprobability of using the trigger less), the greater the three-year averagelevel of imports, the lower the share of imports in domestic consumption,and the faster the growth in domestic consumption. The maximum extraduty may not exceed 30 percent of the ordinary level of duty in effectduring the year in which the SSG is invoked; it may not be levied beyond


the end of the year in which it has been imposed; and it cannot be appliedto imports taking place within tariff quotas.

Box 1. Special Agricultural Safeguard: Quantitative Trigger Levels

In accordance with Article 5, paragraph 4, of the AoA, an additional duty maybe imposed in any year where the absolute volume of imports (M) exceeds thesum of the base trigger level (x) multiplied by the average quantity of importsduring the three preceding years for which data are available ( M ) and theabsolute volume change in domestic consumption of the product concerned inthe most recent year for which data are available compared to the precedingyear (y). In algebraic terms this is expressed as: Mt = M x + y

where, Mt is the trigger level of imports and x (the base trigger level) isdefined according to the following schedule based on the share of imports indomestic consumption during the three preceding years (S ). Thus:

= 125 %, if S ≤ 10 % x = 110 %, if 10 % < S ≤ 30 % = 105 %, if S > 30 %

For example, if the share of imports in domestic consumption during thepreceding three years is 7 percent, then x will be equal to 1.25. Thus anadditional duty can be imposed if current imports (M) exceed the triggervolume (Mt), i.e.

M > 1.25 M + y.

The maximum extra duty shall not exceed 30 percent of the level of theordinary customs duty in effect in the year in which the action is taken, it shallonly be maintained to the end of the year in which it has been imposed andcannot be applied to imports taking place within tariff quotas.


Box 2. Special Agricultural Safeguard: Price Trigger Levels

Let: PM = current c.i.f. import price of the shipment (expressedin domestic currency)

PT = trigger price (average c.i.f. price for 1986-88)D = (PT - PM)/ PT (the percentage fall in the import price

below the trigger price).

In accordance with Article 5, paragraph 5, of the AoA, an additional duty,expressed in ad valorem equivalent (t), may be imposed according to thefollowing schedule:

If: (a) D ≤ 10% then t = 0

(b) 10% < D ≤ 40% then t = 0.27 (PT/PM) – 0.3

(c) 40% < D ≤ 60% then t = 0.39 (PT/PM) – 0.5

(d) 60% < D ≤ 75% then t = 0.47 (PT/PM) – 0.7

(e) D > 75% then t = 0.52 (PT/PM) – 0.9

Example: Assume a trigger price of US$120 per unit and that the current c.i.f.import price is US$60. Since the import price is 50 percent of the trigger price,case (c) applies. Consequently, an additional duty equivalent to 28 percent ofthe c.i.f. import price could be levied, which would bring the price of theimported product to US$76.8.

The additional duty can only be imposed on the shipment concerned andcannot be applied to imports taking place within tariff quotas.


Under the price-based SSG the trigger price is defined as theaverage c.i.f. unit value during the 1986-88 base period, expressed indomestic currency. The permitted level of the additional duty dependsupon the degree to which the import price falls below this trigger level (seeBox 2 and Figures 1 and 2). The greater the decline in the import pricebelow the trigger level, the higher is the duty. However, the additional dutydoes not completely offset the fall in the import price. 5

fao papers on selected issues relating to the wto ...pdf.wri.org/ref/fao_02_dependence.pdfselected...

Documents