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1、The green barrier to free trade C. P. Chandrasekhar Jayati Ghosh 2009-01-21As the March 31 deadline for completing the modalities stage of the proposed new round of negotiations on global agricultural trade nears, hopes of an agreement are increasingly waning. AT THE END of the latest round of meeti
2、ngs of the agricultural negotiations committee of the WTO, the optimism that negotiators would meet the March 31 deadline for working out numerical targets, formulas and other modalities through which countries can frame their liberalisation commitments in a new full-fledged round of trade negotiati
3、ons has almost disappeared. That target was important for two reasons. First, it is now becoming clear, that even more than was true during the Uruguay Round, forging an agreement in the agricultural area is bound to prove extremely difficult. Progress in the agricultural negotiations was key to per
4、suading the unconvinced that a new Doha Round of trade negotiations is useful and feasible. Second, the Doha declaration made agricultural negotiations one part of a single undertaking to be completed by January 1, 2005. That is, in a take all-or-nothing scheme, countries had to arrive at, and be bo
5、und by, agreements in all areas in which negotiations were to be initiated in the new round. This means that if agreement is not worked out with regard to agriculture, there would be no change in the multilateral trade regime governing industry, services or related areas and no progress in new areas
6、, such as competition policy, foreign investment and public procurement, all of which are crucial to the economic agenda of the developed countries. The factors making agriculture the sticking point on this occasion are numerous. As in the last Round, there is little agreement among the developed co
7、untries themselves on the appropriate shape of the global agricultural trade regime. There are substantial differences in the agenda of the US, the EU and the developed countries within the Cairns group of agricultural exporters. When the rich and the powerful disagree, a global consensus is not eas
8、y to come by. But that is not all. Even if an agreement is stitched up between the rich nations, through manoeuvres such as the Blair House accord, getting the rest of the world to go along would be more difficult this time. This is because the outcomes in the agricultural trade area since the imple
9、mentation of the Uruguay Round (UR) Agreement on Agriculture (AoA) began have fallen far short of expectations. In the course of Round, advocates of the UR regime had promised global production adjustments that would increase the value of world agricultural trade and an increase in developing countr
10、y share of such trade. As Chart 1 shows, global production volumes continued to rise after 1994 when the implementation of the Uruguay Round began, with signs of tapering off only in 2000 and 2001. As is widely known, this increase in production occurred in the developed countries as well. Not surpr
11、isingly, therefore, the volume of world trade continued to rise as well after 1994 (Chart 2). The real shift occurred in agricultural prices which, after some buoyancy between 1993 and 1995, have declined thereafter, and particularly sharply after 1997. It is this decline in unit values that resulte
12、d in a situation where the value of world trade stagnated and then declined after 1995, when the implementation of the Uruguay Round began. As Table 1 shows, there was a sharp fall in the rate of growth of global agricultural trade between the second half of the 1980s and the 1990s, with the decline
13、 in growth in the 1990s being due to the particularly poor performance during the 1998 to 2001 period. Price declines and stagnation in agricultural trade values in the wake of the UR Agreement on Agriculture were accompanied and partly influenced by the persisting regionalisation of world agricultu
14、ral trade. The foci of such regionalisation were Western Europe and Asia, with 32 and 11 per cent of global agricultural trade being intra-Western European and intra-Asian trade respectively (Chart 3). What is noteworthy, however, is that agricultural exports accounted for a much higher share of bot
15、h merchandise and primary products trade in North America and Western Europe (besides Latin America and Africa) than it did for Asia. Thus, despite being the developed regions of the world, agricultural production and exports were important influences on the economic performance of North America and
16、 Western Europe. It is, therefore, not surprising that Europe is keen on maintaining its agricultural sector through protection, while the US is keen on expanding its role in world agricultural markets by subsidising its own farmers and forcing other countries to open up their markets. The problem i
17、s that the US has been more successful in prising open developing country markets than the large EU market. Thus, out of $104 billion worth of exports from North America in 2001, $34 billion went to Asia and $15 billion to Latin America, whereas exports to Europe amounted to $14 billion. The Cairns
18、group of exporting countries (Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, the Philippines, South Africa, Thailand and Uruguay), for some of whom at least agricultural exports are extremely important, want world ma
19、rket to be freed of protection as well as the surpluses that result from huge domestic support in the US and the EC. We must note that $35 billion of the $63 billion of exports from Latin America went to the US and the EU. More open markets and less domestic support in those destinations is, therefo
20、re, crucial for the region. The fact that Europe has been successful in its effort at retaining its agricultural space with the help of a Common Agricultural Policy that both supports and subsidises its agricultural producers is clear from Chart 4, which shows that intra-EC trade which accounted for
21、 74 per cent of EU exports in 1990, continued to account for 73 per cent of total EU exports in 1995 and 2001. But North America, with far fewer countries in its fold, has also been quite insular. Close to a third of North American exports are inter-regional. Little has changed since the Uruguay Rou
22、nd Agreement on Agriculture. It is widely accepted that three sets of actors account for this failure of the AoA: First, in order to push through an agreement when there were signs that the Uruguay Round was faltering, the liberalisation of agricultural trade in the developed countries was not pushe
23、d far enough; Second, is the ability to use loopholes, especially those in the form of inadequately well-defined Green and Blue Box measures, in the AoA, to continue to support and protect farmers on the grounds that such support was non-trade distorting; and Finally, there are violations of even th
24、e lax UR rules in the course of implementation, which have been aided by the failure of the agreement to ensure transparency in implementation. Not surprisingly, some countries, especially the Cairns group of exporting countries, have proposed an ambitious agenda of liberalisation in the agricultura
25、l area. Tariffs are to be reduced sharply, using the Swiss formula, which would ensure that the proportionate reduction in the tariffs imposed by a country would be larger, the higher is the prevailing bound or applied tariff in that country. The formula arrives at the level to which tariffs in a co
26、untry would be reduced by multiplying the existing (bound or applied) tariff by a numerical factor, and dividing the result by the sum of the current tariff rate and the numerical factor. The factor for developed countries proposed by the Cairns group is 25. Thus, a country with a tariff rate of 100
27、 per cent on a particular product would have to reduce the rate to 20 per cent (2500/125), whereas a country with a 75 per cent tariff rate would have to reduce it proportionately less to 18.75 per cent (1875/100). Further, in keeping with the Special and Differential treatment requirement, the fact
28、or for the developing countries is proposed at 50, making their reduction requirements much smaller (to 33.3 and 30 per cent respectively in the case of a 100 and 75 per cent tariff). Besides tariff reduction, the Cairns group has called for an enhancement of the minimum import levels of particular
29、commodities by using lower tariffs (tariff rate quotas), argued for a sharp reduction in the aggregate support that can be provided using impermissible support measures, supported the scrapping of the so-called Blue Box measures fashioned during the Uruguay Round to appease the EU countries, and rec
30、ommended stricter guidelines for assessing whether particular measures of support fall under fully permissible Green Box provisions. These ambitious demands notwithstanding, it is clear that an agreement on modalities in time for the March 31 deadline is unlikely to materialise. Around the time of t
31、he January 22-24 meetings of the agricultural negotiators, the European Union Agricultural Commissioner, Mr Franz Fischler, made it clear that that the late March deadline will be missed. Mr Fischler reportedly declared that the March 31 deadline set at Doha was for the chairman of the agricultural
32、negotiating group to present his proposal for modalities and that did not mean automatically that the next day all members of the WTO will agree to that proposal. In any case, with discussions on the reform of the EUs Common Agricultural Policy expected to continue well into the summer, the EC does
33、not yet have a fully formulated position to adopt in the course of the negotiations. Thus, the March 31 deadline cannot be met. Till such time as these issues are cleared it is not at all certain that an agreement on agriculture, which is a prerequisite for the launch and completion of the Doha Roun
34、d of trade negotiations, can be ensured by 2005. Those in a hurry to get to that goal are in for a disappointment. But that prospect is not new. WTO members have already missed a December deadline for an agreement on patents and the supply of essential commodities, because of US intransigence. They
35、have also missed the deadline to work out modalities for special and differential treatment of developing countries. In the medias blame game seeking to identify the culprit holding up progress towards an agreement on agriculture, once again the lead contender is the European Union. The grounds for
36、this focus on the EU are, however, shaky. The US, too, offers substantial support to its farmers, and has significantly hiked this support through the Farm Security and Rural Investment Act of 2002. Outlays on farm programmes in the US, principally income and price support programmes, averaged more
37、than $15 billion a year between 1996 and 2002, and had touched a high of $32.3 billion in 2000. The 2002 Act promises on paper to keep this high support going, by authorising expenditures totalling $118.5 billion over a six-year period ending 2007. The actual figure is expected to be much higher. It
38、 is well known that this support goes disproportionately in favour of a few large commercial farms, which are the ones accounting for a majority of supplies to the US and international markets. nasmuch as such support, even if provided in the form of direct income payments decoupled from actual prod
39、uction, indirectly affects farmers production and pricing decisions, they influence availability and prices in world markets. That is, they do distort world trade even if the UR round agreement claims they do not. What the 2002 Farm Act indicates is that the US has no intention of cutting back on su
40、ch support, and is unlikely to accede to any agreement that warrants such a cut. The reason why this implicit stance of the US does not lead to its identification as a bottleneck in the current negotiations on agriculture is that almost all of this support is in the form of Green Box measures, or me
41、asures of support that are acceptable under the Uruguay Round agreement because they are ostensibly non-trade distorting. Not surprisingly, the US proposals advanced in the course of the work programme that began in March 2002, combine: a plea for export subsidy abolition; recommendations for increa
42、sed market access through quota abolition, tariff reduction and enhanced tariff-rate quotas (or a minimum level of imports of each commodity that needs to be ensured with lower tariffs); and a case for either doing away with domestic support that does not fall in the Green Box category or the substi
43、tution of such support with outlays on new Green Box measures. That is, the US proposals are clearly not in the direction of reducing state support for agriculture, but of manipulating the agricultural support regime in the direction of what was defined to be non-trade distorting in the course of th
44、e Uruguay Round. Seen in this background, the new stand on agricultural support still being discussed among EU members is by no means bizarre. The European Commissions recently released proposals for reform of the Common Agricultural Policy (CAP) do not promise any cut in total spending. But they do
45、 not point to any substantial increase either, since the EU leaders agreed last year to a 1 per cent ceiling on annual increases in the farm budget. In addition, the proposals currently being discussed make an effort to link subsidies less directly with production, thereby rendering them non-trade d
46、istorting. The difficulty the EU faces is that of mooting and then winning agreement among its members on doing away with export subsidies and on making a complete transition to Green Box measures. Since the support afforded to agriculture in EU countries is large and multifarious, a complete transi
47、tion is not easy to achieve. France, for example, which receives more money from the CAP than any other country is vehemently opposed to that transition, with vocal support from President Chirac. As a result, the EU in its proposals submitted in December to the agricultural negotiations committee, h
48、as called for retaining the Blue Box and for continuing with the Peace Clause, which protected Blue Box measures from being challenged during the implementation period of the Uruguay Round. That is, the EU wants the right to openly and transparently support and protect its farmers, and wants adequat
49、e elbowroom within the agreement to do so. But the fact that it is unwilling to go the US way, by opting for less transparent support measures that have been defined as acceptable helps those who paint it as the stumbling block on the road to free trade. The reason for the peculiar situation is that through the manoeuvres made during the Uruguay Round, especially the famous Blair House accord, the rich nations managed to obtain Cairns group concurrence
