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«PATRICK A. MESSERLIN 1/ August 2002 INTRODUCTION WTO negotiations in agriculture have embarked on a wild roller-coaster. In accordance with Article ...»

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AGRICULTURE IN THE DOHA AGENDA

PATRICK A. MESSERLIN 1/

August 2002

INTRODUCTION

WTO negotiations in agriculture have embarked on a wild roller-coaster. In accordance with Article

20 of the Uruguay Agreement on Agriculture (URAA), they resumed in March 2000–only four months after

the Seattle Ministerial debacle, hence sending quite unexpectedly a clear signal that the WTO had survived its first crisis. From March 2000 to March 2001, 45 proposals from 106 countries were tabled on the wide range of subjects for negotiations in seven meetings [for details see www.wto.org, 8 April 2002]. This first phase led to the two paragraphs of the Doha Ministerial Declaration on agriculture which constitute a good basis for future negotiations because it covers all the forms of protection—from tariffs to subsidies of all kinds).

But then, things quickly deteriorated. The EC insistence on including terms such as “without prejudging the outcome of negotiations” or “with a view to” in the Doha Ministerial Declaration was perceived by many observers as key reservations, or as a bad omen, about the European willingness to negotiate. Six months after Doha, the U.S. adopted a new Farm Bill (hereafter, the 2002 Farm Bill) which is widely perceived as a big step backward. Two months later, the strong French opposition to the European Commission’s proposal for reforming the EC Common Agricultural Policy (CAP) came as a blow to the raising hopes for negotiations in 2000-2001. But, once again, the farm roller-coaster bounced in late July, with the U.S. tabling relatively bold proposals about the reduction or elimination of a wide range of instruments of protection (for details see section 2).

The paper aims at underlining key points for future action and research in the Doha negotiations context, with a focus on OECD countries—because they are the main trouble-makers and also because of a /This paper was prepared for the World Bank Roundtable on Policy Research in Preparation for the th 5 WTO Ministerial, Cairo, May 20-21, 2002. I would like to thank all the participants of the Roundtable and of the Wilton Park Conference on “Prospects for the New Trade Round,” 8-11 July, 2002, for their many useful criticisms and comments. I would also like to thank Dimitris Diakosavvas from the OECD Secretariat for his great patience and help. I apologize for all remaining errors.

lack of comparable data for developing countries (a key point for future research and action). Section 1 looks at what happened to the URAA–to which extent and why it failed to achieve its objectives. Section 2 describes the driving forces behind current protection in agriculture. Section 3 investigates the contours of an environment favorable to coalitions supporting WTO negotiations.

SECTION 1. THE URAA FAILURE

The URAA did not deliver the liberalization dynamics it was supposed to generate. It may even have put the Doha negotiators in a situation worse than the one faced by the Uruguay negotiators a decade ago.

This is because today, many farmers and a noticeable share of the public opinion in protectionist OECD countries are convinced that agriculture was liberalized by the Uruguay Round, and that this liberalization has been the cause of all their difficulties since 1995. This belief is wrong. As shown below, there has been no liberalization since 1995, and current farmers’ difficulties are mostly self-inflicted by existing domestic farm policies. In other words, Doha negotiators will try to launch a liberalization, whereas many people believe that there has already been a welfare-deteriorating liberalization–the worst situation possible from a political perspective.

1. Total support to agriculture since 1995: almost unchanged It is easy today to blame the URAA failure, but the URAA approach was initially very appealing (for a thorough analysis of the URAA, see Tangermann 2001). In 1995, the Uruguay negotiators (as most trade observers) were perfectly aware that the URAA-based liberalization would be minor. They were the first to witness, during the last months of the Uruguay negotiations, WTO members deliberately overestimating the level of farm protection for the reference period (1986-88) in order to end up with an almost unchanged level of protection at the end (2001) of the transition period of the URAA [for instance see OECD, 2001]. But, the Uruguay negotiators were convinced that the transparency introduced by the new instruments of protection (the “tariffication” process) would reveal to the public opinion the astronomical level of farm protection in most OECD countries. And they were convinced that this information would be enough to change the balance between vested and pro-free trade interests, hence allowing the Doha negotiators to finally start serious talks on liberalization. To their surprise, and to the surprise of almost all observers, the magic of transparency did not work.

The first reason is that, during the last weeks of the Uruguay negotiations, WTO members did work hard to undermine the transparency that they previously decided to include into the URAA. They used massively specific tariffs (for instance, one third of the EC and U.S. farm tariffs are specific or have a specific component) which are much less transparent than ad valorem tariffs, and which have an increasing protectionist impact when world prices decline (a frequent situation since 1997). When possible, they kept using old mechanisms (such as variable levies) within the limits of the new Uruguay tariff regime. They subjected tariff-quotas (introduced by the Uruguay negotiators in order to ensure a minimum opening of farm markets) to opaque legal procedures which have systematically kept quota fill rates at a low level. They played with the concept of “unused” subsidies, and with forward mechanisms for loosening, as much as possible, disciplines on export subsidies, etc.





But, there has been more than this “dirty” tariffication in the last weeks of negotiations. As shown by Table 1, the share of total support2/ to agriculture in GDP has substantially decreased during the late 1990s, compared to 1986-88 (the period which has been adopted by the URAA as the reference period because it witnessed the highest level of farm support). However, this decline is not the sign of a successful URAA.

Rather, it largely echoes a similar decrease of the share of farm gross value added in GDP during the same period. As a result, the share of total support to agriculture in farm gross value added has only slightly declined in the whole OECD region–from 75.9 to 61.9 percent. More importantly, it remains at an amazingly high level since it still accounts for almost two-thirds of the farm gross value added. As a result, as shown by Diakosavvas [2001], the URAA has had very modest quantitative effects on OECD farm trade flows.

This limited decline has two exceptions. First, OECD countries which can be qualified as “free traders” in farm issues (Australia and New Zealand) support their agriculture much less today than they did during the reference period. In New Zealand, the dramatic fall (by 4/5) of the total support share in farm gross value added has led to a growing farm share in GDP–justifying the title, “There is a life after subsidies,” of a booklet describing the New Zealand experience of farm liberalization. In Australia, the more limited fall (by 1/3) of total support in farm value added has been accompanied by a substantially smaller decline of the farm share in Australian GDP than the decline observed in the protectionist OECD countries.

The second exception, in the opposite direction, is the sharp increase of the total support share in farm value added in mostly new and low income OECD members–Hungary, Poland, Mexico and Turkey, with Hungary even reaching the EC level. It suggests the existence of dynamic forces which could systematically work against freer trade in agriculture: as soon as a country becomes industrial and rich enough, it heavily protects its farm sector. If confirmed, this evolution in emerging economies (noted a long time ago by Anderson [1994]) will be a crucial parameter to be taken into account in the Doha Round and in future WTO Rounds.

Table 1 provides two crucial lessons for coalition building. First is that meaningful WTO negotiations require comparable data. Focusing on tariffs or other border barriers makes no sense because a large portion of protection granted by OECD is channeled through subsidies. Ignoring that developing countries are often heavily taxing their farmers would compound the errors. Doha negotiations thus urgently require for developing countries the same data on public support that is already available for the OECD countries (on /“Total support” gives a measure of the annual monetary value of all gross transfers from taxpayers and consumers arising from policy measures which support agriculture, net of the associated budgetary receipts, regardless of their objectives and impact on farm production and outcome. It is the widest indicator of farm support calculated by the OECD Secretariat. As a result, it includes expenses related to certain nontrade concerns (research and development, food safety and quality).

which most of the Tables used in this paper are based).3/ Table 1 also shows two forces of opposite directions at work in the protectionist and “middle-of-theroad” OECD countries. On the one hand, the share of agricultural labor in the total labor force is strongly declining. One should expect this evolution to be favorable to farm liberalization because it implies a decreasing political leverage of increasingly fewer farmers (see section 3 for details). On the other hand, Table 1 also shows that the food share in consumers’ total expenses is substantially decreasing. This evolution implies that consumers have increasingly less powerful incentives to oppose costly protection on agricultural imports.

In sum, there is no strong reason to believe that the net political balance on farm issues between producers on the one hand, and consumers on the other hand has changed much in OECD countries. One could even argue that the net balance may shift in favor of farmers to the extent that total support includes expenses for non-trade concerns (food safety, environment) that are increasingly highly valued by some people in rich countries, or that many tax-payers do not dare to oppose. In other words, trade negotiators should not count too much on final consumers and taxpayers–the natural supporters of liberalization. They should look for other allies and arguments, as suggested in section 3.

2. The level and structure of farm protection in selected OECD countries The URAA did not intend to reduce total support to agriculture, but international distortions in farm outputs and trade flows. In this context, concepts narrower than total support–namely the producer support and the consumer support–are better indicators of the URAA failure.4/ Table 2 gives for selected OECD countries the producer support estimates (PSEs) and the consumer support estimates (CSEs) under the form of average nominal protection coefficients (NPCs). As PSE-based NPCs and CSE-based NPCs measure the wedge between domestic and world prices in percent of the world prices, they have the great advantage that they can be read in the same way as ad valorem tariff rates. For instance, the PSE-based NPC and the CSEbased NPC for Korea for 1999-2001 are equivalent to ad valorem tariff rates of 181 and 166 percent, respectively.5 /One can crudely illustrate the importance of this research with the following example. If one takes the Mexico of the 1986-88 as a proxy for the average developing country of the early 2000s, the share of total support in farm value-added of a typical developing country would be eight times smaller than the current average OECD share (8.5 percent vs. 61.9 percent), and its PSE-based NPC (see the definition below) would be even negative (compared to 35 percent for OECD average).

/The producer support measures all the gross transfers from consumers and taxpayers to support domestic farmers, measured at the farm gate level. The consumer support measures all the gross transfers from (to) domestic consumers of farm products, measured at the first consumer level. Total support is the sum of the producer support, the general services support and the transfers from taxpayers to consumers (which is one of the four components of the consumer support).



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