Agriculture reform process for disciplining policies of other nations

The major protagonists in WTO talks on reforming agriculture trade are variously suggesting negotiating modalities that would discipline or prohibit existing national farm policies.

by Chakravarthi Raghavan

GENEVA: The WTO Committee on Agriculture, which is running the agriculture negotiations in special sessions, and in what trade officials informally call “the modalities phase”, held its fourth round of informal consultations on 21 November and received further papers and proposals, including a new one from the United States addressing the issue of export credits.

Some 24 papers have been put forward by members and some groupings, all seeking to provide specific inputs for a modalities paper.

Most of the proposals on the table by the various protagonists, including some from the leading nations, can perhaps be better summed up as attempts to write rules that will make the practices of others illegal and/or subject to disciplines.

To the cynical, this is part of the negotiating process at the WTO, but piled upon other negative views about the trade body, such approaches will only worsen its image further.

The EC and Japan have not so far presented any proposals of their own, though the EC Trade Commissioner Pascal Lamy has said the EC would present a paper before the end of the year.

The chairman of the special sessions of the Committee on Agriculture Stuart Harbinson has said at previous meetings that he will produce a first draft of a modalities paper by 18 December, based on inputs from members on the three pillars of the agriculture reform process: domestic support, export competitiveness and market access. Under the WTO’s work programme set at last year’s Doha Ministerial Conference, the modalities for the agriculture negotiations, which will provide a framework for members’ future commitments in the sector, have to be finalized by 31 March 2003.

This fourth session was to meet formally on 22 November to hear the chair’s summary of the discussions. He told the informal meeting that the members’ inputs would help him in preparing a first draft, but that there has been no convergence of positions.

It was however not clear, when the informal meetings ended, whether Harbinson would take into account only the papers received and the views expressed so far, or whether his first draft would reflect any proposals or papers from the EC and Japan between now and 18 December (and which will give no opportunity to the other members to comment).

The WTO is never tired of preaching the liberalization of trade and investment to members, particularly the developing countries, and also advocating such things as “labour market flexibility.” But its staff, demanding an 8% rise in salaries and allowances to compensate for increased workloads, are now “working to rule.” And meetings are forced to end at 12 noon and 5 in the evenings.

The discussions at the fourth informal meetings were not completed, and Harbinson suggested that if they could have a quick formal session (to receive his summary, and on which members generally comment and put their views on record), they could continue the informal session and hear the views of those wanting to comment.

[Harbinson became the chair of the agriculture special sessions when he was the permanent representative of Hong Kong China; but he is still running these negotiations even after he became (from 1 September) the chef de cabinet of WTO Director-General Supachai Panitchpakdi.

[This is contrary to a 2 February “decision” of the Trade Negotiations Committee (TNC), which had before it at that time a chairman’s text (put forward by Harbinson, who was then General Council chair) on how the TNC would organize and run the Doha-mandated talks. Contrary to Harbinson’s initial suggestion, the TNC, while taking note of some parts of his paper, adopted as decisions the principles and practices and negotiating structures to conduct the negotiations. One of them is the requirement that the various negotiating bodies are to be chaired by a Geneva-based ambassador or, in exceptional cases, a capital-based government representative. If Harbinson’s suggestion merely to take note of his paper had been accepted, this requirement would have been qualified by the use of “normally be made.” But it was not accepted, and the requirement for a local ambassador or government representative to chair and run the negotiations was made a decision, and without any qualification.

[But in the “rules-based” WTO, only the smaller nations and weaker members have to obey the rules!]

The papers and discussions at the fourth agriculture informal sessions covered a range of subjects, in effect revisiting those discussed at earlier sessions. These included the issues of export credits and a special safeguards mechanism for developing countries (which cannot use such a mechanism now since they did not convert all their restrictions into AMS support and tariffy their market access, which is the criterion for qualifying for use of the special safeguard).

At earlier meetings a number of them, and more so some major countries like India, had said that their willingness or ability to cut tariffs depended on the extent to which the industrialized countries undertook cuts on their domestic support and export subsidies and credits. A paper from India at this meeting has again reiterated its position about the interlinkage between market access, domestic support and export competition. Such a link is also suggested in a number of other developing-country papers.

Export credits

On export credits, the US has submitted a paper, and so have the Cairns Group and Mauritius.

The US paper calls for prohibiting use of export credits, credit guarantee programmes and export credit insurance programmes that do not meet the provisions of a proposed article to discipline export credits. However, food aid provided to countries under Article 10.4 of the Agreement on Agriculture will be exempt.

While many countries provide food aid and do so in cash or kind, the aid provided by the US is to be ‘sold’ by the recipient countries in the domestic market and the money raised used for development. As Sophia Murphy from the US NGO Institute for Agriculture and Trade Policy has pointed out, this US policy results in the ‘food aid’ competing on unfair terms with local produce, depressing domestic prices and hitting farmers in the developing world. (Other studies have brought out that such aid also changes the eating habits of people, making them switch to food grains that have to be imported - thus in Africa cassava is not used after a taste for imported wheat and bread is cultivated.)

On export credit terms and conditions, the US paper requires minimum interest rates to ensure there is no subsidy involved. This says: “Interest rates offered for official financing support shall not be below the costs of borrowing for the funds so employed (including costs of funds if capital was borrowed on international markets in order to obtain funds of the same maturity), plus a risk-based spread reflective of prevailing market conditions.”

This will in effect make export credits from most developing countries costly, and make it impossible for any of them to export food grains and other agricultural commodities at rates competing with the US.

For example, on 20 November, the market risk premium for Brazil (a competitive agricultural exporter, where these exports and production are in fact as much big business as elsewhere) was 1590 basic points or nearly 16% above Libor. And the market risk premia for those developing countries or the developed, buying from Brazil etc range from 10 to 20 percentage points. At such interest rates, no developing country can provide export credit to compete with the US.

A number of comments suggested that the disciplines on export credit should be such that they are not used to circumvent the commitments on export subsidies.

On the issue of the special safeguard mechanism (an ability to raise tariffs dependent on exchange rate fluctuations, without having to undergo the “injury” test required in the ordinary GATT safeguards mechanism), Sri Lanka and a group of countries have put forward a detailed paper.

Brazil supported by Argentina sought to set a clear link between the three pillars of the agriculture reform process, with developing countries’ ability to open up their market made dependent on the willingness of the developed countries to reduce domestic support and export subsidies. It would also allow developing countries to levy a transitional special and differential countervailing measure on a simplified procedure. Countervailing duties can be imposed by a developing country on imports that are subsidized by the exporting country, to the extent of the subsidy.

The EC, which extensively uses export subsidies, would not support such a measure, since it would not require proof of injury.

Peace clause

The EC’s export subsidy practices, even if sanctioned by the Agreement on Agriculture, would become subject to countervailing measures under the Subsidies and Countervailing Measures Agreement after 31 December 2003, when the so-called “peace clause” ends. On a plain reading, the peace clause (Article 13 of the Agreement on Agriculture), which exempts these subsidies from countervailing measures, applies only during the “implementation period”, which ends end of 2003, and would automatically expire at that time - unless extended, and this would need consensus.

From the comments of the EC and its like at the meeting, they want the peace clause to be extended in a new agreement, and pending the conclusion of the negotiations, which in the EC view includes negotiations and agreements on the four “Singapore issues”: investment, competition policy, government procurement and trade facilitation.

And one should not rule out an equivocal view coming from the WTO secretariat suggesting that, even without a formal extension, during the negotiations for continuance of the reform process, the peace clause would be in force.

A similar stand is also being suggested for the special safeguard mechanism.

At a mini-ministerial meeting in Sydney on 14-15 November, the EC’s Lamy already underscored this point of view, with US Trade Representative Robert Zoellick advising developing countries to give something to Lamy to enable him to move forward on agriculture!

(At Sydney, when Lamy insisted that the Singapore issues were part of the “single undertaking” of negotiations under the Doha work programme to be taken up and completed, India denied it, while Singapore attempted to contradict India. Thereupon, Malaysia’s Trade Minister Rafidah Aziz intervened and said she had been present inside the green room meeting that night, and the formulation on the four Singapore issues - with the requirement about modalities having to be agreed by explicit consensus before negotiations thereon could be taken up - was no more than a “fig-leaf” for Lamy. In the end, Supachai is reported to have suggested that members go back to Geneva and take up negotiations on the modalities.)

If the EC has its way on the peace clause and the negotiations on the Singapore issues, Zoellick persists in trying to help his “friend Pascal” at the expense of the developing world, and the negotiations under the work programme are to be concluded as a single undertaking, the negotiations cannot end as envisaged. The target date for conclusion set at Doha is the end of 2004, but no one believes that, even without the four Singapore issues on the negotiating agenda, the round can be concluded by that date. This means the EC and Japan need to do nothing on agriculture.

Trade officials could not say whether Harbinson in  his  modalities paper would bring up the issue of the peace clause and its continuance as part of the modalities of negotiations, thus satisfying the EC. (SUNS5240)                                            

From Third World Economics No. 295 (16-31 December 2002)