Analysis about the Chair's consolidated paper on market access
Committee on Agriculture, Special Session, Negotiations on Agriculture
Chair's Revised Consolidated Reference Paper on Market Access
9 June 2006
Preliminary comments of Jacques Berthelot, Solidarité (http://solidarite.asso.fr)
13 June 2006
Pondering on this negotiation on agricultural market access such as well reflected by the Chair Falconer, the following comments will be made by standing more and more backwards from the immediate detailed negotiations.
Few comments on the accuracy of the detailed negotiation
A first comment if that one cannot help drawing the conclusion that, eventually, almost all Members are very reluctant to lower their import protection so that they have multiplied specific mechanisms to try to avoid significant reductions:
First, since the tariff reduction rate is a simple (non weighted by actual imports) average of reductions of at least 2000 tariff lines, it is already easy to look like reducing much the bound tariffs when the reduction on actual imports might be almost nil if there are no imports in a large share of lines, even in developed countries like the EU where the MFN applied rates are the same as the bound rates. That justifies the Chair's comments that "Just looking at two examples of major developed Members shows that 15% of dutiable tariff lines could represent 88.1% of the value of current trade for the first and 84.3% for the second" (Chair's reference paper, 11 May 2006).
Second, by leaving Members a large leeway to designate Sensitive Products, Special Safeguard Provisions, Special Products and Special Safeguard Mechanism. According to Sébastien Jean et al. allowing 2% of sensitive products would permit the EU to reduce its present average bound duties of 20.5% by 3.4 percentage points instead of by 12.7% in the case of a tiered formula with 40%, 70% and 75% cuts, and extending the sensitive products to 5% would hardly lower more the percentage reduction: by 3.2 percentage points instead of 3.4 (Sébastien Jean, David Laborde & Will Martin, Consequences of alternative formulas for agricultural tariff cuts, CEPII, September 2005). Which helps to mitigate the idea that allowing up to 15% of tariff lines as sensitive products would make much of a difference than allowing only 2%.
However Sébastien Jean did not take into account the mandatory increase in tariff quotas to compensate the lower cuts on sensitive products. This cannot be overlooked since the EU proposal is that the TRQ expansion should compensate on average 80% of the tariff reduction (European Commission, Understanding the market access debate, Monitoring agri-trade policy, November 2005, http://ec.europa.eu/agriculture/publi/map/brief4.pdf). The more so as this could imply higher overall reduction rates for some products so that the EU dairy producers would prefer not to declare dairy as sensitive products.
A huge limit: the non integration of the negotiation on market access with the other two pillars
Indeed, everything being equal otherwise, developed countries are much more able to sustain large tariff reductions as long as they will be able to maintain high levels of allowed domestic subsidies they have been increasingly granting to compensate the large reductions in domestic agricultural prices. These allowed compensatory subsidies have not only largely replaced the formal exports subsidies – so that their elimination in December 2013 would not stop the actual dumping and could even increase it since the green subsidies are not capped – but they have had a large import substitution effect as well. Reducing the domestic price by 50% would have the same impact as an increased duty of 50% if the price elasticity of imports is 1, of 40% if it is 0.8. Theoretically, lowering all domestic prices to their world level and compensating these reductions through allowed green subsidies would permit the developed countries to make do with a zero tariff, or at least a very low one to account for the internal transport costs from the border to the consuming areas.
Despite this large import substitution effect of domestic subsidies, it has never been considered in the present negotiating proposals which have been salamied, for the large benefit of the big players. If Members were to take the S&DT in the market access pillar seriously, they should begin by computing the AVE (ad valorem equivalent) of domestic subsidies, including the trade-distorting ones. And they would then acknowledged that subjecting DCs to a tariff reduction of the 2/3 of that for developed countries would still grant the actual S&DT to the second (at least before considering SPs and SSM).
The more so as the WTO negotiations do no take into account the much broader non specific subsidies, i.e. all non agricultural subsidies enjoyed by developed countries and which are improving much the competitiveness of their agricultural products: efficient transport and communication infrastructures lowering their transport costs, much lower interest rates, generalized education and research increasing farmers' access to the best techniques and information, health and pensions of farmers financed by the nation, wealthy consumers able to pay fair prices for their agricultural products, etc. More generally the present higher competitiveness of Northern agricultural products stems more from the past agricultural and non agricultural supports – including a high import protection – they have been enjoying for decades or even centuries than from the present gap in agricultural supports with DCs.
According to paragraph 3 of the Framework Agreement for modalities in agriculture, "The reforms in all three pillars form an interconnected whole and must be approached in a balanced and equitable manner". Even if the Chair intends to provide its integrated first draft in the week of the 19th, the integration will not be made since the Members have not considered it up to now.
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A plea to rebuild the AoA on food sovereignty
Members should ask themselves where this blind headlong flight in the lure of an increased market access for agricultural products is leading most of them to. They should at least ponder on the results of 11 years of agri-trade liberalization and even more for most DCs subjected to an earlier liberalization through IMF and WB conditionalities. Why don’t they prioritize the consolidation of a permanent access to their own domestic market through the recognition of the right of food sovereignty? After 8 years of WTO, from 1995 to 2002, the number of hungry people had increased from 826 to 852 million and ¾ of them are rural people, mostly small farmers and farm workers. FAO has also shown that the percentage of hungry people in DCs is inversely proportional to the share of agricultural products in total exports. Whereas most DCs are facing an increased food deficit, even when they are exporting tropical products, who will really benefit from it? The only beneficiaries would be the agri-food corporations, bankers, insurers and transporters.
All recent general equilibrium models show that ACPs, notably of SSA, would lose with the Doha Round.
The brand new "Sustainability Impact Assessment of proposed WTO negotiations" ordered by the EU Commission and released on May 2006 by the Institute for Development Policy and Management of the University of Manchester: " Under realistic Doha scenarios (partial trade liberalisation) the global welfare gains are small and represent a once and for all increase in world income of less than one percent of global GDP. Most countries and regions will gain but others will experience income losses. Generally, middle income developing countries that are better integrated into the global trading system, are estimated to gain from trade liberalisation, whereas least developed countries, which exhibit a low level of participation in the global trading system, are net importers of major commodities, and which already benefit from preferential trade agreements, most probably lose from further trade reforms". Besides, "Overall, and in the absence of effective environmental regulation and mitigation measures, trade liberalisation is expected to have an adverse environmental impact".
According to the report of Sandra Polaski, released the 13 March 2006 and based on a general equilibrium model (GEM) adapted to take into account labour qualities, "the three poorest regions in the model (Bangladesh, East Africa, and the rest of Sub-Saharan Africa) actually lose unskilled jobs from manufacturing industries". And "Market share in some or all agricultural products is lost by East African and other Sub-Saharan African countries, Indonesia, and Bangladesh. This is particularly noteworthy because many commentators have based calls for progress on agricultural liberalization in the Doha Round on the supposed benefits it would bring to low income African countries… The poorest countries may lose from any likely Doha scenario unless special measures are taken on their behalf. Figure 3.13 shows that Bangladesh, East Africa, and the rest of Sub-Saharan Africa are adversely affected in every Doha scenario modelled, regardless of whether the level of ambition is modest or high"1.
J.-M. Boussard, F. Gérard and M.-G. Piketty from CIRAD conclude their book, popularizing the results of a GEM adapted to take into account actors' expectations towards risk, as follows: "Thus we can assert that agricultural liberalization will not produce necessarily an important increase of production, will not induce development in poor countries, will not improve significantly income distribution in the world and will not lead to a drop in food prices for the benefit of consumers. It will have more likely the opposite effects"2. Beyond these global results, they show that, whereas "the standard model shows that the agricultural liberalization has almost no impact in Africa… with the ID3 model [the CIRAD model]… the result is globally negative". One of the reasons being that "the installed agricultural capital, after a short increase which lasts only a short while, diminishes strongly with liberalization in relation to what it was in the reference situation, without liberalization". Why? Because "The more prices are volatile, the less there are investments. Now, here, as a consequence of liberalization, prices become more and more volatile".
According to T. Wise and K. Gallagher, "In 2003, as trade negotiators approached the Cancún WTO meetings, World Bank projections promised $832 billion in estimated gains from global trade liberalization, the majority – $539 billion – going to the developing world… Now, on the eve of the WTO’s Hong Kong ministerial, the so-called gains from trade seem to have evaporated. New projections, from the same World Bank sources, estimate potential welfare gains at just $287 billion – just one-third their level two years ago. Developing country gains dropped to just $90 billion, a “loss” in two years of over 80 per cent. More dismaying, these figures are for a scenario of full global trade liberalization, with the admittedly unrealistic assumption that all tariffs and trade-distorting support are completely eliminated. The same report includes projections for a “likely Doha scenario” of partial liberalization, reforms that presently appear ambitious in light of the current deadlocks in negotiations. What can we expect from this more realistic scenario? Global gains of just $96 billion, with only $16 billion going to the entire developing world. That is less than a penny-a-day per capita for those living in developing countries"3. Quite as important is the authors' conclusions: "The World Bank study identifies only the potential benefits. But what are the costs?... According to UNCTAD, tariff revenue losses could be as high as $60 billion for the developing world".
Antoine Bouët et al. have shown that "Simulations give a contrasted picture of the benefits developing countries would draw from the Doha development round. The results suggest that previous studies that have neglected preferential agreements and the binding overhang (in tariffs as well as domestic support), and have treated developed countries with a high level of aggregation have been excessively optimistic about the actual benefits of multilateral trade liberalization. Regions like sub-Saharan Africa are more likely to suffer from the erosion of existing preferences. The main gainers of the Doha round are likely to be developed countries and Cairns group members"4.
National sovereignty should be restored against economic imperialism, food sovereignty against food imperialism. Members have permanently spoken of "offensive" and "defensive" interests but trade should not be war. Each Member should have the right to establish its defensive interests as it wishes, provided it does not harm other Members by offensive actions, particularly through dumping. An efficient import protection should be a right of all WTO Members for all products and services, and access to the market of other members should never be considered as a right. Trade rules should be subjected to the broader fundamental rules of the United Nations Chart and to the basic human rights and multilateral conventions on the environment. Dumping which is one of the most aggressive "offensive" actions, should be prohibited and be defined as exports made at prices below the average full production cost of the country, taking into account all types of upstream and downstream subsidies and cross-subsidization.
Even if the developed countries would eventually agree to reduce significantly their agricultural tariffs, the increased competition among DCs to access their narrowing markets, given that the developed countries' population is stagnating and ageing, would increase the volume of exports facing a reduced demand, thus depressing world prices. The more so as the issue of the necessary supply management has never been raised in the Committee on agriculture, except incidentally for tropical products and without any other proposal than the reduction of tariff escalation, since it would have contradicted the liberalisation dogma.
Furthermore the dangers of market opening are no longer a pure North-South confrontation of highly subsidized products but are becoming and will become more and more a South-South struggle of non or little subsidized products. The vast majority of DCs would not be able to compete with Mercosur countries or Thailand to win the developed countries domestic markets. The more so as this increased opening of developed countries' agricultural markets would erode the poorest DCs' preferences. Already in 2004 51% of Brazil agricultural exports have been directed to other DCs. And West African rice farmers are suffering more from Asian exports than from US exports. And the same is happening with industrial products: can we deny to sub-Saharan African cotton producing countries the right to protect their infant textile and clothing industry from very cheap Asian exports?
Even the most competitive G20's agricultural exporters should evaluate the extent to which it is worthwhile forcing the agricultural market opening of developed countries given what they would have to pay in return.
First they would have to open their domestic markets to the developed countries' exports of industrial products and services through a tremendous tariffs reduction which should be capped at 15%, or with a difference of only five points in the two coefficients for developed and developing countries in the "Swiss formula" for cutting tariffs, according to the proposal made the 8 June at the NAMA Committee by a group of 6 developed countries, including the US.
This is amazing since the weighted average industrial tariff was still of 48% in the US in 1931, 63% in Spain, 46% in Italy and 30% in France, and in 1950 of 26% in Germany, 23% in the UK, 18% in France and 14% in the US (Ha-Joon Chang, Kicking away the ladder: the "real" history of free trade, Foreign Policy in Focus, December 2003, www.fpip.org). According to Mehdi Shafaeddin, "The United States observed a very high rate of growth during the 19th century, when it followed protectionist policies. The estimated annual average growth rate of the United States over the period 1829-1831 to 1909-1911 is 2.4, as against 1.2 for Western Europe. In particular, the intensification of protectionism after 1860 allowed the country to accelerate growth and catch up rapidly with Great Britain in terms of GDP per capita, technological development and export performance. As shown in table 3, its growth rate of per capita income in fact bypassed all major European countries between 1870 and 1913… It is worth stressing that all other industrial countries have developed their manufacturing industries through infant industry protection and government intervention" (Mehdi Shafaeddin, How did developed countries industrialize? The History of Trade and Industrial Policy: The Cases of Great Britain and the USA, December 1998, UNCTAD/OSG/DP/139).
Brazil should ponder that its share of GDP taken by industry was of 40.0% in 2004 against 10.4% for agriculture and Thailand had almost the same profile (43.5% against 10.1%). Even India's industry share of GDP was of 27.1% against 21.1% for agriculture. So that all these emergent countries could loose much more employments in industry and services than those they could get from increased agricultural exports, the more so that export agriculture is generally much more capital intensive than labour intensive.
Indeed the largest net food exporting G-20 countries and, beyond them, the Cairns Group as a whole, could even endorse to rebuild the AoA on food sovereignty as long as the developed countries would eliminate all their agricultural exports exported at prices below their average production costs, taking into account all direct and indirect subsidies.
Let us take the EU example: in compensation for protecting its own agricultural market the EU would eliminate its exports of cereals (22.8 millions tonnes, Mt, on average from 2000 to 2004), sugar (4.9 Mt), meats (2.9 Mt) and dairy produce (2.4 Mt) for an average value of €13.7 billion (€3.3 bn for cereals, €1.2 bn for sugar, €4.2 bn for meats and €5 bn for dairy produce).
On the EU agricultural imports from the Cairns Group of €17.4 bn on average in the same period (of which €7.7 bn in feedstuffs, €2.9 bn in fruits & vegetables and preparations, €2.4 bn in meats, €1.6 bn in wines, €0.7 bn in cereals, €0.7 bn in vegetal oil and €0.6 bn in tobacco), we should eliminate the wines, fruits & vegetables and tobacco since the EU is exporting worldwide much more wines (€4.3 bn) and fruit & vegetables and preparations (€4.0 bn) with low subsidies than it is importing from the Cairns Group and does not produce the varieties of tobacco that it is importing. Which means that the EU imports from the Cairns Group that the EU could replace by domestic products would be of €12.3 bn, of which €8.5 bn from Mercosur (of which €6.7 bn in feedstuffs and €1.3 bn in meats).
It is even foreseeable that the US will end up defending food sovereignty since, despite its furious battle for more market access, its agricultural trade surplus has shrunk from $26.8 bn in 1996 to $2.5 bn in 2005, is expected at $1 bn for 2006, increased deficits being foreseeable afterwards. The more so as the next President is likely to come from Democrats, who have always been more protectionist than Republicans. From 2000 to 2004 the EU average agricultural exports to the US have been of €4.2 bn (of which €1.9 bn of wines, €0.7 bn of dairy and €0.4 bn of olive oil) and has imported for €5.1 bn (of which €2.5 bn of feedstuffs, €0.8 bn of fruits, €0.7 bn of tobacco and €0.4 bn of wines). Even if the US would loose bilaterally if the EU would cease to import feedstuffs, it would also win globally if the EU cease to export cereals and meats.
The 5 April 2005 I had the chance to have a meeting with 10 of the G-20 agricultural negotiators at the Brazil's Embassy in Geneva. I tried to sell them the above idea that even for them rebuilding the AoA on food sovereignty could be a good deal, since they could win more market access globally by taking over the present EU and US highly subsidized exports. Because eliminating these exports would not be a problem after the Appellate Body rulings of December 2001 and 2002 in the Dairy products of Canada case, the 3 March ruling of the US cotton case and the 5 April 2005 on the EU sugar case.
However the G-20 negotiators have rightly replied that, if trading off the recognition of the right of developed countries to protect their agricultural domestic market against the elimination of all their subsidies agricultural exports, i.e. the bulk of them, could be contemplated, nevertheless this would not be possible in the single undertaking context of the WTO negotiations. Indeed this would imply a double compensation to the developed countries since their main objective if to force DCs to open their markets to their industrial and services exports.
1 Sandra Polaski, Winners and losers. Impact of the Doha Round on Developing countries, Carnegie Endowment for International Peace, http://www.carnegieendowment.org/publications/index.cfm?fa=view&id=18083&prog=zgp&proj=zted
2 J.-M. Boussard, F. Gérard et M.-G. Piketty, Libéraliser l'agriculture mondiale? Théories, modèles et réalités, CIRAD, 2005.
3 Timothy A. Wise and Kevin P. Gallagher, Doha Round’s Development Impacts: Shrinking Gains and Real Costs, RIS Policy Brief, n° 19, Tufts University, November 2005.
4 A. Bouët, J.-C. Bureau, Y. Decreux & S. Jean, Multilateral agricultural trade liberalization: The contrasting fortunes of developing countries in the Doha Round, CEPII, Working Paper, n°18, 2004.