WTO: Agreement on WTO: Agreement on AgricultureAgriculture

WTO: Agreement on WTO: Agreement on AgricultureAgriculture

Lecture 2Lecture 2

Tanzania:

Some Trends in Exports: Tanzania

Contribution to Growth in Exports of Goods & Services (%)

Sectors Average 1993-2003

Agriculture 1.40%

Horticulture 0.10%

Fish 0.60%

Gold 2.80%

Manufacturing 0.60%

Tourism 3.80%

Others 4.20%

Composition of Exports

Sectors Share (%)

Traditional(including Tobacco, Sisal, Cloves) 21.4

Non-Traditional 78.6

Minerals & Metals 43.2

Manufacturing 4.6

Fish & Products 9.6

Horticulture 1.1

Othres 11.2

Tanzanian Agriculture: Problem Areas

• Role of Crop Board: Funding for the board comes from cess imposed on crop exports. They have intervened in ways which have hampered the prospects of the producers.

• Exports are heavily taxed: Taxed at both transit points and point of original sale. As high as 20% of sales price. Levied as cess on volumes hence higher per unit tax rate as a percentage of prices in low-price years than high-price years.

• Lack of support services in the Agriculture Sector: Research & Extension Services

• Ineffective way of controlling price volatility

Distortion through Subsidization• Export Subsidy• Domestic Subsidy• Question of Market Access Reform meaningless

without addressing Subsidization issue (food aid etc.).

• The total support estimate to all OECD countries averaged $330 billion annually during 1999-2001, with the European Union, United States, and Japan accounting for 29, 34, and 20 percent, respectively.

• The largest beneficiary was the milk industry ($42.1 billion in 1999-2001), followed by beef ($27 billion), rice ($26 billion), wheat ($13 billion), and pig meat ($10 billion).

“Full elimination of distorting policies in global agricultural trade would result an annual world welfare gain of US$56 billion.” U.S. Department of Agriculture Estimates.

The Uruguay Round Commitments

Calculation: Aggregate Measure of Support• Example: Calculation of the current total AMS

Member X (developed country), year Y Wheat:> Intervention price for wheat = $255 per tonne> Fixed external reference price (world market price) = $110 per tonne> Domestic production of wheat = 2,000,000 tonnes> Value of wheat production = $510,000,000> Wheat AMS (AMS 1)   ($255–$110) x 2,000,000 tonnes = $290,000,000(de minimis level=$25,500,000

Defining Support Measures

• AMS includes all supports for specified products together with supports that are not for specific products, in one single figure.

• The product specific AMS is calculated for a particular crop receiving market price support, non-exempt direct payments, or any other subsidy that is not exempted from reduction commitments under the AoA.

• The non-product specific AMS is calculated using non-exempt direct payments, which are generally estimated using budgetary expenditures (e.g. – input subsidies).

• PSE represents an indicator of the annual monetary value of gross transfers from consumers and taxpayers to support agricultural producers at farm-gate level, arising from policy measures, regardless of their nature, objectives or impacts on farm production or income.

Subsidies are classified under three boxes.

1. Amber Box

• Includes measures to support prices, or subsidies directly related to production quantities (e.g. - Payments made by developing country members to low-income or resource-poor producers).

• Subject to reduction Commitments.• “de minimis”, i.e., minimal supports are allowed

(5% of agricultural production for developed countries, 10% for developing countries).

• The 30 WTO members that had larger subsidies than the de minimis levels at the beginning of the post-Uruguay Round reform period are committed to reduce these subsidies.

Source: WTO

2. Blue Box• Functionally looks like “amber box with conditions”.• Any support that would normally be in the amber

box, is placed in the blue box if they are not linked with production (e.g. - Payments based on fixed area and yields, Livestock payments made on a fixed number of head).

• In the current negotiations, some countries want to keep the blue box as it is because they see it as a crucial means of moving away from distorting amber box subsidies without causing too much hardship.

• Others wanted to set limits or reduction commitments, some advocating for moving these supports into the amber box.

Source: WTO

3. Green Box

• Green box subsidies either do not distort trade, or at most cause minimal distortion. They have to be government-funded and must not involve price support.

• Tend to be programmes that are not targeted at particular products, and include direct income supports for farmers that are not related to (are “decoupled” from) current production levels or prices (e.g. - Investment on rural infrastructure, Research and Extension services, Marketing and promotion services).

• Include environmental protection and regional development programmes.

• “Green box” subsidies are therefore allowed without limits.

Source: WTO

EU, Japan and the US jointly provide around 80 percent of the total green box support provided by all WTO members.

Trends in Producer Support Estimates (1986-2008)

Although the percentage PSE index is highest in Japan, the level of subsidization in EU creates much greater distortions due to its larger domestic market size and wider presence in global export of agricultural products.

Commodity-wise Subsidization (EU-US)

Export Subsidization (EU-US)

Source: Naik and Singh (2003)

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Tariff Question• ‘Uruguay Round Approach’, introduced during the 1986–94

UR agriculture negotiations - requires the members to implement a specified average percentage reduction in tariffs over a pre-determined period. The average tariff reduction requirement was 36 percent and 24 percent for developed (over six years) and developing countries (over ten years) respectively.

• The ‘Swiss Formula’ (proposed by Switzerland during the 1973–79 Tokyo Round negotiations), is a special case of a harmonized formula tariff cut.

• Under the UR formula, the specified (i.e., flat-rate) percentage reductions lead to lower reductions on high tariffs. Moreover, the average reduction commitments allows countries to control their actual tariff reductions on individual products. 

• Swiss Formula uses a single mathematical formula to generate a narrow range of final tariff rates from widely varying initial tariffs, irrespective of the initial tariff rate.

• Developing countries understandably favour UR Approach.

World Agricultural Tariff Profile

Tariff Profile - EC

World Tariff Profile

Tariff Profile - US

World Tariff Profile

Tariff Profile - Canada

World Tariff Profile

Tariff Profile - Japan

World Tariff Profile

Tariff Profile - Brazil

World Tariff Profile

Tariff Scenario - China

World Tariff Profile

Tariff Scenario - Tanzania

 

Number of Tariff Lines   Minimum rate Max. rate

Simple avg.

  Total Non-zero (%) (%) (%)

MFN Tariffs (2004) 5324 3550 0 65 13.8

Agricultural Products 779 672 0 35 20.8

Industrial Products 4545 2878 0 65 12.7

CET (2005) 5028 3098 0 105 12.3

Agricultural Products 767 697 0 105 22

Industrial Products 4261 2401 0 65 10.5

Tariff Escalation in EU

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Chart III.3Tariff escalation by ISIC 2-digit industry, 2006

Per cent

Source : WTO Secretariat calculations, based on EC Official Journal L286, 28 October 2005; and WTO estimates.

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WTO Discussions on Agriculture• Singapore (1996)• Geneva (1998) • Seattle (1999)• Phase 1 – March 2000 – March 2001: more than a hundred

members submitted proposals on their future commitments • Phase 2 – March 2001 – March 2002: a stocktaking exercise • Doha (2001): the heated debate and acknowledgement of

market access issues in agriculture, with due focus on SDT for developing countries in Doha Development Agenda

• Phase 3 – March 2002 – March 2003: submission of modalities• Cancun (2003): EU-US joint proposal and G-20 reply• July Discussion• Hong Kong Ministerial• Recent Draft Proposals

Doha to Cancun (2003) • Pressure on EU from all quarters.• EU Offer for Tariff Cut - moderate, made

conditional on other’s reform – dissatisfaction among other members

• EU Offer to de-couple CAP (Common Agriculture Policy) subsidies (subsidy to be based on historical support and de-linked from production) – some reforms in beef and veal, sheep and goat meat, cereals, oilseeds, dried fodder, seeds, and dairy products etc.

• Internal EU debate • Sweden, U.K., Denmark, Netherlands and Germany

were in favor of the reforms • France, Spain and Ireland against reforms. 

(Contd.)

Doha to Cancun• Dissatisfaction among members, notably CAIRNS

(Group of 19 agri-exporting countries) group.• US proposal that WTO members should agree on a

specific date for elimination of agricultural tariffs and trade-distorting domestic support

• Just before Cancun, the joint proposal of EU-US – more focus on NAMA

• Joint proposal by developing countries led by Brazil, India and China – formation of the G-20 group (elimination of domestic subsidy, blue box measures, capping certain green box measures, removing support to poor farmers from reform commitments etc., developing country tariff reform by two-third of the same by developed countries)

• Draft Ministerial Text (2nd Revision) Derbez Draft -

• AND AFTER …….

Comparative analysis of Developed and Developing

country Plans

Why G-20 rejected the Draft??

• “On cotton again, four African countries are predominantly a one-crop nation whose economies have been very badly, adversely affected on account of huge cotton subsidies to 25,000 farmers in one country – they receive a subsidy of $3.7 billion annually. The amount of $3.7 billion annually is the subsidy which is shared amongst 25,000 farmers. The effect of that is to distort cotton prices which effects the economies of Mali, Burkina Faso, Benin and Chad. So, para 27 of the 13th September draft again spoke in terms of a study to be undertaken and almost the feel of para 27 was that some of the countries should be aided and advised, and then persuaded for crop diversification, because subsidies in any case cannot be reduced…”

Speech by Mr. Arun Jaitley, the then Commerce Minister of India

Post-Cancun ..• Formation of G-33• Attempt to make Special Products (SP) and the Special

Safeguard Mechanism (SSM) an integral part of SDT in the agriculture framework – focus on food and livelihood security and rural development problems .

• Stand-alone category for SP, decided exclusively by the developing countries themselves, for which there should be no tariff reduction commitment at all.

• SPs must have access to SSM as well.• Deadlock in negotiation process.• EU promise on tobacco, olive oil, cotton in April 2004 -

capping public expenditure at € 800 million: 65% of EC cotton subsidies will be decoupled from production and paid out as farm income support (green box payment); and 35 % will be destined to producers as an aid per hectare of cotton (blue box payment). Farmers will be allotted entitlements based on historical reference amounts received during 2000-02.

• July 2004 meeting: G-6.

SSM allow imposition of an additional tariff either when (1) a specified surge occurs in imports (volume trigger), or (2) on a shipment by shipment basis, a fall of the import price below a specified reference price (price trigger). In case of the price trigger, any additional duty can only be imposed on the shipment concerned. The additional duties cannot be applied to imports taking place within tariff quotas.

July 2004 and beyond• Explicit focus given to cotton.• Limiting domestic subsidy - “Blue Box support will not exceed 5% of a Member’s

average total value of agricultural production during an historical period.” • Reduction of spending on Amber Box measures (final bound AMS) using a

“Tiered Formula”.• 20% reduction in the spending on Amber and Blue Box measures.• Elimination of trade-distorting export subsidies - limiting export credit and

guarantee schemes in the EU and the US.• Absolute level of tariff reform has been much higher in case of developing

countries, as compared to their developed counterparts – need to incorporate that in SPs and SSM.

• Gray areas: determining ‘appropriate number’; even if the developing countries manage to obtain the benefits from SP provision, their gains could be nullified, at least partly, if the developed countries declare a number of these SP as ‘sensitive’ items for them.

• October 2005: EU-US came out with a joint proposal, making a conditional offer for reducing farm subsidies in return for greater market access, only to be rejected by India.

• G-20 proposed a formula with 54 and 36 per cent tariff cuts for developed and developing countries respectively on farm products. EU in return offered to reduce tariffs by 38 per cent, which was rejected by several members including the US.

SPs can be defined as ‘agricultural products of particular importance to farming communities in developing countries for reasons of food security, livelihood security and rural development, which will attract lower level of tariff reduction commitment than other agricultural products. SP is a component of SDT.

Hong Kong Ministerial and after

• In Domestic Support, developing countries like India with no AMS commitments would be exempted from making any cuts on their de minimis support.

• Green Box criteria would be reviewed to allow programmes of developing country members with minimal trade distorting effects to be incorporated into the Green Box.

• All forms of Export Subsidies by developed countries and other export measures with equivalent effect (such as Export Credits, guarantees and Insurance in excess of 180 days etc.) will be eliminated by the end of 2013, with the substantial part eliminated by the middle of the implementation period i.e. 2010.

• Developing countries would be able to continue to provide marketing and transport subsidies for 5 years after elimination of export subsidies, i.e. up to 2018.

• Developing countries would be able to self-designate an appropriate number of tariff lines as SP, based on food security, livelihood security and rural development indicators.

• To safeguard farmers against a surge in imports, developing countries will have recourse to a SSM, with both import quantity and price policy tools.

• On Cotton, export subsidies by developed countries will be fully eliminated in 2006; and trade distorting domestic support in developed countries on that front would be reduced faster than other agricultural products.

Sensitive product – the negotiation is on how much market access countries are prepared to give when they declare certain products like that (e.g. - sugar, corn, dairy products), which will be protected from full tariff cuts.

The February 2008 Draft• Tiered reduction of AMS and agricultural tariff• Blue box limit - 2.5 % of the average total value of agricultural

production during 1995-2000 (5 % for developing countries during 1995-2000 or 1995-2004, as may be selected by the Member concerned )

• TRQ - For developing country Members, the tariff quota expansion shall be two thirds of the volume for developed country Members

• Tariff reduction of special products uncertain - the right of the developing countries to self-designate special products depends on food security, livelihood security and rural development

• Developed countries also get the right to designate some tariff lines as sensitive products, developing countries only get to designate more products so.

• The proposed SSM is complex – propose to differentiate among developing countries, might lead to problems in future – Duration is another issue - ‘The SSM shall remain in force for the duration of the Doha Round implementation period [after which it shall expire.]’