USCIB Comments Responding to USTR's and

USDA's Public Outreach Efforts on New Agriculture

Trade Negotiaions in the World Trade Organization (WTO)

July 21, 1999

The Honorable Charlene Barshefsky

United States Trade Representative

600 17th St.reet, N.W.

Washington, DC 20508-4801

Dear Madam Ambassador:

The United States Council for International Business (USCIB) is pleased to submit comments in response to USTR’s and USDA’s public outreach efforts regarding new agricultural trade negotiations in the World Trade Organization (WTO). USCIB’s Food and Agriculture Working Group is particularly interested in further agricultural trade liberalization, especially for processed food products. This document sets out our suggested approach to the upcoming negotiations and highlights the issues of special concern to our members.

Background

Globalization, a major contributor to world economic growth, prosperity, and higher living standards, has come to the agri-food sector. It has resulted in greater trade opportunities for agricultural products from an expanding list of countries. Trade in agricultural products has climbed steadily since the completion of the Uruguay Round, and trade in processed goods has been especially robust. Trade expansion has been accompanied by an even more dramatic increase in foreign direct investment in this sector.

Despite these favorable trends, government intervention in the agri-food field is still more intrusive than in any other sector and can have an adverse impact on international trade flows. New efforts to reduce government intervention and liberalize agricultural trade are necessary to expand the benefits of globalization in the food and agricultural sector to a growing and increasingly demanding world population.

Agricultural politics have led to high levels of protection. For example, the level of protection and support to agriculture, as measured by the OECD, still represents 35% of the value of agricultural production in OECD countries. Some countries have levels of protection that exceed 70%. Overall market price support still accounts for 60% of total support. Furthermore, within OECD countries total transfers from consumers and taxpayers due to agricultural policies totaled $280 billion or 1.3% of GDP in 1997. Protection on this scale impedes innovation and growth as governments use supply restrictions of various kinds to limit the size of surpluses that often can be disposed of only through costly subsidies.

In the long term, the U.S. and other governments must find ways to change the policy paradigm from one that supports a cycle of inefficient and price-distorting measures to one that addresses the underlying issues that hamper liberalization attempts. The attached document, "Achieving an Open and Efficient Global Food System," is the USCIB’s attempt to address these long-term agriculture issues.

Opening Agricultural Trade

Agricultural trade is freer since the conclusion of the Uruguay Round, but tariff levels remain high, non-tariff measures continue to inhibit trade and investment, and export subsidies distort the operation of agricultural markets. WTO agricultural negotiations provide an excellent opportunity to confront the remaining barriers to trade in the agri-food sector by lowering tariff levels, attacking technical barriers to trade, opening up the SPS agreement may lead to a weaker rather than stranger agreement, and imposing strict disciplines over export subsidies and export restrictions.

Agricultural and Food Tariffs

Agricultural tariffs should be a primary focus of the negotiations. Tariff reduction, as well as the decoupling of domestic support from commodities, will ensure stable access to high-quality food products to both rural and urban dwellers globally and free resources for rural and regional infrastructure development.

There are various ways to reduce tariffs. USCIB favors a formula-based process, requiring a high average level of reduction with a minimum for each and every line item. Such a formula would ensure that no products, including processed agricultural products, would be shielded from at least some degree of tariff reduction.

The formula approach should be supplemented, where possible, with commitments to eliminate tariffs on selected product sectors and line items, within the agreed staging period.

Tariff Rate Quotas

There is an urgent need to revise the system of Tariff Rate Quotas (TRQs), originally seen as a good method of opening previously closed markets. Instead of being a tool for trade liberalization, TRQs have become still another way for governments to interfere with agricultural trade through licensing procedures and other gimmicks. In addition to reviewing the administration of TRQs, USCIB recommends a cap on the maximum tariff level permissible by WTO members. An alternative would be a requirement for an across-the-board reduction in such tariffs that come into play once the quota has been reached.

Export Subsidies

A broad consensus is emerging regarding the elimination of export subsidies that are not consistent with other WTO commitments. The elimination of export subsidies on all primary agricultural commodities and processed food products should be an important U.S. objective in the upcoming negotiations. Additionally, negotiators should strive to ensure the compatibility of export credit terms with the OECD code.

Food Safety and Biotechnology

The upcoming negotiations will be an important opportunity to address concerns regarding trade in biotechnology products and to strengthen the existing science-based framework provided by the SPS agreement. Some have expressed the opinion that biotech-related regulatory actions would not be SPS measures as defined in Annex A of the Agreement. Should nations agree that further clarification is needed, it is not necessary, in our view, to reopen the text for debate. Instead, we favor a clarification that the justification of any measure banning or limiting the importation or environmental release of a biotech product must be based on the existing text of the SPS.

By further promoting sound science as the basis for decision making, and strengthening the dispute resolution mechanism to ensure compliance, the WTO will be better equipped to handle the challenges presented by the biotechnology issue in the future.

Trade Facilitation

Finally, more work needs to be done to harmonize customs procedures and port practices and facilities. With perishable food products moving around the world, inefficient customs practices can lead to high post-harvest losses and decreased consistency in production planning, increasing costs and creating a non-competitive environment for all agri-businesses involved. These customs issues are of importance to the agri-food industry and should be addressed in the Round, as elaborated in the USCIB’s April 1998 statement on WTO objectives for Trade Facilitation and Customs Procedures.

Also, a strong reinforcement of the WTO Valuation Agreement (which elaborates on GATT Article VII) is particularly important to agri-food companies. Non-compliance with the Agreement can undermine, or in some cases nullify, WTO tariff rate concessions. Obviously, even when a duty rate is bound in the Uruguay Round Agreement, the duty amount increases when the dutiable value is raised by the customs authority in the importing country.

State Trading Enterprises

With regard to State Trading Enterprises (STEs), greater openness and more strict disciplines are needed. STEs play a significant role in agricultural trade, and we must ensure that their commercial activities are market based and their actions open to public scrutiny. STEs should not be vehicles to evade previous (and future) trade liberalization commitments. Greater transparency will help ensure that import STEs do not inhibit market access and export STEs do not engage in trade-distorting practices.

Conclusion

An open international food system will enrich the lives and improve the living standards of all citizens and make more affordable food available to everyone. To achieve this goal, we must reduce the high level of protection in the agri-food sector, address concerns about food safety and food security, and deal with the interaction between trade and development. An active dialogue between government and the agri-food sector will help promote a modern, efficient food production and delivery system that is essential for the achievement of macroeconomic, environmental and social objectives in a sustainable manner. USCIB looks forward to working with USTR and USDA in this important endeavor.

Sincerely,

Thomas M.T. Niles