Africa Group proposes WTO modalities on commodities

A comprehensive proposal to establish modalities on commodity issues as part of the WTO's agriculture modalities under the Doha Work Programme has been submitted to the WTO by the Africa Group.

The proposal seeks to clarify and improve existing WTO rules so that developing countries that export agricultural commodities are explicitly allowed to form or take part in two types of commodity agreements - those made up of producer and consumer countries, and those made up of producer countries alone.

It also seeks to clarify that export restrictions and other measures that may not be consistent with the rules of GATT are allowed to be undertaken by developing countries participating in commodity agreements made up only of commodity-dependent producing countries.

Further, the WTO shall also reaffirm that export restrictions and taxes be allowed to be imposed by commodity-dependent countries in pursuance of such agreements.

The Group explained that low prices of commodities like coffee and cocoa are caused by structural oversupply, and action may have to be taken by the producing countries themselves through supply-management arrangements that control overproduction and/or impose restrictions on exports.

Besides improvements to the WTO rules, the Africa Group also proposed that: (i) modalities be established to ensure satisfactory reductions in tariff escalation; (ii) technical and financial assistance be provided for adopting such supply management schemes; and that modalities be established on the elimination of non-tariff measures affecting trade in commodities.

The proposal is being made in the context of the mandate in the WTO's Hong Kong Ministerial Declaration which in paragraph 55 states that it is necessary to address the "particular trade-related concerns of developing and least-developed countries related to commodities in the course of the agriculture and NAMA negotiations", and in Annex A clarifies that "there was general support" among the participants to the adoption of modalities for negotiations which were "capable of addressing effectively key areas" of concerns of commodity-dependent countries.

The proposal (TN/AG/GEN/18, dated 7 June 2006) was submitted by the Africa Group to the WTO's Committee on Agriculture in Special Session.

Providing the Background to the Proposal, the Group said that the problems African countries face in poverty alleviation and improving rural living conditions are compounded by the long-term decline in prices of primary agricultural commodities and their volatility.

The proposal recalled several declarations of African Trade Ministers stressing the lack of progress in the WTO negotiations to address commodity issues and the need to establish concrete modalities for addressing commodity price volatility.

The Africa Group cited the Hong Kong mandate on commodities, that in addition to intensifying the work in the Committee on Trade and Development on the problems faced by commodity-dependent developing countries as a result "of the adverse impact of the long-term decline and sharp fluctuation in the prices of these commodities", it is necessary to address the "particular trade-related concerns of developing and least-developed countries related to commodities in the course of the agriculture and NAMA negotiations."

Annex A of the Hong Kong Ministerial Declaration further clarifies that "there was general support" among the participants to the adoption of modalities for negotiations which were "capable of addressing effectively key areas" of concerns of commodity-dependent countries.

It identifies the following negotiating issues for developing modalities: (i) elimination of tariff escalation, where it discourages the development of processing industries in the commodity-dependent exporting countries; (ii) review and clarification of the current status of GATT 1994 provisions relating to the stabilization of prices through the adoption of supply management systems by commodity-dependent producing countries, with the aim of revising these provisions; (iii) review and clarification of the provisions on the use of export taxes and export restrictions under such systems; and (iv) more concrete undertakings in the area of the non-tariff measures.

The paper then proposes modalities to be adopted on each of the above issues.

On Tariff Escalation, the Group said that such escalation had an adverse impact on the capacity of commodity-dependent producing countries to develop processing industries. It is urgent to adopt modalities that would ensure that tariff cuts following the application of the formula result in satisfactory reductions in the level of tariff escalation.

Commodity-dependent producing countries shall negotiate with Members maintaining such tariff escalation with the aim of finding appropriate solutions.

The proposal then deals with the adoption of an Appropriate Legal Instrument clarifying GATT rules applicable to joint action by commodity-dependent producers and the reaffirmation of the use of export restrictions and export taxes.

It says that Article XXXVIII of GATT 1994 authorizes Members to take joint action, including action through international arrangements, "to stabilize and improve conditions of world markets" in commodities. Such action could include measures "designed to attain stable, equitable and remunerative prices for exports of such products" and could be taken under the umbrella of WTO or "elsewhere, as appropriate".

In accordance with these provisions, in the past, a number of commodity agreements involving both producing and consuming countries were negotiated, many under the auspices of UNCTAD. International commodity organizations were set up to implement their provisions. Many of these agreements do not at present provide a mechanism of price stabilization.

Commodity experts and policy makers in commodity-dependent exporting countries are of the view that for commodities like coffee and cocoa, where the distortion of prices is the result of oversupply of a structural nature in the international markets, appropriate action may have to be taken by the producing countries themselves, by entering into arrangements for management of supplies, inter alia, through control of over production and/or imposition of restrictions on exports.

To facilitate such supply management arrangements, in which commodity-dependent producing countries only participate, it would be necessary to adopt an appropriate legal instrument clarifying and improving the rules of Article XXXVIII relating to "joint action" and other relevant GATT rules.

In a detailed section on the proposed Legal Instrument, the Africa Group proposed that modalities for the negotiations of the legal instrument shall provide for the following:

• The provisions of Article XXXVIII in the chapter on Trade and Development of GATT 1994, Part IV which inter alia stipulates that the WTO Members could take "joint action" through "international arrangements" for ensuring "stable equitable and remunerative prices" for exports of primary agricultural commodities should be reviewed, clarified and improved to provide that the term "arrangements" covers both (a) Commodity agreements of which all interested producing and consuming countries are parties; and (b) Agreements of which only commodity-dependent producing countries are parties.
• Such producers' agreements may be negotiated by the producing countries themselves or adopted after negotiations undertaken under the auspices of UNCTAD or International Commodity Organizations. They may be negotiated on an international or regional basis and may provide for participation of associations of producers.
• The exception provided by Article XX(h) which permits member countries or intergovernmental commodity agreements, to apply export restrictions and other measures that may not be consistent with the rules of GATT, provided that they are necessary for the attainment of their objectives, shall also apply to the agreements in which commodity-dependent producing countries only participate.
• It shall further be reaffirmed that the existing rules permitting countries to impose taxes on exports for the attainment of development and other objectives, including those relating to the stabilization of prices of primary commodities, shall also apply to export taxes levied in pursuance of such agreements.

In a section on Technical and Financial Assistance, the paper says that technical assistance to adopt such supply management systems shall be provided by relevant organizations including UNCTAD, to which necessary resources should be made available, and where feasible, by International Commodity Organizations.

Financial resources to compensate farmers for the loss of income which may occur in the period immediately following the adoption of supply management systems, as a result of their having to reduce production, shall be provided by the international financial institutions such as the World Bank and IMF and/or by the agency that may be established in WTO for administering Aid for Trade.

The Common Fund for Commodities has an important role in terms of providing project finance to farmers for diversification of production to other crops and for the development of other sectors of production.

There should also be a periodic review of the developments in the world commodity markets and their impact on the trade and economies of commodity-dependent exporting countries.

On Non Tariff Barriers, the paper says that modalities shall provide for the adoption of the suitable procedures for negotiations on the elimination of non-tariff measures affecting trade in commodities.