The Marrakesh Agreement, signed April 1, 1994, ended the longest round of trade negotiations in the history of the GATT. Most significantly, it established the creation of the World Trade Organization (WTO), whose primary objective is to "help trade flow smoothly, fairly and predictably." 1 Does the WTO regulate trade, in particular agricultural trade? That is the question we attempt to answer in this article.
WTO: The regulatory framework
While the term "regulation" is never used in the general description of the organization, the WTO is nonetheless a multilateral framework for the collective negotiation of rules (Jacquet et al., 1999) and the WTO administers the trade agreements that constitute the foundation of rules to which its members are bound. While the WTO seeks to encourage international trade through liberalization, it nonetheless imposes a certain number of rules. For example, WTO member states are required to have and implement a legal framework for commercial law. The WTO founding countries, former parties to the GATT, have such legal frameworks in place. However, for new members this requirement means they must adopt new laws or amend a number of existing laws. For Cambodia, which became an official member of the WTO at the fourth Ministerial Conference in Cancun in September 2003, passing and implementing a set of commercial laws should prevent arbitrary government decisions (such as the unilateral and legally groundless withdrawal of an investment authorization, for example). The WTO also has a body for enforcing rules, the Dispute Settlement Body (DSB).
The Agriculture Agreement
One of the various WTO agreements, the Agriculture Agreement is an annex to the General Agreement on Trade in Goods (GATT). Before the Agriculture Agreement was adopted, trade in agricultural products was subject to GATT rules, yet often with special provisions. For example, while export subsidies for industrial products were prohibited under the GATT, they were permitted for agricultural products, as long as the subsidies did not give a country more than an "equitable" share of world exports of that product.2 The essential focus of the multilateral trade negotiations has been the reduction of tariffs. Yet disruptions in international agricultural trade were increasingly seen as linked to factors unrelated to tariffs. Consequently, "to get to the roots of the problems, (…)disciplines with regard to all measures affecting trade in agriculture, including domestic agricultural policies and the subsidization of agricultural exports, were considered to be essential" (WTO, 2003).
Since regulation can be defined as "the act of making an operation regular or normal",3 an Agricultural Agreement that seeks to establish disciplines can therefore be understood as seeking to regulate agricultural trade. The Agriculture Agreement has three main components, which are referred to as the three pillars: market access, export competition and domestic support. Market access requires member countries to open their domestic markets to imported agricultural products by reducing tariffs by a certain percentage, based on the initial level of these duties (36 percent over 6 years for developed countries, 24 percent over 10 years for developing countries and an exemption for LDCs). The idea was not to bring tariffs to the same level for all countries and products, but rather to harmonize them by standardizing the various and obscure trade barriers implemented by different countries. Import quotas, very often used to limit imports, also had to be increased to provide access to each country's domestic market equivalent to at least five percent of national consumption for each product. A special safeguard clause4 was adopted, allowing a country to limit imports in the event of a significant increase in import volumes or a considerable drop in prices, to protect domestic production. However, those countries that decided, at the time the Agriculture Agreement was implemented, to determine their tariff ceilings freely (rather than from the historical reference) cannot use the special safeguard clause. Countries that joined the WTO after 1995 are also denied the right to use the special safeguard clause. Both groups of countries are made up exclusively of developing countries.
The export competition component seeks to limit countries' use of mechanisms to promote their exports on international markets. First, it calls for a reduction of direct export subsidies, sales of stocks at prices lower than domestic market prices and measures that seek to reduce export costs or subsidize domestic shipping of products for export. Budgetary outlays for export subsidies are then to be reduced by 36 percent over 6 years in developed countries and by 24 percent over 10 years in developing countries and the volume of subsidized exports is to be reduced by the same proportions in both categories (LDCs are exempt from this reduction). However, the Agriculture Agreement does not establish disciplines for other types of export supports, such as export credits and credit guarantees or food aid abuse. Rather, when the domestic market is saturated, surplus supply is eliminated by donating it as food aid to developing countries (whether or not these countries have requested such aid). For example, the United States had to reduce its export subsidies but continues to use other forms of support. While American rice donated as food aid accounted for five percent of trade exports in 1997, this figure rose to 11 percent in 2002. In October 2002, Brazil brought a case against the U.S. policy of supports to the cotton industry before the WTO Dispute Settlement Body, claiming that some of the aid paid by the government to American producers constituted cotton export subsidies. The DSB made a final ruling in favor of Brazil in March 2005,5 stipulating that certain measures (export credits and the Step 2 program6 ) should be considered export subsidies and therefore reduced as such.
The third pillar of the Agriculture Agreement is domestic support, i.e., all of a country's public expenditures minus export assistance. This component of the agreement seeks to limit the use of trade-distorting agricultural policy tools. To this end, supports are first categorized, based on their supposed degree of market distortion, into three "boxes" – orange, blue and green (in decreasing order of distortion). Supports labeled as orange must be reduced by 20 percent over a six year period for developed countries and by 13.3% over ten years for developing countries (LDCs are exempt from reductions). Spending in the blue category does not have to be reduced but cannot increase. No limitations, reductions or caps may be imposed on Green Box measures.
This classification based on degree of distortion and therefore on the extent to which measures affect agricultural markets raises two problems. First, all public agricultural policies, by their very nature, seek to affect agricultural supply by increasing or maintaining supply and therefore have an effect on agricultural markets. This is true even for Green Box measures. Crop insurance, for example, guarantees income for producers and, therefore, encourages production. Payments to producers in mountainous or difficult regions, which are considered non-distorting, seek to preserve agricultural activities in these areas. This means maintaining or even increasing national production levels and, therefore, agricultural supply. Finally, public spending on research or training seeks to improve production techniques, increase production or affect sale of the final product. Once again, this affects agricultural markets and, therefore, constitutes distortion.
Moreover, creating categories with different levels of "acceptability" encourages member countries to transfer their agricultural supports from one category to another (from orange to blue and then to green). As a result of this practice, used widely in the United States and the European Union through reforms of their respective agricultural policies, overall agricultural spending in developed countries has actually increased rather than fallen. Total agricultural supports paid by the OECD countries rose from 247 billion dollars annually from 1986 to 1988 (reference period for implementation of the Agriculture Agreement) to 274 billion dollars in 1998.7 During the same period, expenditures in developing countries remained stable, particularly in the Green Box category. Indeed, it is impossible for these countries, many of which have limited budgetary resources, to increase direct spending for agriculture or to establish direct supports for their producers. 8
Elimination of market stabilization measures
As we have seen, the WTO Agriculture Agreement seeks to establish disciplines in the use of certain agricultural policy tools. However, it severely limits a country's options for regulating its domestic markets. We will see this in the following examples, many of which come from new countries' accession negotiations with the WTO.
The use of export controls is discouraged. In order to guarantee its food security, Cambodia limited its rice exports in certain years to prevent a supply shortage on the domestic market. During its membership negotiations, the country was asked to abandon the use of such measures (Cambodia refused) (WTO, 2003). In Vietnam, state-owned enterprises play a key role in organizing production and, therefore, regulating markets through control of supply. One of the thorniest issues in Vietnam's accession negotiations with the WTO has been the elimination of such state-owned enterprises (WTO, 2005). China, which became a member in November 2001 during the Third Ministerial Conference in Doha, agreed to limit its use of state-run companies, which had a monopoly on imports and exports. After accession, 50 percent of all rice imports could be managed by state-run enterprises. China's government was also asked to abandon its use of price setting mechanisms, which enabled market regulation (WTO, 2001). Finally, China also agreed to both eliminate its tariff quotas, which had enabled regulation of the country's agricultural imports and, therefore, domestic markets, and to scale back customs barriers. For many products, these barriers have been reduced more quickly and by a greater percentage than required, even for developing countries, by the 1995 Agriculture Agreement.
In the end, WTO member countries are left with little room for maneuver in terms of continuing to apply regulatory tools to their agricultural markets. While designed to discipline and regulate, the very rules of the Agriculture Agreement actually contribute to market deregulation. For example, Japan was forced to open its rice market to the equivalent of five percent of domestic consumption. The imported rice is re-donated by Japan in the form of food aid, so as not to disrupt the domestic market (Japan's rice food aid tripled from one year to the next after this measure was imposed) (Coordination Sud, 2005). Enforcement of the Agriculture Agreement's liberalization requirement has therefore led to the deregulation of domestic rice markets in certain developing countries, particularly in Africa.
The classification of domestic support measures is particularly detrimental to African countries. The years 1986 to 1988 were set as the reference period for initial levels of support. At that time, the vast majority of Sub-Saharan African countries were subject to structural adjustment plans (SAPs) following the debt crisis of the early 1980s. These SAPs imposed drastic cutbacks in public spending along with economic and market liberalization, especially in the agricultural sector. Measures such as equalization funds, intervention stocks and guaranteed prices had therefore been eliminated by African countries before the start of WTO negotiations, reducing the total public spending to report for both the orange and green categories. Yet while African countries have the right to increase their Green Box spending, they generally do not have the budgetary resources to do so. At the same time, market intervention measures, which are generally inexpensive, are limited to application of the so-called "de minimis" clause, which allows a country to implement an orange measure if payments for a given product equal to less than ten percent of the value of total production for which the payment is made and if "non-product specific" payments are equal to less than ten percent of the country's total agricultural production.
Finally, tariffs are often too low to protect production from low-cost imports. African countries often apply tariffs that are well below those established under WTO negotiations since lower tariffs were imposed due to SAP-related liberalization and pressure from the international financial institutions (IFIs). Today, coastal West and Central African countries must contend with the massive import of frozen, pre-cut poultry at rock-bottom prices from the European Union and Brazil. A 20 percent tariff is applied to this poultry. The WTO-established tariff that these countries could apply (although they would be violating their obligations to the IFIs) ranges from 80 percent in Cameroon to 150 percent in Senegal. However, to effectively protect themselves from imports that severely disrupt local markets and discourage local production, tariffs of 400 percent would have to be applied (Hermelin, 2004). In the end, the poorest countries make little use of the maneuver room offered by the WTO Agriculture Agreement, which is poorly adapted to their needs.
Limited room for maneuver
Certain countries therefore deliberately choose to flout the constraints imposed by the WTO agreement. For example, Nigeria modified its trade policy in 2002, in breach of its commitments to the WTO. In order to protect its domestic policy, Nigeria established a ban on certain agricultural imports such as oils, poultry and cassava (WTO, 2005). None of the other WTO member states filed a claim against Nigeria before the Dispute Settlement Body and Nigeria therefore continues to apply its "illegal" trade policy. Indeed, filing suit before the DSB is costly and time-consuming. Moreover, any country that won a case against Nigeria would have the right to call for retaliatory trade measures. However, given Nigeria's minor economic weight (despite being considered a "giant" in Africa), imposing trade sanctions would be entirely without benefit, especially when taking into account the costs of bringing such a suit.
Developed countries, on the other hand, must comply with the rules of the Agriculture Agreement for fear that a case will be brought against them before the DSB. The United States was found guilty in the case of its cotton supports (see above) and the European Union is also facing rulings requiring it to modify its agricultural policy. For example, after having maintained, since 1968, a sugar policy based on border protection, regulation of supply and the export of surpluses, the EU must now reform its sugar regime following a suit won by Brazil. Developed countries are, therefore, bound to strict compliance with WTO rules because of the significant weight they carry in international trade, more so than developing countries, for which the opposite is true.
An uncertain future: the stakes of renegotiation
The WTO Agriculture Agreement has been under renegotiation since January 1, 2000. Will this open the door to a broader use of regulatory tools? The outcome of the negotiations remains largely uncertain. According to the original mandate as established in the Marrakesh Agreement, renegotiations were meant to advance the process already underway and, therefore, further dismantle regulatory tools for agricultural markets. This goal has been confirmed by the protocols for accession for new members, as explained above. However, the negotiations have not progressed much since they were launched.
Developing countries: unity in diversity
Developing countries, which are becoming increasingly active in the negotiations, are trying to have their priorities taken into account. Of course, not all developing countries defend the same positions before the WTO. On one hand, large emerging countries like Brazil are seeking the broadest access possible to the markets of the North and an end to those countries' agricultural supports. In short, they want further deregulation of agricultural markets. On the other hand, the G33 countries9 have rallied around the special products concept, for which they wish to receive special treatment exempting them from tariff reductions in order to meet their food security and rural development needs and to ensure livelihoods. The G33 seeks to allow certain countries to implement protection measures for their domestic markets. Other negotiating groups like the G90 (African Union, ACP countries and LDCs) and G10 (net importer developed and developing countries that protect their agriculture sectors) seek the power to protect their agricultural markets. While discussions are not explicitly focused on regulating agricultural markets, the issue remains an undercurrent, pitting the pro- and anti-regulation countries against one another, particularly in terms of market access.10
From Doha to Hong Kong
The 2001 Ministerial Conference in Doha saw the adoption of the negotiation mandate, which provides for improved market access, the withdrawal of all forms of export supports and substantial reductions of distorting domestic supports. Special and differentiated treatment for developing countries must be an integral part of negotiations, and non-trade concerns, which could also be described as the multifunctionality of agriculture, must also be taken into account.
Since Doha, advances have been made, in Geneva in July 2004 and Hong Kong in December 2005. They establish a reduction of tariff protections while providing flexibility by:
> establishing the concept of special and sensitive products11 that could be exempt from liberalization;
> and implementing a specific safeguard mechanism for developing countries.
The negotiations are therefore moving toward the reduction of domestic support measures in the Orange and Blue Box and the probable redefinition of criteria for the Green Box. Finally, the elimination by 2013 of direct export subsidies has been established, along with the implementation of disciplines for other export support measures (export credits, food aid, state-run enterprises and private monopolies). In other words, the negotiations overall are not moving toward increased regulation. However, this process of eliminating regulatory instruments does provide for derogations to mitigate the negative effects.
Why complicate things when they can be simple?
Special and differentiated treatment, sensitive products, special products and safeguard mechanisms all constitute exemptions from deregulation. Rather than increasing the number of exceptions, wouldn't it be simpler and more sustainable to negotiate an agriculture agreement that provides the necessary flexibility for member countries to regulate their agricultural markets, provided such domestic regulation does not lead to the deregulation of partner countries' agricultural markets?
Six African countries12 are calling for the issue of agricultural prices to be placed on the negotiating table. They are calling for the adoption of a supply management system for all agricultural raw materials and a discussion of the unequal power relations within sectors. In order to make the World Trade Organization compatible with the regulation of agricultural markets, the Agriculture Agreement should be adapted to allow export restrictions, the implementation of domestic supports adapted to different countries’ realities, an increase in tariffs to protect domestic markets and the right to use quantitative restrictive measures to regulate imports.
1 Definition from the WTO website: http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr02_e.htm
2 GATT Article XVI: 3.
3Translation of the entry from the French dictionary "Trésor de la Langue française informatisé," CNRS.
4 This specific safeguard clause to the Agriculture Agreement is called "special" to distinguish it from the general safeguard clauses established under the GATT (in the event of severe balance of payments difficulties or when human or animal health is at risk, for example).
5 Read our article "Cotton: New WTO Sanctions against United States," published October 22, 2007 in the "A look at the news" section. (Editor's note)
6 The Step 2 program was specifically designed to support cotton exports. It provides direct assistance to cotton users and exporters if the price of cotton falls below a predefined threshold.
7 These figures were taken up in 2000 by a group of 11 developing countries that proposed modifying the domestic support classification system to include a "development" category and an "other supports" category for developed countries. See WTO documents G/AG/NG/W/13 and G/AG/NG/W/14 dated June 23, 2000.
8 This is to say nothing of the fact that, to make direct payments to producers, the identity of each producer must be known and the necessary administrative structure for processing applications must be in place – necessary conditions that do not exist in the poorest countries.
9 Led by Indonesia, the G33 is made up of developing countries such as Cuba, Kenya, Nigeria, Turkey, Pakistan and the Philippines.
10 It should be noted that the different groups may oppose one another on certain points and align themselves on others. On the whole it is difficult to say who is for and who is against regulation, except for the issue of market access.
11 Special products are reserved for developing countries and determined based on their importance for food security and poverty reduction. Sensitive products are accessible to all countries, including developed countries.
12 Kenya, Uganda, Tanzania, Côte d’Ivoire, Zimbabwe and Rwanda.