1 International Agricultural Trade: by Dr Melaku Geboye Desta CEPMLP, University of Dundee Scotland 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 July 2008, Geneva July 2008, Geneva

2 Agricultural subsidies Subsidies: support to enterprises provided or mandated by government Subsidies: support to enterprises provided or mandated by government Types: – domestic/production and export subsidies Types: – domestic/production and export subsidies Why bother? trade/production distortions: recipients gaining market share -- hence “unfair trade practices” 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; Why do countries subsidize agriculture? The usual story: food security; culture; environment; voting; Then why subsidize exports? The other usual story Then why subsidize exports? The other usual story high domestic support ► excess supplies ► lower world market price ► export subsidies = a simplistic view 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 Art XVI of GATT 1947: then only one para: no distinction between domestic and export subsidies Only two legally meaningless obligations: Only two legally meaningless obligations: 1. the obligation to ‘notify’ subsidies (and not all) and 2. in case of serious prejudice, the obligation to ‘discuss’ the possibility of limiting the subsidization The 1955 Amendments: a landmark The 1955 Amendments: a landmark a discipline prohibiting export subsidies (dual pricing) a discipline prohibiting export subsidies (dual pricing) special sub-discipline exempting ‘primary products’: the problem of “equitable shares” special sub-discipline exempting ‘primary products’: the problem of “equitable shares” Primaries=Agriculture + forestry + fisheries + mining Primaries=Agriculture + forestry + fisheries + mining

4 Export Subsidies and the 1979 Subsidies Code 1979 Subsidies Code: “plurilateral”? 1979 Subsidies Code: “plurilateral”? Export subsidies prohibited per se Export subsidies prohibited per se Primary products ► “certain …”: mining out 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” 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? Displacement v. equitable share: difference? The agriculture discipline unchanged The agriculture discipline unchanged Agricultural disputes proliferated Agricultural disputes proliferated

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

7 Export subsidies under the AoA Definition: subsidies contingent upon export performance Definition: subsidies contingent upon export performance Included: illustrative list of 6 specific practices: Art.9:1 Included: illustrative list of 6 specific practices: Art.9:1 Elements of definition: subsidy + export contingency (not defined by AoA): Elements of definition: subsidy + export contingency (not defined by AoA): Resort to SCM? 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.” 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 Subsidies under AoA potentially broader than under SCM

8 The AoA export subsidies discipline Key AoA provisions: Art. 8: 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.” “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: All export subsidies divided into two: listed and non-listed listed and non-listed All agricultural products divided into two for export subsidies purposes: All agricultural products divided into two for export subsidies purposes: Scheduled and non-scheduled Scheduled and non-scheduled

9 Export subsidies ct’d Article 3.3: 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.” “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: Listed subsidies on scheduled products: permitted subject to reduction commitments in value and volume: By: 36% value; 21% volume By: 36% value; 21% volume From: base period From: base period On: scheduled products On: scheduled products Listed subsidies on non-scheduled products: prohibited Listed subsidies on non-scheduled products: prohibited Non-listed subsidies on scheduled products: permitted but no circumvention! (Art. 10:1) Non-listed subsidies on scheduled products: permitted but no circumvention! (Art. 10:1) Non-listed subsidies on non-scheduled products: prohibited (SCM) Non-listed subsidies on non-scheduled products: prohibited (SCM)

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

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

12 EU Sugar: Highlights Complainants: Australia, Brazil, Thailand 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, New Zealand, Paraguay, and the US 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, New Zealand, Paraguay, and the US Challenged measure: EC Regulation No. 1260/2001 on the common organization of markets in sugar sector 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 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: Two categories of production quotas: A sugar and B sugar: sets max quantities eligible for domestic price support and export subsidies sets max quantities eligible for domestic price support and export subsidies No limits on production, but: 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 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 Intervention prices fixed for A and B beet Sugar manufacturers must pay growers at least minimum price 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 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 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 EC preferences: sugar protocol (ACP) and India

14 EU Sugar ct’d EC Commitments for sugar export subsidies: EC Commitments for sugar export subsidies: €499.1 million (value) and 1,273.5 thousand tonnes (vol) €499.1 million (value) and 1,273.5 thousand tonnes (vol) The controversial footnote to EC schedule: 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." "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: EC export subsidies actually provided in 2001/02: million tonnes million tonnes Compare against commitment level of million tonnes Compare against commitment level of million tonnes Not all excess explained by ACP/India sugar: hence claim of cross-subsidization of C sugar! Not all excess explained by ACP/India sugar: hence claim of cross-subsidization of C sugar!

15 EU Sugar ct’d Complaint: 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. 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. 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: 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 (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 (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 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? 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! 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: Relations to the Lomé/Cotonou sugar protocol: Is this the end of the sugar protocol? Is this the end of the sugar protocol? Is sugar following on the foot steps of bananas? Is sugar following on the foot steps of bananas?

17 User marketing or Step 2 payments: 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 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: Payments to domestic users: import-substitution: compensate users for buying domestic; not protected by peace clause; violation of SCM Art. 3.1(b) import-substitution: compensate users for buying domestic; not protected by peace clause; violation of SCM Art. 3.1(b) Payments to exporters: Payments to exporters: subsidizing exports: making exportation profitable subsidizing exports: making exportation profitable Problem: US had no scheduled commitments for export subsidies to upland cotton; no scheduling = no subsidies Problem: US had no scheduled commitments for export subsidies to upland cotton; no scheduling = no subsidies US Upland Cotton on export subsidies

18 Other Means of Export Support: Export Credits Export credit: Export credit: export financing schemes on terms more favourable than the market due to gov’t backing export financing schemes on terms more favourable than the market due to gov’t backing Art. 10:2: agreement to develop internationally agreed disciplines: Art. 10:2: agreement to develop internationally agreed disciplines: Result: failure due mainly to US opposition Result: failure due mainly to US opposition Promising developments in Doha Promising developments in Doha Issue: implications of AB ruling in US Cotton? 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: 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 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? How does it work? Example based on GSM 102: Example based on GSM 102: exporter receives L/C in its favour from a foreign bank exporter receives L/C in its favour from a foreign bank exporter applies for guarantee before making the exportation 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 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 if foreign bank fails to make payment, the USDA’s Commodity Credit Corporation (CCC) steps in

20 Brazil: export credit guarantees violate AoA Arts & 8, not protected by peace clause, and violate SCM Art. 3.1(a) and 3.2 Brazil: export credit guarantees violate AoA Arts & 8, not protected by peace clause, and violate SCM Art. 3.1(a) and 3.2 US: AoA Art excludes export credit guarantee programs from AoA export subsidy disciplines, and if not, beneficiaries pay premiums, so no subsidy US: AoA Art 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): 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 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 Export credit guarantee a non-listed subsidy, used to circumvent commitments; in violation of AoA Art Not protected by peace clause; in violation of SCM Art. 3.1(a) and 3.2 Not protected by peace clause; in violation of SCM Art. 3.1(a) and 3.2 export credit guarantees ct’d

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

22 Major Export Subsidies Issues for the Doha Negotiations Export subsidies “proper”: Export subsidies “proper”: Issue: when, not whether, to eliminate them (see Doha Declaration) Issue: when, not whether, to eliminate them (see Doha Declaration) Other export support mechanisms: 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. 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! Export restrictions: Japan no longer alone! The new issue of food supply security even when you can afford to pay for it 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 A breakthrough – agreement to abolish all forms of export subsidies: date to be agreed Commitment covers: Commitment covers: listed export subsidies 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) 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 trade distorting practices of exporting STEs food aid violating rules to be agreed food aid violating rules to be agreed S&D: S&D: Longer phase out implementation periods = a false image! Longer phase out implementation periods = a false image! AoA Article 9.4 exemptions (marketing and transport) to be available for a ‘reasonable period’! 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 Future agreements on export credits, etc. to accommodate concerns of LDCs and NFIDCs To address food emergencies otherwise impossible To address food emergencies otherwise impossible

24 HK Ministerial Elimination of export subsidies set for end 2013: will it happen? Elimination of export subsidies set for end 2013: will it happen? Guidelines agreed on new disciplines Guidelines agreed on new disciplines Export credits, export credit guarantees or insurance programmes with repayment periods of 180 days and below should: 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 be self-financing, reflect market consistency, and period should be of a sufficiently short duration Trade-distorting practices of STEs: Trade-distorting practices of STEs: disciplines to extend to the future use of monopoly powers disciplines to extend to the future use of monopoly powers Food aid: Food aid: commitment to maintain adequate levels 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 "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 to ensure elimination of commercial displacement New disciplines set to be agreed by 30 April 2006 as part of modalities, but missed 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: Elimination of scheduled export subsidies: Developed countries by end 2013 Developed countries by end 2013 Developing countries: by end 2016 Developing countries: by end 2016 cotton export subsidies to be eliminated on day 1 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) 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 Export credits/guarantees/insurance: Annex J Exporting STEs: Annex K Exporting STEs: Annex K Int’l food aid: Annex L Int’l food aid: Annex L

26Readings Official Documents: Official Documents: Texts of GATT 1947; Agreements on Agriculture and SCM 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 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 Doha Revised Draft Modalities For Agriculture, TN/AG/W/4/Rev.2, 19 May 2008 Primary Readings: 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 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 WTO, Unofficial Guide to Revised Draft Modalities, 19 May 2008, at Cases: Cases: United States – Subsidies on Upland Cotton, WT/DS267, Panel Report (8 September 2004), and AB Report (3 March 2005) 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) 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)