TWN Info Service on WTO and Trade Issues (Apr06/19)

26 April 2006

WTO agriculture talks on export competition issues

The WTO's agriculture negotiations in the week starting 18 April focused at first on issues relating to the export competition pillar, specifically on food aid, state trading enterprises and export credits.

The first issue was discussed on 18 April at an informal plenary Special Session of the Committee on Agriculture, while the other two issues were discussed on 19 April.

At the start of the week's meeting, the Chairperson of the agriculture negotiations summarized the assessment he made in a 13 April note

Below is a report of the talks on export competition issues.

With best wishes
Martin Khor


WTO agriculture talks on export competition issues

By Martin Khor (TWN):  Geneva, 20 April 2006

The WTO's agriculture negotiations this week have focused so far on issues relating to the export competition pillar, specifically on food aid, state trading enterprises and export credits.

The first issue was discussed on 18 April at an informal plenary Special Session of the Committee on Agriculture, while the other two issues were discussed on 19 April.

Issues relating to the other two agriculture pillars - domestic support and market access - will be discussed on 21 April when a summing up of where the talks stand in terms of modalities is also expected.

The agriculture talks this week will be the final session at the Committee before the end-of-April deadline for agreeing to modalities for agriculture, which was set by the WTO's Hong Kong Ministerial conference.

Following this week's session, the issues could continue to be discussed at the level of Ambassadors or at the exclusive "Green Room" meetings.

At the start of Tuesday's meeting, the Chairperson of the agriculture negotiations, Ambassador Crawford Falconer of New Zealand, summarized the assessment he made in a 13 April note to delegations.

In that note, he had concluded that the negotiations are not yet in a "closing zone for finalising modalities". Although there is progress in certain issues, "as of today, we have not reached the requisite degree of convergence," he said.

Falconer in the past two weeks has also issued five "reference papers", on state trading enterprises, export credits, food aid, and the green box and blue box categories of domestic support. Each paper contains a background to the issue (in terms of the mandates from the Hong Kong Declaration and the August 2004 framework), the positions of delegations, and in some cases suggested texts by the Chair.

Falconer announced at Tuesday's meeting that after this week, there would not be any more agriculture sessions before the end-April modalities deadline. He indicated that if there is insufficient movement on key issues such as numbers for formulas, they would be dealt with outside the agriculture negotiations. This was taken to mean that the talks would take place at higher levels, such as the Trade Negotiations Committee or Heads of Delegation (HOD) meetings.

Tuesday afternoon's discussion on food aid centred on the Chairperson's reference paper, which in turn is based mainly on the proposal from the African and LDC Groups.

At the end of the Tuesday meeting, Falconer concluded that members seemed to be approaching broad agreement on many issues relating to a "safe box" of bona fide food aid for emergency situations. However, there continued to be sharp divisions on how to treat non-emergency food aid, especially on monetization and whether this kind of aid should only be in cash and grant form.

On the "safe box", the Chair's paper states that it is accepted that in-kind food aid is permissible in an emergency situation, but key issues are how or when an emergency situation is declared and who is able to declare an emergency.

Falconer said the discussion confirmed his paper's assessment, with the additional point, made by Brazil and others, that negotiators need to spell out more clearly what is needed for notification. Falconer said this will be important because members do not really want to turn the WTO into judge and jury over food aid. The point is to enable food aid to work without circumventing export subsidy commitments, and not to litigate, he said, and transparency is the way to avoid litigation.

His conclusion that there was a "zone of consensus" on the Safe Box was based on broad agreement on several issues.

On the issue of grant, the Chair said that members seem to agree that in-kind aid in the Safe Box should be fully in grant form. Although Japan raised the question of the need for concessional aid during financial crises, these are exceptional circumstances that should not alter the general rule and should be considered carefully, he said.

Another issue was the "trigger" for aid to be given safe box status, i. e. whether food aid should only go into the Safe Box if it is triggered by a multilateral appeal such as from the UN. Some countries argued that this can take too much time.

Falconer said that if a government-to-government appeal (included in the African/LDC proposal) simply fills in the gap until the UN makes its multilateral appeal, then this is not a big issue since the multilateral trigger will apply sooner or later.

On whether reputable NGOs (Oxfam and MSF are mentioned in the paper) should also be able to trigger Safe Box aid, he concluded that this should not be too difficult to sort out and it was unlikely that an NGO would appeal for aid in order to circumvent export subsidy commitments.

On re-export of food aid, the Chairperson said the general feeling is that re-export should not be allowed except in special circumstances such as when the relevant multilateral agency endorses it.

On monetization (the sale of food aid to raise funds for aid), Falconer said he had not heard any arguments against the limited exceptions allowing food aid proposed by the African Group and LDCs (for example, activities directly related to food aid delivery or procurement of agricultural inputs).

On the treatment of non-emergency food aid (which lies outside the Safe Box), there continued to be sharp differences in positions among the members on the disciplines that should apply.

The divisions are especially over two issues: whether to allow monetization for this kind of food aid; and whether the aid should be only in cash and grant form, or whether in-kind food aid is to be allowed.

On Wednesday morning, the meeting discussed state trading enterprises (STEs) and export credits. Members remain divided on the approach to STEs. On export credits, differences were more about technical detail related to the way finance and insurance work commercially.

Falconer concluded that he could refine his reference papers on these two subjects in response to what he had heard. This includes drafting clearer exemptions and other provisions for least-developed countries.

On the issue of exporting state trading enterprises, the reference paper structures the discussion and proposes texts on the following issues: introduction; definition; direct disciplines; monopoly powers; special and differential treatment with respect to monopoly powers; and other issues.

The paper noted differences among members on the definition of STEs, on which disciplines are to be imposed. One position is to retain the current definition in Article XVII in GATT 1994 (governmental and non-governmental enterprises with exclusive or special rights or privileges which use these to influence the level of imports or exports). Other positions are that this definition should be narrowed, or that it should be broadened.

The paper proposes text to have direct disciplines on STEs to eliminate trade distorting practices. By the end of 2013, WTO members shall eliminate export subsidies, government financing of exporting STEs and the underwriting of losses (the texts give details of each of these).

On the issue of monopoly powers, the Hong Kong Declaration clarifies that the future use of monopoly powers of STEs is a trade-distorting practice, and disciplines are to be established so that such powers cannot be used to circumvent direct disciplines on STEs on export subsidies, government financing and underwriting of losses.

The reference paper notes differences in positions, one view being that disciplines be set up to ensure monopoly powers cannot be used to circumvent the explicit disciplines mentioned, and the other view is that there be an explicit provision to eliminate monopoly powers. The paper has texts for these two options.

Regarding special and differential treatment for developing countries on monopoly powers, the paper notes that according to the Agreed Framework, developing countries will receive special consideration to maintain monopoly status for STEs enjoying special privileges to preserve consumer price stability and ensure food security.

While postponing how to treat this issue, Falconer's paper proposed that exemption from disciplines on monopoly power be given to developing countries' STEs when the STEs' share of world exports of the agricultural product is below a certain percentage to be determined.

During the Wednesday discussion, the three countries with major STEs (Canada, Australia and New Zealand) preferred to stick to the definition of GATT Article XVII, and disciplines based on the enterprises' behaviour, to ensure that the activities and any monopoly power do not lead to the countries circumventing export subsidy commitments.

Other members, led by the US and EU, reiterated the alternative position, i. e. to tackle monopoly power and government support directly by eliminating it, with tighter disciplines and specific definitions of the relevant enterprises.

Falconer observed that the purpose of GATT Article XVII is essentially for transparency, and to identify the enterprises whose activities need to be notified to the WTO. Sticking with the Article XVII definition would be consistent with disciplines that simply spell out broadly what constitutes the type of subsidy that would circumvent export subsidy commitments, he said. On the other hand, if members negotiate tighter disciplines, including eliminating monopoly, then this would be consistent with a more specific definition, he said.

A number of developing countries (including India, China, Guyana, and Brazil) spoke on developing countries' SDT on monopoly powers. Some countries broadly supported the chair's text, but others disagreed with the suggestion that exemption should apply to monopoly enterprises whose share of world exports of the relevant products are less than a specified amount. They argued that the exemption should focus on the activity: i. e. on enterprises that stabilize domestic prices and enhance food security.

On the issues of "Export credit, export credit guarantees or insurance programmes", the Hong Kong Declaration had provided some guidance on disciplines on these. The Chair's reference paper has detailed suggested possible texts on the forms and providers of export financing support; terms and conditions (on maximum repayment term, interest payment, maximum interest rate, premiums, risk sharing, foreign exchange risk, self-financing) for complying with the rules; and treatment of non-conforming financing support.

During the 19 April meeting, differences in views on technical aspects were evident. Some of the differences were more substantial, such as the accounting period for assessing whether programmes are self financing (proposals range from one year to 15 years), and whether the 180-day limit on credit might be extended or waived.

Some differences were more technical (such as the appropriate starting day of the 180-day limit on credit and whether acceptable insurance premiums should be based on market levels or on the risk). Most of these differences are more to do with how to reflect more accurately the way commercial markets work, rather than their being political differences, Falconer concluded.

The Chairperson also agreed with Egypt and others that the time has come to look more closely at building in provisions to take account of the needs of net-food-importing developing countries. On Friday, the meeting will continue.