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Agricultural negotiation and a new comprehensive round of trade negotiations in the WTO: Session one: positions of major players: the Cairns Group.



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INTERNATIONAL POLICY COUNCIL (IPC) ON AGRICULTURE, FOOD AND TRADE  SEMINAR

SYDNEY, AUSTRALIA 27 JUNE 2001

Agricultural Negotiation And A New Comprehensive Round Of Trade Negotiations In The WTO

Session One - Positions Of Major Players  - The Cairns Group

Mr Mitchell H. Hooke, Chief Executive Australian Food and Grocery Council Member IPC Mr Chairman, Ladies and Gentlemen

In addressing the position of the Cairns Group, I will not presume to speak for the Group but rather attempt to represent their position and their views, coupled with some of my own.

The Cairns Group was founded over 16 years ago in 1985, to represent the agricultural interests of free trading nations through the Uruguay Round of Multilateral Trade Negotiations. That Round of negotiations commenced in 1986 with the Punta del Este Declaration in Uruguay and concluded with the Marrakesh Agreement in 1994.  Australia chairs the Group of currently 18 members, of which 15 are developing countries. 

The formation of the Cairns Group proved to be a critical strategic initiative.

The Group became the third force, along with the USA and the EU in the Uruguay Round negotiations, successfully championing the cause of bringing agriculture in from the cold. 

The seven preceding Rounds of General Agreement on Tariffs and Trade (GATT) multilateral trade talks, over 47 years of developing the trade system, did little to liberalise trade in agriculture and processed foods, and particularly so when compared to progress in

liberalising trade in industrials.

Along with services, investment and intellectual property, agriculture is now subject to the disciplines of the trade rules of the GATT and the World Trade Organization (WTO).

The Uruguay Round Agriculture Agreement (URAA) established a process for reduction in support through what are known as the "three pillars of reform" - export subsidies, market access and domestic support. 

More broadly, the significance of the Marrakesh Agreement which concluded the Uruguay Round, was that it:

reinforced a rules based system of trade and commerce;  ●

entrenched tariffs, through tariffication of non-tariff barriers, as the currency of protection; ●

preserved the foundation to the success of the GATT in legitimising and protecting the exploitation of comparative advantage and competitiveness in international trade - and did so in a way that protects the sovereignty of the individual nation state signatories to the WTO;

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established two new agreements - the Application of Sanitary and Phytosanitary Measures Agreement (SPS) and the Technical Barriers to Trade Agreement (TBT) -the SPS Agreement covers all sanitary and phytosanitary measures which affect human, animal or plant life or health; and the TBT, cover technical regulations and standards and labelling not covered by the SPS Agreement;

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reinforced, as foundation to WTO rules, that trade sanctions or restrictive measures beyond a country's general obligations, cannot be WTO legally imposed without scientifically and/or substantially justified reasons for doing so, as in the national security, the protection of health and safety or of the environment and that the measures apply equally to imported and domestic product; 

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underscored the concept of materiality - non-discrimination in trade of like products irrespective of the processes and production methods; ●

empowered the WTO, as the only international organisation with the capacity to establish, by consensus, global trade rules, with the capability to enforce the disciplines of the trade rules that [then some 115, and now] 137 contracting countries agreed to, through an effective trade dispute settlement system (the principle instrument of enforcement, the process of arbitration over disputes is now virtually compulsory); and

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changed the basis for accepting Dispute Panel findings from one of "consensus to adopt" to "consensus to reject", and set firm timelines for resolution of disputes. In doing so, it removed the power of veto of any one country on a Panel finding and laid the foundations for the establishment, by "case law", the substance to rules governing international trade.

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However, trade reform is a process not an event. The Uruguay Round barely set the agenda for agricultural trade reform.

The OECD has reported that global levels of support for agriculture, albeit in PSE (Producer Subsidy Equivalent) terms, are now higher than when the URAA was negotiated.

The Agreement re-instrumented protection by effectively eliminating non-tariff border measures. It has set the stage for the real business of international trade reform - reducing protection of agriculture and particularly of processed food.

Removing discrimination in WTO rules against agriculture and processed foods is now the imperative for the WTO. 

Lack of market access and subsidised competition is a major constraint to export growth for agricultural producers and food and beverage manufacturers.

This is notwithstanding that, as evidenced in the significant increase in world trade in agrifood products and particularly highly processed products over the past decade, food companies have demonstrated their capacity to trade over many barriers.

World growth in trade in agrifood products is now four times that of world growth in output. Increased trade in processed food products has increased to 75% of global agricultural trade this year, from 50% in 1985 and growing at twice the rate of primary product trade (OECD).

But it is expensive and distorting.

The international trading environment for agricultural products is littered with major barriers and obstacles for exporters. 

The industry suffers the combined impediments of:

a continuation of high tariffs - the average trade-weighted tariff of agricultural commodities is 5 times higher than that of industrial products at [calculated at approx 3.6%] - it is not possible to calculate a similar figure for processed food and beverage products because many tariffs are so high (in excess of 200% in some cases) that trade is prevented;

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bound tariff rates are often higher than existing operative rates, providing scope for a WTO legal "reversion"; ●

a tariff rate quota system for 'sensitive products' such as dairy, sugar, rice and beef; ●

entrenched tariff escalation - the greater the scope for industrial transformation or processing of the raw commodity, the higher the tariff - countries commonly concentrate high percentage reductions on products where tariffs are already low and minimise cuts on sensitive items with high tariffs;

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non-tariff market access barriers in the form of extensive and inconsistent regulation and technical impediments through product, health, quarantine and labelling standards, rigorous if not draconian inspection processors and customs operations;

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subsidised competitiveness of other exporters and domestic producers through domestic price and investment support arrangements and/or export subsidies -domestic support for agriculture has increased to US$360 billion in 1999 and export subsidies long banned in other trade are still used in agriculture; and

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as a consequence of protection and supports for agricultural producers, many food manufacturers are required to pay unduly inflated prices for their raw materials, which are not fully offset when competing in third markets.

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Is it any wonder that the Cairns Group of free trading agricultural nations would submit ambitious proposals for the mandated Agricultural Negotiations which began in March 2000, and of course, will form the basis of their position in the run up to the next WTO Ministerial meeting in Doha. These seek:

the elimination of export subsidies; ●

major reductions in all forms of market distorting domestic support; ●

deep cuts to all tariffs, including tariff peaks and tariff escalation; and ●

tighter disciplines on export restrictions and taxes. ●

To remove tariff peaks and tariff escalation, a separate negotiating modality and tariff reduction formula is required. This is necessary to avoid the pitfalls of aggregation endemic to the URAA. 

The technique of allowing countries to aggregate products within defined groups provides flexibility great enough to defeat the discipline of the trade rule.

Quite simply countries could choose to blunt the application of rules to "sensitive sectors". 

If we are to avoid a repeat of the underlying problem of the URAA, then commitments to reduce support must provide for sufficient disaggregation such that those reduction commitments:

specifically apply to particular products;  ●

apply to all products; ●

impact all products equally; and ●

cut higher tariffs by greater amounts than lower tariffs. ●

For those in the technical know, to achieve greater cuts to higher tariffs will require the use of a tariff reduction formulae, akin to the so called Swiss formula adopted by industrialised countries in the Tokyo Round to deliver significant cuts to high tariffs. Under that formula a 10% tariff became 6.4%, a 100% tariff to 13.8% and a 1000% tariff to 15.7%.

Given the importance today of processed foods in world trade, we also believe that separate modalities to remove protection of processed foods are also required in the negotiations. A separate negotiating target should be set. It should be the feasible target of zero tariffs.

The currency and relevance of the Cairns Group in advancing this agenda is as critical today, as it was when it was formed in 1985. Arguably, even more so, for 2 key reasons, firstly - the expansion in the number of member countries to the WTO and particularly so developing countries. 

The G77 of developing countries have become the fourth force in international trade negotiations as became evident in Seattle and subsequently so in negotiations on what should

form the basis for a launch of a new Round in Doha. 

Trade liberalisation has never been more important for developing countries. 

One of the key messages out of the Seattle talks was the need to ensure that the framework for further trade liberalisation takes account of the particular needs of developing countries.

With all the talk of debt forgiveness there is no single act within the gift of the industrialised world which can support growth in developing countries and generate significant economic benefit more than the opening of world markets for food and agriculture.

However, as the developing countries have made clear, there are a number of short term adjustment costs of reform and transitional "implementation" issues which need to be addressed within the context of special and differential treatment for developing countries.

And, secondly the importance of the Cairns Group is underscored because the willingness of others to embark on another Round of multilateral trade negotiations, centred on improved market access, is being severely compromised by the "chattering classes" - the interests in wealthy societies who are either unconcerned about or ignorant of the problems of developing countries.

The very success of the WTO could well prove to be its weakening, if not its eventual downfall, if those seeking to hang a fourth pillar of non-trade concerns to it have other than honourable trade reform and trade certainty objectives. 

It is the only international institution that through its Dispute Settlement mechanism can enforce its' rules.

Its success in this area is increasingly becoming one of its problems.

Those with untoward objectives, or who simply don't understand the fragility of consensus based international institutions - and in this I include organised labour, particularly in North America, environmental groups, and non-Government organisations - pose a real risk of causing the WTO irreparable long term damage, for [selfish] short term political expediency.

The intellectual debates about the economic and social benefits of trade reform have long been settled. There is any amount of research data, results of economic modelling and real evidence of the benefits of increasing global trade in goods, services and capital. 

However, the benefits of so called "globalisation" are diffuse. The pain of the deleterious effects are invariably localised and individually substantial. 

The serious overarching problems of trade reform are social, moral and ethical and are therefore political. This climate of disaffection and disenfranchisement was manifest on the streets of Seattle, and since at other world fora.

In recognising this, we need to separate out those who are fundamentally opposed to the "free market model" - no compromise with this school of thinking is possible - from others whose motives are well-meaning.

Few doubt that the launch of a new Round of MTN's at Doha can be achieved without accommodating, and/or being seen to accommodate, some of the more profound "non-trade" concerns of the broader community irrespective of whether they are real or perceived, and in

accommodating the legitimate interests of the individual consumer. 

Note that I make the distinction between community concerns, say for the environment and animal welfare, and consumer interests in the hygienic, chemical and physical integrity of products eg food safety. The concerns of the community do not always equate

with the interests of the consumer. 

However, in seeking to accommodate the interests of both, there is a real risk of generating neo-classical protectionism under the guise of accommodating the social and political imperatives of non-trade concerns. 

Specifically, those advocating the inclusion of trade and environment in the negotiating mandate for a new Round, must be able to convince the Cairns Group, the USA and particularly the G77 of developing countries that their proposals are genuine.

In this confidence, they must demonstrate:

that they are about reconciling the legitimate needs and concerns of the community and consumers with trade rules;  ●

that they are about ensuring that the intersection of trade and social policies preserves the integrity of both;  ●

that they are about a framework of policy that provides for complementarity and mutual reinforcement of social imperatives and trade and economic objectives; and ●

that they support the fundamental principles of freely operating markets. ●

And they [the proponents of a trade and environment agenda] have to be able to convince their counterparts that they are not about a poorly disguised objective of creating a whole new raft of non-tariff barriers to trade by attempting to :

negate sound science as the foundation to risk analysis and risk management in decision making in trade matters affecting the environment, food safety, and public, animal and plant health; 

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undermine the concept of materiality and the non-discrimination in like products irrespective of process and production methods; and ●

use trade coercion as a means to extra - territoriality imposing their social, moral, ethical and environmental standards upon others who are without recourse or redress;  ●

deny other countries, more particularly developing countries, the legitimate right to exploit their comparative advantage in determining in part their competitive strength in international trade of goods and services;

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or, that their basic aim is to diminish the effectiveness of liberal market economics - the views of those seriously protesting against globalisation are founded in anti-capitalism.

If they can't convince us that these are not their real motives, the consequences would be the adulteration of the fundamental principles of a rules based WTO trading system. Although this may have the specific objective of strengthening, say a "fortress Europe", will, by virtue of their internationalisation, extend to every corner of the globe vigorously endorsed and

adopted by protectionists in the name of national sovereignty and consumer concerns. 

If the proponents of these measures cannot convince their counterparts to the merit and sincerity of their cause, then the price they demand for the launch of a new Round of multilateral trade negotiations will be too high . 

From my perspective and many within the Cairns Group, I remain to be convinced. 

My understanding of the EU proposals, supported by Japan and Norway, on trade and the environment is that they seek "clarification" of WTO rules in three key areas:

the relationship between WTO and UN Multilateral Environment Agreements (MEA's) to be codified to ensure that, and I quote that "environmental measures are mutually supportive" [which is code for ensuring discriminatory trade provisions in these Agreements are protected;]

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that the "precautionary principle" be legally binding and include the recognition of "other legitimate factors"; and ●

that the labelling of environmental impacts of goods in their production, use and disposal be mandated. ●

But there is more. The EU proposes other related measures, including:

"multifunctionality" to describe a range of agricultural non-trade concerns as justification for the maintenance of production linked subsidies and high levels of border protection;

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and the mandating of traceability of genetically modified organisms and foods produced using modern biotechnology. ●

It is an impressive agenda of social objectives and non-trade concerns, but at great risk to the integrity of the international rules based trading system.

The sceptics are having a field day and with some foundation. 

The arguments for this so called "clarifying" of WTO rules simply don't stack up. 

Non-trade considerations already figure prominently in the WTO Agreements.

The GATT Accord provides for "exceptions" where signatories may override their general obligations in respect of trade restrictions, provided those measures employed are at a level considered appropriate and can be scientifically and substantially justified for specific purposes, including protection of the environment:

GATT Article XX is the general exception clause which allows countries to adopt otherwise inconsistent GATT measures that are necessary to protect human, animal or plant life or health or which relate to the conservation of exhaustible natural resources;

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[The headnote of GATT Article XX elaborates on the way countries may or may not apply those exceptional measures; these measures cannot amount to "arbitrary or unjustifiable discrimination", or to a "disguised restriction on international trade"];

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The Sanitary and Phytosanitary Measures Agreement (SPS) (health and safety) also ●

provides for signatory countries to maintain or introduce measures which result in more restrictive standards, but stipulates that such measures must be based on science, should be applied only to the extent necessary to protect human, animal or plant life or health, and should not arbitrarily or unjustifiably discriminate between member countries where identical or similar conditions prevail.

The Technical Barriers to Trade Agreement (TBT)- which covers any technical regulations (including labelling requirements) which do not fall under the SPS Agreement - similarly makes provision for more trade restrictive regulations, provided they are not more restrictive than necessary to fulfil a legitimate objective, taking into account the risks that non-fulfilment would create. While legitimate objectives are not defined, under the Agreement, it does provide a non-exhaustive illustrative list which includes:

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the prevention of deceptive practices; ●

the protection of human health and safety;

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animal and plant life or health; and ●

the environment. ●

With respect to Multilateral Environment Agreements (MEA's), the existing WTO rules provide an adequate framework within which the WTO and MEA's can co-exist and the current case by case approach to problem solving is working. 

MEA's are constructed under the banner of the United Nations which is a deliberative body. The WTO is not. It is body that negotiates rules to which signatory countries agree to abide. 

Any suggestion, or cause and effect, that provides for the rights and obligations of signatories to the WTO to be usurped by other Agreements surely defeats the purpose of a rules based system and introduces new concepts of trade coercion and extra-territoriality, which I contend is a form of imperialism dispensed with many years hence.

The answer to the problems of discriminatory trade restrictions in MEA's is not to legitimise them or to create new ones, it is to cease creating them, as the members of the UN agreed at the Rio Earth Summit, as far back as 1994.

The "Precautionary Principle" has received much attention in its revised form under the EU proposal. 

The genesis of the original Precautionary Principle is also found in the Rio Declaration which declared that the lack of scientific evidence was not sufficient grounds not to do things - in that case in the cause of greenhouse gas mitigation. 

The proposal now would reverse that application such that decisions should not be made if the scientific evidence is incomplete. 

This proposal seeks to legitimise the use of the "Precautionary Principle" as a political tool to

be arbitrarily invoked when the scientific evidence is politically judged to be "insufficient, inconclusive or uncertain".

The EU's proposal for the recognition of "Other Legitimate Factors" in the development of standards and use in risk analysis, is driven by the EU's desire to give greater weighting to consumer concerns in decision making over technical and scientific factors. It is driven in part by the series of crises in food safety in Europe. 

When the proposals on the revised "Precautionary Principle" and "Other Legitimate Factors" are put together, there is a clear agenda for the politicisation of science and the externalisation of Europe's regional food safety problems beyond its boundaries.

The proposal for mandatory eco-labelling of products, for what amounts to an ecological life-cycle assessment of that product, quite apart from the cost and the lack of demonstrated consumer interest or benefit, goes to the heart of the concept of materiality so fundamental to WTO rules. 

Furthermore, such a regime cannot be supported by sound science nor environmental justification. 

It challenges the concept of non-discrimination in like products irrespective of process and production methods. 

The same can be said for the proposal on the mandating of traceability of GMO's or products derived there from. 

To date, and to my knowledge, all of the mandatory GMO labelling systems at least in the OECD countries, have preserved the fundamental concept of non-discrimination in like products as the basis of substantial equivalence.

The difference between the US/Canadian position and that of the EU and indeed Australia/New Zealand only amounts to the consideration of, in addition to other differentiating factors, the inclusion of detectable modified DNA and or protein in a product deeming it to be significantly different from its traditional counterpart. 

Before I make my final point, let me underscore the significance of the threat of fundamental corrosion of the WTO by the idea that trade should be restricted according to how a product is made. This is the case for restricting trade on environmental grounds.

The GATT gives countries the right to prosper by exploiting their comparative advantage. The final measure of that is the cost of the product, its material value on the market. The moment those rules are changed to permit controls not on the price of a product, but on how it is made, the right of members of the WTO to exploit their comparative advantage is removed. 

It denies the one right in international law which the world has given developing countries to improve their standards of living.

My final point on the T&E Agenda, is that I have never really fully understood how the proponents of multifunctionality could seriously expect anybody who is committed to trade reform could accept the use of production linked support, rather than specific targeted non-trade distorting or decoupled support, to address their non-trade concern policy

objectives. 

Not only would multifunctionality in this production linked form undermine efforts to continue trade reforms in the agricultural sector but would also unfortunately validate the continuation of current environmentally damaging farming practices in many parts of the world, not least those sponsored by the Common Agricultural Policy (CAP) of Europe, which of course are the proponents of this concept.

And if the environment was such a major consumer concern in Europe as some would have it, the CAP would have unravelled 20 years ago and biotechnology hailed as an environmental saviour. 

Multifunctionality is not an issue if confined to the "green box".

Mr Chairman in conclusion, I am by the day increasingly confident of a launch of a new Round of multilateral trade negotiations in Doha.

But I fear the price may be too high if the negotiating framework provides a platform for the legitimisation of the means for those who seek to restrict the global market to achieve desired domestic social outcomes.

The legacy of this would be that those not a party to the decision making processes and/or unwilling to accept its' regulatory discipline, are nevertheless subject to its consequences without recourse. 

The irony of this situation should not be lost on those who are the advocates of the consideration of non-trade concerns, which, by their very nature stand to undermine the structural integrity of the very institution, the WTO, which they seek to capitalise upon to achieve their objectives. 

I, and I am sure many within the Cairns Group, sincerely hope my views in this regard are written into history as a conspiracy theory that had no substance. 

MITCHELL H. HOOKE CHIEF EXECUTIVE 27 June 2001