Problems With Current U.S. Policy.

The AoA prescribes a model for agriculture that has basically only one dimension: increasing agricultural production for exports, importing what cannot be produced without tariff protection or subsidies to producers. This model is imperfectly articulated and includes various exceptions that have proved of more use to developed than developing countries.

In fact, it has been widely noted that the AoA seems to have more S&D provisions for rich countries than for poor. The AoA includes several "boxes" that disproportionately benefit developed countries. Boxes are categories of exemptions from the AoA's reduction rules in order to meet particular social or environmental objectives. The "green box" (Annex 2) contains policies that affect both developed and developing countries, but it primarily lists spending exemptions, thereby excluding countries that do not have revenue to invest in agriculture. The "blue box" (Article 6.5) exempts deficiency payments to farmers based on their acreage or quantity of livestock. This was entirely for the benefit of the U.S., which has since discontinued such programs, and the European Union, which remains heavily dependent on these measures in the implementation of its agriculture policy.

In the U.S., 1996 domestic farm legislation shifted the basis for making payments to grain farmers from the types and quantities of crops produced to so-called "&coupled" payments. This was expected to break the production enhancing element of government support. In practice, however, farmers have increased production in response to both high and low world prices, against the expectations of trade theorists. The new payments remain as a subsidy to agriculture, without the benefit of controlling production levels.

In contrast, the S&D provisions for developing countries--e.g., longer implementation periods--have failed to offer the flexibility they need to address their food security needs. Many countries submitted their tariff schedules and estimates of domestic support without sufficient care. In so doing, they have lost the flexibility to build in trade-offs between tariff levels on specific products and to ensure that sensitive are continue to receive support (for example, subsidies to encourage yield increases in food deficit areas). Many developing countries register a negative balance of support to their farmers because local prices are less than world market prices.

Analysis from the Food and Agriculture Organization (FAO) shows that, despite record low prices over the last three years, poor developing countries' food bills have increased by an average of 20% since 1994, the year the AoA was signed. At the same time, worldwide commodity prices are setting new lows, damaging countries' abilities to pay for imports by reducing their capacities to earn foreign exchange. Output levels even within specific countries have fluctuated during the implementation period, but many developing countries remain locked into a trend of growing dependency on food imports while their revenues from commodity exports decline.

In practice, the Marrakesh Ministerial Decision on food security has been useless. In a year of record high prices (1996), with cereal prices up 40% over the previous year, the WTO Committee on Agriculture took the advice of the International Monetary Fund (IMF) and refused to implement the Marrakesh Decision. The IMF argued that the price spike could not be directly attributed to the AoA and that therefore members were not responsible for implementing the decision. In concurring with this argument, the powerful members of the WTO reneged on their commitment to assist poorer countries that faced difficulties under the new trade rules.

The U.S. negotiating positions, submitted in July 1999 to the WTO Committee in preparation for the 3rd Ministerial Conference, do not reflect a concern for developing countries' food security. Only one mention is made of LDCs--in relation to improving market access, which ignores World Bank and UN Conference on Trade and Development (UNCTAD) analyses that supply constraints are the biggest barrier to improving poor countries' export performance. Market access has hardly changed with the implementation of the AoA, and developing countries' share of world agriculture markets has remained static.

The U.S. position ignores the provision for an assessment of the implementation experience to date, outlined in Article 20 of the AoA. Instead, the U.S. proposals echo the structure of the existing agreement, with no acknowledgement that developing countries face serious implementation problems.

Key Problems

* The AoA prescribes a model for agriculture that is not flexible enough to protect food security.

* The AoA is tilted in the interests of developed rather than developing countries.

* The U.S. negotiating position for the agriculture talks addresses neither the food security needs of developing countries nor the lack of equity in the AoA's framework.

Sophia Murphy, Institute for Agricultural and Trade Policy