Developing Countries and the Doha Round Agricultural Negotiations Lecture 29 Economics of Food Markets Alan 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’

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 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 ) 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, Hong Kong Draft Declaration and Revised Draft Modalities Feb 2008

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

The role of cotton C-4 Sectoral Initiative in favour of cotton –Eliminate all trade-distorting cotton subsidies –Compensation for economic losses while subsidies were being phased out Cotton – a specific issue or to be handled within the agricultural negotiations? –Framework Agreement “cotton will be addressed ambitiously, expeditiously, and specifically, within the agriculture negotiations”. Complementarity between trade and development aspects of cotton

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.