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Graduate Institute of International and Development Studies

International Agricultural Trade: Export Competition by Dr Melaku Geboye Desta CEPMLP, University of Dundee Scotland. Graduate Institute of International and Development Studies Summer Programme on the WTO, International Trade and Development 15-16 July 2008, Geneva. Agricultural subsidies.

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Graduate Institute of International and Development Studies

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  1. International Agricultural Trade: Export Competitionby Dr Melaku Geboye DestaCEPMLP, University of DundeeScotland Graduate Institute of International and Development Studies Summer Programme on the WTO, International Trade and Development 15-16 July 2008, Geneva

  2. Agricultural subsidies • Subsidies: support to enterprises provided or mandated by government • Types: – domestic/production and export subsidies • Why bother? trade/production distortions: recipients gaining market share -- hence “unfair trade practices” • Why do countries subsidize agriculture? The usual story: food security; culture; environment; voting; • Then why subsidize exports? The other usual story • high domestic support ► excess supplies ► lower world market price ► export subsidies = a simplistic view

  3. Export subsidies: GATT to AoA • Art XVI of GATT 1947: then only one para: no distinction between domestic and export subsidies • Only two legally meaningless obligations: • the obligation to ‘notify’ subsidies (and not all) and • in case of serious prejudice, the obligation to ‘discuss’ the possibility of limiting the subsidization • The 1955 Amendments: a landmark • a discipline prohibiting export subsidies (dual pricing) • special sub-discipline exempting ‘primary products’: the problem of “equitable shares” • Primaries=Agriculture + forestry + fisheries + mining

  4. Export Subsidies and the 1979 Subsidies Code • 1979 Subsidies Code: “plurilateral”? • Export subsidies prohibited per se • Primary products ► “certain …”: mining out • Definition of “more than equitable share”: “any case in which the effect of an export subsidy granted by a signatory is to displace the exports of another signatory” • Displacement v. equitable share: difference? • The agriculture discipline unchanged • Agricultural disputes proliferated

  5. The Uruguay Round • Agriculture: the most contentious • Agricultural export subsidies: the most contentious within agriculture • 1985: Leutwiler Report: ultimate goal should be “the total elimination of … export subsidies, as they produce many of the major distortions in world agricultural markets” • 1986: Punta del Este: to bring “all measures affecting … export competition under strengthened and more operationally effective GATT rules and disciplines”

  6. Uruguay Round Achievements • Important developments from two sources: • The AoA: establishment of a “fair and market-oriented agricultural trading system” • The SCM Agreement • Complex relations between them • SCM Agreement: • Generic with explicit exceptions for agriculture • Could still affect agriculture: • by filling loopholes in agriculture; and • as a contextual guide for interpretation • US Upland Cotton: (similar issues to domestic support)

  7. Export subsidies under the AoA • Definition: subsidies contingent upon export performance • Included: illustrative list of 6 specific practices: Art.9:1 • Elements of definition: subsidy + export contingency (not defined by AoA): • Resort to SCM? • FSC Panel: “Article 1 of the SCM Agreement, which defines the term ‘subsidy’ for the purposes of the SCM Agreement, represents highly relevant context for the interpretation of the word ‘subsidy’ within the meaning of the Agreement on Agriculture, as it is the only article in the WTO Agreement that provides a definition of that term.” • Subsidies under AoA potentially broader than under SCM

  8. The AoA export subsidies discipline • Key AoA provisions: Art. 8: • “Each Member undertakes not to provide export subsidies otherwise than in conformity with this Agreement and with the commitments as specified in that Member's Schedule.” • All export subsidies divided into two: • listed and non-listed • All agricultural products divided into two for export subsidies purposes: • Scheduled and non-scheduled

  9. Export subsidies ct’d • Article 3.3: • “a Member shall not provide export subsidies listed in paragraph 1 of Article 9 in respect of the agricultural products or groups of products specified in Section II of Part IV of its Schedule in excess of the budgetary outlay and quantity commitment levels specified therein and shall not provide such subsidies in respect of any agricultural product not specified in that Section of its Schedule.” • Listed subsidies on scheduled products: permitted subject to reduction commitments in value and volume: • By: 36% value; 21% volume • From: 1986-90 base period • On: scheduled products • Listed subsidies on non-scheduled products: prohibited • Non-listed subsidies on scheduled products: permitted but no circumvention! (Art. 10:1) • Non-listed subsidies on non-scheduled products: prohibited (SCM)

  10. Australia Brazil Bulgaria Canada Colombia Cyprus Czech Republic European Communities Hungary Iceland Indonesia Israel Mexico New Zealand Norway Panama Poland Romania Slovak Republic South Africa Switzerland-Liechtenstein Turkey United States Uruguay Venezuela Who can provide export subsidies? Only 25 members (with EC15 as 1) have export subsidy reduction commitments: i.e. only 25 allowed to use them: Source: TN/AG/S/8/Rev.1

  11. Export subsidies: ct’d • Other countries: • undertaking not to introduce export subsidies • Special and differential treatment for developing countries: • two-thirds of reduction commitments over ten years (24% and 14%) • exempt from reduction commitments on export subsidies for internal transport and marketing • Does it make sense?

  12. EU Sugar: Highlights • Complainants: Australia, Brazil, Thailand • Third Parties: Barbados, Belize, Côte d'Ivoire, Cuba, Fiji, Guyana, Jamaica, Kenya, Madagascar, Malawi, Mauritius, Saint Kitts and Nevis, Swaziland, Tanzania, Trinidad and Tobago, Canada, China, Colombia, India, NewZealand, Paraguay, and theUS • Challenged measure: EC Regulation No. 1260/2001 on the common organization of markets in sugar sector • Regulation: sets out basic rules with respect to, inter alia, intervention prices for raw and white sugar, minimum prices for beet within A and B quotas (and exclusion of C sugar), import and export licences, levies, export refunds, and preferential import arrangements

  13. EU Sugar ct’d • Two categories of production quotas: A sugar and B sugar: • sets max quantities eligible for domestic price support and export subsidies • No limits on production, but: • Sugar produced in excess of A and B quantities, i.e. C sugar, not eligible for domestic price support or direct export subsidies and must be exported • Intervention prices fixed for A and B beet • Sugar manufacturers must pay growers at least minimum price for A and B beet • Price for beet to produce C sugar may be lower • Export refunds: cover difference between world market price and EC price (3x!) – only for A and B sugar • EC preferences: sugar protocol (ACP) and India

  14. EU Sugar ct’d • EC Commitments for sugar export subsidies: • €499.1 million (value) and 1,273.5 thousand tonnes (vol) • The controversial footnote to EC schedule: • "Does not include exports of sugar of ACP and Indian origin on which the Community is not making any reduction commitments. The average of export in the period 1986 to 1990 amounted to 1.6 mio t." • EC export subsidies actually provided in 2001/02: • 4.097 million tonnes • Compare against commitment level of 1.273 million tonnes • Not all excess explained by ACP/India sugar: hence claim of cross-subsidization of C sugar!

  15. EU Sugar ct’d • Complaint: • EC has, since 1995, been exporting quantities of subsidized sugar in excess of its annual commitment levels, contrary to Articles 3 and 8 of the Agreement on Agriculture. • Measures also inconsistent with SCM Agreement. • Defence: Yes they are higher than figures shown in schedule but EC export subsidy commitments for sugar made up of two components: • (i) one component which has been subject to progressive reduction during the implementation period; and • (ii) a second component, Footnote 1 to Section II, Part IV to its Schedule containing the so-called "ACP/India sugar Footnote" which, it maintains, is subject to a ceiling of 1.6 million tonnes • So EC export subsidies do not exceed commitments; ACP/India equivalent sugar not included in commitments • Issue: what is the effect of the footnote? Or, what is the EC commitment level?

  16. EU Sugar ct’d • Finding: EU commitment levels for exports of subsidized sugar do not cover ACP/India import equivalent in footnote; footnote of no legal effect; export subsidies in excess of commitment levels; a violation! • Relations to the Lomé/Cotonou sugar protocol: • Is this the end of the sugar protocol? • Is sugar following on the foot steps of bananas?

  17. US Upland Cotton on export subsidies • User marketing or Step 2 payments: • Payments made to domestic users and exporters of upland cotton for documented purchases by domestic users and sales for export by exporters when the lowest price quotation for United States cotton exceeded the Northern Europe price quotation • Payments to domestic users: • import-substitution: compensate users for buying domestic; not protected by peace clause; violation of SCM Art. 3.1(b) • Payments to exporters: • subsidizing exports: making exportation profitable • Problem: US had no scheduled commitments for export subsidies to upland cotton; no scheduling = no subsidies

  18. Other Means of Export Support: Export Credits • Export credit: • export financing schemes on terms more favourable than the market due to gov’t backing • Art. 10:2: agreement to develop internationally agreed disciplines: • Result: failure due mainly to US opposition • Promising developments in Doha • Issue: implications of AB ruling in US Cotton?

  19. US Upland Cotton on export credit guarantees • Brazil: challenges three types of export credit guarantee programs: • General Sales Manager (GSM) 102 and GSM 103: provide guarantees to exporters when credit is extended by foreign financial institutions, and Supplier Credit Guarantee Program (SCGP) applies when credit is extended by the exporter to the purchaser of US ag products • How does it work? • Example based on GSM 102: • exporter receives L/C in its favour from a foreign bank • exporter applies for guarantee before making the exportation • exporter pays a fee for the guarantee based on a schedule of rates, but fees capped by law at 1% of guaranteed dollar value of transaction • if foreign bank fails to make payment, the USDA’s Commodity Credit Corporation (CCC) steps in

  20. export credit guarantees ct’d • Brazil: export credit guarantees violate AoA Arts. 10.1 & 8, not protected by peace clause, and violate SCM Art. 3.1(a) and 3.2 • US: AoA Art. 10.2 excludes export credit guarantee programs from AoA export subsidy disciplines, and if not, beneficiaries pay premiums, so no subsidy • Panel report (upheld by AB, with separate opinion): • US export credit guarantee provided ‘at premium rates inadequate to cover the long-term operating costs and losses of the programmes’, hence per se export subsidies • Export credit guarantee a non-listed subsidy, used to circumvent commitments; in violation of AoA Art. 10.1 • Not protected by peace clause; in violation of SCM Art. 3.1(a) and 3.2

  21. Other Means of Export Support: Food Aid • Food Aid: two-fold issues: • LDCs & NFIDCs: fear of: • production cuts due to the subsidies discipline; • rising world market prices; and • resulting food security concerns • Net-food-exporters: fear of: • use of food aid as means of market penetration; and • circumvention of export subsidy commitments: concessionality and the borderline problem. • The final outcome: • Decision on LDCs and NFIDCs: a non-binding document • Referral to the FAC system: an institutional anomaly

  22. Major Export Subsidies Issues for the Doha Negotiations • Export subsidies “proper”: • Issue: when, not whether, to eliminate them (see Doha Declaration) • Other export support mechanisms: • Discriminatory nature of relevant AoA regime: call for discipline in export credits/insurance, tighter discipline on food aid, state trading enterprises, etc. • Export restrictions: Japan no longer alone! • The new issue of food supply security even when you can afford to pay for it

  23. ‘July Framework’ on export subsidies • A breakthrough – agreement to abolish all forms of export subsidies: date to be agreed • Commitment covers: • listed export subsidies • export credits, guarantees and insurance with payment dates beyond 180 days (or those violating rules to be agreed for payments within 180 days) • trade distorting practices of exporting STEs • food aid violating rules to be agreed • S&D: • Longer phase out implementation periods = a false image! • AoA Article 9.4 exemptions (marketing and transport) to be available for a ‘reasonable period’! • Future agreements on export credits, etc. to accommodate concerns of LDCs and NFIDCs • To address food emergencies otherwise impossible

  24. HK Ministerial • Elimination of export subsidies set for end 2013: will it happen? • Guidelines agreed on new disciplines • Export credits, export credit guarantees or insurance programmes with repayment periods of 180 days and below should: • be self-financing, reflect market consistency, and period should be of a sufficiently short duration • Trade-distorting practices of STEs: • disciplines to extend to the future use of monopoly powers • Food aid: • commitment to maintain adequate levels • "safe box" to be created for bona fide food aid to ensure that there is no unintended impediment to dealing with emergency situations • to ensure elimination of commercial displacement • New disciplines set to be agreed by 30 April 2006 as part of modalities, but missed

  25. May 2008 Modalities Draft • Elimination of scheduled export subsidies: • Developed countries by end 2013 • Developing countries: by end 2016 • cotton export subsidies to be eliminated on day 1 • Developing countries: continue to benefit from AoA Art. 9.4 until end 2021 (i.e. 5 years after end-date for elimination of export subsidies) • Export credits/guarantees/insurance: Annex J • Exporting STEs: Annex K • Int’l food aid: Annex L

  26. Readings • Official Documents: • Texts of GATT 1947; Agreements on Agriculture and SCM • Uruguay Round Modalities for the Establishment of Specific Binding Commitments Under the Reform Programme, GATT doc. MTN.GNG/MA/W/24, 20 December 1993 • Doha Revised Draft Modalities For Agriculture, TN/AG/W/4/Rev.2, 19 May 2008 • Primary Readings: • Merit Janow and Robert Staiger, “Canada – Dairy: Canada – Measures Affecting the Importation of Dairy Products and the Exportation of Milk” 3(2) World Trade Review (2004), pp. 277-315 • WTO, Unofficial Guide to Revised Draft Modalities, 19 May 2008, at http://www.wto.org/english/tratop_e/agric_e/ag_modals_may08_e.pdf • Cases: • United States – Subsidies on Upland Cotton, WT/DS267, Panel Report (8 September 2004), and AB Report (3 March 2005) • European Communities − Export Subsidies on Sugar: Complaint by Australia (WT/DS265), by Brazil (WT/DS266), by Thailand (WT/DS283), Panel Reports (15 October 2004), and AB report (28 April 2005)

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