EC wants others to share its burden of agriculture reforms

by Chakravarthi Raghavan

Geneva, 22 Nov 2000 -- The European Union’s Agriculture Ministers have agreed to and forwarded the Commission’s negotiating stance for agricultural negotiations to the EU’s General Council for adoption and tabling at the World Trade Organization.

The Commission’s proposals endorsed by its Agriculture Council, according to a press release from the EC Agriculture Commissioner Fischler provides or calls for:

        commitment by all (WTO) Members to reduce overall level of bound tariffs by an average and a minimum per tariff line reduction (while permitting members to take account of particular situation of specific sectors);

        EC willingness to further reductions in domestic support, provided the ‘blue’ and ‘green’ box (so called non-trade distorting) concepts of agricultural support is continued;

        willingness to negotiate further reductions in export refunds, provided other instruments used to boost exports (such as subsidised US export credits, food aid or loan deficiency payments) are also subject to reductions;

        recognition of the specific role of agriculture as a ‘provider of public goods’ and the ‘multi-functional role’ of agriculture (or as Fischler’s press release puts it “the ‘non-trade concerns’ in WTO jargon”) such as contribution to sustainable development, protection of environment, ‘sustained vitality’ of rural areas and poverty alleviation in both developing and developed countries.

On the issue of market access, the Fischler press release speaks of the EC’s pledge to provide duty-free access to essentially all products from LDCs, including agricultural products.

The WTO Committee on Agriculture last week at a Special Session reviewed and discussed various proposals and submissions received so far from the members on the various elements of the negotiations for continuation of the reform process—export competition, domestic support, market access, non-trade concerns and the development/special and different treatment focus for the negotiations.

So far, the United States has put forward a ‘comprehensive’ proposal, while individual countries and groups, including the Cairns Group, the EU, US, the Like-Minded Group of Developing countries, the ASEAN, transition economies, and Mauritius that is quite active (and projecting a ‘small island economy’ viewpoint) have put forward proposals, position and/or discussion papers on various elements. Some 16 proposals and three discussion documents (‘submissions’) from about 74 countries (with the EU as 15) have been put forward.

The Committee on Agriculture will hold another special session on 5-7 February to continue the discussions and undertake a stock-taking exercise at another special session 28-29 March.

The EU, Japan, Switzerland and Norway have promised to put in comprehensive proposals by year-end.

At last week’s meeting a major focus of discussion, taking nearly six hours of the committee’s meeting, was on ‘non-trade concerns’ and based on various papers and documents put forward at an ‘International Conference on Non-Trade Concerns in Agriculture’ in Norway 2-4 July. Some 50 members participated in the discussions.

The non-trade concerns identified and discussed included food security, rural development, socio-economic issues (rural employment and poverty and marginal and subsistence farmers) and environmental protection.

Among the questions and issues that figured were: whether the current ‘green box’ subsidies (those per se said to be non-trade distortive and hence completely permissible without any challenge) were adequate; whether measures that would ‘distort’ trade should be allowed only for non-trade concerns of developing countries (such as food security) or also for the industrialized rich countries; whether the diverse needs of diverse range of countries and their non-trade concerns could be addressed by general rules or specific to each.

The debate showed that on the one hand, the ‘multi-functionality’ term or dimension of agriculture which was raised in the run-up to Seattle by Japan, the EU, Norway—and in effect to promote or justify various domestic and export subsidies and trade barriers, as intended to safeguard other aspects of agriculture—has disappeared from the lexicon of the talks and subsumed in the ‘non-trade’ concerns mentioned in Art.20 of the AoA.

However, the effort to continue several of the protectionist agricultural policies of the EU under the ‘multi-functionality’ term has not disappeared, but figures in the EC proposals that its Agriculture Council has endorsed and forwarded to the EU General Council (Foreign Ministers) is to be incorporated in the comprehensive proposals to be tabled by the EU.

A similar approach could be expected from Japan, Norway, Switzerland and South Korea.

Before Seattle, and a little later too, Mauritius put forward its own concerns under the ‘multi-functionality’ rubric, but has now fallen back into the ‘non-trade’ concerns, and setting out what it describes in its papers as the special needs of small and island developing economies, dependent on a single-crop commodity export and their need to continue to enjoy preferential access to industrial markets (in its case to the EC and the sugar protocol of the Lome accord).

Some 50 countries participated in this debate on ‘non-trade’ concerns. According to participants, a large of members supported the need to address specific ‘non-trade concerns’ - whose ambit has now moved away from one of addressing a limited range of concerns of a few to an expanded concept to provide general support for concerns of others.

The considerable differences between the non-trade concerns of the developing countries and the highly industrialized economies are being blurred and lost sight of—perhaps an aim of Europe, Japan and others in the old ‘multi-functionality’ group—some of the developing country participants complain.

At the same time, while expounding the specific concerns of specific countries and their particularities that are presented vigorously by the country or group concerned, the concept is vague (and non-operational) in a general way to meet concerns of others—such as the view of several developing countries that the present disciplines on agriculture do not create a ‘level-playing field’ given the large trade-distorting support measures of the rich countries (whether for development of agriculture in developing countries or for their agricultural trade on which many of them are very dependent).

In fact the number of general elements being brought in under ‘non-trade concerns’ completely removing any disciplines alarmed Australia and a few other Cairns members sufficiently, to urge focus on specific measures and to differentiate clearly between the ‘non-trade concerns’ of developing countries and those of the industrialized countries.

For example, it was brought out, that when a low-income developing country with large population - like Indonesia or India or several African countries - talk of ‘rural development’, the issues involved are very different from the concept in say a country like Norway.

Even food security issues of developing countries facing any number of resource and budgetary constraints, domestically, and even more in terms of foreign exchange availabilities, are very different from the rich nations like Japan who have all the foreign exchange resources they needed to import food-grains.

Europeans and the transition economy countries argue that to meet ‘non-trade concerns’ they should be allowed or enabled to adopt measures that could be ‘trade-distorting’ - for example agriculture in hostile environment (Arctic and sub-arctic regions, mountain terrains, desert areas as in North Africa).

On the other side the US and Cairns Group members argued that whatever measures are taken or permitted for ‘non-trade’ concerns, they must remain non-trade-distortive.

The Cairns Group members have also said they could accept some measures specifically for developing countries - such as for rural development and rural employment or those not having foreign exchange to import.

Indonesia, a Cairns group member, made a strong argument on food security stressing its large rural economy and poor peasants, foreign exchange and balance-of-payments constraints.

A separate paper on export subsidy, put forward by the Mercosur and some other Latin American Cairns group members, has argued strongly that export subsidies are bad for importing developing countries: they increase dependency on food imports, cause of BOP and debt problems, and by flooding their markets with subsidised agricultural products hinder development of their domestic agriculture.

The Mercosur paper got support, with varying nuances, from the Philippines, Australia, Thailand, Colombia, South Africa, US, Canada, New Zealand, Namibia, India, and Mexico. Indonesia had some reservations. Mauritius said that any discussion of export subsidies should include the issue of export credits.

The EU and Switzerland thought the arguments (about dependency) were too simplistic and exaggerated the real effects of export subsidies, while Japan felt it was “too tough on food aid”.

Lost in the arguments and assessments of trade theorists (and their econometric models used) appeared to be the fact that even when the agricultural import (coming in from subsidised exports, whether of export subsidy or export credit) is only a small portion of the total consumption, and comes in at ‘world market prices’, they send different signals to local trade and thus depress local production, capacity and investments.

On market access, the proposals of the Cairns Group (minus Canada and Fiji) that was introduced and discussed briefly, call for steep reductions in trade barriers, and for tackling tariff peaks, tariff escalation and tariff quotas - with S&D provisions for developing countries. A number of non-Cairns group members also supported this including Turkey and Ecuador.

The US wanted the tariff cuts to be on ‘applied tariffs’, not the bound tariffs - a view that has not been acceptable to a large number of countries in agriculture or in industrial products.

India and Pakistan supported the arguments of the Cairns proposals for market access, but called for the S&D proposals to distinguish more clearly between small-scale subsistence agriculture and large commercial farming.

Morocco, Mauritius, Hungary, Japan, Switzerland, Norway and the EU found the proposals “too aggressive”.

A major issue here is that the annual reductions in tariffs (as also on domestic support and export subsidies), set by the AoA will run out at the end of 2000 for the developed countries. This means that until the new round of agricultural negotiations are concluded and made effective, the various tariff, domestic support and export subsidy levels allowed will be frozen and any further cuts will have to wait.

The EC has left little doubt (and more recently has been saying so openly in the AoA talks, but not elsewhere on record) that unless there is a comprehensive round of trade negotiations (including all its favourite new issues—such as investment, competition policy, trade facilitation, ‘transparency’ in government procurement, environment and labour issues) the agricultural negotiations would not be completed.

For this reason, the Cairns Group has supported comprehensive agenda for a new round, and the EC for a comprehensive round including agriculture. Some of them are hoping or believing that the trade-off for their better market access in agriculture will come by other developing countries ‘paying’ a price to the EU in investments etc.

But few others seem to have either understood the effect on them or speak up. This could well result in the other developing countries being landed with both a comprehensive round with new issues and no progress in agriculture or traditional market access in goods questions, since the EC will manage to submerge all these into bargaining over others like investment and make minimal commitments.

On the S&D Treatment, the ASEAN has presented a paper covering the range of issues in the AoA and the negotiations, with the “primary intent” of establishing equity and fair competition where structural conditions across countries are different. Underscoring the provisions of the “Enabling Clause”, the ASEAN proposal stresses that the sheer under-development of agriculture in developing countries limits their ability to implement reforms at the same level or pace as the developed countries. The AoA must hence enable the developing countries to adopt reforms in a different and more gradual basis. Flexibility, in terms of a longer-term time-frame would thus not suffice and hence “the nature, depth and substance of commitments” must be different.

On export subsidies it calls for the immediate elimination of export subsidy by developed countries and their commitment to unconditional prohibition, while allowing developing countries to continue to use the existing flexibility provisions. Disciplines should be developed on export credits, export credit guarantees or insurance programmes and concluded before the implementation period, with adequate flexibility for developing countries.

On domestic support policies, the ASEAN note that while inclusion of this was seen as a major breakthrough in the Uruguay Round, the rules and disciplines have been formulated in consideration of policies of the developed countries, and has resulted in major imbalances in obligations and commitments between developed and developing.

The next reform programme must remedy this imbalance by:

        developed countries committing themselves to a substantial down-payment of aggregate and specific support in absolute terms, and then subject to a reduction overtime leading to elimination;

        reduction commitments to be made on a disaggregated level (rather than as now when the countries could shift support from one product to another depending on market conditions) and include sectors in the disciplines;

        subject ‘blue box’ category of support measures to substantial reduction commitments leading to their elimination;

        no de minimis flexibility to be allowed for developed countries, given their high levels of AMS;

        criteria for ‘Green Box’ measures should be reviewed to ensure they meet the fundamental requirement of minimal or no trade distorting effects or effects on production, and ensure they are responsive to needs, specially food security concerns, of developing countries;

        there should be an overall cap on budgets of developed countries allocated to ‘green box’ measures.

Since domestic support will continue to be important to developing countries to enable them to develop their agriculture sector, the S&D must provide flexibility to meet their needs and include as key elements:

        direct or indirect measures that are integral part of development programmes, including investment and input subsidies;

        exempt measures to promote agricultural diversification;

        continue the existing de minimis concept and threshold;

        give developing countries effective and meaningful degree of autonomy or policy instruments to address food security concerns;

        appropriate differentiation between domestic measures resulting in overproduction and ability to carve out a niche in the international market and those designed to face challenges of food security.

The market access negotiations should include a clarification of continuation of use of tariff quotas, and ensure their non-discriminatory allocation and administration including disciplines in operations of state trading enterprises.

There should be elimination of tariff disparities with developed countries committing themselves to greater tariff reductions.

Imports of tropical products continue to suffer from tariff escalation against processing of exports. The next round must pursue fullest liberalization by further tariff reductions and elimination of tariff peaks and escalations on tropical products. Developing countries must have flexibility to apply special safeguards.

The GSP (Generalized System of Preferences) principles of unconditionality, non-discrimination and non-reciprocity encapsulated in the Enabling Clause should be elaborated and maintained in the AoA.

The ASEAN paper was supported by India (which said it would have cosponsored it if it had been an ASEAN member). Several smaller countries said they need preferential market access and these would be eroded if there were deep tariff cuts in the developed countries.

Switzerland spoke of the risk of the ASEAN proposals raising “enormous expectations” that could not be fulfilled and hence dangerous. The Swiss comment evoked sharp criticism from a number of countries, with India accusing Switzerland of ditching the principle of S&D.

South Africa liked the drift of the ASEAN proposal, but was concerned about the exemptions for developing countries, which were South Africa’s main markets.

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

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