2 Implementation of AoA and other WTO agreements

The focus of this section is on the experience with implementing commitments on market access, domestic support, export subsidies and the SPS Agreement - and not on the effects of their implementation. The experience with trade flows is reviewed in Section 3 and with food security in Section 4.

2.1 Market access

While bound tariffs are high on average, there are several exceptions. Not all developing countries have high bound tariffs on some or all agricultural products - contrary to prevailing views - despite the option they had in the UR to offer ceiling bindings generally. If 40 percent is arbitrarily taken as a threshold distinguishing between high and low bound rates, 13 of the 21 countries for which information is available had high rates (>40 percent) but eight of the 21, or one-third of the total, had low rates (40 percent or less; see Table 3). Bound rates in the group of countries with high bound rates varied between 50 percent (Sri Lanka) up to 200 percent (Bangladesh). Of the seven countries with low bound rates, some are classified as net agricultural exporters (Brazil, 35 percent; Philippines, probably around 30-35 percent; Thailand 36 percent), but a surprising number are net food importers (Egypt, initially 62 percent but reducing to 28 percent in 2004; Fiji, 40 percent; Peru, 30 percent; Honduras, 35 percent).

Applied rates are, on average, much lower than bound rates. On a very approximate calculation, the bound rate for those countries in the sample for which data are available averaged 84 percent, while the applied rate averaged 18 percent. In only two countries in the sample for which information is available are average bound rates similar to applied rates; in Thailand (where the average applied rate of 32 percent compares with an average bound rate of 36 percent) and Egypt (which committed to reducing its bound rates from 62 percent initially to 28 percent in 2004 compared with an average applied rate of 22 percent). If the sample is again divided into two, this time arbitrarily using 15 percent as the threshold between countries with high and low average applied rates, the average value for the group of countries with high average applied rates is around 20-25 percent. For those countries in the group with low applied tariffs, the average value is around 12 percent. Indonesia and Botswana stand out with average applied tariffs of only 5 percent and 6 percent, respectively.

There are at least four reasons why applied rates are so much lower than bound rates. First, in many cases, countries were deliberately cautious in committing the bound rates, to allow the maximum amount of flexibility in the future and possibly to maximize their negotiating leverage. By contrast, applied tariffs were low because tariff reforms, i.e. reduction and harmonization, had been ongoing for a decade or more prior to the conclusion of the UR.

Second, the regional integration process involving many developing countries in the 1990s has been particularly important in lowering applied tariffs. For example, in the Southern Common Market (Mercado Común del Sur [MERCOSUR]) negotiations, the maximum tariff on agricultural products was set at 20 percent, compared with Brazil’s bound rate of 35 percent on most agricultural imports and 55 percent for a range of important commodity staples. In 1997, as a result of the revision of the Common External Tariff (CET) of the Central American Common Market (CACM), the maximum applied tariff was set at 15 percent compared with Honduras’ general WTO binding of 35 percent. Jamaica applies the CET of the Caribbean Community (CARICOM) where the maximum tariff is 40 percent compared with Jamaica’s WTO bindings of 100 percent. In Peru, where applied tariffs are already below bound tariffs, the gap will widen further when Peru implements the Andean Common Market CET in the near future. Indonesia announced in May 1995 a long-run tariff reduction package (Pakmei ’95), which was of far more significance for its tariff schedule than the UR and which was, in part, a response to its commitments under APEC. A particularly striking case is Senegal, which, as a member of the West African Economic and Monetary Union (WAEMU) since January 2000, has lowered its top rate of tariff to 20 percent compared with its average bound rate (including other duties or charges [ODCs]) of 180 percent.

Third, some countries with large populations at or near poverty levels have not found it politically feasible to maintain high domestic food prices through tariffs. Fourth, some countries have been obliged to set applied rates much below their WTO bound rates because of loan conditionality.

Another striking feature is that developing countries, in many cases, have opted to continue reducing applied tariffs in the post-AoA implementation period. In the AoA, developing countries (with the exception of the least-developed countries) committed to reducing their bound rates by an unweighted average of 24 percent over ten years, subject to a minimum reduction of 10 percent in each tariff line. However, given the gap between bound and applied rates, such a commitment need not have required any reduction in applied rates over the implementation period. In fact, however, developing countries have continued to reduce their applied tariffs over this period. Examples include Costa Rica (where average applied tariffs were reduced from 17.1 percent in 1995 to 14.8 percent in 2000), Egypt (which has recently announced further measures to liberalize its trade regime), Fiji (which reduced its maximum tariff to 27 percent in its 1999 Budget and simplified its tariff structure), Honduras (which adopted the lower CACM CET in 1997), Indonesia (which accelerated its tariff reduction programme and which now has an average tariff for agriculture of 5 percent compared with the target of 13.2 percent for 2003 set out in its Pakmei ’95 programme), and Senegal (which lowered its top rate from 65 percent to 20 percent on applying the WAEMU CET).

While these continued reductions were due to loan conditionality in one or two cases (Indonesia being the main example among the case study countries), in most cases, these reductions were deliberately pursued by developing countries themselves as part of their chosen economic development strategies. It is important to point out that a reduction in applied tariffs does not necessarily mean that production incentives to domestic farmers have been reduced. In many cases, tariff reductions have been pursued in the context of exchange rate adjustments, which have more than compensated farmers for the reduction in tariff protection. Exchange rate devaluation is not an unmitigated blessing even for farmers producing import-competing or export crops as it also increases the cost of imported inputs necessary to take advantage of higher producer prices. But the point is an important one. Macroeconomic factors, such as the level of the exchange rate or of real interest rates, are often a more significant influence on agricultural production incentives than sectoral interventions such as tariff policies.

Table 3. Bound and applied tariffs

Source: Countries marked with an asterisk appeared in the earlier FAO study, and for these countries, the data are from 1999 or the most recent available year before that date. For other countries, the data are drawn from the national case studies commissioned in 2002.

While applied tariffs in many developing countries are often relatively low and falling, the dispersion of tariffs discussed in a number of case studies shows that some countries have difficulty “living with” the ordinary tariff in its simplest form for a number of products, notably basic foods. Tariffs on these products were often higher than average, and were often supplemented by additional measures such as surcharges and variants of price band policies. For example, Costa Rica, with an average applied tariff on agricultural products of 14.8 percent in 2000, applied a 57 percent import duty on dairy products and 150 percent on dark chicken meat. Brazil adopted higher bound tariffs for some goods such as wheat, corn, rice, cotton, beef and dairy, although these bound rates are now irrelevant because tariff policy is determined by MERCOSUR. Egypt retains high tariffs on poultrymeat. Fiji applied a rice tariff of 40 percent compared with the general 10 percent rate until its 1999 tariff reform, after which the new maximum rate of 27 percent was also applied to dairy and meat products. Indonesia applies higher tariffs on rice and sugar, which are exempt from its International Monetary Fund (IMF) commitment to apply zero tariffs to food items. In Senegal, applied rates are relatively high for fruit and vegetables, cotton and textile fibres, and sugar. Other products deemed sensitive, where a surtax was introduced to compensate for the removal of quantitative restrictions, include rice, bananas, onions, potatoes, millet, sorghum and corn. Price band schemes allow higher tariffs on maize, rice and sorghum in Honduras, and milk, maize, sorghum, rice and sugar in Peru. In some countries (Egypt, India, Indonesia), alcoholic beverages continue to be taxed very highly, often with tariffs of 150 percent or more.

The list shows that food staples feature prominently among the “sensitive” commodities but that the list is by no means confined to them. It also includes dairy products, meat (particularly poultry meat), sugar and alcoholic beverages. In fact, a number of developing countries apply particularly low duties to imported staple foods. These include Egypt (where applied tariffs on wheat, maize and groundnut oil were 1 percent in 2000) and Indonesia (apart from rice). India also had bound rates of zero percent for commodities such as rice, coarse grains and dairy products following commitments in earlier GATT rounds, but these were irrelevant because imports were controlled by quantitative restrictions (QRs) maintained on balance of payments grounds. When India eliminated QRs under pressure from other WTO Members, it renegotiated higher bound rates for these products (typically in the 40-60 percent range).

The large differences between bound and applied rates imply that most developing countries could continue to offer concessions on bound rates without this requiring further changes in applied rates. However, the evidence of higher tariffs on “sensitive commodities” implies that, in most countries, there are usually some commodities where applied rates are very close to bound rates. This suggests that developing countries might be interested in a tariff-cutting formula which targets an average cut but allows lower cuts on sensitive commodities. However, if the same formula applies to developed countries, the exception might be used by them to minimize tariff reduction on products of particular export interest to developing countries. Therefore, each developing country needs to undertake its own analysis whether it is more likely to gain or be damaged by exempting sensitive products from general tariff-cutting formulae. The additional protection gained for certain import-competing sectors must be weighed against the potential for continuing barriers in important export markets against domestic export-oriented sectors.

For those few countries where data were presented, it appears that tariffs tend to escalate by degree of processing, thus providing higher nominal protection to the processing sectors involved. For example, the tariff structure in Costa Rica is 10 percent for raw products, 13 percent for semi-processed and 20 percent for processing products. In Zimbabwe, the current structure of applied tariffs is also characterized by a three-tier structure with tariffs escalating according to the level of processing. Although the case studies do not provide sufficient data to draw a general conclusion, it is not unlikely that tariff escalation is a widespread feature of developing country tariff schedules as it is of developed country schedules. Such countries should be aware of the trade-offs (between protecting the importcompeting agricultural processing industry and creating additional opportunities for added value in export-competing sectors) implicit in different tariff-cutting formulae which differentiate between low and high tariff rates.

The evidence from the case studies suggests that QRs as a trade measure in developing countries are now a thing of the past. In the past, many developing countries relied on quantitative import restrictions, often implemented through marketing boards (State Trading Enterprises), to provide protection to domestic import-competing sectors. Under the AoA, all such non-tariff barriers had to be phased out, apart from import restrictions maintained on grounds of health, safety or moral conduct. Both Honduras and Peru had eliminated all non-tariff restrictions on imports, including quotas and QRs before the implementation of the AoA. In neither case did the country compensate for the elimination of QRs by raising import tariffs, that is, there was no tariffication of these past restrictions. In the Philippines, quantitative restrictions were removed but accompanied by a compensatory increase in tariffs, with the exception of rice.

Indonesia has reduced the number of commodities requiring import licences in response to its AoA commitment, although in practice, loan conditionality has been a more important driver. Senegal also introduced surtaxes during the UR in replacement of earlier import quotas. India, which had maintained QRs on balance of payments grounds, phased these out more quickly than it had originally proposed in the light of a dispute panel finding against it, but was able to renegotiate new bound tariffs of up to 80 percent on these commodities in return for opening TRQs. However, Malawi, faced with cheap imports of livestock products, particularly poultry meat, from South Africa and Zimbabwe under regional and bilateral trade agreements, has used the Southern African Development Community (SADC) Trade Protocol provision on “infant industry” production under pressure from local producers.

Relatively limited use is now made of state trading enterprises (STEs) with monopoly import powers in developing countries. In most countries in the sample, such marketing boards were shut down or their monopoly import powers withdrawn as a result of structural adjustment programmes pursued since the mid-1980s. There were only a few remaining instances in the case study countries. Indonesia notified the WTO that both the Indonesia Logistic Bureau (BULOG) and the Indonesian Clove Marketing Board (BPPC) operate as STEs within the meaning of Article XVII of GATT. In Egypt, STEs play a major role in wheat imports and cotton exports. Egypt is one of the largest importers of wheat in the world, and the General Authority of Supply Commodities (GASC), the STE, imports about three-quarters of Egypt’s import requirements. GASC bears the responsibility of purchasing domestic wheat as well as wheat imports both used to produce the 82 percent flour used in baking subsidized “baladi” bread used in Egypt’s food subsidy programme. In the case of cotton, the public sector companies export three-quarters of the total Egyptian cotton exports. Other cotton products such as yarn, fabrics, and garments are also largely exported or imported by STEs. In Zimbabwe, maize imports are solely undertaken by the Grain Marketing Board.

Commitments on the behaviour of STEs are governed by Article XVII of GATT. The commitment is to ensure that import purchases are non-discriminatory and that the margin between the domestic price and world price falls within the tariff binding for each commodity. The Indonesian case study notes that there may have been a few occasions in the case of sugar where the margin between the domestic price and world price has been close to Indonesia’s bound rate. The other case studies do not suggest that tariff commitments have constrained the operation of domestic STEs in any way.

Developing countries have quite diverse experiences in the management of tariff rate quotas. First, relatively few developing countries have opened tariff rate quotas - just five (Brazil, Costa Rica, India, Indonesia and the Philippines) out of the 23 case studies in the sample. The background to these TRQs is diverse; for example, in the case of the Philippines, it was a response to tariffication, whereas in the case of India, it was part of its deal to provide compensation to be allowed to increase bound tariff rates on certain commodities in post-AoA negotiations. The utilization experience has also been different. In some countries, such as Brazil and for some TRQs in the Philippines, the TRQs have been redundant because applied most favoured nation (MFN) tariffs have been lower than the inquota tariff rates. In the case of the Philippines bovine animal and beef TRQs, their abolition reflected pressure from the domestic cattle industry for lower tariffs on live cattle as well as recognition that the input needs of meat processors cannot be met by the local cattle industry.

Where TRQs are binding, as in the case of Costa Rica, India, Indonesia and some TRQs in the Philippines, utilization rates have been variable but generally limited. In the Philippines, this led to complaints from the United States about the non-filling of domestic pork quotas. The government responded that frozen pork products have a very limited demand in the domestic market where consumers prefer fresh meat. Administration of TRQs has also been diverse. Costa Rica has followed a rigorous MFN allocation principle based on trading TRQ allocation rights on Bolsa de Productos Agropecuarios (BOLPRO), a commodity exchange. In the case of the Indonesian rice TRQ, imports were the responsibility of BULOG, which had an import monopoly in any case. The Indonesian dairy TRQ was administered by adapting a local content scheme in which domestic and imported milk were mixed in a fixed ratio. TRQ quotas are allocated using milk absorption certificates based on the amount of domestically produced milk used in processed products.

The case studies demonstrate that tariffs are often the primary, if not the only, trade instrument open to these countries to stabilize domestic markets and to safeguard farmers’ interests in the face of sharp swings in world prices or a surge in imports. This was despite the fact that most case study countries have now implemented trade remedies legislation to address dumping and the use of subsidies by trading partners as well as legislation making possible the use of the emergency safeguards.

General safeguards (anti-dumping and countervailing measures, emergency safeguards, etc.) are necessary, given the volatility of agricultural trade. Brazil is one country that has implemented anti-dumping legislation and made use of it. In January 1999, the National Confederation of Agriculture (CNA) requested an anti-dumping investigation into imports of milk by Brazil. At the conclusion of the investigation, in February 2001, Brazil imposed an anti-dumping duty on imports of milk powder and whole milk from New Zealand, the European Union (EU) and Uruguay. Egypt introduced procedures to be followed regarding the application of safeguard measures as well as anti-dumping and countervailing duties in 1998. In 2001, Egypt initiated a countervailing and safeguard case with regard to powdered milk, where a safeguard margin of 45 percent was imposed on imports of powdered milk. Indonesia has also introduced new anti-dumping and countervailing duty procedures. While about 14 anti-dumping petitions have been filed to date, only one of these involved an agricultural commodity - wheat flour. Although there was a positive finding of dumping and injury in the case of flour, the Government has delayed the imposition of duties pending further investigation of Indonesia’s national interest.

Despite this evidence that some developing countries are able successfully to implement anti-dumping actions, extensive procedural requirements and conditions make these mechanisms difficult to use. As the Jamaican case study observes, the classic trade remedy instruments of the WTO are not user-friendly for small developing countries. The Honduran case study notes that the limited utilization of trade remedies legislation can be due to its complexity; the high cost of the process in relation to the magnitude of the market in dispute; and the limited capacity of the affected organizations or enterprises to provide the required information to justify the opening of an investigation, carrying out the studies, and doing the follow-up the WTO’s rules require. The Philippines case study points out that, despite the availability of such legislation, no action has been taken to counter the dumping of chicken leg quarters from the United States in the Philippine market, which is detrimental to the domestic broiler industry. Furthermore, some countries, such as Fiji, have yet to introduce anti-dumping legislation in line with the GATT owing to a lack of technical capacity and resources.

To address the problems inherent in using the classic trade remedies, the AoA introduced the Special Agricultural Safeguard, which is available to countries that had used tariffication to eliminate non-tariff border restrictions and explicitly scheduled it in their Schedule of Commitments. However, few case study countries had access to this provision because they had not used the tariffication option (among them Botswana, Morocco, Thailand). Costa Rica has the right to apply it in the case of black beans and rice, and used it recently to protect against very low-priced rice imports. In March 2002, the country placed a temporary import duty of 80 percent on paddy rice imported from the United States (when the normal tariff is 35 percent). The issue is currently under debate at WTO, where the United States has presented a query. Indonesia also has the right to use the special safeguard in connection with dairy products and cloves but, to date, has not done so.

In general, other developing countries that have the right to use the special safeguards (SSGs) have also not used it to date. This may be due partly to the technical conditions required to make use of it. To apply the safeguard, the current nominal price of imports in domestic currency should be lower than the corresponding average price effective during the 1986-1988 period, which was a period of very depressed international prices and of strong overvaluation of many developing countries’ currencies. This implies that the trigger price for these countries turns out to be very low in comparison with any current prices.

More important, possibly, is the wide margin, which many developing countries enjoy between their applied tariffs and their bound tariffs, thus allowing tariffs to be increased without having to appeal to the special safeguard clause. Fiji, for example, raised its tariff on meat products in 2002 from 10 percent to 27 percent. The relatively limited number of cases quoted in the case studies where developing countries have altered applied tariffs upwards may be because they experienced relatively few import surges of the kind where safeguard action would be appropriate. One country where there is some evidence of import surges that undermined domestic sectors (notably poultry, beef, dairy products and rice) is Jamaica (FAO, 2000). This issue is examined further in the following section, which also examines the evidence on trade flows post-AoA.

Of particular interest in this context are the price band schemes used by a number of Latin American countries, including Peru and Honduras among the case study countries. In Peru, application of the price band meant that 29 items were subject to variable specific duties intended as a price stabilization and protection mechanism. The scheme in Peru was one of variable tariffs, that is, a band “without ceiling”, until recently. In June 2001, a new price band system was established, affecting five product groups: milk, maize, sorghum, rice and sugar. The price band system in Honduras applies to maize, sorghum and rice. There is a danger that, if applied tariffs are adjusted regularly in response to changes in world market prices, then they will be interpreted as a variable levy whose use is not permitted under the AoA. There is a panel currently looking at price bands in Chile, which should clarify the rules in future.

2.2 Domestic support

Under the AoA, domestic support is divided into three main categories. The Green Box (GB) covers all outlays that are deemed not to be trade-distorting to any significant extent. The GB outlays must meet the two general criteria that the support is provided through a publicly funded government programme not involving transfers from consumers, and that it does not provide price support to producers. In addition, specific policy criteria must be met for a series of government interventions, which are set out in Annex 2 of the AoA. No limits are placed on GB expenditure in either developed or developing countries.

The Amber Box contains domestic supports, which are deemed to be tradedistorting. Two categories of support measures are included in this box; productrelated support (PS) directed to individual commodities and non-product-related support (NPS) available in principle to producers of a number or any commodity. The value of these trade-distorting supports is measured by the Aggregate Measure of Support (AMS) indicator. Developing countries committed themselves to binding their AMS levels at 1986-1988 levels and to reducing this AMS level by 13.3 percent over the period 1995-2004. LDCs had to bind their AMS level but were exempted from this reduction commitment. Countries without AMS support in the base period committed themselves not to introduce such support in the future and thus have no AMS entitlement. However, de minimis levels of domestic support could be ignored in the AMS calculation and are also permitted to countries without an AMS entitlement.

De minimis levels are defined as support up to 10 percent of the value of individual commodity production in the case of PS AMS and up to 10 percent of the value of aggregate production in the case of NPS AMS. Thus, in theory, even developing countries without an AMS entitlement can provide support up to 20 percent of the value of production (VoP) provided this support is distributed in such a way that no more than 10 percent of the VoP is provided as NPS AMS and that the remaining PS AMS does not exceed 10 percent of the value of production of each commodity. Countries which provided AMS support above de minimis levels in the base period have a greater flexibility in that they are required only to ensure that all AMS outlays are below their AMS ceiling, and they are not caught by the subceilings inherent in the de minimis rules.

In addition, developing countries can exclude investment subsidies which are generally available to agricultural producers and agricultural input subsidies generally available to low-income or resource-poor farmers as well as outlays designed to encourage diversification away from the production of narcotic crops - the Special and Differential Treatment provision. If half of all NPS AMS measures qualified for these exemptions, the theoretical maximum of AMS support which developing countries could provide to their agricultural sectors would increase to 25 percent of the value of production. It is very unlikely that, in practice, expenditure outlays could be so precisely targeted so as to utilize all the allowable legroom, and the practical ceiling on AMS outlays in developing countries is probably closer to 15-18 percent. GB expenditures are in addition to these.

Finally, developing countries took it upon themselves to notify the WTO regularly of their domestic support expenditures and the categories into which these fell. Of the total of 23 case study countries, only five submitted detailed information on support measures, i.e. GB outlays, PS AMS and NPS AMS levels and special and differential treatment (SDT) outlays. Only four of the case study countries have AMS reduction commitments (Brazil, Costa Rica, Morocco and Thailand). The reported AMS outlays in these countries were less than the de minimis levels. Most countries simply reported that their domestic support outlays conformed to the “exempted” categories (GB, SDT or de minimis). In a few cases, countries gave details of their GB measures and in some cases of their SDT measures as well. However, some countries failed to make any notification at all. The subsequent reporting of measures by the case study countries has also been rather patchy.

For those countries for which data are available (Table 4), the AMS levels for recent years have been well below the committed or permitted levels, with the “utilization ratio” on the higher side only for Thailand. Indonesia’s administered price for rice probably exceeds the de minimis standard. However, the Government lacks the resources to support domestic prices at the administered level. In other words, the system has been ineffective at providing farmers the full support implied by the administered price. In fact, a number of countries in the sample reported that not only AMS outlays but also GB outlays have been in decline owing to budget constraints. Brazil, for example, has eliminated many of the production subsidy programmes in place in the AoA base period, and even GB outlays have been declining because of fiscal constraints or changes in policies. Uganda, Jamaica and Senegal are other countries where limited resources prevent major support programmes. In the case of other countries, government support measures have been removed in the context of structural adjustment programmes (Zimbabwe). In the Philippines, trade-distorting subsidies are reported to be well below the de minimis levels. There has been a conscious effort in that country to phase out input subsidies in favour of more enduring support for productivity such as irrigation and market infrastructure.

Peru is an exception, where GB measures tripled between 1995 and 1997 to reach 5 percent of VoP. NPS AMS outlays have been fairly constant at around 6 percent of VoP. Peru does not appear to invoke the SDT exemption either because it is not necessary to do so or because most of this support goes to larger and more commercial farms. Its PS AMS level is zero. In the case of India also, unofficial estimates made in the case study suggest that there has been a steady increase in the level of NPS AMS once SDT has been accounted for. Its NPS AMS, which includes subsidies on irrigation, fertilizers, electricity, credit and seeds, was about 1.3 percent of the VoP during the base period after allowing for exemptions which are granted for resource poor farmers in developing countries. In 1995-1996, the NPS AMS was roughly 7.5 percent of VoP, but in the subsequent notification, this fell markedly to about 1.1 percent for 1996/1997 and 1997/1998, and by 2000/2001, the same worked out to be about 2.3 percent of VoP. The evidence from the case studies suggests that WTO disciplines have not proved constraining to the domestic support policies that developing countries want to implement. Budgetary constraints and previous commitments under structural adjustment programmes (SAPs) appear to be much more important in limiting these interventions.

Table 4. Summary of information on domestic support measures

Source: Countries marked with an asterisk appeared in the earlier FAO study, and for these countries, the data are from 1999 or the most recent available year before that date. For other countries, the data are drawn from the national case studies commissioned in 2002.

Although there were no cases of countries currently breaching the AoA rules and commitments, the case studies identified a number of particular issues that could be of significance for the future.

• In calculating market price support, external reference prices remain fixed based on the years 1986-1988. The problem of a fixed external reference price in the calculation of AMS assumes special significance because supporting tables in the original submissions that the member countries made to the WTO were expressed in domestic currencies. This has created problems in the calculation of AMS for developing countries where inflation rates are generally high compared with developed countries. The only reference to inflation in the agreement is in the Article 18:4, but there is no clarity as to what it implies.

• There is insufficient clarity in the agreement whether the quantity eligible to receive the administered price is total production, or only the marketed surplus which is actually sold in the market, or the quantity which is actually procured by the government through the price support mechanisms.

• Countries which do not have reduction commitments are eligible to raise their domestic support up to the de minimis level. But Article 13(b)(ii) of the AoA states that domestic support that conforms to the provisions of the agreement will be non-actionable only provided that such measures do not grant support to a specific commodity in excess of that decided during the 1992 marketing year. It is therefore not clear whether countries could use the de minimis level of support allowed in the agreement.

• Under Article 6.2, agricultural input subsidies generally available to lowincome or resource-poor farmers in developing countries are exempt from reduction commitments on domestic support. This also applies to domestic support granted to encourage diversification from growing illicit narcotic crops. The problem with this clause is: how does one define a low-income or resource poor farmer? No guidance is provided in the agreement.

A particular issue is the number of countries which have yet to make any notification of their domestic support outlays to the WTO. In large part, this appears to be due to the lack of technical capacity to undertake this onerous task. It is important that developing countries are enabled to undertake this, not only to fulfil their WTO notification obligations but also to facilitate their strategic thinking in the context of the current negotiations. Developing countries must be in a position to develop a view of how the AoA disciplines might constrain in any way the future implementation of agricultural development policy. As part of that exercise, it would be helpful to compute the threshold levels under various forms of support measures.

2.3 Export subsidies

Under the AoA, developing countries which had export subsidies in place in the base period committed to binding them and reducing them by 20 percent over the period 1995-2004. Developed and developing countries which did not use export subsidies in the base period committed not to use them in the future. However, an exemption for developing countries allows them to grant subsidies to reduce the cost of domestic marketing and international freight.

Export subsidization was generally not an issue among the case study countries. Most countries did not have the right to grant export subsidies, but this limitation was not generally seen as a problem, as export subsidies are not affordable for most developing countries. Countries which had used export subsidies in the past, such as Peru, Honduras and Senegal, had phased them out. Brazil and Indonesia, which have an entitlement to use export subsidies, have not used them in the post-AoA implementation period. In the case of Brazil, the two programmes included in its commitments, tax exemption for selected processed agricultural products and special sales of government stocks for exporters, no longer exist. Costa Rica is one country where the WTO disciplines were effective. To encourage exports, including agricultural exports, the country applied export subsidy certificates from 1994 to 2000 with the objective to motivate non-traditional exports. The programme was criticized because it benefited larger firms and also because it was misused to favour fraudulent export operations. The programme ended in 2000 as part of the country’s commitments at WTO.

However, a potential problem with the non-availability of export subsidies was raised in both the Indian and Indonesian case studies where countries operate stock-holding schemes for price stabilization purposes. Outlays for such purpose are classified as GB expenditure in the AoA. In India, the inability to sell abroad at less than the domestic price has become a binding constraint in the light of its huge surplus stocks of cereals, which are currently much above the stipulated norms for buffer stocks. Holding such a high level of stocks is expensive, but the options are limited. Releasing these stocks in the open market will lead to a significant fall in prices, which may benefit consumers in the short run but will have significant implications for future output growth and food security in the long run. Similarly, exporting at such low prices is also not feasible without resorting to direct subsidies which are not permissible.

Indonesia faced the same problem in the late 1980s and early 1990s, when there were occasions when BULOG needed to reduce stocks and exported surplus rice at less than the domestic price. In order to permit policy-makers as much flexibility as possible in regard to the future disposal of stocks, Indonesia made a commitment on export subsidies but, as noted above, has not subsidized exports of rice since implementation of the AoA.

A number of case studies mentioned the importance of continuing the developing country exemption, which allows them to grant subsidies to reduce the cost of domestic marketing and international freight. This was seen as potentially important in Senegal, for example, in view of the country’s high transport costs, particularly for fruit and vegetables.

Most case studies identified that countries had a range of general export assistance schemes in place, including, for example, tax rebates, duty drawbacks, tax exemptions, provision of subsidized export finance and export credit guarantees, which were also available to agricultural exporters. These schemes are not specifically referred to in the AoA but are addressed in the Agreement on Subsidies and Countervailing Measures (Annex 1: Illustrative list of export subsidies). As noted in the previous study,^[7] it is not entirely clear whether it is legitimate to grant such subsidies on agricultural products (by referring to the Subsidies Agreement) when all forms of agricultural subsidization (apart from the SDT provision) are prohibited by the AoA for those countries with zero export subsidy commitments. This is also an issue which requires clarification.

2.4 SPS Agreement - domestic obligations

The key principle underlying the SPS Agreement is that countries have the right to decide on the measures they deem necessary to protect human, animal or plant life or health. However, to prevent abuse, certain disciplines are applied. Measures should be based on scientific principles, should not be maintained without scientific justification and should not be applied in an arbitrary or unjustifiable way.

Two implementation issues arise for developing countries from this Agreement. One is the extent to which they had in place, or have been able to put in place, standards consistent with SPS principles and the extent to which they have received technical assistance for this purpose. A second issue is whether trade barriers put in place on SPS grounds have been accepted by other WTO Members, or whether other Members have perceived that developing countries have used SPS barriers for protectionist purposes. A third issue, the extent to which SPS barriers in export markets have damaged developing country exports to those markets, is considered later in Section 3 under the heading of export market access conditions.

The case studies indicate that many developing countries have either upgraded or reorganized their national SPS systems in response to the introduction of the Agreement. There is a greater awareness of the need for vigilance in protecting consumers from potentially unsafe food and of the need to protect plant and animal health. An example was the Egyptian ban in June 1999 on some food products from the EU that might be contaminated with dioxin, which affects mainly meat, egg and dairy products. The case studies reported only a very limited number of cases where SPS measures taken by developing countries had been challenged by other WTO Members. The Egyptian case study reported two SPS-related experiences regarding the importation of poultry products. One concerned a decree banning the importation of poultry parts because it was difficult to ascertain whether or not the imported parts came from poultry slaughtered in accordance with Islamic traditions. Indonesia used the same justification in banning the import of chicken legs from the United States. The second Egyptian poultry case related to the specification of a maximum moisture content of frozen poultry of 5 percent, which was considered by some WTO members to be well below the average moisture content permitted in many other countries. Egypt’s prohibition of beef imports with a fat content greater than 7 percent was also queried by some WTO members. Fiji, which has had problems with imports of low-grade sheepmeat products from New Zealand which it believes poses a major health problem owing to its high fat content, imposed a ban on mutton flap imports in 2000. The WTO legality of this ban has been contested by New Zealand meat exporters. However, the case study evidence suggests that such challenges to SPS measures taken by developing countries are still relatively rare.

2.5 TRIPS plant variety protection

The case studies did not provide an in-depth analysis of the experience with implementing Article 27(3) of the TRIPS Agreement, but a number of broad conclusions emerged. First, in a number of countries, legislative action is still awaited, and some case studies noted that the legal expertise and resources to develop and enforce this legislation is lacking. Second, the majority of countries where legislation has been introduced have opted to meet their obligations under this Article by a sui generis system, often deriving extensively from the 1991 Union for the Protection of New Varieties of Plants (UPOV) Convention. The rights of farmers and local communities as well as the plant breeders are usually recognized under this legislation. Third, many of the case study countries have expressed an interest in exploring the potential benefits of this legislation to protect traditional knowledge and farmers’ rights. There is a growing awareness of the value of the stock of knowledge concerning traditional medicines and plants, know-how and customs and of the value of obtaining intellectual property protection in commercializing this. Related to this, some countries have worried that overseas companies could use TRIPS protection in their home countries to effectively appropriate into private (and foreign) hands this traditional knowledge. The Indian case study, in particular, documents the way in which the Indian government fought to regain access to particular knowledge which had been patented by overseas companies in Europe and America. Fourth, there is a concern in many countries whether the balance of advantage from TRIPS legislation will be to their benefit or not. While a number of the case studies acknowledge that intellectual property protection is essential for making technological advances in agriculture, there are concerns about the higher cost of bio-engineered seeds, the monopolization of rents by multinational firms, and differential access of small and large farmers to these seeds leading to increased income inequalities and endangering food security at the household level. It will be important to keep these issues under review as more experience is gained about the operation of plant varieties protection legislation in developing countries in the future.