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Trade Policy and Food Security: The Implications of the WTO’s Agreement on Agriculture for Caribbean Small Vulnerable Economies

Working paper by Pennycooke, Camiel / University of the West Indies, 2011

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The paper focuses on the impact of the Agreement on Agriculture on food security in Caribbean SVEs and was approached by examining its three pillars. In terms of the objectives and commitments made under the Uruguay Round an assessment was made on the implementation of such commitments and the outcomes for the SVEs. The research showed that to date, the objectives of the Agreement have not been fully realized and protectionism has actually increased in developed countries. The multilateral agricultural trade negotiations under the auspices of the World Trade Organization had projected the reduction in trade distortions and protectionism in international trade, thereby creating a fair trading environment for WTO members. This has resulted in the SVEs bringing to attention, in the current round of negotiations (Doha), trade-related problems experienced by the group, among which are the implications of the WTO agreements on their open economies, agriculture and sustained development.

Trade Policy and Food Security
The Implications of the WTO’s Agreement on


Agriculture for Caribbean Small Vulnerable


Economies (SVEs)


by Camiel Pennycooke


September 2011




Abstract


Agriculture is instrumental in the socio-economic development of Caribbean small,


vulnerable economies. Economists have supported trade liberalization and its role in promoting


economic growth, especially among developing countries, commonly referring to it as an ‘engine


of economic growth’. The paper focuses on the impact of the Agreement on Agriculture on food


security in Caribbean SVEs and was approached by examining its three pillars. In terms of the


objectives and commitments made under the Uruguay Round an assessment was made on the


implementation of such commitments and the outcomes for the SVEs.


The research showed that to date, the objectives of the Agreement have not been fully


realized and protectionism has actually increased in developed countries. The multilateral


agricultural trade negotiations under the auspices of the World Trade Organization had


projected the reduction in trade distortions and protectionism in international trade, thereby


creating a fair trading environment for WTO members. This has resulted in the SVEs bringing to


attention, in the current round of negotiations (Doha), trade-related problems experienced by the


group, among which are the implications of the WTO agreements on their open economies,


agriculture and sustained development.




Table of Content


Title Page(s)


Introduction 1-2


Literature Review 3-7


Part I Agricultural Trade Liberalization: The Agreement on Agriculture 8-11


Part II The Caribbean SVEs 12-19


Part III Post-Uruguay Trends in Agricultural Trade Liberalization 20-26


Part IV The Impact of Agricultural Trade Liberalization on Food Security 27-33
in the Caribbean SVEs


Conclusion and Recommendations 34-37


Bibliography 38-40


List of Tables and Figure




Figures Page


Figure 2.1: Total Trade of Caribbean SVEs (2000-2008) 16


Figure 2.2: Caribbean SVEs Normalized Agricultural Trade Balance (2001 and 2008) 17


Figure 3.1: OECD Producer Support Estimate 1986-88 and 2007-09 20


Figure 3.2: Domestic Support by Categories for US, EU and Japan
24


Figure 3.3: Share of Export Subsidy Expenditures (1999) 25


Figure 3.4: Total Export Subsidies by Commodity Categories (1995-1999) 26


Figure 4.1: Caribbean SVEs Food Import Capacity (2001-2008) 30


Figure 4.2: Actual World Market Prices for Cereals and Pulses (2007-2010) 31


Tables


Table 1: Socio-economic Characteristics of Caribbean SVEs 13


Table 2: Caribbean SVEs Average MFN Applied Tariffs and Bound Rates for 18


Agricultural Products


Table 3: Average MFN Applied Tariffs and Bound Rates by Major Sectors 2006/9 21


Table 4: Comparison of Per Capita Food Supply between 1992-94 and 2003-05 by 28
Major Food Items (kgs/person)


Table 5: Coverage Ratio for the Caribbean SVEs, 2000 and 2008 32


Box


Box 1: Characteristics of Small, Vulnerable Economies 15




Acronyms and Abbreviations


AoA: Agreement on Agriculture


CARICOM: Caribbean Community


ECLAC: Economic Commission for Latin America and the Caribbean


ERS/USDA: Economic Research Service, United States Department of Agriculture


GATT: General Agreement on Tariffs and Trade


FAO: Food and Agriculture Organization


ICTSD: International Centre for Trade and Sustainable Development


IICA: Inter-American Institute for Cooperation on Agriculture


MFN: Most-favoured-nation


OECD: Organisation for Economic Co-operation and Development


SDT: Special and Differential Treatment


SSG: Special Safeguards


SVEs: Small Vulnerable Economies


UN COMTRADE: United Nations Commodity Trade Statistics Division


WTO: World Trade Organization






Introduction


In the 1996 Rome Declaration on World Food Security, global leaders made a commitment


“to ensure that food, agricultural trade and overall trade policies are conducive to fostering food


security for all through a fair and market-oriented world trade system.” They hoped to achieve


increased levels of food security and the target was to halve the number of undernourished


people in the world by 2015 especially in the developing world. Most of the world’s poorest and


1.02 billion undernourished persons (FAO 2009 estimates) are to be found in developing


countries. This slows down the progress towards achieving the first Millennium Development


Goal (MDG 1) and according to experts the situation has been worsened by both the recent


food and economic crises.


The Caribbean SVEs are generally net-importers of goods and services, particularly in


agricultural trade. In 2008, imports were valued at US$61,326 (million) while exports at


US$30,542 (million), resulting in a trade deficit of -US$30,784 (million) (COMTRADE 2009). In


2006, 78 percent of agricultural imports were accounted for by food imports, with food import


bills increasing annually (FAO). Therefore, food imports significantly share in total imports,


threatening the Caribbean’s food security status as a result of increased import dependency.


Consequently, the Caribbean region has become more proactive in its determination to improve


food security. This is clearly outlined in agricultural policies such as the CARICOM Community


Agricultural Policy which states as a goal “improved income and employment opportunities, food


and nutrition security, and poverty alleviation in the Community” (CARICOM Secretariat 2002).


More specifically the regional governments through cooperation with national, regional and


international organizations have formulated plans to improve the Caribbean’s food security


situation in the coming years. Examples of such agricultural, food or food security initiatives are


the Regional Transformation Programme in Agriculture, Jagdeo Initiative and Regional Food


Plan.


The work of the Region has also extended to the WTO framework through the small,


vulnerable economies group, a group of developing countries aimed at carving out flexibilities


tailored to their characteristics and not to developing countries as a whole. The term applies to


Members with economies that, in the period 1999 to 2004, had an average share of (a) world


merchandise trade of no more than 0.16 per cent or less, and (b) world trade in non-agricultural


products of no more than 0.1 per cent and (c) world trade in agricultural products of no more


than 0.4 per cent (WTO 2008). To date the active proponents of the SVEs comprising about


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twenty four (24) small states have become more active in the new round of agricultural trade


negotiations. This has been evident throughout the Doha Round with the promotion of food


security concerns, among other issues, by the SVEs.


The AoA was implemented “to establish a fair and market-oriented agricultural trading


system.” Its three pillars domestic support, export subsidies and market access have facilitated


the process of agricultural trade liberalization. It is however believed that the agreement has


created winners and losers, significantly affecting the trading capabilities of developing


countries. This can be seen in terms of the further opening of domestic markets to cheaper


imports which means reduced export earnings and increased import dependency. Therefore,


creating a complex relationship between multilateral trade liberalization, domestic trade reform


and food security policies.


The Caribbean states were singled out from the larger SVEs grouping to allow for more in


depth regional research. The Caribbean SVEs are Antigua and Barbuda, Barbados, Belize,


Cuba, Dominica, Dominican Republic, Grenada, Guyana, Jamaica, St. Kitts and Nevis, St.


Lucia, St. Vincent and the Grenadines, Suriname and Trinidad and Tobago. The purpose of the


study will be to act as a support document for Caribbean agricultural trade policy stakeholders


such as policy makers, trade officials, farmer organisations and others. Also, adding to the body


of Caribbean-based research.


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Literature Review


“Agricultural trade liberalization and trade reform in general, have significant impacts on all dimensions of


food security for Caribbean countries – availability, access, utilization and stability.”


Agricultural Trade Policy and Food Security in the Caribbean: Structural issues, multilateral
negotiations and competitiveness. J.R. Deep Ford, Crescenzo dell’Aquila and Piero Conforti, 2007.


Trade liberalization is an ongoing process in the multilateral trading system, under the


auspices of the World Trade Organization (WTO). Trade liberalization defines trends by


governments to promote the movement of goods and services through regulated trade; in other


words, the removal of any restrictions to trade among countries. Increased commitments


towards trade liberalization started after World War II and saw the establishment of trade


organizations such as the General Agreement on Tariffs and Trade (GATT) and the WTO.


These organizations were mandated with the task to minimize the effects of trade distortions


and protection while at the same time promoting increased international trade. This has resulted


in changes in the global trading regime, impacting all factors of trade in developed and


developing countries.


Historically, a debate has developed between two schools of thought on trade


liberalization and its impact on countries that engage. The proponents of trade liberalization


date back to as early as the 18th century with economists such as Adam Smith and later, David


Ricardo and John Stuart Mills. Traditional trade theory proposes that trade is based on


comparative advantage. It takes place between countries that produce goods according to their


factor endowment; labour-intensive countries specialize in agriculture and capital-intensive


countries in industry. As specialization is fostered within these countries, participation in global


trade will take place to meet domestic demands. “If a foreign country can supply us with a


commodity cheaper than we ourselves can make it, better buy it of them with part of the


produce of our own industry, employed in a way in which we have some advantage” (Smith


1776)


In the work of Hechsher-Ohlin, Stolpher-Samelson and Rybzsnski and the


beforementioned economists several advantages of trade liberalization are evident. Firstly,


trade liberalization is referred to as ‘the engine of economic growth’. Endogenous growth


models suggest that trade openness should be positively associated with growth. Harrison in


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her 1991 paper concluded that the “correlation across openness measures are sometimes


weak, but openness does seem to be positively associated with GDP growth – the more open


the economy, the higher the growth”. In contrast, limited trade liberalization and the proliferation


of restrictions will have the opposite effect. Therefore, countries with high protectionism will


experience lower output and growth. Secondly, trade results in the reallocation of scarce


resources to areas of greatest efficiency which increases a country’s access to and


consumption patterns of goods and services. The trade liberalization proponents argue that as


markets open and trade increases, the rise in competition causes domestic firms to be more


productive. Consequently, the domestic market (both producers and consumers) gain through


the availability of cheaper foreign inputs and an increase in purchasing power. Also, trade


liberalization creates a suitable environment for firms to invest, taking advantage of reduced


operating and production costs.


The prevailing view that trade liberalization leads to growth has been scrutinized by


researchers, including Rodriguez and Rodrik (1999). They questioned the effectiveness of


certain openness measures in determining levels of barriers to trade. This flaws the results of


such studies and does not provide strong arguments for the correlation between openness and


economic growth. Rodriquez and Rodrik proposed a revision of methodology and recommended


the use of average tariffs in assessing a country’s openness and in turn its economic benefits.


Others have also shown an interest in disqualifying the much lauded benefits of trade


liberalization and the measurement of its effect on countries.


The opponents of trade liberalization or protectionists are of the opinion that a country


benefits more from trade within its borders. Developing countries for example in Latin America


for decades had ‘import substitution industrialization (ISI) policies, linked to the protection of


infant industries. Protectionist theories are founded in the Prebisch-Singer (PS) hypothesis with


the premise that openness to trade harms poorer countries. It creates trade imbalances,


distortions and loss of jobs, just to name a few. Therefore, for protectionists trade liberalization


is directly related to economic growth, development, poverty and gender issues. However,


economists from the World Bank and IMF are usually cited as discouraging developing


countries from having trade barriers and restricting exports, stating that they will not be able to


attain economic growth with such policies. The structural adjustment programmes instituted in


the 1980s were instrumental in the elimination of ISI policies, commencing trade liberalization in


Latin America. In examining both views on trade liberalization it can be stated that openness to


the global economy seems a necessary, though not sufficient, condition for sustained growth


40




and development (Fiestas 2005; EU 2006). The non-trade policies and infrastructure of a


country are important for the ‘trickle-down’ effect of trade liberalization to occur.


There are both winners and losers as a result of multilateral trade liberalization.


Researchers forecasted that the Uruguay Round was no exception to the rule. Various


econometric studies were carried out by international organizations such as the World Bank,


OECD and GATT to estimate the Uruguay Round effect on WTO members. These studies may


be categorized into three sets, pre, during and post Uruguay Round. They analysed the trade


liberalization rules by means of models, including the computable general equilibrium (CGE)


model. CGE models allow for the assessment of trade policy impact on countries or sectors,


providing policymakers with a decision making tool. The different studies focused on different


aspects of the agreements. For example, in Goldin and van der Mensbrugghe (1996), the


implications of the Agreement on Agriculture (AoA) were examined with specific focus on sub-


Saharan Africa. In a compilation of post-Uruguay Round studies by UNCTAD (2000a) it was


found that such studies estimated various outcomes for the individual countries and sectors.


The analysts however generally concluded that East and South Asia would receive the largest


welfare gain while the smallest gains going to the OECD, African and Latin American countries.


As it relates specifically to agricultural trade liberalization many researchers were also of


the opinion that the gains to the developing countries would be unequal and limited. “Overall,


the ability of developing countries to make adequate gains via export earnings to meet the


increase in food import bills may be limited. Developing countries as a whole are expected to


improve their trade balances by some US$ 7.5 billion between the base period and 2000, of


which US$ 3.1 billion can be attributed to the Agreement [on Agriculture]. However, these gains


are unlikely to be shared equally” (Healy et al 1998)


Critics of the AoA are very vocal on the negative impact of agricultural trade liberalization


on food security. “There are three main problems with the AoA: it ignores the realities of global


agricultural markets, it reinforces industrial agriculture at the expense of sustainable agriculture,


and it fails to acknowledge the widely differing needs of countries at different levels of


development.” (Murphy 2002) Food security is a developmental concern for all countries,


especially those of the developing world. This developmental perspective is more concerned


with the impact of trade liberalization on the livelihoods of small domestic producers and on


wider rural communities as many persons depend on agriculture, both as a source of income


and food, in these countries.


40




Over the last few decades several definitions have been formulated for food security,


evolving and acquiring new aspects depending on the level of importance placed on achieving


food security.


“Availability at all times of adequate world food supplies of basic foodstuffs to ensure a steady
expansion of food consumption and to offset fluctuations in production and prices.” World Food
Conference 1974


“Ensuring that all people at all times have both physical and economic access to the basic food
that they need.” FAO 1983


“Food security exists when all people, at all times, have physical and economic access to
sufficient, safe and nutritious food that meets their dietary needs and food preferences for an
active and healthy life.” World Food Summit, 1996


“Food security is a situation that exists when all people, at all times, have physical, social, and
economic access to sufficient, safe and nutritious food that meets their dietary needs and food
preferences for an active and healthy life.” FAO 2001


The WTO provides a trade policy perspective of the term, defining food security as a “concept


that discourages opening the domestic market to foreign agricultural products on the principle


that a country must be self-sufficient as possible for its basic dietary needs.” These concepts all


involve the availability to sufficient food supplies to humans whether on a global, national,


regional, household or individual level.


Four dimensions of food security food availability, access, utilization and stability are


highlighted in the definition. The first aspect, food availability may be described as the


availability of sufficient quantities of food of appropriate quality, supplied through domestic


production or imports, including food aid. Secondly, food access means the access by


individuals to adequate resources (entitlements) for acquiring appropriate foods for a nutritious


diet. Entitlements are defined as the set of all commodity bundles over which a person can


establish command given the legal, political, economic and social arrangements of the


community in which they live, including traditional rights such as access to common resources.


Another aspect is the utilisation of food through adequate diet, clean water, sanitation and


health care to reach a state of nutritional well-being where all physiological needs are met. This


brings out the importance of non-food inputs in food security. Finally, to be food secure, a


population, household or individual must have access to adequate food at all times. This


describes the stability dimension of food security. They should not risk losing access to food as


a consequence of sudden shocks, for example, an economic or climatic crisis or cyclical events


40




such as seasonal food insecurity. The concept of stability can therefore refer to both the


availability and access dimensions of food security (FAO 2006)


Most case studies to date have been focused on the analysis of food security at the


household and individual levels (Jenkins and Scanlan 2001; Sharma 2006; Lovendal and


Knowles 2006). These are linked directly to poverty and hunger conditions and seek to remove


the generalities associated with aggregated data. The limitation of such aggregated data is that


it fails to account for distribution of food supply in different areas, even within a country’s rural


and urban regions. Those studies examining the impact of the multilateral agricultural trade


agreement, on the other hand, carry out research from a global or national perspective. National


food security is concerned about the availability of domestic and imported food supplies; the


ability of exports to purchase imports and the overall effects on price stability (Konandreas


2000; Ford et al 2007)


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PART I


Agricultural Trade Liberalization: The Agreement on Agriculture


The Agreement on Agriculture is one of several agreements born out of the Uruguay


Round of negotiations. It entered into force with the establishment of the World Trade


Organization on January 1, 1995. The long-term objective of the AoA as stated in its preamble


“is to establish a fair and market-oriented agricultural trading system”, a process that would


allow for reform in the principles and disciplines that govern agricultural policies. The benefit in


the long-run being improved predictability and security for importing and exporting WTO


member countries. The procedure necessary for achieving this objective includes commitments


to reduce those policies that create distortion in agricultural trade and production caused by


agricultural support and protectionist measures.


Specific commitments in the areas of market access, domestic support and export


competition were formulated in the Agreement. These rules and commitments, referred to as


the three pillars, were pivotal in achieving the objective of a less trade-distorting global


agricultural trading system. Also, WTO members should take into account non-trade concerns


including food security and special and differential treatment for developing countries.


Market Access


The market access provisions and commitments of the AoA were made possible through the


process of tariffication, tariff quotas, Special Safeguard, and special and differential treatment


instruments. Article 4.2 of the Agreement prohibits the use of non-tariff border measures,


subject to certain exceptions. The measures prohibited includes quantitative import restrictions,


variable import levies, minimum import prices, discretionary import licensing, non-tariff


measures maintained through state-trading enterprises and voluntary export restraints. Non-


tariff measures were converted into tariff equivalents, i.e. by tariffication, in a bid to reduce the


distorting effects of such measures. Additionally, the AoA specified the maximum or bound tariff


rate that each member can apply to exports. Developed countries made commitments to reduce


tariffs by an average of 36 percent on all agricultural products, with a minimum cut of 15 percent


for each tariff line, over a 6 year period, starting in 1995. While for developing countries the cuts


were 24 percent and 10 percent, respectively, for a 10 year period. Also under the market


40




access pillar, provisions were made for the application of a reduced tariff rate for a particular


quantity of imports, equivalent to 5 percent of domestic consumption. This refers to the


establishment of tariff rate quotas (TRQs) which ensured a level of minimum access for the


products that had been tariffied. The AoA recognized a total of 1374 individual tariff quotas of


which members have made binding commitments in their schedules.


Article 5 specifies the Special Safeguard (SSG) provisions which allow members to protect


domestic producers against sudden import volume surges or a fall in import price. It is a


temporary measure in which importing countries may impose additional tariffs, higher than the


bound rates. For the ‘volume trigger’, the higher tariffs are applicable to the end of the particular


year while for the ‘price trigger’, these can only be applied on a shipment-by-shipment basis.


The SSG provisions are available mainly to developed countries that carried out tariffication and


in this case, only 21 developing countries have access. The special and differential treatment


(SDT) requires developed country members to take into account the particular needs and


conditions of developing country members, providing for a greater improvement of opportunities


and terms of access for agricultural products of interest to developing countries, including the


fullest liberalization of trade in tropical agricultural products (WTO 2002). SDT under grains the


entire Agreement, developing countries are given longer periods to implement the AoA


provisions at lower levels, as compared to the developed countries. The key objective of these


changes as it relates to market access was to stimulate investment, production and trade in


agriculture by making agricultural market access more transparent, predictable and competitive;


strengthening the link between national and international agricultural markets and relying more


prominently in the market for guiding scarce resources into their productive uses both with the


agricultural sector and economy-wide (WTO 2003).


Domestic Support


In agriculture, domestic support relates to any subsidy or other measure that allows higher


producer prices than that of international prices. Direct payments to producers, including


deficiency payments, and input and marketing cost reduction measures available only for


agricultural production are examples of domestic support measure. A key objective had been to


discipline and reduce domestic support while at the same time leaving greater scope for


governments to design domestic agricultural policies, in the face of, and in response to, the wide


variety of the specific circumstances in individual countries and individual agricultural sectors.


The approach agreed upon is also aimed at helping ensure that the specific binding


40




commitments in the areas of market access and export competition are not undermined through


domestic measures (WTO 2003). The domestic support pillar is designed to quantify all


measures that are deemed as having a distorting effect on trade using the Aggregate Measure


of Support (AMS) formula and progressively reducing such measures. The main targets are the


developed country members with developing countries having lower obligations.


Domestic support that meet the requirement of having no, or at most minimal, trade-


distorting effects or effects on production is referred to as ‘Green Box’ measures and are


allowed under the AoA. ‘Amber Box’ measures are however deemed trade-distorting and are


subjected to reduction commitments. The Green Box (Annex 2) covers a wide variety of


government services programmes such as general services, public stockholding for food


security purposes, domestic food aid, direct payments to producers, decoupled income support,


government financial participation in income insurance and income safety-net programmes,


payments (made either directly or by way of government financial participation in crop insurance


schemes) for relief from natural disasters, structural adjustment assistance provided through


producer retirement programmes, structural adjustment assistance provided through resource


retirement programmes, structural adjustment assistance provided through investment aids,


payments under environmental programmes, and payments under regional assistance


programmes. Although these measures are not subject to reduction commitments, they should


be provided through a publicly-funded government programme not involving transfers from


consumers and not have the effect of providing price support to producers.


Other domestic measures are also exceptions to the reduction rule, but not included in the


Green Box. Government assistance measures for rural development and are an integral part of


developmental programmes in developing countries as stated in Article 6.2, are categorized as


developmental measures. Another exception is trade-distorting measures that fall within the de


minimis level of support. Member countries are not obliged to reduce domestic support where


such support does not exceed 5 percent of the value of individual products or the total value of


agricultural production, for developed countries (developing countries 10 percent). ‘Blue Box’


commitments of Article 6.5 allow members not to reduce support if such payments are based on


a fixed area and yields, 85 per cent or less of production in a base period or a fixed number of


livestock.


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Export Competition


An export subsidy as defined in the AoA refers to subsidies contingent on export


performance. The aim of the AoA was to curtail the right to use export subsidies and reduce


export subsidy expenditure. Only countries that had export subsidies during the base period


were obliged to carry out reduction commitments, while all others were prohibited from using


export subsidies. An exception to this rule is developing country members who may, in the


implementation period, grant marketing cost and internal transport subsidies. The export


subsidy reduction instrument required that developed countries reduce the volume of subsidized


exports by 21 percent and budgetary outlays for export subsidies by 36 percent, over a 6 year


period. Developing country cuts are 14 percent and 24 percent, respectively, over 10 years. The


reduction requirements of the Agreement were applied to several types of export subsidies, as


detailed in Article 9. These are a) direct export subsidies contingent on export performance b)


producer-financed export subsidies c) payments on the export of an agricultural product that are


financed by virtue of governmental action d) export marketing subsidies e) cost-reduction


measures and f) subsidies on incorporated products. At the end of the Uruguay Round, 25


members had export subsidy reduction commitments specified in their schedules, with a total of


428 individual reduction commitments.


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PART II


The Caribbean SVEs


The Caribbean SVEs is a diverse group with a total of fourteen WTO developing country


members. They are located in relatively close geographical proximity to each other and consist


of islands and mainland states. The small island states are Antigua and Barbuda, Barbados,


Dominica, Grenada, St. Kitts and Nevis, St. Lucia and St. Vincent and the Grenadines. The


larger island states are Cuba, Dominican Republic, Jamaica and Trinidad and Tobago while the


mainland states are Belize, Guyana and Suriname. However, the group is characterized by


heterogeneous social, economic and political factors leading to differences in economic


development. As shown in Table 1, the estimated population of the Caribbean SVEs is 27


million in 2010, with two of the larger states, Cuba and the Dominican Republic accounting for


over 74% of this population.


Since the 1970s, the agricultural sectors of the Caribbean SVEs have experienced


declining importance to the economies. This has been linked to impacting trends such as the


increase in urbanization, structural adjustment programmes, globalization and trade


liberalization. Today, most of the economies are services-driven in areas such as tourism and


financial services. In contrast, Trinidad and Tobago is more industry-oriented as the contribution


of agriculture to GDP in 2008 was less than 1%. Guyana and Belize are however more


dependent on agriculture, both having agricultural GDP of over 25%. As a result, the income per


capita has also changed within the group with Trinidad and Tobago, Barbados, Antigua and


Barbuda and St. Vincent and the Grenadines ranked among the Caribbean SVEs’ four highest


GDP per capita economies.


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Table 1: Socio-economic Characteristics of Caribbean SVEs


Countries Population
(2010 est.)


Land Size
(sq. km)


GDP per capita
(2009 est.)


Contribution of
Agriculture to


GDP
Antigua and
Barbuda 86,754 442.6 $18,100 3.8%


Barbados 285,653 430 $18,500 6%


Belize 314,522 22,966 $8,100 29%


Cuba 11,477,459 110,860 $9,700 20%


Dominica 72,813 751 $10,200 17.7%


Dominican
Republic 9,794,487 48,670 $8,300 14.6%


Grenada 107,818 344 $10,800 5.4%


Guyana 748,486 214,969 $3,800 25.1%


Jamaica 2,847,232 10,991 $8,200 6%


St. Kitts and
Nevis 49,898 261 $15,200 3.5%


St. Lucia 160,922 616 $10,900 5%


St. Vincent and
the Grenadines 104,217 389 $18,100 10%


Suriname 486,618 163,820 $9000 10.8%


Trinidad and
Tobago 1,228,691 5,128 $23,100 0.5%


Source: World Factbook


The Caribbean SVEs acceded to the WTO between 1995 and 1996 bringing into force the


AoA within these countries in the same period. In the Doha Round the SVEs group emerged,


with distinguishing characteristics from that of the wider developing country membership [see


Box 1]. The SVEs perceive that these particular characteristics are directly related to their state


of economic development which is in turn has been affected by the multilateral trading system


and its agreements, including the AoA. The SVEs Committee developed a list of trade-related


concerns, examples of which include:


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• Tariff peaks and tariff escalation affect small, vulnerable economies as they impede the


diversification and exportation of products with high value added.


• The agricultural and fisheries sectors in small, vulnerable economies play key roles in


the attainment of their economic development goals, in particular with regard to food


security, rural development, exports and employment. Therefore the volatility of


international prices for agricultural and fisheries products exported by small, vulnerable


economies constitutes an important factor of high vulnerability.


• The very limited participation of small, vulnerable economies in international trade


prevents them also from effectively defending their export interests in cases of


modification of schedules under Art. XXVIII of GATT 1994 and in the renegotiation of


tariff concessions, which under current arrangements recognize only substantial interest


defined narrowly.


• The high transaction costs, the isolation of island countries and the environment


surrounding land-locked countries, are basic problems for these small developing


economies.


• The WTO Agreement on Subsidies and Countervailing Measures contains provisions


resulting in the low cost incentives granted by the small, vulnerable economies, which


are essential for the development of export oriented industries, being unfairly treated as


prohibited subsidies. (WTO 2005)


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It is evident that Caribbean SVEs are small players within international markets, as both


importers and exporters. The composition of the resources has led to the creation of competitive


advantage in the production and trade of a limited range of goods and services. The major


trading partners of the Caribbean SVEs are the USA, Canada, European Union and CARICOM.


The Caribbean SVEs’ total exports have seen significant changes in the contribution to the


individual economies, with an increase of US$21,540 million from 2000-2008, as shown in


Figure 2.1. The total import bill was higher than the export revenues and increased by


US$33,033 million during the period. The difference in imports and exports i.e. the trade


balance of the Caribbean SVEs have typically worsen during the nine years, a continuing trend


from the 1970s with the depreciation of local currencies and the loss in major revenue earning


industries. According to COMTRADE data, the trade deficit of Cuba more than tripled during the


2000-2008 period. Other countries which faced similar trade deficits were Guyana, Jamaica and


the Dominican Republic. Twelve of the fourteen countries of the group have experienced an


increase in the value of total value of imports as exports have declined, i.e. with the exception of


Suriname and Trinidad and Tobago. These two countries had positive trade balances with


Suriname moving from -US$141 million in 2000 to US$380 million in 2008. Trinidad and Tobago


imports value increased by approximately 840%, a difference of US$8082 million between 2000


and 2008.


40


Box 1: Characteristics of Small, Vulnerable Economies
Source: WTO 2006


1. Physical isolation, geographical dispersal and distance from the main markets. Many are
Small Island or landlocked developing countries.


2. Insignificant participation in the multilateral trading system and a minimal share of total world
trade.


3. Small, fragmented and highly imperfect markets.
4. In general, very open economies.
5. Domestic markets with imperfect and highly polarized structures: either a multitude of small


and micro enterprises, or cartels/monopolies.
6. Minimal or no export diversification: concentration of exports on very few products (especially


commodities, traditional products and low value added goods).
7. Low supply of export services.
8. Dependent upon very few export markets.
9. Inadequate Infrastructure.
10. High degree of vulnerability.
11. Low competitiveness.
12. Low levels of productivity and insufficient supply.
13. Economic rigidity with high adjustment costs.
14. Unable to sustain diversified productions.
15. Considerable difficulties to attract foreign investment.
16. Lack of adequate market access opportunities to place their few export products.




Source: COMTRADE


Annex 1 of the Revised Draft Modalities for Agriculture of July 2008 defined a SVE as an


economy for which the average share of world agricultural trade did not exceed 0.40 percent in


the period 1999-2004. An examination of trade data for 2007 further supports this characteristic


revealing for agricultural imports a percentage share range of 0.004-0.19 percent. Similarly, the


SVEs also made a small contribution to world agricultural exports. Dominican Republic had the


highest percentage share for the group at 0.945 percent and St. Kitts and Nevis the lowest with


0.003 percent.


The general agricultural trade balance for the Caribbean SVEs has worsened from 2001-


2008, although there has been increased trade in agricultural imports and exports. Agricultural


exports are an important source of foreign exchange for the Caribbean SVEs. However, there


has been a decline over the years in their traditional exports such as bananas, citrus and sugar.


In 2001-2004, the trade gap between agricultural imports and exports was very small.


Agricultural imports were only valued at a slightly higher cost than agricultural exports. A


significant rise occurred in agricultural exports in 2005 where it peaked in 2006. Imports have


continued on an increasing trend.


As shown in Figure 2.2, the agricultural industries of the group are net-importers based


on the normalized trade balance indicator. Exceptions are seen in some countries where for


both periods Guyana recorded net-exports for agricultural products, Suriname in 2001 and


40




Belize and the Dominican Republic in 2008. The group combined achieved net-exporting status


in agricultural trade in 2008, a change from net-importing, which was in place in 2001.


Source: ITC


In the Caribbean SVEs, protection of the agricultural industries is mainly done through


the use of tariffs. In the Uruguay Round, the tariff lines for agricultural products were bound at


the ceiling level of 100% with some countries having exceptions, usually above this rate. For


example, Antigua and Barbuda has higher bound rates for beer, spirits, margarine and bananas.


The average bound rates for two countries, Cuba and Dominican Republic, were less than 40%,


much lower than the group’s average of 100% (see Table 2).


In terms of applied tariff rates, the Caribbean SVEs, with the exception of Cuba and the


Dominican Republic, as members of CARICOM apply the Common External Tariff (CET). As a


result, the applied tariff rates for agricultural products range between 0-40%, many being largely


subjected to a 40% tariff. Most of the rates are ad valorem with specific tariffs applied to a few


items. Fruit and vegetables; fish and fish products; animals and products thereof; tobacco;


beverages and spirits; coffee, tea, sugar and cocoa; and oils and fats are the agricultural


product categories subjected to the highest average rates. The lowest tariffs are applied to


agricultural products such as dairy products, and cut flowers and plants. Barbados is one of the


most highly protected Caribbean SVE. There are MFN tariffs of 40-236% on imports. For


example, tariffs of up to 200% are applied to imports of meat products and 155% to powdered


milk. Also products such as tomatoes, onions, beans, peppers, and lettuce have tariffs of


between 180-200%.


40




Table 2: Caribbean SVEs average MFN applied tariffs and bound rates for agricultural
products


Country Year Applied Rate (%) Bound Rate (%) Bound Coverage (%)


Antigua and Barbuda 2009 18.6 105.0 100.0
Barbados 2007 26.9 110.8 100.0
Belize 2008 17.0 101.1 100.0
Cuba 2009 15.2 37.3 100.0
Dominica 2007 21.1 112.2 100.0
Dominican Republic 2008 12.5 39.6 100.0
Grenada 2008 15.2 101.0 100.0
Guyana 2008 19.7 99.7 100.0
Jamaica 2006 18.1 97.2 100.0
St. Kitts and Nevis 2009 18.5 108.6 100.0
St. Lucia 2007 14.1 114.6 100.0
St. Vincent and the
Grenadines 2007 15.3 114.6 100.0


Suriname 2007 19.8 19.9 100.0
Trinidad and Tobago 2008 15.5 90.3 100.0
Source: World Bank


Tariff quotas are not used generally. However, in the case of the Dominican Republic, Barbados


and Trinidad and Tobago commitments were made in the Uruguay Round on tariff quotas. The


Dominican Republic maintains import tariff quotas on chicken meat, corn, dry beans, garlic,


onions, powdered milk, rice, and sugar. In Trinidad and Tobago, tariff quotas have been used


occasionally for sugar imports. Barbados no longer administers a tariff quota regime for


agricultural products, even though it has reserved the right for 36 products. In general, the


Caribbean SVEs are not eligible for the use of the SSG instrument of the AoA as they utilized


the ceiling binding option instead of tariffication. In 2002 Barbados invoked price-based special


safeguard actions for 23 agricultural products.


The domestic support measures notified to the WTO’s Committee on Agriculture can be


categorised as Green Box and developmental measures. The majority of the domestic support


provided by these governments are within the Green Box and exempted from reduction


commitments. In 1999, the Dominican Republic’s government expenditure for agricultural


measures amounted to RD$440 million and increased in 2007 to RD$1,820.5 million


(approximately US$55 million). Jamaica also notified its agricultural support services amounting


to US$9.3 million during 1999-2000 and US$13.9 million in 2002-2003. All support notified by


the Guyanese government fell under the Green Box and totalled G$2,656,125 in 2004.


40




Examples include general services such as current expenditure activities by the Crops and


Livestock Department of the MFCL, the National Agricultural Research Institute (NARI) and the


National Dairy Development Programme (NDDP). Trinidad and Tobago with its small


agricultural contribution provide support to farmers in the form of direct payments for mainly land


preparation, infrastructure and research. In the 1999-2004 period, the Government granted


payments totalling approximately TT$211 million (US$33.5 million) for price support and input


subsidies. Suriname was the only Caribbean SVE that provided no domestic support to


agricultural production based on its notifications to the WTO.


A review of WTO notifications by each of the Caribbean SVEs indicates that no export subsidies


have been applied to agricultural products.


40




PART III


Post-Uruguay Round Trends in Agricultural Trade Liberalization


The AOA was a significant step in the agricultural trade system reform process. The


volume of agricultural trade has expanded substantially in the years after the Uruguay Round.


However, analysts are unable to determine the percentage attributable to the Round. As stated


in the WTO special studies report on the Uruguay Round agreements, there has been a decline


in the share of traditional bulk agricultural products such as unprocessed tropical products,


cereals, oilseeds and cotton while that of high-value and processed goods have increased and


continue to do so. Empirical evidence reveals that total agricultural protection has increased in


the post-Uruguay Round period. The producer support estimate (PSE) is a measure calculated


by the OECD to estimate the level of protection offered to agricultural producers by OECD


countries. It is an aggregated measure including domestic support, tariffs, export subsidies and


other means of protection into a single value. According to latest 2009 report from the OECD,


agricultural protection has increased by 22 percent in the OECD countries, after the decline


experienced in 2004 (Figure 3.1). This is as a result of government support to farmers in


Canada, South Korea, Norway and Switzerland rising.


Source: OECD


40




Market Access


Tariff levels of agricultural products remains high and in particular cases, higher than


before the implementation of the AoA. Agricultural products have higher tariff protection than


non-agricultural products. There are high tariffs on temperate-zone food products and low rates


on tropical products (FAO 2000) as developed countries seek to protect domestic producers.


Global agricultural bound rates are also at high levels, averaging 55 percent during the period


2006-2009. Statistics on post-Uruguay Round bound tariffs show that for both developing


countries and developed countries have higher bound rates for agricultural products than on


industrial goods (see Table 3). Bound rates are usually exceeding applied tariff rates by a wide


margin, even though for developing countries, the applied tariffs are often below bound rates.


Many economists are of the opinion that the objective of the tariffication process for


transparency of border measures has not been actualized (de Gorter et al 2004). Developed


countries are seen as implementing complex tariff structures in which a high percentage of tariff


lines consist of non-ad valorem (specific, compound and mixed) tariffs; deteriorating the


transparency of tariff structures. Twenty five WTO members, both developed and developing,


have non-ad valorem bindings on more than 50 percent of their agricultural tariff lines.


Developing countries have higher transparency as they mainly have ad valorem tariffs.


Table 3: Average MFN Applied Tariffs and Bound Rates by Major Sector 2006/9
Applied Rate (%) Bound Rate (%)


All goods
Agricultural


goods


Industrial


goods
All goods


Agricultural


goods


Industrial


goods
Developing 10.3 14.5 9.9 44.6 61.0 33.4
Low Income 11.9 14.7 11.2 57.7 69.2 37.0
Middle


Income
9.5 14.5 9.2 37.4 56.4 31.4


High Income


non-OECD
7.4 8.4 6.9 26.0 38.1 23.8


High Income


OECD
3.7 10.7 2.8 7.7 18.8 6.1


World 9.5 13.6 9.1 39.5 54.9 30.1
Source: World Bank


Tariff peaks continue to be an issue of concern for market access in agricultural trade


even after the implementation period. Tariff peaks occur when higher tariffs are applied to


particular agricultural products, usually products of special domestic interest. A joint study in


2000 by UNCTAD/WTO showed that post-Uruguay Round tariff peaks in most cases exceeded


40




30 percent, largely ranging 350-900 percent. These peaks were concentrated in developed


countries in major food staples such as meat, cereal, milk, butter, cheese, sugar and cotton;


fruits, vegetables and fish; and processed food products. Another prevalent market access


barrier to agricultural products was a system in which tariffs increased according to the level of


processing, referred to as tariff escalation. Therefore, the average tariff applied to raw


commodities is lower compared to average tariffs on higher processes agricultural products.


Escalating tariffs are mainly seen in developed countries, although this feature can also be


found in some developing countries. Agricultural products widely affected by tariff escalations


include cocoa, coffee, fruits, soybeans, dairy and beef. According to de Gorter et al (2004), the


beef and chocolate industries are affected most frequently by tariff peaks, followed by dairy


products (milk and butter). In contrast, ‘de-escalating tariffs’ may occur when the higher tariffs


are accorded to raw agricultural materials, for example sugar.


The use of tariff rate quotas as allowed under the AoA has enhanced market access to


previously closed markets and increased access. It is noted however that tariff quotas have


been under-filled, recording declining trends over the years. WTO members with commitments


have only achieved two thirds utilization of the various tariff quota categories. Post-Uruguay


Round WTO notifications show that the special safeguard instrument has been used only in a


few instances. From the group of countries eligible to use SSGs, only ten have utilized the


option to date. Therefore, the modest use of special safeguards suggests that countries’


concerns regarding import surges for tariffied commodities were not warranted (OECD 2001).


Barbados is the only Caribbean SVE with SSG commitments.


Domestic Support


Empirical evidence post-Uruguay Round has lead to the conclusion that the aim of the


AOA domestic support provisions has been met. There has been the movement away from


trade-distorting measures towards minimal trade-distorting measures, i.e. Green Box support


has significantly increased in several WTO member countries. However, it must be noted that


domestic support is largely concentrated in a few countries. In the Uruguay Round 34 countries


made reduction commitments of which the US, Japan and the EU account for 90 percent of total


OECD domestic support (OECD 2001). This also reveals that domestic support is mainly


utilized by developed countries.


WTO notifications show that most of the domestic support provided by governments to


producers falls under the Green Box category. Therefore, post-Uruguay Green Box spending


40




has increased significantly in comparison to the other categories, with most of the expenditure


being directed towards domestic food aid. The largest increases were seen in Japan, the US


and the EU (Figure 3.2). The US notified Green Box payments of US$76.2 billion in 2007, an


amount of which domestic food aid accounted for over 70 percent. Green box domestic support


is relatively small in developing countries. A high portion of developing country domestic support


is concentrated in China, accounting for about 80 percent (ICTSD 2009).


Few countries have utilized Blue Box support after the Uruguay Round. Norway, Japan,


Slovenia, Iceland, the Slovak Republic, the US and the EU are the only WTO members that


have used such measures. UNCTAD’s 2003 analysis of the Blue Box provided evidence


showing that the EU had the largest portion of domestic support falling within this category,


averaging US$23.5 billion per year during 1995-1999. In 1995 the US support amounted to


US$7 billion and Norway averaged US$1 billion per year in the period 1995-2000. Japan


averaged US$611 million during 1998-1999 while the remaining three countries spent less than


US$25 million each, for 1995-2000. Of the seven countries previously mentioned, only five still


use Blue Box domestic support as the US has since reclassified as Green Box policies.


A major concern that arose during the Doha agricultural negotiations has been whether


or not all of the Green Box and Blue Box policies comply with the principle of ‘no or minimal


distortion to production and trade’. WTO members, especially developing county members,


have argued that these measures have trade distorting potential as they guarantee producers’


income and may lead to overproduction. The OECD is however of the opinion that ‘the total


amount of the payment as well as the detailed design and duration of a programme are critical


factors for determining the impact of policies on production and trade’ (OECD 2001).


Figure 3.2: Domestic Support by Categories for US, EU and Japan


4.1 US Domestic Support


40




4.2 EU Domestic Support


4.3 Japan Domestic Support


Source: ICTSD


Export Subsidies


40




The EU accounts for 90 percent of all export subsidies (Figure 3.3). The other important


OECD countries’ share of export subsidy expenditure was 4 percent (Switzerland), 2 percent


(Norway) and 1 percent (US), while the rest of the world accounted for 3 percent. The EU


provided export subsidies of an estimated value of US$16 billion for the period 2001-2005. Most


of the export subsidies are concentrated in a few agricultural products, dairy, wheat, coarse


grains, fruits and vegetables, sugar, beef, and rice (Figure 3.4).


Source: ERS/USDA


The AoA rules on export subsidies signified great achievements in the ‘substantial


progressive reductions in agricultural support and protection’. The utilization of export subsidies


fell during the implementation period, averaging US$6.2 billion in 1995-2000, below that of the


allowed aggregate level of approximately US$10 billion. This has been the result of the


reduction or removal of export subsidies and conversion into domestic support policies by


several of the countries eligible to use them. However, because the base year for the


commitment reductions was a period of high export subsidies and low world prices, the actual


annual expenditure was consistently below the target level. Also, due to ambiguities in the


Agreement such as ‘front-loading’ and ‘rollover’, countries were able to increase the appearance


of reductions in export subsidies. Front-loading describes a situation where countries used a


different base period, while rollover is one in which countries could transfer unused subsidy


commitments across years.


40




The Revised Draft Modalities for Agriculture, July 2008 has made provisions for the


elimination of export subsidies in agricultural trade by the end of 2013 by all WTO members


being entitled to such.


Source: ERS/USAD


PART IV


40




The Impact of Agriculture Trade Liberalization on Food Security in the Caribbean
SVEs


Commitments were made within the context of the WTO’s AoA that brought about


changes in the global agricultural trading regime, in turn affecting conditions within domestic


agricultural sectors. As stated by the Caribbean SVEs themselves, the agricultural sectors play


pivotal socio-economic roles in developing countries. ‘The importance of the agricultural sector


goes much beyond its economic contribution to the SVEs....fundamental social and non-


commercial policy objectives and concerns of the developing countries are linked to the


performance of the agricultural sector such as food security, rural development, poverty


reduction and livelihood security’ (WTO 2005a) The changes resulted in wider societal


consequences as well.


Food security takes into consideration the availability of food supplies, accessible, to be


efficiently utilized by the total population of a country, not being negatively affected by seasonal


or long-term conditions that impact on the stability of such supplies. Food security in Caribbean


SVEs was assessed using food balance data obtained from the FAO. A food balance sheet


presents a comprehensive picture of the pattern of a country’s food supply during a specified


period. The food balance sheet shows for each food item the sources of supply and its


utilization. (FAO 2003) Of importance to this research is the supply of food which is estimated


by production, imports, exports and stock changes, i.e. [production + (imports-exports) + stock


changes]. The supply of major food products such as cereals, starchy roots, sugars and


sweetners, meat and offals and milk has changed in the last two decades (see Table 4). During


the period, a general decline was experienced in three countries (Antigua and Barbuda, St. Kitts


and Nevis and St. Lucia) and six others had increases. A moderate decline or increase in the


food groups was seen for the remaining countries (Belize, Cuba, Dominican Republic and


Suriname). National food security remains an issue for concern for the Caribbean SVEs.


Table 4: Comparison of Per Capita Food Supply between 1992-1994 and 2003-2005 by
Major Food Items (kgs/person)


Country Food Items
Cereals Starchy Sugar and Meat and Milk (excluding


40




(excluding beer) Roots Sweetners Offals butter)
Antigua and Barbuda - - ↑ - -
Barbados ↑ ↑ ↑ - ↑
Belize ↑ - - ↑ -
Cuba ↑ ↑ - ↑ -
Dominica ↑ ↑ - ↑ ↑
Dominican Republic - ↑ - ↑ -
Guyana ↑ ↑ ↑ ↑ ↑
Jamaica ↑ - ↑ ↑ ↑
St. Kitts and Nevis - - - ↑ -
St. Lucia - - - - ↑
St. Vincent and the


Grenadines
↑ ↑ ↑ ↑ ↑


Suriname - - ↑ ↑ -
Trinidad and Tobago ↑ ↑ ↑ ↑ ↑


↑ increase - decline


Source: FAO


The relationship between agricultural trade liberalization and food security is one


consisting of positive and negative outcomes (Konandreas 2000; Beierle 2002) It has been


described as ‘complex’, with differing results depending on certain factors such as the trade


status of countries, i.e. net-exporters or net-importers, developed or developing; domestic


policies and multilateral trade commitments. ‘Trade contributes to food security in a number of


ways: it augments domestic supplies to meet domestic consumption needs; it reduces supply


variability, though not necessarily price instability; it fosters economic growth; it makes more


efficient use of world resources; and it permits global production to take place in those regions


most suited to it.’ (Konandreas 2000) Trade liberalization may change global trading structures


and trade patterns. The numerous stakeholders are also affected as it may cause adjustments


in the expenditure and revenue of governments, incomes of producers and purchasing power of


consumers.


Agricultural trade liberalization has long-term effects on the trade and production of


agricultural products by Caribbean SVEs. After the implementation period of the AoA, their


share in global agricultural trade has not increased as was forecasted. The agricultural trade


share of the group has essentially remained at levels seen in periods before the Agreement, not


experiencing any significant growth. The liberalization process led to large tariff cuts, the binding


of their tariffs at high levels and relatively low applied tariff rates. Consequently, Caribbean


SVEs are described as ‘small and highly open and liberalized economies’. The opening of their


40




markets has created a spill over effect of heightened competition from cheaper and higher


quality imports, providing increased variety for consumers.


A projected outcome for developing countries was the increased opportunity for agricultural


products to access markets that had had high restrictions or simply, new markets. The result of


this has been challenging for the Caribbean SVEs as they are limited by inefficiencies in the


agricultural sectors and the ability to transfer factors of production to gain competitive advantage


in certain products. The prevalence of higher tariffs on temperate products as compared to low


tariffs being applied to tropical products means increased market access for developing


countries. However, with the proliferation of non-tariff barriers, Caribbean SVEs producers are


faced with difficulties in accessing the markets of developed countries. Non-tariff barriers such


as technical regulations and standards are largely found in the group’s major trading partners,


the US and EU.


The AoA has further legitimized the use of certain measures making it possible to use ‘no or


minimal’ trade distorting tools to support the agricultural industries. Additional protection to the


domestic producers has been afforded through domestic support initiatives. Domestic support


enhances the production ability of farming units, for example, by providing farmers with input


subsidies through national, regional and international funding by organizations such as the


ministries of agriculture and the Caribbean Development Bank.


As previously highlighted, the Caribbean SVEs are net-importers of agricultural products.


Most have adopted food policies that are aimed at food self-reliance, with growing interest in


increasing domestic production to lower import dependence. They are also constrained by land


resources, natural disasters and other factors that impede their capacity to produce the required


amount for domestic consumption. This is where the world market as a source for food supplies


becomes a necessary option for Caribbean SVEs. The food import bill for the group amounted


to US$7.024 billion in 2008 and has continued on an increasing during 1995-2008. Only two


countries, Belize and Guyana showed positive food trade balances. The share of food imports


to agricultural imports is very high, totalling over 90 percent for the group. This food import


dependence influences the ability of agricultural exports to finance food imports, which refers to


the import capacity. As shown in Figure 4.1, it looks as if the Caribbean SVEs’ food import


capacity has declined in recent years, a drastic decline from that of the mid-1990s. Each of the


Caribbean SVEs domestic food supply consists of a high percentage share of imported goods.


Some of this food imports is accounted for by the tourism industry. Also, many of the much


smaller states such as the smaller island states of the Eastern Caribbean do not have the land


40




resource to fully support increased domestic production. Trinidad and Tobago imports a lot of its


manufacturing inputs.


Source: ITC


The stability of global production and trade has also been influenced by agricultural trade


liberalization. Production is transferred to countries with the competitive edge, a result of the


lowering of protection levels. It allows for the reduction in fluctuations in consumption patterns in


developing countries. However, dependence on world trade can inadvertently impact on the


stability of domestic food supplies. The world market has occasionally experienced interruptions


brought about by economic, socio-political and environmental events. An important example is


the effects of the recent food crisis of 2007-2008. Large exporting countries placed export


restrictions on cereal supplies in an attempt to ensure their domestic supplies. The food crisis


resulted in low cereal quantities available for trade and increased market prices. Figure 4.2


highlights the rise in the world market prices for wheat, maize, soybeans and rice for 2008.


Prices increased between 2007-2008 by 28% for wheat, 37% for maize, 43% for soybeans and


as high as 110% for rice. The AoA has provisions that protect members from the institution of


new export restrictions or prohibitions. Article 12 requires that a WTO member take into


consideration the effect of export restriction impositions on the food security of importing


countries. The members have to notify the Committee on Agriculture on the nature and duration


of such measures.


40




Source: IMF


Caribbean SVEs agricultural trade liberalization has further altered national export revenue


and price volatility. ‘Agricultural exports constitute one of the major sources of export earnings


for the SVEs, vital for financing infrastructure and other development needs. Export earnings


are also critical in the procurement of food from international markets’ (WTO 2005b) Food


security is therefore dependent on export performance. However, this has been affected by the


decline in agricultural export outputs (or exports in general) which reduces the group’s foreign


exchange earning capacity. The coverage ratio in Table 5 shows the capacity of exports to


finance imports for the period 2000-2008. Eight of the countries experienced a decline in export


capacity to over import purchases. The reduction in export revenue impacts on the ability to


finance food imports.


The AoA was expected to raise commodity prices in international markets, however, prices


especially for tropical commodities have remained or declined to low levels since the end of the


1990s. A significant decline has occurred in traditional agricultural exports such as banana,


sugar and citrus causing a decrease in contributions of these products to agricultural GDP. Low


tariffs on tropical products in developed countries, lowers the world market price for these goods


which reduces export earnings. It can be seen where there has also been the erosion of


preferences in the major trade partners of the Caribbean SVEs. Preferential arrangements are


not WTO-compliant as they go against its MFN (most-favoured nation) principle which calls for


equal treatment to be extended to all of its members. The Caribbean SVEs attempting to


improve agricultural performance, implemented diversification programmes largely to increase


40




processing of value-added products. Tariff escalation may cause difficulties in diversifying


agriculture as higher tariffs are placed on higher processed goods in developed countries.


Table 5: Coverage Ratio for the Caribbean SVEs, 2000 and 2008


Country 2000 2008
Antigua and Barbuda 6.8 26.7
Barbados 23.5 23.7
Belize 41.6 32.4
Cuba 36.2 25.8
Dominica 36.5 16.2
Dominican Republic 15.1 17.1
Grenada 31.7 8.0
Guyana 86.3 60.6
Jamaica 39.2 32.9
St. Kitts and Nevis 14.8 13.2
St. Lucia 13.2 22.1
St. Vincent and the Grenadines 33.8 13.9
Suriname 75.8 128.1
Trinidad and Tobago 129.2 194.3


Source: ITC, ECLAC


One notable benefit of trade liberalization is the lowering of primary agricultural


commodities prices within the global market. The use of domestic support and export subsidies


indirectly leads to the artificial depression of world commodity prices. These policies generally


have a negative global impact as the producers in the subsidizing countries gain while a loss is


incurred by producers in non-subsidizing countries and consumers and taxpayers of the


subsidizing. A resulting advantage is lower priced imports for consumers in importing countries.


It should be noted that concerns have been raised by the Caribbean SVEs that low price


imports and import surges, if not properly managed, can have deleterious effects in the small


and fragile agricultural sectors of the SVEs (WTO July 2005). In fact, sustained lower priced


imports have over time affected domestic markets, increasing producer loss as they are unable


to compete at such prices. This also undermines the incentive to invest in agriculture and


hinders the production of substitutes of wheat, dairy products, beef and other subsidized


commodities. In an attempt to reduce the negative impact of these low-priced imports,


governments have maintained instruments such as import licensing to curb import surges. The


high tariffs of the Caribbean SVEs, however, means higher prices to consumers as prices


increases for producers.


40




Conclusion


The typical view is that continued global conditions as it relates to climate, economics and


politics affect trade policies and will further degrade access to food, especially in the developing


countries. The study aimed to examine food security and the possible impact of trade policy,


notably the WTO Agreement on Agriculture on the accessibility and availability of food in the


40




Caribbean SVEs. As well as how the agreement may be manipulated (policy space) to benefit


the Caribbean.


Based on information provided through the research process, several phenomena are evident:


1. The objective of the AoA for a fair trading system with the removal of trade distortion and


protectionist measures was not fully realized with the implementation of the


commitments made by the WTO members. High protectionism remained in the large


producers of the developed world, for example the US, EU and Japan.


2. The expected gains from the agricultural trade liberalization process for developing


countries did not materialize as expected. Caribbean SVEs share in global agricultural


trade had not changed after the implementation period.


3. Protectionism has increased in the post-Uruguay Round period and more government


funds are being directed towards domestic support and export competition policies. This


has benefited producers in the subsidizing countries, limiting their risks. Export subsidies


are however trade-distorting tools that artificially suppress prices in the world market.


4. The Caribbean SVEs are open economies and this leads to the influx of cheap imports


resulting in changes in welfare; a loss for domestic producers while consumers


experience gains.


5. The reduction in traditional agricultural exports and tariff escalation in markets of interest


for the Caribbean SVEs have reduced export earnings in basic agricultural production


while high-valued manufactured goods are affected by a rise in non-tariff barriers, poses


a threat to diversification efforts.


6. The Caribbean SVEs are net-food importers which impinge on the ability of their exports


to finance import requirements. The coverage ratio and food import capacity indicators


highlights the growing import dependence in these countries.


7. Domestic prices are high in the Caribbean prices due to tariff (border) protection, seen


as important to the protection of local agriculture. They are also faced with annual price


volatility as global commodities undergo changes, for example, the 2007-2008 food


crisis increases the prices of basis food items (cereals and pulses).


40




8. There is evidence of an indirect correlation between the trade liberalization and food


security. Multilateral trade liberalization influences domestic trade policies in developed


and developing countries which in turn affects commodity prices, supply-demand


interactions and in part rural development.


In conclusion, it is evident that the objectives of the AoA have not been fully actualized 15 years


after its entry into force. The AoA is an instrument for development in Caribbean SVEs, relating


to issues of food security, rural development and poverty, however, it cannot be fully shown that


the food (in)security is attributable to the Agreement. The overall stability of the availability of


food supplies to the Caribbean SVEs maybe as a result of a number of factors other than


agricultural trade liberalization. These factors exist in the national socio-economic and political


environment and include inappropriate agricultural knowledge, technologies, and practices;


inadequate agricultural inputs; marketing and transportation systems which inhibit the effective


movement of food from producers to consumers; inappropriate economic policies; ineffective


private sector; and natural resource, climatic, and disease constraints.


Therefore, it must be suggested that in order to prevent the indirect impact of agricultural


trade liberalization on food security, a comprehensive approach to policy reform is necessary.


Caribbean SVEs should take into consideration all aspects of agricultural policy, i.e. on the


international, regional and national platforms, as well as changes not only within the agriculture


sector but the wider economy.


Firstly, to mitigate the impact of the economic and food crises, the governments need to


stimulate economic growth and encourage investment. The governments can garner benefits


from current bilateral trade agreements with larger economies to fuel the economy with


increased foreign capital and technical assistance. Incentives should be provided for companies


or individuals to invest in agriculture and its lagging industries, namely sugar, beef, dairy and


agro-processing. This investment should be directed towards increasing the capital capacity of


the industry and improve the technological capabilities of the producers, suppliers and other


stakeholders; thereby moving the focus solely from raw commodity production to value-adding


processes. This would in turn foster growth in these agricultural industries and in the short to


medium term improve economic conditions. Additionally, investments in other economic sectors


could be beneficial as well, acting as income sources for the financing of food import bills. This


may cause spinoff benefits to the wider economy into other areas such as distribution, and


marketing.


Secondly, the governments need to take advantage of free trade agreements and their


development opportunities. Most of the Caribbean SVEs, with the exception of Cuba, have


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signed the CARIFORUM-EC Economic Partnership Agreement (EPA). The EPA has as one of


its component the European Development Fund amounting to €165 million for which each


country has been allocated a specific amount. For example, approximately J$ 1.5 billion has


been allocated to the government of Jamaica to facilitate the ability to take advantage of the


EPA, such as in business development. This would require the employment of trade policy


consultants with specialization in project development to create project proposals based on


European Union requirements.


Another proposal is for the transformation of the agricultural industry and in turn the


manufacturing industry. Most of the agricultural products are for the export market while inputs


for manufacturing are mainly imported. It is therefore recommended that the Caribbean SVEs


improve the drive to reduce food imports through the use of import substitution initiatives and by


utilizing the provisions of the WTO agreements. This can be achieved by implementing sound


sanitary and phytosanitary measures that are not in opposition to WTO rules but limits the


amount of imports that are ‘dumped’ on domestic markets, especially from the much larger


countries. As a result, further reforms in technology, training and standards are needed in public


organisations such as the bureaus of standards and the customs divisions. In addition, food


import substitution may be encouraged by increasing regional production of starchy root crops,


aimed at imported cereal replacement.


Also, the continued deepening of the regional integration process, especially in terms of


a regional food policy seen through cooperation in the production, importation and distribution of


food supplies such as cereals. The combined sourcing of supplies can help reduce the cost


associated with transportation while improving the coordination of food reserves. In addition,


there has to be social and developmental aspects to mitigating the impact of the many


contributing factors to the food security situation in the Caribbean SVEs. Therefore, a


sustainable approach needs be taken so that solutions will be more long-term and preventative


instead of curative. Some of the possible solutions include targeting the society’s vulnerable


groups such as the elderly, pregnant mothers and the poor, for example through education on


the maintenance of a balanced diet.


Finally, the group need to take advantage of the ‘special products’ and SVEs flexibilities


allowed for through the draft text of December 2008. This should enable SVEs to protect


domestic producers and the selected ‘special products’. Also, continuing the drive for the


expansion of the eligibility to use Special Safeguard which can be fundamental in the curbing


the influx of import surges within the small economies of the Caribbean SVEs.


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