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Info Service on WTO and Trade Issues (Nov26/05) Geneva, 5 Nov (D. Ravi Kanth) — Paraguay, a landlocked agricultural exporting country in South America, has brought agriculture to the forefront of the World Trade Organization (WTO) reform discussions on “level playing field” (LPF) issues, emphasizing the need for “equity” and “the promotion of development through free trade”. For the proponents of LPF issues, including the United States, the European Union, Japan, and other countries defensive of their agricultural markets, the issue of agriculture has largely been an anathema in the LPF track. Since the launch of the trilateral initiative by the US, the EU and Japan in 2018, the three industrialized members have seemingly focused largely on the alleged subsidies provided by China to its state-owned enterprises (SOEs), while refusing to address the continuing asymmetries in global agricultural trade. Against this backdrop, China has introduced a new dimension into its proposal (WT/GC/REFORM/W/22) on LPF issues by calling for “fact-based rather than label-driven” multilateral approaches. In contrast, Paraguay, in a proposal (WT/GC/REFORM/W/23) circulated on 2 November, has largely focused on the unequal treatment of agriculture and the persistent asymmetries in global agricultural trade. While agreeing with members calling for “open, free and stable trade” on grounds that it would reduce “dependency on specific suppliers and [help] to overcome vulnerabilities,” Paraguay argued that “growth and economic security are underpinned by the predictability and stability of the system.” Developing its arguments in the ongoing LPF discussions, Paraguay said: “As a preliminary matter, it is necessary to define some basic principles that should guide any discussion on level playing field issues, in order to ensure that efforts to address unfair competition facilitate fairer trade and do not create even more imbalances.” It identifies two guiding principles: “1. equity; and 2. the promotion of development through free trade”, which, it suggests, must underpin the LPF discussions. Paraguay states: “Equity, understood as an essential element of redistributive justice, requires that the specific needs and circumstances of each Member be addressed so that, despite starting from different positions, they can all move towards a truly level playing field.” More importantly, according to Paraguay, “equity is an indispensable component of a fair multilateral trading system, as WTO Members did not and do not start with the same economic, productive and institutional circumstances.” Equity, Paraguay argued, is essential to a system that seeks to make “positive efforts designed to ensure that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development”. Citing the Marrakesh Agreement, the foundational agreement underpinning the rules-based, member-driven and multilateral WTO, Paraguay said it “considers that the expansion of trade under fairer, more predictable and less distorted conditions is an essential means of achieving those objectives, including those related to development.” Paraguay identifies the “real problem that must be addressed in terms of unfair competition and systemic imbalances,” arguing that “the perception of unfair competition erodes support for WTO rules”. It therefore maintained that the WTO must urgently address the LPF issue. It told the proponents of the LPF discussions that “the playing field is not level and the status quo is unsustainable.” ASYMMETRIES To expose the asymmetries in global trade in non-agricultural goods and agricultural products, Paraguay said it has “analysed the conditions that exist among non-agricultural goods, among agricultural goods, and between these two groups of goods.” Examining the non-agricultural market access (NAMA) framework, Paraguay said that “with regard to the regulatory framework applicable to non-agricultural goods, no distinct rules have been identified, other than those that grant special and differential treatment in favour of developing countries.” However, it said that “for agricultural goods, there are inherent imbalances in the Agreement on Agriculture itself.” It identifies “numerous shortcomings in the current framework of the Organization,” noting that “the existing agricultural trade disciplines have weaknesses beyond those already identified.” Unsurprisingly, it said that “it is important to highlight that the current WTO framework fails to properly address all the contemporary approaches that affect the export of and trade in agricultural products.” Addressing “the issue of a level playing field, both with regard to the WTO’s regulatory framework and the barriers that producers and economic operators face on the ground,” Paraguay said that its proposal will “cover the conditions between the different groups of goods (non-agricultural vs. agricultural) and the cumulative effect of agricultural policies.” With regards to the level playing field for different product groups, arguing that “the regulatory framework of the WTO separates the conditions established for trade in agricultural goods from those established for non-agricultural goods,” Paraguay said that the Agreement on Agriculture (AoA), negotiated during the Uruguay Round, is “one of the most significant achievements dating from the establishment of the Organization.” Paraguay argued that “the rules governing trade in non-agricultural goods, agreed in 1994, do not provide for ongoing negotiations or for the rules to be updated.” However, it noted that a number of members believe that these rules have become outdated, pointing out that the final NAMA provisions “have not evolved in a manner that properly reflects the nature of current international trade.” The picture is markedly different for the Agreement on Agriculture, which was “conceived as a starting point; the first rules, on the basis of which Members would build new disciplines in accordance with the terms of reference expressly provided for in the Agreement itself.” According to Paraguay, “elements such as the total aggregate measurement of support, export subsidy rights, tariff rate quotas, and special safeguard (SSG) provisions are historical imbalances in the Agreement on Agriculture.” More significantly, these elements “do not constitute special and differential treatment tools as they are not applied exclusively to developing countries.” In fact, most of these agricultural provisions “were granted to developed countries”, including the special safeguard. Paraguay said while this disparity in conditions reflected the agricultural policies applied by Members when the Agreement on Agriculture “was negotiated or when they acceded to the WTO, it could be argued that they were accepted as part of the commitments necessary to secure the Agreement; they were not intended to be definitive.” Article 20 of the AoA contained “an obligation under international law for continuing the reform process to achieve substantial progressive reductions in support and protection, with a view to establishing a fair and market-oriented agricultural trading system.” Although trade ministers agreed to the Doha work programme to advance the agricultural negotiations, the process has effectively been derailed by opposition from the major industrialized countries. Interestingly, Paraguay has highlighted the importance of Article 20 of the AoA while remaining silent on the Doha agriculture negotiations and how they were derailed, said a person familiar with the negotiations. Moreover, several outstanding mandated issues in agriculture appear to have been ignored by Paraguay, the person said. Nevertheless, Paraguay contends that “the limited progress made to date reflects some Members’ lack of political will to move forward. It is urgent to revitalize these negotiations in order to rebuild trust among Members and prevent support for the Organization being eroded further.” In its proposal, Paraguay said that “there are also substantive inequalities in the market access conditions for agricultural and non-agricultural goods,” noting that the “simple average bound tariff for agricultural products is 54.7%, compared with 29.1% for non-agricultural products.” Bound tariff peaks for agricultural products also exceed 1,000% in several cases, while some members maintain very high tariffs across entire sectors. In contrast, the highest bound tariff peak for non-agricultural products is below 400%, said Paraguay. Paraguay does not appear to recognize that agriculture continues to provide livelihoods and substantial employment through small landholdings. This contrasts with agriculture in industrialized countries and some agricultural exporting countries, where large landholdings, highly mechanized farming systems and low employment are the norm, said an African trade official who asked not to be quoted. Pointing to the substantive inequalities in the market access conditions for agricultural and non-agricultural goods, Paraguay said: “This is why trade in agricultural products is still the most distorted and protected area, and its reform remains the WTO’s greatest unfulfilled promise, especially for developing countries that rely more heavily on trade in agricultural products.” It is a fact that “developing countries have been pointing to the need to address the uneven playing field and imbalances inherent in the Agreement on Agriculture.” Paraguay argued that “a number of Members that are, today, calling for the discussion of a level playing field for trade in non-agricultural goods have opposed progress on this agenda or including references to this concept in relation to agriculture.” CUMULATIVE EFFECTS “At the WTO,” Paraguay said, members have “examined the various trade policy instruments separately.” However, it argued that “producers are not faced with isolated measures, but with the cumulative effect of all of them.” Paraguay said that it submitted a proposal (JOB/AG/157) in 2019 “on the interaction between pillars of the Agreement on Agriculture, with the aim of highlighting the cumulative effect of domestic support and market access measures on agricultural trade.” Among the general trends identified, it notes that members use several available policy instruments to design their agricultural policies and protect sensitive products or product groups. Paraguay claims to have introduced the “concept of an “overall level of distortion and protection” that links tariffs, quotas and agricultural safeguards to domestic support provided for a specific product or product category, to demonstrate the interaction between these variables.” However, this approach does not cover the effects of non-tariff measures (NTMs) on trade protection and distortion, as these fall outside the scope of the CoA-SS negotiations. According to Paraguay, “NTMs, together with the compliance-related information and transaction costs, account for a larger share of trade costs than tariffs for most economies.” It argued that to “capture the levels of distortion and protection in agricultural markets in discussions outside the CoA-SS – a discussion focused on a level playing field -, the analysis should take into account all non-tariff measures, including those that, due to their ambiguous or multifaceted nature, are not currently addressed by any of the regular bodies of the WTO.” NEXT STEPS Paraguay “considers that the level playing field discussions cannot be limited to subsidies and industrial policy only, when the most unequal terms of trade persist in the area of agricultural trade.” As part of the WTO reform process, Paraguay has proposed a work programme under the LPF track based on three elements: 1. Identifying gaps in information or in existing transparency mechanisms concerning the various trade policy instruments; 2. Discussing and agreeing on common parameters to assess the cumulative effect of measures that distort trade and production and skew the playing field, without prejudging the solutions; and 3. Assessing measures to ensure a level playing field and reduce trade and production distortions. In conclusion, Paraguay cautions that “no discussion at the WTO regarding a level playing field will be complete if it excludes agriculture – one of the sectors that is most protected and most affected by distortions – or if it fails to address the legitimate interests and sensitivities of all Members.” +
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