Detailed Presentation of Market Access in Agriculture

Transcription

1 WTO E-LEARNING COPYRIGHT 12 Detailed Presentation of Market Access in Agriculture OBJECTIVES Present the first pillar of the Agreement on Agriculture: Market Access Outline the Conceptual Framework of the rules on market access in the Agreement on Agriculture; Explain "Tariffication" and the tariff reductions commitments that Members undertook during the Uruguay Round; Describe the Schedule of Tariff Concessions and explain the Tariff Quota Commitments; Outline the prohibition of non-tariff border measures; Explain the Special Treatment provisions relating to Market Access; Describe the special safeguard provisions; Outline the notification obligations of WTO Members concerning market access for agricultural products. M y C o u r s e s e r i e s

2 I. CONCEPTUAL FRAMEWORK The new rules on agriculture, as incorporated in the Agreement on Agriculture, create a definition of agricultural products, made provisions for all non-tariff barriers (NTBs) to be converted into customs duties and established new rules and commitments for market access, domestic support and export subsidies. This Module looks at the rules on market access in more detail. At the end of this Module, you should be able to, among other things: explain the rules governing market access for agricultural goods in the WTO; explain the terms: tariffication, tariff peaks and tariff escalation; explain the concept of country schedules and what is include therein; explain a tariff quota and describes the principle methods of TRQ administration; explain the prohibition on non-tariff measures in Article 4.2 of the Agreement on Agriculture; describe the measures that WTO Members can use to protect against the import of particular products under the specific safeguard provisions and differentiate it from the general safeguard provision; and describe the two ways the special agriculture safeguard can work and the conditions that must be satisfied for WTO Members to invoke the safeguard measures. The term "market access" refers to entry into the market of another country (that is, imports into the customs territory). Market access is regulated by government-imposed conditions under which a product may enter a country. Market access in the WTO is expressed through border measures, i.e. tariffs and non-tariff measures, in the case of goods. Traditionally, multilateral trade policy has sought to make market access predictable and more liberal. This is done through the binding of maximum permissible tariffs in Members' Schedules of commitments and applying reductions to arrive at new, lower, bound tariffs. Market access commitments can also relate to tariff quotas, particularly in agriculture. Tariff quotas are fixed quantities that can be imported at lower tariffs than the general bound rate. Article 5 of the Agreement on Agriculture also provides for additional duties in cases where the import price falls or imports surge for certain products through the agriculture Special Safeguard. Therefore, the specific border measures of interest to us for agricultural trade under the Agreement on Agriculture are tariffs, tariff rate quotas and the Special Safeguard. However, general and specific border measures may also be adopted under the other WTO Agreements, such as, Article XIX safeguards, Article VI anti-dumping, the SPS and TBT Agreements. RECALL Recall that a tariff can take different forms: It can be expressed as an ad valorem tariff (percentage of value), as a specific duty (e.g. $7 per 100kg), as a compound duty (e.g. 12% plus $7 per 100kg), as either/or tariffs (e.g. 12% or $7 per 100kg whichever is the greater), as seasonal tariffs, etc. Recall also that a tariff rate quota is a specific quantity (quota) of a product, which can enter a market at a tariff rate, which is different (lower) than the general out-of-quota tariff. 2

3 II. CEILING BINDINGS AND TARIFFICATION IN BRIEF Prior to the Agreement on Agriculture, border protection was not always in the form of ordinary customs duties, which are defined as specific duties and/or ad valorem charges on imports. Many agricultural products in several GATT Contracting Parties had no bound tariffs and agricultural trade was controlled through applied tariffs and/or a variety of non-tariff measures that impeded agricultural trade flows. Further, even where bound tariffs existed, market access for many agricultural products was restricted through so-called "grey area" measures whose legality was contestable, such as quantitative restrictions under Article XI.2(c) of GATT. As a result of the Uruguay Round, all WTO Members converted their various forms of non-tariff measures that they used to control trade into bound tariffs that provided substantially the same level of protection. The methodology used depended on the form of the existing protection and the status of the country (that is, if it was developed or developing country). For example, applied tariffs were bound at the rate that applied on 1 September 1986, bound tariffs remained bound and other forms of import restrictions were bound using the "tariffication" process or, for developing country Members by "ceiling bindings". Tariff Reductions Start From1 Situation prior to 1986 Developed Countries Developing Countries Bound tariff Bound rate Bound rate Applied tariff Applied rate 1 September 1986 Ceiling Bindings 1 or Tariffication Quantitative restriction Tariffication Ceiling Bindings or Tariffication Applied tariffs + Quantitative restriction Tariffication Ceiling Bindings or Tariffication Table 1: The Starting-point for Tariff Reductions 1 No tariff reductions for least-developed countries or for developing countries taking ceiling bindings (with some exceptions). IN DETAIL TARIFFICATION The methodology of the tariffication process is set out in Annex 3 of the Document - "Modalities for the Establishment of Specific Binding Commitments under the Reform Programme" ("Modalities Agreement"). Paragraph 2 of Annex 3 states that "the calculation of the tariff equivalents, whether expressed as ad valorem or specific rates, shall be made using the actual difference between internal and external prices in a 3

4 transparent manner using data, data sources and definitions as specified in Annex 2. Data used shall be for the years 1986 to 1988". 1 For example: Bound tariff is the price-gap between the internal price and external price, that is: Internal Price = $250/tonne = representative wholesale price; and External Price = $200/tonne = average c.i.f. unit value for > Price Gap = $50/tonne or 25% --> Tariff = $50/tonne; or = 25%; or = $25/tonne %; or etc. II.A. CEILING BINDINGS Many developing countries did not have the resources for comprehensive tariffication of all unbound tariffs. Instead, they were given the option of offering "ceiling bindings", which often took the form of a maximum tariff applied to groups of agricultural products or to all agricultural products. Some developing applied a single ceiling binding for all agricultural products, others opted for different bindings on different groups of agricultural products. Examples of ceiling bindings: Schedule LXX Bangladesh with a 200% ceiling binding on nearly all agriculture products; Schedule CXIII Kenya with a 100% ceiling binding on all agriculture products; Schedule XLIII Nigeria with an 150% ceiling binding on all agriculture products; Schedule CXXVI Uganda with a ceiling binding of 80% on most agriculture products. The tariffs resulting from the tariffication process account for nearly one fifth of the total number of agricultural tariff lines on average for developed-country Members. In the case of developing-country Members, this share is considerably smaller because many took the option of applying ceiling bindings. Many Members made their own calculations of the tariffs resulting from tariffication and inscribed them in their Schedules of Commitments, which were subject to verification by other Members. II.B. BINDINGS AND REDUCTIONS Once tariffs were fixed, Members undertook to apply reductions. These reductions are based on a simple average of 36% and a minimum of 15% over six years ( ) for developed countries and a simple average of 24% and a minimum of 10% over ten years ( ) for developing countries. 1 The Modalities Agreement (MTN.GNG/MA/W/24) can be found on the WTO website and on this site in the etraining online library 4

5 Developing countries that adopted ceiling bindings did not have to reduce their tariffs, except on an ad-hoc basis. Least-developed countries did not have to reduce tariffs whether or not they adopted ceiling-bindings. EXERCISES: 1. What are the border measures to protect markets allowed under the Agreement on Agriculture? 2. What were the reduction commitments made on market access during the Uruguay Round? 5

6 III. SCHEDULE OF TARIFF CONCESSIONS & TARIFF QUOTA COMMITMENTS III.A. INTRODUCTION Each WTO Member has a Schedule of Tariff Concessions covering all agricultural products. The agricultural commitments made by WTO Members on market access are not found in the Agreement on Agriculture, but in Article II "Country Schedules" of the GATT Both the Agreement on Agriculture and the Country Schedules must be examined together to understand a WTO's Member's Commitment. The Schedules of Concessions comprise the results of the calculations for tariffication, ceiling bindings and tariff reductions. The Schedule sets out for each individual agricultural product, or, in some cases, agricultural products defined generally, the maximum tariff that may be applied on imports into the territory of the Member concerned. These concessions are annexed to the Marrakesh Protocol and are an integral part of the GATT They are legally enforceable through Article 4 of the Agreement on Agriculture and Article II of the GATT TIP The Schedules of WTO Members can be found at the following link: Schedules are available in zipped format and can be downloaded. Note that these do not include changes that result from renegotiation of commitments or technical rectifications of Schedules. More details can be found at the following link: III.B. MODIFICATION OF SCHEDULES The fact that WTO Members agreed to "bind" the tariffs they negotiated in the Uruguay Round means that they cannot normally impose import duties in excess of the "bound" tariffs inscribed in their Schedule of Concessions. The bound level of tariffs can be changed in accordance with the procedures set out in Article XXVIII of the GATT However, as WTO Members are allowed to apply a lower tariff than the bound level, Article XXVIII is only invoked when a WTO Member wants to raise the tariff above the bound rate so as to increase market protection. According to Article XXVIII:2, the WTO Member changing the tariff must endeavour to maintain a general level of reciprocal and mutually advantageous concessions not less favourable to trade than that previously applicable. This means that if a tariff is raised, some compensation must be given in another sector (i.e., by 6

7 lowering another tariff) so as to allow a rebalancing of the levels of trade concessions. Before any change can be made, a Member must notify the WTO that it intends to modify and Members with Initial Negotiating Rights, principle supplier interests or substantial supplier interests can then enter negotiations with the Member concerned. If agreement is reached with all the parties, the change is certified. If no agreement is reached, the Member seeking to change its Schedule can still go ahead and make the change but those with INRs, principle supplier interests or substantial interest can withdraw equivalent concessions. 7

8 IV. TARIFF-RATE QUOTAS It was foreseen that the conversion of non-tariff measures into tariffs using the 1986 to 1988 reference period could result in high tariff levels, as it was intended to result in a level of protection equivalent to the non-tariff measure previously in force. However, in many cases some imports were allowed in and these "current access" opportunities had to be maintained and, if necessary, increased to 3% of corresponding domestic consumption rising to 5% of domestic consumption by the end of the implementation period. 2 In cases where no significant quantities were imported a "minimum access commitment" had to be created starting at 3% of domestic consumption and increasing to 5% over the implementation period. Least developed countries and developing countries with ceiling bindings did not have to create market access opportunities. The current and minimum access commitments were implemented by tariff-rate quotas (TRQs), which allow imports at low tariff rates up to a certain volume. A TRQ is a two level tariff. A lower tariff (in-quota) rate is charged on the imports within the quota volume and a higher tariff (over-quota) rate is charged on the imports outside the quota. TRQs, including the applicable tariff rates and any other conditions related to them, are specified in the Schedules of the WTO Members concerned. Figure 1: Tariff-Quota ILLUSTRATION Alba maintains the following TRQ on turnip for a year Y: 2 Modalities for the Establishment of Specific Binding Commitments under the Reform Programme; 20 December 1993, MTN:GNG/MA/W/24 8

9 In-quota rate for imports up to 10MT = 5% Out-of quota rate for imports above 10MT = 15% Imports of turnip in year Y = 17MT There are currently (10 December 2006) 43 Members with a total of 1,425 individual TRQs specified in their Schedules (excluding 4 TRQs where the initial and final quantity levels are specified as zero). 3 WHO HAS TARIFF QUOTAS? Australia (2) Barbados (36) Brazil (2) Bulgaria (73) Canada (21) Chile (1) China (10) Chinese Taipei (22) Colombia (67) Costa Rica (27) Croatia (9) Czech Rep (24) Dominican Rep (8) Ecuador (14) El Salvador (11) EU (87) Guatemala (22) Hungary (70) Iceland (90) Indonesia (2) Israel (12) Japan (20) Korea (67) Latvia (4) Lithuania (4) Malaysia (19) Mexico (11) Morocco (16) New Zealand (3) Nicaragua (9) Norway (232) Panama (19) Philippines (14) Poland (109) Romania (12) Slovak Rep (24) Slovenia (20) South Africa (53) Switzerland (28) Thailand (23) Tunisia (13) United States (54) Venezuela (61) 43 WTO members currently have a combined total of 1,425 tariff quotas in their commitments. The numbers in brackets show how many quotas each country has. For more details, see WTO Secretariat back ground paper "Tariff and other Quotas" TN/AG/S/5, downloadable from: The vast majority of TRQs in agriculture originate in the Uruguay Round negotiations and there are some TRQs that were negotiated during accessions to the WTO. The implementation of commitments on TRQs has not been without difficulties and notifications are often the subject of questions in the Committee on Agriculture. 4 Many Members feel that there is not enough clarity or detail in the rules covering the distribution of TRQs to countries and companies. 9

10 In cases where the import price plus the in-quota tariff are much less than the domestic price, the TRQ should generate a "quota rent". That is, the right to import within the quota results in a profit over and above the profit available in normal trade. This "extra" profit results from the fact that the protected market price is usually higher than the world market price. The necessity to administer the TRQs is a consequence of the fact that the demand to trade within the quota is often greater than the supply. The allocation of the TRQs among supply countries and the distribution of licences to traders determine who gets the benefit of this "quota rent" or profit. Note Quota rent is a profit which results from the difference between the domestic price and the world price plus the in-quota tariff. IV.A. TRQ ADMINISTRATION TRQ administration is a technical subject, but it is of vital importance since it may affect trade by exporting countries. TRQ administration determines whether a product exported from one country can gain access to the market of another country at the lower in-quota tariff. Some methods of quota administration are explained below. METHODS OF TRQ ADMINISTRATION 1. "Applied Tariffs": No shares are allocated to importers. Imports of the product are allowed into the territory of the Member in unlimited quantities at the in-quota tariff rate or below. 2. "First-Come, First-Served": No shares are allocated to importers. Imports are permitted entry at the in-quota tariff rates until such a time as the tariff quota is filled; then the higher out-of-quota tariff automatically applies. The physical importation of the good determines the order and hence the applicable tariff. 3. "Licences On Demand": Importers' shares are generally allocated or licences issued, in relation to quantities demanded and often prior to the commencement of the period during which the physical importation is to take place. This includes methods involving licences issued on a first-come, first-served basis and those systems where licence requests are reduced pro rata where they exceed available quantities. 4. "Auctioning": Importers' shares are allocated, or licences issued, largely based on an auctioning or competitive bid system. 5. "Historical Importers": Importers' shares are allocated, or licences issued, principally in relation to past imports of the product concerned. 3 For the TRQs with zero initial and final tariff quota quantities, see the Schedules of Morocco and the Bolivarian Republic of Venezuela. 4 See the reports of the Committee on Agriculture in the document series G/AG/R/ 10

11 6. "Imports Undertaken By State Trading Entities": Import shares are allocated entirely or mainly to a state trading entity which imports (or has direct control of imports undertaken by intermediaries) the product concerned. 7. "Producer Groups Or Associations": Import shares are allocated entirely or mainly to a producer group or association which imports (or has direct control of imports undertaken by the relevant Member) the product concerned. 8. "Other": Administration methods that do not clearly fall within any of the above categories. 9. "Mixed Allocation Methods": Administration methods involving a combination of the methods as set out above with no one method being dominant. 10. "Non-Specified": Tariff quotas for which no administration method has been notified. Exporters are sometimes concerned that their ability to take advantage of TRQs can be impaired because of the quota administration, for example, they might complain that the licensing timetables put them at a disadvantage when production is seasonal and the products have to be transported over long distances. Number of Tariff Quotas Applied Tariffs First-Come, First-Served Licences on Demand Auctioning Historical Importers Imports Undertaken by State Trading Enterprises Producer Groups or Associations Other Mixed Allocation Methods Non-Specified Total Number of Applicable 1,25 1,27 1,36 1,36 1,37 1,38 1,39 1,42 1,42 1,42 Tariff Quotas Table 2: Tariff Quotas by Principal Administration Method and Number of Quotas, Source: WTO, Tariff Quota Administration Methods and Tariff Quota Fill, TN/AG/S/22 27 April 2006 Each method of TRQ administration has advantages and disadvantages, and many WTO members acknowledge that it can be difficult to say conclusively whether one method is better than another. Several Members want the ongoing Doha negotiations to come up with some rules on TRQ administration because they want to be sure that the administration method does not impede market access. Some importers also want rules because they want to be sure which methods are legal or illegal under WTO rules. 11

12 The allocation of quotas to supplying countries is set out in the Schedules of Concessions and must comply with the rest of the Uruguay Round Agreements, most notably Article XIII of GATT and the Agreement on Import Licensing Procedures 6. Important Note Article XIII of the GATT 1994 has the rules governing the administration of import restrictions and the possible country allocation of the TRQ (external administration of TRQs). The Agreement on Import Licensing Procedures has the rules governing the import licensing procedures used to administer the TRQs and to allocate them to traders (internal administration of TRQs). IV.B. GATT ARTICLE XIII Let us go through GATT Article XIII First. IN BRIEF GATT Article XIII provides for the administration of Quantitative Restrictions and governs the distribution of TRQs between supplying countries. This provision requires that import restrictions should be applied in a non-discriminatory manner so that each supplying country should have the same share of the import market, as they would achieve in the absence of an import restriction. In other words, if country A supplies 10% of the import demand for a product in the absence of import quotas then, if quotas are introduced, country A should expect to continue to have 10% of the total import quota. IN DETAIL Article XIII.2(d) states that quotas allocated among supplying countries can be allocated after consultations and agreement with those countries, which have a substantial interest. If this is not practical then allocations should be based on a representative period. The Appellate Body clarified this to some extent in the case "EC - Regime for the Importation, Distribution and Supply of Bananas" (the EC Bananas III case). 7 In that case, the Appellate Body stated that, in allocating quotas among supplying countries, the importing Member should allocate first to substantial suppliers and then to smaller suppliers (WT/DS27/AB/R; paragraph 161). In other words, if a Member imports a particular product from many different countries and 5 EC - Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R 9 adopted September 1997 paragraphs EC - Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R 9 adopted September 1997 paragraph European Communities - Regime for the Importation, Sale and Distribution of Bananas ("EC Bananas III"), WT/DS27 12

13 they wish to distribute a TRQ among all these countries they must allocate to the largest before the smaller suppliers. For some countries, there may not be a representative period, perhaps because imports were disallowed or because certain exporting countries were deliberately favoured in the past. In the EC Banana III case, after the Appellate Body decision, the EU tried to negotiate with supplying countries and when this failed they allocated to the principal suppliers based on a historical period. However, the arbitration report pointed out that to satisfy Article XIII the historical period must be representative. 8 The EU then asked for, and was granted, a waiver from Article XIII which lasted until end 2005 (WT/MIN(01)/16 of 14 November 2001). To find a longer term solution the EU entered consultations with interested Members. These consultations continue, but Ecuador has initiated dispute settlement proceedings 9 under Article 21.5 of the DSU. IV.C. AGREEMENT ON IMPORT LICENSING PROCEDURES RECALL The Agreement on Import Licensing Procedures says import licensing should be simple, transparent and predictable. For example, the agreement requires Members to publish sufficient information for traders to know how and why the licences are granted. It also describes how countries should notify the WTO when they introduce new import licensing procedures or change existing procedures. The Agreement offers guidance on how governments should assess applications for licences. There are two basic licensing procedures: automatic and non-automatic. Non-automatic procedures are used to administer the TRQs. Article 3 of the Agreement on Import Licensing Procedures on non-automatic licensing requires that, in operating TRQs, the administration system should not distort or restrict trade any further than the TRQ itself, and that information should be provided to Members on the administration system. IN DETAIL In the EC - Bananas case, the Appellate Body found that, although the Agreement on Import Licensing Procedures applies to import licenses made under TRQs, the Agreement does not apply to the systems of licensing but only to the application of the system (WT/DS27/AB/R paragraph 192). The systems themselves may not be considered fair and neutral, but they must be applied in a non-discriminatory manner and should not increase any trade distortions arising from the quotas. Thus, a system of allocating licenses between different countries may be considered unfair by the supplying countries, but it satisfies the Agreement on Import Licensing Procedures if no individual country is discriminated against in the administration of the license allocation system. 8 European Communities - Regime for the Importation, Sale and Distribution of Bananas - Recourse to Arbitration by the European Union under Article 22.6 of the DSU; WT/DS27/ARB, 9 April 1999; paragraphs

14 The data in the table below shows the different fill rates according to the principal method of administration. There is a perception that different products and different countries require different administration methods. For this reason it is hard to draw conclusions from the average fill rates for each of the different administration methods. In addition, some Members have more than one administration method for the same tariff quota. The data should be interpreted with care, however, it shows surprising results. For example, auctioning, the sale of import licenses to the highest bidders, which would be expected to ensure the use of the licence has surprisingly low fill rates while imports by state trading enterprises are quite high. 9 European Communities Regime for the Importation, Sale and Distribution of Bananas: Recourse to Article 21.5 of the DSU by Ecuador, 29 November 2006, WT/DS27/65/Rev.1 14

15 Principal Administration Method Simple Average Fill Rate Number of Tariff Quotas Included (Per cent) Applied Tariffs First-Come, First-Served Licences on Demand Auctioning Historical Importers Imports Undertaken by State Trading Enterprises Producer Groups or Associations Other Mixed Allocation Methods Non-Specified Overall , Table 3: Tariff Quotas Simple Average Fill Rates by Principal Administration Method, Source: WTO, Tariff Quota Administration Methods And Tariff Quota Fill, TN/AG/S/22 27 April

16 CASE STUDY 1 Let us look at the aspects of the EC Bananas III case that deals with GATT Article XIII on the non-discriminatory administration of quantitative restriction. However before we do so please read the disclaimer! Disclaimer While the case study below is based on prior WTO Panel and/or Appellate Body rulings its main purpose is not to describe and review all the arguments and conclusions in the case in detail but rather to focus on the issues and principles addressed in the course and provide you with an outline of elements that you may wish to consider when reflecting on these issues and principles. The case has a long and complex history, involving both GATT and WTO dispute settlement. In April 1996, Ecuador, Guatemala, Honduras, Mexico and the United States requested the establishment of a panel to examine the EU regime for the importation, sale and distribution of bananas established by Council Regulation 404/ The WTO Panel ruled that the EU bananas import regime violated WTO obligations under the GATT, the GATS and the Agreement on Import Licensing Procedures. In relation to the Agreement on Import Licensing Procedures the Panel in EC Bananas III found that this Agreement applies to licensing procedures for tariff quotas. The Appellate Body upheld this finding as well as the Panel's finding that both Article 1.3 of the Licensing Agreement and Article X:3(a) of the GATT 1994 apply to the EU import licensing procedures. This case was also adjudicated under Compliance Reports by the original panel (Article 21.5 of the DSU ) to determine that the conformity of the implementing measures of the EU to WTO rules. It was also subject to various arbitrations, such as that on 17 November 1997, to determine the "reasonable period of time" for implementation of the recommendations and rulings of the DSB, pursuant to Article 21.3(c) of the DSU and the arbitrator's report on the Ecuadorian request for suspension of concessions. You must read the case in its entirety to appreciate the intricacies. 10 Council Regulation 404/93 on the common organization of the market in bananas. OJ L 47, 25 February 1993, pp

17 EC BANANAS III European Communities Regime for the Importation, Sale and Distribution of Bananas (DS27) Parties Agreements Timeline of the dispute Complainants Ecuador, GATT Arts. I, Establishment of Panel 8 May 1996 Guatemala, III, X, XIII Circulation of Panel Report 22 May 1997 Honduras, Mexico, United States GATS Arts. II, XVII Respondent European Union Licensing Ag Art. 1.3 Circulation of AB Report 9 September 1997 Lomé Waiver Adoption 10 January September Measure and Product at Issue Measures at issue: The European Union' regime for the importation, distribution and sale of bananas, introduced on 1 July 1993 and established by EEC Council Reg. 404/93. Products at issue: Bananas imported from third countries Summary of Key Panel / AB Findings GATT Art. XIII: The Appellate Body upheld the Panel's finding that the allocation of country-tariff quota shares to some Members not having a substantial interest in supplying bananas, but not to others, was inconsistent with Art. XIII:1. The Appellate Body also agreed with the Panel that the BFA tariff quota reallocation rules (The Framework Agreement on Bananas ("BFA")), under which a portion of a tariff quota share not used by one BFA country could be reallocated exclusively to other BFA countries, were inconsistent with Art. XIII:1 and XIII:2, chapeau. Lomé Waiver: The Appellate Body, reversing the Panel's finding, found that the Lomé Waiver does not apply to (i.e. exempt) violations of GATT Art. XIII given that the Waiver refers only to Art. I:1 and that waivers must be narrowly interpreted and be subject to "strict disciplines". GATT Art. I: The Appellate Body upheld the Panel's finding that the activity function rules, which applied only to licence allocation rules for imports from other than traditional ACP countries, are inconsistent with Art. I:1. The Appellate Body also agreed with the Panel that the EU export certificate requirement accorded an advantage to some Members only, i.e. the BFA countries, in violation of Art. I:1. In an issue not appealed to the Appellate Body, the Panel had found that tariff preferences for ACP countries were inconsistent with Art. I:1, but that they were justified by the Lomé Waiver. GATT Art. III:4: The Appellate Body agreed with the Panel that the EU procedures and requirements for the distribution of licences for importing bananas from non-traditional ACP suppliers were inconsistent with Art. III:4. 11 Third countries are those countries other than (i) 12 African, Caribbean and Pacific ("ACP") countries who have traditionally exported bananas to the EU and (ii) ACP countries that were not traditional suppliers of the EU market 17

18 GATT Art. X:3(a) and Licensing Agreement Art. 1.3: The Appellate Body reversed the Panel's findings of violations of GATT Art. X:3(a) and Licensing Agreement Art. 1.3, on the ground that these provisions apply only to the administrative procedures for rules, not the rules themselves. GATS Art. II and XVI: The Appellate Body upheld the Panel's finding that the EU measures are all inconsistent with GATS Art. II and XVII because they are discriminatory, and clarified that the "aim and effect" of a measure is irrelevant under GATS Art. II and XVII. 3. Other Issues Private counsel: The Appellate Body ruled that private lawyers may appear on behalf of a government during an Appellate Body oral hearing. (c.f. the Panel did not allow them) EXERCISES: 3. Describe the rules on market access opportunities that were negotiated? 4. Describe the rules on minimum market access? 5. Tariff Rate Quotas are used to administer the current and minimum market access opportunities, which are 5% of domestic demand and the low tariff for limited volumes of imports. What are the rules on TRQ administration? 18

19 V. THE PROHIBITION OF NON-TARIFF BORDER MEASURES V.A. ARTICLE 4 OF THE AGREEMENT ON AGRICULTURE Let's recall that Article XI.2(c) of the GATT 1947 allowed quantitative import restrictions in cases where GATT Contracting Parties had national supply management schemes and where allowing the unrestricted importation of competing products would undermine the national schemes. Article XI.2(c) was conditional on Contracting Parties maintaining a minimum proportion of imports relative to domestic production. IN BRIEF Article XI:2(c) of the GATT is now inoperative as regards agricultural products because it is superseded by Article 4.2 of the Agreement on Agriculture. Article 4.2 of the Agreement on Agriculture prohibits the use of non-tariff measures for agriculture products. It provides that: "Members shall not maintain, resort to, or revert to any measures of the kind which have been required to be converted into ordinary customs duties, except as otherwise provided for in Article 5 and Annex 5." IN DETAIL What are these measures referred to in Article 4.2? In the footnote to Article 4.2 there is a list of measures that had to be converted into tariffs and may no longer be used. This list is not exhaustive and other non-tariff measures come under the general prohibition as well. These measures include: quantitative import restrictions; variable import levies; minimum import prices; discretionary import licensing; non-tariff measures maintained through state-trading enterprises; voluntary export restraints; and All similar border measures other than "ordinary customs duties", whether or not the measures are maintained under country-specific derogations from the provisions of GATT 1947, but not measures maintained under balance-of-payments provisions or under other general, non-agriculture-specific provisions of GATT 1994 or of the other Multilateral Trade Agreements in Annex 1A to the WTO Agreement. Article 4.2 effectively means that tariffs are normally the only border protection measure allowed. 19

20 The footnote to Article 4 does, however, state that Members can resort to measures under the balance-ofpayments provisions and other non-agriculture-specific provisions of GATT 1994 and other multilateral trade agreements that resulted from the Uruguay Round. Therefore, Members can also use safeguards, anti-dumping and countervailing duties provided, of course, they comply with the relevant rules. Thus, in general, tariffs must not be applied in a way that effectively amounts to an import charge like those included in the footnote to Article 4, such as a variable levies or minimum import prices. This issue was the subject of the dispute case "Chile Price Band System and Safeguard Measures Relating to Certain Agricultural Products" 12, which is examined below. It is now time to have a look at a dispute settlement case related to the prohibition of non-tariff border measures and Article 4 of the Agreement on Agriculture. 12 Chile Price Bands, WT/DS207/R 3 May 2002 and WT/DS207/AB/R 23 Sept

21 CASE STUDY 2 Disclaimer While the case study below is based on prior WTO Panel and/or Appellate Body rulings its main purpose is not to describe and review all the arguments and conclusions in the case in detail but rather to focus on the issues and principles addressed in the course and provide you with an outline of elements that you may wish to consider when reflecting on these issues and principles. CHILE PRICE BAND SYSTEM (DS207) Chile Price Band System and Safeguard Measures Relating to Certain Agricultural Products Parties Agreements Timeline of the dispute Complainants Argentina AA Art. 4.2 GATT Art. II:1(b) Establishment of Panel 12 March 2001 Circulation of Panel Report 3 May 2002 Respondent Chile Circulation of AB Report 23 September2002 Adoption 10 January October Measure and Product at Issue Measure at issue: Chile's Price Band System, governed by Rules on the Importation of Goods, through which the tariff rate for products at issue could be adjusted to international price developments if the price fell below a lower price band or rose beyond an upper price band. Product at issue: Wheat, wheat flour, sugar and edible vegetable oils from Argentina. 2. Summary of Key Panel / AB Findings DSU Art. 11: The Appellate Body reversed the Panels findings under GATT Art. II:1(b), second sentence, on the grounds that it was a claim that had not been raised by Argentina in its panel request or any subsequent submissions, and the Panel, by assessing a provision that was not part of the matter before it, acted ultra petita and in violation of DSU Art. 11. The Appellate Body also stated that consideration by a Panel of claims not raised by the complainant deprived Chile of its due process rights under the DSU. AA Art. 4.2, footnote 1 (market access): The Appellate Body reversed the Panel's findings that the term "ordinary customs duty" was to be understood as referring to "a customs duty which is not applied to factors of an exogenous nature" and Chile's price brand system was not an "ordinary customs duty", as it was assessed on the basis of exogenous price factors. The Appellate Body however upheld the Panel's finding that Chile's price band system was designed and operated as a border measure sufficiently similar to "variable import levies" and "minimum import prices" within the meaning of footnote 1 and therefore prohibited by Art Thus, the Appellate Body concluded that Chile's price band system was inconsistent with Art

22 3. Other Issues 13 Panel's terms of reference: The Appellate Body stated that it was appropriate to rule on the Chile Price Band System as it currently stood, taking into account the amendments enacted after the establishment of the Panel, on the grounds that the Panel request was broad enough to cover future amendments and that the amendment did not change the essence of the measure under challenge. The Appellate Body also added that ruling on the Chile Price Band System currently in place would be in line with its obligations under DSU Art. 3.4 and 3.7 to secure a positive solution of the dispute at hand. V.B. EXCEPTIONS TO THE PROHIBITION OF NTBS Normally, tariffs are the only form of protection allowed for agricultural products and Members cannot exceed the bound tariff rate in their Schedule of Concessions. However, there are exceptions in Annex 5 of the Agreement on Agriculture. In addition, Article 4.2 of the Agreement on Agriculture permits the use of non-tariff import restrictions consistent with the provisions of the GATT 1994 or other WTO Agreements which are applicable to general trade in goods (industrial or agricultural). 13 Other issues addressed: Working Procedure Appellate Review Rule 20(2)(d); passive observers; "subsequent practice" (VCLT, Art. 31.3(b)) 22

23 VI. SPECIAL TREATMENT IN BRIEF The "special treatment" clause is part of Annex 5 to the Agreement on Agriculture and provides a major exception with respect to the general tariffication requirement. Annex 5 permitted four countries to maintain non-tariff border measures on certain products during the period of tariff reductions (with the possibility of extending the special treatment, subject to further negotiations). Under this provision, the obligation to convert protective measures into customs duties was deferred by six years for certain products. IN DETAIL Article 4.2 does not apply to any primary agricultural product and its worked and/or prepared products ("designated products") in respect of which: (a) (b) (c) (d) (e) imports of the designated products comprised less than 3 per cent of corresponding domestic consumption in the base period ("the base period"); no export subsidies have been provided since the beginning of the base period for the designated products; effective production-restricting measures are applied to the primary agricultural product; such products are designated with the symbol "ST-Annex 5" in Section I-B of Part I of a Member's Schedule annexed to the Marrakesh Protocol, as being subject to special treatment reflecting factors of non-trade concerns, such as food security and environmental protection; and minimum access opportunities in respect of the designated products correspond, as specified in Section I-B of Part I of the Schedule of the Member concerned, to 4% of base period domestic consumption of the designated products from the beginning of the first year of the implementation period and, thereafter, are increased by 0.8% of corresponding domestic consumption in the base period per year for the remainder of the implementation period. The products and countries concerned are: rice in the case of Japan, Korea and the Philippines; and cheese and sheep meat in the case of Israel. During its accession process, Chinese Taipei also opted not to undergo tariffication for rice. In return for the special treatment, these Members undertook minimum import commitments. They created tariff quotas. For the developed-country Members these tariff quota started at 4% of domestic demand which had to be increased by 0.8% on a yearly basis. For the developing-country Members the tariff quota started at 2% of domestic demand and increased gradually to 4% by Japan, Israel and Chinese Taipei have since tariffied the products concerned (G/MA/TAR/RS/57, 78, 88 and 88/Corr.1). Korea and the Philippines are currently in negotiations on extending the special treatment (G/AG/W/62 and G/AG/W/63). The details of renegotiation and the increase in the tariff quotas after renegotiation are set out in Annex 5 of the Agreement on Agriculture. 23

24 VII. HORIZONTAL EXCEPTIONS In addition to the exception in Annex 5, in certain circumstances, Members can impose additional charges and/or import restrictions on market access for agricultural products. The general horizontal exceptions allow WTO Members to derogate from all WTO rules. This is not affected by Article 4.2 of the Agreement on Agriculture. IN BRIEF Article 4.2 does not prevent the use of non-tariff import restrictions consistent with the provisions of the GATT or other WTO agreements, which are applicable to traded goods generally (industrial or agricultural). IN DETAIL The GATT exceptions to the general rule of tariff-only border measures apply to agricultural products in the same way as they apply to industrial products. Some of these are explained below: Article XX of GATT 1994 allows import restrictions for numerous reasons., including for reasons of public morals and protection of exhaustible natural resources; The Agreement on Sanitary and Phytosanitary Measures permits import restrictions to protect human, animal and plant health and to protect the environment; Article XXI of GATT 1994 allows exceptions in cases of national security measures; Members can use non-tariff restrictions in cases of balance-of-payments difficulties under Article XII; Members can also take general safeguard action under Article XIX and the Agreement on Safeguards; and Anti-dumping and countervailing action under Article VI of GATT 1994, the Agreement on Subsidies and Countervailing Measures and the Agreement on the Implementation of Article VI. (However, action under these provisions were restricted by the due Restraint clause of the Agreement on Agriculture, which restricts retaliation rights in cases where the Agreement is being complied with). EXERCISES: 6. In addition to the exceptions in Annex 5, in what circumstances can additional charges and/or import restrictions be imposed on market access for agricultural products? 7. What is the prohibition in Article 4.2 of the Agreement on Agriculture and what are the exceptions to this prohibition? 24

25 VII.A. IMPLEMENTATION You have now studied rules and exceptions related to market access and agricultural products. Let us now see how these rules are implemented. APPLIED VS BOUND TARIFFS Many countries apply tariffs at levels below the rates set out in their Schedules of Concessions. The following two tables (tables 4 and 5) present some data on the difference between bound and applied rates. Table 4 shows the simple average bound and applied tariffs for certain Members. These averages do not include ad valorem equivalents of specific duties. For the Members in the table this does not cause any significant change in the data because they all have no, or very few, specific duties. Simple Average Bound Tariff % Simple Average Applied Tariff % Year for Average Applied Tariff Australia Bangladesh China Egypt India Indonesia Jamaica Kenya Nigeria Pakistan Philippines South Africa Sri Lanka Turkey Uruguay Venezuela Zambia Table 4: Average Applied vs Bound Tariffs Source: World Trade Report 2003, WTO Note: Comparable figures for many countries are not presented because of the large number of non-ad valorem tariffs in their Schedules. 25

26 Table 5 includes the ad valorem equivalents of specific duties, and presents the comparison of bound and applied tariffs as both the simple average and the average weighted by the value of trade. In both cases the data shows that there is a considerable difference between applied and bound rates. Simple Average Weighted Average Applied Bound Applied Bound Industrial countries EU Japan United States Developing countries Upper middle income Lower middle income Low income East Asia & Pacific Europe & Central Asia Latin America & Caribbean Middle East & North Africa South Asia Sub-Saharan Africa World Table 5: Average Applied vs Bound Rates Source: Martin and Zhi, World Bank, 2004 VII.B. SOME PROBLEMS WITH TARIFFS During the Uruguay Round, countries made their own calculations of the tariffs resulting from tariffication and inscribed them in their draft schedules. If other countries did not object by the conclusion of the Round on 15 April 1994, the drafts were incorporated as the Final Schedule. The reference period ( ) used to calculate the difference between the world market price corresponded to a period of low world prices, which meant that the difference between import and domestic price was considerable. Therefore, tariffication resulted in high tariffs in many cases. 26

27 VII.B.1. COMPLEX TARIFFS Although non-tariff measures are no longer permitted this does not prevent some countries from having relatively complicated tariff structures. Important Note Recall that tariffs can be levied either as ad valorem, specific duties, compound tariffs, seasonal tariffs and other complex forms. While ad valorem tariffs may be the simplest to establish, some Members prefer to use specific duties or a combination of both specific and ad valorem tariffs or more complicated tariff structures. See, for example, Table 6 with some complex tariff forms: Member HS92 Product Base Rate Norway Meat of bovine animals, fresh or chilled: beef steaks and fillets Canada Poultry not cut in pieces, frozen: Fowls of the species Gallus; over access commitment 344 NOK per kg or NOK whichever is greater 283% but not <7.05 /kg or> /kg European Union Meat of bovine animals: carcases and half-carcasses 12.8% ECU/tonne Oranges: Sweet oranges, fresh from 1 to 30 Apr from 1 to 15 May from 16 to 31 May from 1 June to 15 Oct from 16 Oct to 30 Nov from 1 Dec to 31 March 10.4% + 71 ECU/tonne 1 4.8% + 71 ECU/tonne 1 3.2% + 71 ECU/tonne 1 3.2% 16% 16% + 71 ECU/tonne 1 1 The specific duty shall be reduced to zero if the entry price per tonne is not less than 372 ECU/tonne United States Maple sugar and maple syrup: Blended with other sugars of this chapter: other 6% /kg of total sugars Japan Maize: other: other 50% or 12yen/kg whichever is the greater Table 6: Complex Tariff Forms 27

28 VII.B.2. HIGH TARIFFS AND TARIFF PEAKS While the tariffication exercise managed to restrict the ways in which a Member can apply border protection measures, it did not directly result in liberalising trade. Even after the reductions agreed to in the Uruguay Round, tariffs on agricultural products remain high when compared to industrial products IN BRIEF According to the World Bank, the average tariff for agricultural products is about 60% higher when compared to average rates for non-agricultural products. Average rates are around 20% for developing countries and below 5% for OECD countries. In addition, tariff rates in different countries vary considerably, for example, Norway has an average bound tariff of 167% on agricultural products (World Bank estimate) and Bangladesh 188%, while Australia has an average of 3.2%. Furthermore, there are also wide differences within Members, as some products may have low tariffs while other products have high tariffs. For example, in South Africa, tariffs vary from 0% for some products to a maximum of 597%, in Korea from 0% to 887% and in Chinese Taipei from 0% to 500%. One measure of the variability of tariffs is the coefficient of variation. As can be seen in Table 7, this coefficient is particularly large in developed countries as they have tariffs varying from zero to very high and everywhere in between. Simple Average Coefficient of Weighted Average Maximum tariff (%) variation (%) (%) (%) Industrial countries EU Japan United States Developing countries Upper middle income Lower middle income Low income World Table 7: Agriculture Tariffs Source: Martin and Zhi, World Bank,

29 VII.B.3. TARIFF ESCALATION IN BRIEF Tariff escalation is where there are higher import duties on semi-processed products than on raw materials, and still higher duties on finished products. This practice can be used to protect domestic processing industries but it can also discourage the development of processing industries in the countries where the raw materials originate. IN DETAIL Tariff escalation is quite common in agriculture, for example, the EU has bound tariffs of zero on cocoa beans, 7.7% on cocoa butter, 8% on cocoa powder, between 8% and 66.4% on cocoa powder containing sugar and between 22% and 58.4% on chocolate. The escalation is even more steep from grapes to concentrated grape juice: Fresh grapes can enter the EU with tariffs between 8% and 17.5%, but concentrated grape juice is charged 183.6%. (Note some of these are ad valorem equivalents and estimates may vary depending on the methodology used). Chocolate 18.7% Cocoa 1% Figure 2: Market Access: Tariff Escalation TARIFF ESCALATION : Higher import duties on semi-processed products than on raw materials, and higher still on finished products. This practice protects domestic processing industries and discourages the development of processing activity in the countries where raw materials originate. 29