ForumUmwelt & Entwicklung

Market Access Problemsfor Developing Countriesin the Agricultural Sector

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Responsible:Jürgen Maier

Author:Thomas Fritz, Berliner LandesarbeitsgemeinschaftUmwelt und Entwicklung (BLUE 21)

Thank you for the support of the working group „trade“In the Forum Environment and Development

Layout:Bettina Oehmen

Translation:Laura Radosh

Herstellung:Knotenpunkt GmbH, Buch

Bonn

Content

3

Introduction ........................................................... 4

Structure of and Markets for AgricultureExports from Developing Countries................. 6

Tariffs and Duties................................................. 8The Rules of the Agreement on Agriculture ....................... 8Implementation of the Agreement on Agriculture ............ 10Non-transparency and Complexity of Tariff Structures ...... 10Tariff Peaks ................................................................ 12Tariff Rate Quotas....................................................... 14Tariff Escalation........................................................... 16Special Safeguard Provisions......................................... 19Tariff Policy Recommendations ...................................... 22

Trade Preferences.............................................. 22An Example: The EU Trade Preferencesfor Developing Countries ............................................. 23Minor Success of Trade Preferences................................ 24Preference Erosion....................................................... 25Recommendation for Preferences .................................. 27

Sanitary and Phytosanitary Standards ....... 28WTO-Regulations ........................................................ 29Conflicts within the Precautionary Principle...................... 30Problems of the Developing Countries with SPS/TBT......... 31Recommendations for Food Standards ........................... 33

The Role of Transnational Corporations...... 35Liberalization ad Concentration..................................... 36Example: Trade in Seed ............................................... 36Changes in Import Markets........................................... 37Agricultural Policy and Transnational Corporations............ 39Competition Policies .................................................... 39State Trading Enterprises.............................................. 40Recommendations for the Role ofTransnational Corporations........................................... 41

Summary of the Recommendations............... 43

Literature.............................................................. 46

Introduction

4

Introduction

ntil the beginning of the Uru-guay Round in 1986, the agri-cultural sector was exemptedfrom the GATT (General

Agreement on Tariffs and Trade). Onlyindividual agricultural products wereintegrated in the negotiations of previ-ous rounds. Some GATT rules weretherefore not found in agricultural pol-icy:

♦ Quantitative import restrictionswere, unlike for all other products,allowed under certain conditions inthe agricultural sector.

♦ Export subsidies were allowed

♦ Variable import levies and domes-tic subsidies were not covered bythe GATT

The exemption of the agriculturalsector from the liberalization obli-gations of the GATT favoured theprotectionism with which, first andforemost, industrial countriestreated their farms. Their high levelsof support led to the well-knownsurplus production - particularly inthe EU, whose surplus was exportedand led to falling world marketprices for many products. This washeightened by the simultaneouslyraised variable import levies in theEU and by deficiency payments inthe USA. Producers in developingcountries were hardest hit. Lowworld market prices put pressure ontheir domestic price levels. Theyalso suffered from the effectualtaxing of agricultural products inmany developing countries. Thenegative price development for ag-ricultural products threatened theearning possibilities of much of the

rural population and forced manyfarmers to give up their farms.

The tense situation in the world agri-cultural market stimulated many tradedisputes, particularly between the USAand the EU. Although agriculture in itsentirety was not yet under the GATTrules, it was nevertheless the subject of60 percent of GATT dispute settlementsbetween 1980 and 1990 (FAO 1998:6). These disputes put their mark on theagricultural negotiations of the Uru-guay Round. Only with the Blair HouseAgreement of 1992 was an under-standing possible between the USAand the EU and thus the completion ofthe Agreement on Agriculture (AoA)and the Uruguay Round in Decemberof 1993.

The agricultural agreement has asits goal the reform of the agriculturalpolicies of WTO members and the re-duction of distortions in agriculturaltrade. These distortions arise fromthree categories of measures, subjectto stricter regulation under the AoA:

♦ Market Access restrictions (AoA1994, Art. 4)

♦ Domestic Support (AoA 1994, Art.6)

♦ Export Subsidies (AoA 1994, Art. 9).

The agreement on agriculture alsostipulates that further liberalizationnegotiations shall begin in 2000. Dur-ing these negotiations, experiences inimplementation, the effects of liberali-zation on world trade in agriculturalproducts and non-trade concernsshould all be taken into account.

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Introduction

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The current WTO negotiations formthe background of this study1. Central isthe question of whether the hopes ofmany developing countries for bettermarket access have been met and whatlimitations their agricultural exports arestill subject to

1 Thank you Tobias Reichert, Jürgen Maier, KlausLiebig, Jürgen Knirsch and Michael Frein for tips andreferences.

after completion of the UruguayRound. Four areas are investigatedhere: tariff policy, preference systems,sanitary and phytosanitary standardsand the role of transnational corpora-tions. For each area current proposalsfor reform are discussed and joinedinto main demands.

Agriculture Exports from Developing Countries

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Structure of and Markets forAgriculture Exports from Devel-oping Countries

n order to demonstrate the rele-vance of agricultural trade for de-veloping countries, the structure of

and markets for their exports shall firstbe examined.

In 1996, agricultural products worth420 Billion US dollar were exported.The share of the developing countriesin these exports is relatively low, how-ever their dependence, on agriculturalexports, particularly in the case of theleast developed countries (LDC), re-mains quite high. The market share ofthe 9 largest agricultural exporters is63,3%. These include the USA with19,5% and the EU with 15,5%. The re-maining seven largest exporters areCanada, Australia, Brazil, China,Thailand, Argentina and Malaysia. Theremaining third of all world exports areshared by all African countries, thesmaller Latin American exporters andthe remaining Asian countries (Engelund Reichert 1999: 33). Between 1996and 1997 the share of the developingcountries in worldwide agricultural ex-ports was 30,7% (UNCTAD 1999: 5).

At the same time, the share of agri-cultural exports in total exports of de-veloping countries is very high, over90%in the case of some of the 48 LDC.For all LDC, the share of agriculturalcommodities in total exports is a meanof 14,7%, for Sub-Saharan Africa,26,8%. Some countries are particularly

dependent on agricultural exports, forexample Uganda with 98,8%, Somaliawith 97,2%, Malawi with 93,7%, SaoTome & Principe with 93,3% and Chadwith 90,3% (Harrold 1995: 5).

A further difficulty is the dependenceof the LDC on only a few export arti-cles. On the average, 3 products ac-count for over 70% of the total exportsof individual LDC. Furthermore, ap-proximately 75% of LDC products aredelivered as raw material, half of whichare agricultural and forest products(OECD 1997a: 10). Some of their mostimportant agricultural export productsare coffee, cocoa, bananas, copra,cotton, jute and tea.

Thus, developing countries arestrongly affected by the continuouslyfalling commodity prices. Since 1970,prices for commodities have fallenalmost 40% (UNCTAD 1999: 9). Fur-ther, developing countries suffer fromthe volatility of commodity pricescaused by, e.g., macro-economic cri-ses. When in the beginning of 1999Brazil encountered ist financial crisisand devalued its currency, the com-modity markets were immediately af-fected. The expectation of increasedBrazilian sugar exports at a time whenother producing countries had recordharvests and the foreign exchangeshortage of the most important buyer,Russia, led to a fall in sugar prices to

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Agriculture Exports from Developing Countries

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under 5 cents a pound, the lowest levelin more than 12 years (ibid.: 12). Fi-nally, the marketing possibilities fordeveloping countries are strongly af-

fected by the declining share of com-modities in world trade and by chang-ing consumer habits in the buyer coun-tries.

Table 1: The export markets of Developing Countries 1995, in %(OECD 1997a: 37)2

OECDtotal

EU Japan USA &Canada

RestOECD

EasternEurope

Dev.Coun-tries

other

LDC 63,7 35,9 6,1 20,5 1,2 1,1 34,0 1,2All dev.Countries

55,0 21,6 10,1 21,1 2,1 4,5 38,0 2,5

2 OECD total + Eastern Europe + developing countries + other = 100%.

The industrial countries of theOECD are the main buyers (see Table1), taking in 55% of all developingcountry exports as well as the devel-oping countries themselves, to which

38% of all exports go. In the case of theLDC, the dependence on OECD mar-kets is even higher (63,7%), wherebythe main share is bought by the EU(35,9%).

Tariffs and Duties

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Tariffs and Duties

any developing countrieshoped for facilitated marketaccess to OECD and othercountries through the WTO

Agreement on Agriculture. In the fol-lowing, some of the more importantrules of the AoA in the area of marketaccess will be discussed and their im-plementation in the important marketssuch as the EU, the USA and Japanshown. Particular emphasis will bemade on the tariff structure in the agri-cultural sector which developed afterthe Uruguay Round, a structure distin-guished by great complexity, tariffpeaks, continuing tariff escalation andthe non-transparent handling of tariffrate quotas (TRQ). A further potentialmarket access obstacle are the specialsafety provisions of the agriculturalagreement. The proposals made in theevaluated literature for reducing accessproblems caused by tariff policies willbe discussed later.

The Rules of the Agree-ment on Agriculture

The Agreement on Agriculture (AoA)is, i.a., meant to reduce limitations onmarket access for agricultural products.These limitations can take the form of,

♦ Tariffs,

♦ Variable levies,

♦ Import quotas and

♦ Other non-tariff trade barriers.

The rules of the AoA in the area ofmarket access are, in the main:

♦ Tariffication (conversion of non-tariff trade barriers into tariffequivalents),

♦ Tariff reduction,

♦ Market access commitments and

♦ Special Safeguard Provisions.

Tariffication and Tariff Reduc-tion

The protection granted by non-tarifftrade barriers during the base period1986-1988 had to be converted intotariff equivalents. This means quantita-tive restrictions and variable tariffswere converted according to a certainmode into bound tariffs. The thus settariff equivalents constitute the baserate of duty for every product ac-counted for in the AoA. In cases inwhich no non-tariff trade barriers ex-isted, the tariff existing at the beginningof the Uruguay Round (September1986) was chosen as the base rate ofduty. In other words, the base rate ofduty for each product accounted waseither the level existing at the begin-ning of the round or the tariff equiva-lent set by conversion of non-tariff bar-riers.

These base rates of duty must onaverage be reduced by 36% by theyear 2000. When this average isreached, tariffs for individual productsneed only be reduced by 15%. Devel-oping countries must reduce their tariffsby an average of 24% by the year2004, tariffs for individual products byonly 10%. The least developed coun-tries (LDC) are exempted from tariffreductions, must however implementtariffication and may not raise bound

M

Tafiffs and Duties

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rates of duty. The tariff levels resultingfrom the reductions of each countryand for each product are legally bind-ing. This means they are the highesttariffs allowed at the end of the imple-mentation period (2000, or 2004 forthe developing countries). (FAO 1998:35). At the end of the implementationperiod, all tariffs on agricultural prod-ucts in the industrial and developingcountries will be thus bound (Fin-ger/Schuknecht 1999, S. 33). Thequantitative obligations for each coun-try are set in so-called country sched-ules and form part of the Agreement onAgriculture.

A special safeguard provision (Arti-cle 5, AoA) allows additional duties forparticular products if the import vol-ume exceeds a trigger level or the im-port price falls below a trigger price.The products which fall under the spe-cial safeguard provisions must bemarked in the country schedules.

Minimum Access and Tariff RateQuotas

As tariffication in some cases led toprohibitively high tariffs, a minimumaccess rule was agreed upon in orderto protect the cu r r en t a c ce s scu r r en t a c ce s s forexporters. Further, products which areimported in small quantities are guar-anteed a min imum ac ce s sm in imum ac ce s s of 3% ofdomestic consumption of these prod-ucts at preferred tariffs. The minimumaccess should be raised to 5% by theend of the implementation period(2000 or 2004). Both current andminimum access take the form of tariffrate quotas (TRQ).

How these TRQs should be allo-cated is, however, not defined withinthe Agreement on Agriculture.

For these quota commitments, anexemption of the GATT/WTO goal ofeliminating non-tariff barriers, includ-ing quantitative restrictions, was made.Exporting countries are not disinter-ested in quotas, as these guarantee

them access to export markets and canlead to a so-called quota rent3 in theform of higher profits. These are due tothe lower tariff rates which are appliedto within-quota imports. Higher profitscan however also lead to raises inprices due to a lower supply in the im-porting country or the quality im-provement of the export product andthus the ascent in a higher price seg-ment.

Bound Tariffs

As Table 2 shows 100% of agricul-tural tariffs will be bound after imple-mentation of the obligations of theUruguay round. However, it is conjec-tured that only 26% of the tariff bind-ings in the industrial countries is com-mensurate with a lowering of the pro-tection level. Particularly conspicuous isthe low rate of 14% by tariffied prod-ucts. This accentuates the high level ofprotection reached by non-tariff barri-ers such as quantitative restrictions,variable import levies, voluntary exportrestraints etc., which were in place be-fore the Uruguay Round and which aremirrored in correspondingly high tariffbindings. Thus, a trade creating effectis less expected where tariffication hastaken place, but rather where reduc-tions of previously bound or actualtariff levels take place.

3 Quta rent is the name of the additional profits whichcan be won through the allocation of quotas. Theadditional profit span comes from the lowered tariffrates within the quota. It can however also arisethrough higher prices due to the supply shortageowing to volume limits in the importing country or to“upgrading” – the quality improvement of the exportproduct and thus the ascent to a higher price segment.

Tafiffs and Duties

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Table 2: Tariff Bindings for agricultural products after the Uruguay Round(UR), in % (Finger/Schuknecht 1999: 33).

Percent of GATT-bound Imports Post-UR bindings thatreduce protection

Pre-UR Post-URTariffied ProductsAll Countries which tariffied 66 100 14Non-tariffied ProductsIndustrial Countries 71 100 35Developing Countries 37 100 17Tariffied and Non-tariffiedProductsIndustrial Countries 72 100 26Developing Countries 73 100 17

Implementation of theAgreement on Agriculture

The obligation to reduce tariffscould be palliated by the clever decla-ration of base rates of duty. In the caseof tariffication, often a higher tariffequivalent was named than the actualprotectionist effect resulting from thenon–tariff measure. This phenomena isknown as dirty tariffication. In the caseof the EU it is estimated that declara-tions in the agricultural sector lie 60%over the actual tariff equivalents, forthe USA a dirty tariffication of 45% isestimated (Anderson et.al. 1999: 9).Products which have a particularly highlevel of dirty tariffication in the EU arerice, dairy products, sugar, wheat, beefand veal.

The declaration of high base tarifflevels is aided by the choice of thebase period (1986—1988). Since thetariff equivalent is calculated as thedifference between domestic and worldmarket prices (in domestic currency)and since during the base period rela-tively low world market prices for agri-cultural products existed, this differencewas quite high. Thus the protectiongranted by the non-tariff barriers was

quite high and led to the setting ofequally high base tariff levels.

Non-transparency andComplexity of TariffStructures

Obligations were further weakenedby the possibility of spreading tariffreductions unequally among products.As long as the average reduction of36% was reached, it was enough toreduce individual tariffs by only 15%,which was often taken advantage of.According to a simple average, nodifference is made between the reduc-tion of higher and lower base tariffs.For example it is possible to lower thetariff levels of 3 products set at over100% by only15% and still reach theaverage reduction obligation of 36%by striking a 4% tariff on one furtherproduct (equivalent to a reduction of100%). Thus it is still possible to protectsensitive products in the domestic mar-ket from foreign competition. The ten-dency is encouraged to make highreductions where tariffs are already lowand low reductions where the basetariffs are high. This leads not to aharmonization of the tariff structure inthe agricultural sector, but rather illus-trates the fact that tariff peaks are en-

Tafiffs and Duties

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couraged by the AoA (Tangermann1995: 8). Through freedom to deter-mine product groups, tariff peaks canhide behind aggregate tariffs. Thesetariff peaks could have been reduced ifa tariff cutting formula was used whichwas meant to lead to a harmonizedtariff structure. An example of a reduc-tion formula which sinks higher levelsmore than lower is the “Swiss Formula”applied to industrial products in theTokyo round of the GATT.

Tariff structures in the agriculturalsectors of the industrial countries arealso highly complex. There are differ-ent preferential tariffs for quotas, com-plex import arrangements and manyspecific and compound tariffs. Ac-cording to the type of calculation, adifference is made between ad valo-rem, specific and compound tariffs. Forthe dominant ad valorem tariff, a cer-tain percent of the product value islevied; for specific tariffs, a fixed priceis set according to certain units ofquantity. Compound tariffs can be seteither as a variable levy or as a com-bination of ad valorem and specifictariffs. Each of these types of tariffs canbe found in the agrarian sector. Par-ticularly the specific and ad valoremtariffs, allowed since the Uruguayround, make the tariff structure opaque

and make it difficult to compare tradebarriers between different products andcountries, a fact very relevant for futurenegotiations. Furthermore, low-priceimports are affected more strongly byspecific tariffs than by ad valorem tar-iffs (FAO 1999b: 8).

Implementation of Commit-ments in the OECD-Markets

How have the most importantOECD buyers of agricultural exportsfrom developing countries (USA, EUand Japan) implemented the reductioncommitments? In their country sched-ules, the USA has 1140 bound tariffs(273 of these duty-free), the EU has1502 (243 duty-free) and Japan 1041(242 duty-free). (OECD 1997: 82).

Table 3 shows that all three tradeblocks reached the average reductioncommitment of 36% (EU 37,7%; Japan,36,8%; USA 38,8%). However one canalso see that a high tariff level remainsafter the implementation of the Agree-ment on Agriculture. The EU-agricultural tariffs will be 17,7%, Ja-pan’s 40,2% and those of the USA acomparatively moderate 7,9%. Theinformation given on the base period isto be taken with a grain of salt due tothe phenomena of dirty tariffication.

Table 3: Average Reductions on Agricultural Products, in % (Tanger-mann 1995: 33)

EU Japan USAActual reductions in thecountry schedulesAverage tariff level in the base period 26.2 52.3 11.3Average tariff level after the implementationperiod (2000)

17.7 40.2 7.9

Average rate of reduction 37.7 36.8 38.8

Table 4 gives a summary of thebound agricultural tariffs of the threemain buyers, the EU, Japan and theUSA,

after the Uruguay round. The enor-mous discrepancy between tariff levelswithin and among the three markets isevident.

Tariffs and Duties

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Table 4: Agricultural Tariffs after Implementation of the ReductionCommitments in the Year 2000, in % (Tangermann 1995: 38)

Product EU Japan USACommon Wheat 56,5 259,3 1,8Barley 90,0 151,7 0,6Maize (not seed) 86,1 3,4 2,0Rice (not seed) 13,0 NA 8,3Soybeans 0,0 0,0 0,0Coffee (not roasted) 0,0 0,0 0,0Coffee (roasted) 7,5 12,0 0,0Tea 0,0 17,0 6,4Cocoa beans 0,0 0,0 0,0Bananas, green 145,6 27,5 0,0Raw Sugar (unrefined) 41,0 115,4 58,5Tobacco 18,4 17,8 7,9Beef (rump) 87,8 50,0 26,4Pork (rump) 28,6 136,3 0,0Chicken (Whole) 16,1 11,9 5,2Butter 66,5 307,2 46,6Skim Milk Powder 119,5 337,0 74,1Non-weighted Average of all Agricul-tural products 17,7 40,2 7,9

The numbers given here show thebound levels which act as the highestallowed tariffs after the reductions inthe year 2000. In reality however, oftenlower tariffs than the bound ones areapplied, so that in the future there willbe room for tariff raises. In many cases,the actual applied tariffs at the end ofthe Uruguay Round are below thebound levels. Typical for the tariff pro-file of the main importers are the hightariffs on non-tropical products andlower ones on tropical products. Gen-erally, tariffs on products from temper-ate zones were reduced by less thanthose on tropical products. Developingcountries, however, have a strong in-terest in non-tropical products as well,as this export market is expanding.(UNCTAD 1997).

Tariff Peaks

An OECD study reaches the conclu-sion that protection in the agricultural

sector of 8 from 10 OECD members(the EU counts as one member) ishigher in 1996 than it was in 1993.For this calculation, the actually ap-plied tariffs were taken. As these areoften lower than bound tariffs, the ac-tual level of protection by bound tariffsis even higher (quoted in: FAO 1999b:8). Many of the bound tariffs, as well asthe applied tariffs, are seen as prohibi-tive, i.e. they are so high that nothingoutside of the minimum access quotas(see below) is imported. Table 5 pro-vides a summary of the peak tariffs ofthe EU for individual product groups aswell as in aggregated form for Japanand the USA.4

4 In the cases in which tariff rate quotas exist, boundtariffs shown here present the above-quota tariff rates.

Tafiffs and Duties

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Table 5: Distribution of Tariff Peaks by Product Groups in the EU; forComparative Purposes, Sum of theTariff Peaks of Japan and the USA(UNCTAD 1999a: 14)

Product Group Number of Tariffs Num-ber ofPeakTariffs

Percentof allPeaks

Total 12-19%

20-29%

30-99%

100-299%

>=300%

Meat, Livestock etc. 351 52 68 79 13 1 213 16,2Fish and Crustaceans 373 96 45 141 10,7Dairy Products 197 14 21 77 9 121 9,2Fruits and Vegetables 407 116 10 5 1 132 10Cereals, Flour etc. 174 21 29 75 125 9,5Veg. Oils, Fats, Oilseeds 211 14 8 1 1 24 1,8Processed Meat, Fish, etc. 105 33 17 8 58 4,4Sugar, Cocoa and Preparations 75 10 34 6 50 3,8Prepared Fruits and Vegetables 310 140 70 39 1 250 19Other Food Industry Products 90 16 27 8 51 3,9Beverages and Tobacco 202 48 9 15 2 74 5,6Other Agricultural products 231 12 4 14 4 34 2,6Total: all Agricultural - andFishery Products

2726 572 334 334 31 2 1273 96,8

Japan: Agricultural - andFishery Products

1897 204 299 111 81 65 760 85,1

USA: Agricultural - andFishery Products

1779 138 70 99 15 11 333 36,6

The peak tariffs are defined here asad valorem tariffs above 12%. The vastmajority of peak tariffs in the EU andJapan are levied on agraricultural andfishery products: in the EU, 96,8% (only3,2% of the peak levels are for indus-trial products), in Japan 85,1% (14,9%on industrial products). In the USA thepicture is a bit different. There, only36,6% of tariff peaks are on agricul-tural and fishery products and 63,4%on industrial products. The peak tariffsof the agricultural sector are foundparticularly in three groups: staplefood products, fruits and vegetablesand processed foods.

In the staple food group peak tariffsare found mainly by meat, sugar, milk,butter and cheese as well as for cere-als, tobacco and cotton. These high

tariffs often go hand in hand with fur-ther country specific measures, i.e. thelevying of further tariffs under the spe-cial safeguard provisions of theAgreement on Agriculture (see below).The EU has levied additional tariffs onpoultry, eggs and sugar since the endof the Uruguay round, which amountedin the case of sugar to 65% - 120%.The EU has also levied additional du-ties on sugar additives in certain proc-essed products (UNCTAD 1999a: 5).

For fruits and vegetables, the peaktariffs are somewhat lower, usuallybetween 12% and 30%. In the EU, theprohibitively high levels for bananasbeyond the quota limits and the importprice system for fruits and vegetablesare striking. During the tarifficationprocess, the EU established a system of

Tariffs and Duties

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threshold import prices with accompa-nying tariffs in which fruit and vegeta-ble imports which lay under a certainthreshold price are levied with highertariffs. This is true especially for, i.a.,oranges and other citrus fruits, grapes,apples, tomatoes, olives and cucum-bers (UNCTAD 1999a: 5). However forsome fruits and vegetables, tariffs aremuch higher in the high season. Thisaffects the continuity and profitably ofexporting. For example, the EU set aspecific tariff for oranges of 71 Ecu perton as of 2000 plus an ad valoremtariff of 3,2% from July 1st to October15th. From April 1st to 30th the ad valo-rem tariff can go up to 10,4%. The tar-iffs for tomatoes are similar, their spe-cific tariff is 298 Ecu per ton plus 8,8%from May 15th to the end of October.From November 1 st until May 14th thead valorem tariff can go up to 14,4%(WTO 1998: 4).

In the entire sector of processed ag-ricultural products, tariff peaks andadditional measures are widespread inthe industrial countries. In the EU, thefood industry accounts for 30% of allpeak

tariffs - most lying between 12% and100%. Particularly high levels arefound in products on a cereal or sugarbasis, processed fruit and fruit juices(UNCTAD 1999a).

Tariff Rate Quotas

Both market access commitments ofthe Agreement on Agriculture, theminimum access and the current accessrule have resulted in the establishmentof new tariff rate quotas (TRQ). A cer-tain quota is set at which imports aresubject to lower tariffs, outside of thisquota, most favoured nation (MFN)levels5 are taken. 36 WTO membershave 1370 TRQ for agricultural prod-ucts listed in their country schedules(FAO 1999b: 9). However, there are norules as to how much lower within-quota tariffs may be in comparisonwith above-quota levels. Therefore thedifference between both levels variesgreatly.

5 MFN tariffs are the normal non-preferentialbound rates, that apply to all WTO members,who don´t receive any trade preferences.

Tafiffs and Duties

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Table 6: Tariff Quotas, Quota Rents and Fill Ratios, 1996 (Elbheri,Ingco und Pearson 1999, quoted in Anderson et.al. 1999: 27)

In-quotaad valorem

tariff, %

Out-of-quotaad valorem

tariff, %

Maximumquota rents,$ US billion

Quota fillratio, %

Quota as a % oftotal imports

EUWheat 0 87 0.0 21 2Other Grains 35 162 0.4 74 26Sugar 0 147 2.4 100 87Dairy Products 24 91 1.1 99 80Meat 19 128 2.3 100 73Fruit & Vegetables 11 51 0.0 78 20USASugar 2 129 1.0 97 76Dairy Products 11 70 0.6 77 95Meat 5 26 0.0 67 102JapanWheat 0 234 3.4 109 95Other Grains 0 491 10.8 109 84Dairy Products 29 344 2.8 93 91

A comparison of the high above-quota tariffs with those within quotasmake clear the advantage of beingallocated quota licenses. The maxi-mum quota rent in these three importmarkets is almost 25 billion US dollars,measured in prices for the year 1996.Furthermore, there is a large span ofwhat counts as a “low” within-quotatariff. It can also be seen that manytariff rate quotas are not fully exploited,or, as in the case of wheat imports inthe EU, hardly taken advantage of.Here lies a hidden trade barrier. It isassumed that import licenses are oftenallocated to suppliers who are, for dif-fering reasons (e.g. limited competi-tiveness) not able to fully exploit theopportunities given. The high propor-tion of quotas within total imports is anindication that above-quota tariffs – asexplained above – have often reacheda prohibitive level (see Anderson et.al.1999: 9).

Market access chances for exportersfrom developing countries are stronglydependent on the allocation of quotas,what, however, is not clearly regulated

in the WTO.6 A tendency can be seen toconfer quotas on interested domesticparties such as domestic producers(rather than wholesalers) who could beat a disadvantage through increasedimports, or traditional importers. In thecase of the minimum access quotas, itis unclear how to determine the coun-tries, out of which the quotas should beexported. The GATT states in Article XIII(2) that the quotas should approach theshares which the exporting countriescan be expected to obtain with no re-strictions (GATT 1986)7, however todetermine this share is difficult. Thus atendency has developed to give theselicenses to domestic firms, which thendecide where the imports come from.Further there are no regulations whichmake the conferring of licenses on for-eign companies (from e.g. the exportcountries) possible. 6 This question is also a point of contention in thebanana market regulation which the EU must reform.7 GATT Article XIII (2) states: "In applying import re-strictions to any product, contracting parties shall aimat a distribution of trade in such product approachingas closely as possible the shares which the variouscontracting parties might be expected to obtain in theabsence of such restrictions, ...".

Tariffs and Duties

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Quotas arising from the current ac-cess rule, meant to preserve currentpreferences, are for the most part re-served for those countries with whichpreferential agreements exist. Devel-oping countries which enter the marketas new providers and which have nopreferential agreements remain out-side these opportunities. A further ac-cess barrier is, particularly in the caseof Japan, the existence of state tradingenterprises which monopolize the allo-cation of quotas.

There are varying opinions as towhether auctions could be a measureto distribute quotas more fairly. Thosein favour emphasize the possibility thatdomestic as well as foreign companieswould have the right to bid (Tanger-mann 1995: 20). Skepticism as to thissolution comes from the fear that cur-rent beneficiaries in developing coun-tries could lose their safe market accessand that costs from an auction couldbe seen as additional import dutiesand therefore would not be GATT

conform (Anderson et.al. 1999; FAO1998: 38).

Tariff Escalation

The practice of tariff escalation, i.e.rising tariffs with stages of further proc-essing, is limited within the Agreementon Agriculture, but not banned. Devel-oping countries see tariff escalation asone of the main barriers to bringingproducts with a higher value-added tothe markets of the industrial countries.Thus their role as raw material export-ers is predetermined, the building of aprocessing industry undermined andvertical diversification within the proc-essing chain made impossible.

The share of all processed productsin total agricultural exports is lower fordeveloping countries than for industrialcountries, but not by very much. Thisgap is large only for the LDC and be-came even larger between 1964 - 94(see Table 7).

Table 7: Share of Processed Products in Total Agricultural Exports, in %(Lindland 1997: 3)

Year1964 1994 Difference 1964 -

1994Industrial Countries 48,8 67,3 38,0Developing Coun-tries

41,7 54,1 29,7

LDC 27,0 16,9 -37,2

However, the exported processedproducts from developing countries areoften only barely processed. The shareof end products is much higher on theside of the industrial countries. If oneignores the first stage of processing, the

share of developing countries in higherprocessed agricultural goods lies at amere 16,6% (LDC only 5%) as com-pared to 32,5% for industrial countries(see Table 8)

Table 8: Share of Advanced Agricultural Exports in

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17

Total Exports (Excluding the First Processing Stage), in % (Lindland1997: 3)

Year1964 1994 Difference 1964-94

Industrial Countries 18,6 32,5 47,7Developing Coun-tries

8,4 16,6 97,2

LDC 5,1 5,0 -2,4

The effective rate of protection (ERP)is seen as the best method of calculat-ing the effects of tariff escalation. How-ever the calculation of the effective rateof protection is so complicated, that itis in practice hardly used.8 The ERP isdefined as the increase in value addedwhich a domestic industry has from thetariff structure measured against thevalue added expected under free tradeconditions (tariff-free). Calculating theERP should make it possible to deter-mine the level of protection for proc-essed goods containing multiple pre-products. Therefore, for this calculationone must have the tariff data for allinput commodities as well as know theshare of all pre-products in the endproduct. This data is, however, rarelyavailable.

Rather than use the difficult ERPmethod, an analysis of the change indirection in tariff escalation is usuallymade. Here, changes of the tariffwedge between input and outputcommodity are measured along theprocessing chain (Lindland 1997).

8 Lindland has made such an exemplary calculation inorder to illustrate the difference against the prevailingonly nominal determination of tariff escalation (seeLindland 1997: 25f.).

Table 9 makes clear that also afterthe Uruguay round the majority ofagraricultural exports from developingcountries are effected by tariff escala-tion. Often, tariff reductions are higherfor raw materials or barely processedgoods than for highly processed ones.In these cases, tariff escalation rises.Examples in the EU are the tariffs oncoffee, tea, spices, tropical fruit andjute.

Comparatively high tariffs are foundon many processed products in the EUsuch as roasted coffee, tea extracts,chocolate, vegetable oils, tobacco,starch, conserved tropical fruits andjuices, tires, yarns, and leather. Hightariffs on processed products are foundwhere the tariff reduction is under theaverage of 36%, in the EU, e.g., onchocolate, vegetable oils, conservedtropical fruit and juices, tires andleather.

Tafiffs and Duties

18

Table 9: Tariff Escalation for Agricultural Exports from Developing Countries,before and after the Uruguay Round, in % ( OECD 97a: 38)

Product EU Japan USAbefore

URAfter UR Reduct. before

URAfter UR Reduct. before

URAfter UR Reduct.

Coffee- raw 5,0 0,0 100,0 0,0 0,0 NA 0,0 0,0 NA- roasted 15,1 7,4 51,0 NA NA NA 0,0 0,0 NA- extract 18,0 9,0 50,0 22,9 14,1 38,6 0,0 0,0 NATea- bulk 0,0 0,0 NA 11,2 8,8 21,5 0,0 0,0 NA- for retail 5,0 0,2 96,1 20,0 13,9 30,6 0,0 0,0 NA- extract 12,0 6,0 50,0 20,0 10,0 50,0 5,3 4,8 10,0Cocoa- beans 3,0 0,0 100,0 0,0 0,0 NA 0,0 0,0 k.A:- paste 15,0 6,9 36,0 10,0 5,0 50,0 0,0 0,0 NA- butter 12,0 7,7 35,8 2,5 0,0 100,0 0,0 0,0 NA- powder 16,0 8,0 50,0 21,5 12,9 40,0 0,7 0,4 42,9- chocolate 12,5 10,0 20,0 32,7 26,4 19,3 19,5 17,0 13,0Spices- unground 9,5 1,0 89,1 6,2 3,7 40,7 0.1 0,1 42,0- processed 11,7 4,3 63,0 1,9 0,1 97,6 3,6 1,4 62,6Vegetable Plaits- raw 0,0 0,0 NA 5,9 4,8 18,6 2,2 1,4 35,6- plaits, etc. 4,3 2,2 47,8 5,2 3,6 30,3 7,0 3,3 52,5- baskets, etc 6,2 3,9 36,9 11,4 7,5 34,9 7,1 3,1 56,9Oils- oilseeds 0,0 0,0 NA 0.0 0,0 NA 0,6 0,5 21,8- veg. Oils 17,0 12,4 27,7 8,5 4,5 47,2 1,9 0,4 81,1Tobacco- unmanufactured 20,4 16,3 20,0 0,0 0,0 NA 11,2 7,7 31,1- manufactured 79,5 31,7 60,2 13,5 11,2 16,9 7,5 3,4 54,5Roots & Tubers- fresh/dried 87,9 56,2 36,0 2,4 1,4 39,9 10,5 5,8 44,4- flour 19,8 12,7 36,0 24,9 18,6 25,3 3,3 2,1 36,1- starches 100,0 64,3 36,0 589,0 500,6 15,0 0,1 0,0 100,oTropical Fruits- fresh/dried 9,2 5,1 44,2 16,9 13,8 18,2 6,7 5,3 21,5- preserved 23,2 18,6 20,0 41,5 25,5 38,6 3,0 2,3 24,9- processed/juices 21,0 16,8 20,0 33,2 21,3 35,8 0,7 0,3 57,1Tropical Nuts- unshelled/raw 2,8 2,0 27,7 6,3 1,1 82,5 0,2 0,1 50,0- prepared 14,1 9,3 34,2 26,1 18,1 30,6 19,7 14,6 25,9Rubber- natural rubber 0,0 0,0 NA 0,0 0,0 NA 0,0 0,0 NA- simple worked 6,3 3,7 40,2 4,6 0,5 88,8 4,1 2,6 36,8- tyres 5,8 4,2 26,8 2,6 0,0 100,0 4,4 3,1 29,7- other articles 4,9 2,4 51,2 3,8 0,0 100,0 4,0 1,7 57,5Jute- raw 0,0 0,0 NA 0,0 0,0 NA 0,0 0,0 0,0- processed 0,0 0,0 NA 0,0 0,0 NA 0,0 0,0 NA- yarns 5,3 0,0 100.0 10,0 0,0 100,0 3,7 0,0 100,0- other articles 9,0 4,0 55,6 20,0 10,0 50,0 0,0 0,0 NA- rope 12,0 6,0 50,0 10,0 0,0 100,0 4,0 0,0 100,0Hides and Skins- raw material 0,0 0,0 NA 0,0 0,0 NA 0,0 0,0 NA- leather 4,1 3,4 15,5 9,7 4,1 57,7 3,8 3,0 21,0- other articles 6,7 4,2 37,2 11,8 9,6 19,0 10,2 9,4 8,5

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19

According to Lindland’s study of thethree agricultural importers the USA,the EU and Japan, over 80% of tariffwedges input commodities and proc-essed products were reduced after theUruguay Round. With 10% out of the226 commodity pairs (e.g. wheat andwheat flour) studied by him, the tariffwedge remained unchanged. Onethird showed a negative tariff wedge orde-escalation (the tariffs on raw mate-rials or unfinished products were higherthan on finished products). On overhalf, the tariff wedge remained positiveafter the Uruguay Round; here, tariffescalation exists. The share of com-modity pairs with tariff escalation in thethree markets has sunk only from 56%to 54% due to the Uruguay Round. Thetariff wedge between raw materialsand processed products is 16% in theEU, 27% in Japan and 9% in the USA(Lindland 1997: 14).

That the problem of tariff escalationremains after the Uruguay round isparticularly relevant in the face of therising share of processed agriculturalproducts in world trade. Their sharewithin OECD imports rose from 23%between 1980 and 1982 to 29% be-tween 1990 and 1992. Whereas theannual import growth of agriculturalraw materials in this period lay at2,2%, for processed foods the growthwas more than double so high (5,4%).Import growth developed particularlydynamically for processed foods madefrom cereals, vegetables and fruits.(OECD 1997: 14).

The industrial countries have agrowing share in the export of proc-essed goods. Whereas the share ofdeveloping countries in the export oftropical beverages sank from 85% inthe early 1970s to ~55% at the begin-ning of the 90s, the share of e.g. Ger-many in coffee exports rose from 1% to5% over the last 15 years. This trendcan also be seen in cocoa. The shareof world trade for cocoa producingcountries sinks according to processing

grade. In 1997/1998 the share of de-veloping countries in the export of co-coa beans was 90%, cocoa liquor 44%,cocoa butter 38%, cocoa powder 29%and chocolate 4%. Further, their worldmarket share for all production stageshas sunk over the past 15 years. Incontrast, the industrial countries wereable to increase lucrative chocolateexports considerably more than im-ports (UNCTAD 1999: 6).

Special Safeguard Provi-sions

An important exception from marketaccess obligations is made in the spe-cial safeguard provisions of the WTOAgreement on Agriculture (AoA, Article5). The special safeguard provisionsallow the levying of additional dutieswhen the import volume rises above aspecified level (quantitative triggerlevel) or the import price falls below acertain level (price trigger level). Thespecial safeguard provisions applyonly to tariffied products. Each productwhich falls under this provision must bemarked in the country schedules. Asonly few developing countries tariffied,comparatively few of them have thepossibility of profiting from this provi-sion (from 38 countries that have re-served this option, 22 are developingcountries). In contrast, the OECD coun-tries have reserved almost 80% of theirtariffied agricultural products for spe-cial safeguards (Finger/Schuknecht1999: 32; FAO 1999b: 9).

The additional duty may not how-ever exceed the average level of thatyear by more than 30% and may notbe automatically applied longer thanone year. The safeguard provision al-lows the importers much leeway in de-termining the price trigger under whichadditional duties are allowed. Thehigher the price trigger is set, thesooner the additional duties can belevied. The EU has comparatively high

Tariffs and Duties

20

trigger prices for e.g. sugar and butter(Tangermann 1995: 18)

In Table 10 we can see that the spe-cial safeguard provision can poten-tially be applied for 6072 agriculturalgoods. 3856 products are from indus-trial countries and 2216 from devel-oping countries. Whereas between1995 and 1998 industrial countriesmade use of this provision 192 time,the developing countries used this pos-

sibility only 8 times. In all 8 cases thecountry was South Korea. It is con-spicuous that besides the big three –the EU, USA and Japan, hardly anotherindustrial country made use of this pro-vision (only 12). Product groups forwhich the special safeguard provisionwas applied most often are meat (52times), fruits and vegetables (49 times),dairy products (35) and sugar andsweets (23).

Table 10: Special Safeguard Provision: Potential and Actual Implementation(WTO, Committee on Agriculture 1998, AIE/S12, quoted in FAO 1999b: 20)

Member Potential imple-mentation, number

of goods

Implementation of the special safeguardprovision 1995-1998, number of goods

Price Trigger Quantitative TriggerIndustrial Countries:Total 3856 64 128European Union 539 26 47Japan 121 4 73USA 189 24 6Developing Coun-tries:Total 2216 8 0Industrial and De-veloping CountriesTotal 6072 72 128

Tariff Policy Recommen-dations (Peak Tariffs, Es-calation, Quotas and Spe-cial Safeguard Provisions

è In order to improve market accessfor agricultural products, it is gen-erally recommended to avoid tariffpeaks and tariff escalation as wellas to set targets for a harmoniza-tion of the tariff structure in up-coming negotiations (FAO 1999c).

è Tariff peaks and tariff escalationcould be reduced by using a for-mula for tariff reductions which re-sults in a harmonization of the tariffstructure. By using a formula in the

agricultural sector which cuts higherlevels more than low ones, marketaccess for highly protected prod-ucts could be facilitated.

è The complexity of the tariff structureshould also be simplified, particu-larly by abolishing compound tar-iffs. This would increase transpar-ency in determining trade barriersand, i.a., facilitate market accessfor lower-priced products (FAO1999c).

è It is further recommended to makethe tariff structure transparent intrade statistics. The aggregation ofproduct groups in many cases veilsthe existence of tariff peaks. Data-bases should be supplemented bynational statistics of the trade flow

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21

for each tariff line (UNCTAD1999a: 12).

è The quantities eligible for preferen-tial tariffs under tariff rate quotasshould be enlarged. Quantitativerestrictions for LDC exports shouldbe eliminated (UNCTAD 1998).

è Developing countries should re-ceive access to newly establishedtariff rate quotas. The interests ofthose countries which have previ-ously received TRQ under preferen-tial trade agreements must herebybe taken into account. If necessary,they should be compensated forlosses due to extended quotas (FAO1999c: 4).

è The administration and distributionof quotas should be more trans-parent so that (also non-traditional)exporters from developing coun-tries can receive improved marketaccess. Product groups should alsobe disaggregated in the case ofquotas, as broad classification pre-vents market access allowed underthe minimum access rule (FAO1999b: 9).

è Finally, there should be a rule fordetermining the relationship be-tween tariffs within and withoutquotas (FAO 1999c).

è Occasionally, there is a demand toeliminate special safeguard provi-sions entirely, but this seems inop-portune. Preferable would bemodifications to make these in-struments useful for the protectionof domestic producers in develop-ing countries. In contrast to othersafeguard provisions within theWTO, the special safeguard provi-sions in the Agreement on Agricul-ture require no expensive and diffi-cult proof of damages to domesticproducers through imports. There-fore, they should be developed intopermanent instruments (FAO1999b: 9). However, only if theprovisions are available for im-plementation by other developingcountries as well (Forum Umwelt &Entwicklung 1999).

è The provisions may in this case onlybe implemented for staple foodsdetermined to be sensitive for rea-sons of food security (ibid.).

è Finally, the price and quantitativetriggers must be reformed to limitthe frequency of their implementa-tion. The trigger price should be setas low as possible (Tangermann1995: 23).

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22

Trade Preferences

eveloping countries often pointout that the tariff preferencesgiven to them lose their meaning

due to the general tariff reductionsagreed on during the Uruguay round.The further tariff levels sink on average,the lower the advantage resulting froma tariff abatement. In other words: thepreference margins are eroding. Manyindustrial countries have agreements inwhich they grant exports from the Southpreferential market access by levyinglow or no tariffs and through whichnon-tariff barriers are lowered oreliminated. In the following chapter,these preferential trade agreementswill be introduced and illustrated bythe example of preferences granted bythe EU in the agricultural sector. After-wards, the reasons for the failure ofthese systems as measured by the ac-quirement of a larger market share bydeveloping countries and the scale ofthe erosion of preference margins willbe elucidated. Possibilities for better-ment of the preference schemes areintroduced in the following recommen-dations.

The Generalised System of Prefer-ences of the OECD countries can betraced back to a demand of the UNconference for trade and development(UNCTAD) in the year 1968. Besidestodays 19 GSP schemes, further prefer-ential trade agreements exist in someindustrial countries, e.g. the Lomé con-vention in the EU or the CaribbeanBasin Initiative and the Andean TradePreference Act in the USA (UNCTAD1998: 3).

Characteristic of these preferenceschemes is that they are unilateral andon a non-reciprocal basis. This means

that market access opportunities fordeveloping countries are granted with-out similar concessions for exports fromthe preference giving industrial coun-tries. For these preference agreements,three exceptions were made to theMFN principle9 of the GATT (Article I.1,GATT 1996):

1. The enabling clause of the Tokyoround of the GATT in 1979 madepossible special and differentialtreatment (SDT) for trade agree-ments with developing countries.

2. Free trade agreements or customsunions (these can also include pref-erences) can, under Article XXIV ofthe GATT, receive an exception un-der certain conditions. However,only by consensus among WTOmembers.

3. Article IX.3 and 4 of the 1994“Agreement establishing the WTO”makes possible a temporary ex-emption from WTO obligations, aso-called “waiver” (this possibilityalready existed within the frame-work of the GATT). The granting ofa waiver requires a three quartermajority among WTO members.

Currently afforded unilateral non-reciprocal trade preferences throughthe GSP and other agreements on abilateral and regional level can losemeaning due to the current trend to-ward reciprocal free trade agreements.Thus the planned Free Trade Area forthe Americas (FTAA) will have prece-dence over the GSP and the Caribbean

9 The most favoured nation (MFN) principlestipulates, that trade preferences afforded to oneWTO member have to be granted to all othermembers.

D

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23

Basin Initiative. Similarly, the reciprocalfree trade agreements of the EU withMERCOSUR, Mexico and South Africawill make the Generalized System ofPreferences obsolete (UNCTAD 1998:5). Similarly, the EU´s Lomé conven-tion with the 71 ACP countries, whichended at the end of February 2000; EUand ACP countries agreed upon a newconvention lasting 20 years to besigned in Fiji in May. After a prepara-tory period, Regional Economic Part-nership Agreements (REPA) are to benegotiated with at least the 33 higherincome ACP countries. These negotia-tions are due to begin in 2008. Theremaining ACP countries shall decidebetween a REPA or a system equivalentto Lomé (Meyer 2000).

An Example: The EU TradePreferences for Develop-ing Countries.

The trade preferences granted bythe European Union exist in the form oftariff rate quotas and preferences. Thelatter make possible the sale of goodsunder the price levels set by the EU,thus providing exporters with competi-tive advantages on the EU market. Thetrade preferences of the EU can beseen as a hierarchy:

v At the top of the hierarchy is thecurrent fourth Lomé agreement withthe 71 African, Caribbean and Pa-cific (ACP) countries, containing themost trade concessions.

v Second are the free trade and as-sociation agreements with, e.g.,Eastern Europe, Turkey and SouthAfrica.

v At the bottom is the EU GeneralisedSystem of Preferences. Its tariff con-cessions are granted many devel-oping and other countries as well asterritories dependent upon EUmembers or other countries. Addi-tional preferences are reserved forLeast Developed Countries and

seven Latin American countries inwhich drugs are cultivated.

Special agreements also existwith the Andean Pact countries, whoare granted temporary tariff-free mar-ket access for industrial and agricul-tural goods as well as with the CentralAmerican Common Market (WTO1998: 6).

The concessions made in the L o m éL o m éConven t i onConven t i on (Article 168) are themost far-reaching. Goods from ACPcountries can be brought into the EUup to 90% duty-free. Important excep-tions are agricultural products whichare subject to the common market or-ganisation of the EU, as well as proc-essed foods. Their import is regulatedin Annex XL of the Lomé agreement.10

Reductions are set in Annex XL in rela-tion to the MFN levels, however theseare too low in many cases and manytariff peaks remain. To reduce thenegative effects for many exporters,additional agricultural protocols wereannexed to the Lomé agreement. Un-der these four protocols, certain coun-tries are granted privileged access fora set volume of exports to the Euro-pean market. The commitments of theprotocols regulate sugar, bananas,beef and veal and rum. In the case ofmeat and sugar, exporters profit fromthe high EU-intern guaranteed prices.Besides the tariff regulation, the Loméagreement has a system of stabilizingfunds to compensate for price fluctua-tions on the world market for agricul-tural (STABEX) and mineral (SYSMIN)products (Kneifel 1998: 8).

Whereas the Lomé agreement wasnegotiated between the EU and theACP countries, the General System

10 The revised Lomé IV agreement was signed on11/5/1995 in Mauritius. The wording of Annex XL,which regulates agricultural imports from the ACPcountries subject to the common market organisationwas actualised by a council decision on 4/22/1997(see Council Decision of 22 April 1997 (97/683/EC)published in Official Journal of the European Com-munities (L 287/30) on 10/21/97).

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24

of Preferences (GSP) is offered by theEU to certain countries and can alwaysbe modified or recalled by the EU.Therefore, the Lomé agreement pro-vides much more accountability thanthe GSP. The current GSP system in-cludes agricultural and industrialgoods and is binding in its current statefrom 1/1/1999 until 12/31/2001. Im-port duties are modulated accordingto the “sensitivity” of products. Ac-cording to the modulation mechanismproducts are subject to import duties of85%, 70%, 35% or 0% (tariff-free) ofMFN levels. The 48 LDC pay no tariffson certain goods and tariffs accordingto the modulation mechanism on othergoods. The GSP is based on the princi-ple of country-wise graduation, whichmakes it possible to reduce preferencesshould a country or sector becomestronger. The Lomé principles are, incontrast, granted – with the exceptionof the agricultural protocols – equallyto all countries.

The number of reduced tariffs onagricultural products is lower in theGSP than in the Lomé agreement, fur-thermore, the reductions apply only toad valorem tariffs.11 The EU does notwant further preferred access for manyagricultural commodities. Seen as“sensitive” are, i.a., rice, bananas,sugar, manioc and beef and veal. It isassumed that developing countriescould quickly increase exports shouldthere be further liberalization and thatthey would then put pressure on EUproducers. The sensitive areas of theEU are protected by a double mecha-nism which includes variable preferen-tial tariff margins as well as a safe-guard clause which allows suspendingpreferences in case of market distor-tions. This mechanism is found in theGSP as well as in the Lomé agreement(Reisen 1999: 51).

11 i.e. the numerous specific tariffs of the EU in theagricultural sector were not reduced in the GSP.

Strict rules of origin are partly seenas a market access barrier, primarilyrelevant in the industrial sector. Theystipulate that at least 45% of an exportproduct’s value-added must take placein the country of origin if said country isto enjoy preferential access. For eachproduct, special rules of origin are de-fined. The rules of origin in the Loméagreement allow cumulation of value-added, as long as these took place inan ACP country or the EU. In the GSP,the share of value-added must comelargely from the exporting country withsome input from EU countries (ibid.).

In the current GSP system, there areadditional incentive arrangementswhich provide countries additionalpreferences when they follow threeconventions of the International LaborOrganization (ILO) or the criteria of theInternational Tropical Timber Organi-zation – (ITTO). The social clause refersto the ILO convention 87 (freedom ofassociation), 98 (right of collectivebargaining) and 138 (prohibition ofchild labor). Countries which followthese conventions can receive tariffpreferences, these can however be lim-ited to the sectors in which the ILO con-ventions are effectively implemented.Preferences resulting from the environ-mental clause refer only to wood prod-ucts and agricultural products fromtropical forests cultivated according toITTO standards. The regulations of thesocial and environmental clauses ofthe GSP are overcomplicated and theirlimitation to only three ILO conventionsand the criteria of the ITTO is much toonarrow (see Knirsch 2000).

Minor Success of TradePreferences

There is consensus that the OECDtrade preferences show little successwhen measured by increased exports ofdeveloping countries. The effect ofpreference systems on trade creation isestimated to be less than the effect on

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25

trade diversion, i.e. the displacementof non-preferential imports with prefer-ence-receiving imports. Furthermore,only comparatively few of the potentialbeneficiaries of preference schemeswere able to actually use these. Twelvecountries accounted for 80% of all GSPbenefits in the EU. In the USA, 6 coun-tries received 84% of GSP benefits.These countries include many of themore developed countries. The ACPcountries were able to neither increasetheir exports in the EU (these have ac-tually sunk in the past 20 years), nordiversify their product palette in a sig-nificant manner. 13 of 71 ACP coun-tries profited most from the liberalizedmarket acces granted by the Loméconvention - these 13 shared 70% ofall ACP exports in the EU (OECD1997a: 20).

Reasons for this insignificant successare seen in the fact that, among otherthings, the GSP schemes cover less thana quarter of all dutiable exports fromdeveloping countries. ( In contrast, 90%of all ACP country exports were broughtinto the EU duty-free. ) Furthermore,many countries were unable to takeadvantage of the potential advantagesof the GSP schemes. The utilisationrate, i.e. the relation of those exportswhich received GSP treatment to thosewhich are covered by the scheme, was,in the case of agricultural exports fromLDC to the EU in 1996, only 48%.Products with such a low utilisation rateinclude dairy products, vegetable oilsand fats, beverages and tobacco(UNCTAD 1998: 9).

Further reasons for a lack of successlie in the suspension of some products,limited quotas, strict rules of origin,country-oriented graduation in thegranting of preferences, non-trade-related conditionalities, administrativered tape and, last but not least, a toosmall preference margin. When themargin between GSP tariffs and theMFN rates is too small, the transactioncosts for securing preferential treatment

are no longer worthwile for manycountries (UNCTAD 1998: 14).

The lacking achievements of theACP countries are due to, i.a., the ex-isting trade barriers in the EU whichaffect primarily agricultural exports, onwhich the ACP countries are very de-pendent.12 Many Lomé preferencesremain at the level of peak tariffs. Onlya 16% reduction against MFN rates isgiven for e.g. sugar, canned meat,dairy products and butter. It should notbe disregarded how hard many ACPcountries are still affected from highout of quota tariffs. This is true for e.g.beef, lamb and goat meat, rice, wheatand rye, fruits and vegetables as wellas some processed food stuffs(UNCTAD 1999a: 8).

One can, however, also see manydomestic weaknesses of the ACP ex-porters, e.g. lacking infrastructure andinvestments, regulations which act astrade impediments and low manage-ment abilities. Finally, it is said, thatpreferences can lead to the conserva-tion of existing export structures andprevent diversification. In this vein, theguaranteed access to and the highprices in the EU market led the ACPcountries to retain cost-intensive andnon-competitive production of, for in-stance, bananas and sugar cane(OECD 1997a: 20). Such arguments,however, tend to oversee the socio-economic functions of small farms indeveloping countries and concentrateone-sidedly on large production struc-tures.

Preference Erosion

It is commonly agreed that the low-ering of tariffs after the Uruguay Roundleads to preference erosion. Table 11shows the degree of preference erosionthat shall occur in the markets of the

12 Whereas 90% of agricultural imports to the EU aredutiable, this applies to only 20% of processed prod-ucts (OECD 1997a, S. 28).

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26

EU, Japan and the USA after all tariffshave been cut to bound levels. A clearerosion of trade preferences can beseen, lying in the EU at 26%, in Japanat 34% and in the USA at 50% for allproducts which enjoy preferential mar-ket access under the GSP schemes.

Losses for agricultural commodities arehigh. The preferences for non-tropicalagricultural products are 29% in theEU, 63% in Japan and 53% in the USA.For tropical agricultural products, theerosion lies in the EU at 29%, in Japan35% and at 40% in the USA.

Table 11: Erosion of GSP margins, in % (UNCTAD 1995, quoted in OECD 1997a)

Products EU Japan USA A B C A B C A B C All GSP Products 11,3 8,4 -26 8,2 5,4 -34 4,6 2,3 -50 Non-trop. AgriculturalProducts

13,3 9,5 -29 9,4 3,5 -63 3,2 1,5 -53

Tropical AgriculturalProducts

9,3 5,1 -45 6,5 4,2 -35 5,5 3,3 -40

Non-agricultural tropi-cal products

4,8 4,2 -13 9,6 5,6 -42 4,5 0,7 -84

Goods based on naturalresources

16,5 12,7 -23 6,9 4,7 -32 2,4 1,8 -25

Textiles and Clothing 12,4 10,5 -15 10,4 7,5 -28 6,1 4,5 -26 Leather and Footwear 6,3 5,3 -16 59,8 34,3 -43 4,1 2,8 -32 Other industrial goods 7,2 4 -44 4,3 1,1 -74 5,4 2,6 -52

A = Preference margin before the Uruguay Round tariff reductions B = Preference margin after the Uruguay Round tariff reductions C = Percentage Erosion in Preferences

The effects of preference erosion ontrade flows is, however, judged asminimal. The implementation of tariffreductions set in the Uruguay Roundwill sink exports from the African LDCto Europe, Japan and the USA, by amere 0,1% according to calculations ofthe World Bank and UNCTAD. The lossin these three OECD markets is a mere7,5 million US dollars, 5,4 million ofthese dollars in the EU. Whereas ex-ports to the EU and Japan are retro-grade, more exports to the USA are tobe expected, as there the tariffs forsome products for which there was nopreferential access, will sink. Evenshould all tariffs be discontinued, in-cluding the complete loss of all prefer-ences, the export decline from AfricanLDC would only be 0,91%.The reason

for this is, i.a., the low tariffs which Afri-can LDC paid before the end of the lastworld trade round. However, the pref-erence loss would be shared differentlyamong the African countries. Thestrongest losses on the EU market arepredicted for Cape Verde, Lesotho,Malawi and Somalia (Harrold 1995:26).

The share of exports from develop-ing countries which are covered by GSPschemes will continue to fall as manytariffs approach 0. Since to the presentonly 25% of dutiable exports from de-veloping countries have enjoyed pref-erence privileges, the effects upontrade flows should be minimal. Further,only a few of the developing countriesprofit from the GSP agreements (OECD1997a: 26). The loss of preferences is

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27

checked for the ACP countries as well,especially in the for them importantsector of agricultural exports. Due tothe already low tariff levels for indus-trial products, the preference erosion ishigher in the industrial than in the agri-cultural sector. As a high percentage ofLomé preferences are also valid foragricultural commodities, and in thissector, however, less liberalization willtake place in the near future than in thearea of industrial goods, the prefer-ence margins in the agricultural sectorwill fall only slightly. In addition, aminimum market access has been se-cured for negotiated tariff quotas(OECD 1997a).

Recommendations forPreferences

The following recommendationsshould aid market access opportunitiesfor developing countries by improvingthe different preference systems (seeUNCTAD 1998: 14f.):

v Many new products have beenadded to the GSP due to revisions ofsome GSP schemes (i.a. in the USAand EU). However, there are stillmany products of export interest fordeveloping countries which fall un-der the relatively high MFN tariffs –integrating these products in thepreferences systems is recom-mended. Among these products aremany tropical and non-tropical ag-ricultural products. The tarifficationof many agricultural products in theUruguay Round makes their inte-gration in the GSP possible.

v For those products on which peaktariffs have been laid, the reductionsgranted under the GSP are often in-sufficient. Particularly for theseproducts, the preference marginsshould be raised by tariff reductionsunder the GSP so that the transac-tion costs for exporters are bear-able. Room for significant GSP tariff

reductions has been created by thehigh tariffs laid following tariffica-tion.

v The elimination of quantity limitsbound to tariff quotas would par-ticularly help agricultural exportsfrom developing countries. It istherefore recommended to grantexporters falling under the differentpreference systems unlimited quo-tas, either at the usual preferentialtariff level or at the level set withinthe quotas.

v LDC should be granted tariff-freemarket access for all of their exports.Furthermore, the safeguard provi-sions within preference systems, e.g.in the Lomé agreement, should notapply to imports from LDC.

v The difference between the sepa-rate GSP and other preference sys-tems of the OECD countries andtheir complexity set exacting de-mands on LDC exporters. Therefore,all exporters from LDC should re-ceive preferences at similar condi-tions. The heterogeneous and partlyrestrictive rules of origin should alsobe harmonized. The unlimited rightof cumulation of pre-productiongoods should be granted to all eli-gible under the GSP.

v The preference-giving countriesshould bind preferential tariff levelsfor LDC exports.

v Finally, measures should be takenwhich provide greater stability andaccountability in the granting ofpreferences. These include a morelimited and transparent handling ofcountry- or product-related gradua-tion when granting preferences.

However, it must be kept in mind thattariff preferences shall in the long runlose meaning due to preference ero-sion. This process will merely be slowerin the agricultural sector than in theindustrial one due to the higher tarifflevels.

Sanitary and Phytosanitary Standards

Sanitary and PhytosanitaryStandards

he regulations for food quality andsafety in the industrial countries areseen as a further trade obstacle for

agricultural exports from developingcountries. Many exporters have greatdifficulties fulfilling the from country tocountry differing criteria and theirgoods are therefore often rejected atthe borders. Measures which limit tradein the area of sanitary and phytosani-tary standards seem justified from thestandpoint of environmental and con-sumer protection and are backed upby the widely accepted precautionaryprinciple. The application of such tradelimitations is regulated by two WTOagreements, however, their relation to

the precautionary principle is not com-pletely clear. In the following chapter,the relevant WTO rules, their relation tothe precautionary principle and theparticular difficulties of developingcountries in fulfilling hygienic standardswill be elucidated. In the evaluatedliterature the precautionary principle isgiven less weight than in the recom-mendations at the end of this chapter.

A first impression of the difficultieswhich exporters have fulfilling hygienestandards in the USA is given by the listof imports denied by the US Food andDrug Administration (FDA). The FDA isthe only institution to publish such data.

Table 12: Denial of Import Permits by the US Food and Drug Administration inNumbers and Percent from July 1996 until June 1997 (FAO 1999: 4).

Origin

Violation

Africa Latin Americaand Carib-bean coun-

tries

Europe Asia Total

Filth 54 (17,8%) 1253 (32,2%) 175 (14,8%) 2037 (35,2%) 3519 (31,5%)MicrobiologicalContamination

125 (41,3%) 246 (6,3%) 159 (13,4%) 895 (15,5%) 1425 (12,8%)

Acidic Canned Foods 4 (1,3%) 142 (3,6%) 425 (35,9%) 829 (14,3%) 1400 (12,5%)Labelling 38 (12,5%) 201 (5,2%) 237 (20%) 622 (10,8%) 1098 (9,8%)Decomposition 9 (3,0%) 206 (5,3%) 7 (0,6%) 668 (11,5%) 890 (8,0%)Pesticide Residues 0 (0,0%) 821 (21,1%) 20 (1,7%) 23 (0,4%) 864 (7,7%)Mould 19 (6,3%) 475 (12,2%) 27 (2,3%) 49 (0,8%) 570 (5,1%)Food Additives 2 (0,7%) 57 (1,5%) 69 (5,8%) 426 (7,4%) 554 (5,0%)Heavy Metals 1 (0,3%) 426 (10,9%) 26 (2,2%) 84 (1,5%) 537 (4,8%)Other 51 (16,8%) 68 (1,7%) 39 (3,3%) 151 (2,6%) 309 (2,8%)Total 303 (100%) 3895 (100%) 1184 (100%) 5784 (100%) 11166 (100%)

T

Sanitary and Phytosanitary Standards

29

Top contravention against US provi-sions is contamination by, e.g., para-sites or microorganisms and the failureto follow regulations for canned goodsand labelling. More than half of theviolations can be traced to a lack ofbasic foodstuff hygiene and insufficientlabelling. According to the FAO, mostof the import detentions are not due tohigh technological requirements. Thismeans that with the right support theycould easily be avoided, even giventhe limited options available to devel-oping countries (FAO 1999: 4).

The detention and rejection of foodimports goes hand in hand with enor-mous losses - not only in perishableproducts, which can not be tolerated inlight of growing global nutritionalneeds. Furthermore, detention is ac-companied by great costs for, e.g.,storage, tests, and late delivery. In1998, the US Food and Drug Admini-stration held 15,712 food consign-ments back with a total worth of 750million dollars; 12,386 of these werefrom developing countries. In the end,goods in worth of only 15 million dol-lars were denied access. This meansthat most of the retained food deliver-ies landed with delays on the US mar-ket. However the losses, associatedwith these delays can make exportingunprofitable (Hammer 1999: 9).

WTO Regulations

Trade limiting measures due to foodquality and safety fall under the regu-lation of two WTO agreements:

1. The Agreement on the Applicationof Sanitary and PhytosanitaryMeasures (SPS)

2. The Agreement on Technical Barri-ers to Trade (TBT)

The SPS agreement applies to foodsafety measures taken for reasons ofprotecting humans, animals andplants. The TBT agreement tries to en-sure that no unfair trade obstacles re-

sult from technical regulations andstandards (including specifications forpackaging, identification and label-ling). The TBT agreement also regu-lates measures for the protection of thelife of humans, animals and plants, butonly measures not regulated in the SPSagreement.13

The GATT Article XX (b) allows tradelimiting measures in order to protectthe health of humans, animals andplants, but only under the conditionthat they do not result in an unfair dis-crimination of countries in which thesame conditions prevail, and that theynot be hidden trade barriers. This con-cession in GATT Article XX (b) is regu-lated further in the SPS and TBTagreements.

According to the SPS agreement,trade restricting measures are onlyallowed when they:

v Are necessary for the protection ofhuman, animal and plant life orhealth,

v Are based on scientific principles

v Are not maintained without suffi-cient scientific evidence (SPS, Article2.2).

National standards may only behigher than international standardswhen scientific justification is given.The SPS names the Codex Alimen-tarius Commission (food standards),the International Office of Epizootic(animal health) and the Interna-tional Plant Protection Conventionas the institutions which may set in-ternational standards.

13 The determinaton, whether a measure falls underthe SPS or the TBT, is not easy and can best be de-cided by studying the subjects of both agreements.Measures taken due to health risks from poisons,additives, plant and animal diseases, pest or disease-causing organisms fall under the SPS (see SPS agree-ment, Annex A Definitions). Technical regulations,standards and conformity assessment procedureswhich protect humans, animals and plants and are notone of the sujects defined in the SPS fall under theaegis of the TBT.

Sanitary and Phytosanitary Standards

30

The TBT allows regulation measureson the condition that they:

v Are not unnecessary trade barri-ers,

v Have a legitimate objective and

v The costs of their implementa-tion are in a reasonable relationto their purpose.

The TBT agreement also refers tointernational standards – for exam-ple those of the International Stan-dardization Organization (ISO) –and recommends that these providethe basis for national regulations(TBT agreement, Article 2.4).

Both agreements are meant, i.a. , tolimit the protectionist misuses of healthand hygiene standards and to aid thesituation of exporters. Food exportsmust still fulfill the standards of the im-port country, but the latter should bescientifically justified and applied forforeign and domestic producers alike.Changes in national standards must bepublished in advance and the WTOand the international standard organi-zations must be notified. Finally, na-tional enquiry points should be put inplace to inform exporters about actualand future regulations (SPS agreement,Annex B; TBT agreement, Article 10.1).

Conflicts with the Precau-tionary Principle

The three above named WTOagreements (GATT Art. XX, SPS andTBT) have no clear relation to the envi-ronmental precautionary principlewhich is establishing itself –by majorityjudicial assessment – ever more as anorm of customary international law(see UNEP 1999: 22). The precaution-ary principle states that measures toprotect the environment and humanhealth can be taken even in face ofscientific uncertainty. Main elements ofthe precautionary principle are:

v Placing risk avoidance before riskmanagement;

v Reversal of the time frame – meas-ures are taken before complete sci-entific surety exists;

v Reversal of the burden of proof;

v The lack of danger resulting from aplanned measure or product mustbe proven to avoid the regulation;

v The measures taken as a reactionto a potential danger are presumedvalid; when an alternative measureis proposed, higher effectivenessmust be proven (UNEP 1999: 3).

Thus the precautionary principle isin opposition to, e.g., the SPS agree-ment, which allows trade limitingmeasures only when they are based onscientific principles and are not main-tained without sufficient scientific evi-dence. Article 5.7 of the SPS Agreementdoes allow “provisional” trade limitingmeasures without sufficient scientificevidence, but in these cases additionalinformation for an objective risk as-sessment must be gathered within areasonable time limit. Nevertheless,the precautionary principle was notaccepted as a justification in the fol-lowing three WTO disputes (UNEP1999: 26ff.):

1. Hormone Case: the EU import banon American beef treated withgrowth hormones.

2. Australia - Salmon Case: Canada’ssuit against the Australian importban on uncooked salmon.

3. Japan – Variatals Case: US Ameri-can suit against the Japanese im-port ban on eight fruits whosetreatment supposedly could notguarantee against maggots.

The clear establishment of the pre-cautionary principle in the WTO is de-sirable for reasons of environmentaland consumer protection. Currently,every trade limiting precautionarymeasure is in danger of being struck

Sanitary and Phytosanitary Standards

31

down in a WTO dispute settlement.With developing countries in mind, it isalso advantageous to accept the pre-cautionary principle, for not to do soundermines consumer trust in foodquality and safety which can reducemarketing opportunities for agriculturalexports from the South. Furthermore, itis becoming clear that the precaution-ary principle is not chiefly a north –south conflict. In all three disputes, ex-ports from developing countries werenot affected.

Problems of the Develop-ing Countries with SPS/TBT

Nevertheless, the regulations of theSPS and TBT agreement are a higherobstacle for developing than for de-veloped countries. This is because it isthe latter which set international healthand hygiene standards. These are oftengeneralizations of the practices andstandards used in industrial countries.Thus the acceptance of internationalstandards in both agreements neces-sitates more adjustments in the area ofhygiene policies and measures for de-veloping than for developed countries(Finger/Schuler 1999: 13).

Developing countries protest thattheir participation in standard settinginstitutions (Codex Alimentarius Com-mission, International Office of Epizo-otics and the International Plant Pro-tection Convention) is insufficient andthat the standards are inadequate fortheir domestic regulation, and there-fore it is difficult fulfilling them in theimport markets. Also problematic is thevoting method in the Codex Alimen-tarius Commission. If consensus cannotbe reached, standards, policies andrecommendations are set by a simplemajority of votes cast. Thus standardscould be accepted although manycountries rejected them. The standardsfor maximum residue of growth hor-mones in beef was set by 33 votes infavour, 29 against and 7 abstentions.

Developing countries therefore de-mand a reform of the voting methodand a reasonable representation ofdelegates from regions with differentdevelopment stages (Zarrilli 1999:11ff). A further problem is the manyindustry representatives within nationaldelegations and as observers of theCodex Alimentarius Commission. Dueto their representatives within the na-tional delegations, transnational com-panies are able to strongly influencethe formulation of standards (Engels,1996).

Governments implement manyregulatory regimes in the area of foodquality and safety (see OECD 1997b:8):

1. Input standards (i.e. levels of dis-ease excitants in slaughter stock)

2. Process standards (i.e. Best Prac-tices for industrial processing)

3. Product performance standards (i.e.maximum residue allowances)

4. Information requirements (i.e. la-belling)

5. Sale and service requirements (i.e.temperature for storage)

6. Use requirements (i.e. safe han-dling by the consumer)

For developing countries, an im-portant area in which regulations areimposed upon them is disease andpest control. Exporters must oftencertify that animals and plants are dis-ease free or come from disease freezones. This forces exporting countries topossess the infrastructure for animaland plant inspection, the control ofpests and, when necessary, the possi-bility of implementing quarantine aswell as preventive vaccination andprotection measures (Finger/Schuler1999: 41). Beef exports to NorthAmerica and some Asian countries (i.a.Japan) are an example. These aresubject to strict regulations for foot andmouth disease. The zero risk principle

Sanitary and Phytosanitary Standards

32

applied here practically closes thesemarkets for South American and Afri-can beef exports. The SPS agreementdoes however allow a zoned approachwhich allows exports from disease freezones even if the country may not betotally disease-free (UNCTAD 1997:18).

Accounting for the different envi-ronmental and epidemiologic condi-tions of different regions and the ac-ceptance of disease-free zones is ofparticular importance for the largerdeveloping countries. The InternationalOffice of Epizootics has therefore de-veloped a voluntary procedure for therecognition of foof and mouth disease-free zones. Further standard settingprocedures for other important dis-eases are currently being developed.Developing countries demand that theestablishment of a disease-free zone bya standard setting institution should notlater be subject to debate by individualtrade partners (Zarrilli 1999: 21).

Following hygiene regulationsfor food processing is of increasingimportance. The number of regulationsfor hygiene and labelling increaseswith the processing level of the exportproduct. Thus processed fruit, vegeta-ble, fish and meat products as well astropical beverages are hit particularlyhard by SPS/TBT trade barriers. Thediversification in higher processinglevels often aspired to necessitates ex-pensive investments in the food proc-essing sector. Importers are increas-ingly urging the observance of hygienicproduction conditions, which further-more habe to be certified, partly due toincreased consumer quality conscious-ness. This process has been enforcedand standardized by the introduction ofnew regulations, i.a. in the USA andthe EU, based on the Hazard AnalysisCritical Control Point (HACCP) princi-ple14. The HACCP principle demands

14 The HAACP principle was introduced in the 60s inconnection with the US space program. It was meant

the implementation of far-reachingquality control in the production proc-ess following a HACCP plan whoseobservance is confirmed in a companyaudit (UNCTAD 1997).

Developing countries emphasizethat their exports also face barriersthrough national regulations for foodquality and safety which go beyondinternational standards such as thoseof the Codex Alimentarius Commis-sion. The recent intensification of na-tional standards counteracts some im-proved market access opportunitieswon in the Uruguay Round (FAO1999a).

Particularly problematic is the areaof mutual recognition of test meth-ods, inspections, certification proce-dures and individual national stan-dards. As developing countries havelittle capacity to take charge of suchfunctions as certification, accreditationof testing laboratories or the develop-ment of standards, there are almost nomutual recognition agreements in-cluding developing countries. Suchagreements could, however, helpminimize the large number of deten-tions by the regulatory instances in theimporting countries. In this context it isoften lamented that many importingcountries demand “identical” produc-tion standards rather than, as foreseenby the SPS and TBT agreements,“equivalent” standards (SPS, Article 4;TBT, Article 2.7). Exporters see thesepractices as trade harassment (FAO1999a).

Particular difficulties arise for ex-porters due to the complexity andvariance of regulations for the dif-ferent markets. For example, there aremany different regulations for labelling– despite the attempts of standardiza-tion by the Codex Alimentarius Com-mission.

i.a. to guarantee the quality and safety of astronautfood (Cham Prasidh 1999: 5)

Sanitary and Phytosanitary Standards

33

Handled differently are questionssuch as:

v Voluntary versus mandatory label-ling;

v Which products must be labelled(i.e. only packaged or all foodproducts);

v Which ingredients must be listed;

v What the unit of reference is (i.e. byweight or by percent) and, last butnot least,

v Where the label is to be placed onthe package (OECD 1997b: 27).

Here we come to the question oftransparency and the notificationof regulations. Exporters, particu-larly from developing countries,have great difficulty obtaining thenecessary information on the diversenational rules for food quality andsafety. The notifications of changesmade i.a. to the WTO are often in-sufficient in the area of quality andcontents. The time span for com-ments is too short for some andcomments are often ignored (Zarrilli1999: 20). Furthermore, only sel-dom – e.g. for Pakistan and Fiji –has technical or financial as-sistance been given as foreseen bythe SPS (Article 9) and TBT (Article11) agreements (FAO 1999a, 3).

Deficits and omissions within the de-veloping countries themselves are oftenremarked upon. Many have developedregulatory regimes for food qualityand safety whose inadequacies arecaused by internal failings. Explana-tions given are, i.a.:v The complex and, due to many

small farms, fragmented agricul-tural production structure,

v Lack of disposal of resources andinfrastructure for, i.a., post-harvesttreatment, processing and storage,

v Lack of cooperation between gov-ernments and producers and

v Inadequate national control sys-tems. These are inflexible, lack per-sonnel and do not use modern sci-entific and management methods(see FAO 1999: 7).

However, one must ask whether aproduction structure based on manysmall farms can be seen as a deficit.In many developing countries smallfarmers play an irreplaceable rolein assuring the food security of therural population. The demands forthe observance of hygiene stan-dards for export production is toooften coupled with an undifferenti-ated criticism on small and suppos-edly therefore inefficient structures.This is often due to a developmentmodel based one-sidedly on thebuilding of as many large plants aspossible. Instead, it should be takeninto account how measures to fa-cilitate exports affect the food secu-rity of rural populations.

Recommendations forFood Standards

It is meaningful neither to exemptdeveloping countries from the SPS andTBT regulations, nor to lower interna-tional standards. Both would under-mine consumer trust in food safety.

è It is thus of utmost importance toaward developing countries techni-cal and financial assistance in or-der that they may observe interna-tional standards of food safety andquality and that they may make useof the regulations of the SPS andTBT agreements, including theWTO dispute settlement mecha-nism, for their own good (FAO1999b: 10; Finger/Schuler 1999,15).

è In this context, the support for de-veloping countries foreseen in bothagreements should be developedand made binding and the result-ing measures should be institution-

Sanitary and Phytosanitary Standards

34

alized. One possibility could becompelling importing countries,should they implement new policiesdetrimental to exporters from de-veloping countries, to bestow tech-nical assistance so that the newstandards can be upheld in the ex-porting countries (Zarrilli 1999:26).

è It must be clarified what “equiva-lent” regulations are on a nationallevel. Especially developing coun-tries require flexibility in proceduresfor securing food quality andsafety. Further, mutual recognitionagreements between developingand industrial countries should beestablished (FAO 1999: 9). Addi-tionally, mechanisms such as aninternational ombudsman shouldbe considered in order to minimizetrade harassment (FAO 1999b:10).

è The harmonization of internationalstandards should be pushed, espe-cially within the Codex AlimentariusCommission.15 It is in the interest ofdeveloping countries to demandthe acceptance and implementa-tion of international standards(FAO 1999: 5). This would makeeasier, e.g., the recognition of dis-ease-free zones. However theseharmonization efforts should betied to conditions concerning par-ticipation, environmental and con-sumer protection and the imple-mentation of the precautionaryprinciple.

15 The harmonisation of standards touches on manyareas of conflict. On the one hand, the question of thelevel of harmonisation is raised – how can agreeing tothe least common denominator be prevented? It mustalso be asked which standard setting organisationshould be authorised. In the case of fair trade shouldthe criteria of the Fair Trade Labelling Organisation(FLO) be allowed, the rules of the IFOAM for organicproducts? Therefore certain conditions should belinked to the harmonisation of standards. Standardsetting bodies should be reformed, allowance shouldbe made for the needs of interest groups (e.g. envi-ronmental and consumer groups) and the anchoring ofthe precautionary principle.

è The participation of developingcountries in standard setting institu-tions must be facilitated (FAO1999b: 10). The voting methods ofthese institutions must be reformed.Standards set in the Codex Ali-mentarius Commission should re-quire consensus or a two-thirdsmajority, whereby a minimum quo-rum from developing countriesfrom different regions must be pre-sent. To limit the strong influence ofindustry representatives, govern-ment advisers should come equallyfrom industry, non-governmentaland consumer organizations (En-gels 1996).

è The precautionary principle shouldbe anchored firmly in the WTO aswell as in standard setting organi-zations such as the Codex Alimen-tarius Commission. It should be thebasis for determining which traderestricting measures can be takenunder national sovereignty to pro-tect health and the environment(UNEP 1999: 35).

The Role of Transnational Corporations

35

The Role of TransnationalCorporations

liminating tariff and non-tarifftrade barriers does not necessarilylead to better market access. This

is increasingly regulated by the marketpower of transnational corporations(TNC). Particularly in the agriculturalsector, ever less corporations controlthe entire chain from the production inthe exporting countries to the retailbusiness in the buyer markets. Hereby,TNC influence the agricultural supplystructure in developing countries aswell as the manner of production. Thischapter shows the process of concen-tration in the agricultural sector as wellas the dominance of TNC in the exportsector of developing countries. Seed

commerce is examined as an exampleof the influence of TNC on the mannerof agricultural production. Then, therole of retail chains and agriculturalpolicy in the importing markets will beconsidered. The latter fails to regulatethe food sector more strictly through aneffective competition laws. Finally, thenecessity of a differentiated look atstate trading enterprises in developingcountries is underlined. The recom-mendations for dealing with transna-tional corporations closing the chaptermust be seen only as starting points forreforms due to the underdevelopeddiscussion of this question.

Table 13: Estimated Share of TNC in Trade in Agricultural Products, (Clai-monte and Cavanaugh 1988, quoted in: OECD 1996: 28) Product Share of World Exports Marketed by 3-6 of the largest

TNC Wheat 85-90 Maize 85-90 Sugar 60 Coffee 85-90 Rice 70 Cocoa beans 85 Tea 80 Bananas 70-75 Wood 90 Cotton 85-90 Hides and Skins 25 Tobacco 85-90 Pure rubber 70-75 Jute and Jute Products 85-90

E

The Role of Transnational Corporations

36

Liberalization and Con-centration

New estimates assume that in 1996,only 5 TNC controlled more than halfof world trade with raw coffee. Forcoffee roasting and processing, thecconcentration is even higher – here,4 corporations control half of worldtrade. Whereas in 1980 there wereover 30 trading houses for cocoa inLondon, today there are only 10. Aftermany mergers, 50% of all chocolatesales are made by the 6 largest pro-ducers. Trade with oil plants and grainsis, after many mergers and acquisi-tions, also dominated by a small num-ber of TNC which, due to vertical inte-gration, control production, interna-tional commerce and distribution(UNCTAD 1999: 15).

The State Trading Enterprises ofdeveloping countries have succumbedto pressure from the Uruguay Roundand from structural adjustment pro-grams and have been partly elimi-nated or privatized. This is also true oftrading enterprises which organize theexports of their countries (marketingboards, see below). The result of theforced retreat of the state from exportcontrol and support was at first the ap-pearance of many small local traderswho, however, were usually unable towithstand the competition. They neitherhad access to favourable loan condi-tions, nor did they have sufficient logis-tic capacities. They were quickly re-placed by large international tradingfirms or their agents who had access tofinance as well as the necessary distri-bution channels.

The liberalization of markets notonly opened new markets for transna-tional corporations in developingcountries, they were also able to delvedeeper in the agricultural exportstructures of these countries. Thus theliberalization of, e.g., the cocoa sectorin West Africa led on the one hand to

increased concentration in the exportsector as European processors andtraders drove out local traders. On theother hand, they also integrated theWest African cocoa production in theircorporate structures, either directly orthrough agents (UNCTAD 1999: 16).Another example is the US Americantrading enterprise Cargill, which is notonly the second-largest exporter ofsoybeans in the USA, but also in Braziland Argentina. Together with otherfirms, Cargill forced the governmentsof Argentina, Brazil, Bolivia, Paraguayand Uruguay to take loans from theWorld Bank to finance the extension ofthe waterway Paraguay-Paraná. Thethus created prospect of ship transportwill lead to the expansion of soy andother export cultures along the water-way (Murphy 1999: 12).

The investments necessary in the ag-ricultural sector are an obstacle fordeveloping countries. To be competi-tive, they have to provide for certaineconomies of scale in processing in-dustries. The same is true for the grow-ing demands on food quality, workerqualification or transportation infra-structure. In the main it is foreign in-vestors or transnational corporationswho finance the agricultural exportsector in developing countries and si-multaneously decide on the mannerand extent of the production process.Particularly small producers are at astructural disadvantage. For them, theonly possibility is to form larger coop-eratives or to seek links with foreigncompanies. Only as an exception arethese foreign investors companies fromother developing countries (UNCTAD1999: 17).

Example: Trade in Seed

The trade in seed deserves particu-lar attention, for strong interferenceswith the agricultural export sectors ofthe South are found here. The seedsector is further subject to intense con-

The Role of Transnational Corporations

37

centration processes, which are en-forced by the developments of moderngene- and biotechnology. The worldmarket for seed is estimated at 45 bil-lion US dollars for the year 1994,whereby a third of this is commercialseed – protected by plant breedersrights or patents. The remainder is fromself-collected or state-distributed seed.It is estimated that in 1997, 10 Corpo-rations control 40% of the internationaltrade in seed. And the concentrationcontinues. In the past years the largestUS American biotechnology corpora-tion Monsanto bought many newcompanies in the seed sector and hasdeveloped, next to Novartis16 and Pio-neer Hi-Bred-DuPont, to one of thelargest seed corporations in the world.Monsanto took over the US companiesAsgrow Seeds (i.a. soy), Holden (i.a.maize), DeKalb (i.a. maize), Cargillsseed company (oilseed and corn) aswell as Delta&Pine (i.a. cotton). Fromthe latter Monsanto also got access tothe "Terminator-Technology" whichmakes it possible to prevent the germi-nation of seeds in the second genera-tion17 (see BUKO Agrar Koordination1998).

After Monsanto took over Cargill’sseed company, the two corporationsannounced a joint venture in 1998.This gave Cargill, the worlds largestgrain trader, access to biotechnologyand Monsanto can use the marketingchannels of Cargill in exchange. Thistype of vertical cooperation and inte-gration along the processing chain isfound not only in Europe and the USA,

16 Novartis and Astra-Zeneca announced in December1999 that they would transfer their business withpesticides and seed to the new company Syngenta.Syngenta thus became the first pure agrochemicalcompany and world market leader with a marketshare of 25% (see Handelsblatt 12/3/1999: 15). 17 Monsanto did announce in October 1999 it wouldpull back from Terminator Technology. The serious-ness of this announcement is doubted by the RuralAdvancement Foundation International (RAFI) andGreenpeace due to Monsanto’s intention to developrelated technologies (see Bridges Weekly Trade NewsDigest 1999, Vol. 3, Number 40).

but world-wide. In the Southeast Asianmaize seed market, there are only twomain corporations: Monsanto and Pio-neer. In countries such as Thailand, thePhilippines and Indonesia they controlover 70% of the maize market (Murphy1999: 16). The diverse forms of verticalintegration lead to the control of theentire chain, from gene to super marketshelf, by transnational corporations.Vertical cooperation is often regulatedby contracts which bind the supplier tocertain production methods and theuse of certain inputs, e.g. seed (OECD1997c: 14).

More than half of the US Americansoy harvest from 1999 is from geneti-cally modified (GM) seed, mostlyMonsanto’s Roundup-Ready soybeans.These soy plants are resistant againstMonsanto’s herbicide Roundup. In Ar-gentina, soy farmers used up to 70%Roundup-Ready seed in 1998/1999.For the harvest 1999/2000 80 – 90% isestimated. Main importer of soy is theEU where 60% of the Argentinean soy isexported. Due to growing resistance togenetically modified food, future mar-kets in Europe are uncertain. SomeEuropean supermarket chains, as wellas some US American chains, will nolonger buy gene-foods, so that somesoy processors pay premiums forguaranteed non genetically modifiedbeans. Some soy farmers have alreadyannounced that they will reduce theshare of modified seed. Aside from theworry of disappearing markets there is,especially for producers in developingcountries, the fear of the loss of bio-logical diversity in agriculture. Addi-tionally, more farmers are made de-pendent on TNC through patented GMseed. These fears have for example ledthe governour of the largest soy grow-ing state in Brazil, Rio Grande do Sul,to declare that his state remains a GM-free zone (Christie 2000).

The Role of Transnational Corporations

38

Changes in Import Mar-kets

Whereas exporters of agriculturalmass commodities are dependent onthe processing industry, for the mar-keting of the dynamically developingfoods such as fruits, vegetables andtropical beverages, the modern retailchains in the OECD countries are ofgrowing importance. Retail chains suchas, e.g., super and hyper markets, dis-counters and self service stores areimportant market access channels forfresh fruits and vegetables as well asprocessed foods. Their market sharehas grown in the past years, partly atthe expense of the wholesale markets.Due to the concentration processes inthe processing industry and in retailing,the number of buyers of agriculturalproducts has sunk - these however needlarger quantities which must be con-tinually and punctually delivered. Alsofor these reasons, buyers have begunto bind producers from different re-gions to them through vertical coop-eration (OECD 1997c).

The contractually regulated forms ofvertical integration lower transparencyin price formation as there is no rulethat prices along the links of the proc-essing chain must be divulged. Thismakes it possible for, e.g., supermarketchains with different suppliers to setdifferent prices for the same product. Incomparison, the (quickly becomingmeaningless) wholesale markets andthe auctions of cooperatives are atransparent form of price setting. Byvertical integration of the entire proc-essing chain, goods are often pricedfirst when they go retail. As the costs ofeach interim step are unknown, it cannot be estimated whether the final priceis reasonable (OECD 1997c: 26).

Food multis sustain the binding invertical cooperation relationships bybrand names developed in connec-tion with massive ad campaigns. De-veloping a brand name and enforcing

it internationally has, due to the highcosts, to date only been possible for afew exporters from developing coun-tries. The Indian company Tata Teatried to establish an internationalbrand name by buying tea plantationsin Kenya and thus achieving yearround production capacities. A furtherdifficulty in market access is found fortropical beverages, as the processorsin the industrial countries mix raw ma-terials of different origins to meet thespecific taste demands of consumers.This possibility of blending is rarelyavailable to processing industries indeveloping countries as they often onlyhave access to local raw materials(UNCTAD 1997: 20).

Binding in vertical cooperation maygive exporters from developing coun-tries better market access opportuni-ties, but it is also attached to specificrisks, e.g. dependency on only onesuper market chain or importer. Spe-cialization in order to meet the needsof one buyer can result in the limitationof a producer’s supply palette. As thehigher processing stages still takeplace far away, neither new qualifica-tions nor new sources of income can bewon. This lack of diversity makes pro-ducers vulnerable to changes in con-sumer habits in their export markets(UNCTAD 1999: 19).18

Additionally, the intrinsically desir-able diversification in further proc-essing industries also often lies in thehands of transnational companies.Nestlé owns factories for the produc-tion of instant coffee in the Ivory Coast,Brazil, Indonesia and China. The ma-jority of the successful cocoa process-ing factories in developing countriesare also in the hands of multis, directlyor in the form of joint ventures. The

18 Meanwhile retail companies are entering the or-ganic food business. The British Supermarket chainSainsbury`s is planning the organic production ofbananas, passion fruit, coconuts and mangoes on theCaribbean islands Grenada and St. Lucia (James2000).

The Role of Transnational Corporations

39

French conglomerate Cacao-Barry,taken over in 1996 by the BelgianCallebaut, owns processing plants inthe Ivory Coast and Cameroon; Cargilland Archer-Daniels-Midland havefactories in Brazil and Mars operatesprocessing plants in Indonesia. Of thefour instant tea factories in developingcountries only one is not in foreignhands, the Indian Tata Tea. The otherare factories belonging to Nestlé inIndia, Unilever in Sri Lanka and JamesFinley in Kenya (UNCTAD 1997; EFTA1998).

Agricultural Policy andTransnational Corpora-tions

The agricultural policies of, espe-cially, the USA and the EU have helpedthe concentration processes. Publicintervention in the agricultural sectorwas used by TNC to restructure underthe umbrella of protection of the USAmerican and European markets andto gain advantages through companyintern manipulation of prices andquantities. In the 80s, there was a ten-dency for TNC to invest where certainindustries were relatively more pro-tected by political measures. Thus,protection of the sugar industry in theUSA or the starch industry in the EUstimulated larger investments in theseareas. The restructuring processes ofTNC in the 80s were also governed bythe search for countries in which directinvestments could be made. Motivationfor foreign direct investment was, i.a.,to get around tariff barriers which pro-hibited trade. Transnational corpora-tions could also minimize the costs ofborder crossing trade through intra-firm transactions, i.e. by declaring val-ues at customs which differed greatlyfrom market prices. They also took theopportunity to declare jacked up c.i.f.prices which pushed up the reference

prices for tariff setting.19 A higher refer-ence price accordingly sinks the importduty to be paid. Through such meas-ures, TNC secured for themselves pre-ferred market access (Scoppola 1995:20).

How TNC will react to the reformprocesses begun in the 90s, includingin the Uruguay Round, is still an openquestion. It is assumed that Europeanand US American corporations couldsuffer losses in the trade sector due tothe reduction of export subsidies,whereby the processing industry shouldprofit from the protection level still inplace. In the EU, grain production andexport could decrease and maize im-ports increase. However, the export ofprocessed goods could further in-crease, as they are exempted from thereduction commitments of the volumeof subsidized exports in the Agreementon Agriculture. Thus the export of proc-essed agricultural products from de-veloping countries would remain at adisadvantage on the world market. Thecommitments to reduce domestic sup-port have hardly played a role for theUSA (or for the EU) as support has al-ready sunk below the 1986-1990 level.Whether US American exports will fallas a result of falling export subsidies isdependent upon domestic policy (e.g.loan interests) and the exchange rate of

19 A comparatively small number of companies ispolled regularly by national customs boards abouttheir set import prices. These prices are determined bythe c.i.f. (cost, insurance, freight) prices. The interna-tional chamber of commerce in Paris (ICC) developeda system of international rules for the interpretation oftrade contracts in 1936 for the first time, the so-called"Incoterms". Their function is to undertake a bindingdistribution of transportation costs and risk liabilitybetween deliverer and purchaser. The Incotermscontain 13 different delivery clauses which can bemodified by branch. Some of the clauses are for alltypes of transportation, others, such as the c.i.f. clause,were created especially for water transport. In thecase of the c.i.f. clause, the seller carries all costs ofdelivery up to the shipping port and the costs of trans-portation to the arrival port and the insurance pre-mium. The buyer must pay for unloading costs in thearrival port, further transportation costs and importtariffs and levies.

The Role of Transnational Corporations

40

the dollar. A low dollar exchange ratecould help raise US American exportsand accordingly induce dislocationprocesses in third markets (Scoppola1995: 23).

Competition Policies

Tariff and non-tariff barriers mayhave been demolished more slowly inthe agricultural sector than in the in-dustrial, nevertheless restrictive busi-ness practices have become more visi-ble because of the tariff reductionshere. The building of monopolies andcartels, collusive price agreements, theexploitation of a market controllingposition and mergers and acquisitionswhich limit competition can be enor-mous market access obstacles for for-eign suppliers. The weaker an individ-ual competition policy is, the strongerthese obstacles. A weak national com-petition policy can effectively serve asa substitute for the traditional tradebarriers which must be slowly demol-ished. In most OECD countries, theagricultural sector is exempted frommany competition policy regulations oris only partially subject to them. Theexemption from competition policy ismostly for agricultural primary prod-ucts, processing is more strictly regu-lated (OECD 1996a).

Import cartels established by do-mestic private importers or buyers fallunder competition regulations, en-forcement is, however, often insuffi-cient. Competition authorities tend toconcentrate on domestic effects andnot on possible market access barriersfor foreign exporters. The export cartelsof transnational corporations are gen-erally barely regulated. Domination ofthird markets, which, e.g., prevents ex-ports form developing countries toneighbouring countries, are not pre-vented by the competition authoritiesof the TNC host countries. The oppositeis true, in the context of industrial-political measures, governments try to

strengthen the competitive position ofthe transnational corporations withintheir borders against foreign rivals (Ar-beitsgruppe Handel 1994: 16). Vol-untary export restraints (VER), which, ifthey had state support, were banned inthe Uruguay Round, have similar ef-fects. These can be replaced by privatevoluntary export restraints. A cartel witha large enough share of the worldmarket can, through such arrange-ments, limit exports in particular mar-kets and neutralize unwanted competi-tion (OECD 1996a: 17).

State Trading Enterprises

However, state established or pro-tected monopolies as well as marketaccess limitations can be of socialbenefit. Thus State Trading Enterprises(STE) are worthy of special attention.The State Trading Enterprises whichdeal with agricultural goods usuallyalso deal commercially in import andexport. Their duties include price stabi-lization for consumers and producers,stimulating production and export(particularly in the case of marketingboards) and securing access to foodfor poor populations. These develop-mentally meaningful measures can gohand in hand with limitations for com-petition and market access, which iswhy STE have been prey to criticismand, partly in the framework of struc-tural adjustment programs, limited,privatized or demolished.

With them, meaningful supports formarketing can get lost, for example,price pooling. Producers hereby deliverto a state marketing board and receivepayments from them. Thus they are notunder pressure to sell their harvest atlow prices. The marketing board ismore flexible in its marketing possibili-ties, can adapt prices to different inter-national markets and compensate forseasonal over-supply and difficulties inthe transportation sector. Due to con-trol over the entire supply of a country

The Role of Transnational Corporations

41

they are better able than private trad-ers to make long-term agreements withproducers and buyers. On the otherhand, marketing boards and other STEcan be a burden on the nationalbudget. Some developing countrieshad this problem with their grain mar-keting boards (Murphy 1999: 8).

STE in developing countries maylimit market access and competition, atthe same time providing protectionand support for the less competitivedomestic producers and aiding exportopportunities. In contrast to the com-petition limiting practices of transna-tional corporations, STE at least takeover a desirable developmental func-tion. Further weakening or dismantlingof STE can only lead to transnationalcorporations or their subsidiaries tak-ing their place. Nevertheless, the WTOlimits itself to control of the functions ofthe STE, while the role of transnationalconcerns is overlooked. Even the GATTof 1947 had, in Article XVII, regulationsfor State Trading Enterprises. In theUruguay Round, under the “Understan-ding on the Interpretation of ArticleXVII", part of the GATT 1994, a workinggroup under the Council for Trade inGoods was set up. This working grouphas to watch over the notifications onState Trading Enterprises required fromWTO members as well as to review aquestionnaire which is to give detailedinformation on the activities of STE(GATT 1994).

From a developmental perceptive, itis necessary for competition rules totake account of different socio-economic contexts as well as develop-mental levels and goals. Thus the cur-rent discussions on international har-monization of competition policies - asthey are being held in the OECD or theWTO – must take better account of theneeds of developing countries. Devel-oping countries should not fall under auniversal set of competition rules whichmake establishing individual politicalmeasures impossible. For developing

countries, allowing State Trading En-terprises a monopoly can be benefi-cial, as can be the merger of domesticcompanies in order to compete onmore equal terms with transnationalcorporations from abroad. Thus devel-oping countries should be allowed toviolate the WTO principle of “nationaltreatment”, i.e. the equal handling ofdomestic and foreign companies. Aninternational cooperation in questionsof competition policy would thereforehave the obligation of reducing theworld market power of individualmegacompanies and reducing marketaccess barriers for weaker market par-ticipants (Dhumale/Singh 1999: 17).

Recommendations for theRole of Transnational Cor-porations

As there has been no intensive in-vestigation of the role of Agro-Businessin trade policy, the following recom-mendations are merely a starting pointfor reforms.

1. Transparency

è Due to lack of information onthe activities of agricultural andfood companies, it is recom-mended to treat transnationalcorporations the same as StateTrading Enterprises and subjectthem to monitoring by theCouncil for Trade in Goods ofthe WTO. WTO membersshould be obligated to docu-ment each company which con-centrates a certain share of im-ports or exports.

è Comprehensive information onTNC could also be part of theWTO’s periodic national tradepolicy reviews.

è Furthermore, databases onTNC should be set up in theFAO and/or UNCTAD. Thesemust be open to the public.

The Role of Transnational Corporations

42

Relevant national institutions,such as competition authorities,should be obligated to regu-larly provide information onTNC for these databases (Mur-phy 1999: 27).

2. State Trading Enterprisesand Marketing Boards

è The trend towards privatizationof State Trading Enterprises indeveloping countries should bestopped and where necessary anew generation of marketingboards be set up (Murphy1999: 28).

è In return for a certain marketpower, marketing boardsshould be under public controland take over socially usefulfunctions. To these belong,alongside the protection offood security, research and de-velopment for the agriculturalsector, the provision of technicalsupport and input, quality con-trol, storage, transportation, fi-nancing and compensation formarket fluctuations (UNCTAD1999: 20).

3. Competition Policy

è Developing countries shoulddemand the integration ofcompetition policy in the up-coming revision of the WTOAgreement on Agriculture and apublic stock-taking of mergersand acquisitions in the agricul-tural sector (Murphy 1999: 28).

è Host countries of transnationalcorporations need a competi-

tion policy that can persecutedomestic as well as foreign ef-fects of restrictive businesspractices. Monopolies, exportand import cartels, informalagreements and mega mergersmust be banned, unless they areenvironmentally or develop-mentally justifiable. Interna-tional criteria for interventionmust be developed.

è Should TNC reach a certainsize, measures to break themapart should be taken, alsofollowing international criteria.

è By violations of internationalcompetition rules, damagedcountries should be able toregister complaints with theWTO (Arbeitsgruppe Handel1994).

è An international competitionauthority in which developingcountries are fairly represented,could be established. Its dutieswould be the support of faircompetition and the protectionof weak world market partici-pants. These include the investi-gation and if necessary prohi-bition of mega mergers andanti-competitive TNC behav-iour. The international competi-tion authority should only be-come active in cases of compe-tition-reducing behaviour ofcorporations above a certainsize (Dhumale/Singh 1999: 18).

Summary of the Recommentations

43

Summary of theRecommendations

he following summary of recom-mendations for improved marketaccess most certainly needs to be

anchored in a general agricultural po-litical strategy. But this would have ex-ceeded the boundaries of this study.Particularly the protection of food secu-rity in developing countries should notbe forgotten. The successful export ofagricultural products can be concurrentwith the simultaneous destruction ofsmall farms, particularly if developingcountries are forced to open their mar-kets to the same extent that industrialcountries open theirs. Thus the – evermore criticized – principle of non-reciprocity of trade agreements has animportant function. Developing coun-tries must be able to protect their farmsagainst foreign competition despite themarket access opportunities which theyshould receive. A high level of self-sufficiency should not be sacrificed forthe opening of world markets

Recommendations forTariff Policy:è The complexity of tariff struc-

ture in the agricultural sectorshould be minimized and transpar-ency elevated.

è Tariff peaks must be lowered andtariff escalation in the case of agri-cultural exports from developingcountries dismantled.

è Specific and compound tariffsshould be eliminated. This wouldincrease transparency in the judg-ing of tariff barriers and facilitate

market access for lower-pricedproducts.

è Additionally, the tariff structurecould be made more transparent intrade statistics. The aggregation ofproduct groups often veils the exis-tence of peak tariffs.

è The administration and distri-bution of quotas should be mademore transparent so that (also non-traditional) exporters from devel-oping countries can enjoy new ac-cess opportunities.

è Tariff quotas should be extendedand quantitative restrictions forLDC exports removed.

è The interests of those countrieswhich have previously received tar-iff rate quotas under preferentialtrade agreements must hereby betaken into account. If necessary,they should be compensated forlosses due to extended quotas.

è The Special Safeguard Provi-sions should be developed intopermanent instruments that canalso be implemented to protectproducers in developing countries.In contrast to other safeguard pro-visions in the WTO, the specialsafeguard provisions require nocostly and difficult proof of dam-ages to domestic producers due toimports.

è However, the special safeguardprovisions should only apply tocertain staple foods classified as

T

Summary of the Recommentations

44

sensitive for reasons of food secu-rity.

è The price and quantitative triggersmust be revised to limit the fre-quency of their use. The triggerprice should be set as low as possi-ble.

Recommendations forPreferences:

è The OECD preference schemesshould be extended to includemore products of export interest fordeveloping countries. The tariffs setfor some agricultural products inthe GSP of the EU are often so highthat the transaction costs cannot beborne by the exporters. Therefore,further tariff reductions are neces-sary.

è Preferential tariffs on LDC exportsshould be set at zero and bound.

è The safeguard provisions in theGSP and other preference agree-ments, e.g. the Lomé IV convention,should be eliminated.

è The heterogeneous and often re-strictive rules of origin should berevised. For example, countries eli-gible under the GSP should begranted the unlimited cumulationof pre-products.

Recommendations forFood Standards:

è It is of utmost importance to awarddeveloping countries technical andfinancial assistance so that theymay observe international stan-dards of food safety and qualityand make use of the regulations ofthe SPS and TBT agreements, in-cluding the WTO dispute settlementmechanism, for their own good.

è The support for developing coun-tries foreseen in both agreements

should be developed and madebinding and the resulting measuresshould be institutionalized. Onepossibility is compelling importingcountries to bestow technical aid,should they implement new policiesdetrimental to exporters from de-veloping countries.

è It must be clarified what “equiva-lent” regulations on a nationallevel are. Especially developingcountries require flexibility in pro-cedures for securing food qualityand safety. Further, mutual recog-nition agreements between devel-oping and industrial countriesshould be supported.

è The harmonization of internationalstandards, for example within theframework of the Codex Alimen-tarius Commission, should be tiedto conditions concerning participa-tion, the rights of different interestgroups and the implementation ofthe precautionary principle.

è The participation of developingcountries in standard setting institu-tions must be facilitated. The votingmethods of these institutions mustbe reformed. Standards set in theCodex Alimentarius Commissionshould require consensus or a two-thirds majority, whereby a mini-mum quorum from developingcountries from different regionsmust be present. To limit the stronginfluence of industry representa-tives, government advisers shouldcome equally from industry, non-governmental and consumer or-ganizations.

è The precautionary principle shouldbe anchored firmly in the WTO andin the Codex Alimentarius Commis-sion. It should be made an under-lying principle, in order to guaran-tee that precautionary measuresobstructive to trade may be takenunder national sovereignty to pro-tect health and the environment.

Summary of the Recommentations

45

Recommendations for theRole of Transnational Cor-porations

è Transnational corporationsshould be subject to monitoringby the WTO Council for Tradein Goods.

è Comprehensive information onTNC should be part of theWTO’s periodic national tradepolicy reviews.

è Furthermore, databases onTNC should be set up in theFAO and/or UNCTAD. Thesemust be open to the public.

è The trend towards privatizationof State Trading Enterprises indeveloping countries should bestopped and, where necessary,a new generation of marketingboards should be established.These should be under publiccontrol and serve food securitystrategies. They can take overimportant functions such asprice stabilization, research anddevelopment and providing in-frastructure and services.

è Developing countries shoulddemand the integration ofcompetition policy in the up-coming revision of the WTOAgreement on Agriculture and apublic stock-taking of mergersand acquisitions in the agricul-tural sector.

è Host countries of transnationalcorporations need a competi-tion policy that can persecutedomestic as well as foreign ef-fects of restrictive businesspractices. Monopolies, exportand import cartels, informalagreements and mega mergersmust be banned, unless they areenvironmentally or develop-mentally justifiable. Interna-tional criteria for interventionmust be developed.

è Should TNC reach a certainsize, measures to break themapart should be taken, alsofollowing international criteria.

è The establishment of an inter-national competition authorityin which developing countriesare fairly represented, shouldbe considered.

Literature

46

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