A guide to the Annex on Agriculture

The Chair­man of the WTO’s Gen­er­al Coun­cil (Ambas­sador Oshi­ma of Japan) pub­lished a pro­posed ‘frame­work’ for an agree­ment on the key top­ics of nego­ti­a­tion in the Doha round on Fri­day. In this post I am attempt­ing to sum­ma­rize the pro­pos­als for the most impor­tant of these topics—the reform ofworld agri­cul­tur­al trade—using as lit­tle jar­gon as pos­si­ble. The pro­posed ‘frame­work’ takes the place of the agree­ment that was not reached at last September’s Can­cún meet­ing of WTO. If adopt­ed at the next Gen­er­al Coun­cil meet­ing of WTO at the end of July, it will form the basis on which the nego­ti­a­tions will con­tin­ue. In fact, there is like­ly to be anoth­er long pause in the talks over the peri­od to next March while the US elec­tions take place and the cur­rent Euro­pean Commission—whose man­date expires in a few months—is replaced. The impor­tant annex on Agri­cul­ture, sum­ma­rized below, has been draft­ed by the Chair­man of the Agri­cul­ture Nego­ti­at­ing Group (Ambas­sador Gross­er of New Zealand) after the Mem­bers of the Group proved unable to come up with their own frame­work for agri­cul­ture. The text of the full Frame­work pro­pos­al is avail­able “here(link to the ITCSD site: a pdf file about 100k)”:http://www.ictsd.org/ministerial/cancun/docs/JOB(04)-96.pdf h4. Intro­duc­tion The text begins by recall­ing that the pur­pose of the nego­ti­a­tions is to adopt reforms that will result in ‘sub­stan­tial and effec­tive cuts in pro­tec­tion and trade-dis­tort­ing sup­port’. The Doha deci­sion added some qual­i­fi­ca­tions to that objec­tive that are repeat­ed in the Annex: there must be ‘oper­a­tional­ly effec­tive’ pro­vi­sions that allow spe­cial treat­ment of devel­op­ing coun­tries’ inter­ests as they affect their devel­op­ment goals, and some ‘non-trade’ con­cerns such as ani­mal wel­fare issues and envi­ron­ment should be tak­en into account. The Annex adds two non-con­tro­ver­sial prin­ci­ples that go beyond the Doha man­date.

The start­ing point for reform will be the _bound_ lev­els of Mem­bers’ com­mitt­ments on bor­der pro­tec­tion, domes­tic sup­port pay­ments and export sub­si­dies made at the end of the Uruguay Round in 1995.

This rec­om­men­da­tion builds-in ‘cred­it’ for reforms in coun­tries that have already opened their mar­kets by more than the amount they promised in 1995 or have reduced their expen­di­ture on farm or export sup­port by more than they promised—as many have. This is only fair, of course, and it’s a prac­tice that encour­ages coun­tries to go ahead with reforms between rounds of WTO nego­ti­a­tions, con­fi­dent that they won’t be _weakening_ their nego­ti­at­ing posi­tions.

But the con­se­quence of this ‘cred­it’ pro­vi­sion is to _reduce the impact of reforms_ by the extent of the ini­tial ‘slack’ rep­re­sent­ed by the cred­it. For exam­ple; if a coun­try is oblig­ed to cut a tar­iff by 30 per­cent from the bound rate, but has already reduced it by 20 per­cent from that rate, then its oblig­a­tion will be only to achieve anoth­er 10 per­cent reduc­tion. The reforms even­tu­al­ly adopt­ed will _seem more ambi­tious on paper_ than they will be in the mar­ket place.
The sec­ond new prin­ci­ple con­firmed by the Annex is that coun­tries with high­er lev­els of pro­tec­tion and sup­port will have to make big­ger cuts. This prin­ci­ple applies in the Annex at both the lev­el of coun­tries and at the lev­el of indi­vid­ual pro­grams: the high­er the lev­el of pro­tec­tion the big­ger the cut will be.

But the har­mo­niza­tion prin­ci­ple is weak; it *does not over­ride* the prin­ci­ple of ‘spe­cial and dif­fer­en­tial treat­ment’ for devel­op­ing coun­tries. Many of these coun­tries have much high­er aver­age rates of pro­tec­tion for agri­cul­ture than the indus­tri­al­ized coun­tries. They will not have to make greater cuts in thi­er bar­ri­ers, how­ev­er, despite the ‘har­mo­niza­tion’ prin­ci­ple.

The har­mo­niza­tion prin­ci­ple also seems to be over­rid­den by the pro­vi­sions for ‘sen­si­tive’ prod­ucts and devel­op­ing coun­tries’ ‘spe­cial’ prod­ucts.

The intro­duc­to­ry sec­tion of the Annex also con­tains a ref­er­ence to the con­cerns of devel­op­ing coun­try cot­ton pro­duc­ers. It doesn’t promise any spe­cial rules for cot­ton trade reform but it gives cot­ton a high pri­or­i­ty under the mech­a­nisms described in the reform frame­work. h4. Domes­tic sup­port The pro­posed deci­sion on domes­tic sup­port pay­ments con­firms that the prin­ci­ple of ‘har­mo­niza­tion’ will apply to the cuts that indus­tri­al­ized coun­tries will have to make in trade-dis­tort­ing farm sup­port pay­ments. High­er lev­els of sup­port mea­sured in ‘absolute or rel­a­tive terms’ will have to be cut more than low­er lev­els of sup­port. The cuts to sup­port will be made using a ‘tiered’ for­mu­la appo­rach that will see deep­er cuts made in the high­er tiers (groups of prod­ucts with high­er lev­els of sup­port). This pro­vi­sion will be wel­comed by the USA that has insist­ed that reforms should take first address the much high­er lev­els of sup­port paid by the EU before impos­ing cuts on its own sup­port pay­ments. The ‘cred­it prin­ci­ple’ will also apply; the lev­el of sup­ports will cut from the lev­el agreed in 1995, not from any low­er lev­els that might apply today. The objec­tive will be ‘sub­stan­tial and effec­tive reduc­tion’ in both the Total lev­el of trade dis­tort­ing support[1] and in each indi­vid­ual sup­port com­po­nent (e.g. sup­port pro­grams for a par­tic­u­lar crop).  This means that it should be dif­fi­cult to meet the objec­tive of sub­stan­tial over­all reduc­tions in sup­port by cut­ting some pro­grams heav­i­ly and some not at all. The ‘tiered approach’ will describe the min­i­mum lev­el by which over­all sup­port must be cut in each tier, high­est to low­est.  The over­all sup­port cut for any tier is the sum of the cuts in the three dif­fer­ent com­po­nents: the cuts in Total sup­port, the cuts in de min­imis levels[2] and reforms to the blue box[3]. Coun­tries can make big­ger cuts in one of these com­po­nents than in anoth­er, as long as they meet the require­ments for * the min­i­mum cut in each com­po­nent
* the min­i­mum cut in the over­all lev­el for the giv­en ‘tier’ of sup­port There will be dif­fer­ent for­mu­las for cuts to the Total, de min­imis and blue-box pro­grams. The sup­port pro­grams that make up the Total lev­el of sup­port will be indi­vid­u­al­ly ‘capped’ at the prod­uct lev­el to make sure that there is no switch­ing of sup­port from one prod­uct to anoth­er as the total is cut. The pro­posed rules on domes­tic sup­ports are thus more coher­ent across the whole agri­cul­tur­al sec­tor than the pro­posed rules on mar­ket access, which allow greater ‘flex­i­bil­i­ty’ for ‘sen­si­tive’ and ‘spe­cial’ prod­ucts.

Blue box
This cat­e­go­ry of sup­port was intro­duced at the last minute in the Uruguay Round to acco­mo­date the Euro­pean Community’s ‘com­pen­sa­tion’ pay­ments to farm­ers whose pro­duc­tion ‘enti­tle­ments’ were being cut as part of the 1992 reforms to the Com­mon Agri­cul­tur­al Pol­i­cy (CAP). The pay­ments were linked to pro­duc­tion (and there­fore could be _trade-dis­tort­ing_ by def­i­n­i­tion) but were designed, in fact, to main­tain the income of farm­ers whose pro­duc­tion was being _cut_. They were clas­sic agri­cul­tur­al _adjustment_ pay­ments, not the sort of thing that the WTO should be _penalizing_.

The USA wants to rede­fine the blue box so that its own ‘counter-cycli­cal’ adjust­ment pay­ments qual­i­fy as ‘blue’.  Under the new rules, which extend the def­i­n­i­tion of ‘blue­ness’, these pay­ments will also be con­sid­ered ‘blue’. But the over­all size of a country’s ‘blue box’ will be capped by a factor—to be negotiated—related to his­tor­i­cal lev­els of agri­cul­tur­al pro­duc­tion. This is intend­ed to ensure that no Mem­ber can min­i­mize its oblig­a­tions to cut sup­port by re-defin­ing its sup­port pro­grams from the ‘amber’ to the ‘blue’ box.
Green box
These are pay­ments that may have some farm-income sup­port com­po­nent but are not like­ly to have any trade-dis­tort­ing effects because they do not direct­ly relate to farm­ers’ pro­duc­tion deci­sions. ‘Green’ pay­ments are not sub­ject to any cuts. The frame­work pro­pos­es to tight­en the cri­te­ria for the ‘green box’ but does not say how.

h4. Export com­pe­ti­tion The main objec­tive of this sec­tion of the Frame­work is to define and ‘lock in’ the elim­i­na­tion of all forms of agri­cul­tur­al export sub­si­dies as a head­line result of this round of WTO nego­ti­a­tions. The key to secur­ing the elimination—already agreed in prin­ci­ple by the main sub­sidis­er, the Euro­pean Community—is to estab­lish the poli­cies cov­ered by the agree­ment and the date for elim­i­na­tion.




Export sub­si­dies as they are record­ed in the sched­ules of com­mitt­ments of indi­vid­ual coun­tries estab­lished at the end of the Uruguay Round, plus gov­ern­ment export cred­its or cred­it guar­an­tees repayable at terms longer than 6 months, plus sub­si­dies or under­writ­ing pay­ments by state trad­ing entre­pris­es, plus food aid that is used as a means of sur­plus dis­pos­al or that has the effect of dis­plac­ing com­mer­cial sales.

These def­i­n­i­tions seem to leave some room for fur­ther refine­ment in the nego­ti­a­tions. For exam­ple, the ques­tion whe­hter the monop­oly sales pow­ers of state trad­ing enter­pris­es is itself a ‘sub­sidy’ has been left for fur­ther nego­ti­a­tion. A note­able omis­sion from the pro­posed cov­er­age is the use of dif­fer­en­tial export tax­es that the USA main­tained is equiv­a­lent to an export sub­sidy.
Date for elim­i­na­tion
Still to be nego­ti­at­ed. The elim­i­na­tion is to be achieved pro­gres­sive­ly in annu­al install­ments prob­a­bly over a peri­od dic­tat­ed by the EC’s cur­rent ‘Agen­da 2000’ reform pro­gram, which con­cludes in 2010.
There is a pro­vi­sion for longer time-frames for the elim­i­na­tion of any export sub­si­dies used by devel­op­ing coun­tries (pre­sum­ably, via STEs) and for the use of longer-term—that is, sub­sidised—cred­its in the case of food exports to the poor­est coun­tries and devel­op­ing coun­tries depen­dent on food imports. Final­ly, a ‘spe­cial cir­cum­stances’ clause will be nego­ti­at­ed that would allow the use of longer-term export cred­its in cas­es such as the 1997 Asian finan­cial mar­kets cri­sis. h4. Mar­ket Access The har­mo­niza­tion prin­ci­ple will be imple­ment­ed in the for­mu­las for improv­ing mar­ket access (cut­ting tar­iffs and expand­ing the vol­ume of tar­iff quotas[4]) by estab­lish­ing ‘tiers’ or ‘bands’ of tar­iffs. Deep­er cuts will apply to the high­er tiers. The cred­it prin­ci­ple will also apply; cuts will be made from bound tar­iff rates. As part of the ‘spe­cial and dif­fer­en­tial’ prin­ci­ple, no least-devel­oped coun­try will be asked to make any reduc­tions in tar­iffs (com­ment: no econ­o­mist would say that this “con­ces­sion” is like­ly to be help­ful to coun­tries such as Bangladesh). The lev­el of the duty apply­ing to (each?) tar­iff will define the ‘bands’. But the num­ber of bands and the thresh­olds for each band are to be nego­ti­at­ed lat­er. The sin­gle advance in any of this is the pro­pos­al that there be only one ‘approach’ to cut­ting tar­iffs for all coun­tries and all tar­iff bands. But what that approach will be—and whether it will be a sim­ple math­e­mat­i­cal forum­la such as a ‘swiss’ or a ‘lin­ear’ cut, or whether it will be a more com­plex hybrid formula—is left for lat­er deci­sion.
Sen­si­tive prod­ucts
The bulk of the sec­tion on mar­ket access is tak­en up by an attempt to define the excep­tions to the ‘sin­gle approach’ to cut­ting access bar­ri­ers.

The annex cre­ates an cat­e­go­ry called ‘sen­si­tive prod­ucts’ that has not had any for­mal place in any for­mer WTO agree­ment on agri­cul­ture. The def­i­n­i­tion of this cat­e­go­ry is very loose but more pre­cise in the case of indus­ri­al­ized than in the case of devel­op­ing coun­tries. The list of ‘sen­stive’ prod­ucts is to include, at most, the list of prod­ucts that are pro­tect­ed by tar­iff quo­tas. Unfor­tu­nate­ly, this is a long list in economies such as the EC, oth­er West Euro­pean coun­tries and North Amer­i­ca: at the end of the Uruguay Round, the EU had tar­iff quo­tas cov­er­ing 87 agri­cul­tur­al prod­ucts, the Unit­ed States 54 and Korea 67. But Nor­way had 232 prod­uct-lev­el tar­iff quo­tas and Poland 109. Fur­ther­more, vir­tu­al­ly all such prod­ucts have very high duties as part of the ‘out of quo­ta’ tar­iff. Esti­mates by the Eco­nom­ic Research Ser­vice of the US Depart­ment of Agri­cul­ture shows that the aver­age over-quo­ta tar­iff rate is 128 per­cent or more than twice the sim­ple aver­age rate of agri­cul­tur­al tar­iffs. Many coun­tries that main­tain tar­iff quo­tas have out-of-quo­ta rates more than twice, and as high as *six times* the aver­age of their own agri­cul­tur­al tar­iff. The aver­age in-quo­ta rate is 63 percent[5].

The degree of lib­er­al­iza­tion pro­posed for this poten­tial­ly long list of high­ly pro­tect­ed prod­ucts is *remark­ably weak*, appar­ent­ly reflect­ing the insis­tence of the EC that the pro­vi­sions for ‘sen­si­tiv­i­ty’ should be inte­gral to the lib­er­al­iza­tion meth­ods. Import com­pe­ti­tion is to be ‘sub­stan­tial­ly improved’ for all sen­si­tive prod­ucts by a com­bi­na­tion of cuts to the out-of-quo­ta tar­iff and expan­sion of the vol­ume of the tar­iff quo­ta (the vol­ume that ben­e­fits from the low­er in-quo­ta duty rate).  But the amount of improve­ment in access implied by the word ‘sub­stan­tial­ly’ is left for future nego­ti­a­tion with the addtion­al caveat that “the final nego­ti­at­ed result [must also reflect] the sen­si­tiv­i­ty of the prod­uct con­cerned”.
Oth­er ele­ments
Sev­er­al impor­tant deci­sions are left for deci­sion after fur­ther nego­ti­a­tion: whether there will be pro­vi­sions adress­ing the issue of *tar­iff esca­la­tion*, the con­tin­u­a­tion of the *spe­cial agri­cul­tur­al safe­guard*, the improved *admin­is­tra­tion of tar­iff quo­tas* and the elim­i­na­tion of *in-quo­ta tar­iff rates*.
Devel­op­ing Coun­tries
Devel­op­ing coun­tries will be required to make small­er cuts to mar­ket access bar­ri­ers in each of the tar­iff ‘tiers’. In addi­tion to being able to des­ig­nate ‘sen­si­tive’ prod­ucts that will be sub­ject to a “sub­stan­tial” lev­el of improve­ment in mar­ket access includ­ing an expan­sion of tar­iff quo­tas, devel­op­ing coun­tries will be per­mit­ted to des­ig­nate a ‘cer­tain num­ber’ of tar­iff lines as ‘spe­cial prod­ucts’ for which no quo­ta expan­sion will be required. They will also have access to a ‘spe­cial safe­guard mech­a­nism’ whose actions (block­ing imports to some degree on a tem­po­rary basis) will be defined in fur­ther nego­ti­a­tion.

fn1. The so-called Total AMS is the sum of all trade-dis­tort­ing pay­ments. ‘AMS’ stands for the ‘aggre­gate mea­sure of sup­port’: it aggre­gates pay­ments up to the sec­tor lev­el, for exam­ple all live­stock pro­grams. The Total AMS sums the AMS in every sec­tor: live­stock, grains, hor­ti­cul­ture etc etc. fn2.  A ‘floor’ lev­el of sup­port that is not sub­ject to any reform; the floor will be low­ered by this agree­ment fn3.  A cat­e­go­ry of pay­ments to pro­duc­ers that are part of a “pro­duc­tion lim­it­ing” pro­gram: these pay­ments are said to be ‘blue’ because they’re a sort of mix­ture of ‘green’ and ‘amber’ box pay­ments fn4. A tar­iff-quo­ta is a two-part tar­iff; one part has a high rate of duty—usually so high that it pre­vents com­pe­ti­tion from imports—and one part has a much low­er rate of duty. But the low duty rate is restrict­ed by vol­ume: after a cer­tain num­ber of tonnes import­ed (or units import­ed) the low rate of duty is no longer avail­able and any addtion­al imports must pay the high­er duty rate. Of course, this restricts imports to the ‘in quo­ta’ vol­ume in almost all cas­es. fn5. “Pro­files of Tar­iffs in Glob­al Agri­cul­tur­al Markets”:http://www.ers.usda.gov/publications/aer796/ (AER-796) page 25

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