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The rebuttal comes in a letter to Dr de Schutter and attached comments from the WTO Secretariat on an earlier draft of the report. The final version of the report, “The World Trade Organization and the Post-Global Food Crisis Agenda: Putting Food Security First in the International Food System”, was published on the website of the UN Office for the High Commissioner for Human Rights under the headline “Food security hostage to trade in WTO negotiations — UN right to food expert”. The full report is available here.
Dear Professor De Schutter,
In your recent activity report, “The World Trade Organization and the Post-Global Food Crisis Agenda” of November 2011, you question whether WTO rules are compatible with efforts to bolster food security. I was pleased that we had the opportunity to comment on an earlier draft of this report. I am attaching those comments to highlight the detailed critique that we have already provided and which remains relevant.
I wish to take this opportunity to summarize where I agree and disagree with you in three important areas: the objective of food security in the WTO Agreement on Agriculture, the role of trade in global food security, and the scope within WTO rules to ensure that Members have access to flexible policy options to achieve their food security objectives.
First, I agree with you that food security is an essential policy objective for governments. Governments have a sovereign right to pursue policies to achieve food security within their international obligations. WTO Members have placed food security at the center of both the Agreement on Agriculture (AoA) and the Doha Development Agenda (DDA) negotiations. The preamble of the AoA stresses that commitments should take into account food security concerns. Food security is explicitly mentioned several times in the AoA, is referenced in the Marrakesh Decision on measures concerning the possible negative effects of the reform programme on net food importing developing countries and is mentioned explicitly (or has led the positions taken by Members) in several provisions of the December 2008 DDA draft modalities on agriculture. I am convinced that WTO Members are fully aware of the food security objective and, indeed, that it is integral to their negotiating strategy.
Secondly, I fundamentally disagree with your assertion that countries need to limit reliance on international trade to achieve food security objectives. On the contrary, there is agreement among most UN-led experts that international trade is part of the package of solutions to achieve food security. The UN High Level Task Force on the Global Food Security Crisis in their 2010 Updated Comprehensive Framework for Action noted that “more liberalized international markets would contribute to global food and nutrition security through increased trade volumes and access to diverse sources of food imports.” (“Updated Comprehensive Framework for Action”, United Nations High Level Task Force on Global Food Security Crisis, September 2010, paragraph 76.) The Inter-agency report for the G-20 stated, for example, that “trade is an essential component of any food security strategy” and that “Policies that distort production and trade in agricultural commodities potentially impede the achievement of long run food security”. (“Price Volatility in Food and Agricultural Markets: Policy Responses”, Policy Report including contributions by FAO, IFAD, IMF,OECD, UNCTAD, WFP, the World Bank, the WTO, IFPRI and the UN HLTF, 2 June 2011, page 23.) Indeed, our Members negotiate towards a more level playing field in agriculture in order to enhance their ability to achieve food security.
WTO Members negotiated and committed to an AoA that specifies their rights and obligations with respect to trade distorting practices. A goal of these obligations is to limit policies that distort price signals, in order to encourage an efficient allocation of resources at the national level and to enhance purchasing power, fundamental to food security, through GDP growth. With trade as part of a coherent macroeconomic and structural economic strategy, resources will tend towards an allocation based on comparative advantage, limiting inefficiencies. In response to an enhanced transmission of unbiased price signals competitive producers adjust their production and investment decisions. This supply response helps to mitigate price pressure, contributing to improved availability of affordable food. Thus, trade can contribute to solutions to food security challenges.
I agree with you that the current state of global food security requires policies that encourage and strengthen investment in agriculture, and ensure appropriate safety nets for urban and rural poor. Current WTO rules in agriculture and possible outcomes from the DDA allow policy space and flexibility in these areas. Hence, the Agreement on Agriculture leaves developing countries broad room to implement measures to achieve their national objectives, including food security, notably through Green Box support and Article 6.2 development programmes. As you rightly mention, the Doha Round would further increase this flexibility by relaxing some of the Green Box criteria to make it easier to use by developing countries, for example on public stockholdings for food security purposes.
On the other hand, I question the report’s recommendations on interventions aimed at insulating domestic from international markets. Policy tools like public stockholding for food security purposes, tariff rate quotas, safeguard measures or the use of marketing boards can indeed be legitimate tools, under some circumstances. However, if used improperly, these actions can introduce distortions and undermine economic efficiency, exacerbating the negative impacts on poor consumers of high food prices. In addition, given that about 60 per cent of developing countries’ agricultural exports go to other developing countries, these suggested interventions increase the vulnerability of agricultural producers in exporting developing countries by reducing access to their main export markets. Highly trade distorting support, the use of export subsidies, high levels of protection, and unpredictable trade measures restricting imports or exports were among the causes of the price spikes in 2008 and 2010. Policies that create distortions in the global market threaten rather than improve global food security. In agriculture WTO rules distinguish between practices that are trade distorting and those with limited trade impacts — encouraging countries to move towards less trade-distorting practices.
I am surprised by the quasi-absence of reference in your report to rules applicable to export prohibitions and restrictions on food products. This issue is complex and controversial, but again there is a wide consensus that those measures, and the architecture of multilateral trade rules applying to them, have some significant influence on food security.
I agree that food security concerns require improved international governance. However, I am not convinced of the need to create new processes to discuss and evaluate food security and trade. Many international, regional and national organizations already provide in-depth analysis of trade and food security. For example, the G-20 led process on price volatility in agricultural markets has led to the creation of the Agricultural Market Information System in September 2011, in order to improve information about certain agricultural markets. Within the WTO, many tracks are also already available including the Special session of the Committee on Agriculture to negotiate an improvement and strengthening of the AoA; the regular Committee on Agriculture to monitor implementation issues; the SPS Committee on food safety and animal and plant health; and various ad hoc informal information sessions organized by the WTO Secretariat or WTO Members.
I am glad of our cooperation in recent years, including our debate in May 2009 in Geneva and your presentation to WTO Members in July 2009. I hope we can continue this exchange of views and I am happy to welcome you, as UN Special Rapporteur on the Right to Food, to the WTO to present your report to our Members.
In conclusion, I will continue to work to ensure that the multilateral trading system allows our Members to respond flexibly to food security concerns, while simultaneously creating conditions for them to benefit from economic opportunities. More specifically, I will continue to work so that the current DDA negotiations deliver outcomes, in agriculture and elsewhere, that improve the multilateral system, including with a view to ensuring improved food security.
I hope we can agree on these objectives.
Draft briefing note by Mr. Olivier De Schutter, the UN Special Rapporteur on the right to food: “The World Trade Organization and the Post-Global Food Crisis Agenda: Putting Food Security First in the International Trade System”, May 2011.
Main message of the draft briefing note:
Existing WTO rules do not offer a favourable policy framework for the realization of the right to food. The Doha Round contains some elements that constitute an improvement to the Agreement on Agriculture (AoA), but do not go far enough. In addition, “many WTO rules are highly ambiguous and thereby inject a high degree of uncertainty into food security policy making”. Mr. De Schutter therefore argues in favour of “a more certain and transparent policy environment” that would “encourage and strengthen the reinvestment in agriculture and food security polices”. According to the note “the WTO negotiations should clearly reflect the renewed consensus for developing countries to increase public investment in agriculture and food security, rather than simply going further on the reform programme initiated in 2001. In other words, the outcome of the Doha Round cannot discourage policy innovation in food security, it has to nurture it.”
This message is based on some misunderstandings of the WTO rules, current and future. Therefore, the comments below are meant to bring some factual clarifications, theme by theme. Those comments do not pretend to be exhaustive and the WTO Secretariat, though recognizing that the paper sometimes acknowledged the positive role played by WTO rules as far as food security is concerned, wishes to express its disagreement with some key elements of the paper. The WTO Secretariat reserves its rights to comment more globally on this paper at a later stage, once it is made public.
Reinvestment in agriculture and support to smallholders through government provision of inputs, extension services, and infrastructure (point 2.1)
- The draft briefing note as it stands omits several points:
- Article 6.2 of the AoA (Development programmes) is not mentioned in the text, while this article explicitly recognizes developing countries (DgC) the right to use generally available investment subsidies and agricultural input subsidies generally available to low-income and resource poor producers (i.e. trade-distorting subsidies) without any limitation and therefore grants them an important additional flexibility. In addition, the Doha Round is expected to keep this provision.
- De minimis provision in Article 6 of the AoA provides for overall and product-specific limits (missing from the text). Hence, the amount of Amber Box subsidies a developing country that does not have a Total final Bound AMS commitment can use is 10 per cent of the total value of agricultural production, plus 10 per cent of the value of production of each agricultural product.
- Annex II paragraph 2, to the AoA (Green Box) gives only an illustrative list of general government services that therefore is not exhaustive as the note by Mr. De Schutter seems to consider, leaving therefore room for “innovative policies and programs to support food security”.
Therefore, it is very difficult to agree with the conclusion of the text that there is not enough room for developing countries to deal with food security issues and the WTO regime of domestic support does not allow innovative practices.
- In addition, the draft briefing note considers subsidies as a tool that has positive impacts only. There is no warning of economic distortions subsidies are known to introduce, as well as other potential impacts, such as a potential impact on the environment, should these subsidies be used to prompt countries to use soils not adapted to the agricultural productions. Therefore, the fact that subsidies involve costs (financial and other) is missing from the text.
- It is also difficult to agree with the conclusion that “WTO rules will treat food security as a deviation from the objective of international trade reform rather than recognizing food security as an overarching objective of international cooperation” when the preamble the AoA explicitly states that the reform programme has to take into account the food security.
Safety-nets and income-insurance for the urban and rural poor (point 2.2)
- WTO Agreement does not try to distinguish between “producers” (i.e. rich) and “the vulnerable population” (i.e. poor) as suggested by the text. Green Box allows direct payments to producers, including “small scale farmers” precisely because they may need them.
- Domestic food aid provision (§4, Annex 2 to the AoA) that allows for the support to “sections of the population in need” is missing from the analysis.
- The text fails to recognise that the Doha Round is seeking to relax some of the requirements in the Green Box precisely to make it easier for developing countries to use it. These modifications will likely include:
- Regarding public stockholding for food security purposes, the acquisition of stocks of foodstuffs by DgC with the objective of supporting low-income or resource-poor producers will no longer be required to be accounted for in the AMS (see also below).
- Regarding domestic food aid, the acquisition of foodstuffs at subsidised prices when procured generally from low-income or resource-poor producers in DgC with the objective of fighting hunger and rural poverty will be considered to respect Green Box criteria applying to domestic aid.
- With respect to payments (made either directly or by way of government financial participation in crop insurance schemes) for relief from natural disasters, several modifications concern directly or indirectly DgC.
First, in the case of direct payments related to disasters in DgC, such payments will be provided to producers when the production loss is less than 30% of the production (currently such loss has to be more than 30%) in the preceding 5-year period (currently 3-year period) or a three-year average based on the preceding 5-year period (no change). In addition, DgC will be allowed to determine the production loss of the affected sector(s) or region(s) on an aggregate basis.
Second, in the case of government financial participation in crop or production insurance schemes, eligibility for such payments in DgC may be determined by a production loss that is less than 30% (currently it must exceed 30%) of the average production in the preceding 5-year period or a 3-year average based on the preceding 5-year period, excluding the highest and the lowest entry.
Third, in all countries (including DgC) in the case of the destruction of animals or crops to control or prevent pests, diseases, disease-carrying organisms or disease-causing organisms named in national legislation or international standards, the production loss will be allowed to be less than 30% of the average of production in the periods mentioned in the two paragraphs above.
- Regarding payments under regional assistance programmes, DgC will be exempted from the condition that a disadvantaged region must be a contiguous geographical area.
These suggested modifications are a result of years of discussions, so the proposal to identify which parts of the (Green Box) text need to be modified has been already subject to long debates in the WTO. Their importance should not be underestimated, especially the provisions relaxing developing country Members from the 30% loss threshold.
Food reserves (point 2.3)
- As a preliminary comment, one should differentiate between public stockholdings aimed at supporting food access by the most vulnerable part of the population when circumstances so require from food stocks aimed primarily at price stabilization and support, whether at national, regional or international level.
- Though the line between these two types of tools is not always easy to draw, the latter appears to be a very costly policy, with little success and high production and trade distortion effects (cf. for example Inter-Agency report for the G-20 on “Price volatility in Food and Agricultural Markets: Policy responses” 2 June 2011).
- Paragraph 3 of Annex 2 to the AoA states that “the volume and accumulation of such stocks shall correspond to predetermined targets related solely to food security”. It is the targets that have to be predetermined but not the level of stocks.
- In case of a “governmental stockholding programmes for food security purposes in developing countries… under which stocks of foodstuffs for food security purposes are acquired and released at administered prices”, it is “the difference between the acquisition price and the external reference price” that must be accounted for in the AMS and not the difference between acquisition and final sale prices.
- The importance of proposed changes to current rules applying to public stockholding for food security purposes in Annex 2 of the Agreement on Agriculture (page 39 of document TN/AG/W/4/Rev.4) is well noted. Those changes would take the form of a modification of two already existing footnotes.
- The assertion according to which import “price bands” are central to the operation of a reserve system can certainly be challenged, especially if such a reserve system is not primarily aimed at price stabilization or support.
- Article 4.2 of the Agreement on Agriculture states 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”. It is indicated in Footnote 1 that “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 similar border measures other than ordinary customs duties ...”.
- This discipline was part of the “tariffication” exercise, one of the main outcomes of the Uruguay Round negotiation consisting in transforming different types of non-tariff border measures used to protect agricultural markets into ordinary customs duties. The removal of non-tariff border measures was a key to ensuring efficient market functioning and resources allocation, since these types of interventions can end up insulating producers from price signals.
- Concerning the potential impact of the Government Procurement Agreement to food reserves, it is worth recalling it is a “plurilateral” Agreement, signifying that not all WTO Members are bound by it. Furthermore, participating Members have significant discretion in negotiating the lists of entities that are subject to the GPA rules.
- Concerning the role of State Trading Enterprises, according to WTO rules, STE must, “in their purchases or sales involving either imports or exports, act in a manner consistent with the general principles of non-discriminatory treatment prescribed in this Agreement for governmental measures affecting imports and exports by private traders”. This general provision shall be understood to require that such purchases or sales should be made “solely in accordance with commercial considerations including price, quality, availability, marketability, transportation and other conditions of purchase or sale”.
- These disciplines therefore do not put into question the objectives assigned by a government to a public stockholding, whether those are managed by the government itself or by a mandated State trading Enterprise. These disciplines are there to ensure that such STE, when fulfilling objectives that are not in contradiction with WTO rules and principles, are not operated in a manner inconsistent with WTO principles and rules.
- As mentioned in the draft briefing note, various proposals related to international food-stockholding have been made during the DDA negotiation. The fact that WTO Members, as sovereign states or separate customs territories, have failed to reach consensus on such issues (like on many other early proposals) merely reflects the absence of international consensus on this issue. Contrary to what seems to be implied here, the WTO does not work in isolation from the other international forums, with country Members taking different positions here and there.
- On the other hand, as rightly noted in the draft briefing note, consensus was reached to include in the latest draft modalities some other proposals, like the one on public stockholding for food security purposes (one could also add that other elements, like the provisions relative to food aid or to export restrictions, are also relevant to food security).
- It is hard to see in the draft briefing note what could be possible inconsistencies between regional food reserves and WTO rules. In any case, it is not the role of the WTO Secretariat or any of its divisions to comment on potential WTO disputes.
Orderly market management (point 2.4)
- The negative role of excessive price volatility on farmers and other agents of food chains is well recognized. But the critical role of price signals transmission to ensure efficient market functioning and resources allocation must also be recognized.
- The G-20 report has identified several options to reduce price volatility and deal with the consequences of price volatility, particularly for the most vulnerable. On the relation between price volatility and domestic and trade policies, the WTO Secretariat wishes to draw attention to part 4.4 of the G-20 report.
- As rightly noted in the draft briefing note, the efficiency of agricultural marketing boards as a tool to manage markets and to ensure food security, has been seriously challenged in the light of past experience and economic theory, and such tools have not been considered as one of the options to be included in the recommendations of the above-mentioned G-20 report.
- However, this being said, the WTO rules do not dictate how Members should define and implement their agricultural policies and leave them a lot of flexibility, especially for developing country Members, including as regards marketing boards or similar tools.
- The assumption that “for marketing boards to be fully functional and effect supply and price levels they require an overarching framework to regulate the volume of imports” is questionable.
- Aiming at insulating a market from the rest of the world through quantitative restrictions on imports is not only WTO-inconsistent in most cases (article XI GATT), but also economically inefficient for the country in question as for other countries.
- This being said, WTO provisions do not prevent Members from using tariff rate quotas (TRQ). The introduction of TRQ in Members’ schedules during the Uruguay round was indeed part of the “tariffication” exercise, requesting Members to replace all border measures by import duties. Therefore, only Members that went through this “tariffication” process introduced TRQs. TRQ were introduced to ensure that such a “tariffication” exercise would not have the unintended effect of reducing market access to those Members.
- The latest Doha modalities also foresee the possibility for Members to open TRQs in case they want to deviate from the reduction formula, and therefore apply a lesser reduction to their import duty for a limited number of tariff lines (those products are called sensitive products). Opening a TRQ is a way to compensate other Members for this deviation.
- Developing country Members would benefit from special and differential treatment (i.e. more favourable conditions) in implementing those sensitive products provisions, including the possibility not to create TRQs. Such an option was requested by developing country Members during the negotiation. Developing country Members can also designate some tariff lines as special products and apply to them a lesser reduction, and in some cases no reduction at all.
- TRQ management is already subject to WTO disciplines, including to the Uruguay Round Agreement on Import Licensing Procedures when applicable. The latest Doha modalities foresee some additional disciplines to ensure transparency and predictability in the management system.
- TRQ are not synonymous to “minimum imports” since TRQs can be subject to under-fill.
- From a more practical point of view, it is difficult to see for most agricultural products how a country could anticipate the quantity of import that is needed several years in advance, so as to be in a position to put in place TRQ commitments corresponding to those future needs.
- It is incorrect to state that “only countries that negotiated for TRQs in the AoA (or in their accession commitments) have the right to implement TRQs”. Members can for example introduce TRQs in theirs schedules following a GATT article XXVIII negotiation.
- A TRQ, once included in a Member’s Schedule, is made binding, meaning thatthe Member commits to open the TRQ, in accordance with WTO disciplines and with complementary provisions included in its Schedule. It might also be possible for a Member to introduce a new TRQ without Article XXVIII negotiations, provided the TRQ offers better market access than the Member’s relevant current binding and that existing TRQs schedules are not affected or their related market access diminished and provided the Members respects applicable WTO disciplines.
- WTO Members may also reduce their applied duties, when prices are increasing and the level of bound duties is considered to be too high to allow imports necessary to respond to local demand at an acceptable price. Many developing country Members’ applied import duties are at lower levels than their bound duties. On the other hand, as rightly mentioned in the draft briefing note, the Doha modalities introduce the Special Safeguard Mechanism, that give developing country Members the possibility to apply higher duties than their bound levels in specific circumstances (increased imports or drop in import prices).
Limiting excessive reliance on international trade in the pursuit of food security (2.5)
- Mr. De Schutter is rightly worried about the increasing food bill on poor countries. However, the suggestion that developing countries should take measures to restrict trade for food is a dangerous one, given that the text does not consider the downsides of this policy (among which — increasing the food bill of certain countries). The text calls for limiting “excessive reliance on international trade” without giving any indication on what is meant by “excessive”.
- The text fails to take into account the fact that many countries will find themselves in a situation that does not allow them to produce more. For many countries in the long run the interest would be to secure enough food from a combination of both domestic supply and imports (through making the trading environment predictable and rules-based). The text’s suggestion would make these countries primarily dependent on one source only (i.e. domestic supply) for the food (instead on diversity of sources) therefore decreasing the options available to countries to manage different types of risks (among which climate and pests risks, seasonal production variability) and thus reducing food security and making the situation of less-efficient producers even more precarious.
- In the long run, policies that distort incentives redirect resources, particularly labour, from more highly productive economic activities to less productive ones. This inefficient allocation of resources will result in a decline in output and income, decreasing purchasing power of the people and threatening food and livelihood security.
Monitoring the impacts of trade liberalization on food prices (3.1)
- The text refers to the fact that the agriculture agreement seeks to bring agriculture and food markets “under greater market discipline” and implies that the goal of the Agreement is to reduce state intervention. In fact the text of the AoA states that Members’ objective “is to establish a fair and market-oriented agricultural trading system.” As noted earlier, the AoA allows state intervention in many situations, while seeking to limit trade-distorting interventions.
- The text states that the “international community has been reluctant to undertake substantive work” in the area of impacts of food prices and food insecurity. This statement inaccurately reflects the current international attention that is being given to the issue of food prices and food security. In the past several years the issue of food security and food prices has garnered widespread attention in a variety of fora, including the G-20 (FAO, IFAD, IMF,OECD, UNCTAD, WFP, the World Bank, the WTO, IFPRI and the UN HLTF (2011) Price Volatility in Food and Agricultural Markets: Policy Responses. Policy Report, 2 June 2011) and through the work of the High Level Task Force on food security (High level Task Force on Global Food Security Crisis (2011) Updated Comprehensive Framework for Action. September 2010, http://un-foodsecurity.org/node/842). Trade has been integrated in these discussions.
- Trade policy can clearly impact food prices, however the relative importance of trade policy effects on food prices will depend on many factors including the specific agricultural product in question, existing levels of stocks, and market conditions including how widely the crop is traded. Many studies have been conducted in the past fifteen years looking at the potential impact of the Doha Round negotiations (see, for example, Anderson, Kym, Will Martin, and Dominique van der Mensbrugghe. 2006. “Distortions to World Trade: Impacts on Agricultural Markets and Farm Incomes.” Review of Agricultural Economics 28(2):168–94 and Hertel and Winters, eds. 2005. Poverty and the WTO: Impacts of the Doha Development Agenda. World Bank, Washington DC). Economists have used general equilibrium models in an effort to untangle the ways in which changes in trade policy alter quantities and prices.
- This report mistakenly notes that the World Bank found that the Doha Round would lead to a 5% increase in world grain prices. In fact this result referred to a specific simulation that was looking at complete trade liberalization. Given the flexibilities provided to WTO Members in the draft modalities, a Doha Round simulation would need to assume partial liberalization and this would substantially alter the results.
- In addition, one should differentiate a slight increase of food prices in average that should have positive consequences on farmers, especially in developing country Members, from “excessive” price volatility that can have very negative consequences on farmers, consumers and other players of the food chain.
- On page 15 there is a comment that “improved resilience of national food systems can only result from States’ strengthening their ability to feed themselves.” In fact a resilient food system would include trade as part of the food security policy package. Again, as noted above, when faced with domestic food shortages, for example, due to extreme weather conditions a country could then source food from international markets. Given the complex system of factors that determine food security outcomes, a food security policy package must also include adequate policies targeting the agriculture sector such as investments in irrigation, access to credit, and research and development. In addition, a comprehensive policy package for food security should include social safety nets for vulnerable communities and policies focusing on development and poverty alleviation. The relationships of current and future WTO rules to these types of interventions were discussed earlier in this paper.
Addressing food security at the WTO (3.2)
- The statement that “The Doha Round negotiations continue as if the end of cheap food had never occurred and the state of the world food economy is the same as it was in early 2007” is simply not true. There have been several negotiating proposals submitted that have been triggered by the food crisis and the policies some countries have been adopting in response to it. Discussions have been taking place also in the Regular Committee meetings, notably in the context of monitoring the implementation of the Decision on measures concerning the possible negative effects of the reform programme on the LDCs and NFIDCs.
- The WTO has also been actively involved in the debate outside its own meetings. The WTO is formally a part of the multilateral response to the global food crisis — it is a Member of UN High Level Task Force on the Global Food Security Crisis, and it takes part in the Committee on World Food Security (CFS). The WTO has also been cooperating with G-20 and participated in the Interagency Report to the G20 on Food Price Volatility.
- The text rightly mentions that there are many International Organisations that deal with the question of food security. However, the text suggests that the WTO devotes significantly less attention to the global food prices crisis than other institutions. It therefore ignores the fact that the WTO Members are in general also Members of those organisations and there is no reason to believe that WTO Members would have different positions in different organisations. Therefore, the WTO deals with the trade aspect of the issue that is of its competence, leaving other organisations to work in their areas of competence.
Therefore, it would be appropriate to revise the conclusions of the draft briefing notes in the light of above-mentioned considerations.
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