Creative Implementation by Developed Countries to Maintain Barriers

Many ?tricks? were employed in the implementation of the AoA especially by the North to protect the vulnerable sectors of their agricultural industries.

In itself, the AoA already legitimises Northern protectionism, for example, by legalising supposedly non-trade distorting direct payments of the EU and US to their farmers, even as these payments run into the tens of billions. However, if the other articles of the Agreement had been implemented in a straightforward and purely objective manner, there may have been some opportunities for the South to take advantage of more open markets in the North.

These opportunities were largely eliminated by the maintenance of barriers by the EU and US when translating the provisions into practice. Instead of barriers being brought down, these were maintained or even increased under the guise of trade liberalisation.

4.1.  Market Access(return to index)

Dirty Tariffication: Converting non-tariff barriers to high tariff rates

The term ?dirty tariffication? is widely used even within governmental circles to describe the process by which governments exhibited a tendency to get away with as high initial tariffs as possible. The actual tariff equivalents of the base period countries came up with, work out to be extremely trade prohibitive.

For some products, the tariffs have been set in the range of 250 per cent to 390 per cent. On average, the EU has set them at about 60 per cent above the actual tariff equivalents of the CAP in the base period, while the US set their tariff equivalents at about 45 per cent above the non-tariff barrier estimates.

When compared to the non-tariff barriers of the 1990s, it shows an even greater level of protectionism. According to an ESCAP (1996) study, the EU final bindings for the year 2000 are almost two-thirds above the actual tariff equivalent for 1989-1993. For the US, they are more than three-quarters higher.

Therefore, while supposedly opening up barriers, tariffication in effect increased the protection of the EU?s and US? domestic markets by significant amounts.

Selective Tariff Reductions: (return to index)
Keeping tariffs high on sensitive products and reducing tariffs on less sensitive products

The required unweighted average of 36 per cent tariff reductions with the only constraint being a 15 per cent cut on each tariff left countries with much freedom to decide how to allocate their tariff reductions. In many cases, developed countries which have traditionally protected their markets on sensitive products used the freedom offered to maintain their trade barriers. How did they do this?

Countries tended to reduce low tariffs by significant amounts, while reducing only slightly, the existing high tariffs if the product was of trade importance. For example, countries could reduce tariffs on 3 items with initial tariffs of several hundred per cent by only 15 per cent each, and still meet the overall 36 per cent unweighted average by eliminating (or reducing by 100 per cent) a 4 per cent initial tariff on a 4th product.

Table 3 below shows that this took place to some extent. Tariff reductions were higher for products which had lower initial tariffs.

    TABLE 3: Tariff reductions for selected food items

              Agriculture in the GATT, Josling, Tangermann and Warley 1996,  p. 187.

This practice allowed governments to reduce tariffs on products which did not affect their economy (e.g., products they did not produce themselves), while keeping up tariffs on key products. Since it was practiced by the North, the resultant dispersion of tariffs brought about significant protection to value-added processed goods.

This trend has contributed to the tariff escalation taking place since the end of the Uruguay Round. Tariffs on semi-processed and finished products are higher than those on raw materials. The situation locks developing countries out of the market on processed products, forcing them to continue exporting and exploiting their cheap raw materials.
 

Allotting Tariff-Rate Quotas to Less Sensitive Products (return to index)

According to the Modalities, minimum access opportunities were to be established in a relatively disaggregated product level. However, this was not always followed through. Great creativity was employed in the implementation of this provision.

For example, the EU calculated the quota quantity required under the minimum access commitments for the whole aggregate of ?meat? comprising 18 product groups. With the total access opportunity, they then allocated this quantity to individual types of meat in a more disaggregate level. The resulting tariff quota for each individual product then became the legally binding commitment.

In the process, the EU chose those types of meat where additional imports would hurt least. These were sometimes qualities of meat not much produced in the EU, or meat categories for which the EU already had preferential import conditions with, for example, the Central European countries.
 

Manipulating Trigger Prices to Sanction Use of the Special Safeguard Provision(return to index)

Trigger prices were even manipulated with so that countries could more easily qualify to use the Special Safeguard Provision and hence impose additional duties over the bound tariff rates.

In the Modalities, it is specified that the trigger price chosen should be very similar to that of the external price countries were supposed to use for tariffication.

However, the EU, for example, appended a list of trigger prices they intended to use. Prices in this list are generally much higher than the external prices the EU used for tariffication. These prices would allow the EU to use the special safeguard provision often, and hence diminish further the intended implications of tariffication.

4.2. Domestic Support(return to index)

The domestic support provisions seem to legitimise the types of subsidies provided by the developed countries, while placing ceilings and reduction commitments on those subsidies developing countries tend to provide.

Furthermore, the developed countries have an added ?advantage? as they have traditionally provided high subsidies and are only called upon to reduce them. Developing countries, on the other hand, have not traditionally provided subsidies (or only in minimal amounts), and are not permitted to introduce or increase their subsidies.

Production-limiting programmes ARE production and trade distorting

Production limiting programmes, that is, EU?s area and headage payments are definitely trade and production distorting. US and EU negotiators were stretching semantics by categorising these payments as ?decoupled? from production. In fact, production is definitely required in order to be eligible for payment. Without these payments amounting to tens of billions, EU farmers would find agriculture scarcely profitable.

The Current and Base AMS Number Game

The AoA stipulates that direct payments under production-limiting programmes are to be excluded from Current AMS calculations, although they were included in the calculations for the Base AMS. This essentially makes a mockery of the US? and EU?s AMS reduction commitments.

The US is required to reduce its total AMS from the base period level of US$23.9 billion, to a final bound level of US$19.1 billion at the end of the implementation year. Deficiency payments accounted for almost US$10 billion during the base period. That is, this US$10 billion was included in the Base AMS. However, since production limiting direct payments are exempted from reduction in the AoA, they are excluded from Current AMS calculations. The result is a drop in the Current AMS of such a magnitude that the US does not need to make further changes in policy in order to meet its AMS reduction commitment. In fact, assistance delivered through other forms can even be increased without affecting US? commitments.

Similarly, the exemption of the EU?s area compensation and headage payments from the EU?s Current AMS calculation has a magical effect on the Current AMS figures. The EU?s Base AMS includes the old system of supporting cereal growers and livestock producers. Under the new 1992 CAP, similar supports are offered to these producers, but the area compensation and headage programmes are excluded from the Current AMS. The ?credit? earned in the cereals and livestock sectors can be used to avoid cutbacks elsewhere.

Therefore, from the outset, the US and EU needed no real change or reduction in their domestic support subsidies to fulfill their AMS reduction commitments.

Shifting Supports within a Broad Aggregate (return to index)

By stipulating that the AMS reductions are not product specific, but sector wide, measured in terms of ?Total AMS?, countries have been able to shift support among different products. It is therefore easy for developed countries to maintain their protectionist supports in sensitive sectors.

In the case of the EU, the AMS commitment is being fulfilled by changing the composition of assistance to the cereals and oilseeds sectors, while assistance is maintained or increased relative to the base period for some other commodities such as sugar, beef and fruit and vegetables (as long as they are within 1992 support levels).

Legitimising subsidies provided by developed countries while placing limits on those provided by developing countries

A large number of domestic subsidies classified under the ?green box? are exempted from reduction commitments based on the premise that they are apparently trade-neutral. On examination, these policies such as structural adjustment assistance for ?the retirement of producers and resources? and payments for various crop insurance schemes are subsidies which are often used by developed countries. Many are direct payments and are trade distorting. Developing countries cannot afford to provide these forms of supports to their producers.

On the other hand the form of subsidies developing countries do provide, such as input and investment subsidies given to low income farmers, have a ceiling level on them. The Due Restraint clause states that these subsidies cannot exceed 1992 levels.

It is only fair that the forms of subsidies developing countries give their producers are granted immunity similar to immunity accorded to the subsidies used by developed countries.
 

The provisions on domestic support are unlikely to have much effect in terms of curbing the large subsidies provided by Northern governments.

An OECD report on the AoA (1995) concludes that the AMS commitments will not bring about much change to the level of supports in the OECD countries. Annual transfers to agricultural producers as measured by the broader PSE index remain high. Support mechanisms and instruments including border measures have effectively been maintained in many OECD countries.
 

4.3.  Export Competition(return to index)

The AoA does not stipulate exact policy instruments in this area, but only the outcome of policies. How a country manages to reduce its export subsidies would depend on their chosen domestic policies. Hence the policies countries implement may or may not be in line with the ?free trade? spirit of the Agreement. As will be illustrated below, there are several ways the developed countries can circumvent real cuts in supports but still in principle comply with their commitments.

Countries can make real cuts to the volume of export subsidies by reducing the levels of price supports until export availability does not exceed the allowed 80% or 86.7%. Even better, countries can eliminate price supports entirely.

Increasing Supply Controls

In countries where supply controls are already in place, it may have been easier for governments to merely tighten up on the supply restrictions. Such measures would, however, be more trade distorting, but would achieve the necessary results.

Juggling between Support Instruments

Countries can also easily modify the form of their supports, especially as there is sufficient ?water? in the AMS provisions requiring only aggregate reductions. Countries can substitute their export subsidies to output-related deficiency payments (allowed in the blue box).

The US in its 1996 Farm Act, for example, has retargeted funds previously dedicated to export subsidies to market promotion. It has now expanded its Export Credit Guarantee Programmes, whereby commercial credit is extended to finance US agricultural export sales to low or middle-income countries. Some US$5.5 billion has been channeled for use here. An additional US$1 billion has also been granted over the seven-year implementation of the Farm Act to provide export credit to ?emerging markets?. These programmes are miraculously covered under the Green box and are allowable without limits under the AoA (DiGiacomo IATP 1998).

Shifting Supports within an Aggregate

As with the other provisions, export commitments are expressed in terms of aggregates within certain product groupings. Countries are able to maintain barriers by concentrating their export subsidies on a few key products most important to the country.

Conclusion (return to index)

The effect of the commitments by developed countries to reduce tariffs, domestic subsidies and export subsidies have been minimal in the AoA. It is clear that even at the end of the implementation period in 2000, market access barriers, domestic supports and export subsidies will remain high. Hence the agricultural markets of developed countries will still be inaccessible. At the same time, GATT-legal high rates of supports in the North will undermine developing countries? ability to compete in the same markets.