TWN Info Service on WTO and Trade Issues (Dec04/1)
Third World Network
3 December 2004
G20 CALLS FOR REVIEW OF GREEN BOX PROVISIONS AT WTO AGRICULTURE NEGOTIATIONS
In mid-November 2004, the WTO held a special session on agriculture to discuss some technical aspects of the “July package” annex on agriculture.
A major highlight of this session was a proposal by the Group of 20 developing countries for a thorough review of the provisions of the Green Box domestic support in the WTO Agriculture Agreement.
The aim of this review, said the G20, is to ensure that the direct payments conform to the fundamental requirement that “they have no, or at most minimal, trade-distorting effects of effects on production.” It also gave details of what such a review should include.
Below is a report of the agriculture session by Goh Chien Yen of the Third World Network, focusing on the G20 proposal on the green box review.
With best wishes
G20 CALLS FOR REVIEW OF GREEN BOX PROVISIONS DURING WTO AGRICULTURE NEGOTIATIONS
TWN Report by Goh Chien Yen in Geneva
The Group of 20 developing countries in the WTO has called for a thorough review of the provisions of the Green Box domestic support in the WTO Agriculture Agreement.
The G20 made a detailed proposal for the Green Box provisions to be reviewed and clarified to ensure that the direct payments conform to the fundamental requirement that “they have no, or at most minimal, trade-distorting effects of effects on production.”
It also gave details of what such a review should include.
These G20 proposals were a highlight when WTO trade delegates met in mid-November 2004 to resume negotiations on agriculture for the second time since the adoption of the July Package in August 2004. The consultations have become decidedly more technical focusing on elaborating and fleshing out the elements contained in Annex A of the July Package.
This is facilitated by the “two-stage” process proposed by the Chair of the Special Session of the Committee on Agriculture, who is the New Zealand Ambassador Tim Groser. First, a “scoping exercise” to identify issues that are amenable to in-depth technical examination at this of the process. The Chair will take responsibility for proposing which issues these may be. Members can then react to the proposed issues during the “first reading” at the full (informal) meeting of the Special Session. On the basis of members’ reactions, issues for more in depth examination will then be selected or dropped.
Second, these selected issues will be subjected to more “intense examination in a variety of different consultative arrangements.” so as to develop “an evolving text on the particular issue concerned (even if such a text would necessarily be of a highly provisional nature). According to the Chair, these texts would “provide some of the initial building blocks for a comprehensive agreement on full modalities.”
From the issues that received a “first reading” during the October consultations, the following issues were identified and proposed by the Chair for more in-depth technical discussions at the November meeting:
· Methodology for conversion of ad valorem equivalents;
· Green Box criteria
· Food Aid
· Export Credits
EU, G10 and G20 differing views on Green Box
Of these issues the most controversial during the November consultations was on the Green Box. Members were divided as to the ambit and the nature of the review and clarification mandated by paragraph 16 of Annex A.
(Paragrpah 16 states that the “Green box criteria will be reviewed and clarified with a view to ensuring that Green Box measures have no, or at most minimal, trade-distorting effects or effects on production. Such a review and clarification will need to ensure that the basic concepts, principles and effectiveness of the Green Box remain and take due account of non-trade concerns. The improved obligations for monitoring and surveillance of all new disciplines foreshadowed in paragraph 48 below will be particularly important with respect to the Green Box.”)
As far as the EU and the G10 are concerned, paragraph 16 implies only a “health checkup” of the Green Box rather than reforming the Green Box. They stressed the need to preserve the Green Box as a tool for moving away from other more distorting subsidies (Amber and Blue Box supports).
According to the G20, “the main objective of this review and clarification is to ensure that domestic support measures notified conform to the fundamental requirement that they have no, or at most minimal, trade-distorting effects or effects on production.” They argued during the meeting that however “there are no effective controls” within the AoA (Agreement on Agriculture) to ensure that Members not to notify distorting support in this category which is not subject to reduction commitments.
The G20 pointed out that programs of direct payments to producers (Annex 2: Paragraphs 5-13) “especially the way they are currently designed, have been found to influence trade and production and therefore could not be characterized as having “no, or at most minimal, trade-distorting effects or effects on production.”
They further argued, alluding to OECD and World Bank publications, that the so-called “de-coupled” programs amongst direct payments do distort trade and production because of (i) “wealth effects”; (ii) “farmers’ expectations about future policies and (iii) “incomplete decoupling.”
On the “wealth effects”, the G20 argued that the sheer size of money paid out to developed country farmers will distort trade and effect production, as it will allow “effective cross-subsidization of production through its effects on farmers’ ability to cover” their costs of production; “redistributes income with changes in market prices; isolates the farmer from market signals etc”. They further highlighted that this problem is compounded by the fact that these payments are not temporary but “permanently incorporated into cash flows of farmers, thereby increasing their creditworthiness and serving as an instrument for hedging against risk.”
The G20 also pointed that “the practice of updating base acres, number of heads and payment yields, as well as changing eligible crops under Farmer Assistance Programs, tends to raise expectations of future assistance based on past government actions.reinforces the farmers’ expectations, thereby influencing their future production decisions.”
Thirdly, the G20 also noted that decoupling has been incomplete. These can take various forms, they explained, such as “exclusion of certain crops for determining eligibility to receive decoupled payments;” and “coupled support programs implemented in combination with Green Box direct payments on the same product, which interacts in a manner that acts as an incentive for production.”
“Such incomplete decoupling programs continue to influence farmers’ production decisions,” according to the G20.
In this respect, the G20 proposed that the “provisions of the Green Box are to be reviewed and clarified to ensure that the direct payments conform to the fundamental requirement” that “they have no, or at most minimal, trade-distorting effects of effects on production.”
According to the G20 such a review and clarification should include amongst other things:
· Eligibility conditions for receiving these direct payments should be such that the wealth effects of payments are minimized, moreover that program payments should be transitory when they are for adjustment purposes;
· Support should continue to provided through publicly-funded government programs, not involving transfers from consumers and should not be require production: ie land, labour or any other input shall not be required to be put to agricultural use;
· Credible and time consistent policies with no changes in the eligibility rules, based periods or eligible products or farmers;
· Discontinuation of all other coupled programs providing support to products receiving direct payments; and
· Review of benchmarks and conditions for other direct payments
The G20 also highlighted that the current Green Box provisions are biased in the sense that they reflect the nature of programs administered by developed countries and that developing countries may not therefore necessarily be able to cover their programs under such provisions. As such, the G20 argued for modifications and clarifications to these provisions in order to take into account the special circumstances prevailing in developing countries.
Finally, the G20 noted that “the lack of adequate monitoring on the effects of Green Box measures has raised substantive doubts on the extent to which the guiding principle of the Green Box has been adhered to by Members.” Hence “the monitoring and surveillance mechanism (as envisaged in paragraph 48 of Annex A of the July Package) will complement the clarification and review of the Green Box criteria.”