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					 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.



                                                   1
      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 “tariff-
only” 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 “lock-
in” 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.


                                                       2
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



3
  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).


                                                     3
         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.


                                                            4
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

                                          Total AMS            NPS-AMS            Value of             Percent
                                          reduction             outlay          agri. prod.         NPS-AMS
           Country              Year      cimmitment? 1/     (US$million)     (US$million)                  %
       1   Brazil               1997             Yes              140               65475     2/          0.21
       2   Chile                1997             Yes              15                  4814                0.31
       3   India                1995             No              5772               76960                 7.50
       4   Jordan                n.a.            Yes              n.a.                 n.a.                n.a.
       5   Korea, Rep.          1998             Yes              375               19316     2/          1.94
       6   Mexico               1995             Yes              51                19128     2/          0.27
       7   Pakistan             1997             No               23                19167                 0.12
       8   Peru                 1996             No               277                 4448                6.23
       9   Tunisia              2000             Yes              6.4                 2823                0.23
      10   Uruguay              1999             No               6.9                 1746                0.40
      11   Venezuela            1998             Yes              65                  4237    2/          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.


                                                        5
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.




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.


                                                         6
         Table 3: Outlays on Article 6.2 development measures and total value of
                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


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.


                                                        7
quantitative trade restrictions and so tariff-only regime was the rule rather than exception.11 A major
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.




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.
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.


                                                            8
Table 4: Average bound and applied tariffs on all agricultural products: 32
       developing countries
                                                      ---- Tariff rates (%) ---          Applied/
  Count         Country                              Bound               Applied       bound (%)
    1           Argentina                                 35                  13              37
    2           Brazil                                    36                  11              31
    3           Colombia                                  87                  22              25
    4           Costa Rica                                42                  17              40
    5           Ecuador                                   26                  16              62
    6           El Salvador                               41                  13              32
    7           Guatemala                                 49                  11              22
    8           Mexico                                    63                  20              32
    9           Nicaragua                                 61                  11              18
   10           Panama                                    43                  12              28
   11           Paraguay                                  35                  10              29
   12           Peru                                      30                  13              43
   13           Uruguay                                   32                  13              41
   14           Venezuela                                 52                  15              29
                Average (14)                             45                   14              31
                Coeff. of var. (14)                      36                   25              70
    1           Bangladesh                              200                  25                13
    2           India                                   114                  26                23
    3           Fiji                                     50                  15                30
    4           Indonesia                                48                  16                33
    5           Korea, Rep.                              66                  50                76
    6           Pakistan                                102                  22                22
    7           Philippines                              34                  19                56
    8           Sri Lanka                                50                  20                40
    9           Thailand                                 36                  32                89
                Average (9)                              78                  25                32
                Coeff. of var. (9)                       69                  43                62

    1           Egypt                                   28                  19                68
    2           Kenya                                  100                  17                17
    3           Malawi                                 125                  18                14
    4           Morocco                                 65                  19                29
    5           Mozambique                             400                  21                 5
    6           Tanzania                               240                  28                12
    7           Tunisia                                110                  35                32
    8           Zambia                                 125                  19                15
    9           Zimbabwe                               150                  27                18
                Average (9)                            149                  23                15
                Coeff. of var. (9)                      74                  27                36
                Average (all 32)                         84                  20                23
                Coeff. of var. (all 32)                  92                  43                46
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.




                                               9
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            Products, date initiated
      Chile              Wheat and wheat flour, cane/beet sugar, edible vegetable oils (September
                         1999), liquid and powdered milk (June 2000)
      Egypt              Powered milk (September 2000)
      El Salvador        Pork and rice (January and June 2000)
      Korea, Rep.        Soybean oil (1995), dairy products (1996), garlic (1999)
      Morocco            Bananas (June 2000)
      Argentina          Peaches (January 2001)
      Brazil             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.


                                                         10
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.



                                                    11
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 Group18 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



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.


                                                        12
             Table 6: Food and agricultural exports, 1990-94 and 1995-99

                                      Values (US$ billion)                         % change                   Share in world total (%)
                                      1990-94     1995-99                   2 periods From trend 1/            1990-94        1995-99
                                                                   Total agriculture, current values
      Developing                             95             132                    38              15               41.5         42.7
      LDCs-49                                3.9             4.9                   24              40               1.71         1.58
      Cairns-14                              41               61                   50              18               17.6         19.7
      Other developing 2/                    51               66                   30              11               22.1         21.5
      Developed 3/                          135             177                    31               2               58.5         57.3
      World total 3/                        230             309                    34               7                100         100
                                                                   Basic foods, current values 4/
      Developing                             50              69                   39               9                39.3         40.7
      LDCs-49                              0.97            1.19                   23               8                0.76         0.70
      Cairns-14                              23              35                   52              11                18.2         20.8
      Other developing 2/                    26              33                   27               6                20.3         19.2
      Developed 3/                           77             101                   31               4                60.7         59.3
      World total 3/                       127              170                   34               6                 100         100
                                                                   Other agricultural products, curent values
      Developing                             45               63                   38              23               44.1         45.1
      LDCs-49                                3.0             3.7                   25              54                 2.9         2.7
      Cairns-14                              17               25                   46              31               16.9         18.3
      Other developing 2/                    25               34                   34              15               24.3         24.2
      Developed 3/                           58               76                   32               1               55.9         54.9
      World total 3/                        103             139                    35              10                100         100
                                                                   Basic foods, constant 1989-91 prices
      Developing                             50              61                    23             3                 39.0         38.8
      LDCs-49                              1.12            1.38                    23             2                 0.88         0.87
      Cairns-14                              22              29                    31             9                 17.3         18.3
      Other developing 2/                    26              30                    14            -3                 20.8         19.2
      Developed 3/                           78              96                    24             9                 61.0         61.2
      World total 3/                       127              157                    24             7                  100         100
      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.


                                                                       13
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 (US$ billion)
                                         Values (US$ billion)                            % change
                                             1990-94       1995-99                 2 periods   From trend 1/
                                                          All foods, current values
      Developing                                     66              95                    44                  11
      LDCs-49                                       5.2             6.6                    27                   5
      Cairns-14                                       9              18                    95                  26
      Other developing 2/                            51              70                    36                   8
      Developed 3/                                  100            120                     21                  -2
      World total 3/                                166            215                     30                   3
                                                          Basic foods, current values 4/
      Developing                                     58             84                   44                    11
      LDCs-49                                       4.8             6.1                  29                     5
      Cairns-14                                       8             16                   89                    23
      Other developing 2/                            45             62                   37                     9
      Developed 3/                                   87            101                   16                    -5
      World total 3/                                145            185                   27                     2
                                                          Other foods, current values
      Developing                                      8             11                 44                       5
      LDCs-49                                       0.4            0.5                 13                       4
      Cairns-14                                     0.9            2.3                149                      45
      Other developing 2/                             7              9                 31                      -2
      Developed 3/                                   13             19                 51                      17
      World total 3/                                 20             30                 48                      12
                                                          Basic foods, in 1989-91 constant prices
      Developing                                     58             77                 32                      12
      LDCs-49                                       4.8             6.0                25                      11
      Cairns-14                                       9             14                 67                      17
      Other developing 2/                            45             57                 26                      11
      Developed 3/                                   88             97                 10                      -3
      World total 3/                                146            175                 20                       4
     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.




                                                          14
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
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

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.


                                                       15
        Table 8: Net trade balance in food and agricultural products, 1990-94 and 1995-99

                                        Net exports (US$ billion) 1/
                                       1990-94               1995-99                  Change
                                               Total agriculture, current values
           Developing                        0                      -2                       -2
           LDCs-49                          -2                      -3                       -1
           Cairns-14                        26                      34                        8
           Other developing                -23                     -33                      -10
           Developed                       -23                     -17                        6
                                                  Basic foods, current values
           Developing                        -8                     -15                      -6
           LDCs-49                           -4                       -5                     -1
           Cairns-14                         15                      19                       5
           Other developing                 -19                     -29                     -10
           Developed                        -10                        0                     10
                                                  Other agricultural products, current values
           Developing                         9                       13                       4
           LDCs-49                            1                        2                       0
           Cairns-14                         11                       15                       4
           Other developing                  -4                       -4                       0
           Developed                        -13                      -16                      -3
                                                  Basic foods, in 1989-91 constant prices
           Developing                        -9                      -16                     -7
           LDCs-49                           -4                       -5                     -1
           Cairns-14                         13                       14                      1
           Other developing                 -19                      -27                     -8
           Developed                        -10                       -1                     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


                                                    16
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-à-vis the AoA.

                                      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


                                                    17
cuts on all products without exception to the UR-type approach to achieve a given average reduction
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




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.


                                                     18
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
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 %)
                                     -------------- Assumed reference prices 1/ --------------          Simple
                                Trend values       90-00 avg 90-94 avg        MA-36            MA-24   average
     Rice (average)                        50             47          37             42           40        43
        Thai A1                            59             50          34             46           39        46
        Thai 100                           51             56          51             46           44        49
        California                         39             34          27             34           39        35
     Wheat (average)                      50             55            43           58           42         50
      Argentina                           80             87            66           66           50         70
      US HRW No. 2                        36             41            35           59           41         42
      Australia                           34             38            27           48           36         37
     Maize                                43             49            42           56           39         46
     Sugar raw                            75           101           106            86           75         89
     Sugar white                          53            81            88            56           42         64
     Milk powder (SMP)                    52             65            51           31           37         47
     Milk powder (WMP)                    39             53            38           26           27         37
     Butter                               47             45            28           48           49         43
     Beef                                 29             34            58           40           37         39
     Lamb                                 26             30            26           30           37         30
     Poultry                              29             57            73           52           41         51
     Pork                                 50             49            44           53           48         49
     Vegetable oils (average)             80            70             55           68           64         67
      Soy oil                             64            63             56           61           47         58
      Palm oil                           113            81             52           97           85         86
      Sunflower oil                       68            61             51           67           52         60
      Rapeseed oil                        60            54             44           54           49         52
      Coconut oil                        119           107             73           96           99         99
      Groundnut oil                       56            55             51           34           51         50
     Simple average
     all commodities                      56             59            51           55           49         54
        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

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 (P w) 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.


                                                        19
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
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.




                                                    20
                                            References

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Sharma, Ramesh (2002b), The Transmission of World Price Signals: Concepts, Issues and some
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     Global Forum on Agriculture: Agricultural Trade Reform, Adjustment and Poverty, 23-24 May
     2002, Paris.


                                                 21
Valdés, A and Foster, W. (2002) Reflections on the Policy Implications of Agricultural Price
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      India, Proposals by India in the Area of: i) Food Security; ii) Market Access, iii) Domestic
      Support; and iv) Export Competition, Document number G/AG/NG/W/102, 15 January 2001.




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