Accelerating the elimination of export subsidies in agriculture

30 October 2017

In this article the author argues for the need to speed up implementation of the Nairobi Ministerial Decision on Export Competition and work towards the elimination of agricultural export subsidies. There are commercial reasons to do so. The World Trade Organization’s Eleventh Ministerial Conference in Buenos Aires could be an opportunity to accelerate the process.

 

When members agreed in the 2013 WTO Bali Ministerial Conference to adopt the Trade Facilitation Agreement (TFA) they carefully crafted a legal procedure to make the agreement part of the “covered agreements” under the WTO. In contrast to the TFA, the elimination of agricultural export subsidies that was agreed at the Nairobi Ministerial Conference in 2015 was adopted as a “ministerial decision” only, providing it with a much weaker legal status.

With some flexibilities, in Nairobi members agreed on four pillars of disciplines: export subsidies elimination, stricter rules on export financing, an anti-circumvention clause with respect to state trading enterprises and a number of detailed provisions with respect to international food aid with the aim of preventing or minimising commercial displacement.

In spite of the agreement on those disciplines, the Nairobi decision did not translate into a fully-fledged agreement like the TFA. As being a ministerial decision, it would not be included as an annex to the WTO Agreement and would not be established as a proper “covered agreement.” In other words, the decision acquired the form of “soft law” implying that a violation of any provision of the decision could not be brought to the dispute settlement system of the WTO.

Certainly a WTO dispute settlement panel may be required to take into consideration the Nairobi decision on export competition if a dispute did arise in this area in order to interpret any “covered agreement” at issue. However, it is questionable whether the Nairobi decision meets the high standard established by article 31 of the Vienna Convention on the Law of Treaties, as interpreted by WTO jurisprudence, in order to qualify as a subsequent agreement or practice between the members regarding the “interpretation” of the WTO agreements. Furthermore, as established by the Appellate Body in Peru — Agricultural Products, an interpretative exercise under the Vienna Convention cannot contradict the plain text of a previous agreement – for example, the export subsidy permission under the Agreement on Agriculture.

The question that therefore remained was how to solve this lack of enforceability.

The Nairobi decision monitoring mechanism and implementation

To address this issue, the Nairobi decision included a monitoring mechanism in the form of an annual examination process that would take place in Geneva within the WTO Committee on Agriculture. Through that process, members would continue to provide information on their export competition policies in order to assess the decision’s implementation. However, as highlighted by members in June 2017, due to the lack of sufficient information submitted so far it remains difficult to assess the consistency of members' export competition policies with the Nairobi Decision.

In addition, to address the legal enforcement problem it was argued that a way to provide legal certainty to the elimination of export subsidies was through the modification of the schedule of concessions of members with export subsidies entitlements. Although not mandated by the Nairobi decision, this meant replacing the old schedules of concessions that allowed some members to subsidise exports of agricultural products for new schedules that provided for “zero” allowance to subsidise.

While in theory this legal approach may work, in practice it is proving cumbersome, incomplete and not expeditious enough to provide for a clear end to export subsidisation in agriculture. Here are the two reasons why.

First, requests for modification of schedules of concessions have been very few since the 2015 Nairobi decision. So far, only Australia and the European Union have requested the modification of their own schedules. The result: almost two years after the Nairobi decision, out of 25 members with entitlements to subsidise only one schedule rectification – Australia’s – was approved by the WTO. If this was not enough, members have complained that some export subsidies have actually increased since the Nairobi decision.

Second, and more important, it should be recalled that the Nairobi Decision on Export Competition provided disciplines for four distinct issues: export subsidies, export financing, food aid, and state trading enterprises. However, through the rectification of the goods schedule of concessions, WTO members are implementing only one of those pillars: the elimination of export subsidies. This is because members have not agreed to inscribe the remainder of the Nairobi decision provisions – other than the reduction of export subsidies to “zero” – in their revised schedules of concessions. If this issue is not resolved, important disciplines agreed in Nairobi will not be enforceable by members.

Among the remaining disciplines are those related to export financing. These include, for example, the obligation that the maximum repayment term for export financing support shall be no more than 18 months, or that the export financing programmes shall be self-financing and cover their long-term operating costs and losses. In addition, the requirements that agricultural exporting state trading enterprises do not operate in a manner that circumvents any other disciplines contained in the decision, or the several obligations adopted with the objective of preventing commercial displacement through international food aid, will not acquire a proper legally binding status if not incorporated in some way to the WTO agreement.

Real life commercial implications

The lack of legal enforcement of these disciplines has concrete commercial implications. As mentioned, some export subsidies have actually increased. Furthermore, the most recent document circulated by the WTO Secretariat indicates that agricultural exports that receive some kind of export financing support amount to almost U$S11 billion a year. Furthermore, as highlighted by the Cairns Group, just under half of the programmes reported to the WTO have repayment terms that exceed the 18 months maximum repayment period established in Nairobi. Moreover, while 11 members have reported export financing programmes, most have not provided information on whether the programmes are self-financing.

Finally, 16 out of 164 WTO members, including some of the most important agricultural global traders have notified or reported a total of 59 agricultural state trading enterprises exporting a large variety of products, including wheat, wheat flour, coarse grains, rice, fruits, vegetables, tobacco, and cotton.

Possible solutions

A possible non-disruptive solution to this situation could be that members, in addition to inscribing a “zero” allowance for export subsidies, also incorporate into their revised schedules the actual provisions of the Nairobi decision relating to export financing, state trading enterprises, and food aid. A precedent of this approach is found, for example, in the 2009 Bananas Agreement that was incorporated into the EU schedule of concessions after it was agreed by the parties involved. Another, simpler approach, would be that members also include an explicit textual recognition that they are also bound by the export financing, state trading enterprises, and food aid provisions of the Nairobi decision.

In sum, there is an urgent need to speed up implementation of the elimination of export subsidies in agriculture as agreed in Nairobi. This includes accelerating the removal of export subsidies entitlements from members’ WTO schedules and finding ways to terminate legally all other forms of agricultural export subsidisation in world trade. Maybe the forthcoming Eleventh Ministerial Conference in Buenos Aires will be an opportunity to agree on a clear path forward with regard to implementing the Nairobi decision on export competition.

 

Rodrigo Bardoneschi is a Diplomat and Legal Advisor at the WTO Dispute Settlement Department of the Ministry of Foreign Affairs of Argentina. 

The opinions expressed in this article are the author's own and do not reflect the view of the Government of Argentina.