Agri-talks mark time, for end of peace clause or new round?

by Chakravarthi Raghavan

Geneva 25 July 2001 - The three-day informal discussions this week in the mandated agriculture negotiations at the WTO were devoted to discussions of export credits, export subsidies, state trading enterprises (STEs), export restrictions and taxes, food security and food safety issues.

The second phase of the negotiations for continuation of the agricultural reform process, as mandated in Art. 20 of the Agreement on Agriculture (AoA) is taking place at special meetings of the WTO Committee on Agriculture, and is chaired by Mme Apiradi Tantraporn, the ambassador of Thailand to the WTO.

The chair of the General Council, in his report on the Doha Preparatory process (for the General Council) on the state of the preparatory work, has suggested that the negotiations are moving forward, but trade diplomats said that in fact protagonists are basically repeating (at greater length) their proposals already on the table.

On the one hand, the Europeans and Japan are not giving any ground, but suggesting they would do so in the context of a new round, which would include new issues, but insisting that without that they would not move from their stand on the scope of negotiations defined under Art. 20, but providing an elastic and expanded view of the ‘non-trade’ concerns covered by Art.20.

The Cairns Group of countries are pushing for more basic changes through an expanded mandate and suggesting that without it they would have no interest in launching a new round with other issues at Doha, but would mark time until the expiry of the peace clause in 2003, and then attack the various subsidies, both by the EU and the US, through the dispute settlement process.

This particular play is taking place, not in the agriculture negotiations at the AoA committee, but in the preparations for Doha, and in the other fora including the media.

The latest example of the latter was at a press conference at the WTO premises by Mr. Pedro Camargo, Brazil’s Secretary of Production and Trade in the Ministry of Agriculture.

Mr. Camargo said Brazil and other developing countries had already ‘paid’ for the AoA and the Art. 20 in it for continuation of the reform process, and was not prepared to pay a second price, by way of a new round and new issues, for just the Art.20 talks.

According to other trade diplomats, this position and the threat of raising disputes when the peace clause expires has been formulated or expressed in another place, but not so far in the AoA special meetings - probably because of US pressures to play it soft at the moment, and the hope that the Doha process will produce some acceptable formula.

However, though other developing countries generally support an end to subsidies in the industrialized countries, many of them have not been agreeable to a new round with new issues.

And domestic pressures in several of them, particularly the big economies is such that anything trade negotiators could be ‘persuaded’ to agree through compromise formulations (as at Punta del Este in 1986) cannot be ‘sold back home’, particularly because of the growing realization that the WTO-style of free trade and liberalization inevitably leads to de-industrialization.

This last has been a common view in Africa, but data coming out of India seems to suggest something similar. A former financial newspaper editor and a liberal economist, Mr. Prem Shankar Jha, (who advocated reforms and liberalization in India, and supported the Uruguay Round) in a column this week in the Hindu has cited data about the deindustrialization in urban and rural areas, with a flood of cheap consumer imports closing down domestic production.

The US, without directly confronting this (given its recent understanding with the EC to work for a new round), is however focussing mainly on breaking down barriers in Europe, Japan and others for its exports, while preserving its own methods of domestic support, import barriers, and subsidised export credits.

But there have been some mixed signals too from the US - and reports that it has been trying to persuade its Cairns Group allies to go slow on expanding the mandate.

The other developing countries, by no means a homogenous element, is insisting (with the Cairns Group) on trade-distorting export subsidies (and subsidised elements of export credits), domestic support under various guises and the reduction of the high tariffs and other market access restrictions.

On export subsidies, members of the Cairns Group, a group of 5 developing countries, Switzerland and Japan have put forward proposals in phase one, and explained them in comments. The EU said that it could look at export-subsidy reductions in a phased manner provided that the export credits (mainly used by the US) and the subsidy elements in them are also looked at for drawing new disciplines.

The US however, insisted that export credits were a totally different matter and did not distort trade.

The Cairns Group did want export disciplines to cover the subsidy elements of export credits. They listed in this category, definition of export credits, defining the subsidy element, the interest rate benchmark terms and risk premia attached to such credits.

A number of other developing countries agreed that export subsidy should go.  Some of them like India however, wanted to study the issues raised on export credits in relation to the special and differential treatment provisions (S&D) including repayment terms and other details. India said the interest rate benchmarks used should reflect the inflation rates in the exporting countries.

This group of countries noted that they would need to study some of the detailed explanations and ideas put forward by some of the Cairns Group members, and come back with their comments and reactions later.

On state trading enterprises (STEs) engaged in agricultural trade, the US wanted their elimination. The EC also wants their elimination. However, Canada, which has STEs in this area, said all STEs could not be lumped together, since its own function on commercial principles.

The developing countries said that several of them used STEs for social and economic objectives. The US acknowledged this but it was not clear how it wanted this to be covered.

A number of members felt that Article XVII of the GATT 1994 would cover these issues while some others wanted it to be reflected in the agriculture agreements.

On food security, on which there was a very prolonged discussion, the US took the view that trade liberalisation in its entirety will solve the problem.

India, Indonesia and several other major heavily populated developing countries, with very large masses of subsistence farmers and rural unemployed, said that domestic production was the most important element of food security, and that such production was also linked to their plans for poverty reduction.

The Cairns Group members took the position that free trade in agriculture was the best instrument for food security, though making some noises about S&D treatment.

The Caricom countries, and a few others in a similar position, underscored their single product economies for whom market access was the most important determinant for food security. They complained of the heavy distortion in subsidised trade creating unfair trade conditions for them.

However, the Caricom representative commended and gave support to the points made by India in relation to domestic production for food security and rural unemployment - a view that is supported by some of the larger Caribbean economies.

On food ‘safety’, the EU and Japan, which have put forward proposals, wanted these issues to be dealt with as part of agricultural liberalization talks.

At a press conference, Brazil’s Pedro Camargo insisted that after the end of the Uruguay Round, a mandated process of negotiations to further reform the agriculture sector and bring it under GATT rules had been initiated. Though this process had been underway since 1995, it was moving very slowly.

The countries that were the main users of trade distorting measures had however demonstrated a low level of commitment with agriculture reform under the WTO.  They have attempted to pursue objectives not foreseen under Article 20 of the AoA, such as to treat ‘non-trade concerns’ and the three main pillars of the reform process (market access, domestic support and the export competition measures) on an equal footing.

These members (a reference to the EU and other European countries, Japan and South Korea) want Brazil and other developing countries “to pay twice” for agricultural reform. They have taken the position that results in agriculture would only be possible within a broader round.

Brazil favoured a new round, but only if agriculture is properly addressed in the ministerial declaration, by broadening the level and scope of ambition.

“Brazil cannot accept a comprehensive round with a narrow mandate in agriculture,” Camargo said.

For Brazil, a complete liberalisation of agricultural markets was vital to foster economic growth and social welfare. Existing barriers to Brazilian competitive products - such as orange juice, sugar, soybeans and their by-products, and meat - are costly in terms of employment, income and rural development.

For many developing countries, agricultural exports are one of the most important sources of foreign currency and it is crucial to reach a manageable balance-of-payments situation.

Brazil has already undertaken unilaterally measures to open its own markets in a wide range of sectors including and particularly, in agriculture. This situation needs to be balanced by further liberalisation of world agricultural markets so that developing countries like Brazil could increase their exports.

Brazil was engaged in several negotiating exercises. Besides the WTO negotiations, along with its Mercosur partners, it was engaged in reaching a broad agreement with the EU. Similarly, with its Mercosur partners it was engaged in negotiations for establishing the Free Trade Area of the Americas agreement. In all these, Brazil and others were told that the agriculture issues would be covered in the WTO. Hence, for Brazil, absence of progress in the WTO negotiations could have a negative effect on these FTAA and other regional exercises.

Brazil is fully committed to agricultural reform under the WTO but for the multilateral trading system to be credible and efficient, it has to bring benefits to all its members. The discrimination towards agriculture subtracts this credibility.

In response to questions, Mr Camargo said that if agriculture negotiations were only to be on the basis of Article 20, it would not be agreeable to a new round of comprehensive negotiations. Brazil would wait for the year 2003 when the peace clause would expire and pursue its options in terms of violations of the WTO agreements both by the US and the EU. For Brazil, the EU was the major trading partner and the US is its major agricultural market.

While Brazil’s full aims in agricultural exports may not be met through recourse to disputes after the expiry of the peace clause, Brazil could not undertake new commitments in new areas that would merely accentuate the asymmetries. – SUNS4945

The above article first appeared in the South-North Development Monitor (SUNS) of which Chakravarthi Raghavan is the Chief Editor.

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