The core of the reform programme on export subsidies are the commitments to reduce subsidized export quantities, and the amount of money spent subsidizing exports. The Agriculture Agreement also looks at anti-circumvention questions.
Agreement on Agriculture:
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The conceptual framework
The proliferation of export subsidies in the years leading to the Uruguay Round was one of the key issues that were addressed in the agricultural negotiations. While under the GATT 1947 export subsidies for industrial products have been prohibited all along, in the case of agricultural primary products such subsidies were only subject to limited disciplines (Article XVI of GATT) which moreover did not prove to be operational.
The right to use export subsidies is now limited to four situations: (i) export subsidies subject to product-specific reduction commitments within the limits specified in the schedule of the WTO Member concerned; (ii) any excess of budgetary outlays for export subsidies or subsidized export volume over the limits specified in the schedule which is covered by the downstream flexibility provision of Article 9.2(b) of the Agreement on Agriculture; (iii) export subsidies consistent with the special and differential treatment provision for developing country Members (Article 9.4 of the Agreement); and (iv) export subsidies other than those subject to reduction commitments provided that they are in conformity with the anti-circumvention disciplines of Article 10 of the Agreement on Agriculture. In all other cases, the use of export subsidies for agricultural products is prohibited (Articles 3.3, 8 and 10 of the Agreement).
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Definition of measures
Under the Agreement on Agriculture export subsidies are defined as referring to subsidies contingent on export performance, including the export subsidies listed in detail in Article 9 of [the] Agreement. As specified in more detail in Article 9.1 of the Agreement, this list covers most of the export subsidy practices which are prevalent in the agricultural sector, notably:
- direct export subsidies contingent on export performance;
- sales of non-commercial stocks of agricultural products for export at prices lower than comparable prices for such goods on the domestic market;
- producer financed subsidies such as government programmes which require a levy on all production which is then used to subsidise the export of a certain portion of that production;
- cost reduction measures such as subsidies to reduce the cost of marketing goods for export: this can include upgrading and handling costs and the costs of international freight, for example;
- internal transport subsidies applying to exports only, such as those designed to bring exportable produce to one central point for shipping; and
- subsidies on incorporated products, i.e. subsidies on agricultural products such as wheat contingent on their incorporation in export products such as biscuits.
All such export subsidies are subject to reduction commitments, expressed in terms of both the volume of subsidized exports and the budgetary outlays for these subsidies.
The reduction commitments are shown in the schedules of WTO Members on a product-specific basis. For this purpose, the universe of agricultural products was initially divided into 23 products or product groups, such as wheat, coarse grains, sugar, beef, butter, cheese and oilseeds. Some Members took commitments on a more disaggregated level. The volume and budgetary outlay commitments for each product or group of products specified in a Members schedule are individually binding. The reduction commitments on incorporated products (last item in the Article 9 list) are expressed in terms of budgetary outlays only. The ceilings specified in the schedules must be respected in each year of the implementation period although limited over-shooting in the second to fifth year of implementation is permitted (downstream flexibility). By the last year of the implementation period, Members must be within their final export subsidy ceilings.
Rates of cut
Developed country Members are required to reduce, in equal annual steps over a period of 6 years, the base-period volume of subsidized exports by 21 per cent and the corresponding budgetary outlays for export subsidies by 36 per cent. In the case of developing country Members, the required cuts are 14 per cent over 10 years with respect to volumes, and 24 per cent over the same period with respect to budgetary outlays.
Developing countries may, during the implementation period, make use of a special and differential treatment provision of the Agreement (Article 9.4) which allows them to grant marketing cost subsidies and internal transport subsidies, provided that these are not applied in a manner that would circumvent export subsidy reduction commitments.
All in all, 25 Members (counting the EC as one) have export subsidy reduction commitments specified in their schedules, with a total of 428 individual reduction commitments.
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Products with no specific reduction commitment
The Agreement on Agriculture prohibits the use of Article 9.1 export subsidies on any agricultural product which is not subject to a reduction commitment as specified in the relevant part of the Members schedule (with the exception, during the implementation, period of those benefiting from special and differential treatment).
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In addition to the provisions directly related to the reduction commitments, the Agreement on Agriculture contains provisions which are designed to prevent the use of export subsidies that are not specifically listed in Article 9 of the Agreement in such a way as to circumvent reduction on other export subsidy commitments (Article 10). The anti-circumvention provisions include a definition of food aid in order that transactions claimed to be food aid, but not meeting the criteria in the Agreement, cannot be used to undermine commitments. Food aid that meets the specified criteria is not considered to be subsidised export hence is not limited by the Agreement on Agriculture. The Agreement also calls for the development of internationally agreed disciplines on export credits and similar measures in recognition that such measures could also be used to circumvent commitments. Any Member which claims that any quantity exported in excess of a reduction commitment level is not subsidized must establish that no export subsidy, whether listed in Article 9 or not, has been granted in respect of the quantity of exports in question.
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All Members must notify the Committee on Agriculture annually with respect to export subsidies. For the vast majority of Members those without reduction commitments this involves only a statement to the effect that export subsidies on agricultural products have not been used (or a listing of those measures that may be used by developing country Members under Article 9.4 of the Agreement if this has been the case). For Members with reduction commitments in their schedules, the annual notification must contain the annual use of subsidies in terms of both volume and budgetary outlays.
In addition, as part of the anti-circumvention provisions, Members must notify the use of food aid on an annual basis if such aid is granted. Likewise, total exports of agricultural products must be notified by Members with reduction commitments as well as by a number of other significant exporters as defined by the Committee.
As in other areas, the export subsidy notifications form part of the basis for reviewing the progress in the implementation of the commitments by the Committee on Agriculture.