WTOELearning

WTOELearningCopyrightNovember2010

Agriculturein theWTO

Abstract
The Agreement on Agriculture was negotiated during the Uruguay Round and entered into force on 1st January 1995. Its main objective is to undertake a market-oriented reform trade in agricultural products. This course will introduce you to the multilateral disciplines on trade in agricultural products and it is organized according to the three pillars of the Agreement: Market Access Domestic Support Export Competition

Furthermore, you will study the special and differential treatment provisions available for developing and least-developed countries. In addition, you will learn about the particular provisions that deal with the interests of countries that rely on imports for their food supplies, as well as the ongoing negotiations in the Doha Development Agenda.

ListofFigures
MODULE 1 INTRODUCTION TO THE WORLD TRADE ORGANIZATION (WTO), BASIC PRINCIPLES AND MARKET ACCESS RULES IN THE WTO............................................11
Figure 1 Figure 2 Figure 3 WTO Organizational Structure ..................................................................... 16 Tariff-Quota.............................................................................................. 33 TBT and SPS measures relating to the international trade of oranges ............... 36

MODULE 2

EXCEPTIONS TO THE BASIC PRINCIPLES, TRADE REMEDIES AND DISPUTE SETTLEMENT IN THE WTO ................................................................................45
Figure 1 WTO dispute settlement timeline ................................................................. 68

MODULE 3

INTRODUCTION TO THE AGREEMENT ON AGRICULTURE .............................................81

Figure 1 Structure of the Agreement on Agriculture.................................................... 91

MODULE 4

MARKET ACCESS IN THE AGREEMENT ON AGRICULTURE ..........................................117

Figure 1 Figure 2 Figure 3 Tarrif-Quota.............................................................................................124 Market Access: Tariff Escalation .................................................................145 Effect of the SSG as it partially compensates for the decline in the import price .....150

MODULE 5

DOMESTIC SUPPORT .....................................................................................161

Figure 1 Amber Box and de minimis: Current Total Aggregate Measurement of Support .....175

MODULE 7

EXPORT RESTRICTIONS AND PROHIBITIONS ........................................................223

Figure1 Figure 2 Food aid deliveries to LDCs and NFIDCs, 1995-2005 .....................................234 The International Grains Council Wheat Price Index (1987-2006) ...................241

MODULE 8

NEGOTIATIONS ON AGRICULTURE .....................................................................249

Figure 1 The negotiating groups .............................................................................261

MODULE 9

CONCLUSION ...............................................................................................269
Figure 1 Uruguay Round cuts .................................................................................273

ListofTables
MODULE 1 INTRODUCTION TO THE WORLD TRADE ORGANIZATION (WTO), BASIC PRINCIPLES AND MARKET ACCESS RULES IN THE WTO............................................11
Table 1 The basic structure of the WTO Agreements ................................................. 21

MODULE 3

INTRODUCTION TO THE AGREEMENT ON AGRICULTURE .............................................81

Table 1 The reductions in agricultural subsidies and protection agreed in the Uruguay Round ...................................................................................................... 97

MODULE 4

MARKET ACCESS IN THE AGREEMENT ON AGRICULTURE ..........................................117

Table 1 Table 2 The Starting-point for Tariff Reductions.......................................................119 Tariff Quotas by Principal Administration Method and Number of Quotas, 1995-2004 ..............................................................................................128 Table 3 Tariff Quotas Simple Average Fill Rates by Principal Administration Method, 2000-2004 ..............................................................................................131 Table 4 Table 5 Table 6 Table 7 Table 8 Table 9 Table 10 Average Applied vs Bound Tariffs ...............................................................141 Average Applied vs Bound Rates ................................................................142 Complex Tariff Forms................................................................................143 Agriculture Tariffs 2000-2002 ....................................................................144 Tariffs, Agriculture....................................................................................146 Price-based Special Agricultural Safeguard Action.........................................152 Volume-based Special Agricultural Safeguard Action .....................................153

MODULE 5

DOMESTIC SUPPORT .....................................................................................161

Table 1 Table 2 Table 3 Table 4 Table 5 Domestic Support Structure.......................................................................165 Green Box ...............................................................................................169 Blue Box .................................................................................................171 Development Programmes.........................................................................172 Current Total AMS ....................................................................................174

MODULE 6

EXPORT COMPETITION...................................................................................191
Table 1 Table 2 Product groupings ....................................................................................201 Product specific reduction commitments ......................................................202

MODULE 7

EXPORT RESTRICTIONS AND PROHIBITIONS ........................................................223

Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Articles 12 and 12.2 .................................................................................226 Minimum Annual Contributions and Shipments under the Food Aid Convention .....232 Evolution of food aid deliveries, 1995-2005 .................................................235 Composition of global food aid deliveries .....................................................236 Proportion of food aid provided in fully grant form to LDCs and NFIDCs...........238 Compliance with notification requirements (Table NF:1) ................................245

MODULE 9

CONCLUSION ...............................................................................................269
Table 1 Key Elemetns of the Agreement on Agriculture.............................................278

Acronyms
ACP
African, Caribbean and Pacific Countries. Group of countries with preferential trading relations with the European Union (EU) under the former Lom Treaty now replaced by the Cotonou Agreement.

ALADI AMS

Latin American Integration Association. The AMS refers to an index that measures the monetary value of the extent of government support to a sector. The AMS, as defined in the WTO Agreement on Agriculture, includes both budgetary outlays as well as revenue transfers from consumers to producers as a result of policies that distort market prices.

APEC

Asia-Pacific Economic Cooperation. APEC was established in 1989 to further enhance economic growth and prosperity for the region and to strengthen the Asia-Pacific community. APEC has 21 members - Australia; Brunei Darussalam; Canada; Chile; People's Republic of China; Hong Kong, China; Indonesia; Japan; Republic of Korea; Malaysia; Mexico; New Zealand; Papua New Guinea; Peru; The Republic of the Philippines; The Russian Federation; Singapore; Chinese Taipei; Thailand; United States of America; Viet Nam.

ASEAN

Association of Southeast Asian Nations. The seven ASEAN members of the WTO Brunei, Indonesia, Malaysia, Myanmar, the Philippines, Singapore and Thailand often speak in the WTO as one group on general issues. The other ASEAN members are Laos and Vietnam.

ATC BSE CAP

The WTO Agreement on Textiles and Clothing. Bovine Spongiform Encephalopathy, or "Mad Cow Disease". Common Agricultural Policy The EU's comprehensive system of production targets and marketing mechanisms designed to Manage agricultural trade within the EU and with the rest of the world.

CBD CITES

Convention on Biological Diversity Convention on International Trade in Endangered Species of Wild Fauna and Flora. Concluded in 1973 under the auspices of the International Union for the Conservation of Nature and Natural Resources (IUCN). The Convention entered into force on 1 July 1975. CITES regulates international trade in wild animals and plants.

CLMV CNUCED COMECON

Cambodia, Laos, Myanmar (Burma) and Vietnam. Confrence des Nations Unies sur le Commerce et le Dveloppement. Council for Mutual Economic Assistance. Established in January 1949, it was dissolved in February 1991.

COMESA

Common Market for Eastern and Southern Africa. The treaty establishing COMESA was signed at Kampala on 5 November 1993. It is the successor to the Preferential Trade Area for Eastern and Southern African States (PTA). Its members are Angola, Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Lesotho, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe.

CTD

The WTO Committee on Trade and Development.

CTE CTG DSB DSU

The WTO Committee on Trade and Environment. Council for Trade in Goods. The Dispute Settlement Body, i.e. the WTO General Council meeting to settle trade disputes. Dispute Settlement Understanding. The Uruguay Round Understanding on Rules and Procedures Governing the Settlement of Disputes.

EAC

East African Cooperation. A mechanism within the Common Market for Eastern and Southern Africa established in 1996. It aims to promote faster trade and investment liberalization. Its longer-term objectives are the establishment of a customs union and an East African Federation. The three partners making up the EAC are Kenya, Tanzania and Uganda.

EC ECDC

See EU. Economic Cooperation between Developing Countries. A mechanism operating mainly within the United Nations system of developing countries through cooperative activities.

ECLAC

Economic Commission for Latin America and the Caribbean. One of the United Nations regional economic commissions. It was established in 1948 as the Economic Commission for Latin America (ECLA) and given its current name in 1985.

ECOSOC

United Nations Economic and Social Council. Does not make rules. Its annual high-level sessions of WTO, IBRD and IMF heads are considered to be helpful in promoting coherence of economic policy between countries.

ECOWAS

Economic Community of West African States. Established in 1975. It consists of the members of the West African Economic Community (Benin, Burkina Faso, Cte d'Ivoire, Mali, Mauritania, Niger and Senegal), the members of the Mano River Union (Guinea, Liberia and Sierra Leone), and Cape Verde, The Gambia, Ghana, Guinea-Bissau, Nigeria and Togo.

EDI

Electronic Data Interchange. The transfer of data in a standardized electronic form between companies through the use of networks such as the internet.

EFTA

European Free Trade Association. Entered into force on 3 May 1960 through the Convention of Stockholm. Founding members were Austria, Denmark, Norway, Portugal, Sweden, Switzerland and the United Kingdom. Iceland joined in 1970. Finland became a full member in 1986 after having been an associate member. Denmark and the United Kingdom left on 31 December 1972 to join the European Economic Community. They were followed by Portugal in 1985 and Austria, Finland and Sweden on 1 January 1995. EFTA now comprises Iceland, Liechtenstein, Norway and Switzerland.

ESCAP

"The Economic and Social Commission for the Asia-Pacific. One of the United Nations regional economic commissions. It was established in 1947 as the Economic Commission for Asia and the Far East (ECAFE) and given its present name in 1974.

EU FAO FDI FTAA G15

European Union. Food and Agricultural Organization. Foreign direct investment. Free Trade Area of the Americas. Also called Western Hemisphere Free Trade Agreement. A group originally of fifteen developing countries acting as the main political organ for the Non-Aligned Movement. It was established in 1990. Its members now are: Algeria, Argentina, Brazil, Chile, Colombia, Egypt, India, Indonesia, Iran, Jamaica, Kenya, Malaysia, Mexico, Nigeria, Peru, Senegal, Sri Lanka, Venezuela and Zimbabwe.

G24

Intergovernmental Group of Twenty-Four on International Monetary Affairs, established in 1971. Members are divided into three regions. Region I (Africa) is represented by Algeria, Cte d'Ivoire, Democratic Republic of Congo, Egypt, Ethiopia, Gabon, Ghana, Nigeria and South Africa. Region II (Latin America and the Caribbean) is represented by Argentina, Brazil, Colombia, Guatemala, Mexico, Peru, Trinidad and Tobago and Venezuela. Region III (Asia and developing countries of Europe) is represented by India, Iran, Lebanon, Pakistan, Philippines, Sri Lanka and Syrian Arab Republic.

G7

Group of seven leading industrial countries: Canada, France, Germany, Italy, Japan, United Kingdom, United States.

G77

Group of developing countries set up in 1964 at the end of the first UNCTAD (originally 77, but now more than 130 countries).

G8 GATS GATT GATT 1947 GATT 1994

G7 plus Russia. General Agreement on Trade in Services. General Agreement on Tariffs and Trade. General Agreement on Tariffs and Trade 1947. The new version of the General Agreement, incorporated into the WTO, which governs trade in goods.

GATT PLUS

An expression implying imposition or acceptance of international trade disciplines more stringent than those prescribed by the GATT or extending the GATT rules to areas beyond trade in goods. One of the most ambitious examples of "GATT plus" was the proposal by the Atlantic Council of the United States that there should be a code of trade liberalization within the GATT framework with stronger rules for the conduct of trade relations between industrialized countries willing to accept them. According to its proponents, the benefits would have been extended to all GATT members according to the most-favoured-nation clause. The code would also have been open to new members willing to accept its obligations, but only code members would have been able to initiate tariff negotiations with another code member. The proposal did not find favour with GATT members as a whole.

GRULAC

The Group of Latin American and Caribbean Countries which operates informally within the WTO.

GSP

Generalized System of Preferences. First proposed at UNCTAD II in 1968. Entered into force in 1971. It gives developing countries a margin of preference in the tariff rates their goods face in the markets of developed countries and in this way increases their competitiveness. The massive tariff reductions since 1971 as a result of multilateral trade negotiations and unilateral actions, as well as changes in productivity, have reduced the importance of the GSP to many developing country exporters, but it remains an important plank in the trade policies of many developing countries. UNCTAD is the main forum for a discussion of GSP issues.

GSTP

Global System of Trade Preferences Among Developing Countries. It entered into force in 1989. Its aim is to promote the development of economic cooperation among developing countries through the exchange of tariff preferences. Least developed countries do not have to offer reciprocal concessions. Non-tariff preferences may also be exchanged. Membership of the GSTP is open to members of the Group of 77. Negotiations are conducted under UNCTAD auspices. 44 countries participate in the GSTP.

ILO

International Labour Organization. Established in 1919 as part of the Treaty of Versailles. It became a United Nations specialized agency in 1946. Its objectives are to improve working

and living conditions through the adoption of international conventions and recommendations setting minimum standards for wages, hours of work, conditions of employment, social security, etc. It is located in Geneva.

IDB OR IADB

Inter-American Development Bank. Established in 1959, the Inter-American Development Bank (IDB) supports economic and social development and regional integration in Latin America and the Caribbean. It does so mainly through lending to public institutions, but it also funds some private projects, typically in infrastructure and capital markets development. Members (46) include: Argentina, Austria, The Bahamas, Barbados, Belgium, Belize, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Croatia, Denmark, Dominican Republic, Ecuador, El Salvador, Finland, France, Germany, Guatemala, Guyana, Haiti, Honduras, Israel, Italy, Jamaica, Japan, Mexico, Netherlands, Nicaragua, Norway, Panama, Paraguay, Peru, Portugal, Slovenia, Spain, Suriname, Sweden, Switzerland, Trinidad and Tobago, United Kingdom, United States, Uruguay and Venezuela. http://www.iadb.org

IEA

International Energy Agency. An intergovernmental organization established in 1974 after the first oil shock. It consists of OECD member countries.

ILO IMO ISO

International Labour Organization. International Maritime Organization. International Organization for Standardization. A world-wide federation of national standards bodies established in 1947 to promote the development of standardization and related activities with a view to facilitating the international exchange of goods and services. Each country is represented by one organization only. The ISO also promotes the development of cooperation in intellectual, scientific, technological and economic activities. It is associated with the WTO especially through work concerning the Agreement on Technical Barriers to Trade which is aimed at ensuring that standards are not used as disguised barriers to trade.

ISO 14000

A series of environmental management standards prepared by the International Organization for Standardization (ISO) covering six areas: environmental managing systems;

environmental auditing; environmental labelling; environmental performance evaluation; life cycle assessment; terms and definitions. Most of the standards are intended as guidance documents on environmental tools and systems to help companies and other organizations integrate environmental considerations into their normal business processes. Only one of the standards, ISO 14001 on environmental management systems, contains specifications for certification or registration purposes.

ISO 9000

A series of quality systems standards developed by the International Organization for Standardization (ISO). These are standards for evaluating the way a firm works. They should not be confused with product standards. Quality systems standards enable firms to identify the means of meeting consistently the requirements of its customers.

IPC IPRS

International Patent Classification. Intellectual Property Rights. Ownership of ideas, including literary and artistic works (protected by copyright), inventions (protected by patents), signs for distinguishing goods of an enterprise (protected by trademarks) and other elements of industrial property.

ITA

Information Technology Agreement, or formally the Ministerial-Declaration on Trade in Information Technology Products.

ITA II

Negotiations aimed at expanding ITA's product coverage.

ITC

International Trade Centre UNCTAD/WTO. Established in 1964 as the focal point in the United Nations system for technical cooperation with developing countries in trade promotion. Its work program now covers product and market development, development of trade support services, trade information, human resource development, international purchasing and supply management and trade promotion needs.

ITU LAFTA LAIA LDCS LLDC MEA MERCOSUL MERCOSUR

International Telecommunication Union. Latin American Free Trade Association. Latin American Integration Association. Least Developed Countries. Least developed of the Least Developed Countries. Multilateral Environmental Agreement. Mercado Comum do Sul. Southern Common Market. The name in Portuguese of Mercosur. Mercado Comn del Sur (Southern Common Market). Currently a customs union covering trade in goods except sugar and automobiles. It includes Argentina, Brazil, Paraguay and Uruguay. Chile and Bolivia signed an association agreement on 1 October 1996 and 1 March 1997 respectively. Membership is open to ALADI members.

MFA

Multi Fibre Arrangement (1974-94) under which countries whose markets are disrupted by increased imports of textiles and clothing from another country were able to negotiate quota restrictions.

MFN

Most-favoured-nation treatment (GATT Article I, GATS Article II and TRIPS Article IV), the principle of not discriminating between one's trading partners.

NAFTA

The North American Free Trade Agreement (NAFTA) is a free trade agreement involving Canada, Mexico, and the United States, implemented on 1 January 1994. http://www.nafta-sec-alena.org

NEPAD NGBT NGMTS NGO NTBS

New Partnership for Africa's Development. Negotiating Group on Basic Telecommunications. Maritime transport services. Non-governmental Organization. Non-tariff barriers, such as quotas, import licensing systems, sanitary regulations,

prohibitions, etc. Same as "non-tariff measures".

NTMS

Non-tariff measures, such as quotas, import licensing systems, sanitary regulations, prohibitions, etc. Same as "non-tariff barriers".

OAS OAU OECS

Organization of American States. Organization of African Unity. Superseded in July 2001 by the African Union. Organization of Eastern Caribbean States. It superseded the East Caribbean Common Market. OECS members are Antigua and Barbuda, Dominica, Grenada, Montserrat, St Kitts and Nevis, St Lucia, St Vincent, and the Grenadines. The British Virgin Islands and Anguilla are associate members.

OECD

The Organization for Economic Cooperation and Development (OECD) groups 30 member countries. Members (30) include: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan,

South Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovakia, Spain, Sweden, Switzerland, Turkey, United Kingdom and the United States. http://www.oecd.org.

OPEC

Organization of Petroleum Exporting Countries. Its current members are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Saudi Arabia, United Arab Emirates and Venezuela.

P-5

Short

for

Pacific-5.

It

includes

Australia,

Chile,

New

Zealand,

Singapore

and

the

United States.

PACER

Pacific Agreement on Closer Economic Relations. An agreement adopted in August 2001 by the Pacific Islands Forum which sets out the framework for the development of trade relations between the Forum members. It is not a free-trade agreement, but it allows for the establishment of free-trade areas. One of these is the Pacific Island Countries Trade Agreement. PACER entered into force on 3 October 2002.

PAFTA

Pacific Free Trade Area. An idea for a regional preferential trade arrangement that has been around since the 1960s. Some say that the formation of APEC has made PAFTA redundant.

PICTA

Pacific Island Countries Free Trade Agreement. Australia and New Zealand are eligible to join if they wish. PICTA will enter into force after six countries have ratified it.

PIF

Pacific Islands Forum. Its members are Australia, Cook Islands, Federated States of Micronesia, Fiji, Kiribati, Nauru, New Zealand, Niue, Palau, Papua New guinea, Republic of the Marshall Islands, Samoa, Solomon Islands, Tonga, Tuvalu and Vanuatu.

PSI

Preshipment Inspection the practice of employing specialized private companies to check shipment details of goods ordered overseas i.e. price, quantity, quality, and so forth.

QRS

Quantitative restrictions specific limits on the quantity or value of goods that can be imported (or exported) during a specific period.

RBPS

Restrictive Business Practices. Anti-competitive behaviour by private firms of the type dealt with by national competition laws and policies. These can include collusion, abuse of dominant position, refusals to deal, price discrimination, resale price maintenance, exclusive dealing, vertical and horizontal arrangements, etc.

SACU

Southern African Customs Union comprising Botswana, Lesotho, Namibia, South Africa and Swaziland.

SELA SPS

Latin American Economic System. Sanitary and Phytosanitary measures or regulations implemented by governments to protect human, animal and plant life and health, and to help ensure that food is safe for consumption.

TARIC TBT TMB

Integrated Tariff of the European Union. The WTO Agreement on Technical Barriers to Trade. The Textiles Monitoring Body consists of a chairman plus 10 members and oversees the implementation of ATC commitments.

TPRB, TPRM

The Trade Policy Review Body is General Council operating under special procedures for meetings to review trade policies and practices of individual WTO members under the Trade Policy Review Mechanism.

TRIMS TRIPS

Trade-Related Investment Measures. Trade-Related Aspects of Intellectual Property Rights.

UNCTAD UPOV

The United Nations Conference on Trade and Development. International Union for the Protection of New Varieties of Plants (Union Internationale pour la Protection des Obtentions Vgtales). Concluded in 1961 in Paris and revised in 1978 in Geneva. It provides for the grant of patents or special titles of protection to breeders of new plant varieties. It is administered by the International Union for the Protection of New Varieties of Plants (UPOV), rather than by WIPO.

VRA, VER, OMA Voluntary

Restraint

Arrangement,

Voluntary

Export

Restraint,

Orderly

Marketing

Arrangement. Bilateral arrangements whereby an exporting country (government or industry) agrees to reduce or restrict exports without the importing country having to make use of quotas, tariffs or other import controls.

WCO

World Customs Organization, a multilateral organization located in Brussels through which participating countries seek to simplify and rationalize customs procedures.

WIPO

World Intellectual Property Organization.

TableofContents
MODULE 0
I. II.

COURSE GUIDE ................................................................................................ 1

INTRODUCTION............................................................................................................ 3 COURSE ORGANIZATION ............................................................................................... 4 II.A. II.B. II.C. II.D. OBJECTIVES .................................................................................................... 4 STRUCTURE AND DURATION OF THE COURSE ..................................................... 4 WHO IS WHO? ................................................................................................. 6 EVALUATION AND CERTIFICATE......................................................................... 6

III.

E-LEARNING WEBSITE .................................................................................................. 7 III.A. III.B. TRAINING MATERIALS ...................................................................................... 7 INTERACTIVE TOOLS ........................................................................................ 8

IV.

USER AGREEMENT ........................................................................................................ 9

MODULE 1

INTRODUCTION TO THE WORLD TRADE ORGANIZATION (WTO), BASIC PRINCIPLES AND MARKET ACCESS RULES IN THE WTO............................................ 11

I.

INTRODUCTION TO THE WTO....................................................................................... 13 I.A. I.B. I.C. I.D. I.E. WHAT IS THE WTO? ....................................................................................... 13 OBJECTIVES OF THE WTO ............................................................................... 13 FUNCTIONS OF THE WTO ................................................................................ 14 WTO ORGANIZATIONAL STRUCTURE ................................................................ 16 DECISION-MAKING IN THE WTO ...................................................................... 19

II. III.

THE WTO AGREEMENTS .............................................................................................. 20 NON-DISCRIMINATION ............................................................................................... 23 III.A. III.B. MFN UNDER GATT .......................................................................................... 23 NATIONAL TREATMENT UNDER GATT ................................................................ 24

IV.

RULES ON MARKET ACCESS......................................................................................... 26 IV.A. IV.B. IV.C. IV.D. INTRODUCTION ............................................................................................. 26 TARIFFS........................................................................................................ 26 NON-TARIFF BARRIERS................................................................................... 31 OTHER NON-TARIFF BARRIERS ........................................................................ 35

V.

SUMMARY.................................................................................................................. 39 V.A. V.B. V.C. THE WTO ...................................................................................................... 39 PRINCIPLES................................................................................................... 40 RULES ON MARKET ACCESS ............................................................................ 41

MODULE 2

EXCEPTIONS TO THE BASIC PRINCIPLES, TRADE REMEDIES AND DISPUTE SETTLEMENT IN THE WTO ................................................................................ 45

I.

RULES ON UNFAIR TRADE ........................................................................................... 47 I.A. I.B. ANTI-DUMPING MEASURES ............................................................................. 47 SUBSIDIES & COUNTERVAILING DUTIES........................................................... 48

II.

EXCEPTIONS TO THE BASIC PRINCIPLES ....................................................................... 52 II.A. II.B. II.C. II.D. II.E. HORIZONTAL EXCEPTIONS .............................................................................. 52 SAFEGUARD MEASURES .................................................................................. 57 WAIVERS ...................................................................................................... 62 REGIONAL INTEGRATION ................................................................................ 63 SPECIAL & DIFFERENTIAL TREATMENT FOR DEVELOPING COUNTRIES .................. 65

III.

DISPUTE SETTLEMENT AT THE WTO.............................................................................. 67 III.A. III.B. III.C. III.D. III.E. III.F. III.G. III.H. III.I. III.J. III.K. CONSULTATIONS ........................................................................................... 69 PANELS......................................................................................................... 69 APPEAL ......................................................................................................... 70 ADOPTION AND IMPLEMENTATION OF THE REPORT............................................ 70 REMEDIES ..................................................................................................... 70 WITHDRAWAL / AMENDMENT OF THE INCONSISTENT MEASURES ........................ 70 COMPENSATION............................................................................................. 71 SUSPENSION OF CONCESSION (RETALIATION) ................................................. 71 ARBITRATION ................................................................................................ 72 GOOD OFFICES, CONCILIATION AND MEDIATION .............................................. 72 TYPES OF COMPLAINTS................................................................................... 73

IV.

SUMMARY.................................................................................................................. 75 IV.A. IV.B. IV.C. RULES ON UNFAIR TRADE ............................................................................... 75 EXCEPTIONS TO THE BASIC PRINCIPLES .......................................................... 76 DISPUTE SETTLEMENT .................................................................................... 77

MODULE 3
I.

INTRODUCTION TO THE AGREEMENT ON AGRICULTURE ............................................. 81

INTRODUCTION.......................................................................................................... 83 I.A. I.B. I.C. AGRICULTURAL TRADE ................................................................................... 83 AGRICULTURE TRADE RULES UNDER THE GATT ................................................. 83 URUGUAY ROUND AGRICULTURE NEGOTIATIONS .............................................. 86

II.

THE AGREEMENT ON AGRICULTURE.............................................................................. 91 II.A. II.B. INTRODUCTION ............................................................................................. 91 AGREEMENT ON AGRICULTURE'S STRUCTURE ................................................... 91

III.

RELATIONSHIP OF THE AGREEMENT ON AGRICULTURE TO OTHER WTO AGREEMENTS ......102 III.A. INTRODUCTION ............................................................................................102

IV.

SUMMARY.................................................................................................................114

MODULE 4
I. II.

MARKET ACCESS IN THE AGREEMENT ON AGRICULTURE .......................................... 117

CONCEPTUAL FRAMEWORK .........................................................................................119 CEILING BINDINGS AND TARIFFICATION .....................................................................120 II.A. II.B. CEILING BINDINGS .......................................................................................121 BINDINGS AND REDUCTIONS .........................................................................122

III.

SCHEDULE OF TARIFF CONCESSIONS & TARIFF QUOTA COMMITMENTS...........................123 III.A. III.B. INTRODUCTION ............................................................................................123 MODIFICATION OF SCHEDULES ......................................................................123

IV.

TARIFF-RATE QUOTAS................................................................................................125 IV.A. IV.B. IV.C. TRQ ADMINISTRATION ..................................................................................127 GATT ARTICLE XIII ........................................................................................129 AGREEMENT ON IMPORT LICENSING PROCEDURES ...........................................130

V.

THE PROHIBITION OF NON-TARIFF BORDER MEASURES.................................................135 V.A. V.B. ARTICLE 4 OF THE AGREEMENT ON AGRICULTURE ............................................135 EXCEPTIONS TO THE PROHIBITION OF NTBS....................................................138

VI. VII.

SPECIAL TREATMENT .................................................................................................139 HORIZONTAL EXCEPTIONS .........................................................................................140 VII.A. VII.B. VII.C. IMPLEMENTATION .........................................................................................141 SOME PROBLEMS WITH TARIFFS.....................................................................142 WHAT THEN WERE THE BENEFITS OF THE URUGUAY ROUND? ............................147

VIII.

SPECIAL SAFEGUARD PROVISIONS..............................................................................148 VIII.A. VIII.B. VIII.C. INTRODUCTION ............................................................................................148 PRICE-BASED SSG ........................................................................................149 VOLUME-BASED SSG .....................................................................................151

VIII.D. WHEN CAN THE SSG BE USED?.......................................................................152 VIII.E. IX. WHO HAS THE RIGHT TO USE THE SSG?..........................................................152

NOTIFICATION OBLIGATIONS .....................................................................................154 IX.A. IX.B. TARIFFS AND TARIFF QUOTA NOTIFICATION OBLIGATIONS ...............................154 NOTIFICATIONS FOR THE SPECIAL SAFEGUARD ...............................................154

X.

SUMMARY.................................................................................................................156

MODULE 5
I.

DOMESTIC SUPPORT ..................................................................................... 161

CONCEPTUAL FRAMEWORK .........................................................................................163 THE BOXES...............................................................................................................164

II.

THE GREEN BOX........................................................................................................166 II.A. II.B. II.C. GENERAL REQUIREMENTS ..............................................................................166 GOVERNMENT SERVICE PROGRAMMES ............................................................166 DIRECT PAYMENTS TO PRODUCERS.................................................................167

III.

OTHER EXEMPT SUPPORT ...........................................................................................170 III.A. BLUE BOX ....................................................................................................170

III.B. III.C. IV.

DEVELOPMENT PROGRAMMES.........................................................................171 DE MINIMIS..................................................................................................172

DOMESTIC SUPPORT SUBJECT TO REDUCTION COMMITMENTS .......................................173 IV.A. IV.B. IV.C. WHAT IS DE MINIMIS?...................................................................................175 AGGREGATE MEASUREMENT OF SUPPORT (AMS) ..............................................175 EQUIVALENT MEASUREMENT OF SUPPORT .......................................................178

V. VI.

NOTIFICATION OBLIGATIONS .....................................................................................184 SUMMARY.................................................................................................................187

MODULE 6
I. II.

EXPORT COMPETITION................................................................................... 191

CONCEPTUAL FRAMEWORK .........................................................................................193 EXPORT SUBSIDIES RULES FOR AGRICULTURE .............................................................197 II.A. II.B. II.C. II.D. II.E. II.F. ARTICLE 9 (SUBSIDIES TO BE REDUCED) ........................................................197 EXCEPTION IN ARTICLE 9.4............................................................................199 WHO CAN SUBSIDIZE EXPORTS? ....................................................................199 PRODUCT CATEGORIES..................................................................................201 REDUCTION RATES .......................................................................................202 ROLL-OVER OF COMMITMENTS .......................................................................204

III. IV. V. VI.

ANTI-CIRCUMVENTION...............................................................................................205 EXPORT SUBSIDY NOTIFICATION OBLIGATIONS ...........................................................211 DISPUTE SETTLEMENT CASES .....................................................................................212 SUMMARY.................................................................................................................221

MODULE 7

EXPORT RESTRICTIONS AND PROHIBITIONS AND NET FOOD-IMPORTING DEVELOPING COUNTRIES ............................................................................... 223

I.

EXPORT RESTRICTIONS AND PROHIBITIONS ................................................................225 I.A. I.B. INTRODUCTION ............................................................................................225 DISCIPLINES ON EXPORT RESTRICTIONS AND PROHIBITIONS ...........................225

II.

NET FOOD-IMPORTING DEVELOPING COUNTRIES..........................................................228 II.A. II.B. INTRODUCTION ............................................................................................228 IMPLEMENTATION OF THE NFIDC DECISION.....................................................230

III. IV.

NOTIFICATION REQUIREMENTS ..................................................................................244 SUMMARY.................................................................................................................247

MODULE 8
I. II.

NEGOTIATIONS ON AGRICULTURE ..................................................................... 249

INTRODUCTION.........................................................................................................251 NEGOTIATING MANDATES ..........................................................................................252 II.A. II.B. ANALYSIS AND INFORMATION EXCHANGE........................................................252 ARTICLE 20 ..................................................................................................253

II.C. II.D. II.E. II.F. III.

DOHA DEVELOPMENT AGENDA........................................................................254 CANCN MINISTERIAL CONFERENCE ...............................................................256 GENERAL COUNCIL DECISION OF 1ST AUGUST 2004 ........................................257 HONG KONG MINISTERIAL DECLARATION ........................................................260

THE COTTON INITIATIVE ............................................................................................263 III.A. III.B. III.C. III.D. INTRODUCTION ............................................................................................263 GENERAL COUNCIL DECISION OF 1ST AUGUST 2004 ........................................263 COTTON SUB-COMMITTEE..............................................................................264 HONG KONG MINISTERIAL DECLARATION ........................................................265

IV.

SUMMARY.................................................................................................................267

MODULE 9
I.

CONCLUSION ............................................................................................... 269

REVIEW....................................................................................................................271 I.A. I.B. I.C. THE WTO .....................................................................................................271 AGRICULTURE IN THE URUGUAY ROUND..........................................................272 SCHEDULES, SUPPORTING TABLES & THE MODALITIES DOCUMENT ....................279

II.

NEGOTIATIONS .........................................................................................................281

SUPPORT DOCUMENTS ......................................................................................................... 283

MODULE

0
CourseGuide
ESTIMATEDTIME:hour

CONTENT:

Organization of your course; main functions of the E-Learning platform; and, the User Agreement.

I.

INTRODUCTION

Welcome to the course "Agriculture in the WTO"! This Course Guide is envisaged to give you an overview of the organization of your course, as well as of the main functions of the E-Learning platform. At the end of the Course Guide, you will find the User Agreement, which was initially sent with your username and password. We advise you to print this Guide and have it readily available throughout the course.

II.

COURSE ORGANIZATION

II.A. OBJECTIVES
After successfully completing the elements of the E-Learning course "Agriculture in the WTO" you will have: enhanced knowledge of the basic principles of the WTO; enhanced knowledge of the WTO disciplines regarding agriculture; improved ability to interpret relevant information and documents on WTO-related issues, and to use the WTO legal texts and related background materials benefited from the establishment of a network of useful contacts between course participants and experts from the WTO Secretariat. To facilitate the achievement the objectives of the course, you will have access to training materials, background documents and the interactive tools of the E-Learning platform. WTO E-Learning courses are part of the WTO Progressive Learning Strategy (PLS). The primary aim of the PLS is to promote higher levels of learning, with a view to sustaining the human and institutional capacity of beneficiary countries to participate more effectively in the WTO. This course is a level 2 (intermediate level) course in the specialist path of the PLS.

TO KNOW MORE
The PLS is the progressive, multi modular sequencing of products aimed at improving the delivery of WTO technical assistance and training. To know more about the WTO PLS: http://www.wto.org/english/tratop_e/devel_e/teccop_e/pls_e.pdf To know more about WTO technical assistance and training, please refer to: http://www.wto.org/english/tratop_e/devel_e/teccop_e/tct_e.htm

II.B.

STRUCTURE AND DURATION OF THE COURSE

WTO E-Learning courses give you the flexibility to combine your training activities and professional responsibilities. Furthermore, you will be able to wholly benefit from interactive activities such as Chat Sessions with WTO Experts. WTO E-Learning is available for government officials. While the WTO E-Learning material is freely available on the WTO E-Learning website, you have to register and submit the nomination form in order to access the course exams and obtain a WTO certificate. Once your registration process is complete, a username and password will be sent to you by email. Your access codes will be available for a three month period. In this period, you will have to complete AND submit all exams. During these three months a Trainer will be available to assist you with any questions you may have.

The estimated study time per course is 50-60 hours. Therefore, the course requires around 2 hours of study per working day.

Note

You will have access to the E-Learning website during the duration of the course and your account will expire at 23:59 (Geneva time) of the last day. In order to finalise the course in a timely manner, you should submit the Final Exam before this deadline.

Structure of the course

Training materials

The course is divided into 9 Modules. Each module contains training materials on a specific issue, including explanatory texts and examples, which take two forms: Illustrations: A simplified explanation of WTO provisions or theoretical points developed throughout the module. Case studies extracted from WTO jurisprudence, which show how WTO rules have been interpreted by the Dispute Settlement Body.

Exercises

Self-assessment exercises are available in each module. They allow you to measure your personal progress in the course. Your academic profile allows you track your progress, using graphs and charts.

End-of-module Exams

Please note that you may take the end-of-module exam only once and it will count towards your final average.

Final Exam

The final Exam is the exam at the end of the last module of your course. This exam covers all the issues addressed during the course. Take your time to complete and submit it, since you will only be able to do it once and it counts double in the calculation of your final average.

II.C.

WHOISWHO?

During your course, you will have the opportunity to interact with colleagues from other WTO Members and Observers, as well as with WTO experts in the subject matter of the course and the E-Learning Unit.

Who is who?

Participants

Government officials who are taking part in the course and have the potential to interact and build a network.

Trainer

Your Trainer is a WTO expert, who is available to guide you and respond to your queries on the academic content of the course. Feel free to contact your Trainer using the Internal Email Service, whenever you need some clarification.

Help Desk

The E-Learning Help Desk is ready to assist you on technical issues related to the functioning of the website.

II.D.

EVALUATIONANDCERTIFICATE

At the end of each module, you will have to complete and submit an exam. These exams contain multiple-choice questions addressing the substantive content, as well as case studies, of the pertinent Module. Should you have questions on the evaluation of your exams, please remember to first carefully read the reasoning for correct answer, which you will see together with your test results. The results of each exam will be taken into account for the calculation of your final average. After completing the last module, you will find the Final Exam, which counts double in the calculation of your final average.

Note

You may only take the end-of-module exams once and they count towards the calculation of your final average.

Upon successful completion of the course, the WTO Institute for Training and Technical Cooperation will issue and send you a certificate, signed by the Director General, if you: reach a final average of at least 60% of correct answers; have more than 50% in each exam except in one. (This means: If the course has 9 Modules, you have to have 8 exams above 50%.); have taken part in the interactive activities (chat and/or forum).

Participants with outstanding results (i.e. a final average above 90% and no exam below 50%) will receive a Certificate with Distinction.

III.

ELEARNINGWEBSITE

The E-Learning website has been designed for you and to foster an efficient training experience and allow you to interact with other participants and WTO experts. It contains the training materials for your course, as well as background documentation and interactive tools. You may take the Online Tutorial available on the website, to get familiar with the different functions and interactive tools.

Note

In order to login, you should always enter the username and password that were sent to you.

III.A. TRAININGMATERIALS
E-Learning offers comprehensive courses. Each module consist of the following elements: Training and theoretical materials on the WTO and its Agreements; Illustrations and examples; Case studies and exercises; Text of the WTO Agreements and Official Documents; Access to further information through hyperlinks or the module support documents; End-of-module exam.

Furthermore, you will have access to the eLibrary, which contains background documents (WTO Agreements, the Analytical Index of jurisprudence, Glossary of Trade Terms, Trade Policy Review Reports, List of WTO members and Information on WTO Negotiations), as well as useful links to complement your study.

III.B.

INTERACTIVE TOOLS

The E-Learning website offers interactive tools to foster the exchange among course participants, as well as between participants and WTO experts. Please refer to the Online Tutorial for more detailed information on:

Interactive tools

Internal Email Service:

Your own E-Learning email account! Use it to contact your Trainer, Help Desk, other participants... and build-up your network.

News Forum:

This is the place to discuss the latest WTO news of interest for you by exchanging comments and views with other participants and trainers.

Chat Sessions:

Chat Sessions with WTO Experts and Special Guests will be organized during the course. An invitation with the date and time will be sent to you.

Important note

Do not wait to fully benefit from the interactive features of the E-Learning website! Take the first step in contacting your Trainer and take the initiative in the process... talk about the most important trade issues for your country and region with colleagues and share your knowledge and experiences.

IV.

USERAGREEMENT

The use of the E-Learning platform, the training materials and interactive features is subject to the terms and conditions contained in the User Agreement. You have automatically agreed to the User Agreement by using the log-in details (username and password) that were sent to you. The User Agreement reads as follows: 1. The E-Learning platform is property of the World Trade Organization. It is managed by the E-Learning Unit of the Institute for Training and Technical Cooperation and its objective is to deliver online courses on the WTO and its Agreements, while taking full advantage of the internet and the latest multimedia technologies. 2. The User is a trade official from a developing country or economy in transition, nominated by his/her respective government. The User enjoys access to the E-Learning platform during the duration of the course, under the following terms and conditions: a. The WTO is the copyright holder of the content of the E-Learning platform. Training materials and other tools available online shall not be disseminated without prior written authorization from the WTO E-Learning Unit; b. During the course, the User may print the training materials and documents available on the ELearning platform for his/her personal use only; c. Citations and references to the course materials available on the E-Learning platform shall fully acknowledge the source (i.e. WTO E-Learning course); d. Only authorized Users (i.e. participants, nominated by their governments, who have received a username and password) are entitled to use the E-Learning platform; e. The User is responsible for maintaining the confidentiality of the username and password to access the E-Learning platform. If you become aware of any unauthorized use of your account, you shall notify the E-Learning Unit (elearning@wto.org) immediately; f. The utilization of the E-Learning platform and its contents shall be exclusively in relation to the course that is being followed by the User; g. Communications through email and the Discussion Forum may be monitored by the WTO to ensure civility and compliance with the User Agreement; h. If the User breaches the terms and conditions of this User Agreement, his/her right to access the ELearning Platform will be revoked unilaterally by the WTO.

MODULE

1
IntroductiontotheWorldTrade Organization(WTO),Basic PrinciplesandMarketAccess RulesintheWTO
ESTIMATEDTIME:4hours

OBJECTIVES OF MODULE 1

Explain the objectives, functions, principles and organizational structure of the WTO;

Introduce the WTO agreements and the WTO legal framework; Explain the non-discrimination rules: Most Favoured Nation (MFN) Principle and National Treatment (NT) Principle;

Explain the market-access rules.

11

I.

INTRODUCTIONTOTHEWTO

I.A.

WHATISTHEWTO?

The WTO is the only international organization dealing with multilateral rules of trade between nations. At its heart are the Uruguay Round agreements, which were negotiated and signed by governments and ratified in their respective parliaments.

GATTANDWTO
"GATT" is the acronym of General Agreement on Tariffs and Trade. The GATT is an international agreement concluded in 1947. It contains the rules and obligations that governed trade in goods for almost fifty years between the nations, which signed and ratified it and which were normally called "the Contracting Parties". Until the creation of the WTO in 1995, the GATT provided the legal framework for the bulk of world trade. From 1947 to 1994, Contracting Parties organized eight rounds of negotiations. The longest (1986-1994) and most comprehensive of them was the Uruguay Round, which incorporated negotiations on services and intellectual property. The Contracting Parties concluded the Round by adopting the "Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations". The Final Act includes the "Marrakesh Agreement Establishing the World Trade Organization" (the "WTO Agreement") and its four Annexes (Annexes 1 (1A, 1B, 1C); 2; 3 and 4). The WTO Agreement is the constitutive agreement which established a new organizational body, the World Trade Organization. Therefore, the WTO came into being in 1995, and though legally distinct from the "GATT", both are interrelated. The WTO is in charge of administering the Uruguay Round Agreements.

I.B.

OBJECTIVESOFTHEWTO

In the Preamble to the Marrakesh Agreement establishing the WTO ("the WTO Agreement"), the parties to the Agreement recognize certain objectives they wish to attain through the multilateral trading system: raise living standards; ensure full employment; ensure a large and steadily growing volume of real income and effective demand; and expand the production of and trade in, goods and services, while allowing for the optimal use of the world's resources in accordance with the objective of sustainable development. The Preamble of the Agreement also recognizes the need for "positive efforts to ensure that developing countries, and especially the least-developed among them, secure a share in the growth in international trade commensurate with their economic development".

13

I.C.

FUNCTIONSOFTHEWTO

INBRIEF
The main functions of the WTO are to: administer trade agreements; serve as a forum for trade negotiations; settle trade disputes; review Member's trade policies; assist developing countries with trade policy issues, through technical assistance and training programmes; and cooperate with other international organizations.

Article III of the WTO Agreement contains the functions of the WTO. Paragraphs 1 to 2 refer to the role of the WTO of providing a permanent institutional forum for trade negotiations among its Members. These negotiations may be on subjects already covered under the various WTO agreements or in respect of "new issues" to be disciplined by those agreements. Paragraph 3 of Article III of the WTO Agreement obliges the WTO to administer the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU") in Annex 2 of the WTO Agreement. It refers to the role of the WTO as a forum for the settlement of disputes between its Members in accordance with the disciplines and procedures elaborated in the DSU. Paragraph 4 of Article III of the WTO Agreement obliges the WTO to administer the Trade Policy Review Mechanism ("TPRM") contained in Annex 3 to the WTO Agreement. This function underscores the role of the WTO in the transparency mechanism designed by Members during the Uruguay Round. The TPRM was one of the few elements of the WTO Agreement that formed part of the "Early Harvest" realized before the Uruguay Round ended. Early Harvest is an expression which was used in the Uruguay Round negotiations when at the "Mid Term Review" Ministerial Meeting, held in Montreal in 1988, GATT Contracting Parties agreed that certain results of the negotiations, on which a clear consensus already existed, would enter into force immediately, although on a provisional basis. In other words, some fruits (of the negotiations) would be "harvested early". This final paragraph of Article III of the WTO Agreement, Paragraph 5 contains the "coherence mandate", which states that the WTO should cooperate with other multilateral agencies (World Bank, International Monetary Fund, etc.).

TIP The WTO rights and obligations constitute one part of the Multilateral Trading System (also referred to as "MTS") which regulates and affects most international trade transactions. Other organizations and agreements may also affect trade. For example, regulations of the International Monetary Fund ("IMF") influence how countries trade.

14

EXERCISES: 1. 2. 3. What are the objectives of the WTO? What are some of the achievements of the Uruguay Round? What is the Final Act?

15

I.D.

WTOORGANIZATIONALSTRUCTURE

Figure 1:

WTO Organizational Structure

16

I.D.1.

THEMINISTERIALCONFERENCE

The Ministerial Conference is the highest decision-making body in the WTO. Its sessions must take place at least once every two years and deals with all matters under the WTO agreements.

I.D.2.

THEGENERALCOUNCIL

The General Council constitutes the second tier in the WTO Structure. It comprises representatives from all Member countries, usually Ambassadors/Permanent Representatives based in Geneva. It meets regularly (approximately once a month) to adopt decisions, mostly on behalf of the Ministerial Conference when the Conference is not in session. The General Council has authority over the Trade Negotiations Committee ("TNC"), which is in charge of the negotiations mandated by the Doha Development Agenda. The General Council also meets as: The Trade Policy Review Body ("TPRB"), with its own Chairperson, to carry out trade policy reviews as mandated by the Trade Policy Review Mechanism (Annex 3 of the WTO Agreement). The Dispute Settlement Body ("DSB"), with its own Chairperson to administer the rules in the Understanding on Rules and Procedures Governing the Settlement of Disputes ("DSU"). The DSB has the authority to establish panels, adopt Panel and Appellate Body Reports, oversee the implementation of rulings and recommendations, and authorize the suspension of concessions and other obligations under the agreements for which disputes can be settled by the DSU - the "covered agreements".

I.D.3.

THETRADENEGOTIATIONSCOMMITTEE

The Trade Negotiations Committee (TNC) was set up by the Doha Ministerial Declaration, which in turn assigned it to create subsidiary negotiating bodies to handle negotiations for different topics, among them the Special Sessions of various Committees that have a mandate to negotiate (such as Agriculture, Trade and Environment, Subsidies, etc.). At present, its chairperson is Mr. Pascal Lamy, the Director-General of the WTO. The TNC reports directly to the General Council.

I.D.4.

THECOUNCILS&SUBSIDIARYBODIES

The Councils can be described as subsidiary bodies to the General Council. They are composed of all WTO Members. There are three: The Council for Trade in Goods (the "Goods Council") oversees all the issues related to the Agreements on trade in goods; The Council for Trade in Services (the "GATS Council") oversees all issues related to the GATS Agreement; The Council for Trade-Related Aspects of Intellectual Property Rights (the "TRIPS Council") administers the TRIPS Agreement.

17

The Goods and Services Councils have subsidiary bodies. The Goods Council has 11 committees working on specific subjects (such as agriculture, market access, subsidies, anti-dumping measures, etc.). All of these committees are composed of all Members. Subsidiary bodies of the Services Council's deal with financial services, domestic regulations, GATS rules, and specific commitments. This Council does not have a permanently fixed number of subsidiary bodies. For example, the Negotiating Group on Basic Telecommunications was dissolved in February 1997 when its work ended. Several other bodies, which focus on specific issues, report to the General Council. They are usually called Committees, Working Groups or Working Parties; they are: Committee on Trade and Development ("CTD"); Committee on Trade and Environment ("CTE"); Committee on Regional Trade Agreements ("CRTA"); Committee on Balance-of-Payment Restrictions ("BOP Committee"); and Committee on Budget, Finance and Administration ("CBFA"). Working Parties on Accession; Working Group on Trade, Debt and Finance; and Working Group on Trade and Technology Transfer.

EXERCISES: 4. Please arrange the following WTO bodies in hierarchical order: (a) General Council (b) Committee on Technical Barriers to Trade (c) Council for Trade in Goods (d) Ministerial Conference 5. Please state the function of the following WTO bodies: (a) Ministerial Conference (b) General Council (c) Council for Trade in Goods (d) Committee on Technical Barriers to Trade

18

I.E.

DECISIONMAKINGINTHEWTO

CONSENSUSVERSUS...
The WTO is a Member-driven, consensus-based organization. Consensus is defined in footnote 1 to Article IX of the WTO Agreement, which states: "The Body concerned shall be deemed to have decided by consensus on a matter submitted for its consideration, if no Member present at the meeting when the decision is taken, formally objects to the proposed decision."

VOTING
Where consensus is not possible, the WTO Agreement permits voting a vote being won by a tally of the majority of votes cast, and based on "one country, one vote". The WTO Agreement envisages voting in four specific situations: a three-quarters majority of WTO Members can adopt an interpretation of any of a multilateral trade agreements; the Ministerial Conference, by a three-quarters majority, can waive an obligation imposed on a Member by a multilateral agreement; all Members or a two-thirds majority (depending on the provision of the agreement) can take a decision to amend provisions of the multilateral agreements. However, the amendments only apply to WTO Members that accept them; and a two-thirds majority in the Ministerial Conference or the General Council in between conferences can take a decision to admit a new Member.

19

II.

THEWTOAGREEMENTS

II.A. INTRODUCTION

INBRIEF
The WTO agreements are the result of the 19861994 Uruguay Round negotiations signed at the Marrakesh Ministerial Meeting in April 1994. There are about 60 agreements and Decisions totalling 550 pages. It also included a major revision of the original GATT text. Negotiations since 1994 have produced additional legal texts such as the Information Technology Agreement Services and Accession Protocols.

INDETAIL
The Final Act of the Uruguay Round was signed in Marrakesh in 1994. It works like a cover note to all WTO Agreements, which are subsequently attached. Next, is the Marrakesh Agreement establishing the World Trade Organization ("the WTO Agreement"), it serves as an umbrella agreement. The WTO Agreement includes provisions on establishment, scope, functions and structure of the WTO. It defines the WTO relationship with other organizations, its secretariat, budget and contributions, legal status, and decision-making and amendment procedures (including special voting procedures). Additionally, it presents information on the definition of original Members, accession, non application, acceptance, entry into force and deposit, denunciation and final provisions. The WTO Agreement has four Annexes. Annexes 1, 2, and 3 are termed "Multilateral Trade Agreements" and Annex 4 is termed "Plurilateral Trade Agreements". Annex 1 is divided into three sections: Annex 1A (The Multilateral Agreements on Trade in Goods); Annex 1B (General Agreement on Trade in Services); and Annex 1C (Agreement on Trade-related Aspects of Intellectual Property Rights).

Annex 2 governs the Understanding on Rules and Procedures Governing the Settlement of Disputes. Annex 3 is entitled Trade Policy Review Mechanism. Annex 4 contains the Plurilateral trade agreements. The schedules of commitments also form part of the Uruguay Round package. The Multilateral Trade Agreements (Annex 1, 2, 3) are applicable to all Members and as such are deemed a "single undertaking". This is a departure from GATT practice.

20

WHATISTHESINGLEUNDERTAKING?
Agreements related to GATT 1947 were negotiated during negotiating rounds prior to the Uruguay Round. In particular, some agreements on non-tariff barriers were negotiated during the Tokyo Round. However, these agreements were not adopted by all GATT Contracting Parties; they applied only to those countries who agreed to be bound by them. In the Uruguay Round, a different approach was adopted, it was decided that the multilateral agreements negotiated were to be accepted as a whole. The GATT, the Agreement on Agriculture, the Agreement on Trade Related Aspects of Intellectual Property Rights, the General Agreement on Trade in Services, as well as most of the other agreements negotiated during the Uruguay Round are part of this "single undertaking". However, there are four plurilateral trade agreements (Uruguay Round Agreements) that bind only those Members who negotiated them. These are the Agreement on Trade in Civil Aircraft, the Agreement on Government Procurement, the International Dairy Agreement and the International Bovine Meat Agreement. The latter two were terminated at the end of 1997.

In a nutshell: The basic structure of the WTO agreements.

Umbrella

AGREEMENT ESTABLISHING WTO

Goods (Annex 1A)

Services (Annex 1B)

Intellectual (Annex 1C)

property

Basic Rules

GATT

GATS

TRIPS

Additional details

Other agreements annexes

goods and

Services annexes

Market access commitments

Countries' schedules commitments of

Countries' schedules of commitments (and MFN exemptions)

Dispute settlement

Dispute Settlement (Annex 2)

Transparency

Trade Policy Review Mechanism (Annex 3)

Plurilateral commitments Table 1:

Plurilateral Agreements (Annex 4) The basic structure of the WTO Agreements

21

IFYOUWANTTOKNOWMORE...
For more information on the GATS, there is a self-training module on the WTO site at the following address: http://www.wto.org/english/tratop_e/serv_e/cbt_course_e/signin_e.htm For more information on the DSU, there is a self-training module available on the WTO site at the following address: http://www.wto.org/english/tratop_e/dispu_e/disp_settlement_cbt_e/signin_e.htm

EXERCISES: 6. What is the WTO Agreement and what does its annexes cover?

22

III.

NONDISCRIMINATION

As you know, non-discrimination is a key concept of the multilateral trading system. It is based on the most favoured-nation clause and national treatment.

III.A. MFNUNDERGATT
The Most Favoured Nation (MFN) principle prohibits discrimination between imports irrespective of their origin or destination and requires each Member to extend to all other Members, treatment no less favourable than it accords to imports from any other country. For goods, the obligation is found in GATT Article I:1:

"With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports and with respect to the method of levying such duties and charges and with respect to all rules and formalities in connection with importation and exportation and with respect to all matters referred to in paragraphs 2 and 4 of Article III any advantage favour privilege or immunity granted by any Member to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other Members."

EXERCISES: 7. GATT Art. I.1 says: "With respect to customs duties any advantage granted by any Member to any product originating in or destined for any other COUNTRY shall be accorded immediately and unconditionally etc" Why did the drafters of Article I.1 of the GATT refer to "any other COUNTRY" and not "any other MEMBER"?

23

III.B. NATIONALTREATMENTUNDERGATT
The national treatment principle constitutes the second component of the non-discrimination pillar, the first being the MFN principle already discussed. Like MFN, the national treatment principle applies to trade in goods, trade in services, and trade-related aspects of intellectual property rights. The national treatment principle prohibits a Member from favouring its locally-produced goods (as well as services and intellectual property rights such as patents or copyrights) over the ones imported from other Members. National treatment is regulated for trade in goods by GATT Art. III:

1. Members recognize that internal taxes and other internal charges

and laws regulations and requirements

affecting the internal sale offering for sale purchase transportation distribution or use of products and internal quantitative regulations requiring the mixture processing or use of products in specified amounts or proportions should not be applied to imported or domestic products so as to afford protection to domestic production. 2. The products of the territory of any Member imported in to the territory of any other Member shall not be subject directly or indirectly to internal taxes or other internal charges of any kind in excess of those applied directly or indirectly to like domestic products. Moreover no Member shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1. ... 4. The products of the territory of any Member imported into the territory of any other Member shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws regulations transportation and requirements affecting their internal sale offering for sale purchase transportation distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product.

Three key objectives underpin the national treatment principle. First, internal charges, laws, regulation and requirements affecting the sale of the imported product "should not be applied to imported or domestic products so as to afford protection to domestic production". In other words, the application of laws, regulations, etc. affecting the sale of the imported product should not be discriminatory. If the law (regulations) is the same for both the domestic and the imported product, but is discriminatory in its application, it nevertheless offends this provision because it can be viewed as affording "protection to domestic production". Second, the charges and internal taxes that Member countries' products are subjected to should not be "in excess of those applied, directly or indirectly, to like domestic products". To explicate, an imported product should be charged the same taxes as domestic products. At all times, the charges should not afford protection to domestic production.

24

Third, the principle applies to "like products". What is understood by "like domestic products"? Traditionally, "likeness" is to be determined on a case-by-case analysis, involving but not limited to the following criteria: the properties, nature and quality of the products; the end-uses of the products; consumer tastes and habits, and/or consumers' perception and behaviour in respect of the products; and the tariff classification of the products.

EXERCISES: 8. 9. Country A prohibits advertisements of foreign watches. Is this compatible with the GATT? A new Country A regulation requires that watches sold in that country have a minimum of 10% "local content", i.e. at least 10% of the value of watches must be made of material originating in Country A. Is this compatible with the GATT?

25

IV.

RULESONMARKETACCESS

IV.A. INTRODUCTION
There are many possible impediments to market access for goods, services and intellectual property. The two main categories of barriers to market access for goods are (1) tariff and (2) non tariff barriers.

Important Note

The reduction of tariff and non-tariff barriers to market access, is together with non-discrimination principle, a key instrument to achieve the objectives of the WTO. The various WTO agreements have rules on market access. Agriculture, a subset of goods, has specific rules on market access, which will be studied in Module 4.

IV.B. TARIFFS

INBRIEF
Tariffs, also called "customs duties" are the most common and widely used barrier to market access for goods. A tariff is a financial charge in the form of a tax, imposed on merchandise imports. Tariffs can also be imposed on exports.

INDETAIL
Tariffs give a price advantage to similar local goods and raise revenue for governments, as market access is conditional upon the payment of the custom duty. In addition, a tariff can be used to promote a rational allocation of scarce foreign exchange. Tariffs can be specific, ad valorem, or mixed. A specific tariff is an amount based on the weight, volume or quantity of product, for example, US$ 7 per kilo. Ad valorem tariffs refer to the tax levied as a percentage of value, for example, a 7% duty on cars. So the duty on a car worth US$ 7,000.00 would be US$ 490.00. A mixed or compound tariff is the combination of a specific and an ad valorem tariff.

IV.B.1. NEGOTIATIONSONTARIFFREDUCTIONS
The WTO does not prohibit the use of tariffs, however, there is the recognition that they often constitute obstacle to trade, hence there is the obligation on Members to negotiate on tariff reductions. Article XXVIIIbis of the GATT 1947 contains the original mandate on tariff negotiations. Current negotiations under the Doha

26

Development Agenda focus on the reduction of tariffs in agriculture and non-agricultural market access (NAMA). One result of the Uruguay Round was countries' commitments to cut tariffs and to "bind" their customs duty rates. Module 3 will explain the special rules on agricultural tariffs.

Important Note

A "bound" tariff is a tariff for which there is a legal commitment not to raise it above the bound level. The bound level of the tariff is maximum level of customs duty to be levied on products imported into a Member. Each Member is responsible for negotiating its "bound levels" (maximum levels of tariffs to be collected at the border). The "bound levels" are agreed upon during "market access negotiations", which are often bilateral but which sometimes are determined by "target levels" or reduction objectives that are to be met by "tariff cuts". The bound level for each item is registered in each Member's Schedule of Concessions. An example of such a schedule can be printed from the Online Library. A bound tariff can differ from an applied tariff as a Member can apply a different (lower) tariff than that which it committed to apply as a maximum. Members can apply lower customs duties ("applied tariff level") but they cannot apply customs duty at a level higher than that in their Schedule of Tariff Concession.

IV.B.2. NATIONALTARIFFS
The word "tariff" also has a second meaning. It sometimes refers to a structured list of products description and their corresponding customs duties. Most "national tariffs" reflect the structure in the Harmonized Commodity Description and Coding System (HS) an international commodity classification system. This comes from the International Convention on the Harmonized Commodity Description and Coding System which entered into force on 1 January 1988 and to which most WTO Members are a party.

IV.B.3. SCHEDULEOFCONCESSIONS(ARTICLEII)

INBRIEF
The tariff concessions or "bindings" of each WTO Member are set out in the pertinent Member's Schedule of Tariff Concessions. Each Member has a schedule, except for Members that are part of a customs union, who sometimes share a common schedule together with other Members of the Union. GATT Article II regulates the Schedule of Tariff Concessions for trade in goods.

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INDETAIL
GATT Article II.1(b) - first sentence: Schedule of Concessions.

"The products described in Part I of the Schedule relating to any Member which are the products of territories of other Members shall on their importation into the territory to which the Schedule relates and subject to the terms conditions or qualifications set forth in that Schedule be exempt from ordinary customs duties in excess of those set forth and provided therein. "

The Schedules consist of a list of products for which a maximum applicable customs duty has been agreed by the Member concerned. The product is identified by a code and its description is usually based on the Harmonized Commodity Description and Coding System of Classification (HS). This maximum applicable customs duty represents the "bound" level of the tariff. Article II of GATT applies to imported products. Consequently, economic operators are guaranteed that the ordinary customs duty which will be levied on their imports will not be higher than the level indicated as the "bound level" in the Schedule of Tariff Concessions of the importing Member. Schedules of Tariff Concessions are legal instruments attached to the Marrakesh Agreement - through the "Marrakesh Protocol" - and form an integral part of the legally binding commitments made by Members. A thorough reading of the Schedule - including footnotes and head notes is necessary for one to get a precise understanding of what was agreed by the WTO Member. Specific limitations or particular conditions may be agreed during the negotiations and inscribed as part of, or as limitation to, commitments in the Schedule.

Important Note

Remember: A Member's Customs Tariffs or National Tariffs include applied duties for a specific year. A Member's List of Tariff Concessions or Schedule contains the bound duties and other market access commitments for this Member.

IV.B.4. RENEGOTIATIONOFCONCESSIONS/MODIFICATIONOF SCHEDULES

GATT Article XXVIII governs the rules on renegotiations of concessions. If a Member wishes to withdraw its previous commitment and impose a higher customs duty than the bound rate, two alternatives are available: the obligation to respect the bound level can be TEMPORARILY "waived" - where the Member has, under exceptional circumstances, received specific authorization from all the other Members for a limited time;

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the level of the tariff concession can be PERMANENTLY changed,(decreased or increased). This change will create an imbalance between rights and concessions of one Member vis--vis other Members. Additionally, - at least potentially - Members exporting the goods that were subject to higher customs duty than that which applied prior to the change of concession will experience losses.

For that reason, the renegotiation of any tariff concession necessitates compensating the exporting Members. One must renegotiate with: the principal suppliers-Member with a principal supplying interest; and those Members with "initial negotiating rights. The Member must also consult with the: Member that has a substantial interest in such concession.

Members with "initial negotiating rights are those Members with which the concessions was bilaterally negotiated initially. The Understanding on GATT Article XXVIII explains that any Member having a principal supplying interest in a concession which is to be modified or withdrawn shall be accorded an initial negotiating right. According to the Understanding, the Member which has the highest ratio of exports affected by the concession shall be deemed to have a principal supplying interest if it does not already have an initial negotiating right or a principal supplying interest as provided for in paragraph 1 of Article XXVIII. This renegotiation is governed by the rules and provisions in GATT Article XXVIII and XXVIIIbis and GATT 1994 Understanding on the interpretation of Article XXVIII as well as the Note AD Article XXVIII.

IV.B.5. OTHERDUTIESANDCHARGES
As you studied earlier, the "protection" that may be granted to domestically produced goods vis vis imported products should consist of "ordinary customs duties", often referred to as "tariffs". This is the main objective of Article II of GATT. Hence it also provides that "The products shall on their importation be exempt from ordinary customs duties in excess of those set forth and provided therein". In practice, this principle is quite simple: the "bound rate" of customs duty indicated in the Schedule of Tariff Concessions represents the maximum customs duty that WTO Members have committed to levy on products originating in other Members. "Other duties and charges" (ODCs) may be imposed in addition to the "ordinary customs duty". In such circumstances, charges can exceed the "bound level" inscribed in the Schedule of Tariff Concessions. However, for ODCs to be applicable, they MUST be registered in the Schedule and they must not exceed the level recorded in the schedules. Other duties and charges are governed by GATT Article II:1(b) - second sentence. The Understanding on the Interpretation of GATT Article II:1(b) which is attached to the WTO Agreement, aims to clarify the types of duties and charges that can be collected in addition to the "ordinary customs duties". Examples of these ODCs are: Import surcharges, i.e. a duty imposed on an imported product in addition to the ordinary custom's duties; security deposits to be made on the importation of goods;

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a statistical tax imposed to finance the collection of statistical information; and a customs fees charged for processing the goods.

They are exceptions to the rule that one might not impose other duties and charges in excess of the recorded level. Despite their obligations under Article II:1(b) of the GATT 1994, Members may impose on imported products: Any financial charge not in excess of the internal tax imposed on the like domestic product; WTO consistent anti-dumping duties; safeguards duties; countervailing duties; and fees or other charges commensurate with services rendered (see also Article VIII:1(a) of the GATT 1994). Examples of the above are: consular transactions (such as invoices and certificates), quantitative restrictions, licensing, exchange control, statistical services, documents, documentation, and certification, analysis and inspection, quarantine, sanitation and fumigation. Internal taxes, anti-dumping and countervailing duties, and customs fees imposed in addition to the bound rate must also respect specific rules in GATT Article III (internal taxes); GATT Article VI (and the subsequent agreements) (anti dumping, subsidies and countervailing measures); and GATT Article VIII (customs fees).

EXERCISES: 10. 11. List three purposes of customs duties? In Tristat's Schedule of Tariff Concessions, the bound duty for television set is 10%. Can Tristat apply a tariff different from the 10% listed in its Schedule? 12. Read Article XXVIIIbis of the GATT 1947. What are the basic principles and rules governing tariff negotiations? 13. Is the "bound tariff" the only charge Tristat may levy on imported television set?

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IV.C. NONTARIFFBARRIERS

IV.C.1. INTRODUCTION
Non-tariff barriers may also restrict market access of goods. They include quantitative restrictions (such as quotas) and other non-tariff barriers (for example, lack of transparency of trade regulation, unfair and arbitrary application of trade regulation, customs formalities, technical barriers to trade and government procurement practices).

IV.C.2. QUANTITATIVERESTRICTIONS

INBRIEF
What is a quantitative restriction (QR)? Can Members apply QRs? There is no explicit definition of the term quantitative restriction in the WTO Agreements. An implicit definition is provided by GATT Article XI:1, which proscribes any prohibition or restriction other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures.

INDETAIL
The Council for Trade in Goods, in a 1996 Decision (G/L/59, Annex) provides a list of quantitative restrictions. This list includes: prohibition, prohibition except under defined conditions, global quota, global quota allocated by country, bilateral quota (i.e. anything less than a global quota), automatic licensing, non-automatic licensing, quantitative restriction made effective through state-trading operations, mixing regulation, minimum price triggering a quantitative restriction, and "voluntary" export restraint.

IV.C.3. GENERALELIMINATIONOFQUANTITATIVERESTRICTIONS (ARTICLEXI)

INBRIEF
Quantitative restrictions on imports are a ban on imports (or exports) after a determined quantity (the quota) has entered the territory. According to Article XI of GATT, they should not be maintained by WTO Members. The prohibition means that only import duties can be used to regulate goods trade at customs. The "General Elimination of Quantitative Restrictions (QRs) is regulated by GATT Article XI (for trade in goods) and GATS Article XVI (for trade in services).

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INDETAIL
A WTO Member cannot, as a general rule, impose import or export prohibitions or restrictions in quantities or value on the goods of another Member. The only protective barriers that WTO Members can institute or maintain are "duties, taxes or other charges" compatible with the GATT rules already discussed. Consequently, "quantitative restrictions", whether "quotas, import or export charges or other measures", are a violation of the rule in Article XI. The list of measures in the provision above is an indication and is not exhaustive. Thus, if a measure would have an effect similar to those noted in the provision, such measure might be prohibited under Article IX and cannot be applied. The general prohibition on quantitative restrictions applies equally to import and export measures. State trading enterprises (Article XVII) are also prohibited from imposing quantitative restrictions. Finally, we must also note GATT Article XIII: Non-discriminatory Administration of Quantitative Restrictions

1. No prohibitions or restrictions shall be applied by any Member on the importation of any product of the territory of any other Member or on the exportation of any product destined for the territory of any other Member unless the importation of the like product of all third countries or the exportation of the like product to all third countries is similarly prohibited or restricted.

Where authorized by the GATT quantitative restrictions must be imposed on a non-discriminatory basis. In other words, the Member imposing the quantitative restrictions is not allowed to favour any country over another. The Member is expected to impose them across the board.

2. In applying import restrictions to any product Members shall aim at a distribution of trade in such product approaching as closely as possible the shares which the various Members might be expected to obtain in the absence of such restrictions

This provision focuses on the allocation of quotas between exporting Members and aims to ensure that when imposed, quantitative restrictions do not distort ordinary trade flows. In other words, quotas should be applied equally to goods from all origins and their allocations should correspond as closely as possible to the expected market shares that would have existed in the absence of quotas. Nevertheless, agreements between the importing Member and its principal suppliers are possible. SPECIFIC EXCEPTIONS The specific exceptions to the general prohibition against the use of QRs are to: (i) (ii) Prevent critical shortage of foodstuffs or other essential products (GATT Article XI:2(a)) Remove temporary surpluses of a like domestic product for which the imported product is a direct substitute (GATT Article XI:2(b))

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The drafters of the GATT realized that in specific circumstances (shortages or surplus of goods domestically produced) one could derogate from the "no QRs" principles to prevent or deal with critical situations. The exception contained in GATT Article XI:2(c) and which creates a quasi-general derogation for agricultural policies and measures relating to fishery products constituted the essential provision which led to "special treatment" for agriculture. The "agricultural exception" ended when the WTO Agreement on Agriculture entered into force in 1995. The WTO Agreement on Agriculture superseded GATT Article XI:2(c). Article 4 of the Agreement on Agriculture provides, among other things, that quotas must be transformed into tariffs ( in a process called "tariffication"). Consequently, under the WTO, quantitative restrictions remain possible only on fishery products. One must distinguish between quotas which are generally prohibited and tariff-rate quotas (TRQs). TRQs are predetermined quantities of goods which can be imported at a "preferential" rate of customs duty ("in quota Tariff Rate"). Once the TRQ has been filled, one can continue to import the product without limitation - so it is not a quantitative restriction in the sense of GATT Article XI, but at a higher tariff rate ("out-of-quota Tariff Rate"). The "out-of-quota Tariff Rate" is generally the MFN rate. In a TRQ, specific quantities of goods may be imported at different tariff levels. The allocation of the TRQ should obey disciplines in GATT Article XIII (Non-discriminatory Administration of Quantitative Restrictions) which provides that TRQs should be applied similarly to products from all origins, but allocations should also respond as closely as possible to the expected markets share that would have existed in the absence of TRQs. Agreements with principal suppliers are also possible. This is what a tariff-quota might look like:

Figure 2:

Tariff-Quota

Imports entering under the tariff-quota (up to 1,000 tons) are generally charged 10%. Imports entering outside the tariff-quota are charged 80%. Under the Uruguay Round agreement, the 1,000 tons would be based on actual imports in the base period or an agreed "minimum access" formula. Tariff quotas are also called "tariff-rate quotas".

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ILLUSTRATION ProhibitionofQuantitativeRestrictions(forGoods)
Let us assume that Alba and Vanin are WTO Members. GATT Article XI:1 requires Members to eliminate quantitative restrictions in the form of quotas, import or export licenses, or other measures. Therefore, a violation of the GATT can take several forms. A typical violation occurs where an importing Member seeks to limit the amount of a good imported into the country, usually to protect a competing domestic industry. For example, if Alba determined that the potential market for watches in Alba was 1 million per year and decided that in order to ensure dominance of the domestic industry it will limit the number of Vanin watches imported to 400,000, this would be a violation of Article XI:1. However, a distinction can be made between prohibited quotas and Tariff-Rate Quotas (TRQs). Alba could instead allow 400,000 Vanin watches to be imported at a preferential tariff rate and collect a higher rate of duties on watches exceeding the 400,000 limit (though not higher than Alba's bound rate). This policy would be permitted under Article XI, because, in the example, there are no numerical limitation on the amount of watches that can be imported. The government of Alba is simply providing better market access through a preferential duty for imported watches up to a certain quantity (from 1 to 400,000 watches). They applied the regular duty after the quota is filled i.e. starting on the 400,001st watch imported in the country. There was therefore no trade restriction. Nevertheless, quantitative restrictions can be applied to fisheries products. Therefore, Alba could impose a quota on how many salmons Alba import. For example, the government of Alba could introduce a quota of 10MT of salmons. In such circumstances, importers cannot import more than 10MT of salmons per year into the country.

EXERCISES: 14. Mediatia wants to impose import quotas on fresh tuna and frozen lamb meat? Are these measures in line with its rights and obligations under the WTO? 15. Tristat applies a tariff rate quota of 1MT on paper. What does this mean?

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IV.D. OTHERNONTARIFFBARRIERS
In addition to customs duties and other charges (tariff barriers), and quantitative restrictions, trade in goods may also be impeded by other non-tariff barriers, such as: (1) technical barriers to trade, which can be divided in to (a) sanitary and phytosanitary measures covered by the Agreement on the Application of Sanitary and Phytosanitary Measures (the "SPS Agreement") and (b) the general category of technical barriers to trade set out in the Technical Barrier ("TBT") Agreement; (2) customs formalities and procedures, (3) and government procurement practices. Lack of transparency, unfair and arbitrary application of trade measures, customs formalities and procedures, and other measures or actions such as pre-shipment inspection, marks of origin, and measures relating to transit shipments, as well as other forms of inaction (failure to inform about applicable trade laws, regulations, procedures and practises, timely and accurately) may constitute a barrier to trade.

IV.D.1. TECHNICALREGULATIONSANDSTANDARDS
Technical regulations and industrial standards are important, but they may vary from country to country. If the standards are set arbitrarily, they could be used as an excuse for protectionism and can become obstacles to trade. The TBT Agreement tries to ensure that regulations, standards, testing and certification procedures do not create unnecessary obstacles to trade. The TBT Agreement recognizes WTO Members' rights to adopt the standards they consider appropriate for example to protect human, animal or plant life or health, the environment or to meet other consumer interests. It does not prevent Members from taking measures necessary to ensure their standards are met.

IV.D.2. SANITARYANDPHYTOSANITARYMEASURES
Sanitary (human and animal health) and phytosanitary (plant health) measures can take many forms, such as, requiring products to come from a disease-free area, inspection of products, setting of allowable maximum levels of pesticide residues or permitted use of only certain additives in food. They apply to domestically produced food or local animal and plant diseases, as well as to products coming from other countries. The SPS Agreement entered into force in 1995 and supplements Article XX(b) of the GATT 1994 and goes beyond the general principle of non-discrimination. The SPS Agreement builds on previous GATT rules to restrict the use of unjustified sanitary and phytosanitary measures for the purpose of trade protection and sets out the basic rules for food safety and animal and plant health standards. The SPS Agreement recognises that governments have the right to take SPS measures. It still allows countries to use different standards and different methods of inspecting products. However, it tries to ensure that sovereign rights are not misused for protectionist purposes and do not result in unnecessary barriers to international trade. It also says regulations must be based on science and that they should be applied only to the extent necessary to protect human, animal or plant life or health. Furthermore, SPS measures should not arbitrarily or unjustifiably discriminate between countries where identical or similar conditions prevail.

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Figure 3:

TBT and SPS measures relating to the international trade of oranges

IFYOUWANTTOKNOWMORE...
SPS AGREEMENT VS THE TBT AGREEMENT The SPS Agreement and the TBT Agreement exclude each other from their scope. The TBT Agreement covers all products, including industrial and agricultural products, but not measures subject to the SPS Agreement. Both agreements direct WTO Members to use international standards, but under the SPS Agreement, WTO Members are compelled to use these standards unless they can show a specific scientific justification based on an assessment of the possible risk. In contrast, WTO Members may set TBT measures that deviate from international standards for other reasons, including technological difficulties or geographical issues. Furthermore, SPS measures may only be applied to "the extent necessary to protect human, animal or plant life or health, based on scientific principles and not maintained without sufficient scientific evidence" (Article 2 and 3.4 of the SPS Agreement), whilst TBT measures may be applied and maintained for other reasons, including national security or to prevent deceptive practices. (See the SPS Agreement, Article 2, paragraph 2, as well as the TBT Agreement, Article 2, paragraph 2)

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IV.D.3. LACKOFTRANSPARENCY,UNFAIRANDARBITRARY APPLICATIONOFTRADEMEASURES

GATT Article X:3(a) contains rules to eliminate the barriers to market access associated with the lack of transparency, unfair and arbitrary application of trade measures, and to facilitate customs formalities and procedures. It provides:

"Each contracting party shall administer in a uniform impartial and reasonable manner all its laws regulations decisions and rulings of the kind described in paragraph 1 of this Article."

Hence the administration of laws regulations decisions and rulings must be uniform impartial and reasonable.

IV.D.4. CUSTOMSFORMALITIESANDPROCEDURES
To regulate administrative barriers to trade in the form of customs formalities and procedures such as, the fees and formalities connected with importation and exportation, Article VIII has two relevant provisions: Article VIII:1(c) in which WTO Members recognize the need for minimizing the incidence and complexity of import and export formalities and for decreasing and simplifying import and export documentation requirements; and Article VIII:3 which provides that: "No Member shall impose substantial penalties for minor breaches of customs regulations or procedural requirements. In particular, no penalty in respect of any omission or mistake in customs documentation which is easily rectifiable and obviously made without fraudulent intent or gross negligence shall be greater than necessary to serve merely as a warning."

IV.D.5. PRESHIPMENTINSPECTION,MARKSOFORIGIN,ANDMEASURES RELATINGTOTRANSITSHIPMENTS

Pre-shipment inspection (PSI) is the practice of employing specialized private companies to check shipment details essentially price, quantity, quality of goods ordered overseas. The purpose is to safeguard national financial interests (prevention of customs duty evasion, for instance) and to compensate for inadequacies in administrative infrastructures. The Agreement on PSI recognizes that GATT principles and obligations apply to the activities of pre-shipment inspection agencies mandated by governments. The obligations placed on PSI-user governments include non discrimination, transparency, protection of confidential business information, avoidance of unreasonable delay, the use of specific guidelines for conducting price verification and the avoidance of conflicts of interest by the PSI agencies. The obligations of exporting contracting parties towards PSI users include non-discrimination in the application of domestic laws and regulations, prompt publication of such laws and regulations and the provision of technical assistance where requested.

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The Agreement also establishes an independent review procedure administered jointly by an organization representing PSI agencies and an organization representing exporters to resolve disputes between an exporter and a PSI agency.

IV.D.6. AGREEMENTONRULESOFORIGIN
The Agreement on Rules of Origin aims at long-term harmonization of non-preferential rules of origin and to ensure that such rules do not themselves create unnecessary obstacles to trade. The harmonization programme was to be initiated as soon as possible after the completion of the Uruguay Round and to be completed within three years of initiation. Negotiations however, are still going on. The negotiating texts are contained in documents G/RO/45 series and the consolidated text is contained in document G/RO/W/111/Rev.5. Until the completion of the harmonization programme, contracting parties are expected to ensure that their rules of origin are transparent; that they do not have restricting, distorting or disruptive effects on international trade; that they are administered in a consistent, uniform, impartial and reasonable manner, and that they are based on a positive standard (in other words, they should state what does confer origin rather than what does not).

IV.D.7. AGREEMENTONIMPORTLICENSINGPROCEDURES
The Agreement on Import Licensing Procedures says import licensing should be simple, transparent and predictable. For example, the agreement requires Members to publish sufficient information for traders to know how and why the licences are granted. There are two basic licensing procedures: automatic and non automatic. With respect to TRQ administration, the Agreement identifies seven principal methods of TRQ administration. WTO Members are required to notify the WTO of whether and how the tariff quotas listed in their tariff schedules are administered. For more information, see the WTO background paper "Tariff quota administration methods and tariff quota fill", G/AG/NG/S/8.

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V.

SUMMARY

V.A. THEWTO
The objective of the WTO, as encapsulated in the Preamble to the WTO Agreement is to improve the welfare of the peoples of its Member countries (standard of living, employment, income, etc.) by expanding the production of, and trade in, goods and service.

You also saw that the WTO has many functions, some of them are to: Facilitate the implementation, administration and operation, and furthering of the objectives of the WTO Agreements (including the Plurilateral Agreements); Serve as a forum for trade negotiations; Administer the Dispute Settlement Understanding (DSU); Administer the Trade Policy Review Mechanism (TPRM); and Cooperate inter alia with the IMF and the IBRD (World Bank) to achieve coherence in global economic policy making. There are various organs and bodies that make up the structure of the WTO: Ministerial Conference | General Council (also DSB and TPRB) | Councils for Goods, Services, Intellectual Property | Committees | Sub-Committees

The are also many agreements in the WTO framework. The umbrella agreement- the WTO Agreement contains 4 Annexes - Annexes 1, 2, 3 and 4.

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Annexes 1, 2, and 3 - the "Multilateral Trade Agreements". Annex 1 is divided into three sections: Annex 1A (The Multilateral Agreements on Trade in Goods); Annex 1B (Agreement on Trade in services); and Annex 1C (Agreement on Trade-related Aspects of Intellectual Property Rights).

Annex 2 covers the Dispute Settlement Understanding. Annex 3 covers the Trade Policy Review Mechanism Annex 4 is termed "Plurilateral Trade Agreements". These agreements in it are ONLY binding on Members that accept them. In Part 2 we will look at two principles of the WTO system: the most-favoured-nation (MFN) principle, which prohibits discrimination between imports irrespective of their origin or destination, and the national treatment principle, which prohibits discrimination between imported and locally produced products.

V.B.

PRINCIPLES

As you have seen there are two main principles of non-discrimination, the MFN and the national treatment principles. The MFN principle prohibits discrimination between imports irrespective of their origin or destination while the national treatment principle prohibits discrimination between imported and locally produced products. Under GATT, the subject of MFN treatment is goods and under GATS the subjects of is services or service providers, in the context of the TRIPS Agreement, the subject of MFN treatment is "nationals". The MFN Principle for services obliges WTO Members to "... accord immediately and unconditionally to services and service providers of any other Party, treatment no less favourable than that it accords to like services and service providers of any other country". For MFN, the principle for goods is GATT Article I, for intellectual property -Article 4 of the TRIPS Agreement and for services - GATS Article II:1. Whilst the MFN principle seeks to ensure that a WTO Member does not discriminate between like products originating in or destined for WTO Members, the national treatment principle prohibits a Member from favouring its domestic products over the imported products of other Members. The national treatment principle (as well as the provisions on market access) commit Members to giving no less favourable treatment to foreign services and service suppliers than provided for in the relevant columns of their Schedule.

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For TRIPS, the national treatment principle prohibits treatment of foreign nationals on less favourable terms than that accorded to nationals in the context of the implementation of national or international intellectual property laws or regulations. For goods, GATT Article III governs national treatment. For services GATS Article XVII and for TRIPS Article 3. It is important to note that in addition to the specific exceptions that you have seen for the principles for goods, services and intellectual property rights, there are other exceptions of a horizontal nature, which also constitute a derogation to other rules. These horizontal exceptions and protective measures includes fro examples the general and security exceptions), will be examined in Module 2.

V.C.

RULESONMARKETACCESS

WTO Members are obliged to adhere to the bound rates in their Schedules of Tariff Concessions. WTO rules prohibit the introduction or maintenance of quantitative restrictions. However, WTO Members can modify the concessions in the Schedules of Tariff Concessions can be modified by using the procedures outlined in GATT Article XXVIII for trade in goods. Obligation on the bound tariff level can be found in GATT Article II, XXVIII, XXVIIIbis and the Understanding on Article XXVIII. The rules on quantitative restrictions are governed by Articles XI and XIII. The only restrictions on free trade that the WTO permits are duties, taxes or other charges, and safeguards or emergency actions in limited circumstances. For trade in services, each WTO Member is required to have a Schedule of Specific Commitments that identifies the services for which the Member guarantees market access, national treatment, and any limitations that may be attached. GATS Article XVI (Market Access) and XVII (national treatment) commit Members to giving no less favourable treatment to foreign services and service suppliers than provided for in the relevant columns of their Schedule. Commitments thus guarantee minimum levels of treatment, but do not prevent Members from being more open (or less discriminatory) in practice. Members may also modify pursuant to the provision in Article XXI of the GATS Agreement.

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PROPOSED ANSWERS: 1. The increase of standards of living. The attainment of full employment. The growth of real income and effective demand. The expansion of production of, and trade in goods and services. 2. Some of the achievements of the Uruguay Round are: (i) creation of the WTO; (ii) transformation of the plurilateral codes (agreements) from the Tokyo Round into multilateral agreements; (iii) strengthened dispute settlement system; and (iv) incorporation of the new agreements on trade in services and trade-related aspects of intellectual property rights. 3. The Final Act (Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations) is like a cover note. It was signed in 1994, it is the Agreement which the participants in the Uruguay Round of Multilateral Trade Negotiations adopted to conclude the Round. The Final Act includes the "Marrakesh Agreement Establishing the World Trade Organization" ("the WTO Agreement") and its Annexes. 4. (a) Ministerial Conference; (b) General Council; (c) Council for Trade in Goods; (d) Committee on Technical Barriers to Trade. 5. The Ministerial Conference is the highest authority of the WTO. It can take decisions on all matters under all multilateral trade agreements. It meets at least once every two years. Below the Ministerial Conference in rank is the General Council. It takes all decisions on behalf of the Ministerial Conference when the Ministerial Conference is not in session. The General Council meets regularly (in principle, monthly), usually at the Geneva Headquarters. The General Council reports to the Ministerial Conference. Below the General Council is the Council for Trade in Goods ("CTG"). It oversees the implementation of the multilateral agreements on trade in goods (Annex 1A of the Marrakesh Agreement), and it reports to the General Council. The Committee on Agriculture is one of several subsidiary bodies of the CTG. It is responsible for the implementation of specific provisions and agreements, such as the Agreement on Agriculture. All Members participate in the work of all WTO Bodies.

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6.

The WTO Agreement is the 1994 Marrakesh Agreement Establishing the WTO. It has four Annexes. Annex 1 includes the Multilateral Agreements on Trade. It is divided into three sections: Annex 1A (The Multilateral Agreements on Trade in Goods); Annex 1B (Agreement on Trade in Services); and Annex 1C (Agreement on Trade-related Aspects of Intellectual Property Rights).

Annex 2 contains the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). It is dedicated to rules governing the dispute settlement system in the WTO. Annex 3 is dedicated to rules governing the Trade Policy Review Mechanism (TPRM) in the WTO. Annex 4 governs the Plurilateral Trade Agreements. 7. If the text referred to any other MEMBER, this would mean that Members need only ensure that the best treatment, given to products originating in one of the Members, be extended to the other Members. This could therefore mean that a Member (A) could grant an advantage to products originating in a country which is not a WTO Member (Country M) without having to extend this "Most-Favoured" treatment to the other WTO Members. In other words, Alba would need to apply "Most Favoured Member" treatment but not as it is stipulated in GATT Art. I.1. The advantages given to products from non-WTO Members must also be extended to products from all WTO Members. Consequently, WTO Members get the best treatment except for derogations permitted by the WTO agreements. 8. The ban on advertising constitutes a measure "affecting the internal sale" of imported "like products" under GATT Article III.4. This measure would be a violation of Article III.4 if foreign and domestic watches are "like products" under Article III.4, because the prohibition on the advertising of foreign watches amounts to treating imported goods less favourable than "like" domestic goods. 9. To the extent that imported and domestic watches are "like products", imported watches cannot be treated less favourably than domestic watches, nor conversely can domestic watches be treated more favourably than imported watches. Discriminatory treatment would be contrary to Article III.4, which prohibits domestic regulations that favour domestic production. Since this new Country A regulation would favour the domestic production of material for watches (it forces foreign watches to include a minimum quantity of domestic content) it is contrary to GATT Article III.4. Note that generally, and unless the Member benefits from a transitional period under the Trade Related Investment Measures (TRIMs) Agreement, any form of local-content requirement is contrary to GATT Article III.5. 10. (1) To give a price advantage to similarly produce local goods (2) To raise revenue for governments (3) To promote a rational allocation of scarce foreign resource.

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11.

Yes. Tristat can apply a tariff different than the one listed in its Schedule of Tariff Concessions in two circumstances. (1) Tristat may have an applied tariff lower than the bound tariff in its Schedule. However, if Tristat offers a lower rate to Vanin for example, it must apply this rate to all Members. (2) Tristat may charge a higher tariff that the bound rate in its Schedule to any non-Member, such as Ruritania, since WTO obligations do not extend to non-Members.

12.

(1) The principle of reciprocity and mutual advantage; and (2) The Most Favoured Nation Treatment obligation.

13.

No. Tristat may, in addition to tariffs, also charge: "Other duties and charges", if they are listed in its Schedule; Internal taxes (i.e. Value Added Tax); Trade remedy measures (i.e. countervailing or anti-dumping duties); and Customs fees for services rendered.

14.

Medatia can impose an import quota on fresh tuna. Fisheries product is an exception to the prohibition in Article XI on quantitative restrictions for imports. However, since the Uruguay Round, Medatia cannot impose a quantitative import restriction on agricultural products such as frozen lamb meat. According to GATT 1947 Article XI:2(c), agricultural products were not subject to the prohibition on quantitative restrictions, but this provision has been superseded by Article 4 of the Agreement on Agriculture, which now forbids quantitative restrictions on agricultural products.

15.

Tariff-Rate Quotas (TRQs) allow for a two-tiered administration of customs duties. A predetermined amount of a given product can be imported at a "preferential" rate. Once that amount has been exceeded, all additional imports are subject to a higher rate (usually the MFN or "bound" rate). In reality there is no maximum limit on imports. In our example, Tristat has a tariff rate quota of 1 MT on paper. Paper from 0 to 1MT can be imported at a preferential rate of, for example, 2% (in quota bound duty). When the 1MT quota is filled, paper can be imported at the MFN rate of 10% (out of quota bound duty). However, there is not restriction on the quantity of paper than can be imported.

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MODULE

2
ExceptionstotheBasicPrinciples, TradeRemediesandDispute SettlementintheWTO
ESTIMATEDTIME:4hours

OBJECTIVES OF MODULE 2

Present WTO rules on trade remedies and unfair trade: Anti-dumping measures and subsidies and countervailing measures;

Explain the exceptions to the basic principles; Give an overview of the Dispute Settlement System in the WTO.

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I.

RULESONUNFAIRTRADE

Increased imports from one country can be caused by changes in consumer preferences or by improvements in the competitiveness of the companies producing the imports vis--vis national companies producing like products. However, increasing imports can be cause by "unfair" practices or "unfair" competition. Consequently, WTO Members have retained their right to take protective measures to correct the competitive imbalances created by unfair practices. The rationale behind the idea is not to create additional barriers to trade but rather, to restore, in a targeted manner, "fair" competitive conditions as if the cause of the unfair competition were eliminated. GATT Article VI governs the use of anti-dumping measures and also constitutes the basis for the use of countervailing measures. It is complemented by the Agreement on the Implementation of Article VI of GATT 1994 (the Anti-dumping Agreement) for anti-dumping measures, and the Agreement on Subsidies and Countervailing Measures ("SCM Agreement") adopted in the Uruguay Round. This section looks at the WTO rules with respect to dumping and subsidization as elaborated by the Anti dumping and SCM Agreements.

I.A.

ANTIDUMPINGMEASURES

INBRIEF
The Agreement on Implementation of Article VI of the GATT 1994 (The Anti-dumping Agreement) defines dumping as the introduction of a product into the commerce of another country at less than its normal value.

INDETAIL
Dumping is, in general, a situation of international price discrimination, where the price of a product when sold in the importing country is less than the price of that product in the market of the country exporting the product. GATT Article VI governs the use of anti-dumping measures, and the multilateral agreement on the Implementation of Article VI of GATT 1994 (the Anti-dumping Agreement) further elaborated the principles in Article VI on the investigation, determination, and application, of anti-dumping duties (after the Uruguay Round). In addition to rules governing the determination of dumping, injury, and causal link, the Agreement sets forth detailed procedural rules for the initiation and conduct of investigations, and the imposition, duration and review of measures.

47

In the simplest scenario, one can identify dumping by comparing the price of a product in two markets to determine whether there is a difference in prices in those markets. However, the situation is rarely that simple, and in most cases it is necessary to undertake complex analytical steps to determine the appropriate price in the market of the exporting country (the "normal value") and the appropriate price in the market of the importing country (the "export price") to be able to make a comparison. Article VI of GATT and the Anti-dumping Agreement explicitly authorize a Member to impose specific anti dumping duties on imports (in addition to import tariffs), when the importing Member demonstrates that dumping is causing or is threatening to cause material injury to a domestic industry, or would materially retard the establishment of a domestic industry.

I.B.

SUBSIDIES&COUNTERVAILINGDUTIES

GATT Article VI also constitutes the basis for the use of countervailing measures. It is complemented by the Agreement on Subsidies and Countervailing Measures (SCM Agreement).

INBRIEF
The SCM Agreement is intended to complement the Agreement on Interpretation and Application of Articles VI, XVI and XXIII which was negotiated in the Tokyo Round (the Subsidies Code) and GATT Article XVI. The SCM Agreement applies to agricultural and industrial products, except for the subsidies exempt under the Agriculture Agreement's "Peace Clause", which expired at the end of 2003. The SCM Agreement contains the rules on subsidies, while the Agreement on Agriculture contains specific rules governing the use of agricultural subsidies (to be studied from Module 3 onwards).

Note

Article VI:3 of the GATT 1994 defines "countervailing duties": "The term countervailing duty shall be understood to mean a special duty levied for the purpose of offsetting any bounty or subsidy bestowed, directly or indirectly, upon the manufacture, production or exports of any merchandise."

The definition of subsidies under the SCM Agreement contains three elements which must be satisfied in order for a subsidy to exist: a financial contribution; by a government or any public body within the territory of a Member; which confers a benefit.

The disciplines in the agreement only apply to specific subsidies. They can be production or export subsidies.

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The SCM Agreement initially established three categories of subsidies. Firstly, it deemed the "red" subsidies or "prohibited", which are: contingent, in law or in fact, upon export performance; contingent upon the use of domestic over imported goods.

Prohibited subsidies are subsidies that require recipients to meet certain export targets, or to use domestic goods instead of imported goods. (Non-actionable subsidies are non-specific subsidies, or specific subsidies for research and pre-competitive development activity, assistance to disadvantaged regions, or certain types of assistance for adapting existing facilities to new environmental laws or regulations. Under the provision of Article 31 of the SCM Agreement, the category of non-actionable subsidies ended as of the year 2000. A detailed list of export subsidies is annexed to the SCM Agreement (Annex I).) They are subject to dispute settlement procedures and if it is found that the subsidy is indeed prohibited, it must be immediately withdrawn. Second, it deemed the "yellow" subsidies to be "actionable". The SCM Agreement stipulated that no Member should use subsidies to cause "adverse effects" to the interests of other signatories, i.e. it should not cause: injury to the domestic industry of another Member; nullification or impairment to benefits accruing directly or indirectly to other signatories under the General Agreement (in particular the benefits of bound tariff concessions); serious prejudice to the interests of another Member.

Actionable subsidies are subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods ("local content subsidies"). Members affected by actionable subsidies may refer the matter to the Dispute Settlement Body. In the event that it is determined that such adverse effects exist, the subsidizing Member must withdraw the subsidy or remove the adverse effects. And third, it deemed the green subsidies to be "non-actionable". These are subsidies which are either nonspecific, or specific subsidies involving assistance to industrial research and pre-competitive development activity, assistance to disadvantaged regions, or certain types of assistance for adapting existing facilities to new environmental requirements imposed by law and/or regulations. The SCM Committee was to review the operation of these categories of subsidies before the end of 1999. Members were not able to reach consensus on this matter, so the provisions lapsed. Therefore presently, all subsidies are either prohibited (red) or actionable (yellow) The SCM Agreement states that a country can: use the WTO dispute settlement procedure to seek the withdrawal of the subsidy or the removal of its adverse effects; or launch its own investigation and ultimately charge extra duties ("countervailing duty") on subsidized imports that are found to be hurting domestic producers. Countervailing measures do not need to be pre-authorized by the WTO membership before a Member can impose them. However, the Member imposing them must first conduct an investigation and must find from the investigation that the conditions for the application of the measure meet the criteria in the SCM Agreement.

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The substantive criteria requires a Member not to impose a countervailing measure unless it determines that there exists: (i) (ii) subsidized imports; injury to a like domestic industry, or threat thereof, is occurring; and

(iii) a causal link between the subsidized imports and the injury.

The level of the countervailing duty should be only what is necessary to offset the subsidization. There are detailed procedural rules governing the conduct of countervailing investigations, as well as the imposition and continuation of countervailing measures. For instance: Countervailing duties are to be terminated immediately where the amount of a subsidy is de minimis (less than 1% ad valorem) or where the volume of (actual or potential) subsidized imports or the injury is negligible. Investigations are to be concluded within one year after they are imposed, and should not last more than 18 months, except in exceptional circumstances. Countervailing duties have to be terminated within five years of their imposition (sunset clause) unless the authorities determine, on review, that the removal of the duty would be likely to lead to a continuation or recurrence of subsidization and injury. Generally, countervailing duties are used when a Member wants to protect its domestic market against subsidized imports. However, in some cases, countervailing duties may not be the appropriate way to correct imbalances created by subsidies granted by a government to products. A Member may also want to complain about the subsidized product in an export market or in a third-market where two or more Members' exports compete. In these cases, the only way to redress and recreate a "fair" competitive environment is for the country granting the subsidies to suspend or modify its subsidization program. Part V of the SCM Agreement provides that WTO Members may resort to countervailing duties to counteract the effects of two categories of subsidies: prohibited and actionable. It applies to agricultural goods as well as industrial products, except when the subsidies conform to the Agreement on Agriculture. Article 13 of the Agreement on Agriculture establishes that, during the implementation period specified in that Agreement (until 1 January 2004), special rules regarding subsidies for agricultural products are to be applied. The provisions of the Agreement on Subsidies and Countervailing Measures firmly state that issues of agricultural subsidies are subject primary to the Agreement on Agriculture and only secondary to the SCM Agreement. Thus: Export subsidies which are in full conformity with the Agreement on Agriculture are not prohibited by the SCM Agreement, although they remain countervailable, that is, a countervailing duty can be charged by the importing country if damage is proved. Domestic support measures which are in full conformity with the Agreement on Agriculture are not actionable multilaterally, i.e. through the WTO dispute settlement procedures, although they also may be subject to unilateral countervailing duties on proof of injury and causation.

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Finally, domestic support measures which fall under the "Green box" of the Agreement on Agriculture are not actionable multilaterally nor can they be subject to unilateral countervailing measures. After the implementation period, the SCM Agreement will apply to subsidies for agricultural products subject to the provisions of the Agreement on Agriculture, as set forth in its Article 21.

EXERCISES: 1. Tristat would like to impose a countervailing measure on wood paste under the SCM Agreement. What are the three things that Tristat must find in its investigation before it can impose the countervailing measure? 2. What methods can Tristat use to correct imbalances created by subsidies?

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II.

EXCEPTIONSTOTHEBASICPRINCIPLES

II.A. HORIZONTALEXCEPTIONS

INBRIEF
This section illustrates the circumstances under which a WTO Member can invoke the general exception and security exceptions; explain how a Member's obligations can be "waived" in exceptional circumstances; explain how the WTO Agreements regulate Regional Trade Agreements (RTAs) and how RTAs and the multilateral trade rules are linked.

INDETAIL
WTO Members shall not discriminate (MFN and national treatment) and follow certain rules, for example, they cannot withdraw "liberalization commitments/concessions" without following pre-determined rules. Nevertheless, in certain circumstances, Members have the right to derogate from these obligations. The category of exceptions discussed in this module is horizontal in nature - they allow a Member to derogate from any of the GATT, GATS and TRIPS obligations (as opposed to the specific exceptions, such as those which were mentioned in relation to MFN and National Treatment). In the category of horizontal exceptions, we will examine: a) b) c) d) e) general exceptions; security exceptions; economic emergency exceptions safeguards & balance of payment exceptions; waivers; and regional integration exceptions the rules governing regional and free trade agreements.

II.A.1. GENERALEXCEPTIONSINTHEGATT
GATT Article XX governs the use of the General Exception for trade in goods. Article XX recognizes that governments may need to apply and enforce measures for purposes such as the protection of public morals; human animal or plant life and health; and the protection of national treasures. The GATT 1994 does not prevent governments from adopting and enforcing such measures. However measures adopted under the general exceptions provisions must not constitute a means of arbitrary or unjustifiable discrimination nor should they be disguised restrictions on international trade.

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GATT Article XX: General Exceptions Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any Member of measures: (a) (b) (c) (d) necessary to protect public morals; necessary to protect human, animal or plant life or health; relating to the importations or exportations of gold or silver; necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to customs enforcement, the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices; (e) (f) (g) relating to the products of prison labour; imposed for the protection of national treasures or artistic, historic or archaeological value; relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption; (h) undertaken in pursuance of obligations under any intergovernmental commodity agreement which conforms to criteria submitted to Members and not disapproved by them or which is itself so submitted and not so disapproved; (i) involving restrictions on exports of domestic materials necessary to ensure essential quantities of such materials to a domestic processing industry during periods when the domestic price of such materials is held below the world price as part of a governmental stabilization plan; Provided that such restrictions shall not operate to increase the exports of or the protection afforded to such domestic industry, and shall not depart from the provisions of this Agreement relating to nondiscrimination; (j) essential to the acquisition or distribution of products in general or local short supply; Provided that any such measures shall be consistent with the principle that all Members are entitled to an equitable share of the international supply of such products, and that any such measures, which are inconsistent with the other provisions of the Agreement shall be discontinued as soon as the conditions giving rise to them have ceased to exist. The Members shall review the need for this subparagraph no later than 30 June 1960.

GATT Article XX permits Members to take certain measures, otherwise prohibited by GATT provisions, subject to stipulated conditions.

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1) The first condition is that the contemplated measure must fit under one of the 10 categories in sub paragraphs (a)-(j) of Article XX. For example, sub-paragraphs (a), (b), and (d) indicate that the measures sought to be taken by Members must be necessary either to, protect public morals; human, animal or plant life or health; or to secure compliance with certain laws or regulations. For those three categories, there is an imperative "necessity" test that must be satisfied for the measures to be consistent with Article XX. The determination of whether a measure, though not indispensable, may nevertheless be considered "necessary", involves a weighing and balancing of factors, such as: The importance of the common interests or values protected by the measure; The efficacy of the measure in achieving the intended policies; The impact of the measure (law or regulation) on imports especially vis--vis its like domestic products.

Specific instances of Members invoking Article XX include reference to paragraph (a) (public morals) to justify import bans on religious grounds. Frequent references are also made to the exception governing measures aimed at protecting the environment in paragraphs (b) and (g). WTO jurisprudence has established that Members have the right to determine the level of health or environmental protection they deem appropriate. This Principle is reiterated in the TBT and SPS Agreements for the measures covered by those agreements. Furthermore, there is no requirement in Article XX of the GATT 1994 to quantify the risk to human life or health. A risk may be evaluated in either quantitative or qualitative terms. 2) The second condition refers to the opening paragraph of Article XX (the "chapeau of Article XX"). Measures covered under the General Exceptions must not be applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade. Consequently, before certain measures are used to derogate from GATT rules, they must meet the requirements of the chapeau i.e. they have to be "applied" in a manner that does not create "arbitrary or unjustifiable discrimination". The chapeau of Article XX of GATT aims to prevent the use of derogation measures to unjustifiably impede the market access rights of other Members. The combined effect of the chapeau and the enumerated provisions of Article XX are to set out a two-level test that a proposed measure must pass before it is deemed consistent with Article XX, and therefore qualify as an exception to the obligations in the GATT: The first test is whether the policy fulfils the criteria in Article XX (a)-(j). The second test is whether, when it fulfils those criteria, it satisfies the "Chapeau test". That is, is the measure being applied "arbitrarily", "unjustifiably", or as a "disguised restriction on trade"? (The latter being the most stringent test). These provisions attempt to strike a "balance" between the market access rights of some Members and the need to ensure that other Members' right to invoke these exceptions are not rendered illusory. While Members have a prima facie right to maintain measures necessary to enforce health policies for example, criteria have been developed to ensure that Members demonstrate their good faith and not apply measures in a discriminatory manner or as a disguised restriction on trade.

54

EXERCISES: 3. Can Vanin maintain an environmental measure banning the imports from some, but not all WTO Members?

55

II.A.2. SECURITYEXCEPTIONINTHEGATT
A Member is allowed to take any action, which it considers necessary for the protection of its essential security interests or in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security. Members are not required to furnish information, the disclosure of which would be contrary to their essential security interests.

EXERCISES: 4. What is a security exception?

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II.B.

SAFEGUARDMEASURES

II.B.1. INTRODUCTION
WTO Members have the right to take safeguard measures, which derogate from obligations on a temporary basis and under certain conditions. The right to apply safeguard measures reflects the recognition that in some situations, certain measures (tariffs that exceed bindings or quantitative restrictions) may be available to WTO Members to conditionally, and temporarily protect domestic industry against unforeseeable and unexpected economic circumstances. Unlike anti-dumping and countervailing measures, the application of safeguards do not depend on "unfair trade" actions. To ensure that this right to take safeguard measures does not undermine the basic market access disciplines central to the WTO system, Members have outlined conditions for, and placed limits on their use. Specific safeguard provisions are found in the GATT and sectoral agreements, for trade in goods, as well as in the GATS for trade in services. The conditions and applicable principles are included in: GATT Article XIX (General Safeguard) which is clarified and complemented by the Agreement on Safeguards (an integral part of the WTO Agreement); GATT Arts. XII and XVIIIB (Balance-of-Payment provisions); and Article 5 of the Agreement on Agriculture, which is an integral part of the WTO Agreement (Special Safeguard for some agricultural products).

II.B.2. GENERALSAFEGUARDS

INBRIEF
Safeguard measures can take the form of an increased tariff (customs duty) at a higher level than the bound rate, or a quota. In principle, the MFN Principle must be observed, as safeguard measures have to be applied irrespective of the source of imports.

A WTO member may impose a safeguard measure (i.e.), temporarily restrict imports of a product) to protect a domestic industry from an increase in imports of a product which causes or threatens to cause serious injury to the domestic industry. Safeguard measures were always available under the GATT (Article XIX). However, they were infrequently used, and some governments preferred to protect their industries through "grey area" measures (for example, "voluntary" export restraint arrangements on products such as cars, steel and semiconductors).

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INDETAIL

a.

GATTARTICLEXIX

GATT Article XIX contains the provisions on general safeguards, and was clarified and reinforced by the adoption of the WTO Agreement on Safeguards in the Uruguay Round. The WTO Safeguards Agreement broke new ground in prohibiting grey area measures and setting time limits ("sunset clause") on all safeguard actions.

Emergency Action on Imports of Particular Products 1. (a) If, as a result of unforeseen developments and of the effect of the obligations incurred by a Member under this Agreement, including tariff concessions, any product is being imported into the territory of that Member in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the Member shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession.

b.

AGREEMENTONSAFEGUARDS

The Agreement on Safeguards, stipulates:

Article 1 (General Provision): This Agreement establishes rules for the application of safeguard measures which shall be understood to mean those measures provided for in Article XIX of GATT 1994. Article 2 (Conditions): 1. A Member may apply a safeguard measure to a product only if that Member has determined, pursuant to the provisions set out below, that such product is being imported into its territory in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products. 2. Safeguard measures shall be applied to a product being imported irrespective of its source. Article 3 (Investigation): 1. A Member may apply a safeguard measure only following an investigation

a)

Recognition of the Exception

The core principle is in Article 2. It provides that "A Member may apply a safeguard measure" establishing the right to derogate from the disciplines (in GATT Article II and GATT Article XI). b) Conditions for its application

The reference to unforeseen developments in GATT Article XIX indicates that safeguard measures cannot be taken in normal economic situations but only in circumstances, not reasonably foreseen when the Member bound its tariff levels. Hence, a Member may only invoke a safeguard measure if the situation is unforeseen.

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GATT Article XIX in addition provides: " if, , any product is being imported in such increased quantities and under such conditions "; and the Agreement on Safeguards Article 2.1 provides: " if, that such product is being imported in such increased quantities, absolute or relative to domestic production, and under such conditions " The reference to increased quantities being imported, either in absolute or in relative terms, is an indication of a surge in imports. Surge in imports should be examined in the light of: (1) the relevant period prior to the safeguard measure to be undertaken and (2) like domestic product. GATT Article XIX and Agreement on Safeguards Article 2.1 provides: " to cause or threaten (to cause) serious injury to domestic producers" "Serious injury" is another concept central to the use of safeguard measures. Before a safeguard measure can be imposed, the Member must have determined that: The quantity of imported products has increased (see above); The domestic industry that produces like or directly competitive products is suffering serious injury or is there is a threat it will suffer serious injury; and The cause of the serious injury (or threat thereof) is the increase in imports (causality link).

"Serious injury or threat thereof" is described in more detail in the Agreement on Safeguards. According to Article 3, " A Member may apply a safeguard measure only following an investigation " A crucial pre-condition to be satisfied before a safeguard measure can be imposed is that an "investigation" must be conducted. The purpose of the investigation is to determine, at a preliminary stage, whether the situation in a Member country warrants the imposition of a safeguard measure. Safeguard investigations under the Agreement on Safeguards has to fulfil certain requirements such as, it must include public notice for hearings and other appropriate means for interested parties to present evidence, including on whether a measure is in the public interest. A Member may apply safeguard measures only for the time necessary to prevent or remedy serious injury and to facilitate adjustment. The period shall not exceed four years, unless it is extended under paragraph 2 of Article 7. The period may be extended if the safeguard measure continues to be necessary to prevent or remedy serious injury and that there is evidence that the industry is adjusting. The total period a safeguard measure is applied, including the period of application of any provisional measure, initial application, and any extension thereof, shall not exceed eight years. In critical circumstances, a provisional safeguard measure may be imposed if there is a preliminary determination that an industry suffers serious injury. Article 3 of the Agreement on Safeguards contains the detail of the procedure. The provisional measure should not exceed 200 days.

Agreement on Safeguards Article 5.1 level of the safeguard measure "A Member shall apply safeguard measures only to the extent necessary to prevent or remedy serious injury and to facilitate adjustment"

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The level of the safeguard measure is strictly limited and is determined by the extent necessary to remedy or prevent the threat of serious injury to a Member's market. However, "extent necessary to prevent or remedy serious injury" is not easy to determine. Generally, where quantitative restrictions are imposed, they should normally not reduce the quantities of imports below the annual average for the last three representative years for which statistics are available, unless clear justification is given that a different level of restriction is necessary to prevent or remedy the serious injury or threat thereof. For a developing country, the safeguard measures it adopts may last a maximum of 10 years. The Safeguards Agreement also introduced a "sunset clause" limiting the duration of WTO safeguard measures to a maximum of four years. A Member can impose a safeguard measure only after it has determined that all the requirements for its imposition have been satisfied.

c.

GATTART.XIISAFEGUARDMEASURESINSITUATIONSOFBALANCEOFPAYMENT (BOP)DIFFICULTIES

INBRIEF
Pursuant to Article XII, XVIII:B and the "Understanding of the Balance-of-Payments Provisions of the GATT 1994", a Member may apply import restrictions for balance-of-payments reasons. The basic condition for invoking Article XII is to "safeguard the [Member's] external financial position and its balance-of-payments". Article XVIII:B mentions the need to "safeguard the [Member's] external financial position and ensure a level of reserves adequate for the implementation of its programme of economic development". Both Articles refer to the need to "restore equilibrium on a sound and lasting basis". They require Members to relax restrictions as conditions improve, and to eliminate them when conditions no longer justify that they be maintained.

Together with the Understanding on Balance-of-Payments, GATT Article XII and GATT Article XVIII contain disciplines on measures that can be taken by Members to safeguard their balance of payments.

INDETAIL
GATT Contracting Parties considered that it was appropriate to have this exception as some Contracting Parties encountered balance-of-payments problems. The text of Article XII was part of the initial text of the GATT 1947. It was amended in 1955 when Section B of Article XVIII was added to clarify how developing countries could use safeguard measures for BOP purposes. At that time, a working party was established to report on specific proposals regarding the use of quantitative restrictions for BOP, economic development, and other purposes. These provisions entered into effect in 1957.

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In addition, Article XII and XVIII:B were amplified by: detailed consultation procedures introduced in 1970; "simplified" consultation procedures for developing countries introduced in 1972; and provisions on the application of the Articles and consultation procedures in the 1979 Declaration on Trade Measures Taken for Balance-of-Payment Purposes. This extended GATT examination from quantitative restrictions alone to all trade measures taken for BOP purposes. During the Uruguay Round negotiations, the final complementary provision was added through the Understanding on BOP Provisions, which sought to clarify the "BOP Provisions". In it, Members "confirmed that they shall" seek to avoid the imposition of new quantitative restrictions for balance-of-payments purposes unless, because of a critical balance-of-payments situation, price-based measures cannot arrest a sharp deterioration in the external payments position. They also agreed that "not more than one type of restrictive import measure taken for balance-of-payments purposes may be applied on the same product".

EXERCISES: 5. Can Alba, rely on newspaper statements relating to increased quantities of imports, and take a decision to impose a general safeguard measure in the form of quantitative restrictions against products from Vanin? 6. What are the main differences between Article XII and Article XVIII:B?

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II.C.

WAIVERS

General exceptions, security exceptions and safeguards are not the only provisions which Members can use to maintain measures inconsistent with the WTO principles. They can also derogate from their obligations where they obtain waivers, which we are about study.

INBRIEF
What is a waiver? A waiver is a permission granted by WTO Members allowing another WTO Member to not comply with its normal commitments. Waivers are time-bound. They have time limits and extensions have to be justified.

INDETAIL
In "exceptional circumstances", a WTO Member may be authorized by the other Members to derogate, for a specific time and under certain conditions, from any provision of the WTO Agreements. These derogations, called "waivers", are governed by the WTO Agreement and are applicable to trade in goods, trade in services and trade-related aspects of intellectual property rights. Waivers are governed by Article IX of the Marrakesh Agreement (establishing the WTO). A waiver is used when there are no other provisions which would allow a Member to derogate from a WTO principle or a specific provision. Waivers are granted by the WTO membership, through a decision of the Ministerial Conference (in most cases, the decision is adopted by the General Council in between Conference sessions). Consequently, a waiver may be viewed as a "negotiated right", whereas there is no need to negotiate to take a general exception in GATT Article XX and GATS Article XIV. While a provision of the general (or security) exceptions may be invoked to justify a measure otherwise inconsistent with GATT, a waiver (granted by the WTO membership) should generally not be disputed unless the Member fails to comply with the conditions of the waiver or if its application leads to a non-violation complaint. Waivers are usually temporary so, when they are granted, a definite time-period is set for termination. Waivers may be granted in exchange for compensation. If granted for more than a one-year period, a waiver must be reviewed annually to establish if the exceptional circumstances warranting its grant still exist.

EXERCISES: 7. Can a WTO Member waive its obligations for more than one year?

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II.D. REGIONALINTEGRATION
When a WTO Member joins a regional trade agreement (RTA), it normally grants more favourable conditions to trade from other parties to that arrangement than to trade from other Members, it departs from the guiding principle of non-discrimination in Article I of GATT, Article II of GATS, and in other provisions in the WTO Agreement.

INGATT

INBRIEF
Generally a WTO Member is in breach of its obligations where it grants preferential and more favourable treatment to products originating in a select group of countries. Nevertheless the WTO, as did the GATT, allows its Members to enter into RTAs, under the rules and conditions in: GATT Article XXIV (paragraphs 4-10), complemented by the Understanding on the Interpretation of Article XXIV of the GATT 1994 (the "Understanding"), for customs unions and free trade areas covering trade in goods; the 1979 GATT Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries (the "Enabling Clause", paragraphs 2(d), 3 and 4); and GATS Article V, governing economic integration agreements liberalizing trade in services (for both developed and developing countries). Unlike in the GATT, in the GATS the special and differential treatment for developing countries is contained in the text of Article V. Other non-generalized preferential schemes, for example non-reciprocal preferential agreements involving developing and developed countries, require Members to seek a waiver from WTO rules.

ILLUSTRATION GATTArticleXXIV
Let us assume that Alba, Vanin and Medatia are WTO Members, and that they concluded an interim agreement to establish a Customs Union (CU) in which the tariffs on all imports between them are to be brought to zero within a transitional 10-year period. Tariff preferences which they give to each other, but not to Tristat (another WTO Member), would appear contrary to the MFN Principle. However, GATT Article XXIV allows Alba, Vanin and Medatia to form a CU and to grant preferences to each other if two main conditions are respected: first, the CU must be fully compatible with GATT Article XXIV, and second the tariff preference (or any other measure inconsistent with GATT rules) must be "necessary" for the formation of the CU. Without this, the CU could not be formed. For a CU to be GATT compatible, the duties and trade barriers applicable to "substantially all the trade" between Alba, Vanin and Medatia must be removed, within a transitional period of 10 years.

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Secondly, they must all apply "substantially the same" duties, tariffs and so forth, to trade from other WTO Members (harmonization of the external trade policy of the CU members, for example through a Common External Tariff). Thirdly, they must demonstrate that the duties and other regulations of commerce applicable by CU members to states not parties to the CU are not overall "higher or more restrictive" than the trade barriers that were applied prior to formation of the CU.

EXERCISES: 8. Can Alba, Medatia and Vanin enter into an RTA whereby they reduce the tariff rate applicable to all the trade between them, from 10% to 5%?

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II.E.

SPECIAL&DIFFERENTIALTREATMENTFOR DEVELOPINGCOUNTRIES

II.E.1. INTRODUCTION
The majority of WTO Members are developing countries. Members decide for themselves if they are developed or developing countries (principle of "self-election"). Unlike these two terms, in the WTO, least-developed countries (LDCs) refer to countries that were designated as such by the United Nations Economic and Social Council. Developing and least developed country status in the WTO brings certain rights. For example, there are provisions in some WTO Agreements which provide developing countries with longer time periods to implement certain provisions of the agreements or the right to receive technical assistance. Special and differential treatment of developing countries have been a cornerstone of the GATT system for decades. It now encompasses non-reciprocity, preferences, and technical assistance, however, it initially provided the basis only for flexibility for the developing countries in the use of their trade policy instruments.

II.E.2. GATTANDDEVELOPINGCOUNTRIES

PARTIVOFTHEGATT
The GATT, as negotiated in October 1947, did not separately recognize differences among Contracting Parties. The preamble to the agreement stressed the importance of substantially reducing discriminatory treatment and emphasised the importance of reciprocal and mutually advantageous arrangements. However, issues relating to economic development were taken up in the negotiations that took place in Havana from November 1947 to March 1948 and this resulted in Article XVIII entitled "Government Assistance to Economic Development and Reconstruction". Only a contracting party ("the economy of which can only support low standards of living and is in the early stages of development") could have recourse to Sections A, B and C of the revised Article.

1971WAIVER
In 1971, the GATT Contracting Parties adopted a waiver for the Generalized System of Preferences (GSP) to give legal effect through GATT rules to the unanimous agreement reached in UNCTAD for a mutually acceptable system of generalized, non-reciprocal and non-discriminatory preferences (BISD 8S/24). This waiver was for 10 years. The waiver was authorized to the extent necessary to permit developed Contracting Parties (subject to several paragraphs of the 1971 Decision) to accord preferential tariff treatment to products originating in developing

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countries and territories with a view to extending the preferential tariff treatment to their products without according such treatment to like products of other Contracting Parties. This was an initial temporary measure derogating from GATT MFN requirements.

THEENABLINGCLAUSE
The adoption in 1979 in the Tokyo Round of the "Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries", (the "Enabling Clause") marked a qualitative jump forward for developing countries as the right of developed countries to provide preferences to imports from developing countries was made permanent. The Enabling Clause "enables" Members to derogate from the MFN principle when they grant tariff preferences to imports from developing and LDC country Members under certain conditions. Unlike the Waiver in the 1971 Decision, the Enabling Clause is a permanent provision and it constitutes a concrete contribution to the emergence of special and differential treatment (S&D) for developing countries.

II.E.3. THEOUTCOMEOFTHEURUGUAYROUND
The WTO Agreements reflect an increased recognition of the need to integrate developing countries into the trading system by extending benefits to them. In the WTO, special and differential treatment ("S&D") provisions grant special treatment to developing country and LDC Member states and rights for developed countries to treat developing and LDC countries favourably. For example, the Preamble to the Marrakesh Agreement recognizes "that there is need for positive efforts designed to ensure that developing countries, and especially the least developed among them, secure a share in the growth in international trade commensurate with the needs of their economic development". The Uruguay Round marked a new approach to the "development dimension". In the WTO agreements, various sections, specific provisions, and simple references are devoted to special rights for developing countries. These provisions, called "special and differential treatment" provisions. They grant special rights to developing countries, and allow developed countries to treat developing countries more favourably than other Members.

EXERCISES: 9. How is a country classified as "developing" or "least developed"?

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III.

DISPUTESETTLEMENTATTHEWTO

The function of the Dispute Settlement Understanding is to preserve the rights and obligations of Members. WTO Members can settle their disputes in four ways: (i) consultation or negotiations; (ii) adjudication by panels and the Appellate Body (in cases where there is an appeal); (iii) arbitration; and (iv) good offices, conciliation and mediation. Only Member governments (states or custom's territories) can be party to disputes in the WTO. Private parties have no standing in WTO procedures- they must rely on their government to bring or defend an action, or to intervene as a third party. The flow chart of the WTO Dispute Settlement Process below shows the stages in a typical WTO dispute settlement case. Below the chart, there is a short explanation of all the various stages through which a dispute can pass in the (WTO) dispute settlement system. There are two main ways to settle a dispute once a complaint has been filed in the WTO: (i) the parties find a mutually agreed solution, particularly during the phase of bilateral consultations; and (ii) through adjudication, including the subsequent implementation of the panel and Appellate Body reports, which are binding upon the parties once adopted by the DSB. There are three main stages to the WTO dispute settlement process: (i) consultations between the parties; (ii) adjudication by panels and, if applicable, by the Appellate Body; and (iii) the implementation of the ruling, which includes the possibility of countermeasures in the event of failure by the losing party to implement the ruling.

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Figure 1:

WTO dispute settlement timeline

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III.A. CONSULTATIONS
The procedures start with consultations between the parties. Members must consult in good faith within 30 days of a formal request for consultations, and the consultations must last at least 60 days from the date of receipt of the request, unless the parties agree otherwise or the Member addressed by the request refuses to consult. During this time, the contested issues can be clarified and, hopefully, the dispute can be settled. Other Member governments can request to join the consultations. All requests for consultations are circulated to all Members and are available to the public on the WTO website. At any stage, the parties to the dispute may reach a mutually agreed solution (Article 3.7 of the DSU).

III.B. PANELS
If consultations fail to settle a dispute, the complaining Member may request the establishment of a "panel" to examine the matter and make such findings as will assist the DSB in making recommendations to secure a positive solution to the dispute. Other Member governments with a substantial interest in the matter can join the dispute as third parties (Article 10.2 of the DSU).

WTO Members cannot unilaterally determine that another member has violated their Agreement on Agriculture (or other) obligation. A WTO Member must prove its claims before an impartial ad hoc panel, and on appeal if required through the WTO's dispute settlement procedure. Where its claims are upheld, the DSB will request the offending Member to bring its measures into conformity with its obligations under the Agreement on Agriculture.

Panels are normally comprised of three persons of appropriate background and experience, and are not citizens of Members party to the dispute or third parties, unless the parties to the dispute agree otherwise. They serve in their individual capacity and not as government representatives. They are never serving WTO Secretariat officials. The parties to the dispute attempt to agree on the composition of the panel based on names proposed by the Secretariat, failing which the Director-General can determine its composition in consultation with the parties to the dispute, upon request (Article 8.7 of the DSU). The names of the panellists are published on the WTO website. The parties to the dispute make written submissions and oral statements at meetings with the panel. Third parties can also make submissions and an oral statement. A panel will normally complete its work within six months, by publishing a report containing findings of fact and law, with its conclusions. The report is circulated to all Members and made available to the public on the WTO website. If there is no appeal, it can be proposed for adoption by the DSB.

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III.C. APPEAL
A party to the dispute may appeal the Panel's findings to the Appellate Body, which is a standing body of seven individuals, three of whom serve on any one case. Member governments appoint Appellate Body Members in the DSB for four years terms. Appeals are limited to issues of law covered in the panel report and legal interpretations developed by the Panel. The parties make written submissions and oral statements at a meeting with the Appellate Body and third parties may also participate. The Appellate Body completes its work within 90 days, by publishing a Report containing its findings on the issues raised in the appeal, which may uphold, modify or reverse the legal findings and conclusions of the panel. The Report is circulated to all Members and made available to the public on the WTO website.

III.D. ADOPTIONANDIMPLEMENTATIONOFTHEREPORT
The DSB considers the panel report, or the Appellate Body report, after it has been circulated to the Members and adopts them unless there is consensus not to do so. (Articles 16.4 and 17.14 of the DSU).

III.E. REMEDIES
There are three type of remedies available for breaches of the Agreement on Agriculture: withdrawal or amendment of the inconsistent measures (final remedy); and two temporary remedies (in the case of non-compliance with the DSB decision) compensation, and suspension of concession (retaliation) (Article 22.1 of the DSU).

III.F. WITHDRAWAL/AMENDMENTOFTHEINCONSISTENT MEASURES

With the DSB's adoption of the panel (and Appellate Body) report(s), there is a "recommendation and ruling" by the DSB addressed to the losing party (in the case of a successful violation complaint) to bring itself into compliance with (WTO) law or to find a mutually satisfactory adjustment. The Member is given a reasonable period in which to bring the measure into conformity with that agreement. The reasonable period is agreed by the parties and by arbitration where they do not agree. It varies with the complexity of the cases. The Member concerned must provide regular status reports on implementation from at least six months after the date on which the reasonable period of time is established until the issue is resolved (Article 21.6 of the DSU).

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The DSB is the WTO body responsible for supervising the implementation of panel and Appellate Body reports (Article 2 of the DSU). As in the previous stages of the dispute settlement system, it is the WTO Members, whose delegates compose the DSB who must take the initiative to place items on the DSB agenda (and not the WTO Secretariat). In the overwhelming majority of cases, Members comply with the recommendations in a report as adopted by the DSB. However, if there is disagreement as to whether a Member has complied (such as disagreement as to whether amendments made to the law to comply were themselves WTO consistent), the disagreement can be resolved through another proceeding before a panel, wherever possible this panel will be composed of the same three persons who formed the original panel. The panel normally completes its work within 90 days, by publishing another report, which can also be appealed to the Appellate Body, which normally completes its work within a further 90 days (Article 21.5 of the DSU).

III.G. COMPENSATION
If the implementing Member does not achieve full compliance by the end of the reasonable period of time, it has to enter into negotiations with the complaining party with a view to agreeing a mutually acceptable compensation (Article 22.2 of the DSU). This compensation does not mean monetary payment; rather, the respondent is supposed to offer a benefit, for example a tariff reduction, which is equivalent to the benefit, which the respondent has nullified or impaired by applying its measure. The parties to the dispute must agree upon the compensation (Article 22.1 of the DSU).

III.H. SUSPENSIONOFCONCESSION(RETALIATION)
If, within 20 days after the expiry of the reasonable period of time, the parties have not agreed on satisfactory compensation, the complainant may ask the DSB for permission to impose trade sanctions against the respondent that has failed to implement the DSB recommendation. Technically, this is called "suspending concessions or other obligations under the covered agreements" (Article 22.2 of the DSU). Concessions are, for example, tariff reduction commitments that Members made in multilateral trade negotiations and which are bound under Article II of GATT 1994. These bound concessions are just one form of WTO obligations. The most typical form practised so far is the suspension of concessions through the imposition of tariff surcharges. The complainant is thus allowed to impose countermeasures that would otherwise be inconsistent with the WTO Agreements, in response to a violation or to non violation nullification or impairment. This is informally called "retaliation" or "sanctions". Such suspension of obligations takes place on a discriminatory basis only against the Member that failed to implement. Retaliation is the final and most serious consequence a non-implementing Member may face in the WTO dispute settlement system (Article 3.7 of the DSU). Suspending WTO obligations in relation to another Member requires a previous authorization of the DSB. Although retaliation requires prior approval by the DSB, the countermeasures are applied selectively by one Member against another. In principle, the sanctions should be imposed in the same sector as that in which the violation or other nullification or impairment was found (Article 22.3 (a) and Article 22.3(g) of the DSU). As you saw in Module 1, 71

the WTO Agreement has 4 Annexes. Annex 1 is subdivided into three. (Annex 1A comprises the GATT 1994 and the other multilateral trade agreements on trade in goods, Annex 1B the GATS, and Annex 1C the TRIPS Agreement) Within these agreements, sectors are defined. With regard to the TRIPS Agreement, the categories of intellectual property rights and the obligations under Part III and those under Part IV each constitute separate sectors. In the GATS, each principal sector as identified in the current "Services Sectoral Classification List" is a sector. With respect to goods, all goods belong to the same sector (Article 22.3(f) of the DSU). The general principle is that the complainant should first seek to suspend obligations in the same sector as that in which the violation or other nullification or impairment was found. This means that, for example, the response to a violation in the area of patents should also relate to patents. If the violation occurred in the area of distribution services, then the countermeasure should also be in this area. On the other hand, a WTO-inconsistent tariff on automobiles (a good) can be countered with a tariff surcharge on cheese, furniture or pyjamas (also goods). However, if the complainant considers it impracticable or ineffective to remain within the same sector, the sanctions can be imposed in a different sector under the same agreement (Article 22.3(b) of the DSU). This option has no relevance in the area of goods, but, for example, a violation with regard to patents could be countered with countermeasures in the area of trademarks, and a violation in the area of distribution services could be countered in the area of health services. In turn, if the complainant considers it impracticable or ineffective to remain within the same agreement, and the circumstances are serious enough, the countermeasures can be taken under another agreement (Article 22.3 (c) of the DSU). The objective of this hierarchy is to minimize the chances of actions spilling over into unrelated sectors while at the same time allowing the actions to be effective. The possibility of suspending concessions in other sectors or under another agreement is often referred to as "cross-retaliation". In 2000, Ecuador got the authorization to cross-retaliate against the European Union in by denying them protection of related rights, geographical indications and industrial designs. See the case Decision by the Arbitrators, European Communities Regime for the Importation, Sale and Distribution of Bananas - Recourse to Arbitration by the European Union under Article 22.6 of the DSU, WT/DS27/ARB/ECU, 24 March 2000 EC - Bananas III (Ecuador) (Article 22.6 EC).

III.I. ARBITRATION
Arbitration is available as an alternative to dispute resolution by panels and the Appellate Body (Article 25). The Parties to the arbitration define the issues referred to arbitration and agree on the rules to be followed. They must also agree to be bound by the arbitration award. In the EC - Bananas case, the parties used arbitration to rule on the allocation of TRQs.

III.J. GOODOFFICES,CONCILIATIONANDMEDIATION
The parties to a dispute can agree to use good offices, conciliation or mediation to settle a dispute. Good offices consist primarily of providing logistical support to help the parties negotiate in a productive atmosphere.

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Conciliation additionally involves the direct participation of an outside person in the discussions and negotiations between the parties.

In a mediation process, the mediator does not only participate in and contribute to the discussions and negotiations, but may also propose a solution to the parties. The parties would not be obliged to accept this proposal.

Good offices, conciliation and mediation may begin at any time (Article 5.3 of the DSU), but not prior to a request for consultations because that request is necessary to trigger the application of the procedures of the DSU, including Article 5 (Article 1.1 of the DSU). For example, the parties can enter into these procedures during their consultations. If this happens within 60 days after the date of the request for consultations, the complainant must not request a panel before this 60-day period has expired, unless the parties jointly consider that the good offices, conciliation or mediation process has failed to settle the dispute (Article 5.4 of the DSU). However, these procedures can be terminated at any time (Article 5.3 of the DSU). If the parties so agree, these procedures may continue, while the Panel proceeds with an examination of the matter (Article 5.5 of the DSU). The proceedings of good offices, conciliation and mediation are strictly confidential, and do not diminish the position of either party in any following dispute settlement procedure (Article 5.2 of the DSU). This is important because, during such negotiations, a party may offer a compromise solution, admit certain facts or divulge to the mediator the outer limit of the terms on which it would be prepared to settle. If no mutually agreed solution emerges from the negotiations and the dispute goes to adjudication, this constructive kind of flexibility and openness must not be detrimental to the parties.

III.K. TYPESOFCOMPLAINTS
The WTO system provides for three types of complaints: violation (Article XXIII:1(a) of GATT 1994); non-violation (Article XXIII:1(b) of GATT 1994); and situation complaints (Article XXIII:1(c) of GATT 1994).

These provisions are elaborated in the DSU. In general, disputes in the WTO involve allegations that a country has violated an agreement or broken a commitment (violation complaint). However, in some situations a government can go to the DSB even when an agreement has not been violated. These are called a non violation complaint or situation complaints. "Non-violation" deals with a government's ability to bring a dispute to the WTO, based on loss of an expected benefit caused by another member's actions even if no WTO Agreement or commitment has actually been violated. It is allowed if one government can show that it has been deprived of an expected benefit because of another government's action. A "situation" complaint is understood to cover any situation that results in nullification or impairment. The aim of non-violation complaints is to help preserve the balance of benefits struck during multilateral negotiations. For example, a country may have agreed to reduce its tariff on a product as part of a market access deal, but later subsidized domestic production so that the effect on the conditions of competition are the same as the original tariff. A non-violation case against this country would be allowed to restore the conditions of competition implied in the original deal.

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Non-violation complaints are possible in the areas of goods and services, however, Article 64.2 of the TRIPS Agreement prevents the application of non-violation complaints within the first five years of the entry into force of the TRIPS Agreement. Article 64.3 of the TRIPS Agreement instructed the Council to examine the extent and way ("scope and modalities") for non-violation and situation complaints and make recommendations to the General Council by the end of 1999.

Note

Important: Dispute Settlement and the Agreement on Agriculture The Agreement on Agriculture is covered by the DSU. There have been a number or dispute settlement cases involving the Agreement on Agriculture although there have also been a number of cases which involved agricultural goods but did not concern the Agreement. Disputes normally cover more than one of the WTO Agreements. For example, in EC Bananas the GATT, the General Agreement on Trade in Services and the Agreement on the Import Licensing Procedures were also involved. Each case also contributed to the understanding of particular provisions of the Agreement on Agriculture. In particular, the EC Bananas case on Article 4, EC Poultry on the interpretation of Schedules and the use of the special agricultural safeguard, Korea on domestic support and so on. You may find a list of the disputes invoking the provisions of the Agreement on Agriculture in the Support Documents Section.

EXERCISES 10. 11. If an Agreement on Agriculture dispute is decided by adjudication in the WTO, what are the four steps? What are the types of complaints that Members can bring when they allege breach of obligations under the Agreement on Agriculture? 12. What is the difference between a violation complaint, a non-violation complaint, and a situation complaint?

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IV.

SUMMARY

IV.A. RULESONUNFAIRTRADE
ANTI-DUMPING MEASURES, SUBSIDIES & COUNTERVAILING MEASURES There are similarities between the provisions designed to correct the imbalances created by dumping and certain subsidies. In both situations, the importing Member can impose a duty to compensate for the unfair advantage (upon importation and in addition to its import tariffs). However, dumping a private practice of firms is not prohibited by the WTO provisions. In effect, the provisions regulate the right of the importing Member to protect its domestic market against "unfairly priced imports". On the other hand, The provisions prohibit certain types of subsidies. Subsidies are governed by the SCM Agreement. Subsidies on Agricultural products are governed by the Agreement on Agriculture. Anti-dumping measures are the conditional right to take measures to correct price distorting practices of firms. Anti-dumping measures are disciplined by GATT Art. VI and the Anti-dumping Agreement. Dumping takes place when a product of one firm is introduced into the commerce of another country at less than the normal value of the product. Investigations have to be conducted to determine the margin of dumping and to define the level of the anti-dumping duty. The WTO Agreement on Subsidies and Countervailing Measures regulates the actions countries can take to counter the effects of subsidies. The SCM Agreement further elaborated the basic principles in Article VI governing the investigation, determination, and application of countervailing duties. The SCM Agreement allows Members to challenge through the WTO dispute settlement mechanism the consistency of any subsidy programme with the WTO rules. A Member can also use a countervailing measure if it determines that its imports are subsidized, that the subsidized imports are causing injury to a domestic industry and there is a causal link between the subsidies and the injury to the domestic industry. The disciplines set out in the SCM Agreement governs only specific subsidies. The agreement defines two categories of subsidies: prohibited and actionable. It originally contained a third category - non-actionable subsidies. This category existed for five years and ended on 31 December 1999.

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IV.B. EXCEPTIONSTOTHEBASICPRINCIPLES
The WTO obligations not to discriminate, not to withdraw liberalization commitments/concessions etc may appear to restrict the sovereign rights of Members to exercise full autonomy in trade and economic matters. However, numerous exceptions allow Members to derogate from these market access disciplines, either because: Specific provisions within these disciplines permit them to do so, or The horizontal exception enables them to do so.

There are general as well as security exceptions relating to goods, services and intellectual property. For example, Article XIV of the GATS Agreement allows Members to take measures necessary for overriding policy concerns, including the protection of public morals or the protection of human, animal or plant life or health. However, such measures must not lead to arbitrary or unjustifiable discrimination or constitute a disguised restriction to trade. If essential security interests are at stake, Article XIVbis of the GATS Agreement provides cover. GATT Contracting Parties and likewise Members have kept the possibility for Members to take measures to safeguard their economic interest. Safeguard measures are taken to confront unforeseen circumstances. GATS rules on safeguards are in Article X (general safeguards) and XII (BOP provisions) of the GATS. Article XII of the GATS Agreement allows for the introduction of temporary restrictions to safeguard the balance-ofpayments; and a so-called "prudential carve-out" in financial services permits Members to take measures in order, inter alia, to ensure the integrity and stability of their financial system (Annex on Financial Services, paragraph 2. However, the disciplines are not as developed as in the GATT. Members are currently negotiating to define rules on safeguards for trade in services. When a WTO member enters into a regional integration arrangement through which it grants more favourable conditions to its trade with other parties to that arrangement than to other WTO members' trade, it departs from the guiding principle of non-discrimination defined in Article I of GATT, Article II of GATS, and elsewhere. WTO Members are however permitted to enter into such arrangements under specific conditions which are spelled out in three sets of rules: Paragraphs 4 to 10 of Article XXIV of GATT (as clarified in the Understanding on the Interpretation of Article XXIV of the GATT 1994) provide for the formation and operation of customs unions and free trade areas covering trade in goods; the Enabling Clause (i.e., the 1979 Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries) refers to preferential trade arrangements in trade in goods between developing country Members; and Article V of GATS governs the conclusion of RTAs in the area of trade in services, for both developed and developing countries.

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IV.C. DISPUTESETTLEMENT
WTO Members can settle their disputes in four ways: (i) consultation or negotiations; (ii) adjudication by panels and the Appellate Body (in cases where there is an appeal); (iii) arbitration; and (iv) good offices, conciliation and mediation. The dispute settlement system is based on clearly defined rules, with timetables for completing a case. Rulings are first made by a panel and appeals based on points of law are possible. Rulings made by a panel can be appealed to the Appellate Body.

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PROPOSED ANSWERS: 1. The government of Tristat must determine that: (1) (2) (3) 2. there are subsidized imports; injury to a like domestic industry is occurring; and there is a causal link between the subsidized imports and the injury.

The SCM Agreement provides for two types of remedies: (a) (b) imposition of countervailing measures; or recourse to WTO dispute settlement procedures to remove/modify the subsidy programme.

3.

Vanin can, if the measure does not violate GATT Article I and/or XIII (MFN for quotas). Additionally in some circumstances, and pursuant to Article XX a Member is able to maintain measures that otherwise violates provisions of the GATT. However, the Member would first need to show that the goal of the measure is recognized by one of the exceptions listed in sub-paragraphs (a)-(j) of Article XX. Provided the measure fulfils the criteria in sub-paragraphs (a)-(j) the Member would need to show, in addition, that the measure is applied in such a way that it does not violate the requirements of the opening paragraph/chapeau to Article XX. Namely, that the measure is not applied to cause arbitrary or unjustified discrimination between Members where the same conditions exist and is not applied to constitute a disguised restriction on trade.

4.

A security exception allows a WTO Member to take any action which it considers necessary for the protection of its essential security interests or in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security. When Members utilize the exception they are not required to furnish any information, the disclosure of which would be contrary to their essential security interests.

5.

No. Alba must first conduct an investigation. The investigation must show that imports from Vanin have increased in absolute or relative terms compared to domestic like or directly competing products, and that because of unforeseen developments, such increased imports are either causing or threatening to cause serious injury to domestic industries producing like products. Safeguard measures can take the form of quantitative restrictions (otherwise contrary to GATT Article XI) or imposition of tariffs above bound level (otherwise contrary to GATT Article II). In addition to the general safeguard measures, the WTO rules provide for provisions to safeguard Member's balance of payment.

6.

Pursuant to the WTO rules, any trade restrictive measure that a Member take, must be consistent or in compliance, with the rules of the international trading system. Pursuant to Article XII, XVIII:B and the "Understanding of the Balance-of-Payments Provisions", a Member may apply import restrictions for reasons of balance-of-payments problems.

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Article XII is invoked to "safeguard a Member's external financial position and its balance-of-payments"; Article XVIII:B mentions the need to "safeguard a Member's external financial position and ensure a level of reserves adequate for the implementation of its programme of economic development". Both Articles refer to the need to "restore equilibrium on a sound and lasting basis". While Article XII mentions the objective of "avoiding the uneconomic employment of resources", Article XVIII:B refers to "assuring an economic employment of production resources". Article XVIII:B contains less stringent criteria than Article XII: Article XII (paragraph 2) states that import restrictions "shall not exceed those necessary (i) to forestall the imminent threat of, or to stop, a serious decline in its monetary reserves" or (ii) "...in the case of a Contracting Party with very low monetary reserves, to achieve a reasonable rate of increase in its reserves". Article XVIII:B (paragraph 9) omits the word "imminent" from the first condition and refers to an "inadequate" level rather than a "very low" level of reserves; "adequate" is defined as adequate for the implementation of its programme of economic development. Both Articles require Members to progressively relax the restrictions as conditions improve and eliminate them when conditions no longer justify their retention. 7. Yes, but only in "exceptional circumstances". However, pursuant to Article IX.4 of the WTO Agreement, where a waiver is granted for more than one year, it must be reviewed annually until its termination by the Ministerial Conference. This review requires the Ministerial Conference (or the General Council) to examine the terms and conditions of the waiver and to determine whether they have been met by the Member invoking it, and whether the conditions warranting its grant still exist. 8. Yes. In a GATT compatible RTA, duties (and other regulations restricting trade) must be eliminated on substantially all the trade between members of the RTA. During the transition 10 years period (the interim agreement phase), duties should be phased out and brought to zero. However, the Enabling Clause allows developing countries to enter into RTAs among themselves with less stringent rules. 9. There are no WTO definitions of "developing" or "developed countries". Members "self-elect" their status. Theoretically, other Members can challenge the application of the provisions on special and differential treatment to other Members. The WTO Members recognized as least-developed countries (LDCs), those countries that have been designated as such by the United Nations. 10. Consultations; Panel Proceedings; Appellate Review Proceedings; and Implementation and enforcement of the recommendations and rulings of the panel/and or Appellate Body, as adopted by the DSB.

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11.

Violation Complaints; Non-violation; and Situation Complaints.

12.

"Violation" complaints involve allegations that a country has violated an agreement or broken a commitment. "Non-violation" alleges that, loss of an expected benefit caused by another member's actions (even if no WTO Agreement or commitment has actually been violated). It is allowed if one government can show that it has been deprived of an expected benefit because of another government's action, or because of any other situation that exists. "Situation" complaints cover any situation that results in nullification or impairment. The aim is to help preserve the balance of benefits struck during multilateral negotiations. For example, a country may have agreed to reduce its tariff on a product as part of a market access deal, but later subsidized domestic production so that the effect on the conditions of competition are the same as the original tariff. A non-violation case against this country would be allowed to restore the conditions of competition implied in the original deal. While non-violation complaints are possible in the areas of goods and services, the TRIPS Agreement set a temporary moratorium on non-violation and situation complaints. Article 64 prevents the application of non-violation complaints within the first five years of the entry into force of the TRIPS Agreement. During that time, the TRIPS Council started looking at the extent and way ("scope and modalities") non-violation complaints could be applied.

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MODULE

3
IntroductiontotheAgreementon Agriculture
ESTIMATEDTIME:5hours

OBJECTIVES OF MODULE 3

Introduce the Agreement on Agriculture and explain what is agricultural trade; Outline agricultural trade policies under the GATT (prior to the WTO); and Explain the Uruguay Round agriculture negotiations.

Explain the structure of the Agreement on Agriculture; Describe the product coverage under the Agreement on Agriculture; Explain the disciplines and commitments in the Agreement on Agriculture; Outline Implementation under the Agreement on Agriculture; and Describe the role of the Committee on Agriculture.

Explain the relationship of the Agreement on Agriculture to other WTO Agreements.

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I.

INTRODUCTION

In Module 1, we reviewed the WTO, its structure and organization as well as the multilateral trading system. Rules were explained generally with a special emphasis in goods in order to prepare for studying the Agreement on Agriculture. This module and the others that follow look at the specific rules governing trade in agricultural products, a subset of goods. At the end of this Module you should be able to explain: agricultural trade and multilateral trade policies prior to the WTO and the Uruguay Round agriculture negotiations; the Agreement on Agriculture that came out of the Uruguay Round its structure, product coverage, disciplines and commitments, implementation; the relationship of the Agreement on Agriculture to other WTO Agreements; and the role of the Committee on Agriculture.

I.A.

AGRICULTURALTRADE

The importance of agriculture and agricultural trade cannot be overemphasized. Trade in agricultural products, for example, aids global food security by ensuring that temporary or protracted food deficits arising from adverse climatic and other conditions can be met from world markets. In addition, in many countries, agricultural trade is an important part of overall economic activity. It generates income and wealth, creates jobs, plays a major role in domestic agricultural production and export activities, and generates revenue and foreign exchange for governments.

I.B.

AGRICULTURETRADERULESUNDERTHEGATT

International trade in agriculture products had been subject to the rules of the multilateral trading system since the entry into force of the GATT back in 1947. However, there were several important differences with respect to the rules that applied to agricultural primary products as opposed to industrial products. Furthermore, there were exemptions and exceptions for agriculture trade and for subsidies to producers of agriculture products. For example, the GATT 1947 allowed Contracting Parties to use some non-tariff measures such as subsidies and import quotas. In addition, many of the Contracting Parties operated so-called "grey area" measures that were not clearly covered by the rules or commitments but were of dubious legality nonetheless. GATT 1947 also permitted, at least to some extent, the use of (1) non-tariff barriers to imports, such as quantitative restrictions, (2) subsidies to agricultural producers, and (3) export subsidies for primary products. However, there were conditions attached to these flexibilities that often turned out to be quite strict.

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I.B.1.

IMPORTRESTRICTIONS

Article XI.2(c) of the GATT 1947 permitted the use of quantitative import restrictions on imports of agricultural products. But there were a lot of conditions attached as the import restriction had to be part of a national supply management scheme which imports could undermine. In addition, the exception in Article XI.2(c) was conditional on Contracting Parties maintaining a minimum proportion of imports relative to domestic production. Thus, quantitative import restrictions on imports of agriculture goods were permitted but subject to a list of conditions. Article XI.2(c) was the subject of a lot of litigation in the GATT. For agriculture, the most important of the cases was Japan Restrictions on Certain Agriculture Products . The Panel effectively showed that the requirements under Article XI.2(c) were quite strict and confirmed the view of some other Members that had sought waivers for sensitive products. The US obtained such a waiver in 1955 for some cotton products, some dairy products, peanuts, syrup and sugar . This waiver remained in place until the Uruguay Round was completed and the provisions of the WTO Agreement on Agriculture applied to agricultural products. Switzerland, on the other hand, negotiated an exemption for the agriculture sector in its protocol of accession to the GATT.
3 2 1

TIP What is a protocol of accession? States and Customs territories, which became Contracting Parties of the GATT between 1948 and 31 December 1994 had to negotiate the conditions of their accession to the GATT 1994. These conditions and commitments are in protocols of accession, which form an integral part of the GATT 1994. Similarly, WTO Members that joined the organization after its establishment have protocols of accession (see Article XII of the WTO Agreement).

In addition, across the GATT only about one-third of agriculture products had bound tariff rates. Furthermore, many Members used various measures to support exports of agricultural products, to subsidise domestic production and to restrict imports using high tariffs or non-tariff measures. Notwithstanding the conditions attached to import restrictions under Article XI of GATT, many non-tariff barriers were applied to imports without any effective limits on domestic production and without maintaining minimum import access. In some cases, this was achieved by the use of measures not specifically provided for under Article XI (the General Elimination of Quantitative Restrictions).

1 2 3

L/6253 adopted on 2 February 1988, BISD/35S/163 BISD/3S/32; March 1955; United States Import restrictions on agricultural products In the WTO, the India Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products

("India Quantitative Restrictions"), was litigated based on Article XI of the GATT 1994. See the Panel Report, WT/DS90/R, adopted 22 September 1999, as upheld by the Appellate Body Report, WT/DS90/AB/R, paragraph 5.128

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In other cases, restrictions were kept pursuant to exceptions and country-specific derogations (such as, grandfather clauses, waivers and protocols of accession). In yet other cases, non-tariff import restrictions were maintained without any apparent justification. Major agricultural products such as cereals, meat, dairy products, sugar and a range of fruits and vegetables faced barriers to trade on a scale uncommon in other merchandise sectors.

TIP You have seen waivers in Module 1 and protocol of accession before- what is this reference to "grandfather clause"? Under a grandfather clause, a rule needs to be applied only to the extent that it is not inconsistent with legislation in effect before the accession to the GATT (for grandfather clause applying to the GATT) or the creation of the WTO for post-Uruguay Round Agreements.

I.B.2.

DOMESTICSUPPORT

The rules on subsidies to farmers were not clear under the GATT, where Article III.8(b) stated that subsidies to producers were not prohibited by the national treatment obligation. In addition, it was not even clear whether or not price support measures were subsidies. However, the value of tariff concessions affected by these subsidies was protected by Article XXIII which states that concessions cannot be nullified or impaired, even by measures that comply with the GATT (that is, by non-violation nullification or impairment). The use of Article XXIII in the case EC Payments and Subsidies Paid to Processors and Producers of Oilseeds and Related Animal Feed , brought by the US against the EU, highlighted the importance of non-violation nullification or impairment. The EU had bound tariffs on oilseeds at zero and subsequently introduced a subsidy that was paid to processors on condition that they bought EU produced oilseeds. The subsidy was later changed to payments to producers based on the area of oilseeds planted and harvested. The US claimed, and the Panel agreed, that the subsidy scheme nullified or impaired the benefits it had expected from the zero tariff binding. The case was taken during the Uruguay Round and the results of the dispute were incorporated into the EU's Schedule as limitations on the area of oilseeds planted and some market access concessions to the US and some other countries. However, disputes under Article XXIII would only be possible in cases where a bound tariff existed at a level that would normally permit trade. If there was no bound tariff, or if it was bound at a level that would effectively prevent any meaningful trade, then a domestic subsidy would be unlikely to nullify or impair the value of a benefit under the GATT.
4

L/6627 Adopted on 25 Jan 1990, BISD/37S/86; July 1991 and BISD/39S/91; September 1993;

EC - Payments and subsidies paid to processors and producers of oilseeds and related animal feed

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I.B.3.

EXPORTSUBSIDIES

On export subsidies, while the GATT 1947 prohibited export subsidies on industrial products, Article XVI:3 allowed Members to use them on primary products, provided they were not used to gain more than "an equitable share of world trade". This provision referred to primary products and was taken to include primary agricultural products. The lack of legal precision meant some Members used export subsidies to dispose of excess production on the world market. This had the effect of depressing world market prices and inducing other countries to do the same. This provision was adjudicated upon in the case EC Refunds on Exports of Sugar
5

brought by Australia

in 1980 against the EU. The Panel found that it could not rule on whether the export refund system used by the EU had led to it having more than an equitable share of world trade. However, the Panel ruled that the system had depressed world prices and had caused serious prejudice to Australia and that the uncertainty the system brought to the market had led to a threat of injury. However, the Panel was not able to quantify the value of the prejudice.

I.C.
I.C.1.

URUGUAYROUNDAGRICULTURENEGOTIATIONS
HISTORICALBACKGROUND

In part, the insulation of domestic markets by GATT Contracting Parties was the result of measures that were originally introduced during the collapse of commodity prices that led to the 1930's Depression. High tariffs in some countries led to retaliation by others that also increased tariffs or reduced the value of their currencies in order to increase the cost of imports and reduce the cost of exports. The result was a cycle of ever more restrictive measures. World trade fell sharply and the recovery was interrupted by Second World War. In the aftermath of the Second World War many governments were concerned with getting agriculture production and productivity back to pre-war levels with stable food prices for consumers and producers and national food security. Therefore, many countries adopted land reform measures and supported agriculture through market price support systems. That is, governments set target prices; if the domestic price rose above these target prices imports were allowed in; if the domestic price fell below the target price export subsidies were used to reduce domestic supply or the state bought and stored the product. However, domestic pressures often meant that the target prices were always high which encouraged increased production. At the same time productivity increased rapidly. The results were almost permanent surpluses, which in turn led to huge government stocks and increasing use of export subsidies to dispose of these surpluses on world markets. The impact on the world market and on those countries that did grant support and protection was depressed prices and competition from - and between - subsidised exporters and producers.

BISD/26S/290-319, March 1980, European Communities Refunds on Exports of Sugar

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While high-income countries were encouraging high-cost over-production of agriculture products many less-well-off countries were doing the opposite. With overvalued exchange rates and low food-price policies that were meant to favour urban consumers, farmers in developing countries had little incentive to increase production. In the early 1970s, commodity prices were high and the main subsidisers, the EU and the US, were able to increase production and to limit, or even reduce, subsidies as international demand and fear of food shortages pushed up prices. However, demand fell in the early eighties due to recession and high interest rates. As a result, prices declined and government stocks increased. The growing competition for world market share resulted in worsening trade relations between the EU and the US. Meanwhile increasing domestic production and increasing stockpiles had to be disposed of using export subsidies. In 1983, the US started to use export subsidies for wheat flour to enter markets in North Africa and in 1985 the Export Enhancement Program expanded export subsidies to other products. Other countries also increased supports to their producers and sought to protect their export markets through subsidies. Simultaneously, numerous commentators from independent economists to inter-governmental organisations began to take a more active interest in agricultural policies . There were studies on the level of support and effects on other countries. Some commentators criticised agriculture policies for their inefficiency and failure to achieve objectives. They showed that subsidies did relatively little to support smaller agricultural producers with most of the money going to a few large farmers or to the processing industries. One of the most influential organisations was the Organisation for Economic Co-operation and Development (OECD). In a report on "National Policies and Agricultural Trade" (1987), the OECD presented the results of its research into agriculture policies in Australia, Austria, Canada, the EU, New Zealand, Japan and the United States. Using a methodology that all OECD member countries had accepted, the report showed support levels in each country. The report also showed that, if supports for agricultural products were reduced, production would fall and prices would rise. It also showed that the policies of individual countries did affect the world market. Market access barriers reduced export opportunities, market-price supports reduced domestic demand while increasing supply and export subsidies were needed to dispose of the high priced surplus production. For those that did not provide support, this meant fewer export opportunities and more competition and lower prices in the world market. The Cairns Group of exporters of agricultural products, formed in 1986, added to the pressure for reform. This group was determined to bring agriculture effectively into the GATT framework of multilateral trading rules and they were prepared to prevent any consensus on general liberalisation of trade unless they achieved this aim.
6

The Cairns Group was formed in 1986 in the town of Cairns in Australia. It was then made up of 14 countries: Argentina, Australia, Brazil, Canada, Chile, Colombia, Fiji, Hungary, Indonesia, Malaysia, New Zealand, the Philippines, Thailand and Uruguay. The Group is now made up of Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, New Zealand, Pakistan, Paraguay, Peru, the Philippines, South Africa, Thailand and Uruguay.

Johnson, D. Gale; World Agriculture in Disarray, Second Edition; for the Trade Policy Research Centre,

Macmillan, 1991

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I.C.2.

AGRICULTUREINTHEGATT

The exceptions and exemptions for agriculture within the GATT contributed to the widespread use of high levels of support and protection for agriculture in most wealthy countries. At the same time, low food-price policies and over-valued exchange rates made the impact on low-income countries even worse. Not only did they have to compete with subsidised production and exports in wealthier countries but their own governments often applied export taxes or enforced low procurement prices. The combination of these policies meant agricultural trade was highly distorted. However, the legal position was not as lax as some Contracting Parties believed. GATT panels, such as the EC - Oilseeds case and the Japan Import Restrictions case, showed that the exceptions in the rules had conditions attached. At the same time academic work had begun to show the impact of subsidies and protection on economic growth and welfare. Politically, the climate was changing as well and the Cairns Group was formed to make sure agriculture was put on the agenda of trade negotiations and that it stayed on the agenda until a satisfactory result was achieved.

TIP What is "distortion"? The WTO Dictionary of Trade Policy Terms defines distortion as "a measure, policy or practice that shifts the market price of a product above or below what it would be if the product were traded in a competitive market. Measures causing distortions include subsidies, import restrictions and restrictive business practices". In the context of agricultural trade this would mean that producers', companies', importers' and exporters' decisions are influenced by factors other than competitive market conditions.

In the lead-up to the Uruguay Round, it became increasingly evident that the causes of disarray in world agriculture went beyond import access problems which had been the traditional focus of GATT negotiations. Disciplines were needed on all policies that were causing trade-distortion, on all measures affecting agriculture trade, including domestic agricultural policies and the subsidization of agricultural exports, as well as rules on sanitary and phytosanitary measures. The Contracting Parties of the GATT decided to launch a new multilateral round of negotiations with a view to agree on further liberalization of international trade and that agriculture would be part of these negotiations. The Ministerial Declaration launched the negotiations in Punta del Este, Uruguay, on 20 September 1986 and committed the Contracting Parties of the GATT to negotiations on agriculture, giving a clear direction for those negotiations. The Uruguay Round was successfully concluded in Marrakesh in 1994.

I.C.3.

OUTCOME

The Uruguay Round produced numerous changes in the trade rules for trade in agricultural products. Many old rules were clarified, new areas brought within the rules, a new system for settling disputes was agreed, and the first multilateral Agreements on Agriculture and on Sanitary and Phytosanitary Measures were concluded.

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The WTO Agreement on Agriculture, together with individual countries' commitments to reduce export subsidies, domestic support and import duties on agricultural products were a significant first step towards reforming agricultural trade. For the first time, the Agreement on Agriculture required WTO Members to limit the amount of agricultural export subsidies and trade-distorting domestic support they provide and to bind tariffs on practically all agricultural products. The reform programme seeks to strike a balance between agricultural trade liberalization and governments' rights to pursue legitimate agricultural policy goals, including non-trade concerns. The outcome of the agriculture negotiations in the Uruguay round can be divided in four main parts: (1) (2) the WTO's Agreement on Agriculture - itself; the Schedules which list each Members commitments on market access, domestic support and export subsidies; (3) (4) the Agreement on Sanitary and Phytosanitary Measures; and the Ministerial Decision On Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries. Members that acceded to the WTO after the conclusion of the Uruguay Round may have specific rules applicable to them which can be found either in their protocols of accession or their Schedules of Commitments. The Agreement on Agriculture came into force on 1 January 1995. It has: A framework for future long-term reform of agricultural trade and domestic policies; Strengthened rules governing agricultural trade for increased market orientation in agricultural trade and will lead to improved predictability and stability for importing and exporting countries; Provisions that, encourage the use of less trade-distorting domestic support policies to maintain the rural economy, and allow actions to be taken to ease adjustment burden; Provisions that allow some flexibility in the implementation of commitments.

However, as you will see below, the Agreement on Agriculture is a result of numerous compromises and like any product of negotiations the basic principles have a number of exceptions and, in some cases, the wording is subject to different interpretations. There are also many other non-agriculture specific achievements in the WTO that have influenced the multilateral rules governing agriculture, such as, the strengthened dispute settlement system.
7

For a more detailed description of the history of agriculture in the GATT see Josling, Tangermann and Warley;

1996, "Agriculture in the GATT"; MacMillan Press Ltd (UK) or St Martin's Press Inc (USA)

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EXERCISES: 1. What are some of the measures that GATT 1947 allowed countries to use in agricultural exports that they could not use on industrial products? 2. What are some of the exceptions and country-specific derogations that allowed Contracting Parties to apply non-tariff border restrictions to agriculture imports under the GATT 1947? 3. What are some of the import restrictions that GATT Contracting Parties faced on their agriculture exports?

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II.

THEAGREEMENTONAGRICULTURE

II.A. INTRODUCTION
The Agreement on Agriculture establishes a number of generally applicable rules, primarily in the areas of market access, domestic support and export competition (normally referred to as the "three pillars"). These rules are backed up by each Members' specific commitments on tariffs, domestic support and export subsidies, which are contained in the Schedules and constitute an integral part of the GATT 1994. Many other WTO Agreements complement the Agreement on Agriculture. According to Article 21, the GATT 1994 and all WTO agreements on trade in goods in Annex 1 apply to agriculture. However, in cases of conflict, the rules in the Agreement on Agriculture prevail (Article 21.1). There is also a Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-developed and Net Food-importing Developing Countries, which also formed part of the overall outcome of the agriculture negotiations.

II.B.

AGREEMENTONAGRICULTURESSTRUCTURE

This section of the Module looks at the Agreement on Agriculture, its objectives, its three pillars, as well as institutional provisions, such as, the "peace clause" and the "built-in agenda". The Agreement on Agriculture is divided in thirteen parts (composed of 21 articles) and it has 5 annexes.

Figure 1:

Structure of the Agreement on Agriculture

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II.B.1. THEPREAMBLE
The objective that led to the Agreement on Agriculture is contained in the second paragraph of the Preamble:

Recalling that their long-term objective as agreed at the Mid-Term Review of the Uruguay Round "is to establish a fair and market-oriented agricultural trading system and that a reform process should be initiated through the negotiation of commitments on support and protection and through the establishment of strengthened and more operationally effective GATT rules and disciplines";...

The Preamble also refers to non-trade concerns, including food security and the need to protect the environment, and provides special and differential treatment for developing countries, including an improvement in the opportunities and terms of access for agricultural products of particular export interest to these Members. See paragraphs 5 and 6:

Having agreed that in implementing their commitments on market access, developed country Members would take fully into account the particular needs and conditions of developing country Members by providing for a greater improvement of opportunities and terms of access for agricultural products of particular interest to these Members, including the fullest liberalization of trade in tropical agricultural products as agreed at the Mid-Term Review, and for products of particular importance to the diversification of production from the growing of illicit narcotic crops;...

Noting that commitments under the reform programme should be made in an equitable way among all Members, having regard to non-trade concerns, including food security and the need to protect the environment; having regard to the agreement that special and differential treatment for developing countries is an integral element of the negotiations, and taking into account the possible negative effects of the implementation of the reform programme on least-developed and net food-importing developing countries;...

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II.B.2. PRODUCTCOVERAGE
The Agreement on Agriculture applies to agricultural products as defined in Article 2 and Annex 1 of the Agreement on Agriculture. This definition of agricultural products is based on the 1992 Harmonised System (HS92), as established and regulated under the World Customs Organization. Annex 1 defines agricultural products as those within Chapters 1 to 24 of the Harmonized System (excluding fish and fish products). Hence, the definition does not apply to fish, fish products, nor does it apply to forestry products. It covers all agricultural food and beverage products, agricultural fibres and skins including, for example: basic agricultural products such as wheat, milk and live animals, as well as products derived there from, such as, bread, butter and meat; processed agricultural products, for example, chocolate and sausages; trade in wines, spirits, and tobacco products; fibres, such as, cotton, wool and silk; and raw animal skins destined for leather production.

II.B.3. DISCIPLINESANDCOMMITMENTS
The Agreement on Agriculture includes binding commitments to reduce support and protection in the areas of domestic support, export competition and market access.

a.

MARKETACCESSARTICLE4

Article 4 of the Agreement on Agriculture is the legal basis for market access. However, all the details are found in Members' Schedules. Article 4 makes these Schedules legally binding, but does not provide an exemption from any other obligation in the GATT 1994. Prior to the Uruguay Round, market access for many agricultural products was restricted by variable import duties and non-tariff measures, such as quantitative restrictions or import prohibitions. Further, there were many country specific exemptions for agriculture, acquired through accession negotiations, waivers, or renegotiations. WTO Members agreed to use the process called "tariffication" to convert all non-tariff measures as they existed during the 1986-88 base period (whether they were in compliance with the GATT or country-specific exemptions) into tariff equivalents. As a result of the Uruguay Round, WTO Members can only use ordinary customs duties to restrict imports of agriculture goods with very few exemptions. Tariffs (both those resulting from the "tariffication" process and existing tariffs on agricultural products) were reduced by an average 36% in the case of developed countries and 24% in the case of developing countries, with a minimum reduction of 15% for developed and 10% for developing countries. Reductions were undertaken over a period six years in the case of developed countries and over ten years in the case of

93

developing countries. However, many developing countries were not required to undertake tariffication or reductions in tariffs and all least-developed countries were exempted from tariff reductions. In many cases, tariffs were so high or the import restrictions so severe that very little, if any, imports actually got into the applying country. In other cases, the quantitative restriction applied allowed only limited amounts. In such situations the tariff that resulted from tariffication would have been too high to permit trade. Therefore, WTO Members also committed to maintain current market access opportunities and/or to create new minimum market access opportunities. These access opportunities took the form of low tariffs at limited quantities, called tariff rate quota (TRQ), of at least 3% of domestic consumption by 1995 rising to 5% in 2000 (the implementation period). These commitments are also set out in the Schedule of Commitments. At present, many countries have bound their tariffs at relatively high rates but , in many cases, the applied tariff rates are lower than the bound tariff. The provisions on market access as well as the safeguard provisions (explained directly below) are explained further in Module 4 entitled "Market Access in the Agreement on Agriculture".

b.

SAFEGUARDPROVISIONSARTICLE5

Due to tariffication, tariff bindings and reductions, as well as the creation of tariff quotas there were fears that tariff-only protection could lead to import surges or low priced imports. As part of the tariffication process Article 5 was created. The provisions of Article 5 permit Members to impose a special safeguard duty on products that had been subject to tariffication and that have the symbol "SSG" in the Schedule. The "special safeguard" provision permits the imposition of a temporary additional duty on imports of these products when: (a) (b) the price of the product falls below a threshold level (price trigger); or the quantity of imports exceeds a certain volume (volume trigger).

The rules are explained in detail in Module 4.

EXERCISES: 4. 5. Outline the current market access rules for agriculture. In what document can one find the tariff binding, minimum/current access commitments (TRQs), special safeguard, and special treatment exemptions of WTO Members? What type of commitments are they?

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c.

DOMESTICSUPPORTCOMMITMENTS&DISCIPLINESARTICLE3,6AND7

Many countries support farming in different ways. Some guarantee a minimum level of income, for example, through market price support to farmers or similar methods, some provide input subsidies, many provide veterinary and plant health services, etc. The main complaint about policies which support domestic prices or directly subsidize production, is that they encourage over-production and distort the market either by increasing exports or reducing imports. On the other hand, there are many forms of support that do not directly influence production. The Agreement on Agriculture distinguishes between support programmes that stimulate production directly, and those that are considered to have at most a minimal direct effect on production or trade. In recognition of the different impacts different policies have on production and trade there are different boxes for the different types of export subsidies: "Green Box", the "Amber Box" and a "Blue Box". Members can freely use domestic support measures with no more than minimal impact on trade or productionSuch measure are placed in a "Green Box" and include subsidies for government services, and programmes such as direct payments to farmers that are decoupled from production as well as direct payments under environmental and regional assistance programmes. In addition to the Green Box policies, Members do not have to reduce: (1) their subsidies on direct payments to farmers under production limiting programmes ("Blue Box" measures); (2) certain government assistance programmes to encourage agriculture and rural development in developing country Members (as listed in Article 6.2 of the Agreement on Agriculture); and (3) other trade-distorting support maintained within the "de minimis" levels.

Domestic support measures that cannot be included in the above-mentioned exempt categories must be accommodated within the ceilings set by the "Total Aggregate Measurement of Support" (AMS) or "Current Total Aggregate Measurement of Support" which are expressed in terms of Annual and Final Bound Commitment Levels. In the Uruguay Round, WTO Members agreed to make the following reductions in the Base Total AMS (an average during the base period of 1986-88): developed country Members agreed to reduce the Base Total AMS by 20% over 6 years starting in 1995; developing country Members agreed to make 13.3% cuts over 10 years; and least-developed countries were not required to make any cuts.

Note

In all cases where base periods, reductions and implementation periods are mentioned the actual periods and reductions may differ and you may have to verify the exact details by referring to the Schedule of Commitments or, in the case of recently acceded Members to the protocol of accession.

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The disciplines and commitments on domestic support are found in Articles 3, 6 and 7 as well as Annexes 2, 3, and 4 of the Agreement on Agriculture and, where relevant, in Section I of Part IV of a Member's Schedule. The Uruguay Round also introduced a clearer and more comprehensive regime governing domestic subsidies in general in the Agreement of Subsidies and Countervailing measures ("SCM Agreement"), which also applies to agricultural products. However, as you will see below, WTO Members agreed on a "peace clause" (which has already expired) to reduce the likelihood of challenge to these and some other forms of agricultural subsidies. The rules on domestic support are explained in details in Module 4.

d.

EXPORTCOMPETITION(ARTICLES3,811)

As you saw previously, GATT Article XVI:3 permitted the use of export subsidies for agriculture primary products. The Agreement on Agriculture does not prohibit the use of export subsidies, provided that Members remain within their commitments, as set out in their Schedules, and subject to a c set of rules. Members that grant export subsidies also agreed to reduce the amount spenditure and the quantities exported with subsidies. Currently, only 25 Members have the right to subsidise exports, their reduction commitments are based on exports subsidies granted during the 1986-90 base period. For other WTO Members, there is no distinction between agricultural and non-agricultural products and therefore, export subsidies are prohibited in both cases. The only exception is Article 9.4 of the Agreement on Agriculture, which permits certain transport and marketing subsidies in developing countries. Developed-country Members were required to reduce the value of export subsidies by 36% compared to the 1986-90 base period, over the six-year implementation period, and the quantity of subsidised exports by 21%. For developing countries, the reductions were two-thirds those of developed countries over a ten-year period. The Agreement on Agriculture also sets out criteria for food aid donations and refers to export credits. The disciplines and commitments on export subsidies are found in Articles 3, 8, 9, 10, and 11 as well as in Member's Schedule. The rules on export competition are explained in detail in Module 5. The table below summarizes the numerical targets for cutting subsidies and protection.

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Developed countries 6 years: 19952000 Tariffs average cut for all agricultural products minimum cut per product Domestic support cuts in total ("AMS") support for the sector Exports value of subsidies (outlays) subsidized quantities Table 1: 36% 21% 36% 15%

Developing countries 10 years: 19952004

24% 10%

20%

13%

24% 14%

The reductions in agricultural subsidies and protection agreed in the Uruguay Round

Notes: Least-developed countries do not have to reduce tariffs or subsidies. The base level for tariff cuts was the bound rate before 1 January 1995; or, for unbound tariffs, the actual rate charged in September 1986 (when the Uruguay Round began). Only the figures for cutting export subsidies appear in the Agreement on Agriculture. The other figures were targets used to calculate countries' legally binding "schedules" of commitments. Each country's specific commitments vary according to the outcome of negotiations. As a result of those negotiations, several developing countries chose to set fixed bound tariff ceilings that do not decline over the years.

EXERCISES: 6. What are the two forms of measures included in the reduction of export subsidies in the Agreement on Agriculture?

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II.B.4. OTHERCOMMITMENTS
Although market access, domestic support and export competition are often called the "three pillars" of the Agreement on Agriculture, other provisions are equally important and form an integral part of it. These include the provisions relating to special and differential treatment for developing countries, the Peace Clause and the commitment to enter negotiations on continuing reform. Also related to the Agreement on Agriculture, is the Decision on the Possible Negative Effects of the Reform Programme on Least-Developed and Net-Food Importing Developing Countries.

a.

DISCIPLINESONEXPORTPROHIBITIONS&RESTRICTIONSARTICLE12

Article 12 of the Agreement on Agriculture requires WTO Members that introduce new export prohibition or restrictions on foodstuffs to do so in accordance with Article XI:2(a) of the GATT 1994. It also requires the Member introducing the restriction or prohibition to take account of the effect such a restriction will have on other Members' food security, to notify the measure and, if asked, to consult with any Member that has a substantial interest as an importer.

b.

DUERESTRAINTARTICLE13

To protect agricultural subsidies from challenge under GATT 1994 and the SCM Agreement, Article 13 of the Agreement on Agriculture introduced a "Peace Clause". Article 13 provided limited protection for agricultural subsidies granted in accordance with the Agreement on Agriculture from being challenged under specific provisions of the GATT or the SCM Agreement for a period of 9 years. The Peace Clause expired at the end of 2003. Hence the SCM Agreement now applies to subsidies for agricultural products, subject to Article 21 of the Agreement on Agriculture. The Peace Clause was the subject of dispute in the United States - Subsidies on Upland Cotton (DS267) case. In that case, the Panel held that as long as countries do not respect their obligations with regard to the Agreement on Agriculture, the Peace Clause affords them no protection.

EXERCISES: 7. What are some of the requirements of the Agreement on Agriculture on WTO Members instituting new export prohibition or restrictions on foodstuffs? 8. Where is the peace clause found and what was its purpose?

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c.

SPECIALANDDIFFERENTIALTREATMENTARTICLE15

Article 15 of the Agreement on Agriculture recognizes the importance of differential and more favourable treatment for developing country Members. In particular, it provides a legal basis for many special and differential treatment provisions that are found in Schedules but are not expressed in the Agreement on Agriculture itself, such as lower levels of tariff reductions. It also expressly states that developing countries can have 10 years for implementation and that the least-developed countries do not need to undertake reductions. Special and Differential Treatment measures in the Agreement on Agriculture took the form of: 1. Lower reduction rates to be applied to trade-distorting domestic support (covered by Total Aggregate Measurement of Support), tariffs and export subsidies, equivalent to two-thirds of the levels required for developed countries in each of these three areas. No reductions were required for least developed countries. 2.
8

Developing countries were granted a longer period (10 years, 1995-2004) to implement various reduction provisions, compared to six years for the developed countries.
9

3.

Provisions that contain additional benefits for least-developed countries.

10

The specific rules on market access, domestic support commitments, export subsidy commitments and the fewer notification obligations as well as the technical assistance are explained in further modules.

d.

LEASTDEVELOPEDANDNETFOODIMPORTINGDEVELOPINGCOUNTRIES ARTICLE16

Article 16 provides a legal basis for the Marrakesh Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries and the follow-up work of the Committee on Agriculture.

Agreement on Agriculture: Articles 6.2, 6.4, 9.2(b)(iv), 9.4, 12.2, 15.1, Annex 2, paragraph 3, and

footnotes 5 and 6, Annex 5

9

Examples: Agreement on Agriculture: Article 15.2 Agreement on Agriculture: Articles 16.1 and 16.2

10

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e.

REVIEWOFIMPLEMENTATIONARTICLES17AND18

Article 17 of the Agreement on Agriculture established a Committee on Agriculture. The Committee meets about four times a year in Geneva and regular reports are made to the Council for Trade in Goods on its work. The Committee: 1. Oversees and monitors the implementation of the Agreement on Agriculture and Members' commitments. Members can raise questions about the implementation of the Agreement on Agriculture by other Members in the Committee; 2. Provides a forum for Members to discuss matters related to agriculture trade and to consult on matters relating to the implementation of commitments, including rules-based commitments. This review work by the Committee is based on notification Members make on their commitments. There is also a provision in Article 18.6 that allows Members to raise any matter relevant to the implementation of the commitments under the Agreement on Agriculture. Of course, raising questions in the Committee does not prevent any WTO Member from seeking formal dispute settlement at any time; and 3. Monitors the follow-up to the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries, as well as, developments in the trade of agricultural products. The negotiations pursuant to Article 20 of the Agreement on Agriculture (discussed below) and the Doha Ministerial Declaration of November 2001, take place in "Special Sessions" of the Agriculture Committee.

f.

CONSULTATIONANDDISPUTESETTLEMENTARTICLE19

While the Agreement on Agriculture has its own institutional mechanism to review and follow-up its implementation, it is subject to the integrated dispute settlement system of the WTO. In the case of disputes involving provisions of the Agreement on Agriculture, the general WTO dispute settlement procedures apply.

g.

CONTINUATIONOFTHEREFORMPROCESSARTICLE20

The Agreement on Agriculture set up a framework of rules and started reductions in protection and trade-distorting support. But this was only the first phase of the reform of trade in agricultural products. Article 20 of the Agreement on Agriculture committed Members to start negotiations on continuing the reform in 2000. The negotiations actually started in March 2000 and are still continuing as part of the Doha Development Agenda.

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To assist the negotiations, the WTO Secretariat has produced a number of background papers at the request of Members. Most of these can be found in the G/AG/NG/S and TN/AG/S series of official documents. In addition, the Secretariat is also responsible for maintaining the WTO website which includes a comprehensive section on the negotiations.
11

h.

FINALPROVISIONSARTICLE21

Article 21 stipulates that "the provisions of GATT 1994 and other Multilateral Trade Agreements in Annex 1A to the WTO Agreement shall apply subject to the provisions" of this agreement. In other words, in the event of conflict between the Agreement on Agriculture and another WTO Agreement, the Agreement on Agriculture takes precedence. This provision was reaffirmed in the United States - Subsidies on Upland Cotton (DS267) discussed above.

EXERCISES: 9. 10. What is the role of the Committee on Agriculture? What are some of the special and differential treatment provisions for developing countries found the Agreement on Agriculture?

11

See http://www.wto.org/english/tratop_e/agric_e/negoti_e.htm

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III.

RELATIONSHIPOFTHEAGREEMENTON AGRICULTURETOOTHERWTOAGREEMENTS

III.A. INTRODUCTION
In some areas, the Agreement on Agriculture does not have specific rules. In these cases, either the GATT 1994 or one of the other WTO Agreements apply (see Article 21 above). For example, the administration of tariff quotas is governed by Article XIII of the GATT 1994 and the Agreement on Import Licensing Procedures. In fact, of the many disputes involving agricultural products, which have come before the WTO the majority, have involved other WTO agreements, for example: the cases taken on alcohol against Japan12, Korea13 and Chile14 have all involved the principle of national treatment; the EC Bananas
15

case involved Article XIII of GATT, the Import Licensing Agreement and the General

Agreement on Trade in Services; and the safeguards on milk powder case against Korea and Countervailing Measures, etc. Although other Agreements may apply to trade in agricultural products, under Article 21 of the Agreement on Agriculture, if conflict arises between the rules of the Agreement on Agriculture and any other WTO provision, the Agreement on Agriculture prevails.
16

was a complaint under the Agreement on Subsidies

12

Japan Taxes on Alcoholic Beverages, Panel Report WT/DS8/R, WT/DS10/R, WT/DS/11R, 11 July 1996.

Appellate Body Report WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, 4 October 1996.

13

Korea Taxes on Alcoholic Beverages, Panel Report WT/DS75/R, WT/DS/84/R, 17 September 1998.

Appellate Body Report WT/DS75/AB/R, WT/DS84/AB/R, 18 January 1999.

14 15

Chile Taxes on Alcoholic Beverages, Panel Report WT/DS87/R, WT/DS110/R, 15 June 1999. European Communities Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/R/ECU,

GTM, HND, MEX, USA, 22 May 1997, WT/DS27/AB/R 9 September 1997.

16

Korea Definitive Safeguard Measure on Imports of Certain Dairy Products, WT/DS98/R 21 June 1999 and

Corr.1 22 July 1999, WT/DS98/AB/R, 14 December 1999.

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III.A.1. THEGATT1994
Article 21 of the Agreement on Agriculture states explicitly that the GATT 1994 applies to agriculture. Agricultural products are "goods" for the purposes of the GATT 1994. Some of the most relevant provisions to agriculture are: the country schedules established within the GATT 1994 Article II, the principles of the GATT 1994 of: Most-Favoured-Nation Treatment of Article I and National Treatment; the General Elimination of Quantitative Restrictions of Article XI; the Non-discriminatory, Administration of Quantitative Restrictions of Article XIII and General Exceptions of Article XX.

III.A.2. THEAGREEMENTONIMPORTLICENSINGPROCEDURES
Agricultural trade is sometimes administered through licences, both for import and export purposes. The key provisions regulating import licensing are to be found in the Agreement on Import Licensing Procedures. The EC Poultry and EC - Bananas cases included the Agreement on Import Licensing Procedures.
17

In that case of EC Poultry Brazil complained about the allocation of an EU tariff-rate quota for frozen poultry meat and the use by the EU of a special safeguard measure under the Agreement on Agriculture. The dispute involved the interpretation of the EU's tariff schedule and its relationship with a separate bilateral agreement between the EU and Brazil, which provided for a global annual duty-free tariff-rate quota for frozen poultry meat. Brazil argued that, as a result of the agreement, the tariff-rate quota should be allocated exclusively to Brazil and not shared on an MFN basis with other WTO Members. The WTO Appellate Body found that the bilateral agreement was not part of WTO law and therefore could not be applied directly as law in WTO dispute resolution. Instead, the Appellate Body interpreted the relevant EU tariff schedule. As the EU was bound by its tariff schedule which provided for MFN non-discriminatory treatment, Brazil could not seek preferential treatment on the basis of tariff concessions negotiated bilaterally. The Appellate Body further found that the EU's administration of this tariff quota did not violate the WTO Import Licensing Agreement. On the Agreement on Import Licensing Procedures, the Appellate Body made several findings and reiterated that: (1) The preamble to the Licensing Agreement stresses that the Agreement aims at ensuring that import licensing procedures "are not utilized in a manner contrary to the principles and obligations of GATT 1994" and are "implemented in a transparent and predictable manner". (2) Articles 1.2 and 3.2 make it clear that the Licensing Agreement is also concerned with, among other things, preventing trade distortions that may be caused by licensing procedures. It follows that wherever an import licensing regime is applied, these requirements must be observed. The

17

European Communities Measures Affecting the Importation of Certain Poultry Products, ("EC Poultry"),

WT/DS69/R and WT/DS69/AB/R. WT/DS69/R, adopted 12 March 1998 and WT/DS69/AB/R, adopted 13 July 1999.

103

requirement to prevent trade distortion found in Articles 1.2 and 3.2 of the Licensing Agreement refers to any trade distortion that may be caused by the introduction or operation of licensing procedures, and is not necessarily limited to that part of trade to which the licensing procedures themselves apply. There may be situations where the operation of licensing procedures, in fact, have restrictive or distortive effects on that part of trade that is not strictly subject to those procedures. The Agreement on Import Licensing Procedures also featured in the EC Bananas long and complex history, involving both GATT and WTO dispute settlement. In April 1996, Ecuador, Guatemala, Honduras, Mexico and the United States requested the establishment of a panel to examine the EU regime for the importation, sale and distribution of bananas established by Council Regulation 404/93.
20 19 18

dispute - a case with a

The WTO Panel ruled that the EU bananas import regime violated WTO obligations under the GATT, the GATS and the Agreement on Import Licensing Procedures. In relation to the Agreement on Import Licensing Procedures the Panel in EC Bananas III found that this Agreement applies to licensing procedures for tariff quotas. The Appellate Body upheld this finding as well as the Panel's finding that both Article 1.3 of the Licensing Agreement and Article X:3(a) of the GATT 1994 apply to the EU import licensing procedures.

TIP If you want to know more about the above cases or to read the cases in full, see: http://www.wto.org/english/tratop_e/dispu_e/find_dispu_cases_e.htm http://www.wto.org/english/res_e/booksp_e/dispu_summary06_e.pdf See also the WTO Analytical Index at: http://www.wto.org/english/res_e/booksp_e/analytic_index_e/agriculture_e.htm

18 19

Appellate Body Report, EC Poultry, paragraph 121 GATT Panel Report, EEC - Members States Import Regimes for Bananas ("EC Bananas I"), DS32/R,

adopted on 19 May 1993; GATT Panel Report, EEC Import Regime for Bananas ("EC Bananas II"), DS38/R, adopted on 11 February 1994; Panel Report, European Communities - Regime for the Importation, Sale and Distribution of Bananas ("EC Bananas III"), WT/DS27/R/ECU, adopted 25 September 1997, as modified by the Appellate Body Report, WT/DS27/AB/R; European Communities - Regime for the Importation, Sale and Distribution of Bananas ("Recourse to Article 21.5 by Ecuador"), ("EC - Bananas (21.5)"), WT/DS27/RW/ECU, adopted 12 April 1999, European Communities - Regime for the Importation, Sale and Distribution of Bananas ("Recourse to Article 21.5 by European Union"), ("EC - Bananas (21.5)"), WT/DS27/RW/EEC, adopted 12 April 1999, Decision by the Arbitrators ("Recourse to Arbitration by the EU under Article 22.6"), WT/DS27/ARB, adopted 9 April 1999, Decision by the Arbitrators ("Recourse to Arbitration by the EU under Article 22.6"), WT/DS27/ARB/ECU, adopted 24 March 2000.
20

Council

Regulation

404/93

on

the

common

organization

of

the

market

in

bananas.

OJ L 47,

25 February 1993, pp. 1-11.

104

III.A.3. AGREEMENTONSANITARY&PHYTOSANITARYMEASURESAND THEAGREEMENTONTECHNICALBARRIERSTOTRADE

The SPS Agreement applies to measures that affect agriculture products. Article 14 of the Agreement on Agriculture provides that "Members agree to give effect to the Agreement on the Application of Sanitary and Phytosanitary Measures". Sanitary (human and animal health) and phytosanitary (plant health) measures apply to domestically produced food or local animal and plant diseases, as well as to products coming from other countries. Countries may require that both domestically produced and imported goods should satisfy certain minimum levels of quality, health and safety standards. These standards are particularly important with respect to agricultural, food and health products. Food standards may facilitate trade by alleviating consumer fears about imported products. But they can also act as trade barriers when different standards exist in different countries. Clearer rules for sanitary and phytosanitary measures were also considered to be required, both in their own right and to prevent circumvention of stricter rules on import access through unjustified, protectionist use of food safety as well as animal and plant health measures. Hence, this agreement was negotiated in conjunction with the Agreement on Agriculture in the Uruguay Round. The TBT Agreement is also relevant to agricultural trade. It covers all products, including industrial and agricultural products. The TBT, SPS and the Agreement on Agriculture are closely related. For example, the TBT Agreement governs the packaging as well as the minimum size of a fruit, the SPS Agreement the use of anti-pest spray, while the Agreement on Agriculture governs trade in the fruit itself (tariffs and other measures). Numerous disputes concerning agricultural products and the SPS and TBT Agreement have been referred to the WTO. Three of the major WTO disputes are described below: (1) The Australia - Salmon
21

dispute concerned an import prohibition on uncooked salmon from certain parts

of the northern Pacific Ocean. In 1975, Australia imposed an import restriction which provided that fresh chilled and frozen salmon could only be imported to Australia if it had first been heat-treated. In 1995, Canada requested consultations over the matter and argued that the import restriction was a violation of Australia's obligations under both the GATT 1994 and the SPS Agreement and that the measure nullified or impaired benefits that Canada had bargained for in the Uruguay Round. First, the Panel then the Appellate found Australia to be in violation of Article 5.5 of the Agreement. The Appellate Body concluded that the Australian import restriction was, in reality, a disguised restriction on trade and therefore a violation of Article 5.5 of the SPS Agreement.

21

Australia Measures Affecting Importation of Salmon ("Australian Salmon"), WT/DS18/R, adopted

12 June 1998, WT/DS18/AB/R, adopted 20 October 1998.

105

They found that: 1. Australia limited its import ban to salmon, while at the same time tolerating imports of herring used as bait, and live ornamental finfish, both of which posed an equal or greater risk of spreading disease to the very domestic stocks that the salmon ban ostensibly protected; and 2. the absence of any controls on the internal movement of the salmon products when compared with the import prohibition on ocean-caught Pacific salmon. (2) The Japan Agricultural Products II
22

case concerned the standards for different varieties of fruits. The

US argued that a Japanese import restriction on certain types of fresh fruit was in violation of the SPS Agreement, especially Articles 2.2 and 5.6. The measures in dispute generally prohibited any imports of fresh apricots, cherries, plums, pears, quince, peaches, apples and walnuts originating from the continental US because they were potential hosts for the coddling moth. This moth, although common in the US, is a pest of "quarantine-level" significance for Japan. The Japanese import restriction contained an exemption from the import ban on a variety-by-variety basis. This exemption provided that the efficiency of quarantine treatment for each variety of these agricultural products had to be tested before these products could be imported into Japan. These tests could take up to two years. The Panel first found that Japan had violated Article 7 of the SPS Agreement by failing to publish its testing requirements. The Japanese Government had simply "made available" the testing guidelines, while Article 7 and Annex B oblige WTO Members to "publish promptly" all SPS measures. In February 1999, the WTO Appellate Body essentially upheld the Panel's findings. The Appellate Body concluded that the Japanese requirement of testing for some of the products was not based on science. It was therefore found to be in violation of the SPS Agreement. For apricots, pears, plums and quince the Appellate Body found that Japan had failed to conduct a proper risk assessment and, therefore, was in violation of Article 5.1 of the SPS Agreement. (3) The EC Hormones dispute
23

concerned certain EU measures that banned the sale of beef derived from

cattle that had been given growth hormones. The US and Canada contested the ban, arguing that it violated the SPS Agreement. The EU measures banning hormone treated beef were found to be in violation of the SPS Agreement, because these measures were not based on a risk assessment as required by Article 5.1 of the SPS Agreement. It was also found that the precautionary principle, although represented in Article 5.7 of the SPS Agreement, did not override any stated obligations, especially not Articles 5.1 and 5.2. These Panel's findings were upheld by the Appellate Body. The Panel found and the Appellate Body upheld the determination that the EU had failed to conduct a risk assessment that satisfied its obligations under Article 5 of the SPS Agreement.

22

Japan Measures Affecting Agricultural Products ("Japan Agricultural Products II"), WT/DS76/R, adopted

27 October 1998, WT/DS76/AB/R, adopted 22 February 1999.

23

EC Measures Concerning Meat and Meat Products ("EC Hormones"), WT/DS26/R/USA, adopted

18 August 1997, WT/DS48/AB/R, adopted 16 January 1998.

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The Appellate Body further stated that the EU by maintaining, without justification under Article 3.3 of the SPS Agreement, SPS measures which were not based on existing international standards, acted inconsistently with Article 3.1 of the SPS Agreement. Finally, both the Panel and the Appellate Body found that the EU measures were inconsistent with Article 5.5, which strives to avoid arbitrary or unjustifiable distinctions in the levels of sanitary protection set by Members, when such distinctions can inhibit international trade.

TIP If you want to know more about the above cases or to read the cases in full, see: http://www.wto.org/english/tratop_e/dispu_e/find_dispu_cases_e.htm http://www.wto.org/english/res_e/booksp_e/dispu_summary06_e.pdf See also the WTO Analytical Index at: http://www.wto.org/english/res_e/booksp_e/analytic_index_e/agriculture_e.htm

III.A.4. DUMPING&ANTIDUMPINGMEASURESINAGRICULTURE
GATT 1994 allows WTO Members to impose anti-dumping duties, provided that such imports are causing, or threatening to cause injury to a domestic industry. Special procedures must be followed by national authorities in deciding whether to impose such measures. There is nothing in the Agreement on Agriculture which exempts agricultural products from the application of the Article VI of the GATT 1994 and the Anti-dumping Agreement. Furthermore, Article 21 of the Agreement on Agriculture explicitly states that the provisions of GATT 1994 and of other agreements in Annex 1A to the WTO Agreement apply to agriculture, therefore including the Anti-dumping Agreement.

III.A.5. AGREEMENTONSUBSIDIESANDCOUNTERVAILINGMEASURES (SCMAGREEMENT)

The SCM Agreement applies to agricultural goods as well as industrial products, except when the subsidies conform to the Agreement on Agriculture. Article 13 of the Agreement on Agriculture (the "Peace Clause") established that, until the end of 2003, there should be some protection from challenge and action under the SCM Agreement for agricultural subsidies that complied with a Member's commitments. However, as explained above, under the heading "Due Restraint", since the end of 2003, the SCM Agreement applies to subsidies for agricultural products, as set forth in its Article 21. The provisions of the SCM Agreement firmly state that its provisions apply, subject to the Agreement on Agriculture. See the peace clause above, for more details.

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III.A.6. THEAGREEMENTONSAFEGUARDS
WTO Members may restrict imports of a product temporarily if its domestic industry is injured or threatened with injury caused by a surge in imports. "Safeguard measures" may result in the imposition of quantitative import restrictions or in a tariff increase above bound rates. The provisions on safeguard measures under Article XIX of the GATT 1994, entitled "Emergency Action on Imports of Particular Products" is now complement by the WTO Agreement on Safeguards, which established specific rules for the application of safeguard measures. The GATT 1994 Article XIX:2 allows provisional measures to be imposed in critical circumstances where delay would cause damage that would be difficult to repair. Such measures may take the form of tariff increases only, and may be kept in place for a maximum of 200 days. In addition, the period of application of any provisional measure must be included in the total period of application of a safeguard measure. If the safeguard measure is the introduction of a quantitative restriction, that quota comes in effect subject to the provisions of the GATT 1994 Article XIII On the administration and allocation of quotas. GATT 1994 Article XIX safeguard measures apply to all products subject to the GATT 1994 including all agricultural and food products. In fact, there have been numerous cases concerning agriculture that has been referred to the WTO dispute settlement regarding safeguards measures. The Korea Dairy case (WT/DS98)
24

arose out of the imposition by the Republic of Korea of definitive

safeguard measures in the form of a quantitative restriction on imports of dairy products. The EU challenged the safeguard measures before the WTO under the GATT 1994 Article XIX:1(a) and Articles 2.1, 4.2(a), 4.2(b), 5.1 and 12(1) to (3) of the Agreement on Safeguards. The Panel found and the Appellate Body upheld that the definitive safeguard measure was imposed inconsistently with the provisions of Article 4.2(a) of the Agreement on Safeguards. The Appellate Body also upheld the Panel's finding that the first sentence of Article 5.1 of the Agreement on Safeguards imposes an obligation on a Member applying a safeguard measure to ensure that the measure applied is not more restrictive than necessary to prevent or remedy serious injury and to facilitate adjustment. The US Wheat Gluten case
25

arose from of the imposition by the United States of definitive safeguard

measures on imports of wheat gluten, in the form of a quantitative restriction. The safeguard measure excluded imports from Canada due to its partnership status under NAFTA. The EU challenged the safeguard measures before the WTO under the GATT 1994 Article XIX, and Articles 2, 4.2, 8 and 12 of the Agreement on Safeguards.

24

Korea Definitive Safeguard Measure on Imports of Certain Dairy Products ("Korea Dairy"), WT/DS98/R,

adopted 21 June 1999, WT/DS98/AB/R, adopted 14 December 1999.

25

United States Definitive Safeguard Measures on Imports of Wheat Gluten from the EC ("US Wheat

Gluten"), WT/DS166/R, adopted 31 July 2000, WT/DS166/AB/R, adopted 22 December 2000.

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The United States was found to be in violation of Article 4.2 of the Agreement on Safeguards, because its authorities failed to take into account certain "relevant factors" in their investigation. The Appellate Body specified that national authorities conducting safeguard investigations were obliged to consider all relevant factors, regardless of whether they had been clearly raised by the parties to the dispute. The Appellate Body also found that the United States, having included Canada in its safeguard investigation, could not exclude Canada from its safeguard measure, requiring correspondence between the investigation and the measures applied. In the US Lamb
26

(WT/DS177 and WT/DS178) dispute, Australia and New Zealand challenged the

United States safeguard measure, in the form of a tariff rate quota, on imports of fresh, chilled and frozen lamb meat under the GATT 1994 Article XIX, and Article 4 of the Agreement on Safeguards. The Panel and the Appellate Body confirmed the requirement, under Article XIX:1(a) of the GATT 1994, for a finding of causation by "unforeseen developments". The Panel found and the Appellate Body upheld the finding that the United States had acted inconsistently with Article 2.1, 4.2(a) and 4.2(c) of the Agreement on Safeguards and with Article XIX:1(a) of the GATT 1994 by failing to demonstrate as a matter of fact the existence of "unforeseen developments".

TIP If you want to know more about the above cases or to read the cases in full, see: http://www.wto.org/english/tratop_e/dispu_e/find_dispu_cases_e.htm http://www.wto.org/english/res_e/booksp_e/dispu_summary06_e.pdf See also the WTO Analytical Index at: http://www.wto.org/english/res_e/booksp_e/analytic_index_e/agriculture_e.htm

III.A.7. TRIPS&AGRICULTURE
Some elements of the TRIPs Agreement relating to agriculture include: geographical indications "GIs" (Articles 22-24); patent protection of agricultural chemical products (Articles 70.8 and 70.9); plant variety protection (Article 27.3(b)).

26

US Safeguard Measures on Imports of Fresh, Chilled, or Frozen Lamb Meat from New Zealand and

Australia ("US Lamb"), WT/DS177/R and WT/DS178/R, adopted 21 December 2000, WT/DS177/AB/R and WT/DS178/AB/R, adopted 1 May 2001.

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a.

GEOGRAPHICALINDICATIONS

Article 22.1 of the TRIPs Agreement defines geographical indications (GIs) as:

" indications which identify a good as originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin."

GIs may be used for a wide variety of agricultural products. However, GIs also protect non-agricultural products such as the production process or manufacturing skills associated with an area. The TRIPS Agreement requires that all WTO Members protect GIs. WTO Members must provide the legal means for interested parties to prevent: a) "the use of any means in the designation or presentation of a good, that indicates or suggests that the good in question originates in a geographical area, other than the true place of origin in a manner which misleads the public as to the geographical origin of the good; b) any use which constitute an act of unfair competition within the meaning of Article 10bis of the Paris Convention (1967)." Geographical indications for wines and spirits have additional protection compared to that provided in Article 22 for all products.

For wines and spirits, WTO Members have to provide higher levels of protection, i.e. even where there is no danger of the public being misled and the GI is accompanied by expressions such as "imitation" of the GI (Article 23).

Under Article 23.1, the use of a geographical indication identifying a wine or spirit not originating in the place indicated by the geographical indication is prohibited, even where the true origin of the wine or spirit is indicated or the geographical indication is used in a translation or accompanied by expressions such as "kind", "type", "style", "imitation" or the like.

b.

PATENTPROTECTIONOFAGRICULTURALCHEMICALPRODUCTS(ARTICLES70.8 AND70.9)

WTO Members must provide patent protection for any invention, whether a product (such as a medicine) or a process (such as a method of producing the chemical ingredients for a medicine), except when an exception applies (Article 27.1). A patent is a set of exclusive rights granted by a state to a patentee (the inventor or assignee) for a fixed period of time in exchange for the regulated, public disclosure of certain details of a device, method, process or composition of the invention, which is new, involves an inventive step and is capable of industrial application.

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The exclusive right granted to a patentee in most countries is the right to prevent or exclude others from making, using, selling, offering to sell or importing the claimed invention. Such protection is not new, since patents were already protected by the Paris Convention of 1883. Article 2.1 of the TRIPS Agreement incorporates the provision of the Paris Convention. It obliges WTO Members to comply with Articles 1 through 12 and 19 of the latest act of the Paris Convention (1967). This also applies to WTO Members that are not parties to the Paris Union, such as Macao and Hong Kong and the EU (as they are not states).

c.

PLANTVARIETYPROTECTION(ARTICLE27.3(B))

WTO Members must protect new varieties of plants developed by plant breeders though patents, or by an effective sui generis system, or by any combination thereof. However, Members can exclude plants and animals and essentially biological processes for the production of plants or animals. (Article 27.3(b)) Article 27.3(b):

3. Members may also exclude from patentability: (b) plants and animals other than microorganisms, and essentially biological processes for the production of plants or animals other than non-biological and microbiological processes. However, Members shall provide for the protection of plant varieties either by patents or by an effective sui generis system or by any combination thereof. The provisions of this subparagraph shall be reviewed four years after the date of entry into force of the WTO Agreement.

III.A.8. GATSANDAGRICULTURE
As you have seen before, both the rules on goods (in GATT 1994) and those on intellectual property (in the TRIPS Agreement) apply to agriculture. What about those on services? This was the issue in a case concerning agricultural products - the EC - Bananas III case. challenged in the WTO.
27

The European

Union had a licensing system for the allocation of the right to import bananas within a TRQ. This system was

27

EC Regime for the Importation, Sale, and Distribution of Bananas ("EC Bananas III") WT/DS27/R/ECU,

WT/DS27/R/MEX, WT/DS27/R/USA, adopted 22 May 1997, WT/DS27/AB/R, adopted 9 September 1997.

111

The Panel found that there is no legal basis for an a priori exclusion of measures within the EU banana import licensing regime from the scope of the GATS.
28

This was confirmed by the Appellate body. The EU argued that the GATS did not apply to the EU import licensing procedures because they were "not measures 'affecting trade in services' within the meaning of Article I:1 of the GATS".
29

The Appellate Body, however, noted that: "() Article I:1 of the GATS provides that "[t]his Agreement applies to measures by Members affecting trade in services". In our view, the use of the term "affecting" reflects the intent of the drafters to give a broad reach to the GATS. The ordinary meaning of the word "affecting" implies a measure that has "an effect on", which indicates a broad scope of application. This interpretation is further reinforced by the conclusions of previous panels that the term "affecting" in the context of Article III of the GATT is wider in scope than such terms as "regulating" or "governing". () Article I:3(b) of the GATS provides that "'services' includes any service in any sector except services supplied in the exercise of governmental authority" (emphasis added), and that Article XXVIII(b) of the GATS provides that the "'supply of a service' includes the production, distribution, marketing, sale and delivery of a service". There is nothing at all in these provisions to suggest a limited scope of application for the GATS. We also agree that Article XXVIII(c) of the GATS does not narrow "the meaning of the term 'affecting' to 'in respect of' ".
30

The Appellate Body also agreed with the Panel and confirmed that that the GATS and the GATT 1994 are not mutually exclusive agreements. They held that the EU banana import licensing procedures were subject to both the GATT 1994 and the GATS, and that the GATT 1994 and the GATS may overlap in application to a particular measure. In particular, the Appellate Body noted: "... Certain measures could be found to fall exclusively within the scope of the GATT 1994, when they affect trade in goods as goods. Certain measures could be found to fall exclusively within the scope of the GATS, when they affect the supply of services as services. There is yet a third category of measures that could be found to fall within the scope of both the GATT 1994 and the GATS. These are measures that involve a service relating to a particular good or a service supplied in conjunction with a particular good. In all such cases in this third category, the measure in question could be scrutinized under both the GATT 1994 and the GATS. However, while the same measure could be scrutinized under both agreements, the specific aspects of that measure examined under each agreement could be different. Under the GATT 1994, the focus is on how the measure affects the goods involved. Under the GATS, the focus is on how the measure affects the supply of the service or the service suppliers involved.

28

Panel Report, European Communities Regime for the Importation, Sale, and Distribution of Bananas

Complaint by Ecuador ("EC Bananas III (Ecuador)"), WT/DS27/R/ECU, adopted 25 September 1997, as modified by the Appellate Body Report, paragraph 7.286.
29

Appellate Body Report, European Communities Regime for the Importation, Sale, and Distribution of

Bananas ("EC Bananas III"), WT/DS27/AB/R, adopted 25 September 1997, paragraph 218.
30

Appellate Body Report, EC Bananas III, paragraph 220.

112

Whether a certain measure affecting the supply of a service related to a particular good is scrutinized under the GATT 1994 or the GATS, or both, is a matter that can only be determined on a case-by-case basis."
31

TIP If you want to know more about the above cases or to read the cases in full, see: http://www.wto.org/english/tratop_e/dispu_e/find_dispu_cases_e.htm http://www.wto.org/english/res_e/booksp_e/dispu_summary06_e.pdf See also the WTO Analytical Index at: http://www.wto.org/english/res_e/booksp_e/analytic_index_e/agriculture_e.htm

EXERCISES: 11. Besides the Agreement on Agriculture what are some of the WTO Agreements that related to Agriculture as listed in Annex 1A?

31

Appellate Body Report, EC Bananas III, paragraph 221.

113

IV.

SUMMARY

The results of the Uruguay Round provide a framework for the long-term reform of agricultural trade and domestic policies. The Agreement on Agriculture reflects the compromises made to satisfy the multiple negotiating interests in the Uruguay Round. The new Agreement, created a definition of agricultural products, and converted all non-tariff barriers into ordinary customs duties. The new rules and commitments apply to market access, domestic support and export competition. It includes provisions that limit the use of distorting domestic support policies, export subsidies and subjected these limits to reductions. The Agreement on Agriculture does allow governments to support their rural economies, but preferably through policies that cause a minimal or none distortion to trade. It also allows some flexibility in the way commitments are implemented. Developing countries do not have to cut their subsidies or lower their tariffs as much as developed countries, and they are given extra time to complete their obligations. Least-developed countries do not have any reduction commitments. Special provisions deal with the interests of countries that rely on imports for their food supplies, and the concerns of least-developed economies. The Agreement on Agriculture also includes a "Peace Clause" which was designed to reduce the likelihood of disputes or challenges on agricultural subsidies over a period of nine years. This provision expired at the end of 2003. The Agreement on Agriculture includes a commitment to continue the reform through new negotiations. These were launched in 2000 and continue as part of the Doha Development Agenda.

114

PROPOSED ANSWERS: 1. Export subsidies on agricultural primary products provided that agricultural export subsidies were not used to capture more than an "equitable share" of world exports of the product concerned (Article XVI:3 of GATT). 2. (i) (ii) Waivers; Protocol of accession; and

(iii) Article XI.2(c). 3. (i) (ii) import bans; quotas setting the maximum level of imports;

(iii) variable import levies; (iv) minimum import prices; and (v) 4. non-tariff measures imposed by state trading enterprises.

All agricultural NTBs have been abolished and replaced by tariffs. Tariffs are bound and subject to reduction. They are not to be increased in the future. There are avenues for the maintenance of current access opportunities and the establishment of minimum access tariff quotas (at reduced-tariff rates) where current access is less than 3% of domestic consumption. These minimum access tariff quotas were to be expanded to 5% over the implementation period. A special safeguard was introduced which can be used on products that were tariffied and which have the letters SSG in the Schedule.

5. 6.

These are market access commitments found in the Schedule of Tariff Concession. (1) (2) reduction of the amount of money spent on export subsidies; and reduction of the quantity of export benefiting from such subsidies.

7.

They are to: (1) (2) (3) do so in accordance with Article XI:2(a) of the GATT 1994; give due consideration to the effects of such restrictions on importing Members' food security; if requested, to consult with any other Member having a substantial interest as an importer

This rule applies to developing countries only in so far as they are net exporters of the foodstuff in questions.

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8.

The peace clause is found in Article 13 of the Agreement on Agriculture. It expired on 31 December 2003. It gave some protection to agricultural subsidies provided in accordance with the Agreement on Agriculture from being challenged under specific provisions of the GATT or the SCM Agreement for a period of 9 years.

9.

Oversees the implementation of the Agreement on Agriculture; Provides a forum for Members to discuss matters related to agriculture trade and to consult on matters relating to the implementation of commitments, including rule-based commitments; Reviews notifications. At the Committee meetings, Members pose questions to Members who make notifications. Under Article 18.6 of the Agreement on Agriculture other matters related to the reform programme can be raised, and under Article 18.7 counter-notifications can be made when one Member has information which suggests that another Member should have notified a particular measure or action to the Committee; and Monitors the follow-up to the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries, as well as, developments in the trade of agricultural products.

10.

1. Differential and more favourable treatment for developing country Members is an integral part of the negotiation. 2. Lower reduction rates to be applied to fixed base period values of trade-distorting domestic supports (covered by Total Aggregate Measurement of Support), tariffs and export subsidies - which was two-thirds for the developing countries of the levels required for the developed countries in each of these three areas. Least developed countries were not required to make reductions. 3. Longer implementation period - developing countries are given a longer period (10 years, 1995-2004) to implement various reduction provisions, compared to six years for the developed countries. 4. Waiver of tariffication - the elimination of non-tariff barriers, by converting quotas and other quantitative import restrictions to tariffs.

11.

General Agreement on Tariffs and Trade (GATT 1994); Agreement on Sanitary and Phytosanitary Measures; Agreement on Textiles and Clothing (terminated on 1/1 2005); Agreement on Technical Barriers to Trade; Agreement on Trade Related Investment Measures; Agreement on Anti-dumping; Agreement on Customs Valuation; Agreement on Preshipment Inspection; Agreement on Rules of Origin; Agreement on Import Licensing; Agreement on Subsidies and Countervailing Measures; and Agreement on Safeguards.

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MODULE

4
MarketAccessintheAgreement onAgriculture
ESTIMATEDTIME:6hours

OBJECTIVES OF MODULE 4

Present the first pillar of the Agreement on Agriculture: Market Access Outline the Conceptual Framework of the rules on market access in the Agreement on Agriculture; Explain "Tariffication" and the tariff reductions commitments that Members undertook during the Uruguay Round; Describe the Schedule of Tariff Concessions and explain the Tariff Quota Commitments; Outline the prohibition of non-tariff border measures; Explain the Special Treatment provisions relating to Market Access; Describe the special safeguard provisions; and Outline the notification obligations of WTO Members concerning market access for agricultural products.

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I.

CONCEPTUALFRAMEWORK

In Module 2, we saw that the new rules on agriculture, as incorporated in the Agreement on Agriculture, created a definition of agricultural products, made provisions for all non-tariff barriers (NTBs) to be converted into customs duties and established new rules and commitments for market access, domestic support and export subsidies. This Module looks at the rules on market access in more detail. At the end of this Module, you should be able to, among other things: explain the rules governing market access for agricultural goods in the WTO; explain the terms: tariffication, tariff peaks and tariff escalation; explain the concept of country schedules and what is include therein; explain a tariff quota and describes the principle methods of TRQ administration; explain the prohibition on non-tariff measures in Article 4.2 of the Agreement on Agriculture; describe the measures that WTO Members can use to protect against the import of particular products under the specific safeguard provisions and differentiate it from the general safeguard provision; and describe the two ways the special agriculture safeguard can work and the conditions that must be satisfied for WTO Members to invoke the safeguard measures. The term "market access" refers to entry into the market of another country (that is, imports into the customs territory). Market access is regulated by government-imposed conditions under which a product may enter a country. Market access in the WTO is expressed through border measures, i.e. tariffs and non-tariff measures, in the case of goods. Traditionally, multilateral trade policy has sought to make market access predictable and more liberal. This is done through the binding of maximum permissible tariffs in Members' Schedules of commitments and applying reductions to arrive at new, lower, bound tariffs. Market access commitments can also relate to tariff quotas, particularly in agriculture. Tariff quotas are fixed quantities that can be imported at lower tariffs than the general bound rate. Article 5 of the Agreement on Agriculture also provides for additional duties in cases where the import price falls or imports surge for certain products through the agriculture Special Safeguard. Therefore, the specific border measures of interest to us for agricultural trade under the Agreement on Agriculture are tariffs, tariff rate quotas and the Special Safeguard. However, as you also saw in Module 2, general and specific border measures may also be adopted under the other WTO Agreements, such as, Article XIX safeguards, Article VI anti-dumping, the SPS and TBT Agreements.

RECALL
Recall that a tariff can take different forms: It can be expressed as an ad valorem tariff (percentage of value), as a specific duty (e.g. $7 per 100kg), as a compound duty (e.g. 12% plus $7 per 100kg), as either/or tariffs (e.g. 12% or $7 per 100kg whichever is the greater), as seasonal tariffs, etc. Recall also that a tariff rate quota is a specific quantity (quota) of a product, which can enter a market at a tariff rate, which is different (lower) than the general out-of-quota tariff.

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II.

CEILINGBINDINGSANDTARIFFICATION

INBRIEF
Prior to the Agreement on Agriculture, border protection was not always in the form of ordinary customs duties, which are defined as specific duties and/or ad valorem charges on imports. Many agricultural products in several GATT Contracting Parties had no bound tariffs and agricultural trade was controlled through applied tariffs and/or a variety of non-tariff measures that impeded agricultural trade flows. Further, even where bound tariffs existed, market access for many agricultural products was restricted through so-called "grey area" measures whose legality was contestable, such as quantitative restrictions under Article XI.2(c) of GATT. As a result of the Uruguay Round, all WTO Members converted their various forms of non-tariff measures that they used to control trade into bound tariffs that provided substantially the same level of protection. The methodology used depended on the form of the existing protection and the status of the country (that is, if it was developed or developing country). For example, applied tariffs were bound at the rate that applied on 1 September 1986, bound tariffs remained bound and other forms of import restrictions were bound using the "tariffication" process or, for developing country Members by "ceiling bindings".

Tariff Reductions Start From Situation prior to 1986 Bound tariff Applied tariff Quantitative restriction Applied tariffs + Quantitative restriction Table 1:
1

Developed Countries Bound rate Applied rate 1 September 1986 Tariffication

Developing Countries Bound rate Ceiling Bindings or Tariffication Ceiling Bindings or Tariffication
1

Tariffication The Starting-point for Tariff Reductions

Ceiling Bindings or Tariffication

No tariff reductions for least-developed countries or for developing countries taking ceiling bindings (with

some exceptions).

INDETAIL
TARIFFICATION The methodology of the tariffication process is set out in Annex 3 of the Document - "Modalities for the Establishment of Specific Binding Commitments under the Reform Programme" ("Modalities Agreement").

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Paragraph 2 of Annex 3 states that "the calculation of the tariff equivalents, whether expressed as ad valorem or specific rates, shall be made using the actual difference between internal and external prices in a transparent manner using data, data sources and definitions as specified in Annex 2. Data used shall be for the years 1986 to 1988". For example: Bound tariff is the price-gap between the internal price and external price, that is: Internal Price External Price --> Price Gap --> Tariff = $250/tonne = representative wholesale price; and = $200/tonne = average c.i.f. unit value for 1986-1988 = $50/tonne or 25% = $50/tonne; or = 25%; or = $25/tonne + 12.5%; or etc.
1

II.A. CEILINGBINDINGS
Many developing countries did not have the resources for comprehensive tariffication of all unbound tariffs. Instead, they were given the option of offering "ceiling bindings", which often took the form of a maximum tariff applied to groups of agricultural products or to all agricultural products. Some developing applied a single ceiling binding for all agricultural products, others opted for different bindings on different groups of agricultural products. Examples of ceiling bindings: Schedule LXX Bangladesh with a 200% ceiling binding on nearly all agriculture products; Schedule CXIII Kenya with a 100% ceiling binding on all agriculture products; Schedule XLIII Nigeria with an 150% ceiling binding on all agriculture products; Schedule CXXVI Uganda with a ceiling binding of 80% on most agriculture products.

The tariffs resulting from the tariffication process account for nearly one fifth of the total number of agricultural tariff lines on average for developed-country Members. In the case of developing-country Members, this share is considerably smaller because many took the option of applying ceiling bindings. Many Members made their own calculations of the tariffs resulting from tariffication and inscribed them in their Schedules of Commitments, which were subject to verification by other Members.

The Modalities Agreement (MTN.GNG/MA/W/24) can be found on the WTO website and on this site in the

eTraining online library.

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II.B.

BINDINGSANDREDUCTIONS

Once tariffs were fixed, Members undertook to apply reductions. These reductions are based on a simple average of 36% and a minimum of 15% over six years (1995-2000) for developed countries and a simple average of 24% and a minimum of 10% over ten years (1995-2004) for developing countries. Developing countries that adopted ceiling bindings did not have to reduce their tariffs, except on an ad-hoc basis. Least-developed countries did not have to reduce tariffs whether or not they adopted ceiling-bindings.

EXERCISES: 1. 2. What are the border measures to protect markets allowed under the Agreement on Agriculture? What were the reduction commitments made on market access during the Uruguay Round?

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III.

SCHEDULEOFTARIFFCONCESSIONS&TARIFF QUOTACOMMITMENTS

III.A. INTRODUCTION
As we have seen, each WTO Member has a Schedule of Tariff Concessions covering all agricultural products. The agricultural commitments made by WTO Members on market access are not found in the Agreement on Agriculture, but in Article II "Country Schedules" of the GATT 1994. Both the Agreement on Agriculture and the Country Schedules must be examined together to understand a WTO's Member's Commitment.

The Schedules of Concessions comprise the results of the calculations for tariffication, ceiling bindings and tariff reductions. The Schedule sets out for each individual agricultural product, or, in some cases, agricultural products defined generally, the maximum tariff that may be applied on imports into the territory of the Member concerned.

These concessions are annexed to the Marrakesh Protocol and are an integral part of the GATT 1994. They are legally enforceable through Article 4 of the Agreement on Agriculture and Article II of the GATT 1994.

TIP The Schedules of WTO Members can be found at the following link: http://www.wto.org/english/tratop_e/schedules_e/goods_schedules_e.htm Schedules are available in zipped format and can be downloaded. Note that these do not include changes that result from renegotiation of commitments or technical rectifications of Schedules. More details can be found at the following link: http://www.wto.org/english/tratop_e/schedules_e/goods_schedules_table_e.htm

III.B. MODIFICATIONOFSCHEDULES
The fact that WTO Members agreed to "bind" the tariffs they negotiated in the Uruguay Round means that they cannot normally impose import duties in excess of the "bound" tariffs inscribed in their Schedule of Concessions. The bound level of tariffs can be changed in accordance with the procedures set out in Article XXVIII of the GATT 1994. However, as WTO Members are allowed to apply a lower tariff than the bound level, Article XXVIII is only invoked when a WTO Member wants to raise the tariff above the bound rate so as to increase market protection.

123

According to Article XXVIII:2, the WTO Member changing the tariff must endeavour to maintain a general level of reciprocal and mutually advantageous concessions not less favourable to trade than that previously applicable. This means that if a tariff is raised, some compensation must be given in another sector (i.e., by lowering another tariff) so as to allow a rebalancing of the levels of trade concessions. Before any change can be made, a Member must notify the WTO that it intends to modify and Members with Initial Negotiating Rights, principle supplier interests or substantial supplier interests can then enter negotiations with the Member concerned. If agreement is reached with all the parties, the change is certified. If no agreement is reached, the Member seeking to change its Schedule can still go ahead and make the change but those with INRs, principle supplier interests or substantial interest can withdraw equivalent concessions.

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IV.

TARIFFRATEQUOTAS

It was foreseen that the conversion of non-tariff measures into tariffs using the 1986 to 1988 reference period could result in high tariff levels, as it was intended to result in a level of protection equivalent to the non-tariff measure previously in force. However, in many cases some imports were allowed in and these "current access" opportunities had to be maintained and, if necessary, increased to 3% of corresponding domestic consumption rising to 5% of domestic consumption by the end of the implementation period.
2

In cases where no significant quantities were imported a "minimum access commitment" had to be created starting at 3% of domestic consumption and increasing to 5% over the implementation period. Least developed countries and developing countries with ceiling bindings did not have to create market access opportunities. The current and minimum access commitments were implemented by tariff-rate quotas (TRQs), which allow imports at low tariff rates up to a certain volume.

A TRQ is a two level tariff. A lower tariff (in-quota) rate is charged on the imports within the quota volume and a higher tariff (over-quota) rate is charged on the imports outside the quota.

TRQs, including the applicable tariff rates and any other conditions related to them, are specified in the Schedules of the WTO Members concerned.

Figure 1:

Tariff-Quota

Modalities for the Establishment of Specific Binding Commitments under the Reform Programme;

20 December 1993, MTN:GNG/MA/W/24.

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ILLUSTRATION
Alba maintains the following TRQ on turnip for a year Y: In-quota rate for imports up to 10MT = 5% Out-of-quota rate for imports above 10MT = 15% Imports of turnip in year Y = 17MT

There are currently (10 December 2006) 43 Members with a total of 1,425 individual TRQs specified in their Schedules (excluding 4 TRQs where the initial and final quantity levels are specified as zero).
3

WHO HAS TARIFF QUOTAS?

Australia (2) Barbados (36) Brazil (2) Bulgaria (73) Canada (21) Chile (1) China (10) Chinese Taipei (22) Colombia (67) Costa Rica (27) Croatia (9) Czech Rep (24) Dominican Rep (8) Ecuador (14) El Salvador (11)

EU (87) Guatemala (22) Hungary (70) Iceland (90) Indonesia (2) Israel (12) Japan (20) Korea (67) Latvia (4) Lithuania (4) Malaysia (19) Mexico (11) Morocco (16) New Zealand (3) Nicaragua (9)

Norway (232) Panama (19) Philippines (14) Poland (109) Romania (12) Slovak Rep (24) Slovenia (20) South Africa (53) Switzerland (28) Thailand (23) Tunisia (13) United States (54) Venezuela (61)

43 WTO members currently have a combined total of 1,425 tariff quotas in their commitments. The numbers in brackets show how many quotas each country has. For more details, see WTO Secretariat back ground paper "Tariff and other Quotas" TN/AG/S/5, downloadable from: http://www.wto.org/English/tratop_e/agric_e/negoti_e.htm#secretariat_papers

For the TRQs with zero initial and final tariff quota quantities, see the Schedules of Morocco and the

Bolivarian Republic of Venezuela.

126

The vast majority of TRQs in agriculture originate in the Uruguay Round negotiations and there are some TRQs that were negotiated during accessions to the WTO. The implementation of commitments on TRQs has not been without difficulties and notifications are often the subject of questions in the Committee on Agriculture. Many Members feel that there is not enough clarity or detail in the rules covering the distribution of TRQs to countries and companies. In cases where the import price plus the in-quota tariff are much less than the domestic price, the TRQ should generate a "quota rent". That is, the right to import within the quota results in a profit over and above the profit available in normal trade. This "extra" profit results from the fact that the protected market price is usually higher than the world market price. The necessity to administer the TRQs is a consequence of the fact that the demand to trade within the quota is often greater than the supply. The allocation of the TRQs among supply countries and the distribution of licences to traders determine who gets the benefit of this "quota rent" or profit.
4

Note

Quota rent is a profit which results from the difference between the domestic price and the world price plus the in-quota tariff.

IV.A. TRQADMINISTRATION
TRQ administration is a technical subject, but it is of vital importance since it may affect trade by exporting countries. TRQ administration determines whether a product exported from one country can gain access to the market of another country at the lower in-quota tariff. Some methods of quota administration are explained below.

METHODS OF TRQ ADMINISTRATION 1. "Applied Tariffs": No shares are allocated to importers. Imports of the product are allowed into the territory of the Member in unlimited quantities at the in-quota tariff rate or below. 2. "First-Come, First-Served": No shares are allocated to importers. Imports are permitted entry at the in-quota tariff rates until such a time as the tariff quota is filled; then the higher out-of-quota tariff automatically applies. The physical importation of the good determines the order and hence the applicable tariff. 3. "Licences On Demand": Importers' shares are generally allocated or licences issued, in relation to quantities demanded and often prior to the commencement of the period during which the physical importation is to take place. This includes methods involving licences issued on a first-come,

See the reports of the Committee on Agriculture in the document series G/AG/R/

127

first-served basis and those systems where licence requests are reduced pro rata where they exceed available quantities. 4. "Auctioning": Importers' shares are allocated, or licences issued, largely based on an auctioning or competitive bid system. 5. "Historical Importers": Importers' shares are allocated, or licences issued, principally in relation to past imports of the product concerned. 6. "Imports Undertaken By State Trading Entities": Import shares are allocated entirely or mainly to a state trading entity which imports (or has direct control of imports undertaken by intermediaries) the product concerned. 7. "Producer Groups Or Associations": Import shares are allocated entirely or mainly to a producer group or association which imports (or has direct control of imports undertaken by the relevant Member) the product concerned. 8. 9. "Other": Administration methods that do not clearly fall within any of the above categories. "Mixed Allocation Methods": Administration methods involving a combination of the methods as set out above with no one method being dominant. 10. "Non-Specified": Tariff quotas for which no administration method has been notified.

Exporters are sometimes concerned that their ability to take advantage of TRQs can be impaired because of the quota administration, for example, they might complain that the licensing timetables put them at a disadvantage when production is seasonal and the products have to be transported over long distances.

Number of Tariff Quotas

1995 1996 642 101 304 39 82 1997 676 146 307 57 87 1998 664 146 303 59 97 1999 657 143 315 59 97 2000 650 144 312 52 119 2001 643 141 351 53 100 2002 613 165 347 82 104 2003 614 165 355 81 104 2004 614 165 348 81 104

Applied Tariffs First-Come, First-Served Licences on Demand Auctioning Historical Importers Imports Undertaken by State Trading Enterprises Producer Groups or Associations Other Mixed Allocation Methods Non-Specified Total Number of Applicable Tariff Quotas Table 2:

654 99 295 41 68

22

22

20

19

20

20

21

22

24

25

8 10 53 9

8 11 54 10

7 5 56 6

7 5 58 6

7 5 59 14

9 5 59 10

8 5 57 15

8 5 69 11

7 5 61 13

6 5 68 13

1,259

1,273

1,367

1,364

1,376

1,380

1,394

1,426

1,429

1,429

Tariff Quotas by Principal Administration Method and Number of Quotas, 1995-2004

Source: WTO, Tariff Quota Administration Methods and Tariff Quota Fill, TN/AG/S/22 27 April 2006

128

Each method of TRQ administration has advantages and disadvantages, and many WTO members acknowledge that it can be difficult to say conclusively whether one method is better than another. Several Members want the ongoing Doha negotiations to come up with some rules on TRQ administration because they want to be sure that the administration method does not impede market access. Some importers also want rules because they want to be sure which methods are legal or illegal under WTO rules. The allocation of quotas to supplying countries is set out in the Schedules of Concessions and must comply with the rest of the Uruguay Round Agreements, most notably Article XIII of GATT 1994 and the Agreement on Import Licensing Procedures .
6 5

Important Note

Article XIII of the GATT 1994 has the rules governing the administration of import restrictions and the possible country allocation of the TRQ (external administration of TRQs). The Agreement on Import Licensing Procedures has the rules governing the import licensing procedures used to administer the TRQs and to allocate them to traders (internal administration of TRQs).

IV.B. GATTARTICLEXIII
Let us go through GATT Article XIII First.

INBRIEF
GATT Article XIII provides for the administration of Quantitative Restrictions and governs the distribution of TRQs between supplying countries. This provision requires that import restrictions should be applied in a non-discriminatory manner so that each supplying country should have the same share of the import market, as they would achieve in the absence of an import restriction. In other words, if country A supplies 10% of the import demand for a product in the absence of import quotas then, if quotas are introduced, country A should expect to continue to have 10% of the total import quota.

INDETAIL
Article XIII.2(d) states that quotas allocated among supplying countries can be allocated after consultations and agreement with those countries, which have a substantial interest. If this is not practical then allocations should be based on a representative period.

EC - Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R 9 adopted

September 1997 paragraphs 156158.

6

EC - Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R 9 adopted

September 1997 paragraph 193.

129

The Appellate Body clarified this to some extent in the case "EC - Regime for the Importation, Distribution and Supply of Bananas" (the EC Bananas III case).
7

In that case, the Appellate Body stated that, in allocating quotas among supplying countries, the importing Member should allocate first to substantial suppliers and then to smaller suppliers (WT/DS27/AB/R; paragraph 161). In other words, if a Member imports a particular product from many different countries and they wish to distribute a TRQ among all these countries they must allocate to the largest before the smaller suppliers. For some countries, there may not be a representative period, perhaps because imports were disallowed or because certain exporting countries were deliberately favoured in the past. In the EC Banana III case, after the Appellate Body decision, the EU tried to negotiate with supplying countries and when this failed they allocated to the principal suppliers based on a historical period. However, the arbitration report pointed out that to satisfy Article XIII the historical period must be representative.
8

The EU then asked for, and was

granted, a waiver from Article XIII which lasted until end 2005 (WT/MIN(01)/16 of 14 November 2001). To find a longer term solution the EU entered consultations with interested Members. These consultations continue, but Ecuador has initiated dispute settlement proceedings under Article 21.5 of the DSU.
9

IV.C. AGREEMENTONIMPORTLICENSINGPROCEDURES
RECALL
The Agreement on Import Licensing Procedures says import licensing should be simple, transparent and predictable. For example, the agreement requires Members to publish sufficient information for traders to know how and why the licences are granted. It also describes how countries should notify the WTO when they introduce new import licensing procedures or change existing procedures. The Agreement offers guidance on how governments should assess applications for licences.

There are two basic licensing procedures: automatic and non-automatic. Non-automatic procedures are used to administer the TRQs. Article 3 of the Agreement on Import Licensing Procedures on non-automatic licensing requires that, in operating TRQs, the administration system should not distort or restrict trade any further than the TRQ itself, and that information should be provided to Members on the administration system.

European Communities - Regime for the Importation, Sale and Distribution of Bananas ("EC Bananas III"),

WT/DS27.
8

European Communities - Regime for the Importation, Sale and Distribution of Bananas - Recourse to by the European Union under Article 22.6 of the DSU; WT/DS27/ARB, 9 April 1999;

Arbitration

paragraphs 5.25 5.26.

9

European Communities Regime for the Importation, Sale and Distribution of Bananas: Recourse to

Article 21.5 of the DSU by Ecuador, 29 November 2006, WT/DS27/65/Rev.1.

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INDETAIL
In the EC - Bananas case, the Appellate Body found that, although the Agreement on Import Licensing Procedures applies to import licenses made under TRQs, the Agreement does not apply to the systems of licensing but only to the application of the system (WT/DS27/AB/R paragraph 192). The systems themselves may not be considered fair and neutral, but they must be applied in a non-discriminatory manner and should not increase any trade distortions arising from the quotas. Thus, a system of allocating licenses between different countries may be considered unfair by the supplying countries, but it satisfies the Agreement on Import Licensing Procedures if no individual country is discriminated against in the administration of the license allocation system. The data in the table below shows the different fill rates according to the principal method of administration. There is a perception that different products and different countries require different administration methods. For this reason it is hard to draw conclusions from the average fill rates for each of the different administration methods. In addition, some Members have more than one administration method for the same tariff quota. The data should be interpreted with care, however, it shows surprising results. For example, auctioning, the sale of import licenses to the highest bidders, which would be expected to ensure the use of the licence has surprisingly low fill rates while imports by state trading enterprises are quite high.

Simple Average Fill Rate Principal Administration Method Applied Tariffs First-Come, FirstServed Licences on Demand Auctioning Historical Importers Imports Undertaken by State Trading Enterprises Producer Groups or Associations Other Mixed Allocation Methods Non-Specified Overall Table 3:
81 56 62 64 65 58 60 53 59 69 49 55 70 ... 60 43 6 1,134 44 6 841 54 6 777 41 8 626 20 0 312 75 100 60 99 80 100 75 100 53 100 9 3 5 3 5 3 4 2 3 1 81 68 63 51 47 20 10 9 11 11 52 53 40 65 52 52 39 68 49 56 50 72 38 49 50 59 26 58 33 75 141 282 40 114 138 294 38 63 158 258 55 44 94 194 54 33 24 64 50 21 2000 67

(Per cent)
2001 67 2002 71 2003 69 2004 76

Number of Tariff Quotas Included

2000 476 2001 240 2002 185 2003 185 2004 118

Tariff Quotas Simple Average Fill Rates by Principal Administration Method, 2000-2004

Source: WTO, Tariff Quota Administration Methods And Tariff Quota Fill, TN/AG/S/22 27 April 2006

131

CASESTUDY1
Let us look at the aspects of the EC Bananas III case that deals with GATT Article XIII on the non-discriminatory administration of quantitative restriction. However before we do so please read the disclaimer!

Disclaimer

While the case study below is based on prior WTO Panel and/or Appellate Body rulings its main purpose is not to describe and review all the arguments and conclusions in the case in detail but rather to focus on the issues and principles addressed in the course and provide you with an outline of elements that you may wish to consider when reflecting on these issues and principles.

The case has a long and complex history, involving both GATT and WTO dispute settlement. In April 1996, Ecuador, Guatemala, Honduras, Mexico and the United States requested the establishment of a panel to examine the EU regime for the importation, sale and distribution of bananas established by Council Regulation 404/93.
10

The WTO Panel ruled that the EU bananas import regime violated WTO obligations under the GATT, the GATS and the Agreement on Import Licensing Procedures. In relation to the Agreement on Import Licensing Procedures the Panel in EC Bananas III found that this Agreement applies to licensing procedures for tariff quotas. The Appellate Body upheld this finding as well as the Panel's finding that both Article 1.3 of the Licensing Agreement and Article X:3(a) of the GATT 1994 apply to the EU import licensing procedures. This case was also adjudicated under Compliance Reports by the original panel (Article 21.5 of the DSU ) to determine that the conformity of the implementing measures of the EU to WTO rules. It was also subject to various arbitrations, such as that on 17 November 1997, to determine the "reasonable period of time" for implementation of the recommendations and rulings of the DSB, pursuant to Article 21.3(c) of the DSU and the arbitrator's report on the Ecuadorian request for suspension of concessions. You must read the case in its entirety to appreciate the intricacies.

10

Council

Regulation

404/93

on

the

common

organization

of

the

market

in

bananas.

OJ L 47,

25 February 1993, pp. 1-11.

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EC BANANAS III European Communities Regime for the Importation, Sale and Distribution of Bananas (DS27)

Parties Ecuador, Guatemala, Honduras, Mexico, United Complainants States

Agreements GATT Arts. I, III, X, XIII GATS Arts. II, XVII Licensing Ag Art. 1.3

Timeline of the dispute Establishment of Panel 8 May 1996

Circulation of Panel Report Circulation of AB Report Adoption 10 January 2001

22 May 1997 9 September 1997 25 September 1997

Respondent

European Union

Lom Waiver

1.MeasureandProductatIssue
Measures at issue: The European Union's regime for the importation, distribution and sale of bananas, introduced on 1 July 1993 and established by EEC Council Reg. 404/93. Products at issue: Bananas imported from third countries.
11

2.SummaryofKeyPanel/ABFindings
GATT Art. XIII: The Appellate Body upheld the Panel's finding that the allocation of country-tariff quota shares to some Members not having a substantial interest in supplying bananas, but not to others, was inconsistent with Art. XIII:1. The Appellate Body also agreed with the Panel that the BFA tariff quota reallocation rules (The Framework Agreement on Bananas ("BFA")), under which a portion of a tariff quota share not used by one BFA country could be reallocated exclusively to other BFA countries, were inconsistent with Art. XIII:1 and XIII:2, chapeau. Lom Waiver: The Appellate Body, reversing the Panel's finding, found that the Lom Waiver does not apply to (i.e. exempt) violations of GATT Art. XIII given that the Waiver refers only to Art. I:1 and that waivers must be narrowly interpreted and be subject to "strict disciplines". GATT Art. I: The Appellate Body upheld the Panel's finding that the activity function rules, which applied only to licence allocation rules for imports from other than traditional ACP countries, are inconsistent with Art. I:1. The Appellate Body also agreed with the Panel that the EU export certificate requirement accorded an advantage to some Members only, i.e. the BFA countries, in violation of Art. I:1. In an

11

Third countries are those countries other than (i) 12 African, Caribbean and Pacific ("ACP") countries who

have traditionally exported bananas to the EU and (ii) ACP countries that were not traditional suppliers of the EU market.

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issue not appealed to the Appellate Body, the Panel had found that tariff preferences for ACP countries were inconsistent with Art. I:1, but that they were justified by the Lom Waiver. GATT Art. III:4: The Appellate Body agreed with the Panel that the EU procedures and requirements for the distribution of licences for importing bananas from non-traditional ACP suppliers were inconsistent with Art. III:4. GATT Art. X:3(a) and Licensing Agreement Art. 1.3: The Appellate Body reversed the Panel's findings of violations of GATT Art. X:3(a) and Licensing Agreement Art. 1.3, on the ground that these provisions apply only to the administrative procedures for rules, not the rules themselves. GATS Art. II and XVI: The Appellate Body upheld the Panel's finding that the EU measures are all inconsistent with GATS Art. II and XVII because they are discriminatory, and clarified that the "aim and effect" of a measure is irrelevant under GATS Art. II and XVII.

3.OtherIssues
Private counsel: The Appellate Body ruled that private lawyers may appear on behalf of a government during an Appellate Body oral hearing. (c.f. the Panel did not allow them)

EXERCISES: 3. 4. 5. Describe the rules on market access opportunities that were negotiated? Describe the rules on minimum market access? Tariff Rate Quotas are used to administer the current and minimum market access opportunities, which are 5% of domestic demand and the low tariff for limited volumes of imports. What are the rules on TRQ administration?

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V.

THEPROHIBITIONOFNONTARIFFBORDER MEASURES

V.A. ARTICLE4OFTHEAGREEMENTONAGRICULTURE
Let's recall that Article XI.2(c) of the GATT 1947 allowed quantitative import restrictions in cases where GATT Contracting Parties had national supply management schemes and where allowing the unrestricted importation of competing products would undermine the national schemes. Article XI.2(c) was conditional on Contracting Parties maintaining a minimum proportion of imports relative to domestic production.

INBRIEF
Article XI:2(c) of the GATT is now inoperative as regards agricultural products because it is superseded by Article 4.2 of the Agreement on Agriculture. Article 4.2 of the Agreement on Agriculture prohibits the use of non-tariff measures for agriculture products. It provides that: "Members shall not maintain, resort to, or revert to any measures of the kind which have been required to be converted into ordinary customs duties, except as otherwise provided for in Article 5 and Annex 5."

INDETAIL
What are these measures referred to in Article 4.2? In the footnote to Article 4.2 there is a list of measures that had to be converted into tariffs and may no longer be used. This list is not exhaustive and other non-tariff measures come under the general prohibition as well. These measures include: quantitative import restrictions; variable import levies; minimum import prices; discretionary import licensing; non-tariff measures maintained through state-trading enterprises; voluntary export restraints; and All similar border measures other than "ordinary customs duties", whether or not the measures are maintained under country-specific derogations from the provisions of GATT 1947, but not measures maintained under balance-of-payments provisions or under other general, non-agriculture-specific provisions of GATT 1994 or of the other Multilateral Trade Agreements in Annex 1A to the WTO Agreement. Article 4.2 effectively means that tariffs are normally the only border protection measure allowed.

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The footnote to Article 4 does, however, state that Members can resort to measures under the balance-ofpayments provisions and other non-agriculture-specific provisions of GATT 1994 and other multilateral trade agreements that resulted from the Uruguay Round. Therefore, Members can also use safeguards, anti-dumping and countervailing duties provided, of course, they comply with the relevant rules. Thus, in general, tariffs must not be applied in a way that effectively amounts to an import charge like those included in the footnote to Article 4, such as a variable levies or minimum import prices. This issue was the subject of the dispute case "Chile Price Band System and Safeguard Measures Relating to Certain Agricultural Products"
12

, which is examined below.

It is now time to have a look at a dispute settlement case related to the prohibition of non-tariff border measures and Article 4 of the Agreement on Agriculture.

12

Chile Price Bands, WT/DS207/R 3 May 2002 and WT/DS207/AB/R 23 Sept 2002

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CASESTUDY2
Disclaimer

While the case study below is based on prior WTO Panel and/or Appellate Body rulings its main purpose is not to describe and review all the arguments and conclusions in the case in detail but rather to focus on the issues and principles addressed in the course and provide you with an outline of elements that you may wish to consider when reflecting on these issues and principles.

CHILE PRICE BAND SYSTEM (DS207) Chile Price Band System and Safeguard Measures Relating to Certain Agricultural Products

Parties

Agreements

Timeline of the dispute Establishment of Panel 12 March 2001 3 May 2002 23 September2002 23 October 2002

Complainants

Argentina AA Art. 4.2

Circulation of Panel Report Circulation of AB Report Adoption 10 January 2001

Respondent

Chile

GATT Art. II:1(b)

1.MeasureandProductatIssue
Measure at issue: Chile's Price Band System, governed by Rules on the Importation of Goods, through which the tariff rate for products at issue could be adjusted to international price developments if the price fell below a lower price band or rose beyond an upper price band. Product at issue: Wheat, wheat flour, sugar and edible vegetable oils from Argentina.

2.SummaryofKeyPanel/ABFindings
DSU Art. 11: The Appellate Body reversed the Panels findings under GATT Art. II:1(b), second sentence, on the grounds that it was a claim that had not been raised by Argentina in its panel request or any subsequent submissions, and the Panel, by assessing a provision that was not part of the matter before it, acted ultra petita and in violation of DSU Art. 11. The Appellate Body also stated that consideration by a Panel of claims not raised by the complainant deprived Chile of its due process rights under the DSU. AA Art. 4.2, footnote 1 (market access): The Appellate Body reversed the Panel's findings that the term "ordinary customs duty" was to be understood as referring to "a customs duty which is not applied to factors of an exogenous nature" and Chile's price brand system was not an "ordinary customs duty", as it was assessed on the basis of exogenous price factors. The Appellate Body however upheld the Panel's finding that Chile's price band system was designed and operated as a border measure sufficiently

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similar to "variable import levies" and "minimum import prices" within the meaning of footnote 1 and therefore prohibited by Art. 4.2. Thus, the Appellate Body concluded that Chile's price band system was inconsistent with Art. 4.2.

3.OtherIssues 13
Panel's terms of reference: The Appellate Body stated that it was appropriate to rule on the Chile Price Band System as it currently stood, taking into account the amendments enacted after the establishment of the Panel, on the grounds that the Panel request was broad enough to cover future amendments and that the amendment did not change the essence of the measure under challenge. The Appellate Body also added that ruling on the Chile Price Band System currently in place would be in line with its obligations under DSU Art. 3.4 and 3.7 to secure a positive solution of the dispute at hand.

V.B.

EXCEPTIONSTOTHEPROHIBITIONOFNTBS

Normally, tariffs are the only form of protection allowed for agricultural products and Members cannot exceed the bound tariff rate in their Schedule of Concessions. However, there are exceptions in Annex 5 of the Agreement on Agriculture. In addition, Article 4.2 of the Agreement on Agriculture permits the use of non-tariff import restrictions consistent with the provisions of the GATT 1994 or other WTO Agreements which are applicable to general trade in goods (industrial or agricultural).

13

Other issues addressed: Working Procedure Appellate Review Rule 20(2)(d); passive observers; "subsequent

practice" (VCLT, Art. 31.3(b)).

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VI.

SPECIALTREATMENT

INBRIEF
The "special treatment" clause is part of Annex 5 to the Agreement on Agriculture and provides a major exception with respect to the general tariffication requirement. Annex 5 permitted four countries to maintain non-tariff border measures on certain products during the period of tariff reductions (with the possibility of extending the special treatment, subject to further negotiations). Under this provision, the obligation to convert protective measures into customs duties was deferred by six years for certain products.

INDETAIL
Article 4.2 does not apply to any primary agricultural product and its worked and/or prepared products ("designated products") in respect of which: (a) imports of the designated products comprised less than 3 per cent of corresponding domestic consumption in the base period 1986-1988 ("the base period"); (b) no export subsidies have been provided since the beginning of the base period for the designated products; (c) (d) effective production-restricting measures are applied to the primary agricultural product; such products are designated with the symbol "ST-Annex 5" in Section I-B of Part I of a Member's Schedule annexed to the Marrakesh Protocol, as being subject to special treatment reflecting factors of non-trade concerns, such as food security and environmental protection; and (e) minimum access opportunities in respect of the designated products correspond, as specified in Section I-B of Part I of the Schedule of the Member concerned, to 4% of base period domestic consumption of the designated products from the beginning of the first year of the implementation period and, thereafter, are increased by 0.8% of corresponding domestic consumption in the base period per year for the remainder of the implementation period.

The products and countries concerned are: rice in the case of Japan, Korea and the Philippines; and cheese and sheep meat in the case of Israel. During its accession process, Chinese Taipei also opted not to undergo tariffication for rice. In return for the special treatment, these Members undertook minimum import commitments. They created tariff quotas. For the developed-country Members these tariff quota started at 4% of domestic demand which had to be increased by 0.8% on a yearly basis. For the developing-country Members the tariff quota started at 2% of domestic demand and increased gradually to 4% by 2004. Japan, Israel and Chinese Taipei have since tariffied the products concerned (G/MA/TAR/RS/57, 78, 88 and 88/Corr.1). Korea and the Philippines are currently in negotiations on extending the special treatment (G/AG/W/62 and G/AG/W/63). The details of renegotiation and the increase in the tariff quotas after renegotiation are set out in Annex 5 of the Agreement on Agriculture.

139

VII. HORIZONTALEXCEPTIONS
In addition to the exception in Annex 5, in certain circumstances, Members can impose additional charges and/or import restrictions on market access for agricultural products. Do you recall that in Module 2, you studied the general horizontal exceptions that allow WTO Members to derogate from all WTO rules? This is not affected by Article 4.2 of the Agreement on Agriculture.

INBRIEF
Article 4.2 does not prevent the use of non-tariff import restrictions consistent with the provisions of the GATT or other WTO agreements, which are applicable to traded goods generally (industrial or agricultural).

INDETAIL
The GATT exceptions to the general rule of tariff-only border measures apply to agricultural products in the same way as they apply to industrial products. Some of these are explained below: Article XX of GATT 1994 allows import restrictions for numerous reasons., including for reasons of public morals and protection of exhaustible natural resources; The Agreement on Sanitary and Phytosanitary Measures permits import restrictions to protect human, animal and plant health and to protect the environment; Article XXI of GATT 1994 allows exceptions in cases of national security measures; Members can use non-tariff restrictions in cases of balance-of-payments difficulties under Article XII; Members can also take general safeguard action under Article XIX and the Agreement on

Safeguards; and Anti-dumping and countervailing action under Article VI of GATT 1994, the Agreement on Subsidies and Countervailing Measures and the Agreement on the Implementation of Article VI. (However, action under these provisions were restricted by the due Restraint clause of the Agreement on Agriculture, which restricts retaliation rights in cases where the Agreement is being complied with).

EXERCISES: 6. In addition to the exceptions in Annex 5, in what circumstances can additional charges and/or import restrictions be imposed on market access for agricultural products? 7. What is the prohibition in Article 4.2 of the Agreement on Agriculture and what are the exceptions to this prohibition?

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VII.A. IMPLEMENTATION
You have now studied rules and exceptions related to market access and agricultural products. Let us now see how these rules are implemented.

APPLIED VS BOUND TARIFFS Many countries apply tariffs at levels below the rates set out in their Schedules of Concessions. The following two tables (tables 4 and 5) present some data on the difference between bound and applied rates. Table 4 shows the simple average bound and applied tariffs for certain Members. These averages do not include ad valorem equivalents of specific duties. For the Members in the table this does not cause any significant change in the data because they all have no, or very few, specific duties.

Simple Average Bound Tariff % Australia Bangladesh China Egypt India Indonesia Jamaica Kenya Nigeria Pakistan Philippines South Africa Sri Lanka Turkey Uruguay Venezuela Zambia Table 4: 3.2 188.5 15.8 95.3 114.5 47.0 97.4 100.0 150.0 97.1 34.6 39.8 49.7 60.2 33.9 38.8 123.3 Average Applied vs Bound Tariffs

Simple Average Applied Tariff % 1.1 21.7 19.2 22.8 36.9 8.2 15.9 20.1 53.9 20.4 8.0 9.1 19.0 13.5 11.6 14.8 18.8

Year for Average Applied Tariff 2003 2003 2002 2002 2002 2002 2003 2001 2002 2003 2003 2002 2001 2003 2002 2002 2003

Source: World Trade Report 2003, WTO Note: Comparable figures for many countries are not presented because of the large number of non-ad valorem tariffs in their Schedules.

141

Table 6 includes the ad valorem equivalents of specific duties, and presents the comparison of bound and applied tariffs as both the simple average and the average weighted by the value of trade. In both cases the data shows that there is a considerable difference between applied and bound rates.

Simple Average Applied Industrial countries EU Japan United States 24.1 19.8 24.2 5.0 Bound 47.7 22.5 48.4 6.1

Weighted Average Applied 14.1 17.4 20.9 5.0 Bound 24.9 21.3 51.6 6.6

Developing countries Upper middle income Lower middle income Low income

16.3 13.7 18.0 17.0

61.7 56.5 51.4 75.7

24.4 23.1 14.4 15.5

60.0 54.1 41.8 95.6

East Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle East & North Africa South Asia Sub-Saharan Africa

19.1 11.9 13.4 31.0 23.0 17.5

48.0 27.8 59.2 61.0 100.9 74.6

37.0 16.1 18.4 22.4 22.3 16.2

58.7 50.9 51.8 50.0 132.4 73.5

World Table 5:

17.0 Average Applied vs Bound Rates

60.5

18.0

38.2

Source: Martin and Zhi, World Bank, 2004

VII.B. SOMEPROBLEMSWITHTARIFFS
During the Uruguay Round, countries made their own calculations of the tariffs resulting from tariffication and inscribed them in their draft schedules. If other countries did not object by the conclusion of the Round on 15 April 1994, the drafts were incorporated as the Final Schedule. The reference period (1986-1988) used to calculate the difference between the world market price corresponded to a period of low world prices, which meant that the difference between import and domestic price was considerable. Therefore, tariffication resulted in high tariffs in many cases.

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VII.B.1. COMPLEXTARIFFS
Although non-tariff measures are no longer permitted this does not prevent some countries from having relatively complicated tariff structures.

Important Note

Recall that tariffs can be levied either as ad valorem, specific duties, compound tariffs, seasonal tariffs and other complex forms.

While ad valorem tariffs may be the simplest to establish, some Members prefer to use specific duties or a combination of both specific and ad valorem tariffs or more complicated tariff structures. See, for example, Table 6 with some complex tariff forms:

Member

HS92

Product Meat of bovine animals, fresh or

Base Rate 344 NOK per kg or NOK 119.01 whichever is greater

Norway

0201.30.01

chilled: beef steaks and fillets Poultry not cut in pieces, frozen: Fowls of the species Gallus; over

283% but not <7.05/kg or> 14.11/kg

Canada European Union

0207.21.92

access commitment Meat of bovine animals: carcases

0202.10.00

and half-carcasses

12.8% + 1768 ECU/tonne

10.4% + 71 ECU/tonne 0805.10 0805.10.16 0805.10.26 0805.10.36 0805.10.40 0805.10.50 0805.10.66 Oranges: Sweet oranges, fresh from 1 to 30 Apr from 1 to 15 May from 16 to 31 May from 1 June to 15 Oct from 16 Oct to 30 Nov from 1 Dec to 31 March 4.8% + 71 ECU/tonne 3.2% + 71 ECU/tonne 3.2% 16% 16% + 71 ECU/tonne
1 1 1 1

The specific duty shall be reduced to

zero if the entry price per tonne is not less than 372 ECU/tonne

Maple sugar and maple syrup: Blended with other sugars of this United States 1702.20.38 chapter: other 6% + 19.9/kg of total sugars 50% or 12yen/kg whichever is the Japan Table 6: 1005.90 Maize: other: other greater

Complex Tariff Forms

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VII.B.2. HIGHTARIFFSANDTARIFFPEAKS
While the tariffication exercise managed to restrict the ways in which a Member can apply border protection measures, it did not directly result in liberalising trade. Even after the reductions agreed to in the Uruguay Round, tariffs on agricultural products remain high when compared to industrial products

INBRIEF
According to the World Bank, the average tariff for agricultural products is about 60% higher when compared to average rates for non-agricultural products. Average rates are around 20% for developing countries and below 5% for OECD countries. In addition, tariff rates in different countries vary considerably, for example, Norway has an average bound tariff of 167% on agricultural products (World Bank estimate) and Bangladesh 188%, while Australia has an average of 3.2%. Furthermore, there are also wide differences within Members, as some products may have low tariffs while other products have high tariffs. For example, in South Africa, tariffs vary from 0% for some products to a maximum of 597%, in Korea from 0% to 887% and in Chinese Taipei from 0% to 500%. One measure of the variability of tariffs is the coefficient of variation. As can be seen in Table 7, this coefficient is particularly large in developed countries as they have tariffs varying from zero to very high and everywhere in between.

Simple Average (%) Industrial countries EU Japan United States 47.1 22.5 48.4 6.1

Coefficient of variation (%) 246.3 167.6 281.6 203.3

Weighted Average (%) 24.9 21.3 51.6 6.6

Maximum tariff (%) 3424 479 1646 100

Developing countries Upper middle income Lower middle income Low income

61.7 56.5 51.4 75.7

136.7 146.1 176.6 64.2

60 54.1 41.8 95.6

8334 7696 3000 550

World Table 7:

60.5 Agriculture Tariffs 2000-2002

145.1

38.2

8334

Source: Martin and Zhi, World Bank, 2004

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VII.B.3. TARIFFESCALATION

INBRIEF
Tariff escalation is where there are higher import duties on semi-processed products than on raw materials, and still higher duties on finished products. This practice can be used to protect domestic processing industries but it can also discourage the development of processing industries in the countries where the raw materials originate.

INDETAIL
Tariff escalation is quite common in agriculture, for example, the EU has bound tariffs of zero on cocoa beans, 7.7% on cocoa butter, 8% on cocoa powder, between 8% and 66.4% on cocoa powder containing sugar and between 22% and 58.4% on chocolate. The escalation is even more steep from grapes to concentrated grape juice: Fresh grapes can enter the EU with tariffs between 8% and 17.5%, but concentrated grape juice is charged 183.6%. (Note some of these are ad valorem equivalents and estimates may vary depending on the methodology used).

Chocolate Cocoa

18.7% 1%

Figure 2:

Market Access: Tariff Escalation

TARIFF ESCALATION: Higher import duties on semi-processed products than on raw materials, and higher still on finished products. This practice protects domestic processing industries and discourages the development of processing activity in the countries where raw materials originate.

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Table 8 shows tariff rates, or their ad valorem equivalents, for some products. These show some of the very high rates of tariffs, which apply to some agricultural products and the tendency, in some areas, to charge higher tariffs for higher value derivatives of basic commodities.

United

PhilipJapan 50 Korea 40 Brazil 55 pines 40

India (b) 100 China 12

Product Bovine Meat, chilled Bovine Meat, frozen (boneless) Milk Butter Rice, milled Wheat Wheat flour Wheat, groats and meal Pineapples, fresh Pineapples, prepared or preserved Pineapples, juice Groundnuts, shelled Groundnuts, roasted Table 8:

EU 86

States 26

215 113 68 71 65 44

26 66 70 11 2 2

50 280 105 550 39 40

30 36 89 Annex 5 2 4

55 55 55 55 55 55

35 18 40 Annex 5 30 40

100 60 40 70 40 150

12 15 10 65 65 65

74 6

1 3

25 17

288 30

55 35

40 40

150 100

65 12

25 46 0 11

1 12 132 132

36 24 550 21

45 54 230

35 35

40 50 40 40

150 85 100 150

15 20 30 30

Tariffs, Agriculture

Source: UNCTAD (TD/B/COM-1/14), Schedules, AMAD Database (http://www.amad.org) and Schedule XII as amended in G/SECRET/8/Add.1

VII.B.4. PREFERENCES
In many cases different tariffs can be charged on imports from different Members, for example, as part of a regional trade agreement or under a Generalised System of Preferences which allows Members to apply lower tariff rates to imports from developing and least-developed countries. Some Members have very complex networks of bilateral trade agreements and preferential arrangements. Thus they do not always trade on an MFN basis. The extent and depth of these arrangements also varies considerably from one Member to another. As you saw in Module 1, regional trade agreements and customs unions are covered by GATT Art. XXIV and its updates, including the 1994 "Understanding" and the Enabling Clause, as well as GATS Article V with regard to services.

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The Enabling Clause also sets out a number of conditions that must be met. The most important conditions are that preferences must not discriminate between developing countries (paragraph 2(a) footnote 3) and that preferences must not hinder MFN tariff reductions (paragraph 3(b)).

VII.C. WHATTHENWERETHEBENEFITSOFTHEURUGUAY ROUND?

The Uruguay Round was seen as the first step towards the reform of trade in agricultural products. Tariffication increased the transparency of border protection. The key aspects of the changes in the Uruguay Round have been to stimulate investment, production and trade in agriculture by: (i) (ii) making agricultural market access conditions more transparent, predictable and competitive; establishing or strengthening the link between national and international agricultural markets, and thus; and (iii) relying more prominently on the market for guiding scarce resources into their most productive uses both within the agricultural sector and economy-wide. Note that these rules are now being renegotiated as part of the Doha Development Agenda, which will be explained in Module 7.

EXERCISES: 8. Explain the following terms: tariff peak tariff escalation

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VIII. SPECIALSAFEGUARDPROVISIONS
VIII.A. INTRODUCTION
As part of the tariffication package, some Members negotiated during the Uruguay Round the right to use a special agriculture safeguard (SSG) for certain tariffied products.

INBRIEF
The rules on the special safeguard (SSG) are contained in Article 5 of the Agreement on Agriculture. Members have the right to invoke the SSG for tariffied products, provided that a reservation to this effect appears beside the products concerned in the relevant Member's Schedule. If the tariff line in the Schedule is marked "SSG", an additional duty can be imposed on imports of that product if import prices fall or volumes rise.

INDETAIL
There are two important points to note: The SSG cannot be used on imports under TRQs, i.e. additional duties cannot be applied to imports taking place within TRQs. The SSG was part of the tariffication process. Therefore, products that were not tariffied were not eligible for the SSG. For example, Members with ceiling bindings on some products did not have the right to use the SSG on these products. Provided that the product has been tariffied and that it has "SSG" beside it in the Member's Schedule of Concessions relating to agricultural products, the SSG provisions allow to raise the bound tariff where either: import quantities exceed a trigger level relating to the existing market access opportunities, as set out in Article 5.4 (volume trigger); or there has been a fall of the import price below a specified reference price (determined on the basis of the CIF import price of the shipment below a trigger price equal to the average 1986-1988 reference price, normally referred to as "price trigger", for the relevant product). In case of the volume trigger, the higher duties only apply until the end of the year in question. In case of the price trigger, any additional duty can only be imposed on the shipment concerned.

148

VIII.B. PRICEBASEDSSG
The method of calculating the price-based SSG is set out in Article 5 of the Agreement on Agriculture. The price safeguard provisions are set out in Articles 5.1(b) and 5.5 of the Agreement on Agriculture. Article 5.1(b) provides specific conditions for special safeguard provisions related to price, in addition to the two general conditions of Article 5.1. If the market entry price (expressed in terms of domestic currency) falls below a trigger price, the provisions of Article 5.5 come into play and an additional duty may be applicable to the shipment in question. For the Price Based SSG, the trigger price is the average 1986 to 1988 CIF price and the additional rate of import duty depends on the difference between the trigger price and the price of the imported product.

Article 5 says: If import price falls below the trigger price, where Trigger Price = average 1986 - 1988 c.i.f. price then if the difference between Import Price and Trigger price is: a. 10%, the additional duty is 0 b. > 10%, but 40%, the additional duty is 30% on the amount by which the difference exceeds 10% c. > 40%, but 60%, the additional duty is 50% of the amount by which the difference exceeds 40% plus b. d. > 60%, but 75%, the additional duty is 70% of the amount by which the difference exceeds 60% plus b. y c. e. > 75%, the additional duty is 90% of the amount by which the difference exceeds 75% plus b., c. y d. For example: If Trigger Price = 200 and Import Price = 30 then the difference is 200 - 30 = 170 or 85% of the Trigger Price therefore the Price Based SSG is: a. 10% of difference extra duty is 0% b. 10% to 40% of difference extra duty is 30% c. 40% to 60% of difference extra duty is 50% d. 60% to 75% of difference extra duty is 70% e. over 5% of difference extra duty is 90% that is 0% that is 30% that is 50% that is 70% that is 90% *(TP*10%) *(TP*(40%-10%)) *(TP*(60%-40%)) *(TP*(75%-60%)) *(TP*(85%-75%)) =0%*(20) =30%*(200*30%) =50%*(200*20%) =70%*(200*15%) =90%*(200*10%) =0 = 18 = 20 = 21 = 18

Total additional duty = 77

149

The graph shows the effect of the SSG as it partially compensates for the decline in the import price. In the example the trigger price is taken to be $120 with a specific duty of $20. For the first 10% of the fall in price below the trigger price no extra duty is charged, but as the price falls further below the trigger the additional duty increases.

Figure 3:

Effect of the SSG as it partially compensates for the decline in the import price

In the EC Poultry case the Appellate Body clarified the interpretation of the terms of Article 5.1(b): In the light of our construction of the preceding phrase "the price at which imports of the product may enter the customs territory of the Member granting the concession", we conclude that the phrase "as determined on the basis of the c.i.f. import price of the shipment concerned" in Article 5.1(b) refers simply to the c.i.f. price without customs duties and taxes. There is no definition of the term "c.i.f. import price" in the Agreement on Agriculture or in any of the other covered agreements. However, in customary usage in international trade, the c.i.f. import price does not include any taxes, customs duties, or other charges that may be imposed on a product by a Member upon entry into its customs territory. We think it significant also that ordinary customs duties are not mentioned as a component of the relevant import price in the text of Article 5.1(b). Article 5.1(b) does not state that the relevant import price is "the c.i.f. price plus ordinary customs duties". Accordingly, to read the inclusion of customs duties into the definition of the c.i.f. import price in Article 5.1(b) would require us to read words into the text of that provision that simply are not there.
14

14

Panel Report on EC - Poultry, paragraph 146.77 and paragraphs 147-150

150

To satisfy the specific conditions, it is necessary to determine the price at which the product enters the customs territory. The text of Article 5.1(b) provides that it is to be "determined on the basis of the CIF import price". Article 5.1(b) defines the price of the product on which price safeguards are triggered as "equal to the average 1986 to 1988 reference price for the product concerned".

VIII.C. VOLUMEBASEDSSG
The volume-based SSG has its legal basis in Article 5 of the Agreement on Agriculture. Article 5.1(a) provides that an additional duty may be imposed if the annual volume of imports of the product exceeds a trigger level. Article 5.4 provides that the "volume trigger level" is to be calculated on the basis of imports as a percentage of domestic consumption (last three years of available data), a figure referred to as "market access opportunities". This figure gives a base trigger level. The volume-based SSG can be just as hard to calculate as the price-based SSG. Although the rate of additional duty is simply one third of the applied tariff, the calculation of the trigger volume is more complex. It can be either 125% of the average imports over the past three years, or it can be calculated by a complex formula set out in Article 5, which depends on the level of market access opportunities and the change in domestic consumption. It should also be noted that in cases where the level of consumption has been falling the trigger cannot fall below 105% of the average level of imports for the previous three years.

Article 5 says: The element x: Market Access Opportunities: a. if market access opportunities 10% of market b. if market access opportunities > 10% but 30% c. if market access opportunities > 30% The y element: Change in domestic consumption The change in domestic consumption between the most recent year for statistics and the previous year. For example: Average imports for the three previous years are 562 tonnes/year and consumption for the three previous years as follows: Year 1 is 990 tonnes; Year 2 is 1000 tonnes; and in Year 3 = 1010 tonnes -> average consumption: 1000 tonnes -> import penetration: 56% -> base trigger is: 105% x element is y element is 105%*562 Year 3 consumption - Year 2 consumption = 590.1 tonnes = 10 tonnes x element is 125% * average imports over the past 3 years x element is 110% * average imports over the past 3 years x element is 105% * average imports over the past 3 years

Trigger Level Above Which Volume Based SSG can be applied is 600.1 tonnes or 125% of 562 tonnes (702.5 tonnes)

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VIII.D. WHENCANTHESSGBEUSED?
Article 5.9 states that the SSG can be used for the duration of the reform period "as defined by Article 20". However, there is no clear definition of the "reform period" (the "reform period" is not to be confused with the "implementation period"). In fact, some Members argue that because Article 20 refers to the continuation of the reform programme this programme could remain in force for some time. Others claim, that in the absence of implementation of reductions in domestic support and protection the reform programme is not being implemented, that is, the right to use the SSG depends on the reform process actually taking place. If this view is correct, it would imply that after the implementation period is over and, if there are no negotiations or the negotiations are not making clear progress, there is no reform process and the SSG can no longer be applied.

VIII.E.

WHOHASTHERIGHTTOUSETHESSG?

Thirty-eight Members have reserved the right to use the SSG on a combined total of 6,072 agricultural products. This is indicated in their Schedules. As of 17 December 2004, 5 Members had notified that they had used, or, in the case of the EU, made operational, the SSG.

SPECIAL AGRICULTURAL SAFEGUARD ACTION BY MEMBER AND NUMBER OF TARIFF ITEMS, 1995-2000

Member Barbados Costa Rica Chinese Taipei EU Hungary Japan Korea Nicaragua Philippines Poland Switzerland United States Total Table 9:

1995

1996

1997

1998

1999

2000

2001

2002 22

2003

3 21 5

12

14

14

12

13 7

13 7 4 8

17 7 4 7 8 7 13

3 3

1 5 5

2 5

8 6

4 6 2 3 5 105 7 24 42 49 71 74 96 74 98 35 185 37 76 44 81 51 260 39 7 9 138 14

Price-based Special Agricultural Safeguard Action

152

Member Chinese Taipei Czech Republic EU Japan Korea Philippines Poland Slovak Republic United States Total Table 10:

1995

1996

1997

1998

1999

2000

2001

2002 18

2003 62 8

2004 61

5 47 5 61 46 5 2 27 3 2 27 3 2 27 7 13 27 11 1

12

1 1 1 6 5 108 55 39 33 51 44 2 39 81 61 1 1 4 4

Volume-based Special Agricultural Safeguard Action

Source: WTO Secretariat, TN/AG/S/12 Note: Cut-off date: 17 December 2004.

Article 5.8 of the Agreement on Agriculture provides that "Where measures are taken in conformity with paragraphs 1 through 7 above, Members undertake not to have recourse, in respect of such measures, to the provisions of paragraphs 1(a) and 3 of Article XIX of the GATT 1994 or paragraph 2 of Article 8 of the Agreement on Safeguards." Therefore, a WTO Member may choose between the SSG under Article 5 of the Agreement on Agriculture or the general safeguards under the GATT 1994 Article XIX in accordance with the requirements of the Agreement on Safeguards. However, if a WTO Member chooses to introduce SSG, it cannot have recourse to general safeguard measures. The SSG provisions for agriculture differ from the general safeguards. WTO Members can raise their duties on agricultural products even when the more stringent requirements of Article XIX on the "Emergency Action on Imports of Particular Products" of the GATT 1994, and the Agreement on Safeguards are not met. Under the SSG, unlike with normal safeguards: higher safeguard duties can be triggered automatically when import volumes rise above a certain level, or if prices fall below a certain level; and it is not necessary to demonstrate that serious injury is being caused to the domestic industry.

EXERCISES: 9. 10. What are the pre-conditions to using the SSG? Can all WTO Members use the safeguard mechanism in Article 5 of the Agreement on Agriculture? Why or why not?

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IX.

NOTIFICATIONOBLIGATIONS

IX.A. TARIFFSANDTARIFFQUOTANOTIFICATION OBLIGATIONS

INBRIEF
With a view to ensure Members comply with their obligations, they are required to make notifications on their commitments (the bound agricultural tariffs and the TRQ commitments in their Schedules). The notification requirements and formats are set out in document G/AG/2, issued on 30 June 1995. There is no requirement for Members to notify their tariffs to the Committee on Agriculture. Applied tariffs are notified to other bodies of the WTO, including the Committee on Market Access and the Trade Policy Review mechanism.

INDETAIL
For market-access commitments, Members have to make a notification to the WTO of: the method by which they are administering a TRQ, that is if they are allocating it to countries and how they are giving out import licences; and how much was actually imported under each TRQ.

These commitments are notified in tables MA:1 and MA:2. Table MA:1 Administration of Tariff Quotas: Lists the different TRQs and the methods of allocation. A single notification is required with ad-hoc notifications made subsequently if there are changes to the methods of allocation. As a result of the discussions on implementation in the preparation for the Doha Ministerial Conference, Members agreed to provide more information on TRQ administration methods and submitted more detailed MA:1 notifications in 2001. Table MA:2 Imports under Tariff Quotas: Shows the volume of imports made under TRQs relative to the market access opportunities. This notification is required annually.

IX.B. NOTIFICATIONSFORTHESPECIALSAFEGUARD

INBRIEF
Members with the right to use the SSG must notify its first use in order to allow its trading partners to establish the parameters, such as the volume or price used to trigger the SSG. In the case of the price trigger, an upfront notification of the relevant reference prices is also possible. In addition, an annual summary notification of the use of the special safeguard is required.

154

INDETAIL
Table MA:3 Volume-Based SSG. As far as practicable, the MA:3 notification should be made before taking such action for the first time in any year for each product, and in any event within 10 days of the implementation of such action. Table MA:4 Price-Based SSG. Table MA:4 can be used either to provide an up front notification of trigger prices or, on a case by case basis, for the first use of the price-based SSG for any particular product (to be notified to the extent possible in advance, but in any event within 10 days of the taking of such action). MA:5 Annual Notification. Table MA:5 indicates the use of the SSG provisions in any year. The notification should be submitted no later than 30 days following the year in question. Where the SSG provisions have not been invoked in any year, a statement to this effect should be made. Members with TRQs and the right to use the SSG are required to make both ad hoc and annual notifications to the Committee on Agriculture. At the beginning of the implementation period, an "up-front" notification was due, setting out how each TRQ is to be administered. Such notifications disclose, for example, if imports are permitted on a "first-come-firstserved" basis or if import licences are used and in the latter case, an indication of who is able to obtain a licence and how they are allocated. An ad hoc notification is required if the method of allocation under any TRQ changes. At the end of each year, a notification of the quantity of imports entering under each tariff quota is required (tariff quota fill).

EXERCISES: 11. What are some of the notification obligations regarding market access?

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X.

SUMMARY

Before the Uruguay Round, many GATT Contracting Parties had unbound tariffs for many agricultural products and restricted imports using a variety of non-tariff measures. As a result of the Uruguay Round, practically all non-tariff measures were converted into ordinary customs through the tariffication process. Developed countries converted the non-tariff measures by the process of "tariffication". Developing and least-developed countries had the option of using ceiling bindings. Developed country Members reduced their tariffs by a simple average of 36% over a six-year implementation period beginning in 1995, with a minimum cut of 15% for any product. Developing countries reduced their tariffs by a simple average of 24% with a minimum cut of 10% over a ten-year implementation period. Ceiling bindings were only reduced on an ad hoc basis and least-developed country Members did not have to undertake tariff reductions. Due to the resulting high tariffs, limited volumes of imports were permitted. Where this "current" access was less than 5% of domestic consumption of the product in question in the base period, an (additional) "minimum" access opportunity had to be created so that by the end of the implementation period it was equal to 5% of domestic consumption. This was to ensure that in 1995, current and minimum access opportunities combined represented at least 3% of base-period consumption and are progressively expanded to reach 5% of that consumption in the year 2000 (developed country Members) or 2004 (developing country Members), respectively. This additional market access is provided through TRQs. WTO Members list the current and minimum market-access commitments in their Schedules. Contingency protection is provided through SSG. The fears that tariff-only protection could lead to import surges or an avalanche of low-priced imports were addressed by allowing a SSG in certain situations for products that had undergone the tariffication exercise. In the case of "tariffied" products, the SSG additional duties to be applied in case shipments at prices in domestic currencies below a certain reference level or in case of a surge of imports. The trigger in the safeguard for import surges depends on the "import penetration" currently existing in the market, i.e. where imports currently make up a large proportion of consumption, the import surge required to trigger the special safeguard action is lower. The rules on market access and the resulting commitments are found in Articles 4, 5 and the Schedules of Commitments. Transparency in the implementation of commitments is ensured through notifications.

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MARKET ACCESS

Instrument Article 4.2 Article 4.1 & Schedules

Subject matter Prohibition on the use of restrictions on imports other than tariffs. All tariffs bound. Special agriculture safeguard mechanism against import volume surges or import price declines below a trigger level (limited to "tariffied" products and not

Article 5 Annex 1 Annex 5

applicable to imports under related tariff quota commitments). Product coverage of the Agreement on Agriculture Special Treatment with Respect to Paragraph 2 of Article 4 Tariffs resulting from conversion of non-tariff border measures under

negotiating modalities ("tariffication") plus pre-existing tariffs on all other Schedules agricultural products to be reduced. Implementation of current and minimum access opportunity commitments in Schedules respect of tariffied products.

Developed Countries Modalities/Schedules Average tariff reductions of 36% (minimum 15%) over 6 years.

Developing Countries Average tariff reductions of 24% (minimum 10%) over 10 years; Where "ceiling bindings" commitments undertaken reductions not required except on ad hoc basis; Least developed not required to undertake reduction commitments.

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PROPOSED ANSWERS: 1. Tariffs and the Special Agricultural Safeguard. Members may also adopt general and specific border measures under the other WTO Agreements, such as, Article XIX safeguards, Article VI anti-dumping, and under the SPS Agreement and the TBT Agreement. 2. After fixing tariffs, WTO Members agreed they would agree to reduce these tariffs over time, i.e. developed country Members agreed to reduce, over a six-year period beginning in 1995, their tariffs on agricultural products by 36% on average, with a minimum cut of 15% for any product. Developing countries Members agreed to reduce, over a ten-year period beginning in 1995, their tariffs on agricultural products by 24% on average, with a minimum cut of 10% for any product. With only a few exceptions developing countries with ceiling bindings did not have to reduce tariffs. Least-developed country Members were required to bind all agricultural tariffs, but not to undertake tariff reductions. 3. Members tariffied their agricultural products, agreed to reductions, and current and minimum market access opportunities in cases where tariffs were very high, or where import quotas had previously been in place. 4. In the Uruguay Round, Members that already allowed imports of more than 5% of domestic demand agreed to maintain these opportunities. In addition, minimum access commitments were created to allow new import opportunities for products previously covered by a non-tariff barrier. All WTO Members agreed to open up their markets to imports for at least 3% of the domestic consumption in 1995, and for 5% by 2000. These commitments are administered through the establishment of "tariff-rate quotas" (TRQs). 5. The rules on TRQ Administration are found in: (1) (2) Article XIII which governs external administration and the allocation to supplying countries; and The Agreement on Import Licensing Procedures, which governs the internal allocation of licenses to traders. Methods used for giving exporters access to quotas include first-come, first-served allocations, import licensing according to historical shares and other criteria, administering through state trading enterprise, bilateral agreements, and auctioning. The terms can also specify periods for using the quotas, for example times for applying for licences, or for delivering the products to the importing countries. 6. Members can maintain non-tariff import restrictions consistent with the balance-of-payments provisions (Articles XII and XVIII of GATT), general safeguard provisions (Article XIX of GATT and the related WTO agreements), general exceptions (Article XX of GATT), the Agreement on the Application of Sanitary and Phytosanitary Measures, the Agreement on Technical Barriers to Trade or other general, and other non-agriculture-specific WTO provisions.

158

7.

Article 4.2 of the Agreement on Agriculture prohibits the use of agriculture-specific non-tariff measures. The exceptions given were special treatment in Article 5 under which option of not adopting tariffs for certain products was taken by Japan, Korea, the Philippines for rice and by Israel for certain sheep and dairy products. In its accession Chinese Taipei also opted not to undergo tariffication for rice. These countries had to create market access in the form of progressively increasing import quotas for the products concerned. Today, the exception only applies to Korea, the Philippines and Chinese Taipei. In addition, Members can still adopt non-tariff import restrictions pursuant to GATT 1994 (Articles XX, XXI, XII, XIX, VI) and the SPS Agreement.

8.

Tariff peaks are relatively high tariffs, usually on so-called sensitive products, amidst generally low tariff levels. Tariff escalation refers to the charge of higher import duties on semi-processed products than on raw materials, and still higher import duties on finished products.

9.

(1)

The product must have undergone tariffication (the non-tariff border measures applying to the product must have been converted into tariffs).

(2)

The product must have the symbol "SSG" in the WTO Member's Article II Country Schedules in the GATT 1994.

10.

NO, use of the safeguard mechanism is only for the Members who applied the tariffication formula during the Uruguay Round negotiations and who made a reservation to use it in the Schedule of Commitments. The right to make use of the special safeguard provisions has been reserved by 38 Members, for a limited number of products in each case.

11.

For market-access commitments, Members have to make a notification to the WTO of: (1) the method by which they are administering a TRQ, that is if they are allocating it to countries and how they are giving out import licenses, and (2) how much was actually imported under each TRQ. Members with the right to use the special safeguard provisions must notify its first use. In the case of the price trigger, an upfront notification of the relevant reference prices is also possible. In addition, an annual summary notification of the use of the special safeguard is required.

159

MODULE

5
DomesticSupport
ESTIMATEDTIME:5hours

OBJECTIVES OF MODULE 5

Present the second pillar of the Agreement on Agriculture: Domestic Support Outline the Conceptual Framework of the rules on domestic support in the Agreement on Agriculture; Explain the Green Box; Explain other exempt support: Blue Box, Development Programmes, De minimis;

Describe the Domestic Support Subject to Reduction Commitments (Amber Box); and Outline the Notification Obligations of WTO Members concerning Domestic Support for Agricultural Products.

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I.

CONCEPTUALFRAMEWORK

In the WTO, agricultural support measures are classified as belonging to two major groups: (1) domestic support; and (2) export subsidies. This Module looks at domestic support and Module 5 at export subsidies. At the end of this Module, you should be able to explain: the rules governing domestic support in the Agreement on Agriculture; the terms "Green Box", "Blue Box", and "Amber Box"; the exemptions for certain development programmes in developing country Members; the rules concerning de minimis levels of support; and the domestic support subject to reduction commitments.

As you saw in Module 2, the GATT 1947 allowed Contracting Parties to grant subsidies. GATT 1947 Article III.8(b) stated that subsidies to producers were not prohibited by the national treatment obligation, however, the provision was subject to varying interpretation. Likewise, the rules governing price support measures were unclear; some Contracting Parties concluded that they could freely provide subsidies to encourage agricultural production, while others argued that if these subsidies nullified or impaired the value of a tariff concession they were in breach of Article XXIII of GATT. Not all subsidies distort trade to the same extent. However, in agriculture, the widespread use of production-related subsidies, for example, price support measures, led to increasing production in some countries. In some cases, the combination of the protection and subsidies increased production above demand (particularly because demand was often suppressed due to high prices) and the excess had to be stockpiled or exported. However, with world market prices usually lower than domestic prices, the exports required export subsidies. Thus, one subsidy (domestic support) led to another (export subsidies). Even in cases where the country remained a net importer, domestic supports can affect trade by reducing demand for imports. As a result of the Uruguay Round, the disciplines in the Agreement on Agriculture have fundamentally changed the way domestic support in favour of agricultural producers was treated under the GATT 1947. Domestic support commitments and rules apply to government measures, other than tariffs, that benefit the producers and are not contingent on exports. The Agreement on Agriculture covers several categories of support. To some extent, this categorisation arose from the different effect that various types of support have on production and trade. For example, research and training are generally considered as non-trade-distorting because they do not directly encourage or support production or trade in specific products. Of course, education and training programmes may lead to increased productivity but they do not require students to grow certain crops, nor do they include payments from the State that depend on the volume produced. However, many argued that subsidies that guarantee high prices, and, therefore, directly encourage high levels of production, needed to be restricted. Hence, subsidies were grouped into different categories.

163

THEBOXES
In WTO terminology, domestic subsidies are classified in "boxes". Originally, these were meant to have the colours of traffic lights: green (permitted), amber (slow down i.e. be reduced), red (forbidden). The Agreement on Agriculture has no Red Box, although domestic support exceeding the reduction commitment levels in the Amber Box is prohibited; and there is a Blue Box for subsidies that are tied to programmes that limit production. There are also exemptions for developing-country Members (normally called "S&D Box"), which covers the provisions in Article 6.2 of the Agreement on Agriculture. And there is a Green Box for subsidies that cause no more than minimal trade distortion.

GREEN BOX The Green Box is defined in Annex 2 of the Agreement on Agriculture. In order to qualify for the Green Box, a subsidy programme must not have more than a minimal trade-distorting effect or effect on production (paragraph 1 of Annex 2). In addition, such measures have to be government-funded and must not involve price support. Green Box programmes tend to be those that are not targeted at particular products, and include general services, such as research, pest and disease control or marketing and promotion services, as well as certain direct payments to producers, such as income supports for farmers that are not related to (are "decoupled" from) current production levels or prices. They also include structural adjustment assistance, payments under environmental programmes and regional assistance programmes. Green Box subsidies are therefore allowed without limits, provided they comply with the policy-specific criteria set out in Annex 2.

AMBER BOX All domestic support measures considered to distort production and trade, with the exception of some measures set out in Article 6, fall into the Amber Box and are subject to limits. These include measures to support prices, input subsidies or subsidies directly related to production quantities. In fact, any domestic support that cannot be included in the categories exempt from reduction (i.e. Article 6.2, Article 6.5 or Annex 2 of the Agreement), has to be accommodated within the ceilings set by the Total Aggregate Measurement of Support (Total AMS) and/or the de minimis provisions of the Agreement set out in paragraph 4 of Article 6. The Total AMS includes all support provided on either a product-specific or non-product-specific basis and is to be reduced during the implementation period. The AMS is defined in Article 1 and Annexes 3 and 4. In the case of Members with no scheduled reduction commitments, any domestic support not covered by the exempt categories must be maintained within the relevant product-specific and non-product-specific de minimis levels.

164

BLUE BOX This is the "amber box with conditions" for certain supports that are part of production limiting programmes (details set out in paragraph 5 of Article 6 of the Agreement on Agriculture). At present, there are no limits on spending on Blue Box subsidies.

Exemption from Reduction Commitments (1) Green Box (2) Blue Box (3) Development Programmes Annex 2 Article 6.5 Article 6.2 No more than minimally trade or production distorting Production-limiting Programmes Investment, Input, Diversification

Reduction Commitments & de minimis allowance Amber Box Articles 3 & 6 Article 7 Annex 3 Annex 4 Table 1: Domestic Support Structure Reduction Commitments, de minimis General Disciplines Aggregate Measurement of Support Equivalent Measurement of Support

EXERCISES: 1. If you wanted to find out the type of domestic support that can be included in the exempt categories, to what provisions of the Agreement on Agriculture would you refer? 2. What are Amber Box subsidies and can you give some examples?

165

II.

THEGREENBOX

II.A. GENERALREQUIREMENTS
Domestic support measures with no more than minimal impact on trade or production can be used without financial limitation they are placed in a Green Box. Therefore, provided that it complies with the provisions of Annex 2 of the Agreement on Agriculture, a WTO Member has the right to: increase spending on existing measures; introduce new measures; or amend existing measures.

To qualify as a Green Box measure a programme must satisfy some general and specific criteria. The general criteria are set out in paragraph 1 of Annex 2. The general criteria are that the measures must: have no, or at most minimal, trade-distorting effects or effects on production; be provided through a publicly-funded government programme (including government revenue foregone) not involving transfers from consumers; and must not have the effect of providing price support to producers.

Even with these general conditions the scope of the Green Box is quite broad and it covers a fairly wide range of programmes. However, Green Box measures must also meet the relevant policy-specific criteria listed in paragraphs 2 to 13 of Annex 2. The Green Box applies to both developed and developing country Members but in the case of developing countries special treatment is provided in respect of (1) governmental stockholding programmes for food security purposes and (2) subsidized food prices for urban and rural poor.

II.B.

GOVERNMENTSERVICEPROGRAMMES

The Green Box covers many government service programmes including general services provided by governments, expenditures in relation to the accumulation and holding of public stocks for food security purposes, and expenditures in relation to the provision of domestic food aid to sections of the population in need - as long as the general criteria and some other policy-specific conditions are met by each measure (paragraphs 2, 3 and 4).

166

Under the General Services category (paragraph 2 of Annex 2), the Green Box exempts from reduction commitments many types of government programmes associated with agriculture such as: research; pest and disease control; training services; extension and advisory services; inspection services; marketing and promotion services; and infrastructural services, for example, spending on capital works such as electricity reticulation, roads and other means of transport, market and port facilities, water supply facilities, dams and drainage schemes as well as infrastructural works associated with environmental programmes.

II.C.

DIRECTPAYMENTSTOPRODUCERS

The Green Box also provides for the use of direct payments to producers, which are not linked to production decisions, that is, although the farmer receives a payment from the government, this payment does not influence the type or volume of agricultural production ("decoupling"). The conditions preclude any linkage between the amount of such payments and production, prices or factors of production in any year after a fixed base period. In addition, no production can be required in order to receive Green Box payments. Additional criteria to be met depend on the type of measure concerned, which may include: decoupled income support measures; income insurance and safety-net programmes; natural disaster relief; a range of structural adjustment assistance programmes; and certain payments under environmental programmes and under regional assistance programmes. Paragraphs 5 to 13 of Annex 2 govern direct payments to farmers. According to the general requirements in paragraph 5, to qualify under the Green Box, a direct payment must comply with the general requirements of paragraph 1 as well as the specific criteria in paragraphs 6 to 13. These are elaborated, in a summary form, below: Decoupled income support (Annex 2, paragraph 6): Although current production should not be necessary to receive income support the payments can be based on production at some fixed time in the past. However, it cannot be based on, or linked to, current prices, current production or other factors of production; Government financial participation in income insurance and income safety-net programmes (Annex 2, paragraph 7): Income protection schemes are allowed for situations where income loss is greater than 30% compared to the average for the previous three years. The protection must not exceed 70% of the income loss; Payments for relief from natural disasters (Annex 2, paragraph 8): Payment for disaster relief is possible in situations where production has declined by at least 30% compared to the average for the

167

previous three years and the payments must be applied only in respect of losses of income or factors of production such as land or livestock. The value of the payments should cover only the loss suffered and, where made along with income insurance payments, must not exceed 100% of the producer's total loss; Structural adjustment assistance provided through producer or resource retirement

programmes (Annex 2, paragraphs 9 and 10): Assistance under structural adjustment is possible for producer (paragraph 9) and resource retirement (paragraph 10) programmes. For producer retirement programmes the producer must retire from agriculture permanently and, for resource retirement based on land withdrawal, the land must not be used for marketable agricultural production for at least three years; Structural adjustment assistance provided through investment aids (Annex 2, paragraph 11): Structural adjustment payments can also be made through investment aids aimed at overcoming structural disadvantages or for land re-privatisation. Members in transition from centrally planned economies to market-orientated economies have made use of this provision for land re-privatisation. In addition, other countries with structural problems in agriculture have also made use of this provision; Payments under environmental programmes (Annex 2, paragraph 12): Direct payments to farmers may be made to encourage them to comply with environmental rules or to join a government environmental or conservation programme. The value of payments should be limited to the extra costs or reduced income involved in complying with the environmental programme; Payments under regional assistance programmes (Annex 2, paragraph 13): Payments may be made to overcome the difficulties faced by producers in disadvantaged areas. Although the payments should be based on some historic reference period they cannot be related to current production or current prices and are limited to the extra costs or lower income associated with farming in such areas; Other (Annex 2, paragraph 5): If a Member has or introduces a new type of direct payment that does not fit under the categories above but the Member claims it is exempt from reduction commitments it must comply with the basic criteria of paragraph 1, have no link to current production, prices, factors of production and no production can be required to receive the payment.

168

Green Box (US$ million) Selected Members Brazil China* European Union (15) Honduras Japan Korea, Republic of Philippines South Africa Switzerland Liechtenstein United States Table 2: Green Box 46,041 51,825 51,252 49,820 49,749 50,057 50,672 24,272 0 32,859 5,174 136 762 2,298 26,834 0 25,019 6,443 282 525 2,404 19,983 0 21,614 6,093 515 544 2,128 21,467 0 23,449 3,828 187 451 2,191 1995 4,883 1996 2,600 1997 3,458 1998 2,420 1999 1,568 22,267 21,971 2 24,082 4,590 236 423 2,165 2000 1,487 25,113 19,464 0 23,482 4,469 293 393 1,997 254 351 2,177 2001 1,462 29,278 18,489 2 20,355

Source: WTO Members' notifications. Conversion to US$ prepared for training purposes only, using exchange rates from the "International Financial Statistics" of the IMF. Figures have been rounded to the nearest million. For actual figures and currencies, please consult the notifications. Please note that China became a WTO Member on 11 December 2001. The domestic support notification (G/AG/N/CHN/8) concerning the years 1999-2001 was provided by China for transparency purposes.

EXERCISES: 3. What are the general criteria set out in paragraph 1 of Annex 2 for a measure to qualify as a Green Box subsidy? 4. Can you list the measure types which could be included in the Green Box?

169

III.

OTHEREXEMPTSUPPORT

In addition to measures covered by the Green Box, other categories of domestic support do not have to be reduced (see Article 6 of the Agreement on Agriculture): Blue Box subsidies - direct payments under production-limiting programmes; Development programmes in developing country Members; and De minimis levels of support.

III.A. BLUEBOX
Article 6.5 exempts from reduction commitments payments made under production-limiting programmes, which are paid out directly from the government's budget to producers (Blue Box measures) provided such payments are: (i) (ii) based on fixed area and yields; or made on 85% or less of the base level of production; or

(iii) based on a fixed number of animals. Note that although the Green Box covers payments that are decoupled from both prices and production, in the case of the Blue Box measures, they can be directly related to current production, provided that current production is limited. Blue Box payments are used in countries that have found that the traditional market support payments caused problems of over-production, have become too expensive to maintain, or are too inefficient compared to the objective of maintaining farm incomes or rural employment. Direct payments to producers are considered more efficient than market supports in maintaining incomes and ensuring minimum areas are planted or livestock numbers maintained. Because farmers are paid directly rather than supported through higher prices there is less scope for other people to get part of this support. For example, if agriculture prices are increased through market support schemes much of the transfer of resources is captured by retailers, wholesalers and processors. Blue Box payments are said to be less trade-distorting than market supports or other types of production related subsidies because of the restrictions on production needed to comply with the criteria of Article 6.5. However, because they are based on animal numbers, area planted or crop yields, they do affect trade.

170

Blue Box (US$ million) Selected Members European Union (15) Iceland Japan Norway United States Table 3: Blue Box 1995 26,943 23 0 1,124 7,030 1996 26,095 0 0 1,124 0 1997 22,487 0 0 1,043 0 1998 22,963 0 392 1,044 0 1999 19,842 0 831 984 0 2000 19,798 0 839 871 0 2001 21,231 0 728 813 0

Source: WTO Members' notifications. Conversion to US$ prepared for training purposes only, using exchange rates from the "International Financial Statistics" of the IMF. Figures have been rounded to the nearest million. For actual figures and currencies, please consult the notifications.

III.B. DEVELOPMENTPROGRAMMES
Measures of assistance (direct and/or indirect) designed to encourage agricultural and rural development and integral to the development programmes of developing countries are exempt from reduction commitments under Article 6.2 of the Agreement on Agriculture. They include: investment subsidies which are generally available to agriculture in developing country Members; agricultural input subsidies generally available to low-income or resource-poor producers in developing country Members; and domestic support to producers in developing country Members to encourage diversification from growing illicit narcotic crops. It should be noted that these are not the only programmes developing countries can implement and that the Green Box, the Blue Box and the Amber Box are also available to these Members.

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Some developing-country Members have used the provisions of Article 6.2 to notify programmes they provide to support agriculture, as showed in the table below:

Development Programmes - Article 6.2 (US$ million) Selected Members Brazil Chile Honduras Korea, Republic of Mexico Morocco Philippines Thailand Table 4: 1995 359 4 2 26 644 148 244 215 1996 269 5 7 38 265 145 53 482 1997 281 3 3 40 152 155 72 220 1998 373 3 0 30 160 150 47 124 1999 156 4 0 52 148 148 41 83 2000 310 3 1 45 39 153 74 67 261 134 77 84 2001 332 9 2

Development Programmes

Source: WTO Members' notifications. Conversion to US$ prepared for training purposes only, using exchange rates from the "International Financial Statistics" of the IMF. Figures have been rounded to the nearest million. For actual figures and currencies please consult the notifications.

III.C. DEMINIMIS
As you saw above, support within de minimis levels is also exempt from reduction commitments. The related provisions of the Agreement on Agriculture will be taken up in conjunction with the Total AMS.

EXERCISES: 5. 6. What kind of measures are covered by the Blue Box? What kind of measures in developing country Members are exempt from reduction commitment under provisions of Article 6.2 of the Agreement on Agriculture?

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IV.

DOMESTICSUPPORTSUBJECTTOREDUCTION COMMITMENTS

Any domestic support programme that cannot be included in the Green Box, Blue Box or Development Programmes has to be accommodated within the ceilings set by the Total Aggregate Measurement of Support (Total AMS) and/or the de minimis provisions of the Agreement on Agriculture. In other words, support that is not specifically excluded from reduction commitments is presumed to be included (see Article 7.2 of the Agreement on Agriculture) and must be counted in the calculation of the Member's Current Total AMS. During the Uruguay Round, in order to establish a basis for reductions, the GATT Contracting Parties set out the support they had provided to agriculture during the base period of 1986 to 1988. When subsidies exceeded the de minimis levels, Members were required to establish a Base Total AMS which was then subject to reductions. A similar approach applies to Members that joined after the Uruguay Round or are in the process of accession. In these cases the base periods more recent and vary from one Member to another. Section I of Part IV of a Member's Schedule contains the domestic support reduction commitments which are expressed in terms of the Total AMS and Annual and Final Bound Commitment Levels (Article 6.1 of the Agreement on Agriculture). (1) Base Total AMS is the sum of all domestic support provided in favour of agricultural producers during the average 1986-88 base period. (2) Annual Bound Total AMS is the maximum level of support a Member can provide during any year of the implementation period. (3) Final Bound Total AMS is the maximum level of support a Member can provide in the last year of the implementation period and thereafter. Total AMS includes all product-specific support and non-product-specific support in one single figure. The calculation of the Total AMS is set out in Article 6, and Annexes 3 and 4 to the Agreement on Agriculture. Developed-country Members committed to reduce Total AMS by 20% over the six-year implementation period (1995-2000) and developing country Members by 13.3% over the 10-year period (1995-2004). Least-developed countries were not required to make any reductions. The Total AMS commitment relates to the global amount of Amber Box (excluding de minimis support) and not to the particular mix of products. Hence, a Member can redistribute support between different products provided it complies with the Total AMS commitment set out in its Schedule.
1 2

Modalities for the Establishment of Specific Binding Commitments under the Reform Programme,

MTN.GNG/MA/W/24, 20 December 1993, paragraph 8.

2

Different implementation periods apply for some of the recently acceded Members.

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In any year of the implementation period and thereafter, the Current Total AMS value of non-exempt measures must not exceed the scheduled Total AMS limit as specified in a Member's Schedule. In other words, the maximum levels of such support are bound in the WTO. In the case of Members with no scheduled reduction commitments, any domestic support not covered by the exempt categories must be maintained within the relevant product-specific and non-product-specific de minimis levels.

Current Total AMS (US$ million) Selected Members Brazil Canada Colombia European Union (15) Japan Korea, Republic of South Africa SwitzerlandLichtenstein Thailand United States Table 5: 633 6,214 Current Total AMS 510 5,898 534 6,238 397 10,392 457 16,862 493 16,803 411 14,413 1995 0 570 58 64,658 36,369 2,691 452 3,624 1996 0 453 4 61,852 29,562 2,446 451 2,964 1997 0 366 14 55,213 25,842 2,036 477 2,374 1998 83 522 10 52,283 5,987 1,115 148 2,257 1999 0 637 7 48,006 6,704 1,305 129 1,876 2000 0 557 5 38,890 6,411 1,495 63 1,835 0 1,636 2001 0 1,791 37 35,151 5,328

Source: WTO Members' notifications. Conversion to US$ prepared for training purposes only, using exchange rates from the "International Financial Statistics" of the IMF. Figures have been rounded to the nearest million. For actual figures and currencies please consult the notifications.

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IV.A. WHATISDEMINIMIS?
De minimis is a concept in the Agreement on Agriculture that exempts relatively small amounts of Amber Box support from the Total AMS commitment. When commitments were established in the Uruguay Round, Members were not required to include in their Total AMS the value of support during the base period 1986-88 that was within the following de minimis levels: product-specific support that did not exceed 5% of the total value of production of the basic agricultural product in question; and non-product-specific support that did not exceed 5% of the value of total agricultural production.

In the case of developing country Members, the de minimis threshold is 10%.

Figure 1:

Amber Box and de minimis: Current Total Aggregate Measurement of Support

IV.B. AGGREGATEMEASUREMENTOFSUPPORT(AMS)
The details for AMS calculations are specified in Annex 3 of the Agreement on Agriculture. In any year of the implementation period and thereafter, a product-specific AMS is to be calculated for each basic agricultural product receiving non-exempt domestic support. Also, non-product-specific subsidies are to be listed and totalled into one non-product-specific AMS. The following types of support are to be included in the AMS calculation: Market price support is calculated on the basis of the gap between a fixed external reference price and the applied administered price multiplied by the quantity of production eligible to receive the applied administered price; Non-exempt direct payments, which depend on a price gap are calculated by using either the gap between a fixed external reference price and the applied administered price multiplied by the quantity of

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production eligible to receive the administered price, or by using budgetary outlays; and, non-exempt direct payments based on factors others than price are calculated using budgetary outlays; Other subsidies not exempted from reduction commitments (for example, input subsidies or interest rate subsidies) are calculated using budgetary outlays or the gap between the price of the subsidized good or service and a representative market price for a similar good or service multiplied by the quantity of the good or service. As has been mentioned earlier, the Current Total AMS value of non-exempt measures provided in any given year must not exceed the scheduled Total AMS limit as specified in a Member's Schedule for that year. Also, the Current Total AMS has to be calculated in accordance "... with the constituent data and methodology used in the tables of supporting material incorporated by reference in Part IV of the Member's Schedule". Even though Total AMS commitments apply to the total value of non-exempt support in favour of agricultural producers, to arrive at the total level of support in terms of the Current Total AMS, the value of support for each product has to be calculated. Hence, for each basic agricultural product: the implicit subsidy of price support measures is added to other product-specific subsidies - a product-specific fertiliser subsidy, for example to arrive at a product-specific AMS which is then evaluated against the applicable de minimis threshold; if the value of support to an individual product does not exceed the de minimis level, it is treated as zero for the purpose of the Current Total AMS calculation. Non-product-specific AMS is calculated separately, and is included in the Current Total AMS only if it exceeds the relevant de minimis level. The two basic criteria for valuing support are: (1) its effect on prices; and, (2) its cost to the government. Both budgetary outlays (the money spent by governments to support a product) and revenue foregone by governments or their agents, whether at national or sub-national level, are to be included in the AMS calculation. The example in the box below illustrates the calculation of the Current Total AMS for a developed country Member (5% de minimis threshold) in year Y.

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Example: Calculation of the Current Total AMS

Member X (developed country), year Y Wheat: > Intervention price for wheat = $255 per tonne > Fixed external reference price (world market price) = $110 per tonne > Domestic production of wheat = 2,000,000 tonnes > Value of wheat production = $510,000,000 > Wheat AMS (AMS 1) ($255$110) x 2,000,000 tonnes = $290,000,000 (de minimis level = $25,500,000) Barley: > Deficiency payments for barley = $3,000,000 > Value of barley production = $100,000,000 > Barley AMS (AMS 2) = $3,000,000 (de minimis level = $5,000,000) Oilseeds: > Deficiency payments for oilseeds = $13,000,000 > Fertilizer subsidy = $1,000,000 > Value of oilseeds production = $250,000,000 > Oilseeds AMS (AMS 3) = $14,000,000 (de minimis level = $12,500,000) Non-product-specific support: > Generally available interest rate subsidy = $4,000,000 > Value of total agricultural production = $860,000,000 > Non-product-specific AMS (AMS 4) = $4,000,000 (de minimis level = $43,000,000) Current Total AMS (AMS 1 + AMS 3) = $304,000,000

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IV.C. EQUIVALENTMEASUREMENTOFSUPPORT
Where it is not feasible to calculate the market price support component of the AMS by using the methodology set out in Annex 3, provisions are made for an "Equivalent Measurement of Support" (EMS). This may be the case for market price support measures which cannot be calculated by applying the AMS method because no external reference price can be determined. The EMS is generally calculated on the basis of actual budgetary outlays the money spent by governments to support a product, for example, rather than market price support calculated with respect to a fixed external reference price. Once the market price support component is determined, any non-exempt direct payments and other non-exempt support need to be calculated as per corresponding AMS components specified in relevant paragraphs of Annex 3. Like the AMS, the EMS is compared to the de minimis level and, if above that level, included in the Current Total AMS. The rules for calculating the EMS are set out in Annex 4 of the Agreement on Agriculture.

EXERCISES: 7. 8. What reduction commitments in Total AMS were undertaken by Members in the Uruguay Round? What is the Equivalent Measurement of Support (EMS) and where are the rules for its calculation found?

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Let us look at case concerning domestic support for agriculture products. However before we do so - please read the disclaimer!

Disclaimer

While the case study below is based on prior WTO Panel and/or Appellate Body rulings its main purpose is not to describe and review all the arguments and conclusions in the case in detail but rather to focus on the issues and principles addressed in the course and provide you with an outline of elements that you may wish to consider when reflecting on these issues and principles.

CASESTUDY1
KOREA BEEF (WT/DS161/AB/R and WT/DS169/AB/R) Korea Measures Affecting Imports of Fresh, Chilled and Frozen Beef

Parties Complainants Australia, United States Respondent Korea

Agreements GATT Arts. III:4, XX, XI:I and XVII:I AA Arts. 3, 4, 6 and 7

Timeline of the dispute Establishment of Panel Circulation of Panel Report Circulation of AB Report Adoption of AB Report 26 May-26 July 1999 31 July 2000 11 December 2000 10 January 2001

1.Measureandproductatissue
Measure at issue: (i) Korea's measures affecting the importation, distribution and sale of beef, (ii) Korea's "dual retail system" for sale of domestic imported beef), and (iii) Korea's agricultural domestic support programmes. Products at issue: Beef imports from Australia and the United States.

2.Summaryofkeypanel/ABfindings 3
AA Art. 3.2 (domestic support): While upholding the Panel's conclusion that Korea miscalculated its domestic support (AMS) for beef, the Appellate Body reversed the Panel's ultimate finding that Korea

Other issues addressed in this case: AA Art. 6.4, 7.2(a) (de minimis levels, current AMS for beef and current

total AMS); GATT Art. II and XI (grass-fed, grain fed beef distinction); certain aspects of distribution and sales system for imported beef (GATT Art. III:4); state-trading entities (GATT Art. XI and the Ad Note; AA Art. 4.2 and footnote 1 to Art. 4.2); and panel's terms of reference (panel request) (DSU, Art. 6.2).

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acted inconsistently with AA Art. 3.2 by exceeding its commitment levels for total support for 1997 and 1998 since the Panel had also relied on an improper methodology for its own calculations. GATT Art. III:4 (dual retail system): The Appellate Body agreed with the Panel's ultimate conclusion that Korea's dual retail system (requiring imported beef to be sold in separate stores) accorded "less favourable" treatment to imported beef than to like domestic beef. According to the Appellate Body, the dual retail system virtually cut off imported beef from access to the "normal" distribution outlets for beef, which modified the conditions of competition for imported beef. In this connection, the Appellate Body said that formally different treatment of imported and domestic products is not necessarily "less favourable" for imports within the meaning of Art. III:4. (GATT Art. XX) Further, the Appellate Body upheld the Panel's finding that the dual retail system was not justified as a measure necessary to secure compliance with Korea's Unfair Competition Act because the dual retail system was not "necessary" within the meaning of Art. XX(d). "Necessary" requires the weighing and balancing of factors such as the contribution made by the measure to the enforcement of the law or regulation at issue, the relative importance of the common interests or values protected and the impact of the law on trade. The Appellate Body agreed with the Panel that Korea failed to demonstrate that it could not achieve its desired level of enforcement using alternative measures. GATT Arts. XI:1 and XVII:1(a) and AA Art. 4.2 (tender-related practices by a state-trading enterprise (LPMO) for beef imports): The Panel concluded that the LPMO's failure to call, and delays in calling for, tenders, as well as its discharge practices (i.e. the LPMO's increase in its stocks of foreign beef, while failing to meet requests for that beef) led to import restrictions on beef contrary to Art. XI. This also led to the conclusion that the measures were inconsistent with AA Art. 4.2, which prohibits Members from maintaining, resorting to, or reverting to any quantitative import restrictions, including non-tariff measures maintained through state-trading enterprises, which have been required to be converted into ordinary customs duties. The Panel also found that should the LPMO be viewed as a state-trading enterprise without full control over the distribution of its import quota share, the measures violated GATT Art. XVII:1(a) (a provision governing state-trading enterprises) as well, because they were inconsistent with the general principles of non-discriminatory treatment. (Korea did not appeal this finding.)

TIP If you want to know more about the Korea beef case or to read the full case, see: http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds161_e.htm http://www.wto.org/english/res_e/booksp_e/dispu_summary06_e.pdf See also the WTO Analytical Index at: http://www.wto.org/english/res_e/booksp_e/analytic_index_e/agriculture_e.htm

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Let us look at another case concerning domestic support for agriculture products -the usual disclaimer applies!

Disclaimer

While the case study below is based on prior WTO Panel and/or Appellate Body rulings its main purpose is not to describe and review all the arguments and conclusions in the case in detail but rather to focus on the issues and principles addressed in the course and provide you with an outline of elements that you may wish to consider when reflecting on these issues and principles.

CASESTUDY2
US UPLAND COTTON (DS267) United States Subsidies on Upland Cotton

Parties Complainant Brazil

Agreements

Timeline of the dispute Establishment of Panel 18 March 2003 8 September 2004 3 March 2005 21 March 2005

AA Arts. 3.3, 8. 9.1(a) and 10 Respondent United States ASCM Arts. 3, 5(c) and 6.3(c)

Circulation of Panel Report Circulation of AB Report Adoption

1.Measureandproductatissue
Measure at issue: US agricultural "domestic support" measures, export credit guarantees and other measures alleged to be export and domestic content subsidies. Product at issue: Upland cotton and other products covered by export credit guarantees.

2.Summaryofkeypanel/ABfindings 4
AA Art. 13 (peace clause): The Appellate Body upheld the Panel's finding that the "Peace Clause" in the AA did not apply to a number of US measures, including domestic support measures for upland cotton.

Other issues addressed: DSU Articles 11, 12.7, 17.5; terms of reference (expired measures, consultations);

burden of proof; judicial economy; Appellate Body's scope of review (fact vs. law); sufficiency of notice of appeal (Working Procedures for Appellate Review, Rule 20(2)); statement of available evidence (ASCM Art. 4.2); GATT Art. XVI; Item (j) of the illustrative list of the ASCM.

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ASCM Art. 6.3(c) (serious prejudice): The Appellate Body upheld the Panel's finding that the effect of subsidy programme at issue i.e. marketing loan programme payments, Step 2 (user marketing) payments, market loss assistance payments, and counter-cyclical payments is significant price suppression within the meaning of Art. 6.3(c), causing serious prejudice to Brazil's interests within the meaning of Art. 5(c).

The Panel found that other US domestic support programmes (i.e. production flexibility contract payments, direct payments, and crop insurance payments) did not cause serious prejudice to Brazil's interests because Brazil failed to prove a necessary causal link between these programmes and significant price suppression.

ASCM Art. 3.1(a) and (b), AA, Art. 9.1(a) (Step 2 Payments import substitution subsidies and export subsidies): The Appellate Body upheld the Panel's finding that Step 2 payments to domestic users of US upland cotton were subsidies contingent on the use of domestic over imported goods that are prohibited under Art. 3.1(b) and 3.2 of the ASCM. The Appellate Body also upheld the Panel's findings that Step 2 payments to exporters of US upland cotton constitute subsidies contingent upon export performance within the meaning of Art. 9.1(a) of the AA and, consequently, the United States had acted inconsistently with AA Arts. 3.3 and 8. In addition, the Appellate Body found that the Step 2 payments to exporters were prohibited export subsidies that were inconsistent with Art. 3.1(a) and 3.2. of the ASCM.

AA Art. 10.1 and ASCM Art. 3.1(a) and 3.2 (Export credit guarantees export subsidies): The Appellate Body upheld the Panel's finding that US export credit guarantee programmes at issue were "export subsidies" within the terms of the ASCM, and thus, circumvented the US export subsidy commitments in violation of Art. 10.1 of the AA and violated Art. 3.1(a) and 3.2 of the ASCM. The Appellate Body, in a majority opinion, also upheld the Panel's finding that AA Art. 10.2 does not exempt export credit guarantees from the export subsidy disciplines in Art. 10.1. One member of the Appellate Body, however, in a separate opinion, expressed the contrary view that Art. 10.2 exempts export credit guarantees from the disciplines of Art. 10.1 until international disciplines are agreed upon.

Recommendation (ASCM Arts. 4.7 and 7.8): The Panel recommended that (i) as for prohibited subsidies (export credit guarantees and step 2 payments), the United States withdraw them without delay (i.e. in this case, within six months of the date of adoption of the Panel/AB Report or 1 July 2005 (whichever was earlier)) ; and (ii) as for subsidies found to cause serious prejudice, the United States should take appropriate steps to remove their adverse effects or withdraw the subsidy.
5

TIP If you want to know more about the US Upland Cotton case or to read the full case, see the following links on the WTO Website: http://www.wto.org/english/tratop_e/dispu_e/cases_e/ds267_e.htm http://www.wto.org/english/res_e/booksp_e/dispu_summary06_e.pdf

On 3 February 2006, the United States Congress approved a bill that repeals the Step 2 subsidy programme

for upland cotton. The bill was signed into law on 8 February 2006, and took effect on 1 August 2006.

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See also the WTO Analytical Index at: http://www.wto.org/english/res_e/booksp_e/analytic_index_e/agriculture_e.htm

ILLUSTRATION
A developed country Member A, has a Total AMS of US$200 million in the base years of 1986-1988. Member A reduced this figure by 20% over six years starting in 1995. However, its subsidies on sugar have increased since 1995. Member B, would like to challenge Member A's use of subsidies. According to Member B, the Agreement on Agriculture prohibits increases in the use of subsidies for agricultural products. Member A is of a different view. Member A, points to the fact that it has sufficient room in its Total AMS commitment as it has decreased support to other products (grains) and therefore it can increase support for sugar. Member A argues that it can increase its domestic support on sugar so long as the Current Total AMS in any year of the implementation does not exceed the ceiling set by the Total AMS in its Schedule of Commitments. They seek your opinion - what do you think? Under the Agreement on Agriculture, a Member's Total AMS commitments apply to the total value of non-exempt support in favour of agricultural producers (expressed as Current Total AMS), not to the value of support given to individual products. Members could thus increase support to a product as long as the Current Total AMS does not exceed the overall ceiling set by the Total AMS commitment level in that Member's Schedule. It should be noted however that only the provisions of the Agreement on Agriculture have been considered here. In order to provide a complete answer as to whether Member A's measures could be challenged, one would also need to bear in mind other WTO Agreements, especially the Agreement on Subsidies and Countervailing Measures and the GATT 1994.

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V.

NOTIFICATIONOBLIGATIONS

The levels of domestic support granted by Members vary considerably. Those Members that had high levels of support during the 1986-88 base period and established commitments to reduce the Total AMS have tended to continue giving high levels of support although some Members have shifted the emphasis from the Amber Box to the Blue and Green Boxes. Article 18.2 of the Agreement on Agriculture requires all Members to notify the extent of their domestic support measures to the Committee on Agriculture for its review. This requires: a listing of all measures that fit into the exempt categories (the Green Box, the development programmes, and direct payments under production-limiting programmes - the Blue Box); and calculations of Total AMS, including the de minimis claims, and a notification of the Current Total AMS for Members that have scheduled domestic support reduction commitments. Where a Member without such scheduled commitments has support measures which are not covered by the exempt categories, a notification must be made showing that such support falls within its de minimis levels. WTO Members are required to make annual notifications, except for LDC Members, which are required to notify every two years. Developing-country Members can also request the Committee to set aside the annual notification requirement for measures other than those falling into the Green Box, the development programmes or Blue Box categories. In addition to the annual notification obligations, all Members must notify any modifications of existing or any introduction of new measures in the exempt categories. The Committee on Agriculture examines these notifications regularly. Special formats have been developed by the Committee on Agriculture in order to facilitate compliance with the notification obligations. All Members with base and annual commitment levels in Section I of Part IV of their Schedule have to submit a notification no later than 90 days (or 120 days if the initial notification is provisional) after the end of the calendar (or, marketing, fiscal, etc.) year in question. Table DS:1 is a summary of the Current Total AMS calculation for the 12 month reporting period. Supporting Tables DS:1 to DS:9 contain the details of the calculation. Supporting Table DS:1 lists the Green Box measures exempt from reduction commitments. Under each of the headings in Annex 2, the Member is required to provide a brief description of each measure, the relevant paragraph of Annex 2, the value of the measure and the data source. Supporting Table DS:2: Developing country Members using the exemptions listed in Article 6.2 are required to list the measures under each of the three headings of Article 6.2 (investment subsidies, input subsidies and diversification from growing illicit narcotic crops) along with a brief description of the measures, their value and the data source. Supporting Table DS:3: Those Members availing themselves of the exemption from reduction commitments under Article 6.5 (Blue Box) for direct payments under production-limiting programmes must list, under each clause of Article 6.5, the programmes, their monetary value and the data source.

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Supporting Table DS:4 contains the summary of the product-specific AMS and non-product-specific AMS with the relevant de minimis claims noted. Details of the individual elements are in other supporting tables.

Supporting Table DS:5 covers data on market price support schemes for each product. This table covers for example intervention type schemes where the State buys products at certain minimum prices. The data must include the description of the basic product, the applicable year, the name of the measure, the applied administered price, the external reference price, the eligible production, any associated levies or fees and the total market price support for each product.

Supporting Table DS:6 contains data on non-exempt direct payments. This normally covers deficiency payments schemes where farmers are paid the difference between the price they get on the market and the target price set by the government as well as other non-exempt direct payments that may not be related to price. Similar to Supporting Table DS:5, the data must include the basic product, the year, the name of the measure, the applied administered price, the external reference price, the eligible production, the total price related direct payments, other non-exempt direct payments, associated fees and the total value of direct payments for each product.

Supporting Table DS:7: If there are any remaining product-specific subsidies they are included in this Supporting Table. This could include subsidies per hectare planted or per animal which are not related to price but are aimed at supporting production. Also included in Supporting Table DS:7 are the results from Supporting Tables DS:6 and DS:5 and the sum is called Total Product-specific AMS.

Supporting Table DS:8 For market price support schemes where the price gap method of calculating the AMS is not practicable the EMS is calculated as set out in Annex 4 of the Agreement on Agriculture. This could include an intervention scheme of limited application or the cost of disposing of surpluses. The budgetary outlay associated with the scheme is usually used.

Supporting Table DS:9 shows non-product-specific support provided in favour of agricultural producers in general. This includes for example credit subsidies or water subsidies.

There is also a Table DS:2 for notifications under Article 18.3 of the Agreement on Agriculture. This Table is required to notify, on an ad-hoc basis, any new or modified domestic support measures exempt from reduction, i.e. measures under the Green Box, the Article 6.2 (development programmes) and the Blue Box. Table DS:2 notifications should be submitted for each new or modified measure exempt from reduction as far as practicable before such measures are adopted and in any event within 30 days of adoption. As most Members do not have domestic support measures other than those falling into the exempt categories, the annual notification requirements are in many cases not burdensome. However, they are effective in providing a basis for policy discussions within the Committee on Agriculture and serve a useful purpose in enabling governments to maintain an annual overview of support to their agricultural sectors. Caution should be exercised when examining the notifications as many Members notify in different currencies, which have been subject to varying exchange rate and inflation fluctuations. In addition, the size of the agriculture sectors varies between different Members and should be taken into account in any examination of domestic support data as should the structure of that support which is often concentrated in a few sectors.

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EXERCISES: 9. How often are notifications on Domestic Support to be made and in what form?

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VI.

SUMMARY

Members can use without limits the domestic support measures, which have no more than minimal trade distorting effects or effects on production, such measures are placed in a Green Box. They include subsidies for government services and certain direct payments to producers such as decoupled income support, disaster relief, structural adjustment assistance, payments under environmental programmes and regional assistance programmes. In addition to the Green Box policies, Members do not have to reduce: (1) (2) direct payments under production-limiting programmes (Blue Box measures); certain government assistance programmes to encourage agricultural and rural development in developing country Members (as listed in Article 6.2 of the Agreement on Agriculture); and (3) other support maintained within the de minimis levels.

Domestic support measures that cannot be included in the above-mentioned exempt categories must be accommodated within the ceilings set by the Total Aggregate Measurement of Support (Total AMS) which are expressed in terms of Annual and Final Bound Commitment Levels. In the Uruguay Round, Members agreed to make the following reductions in the Total AMS as compared to the average during the base period of 1986-1988: developed country Members agreed to reduce the Total AMS by 20% during the six-year implementation period; developing country Members agreed to reduce the Total AMS by 13.3% over 10 years; least-developed countries were not required to make any cuts.

The disciplines and commitments concerning domestic support are found in Articles 3, 6 and 7 as well as Annexes 2, 3, and 4 of the Agreement on Agriculture and, where relevant, in Section I of Part IV of a Member's Schedule.

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DOMESTIC SUPPORT

Instrument Article 6, 7 & Annex 2

What it says or deals with

Instrument

Policies divided into two groups; (i) permitted policies (Green Box), (ii) other policies included in the Aggregate Measurement of Support (AMS) subject to reduction commitments (Amber Box).

Article 6.5

Direct payments under production-limiting programmes (Blue Box) are excluded from the calculation of the Current Total AMS. Developed country Members Developing country Members Developing country Members are allowed to use investment and input subsidies under certain conditions as well as support to encourage diversification from growing illicit narcotic crops. These development programmes are excluded from the calculation of the Current Total AMS.

Article 6.2

Article 6.4(a) and (b)

De minimis provision allows exclusion of product-specific and non-product-specific support - less than 5% of respective current value of production from the calculation of the Current Total AMS.

De minimis provision allows exclusion of productspecific and non-product-specific support - less than 10% of respective current value of production from the calculation of the Current Total AMS.

Schedules

Total AMS to be reduced by 20% over 6 years.

Total AMS to be reduced by 13.3% over 10 years. Least-developed countries must bind AMS support level if applicable but are not required to reduce it.

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PROPOSED ANSWERS: 1. 2. Article 6.2, Article 6.5, and Annex 2 of the Agreement on Agriculture. Amber Box subsidies refer to domestic support measures that distort production and trade. Examples are: (1) price support (2) input subsidies (3) subsidies directly related to production quantities. 3. The general criteria are that the domestic support measure: must have no, or at most minimal, trade-distorting effects or effects on production; must be provided through a publicly-funded government programme (including government revenue foregone) not involving transfers from consumers; and must not have the effect of providing price support to producers.

In addition, the domestic support measures must meet policy-specific criteria and conditions relating to a particular category of the Green Box. 4. Measure types which could be included in the Green Box: 5. General services Public stockholding for food security purposes Domestic food aid Decoupled income support Government financial participation in income insurance and income safety-net programmes Payments for relief from natural disasters Structural adjustment assistance provided through producer retirement programmes Structural adjustment assistance provided through resource retirement programmes Structural adjustment assistance provided through investment aids Payments under environmental programmes Payments under regional assistance programmes Other payments consistent with provisions of Annex 2.

Direct payments under production-limiting programmes that are made on fixed area and yields or a fixed number of livestock as well as payments made on 85% or less of the base level of production.

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6.

Article 6.2 stipulates that "... government measures of assistance, whether direct or indirect, to encourage agricultural and rural development are an integral part of the development programmes of developing countries... shall be exempt from domestic support reduction commitments that would otherwise be applicable to such measures. ...". These programmes include: 1. Investment subsidies generally available to agriculture; 2. Input subsidies generally available to low-income or resource-poor producers; 3. Supports to encourage diversification from growing illicit narcotic crops.

7.

Developed country Members committed to reduce Total AMS by 20% over six years (1995-2000) and developing country Members by 13.3% over 10 years (1995-2004). Least developed countries were not required to make reduction commitments. Members with no scheduled reduction commitments must maintain their non-exempt domestic support within the relevant product-specific and non-product-specific de minimis levels.

8.

The EMS is a fall-back concept used when it is not practicable to calculate a market price support component of the AMS by using the methodology set out in Annex 3. The rules for calculating the EMS are set out in Annex 4 of the Agreement on Agriculture.

9.

WTO Members are required to make annual notifications, except for LDC Members which are required to notify every other year. Developing country Members can also request the Committee to set aside the annual notification requirement for measures other than those falling into the Green Box, the Development Programmes or Blue Box categories. In addition to the annual notification obligations, all Members must notify any modifications of existing or any introduction of new measures for which an exemption from reduction is claimed. The Committee on Agriculture examines these notifications regularly. Special formats have been developed by the Committee on Agriculture in order to facilitate compliance with the notification obligations. Table DS:1 is a summary of the Current Total AMS calculation for the 12 month reporting period. Supporting Tables DS:1 to DS:9 contain the details of the calculation. Table DS:2 notification contains details of any new or modified measure exempt from reduction commitment.

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MODULE

6
ExportCompetition
ESTIMATEDTIME:5hours

OBJECTIVES OF MODULE 6

Present the third pillar of the Agreement on Agriculture: Export Competition/Subsidies Outline the Conceptual Framework of the rules on export subsidies in the Agreement on Agriculture; Describe the rules and the reduction commitments Members made; Explain the rules for Products with no specific reduction commitments; Explain anti-circumvention; Explain the special and differential treatment provisions relating to export subsidies; and Outline the notification obligations of WTO Members concerning export subsidies.

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I.
INBRIEF

CONCEPTUALFRAMEWORK

In Module 2, we saw that, while the GATT 1947 prohibited export subsidies for manufactured products, Article XVI allowed exports of primary products to be subsidized. However, Article XVI obliged Contracting Parties who used export subsidies not to do so in a way that gained "more than an equitable share of the world export trade in the product" in question for the subsidizing party, taking into account representative historical trade shares and any special factors. Therefore, it could be argued that, for exports of primary products, there was not an export subsidy prohibition, but a trade effects test.

Note

For purposes of GATT Article XVI, primary products were defined as "any product of farm, forest or fishery, or any mineral, in its natural form or which has undergone such processing as is customarily required to prepare it for marketing in substantial volume in international trade". See Interpretative Note 2 to Section B of Article XVI of the GATT.

The proliferation of export subsidies in the years leading to the Uruguay Round was one of the key issues addressed in the agriculture negotiations. The rules on agricultural subsidies are found in both the Agreement on Agriculture and the Agreement on Subsidies and Countervailing measures ("SCM Agreement").

INDETAIL
The negative effects of export subsidies on agriculture have been analyzed by international organizations, many WTO Members, as well as independent economists and academic institutions. Exporters that receive export subsidies enjoy an advantage, since they can, for example, sell below the cost of production. In most cases the subsidy depends on the difference between the world and domestic prices, which means the exporter can always match or undercut exporters in other countries. This in turn increases competition for other exporters or for domestic producers in the importing country. In addition to reducing prices and undercutting unsubsidised exporters in other countries, export subsidies also amplify world market price variations. As the level of subsidy usually depends on the difference between domestic and world market prices, if world market prices fall the subsidy increases and supply from the subsidised exporter can remain the same, or even increase. In addition, supply from the subsidising country is not affected by market prices as the subsidy increases or decreases as prices fall or rise.

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This exaggerates the swings in world prices by reducing supply in times of high prices and increasing it in times of low prices.
1

On average export subsidies lead to declining food prices. This hurts vulnerable producers in developing countries. However, most of the export subsidies are granted to temperate products like dairy and cereals. Therefore, it could be argued that consumers in net-food-importing developing countries benefit from the lower food prices although producers in these countries will suffer from the increase in subsidised. The Agreement on Agriculture provides that the level of export subsidies cannot be increased and that the existing level of subsidies could continue subject to conditions and the commitments to reduce (1) subsidized export quantities, and (2) the amount of money spent subsidizing exports. The SCM Agreement is also applicable to agricultural products. However, Members also agreed that the provisions of the SCM Agreement on export subsidies would apply "except as provided in the Agreement on Agriculture" (Article 3.1). In addition, provided a Member's use of export subsidies was within its commitments, the "Due Restraint" clause of the Agreement on Agriculture (Article 13) restricted other Members rights to challenge these subsidies until the end of 2003. At the 6th Ministerial Conference held in Hong Kong in 2005, WTO Members agreed to eliminate agricultural export subsidies by 2013, as part of the single undertaking and subject to the parallel elimination of all forms of such subsidies. This date was to be confirmed only upon completion of modalities. Article 3 of the SCM Agreement prohibits subsidies contingent in law or fact on export performance, except as provided for in the Agreement on Agriculture. The SCM Agreement added precision to the rules, for example, it defined subsidies for the first time and further elaborated on subsidy disciplines, classifying subsidies into three categories (prohibited, actionable and non-actionable). It also developed definitions, concepts and methodologies relating to adverse effects, and established procedural rules for multilateral remedies. The SCM Agreement also expanded and developed existing procedural and substantive rules on the use of countervailing measures. Part VII of the SCM Agreement sets out enhanced provisions on notification and surveillance that is, transparency provisions. The Agreement on Agriculture permits export subsidies on agriculture subject to the limits set out in Members' Schedules of Commitments (which give details of their reduction commitments) and the rules in Articles 3, 8, 9, 10 and 11 of the Agreement. Export subsidies can still be used by WTO Members, but only where they used them during the base period (1986-1988).
2

For a comprehensive examination of the Peace Clause and analysis of the trade impacts of various export

subsidy and domestic support measures see Steinberg and Josling, 2003, Journal of International Economic Law 6(2), 369-417, Oxford University Press. See also World Trade Report 2006 for thematic essays on Subsidies and the WTO.
2

The use of export subsidies is prohibited except those provided within the framework of the Agreement on

Agriculture. Article 3 (Prohibition) of the WTO Agreement on Subsidies and Countervailing Measures stipulates that, "Except as provided in the Agreement on Agriculture", export subsidies and subsidies contingent upon the use of domestic products over imported goods are prohibited.

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However, although a subsidy is legal it may cause or threaten to cause harm to another Member. In these cases it may be possible to seek some of the remedies set out in the SCM Agreement. The Agriculture Agreement does not contain any definition of the term "subsidy". Under the SCM Agreement, a subsidy exists if: there is a financial contribution by a government or any public body within the territory of a Member; there is any form of income or price support in the sense of Article XVI of the GATT 1994; a benefit is thereby conferred.

In the Canada - Dairy report, the Appellate Body said that a "subsidy", within the meaning of Article 1.1 of the SCM Agreement, arises where the grantor makes a "financial contribution" which confers a "benefit" on the recipient, as compared with what would have been otherwise available to the recipient in the marketplace.
4 3

The same approach can be found in the Canada Measures Affecting the Export of Civilian Aircraft ("Canada Aircraft")(DS70) and the US - FSC (DS108) Panel Report. To sum-up, a subsidy arises when: "financed" or a "financial contribution" do not necessarily mean a direct payment of monies, they can also cover cases where someone gets a benefit as a result of a government programme. A subsidy can exist even where the benefit is granted not directly by the government but by virtue of government action. It must also be noted that exports can be supported in many different ways and that direct aid by governments is only one of these methods. Governments can also provide support to exports through export credits which offer the purchasing government or enterprise lower interest rates or easier terms than commercial banks. A state trading enterprise may also have access to government-guaranteed loans or government investments which enable it to undercut the competition. Food aid can also be used as a way to dispose of surplus stocks. In some cases, food aid could displace commercial trade in the receiving country rather than contributing to alleviation of hunger.

3 4

Appellate Body Report, Canada Dairy, paragraph 87. Appellate Body Report, Canada Aircraft WT/DS70/AB/R, adopted 20 August 1999. and United States Tax

Treatment for "Foreign Sales Corporations" ("US FSC"), Panel Report WT/DS108/R, adopted 20 March 2000, as modified by the Appellate Body Report, WT/DS108/AB/R. The Panel said in paragraph 7.150 that Article 1 of the SCM Agreement, which defines the term "subsidy" for the purposes of the SCM Agreement, represents highly relevant context for the interpretation of the word "subsidy" within the meaning of the Agriculture Agreement, as it is the only Article in the WTO Agreement that provides a definition of that term. This is not of course to say that the definition of "subsidy" in the SCM Agreement, which applies "[f]or the purpose of this [i.e., the SCM] Agreement", is directly applicable to the Agriculture Agreement.

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EXERCISES: 1. 2. What products were eligible for export subsidies under GATT 1947 and subject to what conditions? In which agreement is the definition of subsidies to be found?

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II.

EXPORTSUBSIDIESRULESFORAGRICULTURE

As a result of the Uruguay Round, the right to use export subsidies is limited by the disciplines in the Agreement on Agriculture. Those WTO Members that have the right to use export subsidies were required to reduce the amount of money spent on export subsidies and the quantity exported with subsidies: Articles 3 and 8 of the Agreement on Agriculture prohibit WTO Members from providing export subsidies for products not specified in their respective Schedule. These Articles also require that the quantity exported with subsidies and the budgetary outlay on these subsidies do not exceed the limits set out in the Member's Schedule; Article 9 lists the types of subsidies to be reduced; Article 10 states that other measures cannot be used to circumvent export subsidy commitments and sets out some rules for export credits and food aid; and Article 11 contains the disciplines on the use of subsidies on incorporated agricultural primary products, for example, the milk incorporated into processed cheese. The right to use export subsidies is now limited to two situations: (i) export subsidies subject to product-specific reduction commitments within the limits specified in the Schedule of the WTO Member concerned; and (ii) export subsidies consistent with the special and differential treatment provision for developing country Members (Article 9.4 of the Agreement on Agriculture). In all other cases, the use of export subsidies for agricultural products is prohibited. During the period 1996 to 1999 Members that had export subsidy reduction commitments in their Schedules did have the right to exceed the limits set out in their Schedules provided they had not used their full commitment for the previous years. The amount by which a Member could exceed the limit in its Schedule was limited and at the end of the implementation period the total quantity exported with subsidies and the amount spent of subsidies had to be within the totals set out in the Schedule. Since 2000 the annual limits apply and this "roll-over-relief" provision has now expired.

II.A. ARTICLE9(SUBSIDIESTOBEREDUCED)
The export subsidies that are subject to reduction are listed in Article 9 of the Agreement on Agriculture. Article 3.3 of the Agreement on Agriculture states that a WTO Member may not provide export subsidies listed in Article 9.1 in respect of the agricultural products or groups of products in excess of the commitments specified in Section II of Part VI of its Schedule. The reduction commitments are shown in the Schedules of WTO Members on a product-specific basis.

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The list in Article 9.1 covers: a) The provision by governments or their agencies of direct subsidies, including payments-in-kind, to a firm, to an industry, to producers of an agricultural product, to a cooperative or other association of such producers, or to a marketing board, contingent on export performance; b) Sales of non-commercial stocks of agricultural products for export at prices lower than comparable prices for such goods on the domestic market; c) Payments on the export of an agricultural product that are financed by virtue of governmental action, which is taken to include producer financed subsidies, such as, government programmes which require a levy on all production which is then used to subsidise the export of a certain portion of that production; d) Cost reduction measures such as subsidies to reduce the cost of marketing goods for export: this can include upgrading and handling costs and the costs of international freight; e) Internal transport subsidies applying to exports only, such as those designed to bring exportable produce to one central point for shipping; and f) Subsidies on incorporated products, i.e. subsidies on agricultural products for example, wheat contingent on their incorporation in export products such as biscuits. Although other forms of export subsidies can be provided, it is worth noting that Article 9.1 is much broader than it might appear at first sight. For example, Article 9.1(a) refers to direct payments, including paymentsin-kind that are contingent on export performance. In the Canada - Dairy dispute
5

(DS103, DS113), the

Appellate Body held that "'payments-in-kind' are a form of direct subsidy" and a "payment-in-kind" is just one of the forms in which "direct subsidies" may be granted. The Appellate Body indicated that "payments" and "payments-in-kind" denote a transfer of economic resources, which can be in a form other than money, from the grantor of the payment to the recipient. The Appellate Body also ruled that the mere fact that a "payment-in-kind" has been made does not by itself imply that a "subsidy" has been granted. That is, if the recipient gives full consideration in return for a "payment-in-kind", there can be no subsidy. However, if the recipient gives less than full consideration for the "payment-in-kind" there is a subsidy.
6

Canada Measures Affecting the Importation of Dairy Products ("Canada Dairy"), WT/DS103/R and

WT/DS113/R, adopted 17 May 1999, WT/DS103/AB/R and WT/DS/113/AB/R, adopted 23 October 1999, Canada Dairy (21.5), Recourse to Article 21.5 of the DSU, WT/DS103/RW and WT/DS113/RW, adopted 11 July 1999, WT/DS103/AB/RW and WT/DS103/AB/RW, adopted 3 December 2001, Canada Dairy (21.5)(II), Second Recourse to Article 21.5 of the DSU, WT/DS103/RW2 and WT/DS113/RW2, adopted 26 July 2002, WT/DS103/AB/RW2 and WT/DS113/AB/RW2, adopted 20 December 2002.
6

Canada Dairy; WT/DS103/AB/R and DS133/AB/R; paragraphs 87-88.

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With respect to the requirement of Article 9.1(c) of the Agreement on Agriculture that payments be made on the export of the agricultural product, the Appellate Body in the Canada - Dairy ruled that
7

"payments... by

virtue of governmental action" are not restricted to direct financial assistance but include benefits given to exporters that arise from government schemes. In the Canada Dairy case the benefit arose because one class of milk production was available to producers at low cost provided it was used exclusively for exports. Hence, Article 9.1(c) covers many measures and policies used by governments to support exports.
8

II.B.

EXCEPTIONINARTICLE9.4

The Agreement on Agriculture includes certain temporary exemptions for developing countries, allowing them to subsidize marketing, cost reduction and transport in Article 9.4. Article 9.4 allowed developing countries to use subsidies aimed at reducing the cost of marketing including internal and external transport as well as handling and processing costs (that is the subsidies listed in Article 9.1(d) and (e)), provided that these are not applied in a manner that would circumvent export subsidy reduction commitments. This exemption is one of the special and differential treatment provisions of the Agreement on Agriculture and was only available during the implementation period. Strictly speaking, it has expired but the Hong Kong Ministerial Declaration states that "developing country Members will continue to benefit from the provisions of Article 9.4 for five years after the end-date for elimination of all forms of export subsidies".
9

II.C.

WHOCANSUBSIDIZEEXPORTS?

25 WTO Members (counting the EU as one) can subsidize exports, but only for products on which they have commitments to reduce these subsidies. These Members cannot: (1) (2) (3) introduce new subsidies for products not listed in their Schedules; exceed the limits in their schedules; or transfer existing commitments to other agricultural products.

These 25 Members have a total of 428 individual reduction commitments. Some among them have decided to greatly reduce their subsidies or drop them completely. Members without commitments cannot subsidize agricultural exports at all. In brackets are the numbers of products involved for each country.

7 8 9

Canada Dairy; WT/DS103/AB/R and DS133/AB/R; paragraphs 119-120. Canada Dairy; WT/DS103/AB/R and DS133/AB/R; paragraph 108. WT/MIN(05)/DEC; Doha Work Programme: Ministerial Declaration; paragraph 6.

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Export Subsidy Commitments

10

Australia (5) Brazil (16) Bulgaria (44) Canada (11) Colombia (18) Cyprus (9) Czech Rep (16) EU (20) Hungary (16) Iceland (2) Indonesia (1) Israel (6) Mexico (5) New Zealand (1)

Norway (11) Panama (1) Poland (17) Romania (13) Slovak Rep (17) S Africa (62) Switzerland Liechtenstein (5) Turkey (44) United States (13) Uruguay (3) Venezuela (72)

All Members 428

10

For more details, see WTO Secretariat background paper "Export subsidies" TN/AG/S/8/Rev.1 and Add.1.

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II.D. PRODUCTCATEGORIES
The reduction commitments for the export subsidies in Article 9.1 are shown in the Schedules of WTO Members on a product-specific basis. For this purpose, the universe of agricultural products was initially divided into product groups.

Code 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 20 19) 21 22 23 24 25 Table 1: (includes

Products or groups of products Wheat and wheat flour Coarse grains Rice Oilseeds Vegetable oils Oilcakes Sugar Butter and butter oil Skim milk powder Cheese Other milk products Bovine meat Pig meat Poultry meat Sheep meat Live animals Eggs Wine

Fruit and Vegetables Tobacco Cotton Incorporated products Other agricultural products All agricultural products Product groupings
11

11

Based on Uruguay Round Modalities document MTN.GNG/MA/W/24; Annex 8.

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II.E.

REDUCTIONRATES

As was explained on page 1, the commitments regarding the reduction of export subsidies relate to both the amount of money spent (budgetary outlet) and the quantity exported (by volume). Under Article 9.2(a) of the Agreement on Agriculture, each WTO Member must specify in its Schedule of Commitments the maximum level of budgetary outlay (money spent) and the maximum quantity exported (volume) by product on an annual basis. For "incorporated products" (last item in the Article 9 list) the reduction commitments are expressed in terms of money spent only. The 25 Members which have listed commitments for reducing export subsidies, are allowed to use them, but must remain within the limits set in their Schedules. Developed-country Members had to reduce their expenditure on export subsidies by 36% from the levels in the 1986-1990 base period, and to reduce the quantities benefiting from export subsidies by 21% over a six year implementation period (i.e. by the year 2000). Developing-country Members are required to reduce their expenditure on export subsidies by 24% over 10 years, and to reduce the quantities benefiting from export subsidies by 14% (i.e. by the year 2004). See Article 9.2(b)(iv) for reference to the reduction commitments. LDCs are not required to undertake any reduction commitments, but none of them had any export subsidies to begin with. Now they are restricted to the transport and marketing subsidies permitted under Article 9.4.

Product specific reduction commitments in terms of: (Developed) Volume Budgetary outlays Table 2: 21% 36% (Developing) 14% 24%

Product specific reduction commitments

For the product categories, some Members, have established maximum annual expenditure and volume levels in the Schedules (Section II of Part VI). Some Members took commitments on a more disaggregated level.
12

The ceilings specified in the schedules must be respected in each year of the implementation period although limited "over-shooting" in the second to fifth year of implementation is permitted as is explained below under the heading "roll over commitments". By the last year of the implementation period, Members had to be within their final export subsidy ceilings.

12

Export subsidy reduction commitments are in Section II of Part IV of the Schedules. Furthermore, some

countries such as Costa Rica and Panama, have commitments in Section III of Part IV of their Schedule, requiring them to eliminate or reduce certain incentive schemes applying to non-traditional agricultural products. But as this Section of Schedules is not covered by the notification requirements, it is not taken into consideration throughout this course.

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EXERCISES: 3. Explain briefly the rules in Articles 9 of the Agreement on Agriculture referred to export subsidy commitments? 4. What are the conditions on permissible export subsidies?

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II.F.

ROLLOVEROFCOMMITMENTS

For the period 1996-1999, WTO Members had a certain degree of flexibility with regard to their commitments on the reduction of export subsidies. For this period, Article 9.2(b) allowed a WTO Member to exceed its commitments in any given year by up to 3% of expenditures and 1.75% of the exported volume, provided that it did not exceed the overall commitments over the entire implementation period. Although the reduction commitments relate to the 1986-1990 base period, Members were given the flexibility of starting their reduction from the 1992 levels where they used more export subsidies in 1992 than in the base period. However, they still had to reduce them to a level which represented 64% in value and 79% in volume compared to the 1986-1990 base period (76% and 86% respectively for developing countries). Hence, for the years 1996, 1997, 1998 and 1999 exporters were able to maintain a higher level of subsidized exports provided that by the end of 2000 the total amount used from 1995 to 2000 was the same as the total set out in their Schedule. This is known as the "roll-over" principle.

ROLL-OVER: ARTICLE 9.2

For example: What is the maximum value and volume of export subsidies in 1999 Commitment Year Base Period average 1995 1996 1997 1998 1999 2000 Total Value 255 240 224 209 194 178 163 1 208 Volume 1 600 1 544 1 488 1 432 1 376 1 320 1 264 8 424 240 200 180 190 ? 1 500 1 400 1 300 1 350 ? Value Actual Volume

In 1999 this country would be allowed to provide export subsidies greater than its commitments as follows: Value Total of Commitments for 1995-99 =240+224+209+194+178 = 1045 = 1053 = 810 = 243

Total Allowed Under Article 9.2(b)(i) 1995-99 =1045 + 255*3% Actual Value of Export Subsidies 1995-98 Total Permitted in 1999 =240+200+180+190 =1053 - 810

But by 2000 the total spent from 1995 to 2000 must not exceed 1 208 Volume Total of Commitments for 1995-99 = 1544+1488+1432+1376+1320 = 7160 = 7188 = 5550 = 1638

Total Allowed Under Article 9.2(b)(ii) 1995-99 = 7160 + 1 600*1.75% Actual Volume of Export Subsidies 1995 -98 Total Permitted in 1999 = 1500+1400+1300+1350 = 7188 - 5550

But by 2000 the total volume getting subsidies from 1995 to 2000 must not exceed 8424

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III.

ANTICIRCUMVENTION

The reduction commitments in the Agreement on Agriculture relate to scheduled export subsidies. However, other forms of subsidising exports do exist. Export credits may also distort export competition, when the credit conditions are more favourable than those that private financial institutions would provide. Exporting state trading enterprises or single-desk traders may cross-subsidise, which would also distort trade, or have access to government guaranteed borrowing, giving them cheaper access to capital. Finally, food aid may be used as a surplus disposal instrument and disrupt or displace commercial transactions. Article 10 of the Agreement on Agriculture prevents Members from using export support subsidies that are not specifically listed in Article 9 of the Agreement on Agriculture in ways that result in or even threaten to lead to circumvention of export subsidy commitments. However, before we look at Article 10 in detail, let us look at food aid, export credits and state trading enterprises and their relation to export subsidies.

FOOD AID First of all, let's clarify that the WTO is not a food aid agency. That role belongs to other institutions such as the World Food Programme of the United Nations, the Food and Agriculture Organization (FAO) and other international agencies, as well as numerous non-governmental organisations. Food aid is a very sensitive and complex issue. In many cases it is vital for delivering food in urgent situations, where the government of the recipient country has declared an emergency and people would starve if aid were not delivered. In other cases, such as after the crisis and during the recovery period, food aid may be needed to address chronic shortages. However, there are also cases where food aid is used to dispose of surpluses in the donor country. From the perspective of commercial trade there are two types of food aid: one that displaces commercial exports; and the other that that increases consumption by providing food that would not have been consumed if the aid had not been granted. If the food aid does not result in extra consumption, displaces other exports or domestic production and is used to dispose of surpluses in the supplying country, it is essentially the same as an export subsidy. Studies have shown that a small proportion of the food aid that is currently provided is supply-driven rather than needsbased and is used as a disposal tool for domestic surpluses. The concern of WTO Members is twofold: Firstly, to ensure that an adequate level of food aid is provided and that trade rules do not cause any unintended impediment to dealing with emergency situations, and second to ensure that food aid results in additional consumption and does not cause commercial displacement.

EXPORT CREDITS, EXPORT CREDIT GUARANTEES AND INSURANCE PROGRAMMES Export credits are loans given to importers or importing governments to buy exports from another country. Export credits can, and usually are, given without any government involvement, as many private financial institutions provide loans for purchases of imports. Where governments are involved in giving loans, however, there is often the question of whether these loans are subsidised or not in some way.

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Government involvement may be via credits provided directly by the government of the exporting country or through the government guaranteeing some of the risk of default. With the government guaranteeing some of the risk, the borrowers can avail of better repayment terms and interest rates than without the guarantee. Similarly, if a government is involved in an export insurance scheme it may be able to offer better risk coverage than would be available on purely commercial terms. There may be cases, however, where the private sector would not be prepared to offer credits to the purchasing government or enterprises in the importing country. Following a financial crisis, for example, commercial banks may deem the risk of default to be too great. In these cases, the only way food could be purchased would be through official export credit guarantees or insurance schemes provided by the exporting country. According to the OECD, the overall trade distorting effect of export credits in total trade of agriculture products is very small although certain export credit programmes bias targeted importers' purchasing decisions and distort markets.
13

However, others argue that it is a very efficient way of supporting exports as a small

reduction in loan costs or improvement in repayment terms can have a big impact on trade decisions. However, this study uses data from 1998 and may no longer be representative.

STATE TRADING ENTERPRISES (STE) State Trading Enterprises (STE) are state owned organisations, or organisations that have some special rights or privileges given to them by a government. In some cases STEs have monopoly or near-monopoly power over the purchases and sales of a country's agricultural products. Governments could support exports through exporting STEs in a number of ways. For example: governments may provide operating capital or underwrite losses; the STE may be in a position to use price pooling between domestic and export sales which may lead to consumer financed subsidies; the STE may benefit from government guarantees; the STE may have a monopoly when buying commodities for exports; and the STE may not have purely commercial objectives for its activities as it may be required to maximise returns to producers. It has been discussed whether a monopoly given by a government to an exporting enterprise is itself suspect or whether it is the actions of the enterprise that would determine whether it is subsidizing exports or not. It has been argued that private companies can also have commercial power, use the commercial practice of differential pricing and may receive government help when struggling for existence.

13

Total export credits facilitated on average 4.4% of world trade between 1995 and 1998, but of these, only a

portion are estimated to have distortionary effects. The use of export subsidies was increasing during this period, both in total as well as relative to total trade. The total subsidy element amount is estimated to have been $300 million in 1998. Of this, the US provides 86%, the EU 7% (excluding intra-EU credits), Canada 5% and Australia 2% (see Figure 10). The US is the strongest user of export credits and their export credits have at 6.6% the highest subsidy content. Cereals account for almost one half of the subsidy element of all used export subsidies. OECD (2000), "An Analysis of Officially Supported Export Credits in Agriculture", OECD, Paris.

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The Agreement on Agriculture does not oblige WTO Members to make reduction commitments on the subsidy components in export credits, state trading enterprises and food aid. However, it does require that the value of such support and the quantity exported with support must be within a Member's Scheduled commitment levels. That is, that it is not "applied in a manner which results in, or which threatens to lead to, circumvention of export subsidy commitments" (Article 10.1). However, the Agreement on Agriculture has some provisions for the prevention of circumvention of export subsidies commitments, including inter alia disciples on the use of export credits and credit guarantees as well as food aid as is explained below.

ARTICLE10
INBRIEF
Article 10 of the Agreement on Agriculture seeks to prevent Members from trying to circumvent their commitments in numerous ways: (i) by requiring that any export subsidy not listed in Article 9.1 is not used in a way that even threatens to lead to circumvention of commitments; (ii) by requiring Members to work towards developing disciplines on export credits;

(iii) by putting the burden of proof on Members to show that exports in excess of commitments are not subsidised; and (iv) by establishing rules for food aid.

INDETAIL
Article 10.1 prohibits WTO Members from applying subsidies of a type not listed in Article 9.1.

Part V: Article 10 Prevention of Circumvention of Export Subsidy Commitments 1. Export subsidies not listed in paragraph 1 of Article 9 shall not be applied in a manner which results in, or which threatens to lead to, circumvention of export subsidy commitments; nor shall non-commercial transactions be used to circumvent such commitments.

This prohibition applies to both scheduled and unscheduled products. According to Article 10, not only export subsidies can "threaten to lead to circumvention" of WTO Member commitments. "Non-commercial transactions" could also be used to circumvent these commitments. Article 10 refers in particular to food aid or export credits. Article 10.2 calls for WTO Members to develop internationally-agreed disciplines to govern the provision of export credits, export credit guarantees or insurance programmes in recognition that such measures could also be used to circumvent commitments.

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2. Members undertake to work toward the development of internationally agreed disciplines to govern the provision of export credits, export credit guarantees or insurance programmes and, after agreement on such disciplines, to provide export credits, export credit guarantees or insurance programmes only in conformity therewith.

The issue of disciplines on export credit and related programmes has been a standing agenda item of the regular meetings of the Committee on Agriculture as an implementation-related issue. The development of disciplines in this area has also been addressed in the agriculture negotiations (Special Session). In December 2005, the Hong Kong Declaration reaffirmed Members' commitment to the development of internationally-agreed disciplines for export credits.
14

During the informal consultations on implementation-related issues held in February 2006, and again in the May 2006 meetings of Committee on Agriculture, it was acknowledged that Members were prioritizing the discussion of issues under Article 10.2 in the agriculture negotiations rather than pursuing discussions in the regular Committee on Agriculture.

Important Note

Despite the lack of clear rules, any subsidy element that might exist in government-supported export credit, guarantee and insurance programmes is subject to the commitments in Members' Schedules and the rules in the Agreement on Agriculture. In other words, no subsidy can be used to export products not listed in a Member's Schedule nor, if there are commitments for a particular product, can it be used in a way that threatens to lead circumvention of commitments.

As an additional measure against circumvention, Article 10.3 requires that exporting countries with export subsidy commitments must show that any exports above commitment levels do not receive any export subsidies.

3. Any Member which claims that any quantity exported in excess of a reduction commitment level is not subsidized must establish that no export subsidy, whether listed in Article 9 or not, has been granted in respect of the quantity of exports in question.

14

WT/MIN(05)/DEC, paragraph 6 of the Hong Kong Ministerial Declaration.

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This provision was litigated in the Canada Dairy

15

. The Appellate Body said:

"With respect to the export subsidization part of the claim, the complaining Member, therefore, is relieved of its burden, under the usual rules, to establish a prima facie case of export subsidization of the excess quantity, provided that this Member has established the quantitative part of the claim [i.e. can show that the exporting Member has exported more than the quantity commitments in its country schedule]. However, the complaining Member is not required to lead in the presentation of evidence to panels, and it might well succeed in its claim even if it presents no evidence should the responding Member fail to meet its legal burden to establish that no export subsidy has been granted with respect to the excess quantity." This means that in relation to the anti-circumvention provisions of Article 10.3 of the Agreement on Agriculture: the complaining Member must merely show that the exports of a particular agricultural product exceed the quantity commitments in the country schedule and claim that these excess quantities are subsidized; and it is up to the defending Member to establish that they are not subsidized. A country with export subsidy commitments must prove that any exports in excess of its commitments do not benefit from subsidies. However, if a Member has no export subsidy commitments, it could be argued that the Member making the accusation needs to prove that subsidies were involved.

4. Members donors of international food aid shall ensure: (a) that the provision of international food aid is not tied directly or indirectly to commercial exports of agricultural products to recipient countries; (b) that international food aid transactions, including bilateral food aid which is monetized, shall be carried out in accordance with the FAO "Principles of Surplus Disposal and Consultative Obligations", including, where appropriate, the system of Usual Marketing Requirements (UMRs); and (c) that such aid shall be provided to the extent possible in fully grant form or on terms no less concessional than those provided for in Article IV of the Food Aid Convention 1986.

Article 10.4, covering food aid, specifies that WTO Members must ensure that: the provision of international food aid is not tied directly or indirectly to commercial exports of agricultural products to recipient countries;

15

Appellate Body Report, Canada Measures Affecting the Importation of Dairy Products Second, Recourse

to Article 21.5 of the DSU by New Zealand and United States ("Canada Dairy (21.5)(II)"),WT/DS103/AB/RW2 and WT/DS113/AB/RW2, adopted 20 December 2002, paragraph 75.

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that international food aid transactions are carried out in accordance with the FAO "Principles of Surplus Disposal and Consultative Obligations"; and

such aid be provided, to the extent possible, in fully grant form or on terms no less concessional than those provided for in Article IV of the Food Aid Convention 1986.

The activities of STEs were not specifically disciplined in the Agreement on Agriculture. Article XVII of the GATT states that STEs must operate in accordance with commercial considerations and in a non-discriminatory way. As a further means of avoiding circumvention of the export subsidy commitments, Article 11 restricts the export subsidy on a processed product to the amount that would be payable on the basic product.

Part V: Article 11 Incorporated Products 1. In no case may the per-unit subsidy paid on an incorporated agricultural primary product exceed the per-unit export subsidy that would be payable on exports of the primary product as such.

EXERCISES: 5. What are the four ways in which Article 10 tries to prevent Members from circumventing their export subsidy commitments?

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IV.

EXPORTSUBSIDYNOTIFICATION OBLIGATIONS

Article 18 of the Agreement on Agriculture provides for the review of the implementation of commitments by the WTO Committee on Agriculture. WTO Members are required to report "at such intervals as shall be determined" on how they have complied with the Agreement on Agriculture. All Members must notify their export subsidies to the Committee on Agriculture on an annual basis. For the vast majority of Members those without reduction commitments this involves only a statement to the effect that export subsidies on agricultural products have not been used (or a listing of those measures that may be used by developing country Members under Article 9.4 of the Agreement if this has been the case). For Members with reduction commitments in their schedules, they are required to notify the WTO Committee on Agriculture concerning their volume of subsidized exports, their expenditures on export subsidies, and the volume of un-subsidized exports, by commodity, as specified in their Schedules. Significant exporters of agricultural products are also required to notify the total level of exports. In addition, as part of the anti-circumvention provisions, Members must notify the use of food aid on an annual basis if such aid is granted. Likewise, total exports of agricultural products must be notified by Members with reduction commitments as well as by a number of other "significant exporters" as defined by the Committee. As in other areas, the export subsidy notifications form part of the basis for reviewing the progress in the implementation of the commitments by the Committee on Agriculture. These are notified in tables as explained below: ES:1 Budgetary Outlay and Quantity Reduction Commitments: Members with base and annual commitments in Section II of Part IV of their Schedule must make an annual notification along with Supporting Table ES:1. Table ES:1 shows the product group, the volume and value of subsidised exports along with the volume of food aid and the relevant annual commitment levels. ES:1 Supporting Table ES:1: Along with Table ES:1, Supporting Table ES:1 is also required showing the details of the export subsidies provided. ES:2 Notification of Total Exports: All Members with export subsidy commitments along with those Members that are significant exporters of the different product groups (i.e. over 5% of world exports) have to make a annual notification showing the total value of exports of the product group concerned. Statement of Non-Use of Export Subsidies: Members with no export subsidy commitments must make an annual statement stating that no such subsidies have been used in the past year. Statement of Non-Use: Supporting Table ES:2: Developing country Members that have availed of the exemption in Article 9.4 for marketing and internal transport are required to make list these subsidies in Supporting Table ES:2 along with the volume of goods benefiting. ES:3 Food Aid: Food aid donors are required to make an annual notification showing the total volume of food aid given in the previous year. Donors with export subsidy commitments will have already provided this information in ES:1 notification and, therefore, do not need to make and ES:3 notification.

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V.

DISPUTESETTLEMENTCASES
16

Let us look at the US "Foreign Sales Corporation" Scheme, the Canada - Dairy Agreement on Agriculture on export subsidies. However before we do so please read the disclaimer!

and the EC Subsidies on

Sugar cases, three of the most important cases concerning the interpretation of the provisions of the

Disclaimer

While the case studies below are based on prior WTO Panel and Appellate Body rulings, their main purpose is not to describe and review all the arguments and conclusions in the case in detail but to highlight issues and principles addressed in the course and provide you with an outline of elements that you may wish to consider when reflecting on these cases.

16

Canada Measures Affecting the Importation of Dairy Products ("Canada Dairy"), WT/DS103/R and

WT/DS/113/R, adopted 17 May 1999, WT/DS103/AB/R and WT/DS/113/AB/R, adopted 23 October 1999, Canada Dairy (21.5), Recourse to Article 21.5 of the DSU, WT/DS103/RW and WT/DS113/RW, adopted 11 July 1999, WT/DS103/AB/RW and WT/DS103/AB/RW, adopted 3 December 2001, Canada Dairy (21.5)(II), Second Recourse to Article 21.5 of the DSU, WT/DS103/RW2 andWT/DS113/RW2, adopted 26 July 2002, WT/DS103/AB/RW2 and T/DS113/AB/RW2, adopted 20 December 2002.

212

USFSC(DS108)
United States Tax Treatment for "Foreign Sales Corporation"

Parties European Complainants Union

Agreements

Timeline of the Dispute Establishment of Panel Circulation of Panel Report Circulation of AB Report Adoption of AB Report 22 September 1998 8 October1998 24 February 2000 20 March 2000

ASCM Articles 1 and 3 Respondent United States AA Articles 10, 8

1.MeasureandProductatIssue
Measure at issue: US tax exemptions for Foreign Sales Corporations ("FSC") export-related foreign-source trade income. Product at issue: All foreign goods, including agricultural products, affected by the US measure.
17

in respect of their

2.SummaryofKeyPanel/ABFindings
ASCM Art. 1.1 (revenue foregone): The Appellate Body upheld the Panel's finding that the FSC measure constituted government revenue foregone that was "otherwise due" and, thus a "financial contribution" within the meaning of Art. 1.1. ASCM Art. 3.1(a) (export subsidy): The Appellate Body upheld the Panel's finding that the FSC measure constituted prohibited export subsidies under ASCM Art. 3.1(a) because the FSC exemptions (i) were based upon foreign trade income derived from "export property" and (ii) fell within the language of item (e) (full or partial exemption remission ... of direct taxes ... ) of Annex I (illustrative list of export subsidies). The Appellate Body (and the Panel) rejected the US argument that footnote 59 to item (e) exempted the FSC measure from constituting export subsidies. AA Arts. 3.3 and 9.1 (export subsidy): The Appellate Body reversed the Panel's finding that the FSC tax exemptions were an export subsidy under AA Art. 9.1(d) and thus violated Art. 3.3. The Appellate Body considered that "income tax liability" that was exempted or reduced under the FSC tax regime could not be considered as "the costs of marketing exports" of agricultural products that were subject to reduction commitment within the meaning of Art. 9.1(d). AA Arts. 10.1 and 8 (export subsidies not listed in Art. 9.1): The Appellate Body found that the United States violated AA Art. 10.1 and subsequently Art. 8 because the United States, through the FSC exemptions, which were unlimited in nature (i.e. no limitation on the amount of the exemption and no

17

FSCs are foreign corporations in charge of specific activities with respect to the sale or lease of goods

produced in the US for export outside the US. In practice, many FSCs are controlled foreign subsidiaries of US corporations, as FSCs affiliated with its US supplier receive greater benefits under the programme.

213

discretionary element to its grant), acted inconsistently with its export subsidy commitments under the AA, first, not to provide export subsidies for scheduled products (Art. 9.1) in excess of the scheduled commitments; and, second, not to provide any Art. 9.1 export subsidies for unscheduled products. ASCM Art. 4.7 (recommendation): Pursuant to Art. 4.7, the Panel recommended that the United States "withdraw the FSC subsidies without delay. The parties agreed that the date for withdrawal would be 1 November 2000.

3.OtherIssues 18
Special burden of proof (AA Art. 10.3): The Panel concluded that an AA Art. 10.3 claim contains a special burden of proof whereby once the complainant has proved that the respondent is exporting a certain commodity in quantities exceeding its commitment levels, then the respondent must prove that such an excessive amount of exports is not subsidized. The Panel found that this rule only applies to Members' "scheduled" products.

CANADADAIRY(DS103,DS113)
Canada Measures Affecting the Importation of Milk and the Exportation of Dairy Products

Parties United States, Complainants New Zealand

Agreements

Timeline of the Dispute Establishment of Panel Circulation of Panel Report Circulation of AB Report Adoption of AB Report 25 March 1998 17 May 1999 13 October 1999 27 October 1999

AA Articles 9.1, 3.3, 10.1 and 8; Respondent Canada GATT Art. II:1(b)

1.MeasureandIndustryatIssue
Measure at issue: Canadian government's support system (Special Milk Classes Scheme) for domestic milk production and export, as well as Canada's tariff rate quota ("TRQ") regime for imports of fluid milk. Industry at issue: Milk and dairy product industry.

18

Other issues addressed in this case: ASCM Art. 4.2 (statement of available evidence); new arguments before

the AB; interpretation of footnote 59 to item (e) of Annex I; panel's jurisdiction (appropriate tax forum); DSU Art. 6.2 (identification of products (agricultural) at issue); order of consideration of ASCM issues.

214

2.SummaryofKeyPanel/ABFindings
EXPORT SUBSIDY AA Art. 9.1(a) (direct subsidy): Having reversed the Panel's conclusion that Canada's measure involved export subsidies within the meaning of Art 9.1(a) (based on the Panel's erroneous interpretation of the terms "direct subsidies" and "payments-in-kind" under Art. 9.1(a)), the Appellate Body also reversed the Panel's finding that Canada had acted inconsistently with Arts. 3.3 and 8 by providing export subsidies under Art. 9.1(a) i.e. by exceeding the support reduction commitment levels scheduled by Canada. AA Art. 9.1(c) (export subsidy): The Appellate Body upheld the Panel's finding that the provision of milk at discounted prices to processors for export constituted "payments" within the meaning of Art. 9.1(c) and that the relevant payments under Canada's scheme were financed by virtue of governmental action. Thus, it upheld the Panel's ultimate conclusion that Canada's scheme constituted an export subsidy within the meaning of Art. 9.1(c), which exceeded the reduction commitment, and thus, Canada had acted inconsistently with Arts. 3.3 and 8. AA Art. 10.1 (other export subsidy): The Panel found alternatively that in the event Canada's measures did not involve export subsidies under Art. 9.1(a) or (c), Canada's measures still constituted an "other" export subsidy in the sense of Art. 10.1 and exceed its reduction commitment levels in violation of Art. 10.1.

TRQ REGIME (FLUID MILK IMPORTS) GATT Art. II:1(b): Recalling its earlier finding (EC Computer Equipment) that Members' Schedules should be interpreted under the general rules of interpretation set out in the VCLT, the Appellate Body concluded that Canada's limitation of cross-border purchases of fluid milk to "Canadian consumers" by specifying it as a condition in Canada's Tariff Schedule justifies Canada's effective limitation of access to the TRQ to imports for "personal use". But, it found that Canada's value limitation set at Can$20 for each importation was inconsistent with Art. II:1(b), as there was no mention of such value limitation in Canada's Schedule. (This resulted in a partial reversal of the Panel's interpretations and conclusions.)

3.OtherIssues 19
Burden of proof (AA Art. 10.3): The Panel noted that AA Art. 10.3 shifts the burden of proof from the complainant to the respondent in cases dealing with export subsidies once the complainant has shown exports in excess of scheduled quantities. It is then for the respondent to prove that export quantities in excess of reduction commitment levels are not subsidized.

19

Other issues addressed in this case: submission of evidence (preliminary panel decision); export subsidies

under both the Agriculture Agreement and the SCM Agreement (Agriculture Agreement, Art. 9.1(a) "governments or their agents").

215

CANADADAIRY(ARTICLE21.5I)(DS103,DS113)
Canada Measures Affecting the Importation of Milk and the Exportation of Dairy Products

Parties United States, Complainants New Zealand

Agreements

Timeline of the Dispute Referred to Original Panel Circulation of Panel Report Circulation of AB Report 1 March 2001 11 July 2001 12 November 2001 18 December 2001

Respondent

Canada

AA Art. 9.1(c)

Adoption of AB Report

1.MeasuresTakentocomplywiththeDSBsRecommendations
The revised version of the system of government support for domestic milk production and export, as well as Canada's tariff rate quota regime for imports of fluid milk, which were the measures at issue in the original dispute. Canada revised the supply system for sales of domestic milk and a separate scheme governing milk to be sold for export.

2.SummaryofKeyPanel/ABFindings
Other issues addressed: AA Arts. 3.1 and 10.1. AA Art. 9.1(c): On the question of whether the Canadian measures were "payments on the export of an agricultural product that are financed by virtue of governmental action" and thus constituted a subsidy under Art. 9.1(c) (which was made in excess of its export subsidy and quantity commitments in violation of Arts. 3.3 and 8 thereof), the Appellate Body reversed the Panel's legal findings as follows.
20

As a result of the Appellate Body's findings, New Zealand and the United States once again referred this matter to the original panel on the date of the adoption of the first compliance Panel/Appellate Body reports.
21

("payments") The Appellate Body held first that neither prices for milk destined for the domestic market nor world market prices could serve as the appropriate basis for determining whether prices charged for export sales constituted a "payment" within the meaning of Art. 9.1 (c). The Appellate Body, while holding that the "average total cost of production" was the appropriate standard for determining whether export sales involve "payments", did not suggest a specific method for calculating the average total cost of production.

20 21

The Appellate Body, however, did not complete the analyses based on the correct legal standard. See Canada Dairy (Article 21.5 New Zealand and US II).

216

("financed by virtue of governmental action") Second, (i) having found, based on a textual approach, that Canada's regulation of supply and price of milk in the domestic market was a "governmental action" and that the term "by virtue of" in Art. 9.1(c) implies that the payments must be financed "as a result of, or as a consequence of" the governmental action, and (ii) having noted that "payments" within the meaning of Art. 9.1(c) cover both the financing of monetary payments and payments-in-kind, the Appellate Body reversed the Panel's finding that the Canadian governmental action in this case "obliged" producers to sell commercial export milk and that there was a demonstrable link between the governmental action and the financing of the payments. The Appellate Body found that although the governmental action established a regulatory regime whereby some milk producers could make additional profits only if they chose to sell commercial export milk, there was no demonstrable link between the governmental action and the financing of the payments.

CANADADAIRY(ARTICLE21.5II)(DS103,DS113)
Canada Measures Affecting the Importation of Milk and the Exportation of Dairy Products Second Recourse to Article 21.5 of the DSU by New Zealand and the United States

Parties United States, Complainants New Zealand

Agreements

Timeline of the Dispute Referred to Original Panel Circulation of Panel Report 18 December 2001 11 July 2002 5 December 2002 17 January 2003

AA Articles 3 Respondent Canada and 9

Circulation of AB Report Adoption of AB Report

1.MeasuresTakentocomplywiththeDSBsRecommendations
The system of government support for domestic milk production and export, as well as Canada's tariff rate quota regime for imports of fluid milk, which were the measures at issue in the original dispute. Canada revised the supply system for sales of domestic milk and a separate scheme governing milk to be sold for export.

2.SummaryofKeyPanel/ABFindings
AA Art. 9.1: The Appellate Body upheld the Panel's finding that the supply of commercial export milk by Canadian milk producers, at a price below the "average total cost of production", to Canadian dairy processors involved export subsidies under Art. 9.1(c) and were accordingly "payments" within the meaning of Article 9.1(c). The Appellate Body then considered the "role" of the Canadian government and noted that "governmental action" controls "virtually every aspect of domestic milk supply and management," and the effect of these different governmental actions is to secure a highly remunerative price for sales of domestic milk by producers.

217

The Appellate Body concluded that these factors were sufficient to demonstrate the "nexus" between the governmental actions and the financing and hence were covered by Art. 9.1(c). Regarding the method by which to establish the production costs, which are necessary to ultimately determine the existence of "payments", the Appellate Body found that the standard is "an industry-wide average figure that aggregates the costs of production of all producers of milk" and that the industry-wide cost of production could be based on a statistically valid sample of all producers.

AA Art. 3.3: On the basis of its findings on the export subsidies within the meaning of Art. 9.1(c), which were provided in excess of the quantity reduction commitment set forth in Canada's Schedule, the Appellate Body confirmed that Canada had acted inconsistently with its obligations under Art. 3.3.

3.OtherIssues 22
AA Art. 10.3 (burden of proof): Reversing the Panel's finding that it is for the complaining Member to make a prima facie case that the exports in excess of the schedule commitments are subsidized, the Appellate Body said that Art. 10.3 "is clearly intended to alter the generally accepted rules on burden on proof" in respect of the question of whether an export subsidy has been granted to the excess quantities. In this connection, the traditional burden of proof principles (i.e. the burden is on the complainant Member) apply only to the question of whether exports have been made in quantities above export quantity commitment levels. Despite the Panel's misapplication of the burden of proof on the issue, the Appellate Body found that the Panel ultimately arrived properly at the burden of proof situation envisaged by Art.10.3 and that its error did not vitiate any of the Panel's substantive findings under Arts. 3.3, 8, 9.1(c) and 10.1.

22

Other issues addressed: AA Arts. 10.1 and 8.

218

ECEXPORTSUBSIDIESONSUGAR(DS265,DS266,DS283)
European Communities Export Subsidies on Sugar

Parties Australia, Brazil Complainants and Thailand

Agreements

Timeline of the Dispute Establishment of Panel Circulation of Panel Report 29 August 2003 15 October 2004 29 April 2005 19 May 2005

AA Arts. 3, 8 Respondent European Union and 9.1

Circulation of AB Report Adoption of AB Report

1.MeasureandIndustryatIssue
Measure at issue: EU measures relating to subsidization of the sugar industry, namely, a Common Organization for Sugar (CMO) (set out in Council Regulation (EU) No. 1260/2001): two categories of production quotas "A sugar" and "B sugar" were established under the Regulation. Further, sugar produced in excess of A and B quota levels is called C sugar, which is not eligible for domestic price support or direct export subsidies and must be exported. Industry at Issue: Sugar industry.

2.SummaryofKeyPanel/ABFindings 23
EU export subsidy commitment levels for sugar: The Appellate Body upheld the Panel's finding that footnote 1 in the EU Schedule relating to preferential imports from certain ACP countries and India did not have the legal effect of enlarging or otherwise modifying the European Union's quantity commitment level contained in Section II, Part IV of its Schedule. AA Arts. 9.1(c), 3.3 and 8 (export subsidies exports of C sugar): The Appellate Body upheld the Panel's finding that the European Union violated Arts. 3.3 and 8 of the AA by exporting C sugar because export subsidies in the form of payments on the export financed by virtue of government action within the meaning of Art. 9.1(c) were provided in excess of the European Union's commitment level. In this regard, the European Union provided two types of "payments" within the meaning of Art. 9.1(c) for C sugar producers, i.e. (i) sales of C beet sugar below the total costs of production to C sugar producers; and (ii) transfers of financial resources, through cross-subsidization resulting from the

23

Other issues addressed in this case: DSU Art. 9.2 (separate panel reports), Art. 10.2 (enhanced third party

rights); notification of third parties' interest in participating; confidential information; timing of objection to the panel's jurisdiction; terms of reference (DSU Art. 6.2); estoppel from pursuing the dispute; amicus curiae (confidentiality); consideration of new arguments (AB); extension of time for appeal and circulation of report (AB, DSU Art. 16.4, 17.5); private counsel (AB); good faith (DSU, Art. 3.10, 7.2, 11); sufficiency of notice of appeal (Working Procedures for Appellate Review, Rule (20(2)(d)).

219

operation of the EU sugar regime. Further, the Panel concluded that the European Union had not demonstrated, pursuant to AA Art. 10.3, that exports of C sugar that exceeded the European Union's commitment levels since 1995 had not been subsidized. AA Arts. 9.1(a), 3 and 8 (export subsidies export of ACP/India equivalent sugar): The Panel found that the European Union acted inconsistently with AA Arts. 3 and 8 since the evidence indicated that European Union's exports of ACP/India equivalent sugar received export subsidies within the meaning of Art. 9.1(a) and the European Union had not proved otherwise.

3.OtherIssues
Judicial economy (export subsidies under ASCM and AA): The Appellate Body found that the Panel's exercise of judicial economy in respect of the complainant's claims under ASCM Art. 3 (after having found a violation by the European Union of AA Arts. 3.3 and 8) was false, as different and more rapid remedies were available to the complainant respectively under ASCM (Art. 4.7) and AA (through DSU Art. 19.1). Reversal of burden of proof (AA Art. 10.3): The Panel explained that AA Art. 10.3 reverses the usual rule of burden of proof such that once the complainant has proved that the respondent is exporting a certain commodity in quantities exceeding its commitment levels, then the respondent must prove that such an excessive amount of exports is not subsidized.

220

VI.

SUMMARY

WTO Members cannot maintain export subsidies on agricultural products, unless they declare these subsidies in a list in the Schedules of commitments. Where they are listed, WTO Members must reduce both the amount of money they spend on export subsidies and the quantities of exports that receive subsidies. To calculate the reduction commitment, Members start at the averages for 1986-90 as the base level: Expenditures: Developed countries agreed to cut the value of export subsidies by 36% over the six years starting in 1995 (24% over 10 years for developing countries). LDCs do not need to make any cuts. Volume of exports: Developed countries also agreed to reduce the quantities of subsidized exports by 21% over the six years (14% over 10 years for developing countries). LDCs do not need to make any cuts. During the six-year implementation period, developing countries are allowed under certain conditions to use subsidies to reduce the costs of marketing and transporting exports. Article 10 of the Agreement on Agriculture has some provisions for the prevention of circumvention of export subsidies commitments.

EXPORT SUBSIDIES

Instrument

Disciplines Undertaking not provide export subsidies otherwise that inconformity with the Agreement on

Article 8 Article 9

Agriculture and the Schedules; Definition of export subsidies subject to reduction. Other export subsidies subject to anti-circumvention provisions which include disciplines

Article 10

relating to food aid. Prohibition on the use of export subsidies on products not subject to reduction

Article 3.3

commitments. Developed Countries Distinct reduction commitments on both volume (21%) and budgetary outlays Two-thirds of the reduction required for developed countries over ten years. Developing Countries

Schedules

(36%) over six years. For incorporated/processed products

Article 11

budgetary outlays only (36%). Exception during the implementation period in respect of certain marketing and internal

Article 9.4

transportation subsidies.

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PROPOSED ANSWERS: 1. Article XVI of GATT 1947 prohibited export subsidies except for exports of primary products subject to the condition that such a subsidy did not result in the exporter getting more than an equitable share of world trade in that product. 2. Article 1(e) of the Agreement on Agriculture defines export subsidies but Article 1.1 of the Agreement on Subsidies and Countervailing Measures defines subsidies generally. The SCM Agreement applies to agricultural goods as well as industrial products, except when the subsidies conform to the Agreement on Agriculture. However, the Due Restraint" clause of the Agreement on Agriculture (Article 13) restricted other Members rights to challenge export subsidies until the end of 2003, provided a Member's use of export subsidies was within its commitments. 3. Articles 3 and 8 commit Members to abiding by the commitments in their Schedules and acting in conformity with the Agreement on Agriculture. Article 9 lists the types of subsidies which are subject to reduction commitments and provides an exception for developing countries for certain marketing and transport subsidies. Article 10 states that other measures cannot be used as a way to circumvent export subsidy commitments and provides some rules on export credits and food aid. Article 11 disciplines the use of subsidies on an incorporated agricultural primary products. 4. Export Subsidies: are allowed only if they are listed in a Member's Schedules and subject to reductions in the quantity exported with the subsidies and the budgetary outlay on those subsidies; and must comply with Articles 3, 8, 9, 10 & 11 of the Agreement.

The volume of export subsidies must be reduced by at least 21% and the expenditure on export subsidies by at least 36% over 6 years for developed countries. The volume of export subsidies must be reduced by at least 14% and the expenditure on export subsidies by at least 24% over 10 years for developing countries. 5. (i) by requiring that any export subsidy not listed in Article 9.1 is not used in a way that even threatens to lead to circumvention of commitments; (ii) by requiring Members to work towards developing disciplines on export credits;

(iii) by putting the burden of proof on Members to show that exports in excess of commitments are not subsidised; and (iv) by establishing rules for food aid.

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MODULE

7
ExportRestrictionsand Prohibitions andNetFoodImporting DevelopingCountries
ESTIMATEDTIME:3hours

OBJECTIVES OF MODULE 7

Explain the rules on export restrictions and prohibitions in relation to agricultural products.

Explain Article 16 of the Agreement on Agriculture; and Explain the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries and the obligations therein.

223

I.

EXPORTRESTRICTIONSANDPROHIBITIONS

I.A.

INTRODUCTION

In addition to the commitments in market access, domestic support and export subsidies, which you have seen in the previous modules, the Agreement on Agriculture contains other provisions such as those on export prohibitions and restrictions, as well as net food importing developing countries (NFIDCs). At the end of the Module you should be able to: explain the conditions that Members are required to follow when they restrict or prohibit export of agricultural products; understand the obligation in Article 16; and explain the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries and the obligations therein (NFIDCs) a separate Decision adopted by the Ministerial Conference at Marrakesh as part of the outcome of the Uruguay Round negotiations on agriculture to address the concerns of the least-developed and net food-importing developing countries Members.

I.B.

DISCIPLINESONEXPORTRESTRICTIONSAND PROHIBITIONS

Let's recall that Article XI of the GATT 1994 which stipulates a general prohibition of quantitative restrictions states that:

"no prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licences or other measures, shall be instituted or maintained by any contracting party on the importation of any product destined for the territory of any other contracting party."

Although Article XI obliges WTO Members not to maintain prohibitions or restrictions over export, WTO Members can still do so based on exceptions or justifications for security, public health, and safety reasons. Among the exceptions to this general prohibition are those in: GATT Article XI:2(a) in cases of critical shortage of foodstuffs; GATT Article XI:2(b) governing the application of standards, etc.; GATT Article XX governing the general exceptions, in particular, (g), (i), and (j); and GATT Article XXI, which governs the security exceptions.

225

The rules and disciplines on export restrictions of the GATT 1994 apply to both non-agricultural and agricultural products.
1

For agricultural products, the rules governing the prohibitions and restrictions on the export of agricultural products are further restricted by Article 12 of the Agreement on Agriculture entitled "disciplines on export prohibition and restrictions". Article 12 stipulates the conditions Members must respect if they wish to implement export prohibitions or restrictions on agricultural products in cases of critical shortages of foodstuff as allowed under Article XI:2(a) of the GATT 1994. According to Article 12 of the Agreement on Agriculture: Any Member implementing an export prohibition or restriction shall give due consideration to the effects of such prohibition or restriction on importing Members' food security. Before instituting the an export prohibition or restriction, the Member shall give notice in writing to the Committee on Agriculture and shall consult, upon request, with any other Member having a substantial interest as an importer with respect to any matter related to the measure in question. Article 12.2 contains an exception for developing countries. The requirement in Article 12 does not apply to developing countries unless they are net exporters of the foodstuff, for which an export prohibition or restriction has been instituted.

Instrument Article 12

Discipline Requirement for advance notice and obligation to consult on request and supply information in case of new export restrictions on foodstuffs. Developed Countries Developing Countries Exception for developing countries that are net-exporters of the

Article 12.2 Table 1: Articles 12 and 12.2

foodstuff concerned.

I.B.1.

NOTIFICATIONS

Before instituting an export prohibition or restriction, WTO Members are required to make a notification pursuant to Article 12 of the Agreement on Agriculture. The requirements and formats for notifications are set out in WTO document G/AG/2.

For goods, Article XIII of the GATT 1994 stipulates that when export restrictions are used, they must be

applied on a non-discriminatory basis. Article XII of the GATT 1994 (Article XVIII in the case of developing countries) allows members to apply restrictions to safeguard the balance of payments.

226

Export prohibitions and restrictions are notified in the form of Table ER:1. Members must notify: (1) (2) (3) (4) Description of product; Tariff item number(s); Nature of, and justification for, measure to be introduced; and Duration of application of measure.

EXERCISES: 1. What are the two conditions that WTO Members must follow when they institute new export prohibition on foodstuff restrictions according to Article 12? 2. Which WTO Members are required to make notifications under Article 12?

227

II.

NETFOODIMPORTINGDEVELOPING COUNTRIES

II.A. INTRODUCTION
Although it is generally considered that trade liberalization improves global prosperity and food security, it was also recognized that there could be possible negative effects for least-developed and net food-importing developing countries. These difficulties might arise from a rise in world market prices resulting from the reduction of domestic support and export subsidies in some exporting countries. As you saw in previous Modules, under the Agreement on Agriculture, WTO members have to reduce their subsidized exports and the domestic support granted to farmers. However, some developing countries may depend on supplies of cheap imported foodstuffs. They include some of the poorest countries, and although their farming sectors might receive a boost from higher prices caused by reduced export subsidies, they might need temporary assistance to make the necessary adjustments to deal with higher priced commercial imports. The Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on LeastDeveloped and Net Food-Importing Developing Countries (NFIDCs) was agreed during the Ministerial Conference in Marrakesh (1994) and sets out certain mechanisms to deal with the possible negative effects arising from the reform programme in agriculture. Article 16 of the Agreement on Agriculture makes reference to this Decision.

Article 16: Least-Developed and Net Food-Importing Developing Countries 1. Developed country Members shall take such action as is provided for within the framework of the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries. 2. The Committee on Agriculture shall monitor, as appropriate, the follow-up to this Decision.

II.A.1. THEMINISTERIALDECISIONONNFIDCS
The Decision has 6 paragraphs. It recognizes that while the progressive implementation of the results of the Uruguay Round will generate increasing opportunities for trade expansion and economic growth to the benefit of all WTO Members, during the reform programme least-developed and net food importing developing countries may experience negative effects in terms of the availability of adequate supplies of basic foodstuffs from external sources on reasonable terms and conditions, including short-term difficulties in financing normal levels of commercial imports of basic foodstuffs. Ministers agreed to establish appropriate mechanisms to ensure that the implementation of the results of the Uruguay Round on trade in agriculture does not adversely affect the availability of food aid at a level which is

228

sufficient to continue to provide assistance in meeting the food needs of developing countries, especially least-developed and net food-importing developing countries. To this end Ministers agreed to: (i) Review the level of food aid established periodically by the Committee on Food Aid, under the Food Aid Convention of 1986, and to initiate negotiations in the appropriate forum to establish a level of food aid commitments sufficient to meet the legitimate needs of developing countries during the reform programme; (ii) Adopt guidelines to ensure that an increasing proportion of basic foodstuffs is provided to least-developed and net food-importing developing countries in fully grant form and/or on appropriate concessional terms in line with Article IV of the Food Aid Convention 1986; (iii) Give full consideration in the context of their aid programmes to requests for the provision of technical and financial assistance to least-developed and net food-importing developing countries to improve their agricultural productivity and infrastructure. Ministers also agreed to ensure that any agreement relating to agricultural export credits makes appropriate provision for differential treatment in favour of least developed and net food-importing developing countries. The Decision recognizes that as a result of the Uruguay Round certain developing countries may experience short-term difficulties in financing normal levels of commercial imports and that these countries may be eligible to draw on the resources of international financial institutions under existing facilities, or such facilities as may be established, in the context of adjustment programmes, in order to address such financing difficulties. The Committee on Agriculture monitors the follow-up to the Decision. The Decision is also subject to regular review by the Ministerial Conference. Paragraph 18 of the Working Procedures states:

"There shall be an opportunity at any regular meeting of the Committee to raise any matter relating to the Decision on Measures concerning the Possible Negative Effects
2

of

the

Reform

Programme

on

Least-Developed and Net Food-Importing Developing Countries."

See G/AG/1, paragraph 18.

229

II.A.2. BENEFICIARIES
The Decision describes but does not list the developing countries that are to be beneficiaries. In 1996, the Committee established a WTO list of net food-importing developing countries. This list currently contains: the 50 least-developed countries (LDCs) as defined by the Economic and Social Council of the United Nations ; and 26 developing country Members (NFIDCs), that is Barbados, Botswana, Cte d'Ivoire, Cuba, Dominica, Dominican Republic, Egypt, Gabon, Honduras, Jamaica, Jordan, Kenya, Mauritius, Mongolia (Mongolia was added as a beneficiary in the revision in 2005), Morocco, Namibia, Pakistan, Peru, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Senegal, Sri Lanka, Trinidad and Tobago, Tunisia and Venezuela.
4 3

II.B.

IMPLEMENTATIONOFTHENFIDCDECISION

The implementation of the Decision is open for discussion at each regular meeting of the Committee on Agriculture. Members supplying food aid are required to submit notifications as explained below under the sub-heading "notifications". In addition, the FAO, the World Bank, the International Monetary Fund as well as other Observers present annual reports at each November meeting of the Committee outlining the situation in LDCs and NFIDCs. The annual monitoring of the NFIDC Decision, in accordance with Article 16 of the Agreement on Agriculture and paragraph 18 of the Working Procedures of the Committee on Agriculture, is undertaken on the basis, inter alia, of the Table NF:1 notifications as submitted by Members (details below). In December 2000 , the General Council instructed the Committee on Agriculture to examine possible means of improving the effectiveness of the implementation of the NFIDC Decision.
7 6 5

The Committee's report on this question , which was approved by the Doha Ministerial Conference, included, inter alia, a recommendation for the establishment of an Inter-agency panel of financial and commodity experts to examine the issue of short-term difficulties by NFIDCs and LDCs in financing normal levels of

See G/AG/3. The decision to establish this list was taken on the understanding that "being listed would not as

such confer automatic benefits since, under the mechanisms covered by the Marrakesh Ministerial Decision, donors and the institutions concerned would have a role to play" (G/AG/R/4, paragraph 17). This list was revised on 22 March 2005 (document G/AG/5/Rev.8).
4 5 6 7

See G/AG/5/Rev.8. See WT/L/384. See progress reports to the General Council on such consultations in G/AG/7 and G/AG/10. See G/AG/11.

230

commercial imports of basic foodstuffs. The panel report, which was submitted in June 2002, included an examination of specific proposals submitted by a group of seventeen WTO NFIDCs.
8

Since July 2003, the Committee on Agriculture has also considered, at each of its regular meetings, a proposal by the African Group calling for developed-country Members to, inter alia, contribute to a revolving fund for normal levels of food imports. matter on the basis of
9

In September 2004, the Committee on Agriculture decided to revert to this recommendation contained in its report to the General Council on
10

the

Implementation-Related Issues.

Informal consultations specifically dedicated to that proposal were also held

in May 2005 and again in February 2006, as part of the discussions on implementation-related issues.

II.B.1. REVIEWOFFOODAID
In paragraph 3(i) of the NFIDC Decision Ministers agreed " to review the level of food aid established periodically by the Committee on Food Aid under the Food Aid Convention 1986 and to initiate negotiations in the appropriate forum to establish a level of food aid commitments sufficient to meet the legitimate needs of developing countries during the reform programme...". The Food Aid Convention (FAC) provides a safety net in terms of food aid availability. The international food aid commitments under the FAC are specified in terms of minimum annual contributions by its members. Table 1 below summarizes the annual food aid commitments under the 1999 Food Aid Convention, as well as the food aid shipments by FAC members, during the period 1999/00-2005/06. According to Table 1, the aggregate annual commitments, expressed in wheat equivalent, decreased from a total of 7.5 million tonnes (under the Food Aid Convention 1986) to 5.4 million tonnes (under the Food Aid Convention 1995).
11

Under the Food Aid Convention 1999, the combined minimum annual volume and value

commitments of FAC members are established at 4.8 million tonnes and 130 million (as of June 2005). Table 1 also shows that annual shipments exceeded, often significantly, FAC members' combined minimum annual commitments.
12

At its meeting in January 2006, the Food Aid Committee of the International Grains

8 9

See proposals (G/AG/W/49 and 49/Add.1 and Corr.1) and Inter-agency panel report (WT/GC/62 - G/AG/13). The proposal itself is contained in paragraph 52 of TN/CTD/W/3/Rev.2 (dated 17 July 2002). It was referred

to the Committee on Agriculture in 2003 by the Chairman of the General Council in the context of the WTO's Work Programme on Special and Differential Treatment under the Doha Development Agenda (Decision adopted by the General Council on 1 August 2004, paragraph 1.d of WT/L/579 refers).
10

See G/AG/16, paragraph 19(c). Progress reports relating to the African Group proposal are contained in

G/AG/17 and Corr.1; G/AG/20; and G/AG/22. See also G/AG/16/Add.1, paragraphs 11-12 of the Committee's follow-up report on Implementation-Related Issues and Concerns to the General Council (dated 13 June 2006).
11

See G/AG/W/42/Rev.8 for data relating to donor commitments and shipments under the 1986 and 1995

Food Aid Conventions, respectively.

12

The exception was 1994/95 when shipments fell short of the aggregate commitment (G/AG/W/42/Rev.8,

paragraph 12 refers).

231

Council observed that more than half of the food aid in 2004/05 was sent to Africa, with the largest recipients being respectively Ethiopia, Sudan, Eritrea, Uganda and Kenya.
13

Minimum Annual

(1999 Conv.)

Contribution

DONOR
Argentina

35.0 250.0

2.7 296.7

251.9

0.03 245.8

203.8

178.0

168.1

200.0

Australia Canada EU

150.0 d) 420.0 470.6 e) 293.5 2,357.8 f) g) 408.2 1,836.7 h) i) 451.5 1,980.8 j) k) 310.4 2,218.1 l) 396.4 2,152.0 o) m) n) o) 2,000.0 320.0 420.0

1,320.0 and 1,970.8 130 million

Japan a)

300.0

337.4

637.7

531.8

666.9

581.0

578.3

30.0 Norway a) b) Switzerland 40.0

76.0

85.9

74.3

144.9

165.5

145.6

140.0

61.3

54.2

58.0

67.9

69.7

71.9

USA

2,500.0

5,692.1

6,798.3

7,124.4

6,054.2

5,801.7

5,363.2

5,225.0

TOTAL c)

4,760.0 and 8,907.6 130 million

10,479.2

c)

10,279.3

9,570.1

9,324.4

8,875.3

8,375.0

Table 2:

Minimum Annual Contributions and Shipments under the Food Aid Convention (thousand tonnes, wheat equivalent)

Source: attachment 2 of document (G/AG/W42/Rev.9) based on Source: Food Aid Committee, International Grains Council.

NOTES FOR TABLE 2: * Unless otherwise specified, all shipments were in respect of the Food Aid Convention, 1999. These figures refer to the wheat equivalent of actual shipments completed during the years shown. They are not adjusted for product limits under Article IV of the Food Aid Convention 1999 and do not necessarily represent the performance of members in relation to their annual commitments. a) Wheat equivalent of cash contributions as calculated on the basis of the "prevailing international market price". These figures therefore do not correspond to quantities actually shipped.

13

See G/AG/GEN/71, page 6.

232

2005/06 p)
70.0

1999/00

2000/01

2001/02

2002/03

2003/04

2004/05

b)

Norway made its entire FAC commitment available to WFP in the form of cash during each of the years shown, but actual shipments, as reported by WFP, may not have been completed in the corresponding period.

c) d) e)

Includes contributions under IEFR - Immediate Response Account (IRA), as reported by WFP. As revised with effect from 1 July 2003. Includes FAC "value" contributions totalling 156,504,384 Euro, reported as notional wheat equivalent of 531,749 tonnes.

f)

Includes FAC "value" contributions totalling 181,049,943 Euro, reported as notional wheat equivalent of 628,659 tonnes.

g)

Includes total estimated

wheat equivalents of

incomplete records of 14,385 tonnes (tonnage

commitment) and 5,885 tonnes (value commitment) as reported by the EU. h) Includes FAC "value" contributions totalling 137,338,267 Euro, reported as notional wheat equivalent of 599,462 tonnes. i) Includes total estimated wheat equivalents of incomplete records of 212,193 tonnes (tonnage commitment) as reported by the EU. Excludes incomplete records of 71,705 (actual) tonnes (Value Commitment) as reported by the EU. j) Includes FAC "value" contributions totalling 205,134,151 Euro, reported as notional wheat equivalent of 849,140 tonnes. k) Includes total estimated wheat equivalents of incomplete records of 22,533 tonnes (Tonnage Commitment) as reported by the EU. Excludes incomplete records of 148,120 (actual) tonnes (Value Commitment) as reported by the EU. l) m) Reported contributions do not distinguish between tonnage and value commitments. Includes FAC "value" contributions totalling 199,296,625 Euro reported as notional wheat equivalent of 984,541 tonnes. n) Excludes incomplete records of 5,350 (actual) tonnes (Tonnage Commitment), and 10,561 tonnes (Value Commitment) as reported by the EU. o) p) Provisional. IGC Secretariat estimates, as at July 2006.

There are a number of other sources of food aid data, particularly the Food and Agriculture Organization (FAO) and the World Food Programme (WFP). Data from these sources are not directly comparable with the data of the Food Aid Committee of the International Grains Council (IGC) mainly due to differences in country and product coverage, reporting period, and the use of delivery rather than shipment data. WFP data show that global food aid deliveries present a cyclical pattern, with a record of 17.3 million tonnes reached in 1993.
14

As shown in Chart 1 below, another peak was reached in 1999 when food aid totalled

14

See also G/AG/GEN/49, pp. 10-11.

233

15.1 million tonnes.

15

In this context, the Doha Ministerial Conference approved the following recommendation

made by the Committee on Agriculture:

"WTO Members which are donors of food aid shall, within the framework of their food aid policies, statutes, programmes and commitments, take appropriate measures aimed at ensuring: (i) that to the maximum extent possible their levels of food aid to developing countries are maintained during periods in which trends in world market prices of basic foodstuffs have been increasing; "
16

Figure1:

Food aid deliveries to LDCs and NFIDCs, 1995-2005

17

Source: Food Aid Monitor: 2005 Food Aid Flows, June 2006, WFP.

15

Food aid deliveries as monitored by the WFP include deliveries by FAC members, other countries, and

non-governmental organizations.
16 17

See G/AG/11, Part B paragraph 3 I(b) refers. Notes: Includes cereals in grain equivalent and non-cereals in product weight; "NFIDC" refers to the

26 Members listed in G/AG/5/Rev.8. Data for 2005 are provisional.

234

Except for Barbados and Trinidad and Tobago, all NFIDCs on the WTO list were, occasionally or regularly, recipients of food aid during 1995-2005. Table 3 shows that, in 2005, total food aid deliveries to NFIDCs were 21% lower than average deliveries recorded during the previous 10-year period (i.e., 1995-2004), but increased by 18% with respect to LDCs. As far as LDCs are concerned, preliminary WFP data indicate that food aid deliveries to Sudan, Niger, Uganda, Chad, Mali, Mauritania, Myanmar, Democratic Republic of Congo, Burundi, Zambia and Maldives more than doubled in 2005 compared to their 1995-2004 average, and increased between 17 and 80% for another 12 LDCs. (Lesotho, Djibouti, Guinea, Eritrea, The Gambia, Tanzania, Malawi, Sao Tome and Principe, Malawi, Senegal, Ethiopia, Guinea Bissau, and Liberia)

1995-2004 average

2005

2005 as per cent of 1995-2004 average 118 79 55 84

(million tonnes) Ldc Nfidc Other TOTAL Table 3: 4.2 1.1 4.5 9.8 4.9 0.8 2.5 8.2

Evolution of food aid deliveries, 1995-2005

18

Source: Food Aid Monitor: 2005 Food Aid Flows, June 2006, WFP.

WFP statistics are compiled based on the following three food aid categories: Emergency food aid is defined by WFP as being destined to victims of natural or man-made disasters, is freely distributed to targeted beneficiary groups, and is usually provided on a grant basis. It is channelled multilaterally, through NGOs, or, sometimes, bilaterally. Project food aid aims at supporting specific poverty-alleviation and disaster-prevention activities. It is usually freely distributed to targeted beneficiary groups, but may also be sold on the open market and is then referred to as "monetized" food aid. It is provided on a grant basis and is channelled multilaterally, through NGOs, or bilaterally. Programme food aid is usually supplied as a resource transfer for balance of payments or budgetary support activities. Unlike most of the food aid provided for project or emergency purposes, it is not targeted to specific beneficiary groups. It is sold on the open market, and provided either as a grant, or as a loan.

18

Notes: Includes cereals in grain equivalent and non-cereals in product weight; "NFIDC" refers to the

26 Members listed in G/AG/5/Rev.8. Data for 2005 are provisional.

235

WFP statistics compiled in Table 4 below indicates that a rising share of global food aid deliveries (excluding Eastern Europe and the CIS) is provided in the form of emergency relief in response to man-made or natural disasters while the share of programme food aid has been declining since 1995.

FOOD AID CATEGORY

1995

2000 per cent

2005

TOTAL Emergency Project Programme Table 4:

100 41 32 27

100 51 25 24

100 65 24 12

Composition of global food aid deliveries

19

Source: Food Aid Monitor: 2005 Food Aid Flows, June 2006, WFP.

II.B.2. INITIATIONOFFOODAIDNEGOTIATIONS
In 1996, the Singapore Ministerial Conference adopted the recommendation by the Committee on Agriculture that, in anticipation of the expiry of the Food Aid Convention 1995, and in preparation for the re-negotiation of the Food Aid Convention, action be initiated in 1997 within the framework of the Convention, under arrangements for participation by all interested countries and by relevant organizations, to develop recommendations with a view towards establishing a level of food aid commitments, covering as wide a range of donors and eligible products as possible, which is sufficient to meet the legitimate needs of developing countries during the reform programme.
20

In December 1997, the Food Aid Committee decided to extend the FAC for one year (until June 1999) and to open the Convention for renegotiation taking into account, amongst other things, "the food security and trade liberalization objectives under the WTO and the World Food Summit Action Plan"
21

. In early 1998, the Food Aid

Committee confirmed its intention to bring a new Food Aid Convention into effect on 1 July 1999 and requested the Working Group which was undertaking the re-negotiation of the FAC to aim to conclude the substantive negotiations by the end of 1998. The negotiations on the Food Aid Convention 1999 were completed on 24 March 1999 and the new Convention provisionally entered into force on 1 July 1999 for an initial duration of three years.

19

Notes: Includes cereals in grain equivalent and non-cereals in product weight; data exclude food aid

deliveries to Eastern Europe and the CIS; data for 2005 are provisional.
20 21

See G/L/125, paragraph 18(i). IGC statement in G/AG/GEN/20.

236

The Food Aid Convention 1999 contains a number of new features

22

The list of eligible products which may be supplied has been broadened significantly beyond cereals. There are also new provisions designed to improve the effectiveness and the impact of food aid. When allocating their food aid, FAC members undertake to give priority to the LDCs and Low-Income Countries, many of which are on the present WTO list of net food-importing developing countries.

Other eligible food aid recipients include Lower Middle-Income Countries and all other countries included in the WTO list of net food-importing developing countries at the time of negotiation of the new Convention.

At the Doha Ministerial Conference in 2001, Ministers approved the recommendation of the Committee:

"that early action be taken within the framework of the Food Aid Convention 1999 (which unless extended, with or without a decision regarding its renegotiation, would expire on 30 June 2002) and of the UN World Food Programme by donors of food aid to review their food aid contributions with a view to better identifying and meeting the food aid needs of least-developed and WTO net food-importing developing countries."
23

The Food Aid Convention 1999, which was to expire on 30 June 2002, was not renegotiated at that stage but, as agreed by the Food Aid Committee, it was initially extended by one year and subsequently further extended until 30 June 2005. In June 2004, the Food Aid Committee decided to undertake a renegotiation of the FAC 1999 with the aim of bringing into effect a Convention which is a "more effective instrument to provide food to those identified needs when food aid is the most appropriate response". FAC Working Group meetings were held in October and November 2004. At its December 2004 session, the Food Aid Committee concluded that the relationship between the review process in the Food Aid Committee and negotiations underway in the WTO was so important that conclusive recommendations should await the outcome of the Doha Development Agenda. The Committee agreed that the FAC renegotiations would be more effectively carried out in the light of developments in the WTO. In these circumstances, the Committee decided that the 1999 Food Aid Convention, which had been due to expire on 30 June 2005, should be extended for a further two years, until 30 June 2007.

II.B.3. CONCESSIONALITYOFFOODAID
Under paragraph 3(ii) of the NFIDC Decision, Ministers also agreed:

" to adopt guidelines to ensure that an increasing proportion of basic foodstuffs is provided to least-developed and net food-importing developing countries in fully grant form and/or on appropriate concessional terms in line with Article IV of the Food Aid Convention 1986 " ().

22 23

See G/AG/GEN/35 for a description of major changes introduced in the Convention. See G/AG/11, Part B paragraph 3 I(a) refers.

237

As provided by the Food Aid Convention 1999, all food aid provided to LDCs will be in the form of grants. Overall, food aid in the form of grants is to represent, at a minimum, 80% of FAC members' contributions and donors are to seek to progressively exceed this share. At the Doha Ministerial Conference, Ministers approved the recommendation that:

"WTO Members which are donors of food aid shall, within the framework of their food aid policies, statutes, programmes and commitments, take appropriate measures aimed at ensuring: (ii) that all food aid to least developed countries is provided in fully grant form and, to the maximum extent possible, to WTO net food-importing developing countries as well."
24

Table 5 below shows the proportion of food aid provided to LDCs and NFIDCs in the form of donations, as notified by WTO Members. All notifying Members, except the United States, provided 100% of food aid to the beneficiary countries in grant form. In the case of the United States, in the implementation years 1995/96 to 2001/02, between 83 and 95% of food aid was donated, with the remainder being provided in accordance with the relevant FAC guidelines. According to the Food Aid Committee of the International Grains Council, nearly all food aid (97%) was provided in grant form during 2004/2005, while approximately US$800 million were also provided by FAC donors to cover transportation and other costs.
25

Member FAC DONORS Australia Canada EU Japan Norway Switzerland United States

Concessionality of food aid 100% grant terms 100% grant terms 100% grant terms 100% grant terms 100% grant terms 100% grant terms Proportion of food aid to LDCs and NFIDCs on 100% grant terms: 1995/96 1996/97 1997/98 1998/99 and 1999/00 2000/01 2001/02 2002/03 84% 93% 83% 93% 95% 91% 100%

The remainder is provided in accordance with Food Aid Convention guidelines. OTHER DONORS Cuba New Zealand South Africa Table 5: 100% grant terms 100% grants of cash 100% grant terms Proportion of food aid provided in fully grant form to LDCs and NFIDCs Source: Members' Table NF:1 notifications.

24 25

See G/AG/11, Part B paragraph 3 I(b) refers. See G/AG/GEN/71, page 6.

238

II.B.4. TECHNICALANDFINANCIALASSISTANCE
Paragraph 3(iii) of the NFIDC Decision required Members " to give full consideration in the context of their aid programmes to requests for the provision of technical and financial assistance to least-developed and net food-importing developing countries to improve their agricultural productivity and infrastructure". The Doha Ministerial Conference called on developed-country Members to continue to give full consideration in the context of their aid programmes to requests for the provision of technical and financial assistance by least-developed and net food-importing developing countries to improve their agricultural productivity and infrastructure. This recommendation reflects the fact that technical and financial assistance is essentially a bilateral matter between donors and recipients based on requests made by recipient countries. Furthermore, the Doha Ministerial Conference approved the recommendation:

"... that, in support of the priority accorded by least-developed and net food-importing developing countries to the development of their agricultural productivity and infrastructure, the WTO General Council call upon relevant international development organisations, including the World Bank, the FAO, IFAD, the UNDP and the Regional Development Banks to enhance their provision of, and access to, technical and financial assistance to least-developed and net food-importing developing countries, on terms and conditions conducive to the better use of such facilities and resources, in order to improve agricultural productivity and infrastructure in these countries under existing facilities and programmes, as well as under such facilities and programmes as may be introduced."
26

The responses from the African Development Bank, the European Investment Bank, FAO and the World Bank were circulated.
27

The International Monetary Fund renewed its commitment to providing assistance to

28

developing countries in capacity building and in coping with balance-of-payment shortfalls resulting from multilateral trade liberalization.

II.B.5. DIFFERENTIALTREATMENTINTHEFRAMEWORKOFAN AGREEMENTONEXPORTCREDITS

In light of paragraphs 1 and 2 of the NFIDC Decision, Ministers agreed " to ensure that any agreement relating to agricultural export credits makes appropriate provision for differential treatment in favour of leastdeveloped and net food-importing developing countries". Paragraph 4 of the NFIDC Decision.

26 27 28

See G/AG/11, Part B paragraph 3 II(b) refers. See G/AG/W/57 and Add.1. See G/AG/GEN/71, page 9.

239

At the Doha Ministerial Conference, Ministers reaffirmed the commitment above and approved a general understanding regarding procedures for the development of disciplines pursuant to Article 10.2 of the Agreement on Agriculture and the related provisions of the NFIDC Decision.
29

Accordingly, work within the WTO on the question of agricultural export credits has been undertaken in both the regular meetings of the Committee on Agriculture and in the negotiations in the Special Session on the basis, inter alia, of the proposals that have been tabled and other inputs, including with respect to special and differential treatment in favour of developing countries.
30

Moreover, the Agreed Framework for establishing modalities in agriculture provides that:

"Members will ensure that the disciplines on export credits, export credit guarantees or insurance programs to be agreed will make appropriate provision for differential treatment in favour of least-developed and net food-importing developing countries as provided for in paragraph 4 of the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries. Improved obligations for monitoring and surveillance of all new disciplines as foreshadowed in paragraph 48 will be critically important in this regard. Provisions to be agreed in this respect must not undermine the commitments undertaken by Members under the obligations in paragraph 18 above."
31

The above objective was reaffirmed during the Hong Kong Ministerial Conference.

32

II.B.6. ACCESSTOTHERESOURCESOFTHEINTERNATIONALFINANCIAL INSTITUTIONS

In the NFIDC Decision, Ministers furthermore recognized that:

" as a result of the Uruguay Round certain developing countries may experience short-term difficulties in financing normal levels of commercial imports and that these countries may be eligible to draw on the resources of international financial institutions under existing facilities, or such facilities as may be established, in the context of adjustment programmes, in order to address such financing difficulties. In this regard, Ministers take note of paragraph 37 of the report of the Director-General to the CONTRACTING PARTIES to GATT 1947 on his consultations with the Managing Director of the International Monetary Fund and the President of the World Bank
33 34

."

29 30 31 32 33 34

See G/AG/11, Part A paragraph 4. See also G/AG/16 and Add.1. See paragraph 24 of Annex A of WT/L/579 refers. See paragraph 6 of WT/MIN(05)/DEC. See MTN.GNG/NG14/W/35. See paragraph 5 of the NFIDC Decision.

240

ABILITYTOFINANCECOMMERCIALIMPORTS
As noted above, the NFIDC Decision recognizes that as a result of the Uruguay Round certain developing countries may experience short-term difficulties in financing normal levels of commercial imports of basic foodstuffs. In this context, at various stages of the Committee's annual monitoring exercise, several of the international observer organizations have commented on the development of international food prices.
35

Wheat is the most important food commodity in the import basket of the NFIDCs and LDCs. Figure 2 below shows world market prices for wheat between January 1987 and September 2006.

Figure 2:

The International Grains Council Wheat Price Index (1987-2006)

Average wheat prices of seven widely traded varieties of bread wheat: July/Dec 1986=1000

As you can see in this chart, international wheat prices have dropped from their 1996 peak. Price spikes can still be observed between 2002 and 2003. The graph also shows prices strengthening again in the course of 2006, partly due to expected tightened supplies as a result of reduced harvests in major wheat producing countries (adverse weather conditions), lower grain stocks, as well as rising input prices and freight costs. The Inter-agency panel report provides a detailed examination of the question of financing food imports by NFIDCs and LDCs.
36

The food security situation in LDCs and NFIDCs is being monitored by FAO on a regular

35

The statements and contributions by international observer organizations can be found in the G/AG/GEN/--

document series, the latest of which is G/AG/GEN/71 (dated 23 February 2006). See, for example, the observations by the IMF on the recent evolution of food prices, including with respect to specific items such as sugar and cereals (pp. 7-8).
36

See WT/GC/62 G/AG/13, in particular, Chapter II, Section A and the Conclusions in Chapter III. See also

the contribution by UNCTAD to the 2004 monitoring exercise of the NFIDC Decision (G/AG/GEN/68, pp. 16-18).

241

basis, notably with regard to overall trends in cereal imports and cereal import bills.

37

In January 2006, the

FAO also reported on its collaboration with UNCTAD in elaborating a proposal for the creation of a multilateral Food Import Financing Facility (FIFF) designed to assist LDCs and NFIDCs to finance commercial imports in times of excessive food import bills.
38

The World Bank has also explored ways to strengthen the food security

of developing countries and strategies to deal with food price instability and negative impacts on food security. Among the solutions proposed, the World Bank, in cooperation with development partners, focuses on using commodity price insurance mechanisms as a tool to anticipate food crises, both at farm and at government level.
39

ACCESSTOTHEFACILITIESOFTHEIMFANDTHEWORLDBANK
The question of access to the resources of the international financial institutions has also been the subject of examination by the Inter-agency panel of financial and commodity experts. The relevant short-term lending facilities of the IMF and the World Bank are set out in the report, with the focus on the operation of the Compensatory Financing Facility (CFF) of the IMF.
40

In the context of the Committee's annual monitoring exercise of the NFIDC Decision in December 2001, the IMF representative reiterated the position of the IMF regarding the question of access to its resources by stating
41

"With existing facilities and resources, the Fund is in a position to meet any balance of payments needs of our members that may arise from higher world food prices."

An overview of concrete initiatives in favour of LDCs and NFIDCs is regularly presented by the IMF at the meetings of the Committee on Agriculture. The Poverty Reduction and Growth Facility (PRGF) remains, since 1999, the main instrument for assisting low-income countries. The IMF noted that, by the end of 2005, 21 NFIDCs and 18 LDCs were drawing on the PRGF. A non-financial mechanism, the Policy Support Instrument (PSI) has been recently made available to those low-income countries without a PRGF arrangement which are facing exogenous shocks. In supporting the trade-related adjustment needs of developing countries in the context of the Doha Development Agenda, the IMF also developed a Trade Integration Mechanism (TIM)

37 38 39

See G/AG/GEN/64. See G/AG/GEN/71, page 3. See, for example, G/AG/GEN/71 (pp. 15-17) for a detailed description of ex ante risk management systems

(price- and weather-related) and recently-launched joint WFP-World Bank pilot projects.
40

See WT/GC/62 G/AG/13. A review of the CFF concluded that the facility should be retained, see

G/AG/GEN/68, page 11.

41

See G/AG/GEN/49, page 8.

242

specifically addressing vulnerabilities stemming from, inter alia, food terms-of-trade shocks. The IMF reported that, by the end of 2004, the TIM had been used by one LDC and one NFIDC.
42

The position of the World Bank regarding the issue of access to short-term multilateral financing was outlined in November 1997 as follows:

"The World Bank continues to monitor the progress of liberalization resulting from the implementation of commitments made under the Uruguay Round Agreement. A number of recent studies using different methodologies and assumptions confirm that the long run impacts of the Uruguay Round agreement on agricultural prices will be relatively small - certainly far smaller than the price increases that have been experienced in recent years. Given the small size of the shocks resulting from the Round and the Bank's substantial headroom above current IBRD loans outstanding, it seems clear that the Bank will be in a position to meet any additional demands generated by the Round for loans on IBRD terms." "In response to the Ministerial Decision, a Working Group involving the World Bank, the Food and Agriculture Organization, the World Food Programme and the IMF met in 1995 to address the special needs of least-developed and net food-importing countries. The Working Group reviewed the range of facilities available for additional financing needs for developing countries in the event of world price shocks and production shortfalls and provided a report to the WTO in late 1995. Given the wide range of facilities and the small price impacts expected to arise as a consequence of the Round, and the difficulty involved in distinguishing Uruguay Round impacts from other shocks, it did not seem appropriate to establish a special Uruguay Round adjustment facility."
43

42 43

See, for example, G/AG/GEN/68, pp. 10-11; and G/AG/GEN/71, pp. 8-10. See G/AG/GEN/15, page 3.

243

III.

NOTIFICATIONREQUIREMENTS

As mentioned above, WTO Members make notifications concerning the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries. The notifications are done pursuant to the requirements and format set out in G/AG/2, pages 33-34. Notification under Article 16.2 are carried-out using table NF:1. Members must indicate the: (1) (2) (3) (4) Quantity of food aid provided to least-developed and net food-importing developing countries; Indication of the proportion in fully grant form or appropriate concessional term; Technical and financial assistance under paragraph 3(iii) of the Decision; and Other relevant information with respect to actions taken within the framework of the Decision.

Table 6 below summarizes compliance with Table NF:1 notification requirement during the 1995-2005 implementation period. For the purposes of this table, "compliance" refers to any Table NF:1 notification received by the seven Members
44

that are donors under the Food Aid Convention and other Members that have

in the past identified themselves as food aid donors in their notifications or provided food aid to least-developed and net food-importing developing countries in the period 1995-2005 according to data of the World Food Programme (WFP)
45

. A number of other Members have also submitted Table NF:1 notifications

stating that no food aid or technical/financial assistance was provided or that the Table NF:1 notification requirement was not applicable.
46

44 45 46

Counting the EC and its member States as one. See WFP data on http://www.wfp.org/interfais/. This is the case for Brazil, Burkina Faso, Fiji, Indonesia, Malta, Morocco, Philippines, United Arab Emirates

and Uruguay.

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1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

47

Member

Food Aid Convention donor Australia Canada EU Japan Norway Switzerland United States Other donors Argentina
48

2005

Notification circulated in G/AG/N-series

X X X X X X

X X X X X X X

X X X X X X X

X X X X X X X

X X X X X X X

X X X X X X X

X X X X X X X

X X X X X X X

X X X

AUS/5, 13, 21, 25, 32/Rev.1, 39, 48, 51 & Corr.1, 57, 60 CAN/11, 18, 25, 34, 42, 52, 57 EEC/9, 21 & Add.1., 25, 35, 46 & Add.1, 50 JPN/15, 27, 33, 46, 68, 78, 87, 107

NOR/6, 19 & Corr.1, 20 and Corr.1, 26, 33, 34 & Corr.1, 37, 42 CHE/23, 30

USA/7, 20, 21, 31, 46, 52, 56

ARG/10, 15, 21

China n.a. n.a. n.a. n.a. n.a. n.a. n.a. (11/12/2001) Cuba New Zealand Korea, Rep. of South Africa Compliance calculated as number of notifications received by FAC donors (%) Table 6: X X X X 86 X X X X X X X X X X X 71 14 0 X X X X X X X X X X X X X X CUB/4, 5, 14, 18, 22, 24 NZL/6, 13, 17, 25, 26, 30, 39, 40, 45 KOR/9, 17 ZAF/7, 9, 17, 24, 32, 39, 42, 50, 56

100 100 100 100 100 100 100

Compliance with notification requirements (Table NF:1)

Source: WTO document G/AG/W/42/Rev.9 Notes: "X" means that a notification was received. A blank means that no notification was received. "n.a." denotes not applicable.

47 48

Annual reporting periods differ among Members. Argentina informed the WTO Secretariat on 30 July 2003 that it no longer is a food aid donor under the Food

Aid Convention.

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EXERCISES: 3. To which Members do the Marrakesh Decision on Least-Developed and Net Food-Importing Developing countries apply? 4. To establish appropriate mechanisms to ensure the implementation of the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on LDCs and NFIDC, Ministers agreed to take certain measures. List them.

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IV.

SUMMARY

EXPORT PROHIBITIONS OR RESTRICTIONS ON AGRICULTURAL PRODUCTS According to Article 12 of the Agreement on Agriculture, Members that implement export prohibitions or restrictions on agricultural products in cases of critical shortages of foodstuffs, as allowed under Article XI:2(a) of the GATT 1994 must. give due consideration to the effects of such prohibition or restriction on importing Members' food security. Before instituting the an export prohibition or restriction, the Member shall give notice in writing to the Committee on Agriculture and shall consult, upon request, with any other Member having a substantial interest as an importer with respect to any matter related to the measure in question. WTO Members are required to make notifications on export prohibitions and restrictions on the basis of the requirements and formats set out in WTO document G/AG/2. Members must notify: (1) Description of product; (2) Tariff item number(s); (3) Nature of, and justification for, measure to be introduced; and (4) Duration of application of measure. Developing countries are only required to follow the conditions above where they are net exporters of the foodstuff, the export of which is being restrained or prohibited.

LEAST-DEVELOPED AND NET FOOD-IMPORTING DEVELOPING COUNTRIES Article 16 of the Agreement on Agriculture requires (1) developed country Members to take such action as is provided for within the framework of the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries, as well as (2) the Committee on Agriculture to monitor the follow-up to this Decision. The Decision sets out certain mechanisms to deal with the possible negative effects arising from the reform programme in agriculture on Least-Developed and Net Food-Importing Developing Countries (as per the list established by the Committee on Agriculture). The annual monitoring of the follow-up to the NFIDC Decision is carried-out by the Committee on Agriculture in accordance with Article 16 of the Agreement on Agriculture and under paragraph 18 of the Working Procedures of the Committee on Agriculture is undertaken on the basis, inter alia, of these Table NF:1 notifications. WTO Members make notifications concerning the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries pursuant to the requirements and format set out in G/AG/2.

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PROPOSED ANSWERS: 1. Give due consideration to the effects of such restrictions on importing Members' food security; Give notice as far in advance as practicable to the Committee on Agriculture, including the measure's nature and duration; and Consult upon request, with any other Member having a substantial interest as an importer regarding the measure in question and, on request, give it necessary information. This rule in Article 12 of the Agreement on Agriculture applies to developing countries only in so far as they are net exporters of the foodstuff. 2. Any Member instituting an export prohibition or restriction covered by Article 12 of the Agreement on Agriculture (except developing country Members which are not net exporters of the product concerned). 3. It applies to the least-developed countries and the net food importing countries recognized as such in the list established by the Committee on Agriculture. The Least Developed Countries are those recognized by the Economic and Social Council of the United Nations as such. As of March 2005, the net-food importing developing countries are Barbados, Botswana, Cte d'Ivoire, Cuba, Dominica, Dominican Republic, Egypt, Gabon, Honduras, Jamaica, Jordan, Kenya, Mauritius, Mongolia, Morocco, Namibia, Pakistan, Peru, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Senegal, Sri Lanka, Trinidad and Tobago, Tunisia and Venezuela. 4. (1) a review of the level of food aid established periodically by the Committee on Food Aid under the Food Aid Convention; (2) the initiation of negotiations to establish a level of food aid commitments sufficient to meet the legitimate needs of developing countries during the reform programme; (3) that WTO Members adopt guidelines to ensure that food aid is given in grant form and/or on concessional terms in line with Article IV of the Food Aid Convention 1986; and (4) that Members give full consideration to providing assistance towards improving agriculture productivity and infrastructure to least-developed and net food-importing developing countries.

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MODULE

8
NegotiationsonAgriculture
ESTIMATEDTIME:3hours

OBJECTIVES OF MODULE 8

When you finalize studying this Module, you will be familiar with: Original Negotiating Mandate: Article 20 of the Agreement on Agriculture; The Doha Mandate in the Doha Development Agenda; August 2004 Framework; The Cotton Initiative; Hong Kong Ministerial Declaration.

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I.

INTRODUCTION

The Agreement on Agriculture was only the first step towards a longer-term programme to reform trade in agricultural products. As a matter of fact, Article 20 of the Agreement on Agriculture provides for negotiations on continuing the process of reducing support and protection to start at the beginning of 2000.

Do you know what a "built-in agenda" is? Certain WTO Agreements set clear timetables for future work. This is generally referred to as "built-in agenda". In some areas the work started almost immediately and in others it included new or further negotiations. In other cases, the built-in agenda called for assessments or reviews of the situation at specified times. Some negotiations were quickly completed, notably in basic telecommunications and financial services.

The negotiations on Agriculture started in March 2000 and were later incorporated into the Doha Development Agenda, which was launched at the fourth WTO Ministerial Conference held in Doha, Qatar, in 2001. Agriculture negotiations are conducted in "Special Sessions" of the Committee on Agriculture with a different Chairperson. The regular meetings of the Committee on Agriculture continue to take place and it is still the body responsible for overseeing implementation of Members' commitments. We will now examine the mandate for negotiations on agriculture and how it has evolved.

251

II.

NEGOTIATINGMANDATES

II.A. ANALYSISANDINFORMATIONEXCHANGE
Although Article 20 of the Agreement on Agriculture mandated that negotiations begin in 2000, many Members wanted to discuss issues that concerned them without having to do so under negotiations. In 1996, the Singapore Ministerial Conference agreed to start a Process of Analysis and Information Exchange in line with the recommendation made by the Committee on Agriculture in its 1996 report to the Council for Trade in Goods.
2 1

The process of Analysis and Information Exchange (normally referred to as the "AIE process") started in early 1997 and continued until negotiations started in 2000. The Secretariat reports of the meetings of the Committee on Agriculture include summaries of the papers and discussions that took place during the AIE process.
3

The preparatory work saw high levels of participation by WTO Members. In the twelve meetings held between 1997 and 1999, 74 papers from 36 Members were discussed, which included 13 papers from 24 developing countries. A summary of the meetings in the AIE process can be found in the 1999 Chairman's report to the Council for Trade in Goods in document G/L/322.

For more information on the analysis and information exchange, see Singapore Ministerial Declaration,

WT/MIN(96)/DEC, December 1996, paragraph 19.

2

For more information on the Committee on Agriculture report, see Report of the Committee on Agriculture,

G/L/131, November 1995, paragraph 12.

3

For more information, see Secretariat Summary Reports of the Committee on Agriculture's meetings

G/AG/R/11 to G/AG/R/20.

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II.B.

ARTICLE20

Article 20 of the Agreement on Agriculture states:

Continuation of the Reform Process Recognizing that the long-term objective of substantial progressive reductions in support and protection resulting in fundamental reform is an ongoing process, Members agree that negotiations for continuing the process will be initiated one year before the end of the implementation period, taking into account: (a) (b) (c) the experience to that date from implementing the reduction commitments; the effects of the reduction commitments on world trade in agriculture; non-trade concerns, special and differential treatment to developing-country Members, and the objective to establish a fair and market-oriented agricultural trading system, and the other objectives and concerns mentioned in the preamble to this Agreement; and (d) what further commitments are necessary to achieve the above mentioned long-term objectives.

The mandate in Article 20 sets the objective of achieving "substantial progressive reductions in support and protection resulting in fundamental reform", which clarifies the general direction that the negotiations should have. Article 20 also requires numerous factors to be taken into account, including, Members' experiences of implementing the Agreement on Agriculture, the impact of the Agreement, non-trade concerns and special and differential treatment for developing countries. The Article 20 mandate for negotiations, like Article XIX of the General Agreement on Services, was part of the Uruguay Round Agreements. Members were legally obliged to respect it and the requirement that negotiations on agriculture restart at the beginning of 2000. However, there was no requirement to finish those negotiations. Some Members had hoped that the mandated negotiations on agriculture and services would start at the same time as a general trade round. At the Seattle Ministerial Conference in December 1999 an attempt was made to start a broad round but the attempt did not succeed and the agriculture talks started based on the mandate in Article 20 of the Agreement on Agriculture. Between the start of the negotiations (under Article 20) in March 2000 and the Doha Ministerial Conference in November 2001, 121 governments submitted numerous negotiating proposals.

253

II.C.

DOHADEVELOPMENTAGENDA
In November 2001, the fourth WTO Ministerial Conference was held in Doha, Qatar. The Ministerial Declaration issued on 14 November launched a new round of multilateral trade negotiations on a wide range of subjects with a special focus on development issues. The Ministerial Declaration is normally referred to as the "Doha Development Agenda" (DDA). The DDA includes the negotiations that were already underway in agriculture and services, but now with new mandates. Hence, agriculture became part of the single undertaking in which virtually all the linked negotiations were scheduled to end by 1 January 2005.

The agriculture mandate is found in Paragraph 13 of the DDA:

13.

We recognize the work already undertaken in the negotiations initiated in early 2000 under

Article 20 of the Agreement on Agriculture, including the large number of negotiating proposals submitted on behalf of a total of 121 Members. We recall the long-term objective referred to in the Agreement to establish a fair and market-oriented trading system through a programme of fundamental reform encompassing strengthened rules and specific commitments on support and protection in order to correct and prevent restrictions and distortions in world agricultural markets. We reconfirm our commitment to this programme. Building on the work carried out to date and without prejudging the outcome of the negotiations we commit ourselves to comprehensive negotiations aimed at: substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support. We agree that special and differential treatment for developing countries shall be an integral part of all elements of the negotiations and shall be embodied in the schedules of concessions and commitments and as appropriate in the rules and disciplines to be negotiated, so as to be operationally effective and to enable developing countries to effectively take account of their development needs, including food security and rural development. We take note of the non-trade concerns reflected in the negotiating proposals submitted by Members and confirm that nontrade concerns will be taken into account in the negotiations as provided for in the Agreement on Agriculture. 14. Modalities for the further commitments, including provisions for special and differential treatment,

shall be established no later than 31 March 2003. Participants shall submit their comprehensive draft Schedules based on these modalities no later than the date of the Fifth Session of the Ministerial Conference. The negotiations, including with respect to rules and disciplines and related legal texts, shall be concluded as part and at the date of conclusion of the negotiating agenda as a whole.

254

The Doha mandate: confirmed and elaborated the objectives of the negotiations "to establish a fair and market-oriented trading system through a programme of fundamental reform encompassing strengthened rules and specific commitments on support and protection in order to correct and prevent restrictions and distortions in world agricultural markets"; committed Members to comprehensive negotiations aimed at: substantial improvements in market access; reductions of, with a view to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting domestic support;

made special and differential treatment integral throughout the negotiations, both in new commitments and in any new or revised rules and disciplines;

stated that the outcome should be effective in practice and should enable developing countries to meet their development needs, in particular in food security and rural development;

took note of non-trade concerns (such as environmental protection, food security, rural development) and confirmed that the negotiations would take them into account, as per Article 20 of the Agreement on Agriculture; and

set deadlines for the negotiations: 31 March 2003: formulas and other "modalities"; 5th Ministerial Conference, 2003 (in Mexico): countries' comprehensive draft commitments; stock taking; and 1 January 2005: completion of the negotiations.

TIP There is probably no single agreed definition of the term "modalities". At its most simple it could be defined as the formulas to calculate the new commitments of WTO Members. For example, in tariffs modalities set how much will tariffs be reduced and the length of the time period. But, in the case of domestic support, modalities set which type of domestic support is being reduced (is it Green, Blue or Amber Box) and the definition of each type. Thus, some rules are also needed along with the formulas. To a large extent, modalities determine the shape of the final outcomes of negotiations.

All the deadlines in the Doha Mandate have been missed so far. Therefore, the negotiations under the DDA can therefore be divided in: "Preparations for modalities" (March 2002July 2003); "Cancn and the framework phase" (August 2003-August 2004); and "The modalities phase" (September 2004onwards).

255

Soon after the Doha Ministerial Conference, work restarted in Geneva in early 2002 with the new mandate and the objective of establishing modalities by end-March 2003. The Chairman, Ambassador Stuart Harbinson (Hong Kong), continuously encouraged Members to negotiate with each other and to find compromises that would deliver solutions. Special Sessions of the Committee on Agriculture at regular intervals throughout the year, however there were no signs of serious convergence. In December 2002, the Chairman distributed his overview of the state-of-play at that point. would be needed if the deadline of end-March 2003 was to be met. However, despite all the work it was not possible for Members to reach agreement before March 2003. As required by the Doha Ministerial Declaration, the Chairman wrote and distributed a first draft of a compromise document in February 2003 . Nevertheless, this document only caused the refusal to make any concessions from Members and the Chairman could only distribute a limited revision by the end of March that did not get much support either. In the months that followed, the Special Session focused on less controversial technical issues such as TRQ administration, export credits and food aid. Although some useful work was done, it was far short of establishing any agreement, let alone full modalities on agriculture. The Ministerial Conference was scheduled for September 2003 in Cancn, Mexico. In preparation for that event, the Chairman distributed his report to the Trade Negotiations Committee on the status of negotiations which set out a series of questions Members would have to answer if they were to achieve full modalities.
7 6 5 4

This document

summarised all the proposals made since the Doha Ministerial Conference and concluded that a major effort

II.D. CANCNMINISTERIALCONFERENCE
Work continued with the objective of establishing modalities by the Cancn Ministerial Conference in September 2003. However, the probability of achieving this objective receded as the date for the Conference approached. The EU and the United States tried to negotiate an intermediate goal of creating a framework on which modalities would be based. Their draft modalities paper was issued on 13 August 2003 and provoked a quick reaction from other WTO Members. Within seven days, the "Group of 20" developing countries leaded by Brazil (commonly known as the

4 5 6

Negotiations on Agriculture: Overview, TN/AG/6, December 2002. Negotiations on Agriculture: First Draft of Modalities for Further Commitments, TN/AG/W/1, February 2003. Negotiations on Agriculture: First Draft of Modalities for Further Commitments; Revision, TN/AG/W/1/Rev.1,

March 2003.
7

Negotiations on Agriculture: Report by the Chairman to the Trade Negotiations Committee, TN/AG/10,

July 2003.

256

G-20) was formed and developed a counter-proposal, which was submitted on 20 August 2003. This period saw the negotiating landscape change as the G-10, G-33 and G-20 were formed. Other groups, like the African Group, the African Caribbean Pacific (ACP) Group, the Group of Least-Developed Countries and the Cairns Group also remained active. Additionally, four least-developed African countries (Benin, Burkina Faso, Chad and Mali) formed the Cotton-4 and tabled a proposal to specifically address domestic support for cotton in the negotiations. In Cancn, the negotiations under the Agriculture Facilitator, Minister George Yeo (Singapore) focused on getting the United States, the EU and the G-20 to compromise. while the United States also met with the Cotton-4 and negotiated on cotton. Progress was made, but Ministers could not agree on a framework for modalities and the Conference was concluded when it became clear to the Chairman, Minister Derbez of Mexico, that it would not be possible to reach consensus. After the Ministerial Conferences, the positions remained deadlocked for the rest of 2003 and it was only in early 2004 that the negotiations started again under a new Chairman of the Special Session, Ambassador Tim Groser (New Zealand).

II.E.

GENERALCOUNCILDECISIONOF1STAUGUST2004

Ambassador Groser, took a different approach to conducting the negotiations on agriculture. He stopped convening consultations under his Chairmanship and left it to delegations to arrange their own meetings. The result was that, for the first time perhaps, delegations realised that others were not posturing or taking tactical positions. Instead, the fact finally sank in that there are countries that can produce high quality agriculture products at low prices and they would really like to export to those countries that cannot match either their quality or price. The converse is also true. There are some people that depend on support and protection, and increased imports or reduced support would mean lower incomes and reduced production. Therefore, the different sides in the negotiations realised that (i) it was not the fault of the Chairman that their position was not accepted and reflected in draft papers and (ii) those on the other side had real problems they wanted addressed. This had the effect of leading to a more practical approach to the negotiations and to a more open attitude to finding solutions. The open-letter to all WTO Ministers from Commissioners Lamy and Fischler of the European Commission admitted, indirectly, that export subsidies were going to be eliminated also helped to move the negotiations forward.

257

Finally, after many drafts and late nights, on 1st August 2004, the General Council agreed on a "Framework for Establishing Modalities in Agriculture" and other agreements designed to focus the negotiations and raise them to a new level.
8

The General Council Decision of 1st August 2004 is generally known as the "Framework" or the "July Package" added a lot of detail to the broader mandate of the Doha Ministerial Declaration and put cotton firmly on the agenda. The text constituted the basis for the negotiations for full modalities ,which Members hoped to adopt at the 6th Ministerial Conference in Hong Kong, China, in December 2005.

Agriculture 1(a) Agriculture: the General Council adopts the framework set out in Annex A to this document.

Cotton Initiative 1(b) Cotton: the General Council reaffirms the importance of the Sectoral Initiative on Cotton and takes

note of the parameters set out in Annex A within which the trade-related aspects of this issue will be pursued in the agriculture negotiations. The General Council also attaches importance to the development aspects of the Cotton Initiative and wishes to stress the complementarity between the trade and development aspects. The Council takes note of the recent Workshop on Cotton in Cotonou on 23-24 March 2004 organized by the WTO Secretariat, and other bilateral and multilateral efforts to make progress on the development assistance aspects and instructs the Secretariat to continue to work with the development community and to provide the Council with periodic reports on relevant developments.

With regard to cotton, WTO Members should work development issues with the international financial institutions, continue their bilateral programmes, and all developed countries are urged to participate. In this regard, the General Council instructed the Director General to consult with the relevant international organizations, including the Bretton Woods Institutions, the Food and Agriculture Organization and the International Trade Centre to direct effectively existing programmes and any additional resources towards development of the economies where cotton has vital importance. Annex A of the "Framework", referred to in paragraph 1(a) set out in some detail the shape of the modalities that would be established. The Framework described the key features of the modalities, but without going into all the details. It should be noted that the amount of guidance given by the Framework varies a lot depending on the issue. On export competition, the Framework clarified that export subsidies will have to be eliminated, but did not give a final date. It also set out clear directions for export credits, food aid and exporting state trading enterprises: Export credits: Elimination of export credits of 180 days or more and rules on other kinds of export credits; State trading enterprises: Elimination of trade distorting practices; and Food aid: Prevent commercial displacement.

Doha Work Programme: Decision Adopted by the General Council on 1 August 2004, WT/L/579, August 2004.

258

The domestic support elements of the Framework are not quite as clear but they too set out the direction and the details reinforce the overall objective of substantial reductions in trade-distorting domestic support: The total of all trade-distorting domestic support (Final Bound Total AMS, plus permitted de minimis, plus Blue Box limit) to be reduced with the biggest subsidisers reducing by more through a tiered formula; Final Bound Total AMS to be reduced by a tiered formula; De minimis limits to be reduced; Blue Box to be expanded to cover programmes decoupled from production but all Blue Box capped at 5% of the value of agriculture production; and Green Box criteria to be reviewed to ensure that Green Box measures have no, or at most minimal, trade-distortion effects. While the Framework is quite clear for export competition and domestic support, it is much less clear for market access and leaves a lot of issues unresolved. The basic formula for tariff reductions would be a tiered formula under which higher tariffs would be subject to greater reductions; Also reinforcing the basic objective, the Framework requires that tariff escalation be addressed and that the long-standing commitment to the fullest liberalization of trade in tropical products be realised; but The Framework also provides for flexibility for all Members to declare some products as "Sensitive Product" which would be subject to lesser tariff cuts with expansion of tariff quotas. Developing countries would also be able to declare some products as "Special Products" subject to more flexible treatment and to avail of a Special Safeguard Mechanism. The Framework also provides that cotton will be addressed ambitiously, expeditiously and specifically within the agriculture negotiations. For more details on the August 2004 Framework, summaries of meetings, and the agreed framework visit: http://www.wto.org/english/tratop_e/dda_e/dda_package_july04_e.htm

AFTERTHEFRAMEWORK:MODALITIES
The Framework had settled some political questions, such as whether to negotiate the end of export subsidies. In many other issues, it gave some direction to the negotiations, such as an outline of the approach for cutting tariffs. However, many technical details still needed to be sorted out to allow Members to move to the next set of political decisions and agree on full modalities. Negotiations between the August 2004 Framework and the 2005 Hong Kong Ministerial were set to address the many remaining questions in all three pillars of the agriculture negotiations. One of the first issues that had to be addressed in the post-Framework negotiations was where to put non-ad valorem tariffs in a tiered formula. That is, a tiered formula means bigger tariffs get reduced by more but Members need to decide in which tier they should put, for example, a tariff of $50 per tonne. Many Members still apply non-ad valorem tariffs, which have to be converted into an ad valorem equivalent in order to put them into their correct band of a tiered formula. In a clear sign of the sensitivity of the agriculture

259

negotiations, the discussions on finding a methodology for calculating ad valorem equivalents took nearly eight months. It was only in May 2005 that Members accepted a provisional methodology for conversion. However, most of the major agriculture trading nations did provide data and then the negotiations were able to address the tariff reduction formula itself. The negotiations continued and, once again, a Ministerial Conference was approaching without modalities being agreed. In September 2005, Ambassador Groser was replaced by his compatriot Crawford Falconer as Chair of the agriculture negotiations. The same month, Pascal Lamy (former Trade Commissioner of the European Union) took office as the new the WTO Director General. It was clear at this stage that modalities by the Hong Kong Ministerial Conference in December 2005 would not be possible. The Chairman's report to the Ministerial Conference
9

made it clear that there were many issues that still had to be resolved before

modalities could be established.

II.F.

HONGKONGMINISTERIALDECLARATION

WTO Members had hoped to establish a "first approximation" of agriculture modalities by the end of July 2005, setting-up agreed formulas for reduction and accompanying rules with the actual numbers and percentages and key phrases in the rules being left for Ministers to decide in Hong Kong. That is, that Ministers in the Hong Kong Conference would decide the actual levels of cuts in support and protection. Members were, however, unable to agree on some basic issues like the number of tiers for tariff reductions, if the reductions in each tier should be linear or progressive, what should be the base periods for domestic support reductions and caps, what should be the focus of rules on export credits, food aid and state trading enterprises, etc. Therefore, the focus for the Ministerial Conference was changed to trying to make as much progress as possible on the very few elements on which Members seemed to agree. The Draft Ministerial Text sent to Hong Kong by the Chair of General Council showed just how far apart Members were.
10

Compared to the draft text sent to Hong Kong, the Ministerial Conference did succeed in making a considerable amount of progress, but did not agree on full modalities. The Hong Kong Ministerial Declaration sets out the progress on agriculture and for cotton.

Negotiations on Agriculture: Report by the Chairman to the TNC, TN/AG/21, 28 November 2005 Doha Work Programme: Draft Ministerial Text, WT/MIN(05)/W/3, 7 December 2005

10

260

In the Hong Kong Ministerial Declaration (WT/MIN(05)/DEC), Members agreed to conclude overall negotiations successfully in 2006 (paragraph 1). For agriculture negotiations they decided to: Establish modalities no later than 30 April 2006 (paragraph 10); Complete disciplines on export credits, export credit guarantees or insurance programmes, exporting state trading enterprises and food aid by 30 April 2006 as part of modalities (paragraph 6); Eliminate all forms of export subsidies by 2013, together with agreed progressivity and parallelism, to be confirmed only upon completion of modalities (paragraph 6); and Submit comprehensive draft Schedules based on modalities no later than 31 July 2006 (paragraph 10).

For Cotton, Ministers agreed that: All forms of export subsidies for cotton were to be eliminated by developed countries in 2006 (paragraph 11); and the Director-General is to furnish updates on development assistance aspects, at appropriate intervals, to the General Council (paragraph 12). The chart below shows the negotiating groups:

Figure 1:

The negotiating groups

261

EXERCISES: 1. 2. What are the special sessions of the agriculture committee? In the agriculture negotiations, what are some issues Members have to take into account according to the Agreement on Agriculture under the initial Article 20 mandate? 3. Give examples of non-trade concerns in the context of the agriculture negotiations.

262

III.

THECOTTONINITIATIVE

III.A. INTRODUCTION
The cotton initiative was originally raised both in the General Council and in the agriculture negotiations by Benin, Burkina Faso, Chad and Mali ("Cotton Four" or C-4). The proposal: 1) described the damage that the C-4 believe has been caused to them by cotton subsidies in richer countries; 2) 3) called for the subsidies to be eliminated; and for compensation to be paid to the four while the subsidies remain, to cover economic losses caused by the subsidies. The C-4 first wrote to the WTO Director-General on 30 April 2003, introducing a "Sectoral Initiative in Favour of Cotton", which was presented on 10 June 2003 to the Trade Negotiations Committee by the President of Burkina Faso, H.E. Mr. Blaise Compaor. The Special Session of the Committee on Agriculture also discussed the proposal (document TN/AG/GEN/4) on 1 and 18 July 2003. The proposal was the basis for two Cancn Ministerial Conference documents, WT/MIN(03)/W/2 and WT/MIN(03)/W/2/Add.1. The C-4 sought a decision in the Cancn Ministerial Conference on an agenda item titled "Poverty Reduction: Sectoral Initiative in Favour of Cotton - Joint Proposal by Benin, Burkina Faso, Chad and Mali". Members' views differed as to whether this should be handled as a specific question or whether it should come under the three pillars of the agriculture negotiations (market access, domestic support and export subsidies). They also differed over the question of compensation, if and how it should be paid, for example whether it should be development assistance, and who should handle it, since the WTO does not have development funding except for training officials in WTO affairs. The sectoral initiative on cotton formed a separate paragraph from agriculture in the Cancn draft declaration. But no conclusion was reached in Cancn. In early 2004, the debate continued, including how the discussion on cotton fits in with the negotiations and the Doha Development Agenda.

III.B. GENERALCOUNCILDECISIONOF1STAUGUST2004
Cotton was addressed both in the main text of Framework, and in its Annex A. Members stated that they considered the cotton initiative to be important in both its (1) trade and (2) development aspects. They also stressed that the two aspects were complimentary (paragraph 1.b). Development: Referring to the WTO Secretariat's 23-24 March 2004 workshop on cotton in Cotonou, Benin, and other activities, the main text of the August 2004 framework instructs the Secretariat and the Director General to continue to work with the development community and international organizations (World Bank,

263

IMF, FAO, International Trade Centre), and to report regularly to the General Council. Members themselves, particularly developed countries, "should" engage in similar work. Trade: The mandate on trade is found in paragraph 4 of Annex A. It states that cotton will be addressed "ambitiously, expeditiously and specifically" within the agriculture negotiations, and that both the provisions of the framework and the sectoral initiative should be used a the basis of that approach. It instructs the agriculture negotiations to ensure that the cotton issue is given "appropriate" priority, and is independent of other sectoral initiatives. The Framework also mandated the establishment of a subcommittee on cotton, to meet periodically and report to the Special Session of the Committee on Agriculture to review progress. Moreover, the framework provided that the work on cotton shall encompass all trade-distorting policies affecting the sector in all three pillars of market access, domestic support, and export competition, as specified in the Doha text and the framework itself.

III.C. COTTONSUBCOMMITTEE
As per the mandate of the Framework (paragraph 4), the Cotton Sub-Committee was set up, at the 19 November 2004 meeting of the Special Session of the Committee on Agriculture, to focus on cotton as a specific issue in the agriculture negotiations. According to its terms of reference (TN/AG/13), the Sub-Committee is open to all WTO Members and observers. International organizations that are observers in the agriculture negotiations can also be observers in the Sub-Committee. The Sub-Committee reports periodically to the Special Session of the Committee on Agriculture, which in turn reports to the Trade Negotiations Committee, General Council and Ministerial Conference. The Sub-Committee is tasked to work on "all trade-distorting policies affecting the sector," in the "three pillars of market access, domestic support, and export competition" as specified in the 2001 Doha Declaration, and the Framework. The Sub-Committee takes into account the need for "coherence between trade and development aspects of the cotton issue". The trade-related aspects of cotton are encompassed in the agriculture negotiations on market access, domestic support, and export subsidies. The development-related aspects of cotton cover various aspects of helping the cotton sector of the cotton-producing less-developed and developing countries. The Cotton Sub-Committee held its first meeting on 16 February 2005. At the first meeting, discussions focused on procedural issues relating to the Sub-Committee's work programme. Several Members highlighted the importance of cotton for their economies, and their desire to see speedy and substantial results from the work of the Sub-Committee. Members agreed that the Sub-Committee should "work in depth on all trade-distorting policies affecting trade in cotton, through (1) an assessment of progress in the Agriculture Special Session and (2) regular updates on the development-related aspects of cotton. (TN/AG/SCC/1)

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III.D. HONGKONGMINISTERIALDECLARATION
The Hong Kong Ministerial Declaration contains two paragraphs on cotton. Paragraph 11 addresses the trade issues, and paragraph 12, the development issues. In paragraph 11, Ministers recalled the mandate in the August 2004 Framework to address cotton ambitiously, expeditiously and specifically, within the agriculture negotiations in relation to all trade-distorting policies affecting the sector in all three pillars of market access, domestic support and export competition, as specified in the Doha Ministerial Declaration and the 2004 Framework. Ministers noted the work already undertaken in the Sub-Committee on Cotton and reaffirmed their commitment to ensure having an explicit decision on cotton within the agriculture negotiations ambitiously, expeditiously and specifically, without prejudice to Members' WTO rights and obligations, including those flowing from actions taken by the Dispute Settlement Body. Paragraph 11 provides that "all forms of export subsidies for cotton will be eliminated by developed countries in 2006". It also states that "developed countries will give duty and quota free access for cotton exports from least-developed countries from the commencement of the implementation period". Members also agreed in paragraph 11, that the objective was that trade-distorting domestic subsidies for cotton production be reduced more ambitiously than under whatever general formula is agreed, and that it should be implemented over a shorter period of time than generally applicable. In paragraph 12, which concerns the development issues of cotton, Ministers welcomed the Consultative Framework process initiated by the Director-General to implement the decisions on those issues pursuant to paragraph 1.b of the Decision adopted by the General Council on 1 August 2004. Ministers took note of the Director-General's Periodic Reports and the positive evolution of development assistance noted therein. Ministers urged the Director-General to further intensify his consultative efforts with bilateral donors and with multilateral and regional institutions, with emphasis on improved coherence, coordination and enhanced implementation and to explore the possibility of establishing through such institutions a mechanism to deal with income declines in the cotton sector until the end of subsidies. Noting the importance of achieving enhanced efficiency and competitiveness in the cotton producing process, Ministers urged the development community to further scale up its cotton-specific assistance and to support the efforts of the Director-General. In that context, Ministers urged Members to promote and support South-South cooperation, including transfer of technology. Ministers welcomed the domestic reform efforts by African cotton producers aimed at enhancing productivity and efficiency, and encourage them to deepen this process. Ministers reaffirmed the complementarity of the trade policy and development assistance aspects of cotton. Ministers invited the Director-General to furnish a third Periodic Report to third next Session with updates, at appropriate intervals in the meantime, to the General Council, while keeping the Sub-Committee on Cotton fully informed of progress. Finally, Ministers requested the Director-General to set up an appropriate follow-up and monitoring mechanism.

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Important note

The negotiations on agriculture are constantly evolving. For more updated information on the negotiations, as well as access to related documents, please visit the Agriculture Negotiations Webpage at: http://www.wto.org/english/tratop_e/agric_e/negoti_e.htm

EXERCISES: 4. 5. What are the aspects of the negotiations on cotton? What is the component of the trade aspect of the negotiations on cotton?

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IV.

SUMMARY

Negotiations on agriculture started in 2000 as mandated by Article 20 of the Agreement on Agriculture. These negotiations were incorporated in the comprehensive round of negotiations under the Doha Development Agenda in 2001. Various deadlines for modalities were missed. First in March 2003 and then at the Cancn Ministerial Conference in September (2003). Agriculture negotiations were updated in the General Council Decision of 1st August 2004 (and advances were made in the Hong Kong Ministerial Conference in December 2005 (WT/MIN(05)/DEC). In July 2006, negotiations were suspended. However, they restarted fully in January 2007. COTTON In addition to the market access, domestic support and market access, the negotiations are also addressing the sectoral initiative on cotton. The initiative began in 2003 in the run-up to the Cancn Ministerial Conference by the Cotton-4 group (Benin, Burkina Faso, Chad and Mali) and their focus has been to reduce trade-distorting domestic support and export subsidies for cotton. The C-4 have succeeded in getting political agreement that the results of the Doha Development Agenda will mean greater reductions in cotton subsidies over a shorter period of time compared to subsidies in general, the elimination of export subsidies and tariff and quota-free access for imports of cotton from least-developed countries (paragraph 4, Annex A of WT/L/579 and paragraph 11 WT/MIN(05)/DEC). Cotton is to be treated ambitiously, expeditiously and specifically in all three pillars of the agriculture negotiations (tariffs, domestic subsidies, and export support). Agreement has already been reached for developed countries to eliminate their cotton export subsidies by 2006. Developed countries would have also extended duty-free quota-free access for all the cotton exports of least-developed countries from the start of the implementation period. To assist the negotiations, the WTO Secretariat produced various background papers at the request of Members. Please read them if you would like to have a more comprehensive outlook. Most of these can be found in the G/AG/NG/S and TN/AG/S series of official documents (see http://www.wto.org/english/tratop_e/agric_e/negoti_e.htm).

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PROPOSED ANSWERS: 1. The meetings of the Committee on Agriculture in which agriculture negotiations takes place. It is distinct from regular meetings of the committee on Agriculture. (Read Module 3 to recall the functions of the Committee on Agriculture). 2. (a) (b) (c) the experience to that date from implementing the reduction commitments; the effects of the reduction commitments on world trade in agriculture; non-trade concerns, special and differential treatment to developing-country Members, the objective to establish a fair and market-oriented agricultural trading system, and the other objectives and concerns mentioned in the preamble to the Agreement on Agriculture; and (d) the further commitments necessary to achieve the long-term objectives of the Agreement on Agriculture. 3. Rural development; Food security; and Environmental protection. 4. The development aspect; The trade aspect. 5. Market access including duty and quota free access for cotton export for LDCs from the start of the implementation period Domestic support, for example reducing trade distorting support the modalities on cutting support to cotton in terms of overall cut and total AMS, de minimis and disciplines on Blue Box support Export subsidies the elimination of all forms of support by 2006 Implementation of the negotiated provisions for cotton

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MODULE

9
Conclusion
ESTIMATEDTIME:2hours

OBJECTIVES OF MODULE 9

Review the previous Modules; and Provide a conclusion to the course.

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I.
I.A.

REVIEW
THEWTO

The WTO was established in 1995, with the objective of improving the welfare of the peoples of its Member countries by expanding the production of, and trade in, goods and service. The functions of the WTO are to: Facilitate the implementation, administration and operation, and furthering of the objectives of the WTO Agreements (including the Plurilateral Agreements); Serve as a forum for trade negotiations; Administer the Dispute Settlement Understanding (DSU); Administer the Trade Policy Review Mechanism (TPRM); and Cooperate with the IMF and the IBRD (World Bank) to achieve coherence in global economic policy making. There are various organs and bodies that make up the structure of the WTO: Ministerial Conference, General Council (also DSB and TPRB), Councils for Goods, Services, and Intellectual Property, as well as the Committees, Sub-Committees, Working Groups and Working Parties. The umbrella agreement is the WTO Agreement, which contains four Annexes. Annexes 1, 2, and 3 are the "Multilateral Trade Agreements". Annex 1 is divided into three sections: Annex 1A (The Multilateral Agreements on Trade in Goods); Annex 1B (Agreement on Trade in services); and Annex 1C (Agreement on Trade-related Aspects of Intellectual Property Rights).

Annex 2 covers the Dispute Settlement Understanding. Annex 3 covers the Trade Policy Review Mechanism. Annex 4 is termed "Plurilateral Trade Agreements". Plurilateral agreements are ONLY binding on Members that join them. There are two main principles of non-discrimination; the MFN and National Treatment: The principle of MFN for goods is found in GATT Article I. This principle prohibits discrimination between imports irrespective of their origin or destination. GATT Article III governs national treatment for goods and prohibits discrimination between imported and locally-produced products. There are other rules in the WTO legal framework, such as, those governing market access. WTO Members have must adhere to the bound rates in their Schedules of Tariff Concessions and there is a prohibition on the introduction or maintenance of quantitative restrictions.

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There are specific exceptions, as well as other exceptions of a horizontal nature, which also constitute a derogation to WTO disciplines.

I.B.

AGRICULTUREINTHEURUGUAYROUND

The Agreement on Agriculture came into effect in 1995. The Uruguay Round created the first comprehensive set of multilateral trade rules on agriculture. Agricultural goods are defined in Annex 1 of the Agreement on Agriculture they include processed forms of practically all farm products, but do not include fish nor forestry products. The Uruguay Round negotiators adopted a three-pillar approach for agriculture reform: 1) market access; 2) domestic support; and 3) export competition.

I.B.1.

MARKETACCESS

In the Uruguay Round, Members agreed to improve market access for agricultural products through (a) converting non-tariff measures into tariffs, (b) reducing tariffs and (c) creating and/or expanding tariff quotas. Members converted all unbound tariffs and non-tariff measures to tariff equivalents ("tariffication" process) and bound the converted tariffs. Tariffs were then reduced by an average of 36% (minimum 15% per tariff line) over 6 years for developed countries, while developing countries reduced tariffs by an average of 24% (minimum 10%) over 10 years. Least-developed countries were not required to undertake reduction commitments. Apart from the least-developed countries, many other developing countries were not required to reduce all or some of their tariffs. Instead they undertook to replace the various measures applied to unbound tariff lines with "ceiling bindings", i.e. maximum allowed rate for all or many agricultural products, which reflected the general level of protection applied during the base period. For tariffs that were bound using "ceiling bindings" no reductions were required, except on an ad hoc basis. Where a product had been tariffied and no or minimal levels of imports were imported during the base period, Members undertook to create TRQs equivalent to 3% of domestic consumption. (A TRQ is a certain volume of imports that can be imported at a low tariff). These TRQs were increased to 5% of domestic consumption during the implementation period. In many cases, countries were already allowing imports at low tariffs, even though the bound tariffs were very high or there was no tariff binding at all. In these cases, the importing Member was required to maintain these "current access" opportunities. If these current access opportunities were less than 3% of domestic consumption they had to be increased to this amount on the first year of implementation (1995). If they were less than 5% of domestic consumption they had to be increased to this amount by the last year of implementation (2001 for developed countries and 2004 for developing countries).

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Figure 1:

Uruguay Round cuts

Article 4.1 of the Agreement on Agriculture states that the detailed commitments on market access (i.e. the maximum tariff rates and TRQ commitments) can be found in Members' Schedules. Article 4.2 of the Agreement on Agriculture prohibits the use of measures, which have been required to be converted into ordinary tariffs. However, the ordinary GATT rules on applying anti-dumping or countervailing duties, general safeguard action, balance of payments measures, etc. can be utilized and in these cases additional duties can be applied in addition to the bound tariff. There are a few other exceptions to the bound tariff rule of Article 4. They can be found in Annex 5 and Article 5 of the Agreement on Agriculture: Annex 5 allowed four countries to maintain non-tariff border measures on certain products during the period of tariff reductions. The products and countries concerned are: rice in the case of Japan, Korea and the Philippines; and cheese and sheep meat in the case of Israel. In its accession, Chinese Taipei also opted not to undergo tariffication for rice. Japan, Israel and Chinese Taipei have already tariffied the products concerned. Korea and the Philippines will be extending special treatment (G/AG/W/62 and G/AG/W/63). Article 5 provides for the SSM against import volume surges or import price declines below a trigger level. The use of the SSM is limited to "tariffied" products and is not applicable to imports under related tariff quota commitments.

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I.B.2.

DOMESTICSUPPORT

In the Uruguay Round, WTO Members agreed to reduce the aggregate levels of domestic support with exemptions for: low levels of support; support with minimal or no distortion to trade; support under production limiting programmes; and programmes in developing countries.

Members can use, without limits, domestic support measures that fit in the Green Box. These measures must have no more than minimal trade-distorting effects and they must meet the conditions set out in Annex 2 of the Agreement on Agriculture, which cover: general government service programmes such as research, disease control and infrastructure; certain direct payments to producers such as decoupled income support; income insurance; disaster relief; structural adjustment assistance; payments under environmental programmes; and regional assistance programmes. In addition to the Green Box policies, there is no limit on support provided as: (1) direct payments under production-limiting programmes (Blue Box measures). Such payments must (1) be based on fixed areas or yields (2) be made on 85% or less of the base level of production, (3) be made on a fixed number of head for livestock payments (Article 6.5); and (2) certain input subsidies, investment subsidies and subsidies that encourage diversification from planting illegal narcotics (Article 6.2). All other types of support are subject to limits or reduction commitments. If domestic support for a specific product is below 5% of the value of production of that product, it does not have to be reduced. Similarly, if such support is generally available (that is non-product-specific) and less than 5% of the total value of agricultural production, it does not have to be reduced. (These de minimis levels are 10% for developing countries and 5% for developed countries) Domestic support measures that do not fit in the Green Box, Blue Box, under Article 6.2 and are greater than the de minimis level must be accommodated within the ceilings set out in Members' Schedules, i.e. the Annual and Final Bound Commitment Levels for the Aggregate Measurement of Support (AMS). In the Uruguay Round, Members agreed to make the following reductions in the Total AMS, as compared to the average during the base period of 1986-88: developed country Members agreed to reduce the Total AMS by 20% during the six-year implementation period; developing country Members agreed to reduce the Total AMS by 13.3% over 10 years; and least-developed countries were not required to make any cuts.

The disciplines and commitments concerning domestic support are found in Articles 3, 6 and 7 as well as Annexes 2, 3, and 4 of the Agreement on Agriculture and, where relevant, in Section I of Part IV of a Member's Schedule.

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I.B.3.

EXPORTCOMPETITION

The Agreement on Agriculture prohibits the use of export subsidies on products which are not subject to reduction commitments (Article 3.3). Article 9 contains the definition of export subsidies subject to reduction. Article 10 governs other export subsidies subject to anti-circumvention provisions, which include disciplines relating to food aid. Using the base period of 1986-90, WTO Members agreed to reduce their export subsidies by: 36% in terms of the amount spent on export subsidies (24% in developing countries); and 21% in terms of the quantities exported with export subsidies.(14% in developing countries).

In addition to reductions in subsidy levels and the amount exported with subsidies, Members also agreed to a set of rules governing the types of export support that can be granted and to measures to prevent a country avoiding its commitments (i.e. anti-circumvention). There are some exemptions for developing countries, which can provide certain types of marketing and transport subsidies under Article 9.4 of the Agreement on Agriculture.

I.B.4.

OTHERPROVISIONS

Article 12 of the Agreement on Agriculture requires WTO Members to comply with the disciplines in Article XI:2(a) of the GATT 1994 when they introduce new export prohibition restrictions on foodstuffs. It also requires the Member introducing the restriction or prohibition to take account of the effect such a restriction could have on other Members' food security, to notify the measure and, if asked, to consult with any Member that has a substantial interest as an importer. The requirement in Article 12 does not apply to developing countries, unless they are net exporters of the foodstuff for which an export prohibition or restriction has been instituted. The Agreement in Agriculture contains a "due restraint" or "peace clause" which regulates the application of other WTO agreements to subsidies in respect of agricultural products (Article 13). The Peace Clause has already expired. In Article 14, Members agree to give effect to the Agreement on the Application of Sanitary and Phytosanitary Measures. This is a separate Agreement in the WTO which reaffirms right to countries to set their own health and safety standards provided they are justified on scientific grounds and do not result in arbitrary or unjustified barriers to trade; encourages use of international standards; and includes certain special and differential treatment provisions. Article 15 of the Agreement on Agriculture recognizes the importance of differential and more favourable treatment for developing-country Members. In particular, it provides a legal basis for special and differential treatment provisions that are found in Schedules, but are not expressed in the Agreement on Agriculture itself, such as lower levels of tariff reductions. It also expressly states that developing countries can have 10 years for implementation and that the least-developed countries do not need to undertake any reductions. Article 16 refers to the decision Marrakesh Ministerial Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries.

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Article 17 establishes the Committee on Agriculture. This Committee has the task of overseeing the implementation of the Agreement and related commitments. In order to ensure Members actually comply with their obligations they are required to make notifications on their commitments (the bound agricultural tariffs and the tariff quota commitments in their schedules). The notification requirements and formats are set out in document G/AG/2 of 30 June 1995. Applied tariffs are notified to other bodies of the WTO, including the Committee on Market Access and the Trade Policy Review Mechanism. Pursuant to Article 19, disputes between WTO Members about their obligations are subject to the WTO's dispute settlement procedures, i.e. the Agreement on Agriculture is covered by the Dispute Settlement Understanding. Therefore, measures that do not comply with the Agreement on Agriculture can be challenged under the WTO's dispute settlement mechanism, which is capable of authorising trade sanctions against noncompliant states. The Agreement on Agriculture also provides for certain mechanisms that can be used by Members to address their concerns without recourse to these procedures. The review process of the Committee on Agriculture provides a forum for discussion and consultation. This process is mainly based on the notifications and on Article 18.6, which allows any Member to raise, at any time, any matter relevant to the implementation of the commitments under the reform programme as set out in the Agreement. There is also a counter-notification provision. Furthermore, the Working Procedures of the Committee allow Members to request the Chairperson to mediate in concerns that may arise between them. The use of instruments under the auspices of the Committee on Agriculture does not, however, prevent any Member from seeking formal dispute settlement at any time.

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Policy Area

Instrument Article 4.2 Article 4.1 and Schedules Article 5 Schedules

Developed Countries

Developing Countries

Prohibition on the use of restrictions on imports other than tariffs. All tariffs bound; Special agriculture safeguard mechanism against import volume surges or import price declines below a trigger level (limited to "tariffied" products and not applicable to imports under related tariff quota commitments).

Tariffs resulting from conversion of non-tariff border measures under negotiating modalities ("tariffication") plus pre-existing tariffs on all other agricultural products to be reduced.

Market Access

Schedules

Implementation of current and minimum access opportunity commitments in respect of tariffied products.

Schedules

Average tariff reductions of 36% (minimum 15%) over 6 years.

Average tariff reductions of 24% (minimum 10%) over 10 years; Where "ceiling bindings" commitments undertaken reductions not required except on ad hoc basis; Least developed not required to undertake reduction commitments.

Articles 6, 7 and Annex 2

Policies divided into two groups; (i) permitted policies (Green Box), (ii) other policies included in the Aggregate Measure of Support (AMS) subject to reduction commitments (Amber Box).

Domestic support

Article 6.5

Decoupled direct payments under production limiting programmes (Blue Box) are excluded from AMS.

Article 6.2

Developing countries allowed to use investment and input subsidies under certain conditions.

Article 6.4(a) De minimis provision allows and (b) exclusion of product-specific and non-product-specific support less than 5% of respective current value of productions from the calculation of the Current Total AMS. Schedules Total AMS support to be reduced by 20% over 6 years.

De minimis provision allows exclusion of product-specific and non-product specific support less than 10% of respective current output value from the calculation of the Current total AMS.

Total AMS support to be reduced by 13.3% over 10 years; Least-developed countries must bind AMS support level if applicable but not required to reduce it.

Export

Article 9

Definition of export subsidies subject to reduction.

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subsidies

Article 10

Other export subsidies subject to anti-circumvention provisions which include disciplines relating to food aid.

Article 3.3

Prohibition on the use of export subsidies on products not subject to reduction commitments.

Article 9 and Schedules

Distinct reduction commitments on Distinct reduction commitments on both both volume (21%) and budgetary outlay (36%) over 6 years. volume (14%) and budgetary outlay (21%) over 6 years.

Article 11

Incorporated products subject to budgetary reductions (36%).

Article 9.4

For incorporated/processed products budgetary outlays only (36%).

Exception during the implementation period in respect of certain marketing and internal transportation subsidies.

Export prohibitions and restrictions

Article 12

Requirement for advance notice and obligation to consult on request and supply information in case of new export restrictions on foodstuffs.

Article 12.2

Exception for developing countries that are net-exporters of the foodstuff concerned.

Other aspects

Article 13 Article 14 Article 16

Peace Clause (now expired) The Agreement on the Application of Sanitary and Phytosanitary Measures. Marrakesh Ministerial Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries.

Article 17

WTO Committee on Agriculture given the task of overseeing the implementation of the Agreement and related commitments.

Article 18 Article 19 Article 20 Article 21

Review of the implementation of commitments on agriculture. Consultations and Dispute Settlement. Negotiations. Other WTO Agreements apply subject to the provisions of the Agreement on Agriculture.

Table 1:

Key Elements of the Agreement on Agriculture

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I.C.

SCHEDULES,SUPPORTINGTABLES&THEMODALITIES DOCUMENT

The Agreement on Agriculture does not include all the rules and commitments made by Members. For example, there is nothing in the Agreement on Agriculture that reflects Members commitment made during the Uruguay Rounds to open up their markets to imports of at least 3% of domestic consumption by 1995 rising to 5% by 2000, nor the maximum subsidy levels each Member can apply. These details are set out in each Member's Schedule of Commitments. The basis for calculating specific commitments, such the as the maximum subsidy levels are in Members' Agriculture Supporting Tables and are based on the modalities document drawn up during the Uruguay Round. Other WTO Agreements also apply to trade in agricultural products, for example the SPS Agreement. Furthermore, for countries that joined the WTO after the Uruguay Round, their Protocol of Accession may contain legal commitments and/or set out additional or different requirements that must be met.

I.C.1.

AGRICULTURESUPPORTINGTABLES

The starting-point for calculating commitments on export subsidies and domestic supports is based on data that can be found in the "Supporting Tables Relating to Commitments on Agriculture Products in Part IV of the Schedules" (G/AG/AGST/ series). These Tables show the value of supports given by each GATT Member on different products and schemes during the base periods. Although the supporting tables often set out the starting points from which reductions were made, these were sometimes modified because of negotiations. Furthermore, some provisions of the Agreement were negotiated after the supporting tables were completed and these provisions are not reflected in them. Acceding countries must also prepare supporting tables and for them the base periods can be different to those used for the Uruguay Round negotiators (for more information see WT/ACC/4, 18 March 1996, Information to be Provided on Domestic Support and Export Subsidies in Agriculture).

I.C.2.

MODALITIESDOCUMENT

The Modalities for the Establishment of Specific Binding Commitments under the Reform Programme (MTN.GNG/MA/W/24), normally referred to as the "Modalities document", is part of the preparatory work of the negotiations for the Agreement on Agriculture. For many of the commitments the "Modalities Document" sets out the specific percentage reductions and the methods of calculation needed to establish a basis for the reductions. The effect of the modalities document was the subject of dispute in three cases: EC Bananas III (WT/DS27). EC Sugar (WT/DS265, WT/DS266 and WT/DS283) and Korea Beef (DS161).

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I.C.3.

SCHEDULESOFCOMMITMENTS

Based on the Modalities Document and the supporting tables, each WTO Member prepared its Schedule, which sets out the specific commitments on tariff: tariff rates for each product for the start and the end of the implementation period are set out in Part I, Section IA; TRQ commitments are set out in Part I, Section IB; domestic support commitments in Part IV, Section I; and export subsidy commitments in Part IV, Section II.

The Schedules may also contain additional information or commitments, such as, the distribution of tariff quotas to supplying countries. Although based on the modalities document, specific commitments in some areas because of the negotiations. Please note that many Members have renegotiated parts of their Schedules for various reasons. The details of the current situation of each Member's Schedule can be found by following the link: http://www.wto.org/english/tratop_e/schedules_e/goods_schedules_table_e.htm

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II.

NEGOTIATIONS

At the conclusion of the Uruguay Round, Members agreed to hold further negotiations on agriculture commencing one year before the end of the six-year implementation period (Article 20). These talks began in early 2000 in Special Sessions of the Committee on Agriculture. The first phase of the negotiations lasted one year and ended in March 2001. That phase consisted of general proposals being submitted by Members and discussed in the Special Sessions. The second phase started in March 2001. Unlike the first phase, most of the meetings in the second phase were informal and instead of concentrating on country proposals, they concentrate on specific issues. There were also a number of formal meetings which included reports of the work done in other meetings. The Fourth Ministerial Conference held in Qatar, Doha on 9-14 November 2001 successfully launched a new round of trade negotiations. At the Doha Ministerial Conference, the agriculture negotiations became part of the single undertaking. While Article 20 gave a general direction (substantial progressive reductions in support and protection resulting in fundamental reform), the Doha Declaration elaborated on this. The negotiations now had the objective of achieving: substantial improvements in market access; reductions, with a view to phasing out, export subsidies; and substantial reductions in trade-distorting domestic support.

In addition, the Declaration makes it clear that special, differential treatment is an integral part of the negotiations that it will be reflected in the outcome so that developing countries can address their development needs, including food security and rural development. The Declaration also states that non-trade concerns will be taken into account in the negotiations. After the Doha Ministerial Declaration, Members continued from the end of Phase 2 rather than start all over from the beginning. As Phase 1 had already seen general negotiating proposals and Phase 2 had dealt with specific issues Members started working on modalities for reform. The framework on which modalities would be based was achieved at the General Council meeting on 1 August and is contained in WT/L/579. The 1 August 2004 decision is sometimes called the "July Package". Although the Hong Kong Ministerial Conference did not succeed in completing the modalities, it did succeed in adding some details to the package, such as the agreement to eliminate all forms of export subsidies by the end of 2013.

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SupportDocuments
CORE MATERIALS Doha Ministerial Declaration ............................................................................... (WT/MIN(01)/DEC/1) Doha Work Programme, adopted by the General Council on 1.8.04 ....................................... (WT/L/579) Hong Kong Ministerial Declaration .......................................................................... (WT/MIN(05)/DEC) List of significant exporters ........................................................................................(G/AG/2/Add.1) Notification requirements .................................................................................................... (G/AG/2) Report by Chairman to General Council on CoA Activities in 2006 ........................................... (G/L/796) Revised Draft Modalities on Agriculture............................................................................(TN/AG/W/4) Sub-Committee on Cotton: Work programme ................................................................(TN/AG/SCC/1) Marrakesh NFIDC Decision Paragraphs 11 and 12 of Hong Kong Ministerial Declaration on cotton WTO Agreements Series Agriculture Booklet

ADDITIONAL REFERENCE MATERIALS CoA Regular Session Agricultural Products ........................................................................................... (G/AG/W/32/Rev.9) Criteria for inclusion in the list of NFIDCs .............................................................................. (G/AG/3) General Council - Implementation-Related Issues and Concerns - Decision of 15 December 2000 ... (WT/L/384) List of NFIDCs .......................................................................................................... (G/AG/5/Rev.8) Reports by the Chairman to the General Council on Implementation-Related Issues ................................................................................................(G/AG/16 and G/AG/16/Add.1) Request for observer status ................................................................................. (G/AG/W/29/Rev.6) Rules of procedure ............................................................................................................ (G/L/142) Secretariat Note on Members' Participation in the Normal Growth of World Trade in Agricultural Products ........................................................................................... (G/AG/W/32/Rev.9) Secretariat Note on the Implementation of the Marrakesh NFIDC Decision ................. (G/AG/W/42/Rev.9) Summary report of October 2006 CoA meeting................................................................. (G/AG/R/47) Technical Cooperation Notification Handbook........................................................ (WT/TC/NOTIF/AG/1) Working procedures ........................................................................................................... (G/AG/1)

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CoA Special Session Ministerial and General Council texts Doha Ministerial Decision on Implementation-Related Issues and Concerns ....................(WT/MIN(01)/17) Singapore Ministerial Declaration ........................................................................... (WT/MIN(96)/DEC)

Other documents Chairman's "Challenges" Papers Chairman's assessment August 2005.............................................................................. (TN/AG/19) Chairman's reference papers (all topics) Negotiating coalitions Report by the Chairman to the TNC................................................................................... (TN/AG/10)

Sub-Committee on Cotton Concluding Remarks from the DG during the High-level Session on Cotton....................(TN/AG/SCC/W/7) Development assistance aspects of cotton ................................................................(TN/AG/SCC/W/8) Establishment of Sub-Committee on Cotton ....................................................................... (TN/AG/13) Latest Sub-Committee Report ................................................................................(TN/AG/SCC/R/12)

Other Accession to the World Trade Organization - Information to be Provided on Domestic Support and Export Subsidies in Agriculture .................................................................................................. (WT/ACC/4) Table Key Elements of AoA

DISPUTE SETTLEMENT RELATED TO AGRICULTURE (SEE TABLE ATTACHED) EC Regime for the Importation, Sale and Distribution of Bananas....................................... (WT/DS27) EC Measures Affecting Importation of Certain Poultry Products .......................................... (WT/DS69) India Quantitative Restrictions on Imports of Agricultural, Textile and Industrial Products ..... (WT/DS90) US Tax Treatment for "Foreign Sales Corporation" ..........................................................(WT/DS108) Canada Measures Affecting the Importation of Milk and the Exportation of Dairy Products..................................................................................................... (WT/DS103 & 113) Korea Measures Affecting Imports of Fresh, Chilled and Frozen Beef........................ (WT/DS161 & 169) Chile Price Band System and Safeguard Measures Relating to Certain Agricultural Products ........(WT/DS207) US Subsidies on Upland Cotton .....................................................................................(WT/DS267) EC Export Subsidies on Sugar ...................................................................... (WT/DS265, 266 & 283)

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WTO SECRETARIAT BACKGROUND PAPERS (available at the following address: http://docsonline.wto.org/gen_search.asp?searchmode=simple) Calculation of Ad Valorem Equivalents Calculation of Ad valorem Equivalents (AVEs): Data Requirements and Availability, December 2004 ............................................................................................................. TN/AG/S/11 Calculation of Ad valorem Equivalents (AVEs): Data Requirements and Availability, Addendum 1 part 1, December 2004 (also in Access) ............................................................................. TN/AG/S/11 Add.1 Calculation of Ad valorem Equivalents (AVEs): Data Requirements and Availability, Addendum 2 part 1, December 2004 (also in Access) ............................................................................. TN/AG/S/11 Add.2

Past Negotiations Past Negotiations and Consultations on Tropical Products, Part 1, February 2005................... TN/AG/S/17 Past Negotiations and Consultations on Tropical Products, Part 2, February 2005 (Excel) ........ TN/AG/S/17 Past Negotiations and Consultations on Tropical Products, Part 3, February 2005 (Excel) ........ TN/AG/S/17 Past Negotiations and Consultations on Tropical Products, Part 4, February 2005 (Excel) ........ TN/AG/S/17

Others Agricultural Trade Performance by Developing Countries 1990-2003, April 2005.................... TN/AG/S/19 Annotated Selective Bibliography of Recent Research on Tariff Escalation, May 2006.............. TN/AG/S/23 Availability of World Indicator Prices, February 2005 .......................................................... TN/AG/S/18 Blue Box Support, January 2005 ...................................................................................... TN/AG/S/14 De Minimis support, February 2005.................................................................................. TN/AG/S/16 Domestic Support, March 2002.......................................................................................... TN/AG/S/4 Export Subsidies, Addendum 1, February 2005..........................................................TN/AG/S/8/ Add.1 Export Subsidies Commitments, February 2005 ..........................................................TN/AG/S/8/Rev.1 Green Box Measures, November 2004 .............................................................................. TN/AG/S/10 IDB and CTS-based Reports for Agricultural Products, March 2002 ......................................... TN/AG/S/3 Members' Usage of Domestic Support Categories, Export Subsidies and Export Credits, March 2002.... TN/AG/S/1 Product-Specific AMS , March 2005 ......................................................................... TN/AG/S/15/Rev.1 Special Agricultural Safeguard, December 2004................................................................. TN/AG/S/12 Tariff and other Information on Agricultural Products, November 2004 ..........................TN/AG/S/2/Rev.1 Tariff Quota Administration Methods and Tariff Quota Fill, April 2006.................................... TN/AG/S/22 Tariff Quota Administration: Auctioning, September 2002 ..................................................... TN/AG/S/9 Tariff Quota Fill, July 2005 .............................................................................................. TN/AG/S/20 Total Aggregate Measurement of Support, February 2005 ................................................... TN/AG/S/13 Total Aggregate Measurement of Support, Addendum 1, February 2005 ...................... TN/AG/S/13 Add.1

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READ MORE ON... Anti-dumping Barriers to Trade in Services Developments in the Agriculture Negotiations Enabling Clause GATT Part IV GATT General Exceptions in GATT General Exceptions in the GATS General Exceptions in TRIPS Graph Tariff Quota Legal Status of the Schedule List of Dispute Settlement Cases Invoking AoA Market Access Services MFN Goods MFN Principle under GATS MFN Principle under TRIPS MFN TRIPS Ministerial Conferences Negotiations 2000-2002 Negotiations Three Pillars NT in GATS NT in Goods NT under TRIPS Regional Integration S&D Safeguards under GATS Schedule Bangladesh Security Exceptions Subsidies in GATS WTO Meetings

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