EC meets ‘third force’ in agriculture talks

by Chakravarthi Raghavan

Geneva, 6 Feb 2001 --  The agriculture talks in the Special Sessions of the Committee on Agriculture (which is preparing the ground for actual negotiations on further reforms) continued this week, with the entire time taken up Monday with hearing explanations on the EU’s “comprehensive” paper and comments on them, and on Tuesday with explanations and comments on the Japanese paper.

Not unsurprisingly, the EU and Japan both tried to project the agriculture talks as part of a “sufficiently broad-based” new trade round, negotiated and concluded as a single undertaking, within which it would be easier to make progress and conclude  the agriculture talks. The EC however suggested Monday that it was not making agricultural reform talks ‘conditional’ on the new round.

Tuesday, Japan’s proposals came under some sharp attack from several of the Cairns group countries, with Uruguay using some strong language to suggest that the Japanese proposals were just a ‘bad joke’ and would “deserve simply to be ignored”, since it flew in the face of everything that multilateralism and the WTO stood for. And Japan would do well to submit a new and revised proposal “more serious and worthy” of it.

Brazil, noted that Japan was linking the agriculture negotiations to a new round, but there was nothing in Japan’s agriculture proposals to encourage Brazil’s support for a new round.

However, some like Switzerland, Norway and EC provided support for Japan.

The discussions showed that the major protagonists -  the US and the Cairns Group of countries on the one side, and the major agriculture protectionists like the EU and Japan etc on the other -  appear to be uncomfortable over the emerging third viewpoint from other developing countries that cannot be easily slotted into ‘protection vs liberalisation’ format for the negotiations.

At the Committee meeting Monday (where it introduced and explained its proposals), EC sources said they had met stronger criticism and opposition to their paper from India and Pakistan than even from the Cairns group.

Trade officials said that the Cairns group basically saw the EC proposals as engaging in negotiations, while some of the EC ideas also got support from countries like Mauritius and some from the Caribbean.  However, countries like India made a sharp distinction between the food security and ‘non-trade’ concerns of developing countries and those suggested by the EC and Japan about the multi-functionality of agriculture and non-trade concerns.

In terms of the road map set for the agriculture negotiations, members have to put forward their proposals or revise their earlier papers (often presented as concept or position papers) by 31 March.  Thereafter the negotiating guidelines are to be set and actual negotiations begun.

A number of developing countries and groups are yet to put forward their detailed negotiating proposals, while the EC, Japan, Switzerland, Norway and Korea have formulated theirs. The latter have been both holding out the prospect of undertaking further cuts in subsidies, provided they can get in return investment rules that would enable their corporations to invest in developing countries—clearly aimed at getting the major developing countries to yield to them and agree to WTO investment rules.

At the same time, they are also trying to make it appear that they support the demands of the developing countries for changes in the rules and for special and differential treatment to be able to develop their own undeveloped or under-developed agriculture sector.

The EC, Japan and others are clearly using this support to justify their own protectionist moves,  presenting them as ‘non-trade concerns’ (using the term synonymously with their ‘multi-functionality’ concept).  They have thus voiced or have seemingly embraced  the positions of the developing countries with large rural populations, unemployment and undeveloped agricultural sectors and their view of food security and employment.

At Seattle, the support from some of the Cairns group members (Australia, New Zealand, Argentina, Chile for e.g.), to the EC and Japan on investment negotiations (as a trade-off for more agriculture liberalisation) came in for sharp criticism from some of the developing countries whose markets are the targets for investment agreement rules.  Some of them told the Cairns group protagonists in no uncertain terms that they were not going to pay the price to the EC on investment so that the Cairns group can export more to the EC.

Since Seattle, this argument has been on a lower key, and some of the Cairns group support to investment negotiations, has not been so blatant, but it has not gone away either and is beginning to surface (whether on implementation or other questions raised by the like-minded developing-country group) now that the 4th ministerial is set to take place at Doha before mid-November.

At the same time, some of the Cairns group members also want to ensure for their exports the markets of some of the big developing countries, and thus are more chary of any changes in rules that would enable these developing countries to provide domestic support. They thus talk of ‘non-trade’ concerns of the developing world being linked to the ‘trade-distorting’ practices of the richest trading partners, and hence the need for ‘non-trade concerns’ being pursued consistent with the objective of continuing the reform process by substantial progressive reductions in support and protection. As Argentina puts it in its paper, “this is the frame in which we all should explore the consistent ways and means to take into account ‘legitimate’ non-trade concerns, “while being mindful of consequences for developing countries.”

Some of the developing countries on the other hand are trying to distance themselves from the ‘embrace’ (of the EC, Japan etc about the food security and ‘non-trade’ concerns of developing countries) in their concept papers (put forward by several of the members of the like-minded group of developing countries), and in the negotiating proposals already put forward, as that by India.

India, in its negotiating proposal, presents arguments on how and why the agriculture sector in most developing agrarian economies falls under a different set of problems -  food needs of the people, supply gaps, small and unirrigated marginal farms, source of main employment and social and economic vulnerability, among others.

Several of the developing countries (in the like-minded group and a few others), had presented some concept paper last year -  dealing with the issues of ‘blue’, ‘green’ and  ‘amber’ box subsidies used by the industrialized countries and which are trade distortive -  and promoting the idea of a ‘development’ box to deal with the kind of support needed by the agriculture sector in their countries. These countries are now in the process of considering and formulating their proposals to be presented in March.

The term ‘blue box’ is related to the kind of domestic support measures and subsidies envisaged  in Art 6.5 of the AoA (direct payments under production-limiting programmes based on fixed area and yields, or payments made on 85% or less of base level of production, or livestock production on fixed number of head). The so-called ‘amber box’ of domestic subsidies are those covered by Art.6.3 and 6.4 of the AoA.

By far the biggest set of rules used to subsidise agriculture in the industrial world, including the United States, are the ‘green box’ measures (domestic support exempted from reduction commitments in Art 6.1 of AoA) that are enumerated in Annex 2 of AoA and include government  programmes of  general services in agriculture, public stockholding for food security purposes, domestic food aid, direct payments to producers, decoupled income support, government participation in income insurance and income safety-net programmes, government support for crop insurance programmes, structural adjustment assistance including through investment aids, and payments for environmental and regional assistance programmes.

All these programmes, involving budget outlays, are beyond the capacity of developing countries. The US uses ‘green box’ measures much more and present them as non-trade distorting. But such subsidies, coupled with others like export credits and subsidies directed at particular markets enabled the US in 1998 to export wheat for sale at 70% of the cost of production, according to some estimates.

Taking as the point of departure, the food security concerns mentioned in the preamble and Art 20 of the AoA, and the FAO definition of food security (“the physical and economic access for all people at all times to enough food for an active, healthy life, with no risk of losing such access, and as such directly connected with livelihood in developing countries”), the Indian paper insists that the food security concerns could be meaningfully addressed “only by ensuring that disciplines, especially in area of market access and domestic support, sub-serve the food security interests of developing countries.”

Agriculture, the paper points out, is a way of life in most developing agrarian economies and rapid growth of agriculture is essential for food security and alleviation of poverty. In developing countries, agriculture contributes significantly to overall GDP and employs a large proportion of the workforce; land-holdings are small, unirrigated and subject to vagaries of nature; and agriculture practices are labour-intensive and with low-intensity of farm inputs. Consequently farm productivity is low. Most farmers in countries like India are subsistence farmers, with marginal participation in international trade.

The food needs and supply gaps in developing countries are developmental problems, and all agricultural development policies are aimed at harnessing potential for increasing productivity. Given these and other characteristics of agriculture in developing countries, with meagre domestic support and virtual absence of export subsidies, “developing countries are in no way responsible for the current distortions in international trade in agriculture.” And developing countries cannot provide alternative sources of employment for their rural poor except in agriculture, and hence it should remain a viable source of livelihood.

Hence, “food security which is not only of economic relevance, but a very important socio-political concern in large agrarian economies like India needs to be addressed up-front in the on-going negotiations on agriculture,” the Indian paper says -  in effect rejecting the idea that they could be dealt with by a lower reduction commitment and longer time periods (which is the basic approach of the entire range of Uruguay Round Agreements, and that of the AoA too).

Thus, India argues, low-income developing countries should be able to produce their food requirements and, since a majority of the people are dependent on agriculture, these countries should be able to have a certain level of self-sufficiency.

The ability of these countries to import food (to meet the food gap) is constrained by meagre foreign exchange resources, the upswing in prices that would result in entry of large consuming countries in the world food grain markets, the highly volatile world commodity markets for basic food grains, and the inadequate  physical and institutional infrastructure for managing large quantities of imported food grains and their distribution.

For these and other reasons, India has suggested the creation of a ‘Food Security Box’ for developing countries consisting of:

·        all existing provisions of Annex 2 of the AoA (green box) except paras 5, 6 & 7 (direct payment to producers, decoupled income support and government participation in crop and other insurance);

·        exempt from any form of reduction commitments, all measures taken by developing countries for poverty alleviation, rural development, rural employment and diversification of agriculture;

·        flexibility to provide subsidies to key farm inputs, which should however continue to be accounted for in non-product specific support AMS (aggregate measure of support) calculations;

·        exclude for AMS calculations, in addition to agricultural investment and input subsidies, product specific support given to low-income and resource poor farmers;

·        allow negative product support to be used to adjust against positive non-product specific support;

·        allow developing countries to maintain an appropriate level of tariff bindings as an S&D measure -  keeping in mind their development needs and the high distortions prevalent in international markets -  so as to protect livelihood of their very large population dependent on agriculture;

·        developing countries should be enabled to raise (to the ceiling bindings committed during the Uruguay Round for a similar category of products) the low-tariff bindings that could not be rationalised in earlier negotiations;

·        special safeguard measures should be available to developing countries, on lines of the SSG provisions of Art. 5 of the AoA (that are now available only to the industrial countries who converted their various support and import restrictions to tariffs), including provisions to enable quantitative restrictions in specific circumstances;

·        exemption from providing any minimum market access commitments; and

·        rationalisation of the product coverage of the AoA to include primary agricultural commodities like rubber, primary forest product, jute, coir, abaca and sisal etc   “which are much more agricultural than hides and skins now covered by the AoA”.

The Indian paper also has proposals relating to market access, domestic support and export subsidies.

Under market access, the Indian paper calls for an appropriate formula being evolved with a cap on tariff bindings to effect substantial reduction in all tariffs including peak tariffs and tariff escalations in developed countries, with the developed countries making a “down payment” by bringing down the tariffs on 1 January 2001 by 50%, by end of 2001

Even after the abolition of the Peace Clause  (Art. 13 of the AoA), as an S&D treatment, measures taken by developing countries under the 'green box' and domestic support measures conforming to Art.6 of the AoA should be exempt for 10 years from imposition of counter-vailing duties under the Subsidies Agreement, and also exempt from non-violation complaints on tariff concessions in dispute settlement.

Tariff Rate Quotas (TRQs) should be eventually abolished, and in the interim TRQs of developed countries should be substantially expanded.

Developed countries should not be able to use Sanitary and Phytosanitary (SPS) measures for protectionist purposes, by prescribing overly stringent trade restrictive SPS.

Under domestic support measures, the Indian paper calls for a ‘down payment’ in the first year of negotiations, by developed countries, as proof of their commitment to the AoA reform process, through liberalisation of agriculture to benefit developing countries.

The Indian paper also calls for some of the ‘green box’ support measures (direct payments, along with decoupled income support and government financial participation in income insurance and income safety-net programmes) to be included in non-product specific AMS and subject to reduction commitments, so as not to exceed the 5% de minimis level for developed countries and 10% for developing countries.

Product specific support provided to low-income resource-poor farmers should be excluded from AMS calculation, as is done for non-product-specific support under para 6.2 of the AoA. Total domestic support should be brought down below the de minimis level within 3 years by developed countries and five years by developing countries.

Other measures proposed in this area include: developing a suitable methodology to notify domestic support in a stable currency/basket of currencies, taking into account the ncidence of inflation and exchange rate variations;  negative product support should be allowed to be adjusted against positive non-product-specific support; while product specific support should be calculated at aggregate level; support to any one particular commodity should not be allowed to exceed the de minimis level.

In the area of export subsidies, the Indian paper calls for elimination in the first two years of implementation of export subsidies on all agricultural products, both in terms of export subsidy outlays and subsidised volumes, with a down payment in 2001 by developed countries of 50% reduction from the level maintained in 2000. There should also be no rollover of unused export subsidies. All forms of export subsidisation like export credit, guarantees, price discounts and insurance programmes in developed countries should be added to export subsidies and subject to overall disciplines applicable to these subsidies.

The existing S&D for developing countries under Art. 9.4 of the AoA should continue. The special dispensation for developing countries under Art.27 read with Annex VII of the Agreement on subsidies and countervailing measures should prevail over Art.8 of the AoA.

Proposals from a some other developing countries (like Mauritius and some Caribbean economies), with one or two agricultural commodities and seeking to preserve their trade preferences or get preferential access appear to be trying to draw a difficult path in between the ‘multi-functional’ and ‘non-trade’ concerns of the EC and Japan, the position of the Cairns group wanting all barriers to be torn down, and those of the larger developing countries (as that of India, or the concept paper of Pakistan and other LMG members).

Mauritius, for example, talks of agriculture being a worldwide activity, spanning developed and developing worlds including high and low potential areas, and all of which must co-exist. And given the varying levels of development and diversity of agricultural situations, each country and region has its own concerns, particularly considering the role of agriculture as going beyond production of food and fibre and covering a list of functions under-pinning socio-economic fabric of rural areas.

The Mauritius proposal then goes on to say, under ‘non-trade concerns’ (that are specifically to be addressed in further reforms under Art. 20 of  the AoA) that issues of food security, rural development and environmental preservation, among others, are of common concern in both developed and developing countries. Nonetheless, the instruments to be used to address such concerns will differ from country to country in view of their specificities and diversities, and no single measure would be suitable for all.

While measures to meet non-trade concerns need to be taken transparently, Mauritius argues that a concept like ‘no more minimally trade-distorting’ approach was inadequate for most small island developing states (SIDS), and they should be allowed to use appropriate means to ensure that agriculture plays its “multi-functional” role, and trade arrangements that ‘procure’ SIDS with means to pursue their agricultural policy objectives should be safeguarded -  presumably a reference to the special preferential arrangements that these type of countries have with Europe (formerly Lome, and now the Coutonou accords) and the US and Canada (preferences for Africa and Caribbean).

Mauritius also argues that food security for the SIDS could be best secured, inter alia, by measures that :

·        ensure stable and predictable export earnings to build up critical foreign exchange reserves for purchasing food on reasonable terms and conditions; and in timely manner;

·        ensure physical access to food through accessing different and adequate supply sources and securing effective reliable transportation and storage facilities;

·        encourage domestic agricultural production, bearing in mind the constraints of topography or agro-climatic conditions, and exclusion of certain products from reduction commitments;

·        establishment by donor countries of an international food reserve; and

·        promoting access to relevant agricultural technology including new seeds and plant varieties.

The Mauritius paper also calls for elaboration of S&D instruments to exempt from reduction commitments measures aimed at poverty alleviation, to make available appropriate technology to enhance competitivity, and achieve security of access to SIDS and smaller producers who are unable to take advantage of de minimis levels in providing domestic support.

Under market access, for those like Mauritius, dependent on one or two commodities, sensitive products should be excluded from the ambit of commitments on market access, domestic support and export competition; and existing market access in developed countries should be improved and safeguarded. There should be ‘self- restraint’ by large exporters, both from developing and developed countries, for products originating from SIDS, and ‘historical’ preferential trade agreements should continue to provide significant preferences; and  any review of Tariff Rate Quota administration should not impact negatively on SIDS.

In a separate paper, several Caribbean island developing countries, as SIDS, ask for security of access for one or two commodities that they can produce on a commercial scale; improvement and binding in the framework of the AoA of the non-preferential tariff rates in the agriculture provided to developing countries, in particular SIDS; non-application of the requirement about ‘substantially, all the trade’ being covered in free trade area or customs union agreements should not apply to such agreements involving SIDS; since SIDS are invariably net food importing developing countries (NFIDCs), they should not be obliged to provide reciprocal access for their agricultural products under preferential trading arrangements with developed countries. – SUNS4830

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

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