Until 1995, global trade rules had little influence on trade in agricultural products. By and large, countries were able to use market-distorting export and domestic subsidies with little regard to their impact.
As part of the Uruguay Round negotiations of the Gatt, countries had agreed to negotiate commitments to reduce export subsidies, domestic support, and import duties on agricultural products. In April 1994, more than 100 countries met in Marrakech to sign the agreement creating the World Trade Organization (WTO) and to endorse the Agreement on Agriculture (AOA), at last bringing agriculture into the purview of the global trading system.
After more than seven years, the benefits and drawbacks of that accord are coming into stark relief. For developing countries dependent on agriculture exports, the AOA has not succeeded in opening the markets in industrial countries. The low-income and resource-poor farmers and countries continue to suffer from the lack of adequate and secure food sources, while having to contend with import surges and other forces of global competition.
The new round of agriculture negotiations gives the WTO and its members a chance to rectify these imbalances. A new agreement should give developing countries the flexibility to adopt policies that are geared to enhance domestic production and protect the livelihoods of their rural poor. It should also chip away the high levels of domestic support provided in wealthy countries, which depress world food prices and undercut developing-country farmers.
In signing the AOA, the countries belonging to the WTO committed themselves to a market-oriented agricultural trading system through significant reductions of export subsidies, domestic support, and import duties. At the time, experts predicted that a reduction in price-distorting subsidies would boost global agricultural trade, stabilize global commodity prices, and benefit developing countries.
The AOA committed the WTO members to reduce their export subsidies and trade-distorting domestic support. Parties negotiated the legally binding “bound rates,” or the tariff ceilings, and were expected to convert the remaining non-tariff barriers into tariffs, a process known as the “tariffication.” Because some of the converted tariffs made trade impossible, countries agreed to a system of tariff-rate quotas to maintain the existing import access levels and provide a minimal access to global markets.
In addition to quotas, some WTO members enjoy certain “safeguards” designed to provide temporary protection from trade. In general, higher duties on imported products can be triggered automatically if import volumes rise above or prices fall below a certain level. It is not necessary for a party to demonstrate that the changes in volume or price result in “serious injury” to the affected domestic industry to implement safeguard measures.
Moreover, the AOA was intended to “take into account the needs and conditions of the member countries by providing opportunities and access for agricultural products in industrial markets. It also noted that the environmental protection and special and differential treatment are integral to the agreement’s success. Even though it under-emphasized food security, the AOA nevertheless introduced the concept — then deeply embedded in the culture of a large number of developing countries — into a broader debate. Later, the 1996 World Food Summit defined food security as follows:
“Food security, at the individual, household, national, regional and global levels is achieved, when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life.”
At the World Food Summit, leaders of 186 countries committed their governments to halving the number of malnourished people in the world by 2015. The latest projections from the FAO, however, suggest that the actual progress is likely to fall well short of that figure, with 580 million people expected to be malnourished in 2015, instead of the targeted figure of 400 million.
To summarize, the AOA was an ambitious, complicated agreement that represented a “down payment” on further liberalization. More than seven years have passed but the agreement has not had its intended results for many signatories, particularly the developing countries hoping to export agricultural products to industrial countries. A study published in July 2001 by the Organization for Economic Cooperation and Development (OECD) concluded that there has not been any significant increase in market access for agricultural commodities in the OECD member countries.
The AOA has engendered widespread dissatisfaction among all categories of developing countries, whether they are agriculture exporters, food importers, single-commodity exporters, predominantly agrarian economies, or small-island developing states. Compounding the market-access problem is the fact that many developing counties have suffered import surges since the reduction or elimination of domestic barriers to trade. This has been especially damaging to the world’s poorest countries, whose low-income or resource-poor farmers suffer from a lack of adequate and secure food sources.
There is an argument for two changes in the current AOA disciplines. First, the provisions of a new agreement must provide the requisite flexibility to enable developing countries to enhance domestic production and protect the livelihoods of their poor citizens. Second, industrial countries must keep their promise to open up their markets. Non-tariff barriers, most often domestic subsidies or food safety standards, should not be used to protect wealthy economies from the developing-country imports. Accomplishing these two objectives will require that the industrial countries agree to three steps.
1. They must agree to an interpretation of the language on special and differential treatment that would enable developing countries to take appropriate domestic policy measures. Technical assistance and capacity-building resources now available through the WTO can then be used by the developing countries to devise policies consistent with the WTO rules.
2. Industrial countries must reduce their excessive support for domestic products, which distorts world markets and hurts poor farmers. They must also lower the tariff peaks in commodities produced by the developing countries and stop using sanitary and phytosanitary standards and other non-trade barriers to restrict the market access.
3. Industrial countries should improve market access for small single-commodity exporters that are net importers of food and otherwise compensate them in case their preferential trading relationships are eroded.
These steps are possible under the WTO’S Doha Ministerial Declaration, which instructed agriculture negotiators to give greater consideration to the needs of the developing countries, and the original directives in the AOA, which instructed the negotiators to take into account the non-trade concerns and special and differential treatment to the developing country members.
It must be emphasized that to achieve these objectives, including the food security and rural development, the developing countries need to take remedial policy measures to overcome their supply-side deficiencies. Clearly, reform requires policy changes at both the industrial- and developing-country levels.
The experience of implementing the AOA has revealed seven basic shortcomings in the provisions mentioned below.
* The AOA was designed with the industrial-country agriculture in mind, institutionalizing the production and trade-distorting practices employed by the most powerful countries.
* Failure of the AOA to recognize the fundamental differences between the role of agriculture in developing and industrial economies. Agriculture is a way of life for most people in many developing countries.
* Failure to appropriately address the growing food-production demands in developing countries. The AOA fails to differentiate between the support used to boost exports and the support used to enhance the production in growing domestic markets.
* There is no sincere commitment to the concept of food security. The most recent figures show that 792 million people in developing countries are currently undernourished.
* Lack of any flexibility to correct anomalies in the tariff structure, particularly related to sensitive staple crops.
* The insufficient recognition of the possible impact of import surges. The AOA does not recognize the impact of cheap imports on low-income or resource-poor farmers and fails to answer the crucial question as to how to address the threats to small farmers when the agriculture sector is liberalized.
* The 1994 Marrakech Ministerial Decision was supposed to protect the net food-importing developing countries from the price spikes caused by the AOA. However, prices rose, but the members from industrial countries refused to implement the decision.