wto accession - implications for serbia montenegro in agriculture

1. WTO Accession - Implications for Serbia & Montenegro In Agriculture Seminar Presentation Belgrade, Serbia May 12-14, 2004

3. Why WTO Membership is Important for S&M Agricultural is an important part of the economy S&M has potential to be a net food exporter Integration into the international trading system Provides a framework for domestic policy reform Impetus for increased productivity and enhanced competitiveness Beneficial for consumers Small countries lose more by staying outside the global trading system

4. Increased Trade is the Best Lever for Enhancing Ag Growth Sustained trade reforms doubled growth in agricultural sector (Michaely, Choksi, Papageorgiou) Agricultural trade liberalization gives much higher ag growth rate � 5.7% vs. 1.1% (Valdes) SSA � countries with large improvement in macro/ trade policies had higher ag growth rate -- 3.5% vs. 0.3% for those with deterioration (World Bank)

5. Direct Impact on Trade Policies Creates a comprehensive and foreseeable domestic trade policy environment both for traders and producers Provides protection against any non-WTO conforming trade measures by other countries Requires restraints on S&M trade policies S&M becomes part of the global trading system and a participant in directing the future of the international trade regime

6. Major Tasks Required for WTO Membership Complete successful WTO negotiation leading to membership Implement sector reforms which conform to WTO practices Develop agricultural sector to cope with the new situation created by more open markets

7. Major Negotiation Points S&M must negotiate within the framework of the WTO agreement on agriculture: Market access Domestic support Sanitary and phytosanitary agreement Export support Special and differential treatment

8. Why is Tariff Protection Still so High and Non-Transparent? URAA required average cut; not cut in average tariffs Failed to ensure the reduction in tariff peaks and tariff escalation because allowed large % cuts in small tariffs Example: elimination of a 1% tariff counts as a 100% cut. Country can achieve a 50% average cut by eliminating the 0 tariff and leaving a 150% tariff untouched Incomplete �tariffication� � allowed non-ad valorem Derbez text has 3 band approach: Average cut; Swiss formula and set tariffs to zero (combines original US Swiss formula and CAIRNS Group proposals with the EU average tariff cut approach) Show graph where average tariffs less than MPS in rich countries and vice-versa in developing countries Huge difference in Derbez versus G-20 approachDerbez text has 3 band approach: Average cut; Swiss formula and set tariffs to zero (combines original US Swiss formula and CAIRNS Group proposals with the EU average tariff cut approach) Show graph where average tariffs less than MPS in rich countries and vice-versa in developing countries Huge difference in Derbez versus G-20 approach

9. Problems with Tariff Quota Administration Expanding quota does not always lead to a corresponding increase in imports because of inefficiencies in quota administration methods: Licenses on demand Allocates quotas away from efficient firms Non-use penalties help (but not always used, so quotas are under-filled) License fees reduce degree of inefficiency First-come, first-served Imports hurried up, line-ups, etc.

10. Quota Administration Methods (cont�d) Historical shares Inefficiencies grow over time as relative costs change Opposite effects of trade liberalization on efficiency compared to licenses on demand STEs and producer groups � no incentive to increase market access Sometimes import lowest quality product �fed to livestock or destroyed

11. Additional Conditions on Import Quotas Increase Inefficiencies Quarterly or semi-annual quotas (cannot exploit seasonality between domestic and world prices) Domestic purchase requirements Limits on tariff quota shares Export certificates Past trading performance Recommend auctions to highest bidder (in exporting country if preferential quotas), tradable quotas and elimination of all additional conditions Recommend auctions to highest bidder (in exporting country if preferential quotas), tradable quotas and elimination of all additional conditions

12. Problems in Implementation of Domestic Support Reduction Commitments Reduction commitments very complicated Commitments aggregated across all commodities, so circumvention is easy AMS is poor measure because It combines domestic support with a partial and inaccurate measure of border protection It is calculated based on fixed reference prices (domestic and world) and arbitrary quantities Baseline inflated with Blue Box subsidies Result: AMS has decreased much more than has real subsidization Show Figure 5Show Figure 5

13. Distribution of Program Benefits OECD estimates 20-40 cents on the $ goes to farm households Benefits go mostly to large farms and corporations and not to small or family farms Small and family farms obtain bulk of income from off-farm sources Subsidy payments often more than income from farming

14. Importance of Decoupling Current policies fail to meet stated goal of increasing farm income because: World market prices lower due to distorted trade incl. self-defeating effects of all countries� policies hurt the agricultural sector and export earnings of developing countries the most developing countries now more dependent on a few export crops more international aid is then required Bulk of transfers often capitalized into land values or quotas and bases Leakages to unintended beneficiaries Economic inefficiencies Show distribution of benefits in the United StatesShow distribution of benefits in the United States

15. Importance of Decoupling (cont�d) Decoupling properly implemented can be a way out of these dilemmas Transparent Reduce trade distortions & world prices rise Can target farm income across farm sizes, regions and sectors more effectively Allows farm income goals to be achieved simultaneously and with lower costs

16. URAA for Export Competition Had Many� Loopholes: front loading to defer actual reductions; rollover of unused �credit� Omissions : price pooling (of domestic and export prices to disguise export subsidies); STEs, export credits and guarantees; food aid; export restrictions

17. SPS/Technical Barriers to Trade Concern that SPS can be used as hidden market access barrier Concern is legitimate, but emerging evidence that: Private standards are often more binding than official Impact of standards requirements on exports from developing countries is mixed, but on balance not large Costs of certifying compliance are bigger barrier than actual compliance (institutional constraints, esp. LDCs) Attempts to exempt developing country exporters counterproductive

19. A �Development Friendly� Doha Outcome in Agriculture Would Include�

20. A �Development Friendly� Doha Outcome (cont�d) Complete phase-out of export subsidies (including subsidized export credits), and disciplines on STEs and food aid Disciplines on use of export taxes and controls Deep reductions in trade-distorting domestic support payments (Amber Box), with product-specific commitments, and switch to decoupled payments Caps and then reductions in fixed-production subsidies (Blue Box) Cap on Green Box payments, and review of extent of trade distortion of mechanisms in Green Box

22. Income Gains are Substantial (Real income gains in 2015 relative to the baseline, $1997 billion)

23. Driven by Exports(Change in export revenues in 2015 relative to the baseline, $1997 billion)

24. The Great Divide: Negotiating Positions

25. Negotiating Positions: Export Competition

26. Negotiating Positions: Domestic Support

27. Negotiating Positions: Market Access

28. Negotiating Positions: Special and Differential Treatment

29. Negotiating Positions: Special and Differential Treatment

30. How to Move Forward? First, clear statements needed that offers are still on the table and parties are committed to multilateral process: Zoellick letter, and Lamy response, was a good start Then more flexible offers needed; leadership from the developed countries needs response in market access from developing countries, esp. the MICs. Developing countries have much flexibility: tariff binding overhang, SSG. Political cycle problematic for 2004: US elections, EU enlargement and elections (and new Commissioners), Indian and South African elections Possible goal: by fall, reach point intended to be reached at Cancun

32. Required Domestic Reform Agenda Creating a WTO-conforming agriculture and trade policy environment Reforming the farming sector Privatization and technical rehabilitation of agro-processing and input supply Creation of a functioning rural credit system Institutional reforms

33. Main Direction for Future Actions Reforms should be fully focused on WTO required actions, rather than EU policies Reforms should create a consistent and foreseeable domestic policy environment Competitiveness and productivity enhancement need to be the major objectives Self-sufficiency orientation should be replaced with a reliance on comparative advantages Agricultural policies should be separated from social policies

35. Potential Problems High cost of compliance with WTO standards Quick increase in agricultural imports and negative trade balance Increased competition for farmers and domestic processors Increased rural social tensions