Developing Countries and the Doha Round Agricultural

NegotiationsLecture 25

Economics of Food MarketsAlan Matthews

Topics and outline

• The concept and justification of Special and Differential Treatment (SDT) in the WTO

• What SDT was agreed in the Uruguay Round Agreement on Agriculture?

• Developing country demands in the Doha Round – the ‘Development Box’

• Should SDT be differentiated between developing countries? (not covered)

• How important is preference erosion?

The concept of special and differential treatment

• SDT began with respect to trade in manufactures

• Defined as preferential access to IC country markets…

• …and ability to protect domestic industry• Justified by an economic philosophy and

system - ‘infant industry industrialisation’• Subsequently undermined by the

‘Washington consensus’

The concept of special and differential treatment

• SDT changed in the Uruguay Round– In Tokyo round, developing countries could

opt out of negotiated codes– UR was negotiated as a ‘single undertaking’– Implies all GATT/WTO members should adopt

the same rules– SDT moved towards proportional

commitments, implementation flexibilities, longer transition periods, technical assistance

The legal status of SDT in the WTO

• The 1979 Enabling Clause– Acknowledges two categories eligible for

SDT: developing countries and least developed countries

– Developing country is a self-declared status– LDCs are a UN-defined list revised every 3

years

Special and differential treatment in agriculture

• Uruguay Round Agreement on Agriculture• commitments under the reform programme

should “[have] regard to the agreement that special and differential treatment for developing countries is an integral element of the negotiations, and [take] into account the possible negative effects of the implementation of the reform programme on least-developed and net food-importing developing countries”.

Special and differential treatment in agriculture

• Doha Ministerial Declaration (Paragraph 13)“special and differential treatment for developing countries shall be an integral part of all elements of the negotiations […] so as to be operationally effective and to enable developing countries to effectively take account of their development needs, including food security and rural development.”

Special and differential treatment in agriculture

• July 2004 Framework Agreement“Agriculture is of critical importance to the economic development of developing country Members and they must be able to pursue agricultural policies that are supportive of their development goals, poverty reduction strategies, food security and livelihood concerns”.

• SDT now justified to enable developing countries to address their food security and rural development objectives

Why SDT in agriculture?• Underlying the Development Box is the belief that

indiscriminate trade liberalisation adversely affects food security, undermines the rural poor and increases inequality

• Difficulty is that there is much less agreement about the validity of this paradigm, and in particular, the role of government in agricultural development

• Global models suggest the biggest gains to developing countries come from their own liberalisation efforts, not those of OECD countries

The normative dilemma

• “Especially in the circle of trade negotiators and policy makers, there is a tendency to associate less binding commitments with positive experience, in which case a negative experience would be where the rules and commitments restricted actions”– Sharma, 2002 (italics in original)

• Others see the great contribution of WTO disciplines as locking in policy reforms

Special and Differential Treatment provisions in the Uruguay Round

SDT in the UR Agreement on Agriculture

• General provisions– Commitments two-thirds those of developed countries

in the market access, domestic support and export subsidy pillars

– Longer 10 year transition period• Green Box

– Higher de minimis (10% compared to 5%)– Government stockholding for food security purposes– Article 6.2 exemptions- Investment subsidies which are generally available to

agriculture, agricultural input subsidies generally available to low-income or resource-poor producers, and support to encourage diversification from growing illicit narcotic crops, are exempt from domestic support reduction commitments.

SDT in the UR Agreement on Agriculture

- Export subsidies- Allowed marketing subsidies on exports plus

more favourable internal transport costs on exports

- Marrakesh Decision in favour of Net Food Importing and Least Developed Countries- Best endeavours to provide increased food

aid and technical assistance

Do existing S&D provisions provide insufficient policy flexibility?

• Current AoA provides for various measures of policy flexibility – 9 provisions in all (Table)

• Developing countries rarely using all the potential flexibility in setting applied tariffs or domestic subsidies..

• … but there are individual exceptions…• … and disciplines could begin to bind

following a further round of reductions

Use of S&D flexibility - examples

• For 32 developing countries, applied rates average 20% vs. bound rates of 84%

• Limited use either of general safeguards (only 7 instances 1995-2001) or special safeguards (rarely invoked by the 21 eligible developing countries)

• TRQs – often not binding (in more than half cases, applied tariffs implemented)

Use of S&D flexibility - examples

• Export subsidy exemptions – minor use• Domestic subsidies

– Countries with AMS commitments• PS – generally 25-30% of commitments (but

Thailand)• NPS – generally around 2% of value of production

(but India and Peru)– Article 6.2 subsidies generally < 1% value of

production

The Development Box proposal

Developing country demands in the Doha Round

• Developing countries felt the URAA represented an unbalanced set of obligations and failed to address marginalisation especially of LDCs in world trade

• Got commitment to strengthened SDT as condition for launching Doha Round negotiations

• Conflicting views on how to progress the SDT agenda between developed countries promoting a cross-cutting conceptual approach and developing countries tabling specific changes to SDT provisions adopted during UR

Developing country demands in the Doha Round

• Within the agricultural negotiations, demands crystallised in the proposals for a Development Box (Food Security Box)

• Justified as necessary to support food security, rural development and poverty alleviation objectives

• Designed to increase the ‘policy space’ available to developing countries

• Pursued by different developing country coalitions in the Doha negotiations– G20– G90– G33

Some Development Box proposals

• Market access– Exempt (food security) products from tariff

reductions or from tariff disciplines– Allow (food security) products to be defined

on a positive or negative list approach– Allow special safeguards for (food security)

products– Exempt developing countries from obligation to

provide minimum market access

More Development Box proposals

• Domestic support– Expand Article 6.2 exemptions for Green

Box policies– Increase de minimis product- and non-

product-specific support thresholds– Protect domestic subsidies from challenge

• Export measures– Allow greater flexibility to developing countries

to provide export subsidies in certain circumstances

Market access – tariffs• Four distinct justifications

– The idea of development tariffs, to provide incentives to encourage agric growth

– The idea of food security tariffs, to maintain high food self-sufficiency as a food security measure

– The idea of stabilisation tariffs, to allow applied tariffs to vary to offset world market price volatility

– The idea of compensatory tariffs, as a form of countervailing measure

Market access - tariffs• Allow more gradual tariff reduction

commitments for food security products…

• … but do not exempt from reduction commitments altogether..

• …except for tariffs already below a minimum threshold as long as world markets remain distorted

• Leave renegotiation of existing low bound tariffs to existing GATT procedures

Market access - safeguards

• If tariff disciplines are retained, there is a stronger case for flexibility on safeguards

• Justification is:– The vulnerability of low-income food-insecure

households– The absence of alternative risk management

and safety net instruments– Unworkability of other WTO options

Market access - safeguards

• Make available a special safeguard clause to developing countries for food security products– Avoid requirement for proof of injury– Be time limited– No compensation should be required– Permanent mechanism

Domestic subsidy commitments• Note interdependence between exempting

Amber Box policies under Art. 6.2 and raising the de minimis threshold for Amber Box policies

• Amber Box– Retain and broaden Article 6.2 exemptions where

justified– Maintain but do not increase the de minimis

thresholds…– …though permit crediting of negative non-product

specific support against positive product-specific support

Criteria to evaluate Development Box proposals

• Would it really help to improve food security, alleviate poverty and promote sustainable agricultural growth?

• Would additional policy flexibility be used?• What ‘price’ might have to be paid?• Would protective measures undertaken

under the cover of a DB adversely affect other developing countries?

Treatment of developing countries in the Framework Agreement and Hong Kong

Draft Declaration

SDT in the Doha Round• Market access

– Tiered formula, sensitive products, SDT elements– Special Products– Special Safeguard Mechanism– Treatment of least developed countries LDCs

• Domestic support– SDT element in reduction formula– Extension of Article 6.2 exemptions– Maintenance of de minimis exemptions if directed to

subsistence and resource-poor farmers

Special Products – the Agreement

• “…flexibility to designate an appropriate number of products as SPs, based on criteria of food security, livelihood security and rural development needs.”

• These products will be eligible for more flexible treatment

• The criteria and treatment to be specified in the further negotiations

Special Products – the Issues

• A significant recognition of developing country demands

• An appropriate number? Must be related to the criteria outlined

• The selection criteria – formula driven or self selected?

• Treatment of SPs• Relationship with sensitive products

Special Safeguard Mechanism• Agreement to establish one• For which products?

– Wider than Special Products– Linked to low level of existing tariffs

• Characteristics– Avoid requirement for proof of injury– Be time limited– No compensation should be required– Permanent mechanism– Need for technical discussions on the design of the

safeguard mechanism with respect to trigger levels, duration and level of additional duties

Market access for LDCs

• “Least-Developed Countries, which will have full access to all special and differential treatment provisions above, are not required to undertake reduction commitments.”

• “Developed Members, and developing country Members in a position to do so, should provide duty-free and quota-free market access for products originating from least-developed countries.”

• But HK Agreement only for 97% of tariff lines

SDT progress in the Doha Round to date - evaluation

• The Framework Agreement and HK Declaration has the potential to represent a significant step towards “operationally effective and meaningful provisions for SDT

• Market access issues – treatment of SPs and SSM – still outstandinig

• Important that developing countries do not lose sight of their principal objective in these negotiations

• Lower IC protection still the most important potential contributor to development.

The role of preferences and preference erosion

The role of preferences

• Winters: “poisoning the debate”• Systemic criticisms

– Divert trade between developing countries– Undermine support for multilateral system

• Preferences have no value– Poorly utilised (restrictive rules of origin)– Come attached with conditions– Uncertain, subject to frequent changes– Delay growth-promoting reforms

Average applied bilateral tariffs, agricultural sector, per cent, 2001

Tariffs applied by →Applied to ↓

EU25 US Asia developed

Cairns developed

EU25 - 5.8 22.2 15.7

US 16.2 - 28.9 5.1

Asia developed 12.5 3.7 - 6.2

Cairns developed 25.9 3.4 24.9 -

Mediterranean 7.3 4.0 14.1 3.7

Sub Saharan Africa 6.7 3.0 12.0 0.7

Cairns developing 18.3 3.8 24.0 5.9

China 13.5 5.1 21.7 8.7

South Asia 14.4 1.8 33.7 1.8

Rest of World 15.1 2.1 17.4 2.6

Average 16.7 4.7 22.5 10.8

In fact, preferences are well utilisedEU agri-food imports under various regimes, 2002

Regime Eligible regime imports

‘000 Euro

Actual regime imports

‘000 Euro

Apparent utilisation

rate

Effective utilisation

rate

Share of actual

imports

Non-reciprocal preferential agreements

18,610 12,292 89% 18.5%

Cotonou 5,927 5,500 93% 95% 8.3%

GSP regular 8,755 4,385 50% 86% 6.6%

EBA 1,682 294 17% 96% 0.6%

Reciprocal preferencesMed, CEECs, EEA 11,381 8,728 77%

Non-preferential Duty-free MFN 21,714 32.6%

MFN tariff > 0 4,200 6.3%

Total EU imports 66,558 100%

In fact, preferences are well utilisedUS agri-food imports under various regimes, 2002

Regime Eligible importsunder regime

‘000 USD

Actual imports under regime

‘000USD

Apparent utilisation

rate

Effective utilisation

rate

Share of actual

imports

Non-reciprocal preferential agreements

4,137 3,607 87% 6.2%

AGOA 162 137 85% 85% 0.2%

GSP regular 2,456 1,415 58% 94% 2.4%

Reciprocal preferences NAFTA 11,616 11,531 99% 19.8%

Non-preferential Duty-free MFN 29,047 49.8%

MFN tariff > 0 14,039 24.1%

Total US imports 58,368 100%

…and quite effective

• Mixed evidence from statistical studies– Ozden and Reinhardt 2003, Stockel and Borrell,, 2001

argue preferences have no value• But number of studies argue the opposite

– Stevens and Kennan (2004)– Wainio and Gehlhar (2004)– Romalis (2003)

• Criticism of preferences driven by their systemic effects risks depriving some developing countries of something of real benefit to them

Who loses from preference erosion in agriculture?

• Bulk of losses fall on a narrow set of ‘highly preferred’ countries with exports concentrated in a handful of highly protected sectors: bananas, sugar, meat

• Big losers are mostly small islands and most sub-Saharan African states

• Possibility that MFN trade liberalisation or additional preferences could provide some offsetting gains

• Necessity of compensation package to ensure balanced outcome to the Round?

Where does the problem lie?

• Northern agricultural protectionism not a significant explanation of the problems facing the poorest countries to integrate into international trade– Lack of regional integration (South-South

barriers) may be as/more important– Technical/SPS barriers which often prevent

any trade at all (EU restrictions on fish/shellfish exports, new EU SPS controls, affect food as well as primary produce)

The ‘Aid for Trade’ debate• Aid for trade covers

– Trade policy formulation– Trade facilitation– Trade adjustment– Trade-related infrastructure

• Various initiatives underway– IMF Trade Integration Facility– WTO and others, Integrated Framework– Proposals for preference erosion fund– Now part of the Doha Agenda

Conclusions• Doha Round meant to be a development round• Developing countries dissatisfied with outcome

of Uruguay Round agreement on agriculture• Developing countries have conflicting interests in

the outcome of agricultural negotiations• Can sufficient flexibility be offered to developing

countries while ensuring sufficient negotiating gains for developed countries? Possibility of trading off gains to developed countries in NAMA and services.