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Report on the AITIC / UNCTAD Informal Brainstorming Forum on the Political Economy of the WTO Agriculture Negotiations
(held at AITIC, Rue de Varembé 9, Geneva, on 17 May 2002)

Introduction
WTO Agricultural Negotiations and the European Union Agricultural Trade Policy
The Outcome of the Doha Ministerial Conference and Developing Countries’ Role
Japan’s Perspectives on the WTO Agriculture Negotiations
Trade Policy Impacts of US Agriculture Policy

I. Introduction

1. This half-day seminar was jointly organised by the Agency for International Trade Information and Cooperation (AITIC) and the Commercial Diplomacy Programme of the United Nations Conference on Trade and Development (UNCTAD). It included presentations by independent experts on the current agricultural trade policies of selected World Trade Organization (WTO) member countries in the context of the ongoing negotiations. The objective was to assist developing countries and economies in transition in the understanding of the main issues at stake in the current agricultural trade negotiations.

2. The issues covered included the European Union (EU) agricultural trade policy; the outcome of the Doha Ministerial Conference; Japan’s proposals in the WTO agriculture negotiations; and the trade policy impacts of US agricultural policy. Ms Sheila Page (Overseas Development Institute, United Kingdom), Mr Yasushi Fujii, (Kyodo News Geneva Bureau) and Mr Michael Swidinsky (AgriFood, Canada) were the speakers.

II. WTO Agricultural Negotiations and the European Union Agricultural Trade Policy

3. Ms Sheila Page presented an overview of the WTO negotiations on agriculture, with particular emphasis on the EU’s perspective. She remarked that the main areas where the EU was interested in advancing trade liberalisation were: services, market access for industrial products and some issues of rules and intellectual property. The EU position in agriculture was mainly of a defensive nature. Notwithstanding pressures to reform its Common Agricultural Policy (CAP), the EU remained strongly committed to maintaining its current agricultural regime. New EU concessions in these areas could probably only be obtained as trade-offs for a settlement on the trade and environment negotiations.

4. The speaker said that, in agriculture, the dividing line between the EU, supported by Switzerland, Norway and Japan on the one hand, and on the other a coalition including the Cairns Group, with their ideological commitment to free trade, the US and other Latin American countries, had not changed much since the Uruguay Round (UR). Before Seattle, the EU had introduced the concept of non-trade concerns (or multifunctionality) to suggest that agriculture had functions (environmental and food security) other than just producing and trading food products. However, these functions could only be secured by protecting agriculture as an economic activity. She noted that the UR Agreement on Agriculture, which provided the basis for the negotiations, referred to non-trade concerns as legitimate issues to be taken into account.

5. Although the final UR settlement had been largely negotiated between the EU and the US, the Cairns Group was sufficiently strong to block their first proposal. [Note 1] Argentina and Brazil played an important role in this and were particularly active in preventing an EU/US brokered settlement in 1990. Ms Page stressed that the participation of developing countries in agriculture negotiations was very different from that in other negotiations such as those on textiles and clothing, or in previous negotiations on special and differential treatment. In the agriculture area, developing countries were no longer operating as a group. Developed and developing country exporters tended to have similar interests, whereas developing country importers’ interests were more closely aligned to those of the ‘subsidiser’ developed countries, who could provide them with cheap food imports.

6. A number of developing countries had put forward a proposal aimed at including in the Doha mandate a specific reference to the addition of a ‘development box’. The submission, which dated back to 2000 and included a group of eleven countries, [Note 2] proposed to treat agriculture as a special element in the development process given its role as being the sector which employed a high proportion of rural and low-income labour and the high contribution of agriculture to GDP and income. This would justify allowing developing countries to take measures to protect or promote their agricultural sector, beyond those normally allowed, particularly special treatment for small farmers. The speaker stated that to obtain the right to take such measures was going to be difficult in the reciprocity-based climate of trade relations, unless it became part of a bargain which accepted multifunctionality. She noted that this would require an assessment of whether such a solution would really be in the interest of all developing countries.

III.  The Outcome of the Doha Ministerial Conference and Developing Countries’ Role

7. Ms Page noted that negotiations on agriculture had been started since 2000 but with little expectation of success without a ministerial nudge. At the Doha Ministerial Conference there was a broad based alliance against the EU’s efforts to protect its subsidies regime and to obtain recognition that agriculture could play a role in the promotion of social and environmental objectives (multifunctionality).

8. The Doha Declaration accepted that special and differential treatment should be an integral part of the new agriculture negotiations and future agreements. This could be seen as a shift back to the pre-Uruguay Round position supporting the need for special treatment, including less stringent obligations and longer transition periods.

9. The Doha Declaration also extended the transition periods for LDCs to comply with obligations in the area of subsidies and intellectual property rights. These were both important parts of developing countries positions and were strongly opposed by developed countries in the initial discussions on implementation between Seattle and Doha. The relative ease for achieving these at Doha was a result of the informal negotiations and presumably the assessment that these were a necessary part of any bargain. In relation to the environment, on the contrary, there had been a strong defeat for the developing countries.

10. On the US Farm Bill, the speaker was of the opinion that it marked a departure from the liberalisation efforts and that it was a partial move towards unilateralism. The Farm Bill had already been the target of strong international censure. The alliance that was successful at Doha had already split, as the US Farm Bill would make it harder to argue for reform in the EU.

11. Ms Page envisaged that in the negotiations there could be a move to displacing subsidiaries currently in the blue box [Note 3] towards the green box [Note 4] and, in general, a shift in EU policy towards granting non-product related subsidies. Although much criticism focused on subsidies, she stated that the current system of subsidies could be on balance beneficial for poor African countries, with the exception of those trying to export processed foods or those particularly damaged by exports of particular subsidised products. However, in balance they would gain more from improved access to the EU and other markets than from lower subsidies. One way to achieve this would be to maintain and extend country-specific tariff quotas, but their WTO compatibility was now being questioned.

12. The speaker noted that in order to reform agriculture through multilateral or bilateral negotiations, countries would need to assess the value of any change against the cost of achieving it. Possible offers could include granting access for other goods or services or allowing continuance of the Peace Clause. The end of the Peace Clause [Note 5] in 2003 offered, in fact, a potential lever, as the EU might be willing to make a significant offer in exchange for keeping some subsidies. To use this lever, developing countries would need to define their own priorities and form effective negotiating groups. The ACP countries might be able to use this bargaining chip in the Cotonou negotiations, for example by offering support for the Peace Clause in exchange for better market access. On the other hand, some developing countries, for example in Latin America, had a much stronger interest in reducing subsidies and ending the Peace Clause. The speaker added that there were even differences of interest amongst the ACP countries, making the question of alliances difficult.

IV. Japan’s Perspectives on the WTO Agriculture Negotiations

13. Mr Yasushi Fujii noted that Japan was a very large importer of agriculture, fishery and forestry products, with a high net trade deficit in these areas. Japan had been very steadfast in its position in the WTO agriculture negotiations. Its proposals, aimed at ‘co-existence of diverse agricultures’, included support of the multifunctional role of agriculture for guaranteeing food security, and for balancing the rules applied to exporting and for importing countries (maintaining the current framework of domestic support while strengthening export disciplines). Japan was of the view that consideration should also be given to developing countries’ interests and to consumers’ and civil society’s concerns.

14. Mr Fujii also stated that Japan’s trade policy was drawn up and implemented by the Ministries of Foreign Affairs, Trade and Economy and Agriculture. Many Japanese members of Parliament, especially members of the leading party, the Liberal Democratic Party, relied on farmers and agricultural organisations at election time. Moreover, Japanese consumers were very sensitive to food quality and food safety issues and would gladly pay twice the price of imported products if more expensive domestic products looked safer and tasted better.

15. The speaker finally said that Japan had no interest in making any concessions in agriculture. Thus, there was the need for a cross-area package deal.

16. In general discussion, it was noted that some countries had good quality agricultural products without recurring to granting subsidies.

V. Trade Policy Impacts of US Agriculture Policy

17. Mr Michael Swidinsky noted that the US government had begun to intervene in agriculture during the Great Depression of the 1930s. This intervention was only intended to be temporary but because of cost-reducing technologies, prices declined steadily. The power of the farm lobby in the US ensured continuation of such support, which had a relatively small budgetary impact and limited negative effects on consumers.

18.  Mr Swidinsky provided detailed information and comments on the US support to agriculture. In particular, he said that US support for agriculture as a percentage or the value of production was lower than that of the EU and Japan, but above Canada and Australia. US support declined steadily from 1987 until 1997; then it increased, particularly for grains and oilseeds, so as to reach the pre-Uruguay Round level.

19. The US agricultural policy was regulated by the Farm Bill, which usually covered a period of five years. The latest Farm Bill was the 1996 Federal Agriculture Improvement and Reform (FAIR) Act, which expired this year. Prior to 1996, legislation had involved heavy government intervention in agriculture due to falling market prices. To control costs, the government had to impose planting restrictions and land idling. The 1996 FAIR Act was a partial reform to stop such heavy government intervention. Farmers were allowed planting flexibility and mandatory land idling was ended. Deficiency payments were replaced with direct payments that were decoupled from production. The new Farm Bill was intended to reverse the FAIR Act’s partial reforms. It was estimated to cost $190 billion over ten years, $83 billion more than continuing the 1996 FAIR Act. It would reintroduce counter-cyclical payments, such as deficiency payments. However, it would not end planting flexibility or reintroduce mandatory land idling.

20.  The 1996 FAIR Act had come into force along with the Uruguay Round Agreements Act (URAA). In the initial years of the URAA, the US was well below its aggregate measurement of support (AMS) ceiling. However, total AMS began to increase in 1997 as crop prices deteriorated. In addition, the US began to provide ad hoc emergency payments. In its latest domestic support notification to the WTO (1998), the US notified market loss assistance as non-product specific AMS. As it was then de minimis, it was not counted in total AMS. The US was now close to its ceiling and it might exceed it for 2002.

21. The speaker stated that it could be assumed that counter-cyclical payments would be considered as product-specific AMS. If prices improved, then the total AMS would stay beneath its AMS ceiling. However, if prices declined, the US might very well breach its AMS ceiling commitment. This could cause costs to spiral out of control for counter-cyclical payments and loan deficiency payments. If this were to happen, the US might re-implement supply controls. In the WTO negotiations, the US could be eager to retain the blue box, as these counter-cyclical payments would probably fall within its scope.

22. The speaker concluded his presentation by highlighting the effects of the new Farm Bill on developing countries. He stated that the new Farm Bill would increase the amount of support to US agriculture. While most types of subsidies distorted production, some were more harmful than others. The programs in the new Farm Bill were of the more distorting kind. Excess production generated by these subsidies would end up on the world market. As a result, this would depress world prices. For those developing countries that were net food importers, this would reduce their import bills. For those that were net exporters of similar products, this would reduce their export earnings.