Growing crops and raising livestock have been central to human experience since earliest history. Even today, agriculture and agricultural trade remain critical to the economies, societies and food security of many countries. Globally, however, agriculture is one of the most distorted of all sectors. Ambitious agriculture reform is urgently needed.
Agriculture is a major building block of the New Zealand economy. The production and processing of agricultural products such as meat, dairy products, wool, fruit, vegetables and wine typically generate around 16% of our annual gross domestic product and employ around 15% of the workforce. Agricultural products make up over half of New Zealand's merchandise exports. New Zealand is the world's largest exporter of dairy products, sheepmeat, venison and kiwifruit.
- Dairy products (including casein) - $5,897 million
- Meat and meat products - $4,528 million
- Pastoral based products (hides, skins, carpets, etc) - $1,182 million
- Wool - $996 million
- Other agricultural based products (cereals, meat meals, pet food etc - $446 million
Source: Ministry of Agriculture and Forestry : New Zealand Agriculture, Forestry and Horticulture In Brief, June 2005
June Year (NZ$000 FOB) - 2005(P)
- United States of America - $2,328,068 million
- Japan - $1,611,276 million
- Australia - $1,460,070 million
- United Kingdom - $1,043,598 million
- China, People's Republic of - $883,411 million
Source: Statistics New Zealand New Zealand External Trade Statistics June 2005
Because agriculture makes up such a large share of our exports, New Zealand takes a keen interest in the global trading environment. Although New Zealand farmers are very competitive agricultural producers, world agriculture markets are severely distorted. High tariffs and other restrictions in many countries mean that New Zealand exports have difficulty in gaining access to markets. New Zealand exports frequently have to compete against products that enjoy massive levels of subsidies. New Zealand farmers are not operating on a level playing field.
The 1947 General Agreement on Tariffs and Trade (the GATT) put in place basic trade rules as part of the post-World War II reconstruction of the global economy, but these rules focused primarily on industrial goods. Subsequently several "Rounds" of multilateral trade negotiations have taken place to liberalize trade in industrial goods. Specific provisions on agriculture were only agreed during the Uruguay Round, which concluded in the mid-1990s.
The Uruguay Round (1986-1994) resulted in the creation of the World Trade Organization and the negotiation of several new agreements that relate to agricultural trade. The most important of these was the Agreement on Agriculture (AoA). The AoA was intended to improve predictability and security for importing and exporting countries alike, with an agreed long-term goal of a "fair and market-oriented global agricultural trading system".
WTO Members made commitments in the AoA in three "pillars" (that is, market access, export subsidies and domestic support) of agriculture, in order to:
- Provide predictable and transparent market access opportunities (this was done through the process of "tariffication", binding "tariffs" and reducing them, as well as creating "tariff quotas").
- Limit and reduce government payments on exports ("export subsidies").\
- To limit and reduce trade-distorting government financial assistance and price support ("domestic support").
Those commitments were implemented in the six-year period from 1995. (Developing countries were given an implementation period of 10 years.)
The New Zealand agriculture sector gained significant benefits from the Uruguay Round reforms - in the order of hundreds of millions of dollars each year [Ministry of Agriculture and Forestry/Ministry of Foreign Affairs and Trade analysis]. Although the AoA was a good first step WTO Members recognized that more reform was needed. Such reform is a central component of the current Round of multilateral trade negotiations - the "Doha Development Agenda".
The Fourth WTO Ministerial Conference that took place in Doha (Qatar) in November 2001 launched a new Round of multilateral trade negotiations. This Round is called the "Doha Development Agenda" in recognition of the fact that the needs and interests of developing countries are at the heart of the current negotiations. Agriculture is a central plank in the Doha Development Agenda.
WTO Ministers agreed an ambitious agriculture mandate for:
- substantial improvements in market access;
- reductions of, with a view to phasing out, all forms of export subsidies; and
- substantial reductions in trade-distorting domestic support.
The mandate also provides for:
- "special and differential treatment" (S and D) for developing countries - with particular emphasis on food security and rural development; and
- non-trade concerns to be taken into account as provided for in the Agreement on Agriculture.
New Zealand stands to gain considerably from further reforms in all three pillars. In essence, we want our agricultural exporters (and farmers in developing countries) to benefit from the same opportunities in world markets that have been created progressively for industrial goods since the 1947 GATT.
We have the following specific aims for the agriculture negotiations:
- To increase market access for our products, particularly in key markets, through substantial cuts to all tariffs, increases in the quantity and quality of market access provided through tariff quotas, and removal of non-tariff barriers. This would bring benefits to New Zealand farmers and to consumers in other countries.
- To see the elimination of all forms of export subsidies. This should reduce "surplus disposal" of subsidized products on world markets, and result in increased prices in key sectors (such as dairy), improving farmers' incomes.
- To secure major reductions in trade-distorting domestic subsidies. This would improve the fundamental structures of international agricultural markets.
New Zealand is also seeking an outcome from the agriculture negotiations that helps to foster global development. Agriculture plays an important role for most developing countries in rural development, for food security and to gain export earnings. The reforms New Zealand is seeking would have considerable benefits for developing countries individually and for global food security.
Progress in the agriculture negotiations to date has been slow, despite the ambitious negotiating mandate and timetable agreed at Doha.
Under the Doha timetable, "modalities" (that is, structural elements such as tariff reductions and subsidy cuts) should have been established by 31 March 2003. The Doha timeline also required that WTO Members table their detailed draft "schedules" of new commitments based on the modalities by the 2003 WTO Ministerial Conference. Negotiations were to have been concluded by 2005.
WTO Members have not kept to the Doha timetable. This has been largely because of deep divisions among the Membership over how to meet the level of ambition set in the mandate. The first post-Doha WTO Ministerial Conference, in mid-September 2003, in Agreement, Mexico was intended to inject some new impetus into the agriculture negotiations (and more broadly). The meeting broke down, however, because of disagreements over the scope of the Doha Development Agenda (not primarily related to agriculture).
In the aftermath of the Cancun meeting, WTO Members recognized that they needed to tackle the modalities in incremental steps. They agreed to negotiate a "framework" addressing the key issues. This framework would serve as a basis for negotiating the full "modalities" package. New Zealand's then Permanent Representative to the WTO, Tim Groser, was given the role of chairing that phase of the agriculture negotiations. After intensive negotiations, WTO members agreed to frameworks for agriculture, industrial goods, services, and development issues in the early hours of 1 August 2004. (Note although it was agreed on 1 August, it is commonly referred to as the "July framework".)
The framework included the historic commitment to eliminate all agricultural export subsidies, the worst form of trade-distorting subsidy. The framework also provided for "parallel" disciplines on other forms of export subsidies.
The framework required the highest levels of trade-distorting domestic support to be cut the most, and for the most distorting kinds of support to be reduced by the greatest amount.
The market access section of the framework contained the least detail, but set out some important principles. Key concepts included the following:
- a formula will be used to reduce tariffs
- the highest tariffs will be cut by the most
- substantial improvements in market access will be achieved for all products
- all Members (other than the poorest) must contribute to market access opening
- special and differential treatment (S and D) will be an integral component.
In an important concession to importer interests, the framework also recognized that WTO Members have "sensitive" products. The framework acknowledged that a limited number of these politically-sensitive products could avoid taking the full formula tariff reductions, provided that they still delivered "substantial improvements in market access" - most likely through the expansion of tariff quota volumes.
With the July framework providing some guidance to negotiators, WTO Members aimed to settle full modalities by the time of the Sixth WTO Ministerial Conference in Hong Kong in December 2005.
An intensive process of negotiations took place from September 2004 through to the end of 2005, under the Chairmanship of the new New Zealand Permanent Representative Crawford Falconer from 1 August 2005. This process included Members' proposals, intensive negotiating sessions in Geneva and meetings among smaller groups of Ministers to try to resolve key differences. Again, however, the same divisions among the Membership over the level of ambition - particularly in market access - meant that WTO Members failed in their objective. Despite six days of intensive negotiations in Hong Kong itself, the final Ministerial Declaration did not include full modalities.
The Hong Kong Declaration did, however, include a number of important elements to help to advance the agriculture modalities package:
- WTO Members agreed to eliminate export subsidies by the end of 2013, with "a substantial part" of this elimination achieved by the mid-point of the implementation period (probably 2010)
- The "other forms" of export subsidies (subsidized export credits, commercially-displacing food aid and export subsidies provided by state trading enterprises) must be eliminated in parallel
- More detail was given on how to reduce trade-distorting domestic support
- On market access, Members agreed to use a four-tiered tariff-reduction formula. Members also agreed that more work was needed on the methodology for "sensitive products" (that is, how to cut tariffs and expand tariff quotas for those products)
- Members noted progress on market access into developing countries. These included further detail on a category of "Special Products" (that is, products essential for food security, livelihood security and rural development) and on a safety-net mechanism for import surges (the "Special Safeguard Mechanism")
- Finally, the Hong Kong Declaration also gave more detail on the reform of the cotton sector, and on the issues of preference erosion and liberalization in tropical products.
Negotiators are aiming for 30 April 2006 for agreement on "modalities". Members also agreed at Hong Kong they would submit comprehensive draft Schedules based on those modalithatties no later than 31 July 2006. The date for the conclusion of the Round has been left open, although most WTO Members expect negotiations to finish by the end of 2006. (In part, this is because the United States needs authority from Congress to continue to negotiate. The current delegated authority expires in the middle of 2007, meaning that for practical reasons Geneva negotiations must conclude by the end of 2006.) Following the conclusion of the Round, there will be an implementation period of some years.
An ambitious agriculture reform outcome to the Doha Round is a top trade policy priority for New Zealand. We are not alone in seeking an ambitious outcome in agriculture. We are a member of the 18-country Cairns Group, the historical advocate for agricultural reform and an important force for ambitious liberalization in the Doha Round. New Zealand and the Cairns Group also work closely with the "G20" group of developing countries to keep the pressure on for an ambitious outcome. New Zealand has good links across the spectrum of WTO membership, recognizing the role that each Member plays in delivering an outcome that will both enhance development and provide real benefits to all countries.
The market access pillar is about improving access into markets through the reduction of tariffs, the expansion of tariff quotas and improving the rules relating to market access. The market access negotiations are the most politically-difficult of all areas of the negotiations.
- average agriculture tariffs are over three times higher than for non-agricultural products, some reaching 1,000 percent or more
- in many markets, the volume of imports is severely restricted by tariff quotas
- complex rules relating to the administration of import regimes also effectively keep imports out of some markets.
In the July 2004 framework it was agreed that tariffs will be reduced using a tiered formula; that tariffs will be divided into tiers and the higher the tariffs the higher the cuts to them. The framework also outlined the key elements that still need to be negotiated - the number of tiers, the thresholds for defining them and the type of tariff reduction formula, as well as flexibilities for politically-sensitive products ("sensitive products") and for developing countries.
The Hong Kong Ministerial Declaration December 2005 confirmed that four tiers would be used, although other details of the formula are still under negotiation. Members also agreed that more work was needed on the methodology for "sensitive products". Members acknowledged that good progress had also been made on some key elements relating to access into developing countries: further detail on a category of "Special Products" (that is, products essential for food security, livelihood security and rural development) and on a safety-net mechanism for import surges (the "Special Safeguard Mechanism").
New Zealand is pushing for an ambitious outcome market access. This means cuts to tariffs that are sufficient to allow new trade to flow, and commercially-valuable opportunities provided through tariff quotas for sensitive products.
Proposals currently on the negotiating table for tariffs range from cutting the highest tariffs by 90 percent (the US proposal) to 75 percent (the G20 proposal), down to cutting the highest tariffs by 60 percent (the EU proposal). New Zealand supports the most ambitious approach possible, along the lines of the US proposal.
Many of New Zealand's key exports, especially dairy products and meat, are politically sensitive products in other countries. As such it is likely that they will be dealt with through the sensitive products category. Agreement to this category in the July 2004 Framework was a major concession for exporters like New Zealand, but the Doha mandate principle of "substantial improvement" in market access for each product still applies. Access will be provided through a combination of tariff cuts and the expansion of tariff quotas. New Zealand and many other countries consider that the most coherent and equitable means of expanding tariff quotas is on the basis of a share of "domestic consumption" (that is, the size of the market). The EU has proposed expanding tariff quotas on the basis of current import levels.
It is also important for New Zealand that in-quota tariffs are eliminated or substantially reduced. Otherwise new tariff quota volumes - and even existing quotas - could be unattractive to traders.
Export subsidies, which are prohibited for industrial goods, are a common feature of global agricultural trade. Export subsidies are the most highly distorting form of agricultural support and have been banned on industrial products since the 1950s. They allow farmers to export in cases where it would otherwise be uneconomic. This has the effect of disrupting and depressing prices in world markets, harming efficient farmers such as those in New Zealand and in developing countries.
Dairy products are probably the products most affected by export subsidy use. The main user is the EU in particular, but Switzerland, Canada and Norway also use export subsidies on dairy products. Those countries have the right under the WTO Agreement on Agriculture to use a certain quantity of export subsidies on dairy and other products. The EU has the right to use up to NZ$3.8 billion per year in dairy export subsidies alone.
WTO Members agreed in Hong Kong that all forms of export subsidies would be eliminated by the end of 2013, with a "substantial part" of this elimination to take place by the mid-point of the implementation period (probably 2010).
The export competition pillar also includes other forms of export measures that can provide subsidies to farmers. This is to ensure that Members are not able to circumvent the commitment to eliminate export subsidies. WTO Members have agreed that disciplines are needed on commercially-displacing food aid, subsidized export credits and subsidies provided through or by exporting State Trading Enterprises.
The European Union, US and Japan are the major users of trade-distorting "domestic support" - that is, government subsidies paid directly to farmers in proportion to production, or indirectly through government-supported prices in the marketplace.
The Organization for Economic Co-operation and Development has calculated that developed countries spent US$340 billion in 2004 on agriculture support and protection. High levels of domestic support encourage over-production which leads to lower global prices. Protected producers are also shielded from market changes and can continue to produce even when it would not otherwise be economically viable for them to do so.
The WTO Agreement on Agriculture limits domestic subsidies that are deemed to have trade-distorting impacts, while policies with no or minimal impacts on either trade or production remain exempt from limitations. (This latter category allows governments the scope to support their farm sectors without harming others.)
Green Box- Support with no, or minimal, distorting effects on trade Blue Box Trade- distorting direct payments which are associated with requirements limiting production (the half-way house between green and amber) Amber Box Trade- or production-distorting support, such as supported prices or subsidies related to production. Also called Aggregate Measurement of Support (AMS)
The July 2004 framework and Hong Kong Declaration, together with the proposals that are currently on the table, provide a good basis for substantial reductions in trade-distorting domestic support.
Despite being entitled to use trade-distorting domestic support, New Zealand only provides green box support to its farmers.
New Zealand is a member of the Cairns Group (named after the city where the Group first met). The Group is a coalition of 18 like-minded agricultural exporting countries pushing for agricultural trade reform. Cairns Group countries account for one-third of the world's agricultural exports. The permanent Chair of the Group is Australia. The other members are: New Zealand, Argentina, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Guatemala, Indonesia, Malaysia, Pakistan, Paraguay, the Philippines, South Africa, Thailand and Uruguay. Fifteen of the 18 members are developing countries. The Cairns Group works closely with the G20 group of developing countries.
Over three quarters of WTO Members are developing or least-developed countries. Developing countries are not a homogeneous group, but agriculture plays an important role in most of their economies - whether through exporting, rural development and/or food security. While some are already big exporters, many could develop strong export-oriented agricultural sectors but must bear the burden of others' distorting subsidies and protection. Such measures can keep developing country agricultural exports out of lucrative markets and can harm their own fragile productive capacity and food security.
A more liberalized world agricultural trading system has the potential to be a cornerstone in future economic development. Unsurprisingly, New Zealand and developing countries share many objectives for the reform of the global agricultural trading system. New Zealand works closely with many developing countries - including in the Cairns Group and G20 - in the agriculture negotiations.
WTO Members have recognized that liberalization in developing countries' own markets needs to be more gradual than for developed countries. The principle of "special and differential treatment" for developing countries is an integral part of the current negotiations.
New Zealand has taken specific action to assist developing countries outside of the Doha Round. New Zealand provides technical and development assistance to developing countries, particularly those in our region. The Government also removed tariffs on all products from least developed countries from July 2001, to help those economies grow and to provide a model of 'special and differential treatment' (S and D) for others to follow.