AGRICULTURE ISSUES IN BALI Draft 22 September 2013 1. Introduction A - - PDF document

AGRICULTURE ISSUES IN BALI Draft 22 September 2013

• 1. Introduction

A few elements from the Doha negotiations have been identified by some developing country groupings for a possible solution at Bali. At the time of writing, it is not yet clear what would finally emerge from the Bali Ministerial. Nevertheless, pre-Bali discussions in the area of agriculture have centered around the following proposals: the G33’s food security proposal; the G20’s proposal on export competition and the G20’s proposal on tariff rate quotas. Of these, the G33’s proposal is the most concrete in terms of delivering something substantial and meaningful – in the immediate term or in the future - to developing countries. Disappointingly, the discussions prior to the Ministerial seem to be considering solutions which are narrowly focused¸ for example, possibly only providing for an ‘interim’ solution. It is furthermore deeply unfortunate that almost 20 years after the conclusion of the Uruguay Round, the promise that the imbalanced Agreement on Agriculture would be renegotiated and rebalanced so that developed countries are no longer dumping their subsidised agricultural products on the world market and in developing countries, is not being fulfilled. The truth of the matter is that the Bali Ministerial will also not provide solutions in this regard.

• 2. The G33 Food Security Proposal

This proposal is a follow up from the Doha 2001 mandate in the agricultural negotiations pertaining to developing countries, and the need to safeguard food security, rural livelihoods and rural employment It is important to note that the G33’s proposal (JOB AG/22 13 November 2012) was not a new invention prior to Bali. It reproduces a part of the last version of the Doha agriculture modalities text of 6 December 2008 (TN/AG/W/4/Rev.4, Annex B) which was already ‘stabilised’. At a systemic level, the proposal in its original form would have injected a small dose of ‘equity’ in the Agreement on Agriculture. A major and glaring loophole created in the Uruguay Round’s Agreement on Agriculture to benefit the developed countries was the ‘Green Box’ (or Annex 2 of the Agreement on Agriculture). The Green Box allows countries to provide a range of support programmes in agriculture, and these supports can be provided without limits. However, the programmes elaborated upon under the Green Box (Annex 2) are those provided by developed countries. They include direct payments to producers, decoupled income support (supports given to landowners whether or not they produce as these subsidies are not tied to production); insurance payments of various forms and structural adjustment assistance to retiring producers or resource retirement programmes. The programmes that developing countries provide – government purchases from producers at administered prices – are not included in the Green Box, but must be ‘counted’ under a country’s Aggregate Measure of Support commitment (AMS or so-called trade distorting domestic supports) (footnote 5 of Annex 2).

This ‘inequity’ in the rules is further compounded by the fact that most developing countries bound themselves at zero AMS in the Uruguay Round (this was the case for 61 out of 71 developing countries when the WTO came into effect). Since then, most acceding developing countries have also had to bind their AMS at zero. Those developing countries which have declared providing some AMS declared only very small amounts due to their fiscal

• limitations. As a result, developing countries effectively bound themselves to not being able

to provide ‘trade-distorting’ (AMS) domestic supports aside from the ‘de minimis’. The de minimis for developing countries means that they can provide AMS up to 10% of the value of production of a certain product. In stark contrast, developed countries in the Uruguay Round declared high levels of AMS. Their Uruguay Round commitment was a reduction of AMS supports by only 20%. After reductions, at the end of its Uruguay Round implementation, the US has a bound AMS ceiling of USD 19 billion. The EU (27) has a bound AMS ceiling of 72 billion EUROs. In sum, this means that developing countries declaring zero trade distorting domestic supports were locked into providing zero amounts of supports (aside from the 10% de minimis product-specific AMS), whilst developed countries providing large amounts of AMS could still continue doing so. This G33 proposal would have provided a little more balance to these rules by allowing developing countries’ public stockholding programmes when governments procure from ‘low-income or resource-poor producers’ to be incorporated under the ‘Green Box’. Just like the decoupled supports, insurance and other support instruments provided by developed countries under the ‘Green Box’, there would be no ceiling limits on these developing country support programmes. The G33 proposal would also provide a solution for the ‘distortions’ in the way the Agreement on Agriculture rules stipulate how the AMS is to be calculated when developing countries provide public stockholding programmes. The present formula provided by the Agreement leads to an artificial and inflated figure, making it effectively impossible for developing countries to provide these programmes. This is especially as prices of agricultural commodities and staples have in some cases increased by 3-4 times compared to their Uruguay Round levels. Yet the benchmark used to calculate AMS supports today as stipulated by the Agreement is still the prices of 1986 – 1988. The G33 proposal sidesteps these problems by making developing countries’ price support/ public stockholding programmes a special and differential treatment exemptionto be covered under the Green Box. G33 Proposal Addresses the ‘Distortions’ in AMS Calculations Pertaining to Acquisition

• f Foodstocks

Logically, if a government procures from producers, the calculation of the subsidy should simply be the difference between the government’s procurement price (administered price) and the market price, multiplied by the volume the government had actually purchased. This however, is not the formula in the Agreement on Agriculture. Annex 3 paragraph 8 says:

‘Market price support shall be calculated using the gap between the fixed external reference price and the applied administered price multiplied by the quantity of production eligible to receive the applied administered price.’

• The fixed external reference price was fixed upon the conclusion of the Uruguay
• Round. It is the average f.o.b. (free on board) price that has been notified by a country

for a product for 1986 – 1988. Due to the time that has lapsed, this price is often much lower than today’s prices.

• The applied administered price can be the acquisition price announced by the

government in advance. This is the price paid by the government to producers when they would sell the product directly to the government.

• The ‘production eligible to receive the applied administered price’ has been

interpreted by some as 100% of total production in a country (as illustrated in the calculations

• n

http://www.wto.org/english/tratop_e/agric_e/ag_intro03_domestic_e.htm). That is, even if a government actually only procures 100 kg of a product from producers, they have to calculate the AMS supports as if they had provided price supports for the entire domestic production of that product. The end result is that the figure one attains is not what governments actually subsidise, but a much bigger and inflated figure. With these rules, it is almost inevitable that developing countries will surpass their allowed 10% product-specific de minimis, even if they procure

• nly very small volumes of a product.

The Importance of Public Stockholding Programmes in Developing Countries: The acquisition of foodstockshas always been an important instrument for development even used by developed countries in their development process. They remain an important policy tool for developing countries for the following reasons: i) In the face of volatility of food stocks on the global market today and the fluctuations in global food prices, building national reserves has been widely acknowledged as being a critical part of developing countries’ food security

• strategy. Today’s global food market is structurally different from the market

when the Uruguay Round was completed. In the 1990s and early 2000s, food on the global market was cheap and stocks were plentiful. (There was less ‘financialisation’ of the food market, which has also caused food to be much more expensive). ii) Acquiring surpluses from some regions and sending these supplies to regions that are food deficit has and remains an important food security instrument for developing countries. This furthermore guards against countries falling into balance of payments crises if they face supply deficits and are forced to procure from the world market when prices are very high. This is also an important adaptation strategy for countries dealing with climate change and the uncertainties in supplies as a result of climatic variations and disasters.

iii) Many developing countries continue to struggle with widespread rural poverty. This remains a major issue especially when the share of the population engaged in agriculture continues to be significant and the industrial or services sectors cannot provide sufficient employment. For broadbased development to take place, countries must ensure that the living standards and purchasing power of the majority can be increased. Without this, there would be no equitable development. Governments’ price support instruments, or programmes acquiring foodstuffs at administered prices are therefore an important avenue whereby resource poor farmers’ incomes can be stabilised and even guaranteed (in a similar logic as developed countries’ direct payments, decoupled income supports and insurance programmes under the Green Box). At the time of writing however, many developed countries are seeking to drastically narrow the scope of the proposal, and in particular, only to provide an interim solution – for instance – a peace clause (i.e. no dispute settlement cases) for two years. If so, this would be a lost

• pportunity to attaining some small amount of balance to an iniquitous Agreement. If such an

interim ‘peace clause’ solution is accepted, it should only expire upon the conclusion of the entire Doha Round negotiations or until a permanent solution along the lines of the original G33 proposal has been found. If the peace clause is only to be temporary, to be renegotiated after a few years, it would not be of use as the instrument would only be temporary and any renewal is subjected to political bargaining and thus lacks any expectation of continuity. Any peace clause needs to be in place as a permanent solution, or until a satisfactory permanent solution is concluded.

• 3. G20’s Export Competition Proposal

Export subsidies are special incentives, such as cash payments extended by governments to encourage exports. This is often used when domestic prices of a good are above world market

• prices. Export subsidies are seen as the most trade distorting form of supports. In agriculture,

the levels of actual export subsidies provided by developed countries have fallen significantly since the time of the Uruguay Round. The EU for instance has changed the way it supports its farmers in preparation for the conclusion of the Doha Round. Domestic prices are now kept fairly similar to world prices. Supports to EU farmers are then provided via direct payments (mostly decoupled income supports) via the Green Box. As domestic prices are not highly inflated compared to world prices, the need for export subsidies to encourage exportation has also been reduced. Nevertheless, the principle that export subsidies in agriculture should not be provided as it is unfair and harmful to producers in importing countries is an important one. The G-20 group of developing countries circulated a proposal in the form of a draft Ministerial Decision on Export Competition (JOB/AG/24 of 21 May 2013), representing an ‘interim’ solution towards the full elimination of export subsidies.’ At the time of writing, the US and EU are still opposing the proposal. The proposal is in fact only a shadow of what was

promised in Hong Kong (2005), and what the last draft of the Doha agriculture modalities had also committed Members to undertake. The Hong Kong Ministerial Conference (2005) Declaration says countries agree to ensure the ‘parallel elimination of all forms of export subsidies and disciplines on all export measures …to be completed by the end of 2013… The date above for the elimination of all forms of export subsidies, together with the agreed progressivity and parallelism, will be confirmed

• nly upon the completion of the modalities’ (para 6, Hong Kong Declaration,

WT/MIN(05)/DEC 22 December 2005). The last draft of the Doha agriculture modalities TN/AG/W/4/Rev.4 (December 2008) calls for the elimination of export subsidy entitlements by the end of 2013 for developed countries. Budgetary outlay commitments were to be reduced by 50 percent by the end of 2010. Regarding the treatment of developing countries’ export subsidies, TN/AG/W/Rev.4 did not specify treatment of developing countries’ export subsidies in the interim period (set at 2010 in TN/AG/W/Rev.4). Developing countries were to eliminate their export subsidy entitlements to 0 in equal annual instalments by 2016. The G20 proposal is a shadow of the Hong Kong and TN/AG/W/4/Rev.4 commitments. It calls on developed countries, by the end of 2013, to reduce their export subsidy budgetary

• utlay commitments by 50 per cent (whereas the two documents mandate the elimination by

that date). It also stipulates that there must be a standstill in quantity commitments compared with the 2003-2005 base period. It also proposes a maximum repayment term of 540 days for export finance support, with an S&D for developing countries in the form of a transitional period of three years. The proposal does not entail any significant problem for the developed countries. If accepted, the G-20 proposal does not lead to ‘real’ or applied cuts. Neither does it substantially reduce the policy space of developed countries to provide export subsidies. According to the European Union’s latest certified schedule (EU15), it can provide up to EUR 7.4484 billion on export subsidies. A preliminary calculation of export subsidy entitlements for the EU28 adds up to around 8.5 billion. During 2007-2009, the EU applied export subsidies were only EUR 559.03 million. In other words, even if cut by 50%, the EU could still provide 6.5 to 7.5 times more export subsidies than it currently provides. The G-20 proposal is unclear about whether the 50% cut in export subsidies apply to each product or is to be applied in total. If it is a cut applied to a country’s total export subsidies, it is even possible to increase export subsidies for particular products. Even if the cut has to be applied for each product, the EU would not be affected. This proposal also raises systemic concerns. TN/AG/W/Rev.4 did not stipulate commitments for developing countries in the ‘interim’ period but this ‘interim’ solution requires developing countries to apply cuts. Also, the maximum repayment period has been modified from what was suggested in TN/AG/W/Rev.4 (540 days instead of 180 days), thereby breaking away from the modalities contained in TN/AG/W/Rev.4.

• 4. G20’s Proposal on Tariff Rate Quotas (TRQs)

The Tariff Rate Quota (TRQ) system created in the Uruguay Round’s Agreement on Agriculture required countries with TRQs for certain products to apply a lower tariff rate to these products up to a pre-defined quota amount. Beyond this quota, a much higher tariff rate (usually very prohibitive, hence discouraging imports) is applied. There are 1,095 TRQs which have been bound in the WTO. Most of these TRQs are held by developed countries. The quotas created should in theory have been allocated to WTO members on a most-favoured nation (MFN) basis i.e., they should have been equally available to all countries. However, this is mostly not the case. Instead, in developed country Members’ schedules, many quotas were specifically allocated to their traditional trading

• partners. For the EU, quotas were mostly allocated to other developed countries either

explicitly, or implicitly (the nature of the products for which import quotas were allocated were those produced by other developed countries). Even with these limitations, a problem that has been identified in the implementation of TRQs is that the import quotas were still often not filled. Over the years, TRQ administration methods and non-transparency in how the quotas were administered were seen as the culprits

• f quota-underfill.

The G-20 TRQ proposal (contained in JOB/AG/20 of 5 October 2012 and JOB/AG/20/Corr.1

• f 17 October 2012) sets out to harvest Annex E of the last Doha agriculture modalities text

(TN/AG/W/Rev.4 of December 2008 modalities). Annex E brings about a process to change TRQ administration methods to ‘First Come First Serve’ or ‘License on Demand’ (if that is not already the case) when the fill rates of WTO bound TRQs are below 65% or when countries have not notified their quota fill rates. Developing countries are not under the

• bligation to change their TRQ administration methods.

Since developed countries’ TRQ allocations mostly benefit other developed countries, improving their administration methods would primarily benefit developed countries (the current quota recipients) with only minimal benefits to developing countries. In contrast, developing countries’ TRQs are mostly not specifically allocated – i.e. improving quota administration methods would open up their quotas to all Members. At the time of writing, the major contention is that the US wants developing countries to take

• n the same commitments (unlike the G20 proposal and unlike Annex E of the draft

agriculture modalities text). In particular, it is interested in improving the quota administration of Chinese TRQs. The outcome for Bali is as yet unclear. However, developing countries should be careful that should a solution be found, it is not their markets that would be pried open.