Developing Countries and the Doha Round Agricultural Negotiations

1
Developing Countries and the Doha Round
Agricultural Negotiations

• Lecture 25
• Economics of Food Markets
• Alan Matthews

2
Topics and outline

• The concept and justification of Special and
  Differential Treatment (SDT) in the WTO
• What SDT was agreed in the Uruguay Round
  Agreement on Agriculture?
• Developing country demands in the Doha Round
  the Development Box
• Should SDT be differentiated between developing
  countries? (not covered)
• How important is preference erosion?

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The concept of special and differential treatment

• SDT began with respect to trade in manufactures
• Defined as preferential access to IC country
  markets
• and ability to protect domestic industry
• Justified by an economic philosophy and system -
  infant industry industrialisation
• Subsequently undermined by the Washington
  consensus

4
The concept of special and differential treatment

• SDT changed in the Uruguay Round
• In Tokyo round, developing countries could opt
  out of negotiated codes
• UR was negotiated as a single undertaking
• Implies all GATT/WTO members should adopt the
  same rules
• SDT moved towards proportional commitments,
  implementation flexibilities, longer transition
  periods, technical assistance

5
The legal status of SDT in the WTO

• The 1979 Enabling Clause
• Acknowledges two categories eligible for SDT
  developing countries and least developed
  countries
• Developing country is a self-declared status
• LDCs are a UN-defined list revised every 3 years

6
Special and differential treatment in agriculture

• Uruguay Round Agreement on Agriculture
• commitments under the reform programme should
  have regard to the agreement that special and
  differential treatment for developing countries
  is an integral element of the negotiations, and
  take into account the possible negative effects
  of the implementation of the reform programme on
  least-developed and net food-importing developing
  countries.

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Special and differential treatment in agriculture

• Doha Ministerial Declaration (Paragraph 13)
• special and differential treatment for
  developing countries shall be an integral part of
  all elements of the negotiations so as to be
  operationally effective and to enable developing
  countries to effectively take account of their
  development needs, including food security and
  rural development.

8
Special and differential treatment in agriculture

• July 2004 Framework Agreement
• Agriculture is of critical importance to the
  economic development of developing country
  Members and they must be able to pursue
  agricultural policies that are supportive of
  their development goals, poverty reduction
  strategies, food security and livelihood
  concerns.
• SDT now justified to enable developing countries
  to address their food security and rural
  development objectives

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Why SDT in agriculture?

• Underlying the Development Box is the belief that
  indiscriminate trade liberalisation adversely
  affects food security, undermines the rural poor
  and increases inequality
• Difficulty is that there is much less agreement
  about the validity of this paradigm, and in
  particular, the role of government in
  agricultural development
• Global models suggest the biggest gains to
  developing countries come from their own
  liberalisation efforts, not those of OECD
  countries

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The normative dilemma

• 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
• Sharma, 2002 (italics in original)
• Others see the great contribution of WTO
  disciplines as locking in policy reforms

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• Special and Differential Treatment provisions in
  the Uruguay Round

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SDT in the UR Agreement on Agriculture

• General provisions
• Commitments two-thirds those of developed
  countries in the market access, domestic support
  and export subsidy pillars
• Longer 10 year transition period
• Green Box
• Higher de minimis (10 compared to 5)
• Government stockholding for food security
  purposes
• Article 6.2 exemptions
• Investment subsidies which are generally
  available to agriculture, agricultural input
  subsidies generally available to low-income or
  resource-poor producers, and support to encourage
  diversification from growing illicit narcotic
  crops, are exempt from domestic support reduction
  commitments.

13
SDT in the UR Agreement on Agriculture

• Export subsidies
• Allowed marketing subsidies on exports plus more
  favourable internal transport costs on exports
• Marrakesh Decision in favour of Net Food
  Importing and Least Developed Countries
• Best endeavours to provide increased food aid and
  technical assistance

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Do existing SD provisions provide insufficient
policy flexibility?

• Current AoA provides for various measures of
  policy flexibility 9 provisions in all (Table)
• Developing countries rarely using all the
  potential flexibility in setting applied tariffs
  or domestic subsidies..
• but there are individual exceptions
• and disciplines could begin to bind following a
  further round of reductions

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Use of SD flexibility - examples

• For 32 developing countries, applied rates
  average 20 vs. bound rates of 84
• Limited use either of general safeguards (only 7
  instances 1995-2001) or special safeguards
  (rarely invoked by the 21 eligible developing
  countries)
• TRQs often not binding (in more than half
  cases, applied tariffs implemented)

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Use of SD flexibility - examples

• Export subsidy exemptions minor use
• Domestic subsidies
• Countries with AMS commitments
• PS generally 25-30 of commitments (but
  Thailand)
• NPS generally around 2 of value of production
  (but India and Peru)
• Article 6.2 subsidies generally lt 1 value of
  production

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• The Development Box proposal

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Developing country demands in the Doha Round

• Developing countries felt the URAA represented an
  unbalanced set of obligations and failed to
  address marginalisation especially of LDCs in
  world trade
• Got commitment to strengthened SDT as condition
  for launching Doha Round negotiations
• Conflicting views on how to progress the SDT
  agenda between developed countries promoting a
  cross-cutting conceptual approach and developing
  countries tabling specific changes to SDT
  provisions adopted during UR

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Developing country demands in the Doha Round

• Within the agricultural negotiations, demands
  crystallised in the proposals for a Development
  Box (Food Security Box)
• Justified as necessary to support food security,
  rural development and poverty alleviation
  objectives
• Designed to increase the policy space available
  to developing countries
• Pursued by different developing country
  coalitions in the Doha negotiations
• G20
• G90
• G33

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Some Development Box proposals

• Market access
• Exempt (food security) products from tariff
  reductions or from tariff disciplines
• Allow (food security) products to be defined on a
  positive or negative list approach
• Allow special safeguards for (food security)
  products
• Exempt developing countries from obligation to
  provide minimum market access

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More Development Box proposals

• Domestic support
• Expand Article 6.2 exemptions for Green Box
  policies
• Increase de minimis product- and
  non-product-specific support thresholds
• Protect domestic subsidies from challenge
• Export measures
• Allow greater flexibility to developing countries
  to provide export subsidies in certain
  circumstances

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Market access tariffs

• Four distinct justifications
• The idea of development tariffs, to provide
  incentives to encourage agric growth
• The idea of food security tariffs, to maintain
  high food self-sufficiency as a food security
  measure
• The idea of stabilisation tariffs, to allow
  applied tariffs to vary to offset world market
  price volatility
• The idea of compensatory tariffs, as a form of
  countervailing measure

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Market access - tariffs

• Allow more gradual tariff reduction commitments
  for food security products
• but do not exempt from reduction commitments
  altogether..
• except for tariffs already below a minimum
  threshold as long as world markets remain
  distorted
• Leave renegotiation of existing low bound tariffs
  to existing GATT procedures

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Market access - safeguards

• If tariff disciplines are retained, there is a
  stronger case for flexibility on safeguards
• Justification is
• The vulnerability of low-income food-insecure
  households
• The absence of alternative risk management and
  safety net instruments
• Unworkability of other WTO options

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Market access - safeguards

• Make available a special safeguard clause to
  developing countries for food security products
• Avoid requirement for proof of injury
• Be time limited
• No compensation should be required
• Permanent mechanism

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Domestic subsidy commitments

• Note interdependence between exempting Amber Box
  policies under Art. 6.2 and raising the de
  minimis threshold for Amber Box policies
• Amber Box
• Retain and broaden Article 6.2 exemptions where
  justified
• Maintain but do not increase the de minimis
  thresholds
• though permit crediting of negative non-product
  specific support against positive
  product-specific support

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Criteria to evaluate Development Box proposals

• Would it really help to improve food security,
  alleviate poverty and promote sustainable
  agricultural growth?
• Would additional policy flexibility be used?
• What price might have to be paid?
• Would protective measures undertaken under the
  cover of a DB adversely affect other developing
  countries?

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• Treatment of developing countries in the
  Framework Agreement and Hong Kong Draft
  Declaration

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SDT in the Doha Round

• Market access
• Tiered formula, sensitive products, SDT elements
• Special Products
• Special Safeguard Mechanism
• Treatment of least developed countries LDCs
• Domestic support
• SDT element in reduction formula
• Extension of Article 6.2 exemptions
• Maintenance of de minimis exemptions if directed
  to subsistence and resource-poor farmers

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Special Products the Agreement

• flexibility to designate an appropriate number
  of products as SPs, based on criteria of food
  security, livelihood security and rural
  development needs.
• These products will be eligible for more flexible
  treatment
• The criteria and treatment to be specified in the
  further negotiations

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Special Products the Issues

• A significant recognition of developing country
  demands
• An appropriate number? Must be related to the
  criteria outlined
• The selection criteria formula driven or self
  selected?
• Treatment of SPs
• Relationship with sensitive products

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Special Safeguard Mechanism

• Agreement to establish one
• For which products?
• Wider than Special Products
• Linked to low level of existing tariffs
• Characteristics
• Avoid requirement for proof of injury
• Be time limited
• No compensation should be required
• Permanent mechanism
• Need for technical discussions on the design of
  the safeguard mechanism with respect to trigger
  levels, duration and level of additional duties

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Market access for LDCs

• Least-Developed Countries, which will have full
  access to all special and differential treatment
  provisions above, are not required to undertake
  reduction commitments.
• Developed Members, and developing country
  Members in a position to do so, should provide
  duty-free and quota-free market access for
  products originating from least-developed
  countries.
• But HK Agreement only for 97 of tariff lines

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SDT progress in the Doha Round to date -
evaluation

• The Framework Agreement and HK Declaration has
  the potential to represent a significant step
  towards operationally effective and meaningful
  provisions for SDT
• Market access issues treatment of SPs and SSM
  still outstandinig
• Important that developing countries do not lose
  sight of their principal objective in these
  negotiations
• Lower IC protection still the most important
  potential contributor to development.

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• The role of preferences and preference erosion

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The role of preferences

• Winters poisoning the debate
• Systemic criticisms
• Divert trade between developing countries
• Undermine support for multilateral system
• Preferences have no value
• Poorly utilised (restrictive rules of origin)
• Come attached with conditions
• Uncertain, subject to frequent changes
• Delay growth-promoting reforms

37
Average applied bilateral tariffs, agricultural
sector, per cent, 2001
Tariffs applied by ? Applied to ? EU25 US Asia developed Cairns developed
EU25 - 5.8 22.2 15.7
US 16.2 - 28.9 5.1
Asia developed 12.5 3.7 - 6.2
Cairns developed 25.9 3.4 24.9 -
Mediterranean 7.3 4.0 14.1 3.7
Sub Saharan Africa 6.7 3.0 12.0 0.7
Cairns developing 18.3 3.8 24.0 5.9
China 13.5 5.1 21.7 8.7
South Asia 14.4 1.8 33.7 1.8
Rest of World 15.1 2.1 17.4 2.6
Average 16.7 4.7 22.5 10.8
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In fact, preferences are well utilisedEU
agri-food imports under various regimes, 2002
Regime Eligible regime imports 000 Euro Actual regime imports 000 Euro Apparent utilisation rate Effective utilisation rate Share of actual imports
Non-reciprocal preferential agreements 18,610 12,292 89 18.5
Cotonou 5,927 5,500 93 95 8.3
GSP regular 8,755 4,385 50 86 6.6
EBA 1,682 294 17 96 0.6
Reciprocal preferences
Med, CEECs, EEA 11,381 8,728 77
Non-preferential
Duty-free MFN 21,714 32.6
MFN tariff gt 0 4,200 6.3
Total EU imports 66,558 100
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In fact, preferences are well utilisedUS
agri-food imports under various regimes, 2002
Regime Eligible imports under regime 000 USD Actual imports under regime 000USD Apparent utilisation rate Effective utilisation rate Share of actual imports
Non-reciprocal preferential agreements 4,137 3,607 87 6.2
AGOA 162 137 85 85 0.2
GSP regular 2,456 1,415 58 94 2.4
Reciprocal preferences
NAFTA 11,616 11,531 99 19.8
Non-preferential
Duty-free MFN 29,047 49.8
MFN tariff gt 0 14,039 24.1
Total US imports 58,368 100
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and quite effective

• Mixed evidence from statistical studies
• Ozden and Reinhardt 2003, Stockel and Borrell,,
  2001 argue preferences have no value
• But number of studies argue the opposite
• Stevens and Kennan (2004)
• Wainio and Gehlhar (2004)
• Romalis (2003)
• Criticism of preferences driven by their systemic
  effects risks depriving some developing countries
  of something of real benefit to them

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Who loses from preference erosion in agriculture?

• Bulk of losses fall on a narrow set of highly
  preferred countries with exports concentrated in
  a handful of highly protected sectors bananas,
  sugar, meat
• Big losers are mostly small islands and most
  sub-Saharan African states
• Possibility that MFN trade liberalisation or
  additional preferences could provide some
  offsetting gains
• Necessity of compensation package to ensure
  balanced outcome to the Round?

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Where does the problem lie?

• Northern agricultural protectionism not a
  significant explanation of the problems facing
  the poorest countries to integrate into
  international trade
• Lack of regional integration (South-South
  barriers) may be as/more important
• Technical/SPS barriers which often prevent any
  trade at all (EU restrictions on fish/shellfish
  exports, new EU SPS controls, affect food as well
  as primary produce)

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The Aid for Trade debate

• Aid for trade covers
• Trade policy formulation
• Trade facilitation
• Trade adjustment
• Trade-related infrastructure
• Various initiatives underway
• IMF Trade Integration Facility
• WTO and others, Integrated Framework
• Proposals for preference erosion fund
• Now part of the Doha Agenda

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Conclusions

• Doha Round meant to be a development round
• Developing countries dissatisfied with outcome of
  Uruguay Round agreement on agriculture
• Developing countries have conflicting interests
  in the outcome of agricultural negotiations
• Can sufficient flexibility be offered to
  developing countries while ensuring sufficient
  negotiating gains for developed countries?
  Possibility of trading off gains to developed
  countries in NAMA and services.