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1. AGRICULTURE IN THE WTO

Agriculture has traditionally benefited from special arrangements which

sheltered it from the full impact of GATT disciplines. Even today, in theWTO agricultural policies are covered by a separate agreement that, to a

degree, still shelters it from generally applicable rules.

A variety of political, social, economic and cultural arguments are used to

ustify this special treatment. The main ustification is the need to guarantee,

over time, stable food supplies in a world of fluctuating harvests and

potential famines.

The scope of the traditional agricultural !e"ception# was to some e"tent

limited by the $ruguay %ound agreements& WTO 'embers agreed upon aset of principles and disciplines that were designed to help liberali(e

international trade in agricultural products.

The $ruguay %ound achieved two things in relation to agriculture. )t

introduced specific disciplines on mar*et access, domestic support and

e"port subsidies. At the same time it too* away the !fig leaf# behind which

agriculture had been hiding from the full force of general GATT disciplines.

The Agreement on Agriculture see*s to reduce restrictions on trade in

agricultural products by introducing disciplines to+

increase mar*et access&

reduce domestic support measures&

reduce subsidi(ed e"ports.

This 'odule e"amines each of the three disciplines in turn and the other

provisions of theAgreement on Agriculture.

Other WTO agreements also discipline trade in agricultural products. Those

with the biggest impact on trade in agricultural products are+ the GATT

1-& the Agreement on Safeguards or the Safeguards Agreement& theAgreement on Import Licensing Procedures or the Import Licensing

Agreement& the Agreement on the Application of Sanitary and

Phytosanitary Measures or the SPS Agreement& the Agreement on

Technical Barriers to Trade or the TBT Agreement and, theAgreement on

Trade Related Aspects of Intellectual Property Rights or the TRIPs

Agreement.

These agreements, along with the Agreement on Subsidies and

Counterailing Measures or the SCM Agreement and the Agreement on

Implementation of Article !I of the "ATT #$$% or the AntidumpingAgreement are also briefly e"amined.


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2. THE AGREEMENT ON AGRICULTURE

Objectives On completion of this section, the reader should be able to describe

the main disciplines that were introduced by the Agreement on

Agriculture on trade in agricultural products and, in particular, the

provisions of the Agreement on Agriculture on market access,

domestic support and export subsidies.

2.1 Introduction

TheAgreement on Agriculture is one of the *ey agreements within the WTO

system. )ts importance is reflected by its presence as the first Agreement

anne"ed to the 'arra*esh Agreement establishing the WTO.

The Agreement on Agriculture is fairly short, with only 1 Articles and /

Anne"es. The 1 Articles are rather surprisingly divided into 10 hapters.

This form of the Agreement on Agricultureprobably reflects the sensitivity

of the sector and the difficulty in achieving agreement among WTO

'embers.

The specific agricultural commitments made by WTO 'embers are not

found in the Agreement on Agriculture, but in Article )) !ountry

2chedules# of the GATT 1-. 3oth the Agreement on Agriculture and the

ountry 2chedules must be e"amined together to understand a WTO'ember4s commitments on agriculture.

TheAgreement on Agriculture applies to agricultural products. Agricultural

products are defined in Anne" 1 of the Agreement on Agriculture. This

definition ma*es reference to the 5armoni(ed 2ystem of product

classification. )n practice, agricultural products are those within hapters 1

to - of the 5armoni(ed 2ystem less fish and fish products, as well as some

specific products which come from the soil. 6orestry products are not

included.

The definition of agricultural product covers not only basic agricultural

products such as wheat, mil* and live animals, but the products derived from

them such as bread, butter, oil and meat, as well as all processed agricultural

products such as chocolate, yoghurt and sausages. The coverage also

includes wines, spirits and tobacco products, fibres such as cotton, wool and

sil*, and raw animal s*ins destined for leather production.

The Agreement on Agriculture has three main parts+ 7art ))) on mar*et

access& 7art )8 on domestic support 9subsidies: and 7art 8 on e"port

subsidies. Each of these parts are e"amined in turn.


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2.2 Market Access

2.2.1 Introduction

'ar*et access simply means the right which e"porters have to access a

foreign mar*et. The WTO agreements allow WTO 'embers to protect theirmar*ets. )n practice !mar*et access# refers to the ways in which that

protection can be implemented. )n the WTO framewor* it is a legalistic

term indicating the government;imposed conditions under which a product

may enter a country and be released for free circulation within that country

under normal conditions.

The specific border measures to protect mar*ets allowed under the

Agreement on Agriculture are tariffs and tariff rate &uotas. A tariff is a

duty or ta". Although there are several different forms of tariffs, the maor

ones used in agriculture are ad alorem 9calculated as a percentage of thevalue of the goods:, specific 9a unit ta" based on


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The process of tariffication is not straightforward. Economists argue as to

the appropriate methodology. )n theory it is simple. The tariff e


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A Country Schedule is a list of specific commitments to proide mar(et

access and national treatment for the products on the terms and conditions

specified in the schedule.

'any e"porting developing countries, which did not, or were not able to

underta*e detailed e"aminations of the drafts, found themselves faced with

prohibitively high tariffs on the products which they intended to e"port.

3ecause of the use of a reference period when the difference between the

world mar*et price and the domestic price was wide, tariffication, in many

cases, resulted in high tariffs anyway. )n addition, some WTO 'embers set

lower tariffs on raw materials and higher tariffs on processed agricultural

products so as to protect domestic processing industries. These three !side

effects# of tariffication are *nown as !dirty tariffication#, !tariff pea(s# and

!tariff escalation#.

5owever, most of the principal agricultural e"porting 'embers considered

that, even if the process of tariffication resulted in high tariffs, the benefits

of fi"ing tariffs and removing variable levies outweighed the disadvantages.

Dirty tariffication is the use, during the tariffication process, of

artificially- high domestic prices and artificially-lo+ +orld mar(et prices in

order to set a particular tariff at a leel higher than it should be

Tariff peaks are considered to be rates set higher than the rates acrossthe same product group or product sector /or some products, +hich

goernments consider 0sensitie1, tariff rates remain ery high.

If a country +ants to protect its processing or manufacturing industry, it can

set lo+ tariffs on the imported ra+ materials used by the industry )cutting

the industry2s costs* and set higher tariffs on finished products to protect the

goods produced by its domestic processing industry This is (no+n as tariff

escalation

The tariffs agreed at the end of the negotiations were then included in eachWTO 'ember4s ountry 2chedule. The legal status of a WTO 'ember4s

2chedule of oncessions was addressed by the Appellate 3ody in the 3C 4

Computer 3&uipment case, where it was held that+

)5* a Schedule is )5* an integral part of the "ATT #$$% )5* Therefore, the

concessions proided for in that Schedule are part of the terms of the treaty


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As such, the only rules +hich may be applied in interpreting the meaning of

a concession are the general rules of treaty interpretation set out in the

!ienna Conention6

)n the Canada 4 7airy dispute, the Appellate 3ody also recogni(edthat+

)5* although Canada2s commitment on fluid mil( +as made

unilaterally, both Canada and the 8nited States understood that this

commitment represented a continuation by Canada of current access

opportunities )5*9

The Appellate 3ody in the :orea 4 7airy case insisted on the fact that the

WTO agreements are !one treaty# and therefore all provisions 9including theountry 2chedules: ought to be interpreted harmoniously and in an effective

manner, in order to ensure that no clause or provision is reduced to

!inutility#.

The 7anel %eport in the :orea 4 !arious Measures on Beef dispute

proceeded to a determination of the obligations of the %epublic of @orea

under !the WTO Agreement as a whole# with regard to each measure and

concluded+

:orea2s Schedule does not constitute an e'ception to other "ATTproisions, but rather &ualifies :orea2s obligations under the ;Tanuary #$$.#=

The 7anel and the Appellate 3ody in the Chile 4 Price Band System dispute

did not thin* that the provisions of Article -. of the Agreement on

Agriculture should be read to include only those specific measures that were

singled out to be converted into ordinary customs duties by negotiating

partners in the course of the $ruguay %ound. )n particular, the Appellate

3ody stated that+

The +ording of footnote # to the Agreement on Agriculture confirms our

interpretation The footnote imparts meaning to Article %= by enumerating

e'amples of 0measures of the (ind +hich hae been re&uired to be

conerted1, and +hich Members must not maintain, reert to, or resort to,

from the date


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of the entry into force of the ;T< Agreement Specifically, and as both

participants agree, the use of the +ord 0include1 in the footnote indicates

that the list of measures is illustratie, not e'haustie And, clearly, the

e'istence of footnote # suggests that there +ill be 0measures of the (ind

+hich hae been re&uired to be conerted1 that +ere not specificallyidentified during the 8ruguay Round negotiations Thus, in our ie+, the

illustratie nature of this list lends support to our interpretation that the

measures coered by Article %= are not limited only to those that +ere

actually conerted, or +ere re&uested to be conerted, into ordinary customs

duties during the 8ruguay Round#?

6urthermore, the Appellate 3ody in the Chile 4 Price Band System dispute

noted that+

)5* Article %= not only prohibits 0similar border measures1 from beingapplied to some products, or to some shipments of some products +ith lo+

transaction alues, or the imposition of duties on some products in an

amount beyond the leel of a bound tariff rate Article %= prohibits the

application of such 0similar border measures1 to all products in all cases#%

Therefore, the most important commitment underta*en by WTO 'embers in

the mar*et access area during the $ruguay %ound was the comprehensive

tariffication of all border measures.

The non;tariff border measures which were re


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Variable import levies are comple' systems of import surcharge They are

aimed at ensuring that the price of a product in the domestic mar(et remains

unchanged regardless of price fluctuations in e'porting countries

Discretionary import licensing is the re&uirement to obtain a permit to

import a product This normally inoles an administratie procedure

re&uiring the submission of an application or other documentation to the

releant administratie body as a condition for importing

Through voluntary eport restraints! a country agrees to limit its e'ports to

another country to an agreed ma'imum +ithin a certain period

Agricultural state trading enterprises are enterprises +hich hae been

granted e'clusie or special rights, or priileges that are not aailable tocommercial firms, thus distorting trade in a competitie mar(et

The prohibition of border protection measures other than tariffs is absolute.

All border measures other than !normal customs duties# are no longer

permitted.

)n the Chile 4 Price Band System dispute, hile had argued that the

obligations in Article -. only relate to non-tariffbarriers, whereas !the 732

only covers the payment of customs duties#.

The 7anel and the Appellate 3ody reected this position. The Appellate

3ody found that+

Thus, the obligation in Article %= not to 0maintain, resort to, or reert to

any measures of the (ind +hich hae been re&uired to be conerted into

ordinary customs duties1 applies from the date of the entry into force of the

;T< Agreement - regardless of +hether or not a Member conerted any

such measures into ordinary customs duties before the conclusion of the

8ruguay Round The mere fact that no trading partner of a Member singled

out a specific 0measure of the (ind1 by the end of the 8ruguay Round by

re&uesting that it be conerted into ordinary customs duties, does not mean

that such a measure en@oys immunity from challenge in ;T< dispute

settlement The obligation 0not to maintain1 such measures

underscores that Members must not continue to apply measures coered by

Article %= from the date of entry into force of the ;T< Agreement

)5* Chile2s price band system is a measure 0similar1 to 0ariable import

leies1 or 0minimum import prices1 +ithin the meaning of Article %= and

footnote # of the Agreement on Agriculture In other +ords, the fact that the


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duties that result from the application of Chile2s price band system ta(e the

same form as 0ordinary customs duties1 does not imply that the underlying

measure is consistent +ith Article %= of the Agreement on Agriculture #$

5owever, Article -. of the Agreement on Agriculture does not prevent the

use of non;tariff import restrictions consistent with the provisions of the

GATT

1- or other WTO agreements which are applicable to general trade in

goods 9industrial or agricultural:. 2uch trade;restrictive measures include

those maintained under the balance;of;payment provisions 9Article C)C of

the GATT1-:, general e"ceptions 9Article CC of the GATT 1-:, the SPS

Agreement,

the TBT Agreement, or other general, non;specific WTO

provisions.

Anne" / to the Agreement on Agriculture provides a maor e"ception with

respect to the general tariffication re


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2.2.5 Tariff Reductions

WTO 'embers agreed in the $ruguay %ound that once the tariffs were

fi"ed, they would agree to reduce these tariffs over time, i.e., over si" to ten

years starting on the date of the coming into effect of the 'arra*eshAgreement in1/. The tariff reductions were fi"ed at the time of the conclusion of the

$ruguay %ound and are also set out in each WTO 'ember4s ountry2chedule.

Developed country 'embers agreed to reduce, over a si";year

period beginning in 1/, their tariffs on agricultural products

by

0> per cent on average, with a minimum cut of 1/ per cent for

any product.

6or developing countries, the cuts are - and 1? per cent

respectively, to be implemented over ten years.

east;developed country 'embers were re


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A tariff"rate quota )TR* is a t+o-leelled tariff +hereby the tariff rate

charged depends on the olume of imports A lo+er )in-&uota* tariff is

charged on imports +ithin the &uota olume A higher )oer-&uota* tariff is

charged on imports in e'cess of the &uota olume

The value of a


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?9 ;T< Members currently hae a combined total of #?6$ tariff-rate

&uotas in their commitments


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the price of the imports of that product, as determined on the

basis of the c.i.f. import price of the shipment concerned falls

below a trigger price e;1BB reference

price for the product concerned.

There are therefore two alternative grounds for invo*ing the special

safeguard provision+ surges in the volume of imports and falling import

prices. 5owever, not every rise in the volume or every fall in the price of

imports entitles countries to resort to Article /. )n each case, there are set

threshold levels, which are called !volume triggers# or !price triggers#.

Article /.B of the Agreement on Agriculture providesthat+

;here measures are ta(en in conformity +ith paragraphs # through 6aboe, Members underta(e not to hae recourse, in respect of such

measures, to the proisions of paragraphs #)a* and ? of Article EIE of the

"ATT #$$% or paragraph = of Article 9 of the Agreement on Safeguards

Thus, a WTO 'ember may choose between the special safeguard measures

under Article / of the Agreement on Agriculture or the general safeguards

under the GATT 1- Article C)C in accordance with the implementation

re


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?9 ;T< Members currently hae resered the right to use a combined

total of D,F6= special safeguards on agricultural products

2.2.8.1 $mport %rice Trigger

The price safeguard provisions are set out in Articles /.1 9b: and /./ of the

Agriculture Agreement Article /.19b: provides specific conditions for

special safeguard provisions related to price in addition to the two general

conditions of Article /.1. )f the mar*et entry price 9e"pressed in terms of

domestic currency: falls below a trigger price, the provisions of Article /./

come into play and an additional duty may be applicable to the shipment in


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2.2.8.2 $mport Volume Trigger

As with price safeguards, volume special safeguards have their legal basis in

Article / of the Agreement on Agriculture. Article /.19a: provides that a

special additional duty may be imposed if the annual volume of imports ofthe product e"ceeds a trigger level. Article /.- provides that the !volume

trigger level# is to be calculated on the basis of imports as a percentage of

domestic consumption 9last three years of available data:, a figure referred

to as !mar*et access opportunities#. This figure gives a base trigger level.

)n broad terms, the higher the share of imports in domestic production, the

lower the trigger level. 6or e"ample, where the shares of imports is less than

1? per cent of domestic consumption for the three preceding years, the base

trigger amount is set at 1/ per cent. )n contrast, where the shares are greater

than 0? per cent, the base trigger level is 1?/ per cent.

2.2.9 Dispute Settlement

In the dispute E = 7oultry );TH7SD$*=6 Brail complained about the

allocation of an 3C tariff-rate &uota for froen poultry meat and the use by

the 3C of a special safeguard measure under the Agreement on

Agriculture The dispute inoled the interpretation of the 3C2s tariff

schedule and its relationship +ith a separate bilateral agreement bet+een

the 3C and Brail, +hich proided for a global annual duty-free tariff-rate

&uota for froen poultry meat Brail argued that as a result of the

agreement, the tariff-rate &uota should be allocated e'clusiely to Brail andnot shared on an M/J basis +ith other ;T< Members The ;T< Panel

found, and the Appellate Body upheld, the Panel2s finding that the

agreement +as not part of ;T< la+ and therefore could not be applied

directly as la+ in ;T< dispute resolution /urther, the Appellate Body

interpreted the releant 3C Tariff Schedule As the 3C +as bound by its

tariff schedule +hich proided for M/J non- discriminatory treatment,

Brail could not see( preferential treatment on the basis of tariff

concessions negotiated bilaterally The Appellate Body also found that the

3C2s administration of this tariff &uota did not iolate the ;T;BB average levels, and

reducing it by ? per cent over si" years up to ??? for developed country

'embers or by 10 per cent over 1? years up to ??- for developing country'embers.

Domestic support reduction concerns total agriculture spending and not

commodity;by;commodity reductions. )n other words, WTO 'embers have

not underta*en to reduce the support granted to each product or product

category by ? per cent. Thus, under the Agreement on Agriculture, WTO

'embers which save on subsidies in one agricultural sector can increase

domestic subsidies in another sector so long as the total subsidi(ation does

not e"ceed the overall ceiling on subsidisation to which a WTO 'ember has

committed itself in the country schedule.

The ma"imum levels of domestic support are bound in the WTO, and 0?

WTO 'embers have made commitments to reduce their trade;distorting

domestic supports in the !Amber 3o"#.

)n the case of WTO 'embers with no scheduled reduction commitments,

the level of domestic support not covered by one or another of the

e"ception categories must not e"ceed the specified de minimis levels 9/ per

cent of the value of production for developed countries and 1? per cent of

the value of production for developing countries:.

east developed countries are not re


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producers of that product, or non-product-specific support proided in

faour of agricultural producers in general

Even though the reduction commitments are applicable generally over allagricultural commodities, the calculation of A'2 is made on the basis of the

spending on specific commodities during a reference period. The two basic

criteria for valuing support are its effect on prices and its cost to the

government. 3oth budgetary outlays 9i.e., 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 included in the A'2

calculation.

Anne" 0 of the Agreement on Agriculture provides that three types of

support are to be included in the calculation+

mar*et price support measures, the most important type of non

e"empt measures can be provided either through administered

prices 9involving transfers from consumers: or through certain

types of direct payments from governments, and is calculated

on the basis of the gap between a fi"ed e"ternal reference price

and the applied domestic administered price multiplied by the


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Total Aggregate 'easurement of Support is the sum of all domestic

support proided in faour of agricultural producers, calculated as the sum

of all AMS and e&uialent measurement of support )3MS* for agricultural

products

7art )8 of the 2chedules of ommitments specifies each WTO 'ember4s

Annual 3ound ommitments, which are constituted by a 3ase Total A'2

9support provided during the base period 1B>;BB:, a urrent Total A'2

9commitments during any year of the implementation period: and its 6inal

3ound ommitments, which is the continuation of the urrent Total A'2 in

all years after the end of the implementation period.

)n any year of the implementation period, the urrent Total A'2 value of

non;e"empt measures must not e"ceed the scheduled Total A'2 limit as

specified in each WTO 'ember4s 2chedule for that year. )n other words,domestic support e"ceeding the reduction commitments levels is prohibited.

3.2.1. (quivalent 'easurement of Support

%ules for calculating the !3&uialent Measurement of Support# 9E'2: are

set out in Anne" - of the Agreement on Agriculture. These rules are used

when it is not practicable to calculate a product;specific A'2 by using the

methodology set out in Anne" 0.

(quivalent measurement of support is a fall-bac( concept employed +hen

AMS cannot be used It is defined as the annual leel of support, e'pressed

in monetary terms, proided to producers of a specific agricultural product

through the application of one or more support measures, +hich cannot be

calculated in accordance to the AMS methodology

6or e"ample, this can be the case for mar*et price support measures which

cannot be calculated by applying the A'2 method, because no e"ternal

reference price can be determined. )n that case, an e and in Anne" of the Agreement on

Agriculture. E"empted measures are e"cluded from the A'2 calculation.

WTO 'embers must claim and ustify the benefit of the e"emption. )n the

absence of such a claim, all domestic support programmes are automatically

considered as !Amber 3o"# measures and counted in the calculation of the

WTO 'ember4s total A'2. )n other words, whatever support is notspecifically e"cluded from reduction commitments is presumed to be

included


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Any measure not shown to satisfy the conditions for e"emption underAnne"

or Article > of theAgreement on Agriculture is re


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Domestic food aid programmes

A second type of aid is made up of domestic food aid programmes for

people in need, provided that products are brought from producers !at

mar*et prices#. Aid for public storage of agricultural products for foodsecurity purposes is classified in the same group.

Direct payments

A third category of !Green 3o"# aid is represented by direct payments. The

Agreement on Agriculturepermits an unlimited number of different forms of

direct payments made to agricultural producers to be e"empted from

reduction commitments. A first series of direct payments consists of aid for

developing agricultural structures+ retirement programmes, granted on

conditions that the land is no longer in use within three years following the

granting of aid& aid encouraging producers to cease their activitiespermanently or to change over to non;agricultural activities, provided that

the producers totally and permanently retire from production& or

investment aid for producers undergoing !obectively demonstrated

structural disadvantages#.

De;coupled income support measures 9i.e., measures which are not related to

current levels of production or prices: are also classified in the !Green 3o"#.

)n order to benefit from this possibility, the amounts paid shall not be related

to the


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%elief from natural disasters

7ayments for relief from natural disasters are also included in the !Green

3o"#. These payments are allowed only if producers show a production

loss that e"ceeds 0? per cent of the average of production and willcompensate for not more than the total cost of replacing production loss.

Article .1 of the Agreement on Agriculture provides that WTO 'embers

are under an obligation to ensure that all !Green 3o"# measures are

maintained in conformity with the conditions set out under Anne" . Any

measure not shown to satisfy the conditions for e"emption is re./ of the

Agreement on Agriculture. )t covers any support measure that would

normally be in the !Amber 3o"#, but which is placed in the !3lue 3o"# if

the support also re./ of the Agreement on Agriculture e"empts from

reduction commitments certain direct payments to farmers which are tied to

production; limiting programmes.

The following criteria must be

fulfilled+

payments are directly paid out from the government budget to

the producers&

payments are conditional upon some form of production;

limiting re


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rural development, which are an integral part of the development

programmes of developing countries.

Developmental measures are+

investment subsidies which are generally available to

agriculture in developing countries&

agricultural input subsidies generally available to low;income

or resource;poor producers&

domestic support to producers to encourage diversification

from growing illicit narcotic crops.

3.2.2. De 'inimis Support

WTO 'embers are not obliged to include de minimis support in their urrentTotal A'2.

7e minimis support is defined as+

product;specific domestic support not e"ceeding / per cent of

the WTO 'ember4s total value of production of the

agricultural product in


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!"MAR#E T A CC ES S BA RRIE RSAgricultural protection and subsidies account for about two;

thirds of the trade distortion caused by government policies.

And most of the distor; tion traceable to agricultural policies

is generated by import barriers. 6or

that reason, negotiating wider mar*et access in agriculture iscritical

to the success of the Doha %ound.1

The World Trade Organi(ation 9WTO: Agriculture 6ramewor*Agreement of

Huly ??- calls for significant tariff cuts using a tiered formula thatimposes larger percentage cuts in higher tariffs. 92ee table 1 for a

summary of all of the provisions.: This proposed approach is a vast

improvement over the average;cut formula applied in the $ruguay

%ound Agreement on Agriculture, which allows countries to meet

their commitments through large proportional reductions in tariffs

that were already low and small reductions in high tariffs.The new formula still will re


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Table 1. Summary of the market access provisions of theWTO Framework Areement on Ariculture

Tariff cuts I2ubstantial improvement in mar*et access throughtariff reductions from bound rates.I2ingle approach for all countries+ tiered formula to

ensureprogressivity. Types of commitments

within bands and number of bands to beTariff rate


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ooperation and Development 9OED: is protected by T%s.

2tudies show that preferences to developing countries barely begin

to compensate for these high levels of protection 93renton and

)*e(u*i ??/:.Widespread use of specific tariffs in developed countries

9whic h ma*e up two;thirds of their agricultural tariffs: obscure

actual levels of protection, because specific duties are generally

higher than the simpler and more transparent ad alorem tariffs that

are generally used in developing countries 9figure :. The use of

specific tariffs causes a bias against developing countries

because it results in higher tariffs on lower;priced imports. Evenmore important are the cyclical implications of such tariff

structures+ as world price go down, specific tariffs go up when

e"pressed in percentage terms. While conversion of specific tariffs

into ad alorem form would be desirable in principle, it would

raise many of the dangers that emerged in the conversion of

nontariff barriers into tariffs during the $ruguay %ound. To avoid

another round of !dirty tariffication# through large, covert increases

in protection, it will be important during the conversion of specific

tariffs to include in the modalities governing the negotiations a

provision to ensure that a transparent approach is followed9similar to paragraph of the 5arbinson Draft:.

"igure 1. #eveloping country exports have surged in

nontraditional products with low protection

Comosition o$ de%e&oin' countries e(orts) ercent

*+

,+ -./-

!+-..-

0+ 1++-

1+

-+

+

Troic a&

2 roduc tsTem erat e

2 roduc ts

S ea$ood) 3ruit s

) 4 e'et a5&e s

and 3&o6ers

Ot7er

2 roc es sed

2 roduc ts


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Fiure 2. Specific !uties hi!e hih protection

2ercent

8+

*+

,+A%era'e Ad 4a&orem

Tari$$ E9ui%a&ent

!+

0+ A%era'e Ad 4a&orem

Tari$$

1+

-+

+

A us tra&ia US E U :ordan

SourceK World 3an* ??0.

Tariffs are typically higher for processed raw materials

9figure 0:. 3y discouraging diversification into value;added and

processed productsJareas in which trade is e"panding rapidlyJ

such escalation punishes investors in developing countries who

see* to add value to production for e"port. )t also help s account

for developing countries4 generally po or penetration

of developed;country mar*ets in processed foods.

Two other *ey features of agricultural tariffs are the large

difference between bound and applied rates and their e"tremely

high pea*s. The first feature, *nown as !binding overhang# 9figure-:, means that a larger reduction in bound rates must be made

before applied rates change. 5igh pea*s result in large differences

between average rates and ma"imum tariff rates 9called !tariff

dispersion#: in developed countries 9table :, compared with

developing countries, which are characteri(ed by low tariffdispersion. Developing countries have higher average agricultural

tariffs than industrial countries, but the level of protection in

developed countries is higher than average tariffs 9figure /:

because of the prevalence of tariff pea*s+ ust a few tariff lines

protect most of domestic production in high; income countries.

One conse


30/37

0:.


31/37

*+

,+

3ina&!+

Intermediate

0+

1+ Ra6

-+

+;UA D Canada :aan US EU Lar'e Ot7er Lo

6er M id d & e M idd & e

Inco me Income Income C

ountri es

anada -.1 0B.? 10./

Hapan 1?. /?.? 1?.1

$nited 2tates . 0/?.? >./

European $nion 1.? /?>.0 .0

%epublic of @orea 0. 1.? 1?.

3ra(il 10. //.? /.>

osta %ica 1-. 1/-.? 1B.?

'orocco >.- 0>./ ?.>

)ndonesia B. 1?.? /.>

'alawi 1>./ /.? B./

Togo 1/.> ?.? >.1

$ganda 10.> 1/.? 0.

Sou rceK A* soy ??/ .

Fiure 3. Tariffs escalate for final pro!ucts

A%era'e tari$$s) ercent

*+

,+

!+

Intermediate

0+

3ina&

1+ Ra6

-+

+;UAD Canada :aan US EU Lar'

e M id

d&e

Income

Countries

Ot7er

M idd&

e Inco

me

Countries

Lo6er

Income

Countries

SourceK World 3an* ??0.

Table 2. Tarfiff "eaks an! #ariance in Selecte! $ountries %percent&

$ountry or %roup &verage 'ariff (aximum 'ariff )tandard #eviation


32/37

'ariff rate

*uotasTariff rate


33/37

%ice 0/3eef and sheepmeat 1B

2ugar B

Oilseeds

7or* and poultry >

Dairy products /

oarse grains /

Wheat -

Other processed food 1

Total 1??

The tiered approach of the 6ramewor* Agreement ensures

some degree of harmoni(ation of national systems of agricultural

tariffs 9although much less than could be achieved using a 2wissformula that not only reduces higher tariffs more than lower tariffs

but also has a common ma"imum tariff for all countries:. 3ut the

tiered formula poses some critical design issuesJamong them the

placement of the bands, the depth of cuts, and the presence or

absence of a tariff cap. %ecogni(ing these issues, the G;? proposal

of Huly B, ??/, proposes a tariff cap of 1?? percent for developed

countries and 1/? percent for developing countries. 2cenarios

analy(ed by the World 3an* 9Hean, aborde and 'artin ??/: show

that only formulas that bring about very deep cuts in bound rates

will have a substantial impact on average applied tariffs and henceon mar*et access, particularly when allowance is made for some

degree of slippage from designations of 2ensitive and 2pecial

7roducts. A progressive tariff reduction formula that imposed cuts

of -/, ?, and

/ percent in bound tariffs in developed countries would reduce the

average tariffs facing developing countries from 1/ percent to 1?

percentJan important gain in mar*et access, but only one;third of

the way to complete liberali(ation.

The need to limit the number of tariff lines for 2ensitive

7roducts is also recogni(ed in the G;? proposal. The scenario

analysis of the World 3an* found e"traordinary sensitivity of theresults to self;selected 2ensitive and 2pecial 7roducts. 6or

e"ample, if percent of tariff lines are e"cluded from reductions as

2ensitive 7roducts and a further percent as 2pecial 7roducts in

developing

Table 3. $ommo!ity contributions to lobal welfare cost of

foo! an! aricultural subsi!ies an! tariffs

)hare of total welfare cost of

protection +percent

Source+ $npublish ed GTA7 mod el resu lt s b y @. An d erson and E. 8alen (u ela, World 3an*


34/37

-1+

-++

Bound/+

*+A&ied

!+

1+

+

A Uic o on k?e

A 5 A n a a

US A C EAN nire

SST a

aan ndier

(anadaS U T

ur @ E3 ksi t :I

#o a'7

-!+

-1+

Market rice suort-++

/+

A%era'e Tari$$s*+

!+

1+

+

:aan EU Nor6 a? Canada US Hun'ar ? Me(ico

Fiure '. (oun! tariffs e)cee! applie! rates

Bound and a&ied tari$$s on a'ricu&ture) ercent

-1+

-++

Bound/+

*+

!+

1+

+

A&ied

Fiure *. (or!er protection an! averae tariffs for

selecte! countries

Border rotection and a%era'e tari$$s $or se&ected countries) ercent

-!+

-1+

-++

/+

*+

Market rice suort

A%era'e Tari$$s

!+

1+

+

:aan EU Nor6 a? Canada US Hun'ar ? Me(ico Turke?


35/37

- ++

. +

/+USA

8+ G@1+

*+ EU

, +

! +

0 +

1+ G@-+

- +

+

8 +

*+USA

, +

EU! +

G@1+

0 +

1 +

-+G@-+

+

+ -+ 1+ 0+ ! + ,+ * + 8+ /+ . + - + + - - + -1+ -0 + - !+

2roosed cut

- ++

/+USA

8 +

* +

, +

! +

0 +

1 +

- +

+

G@1+

EU

G@-+

+ -+ 1+ 0+ !+ ,+ *+ 8+ /+ .+ -++ - -+ - 1 + -0 + -!+ - , +

Initia& Tari$$

Source% Marcos :ank) Institute $or Internationa& Trade Ne'otiations ) 1++,"

Fiure +. (an!s an! $uts for ,evelopin $ountries- "roposals

2roosed cut

8 +

*+USA

, +

! +

0 +

EU

G@1+

1 +

-+G@-+

+

+ -+ 1+ 0+ ! + ,+ * + 8+ /+ . + - + + - - + -1+ -0 + - !+ - , +

Initia& Tari$$ Source% Marcos :ank) Institute $or Internationa& Trade Ne'otiations ) 1++,"


36/37

countries, the liberali(ation of applied duties is reduced by two;

thirds overall and much more in anada, Hapan, and %epublic of

@orea. The cut in applied tariffs falls even moreJby B? percent. A

tariff cap would help reduce the losses to liberali(ation resulting

from designations of 2ensitive and 2pecial 7roducts,

particularly by bringing about substantial reductions on cereals.

learly, if the Doha %ound is to be successful in increasing mar*et

access, it will be important to ensure 9a: that only a small share of

products is accorded special treatment, 9b: that substantial

reductions in protection are made even on these products, or 9c:

that the number of products is restricted in a more meaningful waythan by restricting the number of tariff lines.

Another design issue related to the simple tiered formula is the

discontinuities between bands that can result from a system of

higher cuts for tariffs in bands with higher tariff rates. Assume, for

e"ample, a tariff threshold of ? percent. )f there were a 1?

percentage point difference between the rates of cut, tariffs ust

over that threshold would end up nearly 1? percentage points below

tariffs at the threshold. One possible solution to this problem is to

implement a tiered formula similar to that of a progressive income

ta", whereby higher marginal rates of reduction are made on tariffsin higher tariff bands. Another possibility is a rate of cut that

increases with the height of the tariff.%ecent reform proposals by the $.2. 9??/:, the G;? 9??/:, the E$ 9??/:and the

G;1? 9??/: have elaborated considerably on the 6ramewor*.

These proposals specify tiered formulas for tariff reduction with

ma"imum reduction rates in industrial countries of ? percent, /

percent, >? percent and -/ percent respectively. )n developing

countries, the cuts are smaller, and increases in cuts ta*e place from

higher tariff levels. The relationship between the proposed cuts is

shown in figures > and . The proposals also differ crucially inthe number of !sensitive#products allowed& the $.2. proposed1 percent of tariff lines, the E$ has proposed B percent and the G;1?

has proposed 1? or 1/ percent. Hean, aborde and 'artin 9??/:

show that even percent of sensitive products can almost

eliminate the mar*et access gains resulting form a tiered formula.


37/37

-olicy

options

)f governments wish to promote development through increased

mar*et access, they have several options+L imit the number of tariff lines in the 2ensitive and 2pecial

7roduct categories.%esearch shows that placing ust percent of tariff lines in thosecategoriescan eviscerate the benefits of trade liberali(ation.

L )mpose a tariff cap at the 1?? percent level suggestedby the G;? to overcome the effects of tariff pea*s, binding overhang,and gaps between applied tariffsand the protection actually provided.

L )mpose an overall reduction in average tariffs to ensure that the tiered approachis effective and as a further guard against the adverse effects of the 2ensitive and2pecial 7roduct categories.

L 3uild progressivity into every tariff band to ensure reduction in

tariff escalation and avoid discontinuities or overlap betweentariffs in the bands.L onvert all specific tariffs into ad alorem e

final one nos

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