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Under the Agreement on Agriculture (AOA) of the WTO the new regime for agricultural trade centres on three pillars, namely, market access, domestic support, and export subsidy. So far we have examined the first two and this week we consider the provisions for export subsidy, along with a couple of other important provisions of the AOA.
The export subsidy arrangements have three elements. First, all export subsidies provided by government for agricultural products are prohibited, unless they are specified in the list of commitments each signatory to the WTO gave under the AOA at the time of signing. If at the time of signing a country did not mention any figures for export subsidies, whether or not these existed then, they cannot be provided once their WTO membership comes into force. Second, the AOA requires reductions in the list in terms of 1) total budgetary spending on export subsidies and 2) the quantities of agricultural exports for which subsidies are provided. These reductions are determined on a similar basis as those required for domestic support, except that the base period from which the cuts are made is the years 1986-90.
For the developed countries the commitment is to cut the “value” of export subsidies by 36 per cent over six years starting in 1995. The developing countries are required to cut theirs by 24 per cent, over a ten year period. At the same time the developed countries have also agreed to cut the “quantities” of agricultural exports that are subsidized by 21 percent over the six year period. For the developing countries the commitment is to cut these quantities by 14 percent over a ten year period. In both instances, the least developed countries (LDCs) are not required to make any cuts.
As noted before, this sliding scale is termed special and differential treatment and like other WTO provisions, limited exceptions are permitted. Thus developing countries are exempt from subsidies that reduce the costs of marketing. These marketing costs include handling, upgrading, processing, and internal transport and freight charges. Also exempted are situations where internal transport and freight for export shipment are provided cheaper than that for shipments to the local market.
Commitments under export subsidy, like those under market access and domestic support, are designed to bring agriculture under the “normal rules” of international trade. The objective is to make a break with the past, where non-commercial criteria dominated decisions about the production and export of agricultural commodities. Before we commence a general assessment of the AOA, we need to take a brief look at two other important provisions.
Food safety or loophole
Because we eat the animal and plant products traded internationally, governments and consumers need to be satisfied that the food supplied to them is “safe”. Food safety however, raises the questions: safe by whose standards? Is it the purchaser, the supplier, or some other independent agency? Will consumers be willing to allow some other body to determine what is safe for them?
The WTO tackles this issue through a separate agreement on food safety and animal and plant health standards. In technical jargon these are referred to as sanitary and phytosanitary measures (SPS). The SPS measures allow member countries to set their own standards. These however, are constrained to be based on science and not administrative whim. The scientific requirement is that standards should be applied only in so far as they are required to protect human, animal, or plant life or health. They cannot be imposed simply to protect the domestic market. Further, they should bear similarity to those in force in countries where similar conditions obtain.
The SPS measures encourage member countries to apply international standards, guidelines, or recommendations, where these exist. Members are also encouraged to use higher standards than these if they can be scientifically justified. Two examples of international standards are the Food and Agricultural Organisation (FAO) and World Health Organisation (WHO) standards for food and plant health. These are set by the FAO/WHO Codex Alimentarius Commission and the FAO’s Secretariat of the International Plant Protection Convention, respectively. There is also the International Office of Epizootics, which provides standards and guidelines for animal health.
As we shall see in the coming weeks these measures constitute a “can of worms.” There are numerous concerns about agricultural practice and animal rearing in several countries, as a number of frontier scientific advances are being applied to food including genetically modified foods and animal cloning. There are also problems arising from claims that countries are using these measures as cover to protect their domestic markets.
Since the AOA provides for countries to use different standards these problems are well entrenched, since if different standards are to be used, then different methods of inspecting products are also permitted. The latter complicates the problem, even though there is a requirement that governments must establish a “national entry point” for information on their SPS measures and also give advance notice of any new measures or changes to existing ones.
Net food-importing countries
The WTO recognizes that some member countries have been highly dependent on cheap imported food supplies, often subsidised in the country of export. A good example of the latter is US wheat/ flour. These dependent countries range from the poorest developing countries to rich ones like Japan. The special problems these countries face have been noted in the WTO, but there has been no specific decision in this area, save and except for issues pertaining to “food aid.”
A number of poor countries receive “food aid” from countries whose agriculture has been subsidized. While “food aid” saves foreign exchange expenditure, it can have adverse effects on domestic agriculture. But, with the pressures to feed populations already short on food, governments usually decide in favour of short-run necessities. The “food aid” problem has also been acknowledged along with its counterpart - aid for agricultural development. There is however, as yet no established modality for reconciling this with the move towards freer trade in agricultural products.
Next week we shall assess the WTO/AOA from the perspective of Guyana and the wider Caribbean. Although the Region developed as a major agricultural exporter it faces two structural problems. One is that its agricultural export dependence has been considerably reduced, but what agriculture remains is high cost and requires special protection, in an age when this is being phased out. The other is that the Region is a major importer of food.