A Peace Clause, without Peace in Food Security

19 November, 2013

Geneva, 18 Nov (Aileen Kwa*) -- A draft text of the 'Peace Clause' agreed to at the WTO by a select group of countries on Saturday 16 November ad referendum - subject to approval by capitals - seems likely to assure no Peace to developing countries on food security, and more specifically to the ability of developing country governments to procure food from their producers for public stock-holding and distribution to the poor.

This 'Peace Clause' agreed ad referendum unfortunately bears no resemblance as a solution to the change in WTO rules the G33 (group of 46 developing countries in the WTO concerned about food security and rural livelihoods) had asked for. They wanted government expenditure on public stockholding programmes for food security purposes to be categorised under the WTO's 'Green Box' which contains no conditionalities on subsidy limits.

Instead, a Peace Clause as an interim solution has been offered for four years - and it merely asks countries to 'refrain' from taking others to the WTO's Dispute Settlement Body.

The terms of this 'Peace Clause' is extremely weak and will not actually protect countries from being challenged in the WTO's Dispute Settlement Body. It has the following problematic features:

* The 'Peace Clause' will not adequately shield developing country governments engaged in public stockholding programmes from being brought to the WTO's dispute settlement understanding (DSU). This is because it does not include within its scope the Agreement on Subsidies and Countervailing Measures (SCM). Developing countries engaging in public stockholding programmes and purchasing staples from their producers can still be taken to the WTO's Dispute Settlement Body under the WTO's SCM Agreement.

The SCM says that income or price supports provided by WTO Member governments should not cause adverse effects (Article 1.2 and Article 5). Adverse effects include 'serious prejudice to the interests of another Member' (Article 5c).

The SCM enumerates several circumstances where serious prejudice may arise. One of these is that 'the effect of the subsidy is to displace or impede the imports of a like product of another Member into the market of the subsidizing Member'. That is, if an exporting country deems that it should have been able to export (or export more) to a developing country with such programmes but cannot do so due to these programmes, it can challenge the developing country at the WTO's Dispute Settlement Body.

According to a former WTO Ambassador, in this situation, the burden of proof that there is no serious prejudice will be upon the developing country being challenged. It would be very difficult to discharge this burden. This means that effectively, the 'Peace Clause', as noted by this former Ambassador, will in fact 'bring no Peace' since countries can easily still be challenged.

To make matters worse, and further weakening the 'Peace Clause', para 3 of the draft says that any developing country Member having such public stockholding programmes 'shall ensure that stocks procured under such programs do not distort trade'.

This is a very broad caveat and further opens developing countries to challenge under the DSU! This paragraph should be deleted, or at the least, the language should be changed to something like: 'such programmes are presumed to have no, or at most minimal trade-distorting effects'.

This is language taken from Annex 2 of the Agreement on Agriculture. Annex 2, otherwise known as the Green Box, is a category of agriculture subsidies that is allowed by the WTO rules. Since these subsidies are supposed to have 'no or at most minimal, trade distorting effects', no ceiling limits have been placed on countries in their provision of such subsidies.

The permanent solution sought by the G33 is that government stockholding programmes should simply be categorised under the Green Box, just as developed countries' direct payments, decoupled income supports, structural adjustment programmes for producers, and resources, and various other support measures and schemes are in the Green Box, without conditions.

It may be noted that the US's last notification of 2010 to the WTO showed that it provided USD 130 billion of agricultural domestic supports. They have classified 90% of this under the Green Box. The EU's last notification of 2009 showed total domestic supports of 79 billion Euros, of which 80% is in the Green Box.

* Furthermore, even though Members of the G33 had tried to insist that the Peace Clause should be in place until a permanent solution along the lines of what the G33 had originally proposed is found, the draft Peace Clause is valid for four years. There is no linkage that the termination of the Peace Clause will only take effect when the permanent solution is in place.

New language that emerged in the last day of negotiations is as follows (paragraph 10): 'This Decision will remain in force until the 11th Ministerial Conference, at which time we will decide on next steps in view of the General Council's further report on the operation of this Decision and of the Work Programme...'

What will G33 and other developing countries have in their pockets to trade-off after four years in order to obtain their permanent solution?

The price being asked to be paid at Bali for this Peace Clause is very high.

For a very weak Clause that only lasts for four years, developing countries have been asked in return to agree to a Trade Facilitation Agreement. This Agreement will be very expensive to implement for lower income countries. In addition, it will increase imports for net-importing countries.

This could end up as a challenge for local industries, increase countries' trade deficits, and lead to countries diverting scarce resources from more deserving budget priorities at the national level towards putting in place very onerous and unnecessarily elaborate customs procedures geared towards clearing the goods of exporters quickly.

Once this price has been 'paid' in Bali, what else will developing countries have to give after four years for a more robust solution?

If countries are taking a long-term view, it will be important for them to insist in the Geneva negotiations in the next two days that the Trade Facilitation Agreement is to enter into force only at the conclusion of the Doha Round Single Undertaking.

This is completely in keeping with Paragraph 47 of the Doha Declaration, which says that 'the conduct, conclusion and entry into force of the outcome of the negotiations shall be treated as parts of a single undertaking. However, agreements reached at an early stage maybe implemented on a provisional or a definitive basis. Early agreements shall be taken into account in assessing the overall balance of the negotiations'.

The entry into force of the Trade Facilitation Agreement must also be in keeping with Article X of the Marrakesh Treaty. Article X outlines the rules in the WTO regarding amendments to the WTO Agreements.

In the meantime, as a concession (for which they should get 'payment' in equivalent concessions by TF demandeurs), developing countries may consider provisional application of the TF Agreement if they choose to do so (as also provided for in para 47 cited above).

However, it must be made clear that provisional application will mean that the WTO's DSU will not be applicable to the TF, and certainly too, that countries are free to terminate their provisional application upon notification to other Members (as provided in Article 25.2 of the Vienna Convention).

It is worth questioning whether a 'Peace Clause' that does not shield countries from being challenged is worth having. The 'Peace Clause', given its weaknesses, is a four-year non-solution to the food security issue and the problematic rules in the WTO's Agreement on Agriculture in the area of government stockholding programmes. The LDC issues addressed so far - rules of origin and the services waiver - are all non-binding in nature.

In exchange, big exporting developed countries want to extract an onerous Trade Facilitation Agreement that is likely to increase many developing countries' imports. Is this in fact a step in the right direction to revive the Multilateral Trading System?

(* Aileen Kwa, who contributed this article, is the Coordinator of the Trade for Development Programme at the Geneva-based South Centre.) +