Developing country experience with the wto agr

Developing Country Experience with the WTO Agreement on Agriculture and Negotiating and Policy Issues Ramesh Sharma 1/ Paper presented at the International Agricultural Trade Research Consortium (IATRC) summer symposium on The Developing Countries, Agricultural Trade and the WTO Whistler Valley, Vancouver, Canada 16-17 June 2002

Abstract The paper summarizes developing country experience with the implementation of the Uruguay Round Agreement on Agriculture. On domestic support measures, actual levels of trade-distorting domestic subsidies have been very low on the whole relative to what is permitted by the Agreement, and so the rules and commitments have not constrained policies or outlays. The interest of the developing countries may be served better by focussing more on the issue of high levels of support to the OECD agriculture than on obtaining additional flexibility for themselves. With applied tariffs much lower than the bound rates on average, their experience with border measures (mainly, tariffs) has been positive on the whole, but there were many instances of countries facing particular difficulties in the case of basic foods. In large part due to the limited range of feasible policy instruments available to them at this stage of their economic development, “appropriate� levels of the WTO bound tariffs are of particular significance for them, especially if a simpler-to-use safeguard can not be negotiated.

Export subsidization is not an implementation issue for most developing countries but its continuation by other trading partners is a matter of considerable concern for them. As regards food and agricultural trade, the net trade position of the developing countries as a whole worsened between 1990-94 and 1995-99 due to sharp increases in food imports and despite marked increases in agricultural exports.

Key words: agriculture, developing countries, implementation experience, WTO Agreement on Agriculture

__________________________________________________________ 1/ Ramesh Sharma is Senior Economist with the Commodities and Trade Division, FAO Rome. The views expressed in the paper are those of the author and should not be attributed to the FAO.

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Developing Country Experience with the WTO Agreement on Agriculture and Negotiating and Policy Issues I. INTRODUCTION Reviewing national experiences with the implementation of the Uruguay Round Agreement on Agriculture (UR AoA), i.e. since 1995, is useful on its own as well as essential for negotiating the new round effectively. Article 20 of the AoA calls upon WTO Members to review these experiences as part of the preparation for the new negotiations. The regular sessions of the WTO Committee on Agriculture (CoA) are the main formal fora where implementation experiences are reviewed. Insights on implementation-related issues are also found in WTO’s national Trade Policy Review reports.

During the past 6-7 years, many civil society organizations have also made valuable contributions to this analysis. There is a growing literature on this subject by individual researchers and agencies. In the summer of 1999, FAO commissioned 14 country case studies to review national experiences with the implementation of the UR AoA as well as changes in trade flows and to a limited extent other effects of trade liberalization.1 FAO is also undertaking a new round of country case studies. 2 The rest of the paper is organized as follows. Section II summarizes experiences with the implementation of the general AoA rules and country-specific commitments, focussing on the three main pillars of the Agreement, i.e. domestic support, market access and export competition. Section III reviews trends in agricultural exports and food imports since 1995. Section IV presents concluding remarks, also covering negotiating and policy issues.

II. EXPERIENCE WITH THE IMPLEMENTATION OF THE AGREEMENT ON AGRICULTURE How should implementation experiences be evaluated? The primary focus of the AoA was on disciplining certain policies that were considered to be production and trade-distorting. The AoA prohibits very few policies – a notable one being quantitative restrictions on trade. In most cases, policies are disciplined by setting some upper limits on actions, such as the extent to which tariffs can be raised or the amount of trade-distorting subsidies that can be granted. The commitment to implement policies within some limit applies to all WTO Members.

One criterion for reviewing experiences then would be to see if countries complied with the general rules and country-specific committed limits, e.g. did all agricultural trade take place under a “tariffonly” regime or were there exceptions? Or, did domestic and export subsidies remain within the permitted limits all the time? But it is very unlikely that there will be much to report on the basis of this criterion because there have been very few reports where basic rules and commitments were breached. Rather, the more relevant question to be asked is whether countries were able to “live with” comfortably within the set limits. Thus, the issue is one of degree of flexibility in policy choices, i.e. to what extent did the commitments appear to be binding.

Especially in the circle of trade negotiators and policy makers, there is a tendency to associate less binding commitments with positive experience, in which case a negative experience would be where the rules and commitments restricted actions. This is one view, albeit the predominant one. The other view is that the AoA encourages “best practices” and provides an opportunity for countries to “lockin” policy reforms. From this standpoint, where commitments were binding, e.g. where countries 1

Background papers were prepared by national experts. The 14 countries covered were Bangladesh, Botswana, Brazil, Egypt, Guyana, India, Jamaica, Kenya, Morocco, Pakistan, Peru, Senegal, Sri Lanka and Thailand. These case studies along with a synthesis chapter were published in a volume (FAO 2000), also available at http://www.fao.org/trade.

2 This round covers 13 countries, six of which were selected from the first round for more detailed analyses (Brazil, Egypt, India, Peru, Senegal and Thailand). The other seven are new (Costa Rica, Fiji, Indonesia, Malawi, Philippines, Uganda and Zimbabwe). These studies should be ready for dissemination by the end of 2002.

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where forced to shift domestic support outlays away from trade-distorting subsidies, the experience would be reckoned as positive because this contributed to greater efficiency in the allocation of resources. Yet, the primary interest of trade negotiators (but often unspoken) seems to be having, or maintaining, for themselves a certain degree of flexibility. 3 Therefore, the margin of policy flexibility is a key criterion for evaluating experiences.

In addition, other experiences should also be reviewed. These include for example difficulties faced in meeting notification obligations, in preparing statistics for these notifications and the ability to defend these numbers and policies at the WTO CoA where these are reviewed by other Members. Finally, a review of the experience with actual trade flow since 1995 would be a useful complement to the analysis of policies.4 Domestic support measures As said above, the key issue is the extent to which developing countries were constrained in their policies and support outlays by general rules and own commitments. The AoA limits outlays on measures considered to be trade-distorting (included in the Aggregate Measurement of Support or AMS) but not other measures, e.g. those under the Green Box. The two components of the AMS, product-specific and non product-specific, are disciplined separately. What follows summarizes the key results in the form of five main conclusions. These are also the issues that are being addressed in this area in the ongoing negotiations.

Some 80% of the developing WTO Members do not have any information on trade-distorting support levels, which essentially means that the analysis for them ends up here When one considers the fact that the most important debate in this area has been on the issue of policy flexibility, it is striking that there is no information at all for 96 of the 118 or so developing countries to verify the extent to which their policies and subsidies have been constrained (Table 1 for the status of information). Not having an AMS reduction commitment, their support measures fall, by default, under one or more of the exempted categories (Green Box, Article 6.2 development measures, and AMS within the 10% de minimis level). As a result, their situation as regards policy flexibility is yet to be verified. Although this is a handicap for the debate, some inference can be drawn for them on the basis of information available for other developing countries (reviewed below).

Product-specific AMS - the trend is towards fewer commodities receiving market price support, but the experience is mixed as regards the AMS levels being binding for the supported commodities The first point made is that there is a general trend in national agricultural policies towards the removal of price support programmes, which means that product-specific AMS (PS-AMS) is becoming relevant for fewer commodities now than in 1986-88 (the UR base period) or even 1995.

For example, Pakistan had price support programme (and hence the PS-AMS) for 10 crops in 1986-88, but only 3 by 1995/96 and only one (for wheat) in the following two years. Brazil had 22 crops with PS-AMS in 1986-88 but only three (cotton, rice and sugarcane) in 1997/98. These policy changes could not have been due to the AoA because it does permit countries to continue these policies.

Rather, these reflect a trend in policy reforms in most developing countries since about mid-1980s under structural adjustment or other programmes. This observation also applies to other developing countries for which there are no similar WTO notifications. 5

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If that was not the case, i.e. if all WTO Members were competing with each other for locking-in first-best economic policies, trade negotiations would be over in a few weeks, not years.

4 An OECD publication (OECD 2001) presents a thorough analysis of the implementation experience for OECD countries, asking some of the same questions as here.

5 An FAO annual publication since 1991, Cereal Policies Review, documents and reviews national cereal policies with a global coverage. This is now replaced with Review of Basic Food Policies since 2001 by expanding the coverage to other basic foods (FAO 2001c).

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Table 1: Availability of information on trade-distorting domestic support measures (AMS) 136 WTO Members (as of April 2000) • 18 developed countries (have detailed information on AMS) • 118 developing countries Of these 118, • 96 have no information at all on AMS Of the other 22 with AMS information • 21 have information on product-specific AMS • 11 have information on non product-specific AMS also, of these 22, • 13 have Total AMS reduction commitments • 9 do not have such commitments Source: Compiled from WTO Secretariat Background Paper number 13, Domestic Support, G/AG/NG/S/1, April 2000.

The second observation is that while fewer commodities are receiving price support now, the experience was mixed as regards the commitments being binding. There were several cases where actual support levels were high relative to the committed levels, e.g. Thailand’s PS-AMS was 60% of the committed level in 1996 and 79% in 1997. By contrast, these levels for Morocco were only 33% in 1996 and 12% in 1997 for Morocco6 and about 25% in both 1996 and 1997 for Brazil. For countries without reduction commitments, the limit is the de minimis level (10% of the value of production of that commodity). There were also several cases here where the PS-AMS levels were closer to the 10% limit, but on the whole these are relatively low (about 2-5% out of the 10%). As said above, this information is not available for a vast majority of the developing countries. Yet, in general terms, 10% of the value of production (not value-added) is a large amount for most major commodities to constrain product-specific subsidies.

Finally, it is worth noting a potential problem for countries without reduction commitments. For those with reduction commitments, the rules allow shifting total AMS across commodities and so support can be concentrated to 2-3 commodities (i.e. the 10% limit can be exceeded if Total AMS limit permits). By contrast, those without such commitments can not provide price support to any commodity beyond the 10% level, which could be a binding constraint for some countries.

Non-product specific AMS – this has not been constraining so far. This mode of supporting agriculture is more attractive to developing countries and therefore the issue of flexibility needs to be considered carefully To the extent developing countries can not politically afford to maintain high domestic prices (through support prices and tariffs) for reasons of poverty and food insecurity, notably for basic foods, providing some support to farmers through input subsidies (e.g. on fertilizers, credit, electricity etc) is an attractive option. It is in this sense that rules on non product-specific AMS (NPS-AMS) are relatively important for them than on PS-AMS. Of the 22 developing countries with AMS information, only 11 have data on NPS-AMS. Of these, four (India, Pakistan, Peru and Uruguay) do not have a commitment to reduce Total AMS. The 6

The Morocco chapter in the FAO case studies presents an interesting case of sharp annual fluctuations in AMS levels as a result of fluctuations in production due to weather. That has not created a problem so far because the level of flexibility is high, but it could do so where the AMS gets closes to the limit. How to address fluctuations in production from the standpoint of compliance with AMS could be an issue to consider.

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question asked is have these countries been constrained by rules on the NPS-AMS? Table 2 shows notified NPS-AMS levels and, more importantly, the NPS-AMS as percentage of the value of total agricultural production for the 11 countries. There are only two cases (India and Peru) where this ratio was high (7.5% and 6.2%), i.e. closer to the 10% limit. The average (weighted) for the 11 countries was 3% (but only 0.68% if India is excluded). The message is simple – the NPS-AMS has not constrained any of these countries so far and there is a considerable scope for providing additional support, with the exception of the two cases where there is a risk of hitting the 10% limit if subsidies are increased markedly (more on this below).

Table 2: Non-product-specific AMS and value of total agricultural production

1 2 3 4 5 6 7 8 9 10 11

Country

Year

Brazil Chile India Jordan Korea, Rep. Mexico Pakistan Peru Tunisia Uruguay Venezuela

1997 1997 1995 n.a.

1998 1995 1997 1996 2000 1999 1998

Total AMS reduction cimmitment? 1/ Yes Yes No Yes Yes Yes No No Yes No Yes

NPS-AMS outlay (US$million) 140 15 5772 n.a.

375 51 23 277 6.4 6.9 65

Value of agri. prod.

(US$million) 65475 4814 76960 n.a.

19316 19128 19167 4448 2823 1746 4237

Percent NPS-AMS % 2/

2/ 2/

2/

0.21 0.31 7.50 n.a.

1.94 0.27 0.12 6.23 0.23 0.40 1.53

Total 6731 218114 3.09 1/ Whether or not the country has a commitment to reduce Total AMS? 2/ For these countries, value of production from FAO data; for others as notified by countries to WTO. Source: Computed from the data in WTO notifications (and FAO production values).

Many negotiating proposals by developing countries have called for additional flexibility, with provisions such as higher de minimis level, allowing for adding PS-AMS with NPS-AMS before the 10% rule is applied and exempting altogether support to food security crops from the AMS. Based on the data in Table 2, lack of flexibility does not seem to have been a problem so far.

Why then so many proposals expressed apprehensions and called for greater flexibility? There could be two reasons. One is the fear for the future. Although this point was made in some of the FAO case studies, the explanation in the Egypt study is interesting. It was argued that Egypt may need to reassess its food strategy, especially for wheat, under assumptions of higher import costs, which are expected in the future as trade is further liberalized globally, food aid shrinks and export subsidies dry out. In this context, one IFPRI study reports that raising Egypt’s self-sufficiency ratio for wheat from the 1994/95 level of 48 percent to 60 percent would require PS-AMS in excess of the 10% de minimis level, which is Egypt’s limit currently (Kheralla et al. 2000).

The other reason could be that some 100 developing Members of the WTO do not have any notified statistics on the level of subsidies, although many of them are known to provide some subsidies to agriculture.7 In other words, it is not known whether they are within, or how close to, the limit. So far, there has been little scrutiny at the WTO CoA of policies not notified. But it can not be assumed that this would be the case for ever. Therefore, the argument goes, it makes sense to have more flexibility 7

There are some evidences from inter alia FAO technical assistance projects where AMS levels were computed that show that AMS levels are not necessarily always negative or very low in all low-income countries as is generally assumed.

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in the rules since WTO commitments have a strategic significance in that once committed it is difficult to revise.

Article 6.2 development measures - subsidies granted under this provision are very low. The provision is potentially valuable for developing countries, especially those with the NPS-AMS closer to the 10% limit, but requires some clarity in the definition and terminology.

Article 6.2 of the AoA exempts from inclusion in the AMS “investment subsidies which are generally available to agriculture in developing country Members and agricultural input subsidies generally available to low-income or resource-poor producers in developing country Members”, where these measures are an integral part of the agricultural and rural development. Since these are the same types of subsidies as the NPS-AMS, Article 6.2 provides for additional scope to subsidize agriculture, under some criteria. A total of 23 developing WTO Members made use of this provision in one or more years since 1995. Table 3 shows these outlays, both in absolute term and relative to the value of total agricultural production.8 Only three countries (Malaysia, Morocco and Turkey) have outlays exceeding 2% of the value, five countries between 1-2% and the other 15 countries less than 1%. 9 Many interesting issues on definition, methodology and practical difficulties facing developing countries were brought to light in review meetings at the WTO CoA One area where considerable discussion took place was on notifications on Article 6.2 measures. This is not surprising as some of the key terms in this Article are not defined clearly and so subject to interpretation, e.g. who are “low-income” and “resource-poor” farmers and what are “generally available” subsidies? Subsidies granted under this provision are low currently and this may explain why the use of this provision has not received much scrutiny by other WTO Members, apart from queries on notifications, but this may not be the case for ever if developing countries raise outlays under this “box” substantially (e.g. when the NPS AMS limits begin to be binding). Since this provision is potentially very useful for developing countries, there is a need for some clarity on some of the terms used in the Article.

Besides Article 6.2, there were other issues on definition and methodology. These are discussed in detail in the FAO case studies in the context of specific countries where these issues were raised.

These include: effects of inflation and currency depreciation in calculating current AMS; revisions made in the AMS calculation methodology from that originally used; definition of “eligible” production in computing the AMS; treatment of negative AMS; confusion over the logic of using fixed, historical external reference prices for computing current AMS level; how to define reference prices if a country changes its trade status during the implementation period (e.g. from net importer to net exporter); and how to treat the recovery (or lack of it) of investment and operating costs (e.g. on irrigation).

Some of these issues reflect ambiguities in the terminology and definitions used in the AoA. Others reflect particular difficulties unique to lower-income agricultural economies. For developing countries as a whole, and for that matter all WTO Members, it is important to resolve these ambiguities, definitional problems and practical difficulties.

Table 3: Outlays on Article 6.2 development measures and total value of 8

Note that there are no limits placed on these outlays, unlike with the NPS-AMS. Nevertheless, statistics on these outlays as percentage of the production values are useful to gauze the magnitude of the utilization of this provision, and to compare with similar statistics on the NPS-AMS. 9 It is interesting to note that both India and Peru (the two cases with high NPS AMS levels relative to the 10% limit) did not use the Article 6.2 provision. India has, however, reserved the option of transferring almost 80 percent of the input subsidies currently reported under NPS AMS to this category, stating in its Schedule that about 80 percent of the land is farmed by low-income, resource-poor farmers.

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agricultural production Value of agri.

Article 6.2/ Art. 6.2 outlay production VoAP Country Year ------------ $ million -------------% 1 Bahrain 1996 2.5 n.a. n.a.

2 Brazil 1997 281 65475 0.43 3 Chile 1997 3.2 5829 0.05 4 Colombia 1998 45 7783 0.58 5 Costa Rica 1997 14 1111 1.26 6 Cyprus 1997 3.8 493 0.77 7 Egypt 1997 2.7 11296 0.02 8 Fiji 1997 1.8 286 0.63 9 Gambia 1997 0.25 70 0.36 10 Honduras 1999 1.9 1993 0.10 11 Korea, Rep. 1988 30 19316 0.16 12 Malaysia 1997 220 10118 2.17 13 Mexico 1998 42 19128 0.22 14 Morocco 1997 155 6387 2.43 15 Namibia 1997 3.7 288 1.28 16 Pakistan 1995 0.555 11094 0.01 17 Philippines 1998 47 21478 0.22 18 Sri Lanka 1997 26 2030 1.28 19 Thailand 1997 220 12917 1.70 20 Tunisia 2000 45 2870 1.57 21 Turkey 1996 641 28762 2.23 22 Uruguay 1999 5.4 1818 0.30 23 Venezuela 1998 0.047 4237 0.00 Source: Computed by the author. Article 6.2 outlays from WTO notifications. Value of agricultural production from FAO data.

Market access 10 The main instruments of market access where rules have been written and commitments made are bound tariffs, Tariff Rate Quotas (TRQs) and Special Agricultural Safeguards (SSGs). In the context of the developing country implementation experience, however, it is the experience with tariffs that is most relevant because most of them do not have access to the SSGs and not many have opened TRQs. The issue of the SSG is related to tariffs to some extent and will be discussed later in the concluding section.

The approach taken in this paper to review implementation experience was presented at the beginning of this section. As above, experiences are summarized in the form of four main observations.

Compliance with “tariff-only” rule on border measure and with committed bound tariffs has not been a problem, on the whole Although there were some exceptions here and there, lack of compliance has not been an issue. By the time the AoA was implemented, a majority of the developing countries had already abolished quantitative trade restrictions and so tariff-only regime was the rule rather than exception. 11 A major 10

Note that this is a review of the implementation experience of individual developing countries and therefore the focus is on their own border measures, and not on those of the trading partners, which no doubt is important but in some other context, e.g. export.

11 One always finds exceptions when talking of 120 or so countries – India’s removal of quantitative import restrictions earlier than planned following a dispute is an example.

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accomplishment of the UR was tariff binding; on this, developing WTO Members bound almost 100% of all agricultural tariff lines.

It is a common knowledge that applied tariffs in developing countries are much lower than bound rates. Table 4 shows these data for 32 developing countries. The simple average of the applied rates for these countries is 20% versus the bound rate of 84%. 12 A number of factors explain this. First, most developing countries went through a series of trade policy reforms prior to the conclusion of the UR and had consequently eliminated most non-tariff barriers (NTBs) and reduced applied rates considerably, capping them unilaterally and, probably in more cases, as part of the loan conditionality.

By contrast, the bound rates which were typically set as ceiling bindings during the UR were on the higher side, but not so for all countries.13 Second, in several cases, applied rates were low because the adoption of Common External Tariff of a customs union. Third, for many developing countries, especially with large populations at or near-poverty levels, it is not politically feasible to maintain high domestic prices on basic foods with high tariffs. One of the inferences is that it does not make sense for these countries to bind tariffs in the new WTO round at rates currently applied, which is one of the proposals tabled for the ongoing negotiations.

There were many cases of countries facing difficulties in “living with” ordinary customs duties, notably for basic foods. This problem is of such a magnitude that it should not be ignored Mainly for basic foods, tariffs are often higher than the average rate and in many instances were supplemented by additional measures such as surcharges and variants of price band policies.

Examples, discussed in detail in the FAO case studies, include Peru’s price band policy (sobre-tasa), Morocco’s threshold-price-based formula for determining import tariffs, Kenya’s suspended duties (surcharges), Jamaica’s additional stamp duties and India’s quantitative restrictions on balance of payments grounds and canalization of imports and exports through state trading enterprises. There are other examples too outside the case studies, e.g. price band policies in several countries of Latin America. These were not pointless measures put in place to irritate traders but were implemented for good reasons and probably with good effect. In Peru’s case, 30% tariff (the bound rate for most agricultural products) would not have been adequate to stabilize domestic markets of sugar, wheat and dairy products where applied tariffs reached as high as 46-54% during 1995-99 (bound tariff is 68% for these products). In Mexico, all agricultural lines are subject to ad valorem duties with the exception of products containing sugar, which are subject to either specific or compound rates.

How should one judge these cases? It is tempting to dismiss these measures as not being in the spirit of the AoA or on the ground of “first-best” policy. But that would not be helpful because managing border measures for basic foods has not been an easy task for many of these countries. 14 These commodities play an important role in these economies. Most small farmers grow these products and so at stake is their food and livelihood security. Being staple foods, market stability is an important public policy. These are also the products whose global markets are most distorted due to high levels of subsidies and protection, which adds to the problem for importing countries. Therefore, genuine efforts are needed to address the problem, both in the arena of food policy analysis and in WTO negotiations.

Table 4: Average bound and applied tariffs on all agricultural products: 32 developing countries 12

By contrast, applied rates are closer to the bound rates for developed countries. See Gibson et al. (2001) for detailed statistics and analysis on applied and bound tariffs for both the developing and developed countries.

13

There are several exceptions, Egypt, Sri Lanka as well as several countries in Latin America have relatively low bound rates. This is also the case for new WTO Members.

14 See also Gulati and Narayan (2002) for some of these issues and the Indian experience.

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Count

---- Tariff rates (%) --Bound Applied

Country

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Argentina Brazil Colombia Costa Rica Ecuador El Salvador Guatemala Mexico Nicaragua Panama Paraguay Peru Uruguay Venezuela Average (14) Coeff. of var. (14)

1 2 3 4 5 6 7 8 9

1 2 3 4 5 6 7 8 9

Applied/ bound (%)

35 36 87 42 26 41 49 63 61 43 35 30 32 52 45 36

13 11 22 17 16 13 11 20 11 12 10 13 13 15 14 25

37 31 25 40 62 32 22 32 18 28 29 43 41 29 31 70

Bangladesh India Fiji Indonesia Korea, Rep. Pakistan Philippines Sri Lanka Thailand Average (9) Coeff. of var. (9)

200 114 50 48 66 102 34 50 36 78 69

25 26 15 16 50 22 19 20 32 25 43

13 23 30 33 76 22 56 40 89 32 62

Egypt Kenya Malawi Morocco Mozambique Tanzania Tunisia Zambia Zimbabwe Average (9) Coeff. of var. (9)

28 100 125 65 400 240 110 125 150 149 74

19 17 18 19 21 28 35 19 27 23 27

68 17 14 29 5 12 32 15 18 15 36

84 92

20 43

23 46

Average (all 32) Coeff. of var. (all 32)

Note: Bound and applied rates are simple averages for all agricultural products.

Bound rates are typically for 2004; applied rates are latest (typically 1999 and 2000).

Coeffiecint of variation is standard deviation/mean (%).

Source: FAO case studies, AMAD data base; ERS/USDA study by Gibson et. al (2001), SADC Secretariat.

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The FAO case studies and other analyses show that tariffs are often the primary, if not the only, trade instrument feasible for many of these countries for stabilizing domestic markets and safeguarding farmers’ interests in the face of external shocks These shocks are sharp swings in world prices, particularly depressed prices or/and import surges.

With virtually no safety-net measures, no access to the much simpler agricultural safeguard and practical difficulties in resorting to the general WTO safeguards, tariffs are frequently varied to cope with sharp swings in world market prices and, in some cases, changes in exchange rates. 15 This is in contrast to the situation in high-income countries where there are additional, non-tariff instruments to cope with price or other risks, e.g. extra payments when markets are depressed, subsidized emergency loans and insurance programmes and risk management instruments. 16 One important conclusion is that tariffs play a much broader and important role in developing countries for lack of other trade instruments and alternative safety-net measures - hence the importance of the “appropriate� levels of bound tariffs for them, as indeed has been proposed by many of these countries for the ongoing negotiations. Lower bound rates have some benefits but also many risks.

There have been several reports of surges in food imports, as well as negative effects, but very few cases of countries taking recourse to formal trade remedy measures in the WTO Import surge and associated negative effect on farmers is a sensitive matter for all countries, rich or poor. During the past 6-7 years many incidences of such cases have been reported. Several of them are discussed in the FAO case studies. National and international NGOs have been very active in documenting such cases. In the WTO trade remedy context, specific conditions have to be met in order to trigger trade remedy measures, notably the causal link between the surge and negative effects.

During 1995-01, only seven developing countries initiated or implemented emergency safeguards (the most popular form of trade remedy measure on agriculture) for a total of 16 agricultural products (Table 5).17 Table 5: Emergency safeguards on agricultural products initiated by developing countries during 1995-2001 Country Chile Egypt El Salvador Korea, Rep. Morocco Argentina Brazil

Products, date initiated Wheat and wheat flour, cane/beet sugar, edible vegetable oils (September 1999), liquid and powdered milk (June 2000) Powered milk (September 2000) Pork and rice (January and June 2000) Soybean oil (1995), dairy products (1996), garlic (1999) Bananas (June 2000) Peaches (January 2001) Coconuts (August 2001)

Source: Compiled from annual reports of the WTO Safeguards Committee.

This is a relatively small number compared with the many cases reported in the press and literature.

Part of the reason could be that import surges did not necessarily lead to negative effects, and so one of the conditions to trigger the safeguard was not met. But the main reason seems to be the complexity of the process to follow through the case, including establishing causal link between the surge and negative effect. As a result, many countries facing the problem simply do not take any formal action (see the Jamaica chapter in particular in the FAO case studies). The problems arising from import surges can be serious for vulnerable agricultures and therefore there is an urgency to study this aspect 15

During the period of the cereal price spikes in 1995-96, the most common policy response was to lower tariffs aimed at providing price relief to consumers (Sharma 1996). The opposite set of responses, i.e. tariff increases, was widespread during 1998-00 when world market prices of basic foods were depressed (FAO 2001c; Sharma 2002b).

16 The point made in the previous paragraph, i.e. that there were some additional measures taken by several of the countries studied, does not contradict this statement because those measures were still based on tariffs.

17

Also seven developed countries initiated or implemented emergency safeguards in this period for a total of 22 products, 15 of which were agricultural products. There have been very few cases of anti-dumping actions on agricultural products, while perhaps the Peace Clause discourages counter-vailing actions until end of 2003.

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carefully, by documenting known cases and analysing the source and nature of the problem. This is also essential for devising appropriate response mechanisms for countries that lack institutional capability to take recourse to the formal WTO trade remedies.

Export competition Very few developing countries provide direct and indirect subsidizes on agricultural exports and so there are few implementation experiences to report in this area.

There were some cases in the FAO case studies where countries were reported to have taken advantage of the special provision for them under which they can provide subsidies on internal transport and international freight (as provisioned in Article 9.1, para 4, of the AoA). This has been used on a limited scale and selectively for high-value, low-weight products like cut flowers, fresh fruit and vegetables. There have been no proposals in the WTO against this provision and developing countries will most probably continue to find this useful.

What is fairly widespread, however, is export incentive measures, such as tax breaks, currency retention schemes and duty drawbacks. These schemes are not referred to in the AoA but in the Agreement on Subsidies and Countervailing Measures (Annex 1: Illustrative list of export subsidies).

It is not entirely clear whether such subsidies can be granted to agricultural products by virtue of the Subsidies Agreement, given that all forms of agricultural subsidization are prohibited by the AoA for those countries with zero export subsidy commitment. This is an issue that requires some clarification.

So far, this matter has not attracted any consultation or WTO dispute, most probably because the scale of the subsidy granted is so small.

Finally, on export taxes and restrictions. The developing countries in general have a record of regulating the export of agricultural products through quantitative restrictions or/and taxes. The objectives were both the promotion of agro-industries and tax revenue. By the time the UR Agreement was signed, export regimes were substantially liberalized and so not many countries regulate exports anymore. However, it is interesting to note that many of these countries are in favour of some form of regulation of exports of primary products for the sake of industrialization. Tariff escalation in export markets is said to be one justification for such regulation.

III. EXPERIENCE WITH AGRICULTURAL EXPORTS AND FOOD IMPORTS SINCE 1995 Trade expansion (read - increased exports, less imports) is a goal cherished by all countries and a key motivation for WTO membership. For this reason, there is a considerable interest in information on the impact on trade of the UR, in particular the AoA. Yet, it is an analytically difficult task to quantify the impact ex post, notably to isolate the effect of the UR reform process from many other developments taking place simultaneously, which however is not a problem in ex ante model-based impact assessments. Nevertheless, it is useful to know if recent experiences with agricultural trade have been positive or negative. The question asked should be what has been the experience since 1995 rather than what has been the impact of the AoA since 1995.

Actual trade experience is reviewed on the basis of trade statistics on total agricultural exports and total food imports, as well as for a sub-set of products defined as basic foods which include cereals, dairy and meat products, oilseeds and vegetable oils, fruit and vegetables and sugar. The motivation is that these are the main commodities whose markets are most distorted due to subsidies and protection, and so the impact of the AoA should be felt primarily on these markets than on other agricultural products. These products are produced in both developed and developing countries and many of the AoA-related issues mainly concern them. For basic foods, trade statistics were also constructed in constant prices (average 1989-91 export and import unit values), which is an indication of the change in trade volume.

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A simple approach to review the trade data is to compare the average values of exports and imports for 1995-99 with 1990-94, the pre-UR period. When a series is trending upwards, as is the case with trade, it is obvious that the second period average is higher than the first period average; the value of this comparison lies rather on relative changes experienced by various country groups. In addition, actual 1995-99 values are also compared with extrapolated values for this period (i.e. 1995-99) derived from a linear trend estimated with the data for nine prior years, 1986-94 (i.e. excluding 1995-99). Assuming that the extrapolated values for 1995-99 represent some form of a counterfactual scenario, this comparison would show departures from that baseline. Statistics are presented for five country groups – three developing country groups (49 LDCs, 14 developing members of the Cairns Group 18 and one category of “rest of the developing countries”, i.e. all 150 or so developing countries less 49 LDCs and 14 Cairns Group), one developed country group and a world total.

Agricultural exports19 First, for total agricultural products in current prices (top block in Table 6), export performance between the two periods was similar for the two major country groups (38% increase for developing and 31% for developed countries). The performance of the Cairns-14 stands out, with a 50% rise. The LDC sub-group performed the worst relatively (only 24% increase). The fourth column shows that all country groups performed better relative to the historical trend. In particular, the LDCs appear to have done much better than others, with 40% more exports in 1995-99 from the trend level.

In volume terms (i.e. constant prices, bottom block in the table), exports of the seven basic foods increased by about 24% for both the developing and developed countries. The LDCs performed relatively better (23% increase, the same as in current values). The experience of the “rest of the developing countries” was the worst of all, with only 14% increase. This group also performed poorly when compared with the historical trend (3% fall), the only group to suffer a decline. Only developed countries and Cairns-14 performed markedly better on this indicator (9% above trend values).

Another useful statistics to evaluate trade performance is to examine changes in relative shares in world agricultural exports (last two columns). Focussing on the seven foods in constant price terms, only the Cairns-14 increased its share notably, from 17.3% in 1990-94 to 18.3% in 1995-99. While the change was marginally positive for developed countries, other developing country groups experienced slight declines in their shares, despite increases in absolute terms as noted above.

In several FAO case studies, attempts were made to relate the change in the trade flow at the level of individual commodities to changes in market access terms, or other factors. For example, the rapid growth in Brazil’s agricultural exports in recent years (e.g. soy bean and soy bean products, sugar and poultry) was attributed to a large extent to the remarkable and consistent rise in crop yields, i.e. to competitive advantage led by productivity growth. The export performance for poultry was particularly impressive (26% increase in volume) despite the fact that market access terms for poultry was not considered to have changed much with the UR. Similarly, Sri Lanka’s notable increase in agricultural exports between the two periods was not attributed to the AoA because expansions took place in products which faced little access problems even before the UR (e.g. tea, coconut and rubber) and also because trade expanded to Persian Gulf countries that were not even members of the WTO. Many case studies identified fruit and vegetables as the principal non-traditional products with good export prospects. In some cases, there were reports of already positive effects, though minor, e.g. for Table 6: Food and agricultural exports, 1990-94 and 1995-99 18

The 14 countries, called Cairns-14 in the text, are Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Fiji, Guatemala, Indonesia, Malaysia, Paraguay, Philippines, Thailand and Uruguay. The other four Cairns Members (Australia, Canada, New Zealand and South Africa) are considered developed countries and are included in the developed country group.

19

All trade data used here are from FAOSTAT. Fishery and forestry products were excluded as these were not covered by the AoA.

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Values (US$ billion) 1990-94 1995-99

% change 2 periods From trend 1/

Share in world total (%) 1990-94 1995-99

Total agriculture, current values Developing LDCs-49 Cairns-14 Other developing 2/ Developed 3/ World total 3/

95 3.9 41 51 135 230

132 4.9 61 66 177 309

38 24 50 30 31 34

15 40 18 11 2 7

41.5 1.71 17.6 22.1 58.5 100

42.7 1.58 19.7 21.5 57.3 100

Developing LDCs-49 Cairns-14 Other developing 2/ Developed 3/ World total 3/

50 0.97 23 26 77 127

69 1.19 35 33 101 170

Basic foods, current values 4/ 39 9 23 8 52 11 27 6 31 4 34 6

39.3 0.76 18.2 20.3 60.7 100

40.7 0.70 20.8 19.2 59.3 100

44.1 2.9 16.9 24.3 55.9 100

45.1 2.7 18.3 24.2 54.9 100

39.0 0.88 17.3 20.8 61.0 100

38.8 0.87 18.3 19.2 61.2 100

Other agricultural products, curent values Developing LDCs-49 Cairns-14 Other developing 2/ Developed 3/ World total 3/

45 3.0 17 25 58 103

63 3.7 25 34 76 139

Developing LDCs-49 Cairns-14 Other developing 2/ Developed 3/ World total 3/

50 1.12 22 26 78 127

61 1.38 29 30 96 157

38 25 46 34 32 35

23 54 31 15 1 10

Basic foods, constant 1989-91 prices 23 3 23 2 31 9 14 -3 24 9 24 7

1/ Actual 1995-99 value compared with extrapolated value for this period computed from a linear trend estimated with 1986-94 data.

2/ Other developing includes all developing countries less LDCs-49 and Cairns-14.

3/ Developed and world totals exclude intra-EU trade.

4/ Basic foods include cereals, meat and dairy products, oilseeds and oils, fruit and vegetables and sugar.

Source: Computed from FAOSTAT data.

Bangladesh, Guyana, Pakistan and Jamaica. In others, preferential access, and not improved access terms negotiated multilaterally, was said to explain the growth, e.g. for Egypt and Morocco.

While these analyses provide some useful information, the fact remains that a thorough analysis of agricultural export performance, notably relating export performance with changes in market access terms, is yet to be undertaken.

Food imports 20 On the import side, the seven basic foods comprise about 90% of all foods covered in the FAOSTAT category “food (excluding fish)�. Therefore, the results for basic foods are similar to those for all foods. Table 7 shows that the import of basic foods increased sharply for developing countries – by 44% in current values between the two periods. This was in marked contrast to the case of the

20

Food excludes fishery products.

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developed countries as a group (only 17% increase). Within developing countries, food imports rose the most for Cairns-14 (89%) but also markedly for the rest of the developing countries (37%) and LDCs (29%). Thus, while the experience with total agricultural exports was similar for the two main country groups, it was significantly different in the case of food imports.

Table 7: Food imports, 1990-94 and 1995-99

Values Values (US$(US$ billion) billion) 1990-94 1995-99

% change 2 periods From trend 1/

66 5.2 9 51 100 166

All foods, current values 95 6.6 18 70 120 215

44 27 95 36 21 30

11 5 26 8 -2 3

Developing LDCs-49 Cairns-14 Other developing 2/ Developed 3/ World total 3/

58 4.8 8 45 87 145

Basic foods, current values 4/ 84 44 6.1 29 16 89 62 37 101 16 185 27

11 5 23 9 -5 2

Developing LDCs-49 Cairns-14 Other developing 2/ Developed 3/ World total 3/

8 0.4 0.9 7 13 20

Other foods, current values 11 44 0.5 13 2.3 149 9 31 19 51 30 48

5 4 45 -2 17 12

58 4.8 9 45 88 146

Basic foods, in 1989-91 constant prices 77 32 6.0 25 14 67 57 26 97 10 175 20

12 11 17 11 -3 4

Developing LDCs-49 Cairns-14 Other developing 2/ Developed 3/ World total 3/

Developing LDCs-49 Cairns-14 Other developing 2/ Developed 3/ World total 3/

1/ Actual 1995-99 value compared with extrapolated value for this period computed from a linear trend estimated with 1986-94 data.

2/ Other developing includes all developing countries less LDCs-49 and Cairns-14.

3/ Developed and world totals exclude intra-EU trade.

4/ Basic foods include cereals, meat and dairy products, oilseeds and oils, fruit and vegetables and sugar.

Source: Computed from FAOSTAT data.

In volume (constant price) term also, imports of basic foods by developing countries increased markedly, by about 25% for both the LDCs and rest of the developing countries, 67% for Cairns-14 and 32% for all developing countries. For developed countries by contrast the increase was only 10%.

Furthermore, food imports in 1995-99 were higher by between 11-17% from trend values for various developing country groups, whereas this was 3% lower for developed countries. Thus, on the whole, food imports by developing countries have increased markedly in recent years, both between the two periods and from trend levels. Many factors explain such trends but it is difficult to identify their

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contributions separately. In particular, there is a heightened interest on whether (and to what extent) trade liberalization by importing countries themselves was a major factor. 21 Overall performance: net trade in foods and total agriculture What can be said of the experience, on balance? Table 8 shows changes in net trade positions between the two periods for comparable categories of agricultural products (the top three blocks of data in current values and the bottom block in constant prices). 22 The second block of data in Table 8 shows that for developing countries as a whole, net deficit in basic foods rose by $6 billion between the two periods. This was the outcome of the combined loss of $11 billion for rest of the developing countries and LDCs on the one hand and the gain of $5 billion for Cairns-14. By contrast, developed countries experienced a net surplus of $10 billion. One notable difference between the results in current and constant prices (second and bottom blocks) was that the surplus for the Cairns-14 was sizable mainly in current values ($5 billion) and not in constant prices (only $1 billion).

Developing countries are surplus in agricultural products other than basic foods. Their net export of these products increased by $4 billion (third block), but this was not sufficient to offset the deficit in basic foods. For developed countries, however, the $3 billion deficit in “other� agricultural products was more than offset by the surplus in basic foods.

Thus, overall, the trade experience has been negative for developing countries and positive for developed countries. More importantly in the context of the AoA, i.e. in relation to basic foods, the experience was markedly negative. If AoA had any impact on influencing trade flows during 1995-99 relative to the previous 4-5 years – and this itself is a big if given the extent of the reform actually effected - the outcome was not what many global trade models analysing the impact of the AoA had projected back in 1995 and earlier, when there was an expectation that production and export would shrink somewhat in countries that subsidize agriculture and expand where this is not the case. 23 IV. CONCLUDING REMARKS AND NEGOTIATING AND POLICY ISSUES Experience with agricultural exports and food imports Despite marked increases in agricultural exports, net trade position of the developing countries as a whole worsened between 1990-94 and 1995-99 due to sharp increases in food imports Noting once again that observed changes in trade flows are caused by many factors besides trade liberalization, the statistics do show that agricultural trade experience was negative for developing countries during 1995-99 compared with 1990-94. In particular for basic foods, their net deficit rose by about $7 billion (in 1989-91 constant prices), the main reason being much higher increase in food imports ($19 billion) than food exports ($11 billion). By contrast, there was a net surplus of $10 Table 8: Net trade balance in food and agricultural products, 1990-94 and 1995-99

21

This is also an issue related to the Marrakesh Ministerial Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries.

See FAO (2001b) for related issues and analysis in the context of this Decision.

22 Note that in FAOSTAT, exports and imports are valued in f.o.b. and c.i.f. terms respectively. As a result, the value of import at the global level exceeds the value of export.

23 See Sharma et. al (1996) for an overview of these model-based studies and their results.

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Developing LDCs-49 Cairns-14 Other developing Developed Developing LDCs-49 Cairns-14 Other developing Developed Developing LDCs-49 Cairns-14 Other developing Developed Developing LDCs-49 Cairns-14 Other developing Developed

Net exports (US$ billion) 1/ 1990-94 1995-99 Total agriculture, current values 0 -2 -2 -3 26 34 -23 -33 -23 -17

Change -2 -1 8 -10 6

-8 -4 15 -19 -10

Basic foods, current values -15 -5 19 -29 0

9 1 11 -4 -13

Other agricultural products, current values 13 4 2 0 15 4 -4 0 -16 -3

-9 -4 13 -19 -10

Basic foods, in 1989-91 constant prices -16 -5 14 -27 -1

-6 -1 5 -10 10

-7 -1 1 -8 10

1/ Net exports = exports minus imports. Negative numbers mean net imports.

See footnotes to previous tables for other notes.

Source: Computed from FAOSTAT data. Results follow from gross values in previous tables.

billion for developed countries. Increased import of foods is not necessarily a negative experience provided that the means to import food also grows. For developing countries as a group, this does not seem to be the case within agriculture because they also experienced an increase in net deficit on total agricultural trade. It is possible that their export of non-agricultural products and services may have increased to more than offset the deficit on agriculture. However, this is besides the point in the context of this paper with its focus on agricultural trade performance.

Export subsidies Export subsidization is not an implementation issue for developing countries but a matter of considerable concern Very few developing countries grant direct export subsidies and so there is little implementation experience to discuss. But they are much concerned about this practice by others. Even large food importers who would benefit from these subsidies in the form of lower import bill have taken positions against the practice in view of negative effects on their exports and agriculture.

The special provision allowing these countries to subsidize internal and external transportation cost has been used and is considered useful for selectively promoting the export of niche products. But the overall level of subsidization is not likely to be large in the coming years. The developing countries also use some export incentive measures referred to in the Subsidies Agreement and find them useful.

There is a need for clarifying the legality of these measures vis-Ă -vis the AoA.

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Domestic support measures The AoA disciplines on domestic support measures have not been binding, and so could not have affected agricultural policies or constrained support outlays. The interest of the developing countries may be served better by focussing more on the issue of high levels of support to the OECD agriculture than on obtaining additional flexibility for themselves In WTO negotiating proposals by developing countries, two positions stand out in this area: more flexibility for supporting their agriculture; and sharp curtailment of farm support to the OECD agriculture. Although information on AMS levels is missing for some 80% of the developing WTO Members, it is unlikely that the main conclusions drawn in Section II based on the experience of other developing countries will not apply to them also.

Basically, the conclusion was that no developing country was constrained to provide additional subsidies within the non-product specific AMS category. Only two countries were closer to the 10% de minimis level, but even here more space for subsidies could have been created if Article 6.2 provision was used. It is difficult to see how this might be a major issue for most of these countries even in the next 10-15 years under current rules.

By contrast, there were cases where product-specific AMS (PS-AMS) levels were closer to committed levels (for those with reduction commitments) or to the 10% de minimis limit (for those without reduction commitments). The general trend is toward fewer commodities receiving price support, although that is not required by the AoA. It is possible that in coming years policy makers may decide to concentrate (expand) support to these, possibly “sensitive”, products rather than on many. On the whole, 10% of the value of production of a commodity is a large sum and so is unlikely to be a constraint for price support in most cases. Nevertheless, there is some concern, especially for those without reduction commitments (most developing countries), because 10% is the limit for them while others have the option of exceeding the 10% level by concentrating their stock of Total AMS to some “sensitive” commodities.

Thus, overall, additional flexibility does not seem to be as important an issue as is often claimed. By contrast, there is much at stake for the developing countries in the continuation of high levels of support to the OECD agriculture in particular. Many negotiating proposals by developing countries have done a good job in drawing attention to this side of the problem. Currently, in the AoA, subsidies are exempted from reduction on the basis of criteria-based measures. But the risk is that even where a measure is only partially de-coupled, massive amounts of subsidies can generate significant distortions overall, and it is level of the “total distortion” that matters for competitive and fair trade. Moreover, a measure may be de-coupled in the sense that it does not add to extra production, but could nevertheless contribute to maintaining production at the status quo level. Where the status quo position is one of structurally surplus, additional export opportunities for non-subsidizing countries are unlikely to be created as long as current levels of support to agriculture are continued. The main point made is that there are important un-resolved issues in this area, and much at stake. The developing countries seem to stand to gain more from effective reductions of agricultural subsidies elsewhere than from additional flexibility for themselves.

Market access – border measures The level of bound tariffs, especially on basic foods, is of particular significance for developing countries, in view of relative vulnerability of their agriculture and small farmers, and limited institutional and financial capability to resort to general WTO safeguards and domestic policy instruments to offset the effects of external shocks One central objective of the ongoing agricultural negotiations is to lower border protections through inter alia negotiated reduction of the tariffs currently bound. The proposals tabled range from deep cuts on all products without exception to the UR-type approach to achieve a given average reduction

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with minimum cuts for all commodities. Special treatment for developing countries is to be an integral part of the process.

Although there are some other details in the proposals on special treatment, the main positions on tariff are basically two: i) lower rate of reduction for developing countries; and ii) further special treatment for selected “sensitive” products (mainly basic foods). 24 Specific proposals on the latter include full exemption from reduction, freedom to set “appropriate” level of bindings and tariff “rationalization” (upward adjustment where current bound rates are low).

It was noted in Section II that the developing country experience on border measures has been on the whole comfortable because applied tariffs were much lower on average than the bound rates. But there were particular difficulties in the case of basic foods. Although there are no statistics to back up this point with full confidence, it is unlikely that there is much tariff protection to agriculture in these economies. Nor would it seem that many of these countries could politically afford to keep food prices high with tariff.25 Therefore, the main motivation for the “appropriate” levels of bound tariff seems to be having the option to use the tariff as a safeguard against such external shocks as depressed import prices and import surges. This practice has been fairly common in the last 6-7 years. “Water in the tariff” or higher bound rates are essential for this.

There are two views on this proposal. One is that high bound rates are not desirable irrespective of the situation elsewhere, both for the developing countries and the WTO reform process. Reasons include: this is against the spirit of GATT/WTO as well as the tradition (if lower bound rates are “rationalized” upwards); sets bad example and provides excuse to others who do not need a special treatment; high bound rates hinder trade and investment by creating uncertainty (even when applied rates and hence actual protection are lower); tariffs are not the first-best policies to address problems in other areas (e.g. in domestic sectors); and appropriate tariff for them would be very low or even zero according to the theory of optimum tariff.

The arguments in support of the special treatments include: overriding importance of market stability of basic foods for developing countries; relative vulnerability of agriculture and small farmers; lack of financial and institutional capability to resort to other first-best domestic and border measures; to offset the distortions in global food markets due to high levels of support and protection; and pessimism about the removal of these distortions even after the Doha Round.

Assumption about accessibility or otherwise of a simpler-to-use safeguard such as the agricultural SSG is key to resolving some of these issues. The SSG was designed primarily for responding to the types of problems raised in these negotiating proposals, namely depressed import prices and import surges, and a SSG comes closest to a tariff both in terms of the instrument and effect. With SSG, the ideal set of instruments for managing border measures would be relatively low tariffs, for providing some protection where needed, and the SSG, for responding to shocks. In the UR, access to the SSG was made conditional on tariffication and the outcome was somewhat awkward - SSGs were accessible for products that also had high bound rates, rather than the other way around. The ongoing round provides an opportunity to “rationalize” border measures, both in terms of fairness (by providing SSGs to developing countries) and to induce countries to lower bound tariffs by making access to the SSGs conditional on that.26 In the case that developing countries fail to obtain the SSG or a similar safeguard in the ongoing round, it makes sense for them to bind tariffs at “appropriate” levels as discussed above. In that case, a technical question is what would be these “appropriate” levels of bound tariffs? None of the proposals 24

This proposal was made mainly in the context of Food Security and Development Boxes, but several other proposals also made this point. See negotiating proposals by India and Cuba+10 others, and a subsequent analysis by Green and Priyadarshi (2001) 25 Again, the exception would be some higher-income countries among them.

26 See FAO (2001a) and Valdes and Foster (2002) for interesting comments on the problem of import competition and the importance of a feasible safeguard mechanism for developing countries.

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are specific on them. Table 9 shows an estimate of these tariffs for 18 basic foods that have been the focus of the proposals. These tariffs provide a rough order of magnitude of the maximum tariffs that would be required in order to stabilize domestic prices at some reasonable, pre-determined level when world prices are depressed.27 The tariffs range from about 30% for lamb to 100% for coconut oil, with the simple average for all 18 foods being 54%. A majority of the tariffs lies within a 45-55% range.

Indeed, these numbers are not out of line from actual tariffs applied (varied) by many developing countries in recent years, especially during 1998-00 when world prices of basic foods were depressed.

Table 9: Maximum tariff rates for complete price stabilization (in %)

Rice (average) Thai A1 Thai 100 California

-------------- Assumed reference prices 1/ -------------Trend values 90-00 avg 90-94 avg MA-36 MA-24 50 47 37 42 40 59 50 34 46 39 51 56 51 46 44 39 34 27 34 39

Simple average 43 46 49 35

Wheat (average) Argentina US HRW No. 2 Australia

50 80 36 34

55 87 41 38

43 66 35 27

58 66 59 48

42 50 41 36

50 70 42 37

Maize

43

49

42

56

39

46

Sugar raw Sugar white

75 53

101 81

106 88

86 56

75 42

89 64

Milk powder (SMP) Milk powder (WMP) Butter

52 39 47

65 53 45

51 38 28

31 26 48

37 27 49

47 37 43

Beef Lamb Poultry Pork

29 26 29 50

34 30 57 49

58 26 73 44

40 30 52 53

37 37 41 48

39 30 51 49

80 64 113 68 60 119 56

70 63 81 61 54 107 55

55 56 52 51 44 73 51

68 61 97 67 54 96 34

64 47 85 52 49 99 51

67 58 86 60 52 99 50

56

59

51

55

49

54

Vegetable oils (average) Soy oil Palm oil Sunflower oil Rapeseed oil Coconut oil Groundnut oil Simple average all commodities

1/ Reference (domestic) prices: Trend values – trend prices (linear trend fitted with 1990-2000 monthly world price data).

1990-00 and 1990-94 averages – single reference prices (simple averages for these periods).

MA-36 and MA-24 – 36-months and 24-months moving averages of world prices.

Source: Sharma (2002a).

Note that the tariffs in Table 9 do not include protective tariff which may be applied all the time, e.g.

10-15% on average. In that case, maximum tariffs required for complete price stabilization would be those computed in Table 9 plus this protective element. In practice, it is very difficult to separate this “permanent” protective tariff and the “temporary” safeguard component. In any case, the number of instances (months) when the full range of the maximum tariff is required is far fewer, as this requires world prices to dip very low and stay there for a prolonged period. In other words, there remains a 27

These estimates are from Sharma (2002a). Maximum tariffs were estimated using a simple expression for domestic price, Pd = Pw * (1+t), and solving for the tariff “t” every time the world market price (Pw) changes, for five assumed reference (domestic) prices (see notes to Table 9). The world market prices used were monthly prices of the 18 basic foods for the period January 1990 to December 2000.

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considerable amount of “water in the tariff” most of the time. The computed maximum tariffs are considerably lower when these extreme cases are not covered. This again points to the desirability of lower bound rates (e.g. 25-35% only) plus a safeguard.

If developing countries are allowed to “rationalize” tariffs in this way, what would be some of the implications? In a majority of the cases, tariff bindings of about 50% will mean substantive reduction from current bound levels – a happy outcome for all other WTO Members, and hopefully also for those who reduce, knowing that these rates provide to them necessary policy space for stabilizing domestic markets. The other form of “rationalization” is to allow countries to raise tariffs currently bound at lower rates to those levels as computed here. This approach runs counter to the GATT/WTO tradition of tariff reduction. But there is no particular reason why even an established tradition is not “rationalized” once in a while if there are good reasons for that.

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References FAO (2000), Synthesis of the Country Case Studies, in Agriculture, Trade and Food Security: Issues and Options in the WTO Negotiations from the Perspective of Developing Countries, Volume II, Country Case Studies, FAO, Rome. Available on-line at http://www.fao.org/trade.

FAO (2001a), A Special Agricultural Safeguard (SAS): Buttressing the Market Access Reforms of Developing Countries, Discussion paper no. 1, FAO Geneva Round Table on Selected Agricultural Trade Policy Issues, 21 March 2001. Available on-line at http://www.fao.org/trade.

FAO (2001b), Towards Improving the Operational Effectiveness of the Marrakesh Decision on the Possible Negative Effects of the Reform Programme on Least-Developed and Net-Food Importing Developing Countries, Discussion paper no. 2, FAO Geneva Round Table on Selected Agricultural Trade Policy Issues, 21 March 2001. Available on-line at http://www.fao.org/trade.

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Kherallah, M, H. Lofgren, P. Gruhn and M. Reeder (2000), Wheat Policy Reform in Egypt: Adjustment of Local Markets and Options for Future Reforms, Research Report 115, IFPRI, Washington, D.C. OECD (2001), The Uruguay Round Agreement on Agriculture: An Evaluation of its Implementation in OECD Countries, OECD Paris, 2001.

Sharma, Ramesh (1996), Review of Cereal Price Situation in Selected Developing Countries in 199596 and Policy Measures to Offset the Price Rise, ESCP Research Paper number 1, FAO Rome, 1996.

Sharma, Ramesh, Panos Konandreas and Jim Greenfield (1996), “An overview of assessments of the impact of the Uruguay Round on agricultural prices and incomes”, Food Policy, 21(4/5).

Sharma, Ramesh (2002a), Quantifying “Appropriate” Levels of the Bound Tariffs on Basic Foods as Proposed in the WTO Development Box Proposals, Discussion paper, Commodities and Trade Division, FAO Rome, March 2002.

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ValdĂŠs, A and Foster, W. (2002) Reflections on the Policy Implications of Agricultural Price Distortions and Price Transmission for Producers in Developing and Transition Economies.

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Wainio, J., P. Gibson and D. Whitley (2001), Options for Reducing Agricultural Tariffs, Chapter 2 in Agricultural Policy Reform in the WTO—The Road Ahead, May 2001, ERS USDA. Available on-line http://www.ers.usda.gov/publications/aer802/ WTO Secretariat (2000), Domestic Support, Document number G/AG/NG/S/1, Secretariat Background Paper 13, April 2000.

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