INTERNATIONAL TRADING SYSTEM Accession to the WTO: Impact on agriculture

1. INTERNATIONAL TRADING SYSTEMAccession to the WTO: Impact on agriculture Tashkent Mehmet Arda 17-18 September, 2002 UNCTAD Inputs from Ms. Miho Shirotori are gratefully acknowledged

2. Plan of presentation: • Agriculture in the international trading system – Agreement on Agriculture, Agreement on Sanitary and Phitosanitary Measures (SPS), Trade Related aspect of Intellectual Property Rights (TRIPS) • Accession to the WTO and the Agreement on Agriculture • Possible impacts on domestic agriculture • Some examples from China’s accession

3. Agreement on Agriculture (I) • Market Access • Tariffs • Binding • Tariffication • Reduction commitments • Tariff rate quotas • Prohibition of Non-Tariff Measures (NTMs) • Special Safeguard

4. Agreement on Agriculture (II) • Domestic support • Green Box • Blue Box • Amber Box • AMS reduction commitments • de minimis rule • Export competition • Reduction commitments • No new subsidies

5. Agreement on Agriculture (III) • Other issues • Special and differential treatment of developing countries and Least Developed Countries (LDCs) • Tariff reductions: 6 years, 10 years, no reduction for LDC • Tariff cuts on average: 36% (min.15%), 24% (min. 10%) • Domestic support reduction 20%, 13 % of base AMS, de minimis 5%, 10% • Investment subsidies, input subsidies to poor producers and support to encourage diversification from illicit crops • Subsidies for cost reduction and internal transport • Marrakesh Decision on Net Food Importing Developing Countries • Peace Clause until the end of 2003 (does not cover market access

6. 2002-2003Negotiations on “Modalities”

7. NEGOTIATIONS AFTER MARCH 2003 • The “modalities” agreed in March 2003 will be the basis for a country’s comprehensive draft commitment. The commitment should be submitted before the Fifth WTO Ministerial Conference in Mexico. • The final conclusion of the negotiations will be made by 1 January 2005, as a part of the Doha agenda’s single undertaking. Hence, there are high probabilities that WTO Members continue to exchange concessions on agriculture as a “trade-off” with concessions to be made in negotiations on other sectors. (Keeping the Peace clause or some EU subsidies in exchange for other concessions?)

8. “MAJOR” PLAYERS USA Central/Eastern European countries Export subsidies? EU Domestic support? CAIRNS GROUP Substantial tariff cuts? Norway, Japan, Korea “Multifunctionality” Domestic support? Eliminate export subsidies Massive cut in domestic support Switzerland

9. RECENT DEVELOPMENT New US Farm Bill • A new Farm Bill (Farm Security and Rural Investment Act, enacted in May 2002) will authorize US$180 billion over a ten-year period for income & investment subsidies and price support on corn, cotton, wheat, peanuts, dairy, etc. • The Farm Bill will turn back the clock of the US farm policy - the previous 1996 Farm bill aimed at reducing farmers’ dependency on subsidies. • The total annual spending could exceed the annual bound level of US$ 19.1 billion. • “Trade Promotion Authority” (the proposed negotiating body) seeks to: substantial liberalization (reductions in tariffs and subsidies) on US’ competitive products; but preserve protection to “sensitive” product items.

10. RECENT DEVELOPMENT New US Comprehensive Proposal • In July 2002, the US presented its comprehensive proposal to the negotiations on agriculture. • The proposal suggest: • Set the ceiling tariff rate at 25 %, after substantial cut of agricultural tariffs using Swiss Formula; • Eliminate export subsidies; • Reduce domestic support to the level of 5 % of the value of total agricultural production. • Also in July 2002, the Congress approved the “Trade Promotion Authority” (or the “Fast Track”), i.e the right for the President to negotiate at WTO without requiring ratification by the Congress. This substantiates the US engagement in negotiations.

11. RECENT DEVELOPMENT European Commission proposes the Reform of the Common Agricultural Policy (CAP) • In July 2002, the European Commission proposed the reform of the CAP, which suggests cuts in market-linked domestic support (e.g. market price support) and area payment. • The reform suggests the shift of government spending from market-linked support to programmes that are linked to environmental protection, animal welfare and improvement of food safety standard. • The reform plan is strongly opposed by a group of EU member countries, e.g. France and Spain, while supported by Germany and the UK. The reform plan is expected to be approved before March 2003 – the EU Members will start negotiating on the contents as of September 2002.

12. Negotiating Positions of “Developing Countries” Export Markets Domestic Markets - better market access - less trade distortion - food security - rural development Substantial and progressive liberalization (Cairns Group) Flexible and gradual liberalization, taking into account non-trade concerns (Multifunctionality group)

13. IMBALANCE between developed countries and DCs “The existing AoA rules seem to bestow S&D treatment on developed rather than developing countries” (the Development Box proposal)

14. How can the imbalance be redressed? SPECIAL & DIFFERENTIAL (S&D) TREATMENT • Widen the scope of S&D • more flexibility in WTO rules to meet development need • specific S&D to meet different needs among DCs • review the Enabling Clause ? • … or not? • liberalization by all is the best S&D • enough flexibility to meet adjustment needs • S&D should not harm other DCs • no discrimination among DCs

15. “DEVELOPMENT CONCERNS” and S&D • Food security, rural development, poverty alleviation are identified as measure development concerns. • Discussions so far have not clarified the actual linkage between trade measures and meeting development concerns. • At the national level, a country should clarify: • what are “measures aiming at food security/rural development” in actual policy terms? • how are they linked to trade policy measures? • necessary to create a new S&D or to improve the use of the existing S&D? • Is WTO the best forum to deal with these issues?

16. SPS agreement • Right to restrict trade when it is necessary to protect human (mostly for food safety), animal or plant health IF scientifically justified – otherwise provisional adoption of precautionary measures • Use internationally agreed standards, guidelines (Codex Alimentarius, International Office of Epizootics, International Plant Protection Convention (problems with GMOs and traceability in general) • Transparency – publish all regulations, notify new or changed regulations, establish Enquiry Point • Recognize disease and pest free areas, accept other ways of ensuring equal safety, provide technical assistance

17. TRIPS • Patents for products and processes • For plant varieties, also a special system - UPOV (International Union for the Protection of New Varieties of Plants) • Seeds used for exported products • Geographical indications • Developing countries until 2005

18. Accession to the WTO and AoA • In the accession to the WTO, an acceding country is requested to reform its agricultural policies to be in compliance with the rules under the WTO Agreement on Agriculture (AoA). • This “reform” may have a substantial impact upon the acceding country's domestic agricultural policy, especially if the government intervention has being playing a vital role in the agricultural sector.

19. Accession and market access • Tariffs should be bound- Most Favoured Nations (MFN) tariffs should not be raised in the future. • Offers of tariff concessions should ideally reflect the acceding country's long-term agricultural interests. • However, some WTO Members may request the currently applied tariffs to be the basis for reductions and binding.

20. Accession and market access (II) • In practice, the initial tariff offer may include rates that exceed the applied tariffs. • The bound MFN tariffs of Mongolia and Estonia range between 5 and 30 %, while their applied agricultural tariffs at the time of accession negotiations had been 0 %. • Bilateral and/or regional preferences (e.g. regional free trade agreement) should be notified to, and accepted by WTO Members.

21. “Appropriate tariff level” • Tariff concession offered by an acceding country is expected to be “commercially viable”  and "appropriate to the level of economic development". • What does it mean? "Commercially viable" for exporters (WTO Members) or for the importing acceding country? There is no numerical bench mark for such a criteria. The "appropriate level" is determined on a case-by-case basis in bilateral negotiations. • Average bound tariffs of past acceding countries range from 11.7 % (Kyrgyz Republic) to 34.9 % (Bulgaria). The maximum tariff rates of those countries rarely go above 50 %.

22. Accession and market access (NTBs) • All non-tariff barriers should be eliminated upon the date of the accession. • e.g. quotas, import prohibition, variable levies, minimum import prices, etc. • Acceding countries are not generally allowed to use the tariffication method (converting the level of protection provided by NTMs into tariffs). • If necessary to raise the current applied tariff rates in order to accommodate the NTM elimination, it should be negotiated with WTO members on product-by-product basis.

23. Accession and Special Safeguard Provisions • Special safeguard (SSG) provision is a WTO Member’s right to levy additional duties,when the import quantity or the import price of a pre-selected products reaches the level which threatens the domestic producers. • The SSG provision is not automatically granted to acceding coutnries. If the acceding country wishes to use the SSG on selected products, it needs to convince WTO Members on a product-by-product basis by providing relevant statistics and information on doemstic agricultural situataion.

24. Impact of Market Acccess Commitments • Binding of MFN tariffs stabilizes the long-term tariff policy. • MFN tariffs resulted from bilateral negotiaitons may not always reflect (short-term) domestic agricultural needs. • Policy reform may accompany high adjusment costs, if non-tariff measures have not yet been eliminated. • MFN tariff reductions may belittle the preferential margins provided to trade partners of bilateral and regional trading agreements.

25. Impact of liberalization • agricultural producers, and small farmers in particular, are under severe capital constraint, as new investment has not flown in to the agricultural sector • private sector is not able to fully take over the role played by the government in providing agricultural services (e.g. transport, storages, inspection services, etc) • governments have limited budget for “Green Box” type of domestic support

26. Some results of China’s accession • Discriminatory treatment in import markets ended, possible surge of exports, in particular textiles, but importers can block excessive surges • Tariffs reduced and bound, (average 15% for agricultural products, 8.9% for industrial products) • Removal of support to agriculture (e.g. cotton was subsidized 15-20 cents/lb in 1999-2001), limited to 8.5% of value of farm output (de minimis for developing countries 10%) • No export subsidies • Tariff rate quotas for grain, cotton (1%. 76% - to be lowered to 40% by 2004), oilseeds, sugar and wool • Dispute settlement used – US Steel safeguards

27. Simulations on China’s accessionUNCTAD, Trade and Development Report 2002, p. 151