Trade liberalization triggered by the Uruguay Round of multilateral trade negotiations has broken the agricultural backbone in many developing-country economies, subjugating national security and sovereignty in the process, a group of developing countries told the WTO’s Special Session of the Committee on Agriculture recently.

by Someshwar Singh

Geneva, 10 July 2000 -- The trade liberalization triggered by the Uruguay Round of multilateral trade negotiations has broken the agricultural backbone in many developing-country economies, subjugating national security and sovereignty in the process, a group of developing countries told the WTO’s Special Session of the Committee on Agriculture end-June.

The group of 11 countries - Cuba, Dominican Republic, Honduras, Pakistan, Haiti, Nicaragua, Kenya, Uganda, Zimbabwe, Sri Lanka and El Salvador - has presented ‘alarming ‘ findings on the impact of trade liberalization reforms on developing country agriculture.

In two separate papers the group has formulated proposals for the agricultural negotiations for continuing the reform programme under Art.20 of the Agreement on Agriculture (AoA).

The first set of proposals on Special and Differential Treatment for developing countries and creation of a ‘Development Box’ with policy instruments to protect and enhance the food production capacity particularly of key staples, increase the food security and accessibility for the poorest, provide and sustain employment for the rural poor, protect farmers from onslaught of cheap imports, give flexibility to support small farmers and end dumping of cheap, subsidised imports on developing countries.

The second set of proposals seek to end the present categories of ‘Green Box’ subsidies which, coupled with the ‘Due Restraint’ clause on disputes, have created loop-holes favouring the rich developed countries who have used them to increase their levels of support and subsidy. The proposals suggest the ‘collapsing’ of all domestic support categories into one ‘General Subsidies’ box, with a common level of support that would be non-actionable, as a percentage of production for all countries and criteria clearly spelt out on what would make programmes legal within the box.

The proposals introduced at last month’s Special Session on Agriculture received general support from a number of other developing countries too. The discussions on these, and the proposals of the Cairns Group, Canada, and the US also introduced at the meeting, as also the proposal of the EC for expanding the scope of the ‘Blue Box’ subsidies are to continue in September. The EC proposals, though before the June meeting, could not be taken up for discussion or preliminary comments, and the views on them at the September session are to be treated as that at the June meeting!

The term ‘Green box’ is used in relation to permissible support measures that are listed in Annex 2 to the AoA, considered to have none or at most minimally trade distortive effects, and thus not subject to any reduction commitments.

Measures considered to have significant impact on trade, normally described as ‘amber box’ were subjected to reduction commitments.

Just before the conclusion of the Uruguay Round, as a result of the US-EC bilateral deal in the Blair House Agreement that was pushed through on others, a so-called ‘Blue Box’ category was created - support measures of direct payments, linked to factors of production, but not to price and volume of output, to be implemented through production-limiting programmes.

The 11-member developing country paper argues that the WTO trade rules should support agricultural production capacity of developing countries, instead of destroying it - as experience suggests is happening. Moreover, the AoA rules seem to bestow special and differential treatment on developed rather than developing countries.

To check the undesirable consequences of trade liberalization on agriculture and to correct the imbalance in unfair rules, the developing country negotiators have called for the insertion of a ‘Development Box’ in the Agreement on Agriculture.

At the same time, they have argued that the ‘Green Box’, which essentially allows developed countries to maintain and even increase protection and support to their agriculture, should be disbanded as soon as possible and certainly not continued beyond 2003. Until then it cannot be challenged under the ‘Due Restraint Clause’ which protect Green Box subsidies.

The case for a ‘Development Box’ that actually stops destroying the livelihoods of million of farmers in the developing world has been made against the tremendous flexibility that developed countries have, and which they have used since the start of the Uruguay Round reforms, to actually increase overall level of subsidies to their agriculture instead of reducing it.

This is exactly what has happened in the case of the world’s largest agricultural exporters, the US and the EU during the last five years.

In the interest of actually reducing overall subsidy levels in agriculture, the negotiators from developing countries have also suggested collapsing all domestic support categories into one ‘General Subsidies’ box. One category of subsidies will bring rationality and structure to the Agreement and will also ease the unnecessary administrative burden on under-resourced developing country delegations, they argue.

In their proposal with respect to the inclusion of a ‘Development Box’, the group notes that under GATT Article XXI, national security issues may be exempted from WTO trade disciplines.

Food security, they underline, is inextricably connected to national security and political sovereignty. Chronic food insecurity puts national security in jeopardy by placing at risk, the health of a large number of people, and also because it incites internal turmoil and instability.

The other dimension is political independence and sovereignty, it is pointed out. “Countries in dire need and dependent on other countries for something as basic as food are politically weakened because they have little choice but to accept the conditions which may be imposed on them by the lending agencies or countries. Indeed, past history has instructed us that food has been used as a tool many a time to gain political and also economic stronghold over a country.”

Highlighting unequal rules of trade in WTO’s Agreement in Agriculture, the negotiators point out that:

*        Overall levels of subsidies have increased rather than decreased in OECD countries since the base year 1986-88, from US$247 billion in 1986-88, to US$274 billion in 1998. In contrast, developing countries which have traditionally not provided subsidies have not been allowed to do so.

*        While the S and D subsidies allowed to developing countries are highly specific and limited to only input and investment subsidies, developed countries have recourse to the 'blue box' and the very broad and vaguely defined 'green box'. Since the Aggregate Measure of Support (AMS) had to be disciplined, the developed countries have shifted their subsidies into the 'green box'. Furthermore, its use is not subject to limits and it is even given maximum protection under the due restraint clause.

Under this clause which runs till end 2003, the subsidies and other practices, that are in accord with the AoA are not to be challenged under other provisions of the WTO Agreements and the Dispute Settlement Understanding.

*        Import barriers in developed countries have risen, rather than decreased especially on sensitive products. When compared to the non-tariff barriers of the 1990s, an ESCAP study reveals that the EU’s final bindings for the year 2000 are almost two-thirds above the actual tariff equivalent for 1989-1993. For the US, they are more than three-quarters higher.

Furthermore, for major agricultural products, the tariffs of developed countries are about twice as high as those of developing countries. For two major cereals, wheat and maize, the bound tariff rates for developing countries are 94% for wheat and 90% for maize. In contrast, the OECD average in the first year of implementation (1995) was calculated by the Food and Agriculture Organization (FAO) at 214% for wheat, 197% for barley, and 154% for maize.

·        While dumping is disallowed in the GATT, export subsidies were made legal for agriculture. Furthermore, subsidisation of exports not only takes place via the ‘export subsidy’ support category, but is also provided indirectly via the other forms of domestic supports. On the other hand, very few developing countries provide export subsidies, for the same reasons that few provide domestic supports. Similar to domestic supports, developing countries are not allowed to increase these negligible levels of export subsidies while developed countries are allowed to maintain 64% of their subsidy outlays in the base level.

·        Despite the promises, there has been no political will to activate the Marrakesh Decision to address the problems of net-food-importing developing countries (NFIDCs). This had been the avenue through which developing countries had expected to receive compensation for the negative effects of liberalisation.

Citing the findings of an FAO study on the impacts of agricultural liberalisation in 14 countries, the group noted that few studies reported improvements in agricultural exports in the post UR period.  The typical finding was that there was little change in the volume exported, or in diversification of products and destinations.

Food imports were rising rapidly in most cases. Some regions were facing difficulties coping with import surges due to ‘detrimental effects on the competing domestic sectors’. On the whole it was observed that while liberalisation brought about an almost instantaneous surge in food imports, these countries were not able to raise their exports due, amongst other factors, to supply side constraints.

There was a “general trend towards the concentration of farms in a wide cross section of countries.” While the concentration of farms led to increased productivity and competitiveness, in the absence of safety nets, the FAO found that this process marginalised small farmers and added to unemployment and poverty.

For many developing countries, key agricultural sectors that were vital for the economy in terms of food supply (i.e. also food security), employment, economic growth and poverty reduction, were being seriously eroded due to the inability to compete with cheap imports.

Thus, the evidence emerging so far is that developing countries on the whole are not benefiting economically from agricultural liberalisation.  In fact, the balance of payments situation has worsened. From a socio-economic perspective, food security, unemployment and poverty seem to have also deteriorated.

“These are alarming findings,” said the developing-country trade negotiators. “Article 20 clearly states that a continuation of the programme of liberalisation must take into account the implementation experience including effects on non-trade concerns such as food security. A systematic review of implementation, that seeks to re-balance the rules and implement measures and reforms to address the existing problems and loopholes, therefore, should be part of the present negotiations.”

Outlining their suggestion for the instruments in the Food Security/Development Box, the group said it should include the following:

(a)  All developing countries should be able to use a positive list approach to declare which agricultural products or sectors they would like disciplined under AoA provisions. That is, only the products which are declared by a country are subject to AoA commitments would be subject to the disciplines.

(b)  Allow developing countries to re-evaluate and adjust their tariff levels. Where it has been established that cheap imports are destroying or threatening domestic producers, developing countries should be allowed to raise their tariff bindings on key products to protect food security. Furthermore, the OECD countries which continue to have very high tariff peaks and escalations should drastically reduce these tariff levels, specially for products of interest to developing countries.

By way of flexibility in levels of domestic supports, developing countries should be allowed an additional 10% on their de minimis support level, i.e. bringing the level from 10 to 20 per cent.

(c)  Prohibit developed countries from the use of the Special Safeguard Clause. This Clause instead should be opened up to all developing countries. Developing countries should be allowed to invoke this based on low prices or excess volume.

3. Dumping in any form must be prohibited. All forms of export subsidies (direct or indirect) by developed countries must be eliminated immediately.

“Competition policy in agriculture must be addressed in this review,” the developing country group said. “Developing countries must be given an easily accessible mechanism to protect themselves against the abuse of monopoly power and to seek compensation.”

In their proposals with respect to the Green Box, the group notes that Article 6.1 of the AoA states that Annex 2 or Green Box subsidies can be provided by governments and are not subject to reduction. In other words, Governments are free to provide Annex 2 subsidies without limits. This is the only category of supports under the Agreement where no limits are set on supports. The fundamental criteria for Annex 2 programmes is that ‘they have no, or at most minimal, trade-distorting effects or effects on production’ (Annex 2.1).

But the Green Box has provided the legitimacy for higher rather than lower overall OECD domestic support levels, the group said. One of the key problems since the implementation of the AoA in 1995 is that domestic support, measured in terms of the Aggregate Measure of Support (AMS) was to be reduced by 24% by developed countries. However, despite these reductions, overall level of supports on the whole have increased, rather than decreased.

This is evident both from the Green Box subsidies countries have declared, as well as from Producer Support Estimate (PSE) figures reported by the OECD. Annex 2 subsidies have increased for the EU from 9 billion ECU in 1986-88, to 22 billion ECU in 1996. For the US, Annex 2 subsidies have likewise more than doubled, from $24 billion in 1986-88 to $51 billion in 1997.

Annex 2 subsidies are a subset of total subsidies provided by these countries. The PSE is a more complete measure of support. The PSE figures for all OECD countries have increased from $247 billion in 1986-88, to $274 billion in 1998. For the EU, this has increased from $100 billion in 1986-88, to US$130 billion by 1998. For the US, the increase has been from $41 billion to $47 billion.

Calculation of total domestic supports which include 'green box', 'blue box', AMS and de minimis supports reveal similar increases in support levels since implementation of the AoA.

Clearly the categories of boxes and the way in which domestic support reductions are calculated based only on the AMS allows for members to meet their 24% AMS reduction commitment, while still increasing overall support levels.

For many developed countries, especially the EU and the US, supports in the Green Box, which have more than doubled, show that a large number of countries have channelled their domestic support programmes away from the disciplined AMS and into the undisciplined Green Box, hence avoiding the need to make real domestic support reductions.

While the AoA assumes that the domestic support, decoupled from production, will have no or minimal impact on production levels, studies have shown that it is virtually impossible to break the links between income support and marginal costs and returns, particularly when the support runs into billions of dollars.

Huge amounts of decoupled payments will inevitably increase farm input use and allow access to improved technology, hence increasing farm investment and production. Furthermore, decoupled payments are often provided in such a way as to increase land values. This maintains land in farming which might otherwise have been diverted for other purposes.

The developing country group also pointed out that the Due Restraint Clause in Article 13 provides Annex 2 subsides with complete protection from countervailing duties. In fact, of all the types of supports where protection is accorded - Blue Box; de minimis; special and differential treatment supports; and export subsidies - it is only Annex 2 subsidies that are completely protected. Blue Box and export subsidies can be challenged if there is proof of injury or threat to another member. The Due Restraint Clause remains in effect until 2003. A decision would have to be made by members by that time about its renewal.

In the light of the problems of the Green Box, particularly for developing countries, the group has recommended the following:

1.   Collapse all domestic support categories into one ‘General Subsidies’ box. A single category of subsidies will bring rationality and structure to the Agreement. It will also ease the unnecessary administrative burden on under-resourced developing country delegations.

A set of criteria should be spelt out as to what should make up the programmes legal within this one box.

A common level of support should be allowed e.g. 10% of production for all countries. This level of subsidies should be non-actionable.  Subsidies of 5% above this 10% level will be ‘actionable’ for developed countries. (Developing countries should be protected under the Due Restraint Clause). Subsidies beyond this level should be treated as prohibited. Developing countries, however, will be allowed additional flexibility under a ‘Development’ box.

2.   The AoA has not satisfactorily addressed the food security and development concerns of developing countries. The present Green Box largely meets the non-trade concerns of developed countries.  Flexibility should be provided to developing countries in the form of a ‘Development’ box to address developing countries’ rural employment and food security concerns.

The aims of the Development box are to encourage developing countries to maintain or increase their present domestic production capability of foods consumed domestically, as well as to protect the livelihoods of small farmers.

The Development box should provide developing countries with flexibility of import controls, tariffs barriers and domestic supports for items which are already being produced in sufficient quantities or which countries would like produced in sufficient quantities locally, until such time they are exporters of these products.

3.   The Due Restraint Clause protecting Green Box subsidies from challenge and which is in place until the end of 2003 should be terminated as soon as possible. Certainly, its protection of Green Box subsidies should not be extended beyond 2003. Protection under the Due Restraint Clause for the Blue Box should likewise be terminated.

The Due Restraint Clause should be a special and differential treatment provision that will protect only developing countries in the ‘General Supports’ box and the ‘Development’ box. The purpose of the Due Restraint Clause should be to protect developing countries in their efforts to increase food security (food accessibility and availability to all), ensure rural employment and to increase domestic production capacity.

Whether the ‘Development Box’ in agriculture has a better future compared to the ill-fated ‘Development’ Round, remains to be seen. The next Special Session of the Committee on Agriculture, which was established by the General Council to conduct the negotiations for continuing the reform process under Article 20 of the AoA, is to be held on 28-29 September 2000, following on from the twenty-fourth regular meeting of the Committee on Agriculture on 27 September.

In separate proposals, the Cairns group of agricultural exporters (now numbering 18) have called for elimination and prohibition of all forms of export subsidies for agricultural products, with a date for termination agreed in the negotiations.

Such an elimination is to be achieved through a ‘substantial downpayment’ of not less than 50% of outlays and volumes of export subsidies in the first year, and a subsequent accelerated process of reduction to zero level of the residual subsidies. Additional or strengthened rules are to be developed to prevent circumvention of the elimination, including through methods such as export credits, export credit guarantees or insurance programs and non-commercial transactions. Some of these are widely used by the US.

Canada in its paper has proposed the tariffs, where there is a single-stage tariff, to be subject to a formula reduction and greater harmonization of tariff levels, and eliminating tariff escalation as between primary and processed products. Wherever two-stage tariffs, with a tariff-quota used for the second stage, should also be reformed and the tariff quota administration made more transparent.

[Given the high ‘dirty’ tariffication used in the UR by the developed countries, the formula approach will still leave tariffs of the developed countries much higher, and thus more protected, than those of developing countries.]

The US has made proposals, in its paper, on market access, export competition and domestic support.

On market access, it has called for substantial reduction or elimination of tariffs, using applied (rather than bound) tariffs as the basis. It also calls for substantial increases in tariff quotas through progressive implementation of annual commitments.

On the export side, the US calls for reducing to zero level of budgetary outlays and quantity commitments of export subsidies, prohibit use of export taxes. It also envisages negotiations on export credit programs, not at the WTO, but at the rich nation’s club of the OECD, and applying the disciplines generated to all users.

On Domestic Support, the US proposes simplifying domestic support disciplines in two categories: the exempt domestic support and non-exempt support subject to reduction commitments.-SUNS4705

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