Net Food Importing Developing Countries and the GATT Uruguay Round: Implementation of the Marrakesh Ministerial Decision Note Throughout the paper the Marrakesh Ministerial Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries will be referred to as "the Marrakesh Decision" or simply "the Decision". The countries referred to in the Marrakesh Decision (the least developed and net food-importing developing countries) will be referred to collectively as low income food deficit countries or LIFDCs. Introduction On 15 April 1994, at Marrakesh in Morocco, trade ministers from 120 countries signed the GATT (General Agreement on Tariffs and Trade) Uruguay Round Agreement committing themselves to reduce barriers to international trade. In the Uruguay Round agreement, for the first time, agriculture was subjected to multilateral disciplines and market access commitments similar to those that had governed industrial products following earlier GATT rounds. The negotiations on agriculture were dominated by two of the biggest agricultural exporters, the European Union and the United States, both with huge interests to defend. However, two other groups of countries were also particularly interested in the outcome: the Cairns Group of developed and developing agricultural exporting nations - which were the strongest advocates for agricultural trade liberalisation; and a group of net food-importing developing countries. The Net Food Importers Group raised concerns about the prospect of higher world prices for food and a reduction in the availability of food aid if, as predicted by most analysts, the Uruguay Round discouraged agricultural supply in the major exporting countries. The result of these countries' efforts to mitigate the impact of this negative outcome of the Round was the agreement of a Ministerial Decision at Marrakesh titled "Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries" (see Annex 1). The Decision commits developed countries to provide compensation to least-developed and net food-importing developing countries should they be adversely affected by higher world food prices as a result of the implementation of the Uruguay Round Agreement. Within the context of a recent fall in world cereal stocks to their lowest levels for 20 years and a corresponding two to three-fold increase in world cereal prices in 1995/96, the expectations of a number of developing countries that the Decision should be implemented have, understandably, been raised. The June 1996 International Grains Council Market Report reported that "with average international wheat prices more than double those of the previous year, and with food aid availabilities reduced, several developing countries have significantly raised domestic flour and bread prices and allowed pipeline stocks to drop to very low levels". The food security implications of this world market situation for developing countries dependent on imports for a large proportion of their national food requirements are serious. In these market conditions, net food- importing developing countries must either find additional funds to cover their food import bills or reduce the quantity of food they import with potentially severe consequences for their domestic food supply situation. According to the International Grains Council (June 1996), some signs of strain are apparent. "Shortages of flour have been reported in some import-dependent countries such as Sri Lanka and parts of sub-Saharan Africa. Food shortages in some other countries have been avoided because of reasonable domestic harvests of rice or coarse grains. Should wheat prices remain at current levels and difficulties occur with the local production of other crops, food difficulties could become more widespread by the end of 1996/97". In the longer term higher world prices for agricultural products, if passed onto farmers, could help to stimulate domestic production and reduce net food-importing developing countries' dependence on world markets for imported food. Indeed, a number of development NGOs have been campaigning for many years for the elimination of agricultural export subsidies that have depressed world market prices, undercutting developing country agricultural exports and undermining agricultural sector development and food security in the South. However, even in the longer term, if assistance is not provided to improve agricultural productivity and infrastructure in some net food-importing developing countries, many of whom have experienced severe under-investment in agriculture over the years, partly as a result of signals from distorted world markets, farmers may be unable to respond to the incentive of higher world prices and some countries will lose out overall from the Uruguay Round. This briefing paper aims to examine what the Marrakesh Ministerial Decision means in practice for least developed and net food-importing developing countries and what progress has been made to date in its implementation. Finally, the paper makes some proposals as to the most appropriate types of assistance or compensation that should be provided to developing countries in implementing the Decision. Understanding the Marrakesh Ministerial Decision The Ministerial Decision Concerning the Possible Negative Effects of the Reform Programme on Least Developed and Net Food-Importing Developing Countries was a political decision agreed in response to concerns raised by the Net Food Importers Group about the possible impact of the Uruguay Round Agreement on Agriculture on world cereal prices and their food import bills. Early analyses of the likely effect of the Round on world markets predicted that cuts in domestic agricultural sector support, agricultural trade barriers and agricultural export subsidies would reduce production in and exports from the major cereal exporting countries (the EU and US in particular) leading to higher world cereal prices. This was seen as the likely outcome of the re-adjustment of world markets following decades of distortion by subsidised exports of huge quantities of Northern agricultural surpluses generated by elaborate and costly farm support policies. Although the Decision is not, itself, part of the legal structure of the Uruguay Round Agreement, it is referred to in Article 16 of the Agreement on Agriculture as follows: "1. Developed country Members shall take such action as is provided for within the framework of the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries. 2. The Committee on Agriculture shall monitor, as appropriate, the follow-up to this Decision." Thus, the developed country members of the WTO are legally committed to implementing the Ministerial Decision subject to review by the Committee on Agriculture. Net Food-Importing Developing Countries The Marrakesh Decision refers to least developed and net food- importing developing countries. The United Nations definition of least developed countries is widely accepted. However, an appropriate definition of "net food-importing developing countries" is not so obvious. The United Nations Food and Agriculture Organisation (FAO), in response to a request by the Committee on World Food Security, has done a considerable amount of work on this issue. FAO notes that there are two main ways of estimating the net food importing status of countries: by using quantities of food converted into a common basic unit such as calories; or by using the value of the net imports of food items. Depending on which measure is used, and on which products are included in the definition of food, the list of net food-importing countries varies. FAO notes that, for the purposes of implementing the Decision, it may not be acceptable to define a list of net food importing countries once and for all. This is because the number of counties considered to be net food-importing is likely to change over time. Other work by FAO demonstrates that, although agriculture tends to dominate their economies, many low income developing countries have been net food importers for many years and their ability to meet growing domestic demand for food (through production or imports) has tended to deteriorate. The ability to pay for food imports depends critically on export earnings which, for many low income food-importing countries (LIFDCs), come mainly from agricultural commodity exports. >From the 88 countries that FAO currently defines as LIFDCs, FAO identifies a sub-group of 31 countries with the lowest capacity to finance food imports (FAO calls these FDCs). In 1990, the share of agricultural exports in total FDC exports was very high, exceeding 80 per cent in 10 out of the 26 countries for which FAO has data and exceeding 60 per cent in five other countries. In many FDCs agricultural exports are highly concentrated in one or a few agricultural products. For example, in 1992 70.8 per cent of Burkina Faso's agricultural exports were of cotton and cattle; 69.0 per cent of Cambodia's agricultural exports were of rubber and wood; and 55.2 per cent of Ethiopia's agricultural exports were of coffee. Some FDCs purchase more food than their export earnings can afford. For example, in 1989-91, the value of food imports as a percentage of total export earnings in the Gambia was 168.8 per cent; 173.7 per cent in Lesotho; 109.9 per cent in Guinea-Bissau and 493.5 per cent in Cape Verde. This is possible because of non-export sources of financing such as financial or food assistance, remittances and other sources of income such as tourism receipts. On average in 1989-91, the FDCs as a whole spent in excess of 50 per cent of their export earnings on food imports. In considering the longer term outlook for these economies, FAO makes a distinction between countries dependent on agricultural exports that compete with products produced by developed countries and those that do not. This distinction will determine whether FDCs can expect to capture a larger share of developed country markets as a means of expanding their export earnings or whether they have to depend mainly on growth in demand for their "non-competing" agricultural exports. Dependence on non-competing exports implies that FDCs must compete among themselves to capture developed country markets, which in many cases are already saturated or have limited long- term potential. However, FDC exporters of agricultural products that compete with developed country producers may reap some benefits from export opportunities due to trade liberalisation under the Uruguay Round. Analyses of the impact of the GATT Uruguay Round Agreement on Agriculture on World Prices The GATT Uruguay Round Agreement on Agriculture commits countries to reduce the level of support provided to the domestic agricultural sector; to reduce the quantity and value of subsidised agricultural exports; and to reduce protectionism by converting all import restrictions to tariffs, lowering tariffs over time and guaranteeing minimum market access for imports. Although estimates of the likely impact of these changes on world agricultural markets (supply, prices, volumes of trade) vary, most agree that the Uruguay Round is unlikely to have a substantial effect on world prices in the short to medium term. This is largely because the actual reductions in agricultural support, subsidised exports and protection made by the major agricultural exporting countries are much lower than was originally expected. The two most extreme views on the likely impact of the Round on world prices and net food import bills are those of FAO and the International Monetary Fund (IMF). FAO estimates that reduced developed country exports of wheat and increased wheat imports will increase wheat prices by 6-7 per cent in the year 2000 due to the Uruguay Round. FAO anticipates that world rice prices will also rise by 4-7 per cent because of the reduction of subsidised rice exports by developed countries and the opening of previously closed markets for rice. Overall, FAO expects the total food import bill of all developing countries to increase from US$ 40 billion in 1987-89 to US$ 65 billion by the year 2000, with US$ 3.6 billion (15 per cent) due to the Uruguay Round. FAO estimates that the food import bill of LIFDCs will rise by US$ 10 billion, of which about 14 per cent (or US$ 1.4 billion) may be attributable to the Uruguay Round. FAO acknowledges that higher world agricultural commodity prices resulting from the GATT Uruguay Round can be expected to produce mixed results for LIFDCs that are agricultural exporters as well as food importers. While their rising food import costs are likely to become more of a financial burden, they will benefit from the increase in prices of their agricultural exports. FAO predicts that the net result is expected to be positive in the short term, as food import costs in FDCs are forecast to rise at a slower pace than export earnings from agriculture (approximately 7% and 18% respectively, in 1994-95). In the longer term (1996-2000), however, FAO expects the growth in food import costs to increase by over 8 % per year while growth in agricultural export earnings decelerates sharply to less than 2 per cent in 1996-97, and to increase only moderately thereafter. An IMF Working Paper The Uruguay Round and Net Food Importers (December 1995) assesses the implications of the Round for a sample of 57 countries and provides projections for net food imports of four commodities (coarse grains, wheat, rice and sugar). It concludes that the incremental effect of the Uruguay Round Agreement on Agriculture on the food import bills of these countries over the six-year implementation period (1993 - 2000) should be modest in percentage terms although the larger net food-importing countries may face more significant effects in dollar terms. Egypt, Algeria, Mexico, Morocco, Yemen, Nigeria, Peru, Ethiopia and Albania would face estimated increases in net food import bills of over US$10 million (measured at trade prices and volumes expected to prevail in the year 2000). Recognising that many net food-importing countries are also highly dependent on certain agri-food exports for their foreign exchange earnings the IMF paper illustrates how the commodity composition of net food imports and agricultural exports will determine the likely effects of changes in world food prices due to the Round. The study estimates that prices of wheat and coarse grains are likely to rise due to the Round, whereas prices of rice and sugar are expected to decline. Therefore, for example, as an importer of wheat, Egypt is expected to be adversely affected by the wheat price increases due to the Round. Furthermore, Egypt is a net exporter of rice and so a fall in world prices of rice will represent an additional negative effect on Egypt's balance of payments situation resulting from the Round. Certainly on the basis of its own analysis, the IMF sees no reason to provide new or additional financial resources to compensate net food-importing developing countries for the effects of the Uruguay Round. The Working Paper concludes: "The results of this study should assist in allaying these concerns [those of the net food-importing developing countries]. The estimated financing needs appear modest and can be met under existing IMF facilities in conjunction with resources from other multilateral and bilateral agencies." The IMF paper criticises FAO's analysis of the impact of the Round on world food prices because it uses the very high tariff levels applied in 1986-88 as a base from which to compute the effect of the tariff reductions, rather than the applied rates in place prior to the start of the Uruguay Round implementation period (January 1, 1995). Therefore, the IMF asserts, FAO severely overstates the degree of liberalisation that will take place during the implementation period and, subsequently overstates the likely price changes. Stevens analysed the impact of the Uruguay Round on OECD agricultural policies, especially the European Common Agricultural Policy (CAP) and considered the effects of these reforms on world markets and Africa's trade position, since Africa is the region most vulnerable to changes in world market conditions. Stevens envisages that, although there is unlikely to be much change in world prices due to the Round, world market instability may be exacerbated. This is because the Round will not remove the underlying effects of OECD protectionism on the stability of world markets (which arise from insulating a large section of the world's producers and consumers from market forces) but it will erode one of the mechanisms that have been used in the past to offset these negative effects, that is, the use of large carryover stocks. Causes of the recent increases in world food prices Over the past 18 months, the world cereals market has experienced extraordinary conditions with world stocks falling to their lowest levels for over 20 years and prices reaching two to three times their normal levels. Within this context, many development NGOs have become concerned about the implications of the high world cereals price for developing countries dependent on imports for meeting their domestic food consumption requirements. To many NGOs this is precisely the scenario in which the Marrakesh Decision, intended to meet the needs of LIFDCs in times of high world food prices, should be implemented. The Marrakesh Decision specifically refers to negative effects caused by implementation of the Uruguay Agreement, yet there are a number of factors believed to be responsible for the recent high cereal prices, of which the Uruguay Round is only one. The current debate over whether the Decision should be implemented in the light of recent world market developments highlights the problems associated with distinguishing between Uruguay Round effects and other factors influencing world prices and with quantifying the degree of influence of one factor compared to another. Again there have been a number of different analyses and, again FAO and the IMF have reached substantially different conclusions. The IMF sees the recent "food price spikes" as being "unrelated to the Round". For this reason their implications for net food- importing developing countries are not assessed in the IMF paper, "The Uruguay Round and Net Food Importers" (December 1995). An inter-agency coordination group (comprising the World Bank, IMF, FAO and the World Food Programme) which has been monitoring the impact of the recent grain price rises concluded, in an interim study, that few countries faced additional balance of payments needs. This was mainly because the net food-importing countries were also commodity exporters and their exports had recently been buoyant. Those countries that were most affected had domestic production problems and fewer than five had required additional financing. FAO's own analysis of the causes of the recent cereal price increases examines three contributory factors and considers whether these are likely to be structural or temporary in nature. The first factor is the observed nominal cereal price rise which FAO attributes partly to structural changes on the supply-side eg. the reduction in government intervention in agricultural production (as seen in the 1992 CAP reforms and the 1996 US Farm Bill); and partly by adverse weather. FAO concludes that because of the structural changes taking place in agricultural policy in the major cereal exporting countries, part of the nominal increase in cereal prices represents a permanent change. Levels of food aid are the second consideration. In 1992/93 cereals food aid stood at over 15 million tonnes and accounted for 16 per cent of LIFDC cereal imports. This fell to around 8.4 million tonnes in 1994/95 and dropped further still in 1995/96, accounting for only 8.5 per cent of LIFDC cereal imports, compared to 10 per cent in 1994/95. FAO notes that levels of food aid have historically been linked to agricultural surpluses in cereal-producing developed countries and that because of the Uruguay Round and structural changes in Northern agricultural policies, government stocks are no longer permitted as a supply control measure, other than stocks held for food security purposes. Therefore, food aid levels are likely to remain low. However, if agricultural reform is not successful in reducing Northern surpluses in line with the Uruguay Round export subsidy commitments (this is particularly a concern for the EU), levels of food aid may increase, because bona fide food aid is the only permissible outlet for such surpluses under the Uruguay Round, beyond what is allowed under the export subsidy commitments. A third factor is the level of export subsidies. The Uruguay Round Agreement on Agriculture makes a start on disciplining export subsidies, committing signatory countries to reduce by 36 per cent the value of direct export subsidies from their 1986-90 base level and to cut the quantity of subsidised exports by 21 per cent over the six year implementation period. Although limited in scope (very substantial export subsidies will remain in place), these cuts will be permanent once they have been implemented. In 1995/96, in order to cushion the domestic market from the impact of high world cereal prices, the EU suspended export subsidies for cereals and instead imposed a tax on exports of wheat and barley. However, this represents a temporary change, that will only last as long as world prices remain high. FAO's overall assessment of the impact of the above three factors on the cereal import bills of LIFDCs is that in 1995/96 this group of countries is expected to spend effectively US$ 3 billion more on their cereal imports than they spent in 1994/95. In practice it is impossible to establish exactly what proportion of the increase in world food prices has been caused by the Uruguay Round compared to other factors. Therefore, seeking implementation of the Marrakesh Decision on the basis of a quantified assessment of the impact of the Uruguay Round on world prices is likely to prove extremely difficult. Analysis of the Marrakesh Decision A number of problems concerning interpretation and implementation of the Marrakesh Decision have already been touched on in this paper. The following section examines in more detail some of the key issues of implementation and makes proposals on the possible types of assistance that could be provided to LIFDCs that experience negative effects due to the Uruguay Round. Some of the key implementation issues include: (a) the criteria according to which assistance might be provided (ie. the variables chosen to reflect adverse impacts); (b) the timing of any assistance that is provided; and (c) the nature of compensation and/or assistance that is to be provided, including the relationship between new mechanisms that may be established under the Decision and existing mechanisms which address food insecurity in developing countries. [The full text of the Ministerial Decision is contained in Annex 1 for reference] Criteria A fundamental problem when considering the implementation of the Decision is how to assess whether and when assistance is required. As outlined above, analyses of the likely impact of the Uruguay Round on international agricultural markets and world food prices have produced extremely different results. The majority of developed country governments and the WTO tend to support the IMF analysis that the Uruguay Round has had a negligible impact to date on world prices; some take the position that it will never be possible to distinguish the effects of the Round from other factors influencing world prices. Structural changes in agricultural policy in the major cereal exporting countries (partly due to the GATT Uruguay Round) are one of a number of contributory factors behind the recent high world cereal prices. It is impossible to establish exactly what proportion of the world price increase is due to the reform process and what part is due to other temporary factors. However, because the GATT Agreement on Agriculture has required structural changes in Northern farm policies and these have affected world agricultural markets, the Uruguay Round has definitely had some impact. Timing The issue of timing is inextricably linked with the issue of criteria for implementing the Decision given the position of most developed countries that it is still too early to quantify the effects of the Round. Paragraphs 2 and 3 (i) of the Marrakesh Decision make specific reference to negative effects that least developed and LIFDCs may experience and assistance that may be provided "during the reform programme". This wording could be interpreted to mean that the Decision only covers negative effects experienced within the 6 year implementation period of the Round (1993-2000) and that these effects have to be observed before any assistance is provided. Paragraph 3 of the Decision commits Ministers to: "establish appropriate mechanisms to ensure that the implementation of the results of the Uruguay Round on trade in agriculture does not adversely affect the availability of food aid at a level which is sufficient to continue to provide assistance in meeting the food needs of developing countries.." (Author's italics) This wording implies that preventive action should be taken to ensure that negative effects are not experienced by least developed countries and LIFDCs, as a result of the Round. The latter interpretation overcomes the huge problem of reaching consensus on what objective monitorable variables would prove negative effects before the Decision is implemented. The "preventive" interpretation would seem to be more in line with the spirit of the Decision and NGOs should advocate implementation of the Decision on this basis. Nature of the Assistance The Decision mentions four types of possible assistance that could be provided under the Decision. These are: (i) food aid (see para.3 of the Decision); (ii) financial compensation through the international financial institutions under existing or new facilities (para.5); (iii)special treatment in any future agreement on export credits (para.4); (iv) technical and financial assistance to improve agricultural productivity and infrastructure (para.3(iii)). (i) Food aid The likely impact of the Uruguay Round on levels of food aid is as difficult to quantify as the likely effects on world food prices. Once again, the IMF and FAO predictions vary widely. The IMF's paper on the Uruguay Round and Net Food Importers calculates that food aid accounts for over 20 per cent of total cereals imports in 28 out of the 53 LIFDCs for which estimates were made. Of these 28 countries, food aid accounted for over 50 per cent of total cereal imports in 15 countries. The IMF disputes the concern that agricultural subsidy reductions following the Round will limit food aid availability on the grounds that "food aid accounts for a small proportion of cereals stocks" therefore "declining stocks (predicted as an outcome of the Round) do not necessarily imply proportional declines in food aid". In contrast, FAO notes that levels of food aid have been strongly linked to the existence of agricultural surpluses in the donor countries and that historically the volume of food aid has fallen in years of high world cereal prices. The Round is likely to have a negative impact on the Northern agricultural surpluses in the future and it is not clear that levels of food aid will be maintained, especially when world market prices are high. Stevens tends to support FAO's position noting that the Uruguay Round reforms will have an effect on public sector stocks: "Although the changes will not necessarily reduce 'surplus production' in the true economic sense of the term by any substantial amount (ie. production in excess of the level that would be sustainable under unrestricted trade) it will tend to reduce 'surpluses' in the sense of cereal mountains and the like. These large surpluses have been made available (with greater or lesser effectiveness) to ease the adjustment problems of food importing states during times of cyclical shortage. This buffer is likely not to be available on anything like the past scale for the foreseeable future. As substantial recipients of food aid, North and sub-Saharan Africa may be particularly adversely affected by this change." Paragraph 3 (i) of the Decision refers to the need to maintain the level of food aid established periodically by the Committee on Food Aid under the Food Aid Convention (FAC). The FAC is the only international food aid commitment of its kind. The World Food Programme (WFP) receives additional food aid commitments from a wider range of donors than those belonging to the FAC and of a wider range of agricultural commodities (the FAC only covers food aid in the form of grain and gifts of cash to be used to purchase grain for the recipient country). The Marrakesh Decision, being signed in April 1994, referred to the 1986 Food Aid Convention. This expired at the end of June 1995 and has since been replaced by the Food Aid Convention of 1995. However, the stated objective of both the 1986 and the 1995 Conventions is to achieve the 1974 World Food Conference target commitment of at least 10 million tonnes of food aid annually to developing countries in the form of grain suitable for human consumption. Towards this end, members of the Food Aid Convention in 1986 undertook to provide minimum annual contributions of 7.5 million tonnes (wheat equivalent). In the 1995 FAC, the minimum annual contributions committed fell by 29 per cent to 5.35 million tonnes. In view of this substantial reduction, as committed in paragraph 3 (i) of the Marrakesh Decision, there is clearly a need for WTO Ministers to "initiate negotiations in the appropriate forum to establish a level of food aid commitments sufficient to meet the legitimate needs of developing countries during the reform programme". These negotiations should also address paragraph 3 (ii) of the Decision which commits Ministers to "adopt guidelines to ensure that an increasing proportion of basic foodstuffs is provided to least developed and net food-importing developing countries in fully grant form and/or on appropriate concessional terms in line with Article IV of the Food Aid Convention". Officials in the Food Aid/Food Security Unit of the Development Directorate (DGVIII) of the European Commission have indicated that, in their opinion, increased assistance mainly in the form of food aid would not be the most appropriate response to concerns over the effects of higher world food prices on LIFDCs. DGVIII is concerned that the Marrakesh Decision should not be used as a mechanism for countries easily to obtain additional quantities of food aid without committing to make complementary domestic agricultural sector reforms designed to promote greater self-sufficiency. Most NGOs would empathise with these concerns which reflect the fact that the provision of long term programme food aid, if not carefully targeted, can undermine domestic agricultural production and create a culture of unsustainable dependency. In view of the recent significant decline in minimum food aid commitments under the FAC, NGOs would welcome an initiative by WTO Ministers to begin negotiations on this issue. However, food aid should not be the only form of assistance offered to LIFDCs facing higher import bills for cereals. Donors should also commit themselves to increase investment in agricultural development projects designed to improve agricultural productivity and infrastructure and reduce LIFDCs' reliance on world markets for food imports. (ii) Financial compensation through the IFIs In paragraph 5 of the Decision, Ministers recognise that, due to the Round, developing countries may experience short-term balance of payment difficulties in financing normal levels of commercial imports and that these countries may be eligible to draw on the resources of the International Financial Institutions (IFIs - the International Monetary Fund and the World Bank) through existing financing facilities or through new facilities that may be established, in the context of adjustment programmes. Paragraph 5 refers to paragraph 37 of the report of the Director- General of the GATT on his consultations with the Managing Director of the International Monetary Fund and the President of the World Bank on "Ways of achieving greater coherence in global economic policy making through strengthened GATT relationships with other relevant international organisations". This reads as follows: "The head of the Fund stated that the Fund already provides support for trade liberalisation measures adopted by a member in the context of its overall programme. The Fund also has in place special facilities to deal with various contingencies including temporary shortfalls in export earnings, and excesses in cereal import costs. The Bank, which is already engaged in support of unilateral trade liberalisation, has assured the Director-General of its readiness to consider financing adjustment needs resulting from the Uruguay Round. Among such potential needs it recognises, in particular, those arising for a country as a result of undertaking significant tariff reductions, or from the need to encourage a supply response in food-importing countries affected by higher world prices for previously subsidised agricultural products." The IMF's analysis of the impact of the Uruguay Round on the net food import bills of 57 LIFDCs concludes that the effect will be modest in percentage terms and, therefore, that there is no reason to make new or additional financial resources available for compensation. For those countries that do experience some negative effects, the IMF believes that their needs can be met by existing facilities, particularly the Compensatory and Contingency Financing Facility (CCFF) which is specifically for use by countries that face temporary balance of payments difficulties arising from shortfalls in export receipts or excess cereal import costs. However, very few low-income countries access the IMF's CCFF because of difficulties in using this facility (access to the facility is contingent on the country's status at the IMF and depends on implementation of a structural adjustment programme) and the high cost of borrowing at near market rates. FAO suggests that lack of utilisation of the CCFF over the past 15 years may also be due to the fact that LIFDCs have had relatively easy access to quantities of subsidised food on world markets and that they have therefore come to regard the CCFF as a last resort. Because of recent reforms in US and EU farm policies (partly because of the [limited] restrictions the Uruguay Round places on levels of subsidised exports), however, sourcing cheap food from the world market is less likely to be a valid option for LIFDCs. BOX STARTS Compensatory & Contingency Financing Facility (CCFF) [Taken from International Commodity Problems and Policies: The key issues for developing countries, South Centre, 1996] A Compensatory Financing Facility (CFF) was established by the IMF in 1963 as a low-conditionality support for member countries in meeting temporary shortfalls in export earnings caused largely by circumstances beyond the countries' control, resulting in a need for balance of payments support. The main condition imposed was that a country drawing on the Facility should cooperate with the Fund to find appropriate solutions to its balance of payments difficulties. Because of the collapse in commodity prices in the early 1980s, developing countries drew increasingly on the CFF. In 1983 the Fund tightened the terms of the CFF, increasing conditionality so that countries were required to agree a package of policy measures with the IMF, typically involving currency devaluation, ceilings on domestic credit and restrictions on the government's fiscal deficit. After the imposition of this stricter conditionality, developing countries have used the facility less and less. After 1982, repayments on earlier CFF loans began to rise and between 1984-1987 there was a net financial flow from developing countries to the IMF. Then in 1988 the CFF was incorporated into a new Compensatory and Contingency Financing Facility (CCFF) to provide contingency finance for IMF supported structural adjustment programmes intended to cover unanticipated external shocks beyond the control of a member country concerned. Excluding drawings made in 1991 to cover the excess costs of oil imports, caused by the Gulf War, there was also a net outflow from developing countries to the Fund under the CCFF of just under 1.0 billion Special Drawing Rights (SDRs) from 1988 to 1992. Low-income countries made few drawings up to 1988 and none thereafter, essentially because of the strict conditionality imposed and the relatively high interest rate charged on loans. Hence a new Structural Adjustment Facility (SAF) was established in 1986 to provide balance of payments assistance on concessional terms to low income countries. A further Facility - the Enhanced Structural Adjustment Facility (ESAF) - was created in 1987 to expand concessional lending to low-income countries undertaking macroeconomic and structural adjustment programmes. The South Centre suggests that the recent switch from the CCFF to the ESAF indicates that the IMF implicitly acknowledges that the balance of payments difficulties of low-income countries reflect structural imbalances in the world commodity economy and not merely temporary self-correcting fluctuations. Therefore, they conclude "the CCFF....has become largely irrelevant in the face of the magnitude of export earnings shortfalls experienced by a wide range of commodity-dependent countries." BOX ENDS The World Bank has no existing financing facilities that are specifically geared to cover exceptional import costs. The Bank's position on the issue of establishing new and additional financing facilities coincides with that of the IMF. The Bank does not attribute any of the recent world food price increases to the impact of the Round, citing crop failures and low stock levels as the cause. The Bank feels that any problems resulting specifically from the Round in the future are likely to be relatively small and should be adequately met by existing international financing facilities. Despite the claims of the IFIs, it is clear that existing financing facilities such as CCFF would not provide an appropriate means of compensating LIFDCs adversely affected by the Round without substantial modification with respect to terms of finance and conditionalities. If assistance to LIFDCs is made conditional on economic and other policies this would be different from the conventional assumption of an absolute right to compensation under other GATT provisions. NGOs should support FAO's recommendation that "food price increases over and above normal increases, attributable to the implementation of the Agreement, should elicit grants not loans, additional to and not conditional on existing finance that may be available." (iii) Export credits Export credits are a form of government support or incentive designed to cover the risks faced by exporters. These risks include insolvency or default of debtor, refusal of goods on delivery and political risks such as the imposition of import restrictions or exchange controls by the importing country government. Export credits work by government giving an interest rate subsidy to commercial banks that provide finance for exporters. Due to increasing international concern about the use of export- credit subsidies to capture export markets, particularly in developing countries, the OECD agreed guidelines for officially supported export credit schemes which fix minimum interest rates and maximum repayment periods for borrowers. Agriculture is one of only two sectors not subject to these export credit guidelines because of the sensitivity of agricultural sector support in a number of OECD countries (the only other sector not covered is military products). At their meeting in May 1996, OECD Ministers agreed to "maintain the momentum of the work of all participants of the "Export Credit Arrangement", especially on the guiding principles for premia setting and on the Outline Understanding on agricultural products with a view to concluding agreements by the 1997 Ministerial meeting" (to be held in May 1997). The intensified OECD discussions now taking place on agricultural export credits are highly sensitive since they have implications for domestic agricultural support policies and will affect the OECD definition of agricultural export subsidies. Because the outcome will have implications for international markets, trade and food aid and because OECD countries are also members of the WTO, the WTO has some involvement in this work. The debate will focus on the terms and conditions according to which agricultural support can be provided through export credits and whether certain products and countries will be exempt from the guidelines. The treatment of LIFDCs will be one of the issues covered in the discussions, particularly in view of the Marrakesh Ministerial Decision which promises that differential treatment in favour of least developed and LIFDCs will be provided for in any agreement on agricultural export credits. Therefore, there may be opportunities for NGOs in OECD member countries to lobby their governments to ensure that concerns about the negative effects of the Uruguay Round on LIFDCs are reflected in the OECD guidelines on agricultural export credits. Whatever is finally agreed will be of particular interest to the WTO who will want to ensure that the agreement is consistent with OECD countries' WTO commitments. It has been suggested that the OECD guidelines on agricultural export credits may subsequently be taken to the WTO and "multilateralised" ie. incorporated into the GATT rule-based multilateral trading system. (iv) Technical and financial assistance to improve agricultural productivity and infrastructure It is emphasised above that any package of compensation for LIFDCs adversely affected by the Uruguay Round should not only involve food aid but also other types of assistance, for example, to improve food supply forecasting and increased domestic and regional production. Appropriate strategies would include increasing resources for agricultural sector development projects to improve productivity, infrastructure and levels of self- sufficiency, so as to reduce LIFDCs dependence on imported food that is subject to world market fluctuations. Another issue that deserves consideration is the role that food security stocks could play, particularly in mitigating the impact of world price fluctuations in the context of reduced stocks following the Uruguay Round. These could be held at the international, regional, national or community level and would be GATT-consistent under Annex 2 of the Agreement on Agriculture. FAO comments that the international community may consider supporting food security stocks in developing countries since "by having a dampening effect on prices, such stocks would reduce the need for compensation that eligible countries would be entitled to (under the Marrakesh Decision) in the event of a shortfall in the world market". Progress at the WTO on implementing the Decision As stated in paragraph 6 of the Marrakesh Decision, the WTO Ministerial Conference will regularly review the provisions of the Decision and the follow-up to the Decision will be monitored, as appropriate, by the WTO Committee on Agriculture (COA). The WTO does not have any resources itself to provide assistance compensation. The role of the COA in reviewing the implementation of commitments under the Agreement on Agriculture is set out in Article 16 of the Uruguay Round Agreement on Agriculture. A number of relevant observers, including FAO, the IFIs, the OECD and the WFP, have been invited to participate in discussions on the Decision in the COA. Unsurprisingly, countries involved in the Net Food Importers Group during the Round have spearheaded efforts to pursue the implementation of the Decision. Apparently they have succeeded in getting this issue on the agenda at most meetings of the COA since the first in April 1995. It has been agreed that countries will provide notifications on actions taken in relation to the Decision on an annual basis, for review by the COA. However, to date only limited progress has been made in discussions on implementation of the Decision. The question of defining which countries will benefit from the Decision was dealt with at the end of 1995. As requested by the Committee on World Security, FAO had previously done work on this issue (see above) but FAO's definition was rejected in favour of a system of self-designation. It has been agreed that the list of beneficiaries from the Decision are to include the least-developed countries as recognised by the United Nations and other countries which submitted information notifying the COA of their status as Net Food-Importing Developing Countries. [These are (at 2 April 1996) Barbados, Cote d'Ivoire, Dominican Republic, Egypt, Honduras, Jamaica, Kenya, Mauritius, Morocco, Peru, Senegal, Sri Lanka, Trinidad and Tobago, Tunisia and Venezuela.] The list of net food-importing countries is to be reviewed annually by the COA on the basis of notification by countries on their levels of food imports. Least-developed countries will be automatically eligible for compensation under any agreed scheme. The COA has agreed a work programme to try to move forward the implementation of the Decision. The work programme focuses on paragraphs 3 (i) and 3 (ii) of the Decision which relate to food aid levels and the concessionality of food aid. In addition, following the publication of relevant studies by the IFIs, notably the IMF Working Paper on The Uruguay Round and Net Food Importers which concludes that no new facilities are required to assist LIFDCs following the Uruguay Round, the WTO approached the IFIs seeking clarification on their views on the Decision. Informal consultations are now taking place (where concerned parties meet under the Chair of the COA) on the basis of detailed proposals being submitted by individual Member countries. Through this process, a consensus may be reached that certain action should be taken in line with Article 16 of the Agreement on Agriculture and under the specific headings contained in the Decision. This could mean, for example, that negotiations will be initiated on the level of food aid available. The COA is due to monitor the implementation of Decision at its meeting in November 1996. LIFDCs in the Committee on Agriculture As a major potential beneficiary from the Decision, Egypt has taken a leading role in discussions in the COA on how to operationalise the Decision and has been frustrated at the lack of progress made to date. Dr. Shahin, a senior Egyptian diplomat at the WTO cites the Net Food Importing Developing Countries' major dilemma as being "to induce WTO members to reach a common ground between the two extreme assessments provided by the Multilateral Financial Institutions and the Food and Agriculture Organisation, with regard to establishing whether the increase in the world prices of agricultural products was also due to the Uruguay Round policies in the area of agriculture or only to other reasons, such as the weather, drought and the bad harvest in Russia and so on". Acknowledging that it will be extremely difficult for the WTO Committee on Agriculture ever to agree on an analysis of the impact of the Round on world food prices, LIFDCs are now adopting the position that the Round will clearly have some negative effects on LIFDCs, even though these may not be quantifiable. Therefore, on the basis of principal they assert that some assistance should be provided. That LIFDCs will suffer some negative effects as a result of the Round has been acknowledged by several developed countries and the LIFDCs hope finally to achieve some progress towards implementation of the Decision on these grounds, in keeping with the spirit of the Decision. Dr. Shahin suggests that the need to negotiate increased levels of food aid is a point that could be endorsed at the World Food Summit in November and recommended for discussion and action by WTO Ministers at the first WTO Ministerial Conference in Singapore in December. However, a commitment only to increase food aid in order to compensate LIFDCs would be a far from satisfactory outcome. Instead, LIFDCs would benefit more, particularly in the long term, from a balanced package of assistance, including not only food aid but also technical and financial assistance to improve agricultural productivity and infrastructure. This would more appropriately compensate for the negative effects of the Round. In view of the negative position taken by the IFIs regarding the provision of a multilateral package of assistance, LIFDCs are likely to have to negotiate bilaterally with donors to secure compensation and assistance to offset the negative effects they experience due to the Uruguay Round. Northern NGOs can help by lobbying their national governments, prior to these bilateral negotiations, on the need to provide adequate compensation/assistance to LIFDCs and on what types of assistance would be most helpful. The World Food Summit and the WTO Ministerial Meeting FAO is hosting a World Food Summit in Rome from 13-16 November. This will aim to renew international commitment to devising strategies and policies to achieve global food security. NGOs have been involved in preparations for the Summit and have been active in commenting on FAO's background technical papers as well as the draft Policy Statement and Plan of Action to be signed by heads of government attending the Summit. The latest version of the Policy Statement and Plan of Action was drafted by the Inter-Sessional Working Group of the FAO Committee on World Food Security and aims to take account of all the comments received and amendments proposed by FAO member countries. The Marrakesh Ministerial Decision is mentioned in Commitment Five which reads: "We shall ensure that food trade and overall trade policies are conducive to fostering food security". Objective 5.2 under Commitment 5 of the draft Plan of Action for the World Food Summit is: "To meet essential food import needs, seek to safeguard them from potential instability in world prices and safeguard the food consumption and nutrition levels of vulnerable groups". In order to achieve this objective, paragraph 41 (c) of the draft Plan of Action states that: "The international community will: (c) [Make every effort to implement the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least- Developed and Net Food-Importing Developing Countries as pursued through the WTO's Committee on Agriculture and] ensure that international financial institutions, where appropriate, help [these] countries meet short-term difficulties in financing essential food imports. The square brackets indicate wording that is not yet agreed. Development NGOs, in commenting on the draft Plan of Action have stressed the importance of developed countries meeting their legal commitment to implement the Decision and feel strongly that reference to this should be included in the World Food Summit Declaration (ie. the square brackets should be removed). This is particularly so because the first WTO Ministerial Meeting is to be held in December in Singapore, soon after the Food Summit. It will be important for world leaders attending the World Food Summit to give WTO Ministers a clear mandate to make progress on the Decision at their December meeting. The British government position The Department of Trade and Industry (DTI) is the lead agency within the British government on WTO matters. However, other relevant departments take responsibility for specific WTO matters that fall within their area of competence. For example, a representative from the Ministry of Agriculture, Fisheries and Food (MAFF) attends the WTO Committee on Agriculture and, subsequently, MAFF takes the lead in government policy on the Marrakesh Decision. However, because the Decision covers a number of issues, the Overseas Development Administration (ODA) and DTI also have an input. The ODA is the lead government agency on matters relating to the World Food Summit. The British government's position paper Food security and the World Food Summit (July 1996), which was circulated for discussion at the UK public consultation on the World Food Summit in July, referred to the Decision in the section on Trade Issues as follows: "The role of the World Trade Organisation should be supported and trade liberalisation promoted such that the ability of developing countries to achieve food security for their people is enhanced rather than damaged. Internationally agreed safeguards, such as the Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least- Developed and Net Food-Importing Developing Countries are in place to help deal with such problems." Despite describing the Decision as an "internationally agreed safeguard", the British government does not seem to have a clear understanding of how the Decision should be implemented. NGO enquiries about the Decision have elicited the response that it is still too early to tell what the effects of the Round have been. Therefore, it appears, the British government feel that negative effects of the Round have to be observed before action can be taken to implement the Decision. However, it is not at all clear what quantifiable variables would satisfy the government that the Decision should be implemented. Unofficially, ODA appears concerned that developing countries' expectations of the Decision may be unreasonably high. MAFF have stated that food aid could be the main form of assistance to be provided if it is determined that LIFDCs have been negatively affected by price rises. Again, it is not clear what criteria MAFF would accept as a basis for the provision of additional food aid. The British government's attitude towards implementation of the Decision has not been encouraging to date. It is ironic, to say the least, that the Marrakesh Decision should be cited in the government's World Food Summit position paper as a means of off- setting potential negative effects of trade liberalisation on food security in developing countries, yet the government does not appear to know how this "internationally agreed safeguard" might be implemented. British NGOs should lobby the government to clarify precisely how they consider the Marrakesh Decision should be implemented: according to what criteria, what timing and through what forms of assistance. In keeping with the spirit of the Decision, NGOs should lobby for the British government take early action to prevent LIFDCs from experiencing negative effects due to trade liberalisation under the Round, by providing additional resources for agricultural development programmes in LIFDCs. In addition, the British government should be encouraged to acknowledge the connections between the World Food Summit and the WTO Ministerial Meeting in December. A number of trade and food security issues will be relevant for both meetings. In particular, world leaders attending the Summit should recommend that WTO Ministers take immediate action to implement the Decision through initiating negotiations on levels of food aid and committing new resources for agricultural development programmes. CONCLUSION Although analyses of the likely impact of trade liberalisation under the Uruguay Round on international agricultural markets, world food prices and LIFDCs' net food import bills vary significantly, all the analyses agree that there will be some overall (probably unquantifiable) negative impact on low income countries that are highly dependent on world markets for their national food requirements. Even if these effects are not expected to be transmitted through prices rises, they may be experienced in the form of greater vulnerability to price fluctuations as a result of increased world market instability. The spirit of the Marrakesh Decision was to acknowledge that some countries are likely to be adversely affected by the impact of the Uruguay Round on world agricultural markets and levels of food aid and to reassure these countries that appropriate compensation and assistance would be provided to offset these effects. In signing the Decision, WTO Ministers from developed countries committed their governments to this end, not only in spirit, but in an internationally binding legal agreement. Developed country governments must now fulfil their Uruguay Round commitment and implement the Marrakesh Decision. In addition, they must acknowledge that "adequate" compensation does not mean providing loans at near-commercial rates of interest or conditional on structural adjustment policies to countries that, in some cases, are already severely indebted. Nor does it mean providing more food aid if this should suit developed countries, regardless of the impact that may have on developing countries agriculture and food security. Instead a balanced package of assistance should be provided to help least developed and LIFDCs to adjust to the changing international trade environment. As these adjustments will only be achieved in the longer term, it is not appropriate to wait until negative effects of the Round have already been identified (even if this were feasible) before assistance is provided. Some ideas for appropriate types of assistance that should be provided are outlined below. The following lobbying points are intended to provide ideas for NGO advocacy efforts targeting the World Food Summit in November and the WTO Ministerial Meeting in December. LOBBYING POINTS 1. It will be extremely difficult for WTO member governments ever to agree on a quantitative analysis of the negative effects of the Round on LIFDCs. Therefore, rather than lobbying for implementation of the Decision on the grounds of observed, quantifiable negative effects, NGOs should call for assistance to be provided under the Decision on the basis of the principal that LIFDCs will experience some negative effects. In the spirit of the Marrakesh Decision, donor governments must act now to prevent these anticipated difficulties from arising in LIFDCs rather than insisting that they are observed before compensation is provided. 2. The Marrakesh Decision constitutes a legal commitment by WTO Ministers, however, the resolution of questions relating to interpretation and implementation of the Decision will inevitably be highly political. The Decision will be reviewed at Singapore in December, as will all the Uruguay Round Ministerial Decisions. NGOs should lobby their governments to instruct the Committee on Agriculture urgently to make progress in implementing the Decision at Singapore and to acknowledge that assistance provided under the Decision will be additional to existing mechanisms/commitments. 3. The World Food Summit (WFS) in November will be attended by heads of government in November. The Policy Statement and Plan of Action arising from the Summit should reinforce the Marrakesh Decision by calling on WTO Ministers at Singapore to reaffirm their commitment to early implementation of the Decision. 4. In view of the position adopted by the IFIs on the Decision, LIFDCs are most likely to find themselves negotiating bilaterally with donors for compensation and assistance to offset the negative effects they experience due to the Round. NGOs should lobby their national governments on the most appropriate types of assistance to be provided under the Decision as outlined in (5) below. 5. In the short term, food aid and direct financing to meet balance of payments difficulties experienced by LIFDCs may be appropriate forms of assistance under the Round. However, in order to facilitate LIFDC adjustment to the Round in the long run, donor countries should provide additional financial resources and technical assistance for LIFDCs to develop sustainable food production and to promote income-generating activities for rural populations. This will be the most effective way to improve food security in LIFDCs in the longer term and to reduce their dependence on food imports that can be subject to world market fluctuations. Some specific lobby points on the different types of assistance that could be provided under the Decision are listed below: (i) WTO Ministers should initiate negotiations on levels of food aid commitments, in the light of their recent substantial decline. However, where food aid is provided to LIFDCs it should be short term (so as not to undermine local production), provided in the form of triangular purchases wherever possible and be based on contractual arrangements that acknowledge the joint obligations of donor and recipient. Moreover, food aid should not be the only form of assistance offered to LIFDCs under the Marrakesh Decision. (ii) Financial compensation that is provided to offset food import bill increases, attributable to the Round, should take the form of grants not loans, additional to and not conditional on existing finance that may be available. (iii) Concerns about the negative effects of the Round on LIFDCs must be taken into account in the OECD negotiations on guidelines for agricultural export credits. (iv) Donor countries should commit to increase investment in agricultural development projects designed to improve domestic agricultural production and infrastructure so as to reduce LIFDCs' reliance on world markets (that can be subject to substantial price fluctuations) for food imports. (v) FAO should undertake an investigation into the level and ownership of the world's food reserves and intervention stocks. Support of publicly held food security stocks is another important means of assistance that donor countries can provide to LIFDCs to offset increased world market instability expected as a result of the Round. Annex 1 FINAL ACT EMBODYING THE RESULTS OF THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS (Marrakesh, April 15, 1994) DECISION ON MEASURES CONCERNING THE POSSIBLE NEGATIVE EFFECTS OF THE REFORM PROGRAMME ON LEAST-DEVELOPED AND NET FOOD-IMPORTING DEVELOPING COUNTRIES 1. Ministers recognise that the progressive implementation of the results of the Uruguay Round as a whole will generate increasing opportunities for trade expansion and economic growth to the benefit of all participants. 2. Ministers recognise that during the reform programme leading to greater liberalisation of trade in agriculture least developed and net food-importing developing countries may experience negative effects in terms of the availability of adequate supplies of basic foodstuffs from external sources on reasonable terms and conditions, including short-term difficulties in financing normal levels of commercial imports of basic food stuffs. 3. Ministers accordingly agree to establish appropriate mechanisms to ensure that the implementation of the results of the Uruguay Round on trade in agriculture does not adversely affect the availability of food aid at a level which is sufficient to continue to provide assistance in meeting the food needs of developing countries, especially least developed and net food-importing developing countries. To this end Ministers agree: (i) to review the level of food aid established periodically by the Committee on Food Aid under the Food Aid Convention and to initiate negotiations in the appropriate forum to establish a level of food aid commitments sufficient to meet the legitimate needs of developing countries during the reform programme; (ii) to adopt guidelines to ensure that an increasing proportion of basic foodstuffs is provided to least developed and net food-importing countries in fully grant form and/or on appropriate concessional terms in line with Article IV of the Food Aid Convention; (iii)to give full consideration in the context of their aid programmes to requests for the provision of technical and financial assistance to least developed and net food-importing countries to improve their agricultural productivity and infrastructure. 4. Ministers further agree to ensure that any agreement relating to agricultural export credits makes appropriate provision for differential treatment in favour of least-developed and net food-importing developing countries. 5. Ministers recognise that as a result of the Uruguay Round certain developing countries may experience short-term difficulties in financing normal levels of commercial imports and that these countries may be eligible to draw on the resources of international financial institutions under existing facilities, or such facilities may be established, in the context of adjustment programmes, in order to address such financing difficulties. In this regard Ministers take note of paragraph 37 of the report of the Director-General of the GATT (MTN.GNG/NG14/W/35) on his consultations with the Managing Director of the International Monetary Fund and the President of the World Bank. 6. The provisions of this Decision will be subject to regular review by the Ministerial Conference, and the follow-up to this Decision shall be monitored, as appropriate, by the Committee on Agriculture. Bibliography FAO, Panos Konandreas & James Greenfield, Commodities and Trade Division, Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food- Importing Developing Countries: Some Issues of Interpretation and Implementation of the Decision, Paper presented to the Brainstorming Meeting on the Impact of the Uruguay Round on Developing Countries and Offsetting Measures to Overcome the Negative Transitional Effects, UNCTAD, 18-19 May 1995 South Centre, Enhancing South-South Trade