EPA General Exceptions undermine WTO negotiations on commodities

3 March 2009

The General Exceptions of the EPAs do not preserve the achievements made by African and other developing countries in the WTO on commodities, they contravene the G-77 position, and they serve to undermine the December 2008 modalities. As such, ACP states are advised to demand modification of the EPA General Exceptions in the negotiations towards full EPAs with the European Commission, at the same time as developing countries should bring commodities back to the forefront in the WTO agenda.

Agricultural commodities: Volatility and adverse terms of trade

The financial and economic crises that the world economy is currently facing busted the commodity boom, resulting in depressed prices for agricultural goods and adverse terms of trade for commodity-dependent developing countries. According to the World Bank Global Economic Prospects 2009, agricultural prices relative to manufactures are likely to drop over the long-term through the end of 2030, continuing the trend of decline of the past 100 years. (1) Ensuring “stable, equitable and remunerative prices” for exports of primary agricultural commodities has therefore been a recurrent theme. The final act of UNCTAD I, after having established fifteen ‘trade and development’ principles, dedicated its second session to this pressing issue. (2)

The spirit of UNCTAD I (from June 2005) intended to promote and improve production and trade of primary products of vital interest to developing countries. (3) Five months later, the Arusha Declaration of November 2005 by the African Union recognised that the consistent decline and volatility of commodity prices is one of the most challenging tasks faced by the international community in the commodity sector and stressed the need to address this problem in the Doha Development Round. (4)

Commodities part of WTO agenda

Consequently, the African Group submitted a proposal for concrete modalities to the Committee on Agriculture at 7 June 2006, (5) supported by the G90, Bolivia, Venezuela, (6) and a wide range of NGOs worldwide. (7) The lion’s share of the proposal is devoted to the adoption of an appropriate legal instrument clarifying WTO rules to authorise joint actions by producing countries, alone or with consuming countries, with a view to attaining stable, fair, and remunerative prices. One remarkable difference between this proposal and the December 2008 modalities on commodities text is the abolition of the prospective role of UNCTAD concerning international commodity agreement negotiations and technical assistance for such supply management systems. Besides that, the December 2008 agriculture text mimics the African Group’s proposal under the heading “commodities” (paragraph 91 to 102). (8) The modalities build upon the existing WTO framework, on governmental assistance to economic development and on the commodity agreement exception.

General Exceptions in FTAs Art. XX GATT is the General Exceptions article that provides possibilities to impose traderestrictive measures for internationally recognised, important policy objectives, such as the protection of public health or the environment. It provides a general exception to all GATT 1994 obligations. As a result, they offer policy space; however, the exceptions should not be abused to protect national producers under the guise of lofty principles or constitute a disguised restriction on international trade, according to the chapeau of article XX. For instance, the Gasoline Case as one of the first WTO cases, ruled that the United States could not justify its Gasoline Rule benefiting domestic refiners under the exceptions contained in GATT article XX (b), (d) and (g). (9) For trade in services, art. XIV GATS fulfils an analogous role.

The same legitimate governance priorities agreed upon at multilateral level are also recognised at the regional level: free trade agreements enclose sections on general exceptions. As a rule, parties opt to copy the General Exception articles verbatim into their FTAs or simply incorporate art. XX GATT in their goods regime and art. XIV GATS in their services regime. This approach is followed by the bulk of FTAs, both North-North as well as North-South. Examples include the New Zealand-Thailand Closer Economic Partnership (art. 15), the Chile-EFTA FTA (art. 21 and 44, respectively), Australia-United States FTA (art. 22.1) and NAFTA (art. 2101).

EPAs: Enlarged scope of General Exceptions

EPAs take a slightly different approach to General Exception provisions. All exceptions, art. XX GATT as well as art. XIV GATS exceptions are simply lumped up together in one article covering the whole agreement. The majority of the EPAs are ‘goods only’ agreements, but through this technique they also contain General Exceptions for trade in services like those related to privacy protection, protection of public security, and safety. In fact, in all EPAs, including the signed Cariforum EPA, services exceptions are also applied to goods while goods exceptions are also applied to services.

Additional choice in exceptions provide either party more flexibility to deviate from the EPA, e.g. suspending preferential treatment, raising export taxes, or instituting import bans for goods. A small country could be less inclined to utilise general exceptions due to fear of backlash, but it is difficult to predict which party is likely to gain from this enlarged policy space.

EPAs expunge vital WTO General Exceptions

The main problem at hand, however, is not what has been added, but what has been forfeited.

Three important GATT XX General Exceptions relevant to (commodity-dependent) developing countries are not included in the EPAs (see table).

A General Exception expresses an internationally recognised policy objective, which under certain conditions, is more important than GATT-compliance. Art. XX (i) allows for restrictions on exports when the government is trying to keep domestic prices down as part of a stabilisation plan, whereas XX (j) - the Short Supply Exception – encompasses measures affecting exports as well as imports.

The principal omission in light of its relevance, former declarations, and efforts made at the WTO is the omission of art. XX (h) on commodity agreements. As it currently stands, the EU does not recognise this measure as a legitimate policy aim, which clashes with every effort made in this area, ranging from UNCTAD I to the present WTO modalities. In this respect, the removal of the commodity agreements exception means the formal demise of any type of International Commodity Agreement affecting EU trade. All ACP States have conceded to the EU’s view on commodity agreements as revealed by non-inclusion into all EPAs.

The topic of commodity agreements has been out of grace since the 90s when the hegemony of markets seemed to be established. While we have not touch upon the substance of commodity agreements, it suffices to say that they have been a viable tool to provide more stable, equitable, and remunerative prices. No system will be perfect in its design, whereas the main challenge is political will between producing countries and/or between producing and consuming countries. (12)

According to Pascal Lamy, commodity agreements are acceptable in the multilateral context, but countries may make a sovereign choice to sign bilaterals with provisions going far beyond WTO requirements taking precedence over multilateral agreements. (13) The correctness of his statement concerning the legal status of bilateral agreements is debatable, but mainstream legal thinking suggests bilateral agreements supersede multilateral ones as lex specialis. This implies that whatever package in the Doha Round is reached on commodities and thereby on art. XX(h), the EPAs provisions, rather than the Doha package, will be in effect.

If the African Group and other developing countries are serious about their declarations and efforts made at the WTO, they should address the issue of commodities in the next (mini-)ministerial as it became part of the modalities after the Hong Kong ministerial.

Regardless of the outcomes of the legal discussion or the Doha Round negotiations, these bilateral omissions threaten viable policy options considered by all ACP states as part of their development toolbox, and viewed as legitimate means to reduce poverty. No justifiable reason exists for omitting three art. XX GATT exceptions including the one related to commodity agreements. This WTO-deficiency of the EPAs should therefore be corrected through modification of the General Exceptions clause in the EPA.

Author
Peter Lunenborg LLM MSc is involved with the Trade for Development Programme, South Centre. He can be contacted at peter@lunenborg.org.

Notes
1. Global Economic Prospects 2009, Commodities at the Crossroads, p. 85.
2. Final Act of UNCTAD I adopted 15 June 1964, p. 12.
3. G-77/SS/2005/2 par. 19. Re-iterated in “Global Initiative On Commodities,” May 2007.
4. Arusha Declaration and Plan of Action on African Commodities.
5. WTO document TN/AG/GEN/18.
6. Declaration on ‘Development concerns and issues in the current WTO negotiations’, 21 June 2007. 7 “Call for Action on the Crisis in Agricultural Commodities.”
8. WTO document TN/AG/W/4/Rev.4.
9. www.wto.org/english/tratop_e/envir_e/edis07_e.htm.
10. The interim SADC EPA does omit XX GATT(b) related to protection of human, animal or plant life or health.
11. The interim ESA, EAC, and Pacific EPAs do include this exception.
12. See also the first and only FAO Commodity Market Brief, issued in 2006.
13. Statement made at the conference “Confronting the Global Food Challenge” in a plenary session, 25 November 2008.

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