AGRICULTURE ISSUES IN BALI Draft 22 September 2013 1. Introduction A few elements from the Doha negotiations have been identified by some developing country groupings for a possible solution at Bali. At the time of writing, it is not yet clear what would finally emerge from the Bali Ministerial. Nevertheless, pre-Bali discussions in the area of agriculture have centered around the following proposals: the G33’s food security proposal; the G20’s proposal on export competition and the G20’s proposal on tariff rate quotas. Of these, the G33’s proposal is the most concrete in terms of delivering something substantial and meaningful – in the immediate term or in the future - to developing countries. Disappointingly, the discussions prior to the Ministerial seem to be considering solutions which are narrowly focused¸ for example, possibly only providing for an ‘interim’ solution. It is furthermore deeply unfortunate that almost 20 years after the conclusion of the Uruguay Round, the promise that the imbalanced Agreement on Agriculture would be renegotiated and rebalanced so that developed countries are no longer dumping their subsidised agricultural products on the world market and in developing countries, is not being fulfilled. The truth of the matter is that the Bali Ministerial will also not provide solutions in this regard. 2. The G33 Food Security Proposal This proposal is a follow up from the Doha 2001 mandate in the agricultural negotiations pertaining to developing countries, and the need to safeguard food security, rural livelihoods and rural employment It is important to note that the G33’s proposal (JOB AG/22 13 November 2012) was not a new invention prior to Bali. It reproduces a part of the last version of the Doha agriculture modalities text of 6 December 2008 (TN/AG/W/4/Rev.4, Annex B) which was already ‘stabilised’. At a systemic level, the proposal in its original form would have injected a small dose of ‘equity’ in the Agreement on Agriculture. A major and glaring loophole created in the Uruguay Round’s Agreement on Agriculture to benefit the developed countries was the ‘Green Box’ (or Annex 2 of the Agreement on Agriculture). The Green Box allows countries to provide a range of support programmes in agriculture, and these supports can be provided without limits. However, the programmes elaborated upon under the Green Box (Annex 2) are those provided by developed countries. They include direct payments to producers, decoupled income support (supports given to landowners whether or not they produce as these subsidies are not tied to production); insurance payments of various forms and structural adjustment assistance to retiring producers or resource retirement programmes. The programmes that developing countries provide – government purchases from producers at administered prices – are not included in the Green Box, but must be ‘counted’ under a country’s Aggregate Measure of Support commitment (AMS or so-called trade distorting domestic supports) (footnote 5 of Annex 2).
This ‘inequity’ in the rules is further compounded by the fact that most developing countries bound themselves at zero AMS in the Uruguay Round (this was the case for 61 out of 71 developing countries when the WTO came into effect). Since then, most acceding developing countries have also had to bind their AMS at zero. Those developing countries which have declared providing some AMS declared only very small amounts due to their fiscal limitations. As a result, developing countries effectively bound themselves to not being able to provide ‘trade-distorting’ (AMS) domestic supports aside from the ‘de minimis’. The de minimis for developing countries means that they can provide AMS up to 10% of the value of production of a certain product. In stark contrast, developed countries in the Uruguay Round declared high levels of AMS. Their Uruguay Round commitment was a reduction of AMS supports by only 20%. After reductions, at the end of its Uruguay Round implementation, the US has a bound AMS ceiling of USD 19 billion. The EU (27) has a bound AMS ceiling of 72 billion EUROs. In sum, this means that developing countries declaring zero trade distorting domestic supports were locked into providing zero amounts of supports (aside from the 10% de minimis product-specific AMS), whilst developed countries providing large amounts of AMS could still continue doing so. This G33 proposal would have provided a little more balance to these rules by allowing developing countries’ public stockholding programmes when governments procure from ‘low-income or resource-poor producers’ to be incorporated under the ‘Green Box’. Just like the decoupled supports, insurance and other support instruments provided by developed countries under the ‘Green Box’, there would be no ceiling limits on these developing country support programmes. The G33 proposal would also provide a solution for the ‘distortions’ in the way the Agreement on Agriculture rules stipulate how the AMS is to be calculated when developing countries provide public stockholding programmes. The present formula provided by the Agreement leads to an artificial and inflated figure, making it effectively impossible for developing countries to provide these programmes . This is especially as prices of agricultural commodities and staples have in some cases increased by 3-4 times compared to their Uruguay Round levels. Yet the benchmark used to calculate AMS supports today as stipulated by the Agreement is still the prices of 1986 – 1988. The G33 proposal sidesteps these problems by making developing countries’ price support/ public stockholding programmes a special and differential treatment exemptionto be covered under the Green Box. G33 Proposal Addresses the ‘Distortions’ in AMS Calculations Pertaining to Acquisition of Foodstocks Logically, if a government procures from producers, the calculation of the subsidy should simply be the difference between the government’s procurement price (administered price) and the market price, multiplied by the volume the government had actually purchased. This however, is not the formula in the Agreement on Agriculture. Annex 3 paragraph 8 says:
‘Market price support shall be calculated using the gap between the fixed external reference price and the applied administered price multiplied by the quantity of production eligible to receive the applied administered price.’ • The fixed external reference price was fixed upon the conclusion of the Uruguay Round. It is the average f.o.b. (free on board) price that has been notified by a country for a product for 1986 – 1988. Due to the time that has lapsed, this price is often much lower than today’s prices. • The applied administered price can be the acquisition price announced by the government in advance. This is the price paid by the government to producers when they would sell the product directly to the government. • The ‘production eligible to receive the applied administered price’ has been interpreted by some as 100% of total production in a country (as illustrated in the calculations on http://www.wto.org/english/tratop_e/agric_e/ag_intro03_domestic_e.htm). That is, even if a government actually only procures 100 kg of a product from producers, they have to calculate the AMS supports as if they had provided price supports for the entire domestic production of that product. The end result is that the figure one attains is not what governments actually subsidise, but a much bigger and inflated figure. With these rules, it is almost inevitable that developing countries will surpass their allowed 10% product-specific de minimis, even if they procure only very small volumes of a product. The Importance of Public Stockholding Programmes in Developing Countries: The acquisition of foodstockshas always been an important instrument for development even used by developed countries in their development process. They remain an important policy tool for developing countries for the following reasons: i) In the face of volatility of food stocks on the global market today and the fluctuations in global food prices, building national reserves has been widely acknowledged as being a critical part of developing countries’ food security strategy. Today’s global food market is structurally different from the market when the Uruguay Round was completed. In the 1990s and early 2000s, food on the global market was cheap and stocks were plentiful. (There was less ‘financialisation’ of the food market, which has also caused food to be much more expensive). ii) Acquiring surpluses from some regions and sending these supplies to regions that are food deficit has and remains an important food security instrument for developing countries. This furthermore guards against countries falling into balance of payments crises if they face supply deficits and are forced to procure from the world market when prices are very high. This is also an important adaptation strategy for countries dealing with climate change and the uncertainties in supplies as a result of climatic variations and disasters.
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