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>Number 33, January 1999
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>Part 1 of 3<smaller>
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><bigger>A special issue on the WTO Agreement on Agriculture
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> Towards Food Security : A Position Paper for Developing Countries in the Review of the WTO Agreement on Agriculture
by Aileen Kwa for Southeast Asian Food and Fair Trade Council
1. Towards the 1999 Review 2. How the AoA Instituted Unfair Competition: Market Access; Domestic Support; Export Subsidy; Due Restraint Provision; Agreement on Sanitary and Phytosanitary Measures 3. Negotiating for Food Security 4. Position 1: No Further Liberalisation - a Standstill Position 5. Position 2: Food Security Box: Food Security Today; How the Current AoA Deals with Food Security; Food Security Box; For Whom?; Food Security Box Provisions
Towards the 1999 Review
The review of the WTO Agreement on Agriculture (AoA) will commence by November 1999, at the time of the 3rd WTO Ministerial Conference. The informal process of putting forward recommendations and views, the ‘Analysis and Information Exchange’ (AIE) is currently in progress (see following article). This process allows open discussion between countries on future areas of negotiation without forcing countries to commit themselves to positions.
The process, however, is likely to be concluded by the second quarter of 1999, as the Committee on Agriculture will begin negotiating a text for approval at the 3rd Ministerial Conference to be held in November 1999. This final text will set the framework for the negotiations.
Countries therefore must put forward their positions now, if they want to see their interests reflected in the review. While the AIE process has generated a fruitful amount of discussion between countries, developing countries have unfortunately been very passive participants, with approximately only 2 papers out of about 30 coming from developing countries (not including Cairns Group members).
This calls for great concern since developing countries have paid the highest price as a result of the Uruguay Round Agreement on Agriculture as the ‘liberalisation’ instituted has generally condoned the high subsidies of the OECD countries, while forcing developing countries to open their markets. As Am. Narayanan of India recently pointed out, the existing WTO agenda is such that ‘developing countries are being forced to open their own markets, but markets for developing country products with export potential remain completely closed or are open only partially’. The unequal competition in the area of agriculture has aggravated the food security position of many developing countries.
This paper presents a pro-food security strategy / position which developing countries can put forward in the current AIE process. Implicit in the strategy presented are two important considerations:
Implementation issues developing countries are facing must be seriously addressed, unlike the way in which it has been glossed over in the past. The inequalities of the system have to be adequately dealt with before further inroads in liberalisation can take place. Food security must be a central issue in the architecture of agricultural trade policy. It must be addressed in a way that is responsive and meaningful to the realities of people rather than corporations. We define food security as having adequate nutritious food which is accessible to all people at all times. An important feature of being food secure is that countries and regions have at least a minimum level of are food self-reliance. That is, as much as possible, food should also be locally, nationally, or regionally produced. This of course may not be possible immediately, but it is an important long term developmental goal. The emphasis should be on the domestic market, rather than production for exports. This ensures that food production will be responsive to local needs, agriculture can continue to be the main source of rural employment, and countries and people do not have to incur debt in order to buy food. It is also a system of agriculture that is more environmentally sustainable as it cuts down the need to transport food across continents. Such a concept of food security is quite different from the current rationale driving the ‘Washington consensus’ as well as many WTO trade liberalisation proponents, which focus on agricultural production based on the principle of ‘comparative advantage’. Adequate food is measured by food availability at the global level. It assumes that countries and people will have the resources and earnings to pay for imported food. This is of course erroneous. When food is imported, rural farmers are put out of their jobs and do not have the financial means to buy the imported food, even though it may be cheaply priced. Imported food therefore means the importation of unemployment and hence rural poverty.
How has the AoA Instituted Unfair Competition?
As it stands, the GATT Agreement on Agriculture disadvantages developing countries in numerous ways. The rules were basically watered down to suit the interests of developed countries.
Market Access:
Dirty Tariffication: Many developed countries set their tariffs at levels much higher than their non-tariff equivalents, hence restricting access to developing countries’ exports. Tariff Peaks Due to Selective Tariff Reductions: The required unweighted average of 36 per cent tariff allowed countries to reduce low tariffs by significant percentages, while reducing only slightly the existing high tariffs if the product was of trade importance. Hence in many instances, tariff reductions by developed countries have not been meaningful in trade terms to developing countries.
Manipulation of Trigger Prices to Sanction Use of the Special Safeguard Provision: The EU, for example, manipulated with the calculation of trigger prices such that they could more frequently qualify to use the Special Safeguard Provision and hence slow the flow of imports coming their way.
Domestic Support:
Increases of domestic support above the de minimis level are illegal for all: This is an outright imbalance since the majority of developing countries declared zero AMS. They are not allowed to increase their AMS support above the de minimis 10% level while developed countries need only reduce slightly their high AMS levels. That is to say, most developing countries which were taxing their agricultural sector are bound never to provide subsidies to any significant degree.
Endorsement of direct and decoupled payments in the GATT-legal Green Box: This is a major loophole in the AoA which benefits the developed countries. These payments are legalised on the pretext that they are non-trade or production related, yet they provide farmers with additional revenue, hence changing input levels and thus increasing farmers’ production. Without them, many farmers in the US, EU and other OECD countries would find farming scarcely profitable. Furthermore, the developed countries, such as the EU are reinstrumenting their support policies in line with expected AoA ‘liberalisation’, so that other forms of support which may have to be phased out are converted to direct and decoupled payments. Developing countries do not have the resources to provide the same supports. These subsidies therefore skew competition in favour of the rich developed countries.
Including production-limiting programme payments in the Base AMS but excluding them from Current AMS calculations: Subsidies provided by the US, EU and other developed countries under production- limiting programmes were included in the Base Aggregate Measure of Support (AMS). However, these production-limiting programme payments are excluded from Current AMS calculations. The result is such a huge drop in the Current AMS level in comparison to the Base AMS that it has meant that the US and EU have not needed to made real reductions in their AMS support level to meet their AoA commitment. The high levels of AMS support developed countries have traditionally provided are therefore not in reality being reduced. Therefore, while markets of developing countries are forced open, developed countries’ agriculture continue to be highly subsidised.
Shifting supports within a broad aggregate: AMS reductions are not product specific but sector wide. This has made it possible for developed countries to maintain or even increase their AMS supports in sensitive sectors, even to levels above the base period. For example, the EU changed the composition of their assistance to the cereals and oilseeds sectors, while assistance is maintained or increased for commodities such as sugar, beef and fruit and vegetables.
Export Subsidy
Dumping of agricultural products is still legal within the AoA: Even though the AoA stipulates that dumping subsidies, euphemistically termed export subsidies must be reduced by 21% for developed countries, it still means that developed countries are able to continue up to 79% of their base period level of dumping. Dumping on the other hand is illegal for non-agricultural products. Again, it is the developed countries that have the resources to provide significant amounts of subsidies for export dumping, creating further unequal competition with developing countries on the world market. This form of dumping has had a detrimental effect on millions of small farmers of developing countries since prices are lowered and small farmers are pushed out because they are unable to compete.
Substituting export subsidies with other support instruments: Though developed countries are supposedly cutting down on ‘export subsidies’, there is evidence to suggest that government supports are merely being shifted to other AoA- legal programmes. For example, the EU is shifting towards increased decoupled payments, and the US is providing new forms of support such as credit guarantees to their exporters allowed under the Green Box.
Limiting the effect of dumping subsidy reductions through aggregation: Developed countries have also been able to get around the painful cuts in their export subsidies by concentrating their subsidies on key products most important to their economy.
Due Restraint Provision
The due restraint provision, brokered between the US and EU at Blair House enabled the conclusion of the agricultural negotiations. This provision sets a 9-year period during which domestic supports and export subsidies are protected from dispute challenges and the imposition of countervailing duties by affected countries. For example, the EU’s export subsidies are largely non-actionable under this provision until 2003. This is obviously unfair since developing countries are required to open their markets in the face of unfair competitive practices, such as dumping, and have no avenue of recourse.
Agreement on Sanitary and Phytosanitary Measures (SPS)
The SPS Agreement which was crafted at the same time as the AoA is also biased against developing countries. It has enforced mandatory food standards according to those of the Codex Alimentarius, a joint UN/WHO organisation.
Where there is no international standard, countries wishing to block imports on the grounds of SPS must base their objections on ‘sound science’. However the country wanting to block the imports must establish the proof, rather than the exporter.
SPS is problematic for developing countries because 1) Codex is largely dominated by the developed countries and their corporations. Developing countries are not represented in Codex’s committees and have in the past not been actively involved in the standard setting processes of Codex. They find themselves now having to abide by standards that have already been predetermined and which are usually too high.
2) Since the bottom line at Codex and with the SPS Agreement is ‘scientific evidence’, it excludes developing countries from participation at Codex as they often lack such scientific resources and expertise. The food processing corporations, on the other hand, have the higher hand with their up-to-date expertise.
3) Putting the onus of proof on receiving countries is therefore unfair given the resource limitations of developing countries. This system obviously works to the interests of exporters from developed countries, particularly the corporations.
Negotiating For Food Security Given the current inequalities in the rules of the AoA, developing countries can take the following negotiating positions (in sequence) in order to protect and enhance food security in their countries:
Position 1: No Further Liberalisation, i.e., a standstill position until implementation issues are completely reviewed and redressed. This is an appropriate position for the 1999 review.
When a thorough review of the impact of the AoA has been completed, countries can then ask for the following:
Position 2: A Food Security Box which allows countries wanting to nurture their agricultural production the capacity and space to do so. The Food Security Box will also be a re-balancing of the AoA rules between developed and developing countries.
Position 1: No Further Liberalisation - a Standstill Position
In the current AIE process and the coming review, developing countries as well as developed countries wanting a minimal level of food self-reliance should take the position that there should be no further liberalisation of the Agreement on Agriculture until a thorough review of the results of implementation has been conducted. The review should therefore only be a review, and not the reopening of negotiations. Once negotiations are reopened, it is likely that developed countries will push through further liberalisation disciplines (along the lines of the US’ and Cairns Group position) without taking into account the imbalances of the present AoA, as elaborated in the section above. This will further damage developing countries’ food production systems and render them increasingly dependent on food imports.
The effect of the AoA must be carefully studied in relation to the following issues: import flows and local production levels; levels of AMS governments provide and whether these governments are utilising the Green Box, input and investment subsidies of the Special and Differential Treatment clause; levels of food aid received in the country; rural and urban peoples’ access to food; food prices; stability of food supply; quality of food; rural employment and quality of life; biodiversity.
Upon the completion of a thorough review of the AoA implementation in all countries, there should then be serious re-examination of the food security needs of countries. Food security and rebalancing of the AoA are to some extent addressed below in the proposed Food Security Box.
Position 2: Food Security Box
Food security has been raised repeatedly in the AIE process as an important non-trade issue by developing and even developed countries. It is obvious that for many members, the existing AoA is lacking and has even detrimental effects in this area.
Food Security Today
The FAO forecast on food security is bleak. By the year 2000, FAO predicts that there will be a substantial increase in world agricultural trade. Despite the gains in trade, and the ability of the world’s productive capacity to meet the global demand for food, there will be no improvement in food security. The International Food Policy Research Institute (IFPRI) also estimates that up to 2020, there will be very little reduction in the number of malnourished children in the developing world as a whole. Whilst in Sub-Saharan Africa and South Asia, the number of malnourished children may actually increase.
These projections have been made before the onset of the Asian and now global economic crisis. The current turmoil has drastically worsened the food security situation in Southeast Asia and Russia, and is currently threatening to also severely affect the Latin American countries. Up to 98 million people are facing serious food shortages in Indonesia alone.
This is therefore a critical moment to seriously look at the way we have designed our agricultural policies in the past, and implement the necessary changes. Governments in Southeast Asia are already channelling support to this sector in various ways, in the realisation that food self-reliance is crucial. Fortunes can turn so that once available foreign exchange to purchase food may not be available tomorrow. However, policies at the macro level must be equally supportive.
How the current AoA deals with Food Security:
The current Agreement on Agriculture addresses the food security issue in various ways.
Green Box The Green Box can in fact be likened to a Food Security Box for developed countries such as the US and the EU. It allows governments to provide without limits, supports such as general services ranging from infrastructural, research and marketing services etc.; direct payments; decoupled payments or payments which are not related to production etc. (See Annex 2 of the AoA). This form of outright financial support, however, is not feasible for developing countries as they do not have financial resources. Developing countries therefore require other non- financial means to protect and support their farmers.
Special and Differential Treatment clause The AoA allows developing countries to provide - investment subsidies (credits at favourable interest rates) as well as - input subsidies generally available to low income and resource poor producers. These supports are not subject to reduction, but they are limited to 1992 levels (due restraint clause). For developing countries, this is again limited in usage, especially as countries may lack the administrative capacity to put the targeting into practice.
De Minimis Support Developed and developing countries are allowed to maintain a certain level of de minimis support of 5% for developed countries and 10% for developing countries. This is important, however, it again means that developing countries support agriculture through financial means.
The Marrakesh Decision or Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least Developed and Net Food- importing Developing Countries. The Marrakesh Decision, passed in conjunction with the AoA has so far been a cosmetic appendage to the AoA, providing least developing and net-food- importing developing countries (NFIDCs) with a false sense of security. The Decision in theory should provide financial assistance, food aid, and technical assistance to NFIDCs should the implementation of the AoA adversely affect them. However, developed countries have chosen not to activate the Decision despite the fact that world cereal prices more than doubled in 1995/6. Their rationale was that there was no evidence that high cereal prices were due to AoA implementation. In fact, the AoA has been directly responsible for the decrease in the US and EU’s public stockholding and therefore a decrease in food aid levels. As is, the Decision is weak regarding concrete implementation measures, and there seems little political will or interest to improve things.
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