African, Caribbean and Pacific Group of States’ agricultural trade and the World Trade Organization negotiations
The long-running World Trade Organization (WTO) Doha negotiations remain unresolved. The stumbling block in 2008 was the intransigence of the United States of America over domestic support and the G-33 position on the creation of a safeguard, accessible for developing countries, against import surges and depressed prices (Special Safeguard Mechanism (SSM)). Since 2008, further issues have arisen outside of agriculture, and negotiators appear further from an agreement now than they were then.
Members agreed in 2008 to make linear tariff reductions within bands, but proposed exemptions for sensitive products; while providing for much needed flexibility, this threatened to undermine the reduction of tariffs. Ironically, the greater the reduction of tariffs is, the greater is the potential of exemptions for sensitive products to undermine that reduction. On the other hand, it has repeatedly been shown that WTO members require some flexibility to protect politically sensitive sectors.
Analysis at the time suggested that although developing countries as a group would benefit from the proposed reductions in tariffs, domestic support and export subsidies, the benefits were not evenly distributed. Indeed, many African, Caribbean and Pacific Group of States (ACP) countries were likely to become worse off as the result of loss of preferential access as most-favoured nation (MFN) tariffs were lowered. In addition, the rising price of temperate products would raise the costs of imports, worsening their terms of trade from two directions.
This paper examines the formula proposed in the 2008 draft modalities and compare it with the one proposed by Paraguay in March 2015. The authors attempt to take into account how the world has changed since 2008, by looking at the changes in tariffs facing ACP countries, in agricultural prices and in domestic support. They then examine proposed tariff cuts at a six-digit level. Next, the initial and final tariffs are aggregated to 24 sectors and analysed within a well-known general equilibrium model, the Global Trade Analysis Project (GTAP), to assess the impacts on welfare and trade flows for ACP countries. They conclude with recommendations for ACP countries in the WTO negotiations.
The new trading environment for ACP countries
Agricultural exports from ACP countries have increased threefold since 2000, but their share of world agricultural exports has in fact declined since 1995 from 4.0 per cent to 3.6 per cent in 2012. This is because world agricultural trade has grown faster than ACP exports.
As non-agricultural commodity prices and exports have risen, the role of agricultural exports has declined. The share of ACP agricultural exports in total merchandise exports has halved since 1995 and is currently around 12 per cent. This is largely attributed to the exports of oil, which increased tenfold from $24 billion in 1995 to $267 billion in 2012. Crude oil prices increased more than fivefold from 1995 to 2012, but have fallen by half since June 2014. Current prices are $63 a barrel, well down from the peak of $144 in June 2008.
Agricultural exporters and importers of ACP have been greatly affected by price instability. The major ACP agricultural exports are cocoa, cotton, coffee, sugar and oilseeds. From the perspective of exporters, prices of tropical agricultural exports have risen since the early 2000s. This led some international institutions, such as the Food and Agriculture Organization of the United Nations, to forecast higher prices in the foreseeable future. However, prices have moved down since 2011, broadly in line with falling crude oil prices.
While rising agricultural prices are generally beneficial for exporters, many ACP countries are net food importers, and most are importers of temperate products such as wheat, rice, meat, dairy products and sugar. Food prices peaked in 2008 and again in 2011 but fell in 2014. The International Monetary Fund (IMF) forecasts that the food price index will fall 14 per cent below 2014 levels by 2020. Many African members of ACP have benefited from the non-food commodity boom. The IMF all-commodity price index rose threefold from 2000 to 2012. However, in the past two years the index has fallen 35 per cent. Energy has a large weight in the commodity price index, reflecting the value of production. Oil prices are expected to fall further in 2015 but rise moderately until 2020. As with food, non-food price movements benefit some ACP countries at the expense of others. Angola and Nigeria are major oil producers in Africa. Trinidad and Tobago in the Caribbean is a significant exporter of liquid natural gas. Numerous African countries are exporters of minerals such as gold, diamonds, copper and nickel.
Tariffs on ACP importers
Tariffs on ACP agricultural imports have fallen steadily since many ACP members joined WTO in 1995. The average effectively applied tariff for ACP countries as a group was 29 per cent in 1995 and is presently around 13 per cent.
Currently, regions within ACP with the highest applied tariffs are East Africa and the Pacific. East African countries have high tariffs on agricultural imports from China, the Republic of Korea and several other ACP regions, while the Pacific group of ACP countries maintains high tariffs on imports from most countries with the notable exception of the European Union. Perhaps as a result, trade between these regions is low. Bound rates are very high – over 70 per cent on average for ACP agricultural imports. Bound rates have not changed greatly since 1995. Most ACP countries would appear to have sufficient space to reduce their highest bound tariffs by 47 per cent without impinging on their applied rates.
Tariffs facing ACP exporters
Tariffs facing ACP agricultural exports have also fallen in recent years. Currently, tariffs on agricultural exports to the European Union, Japan and the United States are rather low, with the exception of Southern African exports to Japan. However, ACP exports to the Republic of Korea, particularly from the Southern African and Caribbean regions, face significant border protection. China imposes 76 per cent tariffs on sugar imports from some Caribbean countries, and India imposes barriers of 100 per cent or more on agricultural imports of, for example, alcohol, coffee and edible offal of fowl from all ACP regions.
The main market for most ACP countries is the European Union. Given the European Union’s multitude of preferential trade arrangements, the existing tariffs on agricultural imports are relatively low, less than 1 per cent for West, Central and East Africa and the Pacific, and about 3 per cent for Southern Africa. However, Pacific countries face a higher tariff of around 10 per cent. The main agricultural export for ACP countries to the European Union is sugar. The European Union has high tariffs on imports, up to €419 per ton, although ACP countries have preferential access under a quota system. In 2017, the quotas and tariffs are scheduled to be removed and ACP countries will face competition from low-cost producers such as Brazil. According to European Union estimates, sugar imports from ACP countries may drop by 43 per cent.
Low average tariffs may hide a number of tariff peaks. Some of these can be very large. For example, the European Union has a tariff on whey (HS 0404106200) of €167.2 per 100 kg, equivalent to 203 per cent.
Given the rise in agricultural prices, the reduction in tariffs, the growing importance of emerging economies and the concerns about domestic support, it is useful to analyse how ACP would be impacted under two possible scenarios. In 2008, it seemed that the Doha proposals on agriculture, as outlined in revision 4 of the Draft Modalities, would not have benefited ACP countries as a group. Most ACP countries would not have been obliged to make significant tariff reductions and hence would not have benefited from any improvement in resource reallocation. In addition, they would not benefit from any improvement in market access because of preference erosion. Many ACP countries enjoyed preferential access to developed country markets, and a general reduction in tariffs in these markets would make ACP countries worse off.
Download: ACP Group of States’ Agricultural Trade and the World Trade Organization Negotiations (PDF, 3.9 MB)
This publication was prepared by Mina Mashayekhi, Head, Trade Negotiations and Commercial Diplomacy Branch, Division on International Trade in Goods and Services, and Commodities (DITC), UNCTAD; David Vanzetti, Agricultural Economist, Visiting Fellow, Crowford School of Public Policy, Australia National University; Taisuke Ito and Luisa Rodriguez, Economic Affairs Officers, Trade Negotiations and Commercial Diplomacy Branch, DITC, UNCTAD.