Developing countries 
and non-trade concerns

International Conference on Non-Trade Concerns in Agriculture
Ullensvang, Norway, 2-4 July 2000

Discussion Paper Five

Presented by Mauritius

Table of contents

SUMMARY	iv
1.	INTRODUCTION	1
2.	The Context	1
3.	Diversity among developing countries	4
3.1.	Major exporters of commodities	4
3.2.	Large countries being more or less self sufficient	5
3.3.	Large and medium net food importing countries	5
3.4.	Small island states	5
3.5.	LDCs	6
4.	Presence and role of agriculture	6
5.	Economic Issues	7
5.1.	The world market	7
5.2.	Cross-linkages with other sectors	8
5.3.	Cost of production	9
6.	Scope of Diversification	9
7.	PROTECTION AND PRESERVATION OF THE ENVIRONMENT	9
8.	Means to address Non-Trade Concerns	10

SUMMARY
1.	Agriculture was introduced for the first time in the multilateral trading system in the Uruguay Round.  The negotiations which started from a purely economic angle concluded with the recognition that agriculture spanned both the trade and non-trade domains.
2.	Article 20 of the Agreement of Agriculture lays down the principles on which future negotiations should be conducted.  It underscores the need for the reform process to be based on progressive liberalisation and for a number of issues to be addressed prior to any further commitments being envisaged.   Non-trade concerns feature prominently among these issues.  
3.	Article 20 should be read in conjunction with other parts of the Agreement on Agriculture, mindful of various international commitments .  In this context, the following are particularly relevant: the International Covenant on Economic, Social and Cultural Rights which emphasises the importance of adequate food supply alongside the continuous improvement of living conditions; and the World Food Summit which highlights the multifunctional role of agriculture and the concerns surrounding issues such as rural development and out-migration, high and low potential areas and food security.
4.	Indeed, the role of agriculture in all countries is not limited to the production of food and fibre.  In many cases, it underpins the socio-economic fabric of rural areas and often, that of countries themselves.  In a number of developing countries, agriculture provides an instrumental link to the development of eco-tourism, production of clean energy, avoidance of the use of fossil fuels, the provision of social amenities and in fostering research and technology development.  Moreover, it has an important role in the protection and preservation of the environment and biodiversity.  
5.	Concerns surrounding non-trade issues cut across the divide of developed and developing countries.  The latter countries comprise various interest groups, ranging from major commodity exporters; large countries which are food self-sufficient; large and medium net food importing countries; small island states; and the least developed countries.  Net food importing developing countries are featured in several of these interest groups. The approach of developing countries to non-trade concerns and their responses to liberalisation and food procurement are broadly guided by their particular agricultural configurations.
6.	Addressing non-trade concerns is vital.  While Annex II lists a certain number of policy measures that may be used for this purpose, green-box provisions have been described as inadequate and/or unaffordable by most developing countries. .   

1.	INTRODUCTION
7.	Agriculture was incorporated in the framework of the multilateral trade system in 1986 when the Uruguay Round was launched. The Punta Del Este Declaration, seemingly influenced by an economic perspective, spelt out the scope of negotiations in agriculture. These negotiations were meant to correct and prevent “restrictions and distortions” in world agricultural trade.  No mention was made of non-trade concerns.  The Round was concluded eight years after Punta del Este, lasting three years longer than expected. It led to a comprehensive and broadbased set of Agreements. 
8.	Absence of agreement in agriculture was one of the main reasons for these protracted negotiations.  In agriculture, the negotiators struck a delicate balance of interests and one of the major departures from the Punta Del Este objective was the due recognition given to non-trade concerns as all the characteristics and constraints of agriculture had to be acknowledged.
9.	In concrete terms non-trade concerns are highlighted both in the preambular part and the body of the Agreement on Agriculture.
10.	Article 20 of the AA relating to the continuation of the reform process in agriculture makes unambiguous reference to the need to, inter alia, take into account non-trade concerns before proceeding further.
11.	Agriculture as outlined in this paper and in the other ones submitted to this Conference is a world-wide activity which spans the developed and developing worlds.  Each country, and at times each region, has its own specificities and concerns as regards agriculture.  Worldwide, its role goes beyond the mere production of food and fibre and covers a host of functions which underpin the socio-economic fabric of rural areas.  Increasingly, agriculture is more and more called upon directly or indirectly to contribute to the reduction of the use of fossil fuels thereby further contributing to the reduction of global warming.
12.	As in 1986, there is strong pressure from the same quarters to de facto restrict the scope of negotiations in agriculture to the economic sphere.  Such an approach would benefit a handful and be detrimental to the many amongst which, a number of developing countries.  This paper is therefore presented from the broad perspective of a developing country with certain references to the case of small island states as certain of the constraints of developing countries (DCs) are more acute in small islands.
13.	While it is a fact that non-trade concerns have been incorporated in the legal texts, some are yet to be translated into measures.  Moreover, blind trade liberalisation may come in the way of this translation exercise.  It is therefore necessary to ensure that non-trade concerns are taken on board so that future trade negotiations are meaningful and result in an equitable outcome.

2.	The Context
14.	The interactions between agricultural systems and practices, economies, societies and the environment are highly complex and this complexity is, and has to be, reflected in the AA.  Moreover, the AA should be examined from a broad angle taking into account the relevant parts of the results of the Uruguay Round as well as other commitments of sovereign nations under other multilateral agreements, treaties, covenants or conventions.
15.	The need to improve the standard of living of people is inscribed in the International Covenant on Economic, Social and Cultural Rights of 1966 Article 11, given hereunder, is pertinent to the issues being considered:
•	The States Parties to the present Covenant recognize the right of everyone to an adequate standard of living for himself and his family, including adequate food, clothing and housing, and to the continuous improvement of living conditions.  The States Parties will take appropriate steps to ensure the realization of this right, recognizing to this effect the essential importance of international co-operation based on free consent.
•	The States Parties to the present Covenant, recognizing the fundamental right of everyone to be free from hunger, shall take, individually and through international co-operation, the measures, including specific programmes, which are needed:
	(a)	to improve methods of production, conservation and distribution of food by making full use of technical and scientific knowledge, by disseminating knowledge of the principles of nutrition and by developing or reforming agrarian systems in such a way as to achieve the most efficient development and utilization of natural resources;
	(b)	taking into account the problems of both food-importing and food-exporting countries, to ensure an equitable distribution of world food supplies in relation to need.”
Agricultural issues and in particular food availability and procurement feature prominently in this Article of the Covenant.
16.	The WTO Agreement of 1994 coming nearly twenty years later sets out similar objectives in its first preambular paragraph:
“Recognizing that their relations in the field of trade and economic endeavour  should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development,”
17.	It is clear when reading it that the WTO does not envision trade as an end in itself but that relations in the field of trade and economic endeavour should lead to the improvement of the general welfare of people and the maintenance of the environment.  Such objectives had been, or are, spelt out in other multilateral agreements.  In that sense the text of the WTO Agreement appears to have been carefully drafted so as to avoid countries having to take commitments which would contradict their obligations under other multilateral frameworks.
18.	Para (c) of Article 20 of the AA is the one which refers to “non-trade concerns” and it also points to the “objectives and concerns mentioned in the preamble” to the AA. In the preamble, the relevant paragraph reads:
“Noting that commitments under the reform programme should be made in an equitable way among all Members, having regard to non-trade concerns, including  food security and the need to protect the environment, having regard to the agreement that special and differential treatment for developing countries is an integral element of the negotiations, and taking into account the possible negative effects of the implementation of the reform programme on least developed and net food importing developing countries,”
19.	The chronology of the various legal texts mentioned above shows a movement from very broad principles contained in the Covenant, to specific issues embodied in Article 20(c) and the Preamble.
20.	Debates on the role of agriculture did not end with the conclusion of the Uruguay Round.  Indeed, discussions in relevant fora, the FAO and the OECD, resulted in significant policy statements.  In December 1996, the World Food Summit approved the Rome Declaration on world food security and World Food Summit Plan of Action.  Commitment Three reads:
“We will pursue participatory and sustainable food, agriculture, fisheries, forestry and rural development policies and practices in high and low potential areas, which are essential to adequate and reliable food supplies at the household, national, regional and global levels, and combat pests, drought and desertification, considering the multifunctional character of agriculture.”
In fact, the Plan of Action underscores the need for “adequate food”, a concept already contained in the Covenant.
21.	Para 31 under the heading “The basis for action” of Commitment Three specifies the importance of the social and economic development of the rural sector, namely:
“The economic and social development of the rural sector is a key requisite for the achievement of food security for all.  Rural poverty is a complex phenomenon that varies considerably between and within countries.  The rural areas in developing countries are generally poorly equipped in terms of technical and financial resources and educational infrastructure.  In these areas, lack of income opportunities, failure to crop and to maintain production systems, inadequate commodity and input and consumer goods distribution networks, limited access to public services and the poor quality of these services are all fundamental aspects that need to be considered with regard to rural food security.  The main consequences of this are reflected in high population growth and out-migration, both internally and to other countries.”
22.	The OECD, two years later, in a Ministerial Communiqué came up with a position on the role of agriculture:
“Beyond its primary function of supplying food and fibre, agricultural activity can also shape the landscape, provide environmental benefits such as land conservation, the sustainable management of renewable natural resources and the preservation of biodiversity, and contribute to the viability of many rural areas.  In many OECD countries, because of the multifunctional character, agriculture plays a particularly important role in the economic life of rural areas.”
23.	The World Summit appropriately described the situation of developing countries by referring to “high and low potential areas” in Commitment Three and to the problems and constraints of rural areas (in para. 31), in short the non-trade concerns.  The OECD communiqué simply gave meaning to the multifunctional role (which encompasses the non-trade concerns) of agriculture in developed countries and did not create a developed world concept.
3.	Diversity among developing countries
24.	The developed world encompasses adepts of radical free trade such as Australia and New-Zealand as well as proponents of progressive trade liberalisation as spelt out in Article 20. In the developing world which comprises  many more countries, interests and therefore positions are quite varied depending to a large extent  on the agricultural profiles of countries.  These configurations are briefly outlined below. They shed light on the stance of various developing countries’ and their capacity to respond to market developments. The countries referred to below are for illustrative purposes.   

3.1.	Major exporters of commodities
25.	This group comprises several countries namely Brazil, Argentina and Thailand.  From a multi- commodity export perspective and the positioning on the world market, the three are quite similar to developed countries such as Australia and Canada.  To a lesser extent, Colombia, Uruguay, Chile, Paraguay and Malaysia are in comparable situation.
26.	The table below outlines the importance of Argentina, Brazil and Thailand in respect of some agricultural commodities:

Table 1
Country	Agricultural commodities 	Rank Worldwide as exporter	
Argentina	Soybean	3	
	Wheat	5(1)	
	Maize	3	
			
Brazil	Soybean	2	
	Sugar	1(1)	
			
Thailand	Rice	1	
	Cassava	1	
	Sugar	4(1)	
(1) EU taken as one.
Source: FAO Statistics on commodities
27.	The importance of certain countries in a particular commodity is such that they are the price fixers.  For instance, a surge in exports from the Brazilian sugar industry, which relies a lot on the ethanol subsidy system, have destabilised the sugar market bringing down prices.

3.2.	Large countries being more or less self sufficient
28.	India is in the category of countries with a substantial agricultural population and which manages to more or less achieve self sufficiency in most agricultural products.  In a population of nearly a billion, agriculture accounts for 27% of GDP and occupies 57% of the population.  The harmonious socio economic and cultural development of rural areas is a cornerstone of the developmental policy of India.  

3.3.	Large and medium net food importing countries
29.	Egypt, Kenya, Côte d’Ivoire, Morocco, Pakistan, Peru, Senegal, Tunisia and Venezuela are in the category of medium to large sized countries which are net food importing countries.  These countries along with nine others are in the list of net food importing developing countries  drawn as per Article 16 (Title:  Least developed and net food importing countries) of the AA.

3.4.	Small island states 
30.	Six small island states (Jamaica, Mauritius, Trinidad, and Tobago, Dominican Republic, Barbados and Saint Lucia) are also in the net food importing developing country category. Such islands on account of a host of reasons including, particular climatic and ecological conditions , depend on one or at best two agricultural commodities for export. A few examples to illustrate the dependence on certain crops:

Table 2
Countries	Commodity	
Fiji, Jamaica, Trinidad and Tobago, Guyana, Barbados, St Kitts and Nevis, Belize, Mauritius, Dominican Republic	Sugar	
Dominica, St Lucia, Belize, Jamaica, Suriname, St.Vincent & the Grenadines, Dominican Republic, Grenada	Bananas	

31.	Most, if not all, of these countries benefit from preferential trade arrangements with developed countries.  The proceeds from the exports are instrumental in maintaining the viability of the rural areas.  Apart from the export commodity, the level of self-sufficiency in most food items, cereals, oil, milk, proteins is negligible.  Consequently, these countries need resources to procure food.  In this context, Paragraph 1 of the Rome Summit is relevant: “Food Security exists when all people, at all times, have physical and economic access to sufficient, safe and nutritious food to meet their dietary needs and food preferences for an active and healthy life”.

3.5.	LDCs
32.	The last category comprises the LDCs, forty eight in all, whose predicament in agriculture is a well known feature.  They are inter alia characterised by the following:
•	a net food importing country status;
•	a significant proportion of subsistence agriculture;
•	a significant debt burden;
•	the need to save valuable foreign exchange which is spent on food purchase; and
•	the need to prevent disruptive outmigration from rural areas.   

4.	Presence and role of agriculture
33.	From the dawn of history, the first activity of mankind when they started living in a structured society has been agriculture for subsistence.  The transition from gathering food from nature or hunting for food towards the economic activity of producing food lead to agriculture and animal rearing.  It was accompanied by organised settlements of mankind and the beginning of human civilisation.  The culture, tradition and history of all human civilisation across the world has been deeply influenced by agriculture which quickly evolved from subsistence farming to barter and trade with neighbouring communities.  The rural areas are not only production areas but also the soul of these countries.  In the case of small islands, the establishment of a cash crop to be exported to the colonial power was more often than not the cause of human settlement.  In this regard, sugar has been instrumental in the colonisation of islands in the Caribbean, the Pacific and the Indian Ocean.
34.	While in certain large countries of the new world, Brazil, Argentina, Australia, numerous crops thrive on a large scale, this is not necessary the case in many developing countries. The situation is quite different in the case of small islands and small states.  Indeed, one or at best two crops have emerged as they had a remarkable adaptability to the prevailing ecological system which is characterised by the yearly visits of cyclones and periods of prolonged drought.  In this regard, it is worthwhile noting that according to the 1990 US Disaster Relief Organization Review, which took into account the economic impact of disasters over the 1970-1990 period, there are 13 small island developing states out of the 25 most disaster prone countries.
35.	In para. 31 of Commitment Three of the Rome Summit, the deficiencies of the rural areas are spelt out and the outcome namely the outmigration is highlighted.  Conversely, the harmonious development of such areas, mainly centred around agricultural production would avoid the deficiencies enumerated.  An example of the importance of agriculture for rural development is taken from one island state, Mauritius.  Notwithstanding specificities, the same would apply in many similar countries.  In Mauritius, agriculture has contained outmigration by fixing through gainful employment in viable farming activities nearly half of the population in the rural areas.  This has prevented the social evils associated with urban overpopulation experienced in a large number of developed and developing countries as well as preserving the quality of life of one and all.  A dynamic and remunerative agricultural sector built around the sugar industry has had positive welfare fall-outs for the rural population in terms of inter-alia infrastructure development, building up of skills pool, education, facilities for housing, health, housing estates and recreational facilities as well as having numerous economic multiplier effects to sustain the socio-economic development of the country.

5.	Economic Issues
36.	From a food procurement perspective the following situations are pertinent in respect of DCs:
•	Self sufficiency in most major items of foodstuff. This is the case with many Latin American countries and certain South East Asian ones, for instance, Brazil, Argentina, Uruguay, Paraguay and Thailand.  Moreover, such countries are major exporters of agricultural commodities.  Food procurement is not a cause of concern.
•	Large agrarian countries more or less self sufficient in most foodstuffs. However, they need to have recourse to imports in certain years and this brings about a strain on their resources.
•	Large and medium net food importing developing countries, generally exporters of cash crops and importers of most of major food items, the level of self sufficiency is variable, from high levels to low ones.
•	Single commodity small islands and countries, chracterised by very low level of self sufficiency, proceeds from the export of the single commodity essential for food procurement.
•	LDCs with variable levels of food self sufficiency and which need both to step up production of food and to avail themselves of further export earnings to procure food.

5.1.	The world market
37.	The proponents of radical trade liberalisation place considerable emphasis on the role of the world market.  In the various arguments put forward, they contend that the removal of “distortions”:
•	would lead to a situation where prices would be determined only by supply and demand considerations; 
•	would as a rule bring about an increase in prices; and
•	would bring about the advent of a level playing field.
38.	These assertions are not borne by facts:
•	multinational companies in numerous commodities have such a control on the production and distribution chain that they are the price setters and their role is predominant in many commodities originating in developing countries;
•	hedge funds controlling more than 200 billion US$ (nearly seven times the value of the world sugar production) can unduly interfere with markets;
•	the control of significant proportions of the export market for numerous food commodities by one or a small group of countries; and 
•	one country can by stepping up its exports influence the world market price, for instance, the export by Brazil of an additional four million tonnes of sugar, more than the EU subsidised exports, brought sugar prices to very low levels.  In 1999, 11 million tonnes of sugar exported by Brazil represented some 64% of the residual world sugar trade of some 17 million tonnes and was a key factor in bringing world sugars to their lowest level in a decade.
39.	The world market as envisioned by some and where major players would be free to operate according to their desiderata:
•	would reduce the export revenue of most developing countries through market share loss and
•	would put food importers at the mercy of cartels, the net result being reductions either of food availalibities or of food procurement capacity.

5.2.	Cross-linkages with other sectors
Linkages between agriculture and eco-tourism
40.		There is today a new type of tourism emerging where agriculture plays an important role. An environmental friendly agriculture may give a new impetus to the tourism sector. The emergence of eco tourism, in the past recent years, is an avenue to explore for developing countries.
Linkages between agriculture and energy
41.	Agriculture provides electrical energy from biomass or fuel for motor vehicles from ethanol. Extensive research is being carried out on how to produce fuel from colza or sunflower (“Diester” fuel).
Linkages between agriculture and social services
42.	Agriculture helps to extend health, educational and social services in rural areas.
Linkages between agriculture and technology
43.	Agriculture has helped developing a network of engineering services that has fostered the development of specialised companies and organisation that provide specialised equipment and services. This situation is contributing to the development of technology and favours the development of research and development.

5.3.	Cost of production
44.	The freetraders base themselves on the cost of production concept.  These countries usually operate on large expanses of land, benefit from economies of scale and in at least one case on crosssubsidisation schemes (ethanol and sugar).  This is not the case for most DCs.  Indeed, this variability has been recognised by the Rome Summit when it refers to “high and low potential areas”.  A strict economic approach is not applicable to most DCs as it would very quickly lead to the abandonment of activity in “low potential areas”.
45.	In the debate on relative costs of production, the key question is what would be the cost of producing the additional unit of product to fulfil market demand after the totality of existing surplus capacities among the low cost producers have been exhausted.  As we move production to meet the last unit demanded by the market, the cost of producing to meet demand above what low cost producers can satisfy is bound to attain higher thresholds of costs of production.  The lowest cost of production cannot be a benchmark to produce the additional unit and more so, the last unit for which a demand exists in the market place.

6.	Scope of Diversification
46.		In a difficult economic context, the possible avenues for diversification has to be examined.  Several issues are pertinent in this regard:
•	diversification in manufacturing can be constrained by one or more factors, for instance:
(a)	resource scarcity;
(b)	complex rules of origin which are not easy to satisfy ;
(c)	frequent use of anti-dumping provisions of the relevant WTO Agreement; and
(d)	increased competition arising from inter-alia, liberalisation.
•	Diversification into services can be attempted but most DCs in particular the LDCs may not have the resources; moreover, DCs are hampered by the lack of progress of the issue of movement of natural persons.
•	In certain countries, there have been efforts to move away from food production.  Whilst this is possible in large or medium countries, it is not feasible in small states and islands.  Indeed, the reliance on one commodity has been brought about by the remarkable adaptability of that commodity to the particular ecological niche.  Efforts to grow other crops on a commercial scale have failed.

7.	PROTECTION AND PRESERVATION OF THE ENVIRONMENT
47.	The preamble to the WTO Agreement refers to the need to “protect and preserve the environment”.
48.	Article 8(h) of the Convention on Biological Diversity “each Contracting Party shall, as far as possible and as appropriate … prevent the introduction of, control or eradicate those alien species which threaten ecosystems, habitats or species.” 
49.	Whilst most countries have common concerns in terms of the main environmental issues, there are two issues of particular pertinence to developing countries.  The first one relates to the protection of bio-diversity and the second one to the situation of small island developing states. Of the seventeen megadiversity countries accounting for 70% of total global biodiversity, 14 are considered as DCs at the WTO, namely, Brazil, Colombia, Indonesia, China, Mexico, Venezuela, Ecuador, Peru, Papua New Guinea, India, Malaysia, Madagascar, Democratic Republic of the Congo and the Philippines.  (Source Muttermeier et al (1997) and Conservation International)
50.	During the last 15 years, land use has changed considerably, particularly in developing countries where deforestation resulted in a net loss of some 180 million hectares of forests between 1980 and 1995, or an average annual loss of 12 million hectares.  (Source : World Resources Institute 1998).  Moreover, while deforestation is caused by several factors, including commercial logging, it often coincides with, and is partly a result of, an expansion in agricultural land.  Deforestation often affects virgin forests and thus has a negative impact on biodiversity.  It therefore seems that it can be concluded that the expansion of the agricultural sector that is projected to take place in low-support countries as a result of further liberalisation, will probably have a negative impact on biodiversity.
51.	The second concern is in respect of small island states.  Para 28 of Commitment Three of the Rome Summit raises the issue, namely:
“Small Island Developing States face the threat of land loss and erosion due to climate changes and sea level rises and have particular needs for their overall sustainable development. Improvements in trade, transportation, communication, human resources, stabilization of income and higher export earnings will increase food security in these countries.” 
52.	Many DCs do not have fossil fuels and depend to a considerable extent on the importation of such fuels.  Agricultural production in these countries has a third primary function, i.e. energy generation in addition to the provision of food and fibre.  For instance, in Mauritius, some 300 million kWh would be obtained from sugar cane factories through the efficient use of bagasse (fibre of cane).  The yield of the electricity generation comes to 4800 kWh/ha and could go up to 9000 kWh/ha.  Several countries, Fiji and Jamaica, for instance, are embarking on projects to optimise the use of bagasse.  Such projects allow the avoidance of carbon dioxide emission.

8.	Means to address Non-Trade Concerns
53.	Ensuring that non-trade concerns are properly addressed is essential for both developing and developed countries. 
54.	Annex II in its para. 1 spells out that:
“all measures for which exemption is claimed shall conform to the following basic criteria: 
•	the support in question shall be provided through a publicly-funded government programme (including government revenue foregone) not involving transfers from consumers; and
•	the support in question shall not have the effect of providing price support to producers; 
plus policy-specific criteria and conditions as set out below ...” 
55.	The policy-specific criteria and conditions as contained in Annex II (Domestic supports the basis for exemption from the reduction commitments) to the AA, commonly known as the green box, relates to general services, (research, training, infrastructural services etc), public stockholding for food security purposes; domestic food aid; direct payments to producers; decoupled income support; Government financial participating in income insurance and income safety-net programmes; payments for relief from natural disasters; structural adjustment assistance through either producer retirement programmes or resource retirement programmes or investment aids; payments under environmental programmes and payments under regional assistance programmes. Concerns have been raised on the adequacy of Annex II measures which, in any case, are not generally within the financial reach of Governments of developing countries .