stock-take of the wto agriculture negotiations

STOCK-TAKE OF THE WTOAGRICULTURE NEGOTIATIONS

IMPLICATIONS FOR DEVELOPINGCOUNTRIES

TIM RUFFEROXFORD POLICY MANAGEMENT

&

ALAN SWINBANKTHE UNIVERSITY OF READING

March 2003

Oxford Policy Management6 St Aldates Courtyard,

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UK

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The UK Department for International Development (DFID) supports policies, programmes and projects to promoteinternational development. DFID provided funds for this study as part of that objective but the views and opinions

expressed are those of the authors alone.

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TABLE OF CONTENTS

ABBREVIATIONS 2

OVERVIEW AND RECOMMENDATIONS 3

1. INTRODUCTION 7

2. FUTURE PROGRESS OF THE NEGOTIATIONS 8

3. CONTEXT 10

4. THE NEW AGREEMENT: SOME BASIC CONSIDERATIONS 11

5. DEVELOPING THE MODALITIES: ISSUES FOR DEVELOPINGCOUNTRIES 14

6. AN EXAMINATION OF HARBINSON S DRAFT MODALITIES 19

7. CONCLUDING REMARKS 31

REFERENCES 32

ANNEX 1: WTO MEMBERSHIP, LDCS AND NFIDCS 34

ANNEX 2: A SUMMARY OF MODALITIES TO BE DETERMINED 36

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ABBREVIATIONS

ACP African, Caribbean and Pacific StatesAMS Aggregate Measurement of SupportCAP Common Agricultural Policydc Developing CountryEPA Economic Partnership AgreementEU European UnionFAO Food and Agriculture Organisation of the United NationsGATT General Agreement on Tariffs and TradeHT1, 2 and 3 The three Harbinson TextsLDC Least Developed Country, UN ClassificationMFN Most Favoured NationNFIDC Net Food Importing Developing CountryS&DT Special and Differential TreatmentSPS Sanitary and Phytosanitary StandardsSSG Special SafeguardTBT Technical Barriers to TradeTRIPS Trade-Related Aspects of Intellectual Property RightsTRQ Tariff Rate QuotaWTO World Trade Organisation

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Overview and Recommendations

The agricultural negotiations in the Doha Development Agenda have reached acritical stage. Just before Christmas 2002, the Chairman of the Special Session of theCommittee on Agriculture, Stuart Harbinson, produced a paper summarising the stateof the negotiations to date (the first Harbinson Text: HT1). It indicated few areas ofpotential agreement, and many instances of a wide divergence of views.Unfortunately, neither the European Union (EU) nor Japan had been able to tabledefinitive proposals by this date (nor by the date of the next meeting of the SpecialSession in January 2003), despite the fact that negotiations began in March 2000.Stuart Harbinson had been charged with the preparation of a first draft of themodalities for consideration by the Special Session at its meeting on 24-28 February2003, and this was officially released on 17 February 2003 (HT2). However, the texthad been widely circulated the previous week, in advance of a mini-ministerial hostedby the Japanese Government on the weekend of 15-16 February 2003. Both in Tokyo,and in the Special Session in Geneva, HT2 attracted criticism from three camps: thosewho claimed it was too ambitious, those who claimed it lacked ambition, and thosewho claimed it did not sufficiently address the mandate of providing special anddifferential treatment for developing countries. The Chairman then had the task ofpreparing a second draft for consideration by the Special Session of the Committee onAgriculture convened for 24-31 March 2003. This text (HT3), “an initial, limitedrevision of certain elements of the first draft of modalities”, was released on 18 March2003, and its draft provisions are examined in Section 6 of this document.

The ‘official’ stance remains that the modalities should be agreed by 31 March 2003,but this seems unlikely. WTO Members will then develop their detailed draftSchedules of commitments in time for the Fifth WTO Ministerial in Cancún, Mexico,in September 2003, and the whole Doha Agenda will be concluded by 31 December2004. As this is a single undertaking, as was the Uruguay Round, nothing is agreeduntil everything is agreed. However, the so-called Peace Clause expires at the end of2003, and so it is likely that at Cancún, requests will be tabled for an extension of itsduration. This can only be done with the consent of all WTO Members, and so thisgives developing (and other) countries considerable leverage to secure theirnegotiating demands on agriculture.

The purpose of this report is to clarify the issues and concerns that the HarbinsonTexts have revealed, bearing in mind the perceptions, and the likely negotiatingpositions, of developing countries. It is laid out as follows. The main body of ourreport provides an outline of the future progress of the negotiations, followed by somebasic considerations for a new agreement. A summary of the most important issuesfor developing countries in the negotiations is then provided. This is followed by anexamination of the draft modalities document prepared for the March 2003 meeting ofthe Special Session of the Committee on Agriculture (HT3), and then someconcluding remarks. There are two annexes. Annex 1 provides a list of the WTOmembers, LDCs and NFIDCs and Annex 2 provides a detailed appraisal of virtuallyall of the issues identified in the first Harbinson Text (HT1).

One problem that mitigates against the achievement of meaningful special anddifferential treatment for developing countries is that this is a large and heterogeneousgrouping with diverse needs, interests and aspirations. Countries themselves declare

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whether they are developed or developing, and there are no clear criteria fordifferentiating between the two. About three-quarters of WTO Members are deemedto be developing countries. Within the developing countries group, the WTO doesrecognise two sub-groups: the least developed countries (LDCs), as defined byUNCTAD, and the net food-importing developing countries (NFIDCs), as determinedby the WTO. There are 49 of the former (not all WTO Members), and 23 WTOMembers are recognised to be the latter (as detailed in Annex 1). For developedcountries it would be much easier to allow special and differential treatment for theLDCs and the NFIDCs, than for the broader group of developing countries. But this isproblematic, as the boundary between the very poor developing countries, which arenot quite poor enough to qualify as LDCs, and the LDCs is rather dodgy.Furthermore, the appropriateness of the NFIDC grouping has been widely questioned(see Ruffer et al. 2002).

We cluster our recommendations under five headings:

i) Market Access

The most important part of the package of modalities, and probably the most difficultto achieve, is that of significant opening-up of markets to competitive imports. Otherpolicies become very expensive to maintain when competitively priced imports areavailable. Most developing countries will gain from market access liberalisation, eventhough it will reduce the preference margins that some developing countries currentlyenjoy. Market access liberalisation should involve:

a) Deep cuts in peak tariffs, preferably –we would have suggested– by using avariant of the Swiss Formula (with the coefficient possibly varied by product,and by development status). HT3 cuts peak tariffs through a tariff bandformulation.

b) Tariff simplification, eliminating seasonal tariffs and converting specific to advalorem tariffs. HT3 does not address this issue.

c) A reduction in tariff escalation, by harmonising ad valorem rates through theproduct chain, even if this means conceding some increase in tariffs on rawmaterials. HT3 has a powerful formula to reduce tariff escalation.

d) A big increase in tariff rate quotas (TRQs), but whilst TRQs are a bindingconstraint, limiting imports, there is little to be gained from furthergeneralised reductions of in-quota tariffs. HT3 follows this formulation.

e) Extension of Special Safeguard mechanisms for key food commodities fordeveloping countries (which is endorsed by HT3), and a sharp reduction in theexisting trigger prices applied by developed countries (which is not addressedby HT3, although H3 does propose the elimination of the Special Safeguardfor developed countries sometime after the end of the implementation period).If Special Safeguard measures for key food commodities of developingcountries cannot be agreed, those that fixed low ceiling bindings on theseproducts in the Uruguay Round need to consider invoking GATT ArticleXXVIII, notifying their intent to increase these tariffs.

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ii) Domestic Support

The three key points for developing countries, all endorsed by HT3, are:

a) That the de minimis clause is retained for developing countries;

b) That Article 6(2) exemptions are maintained;

c) That deep cuts in the AMS are negotiated.

In addition, if the Blue Box cannot be eliminated, developing countries should seek toimpose reduction commitments on Blue Box expenditure, as proposed in HT3.

The Green Box is highly problematic. It is not clear that developing countries havemuch to gain by widening its provisions to suit their interests (i.e. an element of theDevelopment Box debate); and it would not be in their interests if developed countriesenlarged its provisions to embrace the EU’s concept of multifunctionality. The GreenBox is best left untouched.

iii) Export Subsidies

Developing countries have no reason to support the continuation of export subsidies,and they should press for their elimination as proposed in HT3.

iv) The Peace Clause

Most of the existing Agreement on Agriculture will remain in place unless repealed.The Peace Clause is different. It can only be extended with the consent of all WTOMembers. The duration of the Peace Clause covering the Green Box, Article 6(2) andthe de minimis provisions needs to be extended. But developing countries should onlygive their consent to its extension to cover Blue and Amber Box measures, and exportsubsidies, when they are convinced that their own negotiating demands have beenmet.

v) Support for Developing Countries

Developing countries need help in the following areas:

a) In identifying specific instances of tariff escalation that harm their interests, sothat they can ask for amelioration if this is not addressed by the proposals inHT3. Countries need to negotiate in concord (e.g. cocoa exporters), and toagree on how important the issue is to them. For example, would they bigwilling to accept an increase in tariffs on raw materials if this led to areduction in tariff escalation?

b) Advice from international experts if they are considering invoking GATTArticle XXVIII.

c) In scrutinising the draft Schedules of commitments when they are tabled, toensure that ‘mistakes’ and inconsistencies have not crept in that penalise theirinterests.

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d) More detailed consideration of the implications of different approaches totariff reduction for developing countries.

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1. Introduction

The negotiations on agriculture are a key component of the multilateral negotiationsthat form the Doha Development Agenda launched in November 2001. The WTO’sCommittee on Agriculture, meeting in Special Session, has been charged withconducting the agriculture negotiations, and with ensuring that the mandate of theDoha Ministerial Declaration is met. In particular the Doha Declaration specifies that“Modalities for the further commitments, including provisions for special anddifferential treatment, shall be established no later than 31 March 2003” (WTO, 2001,paragraph 13). The ‘modalities’ are the basic framework of the new agreement whichwill eventually succeed the existing Agreement on Agriculture established by theUruguay Round. The Chairman of the Special Session of the Agriculture Committee,Stuart Harbinson, had been charged with preparing an overview paper of thenegotiations, for circulation by 18 December 2002, based on discussions to date, inpreparation for a comprehensive review of the agriculture negotiations at the meetingof the Special Session of the Committee on Agriculture to be held on 22-24 January2003 (WTO, 2002b). This first Harbinson Text (HT1) was released on 18 December2002 (WTO, 2002c). Annex 2 of this report comments on most of the modalitieslisted in that text, and some others, from a developing country perspective.

In February 2003 Stuart Harbinson released his First Draft of Modalities for FurtherConsideration (HT2) (WTO, 2003a), which was discussed at an informal meeting ofsome WTO trade and agriculture ministers in Japan before being considered by WTOMembers at the Special Session of Committee on Agriculture on 24-28 February2003. His second draft (HT3) (WTO, 2003b), was released on 18 March 2003, andwill be the agenda item for the Special Session of the Committee on Agriculture on24-31 March 2003. At this meeting, if the Doha timetable is to be respected, themodalities are to be agreed. Section 6 of this report outlines, and comments on, thecontents of HT3.

This report reviews the negotiations from a policy-maker’s perspective. We havepremised our comments on the idea that policy-making, at both national andinternational level, is based on a give-and-take basis; with for example market access‘gains’ traded against ‘concessions.’ We have not queried the appropriateness ofindividual countries’ domestic policy objectives or programmes, but instead focussedupon the WTO constraints (enshrined primarily in the Agreement on Agriculture)which condition the ability of policy-makers in developing countries to pursue theirown domestic policy agendas.

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2. Future Progress of the Negotiations

HT1 (paragraph 9) noted that whilst a number of WTO Members had put forwardquantified proposals for tariff, domestic support and export subsidy, reductions,“opponents of these proposals have not yet specified their counter-proposals at acorresponding level of quantitative detail.” This threatened to hold-up thenegotiations. Thus HT1 stressed that “as matters stand, a major negotiating effort andflexibility on all sides will be of the essence in order to be able to establish modalitieswithin the mandated time-frame” (paragraph 50).

HT2 was first discussed at an informal meeting of trade and agriculture ministersfrom 22 WTO Members, and the WTO Secretariat, in Tokyo over the weekend of 15-16 February 2003.1 Agra Europe (21 February 2003, p. EP/2) described it as a“bruising weekend of negotiations.” The developed world was split between thosewho felt that the draft modalities, particularly on market access, were too radical (e.g.Japan and the EU), and those who felt that Mr. Harbinson’s proposals lacked ambition(the Cairns Group, and the US).

Much developing country comment, both following the Tokyo meeting which mostdeveloping countries did not attend, and in the Special Session of the Committee onAgriculture on 24-28 February 2003, also focussed on market access issues. Twothemes were discernible. First, that the Harbinson proposals on special anddifferential treatment did not offer adequate differentiation for developing countries.Thus the suggestion was that developing countries should not be expected to reducetheir tariff barriers until such time as developed countries had eliminated their export,and trade-distorting domestic, subsidies. Second, the concern was expressed that ifdeveloped countries that offered trade preferences to developing countries (e.g. underthe Cotonou Agreement) reduced their trade barriers too quickly, then those tariffpreferences would be seriously eroded to the detriment of the present beneficiaries.Thus Mauritius is reported to have claimed that 59 WTO Members, in addition to theEU, supported the EU’s proposals for tariff reductions (a repeat of the UruguayRound formula), and asked that this should be reflected in Mr. Harbinson’s revisedtext (Agra Europe, 7 March 2003, p. EP/5).

Some critics went further. Das (2003) suggested that the text was “grosslyinadequate” in that it perpetuated the imbalances of the existing Agreement onAgriculture, and that developing countries should table an alternative text that “shouldhave an entirely new structure and new priorities.”

Following the February meeting, Stuart Harbinson, reportedly, “pleaded for flexibilityamong the participants”, and “stressed the limitations of his own role, stating that thechair could not negotiate, merely facilitate negotiations” (Agra Europe, 7 March2003, p. EP/5). Despite these self-depreciating comments, the Chairman’s text isimportant. It is, potentially, the catalyst for an agreement. It can be amended as aresult of the negotiations, or rejected, but it is not easily replaced by a text emergingfrom an alternative quarter. Hence there was much speculation as to the extent, if atall, the third Harbinson text would differ from the second.

1 The Japanese Ministry of Foreign Affairs reports that some agriculture ministers attended, meaningthat 32 Ministers in total participated (www.mofa.go.jp/policy/economy/wto/meet0302-c.html,accessed 12 March 2003).

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HT3, made public on 18 March 2003, does not differ from HT2 in structure –indeedit is a revised version of HT2– nor, substantially, in substance. It notes, in paragraph2, that at the meeting of 24-28 February 2003:

“… participants engaged in intense and focused debate. A number ofparticipants indicated that the draft did not correspond in various ways withtheir vision of the modalities to be established. Others found the paperuseful or expressed interest in various ideas presented. Overall, while anumber of useful suggestions emerged, positions in key areas remained farapart. In the circumstances, there was insufficient collective guidance toenable the Chairman, at this juncture and in those areas, significantly tomodify the first draft as submitted on 17 February 2003. The present papermust therefore be considered as an initial, limited revision of certainelements of the first draft of modalities.”

The few differences between HT2 and HT3 are outlined in Section 6.

Although it seems unlikely that the modalities document can be agreed by 31 March2003, there is another critical date in 2003. It is the next WTO Ministerial Conferencewhich is to be held in Mexico (Cancún) in September 2003. According to thetimetable established by the Doha Declaration WTO Members are to “submit theircomprehensive draft Schedules based on these modalities no later than the date of theFifth Session of the Ministerial Conference” (WTO, 2001, paragraph 14).

A crucial factor to bear in mind is that the Peace Clause (Article 13 of the existingAgreement on Agriculture) expires at the end of 2003. While the provisions of thePeace Clause are to some extent unclear (and untested) it does provide WTOMembers with some protection for Amber, Blue and Green Box support, and exportsubsidies, that might otherwise be deemed incompatible with other GATT provisions.It seems likely that a number of countries will wish to secure a roll-over of the PeaceClause at the Cancún meeting. This will require the agreement of all WTO Members.References to the Peace Clause were scattered throughout HT1, but it is notmentioned in HT2 or HT3, and so the centrality of this issue could be missed. Failureto secure a roll-over of the Peace Clause could result in aspects of various agriculturalpolicies being challenged in the WTO from 2004 onwards. This gives an importantlever to countries that wish to see further liberalisation of trade in agricultural goods:they are unlikely to agree an extension of the Peace Clause unless they havesubstantially achieved their negotiating objectives. In a speech in Canberra on 4March 2003, the Australian Trade Minister apparently suggested that the entire DohaRound might falter if progress could not be made on agriculture, and that Australiawould be prepared to let the Peace Clause lapse (Agra Europe, 7 March 2003, p.EP/3).

Thus, one possible scenario is that the agriculture talks could be all but concluded inSeptember 2003, notwithstanding the fact that the Doha Agenda is billed as a singleundertaking, due to be concluded by 31 December 2004, and that ‘nothing is agreeduntil everything is agreed’. If the outcome of the agriculture negotiations is stillunclear in September 2003, it is difficult to predict what future course the DohaAgenda might take.

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3. Context

Although the agriculture negotiations are mandated by Article 20 of the existingAgreement on Agriculture, it is unrealistic to expect that the agriculture negotiationscan now be detached from the wider Doha Agenda. Thus progress in other areas, andthe basic political framework within which the negotiations take place, is important. Itis not just the agriculture negotiations that have been running late. Those on theTRIPS Agreement on access to cheap generic drugs by developing countries, forexample, have not progressed well (Financial Times, 17 February 2003, p. 8).International support for the US, following the appalling events of 11 September2001, which was an important factor driving agreement in Doha in November 2001,has waivered as a result, inter alia, of the passing of the Farm Security and RuralInvestment Act in May 2002, and war with Iraq.

The EU, a central player in the agriculture negotiations, has its own concerns. UntilDecember 2002 its main focus was completion of the accession negotiations witheight states from Central and Eastern Europe, and Cyprus and Malta. Within the WTOthis now means that the enlarged EU will enter into GATT Article XXIV.6negotiations with its WTO partners to discuss compensation for any increase inpreviously bound tariffs (if, for example, adoption of the CAP by a new Member Stateresults in an increase in the import tariff another WTO Member faces).

In September 2002 the EU and its ACP partners began the difficult task of negotiatingGATT-compatible Economic Partnership Agreements (EPAs) to succeed the existingCotonou Agreement in 2008. Thus ACP States will concurrently be engaged in theDoha Agenda, negotiations with the EU over the overall structure of the successoragreement, and negotiations with neighbouring countries over the specifics of anyERP they might enter. The extent of any tariff reductions agreed in the Doha Agenda,as well as the existing provisions of the EU’s Everything but Arms initiative, willimpact on the attractiveness of an ERP to any particular ACP state. But in addition,the Doha Agenda is itself addressing the content and meaning of GATT ArticleXXIV. Paragraph 29 of the Doha Declaration reads: “We also agree to negotiationsaimed at clarifying and improving disciplines and procedures under the existing WTOprovisions applying to regional trade agreements. The negotiations shall take intoaccount the developmental aspects of regional trade agreements.” One important issueis the extent to which agriculture (or particular commodity groupings) can beexcluded from a regional trade agreement, and what the phrase “substantially all thetrade between the constituent territories in products originating in such territories”(GATT Article XXIV:8) actually means (see also Bilal, 2002).

In addition the EU (or at least the European Commission) has embarked upon a newreform of the CAP (Swinbank, 2003). Launched in July 2002, with detailed proposalstabled on 21 January 2003, the process will not be completed before the summer atthe earliest. Although the EU would claim that internal discussions on a possible CAPreform, and international discussions in the WTO on agriculture, are separateexercises, many of the EU’s critics are contemptuous of the notion that a Dohasettlement can be achieved without substantial changes to the CAP.

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4. The New Agreement: Some Basic Considerations

The working assumption of HT1 was that there would be an Agreement onAgriculture following the conclusion of the Round. There was no suggestion that theexisting Agreement be repealed, removing from the WTO legal system most (but notnecessarily all) special provisions for agriculture. Repeal would in any case involvethe common consent of WTO Members. Nor was there any suggestion that theexisting Agreement be scrapped, to be replaced by a brand new Agreement. Instead,the consensus seemed to be that the existing Agreement would be retained, but itmight of course be modified. Indeed HT2, and HT3, both operate within the existingstructure of the Agreement, attracting the wrath of critics such as Das (2003).

Thus the premise of the Harbinson Texts is that decisions are required at three levels:

1. What modifications to the Agreement need to be negotiated, and how can they beachieved? This would include, for example, modifications to Annex 2 to theAgreement setting out the so-called Green Box provisions. A number of countrieshave claimed that these provisions are drawn too narrowly (restricting the EU’swish to give specific support to livestock producers who pursue animal welfarefriendly practices, for example), and those who think the provisions are alreadytoo lax. Suggestions for a special Development Box, to benefit developingcountries, also fall into this category. Any modification to the existing Agreementrequires the agreement all WTO Members.

2. What reduction commitments will WTO Members undertake? It will be recalledthat the text of the existing Agreement on Agriculture does not include specificnumerical targets. Those numerical commitments (e.g. for a 20% reduction in theAggregate Measurement of Support (AMS) by developed countries) wereincluded in the so-called ‘modalities’ text (GATT, 1993), which in itself was notlegally binding, but was then reflected in the individual Members’ Schedules,which are binding. This is where talk of the Swiss Formula, for example, becomesrelevant. If the timetable is to be respected, these detailed draft Schedules are to beprepared for September 2003 (although there will be further opportunity to offerfurther concessions in the Schedules prior to the planned conclusion of the Roundin December 2004). If the same approach is followed on this occasion there issome scope for fudge as individual countries develop their Schedules (e.g.allegations of ‘dirty tariffication’ in the Uruguay Round), and accordinglydeveloping countries may need some technical assistance to help them scrutinise,and if necessary challenge, the draft Schedules of commitments deposited by theirmain trading partners.

3. There are some provisions in the existing Agreement on Agriculture which willlapse, unless renewed. The most important is the so-called Peace Clause (Article13), already referred to above. For developing countries a potentially importantprovision is to be found in Article 9(4), according to which, during theimplementation period, certain expenses involved in the marketing of agriculturalexports do not need to be accounted for in the export subsidy reductioncommitments. In addition, the wording of Article 5(9) needs clarification. Thisspecifies that the Special Safeguard Provisions provided for in Article 5 “remainin force for the duration of the reform process as determined under Article 20”.This is ambiguous language. One can well envisage that some will argue that the

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provisions automatically continue as before, while those opposed to the continueduse of the Special Safeguard Provisions will try to use this to force change.

On product coverage, the HT1 suggested that there is near consensus to retain theexisting coverage as specified in Annex 1. This of course excludes fish. But India haspointed out that “rubber, jute, coir and forestry products are excluded from the ambitof the Agreement despite the fact that they are primary agricultural products and are asource of livelihood for a sizeable rural population in developing countries”, and hassuggested this should be reviewed (G/AG/NG/W/102, paragraph 11).

Finally in this overview of issues, the question of country definition needs to beraised. The WTO’s web site reports that over three quarters of its 144 Members aredeveloping countries or LDCs.2 No one has seriously challenged the notion that Dohais a Development Round; that:

“…special and differential treatment for developing countries shall be anintegral part of all elements of the negotiations and shall be embodied in theSchedules of concessions and commitments and as appropriate in the rulesand disciplines to be negotiated, so as to be operationally effective and toenable developing countries to effectively take account of their developmentneeds, including food security and rural development.” (from paragraph 13of the Doha Declaration).

Nor would they dispute that if this objective is not met, a successful outcome isunlikely. What is unclear is how special and differential these measures need to be. Itcould be hypothesised that there is a trade-off between the depth of the preference andthe number (and circumstances) of the countries involved. To take two extreme (andunreal) situations. If only one or two WTO Members (the EU and the US say)admitted to being developed, whilst all others declared themselves to be developing, itis unlikely the ‘developed’ countries would be willing to concede generousconcessions to all ‘developing’ countries. However, if special and differentialtreatment were to be offered only to the 49 LDCs, then concessions might be moregenerous.3 There are two problematic boundaries: the very poor developing countrieswho are not quite poor enough to qualify as LDCs, and the fairly rich countries whohave declared themselves to be developed.4 The EU has hinted at this problem in itssuggestion that both developed and advanced developing countries allow duty-freeand quota-free access for all countries from LDCs (European Commission, 2003).

In general, it seems unlikely that the WTO will lay down criteria defining developingcountries. Our expectation is that this will continue to be dependent upon self-declaration, whilst “other members can challenge the decision of a member to makeuse of provisions available to developing countries”.5 Nevertheless, it might beappropriate for specific special and differential measures to be provided to a subset of

2 http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr04_e.htm (accessed 16 January 2003).3 The reform programme initiated by the Agreement on Agriculture was expected to result in anincrease in world market prices. Recognising this, the WTO Ministers in Marrakesh adopted a Decisionon Measures Concerning the possible Negative Effects of the Reform Programme on Least-Developedand Net Food-Importing Developing Countries. The 49 LDCs, and 22 NFIDCs, are listed in Annex 1.4 These remarks apply particularly to founder Members of the WTO. For countries that acceded later,for example China, an in-between status has been determined. It is not yet clear how countries likeChina will be treated when it comes to new reduction commitments, although HT3 (paragraph 56)suggests that their implementation periods could be deferred for up to 2 years.5 http://www.wto.org/english/tratop_e/devel_e/d1who_e.htm (accessed 16 January 2003).

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developing countries considered as “vulnerable” or “food insecure”. In the context ofthe agriculture negotiations, other such country classifications for sub-groups ofdeveloping countries have been proposed by various members.6 If such sub-groupings are used for specific provisions, it will be extremely challenging for thenegotiators to come up with a definition that is satisfactory to the entire WTOmembership. Despite the rhetoric of special and differential treatment for developingcountries, developed countries will be reluctant to extend generous concessions towhat they consider to be their trading competitors. And any developing countryexcluded from a group provided with special concessions is likely to try to negotiateitself into that group. This could become a real stumbling block to a successfuloutcome to the negotiations.

6 See Ruffer et al.(2002) for further discussion of some of the possible country classifications relevantto the agriculture negotiations.

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5. Developing the Modalities: Issues for Developing Countries

It is a trite, but important, observation that all developing countries are different. Itfollows that generalisations about the impact of WTO agreements on developingcountries are often so bland as to be devoid of policy relevance, and that within thegroup dubbed ‘developing countries’ there can often be conflicting interests. Theposition of a large South American grain exporter, for example, is different from thatof a small African state exporting a tree crop such as cocoa or coffee, but importingcereals to feed its population. Nonetheless, the nature of this assignment is that somegeneralisations, or typology, be developed.

Table 1 attempts a first schematic presentation of the issues, from the policy-maker’sperspective (that is we eschew the neo-classical economist’s prescription thatunilateral trade liberalisation is unambiguously advantageous for the importing state).One simplistic, but apt, description of special and differential treatment is that tighterWTO constraints would apply to developed countries, forcing them to change theiragricultural policies, whilst allowing developing countries more latitude to pursuetheir own development goals. Thus, special and differential treatment implies thatdifferent WTO rules apply in rows 2 and 3 compared to those that apply in row 1.

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Table 1: A Schematic View of the Potential Impact of a New Agreement onAgriculture on Developing Countries

Impact on DevelopingCountries

Impact on LDCs

Rules that constrain thepolicies of developedcountries

• A direct effect, in termsof market access todeveloped countrymarkets, but loss ofpreferential margin, etc.• An indirect effect on thelevel and stability of worldmarket prices

• A direct effect, in termsof market access todeveloped countrymarkets, but loss ofpreferential margin, etc.• An indirect effect on thelevel and stability of worldmarket prices

Rules that constrain thepolicies of developingcountries: smallerreduction commitmentsand longer implementationperiods, as in UruguayRound; and other specialand differential treatment?

• Flexibility to pursuedomestic policies• A direct effect, in termsof market access to otherdeveloping countrymarkets, loss ofpreferential margin withinregional trade agreements,etc.• An indirect effect on thelevel and stability of worldmarket prices

• A direct effect, in termsof market access todeveloping countrymarkets, loss ofpreferential margin, etc.• An indirect effect on thelevel and stability of worldmarket prices

Rules that constrain thepolicies of LDCs: bindingcommitments, but notreduction commitments, asin the Uruguay Round?

• Flexibility to pursuedomestic policies

If stringent rules apply to developed countries, then market access is improved. Somedeveloping countries – those with an export potential in the appropriate crops, but nopreferential access to protected markets – gain from this, but for those who see adilution of their preferential margins, the outcome is more ambiguous. A reduction inthe support of agriculture in developed countries will tend to increase world marketprices, and – by linking domestic prices with international prices – result in morestable world prices. Many countries will see this as a benefit: exporters because ofhigher export revenues, and some potential importers because the ‘dumping’ ofsubsidised exports that disrupt their own markets will be reduced. However, for netfood-importing countries the outcome is more problematic. The policies of somedeveloping countries can also affect market access, and the level and stability ofworld market prices.

In Annex 2 we systematically assess the issues raised in the first Harbinson Text (andsome not specifically alluded to there), and in Table 2, the main issues for developingcountries are summarised.

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Table 2: Summary of the Main Issues Involved in Establishing the Modalities, and Implications for Developing Countries

(referred to as dcs in the Table)

Issue/Action CommentMARKET ACCESS

Tariff Reductions from bound orapplied rates?

Bound rates would be a less stringent commitments for dcs

Swiss Formula, or a repeat of theUruguay Round format?

Most dcs are likely to favour the Swiss Formula for developed countries, to significantly reduce tariffpeaks; but this will reduce preference margins enjoyed by some dcs.

For developing countries, the Swiss Formula would mean more stringent reduction commitments forsensitive crops. An alternative reduction coefficient for sensitive crops in developing countries couldaddress this.

Application of the Swiss Formula implies conversion of specific to ad valorem tariffs, which could beproblematic.

Article 5, Special SafeguardProvisions

The existing Article 5 should be repealed. If this is not possible, trigger prices should be subject to areduction commitment.

Tariff Escalation Examples need to be identified and brought to the attention of importers.7 Easy to identify, and remedy,when ad valorem tariffs apply (to eradicate tariff escalation the same percentage tariff needs to applyfor each tariff line). This is not so for specific tariffs, which would need to be converted to ad valoremtariffs before tariff escalation could be systematically dealt with.

However, with tariff bindings in place, harmonisation can only occur at the lowest bound rate. Would dcsbe willing to accept an increase in some bound rates, if offset by reductions in higher tariffs; and if so,for which products?

Tariff Rate Quotas (TRQs) It is unlikely that TRQs can be abolished. The overwhelming interest of dcs is that TRQ volumes beincreased significantly so that, ultimately, all trade takes place at with-in quota tariffs. There is little tobe gained by requesting that the in-quota tariff be reduced to zero: this will increase the quota rentscaptured by traders located in the importing state with little benefit to the exporting country.

7 We understand the Common Fund for Commodities has commissioned a study on tariff peaks and tariff escalation.

17

Issue/Action CommentImprovements (i.e. simplification) of TRQ administration would help.

Tariff Simplification Dcs should support a demand to change specific to ad valorem tariffs.Dcs should press for an elimination of seasonal tariff structures (e.g. on fruit and vegetables), and

question the use of minimum import prices not provided for in Article 5 (e.g. by the EU for certain fruitand vegetables).

State Trading Dcs should support the principle of improved disciplines to stop State Trading Enterprises misusing theirposition to thwart trade liberalisation

Special and Differential (S&D)Treatment

Dcs should press for reduced reduction commitments and increased implementation periods for dcs, withno reduction commitments for LDCs.

Dcs should press for Article 5-like (Special Safeguard) provisions for key food crops8, and they mightcredibly ask for exemptions, or more gradual reduction commitments, for staple crops.

LDCs, and other vulnerable dcs, with low ceiling bindings on staple crops, might consider invokingGATT XXVIII, and announce their presumption they will be able to increase their tariffs without theneed for compensation of other WTO Members. Article XXVIII (Modification of Schedules) sets outthe circumstances under which a country can negotiate a modification or withdrawal of a previoustariff binding, with the expectation this would involve “compensatory adjustment” being offered tocountries adversely affected.

Dcs should welcome the EU’s suggestion that 50% of imports from dcs into developed countries shouldenter at a zero duty; but demand that the 50% should not include raw materials on which there issubsequent tariff escalation, and that it is the MFN tariff that should be set at zero.

Dcs should argue for S&D Treatment for Single Desk Buyers in only limited cases: the LDCs, othervulnerable states, and – subject to objective criteria – dc importers of significant quantities of staplefoods.

The suggestion that developed countries should grant duty- and quota-free access for all products fromLDCs should be accepted without question by dcs. These should be binding commitments.

Geographical Indications of Origin, Dcs should press for these issues to be addressed elsewhere in the negotiations/WTO: in the context of

8 See Ruffer and Vergano (2002) for further discussion of the design of a safeguard mechanism for developing countries.

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Issue/Action CommentFood Safety, MandatoryLabelling

the TRIPS (geographical indicators), SPS (food safety) and TBT (mandatory labelling) Agreements forexample.

DOMESTIC SUPPORTGreen Box Dcs should be wary about revisiting Green Box provisions. The negotiations could more quickly be

concluded if a truce between those who want to enlarge, and those who want to reduce, its provisionscan be agreed.

Blue Box Dcs should press for its abolition, or failing that for reduction commitments on blue box expenditure.Article 6(2) Dcs should press for its retention.de minimis clause Dcs should support the retention of the de minimis clause for dcsReduction commitments Dcs should support a significant reduction commitment from existing bound rates, with a lower

reduction commitment and a longer implementation period for dcs, and no reduction commitment forLDCs

Peace Clause Dcs should support an extension of the Peace Clause for Green Box, Article 6(2) and de minimisprovisions; but should only do so for Amber Box and Blue Box provisions when their own negotiatingdemands have been met.

EXPORT MEASURESReduction commitments Dcs should demand the elimination of export subsidies over a five or six-year period.Export credits Dcs should support increased disciplines on the use of export credits, with the subsidy element included

in the export subsidy total.Single Desk Sellers This is mainly a debate between the US and some members of the Cairns Group. Let them fight it out.Article 9(4) Dcs should ask for an extension for the duration of the next agreement, but not for an expansion of its

provisions.Peace Clause Should not be extended unless the dcs negotiating demands are met.Food Aid Dcs should avoid being too closely involved in the debate.Export restrictions and taxes Export prohibitions by developed countries, and by developing countries for products for which the

country is a net exporter, should be banned; reduction commitments on export taxes should imposed.

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6. An Examination of Harbinson s

Draft Modalities

Stuart Harbinson’s draft modalities (WTO, 2003b: HT3) are in large part set out asamendments to the existing Agreement on Agriculture. Thus it appears to be hisexpectation that the structure of the current agreement will be retained, with sectionsredrafted and new Articles inserted. As in the Uruguay Round there will presumablybe a ‘modalities’ document setting out the formula to determine the reductioncommitments, which will not in itself be legally binding, but will be reflected in theindividual Members’ Schedules of commitments (cf. GATT 1993). This maydisappoint some critics of existing arrangements, who argued for more fundamentalchange, but probably reflects what is feasible.

HT3 provides for special and differential treatment of developing countries: i)developing countries would be offered longer implementation periods, and lowerreduction commitments, as in the Uruguay Round (with no reduction commitmentsfor the LDCs); ii) the retention, and enhancement, of differential provisions fordomestic support (particularly with respect to Articles 6.2 and 6.4, and Annex 2, ofthe Agreement on Agriculture); iii) the introduction of a new product category –SP,or Special Products– related to “food security, rural development and/or livelihoodsecurity concerns”, and special treatment thereof; and iv) some new, if limited,additional commitments on developed countries with respect to market access. Thus,special and differential treatment permeates HT3. Furthermore, HT3 does marginallyincrease the element of special and differential treatment compared to HT2. Whetherthis will meet the aspirations of both developing countries (which have asked formeaningful differentiation between developed and developing countries), anddeveloped countries (which are concerned about competition from advanceddeveloping countries) remains to be seen.

SP Products

Under this proposal, developing countries would be able to list an unspecified (butpresumably low) number of special products (designated SP products) that related tofood security, rural development and/or livelihood security concerns. In HT2 it wassuggested that SP products would be defined at the 6-digit HS level (e.g. Durum orcommon wheat, rather than all wheat at the 4-digit level). Critics said this was toodetailed a specification, particularly if there were to be tight limits on the number ofSP products a country could designate. HT3 addressed this criticism, and suggestseither the 6- or 4-digit level as alternative drafts.

Three ‘concessions’ are envisaged for SP products. First, the tariff reductions on SPproducts would be smaller than on non-SP products, as outlined below under therubric ‘Tariffs’. Second, developing countries would not be required to increase tariffrate quota volumes for SP products, whereas they would for other products, asoutlined below under the rubric ‘Tariff Rate Quotas’. Third, HT2 suggested that “ForSP products …, developing countries shall have the flexibility to apply a specialsafeguard mechanism to be based on the provisions of Article 5 of the Agreement onAgriculture” (paragraph 24). This specific reference to SP products has been dropped

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from HT3, which simply reports that: “An outline of a possible new special safeguardmechanism to enable developing countries to effectively take account of theirdevelopment needs, including food security, rural development and livelihoodsecurity concerns, is currently subject to technical work …” (paragraph 26).

Market Access

HT3 has suggested a further round of tariff reductions, a reduction of tariff escalation,mechanisms to protect preference margins, retention of Article 5 (the SpecialSafeguard Provisions) and an expansion of its coverage for developing countries, anexpansion of tariff rate quotas (TRQs), and new disciplines on the administration ofTRQs and State Trading Import Enterprises.

Some countries have expressed their concern that HT3 has not endorsed theirproposals on the market access aspects of their non-trade concerns. HT3 (paragraph28) notes that “further consideration needs to be given to non-trade concerns andother market access issues” noted in HT1 (geographical indications of origin, foodsafety and labelling) “and the extent to which these issues should be taken intoaccount in the modalities … and/or subsequent work”.

Tariff Reductions (paragraphs 8 -15 of HT3)

HT3 adopts neither the Swiss Formula for tariff reductions, which would bring tariffpeaks down sharply, nor a simple repeat of the Uruguay Round formula, but insteadproposes a tiered approach under which bigger reductions would apply to the highertariffs. The proposal is outlined in Table 3. Clearly the numbers in the table are openfor negotiation, but they are taken from the square brackets in HT3. These are thereductions that would apply to the final bound tariffs in Members’ schedules; not toapplied rates or to in-quota tariffs.

Table 3: HT3’s Proposals for Tariff Reductions

Tariff Band ReductionCommitment

ImplementationPeriod

Developed Developing Developed Developing Developed Developing

> 90 % > 120 % 60/45 % 40/30 % 5 years 10 years> 15 - ≤

90 %> 60 - ≤120%

50/35 % 35/25 % 5 years 10 years

≤ 15% > 20 - ≤60 %

40/25 % 30/20 % 5 years 10 years

Tariffbands

≤ 20 % 25/15 % 10 years

“SP”items

10/5 % 10 years

Within each tariff band a Uruguay Round-like formula would apply, with deeper cutsfor higher tariff bands. Some flexibility on the level of reduction is provided forindividual products (this is shown in the ‘Reduction Commitment’ columns – the first

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percentage indicates the average rate of reduction and the second figure indicates theminimum reduction rate). Thus a developed country would have to reduce all tariffsof above 90 percent ad valorem by a simple arithmetical average of 60 percent, withno tariff line being reduced by less than 45 percent.

Where specific duties apply, ad valorem equivalents would first be determined “in atransparent manner, using three-year average external reference prices or data, basedon a recent representative five-year period, excluding the highest and the lowestentry”. Although these details would have to be included in the supportingdocumentation, and would be “subject to multilateral review”, the language doesappear rather vague, allowing countries some discretion to choose ‘average externalreference prices’ that minimised the tariff cuts they then applied. Note also that it isnot the intention of this proposal that specific tariffs be converted into their advalorem equivalents: the purpose of the exercise is simply that of determining theappropriate tariff band (as detailed in Table 3) for the purpose of calculating thereduction commitment.

Special and differential treatment for developing countries is reflected in fourdimensions: i) higher thresholds in the tariff bands, ii) lower reduction commitments,iii) a longer implementation period, and iv) the facility to designate certain goods asSP products with an even lower reduction commitment (a simple arithmetical averageof 10 percent, with a minimum of 5 percent per tariff line). HT2 had proposed threebands for developing countries, mirroring the proposal for developed countries, withthe middle band covering the range from 20 to 120 percent. HT3 expanded the bandsto four, by splitting the middle band in two, and reduced slightly the reductioncommitment on all tariffs below 60 percent.

LDCs would not be required to make any reductions.

Table 4: Sample Tariffs after Application of Competing Formula

HT3* Uruguay Round*InitialTariff

Swiss 25

Developed Developing Developed Developing

150 21.4 60.0 90.0 96.0 114.0100 20.0 40.0 75.0 64.0 76.050 16.7 25.0 35.0 32.0 38.010 7.1 6.0 7.5 6.4 7.6

* average, rather than minimum, reduction recorded

Table 4 sets out the impact of various reduction formulae on tariff rates. The Swiss 25formula, for example, as proposed by the US, would reduce an initial tariff of 150percent to 21.4%; whereas the Uruguay Round formula (as proposed by the EU)would reduce the tariff to 96 percent for developed, and 114 percent for developing,countries respectively (i.e. reductions of 36 and 24 percent). At these high initialtariffs, the Swiss 25 formula would produce much more sweeping tariff cuts than theUruguay Round formula. Because of the tariff bands, the proposal in HT3 is pitchedbetween the two; and the more bands applied, and the steeper the tariff cuts in thehigher bands, the more HT3 would match Swiss 25. At the moment, at these higherinitial tariffs, HT3 produces outcomes closer to the Uruguay Round formula than does

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Swiss 25. Indeed, under HT3, on selected tariff lines, a tariff of 150 percent need onlybe reduced to 97.5 percent, provided that the simple arithmetical average reduction forall tariffs initially in excess of 90 percent equalled 60 percent.

At the lower bound, there is much more similarity between outcomes according to thevarious formula, but both HT3 and the Uruguay Round formula would produce asteeper cut on an initial tariff of 10 percent than would Swiss 25.

Figure 1 shows the same story diagrammatically. From the top axis we can identifythe initial tariff that is to be reduced. Thus Swiss 25 reduces a tariff of 150 percent toone of 21.4 percent, etc.

Figure 1: The Impact of Various Tariff Reduction Formula

0

20

40

60

80

100

120

150 130 110 90 70 50 30 10

Initial Tariff %

New Tariff %

Swiss 25HT DevelopedHT DevelopingUR DevelopedUR Developing

Key: HT: Harbinson text; UR: Uruguay Round formula. In both instances, average rather thanminimum reductions are shown.

Swiss 25, as tabled, offers no special and differential treatment to developingcountries. However, a higher coefficient (Swiss 50, say) for developing countrieswould achieve this effect.

As indicated earlier, these proposals have attracted criticism from a number ofquarters. Those that see substantial tariff reductions as the key factor freeing-up tradein world agricultural products suggested the proposals lacked ambition. Those withhigh levels of border protection that are fearful of the effect of trade liberalisation ontheir farm and food sectors felt that the proposals were far too bold. Some developingcountries suggested that the proposals in HT2 would weaken their ability to pursuedomestic rural development and food security programmes; and HT3 makes someconcessions in this regard. The fourth grouping comprises those developing countrieswho are fearful that sweeping tariff cuts in the developed world would erode theirtariff preferences. Again (as outlined below), the proposals in HT3 have been

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changed from those in HT2 to, in part, address these concerns. The EU’s FarmCommissioner, Frans Fischler, embraced the concerns of the second and fourthgroups when he remarked that “Proposed sweeping import tariff reductions, andincreased tariff quotas, would benefit developed nations and the most advanceddeveloping countries, not the poorest states in the world” (as reported in Agra Europe,21 February 2003, EP/1).

Tariff Preferences (paragraph 16)

In recognition of the concern that tariff reductions by developed countries will erodethe tariff preferences enjoyed by some developing countries, HT3 (with only marginalchanges from HT2) makes two proposals. First, that “In implementing their tariffreduction commitments, participants undertake to maintain, to the maximum extenttechnically feasible, the nominal margins of tariff preferences and other terms andconditions of preferential arrangements they accord to their developing tradingpartners.” Clearly there are limits to this. Once the preferential tariff has fallen tozero, the nominal preference margin cannot be maintained as MFN tariffs are reduced.

Second, the texts suggest that countries offering preferential access can delayimplementing tariff reductions which would affect “long-standing preferences inrespect of products which are of vital export importance for developing countrybeneficiaries”. Instead of applying the first tariff reduction in year one of the newimplementation period, it could be deferred to year three; thus in effect extending theimplementation period from five to seven years.9 Various criteria would have to bemet: the text suggests that the product should account for at least 20 percent of thetotal merchandise exports of any beneficiary, and the in-quota tariff would have to beset at zero. But it does appear, for example, that the EU and Mauritius could apply fora two-year delay in the reduction of EU sugar tariffs.

Imports from LDCs (paragraph 55)

HT3 offers a choice of words: either developed countries should, or developedcountries shall, “provide duty- and quota-free access to their markets for all importsfrom least-developed countries.” HT2 had simply used the non-mandatory ‘should’.Presumably, if accepted, this would be translated into GSP-like preferences whichwould be a permanent feature of Members’ tariff bindings. Rules of origin, althoughcrucial for the implementation of this provision, are not mentioned.

Tariff Rate Quotas (paragraphs 17 - 34)

HT3 proposes an expansion of tariff rate quotas, some reduction in some in-quotatariffs, and a review of tariff quota administration.

The basic proposal is that where Members have bound tariff rate quotas (TRQs) intheir schedules, these volumes should be expanded over a period of five years to equal10 percent of ‘current’ (1999-2001, or the most recent three-year period) domesticconsumption of the product. However, for up to 25 percent of tariff quotas, Membersmay limit the TRQ to 8 percent of ‘current’ consumption, with the proviso that for asimilar number of tariff quotas the volume would be 12 percent. These additionalmarket access opportunities would be made available on a MFN basis.

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Special and differential treatment involves: i) exemption of SP products from theseprovisions, ii) lower quota levels (6.6 rather than 10 percent; and 5 and 8 percentrather than 8 and 12 respectively), and iii) a longer implementation period (10 years).LDCs would not be obliged to offer TRQs.

In-quota tariffs would not be reduced, except that:

• developed (but not developing) countries would be obliged to offer duty-freeaccess for “tropical products, whether in primary or in processed form, and forproducts of particular importance to the diversification of production from thegrowing of illicit narcotic crops, or crops whose non-edible or non-drinkableproducts, while being lawful, are recognized as being harmful for human health”,and

• tariff reductions would have to be offered in those instances where the average fillrate over the most recent three-years has been less than 65 percent. This latterprovision is an addition compared to HT2.

In addition, a series of detailed proposals have been tabled to improve administrationof TRQs.

Overall the proposals are relatively simple: they do not involve revisiting the originaldata that triggered the introduction of TRQs in the Uruguay Round, but simply arecalculation of the TRQs that appear in Members’ schedules. Thus a particular WTOMember may be importing less than 10 percent of ‘current’ consumption, but wouldnot be obliged to open a new TRQ. It is only if that Member already has a TRQ thatthe provisions apply.

Tariff Escalation (last part of paragraph 8), and the Simplification of Tariff Schedules

In applying the tariff reduction formula set out in Table 3, HT2 had said that when thetariff on a processed product was higher than that on the product in its primary form,the tariff reduction for the processed product “shall be higher than that for the productin its primary form.” Although this formulation clearly recognised the problemscaused by tariff escalation, as a formula approach designed to address the issue, it wasweak. HT3 strengthens the provision by insisting that, at a minimum, the rate of tariffreduction on the processed product “shall be equivalent to that for the product in itsprimary form” multiplied by a factor of 1.3.10

This extra provision in HT3 compared to HT2 is a powerful formula to reduce tariffescalation. But presumably the intent is that this provision be used sensibly, so thatnegative tariff escalation is precluded. For example, if a developed country currentlyapplies a 70% ad valorem tariff on a processed product, and a 50 percent tariff on itsprimary counterpart, tariff escalation would be present and this provision would betriggered. If it applied a 50 percent reduction to the tariff on the primary product (inconformity with the reduction coefficients set out in Table 3) it would be obliged toapply a 65 percent (50 x 1.3) reduction on the processed product. This would bring thenew tariff on the processed product to 24.5 percent, as opposed to 25 percent on theprimary product, not only eliminating but reversing positive tariff escalation.

HT3 does not address other concerns about complex tariff schedules. Thus countriescould retain seasonal duties, and there is no requirement to phase out specific tariffsand replace them with their ad valorem equivalents. However, as specific tariffs haveto be converted to their ad valorem equivalents in order to apply tariff reductions

25

(both with respect to tariff bands and tariff escalation), and rules have to beestablished for this (paragraph 9 of HT3), it seems a lost opportunity not to insist thatall tariffs be applied on an ad valorem basis.

Special Safeguard Provisions (paragraphs 25 - 26)

As explained elsewhere in this report, Article 5 of the existing Agreement onAgriculture, providing for Special Safeguard provisions on products that underwenttariffication in the Uruguay Round (and marked with the symbol SSG in the tariffschedules), will “remain in force for the duration of the reform process”. With variouspermutations of square brackets, HT3 offers three possibilities:

• Article 5 should cease to apply for developed countries;• it should continue for developed countries for the new implementation period

for tariff reductions, and then cease to apply; or• it should continue for developed countries for two years after the end of the

new implementation period for tariff reductions, and then cease to apply.

Which of these outcomes will prevail is difficult to say. What is evident, however, isthat HT3 offers no suggestions to change Article 5, to amend the trigger prices fixedin the Uruguay Round, or to allow developed countries to designate new SSGproducts.

By contrast, for developing countries, HT3 does envisage the possibility of Article 5-like provisions “to enable developing countries to effectively take account of theirdevelopment needs, including food security, rural development and livelihoodsecurity concerns”. HT2 referred to SP products in particular. There is no suchrestriction of scope in HT3; and detailed proposals are awaited.

Domestic Support

HT3 would retain the basic architecture of the existing arrangements on domesticsupport within the Agreement on Agriculture, whilst introducing some importantchanges, particularly for developing countries.

Amber Box (paragraph 46 -50)

HT3 would reduce the final bound total Aggregate Measurement of Support (AMS)by 60 percent over five years (for developing countries by 40 percent over ten years)in equal annual instalments. Compared to the 20 percent reduction agreed in theUruguay Round this is a big change, with the bound AMS at the end of the newimplementation period fixed at 32 percent of that calculated for the 1986-88 baseperiod. However, critics of the Amber Box would argue that its provisions arecurrently unbalanced as only those countries that declared an AMS for the base periodare able to use its provisions.

For developed countries, HT3 would introduce a new discipline: that for individualproducts the AMS may not exceed the average AMS recorded over the period 1999-2000. This falls short of the suggestion that the AMS reductions be applied on aproduct specific basis.

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Article 6.4: the de minimis provisions (paragraphs 51 -53)

For developed countries the de minimis franchise of 5 percent would be reduced by0.5 percentage points per year over five years. For developing countries the existingfranchise of 10 percent would remain unchanged. Furthermore, if developingcountries recorded any negative product-specific support, they could credit (i.e. add)this to the non-product specific de minimis franchise of 10 percent, up to 10 percent ofthe value of production of the product concerned.

Article 6.2 (paragraph 43)

Paragraph 6.2 already allows developing countries to exclude from their AMScalculations a variety of assistance and subsidy measures. HT3 would maintain, andenhance, this list. Thus the following measures would be exempt (with the newprovisions in italics):

(i) investment subsidies which are generally available to agriculture(ii) agricultural input subsidies generally available to low-income or resource-

poor producers(iii) domestic support to producers to encourage diversification from growing

illicit narcotic crops or those whose non-edible or non-drinkable products,being lawful, are recognized [by WHO] as harmful for human health

(iv) subsidies for concessional loans through established credit institutions orfor the establishment of regional and community credit co-operatives

(v) transportation subsidies for agricultural products and farm inputs toremote areas

(vi) on-farm employment subsidies for families of low-income and resource-poor producers

(vii) government assistance for conservation measures(viii) marketing support programmes and programmes aimed at compliance

with quality and sanitary and phytosanitary regulations(ix) capacity building measures with the objective of enhancing the

competitiveness and marketing of low-income and resource-poorproducers

(x) government assistance for the establishment and operation of agriculturalco-operatives

(xi) government assistance for risk management of agricultural producers andsavings instruments to reduce year-to-year variations in farm incomes

Blue Box: Article 6.5 (paragraphs 44 - 45)

HT3 offers two alternative texts:

• that blue box payments be capped at the “most recently notified level”, andthen reduced by 50 percent in equal annual instalments over five years (33percent over ten years for developing countries), or

• that blue box payments be included in the AMS (after five years fordeveloping countries).

Both variants would mean that, in future, Members could not switch from amber boxpolicies (with AMS limits) to blue box policies (with no expenditure limits), which

27

may present problems for EU Enlargement. For the second variant, it is unclearwhether countries would be able to increase their AMS limits, or whether theinclusion of previously exempt blue box expenditure in the AMS would have to beaccomplished within existing AMS limits.

The Green Box: Annex 2 (paragraphs 41 - 42)

HT3 contains two attachments with proposed changes to Annex 2 of the Agreementon Agriculture. Attachment 9 lists possible additions for developing countries,offering them further special and differential treatment. Thus it is proposed, forexample, that “Payments to maintain domestic production capacity of staple crops forfood security purposes in developing countries”, and “Payments to small-scaleproducers/family farms for the purpose of maintaining rural viability and culturalheritage in developing countries”, become green box payments. Developed countryproponents of multifunctionality may well point to the latter and say that is preciselywhat they want in developed countries.

By contrast, the detailed proposals in Attachment 8 would in the main tighten thecriteria that apply to green box policies. The main exception is the suggestedredrafting of paragraph 12 of Annex 2 to allow payments within a “clearly-definedgovernment … animal welfare programme” with the amount of payment “limited tothe extra costs or loss of income involved in complying with the governmentprogramme.”

Export Competition

HT3 proposes further reductions in Members’ ability to grant export subsidies, andthe introduction of new disciplines on export credits and State Trading ExportEnterprises. It additionally proposes tightened disciplines on food aid and newdisciplines on the ability of developed countries to introduce new export prohibitions,restrictions or taxes.

Export Subsidies (paragraphs 29 - 34)

Starting with the final bound commitments on both budgetary outlay and subsidisedvolume established in the Uruguay Round, HT3 would reduce and eventuallyeliminate export subsidies over a period of years. A rather complex formula isproposed which would have the effect of reducing export subsidies more quickly inthe first year, with the effect tailing-off over time, before elimination, as is evident inFigure 2. Basically a reduction coefficient is applied so that, for example, the limit inyear 1 is 70 percent of the final bound level from the Uruguay Round, then in year 2 itis 70 percent of the year 1 entitlement, etc. (in this instance c = 0.3).

Four circumstances are mapped in Figure 2, using the coefficients in square bracketsfound in paragraph 30 of HT3. A distinction is drawn between developed anddeveloping countries, with the latter allowed a longer period over which exportsubsidies are to be phased out. Furthermore, all countries have to designate a set ofagricultural products, accounting for at least 50 percent of bound budget outlays, forwhich export subsidies would be phased-out over a shorter period than that applyingfor other products. As with the Uruguay Round formulation, annual commitments

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would apply for both expenditure and subsidised volume, on a product specific basis,but unlike the Uruguay Round formulation, the reduction rate would be the same forboth expenditure and volume commitments.

Figure 2: Proposed Phasing-out of Export Subsidies

0

10

20

30

40

50

60

70

80

90

100

Base 1 2 3 4 5 6 7 8 9 10 11 12

Year

Developed 1, c = 0.3Developed 2, c = 0.25Developing 1, c = 0.25Developing 2, c = 0.2

With these considerations in mind, Figure 2 can be explained by the following matrix:

Developed Countries Developing CountriesProducts accounting for

at least 50 percent ofbound budgetary outlay:

reduce by 30% per year,set at zero in year 6c = 0.3


Remainder: reduce by 25% per year,set at zero in year 10c = 0.25


Clearly there are a number of parameters in square brackets, over which negotiationscan focus. The formula approach does provide for more rapid reductions in the earlyyears (although nowhere near as ‘up-front’ as the demand of some negotiators for a 50percent down-payment in year 1). It would allow exporters a delay in the phasing outof export subsidies on ‘sensitive’ products. Members that make use of exportsubsidies may well find that as a result of policy change some of their export subsidy‘entitlements’ are redundant. If the proposals in HT3 are adopted, it is these productswhich will be volunteered for the faster reduction schedule.

HT3 would not permit the virement of unused budget or volume limits to a later year,as was the case during the implementation period under the Agreement onAgriculture.

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Article 9.4 (paragraph 35)

The existing Agreement on Agriculture exempts developing countries, during theimplementation period, from having to declare “certain transport and marketing-costsubsidies” to be export subsidies. HT3 would extend this provision for the“implementation period of the further export subsidy commitments to be undertakenfor developing countries” (which would presumably be through to the end of year 12given the matrix set out above).

Export Credits (paragraph 36) and Food Aid (paragraph 37)

The basic requirement of HT3 with respect to export credits is that “Members shallnot, directly or indirectly, provide support or enable support to be provided for or inconnection with the financing of exports of agricultural products or the credit andother risks associated therewith otherwise than on market- related terms andconditions” (paragraph 1 of Attachment 5). Detailed rules are under negotiation.However, when exports are destined for developing countries, and more particularlyfor LDCs and NFIDCs, less stringent criteria would apply (paragraphs 9 and 10 ofAttachment 5).

Similarly, with respect to food aid, HT3 declares that its draft provisions are“intended not to limit the role of bona fide international food aid, but to ensure thatsuch aid is not used as a method of surplus disposal, nor as a means of achievingcommercial advantages in world export markets” (paragraph 4(a) of Attachment 6).Again, detailed rules are under discussion.

State Trading Export Enterprises (paragraph 38)

Whilst HT3 seeks to impose more disciplines on State Trading Import Agencies, itsstrictures on State Trading Export Agencies are more prescriptive.

On Import Agencies it says: “Members shall ensure that governmental importenterprises are not operated in such a way as to nullify or impair the benefits ofmarket access concessions and of the commitments relating to non-tariff measures”set out Article 4.2 of the Agreement on Agriculture, and that “The disciplinesregarding governmental import enterprises shall not unduly impede developingcountries in the pursuit of their legitimate food and livelihood security and ruraldevelopment objectives” (paragraphs 3(b) and (d) of Attachment 3).

By contrast, for Export Agencies in developed countries it lays down more specificrequirements. Members would undertake:

“(i) to ensure that exports of a product by a governmental export enterprise donot take place at a price less than the price paid by such an enterprise to thedomestic producers of the product concerned;(ii) not to restrict the right of any interested entity to export, or to purchase forexport, agricultural products;(iii) not to grant special financing privileges, including government grants,loans, loan guarantees, or underwriting of operational costs, to governmentalexport enterprises that export for sale, directly or indirectly, a significant shareof the respective Member's total exports of an agricultural product” (paragraph5(b) of Attachment 7).

30

Special and differential Treatment for developing countries would mean that only thefirst of these restrictions would apply to them.

Export Restrictions and Taxes (paragraphs 39 - 40)

HT3 would forbid the introduction of new export prohibitions, restrictions or taxes bydeveloped countries, except as otherwise provided for in GATT 1994. Thus agri-foodsector would be more tightly regulated than other sectors of the economy.

However, for developing countries this new restriction would not apply, and theprovisions of Article 12 of the Agreement on Agriculture would continue to apply.

Overview

Given the vast diversity of views, existent farm policies, and the net-trade positions ofWTO Members, the negotiators have a difficult task in coming to an agreed position.Stuart Harbinson’s draft does seem to be a genuine attempt to accommodate differentpositions, but whether it will bridge the gaps, and enable an agreement to be reached,remains to be seen.

From the perspective of developing countries, it has to be concluded that the text doesoffer considerable special and differential treatment. It continues with the UruguayRound formula of offering lower reduction commitments, and longer implementationperiods; although clearly it falls short of the demand that developing countries shouldnot be obliged to offer any reduction commitments until developed countries haveeliminated subsidies that distort trade. It allows developing countries more latitude topursue domestic policies that would not be permitted in developed countries, as aresult of enlarged Green Box, de minimis and Article 6.2 provisions; but of course itdoes not make available to developing countries the budgetary funds to fully availthemselves of these provisions, and nor does it limit the overall spend by developedcountries on Green Box measures.

It would result in some increase in market access, although the proposal would notdeliver the sweeping reduction in import tariffs that had been demanded by someparticipants. It would significantly reduce tariff escalation, but it would not otherwisesimplify border measures. It would allow developing countries more latitude tomaintain border protection for a limited number of SP products. However, it wouldallow developed countries to retain Special Safeguard provisions, and it would notreduce the trigger prices that initiate those mechanisms. It does not address the non-trade concerns that some Members have with regard to market access.

It would reduce, and eventually eliminate, export subsidies; and subject export creditsand food aid to tighter disciplines.

It would involve a significant reduction of Amber and Blue Box support; and in themain, it would tighten Green Box criteria for developed countries, although it wouldallow subsidies for animal welfare-friendly farming practices to be introduced.

And it does not mention the Peace Clause.

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7. Concluding Remarks

This report provides an overview of the draft modalities submitted by the Chairman ofthe Special Session of the Committee on Agriculture (WTO, 2003b: HT3) and, moregenerally, a review of the proposals that have been submitted in the WTO agriculturenegotiations. It provides a summary of the most important areas included in theseproposals and offers some indications of the key issues for developing countries inthese areas. As has been alluded to in the report, the developing country members ofthe WTO are a highly heterogeneous group, which is why many of their negotiatingproposals are so divergent.

Market access is the main area where their interests vary. Those countries thatcurrently enjoy preferential access to the world’s largest markets (either throughpreference schemes, bilateral or regional trade agreements) are likely to faceincreasing competition from other exporters as MFN tariff rates are reduced. Anassessment of the resultant winners and losers, both between countries and withincountries is an extremely complex and uncertain task, which partly depends on thetimescale under consideration and the assumptions made in the analysis, and this hasnot been attempted in the present exercise.

However the negotiating positions of WTO members are not always based on whateconomic analysis might suggest in terms of the overall welfare gains to countriesfrom different options for trade policy reform. The analysis in this report thereforeoften looks through the lens of the policy-maker. Amongst the multitude of issuesunder review in the negotiations, there are several key areas where developingcountries should focus their efforts in the remaining duration of the negotiations, asoutlined in Table 2 above. This will help to ensure that negotiating capital is notwasted and that alliances are built in areas where members have common interests inthe negotiations.

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References

(including documents cited in the Annexes)

Bilal, Sanoussi (2002), ‘The Compatibility of EPAs with WTO Rules: A movingtarget?’, Trade Negotiating Insights. From Doha to Cotonou, 1(4), December: 3-6

Das, Bhagirath Lal (2003), ‘Agriculture in the WTO: After the Chairman’s Text’, 20February 2003, accessed from the Third World Network web-site(www.twnside.org.sg/title/twninfo5.htm) on 7 March 2003

European Commission (2003), WTO and agriculture: the European Union takes stepsto move the negotiations forward, Press Release IP/03/126, 27 January 2003,Brussels

GATT (1993), Multilateral Trade Negotiations The Uruguay Round, NegotiatingGroup on Market Access, Modalities for the Establishment of Specific BindingCommitments Under the Reform Programme, MTN.GNG/MA/W/24

Mamaty, Isabelle (2002), African Countries and the Agreement on Agriculture. WhatScope for Sustainable Development?, ICTSD Resource Paper No. 3, InternationalCentre for Trade and Sustainable Development: Geneva

Ruffer, Tim with Stephen Jones and Stephen Akroyd (2002), Development BoxProposals and their Potential Effects on Developing Countries, Oxford PolicyManagement Ltd.

Ruffer, Tim and Paolo Vergano (2002), An Agricultural Safeguard Mechanism forDeveloping Countries, Oxford Policy Management Ltd.

Swinbank, Alan (2003), ‘Why a Mid-term Review?’, In: The University of Reading,Department of Agricultural and Food Economics, Farm Business Data 2003: 45-48

Swinbank, Alan & Christopher Ritson (1995), ‘The Impact of the GATT Agreementon EU Fruit and Vegetable Policy’, Food Policy, 20(4): 339-357

Thompson, Wyatt (2002), ‘Export credits: do they affect agricultural commoditymarkets?’, EuroChoices, 1(2): 36-41

WTO (2001), Ministerial Conference Fourth Session Doha, 9 - 14 November 2001,Ministerial Declaration, WT/MIN(01)/DEC/W/1, WTO: Geneva

WTO (2002a), Committee on Agriculture, Notification, Export Subsidy Commitments2000/01, European Communities, G/AG/N/EEC/36, WTO: Geneva

WTO (2002b), Committee on Agriculture, Special Session, Eleventh Special Sessionof the Committee on Agriculture. Report by the Chairman, Stuart Harbinson, tothe Trade Negotiations Committee, TN/AG/1, WTO: Geneva

WTO (2002c), Committee on Agriculture, Special Session, Negotiations onAgriculture. Overview, TN/AG/6, WTO: Geneva

WTO (2003a), Committee on Agriculture, Special Session, Negotiations onAgriculture. First Draft of Modalities for the Further Commitments, TN/AG/W/1,WTO: Geneva

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WTO (2003b), Committee on Agriculture, Special Session, Negotiations onAgriculture. First Draft of Modalities for the Further Commitments. Revision,TN/AG/W/1/Rev. 1, WTO: Geneva

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Annex 1: WTO Membership, LDCs and NFIDCs

On 1 January 2002 there were 144 Members of the WTO (including the EuropeanCommunities and its 15 Member States). Of the 49 LDCs recognised by UNCTAD,30 were members of the WTO. The LDCs are listed in italics below. As of 25 March2002 there were 23 countries recognised as NFIDCs, identified by a double asterisk(**) below (note that the 23 includes Senegal, which is now has the status of anLDC).

WTO Members on 1 January 2002, with dates of Membership

Albania 8 September 2000Angola 23 November 1996Antigua and Barbuda 1 January 1995Argentina 1 January 1995Australia 1 January 1995Austria 1 January 1995Bahrain, Kingdom of 1 January 1995Bangladesh 1 January 1995**Barbados 1 January 1995Belgium 1 January 1995Belize 1 January 1995Benin 22 February 1996Bolivia 12 September 1995**Botswana 31 May 1995Brazil 1 January 1995Brunei Darussalam 1 January 1995Bulgaria 1 December 1996Burkina Faso 3 June 1995Burundi 23 July 1995Cameroon 13 December 1995Canada 1 January 1995Central African Republic 31 May 1995Chad 19 October 1996Chile 1 January 1995China 11 December 2001Colombia 30 April 1995Congo 27 March 1997Costa Rica 1 January 1995**Côte d’Ivoire 1 January 1995Croatia 30 November 2000**Cuba 20 April 1995Cyprus 30 July 1995Czech Republic 1 January 1995Democratic Republic of the Congo 1 January

1997Denmark 1 January 1995Djibouti 31 May 1995**Dominica 1 January 1995**Dominican Republic 9 March 1995Ecuador 21 January 1996**Egypt 30 June 1995El Salvador 7 May 1995Estonia 13 November 1999European Communities 1 January 1995Fiji 14 January 1996

Finland 1 January 1995France 1 January 1995Gabon 1 January 1995The Gambia 23 October 1996Georgia 14 June 2000Germany 1 January 1995Ghana 1 January 1995Greece 1 January 1995Grenada 22 February 1996Guatemala 21 July 1995Guinea 25 October 1995Guinea Bissau 31 May 1995Guyana 1 January 1995Haiti 30 January 1996**Honduras 1 January 1995Hong Kong, China 1 January 1995Hungary 1 January 1995Iceland 1 January 1995India 1 January 1995Indonesia 1 January 1995Ireland 1 January 1995Israel 21 April 1995Italy 1 January 1995**Jamaica 9 March 1995Japan 1 January 1995**Jordan 11 April 2000**Kenya 1 January 1995Korea, Republic of 1 January 1995Kuwait 1 January 1995Kyrgyz Republic 20 December 1998Latvia 10 February 1999Lesotho 31 May 1995Liechtenstein 1 September 1995Lithuania 31 May 2001Luxembourg 1 January 1995Macao, China 1 January 1995Madagascar 17 November 1995Malawi 31 May 1995Malaysia 1 January 1995Maldives 31 May 1995Mali 31 May 1995Malta 1 January 1995Mauritania 31 May 1995**Mauritius 1 January 1995Mexico 1 January 1995

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Moldova 26 July 2001Mongolia 29 January 1997**Morocco 1 January 1995Mozambique 26 August 1995Myanmar 1 January 1995Namibia 1 January 1995Netherlands & Netherlands Antilles 1 January

1995New Zealand 1 January 1995Nicaragua 3 September 1995Niger 13 December 1996Nigeria 1 January 1995Norway 1 January 1995Oman 9 November 2000**Pakistan 1 January 1995Panama 6 September 1997Papua New Guinea 9 June 1996Paraguay 1 January 1995**Peru 1 January 1995Philippines 1 January 1995Poland 1 July 1995Portugal 1 January 1995Qatar 13 January 1996Romania 1 January 1995Rwanda 22 May 1996**Saint Kitts and Nevis 21 February 1996**Saint Lucia 1 January 1995**Saint Vincent & the Grenadines 1 January

1995

**Senegal 1 January 1995Separate Customs Territory of Taiwan,

Penghu, Kinmen and Matsu 1 January 2002Sierra Leone 23 July 1995Singapore 1 January 1995Slovak Republic 1 January 1995Slovenia 30 July 1995Solomon Islands 26 July 1996South Africa 1 January 1995Spain 1 January 1995**Sri Lanka 1 January 1995Suriname 1 January 1995Swaziland 1 January 1995Sweden 1 January 1995Switzerland 1 July 1995Tanzania 1 January 1995Thailand 1 January 1995Togo 31 May 1995**Trinidad and Tobago 1 March 1995**Tunisia 29 March 1995Turkey 26 March 1995Uganda 1 January 1995United Arab Emirates 10 April 1996United Kingdom 1 January 1995United States of America 1 January 1995Uruguay 1 January 1995**Venezuela 1 January 1995Zambia 1 January 1995Zimbabwe 5 March 1995

Observer governmentsAlgeriaAndorraArmeniaAzerbaijanBahamasBelarusBhutanBosnia and HerzegovinaCambodiaCape VerdeEquatorial Guinea EthiopiaFormer Yugoslav Republic of Macedonia

(FYROM). Membership approved by theGeneral Council in October 2002

Holy See (Vatican)Kazakhstan

Lao People's Democratic RepublicLebanese RepublicNepalRussian FederationSamoaSao Tome and PrincipeSaudi ArabiaSeychellesSudanTajikistanTongaUkraineUzbekistanVanuatuVietnamYemenYugoslavia, Fed. Rep. of

Note: With the exception of the Holy See, observers must start accession negotiationswithin five years of becoming observers.

Source: http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm,http://www.wto.org/english/thewto_e/whatis_e/tif_e/org7_e.htm (accessed 16 January2003), and document G/AG/5/rev.5 (dated 26 March 2002)

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Annex 2: A Summary of Modalities to be Determined

Derived from Stuart Harbinson’s Overview of the negotiations (HT1)

Issue CommentaryMARKET ACCESSBase RatesHT1 suggests that consensus is near on basing future

tariff reductions on bound rates. An alternative view isthat applied rates on 1 January 2000, or bound rates,whichever is lower, should be the base for tariffreductions.

In the Uruguay Round dcs were allowed to offer ceiling bindings on products which hadpreviously had unbound ordinary customs duties. Many, but by no means all, dcs used thisopportunity to fix high ceiling bindings (i.e. high tariffs, e.g. at 100%) whilst actually applyingmuch lower rates. Mamaty (2002: 9) reports that most sub-Saharan African states did so. Anagreement to reduce applied rates, rather than bound rates, would impact more harshly onthem and restrict their freedom, at some future time, to increase their tariffs (within the tariffbinding) as part of a domestic price stabilisation/food security programme.

Formula or Non-Formula Approach? A formula approach seems likely, although it would

probably be supplemented by a bilateral request-and-offer procedure (with tariff concessions extended to allMembers on a MFN basis).

However, there is little agreement on the formula to beapplied. At one extreme the US has proposed a Swiss25 Formula, and at the other extreme the EU hassuggested a repeat of the Uruguay format (i.e. fordeveloped countries, an overall reduction of 36% witha minimum reduction of 15% per tariff line).

Many countries are concerned about prohibitively high tariffs (so called tariff peaks) and see theSwiss Formula as an appropriate mechanism to bring down high tariffs. The so-called SwissFormula was used by a number of countries in the Tokyo Round for tariff reductions onmanufactured goods. The new tariff T1 is a function of the old tariff T0 and a coefficient a (= 25in the US proposal), according to the expression

T1 = (T0 x a)/(T0 + a).Thus, if T0 is 1,000 percent, T1 becomes 24.4 percent. The effect is to reduce larger tariffs by a

proportionally greater amount than smaller tariffs, and the maximum tariff will never exceed a.Clearly this would not suit the EU s CAP, with its very high tariffs on dairy products and sugar, for

example, but equally it would impact heavily on the US policies for milk and sugar. Perhapswhat might emerge is an agreement to apply the Swiss Formula, a recommended coefficientof say 25, but the freedom to apply a higher coefficient on sensitive products (100 for milk andsugar in the EU and US??).

A further complication, that HT1 did not mention, is that the Swiss Formula only works with an advalorem tariff (i.e. expressed in percentage terms). Many tariff peaks are expressed as specifictariffs (i.e. fixed in money, e.g. $100/tonne). Application of the Swiss Formula would firstinvolve the conversion of specific to ad valorem tariffs (a request of a number of countries inany event, as part of the simplification (and improved transparency) of tariff structures), whichmeans agreement would have to be reached on the appropriate denominator (i.e. worldmarket price) to use.

A repeat of the Uruguay Round format risks countries being able to avoid significant tariff cuts onsensitive products.

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Issue CommentarySome dcs are concerned about the implications of the imposition of the Swiss Formula on the

high tariff levels they currently use to protect domestic markets for sensitive crops. In order toallay these fears, a higher coefficient might be used on tariff reductions for sensitive crops indeveloping countries.

Article 5, Special Safeguard MeasuresOpinions differ markedly. At one extreme the EU believes

the provisions should remain untouched, whereasothers suggest that Article 5 should be repealed. Avariant of the latter approach is that the provisionsshould remain in force for developing countries, but beabolished for developed countries (see also Specialand Differential Treatment below).

If Article 5 is retained, the trigger price at which itsprovisions can be invoked is important. Onesuggestion is that the trigger price be updated toreflect more recent market circumstances.

Article 5 can only be invoked on a tariff line which underwent tariffication in the Uruguay Round,and the Member concerned notified its intention to use this provision by marking the tariff linewith the initials SSG at Marrakech. The EU and Japan have made extensive use of thisprovision, but very few dcs have this facility. Many dcs wish to see the provisions revoked fordeveloped countries, although under Special and Differential Treatment a number want thefacility to introduce Article 5-like provisions for key food commodities11.

Two facilities exist: first an additional import charge when a country experiences an import surge.Second, an additional import charge if, on a consignment basis, the invoiced price falls belowan historically determined trigger price. The trigger price is the price at which imports weresourced in the base period 1986-88. Thus it is possible for the trigger price to be very muchhigher than the world market price in the base period. For example the EU determined a tariffequivalent for raw sugar of 424 per tonne, based upon internal and external prices of 600and 176 in 1986-1988, whereas its trigger price for raw cane sugar is 418, based uponpreferential imports from ACP States. Even if the EU s MFN tariff on sugar were to besubstantially reduced, prohibitively high tariffs could remain if Article 5, and existing triggerprices, remained untouched.

Consequently, if Article 5 is retained, trigger prices should be revisited. One possibility is that theybe subject to a reduction commitment.

Tariff Escalation There would not seem to be any objection to a reduction

in tariff escalation. The EU for example has proposeda significant reduction in tariff escalation on productsof particular interest to dcs. The challenge lies inimplementing the concept.

The Swiss Formula would reduce, but not eliminate, tariff escalation. The Uruguay Round formatfor tariff reduction carries with it no guarantees that tariff escalation would be reduced. Thusthere is an inconsistency in the EU s approach. In practice a request-and-offer procedure (inaddition to any formula approach) is probably the only way to implement this objective. Thisputs the onus on dcs to identify instances of tariff escalation that harm their trade, and pressfor redress.

Tariff escalation is easy to spot (and fairly easy to remedy) when ad valorem tariffs are in place: ifthe same percentage applies to each tariff line then there is no tariff escalation. However, withtariff bindings in place, harmonisation can only occur at the lowest bound rate. Would dcs bewilling to accept an increase in some bound rates, if offset by reductions in higher tariffs, inorder to eliminate tariff escalation; and if so, for which products?

With specific tariffs, however, tariff escalation is very difficult to spot and remedy. The policy-

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Issue Commentarymaker needs to know the cost structure of the processing industry.

Tariff Rate Quotas (TRQs)HT1 suggested that consensus was close on using

existing volumes and in-quota tariff rates as the base.However more radical proposals suggest that appliedrather than bound rates should be the base, and thatvolumes be revised (i.e. increased) to reflect updatedconsumption data.

HT1 suggested that near consensus exists that TRQvolumes be increased. However there are manyvariants on the table: e.g. an annual 1% increase ofthe base period (1986-88) consumption, over 6 years;4% a year over 5 years; the TRQ be expanded by20% of domestic consumption over 6 years, etc.

There is no consensus on the reduction of the within-quota tariff. The bounds range from no furtherreduction, to the elimination of tariffs on TRQ imports

TRQs are problematic. In the Uruguay Round countries established current access TRQs tomaintain existing import concessions based on 1986-88 import volumes. These are almostinevitably country-specific TRQs, and they are the mechanism by which many importing statesoffer preferential access to their markets. However, as the EU and the ACP states have foundover bananas, it is not easy to satisfy other WTO provisions (in particular GATT Article XIII onthe non-discriminatory administration of quantitative restrictions), and other preferentialarrangements may yet be challenged (e.g. the EU s imports of ACP sugar). Further country-specific TRQs have subsequently been opened to compensate other WTO Members forchanges in trade regimes, for example for the 1995 expansion of the EU.

Minimum Access TRQs were introduced to counter the fear that even after tariffication andsubsequent tariff reductions, many tariffs would remain prohibitively high. They were to be setat 3% of the level of domestic consumption in the base period (1986-88), rising to 5% by theend of the implementation period. They were to be administered on an MFN basis, and thewithin-quota tariff was to be at a low or minimal rate . In principle TRQs were to be introducedat the 4-digit level. Special arrangements were initially in place for rice into Japan and SouthKorea.

Mamaty (2002: 9) reports that no African country opened TRQs.All sorts of problems have been encountered. Low fill rates are a problem. In part this stems from

complex administrative procedures, with for example licences issued too late in the year forimports to be effected; in part in stems from the in-quota tariff being set too high. Sometimes,however, changes in the importing state s agricultural policy have changed the incentivestructures. For example the 1992 reform to the EU s cereals regime has meant that imports ofmanioc/cassava are no longer as commercially attractive as they were prior to 1992.

Although supposedly available on a MFN basis, minimum access TRQs can in effect be allocatedto preferred suppliers (for example EU imports from Eastern Europe). Furthermore, the importlicenses associated with TRQs often have considerable commercial value: there is a tariffquota rent to be earned by the trader lucky enough to be allocated an import license. Inreality, these rents will usually be captured by the nationals of the importing state, although dcexporters might hope to benefit from an increase in sales volume.

There is little chance that the existing system can be scrapped. The question is, how can thepresent system be improved? Dcs have an interest in improving administrative systems(increasing transparency etc.), but traders located in the importing state will continue tocapture most of the tariff quota rents. Low-fill rates need to be examined on a case-by-case

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Issue Commentarybasis. Where high in-quota tariffs are the cause then tariff reductions can be requested. Butthe overwhelming interest of dcs lies in a rapid expansion of TRQs, so that the quotas are nolonger binding and all trade then takes place at the within-quota tariff. Any attempt to reducethe in-quota tariffs to zero would be problematic in that this would generate bigger monopolyrents for traders (with no guarantee of a revenue gain for the exporting state), and it wouldmean that importers would be less likely to agree to significant increases in TRQ volumes(because, ultimately, as the TRQ is expanded all trade will take place at a zero tariff). Dcsshould themselves resist pressures to open new TRQs for their markets, as this createsadministrative burdens, and incentives for unscrupulous activities.

Tariff SimplificationHT1 listed several variations of the theme that specific

duties should be converted to ad valorem tariffs.However the issue of tariff escalation is also anexpression of the need for tariff simplification.

Exporters often complain that a specific tariff structure lacks transparency, in that tariff escalationis not easy to spot, and that the level of protection is unclear. In some instances both a specificand an ad valorem tariff applies. This is so for beef imports into the EU for example, and formany Non-Annex I goods (processed foods, for example) into the EU.

A switch from specific to ad valorem tariffs would, however, raise the question as to whatdenominator (i.e. world market price) to use, as noted above. A simple approach would be foreach country to revisit their calculations in the Uruguay Round, and to use the world price for1986-88 that they used to determine tariff equivalents. This would be consistent with the ideathat further tariff reductions be applied to final bound rates; but it could reopen debates aboutdirty-tariffication, and questions might be raised about the relevance of 1986-88 world prices adecade and a half later. Addressing a similar problem HT2 suggested the use of 1999-2001data.

There is a further issue, however, not reflected in the HT. For fresh fruits and vegetables tariffscan vary through the year, so that exporters have to grapple with a seasonal calendar.Furthermore, the EU operates an entry (minimum import) price regime in addition to Article 5(Special Safeguard) provisions (see Swinbank & Ritson, 1995). Complex rules of this sort willtend to weaken the bargaining position of the exporter, and strengthen that of the importer, asa lot of management time must be devoted to mastering the complexities of the importregimes. Dcs should press for an elimination of seasonal tariff structures, and question the useof minimum import prices not provided for in Article 5.

Sectoral Initiatives The US has suggested that WTO Members engage in

negotiations on a sector-specific basis on furtherreform commitments that go beyond the basicreductions that will apply to all products. These would

It is not clear what products the US has in mind. Do they mean deep tariff cuts on products forwhich the US itself has high levels of protection (e.g. sugar, milk), or do they envisagemultilateral removal of support for products for which the US has an international comparativeadvantage (e.g. soybeans, maize)? Dcs should proceed with caution, and examine the meritsof any particular case.

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Issue Commentaryinclude deeper tariff reductions, product-specific limitson trade-distorting domestic support, and othercommitments to more effectively address the trade-distorting practices in the affected commodity sectors.(http://www.fas.usda.gov/itp/wto/proposal.htm)

State Trading Enterprises (Single Desk Buyers)HT1 suggested that there is near consensus that

strengthened disciplines should apply to state tradingenterprises.

The central idea of those wanting to introduce newdisciplines is that the Single Desk Buyer should notoperate to restrict imports more than is implicit in thecountry s tariff schedule, and that it should not act toprotect domestic agriculture.

The main international concern with State Trading Enterprises relates to Single Desk Sellersrather than Single Desk Buyers, and the activities of the large export marketing boards indeveloped (or advanced developing) countries. However, concerns are also expressed aboutState Trading Enterprises in a number of large Asian economies, where the concern is thatSingle Desk Buyers can frustrate the intent of trade liberalisation, expressed in terms of tariffreductions and the opening of TRQs, by failing to source from international markets and passon price reductions to the importing country s citizens. The concern is that at best thebureaucracy is lazy and inefficient; at worst it exploits its monopoly power to protect, andcross-subsidise, domestic production.

However, there are the usual dilemmas associated with privatisation. If you get rid of a statemonopoly, will it simply be replaced by a private monopoly (or oligopolistic cartel)? Is thecountry (and its import trade) large enough to support a large enough number of competitivetraders? Further, it is suggested that in certain circumstances State Trading Enterprises canhelp fulfil rural development and food security objectives in dcs, particular in LDCs and otherfood vulnerable dcs.

Despite these concerns, dcs should support the principle of improved disciplines to stop StateTrading Enterprises misusing their position to thwart trade liberalisation.

Special and Differential (S&D) TreatmentA number of issues are covered by this heading.1. There is widespread agreement that dcs be allowed a

longer implementation period, and smaller tariffreductions, as in the Uruguay Round; but as noformula or numbers have yet been agreed fordeveloped countries there are similarly no numbers forS&D treatment. Similarly there is wide support that theLDCs be exempt from reduction commitments.

2. There are (rather more controversial) requests forfurther special treatment of the import regime of dcs.For example that dcs be allowed to identify staple

Bedevilling the whole question of S&D treatment is the self-determination of the categorisationdeveloping .

It is unlikely that any country will object to the principle of granting longer implementation periodsand smaller reduction commitments to dcs, and to exempting LDCs from reductioncommitments. However, the magnitude of the concession is difficult to judge. Perhaps a repeatof the Uruguay Round concessions might be appropriate, if the Uruguay Round formula isreused. If the Swiss Formula is deployed, a higher coefficient (the a) would be appropriate.

Far more controversial is the suggestion that dcs (rather than just LDCs) should be able to optout of reduction commitments for staple crops. Economists might question the wisdom of sucha domestic policy option, and dcs are themselves divided. Would other WTO Members becontent if South Korea were to ask for exemptions on rice? Many have pointed out that tradebetween dcs is a powerful force for increased economic growth. A compromise position might

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Issue Commentaryproducts in their citizens diet, and exempt theseproducts from any reduction commitments. Anotherrequest is that Article 5-like (Special Safeguard)provisions be extended to dcs (even though itsprovisions are revoked for developed countries),particularly for countries that did not fix high ceilingtariffs, to enable them to operate price-stabilisationschemes for staple foods as part of their food securityprogrammes. Another suggestion is that the LDCs,and other vulnerable dcs, be allowed to renegotiatetariff bindings on food staples, where low ceilingbindings had been accepted, without offeringcompensation to other WTO Members. It is alsosuggested that State Trading Enterprises (Single DeskBuyers) be exempt from the stricter disciplines thatmight apply in developed countries where they helpdcs achieve rural development and food securityobjectives; and in the more general case of net-foodimporters, importers of staple foods, and small islanddeveloping states.

3. There are suggestions that developed countriesprovide special treatment of dcs exports (or at least,the exports of LDCs). Given the EU s commitment tothis idea, it seems likely that an agreement can benegotiated. However, asking advanced dcs to grantduty free access for all exports from LDCs would bemore problematic.

But there are further issues on the table relating to tradepreference, two of which are listed here.

First concerns about the loss of preference marginsimplicit in preferential schemes when MFN tariffs arereduced, and the suggestion that exporters becompensated for the erosion of preferences; and

be to accept the proposal, subject to two provisos: that no more than, say, two products areidentified, and that the tariff should not exceed, say, 100%. An alternative might be that tariffreductions must take place for sensitive crops, but at a more gradual rate.

A redesigned Article 5, to benefit dcs, has attracted considerable support in the negotiations andshould be supported as a means to offer security to developing countries undertaking tariffreductions for sensitive crops.

LDCs, and other vulnerable dcs, that wish to renegotiate low tariff bindings on staple foods,should consider invoking GATT Article XXVIII and make clear their expectation that otherWTO Members will not extract compensation. Article XXVIII (Modification of Schedules) setsout the circumstances under which a country can negotiate a modification or withdrawal of aprevious tariff binding, with the expectation this would involve compensatory adjustmentbeing offered to countries adversely affected. Concerted action by all LDCs and othervulnerable dcs would help ensure the success of this initiative.

Dcs should support the EU s suggestion that 50% of imports from dcs into developed countriesshould enter at a zero duty. However, there is a danger that this could lead to more tariffescalation, and a greater degree of discrimination, if countries are allowed to reach the 50%threshold through selective choice of products and partners. Thus the request from dcs shouldbe that for raw material imports to count towards the 50% target, there should be no tariffescalation on processed products, and that the MFN or GSP tariff should be zero.

Dcs should argue for S&D Treatment for Single Desk Buyers in only limited cases, where it isunlikely that a competitive private sector can readily replace the private sector. This wouldinclude the LDCs, the small island developing states, and —subject to the development ofobjective criteria— dc importers of significant quantities of staple foods. If dcs were given alonger period in which to implement increased disciplines, there would be time to developthese new criteria.

The suggestion that developed countries should grant duty- and quota-free access for allproducts from LDCs is potentially problematic for the other dcs that do not gain privilegedaccess. However given the small proportion of world trade accounted for by the LDCs, tradedistortions will be limited. Everything but Arms fatally undermines the protectionist policies ofthe EU. The EU has already admitted so in the case of rice, and will likely do so for sugarduring the course of 2003. However, LDCs should be cautioned not to engage in heavyinvestment programmes to grow crops that cannot be justified without the benefits of EBAaccess.

It is difficult to believe that WTO Members will agree to binding commitments to compensate

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Issue Commentarysecond the suggestion that to improve thetransparency, stability and predictability of preferentialschemes they should become binding commitments inthe WTO.

exporters who see an erosion of their preference margins, and so pursuit of this policyobjective by dcs could simply be counterproductive (in aggravating the preference-grantingimporters). Similarly importers are unlikely to be willing to enter into WTO bindingcommitments on preferential tariffs for all dcs (under GSP Schemes for example): at themoment the importer determines the criteria that dcs must meet to be a GSP beneficiary.However, for LDCs, where objective criteria exist (however imperfect), binding commitmentsare achievable.

Geographical Indications of Origin This, and some other issues (e.g. food safety, mandatory

labelling) is largely inspired by EU concerns, and haslittle popular support.

Although the EU has suggested that some products (e.g. Basmati rice, and Darjeeling tea) ofinterest to dcs could benefit from strengthened rules, there is little to suggest that dcs as agroup perceive this to be in their interest; or that they would benefit from supporting the EU.Complex issues related to the regulation of GMOs are, in part, behind concerns about foodsafety and mandatory labelling. Dcs should press for these issues to be addressed elsewherein the negotiations/WTO: in the context for the TRIPS (geographical indicators), SPS (foodsafety) and TBT (mandatory labelling) Agreements for example.

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DOMESTIC SUPPORTThe Structure of the Agreement Many countries have proposed some changes to the

detailed rules within the boxes; but —superficially atleast— the most fundamental difference lies in theapproach to the Blue Box. On the one hand somecountries want to retain the Blue Box, whilst otherswish to see it merged into the Amber Box, thuscreating two categories of support: exempt and non-exempt. There are some demands that Green Boxexpenditure be capped, and/or that some currentGreen Box programmes be transferred to the AmberBox.

The basic structure of the Agreement on Agriculture isthat all domestic support measures are subject toreduction commitments (i.e. form part of the AmberBox) unless they conform to the criteria set out inAnnex 2 (the Green Box) or are otherwise exemptedby Article 6. This includes paragraph 4 (de minimispayments), paragraph 5 (direct payments underproduction-limiting programmes, the Blue Box), andvarious schemes in dcs (paragraph 2)

Although the terminology is not to be found in the agreement, reference is often made to theGreen (decoupled), Blue (partially decoupled), and Amber (the Aggregate Measurement ofSupport, or AMS) Boxes.

Only 5 WTO Members were making use of the Blue Box, according to the latest submissionsreceived by the WTO (TN/AG/S/4, Attachment 2, 20 March 2002): the EU, Japan, Norway, theSlovak Republic and Slovenia. The latter two are scheduled to join the EU in 2004. In 1995both Iceland and the US made use of the Blue Box, but have not done so since. In itsproposals for the mid-term review of the CAP, the European Commission has proposed afurther decoupling of Blue (and some Amber) Box subsidies, to create a Farm IncomePayment which, most commentators agree, would push spending into the Green Box,rendering the Blue Box largely redundant. Thus it might be thought that a consensus canreadily emerge to abolish the Blue Box. However the EU s negotiating position cannotconcede this point unless and until the mid-term review is agreed. French, and other, interestswill oppose this. Furthermore, some crop-specific direct payments would remain, and the EUmight wish to retain the Blue Box for these residual amounts.

Dcs should support the abolition of the Blue Box.

The Green BoxHT1 suggested that there is near consensus that

paragraph 1of Annex 2 be retained, but then listsdetailed suggestions for change to all but two (para. 2on Government Service Programmes, and para. 4 onDomestic Food Aid) of the following paragraphs,including detailed drafting amendments, in addition tosome countries expressing their preference for thestatus quo. There are also suggestions that six furtherparagraphs be added.

Para. 3, Public Stockholding for Food Security Purposes.The basic issue here is that if food is purchased and

Annex 2 has an over-arching paragraph 1, setting out the requirements that must be met for ameasure to fall within the Green Box, followed by 12 further paragraphs setting out detailedprovisions that specific Green Box policies must fulfil.

Although Green Box expenditure is exempt from reduction commitments, Members must reportall Green Box expenditure to the Committee on Agriculture in Supporting Table DS:1.

There are two undercurrents to the debate. On the one hand the Cairns Group and many dcs aresuspicious about the switch in support from the Amber and Blue Boxes into the Green Box:they feel the Green Box is too commodious, allowing trade distorting policies to persist, andwant to introduce new disciplines. Even if, on an individual basis, policies are minimally tradedistorting, overall the wealth and insurance effects will promote production. On the other hand,the EU, Norway, and other supporters of the concept of multifunctionality , believe that thereare legitimate policy objectives that governments should be able to pursue that are not

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sold at prevailing market prices, the costs of runningthe programme are not a charge on the AMS.However if food was bought at administered prices,and subsequently sold at a lower price, there would bea charge to the AMS. Some dcs want to be able to buyat administered prices within the Green Box.

Para. 5 details generic provisions for direct payments toproducers (as outlined in paras 6 to 13).

Para. 6 covers decoupled income support. Somecountries want this provision removed from the GreenBox, or subject to expenditure constraints. Otherswant greater transparency ( fixed and unchangingbase periods) and limitations on the period theprogramme can last ( no more than three years andshall not be renewed ).

Para. 7, income insurance and income safety-netprogrammes. Some detailed drafting amendments,and a proposal that it be excluded from the Green Boxor subject to expenditure limits.

Para. 8, natural disasters, detailed drafting amendments.Paras 9 & 10, structural adjustment through producer

retirement and resource retirement programmes. Thecommon theme of a proposed amendment is thatpayments should be time limited.

Para. 11, structural adjustment through investment aids.Proposals attempt to tighten up the criteria, and oneproposal to remove from the Green Box, or capexpenditure.

Para. 12, environmental programmes, detailed draftingamendments.

Para. 13, regional assistance programmes; proposals totighten the criteria.

New Paragraphs are proposed to deal with: i) temporaryexemption for investment and input subsidies forcountries in transition, ii) a generic paragraph coveringcompensation payments for policies designed to

adequately accommodated within the Green Box. They wish to see its provisions widened.Second, and somewhat related to this first undercurrent, is the suspicion that the existing Green

Box is inappropriate to dcs. In a number of instances the provisions do not seem to meet theneeds of dcs (hence a tendency to side with the multifunctionality camp, in the expectationmultifunctionality can be enlarged to embrace dcs concerns), but because of tight budgets

and expenditure constraints dcs are not able to avail themselves of Green Box provisions(hence a tendency to side with the Cairns Group, and place further limits on the Green Box).

The negotiating problem with the Green Box is that it is rather like Pandora s box: once open, it isdifficult to know what will emerge, and how the conflicting views will be reconciled.

Para. 3 is an example of the second undercurrent. Some dcs are concerned that the provisionsare not flexible enough to meet their concerns. How strongly dcs as a group feel on this issueis unclear.

Para. 6 reflects the tensions of the first undercurrent. Countries suspect that by making relativelyminor changes to farm policies, switching programmes into the Green Box, the EU and the UScan go on spending vast sums. An issue such as this could be a major stumbling block in thenegotiations: if the EU s mid-term review goes through, its new Farm Income Payments will bedeclared under para. 6. It is inconceivable that the EU would then agree to major changes topara. 6. Would other countries risk a breakdown of the talks on this issue? If not, is this questworth pursuing?

Para. 12. Supporters of multifunctionality do not appear to have proposed a specific redrafting ofthis paragraph. Instead, multifunctionality appears to be covered by the new paragraphsproposed.

All of the proposed new paragraphs reflect the concerns of multifunctionality, where jointness inproduction is an issue. To what extent can the beneficial externality be delivered withoutstimulating production of agricultural products and thus impacting on trade? However it isdifficult to see how food safety concerns fit in: surely the same issues arise over imported

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address non-producer concerns such as consumerand societal demands , iii) animal welfare payments,iv) payments to compensate for higher food safetystandards, v) payments to small scale family farms forthe purpose of maintaining rural viability and culturalheritage , and vi) payments to maintain domesticproduction capacity of staple crops for food securitypurposes.

foods, and if so why does the domestic industry need extra support?The sixth proposal, on staple crops for food security purposes, might be seen as a dc issue.

However, this suggestion very much reflects the interests of rice producing economies such asJapan and South Korea.

Article 6(2)There has been considerable talk of the need for an

extension to the measures included in Article 6(2) toprovide developing countries with flexibility to continuesupport to rural development and poverty reduction.

HT1 suggested that there is near consensus to retain,and perhaps broaden, Article 6(2).

There are a number of proposals tabled to broaden thescope of Article 6(2). One proposal would exempt allinvestment and input subsidies, whether or notprovided to targeted producers or products , andsubsidies to cover marketing costs, except whereproducts are exported and capture at least 3.25% ofthe world market for that product.

Another proposal has the same 3.25% franchise, but inthis instance the exemptions are justified provided thatfor food crops for the domestic market productivity inthat country is less than the world average (asdetermined by the FAO) and, for export crops, theycapture less than 3.25% of the world market.

Article 6(2) of the Agreement on Agriculture already provides that:investment subsidies which are generally available to agriculture in developing country

Members and agricultural input subsidies generally available to low-income or resource-poor producers in developing country Members shall be exempt from domestic supportreduction commitments that would otherwise be applicable to such measures, as shalldomestic support to producers in developing country Members to encourage diversificationfrom growing illicit narcotic crops.

Exempt expenditure under Article 6(2) must be reported to the Committee on Agriculture onSupporting Table DS:2.

Note that the protection of the Peace Clause (Article 13 of the Agreement on Agriculture) is inpart dependent upon the condition that such measures do not grant support to a specificcommodity in excess of that decided during the 1992 marketing year . However, as Article 6(2)refers to investment and input subsidies, which are not necessarily commodity specific, it is notclear how this test would be applied.

Application of the 3.25% franchise would be another bureaucratic chore for dcs to deal with, thatcould be the subject of dispute. At the margin, crops might qualify one year, but not the next.The productivity test is also problematic: it has the same problems as the 3.25% franchise,but in addition the meaning of the term productivity is potentially ambiguous. It is almostcertainly not the economist s concept of total factor productivity, and would probably have tobe operationalised as yield per hectare or animal.

The importance of the request for an extension to Article 6.2 is limited. Taken together with the10% de minimis clause (see below) all dcs already have sufficient scope to pursue their foodsecurity and development objectives. The common complaint is that the financial resources ofdcs are too stretched to allow full use of these provisions. There is therefore little to be gainedby pushing for this reform.

Blue BoxThere are basically three proposals on the table: i) to

Article 6(5) refers to direct payments under production limiting programmes based on: i) fixedarea and yields, or ii) 85% or less of a base level of production, or iii) a fixed number of

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repeal Article 6(5), with — by implication — a switch ofexisting Blue Box expenditure into the Amber Box, ii)retention of Article 6(5), but with reductioncommitments on Blue Box expenditure, and iii) tomaintain the Blue Box provisions unchanged. In effectoption ii) immediately conflates with option i) forcountries with no Blue Box payments.

Proposals for reduction commitments include thesuggestion that, for developed countries, Blue Boxpayments be eliminated over 3 years with a 50%reduction in year 1. At the end of this period Article6(5) would be rendered redundant.

animals.As noted above, the EU is the major user of this provision; and it may well be on the verge of

phasing out most Blue Box payments. If so, it might be asked why should countries bothernegotiating on this issue? It is potentially important, because if Article 6(5) is retained, andreduction commitments are not applied, then any WTO Member could at some future dateintroduce Blue Box payments. This might, for example, switch support from a binding AmberBox into the Blue Box.

Blue Box subsidies might be challenged under other WTO Provisions were it not for theprotection afforded by the Peace Clause (Article 13 of the Agreement on Agriculture). As notedelsewhere in this document, the Peace Clause expires at the end of 2003 (or the 2003/04marketing year). Thus discussion of Article 6(5) — and for that matter other domesticsubsidies, and export subsidies — is tied-up with a discussion of the Peace Clause: whichparts of it may be retained and which not? However, countries that in the future mightcontemplate introduction of Blue Box measures should note that the existing Peace Clauseprotection is limited to measures that do not grant support to a specific commodity in excess ofthat decided during the 1992 marketing year.

In conclusion, dcs have no interest in a retention of Article 6(5), nor —if the EU is to abandonmost Blue Box payments— in a repeal of Article 6(5). However, the introduction of bindingcommitments on Blue Box expenditure would be in their interests, as it would stop thereintroduction, or creation of new, Blue Box payments.

The Amber Box: An Aggregate Measurement of Support(AMS)

HT1 suggested that there is near consensus that theAMS commitments, bound in Part IV Section I ofMembers Schedules, should be the basis for futurereduction commitments. However, several countrieshave suggested different approaches.

Two possible variations are, first to start from a newbase, relating to the average level of support in theperiod 1995-2000.

Second, to change the calculation so that quantity ofproduction reflects all marketable production thatbenefits directly or indirectly from support, and tochange the method of calculation in the circumstancethat an applied administrative price is abolished.

The AMS is an estimate of the support received by the farm sector that is not exempted byreason of the Green, Blue or Development Boxes, or the de minimis provisions. In theUruguay Round it was subject to reduction commitments (—20% for developed countries,—13.3% for dcs, and zero for LDCs). Thus countries that declared a zero AMS cannot nowintroduce Amber Box support.

34 WTO Members (counting the EU as one) have reduction commitments (TN/AG/S/4, 20 March2002: 1), including a number of dcs. For example, of the dcs in the Cairns Group, Argentina,Brazil, Colombia and Thailand have AMS reduction commitments.

As noted, the AMS is an estimate. Direct payments correspond to actual budget outlays, butmarket price support has to be calculated. Paragraph 8 of Annex 3 of the Agreement onAgriculture specifies what needs to be done:

market price support shall be calculated using the gap between a fixed externalreference price and the applied administered price multiplied by the quantity ofproduction eligible to receive the applied administered price. Budgetarypayments made to maintain this gap, such as buying-in or storage costs, shall

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A further issue has been raised: that of inflationadjustment. Article 18(4) of the Agreement onAgriculture does say that Members shall give dueaccount to the influence of excessive rates of inflationon the ability of any Member to abide by its domesticsupport commitments . Some countries havesuggested that this provision be given operationalsignificance. Others that inflation adjustments shouldnot be allowed.

not be included in the AMS (emphasis added).The fixed external reference price is a fob or cif price for the period 1986 to 1988. Thus

movements in the world market price do not affect the AMS.The applied administered price is usually taken to be an intervention price, or equivalent. If as a

result of policy reform , applied administered prices are repealed, the AMS falls away to zeroeven when high border protection and generous export subsidies maintain domestic priceswell in excess of world market prices. One of the proposed changes (see left) would require arepresentative domestic market price to be used in lieu of the applied administered price

when no effective policy reform has actually occurred.The quantity of production eligible to receive the applied administrative price has been narrowly

interpreted. Thus the EU calculates an AMS for butter and skim milk powder, but ignores milkused in other products, such as cheese, yoghurt and drinking milk. One of the proposedchanges (see left) seeks to broaden the scope of the AMS calculation.

The group of countries that have both declared an AMS and suffered high inflation is small (somecountries that have suffered high inflation declared their AMS in US dollars, or the then ecu(now )), and so there is not a large (or powerful) constituency to push for this reform.

These are complex issues. There is no compelling reason why dcs should involve themselves inthe complexities of the debate. They should simply support the proposal that the base level forreductions should be the final bound commitment levels in the Members Schedules.

De Minimis RulesHT1 reported a wide range of views. At one extreme the

provisions would be retained intact (with presumablythe need to roll-over the relevant provisions of thePeace Clause).

At the other extreme, the de minimis provisions would berepealed for developed countries. The EU is a keyproponent of this view.

These are enshrined in Article 6(4) of the Agreement on Agriculture. The relevant figure is 5% fordeveloped, and 10% for dcs (including of course LDCs). There are two instances:—product-specific domestic support does not have to be included in the Member s AMScalculation if such support does not exceed 5/10% of the value of the output of that product;and—non-product specific domestic support does not have to be included in the Member s AMScalculation if such support does not exceed 5/10% of the value of total agricultural output.

Thus, if finely tuned, a developed country could give support valued at 10% of agricultural output:5% for each product in product-specific support, and 5% in non product-specific support.

The EU has not made much use of this provision, but the US has. In 1998 the US declared acurrent total AMS of $10.4 billion. Had the de minimis reductions not applied the US AMSwould have been $15.1 billion (G/AG/N/USA/36).

The de minimis exemption is covered by the Peace Clause, with the important proviso that, inpart, the protection is limited to measures that do not grant support to a specific commodity inexcess of that decided during the 1992 marketing year .

Reduction Commitments Under the present arrangements the AMS is an amalgam of product-specific and non product-

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There are a wide range of views on reductioncommitments, but a general consensus that thepermitted levels of domestic support should bereduced.

One overarching issue is product-specifity. Somecountries wish to see the reduction commitmentsapplied on a product-specific basis, rather than on acountry s aggregate AMS.

The proposals range from the EU s suggestion that, fordeveloped countries, the aggregate AMS be reducedby 55% (but with the additional suggestion that the deminimis clause be removed), through to proposalsthat, on a product-specific basis, the AMS be reducedto zero over five years (again for developed countries).

The US has suggested that the blue box be merged withamber box support, to form a non-exempt grouping,and that over a transitional period the non-exemptsupport be reduced to 5% of the total value ofagricultural output in the territory, whilst retaining thede minimis provisions(http://www.fas.usda.gov/itp/wto/proposal.htm).

specific support, and the reduction commitment applies to the aggregate AMS. This allowscountries to keep within their aggregate AMS bounds by focussing their AMS reductions onparticular products.

In addition to the debate about rule changes, there are two contrasting approaches: i) to apply aUruguay Round formula under which the AMS would be reduced by x% over a transitionalperiod, as advocated by the EU, as opposed to ii) the US approach which would limit the AMSto y% of the value of agricultural output after a transitional period. Of course, if x = 100 and y =0, the end result is the same. But countries with a high AMS (in relation to agricultural output)favour the first approach, whereas those with a low AMS favour the second.

Again the issues are complex, and dcs should probably avoid taking a strong stance on thedetails. Their over-riding interest is that x should be as large as possible, and/or that y shouldbe as small as possible.

Peace ClauseIn HT1 this appeared in three places: under Other

Domestic Support Issues at the end of the document,and under non-actionability of Green Box measures ,as well as under S&D Treatment.

Proposals range from i) letting the Peace Clause lapse,through ii) Green Box measures being non-actionablefor the purpose of countervailing duties, to iii) theprovisions of GATT 1994 and of the other MultilateralTrade Agreements not applying to subsidiesconforming with the new Agreement on Agriculture.

Article 13 of the Agreement on Agriculture (headed Due Restraint ) is often referred to as thePeace Clause. It refers to export subsidies as well as domestic subsidies. Its provisions arecomplex, and largely untested, but it does provide a measure of protection for subsidies thatare consistent with the provisions of the Agreement on Agriculture that might otherwise be saidto contravene other WTO agreements.

Whilst there may well emerge a consensus that the Green Box should retain the protection of aPeace Clause, this is far more contentious for Blue and Amber box measures. Dcs will want toretain a Peace Clause for Article 6(2), and any other Development Box measures, and for ade minimis clause; but they will not in the main see any need for a Peace Clause for Blue andAmber Box measures. Hence they have some bargaining power, and it could be that they gainimportant concessions in return for their agreement to extend the Peace Clause. This area ofthe negotiations warrants close attention, and dcs need to be well briefed on the issue.

Special and Differential (S&D) TreatmentHT1 suggested that there is a near consensus on a

Exemption from reduction commitments for LDCs, and longer implementation periods andreduced reduction commitments for dcs can probably readily be achieved.

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repeat of the Uruguay Round formula: that the LDCsshould not be required to make further reductioncommitments, and that dcs be allowed a longerimplementation period and lower reduction rates.

S&D Treatment is also implicit in the proposals for Article6(2). In addition, there are suggestions that the deminimis clause be retained for dcs (or even increasedto 15%) whilst being eliminated for developedcountries; and that the Peace Clause (possiblymodified) be retained for dcs but not for developedcountries.

Similarly, it is probable that the existing Article 6(2), and de minimis concessions can be retainedwithout too much fuss.

Differentiating the Peace Clause between developed and developing countries will be highlyproblematic, and will require considerable skill.

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EXPORT MEASURESExport SubsidiesWhilst there is general agreement that the policy

coverage of the agreement should be no less than thatdefined in Article 9(1) of the Agreement on Agriculture,there are also demands that the coverage be widened.

There is also the suggestion that Article 9(1) be extendedto cover the situation where i) a domestic price-linkedcompensatory payments (deficiency payments)scheme is in operation and ii) more than x% of theproduct is exported.

Some of the transition economies have requested morerepresentative current base levels , presumably toadjust for high levels of inflation since the 1980s.

The most widely noted demand is that for further disciplines on export credits. The EU, forexample, has US policy in mind when it says that its offer on export subsidies is conditionalthat all forms of export subsidisation are treated on a equal footing (European Commission,

2003).The EU in its submission has also suggested that it views deficiency payments as a form of

export subsidy (when it offers to eliminate export subsidies for certain products, provided allWTO Members forsake all forms of export subsidy on these products, including deficiencypayments). The HT does not appear to make reference to the widely held view that Blue Boxpayments can also be interpreted as export subsidies.

Reduction CommitmentsHT1 suggested that there is broad agreement that the

product specificity of commitments, agreed in theUruguay Round, and reflected in Members Schedulesshould be retained. However the EU s submission hassuggested that the reduction commitment shouldapply on an aggregate, rather than product-specific,basis.

Whilst HT1 suggested that the base level forcommitments will be the final bound rates in MembersSchedules, an alternative proposal on the table is thatthe actual subsidy level in the period 1995-2000, iflower than the 2000 bound level, should apply.

The reduction commitments proposed range from aphased elimination of all export subsidies, on aproduct specific basis, over a defined period, with a50% down-payment in year 1, to the EU s proposal ofa 45% reduction, in aggregate, in export subsidiesover 6 years, with an unspecified average substantialcut in the volume constraints. As far as we are aware,

There are 25 WTO members with export subsidy reduction commitments, but the EU dominatesthe list. For example in 1995 the EU accounted for 89% of the spend on export subsidies,expressed in US dollars (TN/AG/S/1, Table 1, 5 March 2002). The only dcs on the list areBrazil, Colombia, Costa Rica, Cyprus, Indonesia, Mexico, South Africa, Turkey, Uruguay andVenezuela. Importantly, neither Japan nor South Korea have an export subsidy reductioncommitment: they, like other WTO Members, cannot make use of export subsidies. Thus theinterest in retaining the ability to grant export subsidies is predominantly an EU affair.

The Uruguay Round formula applied on a product specific basis. Developed countries had to cutexpenditure on export subsidies by 36%, and reduce the volume of subsidised exports by21%, compared with a 1986-90 base, over the implementation period.

Although NFIDCs may be concerned about the (upward) impact on world market prices of aremoval of export subsidies, the overwhelming dc interest lies in their rapid elimination. Thereseems no reason why this should be an unattainable objective: the EU s offer must be seenas the very minimum concession that can be achieved; and to some extent asking for moremay be like pushing on an open door. A danger might be that countries press the EU hard onthis issue, the EU responds by magnanimously conceding more, while attention is divertedfrom the more difficult, but potentially more important issue of market access.

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no WTO Member has suggested there should be nocuts.

The EU has also said it is willing to forgo export subsidieson certain products provided all WTO Members dothe same.

Article 10(3) Although not, apparently, listed in HT1, the latest

developments in the Canadian milk dispute couldcause a number of Members to request a review ofthe Article 10 provisions. According to industry reports,the WTO Dispute Settlement proceeding has ruledthat any sales at prices below the average cost ofproduction in Canada were subsidised exports (DairyIndustry Newsletter, 14(18), 3 January 2003).

Article 10(3) of the Agreement on Agriculture says that Any Member which claims that anyquantity exported in excess of a reduction commitment level is not subsidized must establishthat no export subsidises, whether listed in Article 9 or not, have been granted in respect of thequantity of exports in general .

The panel ruling (left) would be a challenge not only to the Canadian dairy quota regime, but alsoto the EU s sugar policy. Whenever some exports are subsidised, and others (apparently) not,the onus is upon the exporting Member to prove they were not subsidised.

Export Credits, Insurance and Guarantees10 pages of the table in HT1 are devoted to this topic,

with a range of complex proposals.A consensus seems to have been reached that

disciplines do need to be established, in particular toavoid any circumvention of the export subsidyconstraints expressed in Article 9 of the Agreement onAgriculture.

One challenge is in determining the extent to which statesponsored export credits and export credit insuranceand guarantee programmes involve a subsidy elementin comparison with commercial schemes. There issome support for the view that if such a subsidyelement can be identified, this should form part of thatMembers export subsidy constraints.

Subsidiary proposals include the notion that themaximum repayment term should be 180 days forfood or feed-stuffs (although it could be longer forbreeding animals, or other instances where the exporthad the characteristic of capital).

Also on the table (as part of S&D Treatment) is the

This issue is a left-over from the Uruguay Round. Agreement could not be found, and work wasto continue to develop internationally agreed disciplines (Article 10(2) of the Agreement onAgriculture). The issue is complicated because it extends beyond agriculture into other sectorsof the economy.

A lot of wok was undertaken in the OECD, but this caused a good deal of resentment amongnon-OECD Members of the WTO.

For a long time the EU has treated this as a major issue. It believes it is wrongly pilloried for itstransparent system of export subsidies, whilst the US has been able to escape with fewcriticisms of its far less transparent system of export credits. Evidence suggests that the extentof the subsidy involved in the US system is far smaller than that of the EU; and the matter isfurther complicated by the fact that some of the EU s Member States (e.g. France) have exportcredit systems in addition to the EU s export subsidy regime. An OECD survey suggested thatthe subsidy element in the US export credit scheme is much greater than those of other OECDmembers: $258.0 million in 1998 for example, compared to $23.6 million from the EU and $5.1million from Australia (Thompson, 2002: 38). Nonetheless, the EU is so heavily committed tothe idea of disciplining the use of export credits it might now have difficulty selling to its farmlobby a Doha deal restricting export subsidies if an offsetting deal on export credits is notsecured.

Export credits can be targeted at particular countries, and it has been suggested that this isparticularly important for LDCs and the NFIDCs. The same OECD survey casts doubt on thisassumption in showing that in the survey period only 9% of export credits were targeted to net

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suggestion that differential rules should apply whenthe export is destined for the LDCs and the net food-importing dcs, in accordance with paragraph 4 of theUruguay Round Decision on Measures Concerningthe Possible Negative Effects of the ReformProgramme on Least-Developed and Net Food-Importing Developing Countries.

food-importing dcs, and 0.2% to the LDCs, whilst 57% were extended to importers in OECDcountries (Thompson, 2002: 39).

As with many earlier topics in this list the detail is potentially overwhelming. Dcs would seem tohave no strong interest in this issue, but should perhaps support the EU s position in that adeal on export credits could facilitate EU acceptance of more restrictions on export subsidies.

State Trading EnterprisesAlthough HT1 suggested that for importing state trading

enterprise the working hypothesis was thatstrengthened disciplines would apply, no comparableentry is made for exporting state trading enterprises(single desk sellers). The range of options listedranges from: i) existing provisions are sufficient,through ii) new disciplines to cover exclusive rightsand privileges, price pooling, cross subsidisation,exclusive export or domestic purchase rights,government financial support and export creditactivities , to iii) export monopolies should beprohibited.

There is however an emerging consensus thatnotification requirements should be established toincrease transparency.

The US has taken a very strong position on this issue, and has for decades complained about theactivities of the Canadian Wheat Board. In its July 2002 submission, for example, it has said:WTO rules allow for state trading enterprises such as the Canadian Wheat Board to benefit

from special rights or privileges in export sales, including special financing privileges. Theseprivileges can create perverse incentives for exporters and producers that result in marketdistortions, and can hide export subsidy activity.

The EU has also said that it wants cross-subsidisation, price-pooling and other unfair tradepractices in exports to be disciplined; but it is not clear how strongly it feels on this issue.

There is a proposal under S&D Treatment that State Trading Enterprises in dcs that account forless than a specified percentage (say 5) of world trade in the product be exempt from any newprovisions (and similarly for any State trading Enterprise that contributes to food security,although what this would mean in operational terms is unclear).

This is largely a battle between the US and some members of the Cairns Group (chiefly Canada),and there is probably little to be gained by dcs being actively involved in the debate, providedsome S&D Treatment can be negotiated. As with import monopolies, privatisation of exportmonopolies would be inefficient if a private monopoly (or cartel) were to replace the publicmonopoly; and there needs to be some assurance that a competitive exporting industry wouldemerge.

Peace ClauseThe two extremes are i) that the Peace Clause should

cease to apply, and ii) that it should continue to apply.

Article 13(c) of the Agreement on Agriculture is the relevant provision and, in common with thewhole of Article 13, it will lapse at the end of 2003 unless renewed.

Dcs, as a group, have little interest in a continuation of Peace Clause provisions for exportsubsidies. They should resist any attempt to extent this particular facet of the provision unlesstheir own negotiating demands are substantially met.

Export Restrictions (and Taxes)A wide range of views, and no emerging consensus,

appeared in HT1. The two extremes are i) that exportrestrictions (and taxes) should not form part of thenegotiations, and ii) that export restrictions (and taxes)

GATT 1994 does not prohibit export taxes, anymore than it prohibits import taxes.The existing Agreement on Agriculture has very limited disciplines on export prohibitions and

restrictions (Article 12). Under GATT Article XI, export taxes are allowable, but exportprohibitions or restrictions are only allowed when they are temporarily applied to prevent orrelieve critical shortages of foodstuffs or other products essential to the exporting party.

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should be prohibited for developed countries.An in-between position is that a process analogous to

tariffication should be applied under which exportrestrictions/taxes would be converted to export taxequivalents, bound, and then be subject to reduction.

When developed countries, and dcs which are a net -food exporter of the specific foodstuffconcerned , invoke this provision, the Agreement of Agriculture provides that they are to givedue consideration to the effect of their actions on importing Members food security , andgive notice to the Committee on Agriculture.

One event that brought this issue to the fore was the imposition of export taxes on cereals by theEU in the mid-1990s when world market prices soared.

Japan, with its concerns for food security and as a major importer, is one of the countries that hasexpressed most concern about export restrictions and taxes impacting upon its capacity toimport, and accordingly it has advanced proposals to apply disciplines.

Many dcs believe that export restrictions and taxes can be an important part of their domesticfood security programmes.

Perhaps export prohibitions by developed countries, and by developing countries for products forwhich the country is a net exporter, should be banned and reduction commitments imposed onexport taxes?

Special and Differential (S&D) TreatmentA repeat of the Uruguay Round format seems likely: that

dcs benefit from smaller reduction commitments, anda longer implementation period.

HT1 also suggested that there is near consensus on anextension of the Article 9(4) concessions to dcs. Somecountries have suggested an extension of Article 9(4)to cover the other export subsidy categories coveredby Article 9(1), in cases of unforeseen circumstances,for developmental objectives and for food securitypurposes.

S&D treatment is also evident in some of the proposalson export credits, state trading enterprises, exportrestrictions, food aid, and the operation of the PeaceClause.

In the Uruguay Round the LDCs were exempt from reduction commitments, and dcs had 10years in which to implement two-thirds of the reductions imposed on developed countries.

Article 9(4) of the Agreement on Agriculture exempted dcs, during their 10-year implementationperiod, from reduction commitments on various marketing and internal transport subsidies(listed in Article 9(1)d and e), provided these were not applied in a manner that wouldcircumvent reduction commitments.

Dcs should ask for an extension of Article 9(4) for the duration of the next agreement, but anextension of its provisions would undermine their credibility as a group in pressing for theelimination of export subsidies.

Food AidHT1 devotes 6 pages of its table to this topic, with a

number of detailed proposals, emphasising thesensitivity of this topic. There seems to be aconsensus that food aid should be addressed, andHT1 s working hypothesis is that the objective of WTO

Other international agreements govern food aid, in particular the Food Aid Convention. It wasnever intended that the export subsidy constraints embedded in the Agreement on Agricultureshould restrict genuine shipments of food aid, but the problem lies in defining genuine foodaid. The EU, for one, suspects that food aid shipments can, in effect, circumvent the exportsubsidy constraints; and the finger of blame is often pointed at the US.

There is evidence to suggest that food aid shipments are inversely related to movements in world

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disciplines should be to prevent circumvention of theexport subsidy commitments by addressing onlygovernment to government aid (programme food aid),leaving the rules and commitments on emergency andproject food aid to the responsibility of the relevantinternational organisations. However, a counterproposal is that WTO rules should cover all types offood aid.

Some have suggested that food aid should be in grantform only. Another is that where a concessionalelement is involved, this should be expressed as apercentage of the donor s average annual value offood aid for the period 2000-02, and bound, and thenreduced during an implementation period, with thevolume of concessional aid being directly replaced byfood aid in grant form.

One particular commitment suggested is that food aidvolumes should not be reduced when world marketprices increase.

market prices. The EU in its submission (European Commission, 2003) claims: Some WTOmembers have used food aid donations more as a production and commercial tool to disposeof surpluses and promote sales in foreign markets than as a development tool tailored to theneeds of recipient countries. This is often taken to be an indirect reference to the US.

This looks like a fight between elephants. Dcs should avoid getting too closely involved with thedebate.

stock-take of the wto agriculture negotiations

Documents