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Policy Schemes and Trade in Dairy Products | Trade in Milk and Dairy Products, International Standards: World Trade Organization
Trade in Milk and Dairy Products, International Standards: World Trade Organization A M Arve, Danish Dairy Board, Aarhus, Denmark ª 2011 Elsevier Ltd. All rights reserved. This article is reproduced from the previous edition, Volume 4, pp 2752–2758, ª 2002, Elsevier Ltd.
Introduction The World Trade Organization (WTO) is the successor to the former General Agreement on Tariffs and Trade (GATT). The GATT organization was formed in 1948 after World War II as one of three legs in the international economic system; the other legs are the International Monetary Fund (IMF) and the World Bank. The GATT agreement was signed by 23 countries in 1947. In 1995, 123 countries in the multilateral trading system transformed the former GATT into the WTO. Membership by January 2002 is 144. A number of countries are negotiating for membership, amongst them Russia, the only major country of the international economy that is not already a member. China became a member in 2001. Until 1995 the trading system was organized as an agreement, but with the WTO entering into force, the system now consists of a fully fledged international organization with rights and obligations attached to its members. The WTO has its head office in Geneva, Switzerland. The director-general is the former New Zealand minister Mike Moore who took office in 1999. The core functions of the WTO are to ensure a nondiscriminating, smooth, predictable, and free trade between member countries. At the heart of the organization are the following activities: WTO trade agreements • administering for trade negotiations • forum trade disputes • handling national trade policies • monitoring assistance and training for developing • technical countries • cooperation with other international organizations. Both GATT and WTO evolved around trade negotiation rounds. So far there have been eight rounds of negotiations within GATT (Table 1). In 2001, negotiations were in progress on whether to start a new all-encompassing trade round in the WTO or to divide the negotiations into separate subject areas. During the course of time the GATT and now the WTO have increased their agenda according to the developments in the surrounding society. The WTO now covers a wide number of different areas of trade
338
under the three main headings GATT (trade in goods), GATS (trade in services) and TRIPS (trade in intellectual property rights). Within the areas of GATT and GATS there are a number of extra agreements, some of which are listed in Table 2. The decision-making process in the WTO is fundamentally built upon consensus. The top decision-making body is the Ministerial Conference, which consists of the Member Countries’ foreign ministers. This conference convenes at a minimum every second year. On a daily basis, the General Council is the central decision-making forum. All the Member Countries are represented in the Council by their ambassadors or a counterpart. The General Council also acts as Dispute Settlements Body and as Trade Policy Review Body.
Principles of the WTO A number of fundamental principles govern the general agreements and the relations between Member Countries. At the core of these principles is antidiscrimination, amongst trading partners and between domestic and foreign producers of goods. The most important principles are as follows.
Most Favored Nation Status The Most Favored Nation (MFN) clause stipulates that favors such as easier market access (lower duties) given to one country’s produce should be multilateralized and therefore applicable to all member countries. All Member Countries should by this principle be entitled to equal treatment and equal access. The major exception from this rule is free trade areas, customs, economic and political unions that can apply for and under certain conditions be granted exemption.
National Treatment Clause The National Treatment Clause stipulates that imports and domestic or local produce should be equally treated
Policy Schemes and Trade in Dairy Products | World Trade Organization Table 1 GATT trade rounds Year
Name of the round and place
1947 1949 1951 1956 1960–61 1964–67 1973–79 1986–94
Geneva Annecy Torquay Geneva Dillon Round (Geneva) Kennedy Round (Geneva) Tokyo Round (Geneva) Uruguay Round (Geneva)
339
Dispute Settlement Body
upon market entrance of the import products. Duties and import taxes are not regulated by this principle. This rule applies to goods, services, trademarks, copyrights and patents. In practice the National Treatment Clause undermines the possibility of governments giving preferences to nationally produced products over imports and is an important instrument in increasing the transparency of the nontariff barriers to trade.
With the creation of the WTO, the trading system established a much more comprehensive dispute settlement system than was the case under the GATT, led by the Dispute Settlement Body (DSB). This dispute settlement system is based on the rule of law and with the strengthened possibilities of enforcement, the WTO has increased its regulatory and arbitrating powers. The Dispute Settlement Body is one of the cornerstones in the transformation from an international agreement to an international organization. Arbitration between members is a vital task for the WTO in order to secure the adherence by members to different agreements and rules under the WTO, but also to obtain the support of the members for the policies for the development of the international trade regime. The Dispute Settlement Body mainly facilitates the process by which Member Countries obtain legal guidance and counseling to solve bilateral disputes concerning trade issues under coverage of the different agreements under the auspices of WTO. A trade dispute taken to the WTO follows a predetermined structural process with set deadlines and obligations to implement the rulings. This allows for the development of jurisprudence and case law precedent within the WTO, and creates a much more predictable trading system. The different stages of a WTO case are shown in Figure 1. A panel makes first rulings in the WTO; their report is approved unless there is a consensus against this. The panel ruling can on legal grounds be taken to appeal to the appellate body. The appellate body’s decision is final, unless there is a consensus against the decision. This procedure implies that no single country or party to a dispute can veto a final decision and by that hinder a ruling against its interest. Member Countries are compelled to implement rulings of the WTO or to pay compensation to cover the opponent’s losses resulting from the illegal trade practice. The WTO may also allow for retaliation and introduction of sanctions, if a party to a case does not intend to follow the final ruling.
Least-Developed Countries
Non-tariff Barriers
More than 100 of the WTO member countries are developing countries. Within the WTO system there is special treatment for these countries with regard to their potential to fulfill their obligations according to the agreements, rules and regulations. For the group of least-developed countries, there are broad exemptions from the obligations. WTO has set up a system in order to help developing countries to gain knowledge and understanding of the organization and particularly to pass on experience with the trade negotiation system.
In the early days of GATT the focus was on reducing tariffs and import duties in order to enhance trade and reduce protectionism. This goal has largely been achieved for industrial produce during the course of the numerous trade rounds. Tariffs within trade in industrial products have been reduced from approximately 40% to less than 5% in the period from the establishment of GATT to the current implementation of the Uruguay Round. This tariff reduction process is only in an early stage with respect to agricultural and food products.
Source: www.wto.org
Table 2 Agreements within the areas of GATT and GATS The ‘extra’ goods agreements (under GATT)
The GATS annexes (under GATS)
Agriculture
Movement of natural persons Air transport
Health regulations for farm products Textiles and clothing Product standards Investment measures Antidumping measures Customs valuation methods Preshipment inspection Rule of origin Import licensing Subsidies and countermeasures Safeguards
Financial services Shipping Telecommunication
Source: http://www.wto.org
340 Policy Schemes and Trade in Dairy Products | World Trade Organization
The panel process NOTE: some times The various stages a dispute can go through in the WTO. At all stages, countries in dispute are encouraged to consult each are maximum; other in order to settle ‘out of court’. At all stages, the WTO director-general is available to offer his good offices, to mediate some minimum; or to help achieve a conciliation some binding some no!
60 days
by 2nd DSB meeting
0−20 days 20 days (+10 if director-general asked to pick panel)
6 mths from panel’s composition, 3 mths if urgent
up to 9 mths from panel’s establishment
Consultations [Art 4]
Panel established by Dispute Settlement Body (DSB) [Art 6]
During all stages good offices, conciliation or mediation [Art 5]
Terms of reference [Art 7] Composition [Art 8]
Panel examination (Normally 2 meetings with parties [Art 12] 1 meeting with third parties [Art 10]
Expert review group [Art 13; Appendix 4]
Interim review stage Descriptive part of report sent to parties for comment [Art 15.1] Interim report sent to parties for comment [Art 15.2]
Review meeting with panel upon request [Art 15.2]
Panel report issued to parties [Art 12.8; Appendix 3 par 12(i)]
Panel report circulated to DSB [Art 12.9; Appendix 3 par 12(14)] Appellate review [Art 16.4 and 17]
60 days for panel report, unless appealed
‘REASONABLE PERIOD OF TIME’ determined by: member proposes, DSB agrees; or parties in dispute agree; or arbitrator (~ 15 mths if by arbitrator)
30 days after ‘reasonable period’ expires
NOTE: a panel can be composed (i.e. panelists chosen) up to about 50 days after its establishment (i.e. DSB’, decision to have a panel)
DSB adopts panel/appellate report(s) including any changes to panel report made by appellate report [Art 16.1, 16.4 and 17.14]
Implementation report by losing party of proposed implementation within ‘reasonable period of time’ [Art 21.3] In cases of non-implementation parties negotiate compensation pending full implementation [Art 22.22]
Retaliation If no agreement on compensation, DSB authorizes retaliation pending full implementation [Art 22.2 and 22.6] Cross-retaliation: same sector, other sectors, other agreement [Art 22.3]
30 days for appellate report
Possibility of proceedings including referral to the initial panel on proposed implementation [Art 21.5]
max 90 days TOTAL FOR REPORT ADOPTION Usually up to 9 mths (no appeal), or 12 mths (with appeal) from establishment of panel to adoption of report [Art 20]
90 days
Possibility of arbitration on level of suspension procedures and principles of retaliation [Art 22.6 and 22.7]
Figure 1 Flowchart of the dispute settlement process in the WTO. (Reproduced with permission from www.wto.org.)
Policy Schemes and Trade in Dairy Products | World Trade Organization
As duties have diminished, the non-tariff barriers (NTB) have attracted increasing attention as they turn out to be as trade-distorting as flat rate tariffs. Non-tariff barriers consist of a number of different rules, regulations, standards, technical issues, administrative and bureaucratic procedures and other market-related obstacles that exporters meet while trying to gain access to a certain market. The WTO tries to highlight this area with a policy of transparency and information, but also with restrictions on the use of nontariff barriers.
Agreement on Technical Barriers to Trade The Agreement on Technical Barriers to Trade (TBT) is closely tied to the above-mentioned non-tariff barriers. This agreement aims at creating a free flow of international trade by regulating the general use of technical standards in a protectionist way. The agreement installs the principle that technical regulations and standards concerning packaging, marking and labeling, and procedures for assessment of conformity with technical regulations and standards should be used in a nondiscriminative way, both in respect to different trading partners and with regards to domestic versus import products. The agreement encourages the use of internationally recognized standards in national and local laws. At the same time member countries have to enhance transparency and public access with regard to applied and upcoming standards.
Agreement on Sanitary and Phytosanitary Standards The Agreement on the Application of Sanitary and Phytosanitary Standards (SPS) defines and gives opportunities for Member Countries to adopt measures necessary to protect human, animal and plant life and
health and at the same time regulates the use of these measures in order to avoid their discriminative use as barriers to trade. In the SPS agreement the scientific principle prevails. Sanitary and phytosanitary measures restricting trade should at all times have a scientific foundation that is widely recognized. Concurrently, countries are to treat different rules and standards alike, if their ultimate effect is the same for the protection of the human, animal and plant life and health. The Codex Alimentarius is recognized in the SPS agreement as a standard-setting reference point in this area and in the case of disputes among member countries. The objective is to harmonize the basis for sanitary and phytosanitary measures and meanwhile to create transparency and access to information concerning different rules and demands within this area.
Agricultural Agreement With the finalization of the Uruguay Round of trade negotiations agricultural trade fully came under the regulation of the WTO. The Agricultural Agreement is the first real attempt to achieve a common understanding of the trade mechanisms for agricultural and food products and the Agreement implements a number of regulations which in the last half of the 1990s and at the turn of the century set fundamental boundaries and rules for governance and policy-making within agriculture worldwide (Table 3). The major elements of the Agreement fall under three headings: 1. Export subsidies and competition. 2. Market access/imports. 3. Internal/domestic support. Together with the three central parts of the Agricultural Agreement, the Sanitary and Phytosanitary Agreement
Table 3 The outline of the support reductions in the agricultural agreement The main demands for reduced agricultural supports 1995 to 2001 Exports with support
Imports
Internal support
21% reduction in export quantities subject to support 36% reduction in budgetary outlays for export subsidies Base period: 1986–90
All non-tariff barriers converted to tariffs
20% reduction in all trade distorting internal supports based on the AMS calculation Base period: 1986–88
Source: http://www.wto.org
341
Average 36% reduction in tariffs including converted non-tariff barriers, at minimum 15% reduction pre product line Minimum access at reduced tariff rates of 3% increasing to 5% of domestic consumption Base period: 1986–88
342 Policy Schemes and Trade in Dairy Products | World Trade Organization
(see above) constitutes an attempt to formulate an overall framework for agricultural trade and by that the domestic policies concerning production and regulation of food supply. Within the WTO there are a number of different views concerning liberalizing versus protecting agricultural production and trade. The most vocal groupings in the agricultural negotiations are the United States, the EU and the Cairns Group, a number of food exporting countries with Australia and New Zealand at the forefront. The developing countries are with respect to their interests mainly divided into two main groups, net food exporters and net food importers. A number of very important trade disputes concern trade in agricultural produce, such as bananas, hormonetreated beef or milk quotas, to mention just a few. These WTO cases between different Member Countries have been some of the most stringent tests to the dispute settlement system within the WTO. Agricultural and consumer-related issues have proved to be the most politicized cases in the short history of the Dispute Settlement Body of the WTO. But they are also acknowledged as the core challenge to the sustainability of the system and to the Member Countries’ genuine support and acceptance of the WTO rules and governance.
Agricultural Agreement entered into force in 1995 running to 2001, with a peace clause extending it to 2003. The Agreement stipulated that further negotiations were to start in the WTO by 1999 in order to prepare for a new agreement. These negotiations are currently (2002) in process with all the parties outlining their specific interests and suggestions for a new agenda and ultimately an agreement.
Peace Clause It was envisaged in the Blair House Accord that a new agreement might not be reached among the trading partners to take over from the Uruguay Round agreement exactly in 2001. Therefore it was decided to extend the results of the final stage of the implementation – the socalled year 6 (2000/2001) – onward to 2003 to provide some time for negotiations on a new agreement. From 2001 to 2003 no further developments in the levels of subsidies, import tariffs and internal support are anticipated unless a new accord is in place. At the same time, the agreed reductions will not be reversed. The situation for the agreement on agriculture is, however, uncertain if a new deal is not in place by 2003. One option is to agree to extend the peace clause; however, a potential conflict is possible.
Blair House Accord The Blair House Accord between the EU and the United States is named after the presidential official guesthouse in Washington DC where the Agricultural Agreement was finalized. This agreement, reached in November 1992, was a breakthrough in the ongoing Uruguay Round of negotiations in GATT. The accord laid the foundations for the current trade liberalization within agriculture and also facilitated an ending to the very long and at times antagonistic negotiations for a general conclusion to the trade round. The Blair House Accord sets the basic reduction factors both for exports and internal support measured in quantities and budgetary outlays. The accord also sets a 6-year implementation period and the reference periods. Alongside this, the EU and the United States agreed on solving a number of outstanding trade disputes particularly the one on oilseeds. The agricultural breakthrough in the GATT system is widely recognized to rest on the Blair House Accord and hence on the hard-won compromises and common understanding between the EU and the United States. The EU has a mandate to negotiate for all Member Countries of the European Union, which act as one within the WTO. In December 1993, one year after the Blair House Accord, the final GATT agreement was reached and it was signed in Marrakesh in Morocco in April 1994. The
Traffic-Light Model – GATT Boxes and Decoupled Support One of the main objectives of the Agricultural Agreement is to reduce support levels in general; however, support is divided into more and less trade-distorting types. The aim of the Agreement is to target the most distorting support forms which directly influence the international markets for agricultural products, and hence the competition situation between different agricultural producers. Aggregated Measurement of Support The Total Aggregated Measurement of Support (AMS) is a calculation of the total amount of support given to agricultural producers in one country, except for domestic support not subject to reductions, because of their nondistorting or decoupled nature. The AMS calculation is used to facilitate comparisons between countries and to equalize different types of support in order to obtain reductions in all types of distorting supports. Traffic-light model In popular terms the different types of agricultural support are labeled with different colors: red, amber,
Policy Schemes and Trade in Dairy Products | World Trade Organization
green – and blue. The red support forms should be stopped immediately, the amber ones should be phased out and the green ones can be left, as they are not seen as directly distorting. This rule-of-thumb makes for the name ‘traffic-light model’. The different colors also give names to the box scheme, which is another way of describing the different support forms: amber, blue and green boxes.
Export subsidies The export subsidies used by various countries fall into the amber box and must be reduced according to the agreement by 21% for supported export quantities and by 36% in total budgetary outlays. The reduction had to be linear over the implementation period, reaching the final commitments in Year 6, 2001. Developing countries must reduce their support by 14% in quantities and 24% in budgetary outlays with an implementation period of 10 years. Least-developed countries are exempt from this obligation. Member Countries have to keep account of the use of export subsidies for the individual product categories.
Decoupled support and blue box subsidies In order to encompass the American deficiency payments and the EU animal and area premiums of the mid-1990s, the blue color was introduced. Blue color support forms are semi-decoupled, whereas the green ones are decoupled altogether. The term ‘decoupled’ is used to describe the situation where the size and amount of support are not linked to the actual form and size of the agricultural production, as opposed to price support that is directly linked to the production output. Green box types of support are within the areas of research, disease control, government services and many more. Direct income support also falls in this category, as long as it is independent of the production. Semi-decoupled support can take the form of direct payments under production limiting programs with fixed references – area, yield or animal numbers. The blue box supports are not targeted by reduction demands because of their limited trade-distorting nature. The introduction of categorized support forms has allowed for a dynamic agricultural policy reform process in different countries. The major agricultural production and trading countries have undergone a number of reforms since the GATT agreement, all directly related to the WTO policies, in order to enhance competitive powers and allow for a more fair trade with agricultural produce. In most WTO member countries development of agricultural policy instruments is under way in order to avoid potential disputes.
343
Imports and Market Access The import rules in the Agreement specify that tariffs have to be reduced by an average of 36%, with a minimum 15% per product line from 1995 to 2001. Prior to the reduction all non-tariff barriers have to be converted into tariff equivalents to enhance transparency as to the actual level of trade restrictions. This conversion is termed tariffication. It is the overall tariffs (duties, levies, quantitative restrictions, non-tariff barriers and so forth – old and new ones) that are to be reduced by 36%. The tariff rates are listed in the country list for each country with initial and bound rates. Developing countries are only obliged to reduce tariffs by 24%, and they have an extended implementation period, to 2004. Least-developed countries are exempt from the agreement to reduce tariffs.
Minimum import access In order to create some immediate effect for market access it was decided to create a certain minimum access to a preferential tariff far below the general and even reduced tariffs. This minimum quota is set in relation to the consumption in the base period 1986–88. At the beginning of the implementation in 1995 the quota was 3% of base period consumption for the respective products. This amount has gradually increased to 5% at the end of the 6-year implementation period in 2000/2001. Current access opportunities are to be maintained and supplemented with the above-mentioned minimum access in case the actual imports are below the 3–5%.
Trade in Dairy Products It was widely believed that the WTO agreement would increase the international trade in agricultural products, including dairy produce. The actual development does indicate that the total trade is developing; however, what is more noticeable is the change in the trading patterns. Table 4 shows the shift from an EU-dominated international trade in dairy products to a situation where Oceania is the predominant exporter. This situation is reflected in different claims and demands in respect of the ongoing negotiations on a WTO II agreement. It was also expected that the price for dairy products would be affected in an upward trend by the Agricultural Agreement and the increased trade, but this element is harder to deduce from the statistics. However, some signs in the market do indicate a general upward trend in prices for dairy products.
344 Policy Schemes and Trade in Dairy Products | World Trade Organization Table 4 The development in world market shares for dairy products World market share (%) EU USA New Zealand Australia
1990
2000
51 13 27 9
39 2 41 18
Source: Danish Dairy Board.
See also: Office of International Epizooties: Mission, Organization and Animal Health Code. Policy Schemes and Trade in Dairy Products: Agricultural Policy Schemes: European Union’s Common Agricultural Policy; Agricultural Policy Schemes: Other Systems; Agricultural Policy Schemes: Price and Support Systems in Agricultural Policy; Agricultural Policy Schemes: United
States’ Agricultural System; Trade in Milk and Dairy Products, International Standards: Harmonized Systems.
Further Reading Hoekman B and Kostecki M (1995) The Political Economy of the World Trading System, Oxford: Oxford University Press. Jackson JH (1998) The World Trading System, Law and Policy of International Economic Relations, Cambridge: MIT Press. Moon BE (1996) Dilemmas of International Trade, Oxford: Westview Press. Nedergaard P, Hansen HO, and Mikkelsen P (1993) EF’s Landbrugspolitik og Danmark, Copenhagen: Handelshøjskolens Forlag. Ritson C and Harvey DR (1997. In) The Common Agricultural Policy, (2nd edn.. Wallingford: CAB International. World Trading Organization, (1995) The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts,. Geneva, Switzerland: WTO. World Trade Organization (1998) Trading into the Future, Geneva, Switzerland: WTO.
Introduction The World Trade Organization (WTO) is the successor to the former General Agreement on Tariffs and Trade (GATT). The GATT organization was formed in 1948 after World War II as one of three legs in the international economic system; the other legs are the International Monetary Fund (IMF) and the World Bank. The GATT agreement was signed by 23 countries in 1947. In 1995, 123 countries in the multilateral trading system transformed the former GATT into the WTO. Membership by January 2002 is 144. A number of countries are negotiating for membership, amongst them Russia, the only major country of the international economy that is not already a member. China became a member in 2001. Until 1995 the trading system was organized as an agreement, but with the WTO entering into force, the system now consists of a fully fledged international organization with rights and obligations attached to its members. The WTO has its head office in Geneva, Switzerland. The director-general is the former New Zealand minister Mike Moore who took office in 1999. The core functions of the WTO are to ensure a nondiscriminating, smooth, predictable, and free trade between member countries. At the heart of the organization are the following activities: WTO trade agreements • administering for trade negotiations • forum trade disputes • handling national trade policies • monitoring assistance and training for developing • technical countries • cooperation with other international organizations. Both GATT and WTO evolved around trade negotiation rounds. So far there have been eight rounds of negotiations within GATT (Table 1). In 2001, negotiations were in progress on whether to start a new all-encompassing trade round in the WTO or to divide the negotiations into separate subject areas. During the course of time the GATT and now the WTO have increased their agenda according to the developments in the surrounding society. The WTO now covers a wide number of different areas of trade
338
under the three main headings GATT (trade in goods), GATS (trade in services) and TRIPS (trade in intellectual property rights). Within the areas of GATT and GATS there are a number of extra agreements, some of which are listed in Table 2. The decision-making process in the WTO is fundamentally built upon consensus. The top decision-making body is the Ministerial Conference, which consists of the Member Countries’ foreign ministers. This conference convenes at a minimum every second year. On a daily basis, the General Council is the central decision-making forum. All the Member Countries are represented in the Council by their ambassadors or a counterpart. The General Council also acts as Dispute Settlements Body and as Trade Policy Review Body.
Principles of the WTO A number of fundamental principles govern the general agreements and the relations between Member Countries. At the core of these principles is antidiscrimination, amongst trading partners and between domestic and foreign producers of goods. The most important principles are as follows.
Most Favored Nation Status The Most Favored Nation (MFN) clause stipulates that favors such as easier market access (lower duties) given to one country’s produce should be multilateralized and therefore applicable to all member countries. All Member Countries should by this principle be entitled to equal treatment and equal access. The major exception from this rule is free trade areas, customs, economic and political unions that can apply for and under certain conditions be granted exemption.
National Treatment Clause The National Treatment Clause stipulates that imports and domestic or local produce should be equally treated
Policy Schemes and Trade in Dairy Products | World Trade Organization Table 1 GATT trade rounds Year
Name of the round and place
1947 1949 1951 1956 1960–61 1964–67 1973–79 1986–94
Geneva Annecy Torquay Geneva Dillon Round (Geneva) Kennedy Round (Geneva) Tokyo Round (Geneva) Uruguay Round (Geneva)
339
Dispute Settlement Body
upon market entrance of the import products. Duties and import taxes are not regulated by this principle. This rule applies to goods, services, trademarks, copyrights and patents. In practice the National Treatment Clause undermines the possibility of governments giving preferences to nationally produced products over imports and is an important instrument in increasing the transparency of the nontariff barriers to trade.
With the creation of the WTO, the trading system established a much more comprehensive dispute settlement system than was the case under the GATT, led by the Dispute Settlement Body (DSB). This dispute settlement system is based on the rule of law and with the strengthened possibilities of enforcement, the WTO has increased its regulatory and arbitrating powers. The Dispute Settlement Body is one of the cornerstones in the transformation from an international agreement to an international organization. Arbitration between members is a vital task for the WTO in order to secure the adherence by members to different agreements and rules under the WTO, but also to obtain the support of the members for the policies for the development of the international trade regime. The Dispute Settlement Body mainly facilitates the process by which Member Countries obtain legal guidance and counseling to solve bilateral disputes concerning trade issues under coverage of the different agreements under the auspices of WTO. A trade dispute taken to the WTO follows a predetermined structural process with set deadlines and obligations to implement the rulings. This allows for the development of jurisprudence and case law precedent within the WTO, and creates a much more predictable trading system. The different stages of a WTO case are shown in Figure 1. A panel makes first rulings in the WTO; their report is approved unless there is a consensus against this. The panel ruling can on legal grounds be taken to appeal to the appellate body. The appellate body’s decision is final, unless there is a consensus against the decision. This procedure implies that no single country or party to a dispute can veto a final decision and by that hinder a ruling against its interest. Member Countries are compelled to implement rulings of the WTO or to pay compensation to cover the opponent’s losses resulting from the illegal trade practice. The WTO may also allow for retaliation and introduction of sanctions, if a party to a case does not intend to follow the final ruling.
Least-Developed Countries
Non-tariff Barriers
More than 100 of the WTO member countries are developing countries. Within the WTO system there is special treatment for these countries with regard to their potential to fulfill their obligations according to the agreements, rules and regulations. For the group of least-developed countries, there are broad exemptions from the obligations. WTO has set up a system in order to help developing countries to gain knowledge and understanding of the organization and particularly to pass on experience with the trade negotiation system.
In the early days of GATT the focus was on reducing tariffs and import duties in order to enhance trade and reduce protectionism. This goal has largely been achieved for industrial produce during the course of the numerous trade rounds. Tariffs within trade in industrial products have been reduced from approximately 40% to less than 5% in the period from the establishment of GATT to the current implementation of the Uruguay Round. This tariff reduction process is only in an early stage with respect to agricultural and food products.
Source: www.wto.org
Table 2 Agreements within the areas of GATT and GATS The ‘extra’ goods agreements (under GATT)
The GATS annexes (under GATS)
Agriculture
Movement of natural persons Air transport
Health regulations for farm products Textiles and clothing Product standards Investment measures Antidumping measures Customs valuation methods Preshipment inspection Rule of origin Import licensing Subsidies and countermeasures Safeguards
Financial services Shipping Telecommunication
Source: http://www.wto.org
340 Policy Schemes and Trade in Dairy Products | World Trade Organization
The panel process NOTE: some times The various stages a dispute can go through in the WTO. At all stages, countries in dispute are encouraged to consult each are maximum; other in order to settle ‘out of court’. At all stages, the WTO director-general is available to offer his good offices, to mediate some minimum; or to help achieve a conciliation some binding some no!
60 days
by 2nd DSB meeting
0−20 days 20 days (+10 if director-general asked to pick panel)
6 mths from panel’s composition, 3 mths if urgent
up to 9 mths from panel’s establishment
Consultations [Art 4]
Panel established by Dispute Settlement Body (DSB) [Art 6]
During all stages good offices, conciliation or mediation [Art 5]
Terms of reference [Art 7] Composition [Art 8]
Panel examination (Normally 2 meetings with parties [Art 12] 1 meeting with third parties [Art 10]
Expert review group [Art 13; Appendix 4]
Interim review stage Descriptive part of report sent to parties for comment [Art 15.1] Interim report sent to parties for comment [Art 15.2]
Review meeting with panel upon request [Art 15.2]
Panel report issued to parties [Art 12.8; Appendix 3 par 12(i)]
Panel report circulated to DSB [Art 12.9; Appendix 3 par 12(14)] Appellate review [Art 16.4 and 17]
60 days for panel report, unless appealed
‘REASONABLE PERIOD OF TIME’ determined by: member proposes, DSB agrees; or parties in dispute agree; or arbitrator (~ 15 mths if by arbitrator)
30 days after ‘reasonable period’ expires
NOTE: a panel can be composed (i.e. panelists chosen) up to about 50 days after its establishment (i.e. DSB’, decision to have a panel)
DSB adopts panel/appellate report(s) including any changes to panel report made by appellate report [Art 16.1, 16.4 and 17.14]
Implementation report by losing party of proposed implementation within ‘reasonable period of time’ [Art 21.3] In cases of non-implementation parties negotiate compensation pending full implementation [Art 22.22]
Retaliation If no agreement on compensation, DSB authorizes retaliation pending full implementation [Art 22.2 and 22.6] Cross-retaliation: same sector, other sectors, other agreement [Art 22.3]
30 days for appellate report
Possibility of proceedings including referral to the initial panel on proposed implementation [Art 21.5]
max 90 days TOTAL FOR REPORT ADOPTION Usually up to 9 mths (no appeal), or 12 mths (with appeal) from establishment of panel to adoption of report [Art 20]
90 days
Possibility of arbitration on level of suspension procedures and principles of retaliation [Art 22.6 and 22.7]
Figure 1 Flowchart of the dispute settlement process in the WTO. (Reproduced with permission from www.wto.org.)
Policy Schemes and Trade in Dairy Products | World Trade Organization
As duties have diminished, the non-tariff barriers (NTB) have attracted increasing attention as they turn out to be as trade-distorting as flat rate tariffs. Non-tariff barriers consist of a number of different rules, regulations, standards, technical issues, administrative and bureaucratic procedures and other market-related obstacles that exporters meet while trying to gain access to a certain market. The WTO tries to highlight this area with a policy of transparency and information, but also with restrictions on the use of nontariff barriers.
Agreement on Technical Barriers to Trade The Agreement on Technical Barriers to Trade (TBT) is closely tied to the above-mentioned non-tariff barriers. This agreement aims at creating a free flow of international trade by regulating the general use of technical standards in a protectionist way. The agreement installs the principle that technical regulations and standards concerning packaging, marking and labeling, and procedures for assessment of conformity with technical regulations and standards should be used in a nondiscriminative way, both in respect to different trading partners and with regards to domestic versus import products. The agreement encourages the use of internationally recognized standards in national and local laws. At the same time member countries have to enhance transparency and public access with regard to applied and upcoming standards.
Agreement on Sanitary and Phytosanitary Standards The Agreement on the Application of Sanitary and Phytosanitary Standards (SPS) defines and gives opportunities for Member Countries to adopt measures necessary to protect human, animal and plant life and
health and at the same time regulates the use of these measures in order to avoid their discriminative use as barriers to trade. In the SPS agreement the scientific principle prevails. Sanitary and phytosanitary measures restricting trade should at all times have a scientific foundation that is widely recognized. Concurrently, countries are to treat different rules and standards alike, if their ultimate effect is the same for the protection of the human, animal and plant life and health. The Codex Alimentarius is recognized in the SPS agreement as a standard-setting reference point in this area and in the case of disputes among member countries. The objective is to harmonize the basis for sanitary and phytosanitary measures and meanwhile to create transparency and access to information concerning different rules and demands within this area.
Agricultural Agreement With the finalization of the Uruguay Round of trade negotiations agricultural trade fully came under the regulation of the WTO. The Agricultural Agreement is the first real attempt to achieve a common understanding of the trade mechanisms for agricultural and food products and the Agreement implements a number of regulations which in the last half of the 1990s and at the turn of the century set fundamental boundaries and rules for governance and policy-making within agriculture worldwide (Table 3). The major elements of the Agreement fall under three headings: 1. Export subsidies and competition. 2. Market access/imports. 3. Internal/domestic support. Together with the three central parts of the Agricultural Agreement, the Sanitary and Phytosanitary Agreement
Table 3 The outline of the support reductions in the agricultural agreement The main demands for reduced agricultural supports 1995 to 2001 Exports with support
Imports
Internal support
21% reduction in export quantities subject to support 36% reduction in budgetary outlays for export subsidies Base period: 1986–90
All non-tariff barriers converted to tariffs
20% reduction in all trade distorting internal supports based on the AMS calculation Base period: 1986–88
Source: http://www.wto.org
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Average 36% reduction in tariffs including converted non-tariff barriers, at minimum 15% reduction pre product line Minimum access at reduced tariff rates of 3% increasing to 5% of domestic consumption Base period: 1986–88
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(see above) constitutes an attempt to formulate an overall framework for agricultural trade and by that the domestic policies concerning production and regulation of food supply. Within the WTO there are a number of different views concerning liberalizing versus protecting agricultural production and trade. The most vocal groupings in the agricultural negotiations are the United States, the EU and the Cairns Group, a number of food exporting countries with Australia and New Zealand at the forefront. The developing countries are with respect to their interests mainly divided into two main groups, net food exporters and net food importers. A number of very important trade disputes concern trade in agricultural produce, such as bananas, hormonetreated beef or milk quotas, to mention just a few. These WTO cases between different Member Countries have been some of the most stringent tests to the dispute settlement system within the WTO. Agricultural and consumer-related issues have proved to be the most politicized cases in the short history of the Dispute Settlement Body of the WTO. But they are also acknowledged as the core challenge to the sustainability of the system and to the Member Countries’ genuine support and acceptance of the WTO rules and governance.
Agricultural Agreement entered into force in 1995 running to 2001, with a peace clause extending it to 2003. The Agreement stipulated that further negotiations were to start in the WTO by 1999 in order to prepare for a new agreement. These negotiations are currently (2002) in process with all the parties outlining their specific interests and suggestions for a new agenda and ultimately an agreement.
Peace Clause It was envisaged in the Blair House Accord that a new agreement might not be reached among the trading partners to take over from the Uruguay Round agreement exactly in 2001. Therefore it was decided to extend the results of the final stage of the implementation – the socalled year 6 (2000/2001) – onward to 2003 to provide some time for negotiations on a new agreement. From 2001 to 2003 no further developments in the levels of subsidies, import tariffs and internal support are anticipated unless a new accord is in place. At the same time, the agreed reductions will not be reversed. The situation for the agreement on agriculture is, however, uncertain if a new deal is not in place by 2003. One option is to agree to extend the peace clause; however, a potential conflict is possible.
Blair House Accord The Blair House Accord between the EU and the United States is named after the presidential official guesthouse in Washington DC where the Agricultural Agreement was finalized. This agreement, reached in November 1992, was a breakthrough in the ongoing Uruguay Round of negotiations in GATT. The accord laid the foundations for the current trade liberalization within agriculture and also facilitated an ending to the very long and at times antagonistic negotiations for a general conclusion to the trade round. The Blair House Accord sets the basic reduction factors both for exports and internal support measured in quantities and budgetary outlays. The accord also sets a 6-year implementation period and the reference periods. Alongside this, the EU and the United States agreed on solving a number of outstanding trade disputes particularly the one on oilseeds. The agricultural breakthrough in the GATT system is widely recognized to rest on the Blair House Accord and hence on the hard-won compromises and common understanding between the EU and the United States. The EU has a mandate to negotiate for all Member Countries of the European Union, which act as one within the WTO. In December 1993, one year after the Blair House Accord, the final GATT agreement was reached and it was signed in Marrakesh in Morocco in April 1994. The
Traffic-Light Model – GATT Boxes and Decoupled Support One of the main objectives of the Agricultural Agreement is to reduce support levels in general; however, support is divided into more and less trade-distorting types. The aim of the Agreement is to target the most distorting support forms which directly influence the international markets for agricultural products, and hence the competition situation between different agricultural producers. Aggregated Measurement of Support The Total Aggregated Measurement of Support (AMS) is a calculation of the total amount of support given to agricultural producers in one country, except for domestic support not subject to reductions, because of their nondistorting or decoupled nature. The AMS calculation is used to facilitate comparisons between countries and to equalize different types of support in order to obtain reductions in all types of distorting supports. Traffic-light model In popular terms the different types of agricultural support are labeled with different colors: red, amber,
Policy Schemes and Trade in Dairy Products | World Trade Organization
green – and blue. The red support forms should be stopped immediately, the amber ones should be phased out and the green ones can be left, as they are not seen as directly distorting. This rule-of-thumb makes for the name ‘traffic-light model’. The different colors also give names to the box scheme, which is another way of describing the different support forms: amber, blue and green boxes.
Export subsidies The export subsidies used by various countries fall into the amber box and must be reduced according to the agreement by 21% for supported export quantities and by 36% in total budgetary outlays. The reduction had to be linear over the implementation period, reaching the final commitments in Year 6, 2001. Developing countries must reduce their support by 14% in quantities and 24% in budgetary outlays with an implementation period of 10 years. Least-developed countries are exempt from this obligation. Member Countries have to keep account of the use of export subsidies for the individual product categories.
Decoupled support and blue box subsidies In order to encompass the American deficiency payments and the EU animal and area premiums of the mid-1990s, the blue color was introduced. Blue color support forms are semi-decoupled, whereas the green ones are decoupled altogether. The term ‘decoupled’ is used to describe the situation where the size and amount of support are not linked to the actual form and size of the agricultural production, as opposed to price support that is directly linked to the production output. Green box types of support are within the areas of research, disease control, government services and many more. Direct income support also falls in this category, as long as it is independent of the production. Semi-decoupled support can take the form of direct payments under production limiting programs with fixed references – area, yield or animal numbers. The blue box supports are not targeted by reduction demands because of their limited trade-distorting nature. The introduction of categorized support forms has allowed for a dynamic agricultural policy reform process in different countries. The major agricultural production and trading countries have undergone a number of reforms since the GATT agreement, all directly related to the WTO policies, in order to enhance competitive powers and allow for a more fair trade with agricultural produce. In most WTO member countries development of agricultural policy instruments is under way in order to avoid potential disputes.
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Imports and Market Access The import rules in the Agreement specify that tariffs have to be reduced by an average of 36%, with a minimum 15% per product line from 1995 to 2001. Prior to the reduction all non-tariff barriers have to be converted into tariff equivalents to enhance transparency as to the actual level of trade restrictions. This conversion is termed tariffication. It is the overall tariffs (duties, levies, quantitative restrictions, non-tariff barriers and so forth – old and new ones) that are to be reduced by 36%. The tariff rates are listed in the country list for each country with initial and bound rates. Developing countries are only obliged to reduce tariffs by 24%, and they have an extended implementation period, to 2004. Least-developed countries are exempt from the agreement to reduce tariffs.
Minimum import access In order to create some immediate effect for market access it was decided to create a certain minimum access to a preferential tariff far below the general and even reduced tariffs. This minimum quota is set in relation to the consumption in the base period 1986–88. At the beginning of the implementation in 1995 the quota was 3% of base period consumption for the respective products. This amount has gradually increased to 5% at the end of the 6-year implementation period in 2000/2001. Current access opportunities are to be maintained and supplemented with the above-mentioned minimum access in case the actual imports are below the 3–5%.
Trade in Dairy Products It was widely believed that the WTO agreement would increase the international trade in agricultural products, including dairy produce. The actual development does indicate that the total trade is developing; however, what is more noticeable is the change in the trading patterns. Table 4 shows the shift from an EU-dominated international trade in dairy products to a situation where Oceania is the predominant exporter. This situation is reflected in different claims and demands in respect of the ongoing negotiations on a WTO II agreement. It was also expected that the price for dairy products would be affected in an upward trend by the Agricultural Agreement and the increased trade, but this element is harder to deduce from the statistics. However, some signs in the market do indicate a general upward trend in prices for dairy products.
344 Policy Schemes and Trade in Dairy Products | World Trade Organization Table 4 The development in world market shares for dairy products World market share (%) EU USA New Zealand Australia
1990
2000
51 13 27 9
39 2 41 18
Source: Danish Dairy Board.
See also: Office of International Epizooties: Mission, Organization and Animal Health Code. Policy Schemes and Trade in Dairy Products: Agricultural Policy Schemes: European Union’s Common Agricultural Policy; Agricultural Policy Schemes: Other Systems; Agricultural Policy Schemes: Price and Support Systems in Agricultural Policy; Agricultural Policy Schemes: United
States’ Agricultural System; Trade in Milk and Dairy Products, International Standards: Harmonized Systems.
Further Reading Hoekman B and Kostecki M (1995) The Political Economy of the World Trading System, Oxford: Oxford University Press. Jackson JH (1998) The World Trading System, Law and Policy of International Economic Relations, Cambridge: MIT Press. Moon BE (1996) Dilemmas of International Trade, Oxford: Westview Press. Nedergaard P, Hansen HO, and Mikkelsen P (1993) EF’s Landbrugspolitik og Danmark, Copenhagen: Handelshøjskolens Forlag. Ritson C and Harvey DR (1997. In) The Common Agricultural Policy, (2nd edn.. Wallingford: CAB International. World Trading Organization, (1995) The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts,. Geneva, Switzerland: WTO. World Trade Organization (1998) Trading into the Future, Geneva, Switzerland: WTO.