Paper No. 6
Measures to enhance agricultural development, trade and food security in the context of the WTO negotiations

I. Introduction

The rules and disciplines of the Agreement on Agriculture are intended to restrict the use by countries of policy measures that distort world agricultural markets. Nevertheless, there is still flexibility to use a wide range of policy options to pursue national agricultural policy objectives. For each country, the precise extent of this flexibility is determined by its specific commitments on market access, domestic support and export subsidies. With the next round of negotiations about to begin, concern has been expressed by many developing countries that their policy options for the future may be limited by the general provisions of the Agreement as well as by their specific commitments. These concerns, which are related to the issues at stake in the forthcoming negotiations, were reviewed in Paper No. 4. This paper continues that debate and identifies measures that developing countries may pursue in the forthcoming negotiations in order to preserve sufficient flexibility to achieve their agricultural production, trade and food security goals.¹

I. Domestic agricultural production

In the context of the Agreement on Agriculture, a country has basically two broad policy options to support domestic production and agricultural development: border measures, i.e. through tariffs, as long as they remain within the tariff bindings; and domestic support measures, i.e. price and non-price support to farmers, again within the limits of WTO rules and commitments.

As regards border measures, in general, bound tariffs of the developing countries on agricultural products are at a level sufficiently high to allow them considerable flexibility in stabilising domestic markets or protecting producers². However, there are some problem areas. For example, very few developing countries rationalised their bound tariffs and as a result a number of anomalies have been noted in their commitments³. For many net food-importing developing countries with large numbers of low-income households, raising tariffs has also limitations for socio-political reasons⁴.

As regards domestic support, the Agreement distinguishes several categories of measures: "amber" box measures (both product and non-product- specific), "green" and "blue" box measures, and (for developing countries) a special category of agricultural development measures. Of these, quantitative limits have been set only for amber box measures (through the AMS) - the exact amount depending upon each country's reported base-period (1986-88) AMS. Many developing countries reported a zero level base-period AMS. Regarding other measures, no limits on outlays have been placed; but there is a lack of clarity in the definition of these measures. As with bound tariffs, the extent of flexibility in the support of agriculture therefore depends upon what has been committed in the UR.

Besides the current WTO Members, flexibility for domestic support is needed also by developing countries negotiating their accession to WTO, particularly taking into account their developmental and food security concerns.

On both of these broad policy options, developing countries may need to pursue a two-pronged strategy. The first would be to remove some of the imbalances in existing provisions in the Agreement on Agriculture that have allowed considerable production and trade-distorting support by countries that can afford it. In this respect, the following reforms may be considered:

• Significant reductions in total AMS, as these have not been binding at all;
• Further limitations on switching support between products, preferably making AMS reduction commitments product-specific;
• Elimination or reduction of de minimis allowances for countries with large AMS levels;
• Tightening of the criteria for inclusion in the green box, including a more concise/measurable notion of what is "minimal effect on production and trade";
• Acknowledging blue box measures as trade-distorting and counting them under Current Total AMS for reduction purposes;
• Limitations on the applicability of Article 13 ("Peace Clause");
• Pushing for a substantial reduction or elimination of export subsidies that displace domestic production, with due consideration of possible negative effects (e.g. strengthening the Marrakesh Decision) in order to help food importers adjust to change.

The second component of the strategy would be to ensure that the developing countries have the necessary degree of flexibility to pursue agricultural development and food security policies. This may require clarifications/interpretations/adjustments to the current provisions of the Agreement on Agriculture, as follows:

• Allowing them the option of recalculating their AMS and revising their Schedules where deemed necessary;
• Higher de minimis allowances for non-product-specific AMS, especially when there is a large negative product-specific AMS;
• Granting some "credit" for negative product-specific AMS by excluding from the AMS calculation specific food security expenditures;
• Extension of the green box, on SDT basis, to include food security measures specifically for developing countries;
• Clarification of definitions and methodological problems, e.g. eligible production, excessive inflation, "low-income" and "resource-poor farmers";
• Allowing them the option of rationalising their tariff commitments on agricultural products and rebalancing tariffs (i.e. raising some tariffs, e.g. on sensitive commodities, and reducing others);
• Extending to all acceding developing countries the current (SDT) flexibility in respect of domestic support;
• Extending more financial and technical assistance (through international financial institutions and specialized agencies) to help them develop human resources, to meet SPS standards and to strengthen their legal and administrative capacity on trade issues.

III. Access to world markets

For a country dependent on agricultural exports, increasing agricultural export earnings is essential to economic development and food security, and particularly so for developing countries. Their combined share of agricultural exports is not only low (about 30 percent of the world total), but has also been stagnant, and many of them depend on the world market for satisfying much of their food needs. While the results of the UR have contributed to improving market access for products of export interest to developing countries, much remains to be done, including further reductions in tariff levels and tariff escalation, improved access to tariff rate quotas (TRQs), and curtailment of the use of safeguards and new non-tariff measures. Some reforms to be considered include the following:

• Reducing tariff peaks and tariff escalation on products of export interest to developing countries, which may require the use of a harmonization formula for tariff cuts;
• Eliminating the use of complex tariffs (including the banning of specific tariffs, as these give more protection to lower-priced imports);
• Expanding the TRQs and agreeing to rules for setting the in-quota tariff rate;
• Ensuring access to new TRQs for developing countries, also taking into account the specific interests of those currently benefiting from preferential access arrangements in developed country markets;
• Considering ways of compensating countries for the erosion of preferential tariff margins during the adjustment phase;
• Making the administration of TRQs more transparent so that developing country exporters are able to take advantage of new trading opportunities;
• Adding product specificity in minimum access commitments by disaggregating further the TRQs.

IV. Domestic market stability

The reforms outlined above should provide considerable room for increasing domestic food production. Improved market access and other related reforms should contribute to raising export earnings, which are fundamental for improving the capacity to import food, particularly by LDCs and NFIDCs.

Although these reforms can be expected to contribute somewhat to the stability of global agricultural markets, these markets are by nature volatile. There are general WTO provisions for stabilising domestic markets (e.g. anti-dumping and safeguard measures), but they are not useful for many developing countries, which need more accessible and simpler instruments. Thus, the following reforms may be sought:

• If the time allowed for recourse to special safeguard measures were to be extended, it would be only right that this facility be available to all WTO members, but perhaps only for a limited number of sensitive basic foodstuffs and perhaps only with some tightening of "triggers" so that there is no abuse;
• Support the use of price bands as a means of cushioning the impact of world market variability on the domestic market, i.e. for stabilization and not for protection;
• Seek exemption from AMS disciplines of expenditures related to the acquisition and maintenance of food security stocks;
• Seek to strengthen Article 12 of the Agreement on Agriculture by supporting the prohibition of export taxes in addition to export bans.

V. Complementary measures

The Marrakesh Decision

The Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least Developed and Net Food-Importing Developing Countries calls for assistance to be given to these countries if they are adversely affected by the reform process. To date, there has not been any concrete benefit stemming from the Decision. Accordingly, LDCs and NFIDCs could aim to include, in a revised Decision, provisions that would make it more effective and responsive to their needs:

• Establish the Decision as a legally binding instrument on an equal footing with other commitments under the Agreement on Agriculture;
• Establish mechanisms, that would allow LDCs and NFIDCs to become automatically eligible for assistance when world market prices rise above a certain level;
• Seek to set up an on-going programme or fund to provide financial and technical assistance to LDCs and NFIDCs in order to improve their agricultural productivity and infrastructure and reduce their dependence on food imports;
• Seek to clarify the role of the WTO in the implementation and monitoring of compensating measures, through, for instance, the creation of institutional mechanisms and mandatory notification requirements.

Capacity building

Finally, despite improvements in recent years, the participation of many developing countries in multilateral trade negotiations remains weak and their capacity to implement the various agreements and to take advantage of trade opportunities is limited. Clearly, much needs to be done in this area to level the playing field. Technical and financial assistance on capacity building is essential, some of the priority areas being as follows:

• Strengthening the capacity of developing countries in multilateral negotiations, assisting them to deal with problems they confront in their effort to keep pace with their WTO commitments and to take advantage of trade opportunities;
• Assisting non-members of WTO to achieve accession on terms consistent with their development and food security needs;
• Implementing the Integrated Framework for trade-related technical assistance to LDCs as recognised in the Plan of Action for the Least Developed Countries adopted in Singapore in December 1996 by the first WTO Ministerial Conference.⁵

1 Many of the suggestions included in this paper were expressed by participants from developing countries in a series of regional and other seminars organized by FAO in 1998 and 1999.

2 High tariffs are not unique to the developing countries - developed country tariffs on many temperate-zone products are even higher.

3 One such anomaly is that several of them committed themselves to an across-the-board tariff rate, often at relatively high rates, e.g. 100 percent. While such a commitment could be useful for some sensitive products, it has no value for many other products. Similarly, some countries bound their tariffs at such low levels that border measures offer little room for stabilisation and/or protection in years of depressed world markets.

4 Higher tariffs imply higher prices not only for domestic producers but for consumers as well. It may be argued that a possible remedy for this dilemma is to use the customs revenues generated from tariffs to target food insecure households, while allowing producers to benefit from higher domestic prices. Such an option, however, requires good administrative capacity to identify households in need (thus minimising leakage) and an institutional infrastructure to implement resource transfers to them in a cost-effective manner.

5 See document WT/MIN(96)/14, Geneva, 1997.