WTO and Agriculture  —  The issues

In November 2001, in Qatar, the member countries launched the Doha round of negotiations at the World Trade Negotiations (WTO), in which agriculture is one of the main issues. This round of negotiations was initially supposed to end on January 1, 2005, but the talks are still in progress. The WTO now has 150 member countries.

Agriculture negotiations underway at the World Trade Organization (WTO) involve three main subjects:

  • market access
  • export subsidies
  • and domestic support.

The objective of the WTO is to create a fluid international trade system by eliminating all barriers to trade, such as high customs tariffs and restrictions on the type of products that can be imported into a country.

This makes no sense when we know that more than 90% of agricultural commodities are consumed in the country where they are produced. This approach is dictated by the main exporting countries, led by the European Union and the United States, which are seeking to sell their production surpluses while continuing to support their agriculture with generous subsidies. Their proposals would only worsen a situation that has deteriorated since 1994, the year that agriculture was included in the WTO agreements. Clearly, their objective is to protect their own markets while obtaining access to other countries’ markets.

THE ISSUES FOR OUR DAIRY AND POULTRY SECTORS

Thirty years ago, local farmers under supply management decided to focus on responding to Canadian demand for dairy products, poultry and eggs with high quality products without depending on subsidies. The federal government committed itself to limiting imported products to ensure Canadian market requirements are primarily met by Canadian production and also introduced mechanisms to enable producers to receive prices that guarantee reasonable returns and a decent living from their production. Without border protection, farmers could not withstand heavily subsidized imports. Customs tariffs and tariff quotas make it possible to control the entry of generously subsidized products into Canada. These controls are our only means of assuring the future of agriculture in Canada.

The huge subsidies granted by powerful economic giants such as the United States and the European Union enable these countries to export their agricultural products at a low price around the world. That is how they are able to maintain their agricultural production despite lower customs tariffs.

Despite repeated commitments to eliminate subsidies, these countries continue to heavily subsidize their agriculture. According to a study by Peter Clark, a specialist in global trade, dairy farmers received a total of $14 billion in aid in 2003, which would account for 40% of their income or more than 25 ¢ per litre. Together, the European Union and the United States pay more than $100 billion dollars in subsidies to their farmers.

Recent commitments by the United States and the European Union to decrease their farming subsidies will not help resolve this problem. According to the proposals currently on the table, these countries will actually be able to maintain their financial support to farmers at its current level.

PRODUCTS FARMED UNDER SUPPLY MANAGEMENT MUST BE RECOGNIZED AS SENSITIVE PRODUCTS.

The provision of the framework agreement signed in July 2004 regarding sensitive products gives some flexibility to Canada to preserve supply management. However, Canada will have to negotiate fiercely since certain blocks of countries are trying to restrict the scope of this exceptional provision considerably.

The WTO must allow our milk, poultry and egg productions to avoid lower customs tariffs by recognizing them as "sensitive" products. That will allow Canada to keep its defense against foreign subsidized products intact.

THE IMPACTS OF WTO NEGOTIATIONS AT HOME

Opening markets by reducing customs tariffs and the inability to protect the foundations of supply management would jeopardize the future of our milk, poultry and egg production and the families who earn their living from them.

This would have social and economic repercussions for society as a whole:

  • progressive replacement of our farming products by imported products, thus jeopardizing food self-sufficiency in Québec and Canada;
  • increased dependence of local consumers on imported products, which could result in supply problems;
  • decrease in our capacity to control the quality and quantity of imported products;
  • transportation of food over long distances, negatively affecting the environment and the quality of products;
  • farm bankruptcy and loss of direct and indirect jobs in various regions;
  • concentration and industrialization of agriculture and the disappearance of small farms;
  • economic effects on other links in the agri-food chain (processors, distributors, input suppliers and services);
  • huge contribution of public funds necessary to maintain and compensate for the affected sectors.

GO5 COALITION'S POSITION

Around 10% of global agricultural production is marketed internationally, while the other 90 % is intended for the domestic market. Although the WTO is justifiably working to govern global trade, it isn't necessary to overturn the agricultural policies of its member countries in favor of a meager 10%.

The WTO must respect the right of sovereign states to preserve, adopt and apply agricultural policies they feel are appropriate, provided that their policies, such as supply management, do not distort global trade.

Furthermore, in the sectors under supply management, Canada already offers more than the 5% access to its market required by the WTO. Some countries, who present themselves as free traders, don't even offer the 5% access they agreed to give in the previous round of negotiations.

Canada has already satisfied its duties by adapting its agricultural policy to international regulations. Therefore, the Canadian government must vigorously defend supply management with the WTO and ensure that it is entirely maintained at the end of the current negotiations.

To do this, the Canadian government must:

  • have the products under supply management recognized as sensitive products
  • preserve its ability to:
    • effectively control imports;
    • administer a price policy making it possible to cover production costs.

SUMMARY OF THE POSITIONS OF EGG, POULTRY AND DAIRY PRODUCERS

MARKET ACCESS «CUSTOMS TARIFFS»
Producers are calling for the maintenance of over-quota tariffs at their current levels. Effective tariffs are the only way to control imports and allow production to adjust to consumer demand.

MARKET ACCESS «TARIFF RATE QUOTAS (TRQs)»
Producers are calling for real and transparent market access for agricultural products equivalent to not less than 5% of domestic consumption, as agreed among the countries in the Uruguay Round. If all countries respect this commitment, it would allow an average 80% increase in the volume of agricultural and food products that could be traded worldwide without any real barriers.

EXPORT SUBSIDIES
Producers want all government-funded export subsidies to be eliminated.

DOMESTIC SUPPORT
Producers are calling for a change in the green-box category so that the WTO recognizes that collective pricing mechanisms that do not involve transfers of public funds, such as the measures under supply management, are legitimate and do not have a distorting effect on trade.

GO5’S POSITION (IN DETAILS)

WHAT PURPOSE DO TARIFFS SERVE?
Over-quota tariffs are duties intended to prevent imports over a predetermined level. By knowing the level of imports, Canadian producers can respond more clearly to the Canadian demand for dairy products, poultry and eggs, without creating surpluses. This adjustment of supply to demand is the basis of the supply management system. Its maintenance is only possible with import control, particularly through the imposition of tariffs.

ARE TARIFFS EFFECTIVE AS A TOOL FOR CONTROLLING IMPORTS?
The effectiveness of tariffs varies according to the strength of the Canadian dollar, the devaluation of foreign currencies and the fluctuations in world commodity prices. Since 1998, the Canadian dollar has gained 15 % against the US dollar, reducing the effectiveness of our tariffs. Similarly, the Brazilian real lost 64% of its value against the Canadian dollar from January 1998 to October 2003. An over-quota tariff that loses its effectiveness, even for a limited period, risks compromising the entire supply management system.

WHAT WOULD BE THE CONSEQUENCES OF A TARIFF REDUCTION FOR CANADIAN PRODUCTION?
Over-quota tariffs represent Canadian producers’ only defence against foreign subsidies. Producers in the United States and Europe, thanks to the enormous subsidies they receive, can export at lower prices than they should normally be paid to cover their operating costs. Tariff reductions would allow these products to corner a large share of our market.

At their current levels, over-quota tariffs are barely adequate to protect the Canadian market. For example, butter imports could flood the Canadian market.

In Spring 2002, the level of over-quota tariffs was barely adequate when world butter prices collapsed. A 15% reduction in overquota tariffs would have rendered all butter tariffs completely ineffective.


Reducing tariffs would weaken the pillar of import control, prevent efficient planning of production and reduce the ability of producers to obtain a decent price.

POSITION OF EGG, POULTRY AND DAIRY PRODUCERS
Producers are calling for the maintenance of overquota tariffs at their current levels. Effective tariffs are the only way to control imports and allow production to adjust to consumer demand.

TARIFF RATE QUOTAS

WHAT ARE TARIFF RATE QUOTAS?(permitted quantity of imports)
Tariff rate quotas represent the proportion of a country’s domestic market that can be supplied by imports, without being subject to special rates.

HOW ARE TARIFF RATE QUOTAS CURRENTLY APPLIED?
The countries involved in the Uruguay Round agreed on guidelines offering minimum market access for agricultural products equivalent to 5% of domestic consumption.

However, not all countries applied the guidelines in the same way, which led to different access levels, clearly below 5%. In fact, the actual average access offered via tariff rate quotas is closer to 2%. This situation highlighted the necessity of an approach based on rules rather than on guidelines.

In Canada, market access for commodities under supply management is broader than the access granted in many other countries for any sector. For example, Canada imports about 4% of the dairy products market and over 7.5% of the poultry market, while the United States only gives 2.75% access for dairy products and Europe allows a mere 0.5% for poultry.

WHAT WOULD BE THE BENEFITS OF A POLICY OFFERING MINIMUM 5% ACCESS TO MARKETS?
If all countries observed a 5% minimum access policy, this would allow an 80% average increase in the volume of agricultural and food products that could be traded worldwide without any real barriers.

It would be inappropriate to increase the access level any further, firstly because several countries have not yet complied with the 5% commitment, and secondly because many products are still managing to get around the current tariff rate quotas.

National egg, poultry and dairy producers’ organizations have analyzed the implications of a policy offering minimum 5% access to markets, based on the consumption level for 1995-1997, the most recent reference period for which information is available. (The WTO currently uses the 1986-1988 period.)

The study clearly shows that extending access to 5% leads to an increase in access for various agricultural commodities.

Increase in trade of selected commodities resulting from a commitment to real 5% access, based on clear rules
Commodity Increase in market access
Butter 20,7%
Cheese 77,5%
Pork 114,4%
Poultry 152,1%
Eggs 50,2%
Beef 91,6%
Source : Study conducted by the national organizations of the five Canadian commodities under supply management.

Access to markets through tariff rate quotas is an effective way to promote trade, while allowing countries to maintain programs such as supply management.

POSITION OF EGG, POULTRY AND DAIRY PRODUCERS
Producers are calling for real and transparent access to markets, equivalent to not less than 5% of domestic consumption, as agreed among the countries in the Uruguay Round. They also want a more recent reference period to be used (the period currently used by the WTO is 1986-1988).

EXPORT SUBSIDIES

WHAT ARE EXPORT SUBSIDIES?
Export subsidies are subsidy payments, either direct or in kind (for example, Food Aid), that have the effect of lowering the price of products on the world market.

It is internationally recognized that governmentfunded export subsidies are the most trade-distorting measures in world trade.

WHAT ARE THE IMPACTS OF EXPORT SUBSIDIES?
Export subsidies disrupt world markets by triggering an artificial decline in prices.

Opening borders to products subsidized by other countries would be a death sentence for our commodities, which are unsubsidized. The Canadian and Quebec governments do not have the financial means to compete with the public treasuries of the United States and the European Union.

The developing countries are the first victims of export subsidies. Farmers in these countries are unable to offer products that can compete with subsidized export products.

POSITION OF EGG, POULTRY AND DAIRY PRODUCERS
Producers want all government-funded export subsidies to be eliminated.

DOMESTIC SUPPORT

WHAT IS DOMESTIC SUPPORT?
The support that a country grants to the agricultural sectors and that is not related to commodity exports known as domestic support.

There are three different categories of subsidies:

Green-box category: subsidies for which no limitation is imposed, particularly because there is no impact on trade.

Amber-box category: subsidies permitted by the WTO, but only within certain limits because they have a distorting effect on trade or on production. The amber-box support level granted by a country is calculated for all of its agriculture combined and is called the aggregate measurement of support.

Blue-box category: direct payments that would normally fall under the amber-box category but that oblige farmers to limit production are known as “blue-box”. Currently, the European Union is the biggest member of the WTO to use blue-box programs.

PRICING MECHANISMS
Pricing mechanisms under supply management give producers the power to negotiate fair prices collectively with processors.

HOW ARE PRICING MECHANISMS CURRENTLY TREATED AT THE WTO?
According to the WTO’s current rules, all types of domestic support mechanisms not included in the green-box or blue-box categories, which is the case for pricing mechanisms, must be included by default in the amber-box category, which is considered to be support with a distorting effect on trade and is therefore subject to reduction.

WHAT ARE THE BENEFITS OF COLLECTIVE PRICING MECHANISMS?
In an increasingly concentrated market characterized by a small number of powerful processors and retailers, the powers provided by supply management and its pricing mechanisms give egg, poultry and dairy producers, who are numerous, some bargaining power on the market.

For example, in the Quebec dairy industry, three processors buy 80% of the production of the province's 7,300 dairy farms. Collective pricing mechanisms give producers the ability to receive a fairer share of the consumer dollar

The pricing mechanisms and activities of producer associations can be compared to collective labour agreements or provincial minimum wage regulations. All three are based on government legislative support, but without any payment of subsidies. It is legitimate for farmers to have the same rights as workers in other sectors.

POSITION OF EGG, POULTRY AND DAIRY PRODUCERS
Producers are calling for a change in the greenbox category so that the WTO recognizes that collective pricing mechanisms that do not involve transfers of public funds, such as the measures under supply management, are legitimate and do not have a distorting effect on trade.