Panos Konandreas, Jim Greenfield and Ramesh Sharma

FAO

I. INTRODUCTION

Article 20 of the Uruguay Round (UR) Agreement on Agriculture (AoA) commits countries to work towards the objective of substantial progressive reductions in support and protection in agriculture. That Article contains a commitment for the continuation of the reform process in agriculture to be initiated in 1999. Yet, the experience with the implementation of the AoA is still incomplete, some of the expected impacts of the AoA are yet to be felt, some of the commitments already made by countries have not been fully implemented, and some rules agreed by countries to govern agricultural policy in the future may not be working as anticipated. Therefore, this commitment for a continuation of the reform process in agriculture provides an opportunity not only to address questions of further reductions in support and protection but also to review the experience so far. This would provide valuable guidance for future negotiations and ensure that such negotiations would be based on more solid ground.

This paper looks at issues in the context of Article 20 in order to provide some input in the process leading to the continuation of the reform process in agriculture, especially reflecting on issues and concerns from a developing country perspective. The paper first makes the case for the continuation of the reform process in terms of the legal obligations countries have within the existing agreements, as well as the substantive reasons that would urge some of them to pursue the negotiations. Second, the paper looks at the meaning of the provisions of Article 20, especially as regards the need for countries to prepare for future negotiations. Third, an attempt is made to provide a preliminary assessment from the experience so far of certain aspects of Article 20 and to point at some further issues associated with a proper assessment of these provisions. Finally, the paper turns to some issues that may be in the agenda of future negotiations in agriculture.

II. WHY FURTHER NEGOTIATIONS IN AGRICULTURE?

Article 20 of the AoA points the way to further negotiations on agriculture to be initiated in 1999. The form that these negotiations (i.e. whether they would be only sectoral and cover "mandatory" subjects like agriculture, services and parts of intellectual property, or whether they would constitute a comprehensive round extended to other sectors (all goods) and/or new areas (like competition policy and environment) is still to be decided.

Irrespective of whether negotiations turn out to be sectoral or a full fledged round, there are both legal and substantive (economic) reasons that would compel countries to negotiate on agriculture.

In addition to Article 20 (the implications of which are discussed below), the AoA includes several other provisions which fall into the in-built agenda for future negotiations in agriculture. These include Article 5, Annex 5 and Article 13.

Article 5 (para 5.9) concerns the duration of the special safeguard (SSG) provisions. It stipulates that the SSG "shall remain in force for the duration of the reform process as determined under Article 20". This could be seen to mean that the SSG remains in force during the negotiations, even if the latter are very protracted, but it could also mean that its extension would be determined through Article 20 negotiations. Some analysts have argued that the SSG "would lapse if the reform process provided for in Article 20 should falter".

Annex 5 of the AoA allows a few countries, notably Japan and the Republic of Korea, to avoid tariffication by offering higher market access commitments than otherwise. If these countries wish to extend this special derogation beyond the end of the implementation period this would need to be negotiated.

Finally, perhaps the most important provision of the AoA that requires negotiation is Article 13—the Peace Clause. This only lasts during the implementation period of the Uruguay Round itself, i.e. until 2003/4. This clause is of considerable importance as it stops members from bringing challenges against export subsidies, Green Box, Blue Box and de minimis domestic support. In other words, most of the subsidies that are allowable in the AoA could become subject to challenge in the Disputes Settlement Mechanisms of the WTO if a member can show injury. This would surely be the reason why countries relying on the use of subsidies would have a strong interest in negotiating an extension of Article 13. On the other hand, countries that may be harmed by such subsidies would have a strong interest in insisting a termination of Article 13. This, therefore, provides a big subject for negotiation.

Turning to the substantive reasons for undertaking further negotiations, these can basically be said to relate to problems with the working of the existing agreement and the desire, or lack of it, for further trade liberalization.

First, there have been a number of problems, widely discussed, in the implementation of the existing agreement. These concern mainly the administration of the tariff quota system, compliance with export subsidy and domestic support reduction commitments, the question of export credits, state trading and the Ministerial Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries. A wide range of countries have interests in these questions—both importing and exporting countries, and several of these issues have figured in the Analysis and Information Exchange (a.i.e.) process that is going on under the aegis of the WTO Committee on Agriculture (CoA). Other implementation issues are bound to arise as the review process of notifications continues at the CoA.

Secondly, many countries have vital interests in expanding their agricultural exports, through further trade liberalization. Protection of agriculture remains very high in many countries, with all the attendant costs to governments and consumers; and as governmental budgeting disciplines are everywhere tightening up, there are increasingly voices urging reductions in farm support, both from inside and outside. As regards outside pressure, the Cairns Group has already made it plain that they wish negotiations to take place to further the reform process.

All in all, there are plenty of reasons, both legal and substantive (but not necessarily the same reasons for all countries), to expect a serious interest in future negotiations in agriculture. Therefore it is important to explore the steps needed by countries to prepare for such negotiations. In this context, the paper examines the implications of Article 20, followed by a preliminary assessment of some of its specific provisions based on the experience so far, before offering some comments on the agenda for future negotiations in agriculture.

III. IMPLICATIONS OF ARTICLE 20

As already stated, Article 20 is part of the legal obligations of countries to the continuation of the reform process. It recognizes that to reach the long term objective of substantial and progressive reductions on agricultural support and protection there is a need to continue negotiations, taking into account: (a) the experience from implementing the reduction commitments; (b) the effects of the reduction commitments on world trade in agriculture; (c) non-trade concerns, special and differential treatment to developing country Members, and the objective to establish a fair and market-oriented agricultural trading system, and the other objectives and concerns mentioned in the preamble to the Agreement; and (d) what further commitments are necessary to achieve the above mentioned long-term objectives.

This text reflects the views of members of the WTO although they can clearly differ on such questions as to what is the "long term", how great is "substantial", and how much care is exercised in "taking into account" the number of factors listed under (a) to (d) above. However, one thing that is clear is that Article 20 has implications for countries in preparing for the continuation of the reform process. Let us consider the implications of the issues identified in Article 20 as pre-conditions for further reform.

The experience from implementing reduction commitments so far is being monitored by the WTO CoA which reviews in detail the notifications posted by members of the WTO. The CoA has looked in particular into market access issues such as tariff-rate quota regimes, questions related to "green box", AMS calculations and export subsidy reductions. Some of these issues that have emerged are discussed in Section V below.

In addition to the general review by the CoA, each member of the WTO should assess the implications for itself of the implementation of its commitments. In some developing countries, difficulties faced so far have been due to lack of trained personnel to fully appreciate the implications of the provisions of the AoA and implement them in practice, as well as due to inherent difficulties in adapting on-going domestic agricultural policies to the new rules. In FAO’s experience with assisting member countries adjust to the UR, difficulties have often been faced also in meeting the demanding notification obligations to the CoA. This included, inter alia, both limitations in the availability of relevant data and analytical capacity to undertake the necessary calculations on AMS, etc.

The other implementation issue that each country should review is its experience with how other countries have implemented their commitments. Basically it is to the interest of each country to review the policies of its major trading partners, i.e. what policies, what market access conditions and what export subsidies affect its interests. The trader’s experience with the working of UR policy reforms in other countries needs to be tapped so that negotiators can press for changes in schedules of tariffs of trading partners and/or define clearly when trading policies of other countries are harming the domestic agricultural sector.

By its very nature, this assessment is difficult to undertake because it is not clear what the situation would have been without the UR. It is particularly difficult to single out the net effect of the UR commitments vis-à-vis several other important developments that have impacted on world trade such as weather effects, major structural changes in important trading countries, currency adjustments, the financial crisis in East Asia, etc. One approach that can give an indication of changes is to examine the level of trade, prices, stocks, etc., before and after the UR, e.g., and compare the trends (based on data before 1995) with the actual levels after 1995 to see whether there was any evidence of a change in trends. But, again this requires a considerable value judgement to disentangle the factors responsible for any major change in trends during this period.

More important is to examine individual country trade performances. Each country should have at hand the relevant data to distinguish between changes in trade flows due to internal factors (say due to weather-related production variations), and due to external factors such as a more competitive trading environment. Again, it would be appropriate to compare recent data on such as area under food crops, and the evolution of domestic prices vis-à-vis world prices since 1995 with previous trends. The private sector should also be asked to provide inputs to this review so that the specific improvements and emerging problems can be identified.

Article 20 also refers to the need to take into account "non-trade concerns" which in the preamble to the AoA are defined to include, inter alia, food security. Food security involves the concepts of adequacy of food supplies, stability and access. As regards adequacy of food supply, to a large extent this depends on domestic production in most developing countries. In this connection, countries should examine whether food production has been assisted by the experience to-date or whether UR commitments represent undue restraints. Is there adequate flexibility to support domestic producers?

As regards stability, the behaviour of the world market of basic food commodities is of particular importance and countries may wish to review whether, in periods of particularly high prices such as 1995/96, they were able to maintain the required volume of food imports. They should also review whether available trade safeguards against instability are adequate.

Food importing countries should also examine their experience with access to food. Has there been any problem with gaining physical access to supplies in the world market. In terms of economic access, have their overall export earnings kept pace with their food import bills? Have existing facilities and credit arrangements been adequate to ensure that they would import adequate volume of food? Related to this, is the particular experience of those countries classified as Least Developed Countries (LDCs) and Net Food Importing Developing Countries (NFIDCs). Have they experienced any particular difficulties during this period which could have been addressed had the Marrakech Decision been implemented?

IV. PRELIMINARY ASSESSMENT OF ARTICLE 20

Having discussed the implications of Article 20, the next step is to attempt an assessment based on the experience so far. The specific clauses of Article 20 and their interpretation have been mentioned in discussions on the scope of the continuation of the reform process in agriculture. In the view of several countries, assessment of the factors mentioned in Article 20 has important implications for the way they would view their commitment to the continuation of the reform process.

A basic research question here is whether it is possible to undertake an assessment of the experience so far and reach credible conclusions. But this is perhaps an irrelevant question given that the built-in timetable for further reform in agriculture discussed above cannot wait until adequate data are available for a proper analysis. An assessment of the provisions of Article 20 is needed at this stage even though this can only be of a preliminary nature.

In what follows, attention will be given to three issues of Article 20 that are subject to some assessment at this early stage in the implementation process: (i) effects on world trade in selected agricultural commodities; (ii) effects on access to food by LDCs and NFIDCs (Decision countries), and (iii) effects on world price stability.

At best, three full years have lapsed since the initiation of the implementation of the UR. Given also that reduction commitments are implemented gradually, by all accounts this is a relatively short time period to provide a good basis to assess impact. Another basic difficulty is in knowing with what to compare the actual outcome. If there had been no agreement what would have been the course of world agriculture? If there had been no agreement would countries have adopted similar policies to those that in fact they actually implemented after 1994?

In the absence of a counterfactual scenario and in view of the very short period of actual observations, assessment of the impact so far has to be based inevitably on a crude and simple methodology, i.e. a comparison of the actual outcome to that expected had past trends (up to 1995) continued. An assessment along these lines has been undertaken by FAO in response to a request by the Committee on Commodity Problems (CCP) "to review the experience with AoA as it being implemented in practice". Thus, actual commodity data from the period 1995-97 (and in some cases into the early part of 1998) were compared with the longer run trend (based on data for the 10 years before the coming into force of the UR, i.e. 1985-94). The differences between the two were then examined by commodity specialists to see whether they are likely to be due to the UR, or are attributable to other factors (weather, macro-economic and commodity-specific structural changes).

The preliminary FAO results indicate that for some commodities the buoyant period for trade and prices in 1995-97 was, in a number of cases, due partly to the implementation of the UR commitments. Commodity prices rose above trend in 1995-97 often because stocks had been run down, in part because of the gradual reduction of government intervention in agricultural commodity markets in the early 1990s which continued under the UR. In the case of cereals and meat, reductions in export subsidies and domestic support, and the opening of minimum access under the AoA have had some impact on strengthening the market. However in the case of most other major agricultural commodities, the developments in 1995-97 had more to do with other factors such as weather, the phase of the commodity cycle or developments in other markets e.g. synthetics or competing products.

Subsequent developments in early 1998, when world commodity prices declined substantially, reinforce the view that factors other than the UR have been more important in influencing agricultural commodity markets, including for example the Asian financial crisis. Still the trend towards liberalization, reduced role of government in commodity markets, whether or not due to the Uruguay Round, have also played their part in recent developments.

As indicated above, part of the non-trade concerns mentioned in Article 20 have to do with food security which, for a net food importing country, includes, inter alia, economic access to food supplies from the world market. Such access is of much more importance to the LDCs and NFIDCs which, according to the Marrakesh Decision, are eligible for assistance in the event they "experience negative effects in terms of the availability of adequate supplies of basic foodstuffs from external sources on reasonable terms and conditions, including short-term difficulties in financing normal levels of commercial imports of basic foodstuffs".

Although the WTO CoA is reviewing approaches to operationalize the various provisions contained in the Decision, it has not been implemented so far. The relevant research question here is whether the two group of countries covered by the Decision have experienced negative effects in the availability of adequate food supplies and in the affirmative whether this is due to the UR (although this latter link is not strictly made in the text of the Decision).

The two groups of countries are clearly distinct from the rest of the developing countries. The 48 LDCs had a population of 588 million in 1995, growing at 2.9 percent. Their average per caput income was US$235 in 1995. During 1985-95 half the LDCs for which data were available had declining per caput GDP. The NFIDCs numbered 18 with a total population of 368 million in 1995 growing at 2.6 percent per annum. Average per caput increase was US$920 and it was rising for 16 of them over the period 1985-95. Together these group of countries accounted for 21% of the population of developing countries but contained one-third of the undernourished. The percentage of undernourished population has barely changed since the early 1970s—at about 40 percent for the LDCs and 20 percent for the NFIDCs. Given the serious extent of undernourishment even small variations in year to year supply can have considerable implications for the nutritional situation in these countries.

Their domestic food production performance has not been encouraging. In the case of cereals, which account for 52 percent of total dietary supplies in LDCs and 45 percent in NFIDCs, per caput production had a declining trend in the period 1980-1996—it fell for 29 of the 42 cereal producing LDCs and in 13 of the 18 NFIDCs. Moreover, the coefficient of variation of cereal production exceeded 10 percent in 26 of the LDCs and in 11 NFIDCs, thus contributing to sharp fluctuations in cereal imports. Given also that many of these countries depend heavily on imports to meet their regular food needs they are vulnerable to fluctuations in world food, particularly cereal markets.

Of particular importance is the experience during the last few years and especially during the high price years of 1995/96. From 1993/94 to the peak of 1995/96 both groups of countries experienced a substantial increase in their cereal import bills, amounting to 83 percent for the LDCs and 62 percent for the NFIDCs (Table 1). This increase was to be expected in view of the substantial increase in the world cereal prices during 1995/96. What is also worth noting, however, is that the cereal import bill still persists at a relatively high level for both groups of countries, despite the decline in the cereal prices since the 1995/96 spike. The explanation is to be found not in the nominal price of cereals only, but also in two other components of the cereal import bill which were relatively important in the past, namely food aid and export subsidies.

The ratio of food aid to total (commercial and aid) imports show the extent to which food aid has contributed to alleviate the burden of food imports. During 1997/98, food aid in cereals accounted for 23 percent of the LDCs cereal imports compared to 36 percent in 1993/94 and 64 percent in the mid-1980s. The decline in the relative contribution of food aid to cereal imports of the NFIDCs is even sharper, from 22 percent in the mid-1980s to 7.6 percent in 1993/94, down to 2 percent in 1997/98. These drastic changes in the contribution of food aid to the cereal import burden of these countries reflect the substantial reduction in the global volume of food aid in cereals to about 5 million tons per annum in 1997/98 which is at the lowest level since the beginning of the food aid programmes in the mid-1950s. A similar dramatic reduction has been seen for the other component of food assistance to importing developing countries, i.e. export subsidies. The value of imports under subsidies which accounted for as much as 26 percent of their cereal import bills for the LDCs and 46 percent for the NFIDCs in 1994/95, dropped to virtually nil since 1995/96.

The implications of both of these trends, although largely anticipated in the context of the new policy environment under the Uruguay Round, is that a much greater volume of cereals is now imported by LDCs and NFIDCs under commercial terms. A combination of somewhat higher than trend prices, lower food aid and a smaller volume of subsidized exports, together with an increase in underlying cereal deficits have lead these countries into facing significantly high cereal import bills since 1995 than before, reaching $8.6 billion in 1995/96 compared to $4.7 billion in 1993/94. Part of this increase is associated with the reform process and part reflects underlying structural changes. Since 1995/96 their cereal import bills have declined somewhat to below $8 billion and some further reduction is expected for the current season (1998/99) as a result of a continuing decline in prices and some re-bouncing in food aid. Yet, the level of the cereal import bills of these countries still remain at some 40% above the 1993/94 level and, even after correcting for the increase in the volume of imports, the increase is in the order of over 20 percent.

Another related question is the extent to which domestic production in the LDCs and NFIDCs can respond to an increase in the world market price and hence reduce the burden on the import bill. The answer to this question would very much depend on the situation in individual importing countries, namely on the degree to which the country depends on imported supplies, the extent to which price changes are transmitted to the domestic market and how consumption and, more importantly, production responds to these changes.

Taking cereals as an example and assuming supply and demand elasticities of 0.3 and -0.2, and a transmission elasticity of 0.8, then only countries with a self-sufficiency ratio (SSR) below about 67 percent would likely face higher cereal import bills (Figure 1). On the other hand, when there is not much response, i.e. the transmission, demand and supply elasticities are much smaller, then even countries with much higher SSRs are likely to be adversely affected from higher prices. For example, assuming values of the related elasticities half the above levels, then even countries with a SSR as high as 90 percent are likely to face higher cereal import bills as a result of higher world prices.

There are two important conclusions that can be derived from the above. First, the more a country transmits the world price to the domestic market and the greater the demand and supply response, the less the impact of a higher world price on its food import bill.

The second important message is that possibilities for adjustment have a limited effect in countries which depend heavily on food imports. For the LDCs and the NFIDCs as a group their average (1994-96) SSR is about 82 percent (90 percent for LDCs and 72 percent for the NFIDCs). However, there are considerable differences in the SSRs between countries (Figure 2). One-fourth of these countries have an SSR below 25%, half of them have an SSR below 65% and three-quarters of them below 90%. Therefore, with low SSRs, the majority of these countries are located at the left part of Figure 1, where the price elasticities of the import bill are positive. Moreover, these countries have generally low agricultural potential to respond to higher prices (low es) and food consumption levels are already low and thus cannot be adjusted further without undue hardship (low ed). Clearly, therefore, a large part of the LDCs and NFIDCs would be able to reduce the volume of imports only modestly through adjustments in domestic production and consumption. Therefore, for them an increase in their cereal import bills as a result of higher world prices is likely to be inevitable.

One of the expected benefits of the UR was the anticipation that international food prices would, if anything, become more stable. The reason behind this view was that more open import policies and reduced export subsidies would improve the responses to international price signals and adjustments to price changes would be made by a greater number of market participants. However, the main difficulty with this expectation is that the key role that large government carry-over stocks had played in the past on price stability was not taken into account. In any case, in view of these two main opposing tendencies (and there are others too), the net effect of the policy changes under the UR is an empirical question.

There has been some analysis already at FAO on the issue of price instability. In the context of the request made by the CCP, FAO has also examined what possible effect the Uruguay Round could have had on price stability so far. The difficulties mentioned above, related to the very small number of observations post-UR, are also valid here and the methodology used is inevitably simple, ammounting basically to a comparison between the 36 months of data in 1995-97 with monthly data for the 1990-94 period. As shown in Table 2, within year coefficients of variations were fairly evenly distributed—12 of them were higher in 1995-97 than in 1990-94, and 13 were lower. There was no overall trend and although some of the changes would seem to be significant statistically, it is hard to believe that the Uruguay Round had a significant effect. This may be seen by comparing the products where the Uruguay Round was expected to have greater effects—the basic foodstuffs—with the others where Uruguay Round effects were anticipated to be smaller. The average coefficient of variation of the cereals, oils and livestock products decreased from 7.6 percent to 7.2 percent in the two periods, while for the other commodities the fall was slightly greater—from 10.1 percent to 9.1 percent. In other words, the improvement in within-year price instability was slightly greater for the agricultural commodities that were less affected by the Uruguay Round than for those where the Uruguay Round effects were expected to be more significant.

These results are largely in line with those of an analysis of a longer time series going back to the 1970s (1970-96). This latter analysis was done for cereals only and showed that: (i) annual world market prices were fundamentally stable (trend stationary time series process), in the sense that temporary shocks to the market do not leave permanent effects and, after a while, the market returns to the previous situation; (ii) there was no evidence of an increasing trend in inter-year price variability—the 1995/96 price spike for wheat and maize was similar in magnitude to that experienced during the exceptional price surge in the early 1970s (1974); (iii) also, there was no evidence of any systematic rising trend of intra-year (monthly) price variability.

Another view on future price instability as a result of the various changes under way, including the UR, was the conclusion of an FAO Expert Consultation in June 1996 which basically found that, although fundamentally there were no reasons to expect an increase in price variability in the long term (after the world market settles to a new equilibrium) prices are likely to be more unstable in the short term, while policies adjust to the new trading environment.

V. POSSIBLE ISSUES ON THE REFORM AGENDA

Now we come to the fourth provision of Article 20, referring to further commitments to achieve the long term objective of reforms in agriculture. While the decision on the agenda of future negotiations will have to wait at least till the end of 1999, some issues have already emerged as important and are likely to be part of the eventual agenda. Largely, the coming agenda would have to deal with the same sets of complex and sensitive policy issues as in the Uruguay Round along the three major components of the AoA: (1) market access; (2) domestic support; and (3) export subsidies. Basically, reforms are likely to include further trade liberalization and could include some revisions of the rules under which agriculture operates. While the AoA itself may not necessarily be changed, the usual old GATT process of generating understandings, interpretations and revisions of existing agreements is likely to continue under the WTO.

The identification of a positive agenda for developing countries, one which would allow them to become active participants in the process of the new multilateral trade negotiations, would require a substantial policy analysis effort on their part so that they are able to better prepare their negotiating positions and options.

Tariff regime. The concept of tariffication and tariff bindings is well established and widely accepted. However, tariff levels that resulted from the Uruguay Round tariffication process were prohibitively high for many important agricultural markets, leaving also a massive amount of "water" in many tariffs. Moreover, tariff escalation and tariff dispersion problems persist despite some improvements in these areas. In some cases, non-tariff measures which were prohibited by the AoA (such as minimum import prices regime for some products) remained in practice. This is a serious problem as growth in agricultural trade has now shifted partly to processed/higher quality niche markets which are not easily penetrable by new exporters due to high cost in complying, inter alia, with the SPS standards in these markets. All these discrepancies would have to be dealt with in the new negotiations.

• further reduction in tariffs through:

• harmonization of tariff rates to reduce tariff escalation and dispersion of tariff rates
• multilateral harmonization of standards to reduce costs of compliance and avoid disguised protectionism
• tackling the special derogation under Annex 5 which exempted some countries from tariffication of certain commodities
• establishing principles for variability of tariffs within bound ceilings

Tariff Rate Quotas (TRQs). Some of the problems arisen from the implementation of TRQs include: transparency in administration and monitoring of TRQs; allocation of TRQs to preferential suppliers or to non-WTO members; allocation of TRQs to state-trading enterprises or to producer organizations; auctioning of licenses for TRQs utilization; conditionalities such as limitations on imports of particular products under broadly defined tariff quota commitments and making imports under tariff quotas conditional on absorption of domestic production of the product concerned, etc.

Special Safeguards Clause (SSG). A fundamental question here is whether SSGs are perceived to a temporary or a permanent mechanism. For some sensitive commodities like basic foodstuffs, countries may not feel comfortable without SSGs as the general GATT safeguards are not automatic; they require "injury test" and involve delays. However, presently, access to SSGs is not universal (neither in terms of products nor countries). Most developing countries do not have access to them, as they were linked to the tariffication process.

Special treatment of developing countries. The special treatment afforded to developing countries in the form of smaller reductions, longer adjustment periods and preferential access to developed country markets is well recognized in the WTO Agreement, but there is some lack of clarity in the definition of developing countries.

AMS. Experience so far (1995 and 1996) shows that AMS has not been binding for any country. In part this is because of Blue Box exceptions in the calculation of current AMS and large base AMS levels. Many developing countries did not systematically calculate their AMS and claimed a zero level which may prevent them from implementing certain support policies in the future. There are also issues related to the definition of eligible production for AMS calculations and the treatment of negative AMS as well as some genuine mistakes in the method used (e.g. base period, currency base, etc.)

Blue Box. Issues relate to how much production and trade distorting Blue Box support is and whether it is necessary on the part of the countries that pursue such measures. It would appear that the US—with new FAIR Act—does not need Blue Box, whereas the EU still needs it, even with Agenda 2000 reforms.

Green Box. Issues relate to the definition of policies that qualify to be included on the Green Box and in particular the meaning of "minimal effect on production and trade". Not all measures presently classified under the Green Box are neutral to production and trade.

Disciplines on export competition were considered the most binding of all AoA commitments, although not fully so during 1995-97 in view of high world prices. However, potential export subsidies remain high especially in certain developed countries. Only 25 of the 132 WTO Members have a right to subsidize exports; in fact, much less (93% of subsidized exports of wheat by 3 countries/region; 80% of beef by 2; 94% of butter by 2). There is concern about circumvention of rules through: cross-subsidization, incorporated products (inputs/outputs) and, more seriously, carrying forward of unused export subsidies from one year to the next.

STEs exist in most countries and they are particularly prominent in agricultural sector. Their activities include: trade, domestic procurement/marketing of agricultural commodities, implementing domestic transfers to producer and consumers. STEs have been a matter of concern since GATT 1947 (Article XVII and Understanding on the Interpretation of this Article), but their definition remains vague. The basic prescriptions stipulate that STE activities should not violate MFN rule (no discrimination in trade), operate on "commercial considerations", mark-up on imports should not exceed bound tariffs and should not lead to reduced trade than would have been the case without the STE. The WTO established a Working Party on STEs which is collecting information on the activities of existing STEs.

VI. CONCLUSIONS

Article 20 of the AoA points the way to further negotiations on agriculture to be initiated in 1999. The experience so far with the AoA suggests a mixed picture both in terms of its implementation by countries and its impact. Many distortions in agricultural markets still remain and not all of the expected benefits have materialized.

The Uruguay Round agreements, including the AoA, accorded special and differential treatment to developing countries in several areas of concern to them. These special provisions, in the form of special concessions to developing countries were designed to take into account the constraints faced by many of them in taking advantage of trading opportunities and in adjusting to the new trading environment due to structural problems, low level of industrialization, limited access to advanced technologies or non-availability of adequate infrastructure. However, in the view of several developing countries, these provisions have had disappointing results in the process of the implementation of the Uruguay Round agreements. Thus, they emphasize that a high priority should be given to addressing existing imbalances and problems of implementation of the relevant provisions and decisions adopted during the Uruguay Round negotiations, particularly those relating to the needs and interests of developing countries.

In the area of market access, while non-tariff barriers have been banned under the AoA, in practice access is still felt to be difficult in many cases and stops developing countries from benefiting fully from potential export opportunities. Growth in agricultural trade has shifted partly to processed/higher quality niche markets which are not so easily penetrable by new exporters, partly due to high costs in complying with the sanitary and phytosanitary standards in these markets. Efforts would need to continue in the harmonization of SPS standards and in providing technical assistance to developing countries to upgrade their capacity in quality control and related infrastructure in order to be able to meet such standards.

Of significance for many developing countries in the continuation of the reform process in agriculture is giving adequate consideration to non-trade concerns and especially food security which is explicitly mentioned in the preamble of the AoA. There are three components of food security—adequacy, stability and access. As regards adequacy of food supplies, which for many food deficit developing countries have to come mainly from domestic production, there is one issue that is often raised. This is whether efforts to boost food production and to help sustain the incomes of poor farmers largely dependent on agriculture for a living should be subject to reduction commitments at all.

As regards stability, the reduction of publicly held food stocks by major exporting countries has shifted more the burden of cushioning domestic markets (against major fluctuations in world market prices) to the importing countries. While the transmission of moderate world price changes to domestic market is desirable, full transmission of extreme price changes is considered by many developing countries to be undesirable for both consumers and producers. In this context they consider that existing relevant provisions of the AoA which allow a certain degree of flexibility in the application of border and domestic stabilization measures should be further clarified and strengthened. Related to this issue is also the Special Safeguard Clause (SSG) of the AoA to which many developing countries do not have access. In particular, in the case of basic foodstuffs, many developing countries would favour having access to the SSG, given that they find the general GATT safeguards are not easily applicable in practice as they require proof of injury and a costly dispute settlement process.

As regards access to food, the issue being raised by several developing countries is that in addition to their own domestic efforts on poverty alleviation, growth in their overall export earnings should keep pace with the growing cost of food imports. In this connection, the question of the implementation of the Marrakesh Decision in favour of the Least Developed Countries (LDCs) and Net Food Importing Developing Countries (NFIDCs) is also a matter of concern to them.

A final issue that has implications for developing countries is the consequences of further trade liberalization for preferential trade arrangements which benefit some of them. The changes in the global trading environment often have implications for the preference-receiving countries, bringing in new challenges and offering fresh opportunities. These countries have already experienced some erosion in tariff preferences, and are concerned lest further erosion occurs in the future.

Source: FAO. Figures for 1998/99 are preliminary.

Source: FAO

Figure 1. The price elasticity of the import bill

Figure 2. Self-sufficiency ratios of LDCs and NFIDCs