Contents - Previous - Next

Other policy responses to trade problems

Agricultural support and protection

In the OECD countries, total policy-induced transfers to agriculture from consumers and taxpayers, rose to $354 billion in 1992, some 7 percent more than in 1991. The EC, Japan and the United States increased transfers by almost equal amounts, whereas for most other developed countries they fell from 1991 to 1992, and by more than 10 percent in Australia, Canada, Finland, New Zealand and Sweden.

The estimated Producer Subsidy Equivalents (PSEs) also indicate an increase in the support to agricultural producers in the OECD countries as a whole. The net total PSE increased from $175 billion in 1991 to $180 billion in 1992, a 2.5 percent increase. Measured in domestic currencies, however, the net total PSE increased in only two countries, Japan and the United States. Expressed as a percentage of the value of agricultural production at the farm gate, the PSE measure for the OECD area as a whole remained at 44 percent in 1992, the same as in 1991. However, the percentage PSE again differed widely between countries, ranging from 3 percent for New Zealand to 75 percent for Switzerland and 77 percent for Norway.

Livestock products continued to account for the bulk of the total support in the OECD area, $109 billion out in 1992 of the total $180 billion. This support rose by 3.5 percent between 1991 and 1992 compared to a one percent increase in support to crops during the same period. Milk continued to receive the largest support in absolute terms at $55 billion, followed by beef and veal at $36 billion, rice at $23 billion, coarse grains at $18 billion and wheat at $17 billion.

Certain moves toward more liberalization in agricultural trade continued in 1992-1993, both in OECD countries and in the developing countries, at unilateral and regional levels. Some of the most ambitious trade measures are being taken by a number of developing countries and the former centrally planned economies.

GATT dispute settlement

Contracting parties to the GATT have continued to make extensive use of the Agreement's dispute settlement procedures. Requests for consultations under the GATT rose to 26 in the 12 months ending in September 1993 from 11 in the previous year. Recent requests for consultations concerning trade disputes in agricultural products were made with regard to: EC restrictions on imports of apples by Chile and lemons by Argentina; United States' proposed legislation imposing a 75 percent local content requirement on tobacco for the manufacture of cigarettes, by eight developing countries; Argentina's restrictions on canned peaches from Greece and dairy products from the EC, by the EC; and EC export subsidies on glacé cherries, by Australia.

Independent dispute panels to probe eight new trade complaints were established in the 12-month period ending in September 1993, the same as in the previous year. As regards agricultural products, disputes at the panel stage included: Argentina's negotiating rights with the EC on oilseeds; United States restrictions on imports of tuna caught inconsistently with US laws protecting dolphins, brought by the EC and the Netherlands; United States restrictions on softwood lumber and salmon, brought by Canada and Norway respectively; Australia's restrictions on imports of glacé cherries, brought by the EC; the EC's import regime for bananas brought by five Latin American countries; Brazil's restrictions on imports of milk powder, brought by the EC; EC restrictions on imports of pork and beef, brought by the United States; and Canada's restrictions on imports of beer and boneless beef, brought by the United States and the EC respectively.

The overall effectiveness of the GATT dispute settlements system was the subject of numerous complaints at meetings of GATT's Council. Complaints mainly concerned delays in the adoption of panel reports, non-implementation of adopted panel reports in a number of longstanding disputes, and unilateral measures and countermeasures by parties to disputes. These difficulties were reflected in a fall off in the number of panel recommendations adopted by the GATT Council. In the 12-month period ending in September 1993 only one panel recommendation was adopted compared to eight in the previous period, and as many as 12 of the previously adopted panel reports had not been implemented. Concerning agricultural products, ongoing disputes on the pace of implementation of panel reports included recommendations to the United States on alcoholic and malt beverages and on imports of sugar, to Canada on certain alcoholic drinks, to the Republic of Korea on imports of beef and beer, to the EC on oilseed subsidies, and to Japan on imports of certain agricultural products. In some cases countries made their implementation of panel recommendations conditional to a successful outcome of the Uruguay Round. Historically, however, the GATT system of settling international trade disputes has been relatively effective according to a recent study of 207 complaints, including 89 concerning agricultural products, put before dispute settlement panels from 1948 to 1989. Four out of five valid complaints were dealt with successfully according to the study. This high rate of success in resolving complaints was the same for both manufactures and agricultural products, although more of the agricultural complaints were sustained by panel reports. As regards GATT panel failures, the study found that a high percentage of them dealt with disputes over anti-dumping actions or countervailing duties.

GATT, the environment and trade

In 1993, the GATT Group on Environmental Measures and International Trade continued discussion of the transparency of trade-related environmental measures, consistency of multilateral environmental agreements with GATT rules, and labelling and packaging issues.

As regards multilateral transparency of national environmental regulations, the Group concluded that in order to avoid conflict between trade and the environment, adequate and timely notification of all measures likely to have a trade effect was crucial. There was a general consensus that transparency in this area should not be more strict than in other areas; that the measures to be notified to GATT should have substantial trade effects; and that there was a need to establish trade-environment national contact points.

Two possible options have emerged on how GATT could deal with trade provisions in existing multilateral environmental agreements (MEAs): (i) a collective interpretation of GATT Article XX that would provide a general exception for agreements that reflected genuinely multilateral consensus; and (ii) a case-by-case granting of waivers under Article XXV. Available evidence indicated that conflicts between trade measures in MEAs and GATT rules have arisen only in exceptional situations. Of 152 such agreements reviewed by the GATT Secretariat, only 17 contained trade provisions, and of those, only 2 appeared to treat parties and non-parties to the agreement differently. The general consensus in the Group was that should trade policy measures be found necessary for the enforcement of environmental objectives, then certain principles should apply, including: non-discrimination; necessity, that is to say the trade measures taken must be necessary to prevent developments in trade from undermining the objectives of the MEA; proportionality, implying that trade measures pursuant to the MEA should not be more severe and should not remain in force any longer than necessary to achieve their environmental objective; and choice of the least trade-restrictive measures. There was also general consensus that unilateral action to deal with environmental problems outside the jurisdiction of an importing country should be avoided; and that action on "process and production methods" (PPMs) as well as transborder and global environmental problems should, as far as possible, be based on international consensus.

Packaging and labelling requirements generated the most specific discussion in the Group, partly reflecting the fact that new packaging and labelling regulations had already had an impact on international trade. In the past, packaging requirements focused on public health and safety concerns. New and important environmental considerations include the reduction of packaging material entering the waste stream and the resource intensity of packaging. The variety of packaging requirements and regulations that exist in different countries appeared to reflect, to a large degree, differences in nations' endowments of materials from which to manufacture packaging and of disposal facilities to deal with the waste, as well as differences in the preferences of industry and consumers. As regards eco-labelling schemes, transparency though timely and detailed notification of labelling requirements would minimize possible restrictive effects on trade.

Environmental protection measures

An increasing number of countries have made environmental protection measures an integral component of their agricultural policies in recent years. This trend has been more widespread in the developed food exporting countries where a relatively small farm sector and abundant production of food permit governments greater flexibility in diverting arable land from farming into more environmentally-friendly land uses, and in the provision of adequate public spending to support such measures. Measures initiated or implemented during 1992-93 in developed countries are summarized below.

In Australia, the Government launched a National Landcare Programme (NLP) in 1992 which consolidated ongoing land, water and revegetation programmes and empowered farmers to address their problems of land degradation collectively through Landcare Groups. By end-1992, the Government had allocated about A$63 million ($43 million) to some 1 300 approved Landcare projects. In Austria, the "Green Fallow" programme, which pays farmers for leaving land fallow and promotes soil conservation and other environmental protection objectives, was continued in 1992/93. In addition, the fuel tax refund scheme was abolished as of January 1992 and replaced with a Federal premium scheme rewarding crop rotation that is beneficial to the environment. Similarly, restrictions have been placed on the upper limits of fertilizer use. The Government also raised payments for farming using approved "organic" methods from 2 million schillings ($0.18 million) in 1991 to 56 million schillings ($5 million) in 1992. In Canada, the Green Plan Sustainable Agriculture Initiative was provided with a further C$170 million ($134 million) for promoting soil conservation and alternative sources of energy. Funding was also raised to implement improvements in the regulatory system for pesticides.

In the European Community, a number of agri-environmental and re-afforestation measures were announced in 1992 as part of the reform of the Common Agricultural Policy. In addition, several countries of the Community undertook other measures aimed at this goal. Thus in Denmark, farming is prohibited within two metres of water edges for which no compensation is paid; in the Netherlands, farmers' use of chemical soil disinfectants has been restricted since 1 February 1992 to once every four years and then only with prior authorization.

In Finland, amendments were made to the environmental programme introduced in 1992. Accordingly, in place of a general fertilizer levy, farmers now pay a levy according to the nutrient contents of fertilizers. Extra compensation was paid in 1993 to farmers who grew "green fallow" crops that were not allowed to be harvested. In addition, organic farming was further promoted through increased payments. In Norway, environmental measures were expanded to meet objectives such as landscape conservation, protecting biodiversity and promoting "ecological" farming. The levies on nitrogen and phosphate fertilizers were raised by 3 percent. In Sweden, environmental protection measures were strengthened within the framework of the 1990 Food and Agricultural Policy. For 1992/93, 250 million kroners ($35 million) were allocated to support a programme on "open and varied" agricultural landscape. Considerable progress was also made in reducing the quantities of chemical fertilizers and pesticides used in farming. In Switzerland, two new payment schemes, covering extensive cereals production and grassland use, were introduced in 1992/93 to discourage the intensification of farming.

In the United States, the largest environmental protection programme remains the Conservation Reserve Program under which about 15 million hectares of cropland susceptible to erosion have been emoted for a minimum of 10 years since 1986. Several related provisions of the 1990 Farm Act were also implemented, or expanded, in 1992. Thus, the Integrated Farm Management Program Option, which encourages resource-conserving crop rotations, was expanded in 1992 to a maximum of 2 million hectares, of which about 40 000 hectares had been enroled by the end of 1992. Similarly, the Agricultural Water Quality Protection Program, which aims to reduce nonpoint source agricultural pollutants through modification of management systems, came into effect in 1992.

Developments in regional trading arrangements

Since the early 1990s regional integration activities have intensified, In the European Community, the establishment of the Single European Market in January 1993 marked substantial progress with removal of customs controls on trade between member states. Subsequent ratification of the Maastricht Treaty by the EC's 12 member states established a number of longer term objectives towards their economic union in the fields of fiscal, monetary and socio-economic policies. Its provisions also established a common framework and objectives for policies towards developing countries. In these and other matters the Maastricht Treaty extended the realm of integration of the 12 members' policies and created the European Union (EU).

The European Economic Area (EEA) became effective at the start of 1994. The EEA was formed by the treaty between the EC and members of the European Free Trade Association (EFTA) except Switzerland and Liechtenstein. The EEA builds upon the free trade agreements concluded between each of the EFTA countries and the EC in 1972 and 1973, and has led to virtually free movement of non-agricultural goods, services, capital and labour between member States. Intra-EEA tariffs will also be removed from a small number of agricultural products. In addition, adoption of the EC's Common Agricultural Policy (CAP) by EFTA countries over a 5 year transition period was expected to reduce agricultural production in these countries. The most sensitive agricultural sector in the ECEFTA enlargement negotiations would be dairying which is one of the most highly protected sectors in both regions,

The Central European Free Trade Area (CEFTA) was established in December 1992. The agreement covers some agricultural items, mostly negotiated bilaterally. Liberalization of tariffs and quantitative restrictions would be done in three stages between March 1993 and 2001. There were also various agreements between the EC and Hungary, Poland, the Czech Republic, the Slovak Republic, Bulgaria and Romania, which were expanded by parallel arrangements with EFTA countries in 1993.

The North American Free Trade Agreement (NAFTA) was ratified in 1993 to come force at the start of 1994 and to be fully implemented by 2008. NAFTA sets out separate bilateral undertakings on cross-border trade in agricultural products, one between the United States and Mexico and the other between Canada and Mexico. In general, the agricultural rules of the existing Canada - United States Free Trade Agreement on tariff and non-tariff barriers will continue to apply. The major agricultural issues addressed in NAFTA are nontariff barriers, tariffs, safeguards for producers, rules of origin, and sanitary and phytosanitary regulations. Other NAFTA provisions of relevance to agriculture include dispute settlement procedures, investments, intellectual property protection, and transportation. Although it is too early to assess fully the effect of NAFTA on trade of agricultural products, it is expected that the Agreement will stimulate economic growth, particularly in Mexico, possibly resulting in trade creation within NAFTA countries for commodities such as vegetables and fruits, beverages, tobacco, and some cereals. The United States introduced some tariff preferences in favour of Bolivia and Colombia in 1992 under its Andean Trade Preference Act (ATPA) of 1991. Duty-free treatment would be given to all products with the exception of textiles and apparel, footwear, certain leather products, canned tuna and rum. These preferences were scheduled to last until December 2001 and could eventually be extended to Ecuador and Peru.

Membership and Nature of Selected Regional Trade Arrangements

In Latin America and the Caribbean, members of the Southern Common Market (MERCOSUR) agreed to establish a common external tariff of 20 percent for most products with tariff reductions to start in June 1993 and to reach free trade by the end of 1995. The Organization of Central American States was replaced by the Central American Integration System (SICA) in February 1993 and members signed the Panama Agricultural Agreement to eliminate existing trade barriers affecting regional agricultural trade, and to harmonize tariffs on maize and sorghum. In the Andean Group the free trade area officially entered into force at the end of 1992 and in March 1993 their Commission of the Cartagena Agreement approved a common external tariff to be applied in 1994 (Bolivia and Ecuador have until 1995), and a full common market by 1995. Some progress has made in the Caribbean Community and Common Market (CARICOM) towards establishing a common external tariff regime, which should enter into force before 1995.

In Asia, the Association of South-East Asian Nations (ASEAN) launched programmes for establishing the ASEAN Free Trade Area, by the year 2008 and a Common Effective Preferential Tariff scheme was implemented on January 1993. Since then, some member countries have made unilateral cuts in tariffs. Member countries subsequently agreed to bring forward the full implementation of tariff reductions to 1 January 1994. The South Asian Association for Regional Cooperation (SAARC) member countries established a SAARC Preferential Trading Agreement at a summit meeting in early 1993, as a first step towards higher levels of trade and economic cooperation in the region. The Asia-Pacific Economic Co-operation (APEC) expanded its members by accession of Mexico and Papua New Guinea in November 1993. In addition, the Economic Cooperation Organization (ECO) adopted preferential tariffs to facilitate trade among member countries in April 1993. The ECO was initially formed by the Islamic Republic of Iran, Pakistan and Turkey in 1964 and was recently joined by Afghanistan and six newly independent Asian republics of the former USSR.

In Africa there were also some moves towards regional integration. In November 1993, the 18 member states of the Preferential Trade Area (PTA) signed the treaty aiming at establishing a Common Market for Eastern and Southern African states by the year 2000. In West Africa, the Economic Community of West African States (ECOWAS) has launched programmes for attaining a free-trade area by the year 2000.

Changes in trade preference schemes

One of the more important developments during 1992-93 was the extension of the General System of Preferences (GSP) to the Eastern European countries to facilitate their transition towards market economies. Changes in the other donors' GSP schemes, relating to the developing countries, are detailed below.

Canada added Cambodia, Liberia, Madagascar, Mozambique, the Solomon Islands, Zaire and Zambia to its list of least developed beneficiary countries from 9 March 1993. Sweden's GSP scheme was extended to Brunei Darussalam in 1993 and Uganda, owing to its status as a least developed country, was granted preferential treatment for all its products. Switzerland added Cambodia, Madagascar, the Solomon Islands, Zambia and Zaire to its scheme. Duty-free imports of GSP-eligible items by the United States rose 22 percent in 1992 to $16 700 million from $13 000 million in 1991. The comparable increase in the United States' total imports from all countries was 2 percent. In addition, approximately 22 percent of all imports from GSP beneficiary countries had also entered the United States MFN duty-free. In 1993 the European Community scheme was extended without change, at least as far as its structure was concerned. The Community also decided in 1993 to extend the MFA textiles section of its scheme to Viet Nam, and to add Cambodia, Liberia, Madagascar, the Solomon Islands, Vanuatu, Zaire and Zambia to the list of those countries benefiting from the conditions applied to the least developed nations.

Compensation and stabilization arrangements

Developing countries purchased some 100 million SDR under the IMF Compensatory and Contingency Financing Facility (CCFF) in 1992 and even less in 1993. In contrast, annual average purchases in the 1980s were about 1000 million SDR, resulting in average repayments during the 1991-93 period of about the same amount annually. Further, the cereal import facility has only been used once in the 1990s. Reduced use of the CCFF was in part due to the availability of cheaper credit under the Structural Adjustment Facility (SAF) and the Enhanced SAF (ESAF) to low-income countries undertaking structural adjustment programmes. The IMF has encouraged countries to use the SAF and ESAF recognizing that balance-of-payments difficulties are largely due to structural problems and can no longer be treated as short-term, reversible fluctuations in export earnings for which the CCFF was meant to be the response,

The financial resources allocated to the EC's STABEX system under Lomé IV (1991-95) amounted to 1500 million ECU (1400 million SDR). Even with more than half of these resources transferred during 1991 and 1992, some 877 million ECU (812 million SDR), they represented a coverage of only 35 percent of estimated ACP shortfalls. Some 80 percent of transfers in this period were for shortfalls in coffee and cocoa export earnings. Thus, STABEX resources have been chronically short of the demand made upon them in the prolonged period of depressed prices and earnings of intended beneficiary countries.

Switzerland's compensatory financing scheme continued to benefit certain developing countries exporting to that country. The initial 1989 allocation of 40 million Swiss Francs (20 million SDR) earmarked for this programme, was increased in 1990 to 90 million Swiss Francs (49 million SDR) for a four-year period starting in 1991, for financing either as part of multilateral co-financing or under a bilateral agreement.

Common Fund for Commodities: more projects approved in 1993

The Fund's decision-making body on projects approved 13 projects in 1993 bringing the total endorsed under its Second Account operations to 19. Of these projects, six were sponsored by International Commodity Bodies (ICBs) serviced by FAO of which one had certain provisions attached before funds would be committed. The budgets of these 6 projects add up to about $19 million. The Common Fund's share would be just over one third, the remaining two thirds coming from co-financing by other donors, including the World Bank, and counterpart contributions by participating countries and national or international research institutions. The First Account of the Fund remained dormant although the search for ways to utilize its resources continued.

Contents - Previous - Next