MEDIA NOTES THE WTO AGREEMENT ON AGRICULTURE: ITS PRACTICAL APPLICATION IN KENYA AND STATUS OF THE NEGOTIATIONS

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1 INSTITUTE OF ECONOMIC AFFAIRS ACK Garden House 1st Ngong Avenue P O BOX Nairobi Kenya Phone: , Fax: Mobile: , admin@ieakenya.or.ke Website: PUBLISHED BY THE TRADE INFORMATION PROGRAMME The Institute of Economic Affairs (IEA) is a civic forum which seeks to promote pluralism of ideas through open, active and informed debate on public policy issues. It advocates liberal values in society i.e. individuals economic, social and political liberties, property rights, democratic government and rule of the law. The IEA is independent of political parties, pressure groups and lobbies, or any other partisan party. DIRECTORS: DR. JAMES KARUGA MR. JOE GICHUKI MR. EVANS OSANO MS. MUSABI MUTESHI MS. BETTY MAINA MS. L. MUTHONI WANYEKI EDITORIAL: MIRIAM OMOLO MARY ODONGO ALBERT MWENDA WRITTEN BY: TRADE INFORMATION PROGRAMME DESIGN & LAYOUT: NELLY KIBATHI We re on the Web! INSTITUTE OF ECONOMIC AF FAIRS MEDIA NOTES 1. INTRODUCTION AND BACKGROUND ISSUE 2 MARCH 2007 THE WTO AGREEMENT ON AGRICULTURE: ITS PRACTICAL APPLICATION IN KENYA AND STATUS OF THE NEGOTIATIONS The is one of the thirteen Agreements negotiated during the Uruguay Round of trade negotiations between 1986 and The Agreement came into force on 1 st January The original GATT did apply to agriculture trade but had deficiencies which were not supportive of fair trade. It allowed countries to restrict trade through use of measures such as import quotas and also to subsidize (domestic support and export subsidies). This resulted in highly distorted agricultural trade which created market access difficulties for many products. Consequently, there were many trade disputes. Thus the conclusion of the Agreement was considered a major achievement of the Round as it produced the first multilateral agreement dedicated to the sector, thus effectively putting agriculture under normal trade disciplines. The objective of the Agreement as stated in the preamble is to establish a fair and market-oriented agricultural trading system. This implies that the reform of trade in the sector and making policies more market-oriented would improve predictability and security for importing and exporting countries alike. The reform programme as envisaged in the Agreement comprises specific commitments to reduce support and protection in the areas of domestic support; export subsidies and other methods used to make exports artificially competitive; market access with respect to various trade restrictions faced by imports; and through the establishment of strengthened and more operationally effective GATT rules and disciplines. The Agreement provides Page 24 Page 1

2 for implementation of the programme in an equitable way among all Members, by including aspects relating to non-trade concerns, including food security and the need to protect the environment. It also 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. The WTO agreements and understandings on trade in goods apply to agriculture, including the GATT 1994 and WTO agreements. Peace provisions within the agreement aim to reduce the likelihood of disputes or challenges on agricultural subsidies over a period of nine years, until the end of 2003 which has since elapsed. The Agreement defines in its Annex 1 agricultural products by reference to the harmonised system of product classification - the definition covers not only basic agricultural products, but also the products derived from them, as well as all processed agricultural products. 2. STRUCTURE OF THE AGREEMENT ON AGRICULTURE The Agreement on Agriculture establishes a number of generally applicable rules with regard to trade-related agricultural measures, primarily in the areas of market access, domestic support and export competition to provide the basis for market-oriented policies, thereby enhancing predictability and security for both importing and exporting countries. These rules relate to country-specific commitments to improve market access and reduce trade-distorting subsidies which are contained in the individual country schedules of the WTO Members and constitute an integral part of the GATT. The Government should assess the social and economic impact of private sector investment in large-scale agriculture on rural communities. Governments should encourage the formation of grass-roots organisations, such as small-scale farmers, traders and processors associations, and the strengthening of existing associations so that they can participate in the consultation processes for formulating agriculture-sector policies Reference 1. World Trade Organization, 2002, The Legal Texts: The Results of the Uruguay Round of Multilateral Trade Negotiations. 2. Freidrich Ebert Stiftung, 1999, World Trade Organization: Agreement on Agriculture and Its Impact on Eastern Africa. 3. Hezron Nyangito, Kenya Institute for Public Policy Research and Analysis, 2003, Agricultural Trade Reforms in Kenya Under the World Trade Organization. 4. Peter Robins, 1999, Review of the Impacts of Globalization on the Agricultural Sectors and Rural Communities of ACP Countries, A Study Commissioned by the Technical Centre for Agricultural and rural Cooperation (CTA). 5. Websites: org; and Market access: Market access is captured under Article 4 and 5 of the Agreement. The new rule for market access in agricultural products is the use of tariffs only. Before the Uruguay Round, some agricultural imports were restricted by quotas and other non-tariff measures such as variable levies, voluntary export restraints and other barriers against agricultural imports. Page 2 Page 23

3 CONCLUSION AND GENERAL RECOMMENDATIONS This paper has made some suggestions that might assist Kenya to develop policies to cope with changes in international rules on agricultural trade. It also makes a number of recommendations as follows: Recommendations aimed at strengthening the negotiating position of Kenya in the continuing negotiation under the Doha Development Agenda: An effort should be made to pool resources not only with other regional countries but also with other developing countries, e.g. within the African and ACP members, that will be affected in a similar way by the proposed changes. Kenya, therefore, should actively participate in the Analysis and Information Exchange process offered by the WTO. Kenya should take advantage of assistance offered by development organisations to help developing countries to prepare for changes in WTO rules, e.g. the Aid for Trade Initiative, among others. Kenya should prepare for negotiations by strengthening her domestic administrative arrangements, including multi-stakeholder representation in the institutional frameworks. Kenya should press for inclusion of comprehensive and detailed commitments to ensure her interests in all areas taken into account food security in the WTO Doha Round negotiations. Recommendations aimed at strengthening the agricultural sectors of Kenya in a globalised economy: Promoting value-addition in agricultural products. Improving quality standards especially in food products should represent a high priority for Kenya not only to protect the health of her own population but also to enable her to export produce to countries with increasingly higher hygiene and quality requirements. Recommendations aimed at strengthening the position of rural communities in Kenya Page 22 By restricting market access foreign producers access to the domestic market is limited thus denying access for consumers to agricultural commodities at lower world market price. Restriction on market access to a particular product, for example, would protect producers from international competition and raises and maintains high domestic price relative world market price. The impact of such policies is to create a price differential between the domestic and world market prices, adding additional tax burden to consumers as they pay more than they would have otherwise pay under a more liberal market environment. To achieve uniformity in reductions of these barriers, Members agreed to convert the NTBs into tariff equivalents and the NTBs were replaced by a more predictable tariff-only system through a process known as tariffication that provides more-or-less equivalent levels of protection. Tariffs were then bound, meaning that a country cannot increase them unilaterally. The other important issues considered under market access include tariff quotas and special safeguards. Article 5 deals specifically with special safeguard provisions that give protection to countries which undertook tariffication during the Uruguay Round. Under this provision on special safeguards, such countries are allowed to impose additional duties on imports in case there are import surges on particular products based on volume or price triggers. The tariffs resulting from tariffication process, as well as tariffs on other agricultural products were to be reduced by an average of 36% for the developed countries over six years and 24% for the developing countries over ten years, with a minimum reduction of 15% for each product line, during the beginning of the implementation period. Least-developed countries are exempted from tariff reduction commitments. Domestic support The Domestic support commitments are covered under Article 6 of the Agreement. Domestic support policies are aimed at, first, raising the income of producers and second, sustaining profitability of domestic farming. All subsidies to farmers are classified according to their impact on production. Subsidies with minimal linkage to the quantities Page 3

4 produced, the inputs used or prices paid are classified as Green Box support measures. They are not subject to reduction commitments. Other subsidies, including market price support, are classified in as Amber Box measures. Amber box subsidies are subject to an overall limit called the Aggregate Measurement of Support (AMS). Amber box policies have the most distortionary effect on trade as they are used to provide farmers with incentives to produce substantially more of a particular commodity than they would do without such policies. Example of such policies include: government intervening to purchase farm produce at high prices in order to maintain guaranteed minimum price, border controls that restrict imports, deficiency payments as direct payment to farmers and input subsidies. Input subsidies reduce the input price of farmers thereby reducing the unit cost of production [EU CAP]. De minimis exemptions allow support for a particular product to be excluded from the calculation of a country s AMS if that support is not greater than 5% of its total value of agricultural production. Non-product specific support which is less than 5% of the value of total agricultural production is also exempt from inclusion in the AMS. Specific payments that were linked to quantities produced but subject to output controls were classified in the Blue Box. These are also excluded from the AMS and were exempted from reduction commitments. Government measures of assistance to encourage rural development, investment subsidies generally available to agriculture in developing country members and agricultural subsidies generally available to lowincome or resource-poor produce in developing country members, Article 6(2), are exempt from domestic support reduction commitments. Export Subsidies Export subsidies are used by some countries to enhance export and dispose of surplus production in the international market. The consequence of using export subsidies is depressed world market prices as the produce is sold at a lower cost resulting in loss. To cover the loss, the exporter is provided with a subsidy. Export subsidy commitments are covered under Article 9 of the Agreement and include support provided contingent upon Page 4 formulations. Policies that distort agricultural trade will have to be avoided. This enhances the potential of Kenya s agriculture to compete in a more or less level ground with other producers. Further, under WTO rules the sale of subsidised produce from industrialised countries is likely to be curtailed substantially over the next few years. This reform should have the effect of increasing world market prices for products like meat, vegetable oils, sugar and cereals. This will benefit those ACP countries that export these products to non-eu countries (Peter Robbins CMIS, 1999). Under the Doha Development Round of trade negotiations, Members have agreed to eliminate export subsidies and measures with equivalent effect by This has the potential of increasing the opportunities in international market in terms of volume for non-subsidizing exporters such as Kenya. Liberalisation of agricultural markets will also affect food security in Kenya. Higher prices for cereals and vegetable oils caused by reductions in farming subsidies mainly in industrial countries will have a serious negative effect on the balance of payments of food-importing countries like Kenya and may jeopardise food security. Implementation of the reforms will impact on food security by influencing foreign exchange earnings; there is the potential of Kenya missing on the gains of liberalization via export earnings due to supply inelasticities associated with supply-side constraints and loss of market share. Kenya, if there is need, can influence food assistance through the provisions of the Marrakech Ministerial Decision on measures concerning the possible negative effects of the Reform Programme on net Food- Importing Countries to compensate for the increased food import bill by accommodating the need for greater food aid. Finally, there is the potential of the Agreement creating a situation where there will be abundance of food in rich and fast growing economies and food insecurity in poor countries. Kenya as a net food-importing developing country and together with decline in foreign exchange earnings is likely to face major increases in food import bill and food aid. To overcome these, formulation and implementation of policies to increase production and promote diversification are necessary (Odek, 1999). Page 21

5 Changes in the pattern of agricultural production, brought about by the need to increase exports and improve efficiency, are likely to have a significant social impact on rural communities in Kenya and may further marginalise small-scale farmers who lack the resources to grow products for the export market. An example of what is likely to happen is already being experienced in Kenya with respect to the Dominion Farms investment in commercial farming in Yala Swamp, around Lake Victoria. The Agreement on Agriculture, allows developing countries that had applied little or had no trade-distorting domestic subsidies a 10% ceiling of the value of their agricultural production during the implementation period. Developed countries, on the other hand, are not subjected to the upper limit and are only expected to reduce their aggregate measures of support (AMS) by 20% during the same period. Additionally, AMS are applied sector-wide and not just product-specific. This provides an avenue for the developed country members to shift support among different product categories with probably little change, if any, to their level of support to agriculture. However, Kenya and other developing countries have the opportunity to use green box policies to support agriculture sector, food-vulnerable communities and environment. Kenya also has the recourse to use Article 6 (2) to provide some support to her agricultural sector without contravening any of her commitments. Article 6 (2) permits government measures of assistance to encourage agricultural and rural development as integral part of the development programmes of developing countries together with investment subsidies which are generally available to agriculture in developing country Members. Based on the foregoing, the effectiveness of domestic support in reducing trade distortions has been debatable, with a consensus that their impact has been limited as the major subsidizers (mainly the developed country members) have shifted their trade distorting to either the blue or green box categories in order to avoid reduction commitments. The current implications of the Agreement with respect to domestic policy may be limited but the future significance mainly lies in the fact that the Agreement enshrines international law limitations on domestic policy export performance, the sale or disposal for export of non-commercial stocks of agricultural products at prices lower than comparable price charged for alike domestic product, subsidies to reduce cost of marketing exports of agricultural products (Article 9 (d)), and the internal transport and freight charges on export shipments (Article 9 (e)), among others. The Agreement does not ban export subsidies but imposes severe restrictions on the quantities subsidised and the amount of expenditure on these subsidies. Developing country members are not required to undertake commitment with respect to subsidies provided for in (Article 9 (d) and 9 (e)). New export subsidies are prohibited, there is a clearer definition of what constitutes an export subsidy, and reductions in both the maximum expenditure on export subsidies (by 36%) and the maximum quantity of exports that can benefit from the subsidies (by 21%) relative to the base period levels were agreed. Article 10 of the Agreement provides for anti-circumvention measures on export subsidy commitments so that application of export subsidies (credits, export credit guarantees, insurance programmes) does not result in circumvention of export subsidy commitments. It also prohibits the use of non-commercial transactions to be used to circumvent such commitments (provision of international food aid). There are provisions for disciplines on export prohibitions and restrictions (Art. 12), sanitary and phytosanitary measures (Art. 14), special and differential treatment (Art. 15), Least Developed and Net Food-Importing Developing Countries (NFIDCs) with respect to the framework of the Decision on measures Concerning the Possible Negative Effects of the Reform Programme on LDCs and NFIDCs. Non-trade concerns include food security, livelihood security, rural development and environmental protection, among others. These are considered together with special and differential treatment for developing countries as separate issues in their own right. Country Schedules Country schedule comprises a statement by each member, on commodity by commodity basis, of their position on each of the issues concerned prior Page 20 Page 5

6 to the implementation of the provisions of the Agreement on Agriculture, together with an outline of how the provisions will be achieved. The country schedules became binding from April The schedules contain commitments made by countries, for example, a commitment to reduce tariffs on particular commodities by a given amount over a period of time. 3. STATE OF PLAY IN AGRICULTURE NEGOTIATIONS WTO members agreed to initiate negotiations for continuing the agricultural trade reform process one year before the end of the implementation period, i.e. by the end of These talks began in early 2000 under the original mandate of Article 20 of the Agriculture Agreement. At the November 2001 Doha Ministerial Conference, the agriculture negotiations became part of the single undertaking in which virtually all the linked negotiations were to end by 1 January The declaration reconfirms the long-term objective already agreed in Article 20: to establish a fair and market-oriented trading system through a programme of fundamental reforms. The programme encompasses strengthened rules, and specific commitments on government support and protection for agriculture. The purpose is to correct and prevent restrictions and distortions in world agricultural markets. Member governments committed themselves to comprehensive negotiations aimed at: market access: substantial reductions exports subsidies: reductions of, with a view to phasing out, all forms of these domestic support: substantial reductions for supports that distort trade The declaration makes special and differential treatment for developing countries integral throughout the negotiations, both in countries new commitments and in any relevant new or revised rules and disciplines. It says the outcome should be effective in practice and should enable developing countries to meet their needs, in particular in food security and rural development. The ministers also took note of the non-trade concerns (such as environmental protection, food security, rural development, etc). The negotiations are now in their seventh year, under the reformulated mandate the Doha Declaration. Negotiators missed the 31 March 2003 sugar, dairy products - milk, butter, and cheese- tobacco, cotton, fruits and vegetables. Application of tariff quotas, tariff peaks, special agricultural safeguards and a variety of non-tariff measures such as sanitary and phytosanitary standards. For example, the market access for Kenya s horticultural exports is complicated by EU product standards and retailerdriven sanitary and phytosanitary requirements popularly known as EUREPGAP. The commitments made towards greater liberalization world trade and trade in agricultural products will also have an impact on developing countries with respect to the level of preference they will enjoy (Fredrich Ebert Stiftung, 1999). Kenya, among other developing countries, has enjoyed preferential markets access to the European Union under the successive ACP/EU Lome Conventions. The reduction of tariff rates on MFN basis will lead to a fall in value and margin of preferences. Furthermore, increased competition for the same markets will determine the value of such preferences. These arguments make the export impact of the Agreement less clear in the long run but there is an overall likelihood of losses of market share for Kenya and other developing countries given their competitive disadvantage. Therefore at policy level, Kenya may need to diversify both her export products and export markets as well. The loss of preferential EU tariffs will expose Kenya, among other developing countries, to greater competition from some industrialised and non-acp developing countries that have more efficient and lower cost production systems. This is likely to encourage Kenya in particular and other developing countries in general, to try to improve productivity in agriculture. These changes include a move towards larger and more intensive farming and greater efforts to improve quality and added value of agricultural goods. Such changes will require significant amounts of investment. Investment on this scale is likely to come from large, transnational corporations. These companies are unlikely to invest in production of goods for the domestic market; a scenario which will further exacerbates certain domestic social problems like food insecurity and livelihood security. Page 6 Page 19

7 the sensitivity of different agricultural sectors and specific products to external shocks, the potential impact cannot be over-emphasised. Agriculture in Kenya contributes relatively the largest share of GDP. It is also the main source of: food security; employment; raw materials for agro-processing industries, foreign exchange earnings, and rural income, among others. Conversion of non-tariff barriers into tariffs (binding custom duties) has ensured some predictability in market access for agricultural exports to many different foreign markets. This has in some way improved market access and expanded trade opportunities for Kenya s products world wide. For example, during the , Kenya's export base remained stable although total exports (excluding re-exports) decreased in value each year, except 2003 when they grew by 82%. However, production growth allowed total exports to increase at an annual average of 4.3% during the period to reach US$2.0 billion in Indeed agricultural exports increased at an annual average rate of 3.4% during the period under review to reach US$1,508. Furthermore, during , Africa was Kenya's main export destination, particularly from 2002, capturing an average of 42% of total merchandise exports (including re-exports). Europe was Kenya's second biggest export market capturing 35% of total annual exports on average during the period, followed by Asia (17.4%) and America (2.7%). Exports to East Asian countries expanded at an annual average of 9.8% during , accounting for most of Asia's increase (US$402.5 million in 2004). Market access provisions in the Agreement though a major innovation, it is however, quite debatable as to the level of market access available, especially to the developing countries, as committed by members. Market access opportunities are complicated by a range of high levels of border protection (inform of high tariffs) and non-tariff measures by certain WTO member countries, especially the developed countries. In fact average tariffs for agricultural products are more than 8 times higher than tariffs on industrial products (Nyangito, 2003). Furthermore, there are high tariff peaks and tariff escalation that exceeds 300% on commodities of export interest to Kenya and other developing countries such as meat, Page 18 deadline for producing numerical targets, formulas and other modalities for countries commitments. A number of framework proposals dealing with main points of the modalities were submitted and discussed before and during the Fifth Ministerial Conference in Cancún, Mexico, September 2003, but it was not until 1 August 2004 that a framework was agreed in the run up to the 6 th WTO Ministerial Conference held in Hong Kong, China in December The July Package The July package, agreed on 1 August 2004, contains frameworks and other agreements designed to focus the negotiations and raise them to a new level. In the package the General Council reaffirms the Ministerial Declarations and Decisions adopted at Doha and the full commitment of all Members to give effect to them. The Council emphasizes Members' resolve to complete the Doha Work Programme fully and to conclude successfully the negotiations launched at Doha. Non-trade concerns to be taken into account with prioritization of the cotton issue independently from other sectoral initiatives. The General Council recognizes the importance of cotton for a certain number of countries and its vital importance for developing countries, especially LDCs. It will be addressed ambitiously, expeditiously, and specifically, within the agriculture negotiations. The elements of the negotiations and basis for full modalities: Domestic Support: Under the framework, with a view of achieving these substantial reductions, the negotiations in this pillar will ensure the following: Special and differential treatment remains an integral component of domestic support Modalities to be developed will include longer implementation periods and lower reduction coefficients for all types of tradedistorting domestic support and continued access to the provisions under Article 6.2 There will be a strong element of harmonization in the reductions made by developed Members - specifically, higher levels of permitted trade-distorting domestic support will be subject to deeper cuts Page 7

8 Each such Member will make a substantial reduction in the overall level of its trade-distorting support from bound levels Final Bound Total AMS and permitted de minimis levels will be subject to substantial reductions and In the case of the Blue Box, will be capped in order to ensure results that are coherent with the long-term reform objective Overall Reduction: A Tiered Formula will be used to effect reduction. Under this formula, Members having higher levels of trade-distorting domestic support will make greater overall reductions in order to achieve a harmonizing result. As the first installment of the overall cut, in the first year and throughout the implementation period, the sum of all trade-distorting support will not exceed 80 per cent of the sum of Final Bound Total AMS plus permitted de minimis plus the Blue Box. Final Bound Total AMS: A Tiered Formula will be used to effect reduction for the reduction of Final Bound Total AMS. To achieve reductions with a harmonizing effect, Final Bound Total AMS will be reduced substantially using a tiered approach; Members having higher Total AMS will make greater reductions; substantial reductions in Final Bound Total AMS will result in reductions of some product-specific support; and to prevent circumvention of the objective of the Agreement through transfers of unchanged domestic support between different support categories, product-specific AMSs will be capped at their respective average levels according to a methodology to be agreed. De Minimis: According to the package reductions in de minimis will be negotiated taking into account the principle of special and differential treatment. Developing countries that allocate almost all de minimis support for subsistence and resource-poor farmers will be exempt. Members may make greater than formula reductions in order to achieve the required level of cut in overall trade-distorting domestic support. Page 8 of the implementation period; and 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. The Hong Kong Conference recognized that much remains to be done in order to establish modalities and to conclude the negotiations and Ministers agreed to intensify work on all outstanding issues to fulfill the Doha objectives, in particular, we are resolved to establish modalities no later than 30 April 2006 and to submit comprehensive draft Schedules based on these modalities no later than 31 July Further negotiations were left for the Geneva process. The technical teams in Geneva started their meeting in January 2006 to continue with the negotiations and give more shape to the modalities that were expected to emerge from the next phase of the negotiations. Their efforts have since resulted in detailed draft modalities. For example it does spell out the exact formulas to be used and it does include most of the figures that will eventually be used to determine the precisely how much reform is to be achieved. However, most of the text is bracketed because the Members are yet to agree, possibly during the next Ministerial Conference. There is optimism after the Davos-held World Business Forum that the revived talks will lead to the conclusion of the Doha Round, at least by the end of PRACTICAL APPLICATIONS OF THE AGREEMENT ON AGRICULTURE IN KENYA The is important to many trading countries but it is of great significance to the developing countries. Kenya became a member of the WTO and a signatory to its agreements in 1995 when the WTO was established. This membership therefore means that some of Kenya s domestic trade and non-trade policies will have to be changed to comply with the provisions of the Agreement on Agriculture with the potential influence on agricultural production and trade in a major way. Considering the role agriculture plays in Kenya s economy and Page 17

9 thresholds were to be agreed on in the subsequent phase of the negotiations including those applicable for developing country Members. Treatment of sensitive products also to be agreed on as well with developing country Members given the flexibility to self-designate an appropriate number of tariff lines as Special Products guided by indicators based on the criteria of food security, livelihood security and rural development. They will also have the right to have recourse to a Special Safeguard Mechanism based on import quantity and price triggers, with precise arrangements to be further defined with Special Products and the Special Safeguard Mechanism being an integral part of the modalities and the outcome of negotiations in agriculture. Special and differential Treatment: The Declaration takes note of the consensus that exists in the Framework on several issues in all three pillars of domestic support, export competition and market access plus the progress made on other special and differential treatment issues. It reaffirms that nothing agreed on during the Ministerial Conference compromises the agreement already reflected in the Framework on other issues including tropical products and products of particular importance to the diversification of production from the growing of illicit narcotic crops, long-standing preferences and preference erosion. Cotton Initiative: The Declaration agrees with the Decision adopted by the General Council on 1 August 2004 to address cotton ambitiously, expeditiously and specifically, within the agriculture negotiations in relation to all tradedistorting policies affecting the sector in all three pillars of market access, domestic support and export competition, as specified in the Doha text and the July 2004 Framework text. It also reaffirms Member s commitment to ensure having an explicit decision on cotton within the agriculture negotiations and through the Sub-Committee on Cotton ambitiously, expeditiously and specifically as follows: that all forms of export subsidies for cotton will be eliminated by developed countries in 2006; developed countries will give duty and quota free access for cotton exports from least-developed countries (LDCs) from the commencement Page 16 Blue Box: The Blue Box is recognized for its role in promoting agricultural reforms. In this light, Article 6.5 will be reviewed so that Members may have recourse to the following measures: Direct payments under production-limiting programmes if such payments are based on fixed and unchanging areas and yields; or such payments are made on 85% or less of a fixed and unchanging base level of production; or livestock payments are made on a fixed and unchanging number of head. Or Direct payments that do not require production if: such payments are based on fixed and unchanging bases and yields or livestock payments made on a fixed and unchanging number of head; and such payments are made on 85% or less of a fixed and unchanging base level of production. The above criteria, along with additional criteria will be negotiated. Any such criteria will ensure that Blue Box payments are less trade-distorting than AMS measures, it being understood that: Any new criteria would need to take account of the balance of WTO rights and obligations. Any new criteria to be agreed will not have the perverse effect of undoing ongoing reforms. The Blue Box support will not exceed 5% of a Member s average total value of agricultural production during an historical period. The historical period will be established in the negotiations. This ceiling will apply to any actual or potential Blue Box user from the beginning of the implementation period. Page 9

10 Green Box: The Green Box criteria will be reviewed and clarified with a view to ensuring that Green Box measures have no, or at most minimal, tradedistorting effects or effects on production. Such a review and clarification will need to ensure that the basic concepts, principles and effectiveness of the Green Box remain and take due account of non-trade concerns. The improved obligations for monitoring and surveillance of all new disciplines will be particularly important with respect to the Green Box. Export Competition: The Doha Ministerial Declaration calls for "reduction of, with a view to phasing out, all forms of export subsidies". As an outcome of the negotiations, Members agree to establish detailed modalities ensuring the parallel elimination of all forms of export subsidies and disciplines on all export measures with equivalent effect by a credible end date. End Point: According to the framework, the following are to be eliminated by the end date to be agreed: export subsidies as scheduled; export credits, export credit guarantees or insurance programmes with repayment periods beyond 180 days; terms and conditions relating to export credits, export credit guarantees or insurance programmes with repayment periods of 180 days and below which are not in accordance with disciplines to be agreed. These disciplines will cover, inter alia, payment of interest, minimum interest rates, minimum premium requirements, and other elements which can constitute subsidies or otherwise distort trade; trade distorting practices with respect to exporting STEs including eliminating export subsidies provided to or by them, government financing, and the underwriting of losses. The issue of the future use of monopoly powers will be subject to further negotiation; and provision of food aid that is not in conformity with operationally effective disciplines to be agreed. The objective of such disciplines will be to prevent commercial displacement. The role of international organizations as regards the provision of food aid by Members, including related humanitarian and developmental issues, will be addressed in the reflecting market consistency, and that the period should be of a sufficiently short duration so as not to effectively circumvent real commercially-oriented discipline. Disciplines relating to exporting STEs will extend to the future use of monopoly powers so that such powers cannot be exercised in any way that would circumvent the direct disciplines on STEs on export subsidies, government financing and the underwriting of losses. On food aid, Members reconfirmed commitment to maintain an adequate level and to take into account the interests of food aid recipient countries. A "safe box" for bona fide food aid will be provided to ensure that there is no unintended impediment to dealing with emergency situations. To ensure elimination of commercial displacement, Members will agree on effective disciplines on in-kind food aid, monetization and re-exports so that there can be no loop-hole for continuing export subsidization. According to the Declaration, disciplines on export credits, export credit guarantees or insurance programmes, exporting state trading enterprises and food aid will be completed by 30 April 2006 as part of the modalities, including appropriate provision in favour of least-developed and net foodimporting developing countries as provided for in paragraph 4 of the Marrakech Decision. The declaration further states that the date above for the elimination of all forms of export subsidies, together with the agreed progressivity and parallelism, will be confirmed only upon the completion of the modalities. With respect to special and differential treatment, developing country Members will continue to benefit from the provisions of Article 9.4 of the Agreement on Agriculture for five years after the end-date for elimination of all forms of export subsidies. Market Access: Members agreed on the conversion of non-tariff measures into ad valorem equivalents and four bands adopted for structuring tariff cuts. Relevant Page 10 Page 15

11 fullest liberalisation of trade in tropical agricultural products and for products of particular importance to the diversification of production from the growing of illicit narcotic crops is overdue and will be addressed effectively in the market access negotiations. The importance of longstanding preferences is fully recognised. The issue of preference erosion will be addressed. Issues of interest but not agreed: sectoral initiatives, differential export taxes, GIs., disciplines on export prohibitions and restrictions in Article 12.1 of the Agreement on Agriculture will be strengthened. Hong Kong and After: The sixth WTO Ministerial Conference held in Hong Kong, China from 13 th to 18 th December 2005 was meant to provide a forum for negotiations and further guidance on the above issues. Indeed the Conference gave further guidance but only built slightly on the July Framework. Members did agree on the final modalities. It however, reaffirmed the Doha Mandate and the Framework adopted by the Council on 1 st August On domestic Support, Members agreed on having three bands for reductions in Final Bound Total AMS and in the overall cut in tradedistorting domestic support, with higher linear cuts in higher bands; Member with the highest level of permitted support will be in the top band; two Members with the second and third highest levels of support will be in the middle band and all other Members, including all developing country Members, will be in the bottom band; and developed country Members in the lower bands with high relative levels of Final Bound Total AMS will make an additional effort in AMS reduction. In export Competition, Members agreed to ensure the parallel elimination of all forms of export subsidies and disciplines on all export measures with equivalent effect by the end of This will be achieved in a progressive and parallel manner, to be specified in the modalities, so that a substantial part is realized by the end of the first half of the implementation period. Export credits, export credit guarantees or insurance programmes with repayment periods of 180 days and below should be self-financing, Page 14 negotiations. The question of providing food aid exclusively in fully grant form will also be addressed in the negotiations. Implementation: Commitments and disciplines above will be implemented according to a schedule and modalities to be agreed. Commitments will be implemented by annual installments. Their phasing will take into account the need for some coherence with internal reform steps of Members. Special and Differential Treatment: The developing country Members will benefit from longer implementation periods for the phasing out of all forms of export subsidies. They will also continue to benefit from special and differential treatment under the provisions of Article 9.4 of the Agreement on Agriculture for a reasonable period, to be negotiated, after the phasing out of all forms of export subsidies and implementation of all disciplines identified above are completed. Members will also 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 leastdeveloped 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. STEs in developing country Members which enjoy special privileges to preserve domestic consumer price stability and to ensure food security will receive special consideration for maintaining monopoly status. Special Circumstances: In exceptional circumstances, which cannot be adequately covered by food aid, commercial export credits or preferential international financing facilities, ad hoc temporary financing arrangements relating to exports to Page 11

12 developing countries may be agreed by Members. Such agreements must not have the effect of undermining commitments undertaken by Members in paragraph 18 above, and will be based on criteria and consultation procedures to be established. Market Access: A Single Approach using a Tiered Formula will be the basis for tariff reduction. To ensure that a single approach for developed and developing country Members meet all the objectives of the Doha mandate, tariff reductions will be made through a tiered formula that takes into account their different tariff structures. To ensure that such a formula will lead to substantial trade expansion, the following principles will guide its further negotiation: tariff reductions will be made from bound rates. Substantial overall tariff reductions will be achieved as a final result from negotiations; each Member (other than LDCs) will make a contribution. Operationally effective special and differential provisions for developing country Members will be an integral part of all elements; progressivity in tariff reductions will be achieved through deeper cuts in higher tariffs with flexibilities for sensitive products. Substantial improvements in market access will be achieved for all products; and the number of bands, the thresholds for defining the bands and the type of tariff reduction in each band remain under negotiation. The role of a tariff cap in a tiered formula with distinct treatment for sensitive products will be further evaluated. Sensitive Products: Members will designate an appropriate number, to be negotiated, of tariff lines to be treated as sensitive, taking account of existing commitments for these products. In their treatment the principle of substantial improvement will apply to each product. According to the package substantial improvement will be achieved through combinations of tariff quota commitments and tariff reductions applying to each product. Some MFN-based tariff quota expansion will be required for all such products. A base for such an expansion will be established, taking account of coherent and equitable criteria to be developed in the negotiations. In Page 12 order not to undermine the objective of the tiered approach, for all such products, MFN based tariff quota expansion will be provided under specific rules to be negotiated taking into account deviations from the tariff formula. Other Elements: Other elements that will give the flexibility required to reach a final balanced result include reduction or elimination of in-quota tariff rates, and operationally effective improvements in tariff quota administration for existing tariff quotas so as to enable Members, and particularly developing country Members, to fully benefit from the market access opportunities under tariff rate quotas. Tariff escalation will be addressed through a formula to be agreed while the issue of tariff simplification remains under negotiation. Special and differential treatment: With respect to rural development, food security and/or livelihood security needs, special and differential treatment for developing countries will be an integral part of all elements of the negotiation, including the tariff reduction formula, the number and treatment of sensitive products, expansion of tariff rate quotas, and implementation period. Proportionality will be achieved by requiring lesser tariff reduction commitments or tariff quota expansion commitments from developing country Members. Developing country Members will have the flexibility to designate an appropriate number of products as Special Products, based on criteria of food security, livelihood security and rural development needs. These products will be eligible for more flexible treatment. The criteria and treatment of these products will be further specified during the negotiation phase and will recognize the fundamental importance of Special Products to developing countries. A Special Safeguard Mechanism (SSM) will be established for use by developing country Members. Full implementation of the long-standing commitment to achieve the Page 13