Export issues modalities discussed at informal session on agriculture

WTO member countries recently discussed, without altering their respective negotiating stances, the issue of export competition in farm trade, one of the three pillars of the sensitive agriculture talks that have split the membership of the trade body.

by Chakravarthi Raghavan

GENEVA: A two-day informal special session of the WTO Committee on Agriculture discussed in the week of 17 June modalities relating to the issue of “export competition” under the headings of export subsidies; export credits, guarantees and insurance; food aid; exporting state trading enterprises; and export restrictions and taxes.

The informal session was a follow-up of the inter-sessional consultations on 3-4 June, where the US had come up with its proposals for “phasing out” export subsidies and dealing with the related issue of export credits (which it has hitherto denied is an issue of subsidy and export competitiveness). (The special sessions of the Committee on Agriculture are convened to run the agriculture negotiations in the WTO.)

At that time a number of participants had assailed the US over its farm bill, and several of them had argued that in considering further reforms of the agricultural trade, the issues of export competition could not be viewed apart from the two other pillars of the reform programme: tariffs and market access, as well as domestic support.

In relation to the informal meeting, the Chairman of the special sessions Stuart Harbinson of Hong Kong China had asked the delegations to focus on the export sector issues (and not repeat their points in the consultation meetings) and address specific items under the five heads and some specified sub-items under them. He had also circulated a “technical elaboration” of detailed possible modalities on specific items listed under the five heads, and had asked delegations to offer their comments on the points, as also put forward their specific proposals. This was presumably intended not to allow any “distraction”.

The only country that has put forward such a proposal on the export side is Switzerland, which has called for a “modulation” exercise - namely, allowing flexibility to a country to exceed or not reduce fully on any particular export that is subsidized, but compensating for this with higher cuts elsewhere on some other export items. The Swiss proposal got short shrift from some of the other members.

Switzerland so far has been subsidizing the exports of its cheese, which, however, under the ‘bilateral’ accord with the European Union, may get a quota large enough to absorb its entire surplus. Switzerland has been identified in the latest OECD data as the country whose agriculture, in terms of the Producer Subsidy Equivalent, gets 69% support.

An EC official from the agriculture division summed up the discussions as showing “no significant change” in positions by any side, though the “tempo of discussions” was different.

This is now the “negotiating stage”, and no one is going to change or indicate any change on export subsidies or credits without knowing what is going to be done by other members in the export sector, the official said, though fighting shy of accepting the same position by developing countries who insist on the “three-pillar” approach (export competition, domestic support and market access) or the efforts of the Cairns Group and others seeking to pin down the EC on the phasing out of export subsidies.

At the end of the informal session, Harbinson reportedly said there had been focussed, businesslike and unrepetitive discussions, and that while good progress had been made, a lot more work remained to be done. As envisaged now, there is to be another negotiating session at the beginning of September on market-access questions, and a third at the end of September on domestic support.

Need for ambitious results

While Harbinson had tried to narrow the focus of the discussions to the “export sector”, interestingly, Brazil’s Ambassador, Luiz Felipe de Seixas Correa, in raising some general points (and thus in a sense flagging the issues raised at the informal consultations earlier in June), stressed the need to address in the negotiations all the three pillars and the need to achieve ambitious results in agriculture for a successful outcome for the round of negotiations launched under the Doha work programme.

For Brazil, there could be no successful outcome for the round unless ambitious results are achieved in agriculture, a sector where, as in many of the Uruguay Round instruments, it was a case of “work in progress”, with much work needing to be done to “mainstream” agriculture into the multilateral rules-based system.

Particularly in the area of export competition, he said, disciplines on export credits were yet to be developed. The existing disciplines on food aid needed to be strengthened and implemented. The export subsidies issue called for in the Doha mandate had also to be disposed of.

In this connection, the Brazilian envoy cited an Indian complaint in 1955 (in relation to the discussions then on amending the General Agreement on Tariffs and Trade (GATT) and its export-subsidy rules) that “it is unfair for nations that export mainly primary products to bind themselves in the non-primary goods area, while the developed nations continue their use of subsidies for primary goods.” This was unfair in 1955 and is still unfair in 2002, the Brazilian envoy said.

Calling for vigorously pursuing enhancement of disciplines in other export enhancement practices also, Brazil said it was willing to abide by any elimination schedule proposed by Australia for the Cairns Group (see below), but insisted that progress should be achieved on all fronts on the export-sector pillar.

Domestic-support measures also generate effects similar to export subsidies, Brazil said, pointing to the submissions of a number of developing countries that commodities exported from countries with high levels of domestic support competed unfairly with the commodity exports of developing countries which could only rely on their comparative advantage.

“Circumvention of disciplines and carefully crafted national legislations to avoid extrapolating commitment levels are practices to be discouraged.” They were not operating in a level playing field, and while rules may be the same for everyone, the treasuries of different countries have different capacities, he added.

On export subsidies, Australia, on behalf of the Cairns Group of agricultural exporter countries, had proposed earlier a downpayment of 50% reduction at the beginning (of the new agreement) and a three-year phase-out to zero for the industrialized countries and six years for developing countries.

China at this meeting made a similar proposal, but without any reference to any “downpayment”. The US has proposed a phase-out in five years. The EC position is that elimination is neither excluded nor included, but depends on what happens in other areas, including export credits and domestic support.

A number of interventions, in an obvious reference to the targeted domestic support in the US farm legislation, said these support measures should be treated as export subsidies when the targeted products are largely exported.

A number of developing countries, in the like-minded group (LMG), want their own export subsidies to be exempt along the lines of Article 27 and Annex 7 of the Subsidies Agreement.

While the Cairns Group members oppose this on the ground that such subsidies would be “trade-distorting”, India and others in the LMG insisted that their presence in the market was so small that no subsidy they provided could distort the trade.

The discussions on export credits showed a division of opinion between those who want to bring these under disciplines through a rules-based approach, and the EC and others who want the subsidy elements of the export credits to be brought under “reduction commitments”.

This last was opposed by countries like India which pointed out that such an approach would mean that those who provided high subsidies in the base period would be allowed to subsidize more during the reform period.

In the rules-based approach, the export credits would be related to or defined in terms of the “commercial terms” - duration of credit (normally 180 days for such trade credits), benchmark for interest rates (Libor plus something), appropriate insurance premiums. Anything else would be outlawed under this approach.

The EC which at the OECD had been pressing for an OECD rules-based approach, appears to have changed views, and at the informal special session opted for a reduction-commitment approach.

Some countries cautioned against too drastic an approach on such reduction, since subsidized credit could be needed by a country in times of foreign exchange/currency reserve crisis.

The discussions on food aid showed a general consensus that genuine food aid, provided in response to appeals from the relevant international organizations (the World Food Programme, the Food and Agriculture Organization, etc.) that declare a food emergency and seek donations, should be provided and WTO rules should not come in the way of such aid.

There was, however, considerable difference over other ‘food aid’, which are really avenues for disposal of surplus domestic production (as a result of high domestic support), food aid provided to some countries bilaterally in order to cultivate a future commercial relationship, food aid linked to commercial purchases, etc. - various forms of food aid adopted by the US.

There were also questions as to whether even genuine food aid should be grants or price discounts and credits, with a number of protagonists like the EC arguing that it would be preferable to give such aid to a country in cash, enabling it to buy domestically or from another developing country. Some, however, saw food aid in kind as the only way to be able to provide such aid quickly in emergencies.

On state trading enterprises, and state-authorized or guaranteed export enterprises, an issue arose as to whether a monopoly to an enterprise given by a government was per se suspect or whether it would be only its actions that could determine whether subsidy was involved.

The US, EC and some Cairns Group members want such enterprises to be disciplined, with the US arguing that if a monopoly is granted in a country to such an enterprise, there should be complete transparency on the price, terms and conditions of domestic purchase and the price of export.

Australia, Canada and New Zealand, three countries that have state export enterprises, argued that their enterprises were no different from the giant private enterprises like Cargill - a view that was sought to be countered by the US and EC which argue that these are issues of competition policy.

However, it is difficult in practice to see how the 3-4 private monopoly corporations in world commodities trade like Cargill - which have monopsonic power in buying from domestic producers and exporting with cross-subsidization (across markets and commodities) - cannot be disciplined under rules that apply only to governments, whereas the countervailing state enterprises set up to prevent the monopsonic buying power of the private corporations would have to be disciplined.

On the export-taxes issue, Malaysia and Argentina argued that this was not a subject on the Doha mandate, though they did participate in the discussions. The WTO/GATT does not prohibit or deal with export taxes. However, a number of protagonists want this to be addressed and subject to rules.

In fact, in situations of domestic scarcity, export restrictions on domestic production are envisaged, though such taxes could also operate to prevent exports of raw commodities and encourage processed exports and thus retain value-added.

While the industrialized countries like Europe raise this as a grievance and have even complained against taxes levied on exports of logs (instead of finished products) in a more general context, the same countries impose tariff escalations to enable imports of cheap or zero-duty raw materials and then process them into finished products (e.g., instant coffee, chocolate).

There are two sets of pressures mounted in this area.

One is from countries like Japan etc that argue that when they are advised to depend on imports for food security and not protect and develop their own food production, they need assurances (through WTO disciplines) that the exporters would not restrict exports or levy taxes.

The other is that the monopoly commodity and food traders like Cargill would like to buy cheap the food grains and other commodities in developing countries - where some of them also have large plantations or local production tied to their purchases - and be able to process and export them and reap the profits. (SUNS5143)

From Third World Economics No. 283 (16-30 June 2002).