rnR,?fll I 11.113.4 , b Directions in Development 2 , r . # a . BRURALDEVELOPMENT T H E W O R L D B A N K Liberalizing Trade in Agriculture: Africa and the New WTO Development Agenda Project Paper Series #4 Prepared for the World Bank project "Agriculture and the WTO: Creating a System for Development." The project is supported by funding provided by; the Department for International Development, United Kingdom, the Bank-Netherlands Partnership Program, and the World Bank's Research Support Budget. Overview -Sub-Saharan Africa and the New WTO Trade Negotiations in Agriculture Merlinda D. Ingco, Dominique Njinkeu, Tonia Kandiero 1. Introduction The challenges facing Sub-Saharan Africa today include econon~ic stagnation, a widening disparity in international living standards, high international debt, HIVIAIDS and rural poverty. Out of the 1.2 billion world population that lived below $1 in 1998, approximately 24% were in Sub-Saharan Africa (World Bank, 2001). And of these, majority live in rural areas. This situation poses a serious concern not only for Sub-Saharan Africa but also for the international community. In this age of rapid globalization and liberalization, unfortunately, the share of Sub-Saharan Africa (SSA) countries in global agricultural export value declined significantly from 8.4 % in 1965 to 2.0% in 2000. Factors contributing to this marginalization remain open to discussion. Yeats, Amjadi, Reincke, and Ng (1997) arbwe that African countries' domestic polices led to the decline in the region's share of global exports. Hoeknian, Ng, and Olarreaga (2001) point to restrictive market acccss policies in developed countries as a source of Africa's niarginalization. Othcrs maintain that global demand for primary products (Africa's major agricultural export) has been considerably wcakcr than demand for high value-added agricultural products, thereby causing a decline in the region's share of world agricultural trade. Greater integration of the countries' economies into the world market could play an important role in the promotion of sustainable developnient and poverty alleviation in the region. For that to occur it is imperative that the sources of marginalization are idcntified. Full participation in the Doha Developnient Agenda has the potential to help Sub-Sahara Africa to resolve some of these challenges. The new trade negotiation in the World Trade Organization (WTO) offers a multilateral foruni for Africa to take advantage of a rules-based systeni for trade and development. Most African countries have acceded to the WTO, and the new round will offer opportunities and enormous challenges. New structures of the global trading system and governance can increase Africa's niarket access and clarify its rights in the international trading framework. But they also bring obligations, including giving up a degree of sovereignty over trade and investment. As a consequence of continued global trade liberalization, there will be a continuing erosion of the preferences cnjoycd by African countries. In the case of agriculture, trade preferences have the potential to be beneficial in the case where MFN tariffs are still exceedingly high. As Sub-Saharan Africa engages in the niultilateral negotiations, countries will incur large financial costs as they create the institutions and iniplenient the myriad standards demanded by the trading systeni. For some least developed countries, implenienting WTO obligations would cost as much as an cntire year's developnient budget. Finger and Schulcr (1999, p. 1) note that WTO obligations reflect little awareness of developnient problems and little appreciation of the capacities of the least developed countries. More fundamentally, it is not clear that all of these standards are idcal for thc lcast dcvcloped countries, and there is the ever-present danger that they will be used to protcct markets. The objective of this ovcrvicw paper is to provide some constructive perspectives and a framework to assist African countries as they preparc their agricultural agendas at the onset of this new round of WTO trade negotiations. African countries, indeed all developing countries, should seize this new opportunity to actively participate in the process of shaping a more integrated world economic environment. A more integrated world economy in which existing trade barriers are further reduced will provide increased opportunities for all countries to take advantagc of gains that growth in trade can provide. However, as countries navigate down the stream of globalization, both opportunities and challenges will emerge. Initially, as with all trade liberalization, there will be gainers and losers both among and within countries, among both consumers and producers. The challenges lie not merely in the identification of these groups ahead of time but also to design a multi-dimensional strategy for assisting potcntial gainers and losers alike. This involves shaping a policy agenda that covers the international trade negotiation tables and the domestic economic environment in both a prccmptivc and down the road manner. The rnulti- dimensional character of the emerging challenges is essentially borne out via this nexus of the transition period associatcd with the tradc liberalization process and the heterogeneous set of constraints that will be faced by heterogeneous groups both within and among countries. As ValdCs and McCalla (2000) pointed out here in Geneva, if policy makers understand this diversity, they better able to debate the consequences of specific types of liberalization and discuss possible complementary and mitigating measures. Within the context of the above framework this paper is structured as follows. Following the introduction, the papcr looks at the agricultural and food sector in Sub-Saharan Africa. This section identifies the heterogeneity of among African couiitries by disaggregating from a number of perspectives: income level; net trade position, both for food and all agricultural products; food trade dependence; size; and the degree of openness of thc agricultural sector. Third, the papcr looks at agricultural trade perforn~ancein Sub-Saharan Africa. The sub- sections present an overview of agricultural exports, export perforniance and competitiveness, and a discussion on efforts to promote intra-regional trade. It is cvident that Africa's share of global exports has declined in the last several decades. Therefore, it is imperative that in this era of globalization and liberalization Africa find ways to improve its cxport performance and competitiveness. WTO negotiations will be particularly helpful in this area. Further, it is evident intra regional trade is still very modest in Africa. Therefore, efforts toward regional trade in order to stimulate more trade and investinent are needed. The fourth section looks at Sub-Saharan Africa's own policies, focusing on market access and doniestic pricing policies. On the issue of market access in Sub-Saharan Africa, it is clear that Sub- Saharan Africa emerged from the URAA facing lower tariffs compared with other developing countries. The major drawback is that the region conlnlitted higher bound tariff rates. Regarding domestic policies and price incentives, African countries were exempted from WTO agreements on domestic issues for the time being. This gavc them an advantage ovcr many countries, at least in the short-terni. However, in the long tern1 Sub-Saharan Africa needs to work on its domestic policies and price incentives in order to improve competitiveness. In section five an overview of policies in the Quad countries, as the major markets for Sub- Saharan Africa, is discussed. Tlic objective is to asscss if the actions of Africa's trading partner have contributed to the marginalization. In addition, this section briefly discusscs the issue of preferential trade arrangements. Most of the countries in Sub-Saharan Africa have preferential trade arrangements with the OECD countries though the GSP, Lomi convention, or the recently established Africa Growth Opportunity Act (AGOA). Declining preference margins as a result of - reductions in tariff rates appear to pose a significant problem for Africa. With low tariffs, preferences will be eroded by the future of rnultilateral liberalization. Section six pays attention to the Africa's challenges, policy issues, and options in the new round. This section attempts to provide a perspective regarding a key questions: behind which proposals can certain African countries team up in the negotiations? While the interest of African countries on specific issues being considered by the WTO negotiations are not homogenous, there are enough similarities on some areas of interest which would define some common interest of many Sub-Saharan African countries in particular and in some cases possibly all developing countries. It is in the general interest of the latter to actively participate in a process that will contribute to: Better functioning international agricultural markets; Better access for their exports in foreign markets; Increased stability of world prices; Improved system for the resolution of trade disputes; Clearer guidelines for implementing Sanitary and Phytosanitary (SPS) measures; and Clearer rules regarding contingency measures (e.g., safeguards, countervailing duties, and antidumping provisions) to provide for transparency and to reduce the risk of these being used as thinly disguised protectionism. Domestic policies of industrial countries are also of vital interest to developing countries because they represent a large transfer of funds to agriculture which inipacts significantly on the pattern of global production. Being active participants in the WTO, its negotiations and implementation will also impose often significant costs for developing countries-in particular, full implementation of the WTO agreement rcprcsents a substantial financial and technical burden for most least developed countries. Thus, means to provide financial and technical support should be included in the overall process and these negotiations should give special considerations of the situations of the most vulnerable countries-many of whom are located in Sub-Saharan Africa-in particular the least developed food importing countries and low income countries heavily dependant on agricultural export revenues for their development process. Finally section 7 is the conclusion. 2. Agricultural and Food Sector in Sub-Saharan Africa 2.1 Assessing the Importance of the Agricultural Sector In the Sub-Saharan African region, 70% of the population is rural and the agricultural sector generates about 35% of GDP, employs 70% of the labor force, and accounts for 42 % of non- oil exports. Despite this obvious importance of the sector within Africa, the region accounts for less than 5% of global agricultural GDP and only between I% and 2 % of world agricultural trade. However. as becomes clear from Table 1, African countries are not a homogeneous group. This diversity is borne out via a taxonomy originally introduced by ValdCs and McCalla (2000). Table 1. Some Agricultural Sector Indicators for Sub-Saharan African Countries,(1994-98) Rural Labor Agricultural GDP Rural Population Force (% of total) (% of total) (%of total) 1998 Angola Benin Botswana Burkina Faso Burundi Cameroon Cape Verde Central African Republic Chad Comoros Congo, Dem. Rep. Congo, Rep. Cote d'Ivoire Equatorial Guinea Eritrea Ethiopia Gabon Gambia, The Ghana Guinea Kenya Lesotho Liberia Madagascar Malawi Mali Mauritania Mauritius Mozambique Namibia Niger Nigeria Rwanda Sao Tome and Principe Senegal Seychelles Sierra Leone Somalia South Africa Sudan Swaziland Tanzania Togo Uganda Zambia Zimbabwe 64 Source: World Development Indicators 200 1. 2.2 Net Importers and Exports of Agricultural and Food Products Of the 47 countries in Sub-Saharan Africa, those 27 countries that are Net Food Importers (NFIM) are also Net Agricultural In~porters(NAIM). Of those remaining 20 countries that are Net Agricultural Exporters (NAEX), half are NAIM and half are Net Food Exporters (NFEX) (see Appendix Table 1). Thus contrary to the often prevailing regional typology, about 40% of the Sub- Saharan African countries are actually net exporters. Table 2 hrther highlights the regional heterogeneity via an overview of the differences in terms of overall agricultural exports. The Food It1zpor.t Capacity (FIC)Index Foreign exchange availability is critical if a country is to be able to stabilize food consumption through imports. To what extent do food iiiiports burden the balance of trade, and by how much can the food import bill incrcase in ycars of unfavorable production andlor world prices, given fixed supplies of foreign exchange in any particular year? Table 2. Agricultural Exports of Selected Sub-Saharan African Countries* Countn, Aericultural Last Available Net Agricultural Net Food Trade Benin 1862 1998 NAEX NFIM Cameroon NAEX NFEX Cape Verde NAIM NFIM Central African Republic NAIM NFIM Congo, Republic NAIM NFIM Cote d'Ivolre NAEX NFEX Ethiopia NAEX NFIM Gabon NAIM NFIM Ghana NAEX NFEX Guinea NAIM NFIM Guinea-Bissau NAIM NFIM Madagascar NAEX NFEX Malawi NAEX NFIM Mali NAEX NFEX Mauritius NAEX NFEX Mozambique NAIM NFIM Niger NAIM NFIM Nigeria NAIM NFIM Senegal NAIM NFIM Seychelles NAIM NFIM South Africa NAEX NFEX Sudan NAEX NFEX Tanzania NAEX NFIM Togo NAEX NFIM Uganda NAEX NFlM Zanlbia NAIM NFIM Zimbabwe NAEX NFEX * We selected those for which COMTRADE data was available. The Agricultural "Tradeability (AT)Itrdex " As a crude indicator of these relationships, we computed the Food Import Capacity Index (FIC) which is defined as the ratio of the actual value of food imports to total export revenues (merchandize only) averaged for the period 1995-97. The FIC is used primarily as an indicator of the demand on foreign exchange needed to finance food imports. The FIC is presented for a Sub- Saharan African countries in Table 3. The ratio of food import value to total export value is generally high for Sub-Saharan African countries-almost half of them are characterized by a ratio greater than 0.25. Though obvious caveats apply given the crude nature of this indicator, high ratios in these countries suggests several might be vulnerable and could look for: (i) food and financial aid; (ii) attempts to protecting preferential access provisions in industrial countries; and (iii) assistance during the post-round agricultural liberalization adjustment and transition period. The ratio of trade to GDP is a standard indicator used to rank countries according to the openness-and 'vulnerability' to trade---of their economies. The same criteria can be used to look at a particular sector such as agriculture. In Table 3, we present the ratio of the sum of agricultural exports plus imports relative to agricultural GDP during 1995-97 for all Sub-Saharan African countries with available data, as an indicator to capture the extent to which the agricultural sector is directly affected by developments in world markets for agricultural products. For example, the very high AT value of 0.92 for Cote d'Ivoire, indicates that relative to agricultural income, trade in importables and exportables represents 92% of agricultural GDP. Table 3. The FIC and AT Indexes for Sub-Saharan African Countries Country AT index FIC index Country AT index FIC index Angola 0.78 0.08 Liberia nia 0.18 Benin Madagascar 0.21 0.22 Botswana Malawi 0.73 0.18 Burkina Faso Mali 0.33 0.15 Burundi Mauritania 0.75 0.28 Cameroon Mauritius 2.25 0.15 Cape Verde Mozambiquc 0.40 0.94 Central African Republic Namibia 0.92 0.08 Chad Niger 0.21 0.28 Comoros Nigeria 0.17 0.07 Co~igo,Dem. Rep. Rwanda 0.24 0.91 Congo, Rep. Sao Tome and Principe 1.06 1 .O 1 Cote d'Ivoire Senegal 0.60 0.42 Djibouti Seychelles 2.3 1 0.69 Equatorial Guinea Sierra Leone 0.42 1.28 Eritrea Somalia nia 0.39 Etiopia Sudan nia 0.38 Gabon Swaziland 2.31 0.09 Gambia Tanzania 0.25 0.21 Ghana Togo 0.35 0.22 Guinea Uganda 0.20 0.08 Guinea-Bissau Zambia 0.17 0.04 Kenva Zimbabwe 0.97 0.06 Lesotho 1.95 0.85 Source: Adapted from Valdes and McCalla (1999) Hence, this indicator reveals the extent to wliicli world market fluctuations can affect the agricultural GDP (e.g., agricultural income). In addition to the degree of openness, at least two related questions are fundamental. First, what is the extend of concentration in terms of trading partners? Second, what is the extend of concentration in terms of products traded? These issues will be addressed in the 'within' country perspective on possible heterogeneous groups. 3. Agricultural Trade Performance in Sub-Saharan Africa Sub-Saharan Africa's share of global agricultural exports accounted for 8.4 % in 1965. This share declined to approximately 2.0% in 1990and remained so until the year 2000 (Figure I). The discussion on the factors that have led to Africa's ~iiarginalizationin international trade has become an important topic. One aspect of tlie cause of Africa's marginalization is inappropriate domestic policies, which. in turn, reduced tlie region's ability to compete on the global market. This argument is supported by Yeats et al. In addition, protectionist policies in the OECD markets are the contributing factor to Africa's trade performance. According to Hoekman et. al, despite the low average most-favored nation (MFN) tariffs arid preferential tariff rates that the EU applies to Africa and other developing countries, tariffs for some products are over 100%. These peaks are mainly in conlmodities that are major exports for developing countries. The items include products, such as sugar, cereal, tobacco, vegetables, fish, and fruit. In addition, tlie tariff structure of EU presents significant tariff escalation, restrictitig access for more processed products. Tariff peaks and tariff escalation have a disproportional impact of export Africa and other developing countries. Complete duty quota free access for Africa and other developing countries in the EU and other Quad markets for tariff peak items would result in 11%($2.5 billion) increase in their total trade exports. Worse still, the Uruguay Round of multilateral trade inherently increased tariff dispersion as tariffication resulted in high duties on agricultural products that were previously restricted by quotas. Essentially, tariffs are more than three times the higher that MFN rates exist in the EU and other Quad markets (Hoekman and Koestecki, 200I). Apart from these hvo factors, demand factors on the world market cannot be ruled out as a factor contributing to Africa's poor export performance in the last few decades. The global demand for the primary products has been considerably slow. Therefore, Africa has experienced declining market shares for its major exports as well export earning (Figures I and 2). Figure 1. Sub-Sahan Africa's Share inWorld Agricultural Exports Source: Author's calculation usine data from UN Corntrade r-- Figure 2. Total Agricultural Export Earnings Sub-Saharan Africa - +USA --EU -World Source: Author's calculation using data from UN Co~ntrade The significant increase in export value was particularly evident since the early 1990s (Figure 2), with the set backs corresponding to periods of drought, prevalent particularly in the Southern African Region. As of 2000, 45% of Sub-Sahara Africa's exports were to the European Union (EU), 7% to the United Srates, 6% Japan , and I% Canada. In total, these four markets, also known as the Quad, accounted for 59% of total agricultural exports from Sub- Sahara Africa(Figure 3). Among these countries in the Quad, most of the major agricultural exports including cocoa, coffee. sugar, cotton, and tea went to the European Union followed by the United States (Appendix Figures 1, 2, 3, 4 and 5 ). More than 50% of cocoa and coffee from Sub-Saharan Africa reached the European Union . Major commodities from Sub-Saharan Africa also experienced a considerable decline in its market share of world agricultural exports. This is clearly shown in Table 4. Between 1970 and 1995, Sub-Saharan Africa's market share of cocoa and coffee declined by 26 % and 1 1 %, respectively. The large part of the decline has been attributed to both domestic and macroeconomic policies of Sub-Saharan Africa countries (World Bank, 1994). Between 1980-89 and 1990-95 the crops which gained the greatest percentage of world market share were tobacco (3.1%) and tea (3.2%) while cotton and sugar also realized gains of over 2 %. At the other extreme Sub-Saharan Africa 's cocoa, coffee and groundnuts continued to loose their share of the world market. Figure 3. Distribution of Sub-Saharan Africa Agricultural Exports by Market Canada Japan 1% 6% United States 7% The rest of the world 41% Euro~eanUnion Canada W Japan United States European Union .The rest of the world Table 4: Sub-Saharan Africa's Share of World Trade Levels Averages Annual Growth Rates Country 1970-1995(%) Bananas -4.1 Cocoa -2.3 Coffee -3.1 Cottoll -0.3 Groundnuts -13.8 Rubbcr -0.5 Sugar 1.3 Tea 1.1 Tobacco 7.1 1 12.1 1 7.9 9.1 12.3 2.0 Solrire: F A 0 n u d e statistics. These calculationexclude South Africa. Including South Africa reduces the last row percentagesto 62, 66, 60 for the consecutiveperiods The reversal of the downward trend for many crops is the result of world market conditions, inlproved macroeconomic policies and deregulation of many controlled domestic markets, all resulting in an improved conlpetitiveness for particular countries and crops in world trade. While significant progress has been made to realize comparative advantage and improve allocative efficiency in production, some remaining interventions continue to inhibit export growth for many crops in Sub-Saharan Africa. Table 5: Sub-Saharan Africa's Commodity Export Earnings as a Percentageof Total Agricultural Exports Crop 1970-79 1980-89 1 1990-95 Growth Kate % Bananas Cocoa Coffee Cottoll Groundnuts Rubber Sugar Tea Tobacco I I Source: FA0 Trade statistics. These calculationexclude South Africa. I~lcludingSouth Africa reduces the last row percentagesto 62,66, 60 for the consecutive periods The dominant crops exported from the continent are cocoa, coffee and cotton which account for about 50 % of Sub-Saharan Africa's agricultural exports. Since 1970 both Sub- Saharan Africa cocoa and coffee havc cxpcrienccd a declining share in their contribution to export revenue with an annual decline of -0.2 and -1.9 % per annum. Alternatively, cotton had a growing share, increasing from 8.6 % bctwcen 1980-89 to 11.8 O/o bctwcen 1990-95. The export share of groundnuts declined at almost 12 % per annunl. Comparing agriculture with other sectors in the last decade, the mining and manufacturing sectors dominated . In 1999, thc mining and manufacturing scctor accounted for $53 billion and $34 billion, respectively, while the value of agricultural exports was only $22 billion (Table 6). Much of the increase in mining and manufacturcd products is due to the rise in the mining and processing of precious stones, specifically, in South ~ f r i c a . ' ~ hgood news is that the share of e agricultural exports is increasing and there is room for improvement. Although agriculture export trade has the potential to increase in the next decade, the issues of product concentration and market distribution are of valid concern in the performance of agricultural trade in Africa. Most of the countries concentrate on one or few selccted products and over 50 % of the products enter markets in Western Europe. According to World Bank (2000), the issue of diversification has not received a great deal of attention for two particular reasons: first, considering the sizc of most of economies in Africa, it is rather difficult to have successful market diversification based on domestic markets; and second, low export receipts caused by lost trade shares for traditional products and low demand elasticity have created problems in the diversification process. Even though these challenged exist, Africa had the potential to achieve successful divcrsitication. I In 1999,South Africa was the leading exportcr and importer in Africa, accounting for 23.8 % and 20 O/u of total merchandize trade respectively (WTO, 2001). Table 6. Merchandise exports of Africa by major product group and main destination, 1999 (Billion dollars and percentage) Valuc Share Annual percentage change 1999 1990 1999 1990-99 1997 1998 1999 I. Mining products World 53.0 100.0 100.0 0 1 -27 17 Western Europe North America Asia 2. Manufactures World Wcstcm Europe Africa North America 3. Agricultural products World Western Europe Asia Africa 4. Total merchandise World Western Europe North Atnerica Ahia A Includes significant exports of unspecified products. Source: WTO 2001 3.1 Efforts to Diversify From the previous discussion, there is some evidence that Sub-Saharan countries need to divcrsify their conmlodities. Most of products supplied by the region have been affected by demand factors on the world market. Demand factors are considered as one of the major contributing factors to Africa's poor export performance in the last four decades. The global dcniand for primary products has been quite slow. Therefore, Sub-Saharan Africa has experienced declining market shares for its major exports. One coniponent to the answer to this probleni is simply for Sub-Saharan countries to diversify. Countries should focus commodities that are in demand on the growing world market and products that have the potential to perform well under adverse niarket conditions. Recent evidence in the performance of non-traditional exports, such as cut flowers, citrus fruit, cashews, anlong others, has been impressive. Between 1994 and 1998, the non-tradition exports in Uganda showed a growth rate of 70 % annually, accounting for 22 % of exports by 1998 (World Bank, 2000). Other success stories in diversification are Ghana, Cote d'Ivoire, Madagascar, and Mozambique. The advantage of non- traditional products is that, they have high income elasticity of demand, lower tariff rates in markets such as EU, higher potential for domestic niarket development, and therc is dcniand on the world market (Townsend, 1999). 3.2 Efforts to Promote Intra-Regional Trade in Africa Intra regional trade is still very modest in Africa. Howevcr, there have been efforts toward regional trade in order to stimulate more trade and investment. It is worth to note that over 85 % of Africa's exports enter markets outside the region. Intra-trade increased from 6 % in 1990 to 9.9 % in 1999 (Table 7). Table 7. Merchandise Exports for Africa by destination. 1990-99 (Billion dollars and percentage) Value Share Annual percentage change I999 1990 1999 1990- 1997 1998 1999 99 Western Europe 57.2 58.4 51.0 - I - I -I I I European Union (15) 54.5 53.0 48.6 0 - 1 -10 1 Korth America 16.7 15.4 14.9 1 6 -20 4 Asia Japan Other 12.1 4.8 10.8 10 22 -37 25 Intra-Africa 11.1 6.0 9.9 7 -2 -14 21 Lath America 3.4 1.5 3.0 9 1 1 -12 19 Middle East 1.7 1.5 1.5 I -6 -11 5 C.IE. EuropeiBaltic 1.1 2.3 1.2 -6 -19 -12 -3 StateslClS Inter-regional trade 95.8 87.0 85.4 I 3 -16 5 World 112.1 100.0 100.0 I 2 -16 9 Source. WTO (2001) Regional groups, for instance, Comnion Market for Eastern and Southern Africa (COMESA), Southern African Development Community (SADC), Economic Community of West African States (ECOWAS), West African Economic and Monetary Union (UEMOA), have made substantial efforts toward regionalism. Some of the reasons for the lag in regionalism are implementation lapses in the regionalism agenda, over-lapse in the regional groups (SADC and COMESA), lack of expertise, and fear of losing national sovereignty. In particular, the joint niembership of both SADC and COMESA is a major concern. Membership of both entities is likely to create problems for members duc to conflicting obligations. The existence of both entities, given different liberalization policies. (e.g, example tariff structures) and rules of origin, trade with joint members is bound to yield competing conditions. Nonetheless, successful regional coordination remains an important issue for export performance in Africa. Apart from trade creation, regionalism may be particularly effective in attracting investment in sectors such as manufacturing. 4. Sub-Saharan Africa's Own Policies One of the contributing factors to Sub-Saharan Africa's marginalization are ineffective domestic policies in the area of market access and pricing and incentive mechanisms. Studies show that Sub-Saharan Africa has carried out extensive unilateral reforms since the 1980s, but the region cornniitted to high bound tariffs in the URAA. Further, Sub-Saharan Africa, along with most developing countries, did not con~nutin the areas of domestic support and export competition. As a result, the continent did not capture the gains from the URAA. 4.1.2 Tariff Bindings Under URAA Tariffs fall under the market access pillar of the URAA. Market access, one of the three pillars of the Uruguay Round Agreement on Agriculture (URAA), is comprised of three elements: I) tariffication of non-tariff barriers (NTBs); 2) reduction of tariffs to reasonable Icvels; and 3) maintaining current access levels for individual products. Tariffication required member countries to convert NTBs into tariff equivalents during the base period 1986-88 for individual commodities covered by URAA. The average reduction of tariffs after tariffication of NTBs was set at 36% over a six year period for developed countries and 24% over 10 years for developing countries. In the case of maintaining access level, as deterniined by volunie of imports in the base period (1986- 88), it was agreed that the level was to be established at not less than 3% to 5% of domestic consumption during the base period. The implication is that a share of imports of a commodity which had been previously subject to NTBs would be allowed into the importing country at a low tariff rate. Conmitments in n~arkctaccess were also niade by binding tariffs at negotiated levels.' For African member countries that submitted schedulcs, all of their tariff lines in agriculture were bound. However, as shown in figure 3 and table 1 in the Appendix, many countries set their tariff bindings at prohibitive levels (100 to 300 %). Only a few countries bound their agricultural tariffs at levels less than 100 O/o. Tlie Congo bound its agricultural tariffs at 30%; the Central African Republic at 46%; and four of the five countries of the Southern African Customs Union (Botswana, Namibia, South Africa, and Swaziland) at 40%. Within the Southern African Customs Union, the bound agricultural tariffs for these four countries was reduced by an average of 43% over a six-year period. Figure 4. Applied and Bound Tariffs for a Selected Number of Sub- Saharan African Countries (percent) OAverage Tariff Binding (%) Average Applied Tariff Rates (%) This means that countries can apply tariffs at or below the bound maximum, but not raise them above the binding level unless it is renegotiated in GATT and compensation given to affected trading partners. However, thcse rcductions exclude a reduction in other duties and charges, which are generally included in applied tariffs. Although required by the URAA, only a few countries that are not in the group of leastdeveloped countries offered to make reductions from their ceiling bindings3 The tariff bindings include the customs duty and other duties and charges (ODC). However, the lcvels of ODC ratcs were not listed in the country schedules in the GATT. And not all African participants reported their ODC ratcs in their Uruguay Round schedules, although its application is particularly common in these c~untries.~In a number of countries with previous bound rates (e.g. Cote d'Ivoire), reduction commitmcnts in the UR were made on the previous bound duties, to which the ODC rates were then added. For example, in Cote d'Ivoire, a 7 % bound duty on fresh milk was reduced to 6 %, but a 200 % ODC was addcd to this tariff item. The end result is a substantial incrcase in bound rates on these products. The experience so far from implementation of Africa's Uruguay Round commitments indicates the following: First, high tariff bindings have affected the levcl of applied protection of agriculture in a number of African countries. The URAA has not resulted in "real" liberalization in African agriculture in the sense of reducing applied tariff rates. Although countries do not generally apply tariffs at their bound rates, the higher bindings do not impose any discipline nor require rationalization of protection in agriculture for African countries. Second, high tariff bindings have not imposed an effective constraint on policy reversals, although the bindings can providc a basis for future tariff reductions. In some African countries, a very high tariff binding has undermined thc market objectives of stability and transparency. In a number of countries, the applied ratcs within the bindings are dispersed. Hcnce, countries arc able to change applied tariffs within the margin provided by the bindings. Indeed, most of the maximum tariff ratcs arc too high to providc a meaningful cap on applicd tariff rates to improve the security of market access. Third, thc ways in which applied ratcs and other charges have been established and changed undermine the objective of tariffication to abolish non-tariff barriers and convert them into fixed tariffs. The use of ODCs as noted above is one example. In addition, countries are still charging tariff duties at varying levels within the margin of the binding. In some countrics, the applied rates are still linked to a domestic threshold or reference price. The applied duty is estimated as the difference bctween a given domestic price and a reference price as long as the duty charged docs not exceed the binding5 Thus, in practice, implenientation of tariffication has resultcd in a system with siniilar charactcristics as those evidenced by non-tariff barriers such as the variable levy or minimum price systems. While these types of arrangements are in principle not permitted under the Uruguay Round ~ ~ r e c n i e niniplementation appears to provide some t ~ , flcxibility as the pcace clause under the Agreement in Agriculture prevents any challenge to the use of these measures under the dispute settlement system for six years. 'Only least-developed countrics were exempt from cuts in bound ratcs. Thc lack of reduction commitments by African countries was accepted by their trading partners. 'According to the Understanding on Article 11:I (b) the O D C rates that are listed as part of the binding should reflect actual applied rates 011April 15, 1994.Failure to report O D C may under-state protection. 'This is also occurring in a number of industrial countries (e.g. European Union) and other developing countries (e.g.Latin American countries' price bands). The footnote in Article 11 states that variable levies, etc are forbidden. Also, the Ab~cementin Customs Valuation forbids the use of minimum price systems, except for developing countries that make a special resenration for it. 4.2 Pricing Policies and Incentives Agricultural prices remain a critical component of the production incentive provided to farmers in Sub-Saharan Africa. The price relationships faced by these agricultural producers are dependent on a complex nexus among the structures of the broader agricultural economy (marketing systems, transportation costs, infrastructure) and the macroecononiic environment (trade, exchange rates) in which agriculture operates. Several studies have examined these price relationships to assess the extent to which agriculture has been taxed or subsidized (Schiff and Valdes, 1992;Hemnan, 1997). Many policies have tended to tax agriculture excessively with farniers receiving producer prices lower than the world price equivalent, thereby inhibiting improvements in farm profit and welfare. The extent of these severe price distortions was highlighted by Schiff and Valdes (1992). According to their study, among developing all developing country regions Sub-Saharan African countries imposed the highest level of taxation (both explicit and implicit) on agriculture, ranging from 46-59 %. The direct tax on agriculture in these countries was similar to the level of the indirect tax, that is, agricultural pricing policies taxed agriculture about as niuch as the implicit tax resulting from industrial protection and macroecononiic policies. This differs markedly froni their findings in the other developing countries where the implicit tax was nearly three times that of the direct tax. Herrrnan (1997) conducted a similar study which focused on individual crops (coffee, wheat and rice) and found significant policy biases against agriculture, which were more excessive for export crops (coffee) than for food crops (rice and wheat). Nonetheless, favorable agricultural policies for food crops were often found to be offset by distorted macroeconomic policies with a resulting decline in the real producer price. Both of these studies used pre-1985 data which limits their use in identifying current distortions facing today's African farmers. During the most recent decade, there have been significant reforms in both macroeconomic and agricultural policies in most African countries which has alleviated the effects of some of these biased politics. Since the early 1980's many of these countries have pursued structural adjustment programs with macroecononiic, trade and sector reforms. The intended impact in the agricultural sector was to increase payoffs to smallliolder famiers primarily through an expansion in the production of export crops, thereby accelerating rural growth and poverty reduction. Some of these refomis are detailed in the 1994 World Bank study - Adjzrstrl~entin Africa - which documents the changes in real producer prices for export crops during the1980's. Of the twenty seven countries analyzed, ten countries experienced an increase in real producer prices of export crops, with an average increase of 25%, while seventeen experienced a decline in the real producer price of exports, with an average decline of 28 %. The explanation provided for these large declines was the fall in world prices, coupled with countries' inability to reduce both explicit and implicit taxation sirnultancously, thus the benefits of the reduction in one was normally eroded by the losses from the increase in the other. 4.2.1 Indicators of Price Distortions Research has shown that countries have pursued tradc-distorting agricultural policies for many decades. Protection can be measured using Aggregate Measures of Protection, Nominal Protection (NP), Effective Protection (EP), or decomposing prices into changes in the international price, changes in the nominal protection rate and changes in real exchange rate (Valdes, 1996 and Elbadawi, 1998)'' The main objective of this section is to assess protection in terms of the level of taxation or subsidization of commodities. Essentially, these indicators measuring the extent of protection can be viewed as incentive indicators. This section presents an analysis of the extent of protection in Sub-Saharan after the implementation of the URAA. The discussion will focus on Cameroon, Ghana, and Tanzania. This section is divided into two. First, the discussion looks at different measures of protection. The discussion will center around Nominal Protection (NP) and Effective Protection (EP), and decomposing price into price changes. Second, the discussion will assess the extent of protection in a selected countries in Sub-Saharan Africa using some of the measures presented in the first section. Noltrinal Protection (NP) Nominal protection is regarded as the simplest nieasure of protection. Nominal protection of a product is a simple estimate of the extent to which the price of the particular product has been affected by government intervention. One of the notable flaws with this measure is that it does not control for variations in input priccs. Nominal protection is gcncrally measured as the Nominal Protection Coefficient (NPC) of a product. This measure is defined as the ratio of the product's donicstic price to its international price (Pursell and Gupta, 1998). In simple notations, NPC can be expressed as (2) NPC = P,j/P, where Pd is the doniestic price of the comniodity at the farm gate and P, is the world reference price of what the producer would fetch under the free tradc at the same exchange rate. If NPC > I, then the product is protected. If NPC <1, then the product is disprotected or in effect taxed. For large countries like India, the weighted averages of the state NPCs is calculated to represent average for all India's NPCs. The average NPC is expressed as where (4) ~s = PrsQs Cs PrsQs 7 Aggregate measures of support capture the impact of different types of government programs and intervention in one figure. Aggregatc support measures are is considered better than NPR or EPR since these only capture a small part of the transfers between the government and the producers of agriculture commodities. Nominal Protection Rate (NPR)= NPC - I Effective Protection Rate (EPR) = EPC - 1 and P,, is the world reference price for the state, Q, is the crop production of the state, NPC, is the nominal protection coefficient of the state for the crop, NPC, is the weighted average nominal protection coefficient for the crop, and s represents the states included in the average. Effective Protectiori Effective protection of a product measures the extent to which the margin between the selling price and the cost tradable inputs on the international market has widened or narrowed. This is achieved by combining the effect of protection of the commodity and the protection of tradable inputs. In this discussion, effective protection is measured by effective protection coefficient (EPC), which is defined as the ratio of valued added at domestic prices to the estimated value added at world reference prices ((Purscll and Gupta, 1998). In simple terms, EPC is expressed as (6) EPC = VAdVA, Where VAdis the value added at domestic prices and VA, are world reference price. EPC is more superior indicators of incentives to producers than NPC since they take into account the effects of the protection of the inputs traded internationally as well the protection pfa product itself. EPC > 1, then the protection is positive EPC < 1, then protection is negative EPC = 1, the effective protection is zero Likc in the case of NPC, the weighted avcrage of the state level indicators can be measured using total value added at world reference prices in each state as weights. Decortrposirig Agricult~tralPrices A comnlon approach taken to assess the level of taxation or subsidization is to decomposed prices into changes in the international price, changes in the nominal protection rate and changes in the real exchange rate (Valdes, 1996). Most of these studies focus on the evolution of where P,, is the nominal pricc of agricultural good i at timc t, measured in domestic currency and CPI,is the consumer price index at time t.Pi,can be furthcr expressed as where P*,is the corresponding border price the country faces (c.i.f. for importables and fob for exportables) measured in foreign currency (US dollars). E, is the nominal exchange rate (measured in units of domestic currency per US$) at time t. y,, meant to be a 'mark-up' factor including transport costs and eon~petitiveprofit margins to make the border price comparable with thc donlestic price. t,, is the residual after the mark-up and is meant to be the nominal protection rate. Alternatively froni equation (7)pi, can be expressed as where CPI'; is the general level of the foreign prices at time t (US CPI). The first expression in brackets is the nominal protection coefficient (NPC). It is a measure of direct price incentives resulting from sector policies. The second expression in brackets is the international terms of trade of the product (TOT). The final expression in brackets is the real exchange rate and captures the effect of economy-wide policies on agricultural prices (RER). The direct and indirect incentives (NPC) is given by (NPC).(RER). It measures the effect of both the sector and economy-wide policies. The total effect on price incentives is the combination of the policy-induced incentives and the terms of trade movements. Using equation (7) and (8) this can be expressed as where RER denotes the real exchange rate, defined as the ratio of international domestic prices. Equation (lo) can be rearranged as Pit ( 1 1) * = (1 +Yjf Kl+ tit) p ir RER, The right hand side of this expression corresponds to a hypothetical transport cost and competitive margin profit, explicit export and import tariffs, iniplicit inlport and export tariffs resulting from inefficiencies arising from the operations of the different parastatals involved in marketing. Nominal and Effective Protection in Cameroon Canieroon adopted protectionist policies froni 1960 to 1988, with the goal to protect the domestic infant industries from foreign competition. During this period, several policies were in place: import and export taxes were widespread; state-owned corporation indirectly managed producer prices, particularly coffee, cocoa, and cotton; the government directly intervened through laws, to keep prices stable by defining reference prices and maximum margins per product and per product dealer; and government assisted farmers by subsidizing agricultural inputs. However, since 1989, Cameroon started trade liberalization. Import taxes and export taxes were reduced, price controls were gradually removed, marketing boards were restructured and the private sector was left to set producer prices. In addition to these sector policies, the devaluation policies in the 1990s also assured bettcr prices to producers. These ncw policies affected the agricultural structure and level of protection significantly. The impact of trade liberalization is thus measured by nominal rate of protection (NRP) and effective rate of protection (ERP). Tables 9 and 10 present protection rates in Can~eroon.Table 9 shows relative low protection rates in the entire agricultural sector. The NPR for the entire agricultural scctor was 10.5% in 1989190 and 10.9 in 1996197. Nominal protection was the largest in 1994, amounting to 20%. Nguidjol (1998) reports that the agricultural sector is less protectcd comparcd with most industrialized sub-sectors in Can~eroon.Protcction in industrialized sub-sectors was in the range between 50% to 70 % in 1989190. Although the overall agricultural sector has low protcction, agricultural and fishing sub-scctors protection was high between 1992 and 1994.The intense trade liberalization policy after has been the main contribution factor of low protection in the agricultural sector. Table 9. Nominal Rate of Protection (NRP) in Cameroon Sub-sector 1989190 1992193 1993194 1994195 1995196 1996197 Subsistence agricultural 13.3 17.5 15.6 18.9 10.1 10.2 perennial Agricultural 4.1 74.0 73.8 26.0 18.4 19.9 Hunting breeding 7.2 12.9 12.9 12.9 14.8 .... Forestry 7.5 9.7 13.8 23.4 22.2 23.8 Fishing 9.7 107.7 92.9 29.1 9.1 47.5 Entire agricultural sector 10.5 17.0 12.9 20.0 10.6 10.9 Source: Bamou, Njinkeu, and Douya (1999) Table 10. Effective Rate of Protection (NRP) in Cameroon Sub-sector 1989190 1992193 1993194 1994195 1995196 1996197 Subsistence agricultural 13.4 17.5 15.2 19.1 10.0 10.2 perennial Agricultural Hunting breeding Forestry Fishing - Entire agricultural sector 6.2 19.0 12.4 24.5 9.7 22.2 Source: Bamou, Njinkeu, and Douya (1999). Nominal Rates of Protection in Ghana Table 11 presents nominal protection estimates for cocoa, maize, and rice. The choice of crops were based of data availability. The data indicate negative NRP for cocoa during the period 1990- 97. This implies that the producer price of cocoa was below the world price. This anti-export bias was directly through export taxes and indirectly through the impact that import tariffs have on relative prices (Clements and Sjaastad, 1984). It has been estimated that in Ghana approximately 73-85% of import taxes is shifted to the export sector through the relative price changes (Jebuni et al., 1992). Thus with the decline in average taxes on imports since 1990 has come a decline in the taxation of the export sector. With the exception of 1991, the real exchange rate depreciated each year in 1990 and 1995. In 1996 and 1997, the higher nominal protection due to direct and indirect effects could perhaps indicate that the appreciation contributed to taxation of the cocoa. On the positive side. in~proven~entin the ternls of trade between 1995 and 1997 by 13% had an offsetting impact on the appreciating real exchange rate on cocoa. The NRPs for niaize were negative between 1995 and 1997. This implies that the niaize sector was also negatively taxed. The negative estimated are attributed to the substantial increase in the wholesale price for maize in the same period (Aduro, 1999). Table 1I. Agriculture Price Incentives for Selected Crops in Ghana Year NRP Direct Price Effect NRP Direct and Indirect Price NRP Direct, Indirect and T e m ~ Effects of Trade Effects Cocoa 1990 -0.54 -0.62 -0.54 1991 -0.5 1 -0.62 -0.55 1992 -0.54 -0.61 -0.57 1993 -0.70 -0.69 -0.75 1994 -0.58 -0.49 -0.60 1995 -0.61 -0.61 -0.61 1996 -0.57 -0.59 -0.56 1997 -0.53 -0.56 -0.50 Maize 1995 -0.87 -0.87 -0.87 1996 -0.82 -0.83 -0.88 1997 -0.46 -0.49 -0.82 Rice 1995 1.13 1.13 1.13 1996 0.08 0.03 1.10 1997 0.13 0.05 I .09 Source:(Aduro, 1999) Unlike cocoa and maizc, ricc had positive NRP during 1995-97. The price of local rice stayed higher than the boarder price. High positive NPRs in 1995 could be explained by the import and sales tax policies in that year (ibid.). The conibined effect of direct and indirect effccts reduced the incentives for rice aftcr 1995. On the other hand, the iniprovement in terms of trade compensated for the erosion in NPR. Nominal Protection in Tanzania This section looks at nominal protection in Tanzania since the URAA. Although Table12 presents positive protection rates, in most cases the numbers are very low. This implies that the key products in Tanzania are subsidies than taxed. More specifically, the domestic producer prices are above the word prices. This also entails that there has been progress in domestic policies in Tanzania after the URAA. Vegetable preparations and coffee have the highest protection rates of 1.95 and 0.69, respectively. Tanzania has adopted policies that offer incentives to farniers. Some of these incentives include offering tariff concessions and abolishing the marketing boards from the role of sctting prices. From this general overview, the low protection rates indicate that Tanzania still needs sonie work in the area of domestic policy and price incentives. Table 12. Nominal Protection in Tanzania in Key Products since URAA Chapter Description Total Nominal Protection (Addition of all trade taxes) 1995 1996 1997 1998 1999 I live animals 2 meat & edible meat offal 3 fish & crustacean,molluscs & other aquatic dairy prod;birdsleggs;natural honey products of animal origin, nes or included live tree & other plant; bulb,root,cutflower edible vegetables and certain roots and tubers edible fruit and nuts; peel of citrus or melons coffee,tea.mate and spices cereals prod mill indust;starches;insulin;wheat gluten oil seed,oleagi hits;miscell grain,seed.fruit lac;guins,resins and other vegetable saps and extras vegetable plaiting rnateria1s;veetableproducts nes aniinal/veg fats& oil & their cleavage products prep of ~neat,fishor crustaceans,~noll~~scs sugars and sugar confectionery 18 cocoa and cocoa preparations 19 prep of cereal,flour,starcldiniIk;pastrycooks'prod 20 prep of vegetable,fruit,iiuts or other parts of lants 21 miscellaneous edible preparations 23 residuals & waste from the food indust; prep ani tobacco and manufactured tobbaco substitutes fertilizers essential oils & resinods: perf,cosmeticitoilet prep raw hides and skins (other than furskins) and leather furskins and artificial fur ;manufactured thereof wood and articles of wood; wood charcoal cork and articles of cork manufactured os straw,esparto/other plaiting 47 pulp of woodlof other fibrous cellulosic mat;waste 48 paper & paperboard; art of paper 50 Average Source: Musonda (2001) Nominal Protection Rates in Kenya Table 13 demonstratcs how price changcs havc affected the inccntives to producers in Kenya. This is explained by using nominal protection rates (NPR) for six major products, wheat, maize, rice, coffee, tea, and sugar. Wheat and maize are Kcnya's main imports. After 1993, the domestic price of wheat was highcr than the world price, with 1994 having the highest NPR of 108%. The price of maize remained below the world pricc until 1993, but showed some favorable signs in 1994 (I 1%) and 1997 (14%). The positive NPRs gave the fam~ersthe incentive to increase production. The NPRs for rice stayed negative from 1990 to 1998, although there were signs of improvement in the later years. In Kenya, the government generally, has a role in keeping the producer price higher than the world price, with the intention to boost production. This is achieved through the involvement of the National Cereal Produce Board (NCPB) in the marketing and to impose high tariffs in order to maintain high domestic prices. The tariffs on food imports such maize and wheat, are used as a tool to restrict imports when domestic supply is high and encourage them when domestic production is low. Table 13.Nominal Protection Rates in Kenya Year Wheat Maize kce Coffee Tea Sugar 1990 9 -25 -36 -6 -7 -47 1991 22 -24 -45 -13 -12 -66 1992 -14 -22 -8 -21 -49 -63 1993 -52 -3 1 -33 -2 1 -7 -42 1994 108 1 1 -6 - 1 2 -9 -63 1995 27 -1 1 -49 -2 -18 -51 1996 7 -2 -50 -2 -9 -39 1997 55 14 -3 1 -12 -36 1998 43 -16 -7 1 6 -22 Source: Adapted from (Nyangito,2001 ) Thc main exports, tea and coffce, had negative NPRs for the majority of the years in the 1990s,but there were some improvements in 1998.The NPRs for tea increased froni -12% in 1997 to 6% in 1998. The set-back on incentives to farmers in the earlier years was greatly caused by taxes on exports and deductions by marketing boards on these products. The producer price of sugar remained below the export price. The main cause was due to poor marketing arrangements, which translated into high service charges to the farniers, greatly reducing the produccr price. 4.3 Estimates of Price Border Wedges Due to the poor quality of data on transportation costs and marketing margins, the approach taken in this papcr is to s~rnplycstiniatc the producer's share of the bordcr price, which is deternlined for several crops and countries and summarized in Table 14 and figure 5. Policies that influence the changing produccr share includc policics cffecting activities such as transportation, marketing, pricing, distribution and storage. The distribution of the producer's share of the f.0.b. price in Sub-Saharan Africa shows niost farnicrs reccive shares between 40 % and 69 % of the f.0.b. price. This contrast indicates large differences in the cost of moving the product froni the fann gate to the port. The question remains as to whether these high costs are justified (crop or country specific) or whether they can be rcduced by removing distortionary policies and improving market efficiency. A disaggregation to the crop lcvel will be used for a closer examination of this question. As cocoa, cotton and coffee account for over 50 % of agricultural exports from Africa they will be examined further. Table 14: Price Shares for Export Crops. Producers Share of f.0.b. Price (percent) Benin Cotton 37 Burkina Faso Cotton 35 Cameroon Cocoa 76 Coffee 73 Cotton 51 Chad Cotton 36 Cocoa 46 Coffee 62 Cotton 47 Ghana Cocoa 39 Guinea Cocoa 68 Kenva Coffee 73 Tea 53 Mada,"ascar Coffee 70 Vanilla 33 Malawi Tobacco 60 Mali Cotton 44 Mauritius Suear 94 Moza~nbiaue Cotton 64 Cashew 5 1 Nieeria Cocoa 98 Rubber 100 Seneeal Cotton 47 Groundnuts 51 South Africa Maize 93 Oranges 50 A D D ~ 93 Suear 92 Wool 89 Tanzania Coffee 77 Cotton 64 Tea 58 Cashew 71 The Gambia Groundnuts 60 Cotton 39 Uzanda 72 ::Labwe CoffeeTobacco 79 Cotton I 88 So~rrce:Townsend (1998), World Bank and IMF data < 3 D 3 0 - 3 9 4 0 - 4 9 5 0 - 5 9 6 0 - 6 9 7 0 - 7 9 8 0 - 8 9 2 9 0 C l a s s o f Producer's Share o f B o r d e r Price Figure 5. Distribution of Producer's Share of f.0.b. Price in Sub-Saharan African countries for Export Crops Factors explaining these price wedges Townsend (1998) uses an econometric approach to explain cross country differences in producers' share of border prices. His results suggest that if agricultural and rnacroeconomic policies are improved, road density increased, road quality improved, more credit made available and larger crop volun~esare traded then producers will receive a higher share of the border price. According to his study, controlled marketing systems continue to distort market price signals in many countries. Three existing marketing systems can be identified in Sub-Saharan Africa, i) the free market system, ii) the Caisse de Stabilisation and iii) Marketing Boards. Under the latter two systems with interventions in physical handling, price setting, taxation and marketing costs, farmers receive a lower share of the producer. Exchange rate pass-through to producer prices has also been inhibited in these two systcms. The free market system has rcsultcd in substantially higher prices for fam~ersand lower fiscal costs. Thc overall n~acroeconoi~~icpolicy stance in African countries has improved significantly between 1990191 and 1995196'. Some countries, however, continued to experience a high level of instability in their policies. Fiscal policies have shown a significant improvement since 1990-91. Monetary Policy has focused primarily on maintaining low rates of inflation and adequate levels of real interest rates with more countries being successful at achieving these objectives than their fiscal targets. There has, howevcr, been a slight deterioration in monetary policy between 1990 and 199511996, This may be due to the inflationary pressure from significant currency devaluation. Exchange rate policy has improved substantially bctwccn 1990-91 and 1995-96 with most of the countrics analyzed having low parallel market exchange premiums. * The overall macroecono~nicpolicy stance is calculated in the same way as the Adjustment in Africa Study, updated with 1996197data. Rural infrastructure also plays a significant role in producer price determination. Evidence suggcsts that it is not only the lack of roads that increases the producer price bordcr price ratio, but also the quality of these roads. Feeder roads in rural areas remain scarce and are in poor condition in most sub-Saharan African countries. Transportation is a particular problem for landlocked countries with large distances between the coastal prices and the border prices. The volume of credit extended to the private sector as well as the real interest rate have also had a significant effect on private sector activities and indirectly on the producer price margin.. Development of efficient markets requires volume and consistency in supply. Indeed, private sector entry into storage, transportation and marketing of agricultural products requires sonie assurance of supply to induce investment. This aggregatc analysis paints an intcrcsting picture of sonie of the key factors determining the size of the producer price border price differential. A supplenientary review of cocoa, coffee and cotton is provided below. Coffee: There appears less cross country differences in the coffee producer's share of the border price. Producers Uganda and Tanzania operate in a free niarket system while producer in Cote d'lvoire have a marketing board system. These contrasting systeni arc reflected in the differing shares. The share coffee producer get in other developing countries is comparable to those derived in Uganda and Tanzania (figure 6). Cotton: The Zinibabwc cotton niarket has recently been liberalized resulting in a large increase in the producers share of the f.0.b. price. A free niarket also exists in for cotton producers in Tanzania and producers in both of these countries dcrived comparable shares as those enjoyed in other developing countries. Marketing boards dominate in the West African cotton producing countries which provides a low share of the producer price to fanners (figure 7). Cocoa: Three systcnis of niarketing dominate cocoa in Sub-Saharan Africa. Producers is Ghana, under a marketing board system with high implicit taxation, rcceive a low share of the border price. At a siniilar level arc producers in Cote d'Ivoire whcre cocoa is marketed under the Caisse de Stabilisatio/~. Producers under free niarkets typically receive a lower tax and a high share, as in the case of Nigeria and Canieroon which are coniparable to non-Sub-Saharan Africa cocoa producing countries (figure 8). C o f f e e P r o d u c e r ' s S h a r e o f f . 0 . b . P r i c e , 1 9 9 5 1 2 0 r - . - 2 0 ' .... B , p d ~ l . * s A , " a " " ' . , ' C.,"rn!,,. T a n i a n , . U g a n d a c a m n M - d l g 4 x,n*. C Q , . d , " " , . . o e , ~ o n . n g c o " n I < l c a S S A C O U n l l l e r P r o d u c e r s S h a r e o l f o b . P r l c e I%e1990 C h a n g e in t h e P r o d u c e r s S h a r e s n n c --.Average Producer's Share. Non-SSA countroes Figure 6: Coffee producer's share of the f.0.b. price C o t t o n P r o d u c e r ' s S h a r e o f f . 0 . b P r i c e . 1 9 9 7 1 0 0 r- P r o d u c e r ' s S h a r e o f f . 0 . b P r i c e CZZl% C h a n g e in t h e P r o d u c e r s S h a r e s i n c e 1 9 9 0 ---Average Producer's Share, N on-S SA countries Figure 7: Cotton Producer's Share of the f.0.b. Price C o c o a P r o d u c e r ' s S h a r e o f f . 0 . b P r i c e , 1 9 9 5 I U - 2 0 I Malaysia Indonesia B r a z l l N l g e r l a C a m e r o o n G h a n l Cole P r o d u c e r s S h a r e o f f . 0 . b P r ~ c e [=7% hange in the Producers C S h a r e s i n c e 1 9 9 0 - - - Average Producers S h a r e , N o n - S S A countries Figure 8: Cocoa Producer's Share of thc f.0.b. Price Table 15: Marketing Systems for Cocoa in Sub-Saharan Africa 1 1 1 ( Functions IFree Market System Caisse de Marketing Board Taxation (Abscnt or Explicit ( Explicit ( Implicit % of export price. 1995 Marketing Costs and Indor~csia 22 Cote Gltatla 49 Taxation Mala~.sia 9 d'h7oir.e 53 B a i l 28 Carner.0017 25 Nigeria 3 Producer Prices Medium to low Low SOIIITC:Adapted,fi.ol~tSch~.eibe~.and Varaganis(1998) The Marketing Board Systeni is characterized by the existence of a parastatal with the monopoly for internal and external marketing. Pan-territorial and pan-seasonal prices are set by the boards, or a higher governmental authority. The Caisse de Stabilisatiotz is similar, with prices being administratively determined. The purchasing and selling prices at each stage of internal coiimiercialization and exports is fixed for the crop year. Significant progress has been made to remove policy distortions in Sub-Saharan Africa agriculture which has induced agricultural growth through an improvenient in allocative efficiency and a move towards realizing coniparative advantage. Several distortions remain, the removal of which could provide further growth. While tariffs remain high on the WTO agenda, having inhibited export growth in Africa (Ng and Yeats, 1996), domestic taxes on agriculture also have to be addressed. Some argue that the reason that Sub-Saharan Africa did not benefited much from the Uruguay Round was not because tlie process was biased but because Sub-Saharan Africa stood aside from the general liberalization (Harrison, Rutherford and Tarr, 1997). Thus for Africa to realize the full bcncfits of the next round, domestic policy distortion much be addressed. 5. Sub-Saharan Africa and Policies in the Quad The issue of market access is very important in the discussion of agricultural trade in the case of Sub-Saharan Africa. Thcrc is a strong view that supports the argument that protectionist policies in the OECD markets is one of the main contributing factor to Africa's niarginalization trade perforniance. Despite the low average niost-favored nation (MFN) tariffs and preferential tariff ratcs that the EU applies to Africa and other developing countries, tariffs for some products are still considered exceedingly high. 5.1 Market Access Saharan Africa -- like niost of the developing countries-- present the argument that developed countries' niarket access and sector policies havc played a big role in the under perforniance of their agricultural trade exports. In terms of niarket access, there is evidence of tariff peaks and tariff escalation in developed countries. Major products such as tobacco, coffee, cocoa, and maize, ground nuts face exceedingly high tariffs in the Quad (EU, US, Japan, and Canada) (UNCTAD, 1997). Despite the low average niost-favored nation (MFN) tariffs and preferential tariff rates to Africa and other developing countries, tariffs for some products are over 100 % (Hocknian et. al, 2001). These peaks are mainly in commodities that are niajor exports for developing countries. The itenis include products, such as sugar, cereal, tobacco, vegetables, fish, fruit, among others. Tablc 16 presents a selected numbcr of products of interest to Sub-Saharan Africa which are subject to tariff peaks in developed countries. These tariffs are identified as peaks because they have MFN tariff rates higher than 15 % (IMF, 2001) with tobacco, coffee, cocoa, maize, and groundnuts facing exceedingly high tariffs in developed countries. The post-Uruguay tariff rate for tobacco reached about 350% in the United States; groundnuts and coffee as high as 550% and 30%, respectively, in Japan; and maize around 849'0 in tlie EU. Table 16. Post-Uruguay MFN Tariff Peak Products of Interest to Africa into the Quad Product descrbtion EU Japan United States Canada Bovine meat (chilled) 86 50 26 26 - Sardine, Frozen 23 - - Tuna, frozen . 22 - - - Coffee prepara. & extracts - 130 27 - Cocoa powder with sugar 22 30 52 - Manioc dried 75 15 - - Tomatoes (frcsh or chilled) 14 - - 13 - Green tea - 17 - Orange Juice 52 30 31 - Tapica 34 - - - Bovine skin leather, Tamed - 30 - - Ground nuts 0 550 132 0 Maize 84 60 2 1 Cane molasses 5 95 0 13 Tobacco 5 0 350 0 Note: (-) means that tariff peaks do not exist Source: UNCTAD 2001 While Africa faces tariff peaks in each of the four Quad countries, there are also obvious signs of tariff escalation in major markets and North ~rnerica.' Data in Table 1 7 presents bound and applied tariff rates in the EU for differcnt agricultural products. Raw agricultural materials have the lowest average tariff rate of about 1.70%; the average rate increases to 2 1.3% at higher stages of processing. Tariff escalation is more evident in the case of specific items such as meats, sweetners, and oils (Gibson, Wainio, Whitley, and Bohman, 2001). In the case of mcat, the average spread between the tariff applied to the primary and processed product is over 50% in other Western European countries. For tobacco, the average tariff spread is Inore than 50% in the United States. Table 17. Tariff Escalation in the Europcan Union (15), 1996 DESCRIPTION PRODUCT TYPE APPLIED BOUND RATES RATES Sub-Saharan Africa Agriculture 20.78 15.44 Food and animal feeds 22.80 17.29 Processed agricultural products 21.26 15.87 Raw agricultul.al materials 1.70 0.99 Source: OECD Database 'Tariffescalation is a characteristic of tariff regimes in which higher ratcs are derived on processed products than on products closcr to raw materials in the processingchain. This protects the primary processing industries. 5. 1.1 Tariff Protiles in the US and EU: Cameroon As mentioned earlier, majority of the countries in Sub-Saharan Africa engage in trade with the EU and US. In 1996, almost 85 % of the exports from Cameroon went to the EU (Bamou, Njinkeu, and Douya, 1999). Western Europe remains a major partner for majority of the African countries as a result of the preferential trade agreements (PTAs) between these rcgions. EU has special access conditions with Cameroon. 95 of 514 line of products under 9506 custonls schedule lines faced zero MFlV duty rate. With these conditions. 98 % of Cameroon's exports to the EU faced snlaller tariffs than the non-prefcrcntial receiving countries (Anljadi et., 1996). On average, Cameroon's agricultural products entering the EU face tariffs around 10 % in 1988 and 11% in 1999 (Table 21). Not surprising, in 1999, the average tariffs for raw agricultural products, semi- processed products, and final products were 9 %, 12 %, and 16 %, respectively. The increasing trend in tariff figures is a clear indication of tariff escalation. As most agricultural product are transformed from raw to processed products, they face higher tariffs. Individual products such as crustaceans and bananas faced tariffs between 13% and 17 %, respectively, in 1999 (Table19 ). Tariffs on cocoa and coffee are relatively low. Nevertheless. further reduction in tariffs by devcloped countries will ensurc more market access for Cameroon's exports. In the US market, the story is the same. The siniple average rates on agricultural products increased fro111 1 % to 17 % in 1999 (Table 20). In 1999, Camcroon's tobacco faced a maxiniuni tariff rate of 350% and an averagc tariff of 70 O/o with (Table 19). Like most developing countries, Cameroon is concerned about the issue of market acccss in developed countries. In addition, Canleroon's main concern in thc next round of ncgotiations is the in the preference erosion. With WTO agreements, the preferential market access of Cameroon agricultural products in the EU are prohibited. Thcsc prcfcrential treatments havc to either applied to the rcst of the inenlbcrs on the MFN basis or rcmoved. 5. 1.2 Tariff Profiles in the US and EU: Tanzania Thc market access conditions for Tanzania's exports to the EU and US have not bcen particularly favorable. In the US ~narket,the average tariff on agricultural products have been showing an increasing trend since 1989s.In 1999,the tariff rate of raw tobacco from Tanzania was as high as 78 % (Table 18).The tariffs on total agricultural products increased from 4 % in 1989 to 17 % in 1999(Table 20). In case of the EU, fish, cut flowers, and crustaceans encountered relatively high weighted tariffs comparcd with other products. In 1999,the weighted tariffs for these products were betwccn 11% and 13 % (Table 19). In 1988, the tariff rates on total agricultural products and final agricultural products entering the EU werc 10 % and 1 I%, respectively. However in 1999, the tariff rates for total agricultural goods rose to 1 1 %, and the rate on final agricultural products was as high as 16 % (Table 21). On top of high tariff rates, there was also somc level of tariff escalation in the EU. In 1999,the siniple tariff rates on agricultural raw materials was 8 % and in the final agricultural products was 15 %. This rise in tariff rates by the EU is a iilajor concern for Tanzania. Tanzania feels that access to the EU markets has remained liniited. Tariffs and other forms of protcction in the EU countries need further reduction before developing countries can capture the benefit from ~niprovcdmarket access. Removal of tariff peaks for LDCs in Qaud markets is bound to increasc LDCs exports to the world by I 1 %, which translates into an increase of exports by $2.5 billion (Hoekman, Ng, Orlarrcaga.2001). Table 18.Tariff Profile for Individual Products: U.S Market, 1999 Product Simple Weightcd Minimum Maximum Domestic International Trade Average Average Rate Ratc Pcaks Peaks Valuc Fish fillets& othcr fish mcat Raw tobacco Locust bcans, sea wced & othcr algac Coffee Tea Vcgetablc saps Othcr live animals Vegetablewaxes Articles of apparcl Coffee Cameroon Raw tobacco 70 60 0 350 3 3 3666 Coffee Cocoa pastc Vegetablcsaps 0 0 0 I I 0 48 1 Cocoa powder Vegetable waxes Bulbs and tubcrs Mulluscs Plants and parts of plants Fish fillets & other fish meat 0 0 0 0 0 0 34 Source: UN COMTRADE Database Many of the issues within the built-in agenda on agriculture will likely bc coniplex. And niajor issues will require careful analytical work that identifies what the policy issues are and what developing countrics interests are. The issues within the built-in agenda include: (i) experience from implementing the reduction commitments under the URAA; (ii) the effects of these comniitnients on world trade in agriculture; (iii) non-trade concerns; special and differential treatment to developing country members of the WTO and the objective to establish a fair and market-oriented trading system and other objectives mentioned in the agreement's Preamble; and (vi) further conlmitn~entsnecessary to achieve the objectives of the URAA. A. Why continue the process of agricultural policy reforni? Why is it important to continue the process of agricultural policy rcform began during the Uruguay Round, and why should developing countries participate? First, for many countries, agriculture is still an important sector for the economy. As shown in table 1, developing countries provide over 60 % of the world's value added in agriculture (World Bank, 1997). In most low- and middle-income developing countries in Sub-Saharan Africa, East Asia and Pacific and South Asia, a significant proportion (64% to 70%) of the labor force is dependent on agriculture. While trade patterns diversify with development, developing countries will make even more use of agricultural markets, as exporters and importers. Thus, the future of the world trade system for agriculture will be a lifeline to developnlent for many of the poorer parts of the world. Developing countrics will have a lot to gain from a fair and more market-oriented global trading system. The developing countries have a lot to gain from a niultilateral system based on strong rulcs, both to protect thein against pressures from niore powerful countries, and to help them iniprove their own trade and domestic policies. The importance of this system to developing countries has increased greatly as they have beconie increasingly integrated with the world economy. Recent trade negotiations, in particular, have given developing countries more secure access to tlie developed markets (by reducing the scope of import restrictions) in exchange for better developed country access to the expanding markets of developing countries (through lower tariffs on imports from the dcvelopcd countries). For many developing countries, food security objectives require access on an assured basis to world market supplies, as well as agricultural raw materials for encouraging light manufacturing in rural areas. Many developing countries have at stake in building and efficient food system and maintaining market stability. Therefore, developing countries will gain by participating fully in the next WTO agricultural discussions aimed at progressive trade liberalization. Second, the nlultilateral trading system can provide a framework to improve developing countries' trade and don~esticpolicy regimes affecting the rural sector. As shown above, agriculture still accounts for a significant share of GDP and a major source of employment in many developing countries. And in most cases, over two-thirds of the poor population in these countries live in rural agricultural areas. Thus, continuing the process of reform of the global trading system to facilitate the adoption of rural sector policies that will reduceleliniinate policy distortions and improve the efficiency of the allocation of scarce resources in these countries can provide significant gains both in terms of consunler welfare and incomes. In fact, previous World Bank research (Martin and Winters, 1996) has shown that tlie gains to developing countries of the last multilateral negotiations (Uruguay Round) were much larger relative to their GDP than the gains to developed countries. Third, supply response to structural adjustment depends upon the credibility of reforms. In fact, establishing the credibility of policy measures is at least as important as choosing thc efficient policy solution. As shown in many countries, the private sector does not invest if the persistence of the reforms is in doubt. Unfortunately, reform programs have frequently been reversed or halted. And government policy has frequently been unpredictable. Establishing the credibility of policy measures can be achieved through the framework of niultilateral rules where member govcrnments can lock-in domestic policy refomis. The multilateral system has built-in instruments to prevent policy reversals, thus providing a framework for more credible policy reforms. 6.2 Policy Issues for the Next WTO Negotiations The analysis of implementation of market access commitments since 1995 indicatc that the new rules and cornrnitmcnts under the Agreement have not yet demanded binding constraints on the ability of many members to effectively restrict market access in practice. While the situation differs from country to country, many countries are still applying very high rates of import protection. On TRQ administration and allocation, there are many cases where governments have opted for implementation schemes which maintains high dolnestic protection and more managed trade. This scction provides a brief discussion of the different policy options likely to be considered in the area of market access as countries prepare for the next Round in agriculture. Due to several factors, it is impossible at this point to predict a definitive agenda for the next round of multilateral negotiations. Several factors would influence the focus of future agricultural policy refonn. These include future developments in world markets, various initiatives on domestic policy reforms and the proliferation of regional trade agreements which include agriculture. The prospect for future agricultural policy refom would also depcnd on continued political commitment to complete the long-tern1 tern1 objective of substantial and progrcssive reduction in agricultural protection statcd in the Agreement. Despitc the uncertainties, the analysis of implementation of commitments made under the Uruguay Round carried out in this paper will determine the starting point of hture multilateral trade negotiations. The Uruguay Round initiated the next steps for the multilateral process of futurc trade liberalization. The Agreement in agriculture called for the next negotiation (in Article 20) to be initiated no later than 1999. The WTO Ministerial Meeting in Singapore in December 1996 confirnled the timetable and recognized the need for beginning the process of review of implementation and analysis of future options. The actual agenda will be decided by countries in the next year or so. Based on the analysis of actual implementation of conunitments during 1995- 97, this section reviews some of the areas where hturc rcforms in the area of market access arc needed in order to achieve the long-term objective of liberalization in agricultural trade promised at Punta del Este. Overall, the next step toward greater liberalization in agricultural trade is likely to be difficult and most challenging during the next round. Protection in many markets remains very high, and allowable export subsidies and domestic support still threaten the stability of markets. The strategy for the continuation of the refon11 process in market access will therefore need to encompass the following agenda (i) improvements in thc workings of the currcnt rules under the Agreement; (ii) additional reductions in tariff bindings and applied rates; (iii) additional market provisions such as expansion of guaranteed minimum access quantities; (iv) elimination of remaining non-tariff measures and other border measures with similar effects; (v) disciplines on - distortionary effects of state trading; and (vi) iniprovenients in the operation of the rules on Special Safeguards. In other areas, further reductions in or even elimination of export subsidies, and more discipline in the area of trade distorting domestic subsidies would be required. In addition, the issue of quantitative export restraints or taxation on exports is also likcly to be discussed, in part as a reaction to the concern over food security in net food-importing countries. (i) Improvements in the Current Rules The agenda to improve the workings of the rules under the Agreement include the implelnentation of tariffication and the postponerncnt of tariffication for certain products in a number of countries. The latter includes the completion of tariffication in rice in Japan, the Republic of Korea and the Philippines. Modalities to reduce or avoid future use of "dirty tariffication" would be an area of improvement in the current rules. (ii) Further Reductions in Tariff Bindings and Applied Rates Tariffication has, in principle, resulted in more transparent arrangements in market access. In niost cases, the extent of import protection previously applied, but hidden by various non-tariff measures are now evident. This level of agricultural protection resulting from tariffication are very high relative to applied rates in other sectors. In most products, the applied over-quota tariffs are high enough to be prohibitive. Hence, trade in niany countries have not occurred beyond the minimum access conmitments. Evcn under the TRQs, the applied in-quota rates are high in scveral countries, thus resulting in incomplete quota fills. Hence, an important agenda for the Round is how to initiate further tariff cuts and reduce the discrepancy in agricultural protection relative with those applied in other sectors. Given the very high levels of tariff bindings and applied rates (above 200%-300 % in some products), this implies a continued period of tariff reductions, perhaps at significant amounts extending well beyond over several years. An approach to initiate significant tariff reductions over a shorter time period would be to negotiate a major across the board tariff reduction, perhaps at rates exceeding those agreed during the Round (36 % for developed countries and 24 % for developing countries). However, a 40 % to 50 % tariff cut over five years would still leave niany tariffs at very high levels. The UR agreement on tariffication required a linear tariff reduction formula during the implementation pcriod. Given the high levels of tariff equivalents during the base period (1986-88), analysis based on linear tariff reduction indicate modest agricultural liberalization achieved by the end of the implementation period. An alternative approach would be to follow a tariff-reduction fomiula, with high rates being reduced at a greater percentage. The tariff cutting fomiulas would result in a faster way to reduce the very high tariffs and remove the element of "dirty tariffication" used during the Round. This section describes options for tariff formula reductions that maybe considered for the negotiations in 1999. Any formula can be made to achieve a given tariff reduction in a given year, but the time paths that follow among the fomlulas will vary greatly. Three particular forniulas will be examined. These fomiulas are the simple linear fomiula, the radial fomiula, and the Swiss fomiula, described as follows: In formal terms, the linear tariff cuttirtg fornr~rla is given by the following expression: T = (I -(r*t)) * (B) where T = the tariff rate in a given ycar r = the annual rate of reduction t = the step of the reduction, and B = the base tariff equivalent. The second forn~ulato be considered is a successive linear reduction, sometimes referred to as a radialformula as follows: T = ( l -r )' * B where r = the annual rate of reduction t = the step of the reduction, and B = the base tariff equivalent The radial formula reduces tariffs more slowly than does a linear formula (of the same annual rate of reduction), because the annual reduction is applied to the previous year's tariff instead of applying it to the tariff base. The third formula, the Swiss formula, was used in cutting tariffs on industrial goods in the Tokyo Round. The Swiss forrnltla is given by the following equation: where T = the tariff rate in a given year c = a coefficient arbitrarily set The base tariff equivalent here can be treated as To The importance of the coefficient, c, would be shown in the rate of the annual decline--the higher the value of c, the smoother would be the decline in tariff rates. Another important difference between the Swiss formula and the radial formula is that the value of the tariff reduction is a given year also depends crucially on the existing tariff level. For a given value of c, the higher the beginning tariff rate, thc grcater is the drop in the tariff rates--even in percentage terms. A potential benefit of the tariff reduction formulas would be the reduction in the extent of tariff dispersion across products. It was shown in Ingeo (1995) that the process of tariff reduction adopted by the EU, the United States and Japan have increased the dispersion and variation in tariff rates. This is because the Agreement provided the use of a simple unweighted average reduction of 36 % (24 O/Ofor developing countries), with a minimum reduction of 15 % for each tariff line. Many countries were still able to satisfy the rules by reducing the high tariffs in sensitive products by the nunimunl amount required (1 5 %) and making larger percentage reductions in less sensitive products or by reducing the already low tariff$ in certain products to zero. To reduce the tariff dispersions, the across the board tariff reduction based on a fomlula could be eombined with a agreed rule on a bound or maximum level of tariff to which all the current very high tariffs would have to be rcduccd over an agreed period. Thus, this combined approach would achieve a general reduction in tariff levels and consolidation in applied tariff rates to more uniform levels across products. An approach suggested in the literature is to negotiate for a "zero-for-zcro" agreement which would abolish the tariffs and other trade restrictive measures completely on certain products (Miner, ct.al. 1996). This approach has been adopted with some success in other sectors. The "zero-for-zero" approach involves isolating certain politically sensitive products subject to particularly high protection from other not so sensitive goods. Protection in the latter products would be reduced to zero. Proponcnts of this approach point out that isolation of markets subject to high protection will force them to gradually come in line with those markets where protection has been reduced. To ensure the latter, however, the approach has to explicitly include a program of tariff reduction for such highly protected and sensitive products, such that they do not escape in practice the long-term process of tariff reform. (iii) Elimination of Remaining Yon-Tariff and Para-tariff Measures Some developing countries are still maintaining non-tariff measures under the Balance- of-Payments exceptions. GATT Article XVII1:B allows the use of quantitative restrictions to avert a balance of payments crisis. In addition, non-tariff barriers with similar characteristics and effects as those specified in the footnote of Article 2 of the Agreement which were supposed to be abolished have been adopted in some products in a number of countrics. The most contentious examples are the EU trade regimes in grains and fruits and vegetables. Iniplementation of tariffication in thcse products did not result in the adoption of fixed tariffs. For grains, the EU border reginie results in applied tariffs which still vary over time, very much likc the previous variable Icvies. The entry price system for fruits and vegetables also has the same effects as the previous reference price system. In Latin American countries, thc use of variable iniport tariff under price band schemes is another contentious case. Under the new rules, price bands arc legal only when the sum of the basic tariff and additional surcharge does not cxcecd the bound tariff. Proponents argue that the price band mechanism operates as an ordinary custom duty. However, under the price band schemes, the floor or iiiinimum and ceiling prices arc sct based on the moving average of predeterniincd world market price, after eliminating a certain percent (eg. 15 %) of the top and bottoni of the price distribution. Given that the applied duty is charged according to the c.i.f. inlport price of each shipment, it is likely that applied rates would vary by source of imports, possibly resulting in some discrimination in practice. These various schcnics have not been applied with great transparency and it is difficult to estimate the effective applied rates. The new Round of negotiation in agriculture would likely include thc legality of the schemes describe above. If tariftication is to achieve its original objective, such measures would have to abolished and replaccd with fixed tariffs. 6.3 Interest and Options for Sub-Saharan Africa in the New WTO Round The previous sections have given an overview of the challcnges that Sub-Saharan Africa has to overcome in order to yield gains from trade. From the discussion, it is clear that the continent has the potential to benefit from trade by fully participating in the niultilateral trade negotiations in the WTO. Also, the region can use the multilateral trading system as an opportunity to lock in its domestic reforms and thus increase investors confidence. In this new trade round, Sub-Saharan Africa would like to revisit the issues of market acccss, domestic support, and export subsidies. In addition to these traditional issues, other major issue of interest include food security, Sanitary and Phytosanitary Standards, Technical Barriers to Trade, The Agreement on Trade-Related Aspects on Intellectual Property Rights, and Special and Differential (S&D) Treatment. Traditional Issues (I) Market Access Policies in developed coulitries Reduce tariff peaks and escalation by developed countries Special Safeguard Provision (SSG) More siniplified and transparent TRQs Sub-Sa6a1-a11Afiica 's &,t*lipolicies Reduce bound rates Further reduction in tariff and applied rates (2) Domestic Support Enforce discipline on subsidies Enhance transparency reduce the misuse of the Green Box. (3) Export Subsidies Remove subsidies by developed countries Second Generation Issues and Other Issues (1) Sanitary and Phytosanitary Standards and Tcehnical Barriers to Tradc(TBT) Make surc that SPSITBT are not used as a protectionist element Revision of the notification procedures Setting up a more harnionized system of SPSRBT More assistance to enhance capacity and to build infrastructure (2) The Agreement on Trade-Related Aspects on Intellectual Property Rights (TRIPS) Protection of the indigenous knowledge (3) Special and Differential(S&D) Treatnient More and binding technical assistance Flexibility and longer transitional periods for sonic implenientation issucs (i.e., SPSITBT and TRIPS) Other areas of concern in the new round will include issues related to environment, conipetition policy, state trading enterprises, and anti-dumping. Market Access Tariff peaks and escalation: Sub-Saharan Africa is interested in expanded market access to in developed countries, in particular the EU, United States, Japan, and Canada. However, in each of these markets tariff peaks and escalation are widespread. For both Japan and the EU, niore than 26% of all agricultural tariffs are greater than 20%. Tariff peaks are more visible in food staples, fiuit and vegetables, and processed food products, while tariff escalation is niore evident in conmodities, such as meats and oils. Special Safeguard Provision (SSG): Another market access issue of concern is the use of safeguard measures. SSGs give importing countries the right to increase tariff rates higher than bound rates in response to a sharp reduction of import prices or increases in the quantity. While this nlechanisni has not bccn utilized oftcn, it poses risks for the supplier. Currently, only Southern African Customs Union (SACU) ineiiibers (Botswana, Lesotho, Swaziland, Namibia, and South Africa) have access to agricultural SSG, for a limited number of products. Keeping the SSGs provision in its current state will continue to disadvantage countries who do not have access to this mechanism. In this context, there is sufficient need for Sub-Saharan Africa to have the option and appropriate safeguard mechanism. The ability to resort to SSG may give governments the comfort they need to agree to significant reduction in protection of what they would not otherwise find politically feasible and allows them to give domestic producers a "breathing space" for adjusting when import surges cause extreme distress. Tariff Rate Quotas (TRQs): The main objective behind the use of TRQs is to allow minimum market access for commodities previously protected by nontariff barriers. The WTO feared that these products would result in out-of-quota or MFN tariff rates at prohibitive levels. So far very few developing countries have established TRQs and for those that have (e.g., Brazil Morocco, and Thailand), there is little information available to report. In the case of Brazil, the MFN tariff rate was below the in-quota- rate. Although Sub-Saharan Africa and most developing countries did not actively participate in the reporting of open TRQs, it is still critical to identify the conditions under which TRQs are effective. This involves putting in place simplified and transparent TRQs. Sub-Saharaiz Afi-ica '.r Doinestic Policies Bound and applied tariff rates. The URAA made significant efforts to improve market access conditions. However, it is crucial that countries in Sub-Saharan Africa further reducc and more towards greater uniformity across products in their bound and applied tariff rates in order to capture the gains from the liberalization process. So far, thc region has an averagc tariff rates in agriculture higher than the global tariff rate (6Z1)/0)." A tariff rcgime characterized by non-uniforn~ityamong products, escalation, and overall high ratcs has adverse effects on the domestic opportunity. Among these arc implicit taxation of exports, creation of productive inefficiencies, regressive taxation of domcstic consumers, and pron~otionof rent-seeking and corruption. Lowering bound tariff rates in the context of n~ultilateral trade negotiations sends a powerful signal of the government's intentions to pcnnanently an open, pro-export trade regime. In this way, it guides and pronlotcs investnlent in appropriate sectors and technologies. Sub-Saharan Africa did not take full advantage of the Uruguay Round to lower bound rates and "lock in" reforms, as the region has a higher average tariff rate than the global rate. Thc region should do much better in the Doha Round. Concerns about effects on local producer from lowering protection should be addressed by negotiating for transition periods, adjustment assistance, and safeguard mechanisms, not by asking to avoid reducing bound ratcs. Domestic Support Apart form South Africa, most countries in Sub-Saharan Africa declared an aggregate measure of support (AMS) level of zero, while developed countries had a positive AMS. Disciplines on the use of domestic support in OECD provcd to bc less binding than many had envisioned as over 60 % of their support programs in agriculture were exempted from URAA reductions. A major objective for Sub-Saharan countries in the Doha Developmcnt Agenda will be to put in place a more structured operational framework for the exemption from reduction provisions. l 2 The average protection for Sub-Saharan Africa is between 71% and 75%. Gibson. Wa~nio,Whitley. and Bohman (2001 ). In the new trade round niembers have to consider the following issues: Fom~ationof a developnient box and whether a transition box will be needed; Whether AMS measures should be applied on product or sector basis; Inclusion of multifunctionality into AMS provisions; Whether acceptable protcction should be adjustcd for inflation or exchange rate changes; and Whether the use of de niinimis should continue Ex~ortSubsidies Sub-Saharan Africa continues to be concerned about thc usc of export subsidies by developed countries. These subsidies are often justified on the basis of concerns regarding food security, environmental protection, and protection of rural communities, among others. While sonie of these claims niay be valid, policy makers can not ignore the distorting nature of these subsidies. Sub-Saharan countries fear that export subsidies amount to dumping, depressing world prices and eventually, lowering producer prices to farmers in developing countries. While in the short-run the renioval of export subsidies by developed countries may raise import costs, the long-run inipact on import prices has not been convincingly quantified. In the near term assistance can be provided to help mcct doniestic demand, and in the long-run the best solution is to stimulate donicstic production. The inipact of refomis in this area will depend on policics adopted by the individual countrics, and thc impact of the liberalization package on world prices. Nevertheless, a niore efficient system to reduce subsidies and to minimize their price distorting effects needs to be adopted. Sanitary and Phvtosanitarv Measures (SPS) and Technical Barriers to Tradc (TBT) Sub-Saharan countrics facc many constraints associated with the iniplcmcntation of the SPS and TBT Agreements. The major constraints pertain to lack of resources, infrastructure, and expertise. In trying to hclp developing countries cope with the prov~sionsof the SPS and TBT Agreements the niultilateral trade system should allow sufficient tinie for Sub-Saharan Africa to adjust and inlplenient new regulations. To help enforce and assess standards, it is critical that dcvcloping countries are provided with appropriate technical assistance to enhance their expertise. While dcvcloping countries are in thc proccss of improving their capacity in the area of SPS measures and TBT, developed countries should not use standards as a means to crowd-out exports from dcvcloping countries. Otsulu et al. (2000) analyzed thc impact of EU aflatoxin standards on food exports froni nine African countries and found that thcy dccreased rclevant exports approximately 64% or $700 niillion. The Agreement on Trade-Rclatcd Aspects of Intellectual Property Rights (TRIPS) The TRIPS Agreement grants niiniuium standards for levcls of protection to innovators of intellectual property in numerous fields. This Agreemcnt is considercd to be the most comprehensive multilateral agreenient on intcllcctual property rights. However, its relation to agriculture is complex and controversial. Since the TRIPS agrecnient came to effect, Sub- Saharan Africa and othcr developing countries havc had to deal with issues on technology transfer, the treatment of indigenous knowledge, and, in particular, geographical indications. Studics suggest that dcvcloping country intcllcctual property rights iilay yield welfare gains from improvement in property rights if thc payoff ranking of an array of potential technologies differ between the South and North. In this context, better property rights may offer an incentive to developed country innovators to develop a different wave of innovations that is - appropriate for the developing countries. Pertaining to indigenous knowledge, companies in developed countries in the areas of phamiaceuticals and agricultural sectors arc starting to recognize the importance of biodiversity and indigenous knowledge of local communities regarding plants and medicines. The serious issue is that researchers in developed countries have invented patented products using materials from developing countries. The TRIPS Agreement can play an important role in ensuring that the inventions benefit both developing and developed countries. Enforcing fair intellectual property rights has the potential to encourage local research and fomiation of joint ventures been developing countries and developed countries. On the issue of geographical indication, indicators, for instance, patents and trademarks are seen as new instruments of trade policy which are used by nieniber countries to gain international competitiveness in agricultural products. The field of geographical indications is at present limited to only wines and spirits. However, opportunities exist to protect special products rice, such as Basmati rice, rooibos tea, darjeeling tea, among others. Therefore, it is essential for Sub-Saharan Africa to actively participate in negotiations on geographical indication as a way of safeguarding their competitive advantage for specific agricultural products of interest. In this respect, options for Sub-Saharan African countries in the Doha development agenda should pay more attention to geographic indication, which nieans including more specific variety of products; more technical assistance to improve the capacity in the areas of patent administration; and thc need to include provisions to protect indigenous knowledge, so that local varieties of plants can receive royalties. Special and Differential (S&D) Treatnient The rationale behind S&D provisions was based on two main considerations: first, to ascertain that there is equity and fair competition where structural conditions differ; and second, to avoid distortions caused by the stronger negotiating position of developed countries in the intemational trade system. It is clear that the S&D treatment agenda in the previous round did not meet its goal. Sub-Saharan Africa and other developing countries, in particular, believe that many proniises were made and very little was delivered. Elements dealing with technical assistance and implenientation time have to be readdressed since they appear to have been reached in an ad hoc nianner and lacked structure. The uniform transitional period for policies to be implemented does not take into consideration the different speeds at which Sub-Saharan countries can adjust to the new provisions. Nonetheless, the region should also recognize that blocking the negotiations with S&D that will never be inipleniented is not the way forward. 7. Conclusion To sunimarize, Sub-Sahara Africa's share of trade has declined over the past several decades. This marginalization has been caused by domestic policies employed in the region and by protectionist policies in developed countries. Assessing progress during the iniplementation of the URAA, Sub-Saharan Africa made some iniprovement in the area of market access, but the work is still incomplete. Africa maintains high tariff bindings and in addition, export taxes and activities by marketing boards continue to adversely affect producer prices. In order for Sub- Saharan Africa to more fully capture gains froni trade it is essential to reduce further applied and bound tariff rates as well as reduce taxation in the agricultural sector. This can be done by eliminating policies that protect the industrial sector, inipose taxes on export products, or maintain governnient controlled donlestic prices below world prices. Apart from traditional issues in the area of market access, donlestic support, and export subsidies, this set of developing countries are interested in discussing the issues of SPS/TBT, TRIPS, S&D treatment, among others. What does the new trade round mean for Africa? Sub-Saharan African countries will need to pay more attention to n~ultilateraltrade negotiations and try to influence the outcomes. Africa can use the multilateral trading system to achieve clearly defined goals. It can use the opportunity to lock in its reforms and so increase investor confidence. At the same time, it is important that African countries participate in setting the global agenda. They can partner with others to negotiate for the dismantling of restrictive trade practices that inhibit export diversification in poor countries. 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Summary of Uruguay Round Commitments in Agriculture Country GATT Average Average Total Average Average Domestic Export Status Bound Bound Tariff Binding Applied Support Subsidies Duty ODC (Duty + ODC) Rates O/Q O/o 010 O/o Angola D 80 0.1 80.1 Benin LD 60 18 78 Botswana D 40 40 " Burkina Faso LD 100 50 150 Burundi LD 100 30 130 Cameroon D 80 230 310 24.5 ' Central African Republic LD 30 16 46 Chad LD 80 80 Congo D 30 0 30 Cote d'lvoire D 15 200 215 20 Djibouti LD 42 100 142 Gabon D 60 200 260 Gambia LD 102 10 112 Ghana D 98 0.2 98.2 22 ' Guinea LD 38 24 62 Guinea Bissau LD 40 26 66 Kenya D 100 0 100 44 ' Lesotho LD 200 200 Madagascar LD 30 250 280 39 Malawi LD 124 20 144 Mali LD 60 50 110 Mauritania LD 37 15 52 Mauritius D 120 17 137 52 Mozambique LD 100 300 400 Namibia D 40 0 40 " Niger LD 80 50 130 Nigeria D 150 80 230 47 ' Rwanda LD 80 80 Senegal D 30 150 180 44 ' Sierra Leone LD 40 20 60 South Africa IND 40 40 " 7 ' by 2000 by 2000 Swaziland D 40 40 " 34 Tanzania LD 120 120 240 Togo LD 80 7 87 Uganda LD 80 0 80 Zaire LD 98 98 Zambia LD 124 1 125 Zimbabwe D 146 15 161 24 ' Notes: " Reduced from 70% to 40% ' Trade-weightedaverage Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Economic Analyses of Interests and Options for Cameroon Ernest Bamou, Dorninique Njinkeu, and Emmanuel Douya I. Introduction The millennium negotiations are expected to increase the liberalization of agricultural trade and this presents exceptional opportunities for Cameroon. The country, as part of its unilateral SAP-driven economic reform has, since the late 1980s progressively shifted from previous protectionist policy regimes to one driven by market fundamentals. The negotiations could, therefore, allow the country to capitalize on efficiency gained in this process to revitalize its development. Unfortunately these benefits may not materialize unless the country's interests are taken into account; hence the centrality of identifying and defending these interests, which depends on the nature of coalitions formed with other partners. There are two main elements in this process: proper identification of opportunities and constraints, then identification of the relevant partners. The objective of this paper is to offer proposals in each of these areas. With respect to opportunities and constraints, problems with the negotiations can be arranged into five groups. First set of problems is availability of export markets at preferable conditions, especially in developed and emerging countries; related to this is price stability. A priority for the negotiation would be to ensure adequate markets are available. Second, price variability on imported agricultural products, especially for food consumption is another problem as it has negative impact on incentive to increase productivity. Likewise, erratic price fluctuations make it difficult to an importing country such as Cameroon to monitor its food budget. The negotiations will need to focus on measures that enhance agricultural productivity and minimize the variability in food prices. The associated WTO policy instruments include export subsidies and restrictions, and the special set of measures in favor of food insecure States. Given its small economic power Cameroon's market access issues are also associated with the progress on regioiial integration in CEMAC. The adoption of common policies increases the market size, reduces transactions cost and increases economic efficiency. A more integrated group can nlobilize the human and financial resources necessary to formulate negotiating positions. Furthermore, such regions with well-organized private sector can easily be structured to support the process, including the move toward more open trade. A market thus created for the exporter becomes a learning ground for trade at the international level. Properly designed, regional integration can therefore be a building block toward integration in the world trading system, and this needs to be a specific focus at the negotiations. The fourth group of problems is related to rules in the WTO that could have differentiated effects on developing countries. compared to the case of developed members. One important aspect is domestic support that needs to take into account the specific characteristics of a small country's agricultural sector. Overall the URA on this aspect led to increases in the imbalances in the legitimate use on these trade-distorting measures. The fifth group of issues is that of capacity of the country to honor its WTO commitments. This capacity problem covers the domestic infrastructure as well the institutional capacity. The associated agricultural WTO issues include, state trading and the SPS agreement. This study intends to provide both a qualitative and quantitative analysis of Cameroon's market access, domestic support, and export competition. It shall also address the country' current trade and agricultural policy regimes complemented by analyses of market access potentials, market structures, and bamers to entry. The remaining text revolves around the following nine main points. The presentation of Cameroon' agriculture is the first point. Food security and non-trade concerns of the AoA and the main elements of the country's agricultural policy are the second and third points. The fourth point deals with the country' unilateral agricultural trade policy. The country' experience with and in the URAA is examined in the fifth point. The impact of the country' unilateral liberalization on the agriculture and food security is analyzed in the sixth point. The seventh point is focused on the regional analysis. The policy issues, options and strategies for the forthcoming WTO are examined in the eighth point and the conclusion, whlch summarized the country' position constituted the last point. I1 Presentation of agricultural sector Agriculture has always been the main economic activity of Cameroon. In 1976 it contributed to close to one third of GDP and more than 90% of exports, of which 55% were from cocoa and coffee. Close to 80% of the population was rural and essentially relying on agricultural activities. The dynamism of this sector was more attributable to foodstuff production whose average annual growth rate was 14% against 3% for the agncultural exports oriented to production (F.A.O., 1995). From 1976 the oil sector started influencing the overall economic structural transformation. The ''Dutch syndrome" manifested itself from 1982. Henceforth, stagnation was recorded within the industrial and agricultural sectors to the benefit of both the oil and tertiary sectors which then contributed more than two third of the GDP till 1985. Oil then assumed a primordial position in exports to the detriment of agriculture. From 1985, there was a slight recovery in the agricultural and non-oil industrial sectors, thereby permitting to barely escape this syndrome (Benjamin and Devarajan, 1985). The early external shocks, which occurred from 1985186, marked the end of the boom period and the beginning of the economic crisis, which lasted till 1992193.This was characterized by a high decline in the production of all sectors excluding agriculture. Contrary to the forestry and perennial agricultural sub-sectors for which international prices dropped drastically, the subsistence agriculture, hunting and breeding, and fishing sub-sectors better resisted to the crisis and allowed a net relative growth in the agricultural sector as a whole. From 1992193 the sector suffered from the setbacks caused by political crisis associated with the call for multiparty politics. A slight decrease occurred within the perennial agricultural sector to the advantage of subsistence agriculture, fishing, hunting, and breeding (see table 1). Nevertheless, the total contribution of agriculture to production during the period of economic crisis has been stable. This could be explained by the decline in prices of the main agricultural exports and the relative shift of agricultural producer from perennial products to foodstuff. Within this period, the agricultural sector as a whole consolidated its contribution to close to one third of the GDP and more than 50% of export earnings and employment (see table 2). The average drop of 20% of non-traditional agncultural exports during the crisis indicates that 2 the relative good performance of agricultural exports could be attributed to traditional products. From 1993194, an upsurge in growth was recorded in the agricultural sector in particular and in the entire economy in general, owing to the reinforcement of trade liberalization measures (fiscal reform and local currency devaluation)'. In spite of the Government's objective of making the industrial sector the driving force of the country's economic development, the agricultural sector was once more responsible for the economic revival. The contribution of this sector to the GDP increased by close to 1O0h,as compared to the period of the crisis, and stabilized to slightly more than one third till 1997. Its share in overall exports stood at over a third and even around 40% in 1995196. That contribution reached 60% and even 79% after devaluation in 1994 if oil is excluded. 111. Food Security and non-trade concerns of the AoA The food security of a country can be characterized by production-based, trade-based or transfer-based entitlements. Production-based entitlements can be changed through policies that determine demand and supply of domestically produced food items. Production-based entitlements are primarily related to access to productive assets. Trade entitlements are influenced through policies that affect the level and variability of the relative food price or the ability to generate sufficient foreign exchange to pay for the food import bill. Trade-based entitlements are obtained mainly through relative price of food which in turn depends on factors such as the total supply of food, the degree of market integration as determined by the level of development of infrastructure and marketing channels, govenunent price controls, transport cost both domestically and internationally. The transfer-based entitlements portray the ability to obtain food through food aid. A country that encounters problems with the production and trade characteristics definitely has a food security problem. Food insecurity can ensue because the production is either insufficient or irregular or it can also arise from reliance on inadequate technologies, marketing or a poor overall agricultural policy. Table 3 summarizes these, with a focus on those that are relevant to WTO negotiations. The global nutritional equilibrium in the country has remained relatively unchanged for several years (Varlet, 1993). In spite of a remarkable growth in food production in the last twenty years, Cameroon's food self-sufficiency coefficient has been low, due to a non- proportional population growth (FAO, 1995). The contribution of the traditional production to the food intake also dropped sharply. It decreased from 86% in 1970 to 63% in 1990. The ever-increasing gap was filled, thanks to imports and agro-industrial production and their respective shares to the daily energy contribution of the population went from 4 and 5% in 1971 to 18and 13% in 1990. Likewise, despite the improvement in the nutritional indicators since independence, food intake has remained strongly dominated by cereals and starchy foods. After stagnating in the early go's, energy and protein consumption dropped slightly between the late 80's and early 90's concomitantly with a fall in the household disposable income; this is probably the main cause of the nutritional imbalance. Though the daily protein consumption is within security norms; the case of children and women is of particular concern, especially from the geographical standpoint. A majority of the urban population has an easier access to abundant and varied food from the various rural areas where malnutrition is mostly a consequence of I In January 1994, the CFA Franc (CFAF), local currency having a fixed parity with the French Franc (FF), was devaluated by 100% as compared to the FF. Within the same month, of the same year, the more liberalized fiscal reform, proposed within the UDEAC framework with the assistance of the international organization (IMF and World Bank), became enforced. 3 shortages due to poor distribution of food resources. Furthermore, occasional food insecurity in the North and Far North provinces with less candied climate in the last four years has necessitated special food aid intervention from the Government and international organizations such as UNDP, FA0 and WFP. To ensure good supply in terms of both quality and quantity for the whole population, a food security program jointly sponsored by the IBRD and the Japanese government was set up in 1991. It deals with five main issues: (1) the organization of food markets in secondary towns, (2) nutritional education, (3) phytosanitary control, (4) financing through the Fund for Agricultural and Communal Micro Projects (FIMAC) and (5) setting up of a National Early Warning System (NEWS) whose role is to give information on food markets, harvest and forecast, especially in ecologically fragile areas (MINAGRI, 1998)'. The effects of the economic crisis on food security can be better analyzed on the basis of access to food resources. The stringent budgetary policy adopted by the Government, together with salary cuts both in the public and private sectors and the increasing the rate of unemployment have provoked a drastic fall in the household purchasing power. This resulted in a drop in food expenditure. This drop came together with shrinkage in the volume of food consumption as well as degradation in quality, following the substitution of products with high animal protein content with relatively cheap vegetable energy products. The deterioration of the household income then caused a thorough modification in their consumption habits. We also characterize the food situation of Cameroon by identifying the main components of the average household food basket. According to the 1996 household survey the main food items of the average family comprise: fish (12.71%) meat (10.22%), millet (6.62%), rice (6.08%), coco yam (4.80%), cassava (5.81%), plantain (4.25%), maize (4.09%), groundnuts (3.79%), beverage and alcoholic drinks (7.05%), vegetables (4.47%). For some basic commodities such as cassava or maize the dependency coefficient is quite low; 0 and 2,4% respectively. The coefficient is 55.1% for fish. However for some other equally important ones such as rice, the ratio is almost 100%. For the sub-group (although it is not representative) for which this ratio could be calculated, the average ratio is just around the 1996 average of 13% for developing countries. The food policy needs to pay particular attention simultaneously to production and trade entitlements. The extent of this deficit can be illustrated using the case of cereal output that, with a budgetary ratio of 19%, represents the first food item of households (CEAM IDSCN, 1997). Between 1960 and 1998, per capita cereal output dropped from 157 to 84.9 kg, thus causing a deficit between supply and demand, which has been constantly on the increase. In order to fill this gap, cereal imports during the same period have increased tenfold going from 32000 to 350000 tons per year (Herbel, 2000). Not only does this massive import expose food security to external shocks, but it also involves significant outflows of foreign exchange that weaken the country's balance of trade. The domestic food deficit can be explained, at least in part, by the increase in the total population, which grows at an annual rate of 2.8%, and the urban population, a net consumer of staple foods whose rate of growth reaches 4.2% per year (Herbel, 2000). With these growth rates higher than those of the rural population, the urban population has put increasingly 2 See more on these below. 4 stronger pressure on agricultural and food supplies. The rising food exports to neighboring countries (UDEACICEMAC countries and Nigeria) are also likely to worsen the deficit since - they reinforce the pressure on food supply. In fact it is shown below, in the case of palm oil, that the objectives of food security and competitiveness on the international markets can, at times. be in conflict. The overall decline in income between the mid-1980s and early 1990s has resulted in a reduction in food expenditures, one of the most important expenditure items. This reduction has been accompanied by a contraction in the volume of food consumption and by a deterioration of quality due to the substitution of high-protein food for relatively less expensive energy-giving (high-calorie) vegetable foodstuff. The average annual volume of food consumption per capita has dropped by 24% from 1984to 1996. During the same period the nominal value of this consumption has declined from 86348 to 79474 CFAF (ECAM I DSCM, 1997), with even higher decreases in real terms. The food insecurity in Cameroon can also be characterized in terms of nutritional balance measured by the energy consumed and its origin. In total, 45% of Cameroonian households do not manage to meet their energy needs, which amount to 2400 calories per person per day. As to the origin of this energy, it consists of 64%, 18.2 and 17.7% respectively of glucoses, proteins and lipids. Relative to the norms setting these percentages between 50 and 55% for glucoses, 12 and 15% for proteins and 30 to 38% for lipids, the composition of the energy- giving foods reveals the prevalence of nutritional imbalance in the average Cameroonian diet. The global approach to the food situation adopted above conceals the case of high-risk groups and the regional specificities of 'the country's food insecurity. ECAWDSCM (1997) reveals that 30.3% of children less than 5 years old suffer from physical development deficiency, 29.5% are underweight and 7.1% show signs of emaciation. The same applies to women, especially for those of childbearing age. Owing to the poor quality of their food, pregnant women register a weight gain scarcely equal to 5kg, whereas the norms set the latter at between 14 and 15kg.This deficiency has disastrous consequences on the health of children at birth. At the geographical level, the three northern provinces (Adamawa, North and Far North) suffer from transitory food insecurity due to climate changes and from the proximity of Chad and Nigeria. In the southern provinces, problems are primarily due to the high rate of urbanization that increases the pressure on food demand even though the productive capacity of those regions is almost at sustainable limits. The South and the Adamawa provinces dispose of abundant but hard to reach lands. The high transportation costs from these provinces to the main consumption centers make the local output less competitive as compared to imports. In Yaounde, the price of one kg of rice produced in the Adamawa is about 10% higher than better quality imported rice (Banque Mondiale (1989) and Douya (1995)). In order to fight against food insecurity, the policy led by the government can be broken down into the pre and post-structural adjustment periods. Two regional and national approaches have been adopted during the period preceding the structural adjustment program. At the regional level, the Government has sought to control the inter-regional marketing of food products, as well as exports, by imposing collection permits. Not only has this regulation not been implemented systematically, but it has also contributed to an increase in food prices due to marketing cost overruns. At the national level, prior to the SAP period the approach consisted of an interventionist policy through the creation of public enterprises such as the Cereal Office (CO) and the Foodstuff Development Mission (FDM). The main objectives of these organizations were the stability of prices and the supply of food products to target groups. In spite of annual subsidies amounting to around 700 million CFAF, these objectives were not attained and the enterprises were liquidated (Banque Mondiale, 1989). Since the introduction of SAP, the food security strategy is essentially based on private initiatives. The Government has set up a new organization called the National Early Warning System (NEWS) whose mission is to follow through the production and marketing of the major food products in order to alert the authorities to the least deficit, which could arise between supply and demand. Although the objectives of this organization are likely to allow Cameroon to be more on guard against food insecurity, it seems quite obvious that they are far from being achieved, partly because the NEWS does not cover all the production and consumption centers. Moreover, this structure does not have at its disposal the means necessary to function efficiently. The development of a long-term food security strategy should take into consideration the problems related to the geographical cover and the funding of the NEWS. To ensure Cameroon's long-term food security, it seems particularly sensible to increase the production and the supply of foodstuffs, and to improve the capacity of households to have access to a balanced and adequate diet. If the challenge of a rapid increase in the supply of food products were adequately built into the thrust of the new agricultural policy, an improvement in household purchasing power could be achieved. The domestic capacities for production will then have to be encouraged and assisted so as to become competitive. Important aspects of this process include input and research and extension services policies. To trace the overall effect of liberalization on food security of Cameroon we have carried-out some simulations using a computable general equilibrium model in section VII. In sum, agricultural development is at the center of the country's growth performance. Perennial agriculture, forestry and fishing have been the main driving forces of the performance of the agricultural sector. Although food production does not show prominently in the economic performance, because of high level of auto-consumption, it plays an important role in the overall development process, especially on poverty alleviation. The rest of the text focuses on agricultural trade liberalization and how the WTO framework could be used to further stimulate the development of both food and non-food sectors. 1V. Main elements of the agricultural policy in Cameroon Table 3 presents the main elements of the agricultural and the food situation as well as the associated AoA and related policy issues. We only focus on a selected group to show what has been done and how the AoA framework could be used to enhance the food security situation of the country. Special attention is paid to input policy, research and trade policies. IV.l Inputs policy Increase in productivity of agricultural as well as its competitiveness's improvement represent high stakes in Cameroon's agricultural policy. To attain these goals, an active policy towards promoting the use of inputs has always proved decisive given their indispensable role not only in preserving soil fertility but also and above all, in realizing the goals of production increase. Studies have shown that a judicious use of fertilizers, alone, prompts a production increase of 40 to 50% in Cameroon (MINAGRI, 1999). Considering this importance, the agricultural inputs sub-sector has always commanded attention in government circles. Their strategies to promote its usage can be divided into two major periods. The first runs from 1960 to1987 and the second from 1988 to date. The first period is characterized by state intervention in the supply of inputs to agricultural producers. This is the case with the National Fertilizer Program (NFP) which was set up with the assistance of the FA0 soon after the country's independence in 1960 and the objectives of which are broken down into two levels, namely to sensitize the population on the rational use of fertilizers; and to organize experiments and demonstrations on fertilizers so as to prove the efficiency and effectiveness of the use of this input. Under this program, fertilizers were imported up to 1980, when the National Rural Development Fund (FONADER) substituted the NFP, whose activities went beyond supplying farmers with fertilizers to include all other types of agricultural inputs such as phytosanitary products. Inputs were all subsidized and distributed to farmers either by the Ministry of Agriculture or by Development Corporations in charge of cocoa (SODECAO) and cotton (SODECOTON). All the same, subsidy rates were distinct with an average of 75% for fertilizers against 100% for phytosanitary products and it remained so till 1990 (Varlet, 1997). This active policy of promoting inputs raised much interest amongst peasants. As such demand for fertilizer witnessed a substantial increase after it reached a volume of 15,000 tons in 1974175, it then regularly increased to settle around 80,000 tons till 1986. Demand for fertilizers was all the more sustained, as the period was marked by good ratings in international prices of agricultural products, which secure an incentive for farmers. Meanwhile, in addition to causing lateness in the distribution of inputs to users, State monopoly in the supply of inputs proved ineffective and increasingly costly for public finance (Ntsama, 2000). The 1986187 agricultural season then spelt a turning point in State strategy which met with financial tensions while the agricultural sector was marked by a sharp fall in prices of its major export commodities. The second stage in the State's strategy kicked off in 1987 with the backing of Financial Donors and as a result of a USAID study which recommended an urgent reform of the inputs sub-sector. Directed towards liberalizing and privatizing the sub-sector, the reform led to the launch of two fertilizer programs to cover both the Southern and Northern parts of the country. The first program, named Reform Program for the Fertilizer Sub-sector (RPFSS) was instituted in 1987 with assistance from USAID. As for the Special Program for Importation of Fertilizers (SPIF), it took off in 1988 with the support of the European Development Fund (EDF). These programs have aimed to put in place a sustainable and efficient program for the import, distribution and use of fertilizers based on a private non- subsidized mechanism. To this end, their objectives include to liberalize and privatize imports and distribution of fertilizers; to conclusively terminate direct subsidy to fertilizers; and to encourage the effective use of these fertilizers. Though the result of the third objective seems unclear, the first two have been achieved. The reform schedule was slightly different for fungicides and insecticides. The reduction of the rates of the subsidy for the two, starting from 100% in 1990, was due to be respectively 50 and 100% in 1991192, 25 and 50 % in 199211993 and 0% in both cases in 1993194 (Valet 1997). Several actors intervened in the various components of the distribution system (See table 4). The overall inputs sector is dominated by HYDROCHEM, which is the sole local producer of fertilizers. It started its activities in 1998 when it received financing from RPFS, of about CFAF 400 million, to fund an industrial unit for the basic formulation of NPK and of micronutrients. This unit seems to offer a range of fertilizers adapted to Cameroonian production and soil (Ntsama, 2000). With regard to imports, the table 5 shows their trend as from the implementation of the SPFSS and SPIF programs. Imports declined until the 1994195 season due to the progressive phasing out of subsidies, which raised the price of fertilizers, as well as to the fall in prices of agricultural products, the main consequence of which was a decline in the purchasing power of producers who use these fertilizers. As a result of this subsidy phase-out, plantations of the cocoa zone are no longer sprayed though phytosanitary application remains vital to the production of good quality cocoa (Amin, 1999). The same goes for the Mungo catchments area which recorded a decrease in the quantity of fertilizers used in the cultivation of coffee as well as in the number of plantations that still resort to it (Douya, 1998). The substantial increase in imports in 1994195 was as a result of the CFAF devaluation, which, in further inflating the prices of fertilizers, assured a sufficient upsurge in prices of agricultural products to render them profitable. All the same, in the period as a whole, the consumption level is noted to be barely superior to that of 1986prior to the implementation of reforms. Of more than 1.2 million agricultural exploitations in Cameroon, less than 4% use chemical manure even though the peasants have shown the will to adopt its use (FAD, 1998). Average consumption stands at about 2 to 3kg/ hectare as against an African average of 7 to 8kgIha (MINAGRI, 1999). It is therefore noted that the needs of producers are far from being met. There are several factors explaining low consumption of inputs in Cameroon: Importers form an oligopoly that permits them to place the price of inputs at an unusually high level as compared to CIF prices; SPFSS and SPIF programs better target importers than users of inputs in their input-funding policy. As a matter of fact, there is no credit facility within the SPFSS to support the sustained use of fertilizers in agricultural exploitation; Farmers always find it difficult to have access to inputs, owing to their weak purchasing power and to the high cost of these inputs while demand is on the rise; The introduction of an average tax rate of 7.75% on the CIF value of inputs has contributed to their high cost. It can be substantiated from these constraints that Cameroon stands to benefit from harmonizing and homogenizing national policy on inputs with all supervisory structures that shall relay the programs at the level of users, farmers and in the zones concerned. Meanwhile, the analysis tends to show that during the adjustment period, the use of inputs was relatively more substantial. As a result, the position of Cameroon in the matter would have shifted towards protecting this sub-sector from liberalization measures. IV.2. Transfer of technology and Know-how: The case of agricultural research and extension services a. Agricultural research Agricultural research in Cameroon aims at promoting agricultural development in the domains of vegetable, animal, fishery, forest, food technology and ago-industrial production 8 as well as the environment. This research focuses on innovation, improvement, and creation of new varieties and vulgarization of its results. The Agricultural Research Institute for Development (IRAD) has been overseeing all research activities since 1996. Before then, the control of agronomic research was under two institutions, the Agronomic Research Institute (IRA) and the Zootechnical Research Institute (IRZ). To ensure continuous updating of knowledge and know-how, institutional links have always been maintained. France has always played an important role through its international research centers: "Centre de Cooperation Internationale en Recherche Agronomique pour le Developpement (CIRAD)" and "Institut frangais de recherche scientifique pour le developpement (ORTOM)". This relation then spread out from 1980 towards other bilateral (USA, Germany, Great Britain) and multilateral or international assistance/agencies (World Bank, ADB, FAO, UNDP, etc) and international agricultural research centers (ICRAF, IITA, ALCA, ISNAR, etc.). IRA is comprised of four Agricultural Research Centers (CRA), a Forestry Research Center (CRF) and a National Soil center (CNS). The CRA includes 11 research stations and 26 field units. The CRF on its part had 4 stations and 8 field units and the CNS 2 stations and 2 field units. The IRZ was structured around 3 centers, 7 stations and 5 antennas. These structures remained the same in spite of the merger. The choice of the location of centers follows the ago-ecological zones of the country with the ultimate aim of talung into account the production conditions and applicability. Research activities conducted within these schemes produced many results that were disseminated. IRAD (1996) shows that the following vegetable plants were nursed and popularized: 13 varieties of maize including 8 low-altitude and 5 high-altitude, 3 of cassava, 2 varieties of sorghum, 2 of cow peas (beans), 4 of rice, 2 of cotton, 4 cocoa hybrids, 5 clones of coffee, one of arabica coffee and 1 of oil palm. Among other results of these varieties are: Yield improvement. For example, the selected maize possesses a yield potential that varies between 6 and 7 tonslha as against 1 to 6 tonsha for unimproved varieties. The yield potential of selected cassava varieties is equal and at times higher than 20 tonsha as compared to only 12 tonslha for traditional varieties; Definition of optimal planting conditions; Increase in nutritional value (Ngatchou, 1997). As regards animal production, improved food formulas at low cost were introduced on the basis of local by-products for the breeding of ruminants and rnonogamics. Simple milk conservation and processing techniques were designed, including improved management techniques of pasturelands. In the forestry field, methods of regenerating timber varieties (Ayos and Sapelli) were developed. Two species of eucalyptus were selected. A map showing the soil fertility and composition was drawn-up as well as a rainfall erosion map. Agro-forests were created based on economic species. Rare economic species were domesticated including wild bees of high honey production potentiality. Despite the encouraging results recorded by agricultural research in Cameroon, these activities encountered many problems with the onset of the economic crisis in 1989 and the subsequent establishment of structural adjustment measures. Funding has always been problematic. The 0.5% threshold of the Gross National Product (GNP) set by the United Nations for allocation to research was never attained. Moreover, from 1987188,the fall in the budgetary package continued. This reduction of finds was felt both at the level of the human resources and the results. The entire personnel assigned to research dwindled by more than 65% in 8 years, from 3259 on 30 June 1988 to 1,132 in June 1996 [ISNAR (1987) and IRAD (1996)l. Between 1992 and 1994, IRAD received CFAF 5,720 million only, including State subsidy of 58.22% and 41.78% from external resources, as against CFAF 5,910 million pooled in 1984185from State subsidies to the tune of 95.26%. It devolves on IRAD to test the quality and norms of agricultural inputs products. The obsolescence of its equipment, the insufficiency of personnel and the inadequacy of qualification in relation to recent scientific developments (Genetically Modified Organisms - GMO-) may create problems with the trade liberalization envisaged by the WTO. Deadlines for publication of results of tests and the lack of slull in certain domains may constitute new constraints to Cameroon's future exchanges with the other countries of the world. Hence the need for strengthening the technical and human capacities in this center which may at the regional level become a reference center considering its long standing experience in the field. Likewise, partnership agreements with private undertakings must be intensified to diversify and stabilize sources of financing. The institution must also think about the marketing of its results given the fact that its research was carried out only for the purpose of public utility. It does not hold any patent or license. b. Agricultural extension services Agricultural development corporations in Cameroon have been fulfilling several functions, including the production or marketing of agricultural products as well as the training of peasants. As shown in table 6, some of these corporations were active in more than one of these domains. State intervention; through them have been either be direct or indirect. Direct intervention involves production just like independent farmers, and this, at times, proved useful for the transfer of knowledge and the adoption of modem techniques. In addition, this was a development tool. For example, CDC has been active in the production of banana, palm oil and palm nuts, tea and rubber. It has created social services such as schools and dispensaries for its employees' children; it ensures the marketing of its produce. Through a partnership agreement with Del Monte, this latter has made major investments in the banana sector, in exchange for exclusive rights in the marketing of this commodity. In return, the government has an export tax of CFAF 4,500 per ton on bananas and palm oil a 57% import tax rate. CAMSUCO and SOSUCAM intervene in the production of sugar with the purpose of achieving self-sufficiency. More than 3,000 direct jobs have been created. Unfortunately the production cost is too high for adequate competition with cheap imports. OCB was involved in the production of bananas and helped create of thousands of direct and associated jobs. While production recorded a continuous decline, a restructuring of the Board started in 1987 and led to its privatization in 1990. Since then, the new owners have made investments that have resulted in a boom with production shooting up from 74,600 tons in 1990 to 260,000 tons in 1998. Other forms of intervention include the provision of agricultural inputs and the development of farmlands for private producers. In the cocoa sector SODECAO, served as an intermediary to FONADER for the supply of subsidized inputs to cocoa producers and it directly carried out certain production operations such as phytosanitary treatment. Its intervention helped to ensure the maintenance of plantations and the production of good quality cocoa. SEMRY, SODERIM and UNVDA focused on developing farmlands, employment of independent peasants in the imgated farming of rice, supply of inputs and credit and paddy processing. - SODECOTON, among other things, trains and supervises the producer and employs more than 1000 extension workers whose mission is to provide producers with effective technical methods and improved seedlings. The producers also benefit from a pre-financing of the entire stock of inputs and repayment is only deducted during cotton sales. This continuous training and supervision has helped sustain the growth of cotton production while that of other export commodities has collapsed drastically. Besides training and supervision, SODECOTON processes cotton oil and exports cotton fibers. Marketing has been less successful and has been carried our by MIDEVIV and the Cereals Board for food, and the NPMB in the case of export commodities. The first mission of MIDEVIV then consisted in securing a regular and stable supply of staple foodstuffs to the urban population. To that end, it received State subsidies, which it used to set up a ' green-belt ' around major cities by marketing its products. The National Produce Marketing Board (NPMB) was in charge of marketing export crops, especially coffee, cocoa and cotton. On the whole, the Board did not play its role as a buffer between the world market and producers, once world prices started their downward spiral towards the end of the 80's. As part of the liberalization of agricultural sectors, the Board was liquidated and replaced by the National Coffee and Cocoa Board (NCCB) and by professional organizations including a group of exporters. The last area of intervention for public authorities concerns the training and supervision of peasants. Main achievements include improved seedlings, notably maize varieties adapted to the various farming zones, cocoa hybrids, coffee clones and a variety of oil palm. Farm credit is provided by many agencies including the Financing of Investment in Community-based Micro Agricultural Projects (FIMAC) that has in less than a decade granted credits totaling CFAF 1.1 billion to 2885 groups. Despite the efforts of FIMAC, funds mobilized and distributed remain far below the needs of producers. IV.3. Competitiveness and food security interests:The case of palm oil In Cameroon, food insecurity was, in certain cases, worsened by the export of products that were already showing a deficit at local levels. This situation is due to the divergence of interests between opportunities of profit for producers and the need to satisfy the requirements of household food consumption. This was the case with palm oil in the 1990s when the currency devaluation rendered the product more profitable to export. To resolve this problem and satisfy local demand, the State had to organize consultations with producers so as to limit exports. This solution was easily accepted at the time, given that the major producers were para-public enterprises under State authority. Despite the decline in exports that ensued, consumer prices increased by 57% between 1990 and 1999. This increase arises from a persistent deficit that, for the year 2000, levels around 45,000 tons, considering that the production of palm oil was estimated at 130,000 tons while demand for its various domestic uses neared 175,000 tons (Bata, 2000). The sector recorded this deficit even though the protection granted it would have rather favored the growth of production. Actually, to protect the latter, imports of crude and refined oil outside CEMAC were subjected to a 50 to 57% tax including 30% customs duties, 18.7% VAT, 1 to 5% tax deduction and a 1.5% data processing tax (MINAGRI, 2000). The situation may likely become even more disturbing with liberalization, within the framework of future WTO negotiations. To enhance competitiveness and satisfy domestic needs of 220,000 tons by the year 2010, it is important to overcome the following major constraints noted by a recent study of IRAD and quoted by MINAGRI (2000): Because of the ageing plantations, productivity is low and, estimates show that by the year 2010, only 23% of present plantations will still be productive; Due to a poor agronomic decision, about 30% of plantations were established under unfavorable pedo-climatic conditions; Producers find it difficult to have access to selected vegetable materials and to chemical fertilizers; Lack of regulations on the production of vegetables led to the sale of poor quality products to producers; Poor state of farm-to-market roads and insufficiencies at the level of processing led to both high production costs and consumer prices. Increased production would require planting an average 5,000 ha per year in appropriate agro- ecological zones till 2005, and increasing use of improved material (MINAGRI, 2000). Since 1994, some tangible process has been noted in the sector, notably with the sustained participation of elites, whose investment in creating plantations is presently evaluated at 2,000 to 3,000 halyear (Bokagne, 2000). The continuous decrease in prices of major traditional export commodities is likely to guide other investors towards oil palm cropping and the efforts of the elites are likely to intensify. IV.4. Marketing, labor and transfer entitlements: Agricultural market information services Agricultural information is dominated by government entities which overall provide a near complete coverage of peasant activities. The extension workerslpeasant ratio in 1998 was estimated at 11300. Training and advisory activities are also placed under Non-governmental Organizations (NGO's), co-operatives and private service providers so as to encourage them to support government action towards disseminating information. The general organization of the information system is represented on graph 1. In general, information on research is gathered and disseminated by PNVRA and those on crops, production, marketing, prices and use of inputs by NEWS. The PNVRA covers almost all provinces of the country where it popularizes agricultural techniques to satisfy the requirements of peasants. In 1996, this body mobilized close to 2,350 extension workers or an average ratio of 1 to 800 farmers. The communication techniques applied are essentially meetings, seminars, experiments and fairs. On its part, NEWS collects and disseminates information through the radio, newspapers, diagrams and cartoons, bills and stickers, meetings and seminars. It is particularly specialized in foodstuffs. One of the important roles of NEWS is also to alert authorities to any disruptions that may occur in the agro-industrial sector. Graph 1. Agricultural sector general information System organization Other Ministries * MINCOM (Coordination) * MINRES MINAGRI I (Piloting) NGOs and Governmental institutions (Government, Producers, Traders and consumers) Source: By authors NGO's, private partners, and bilateral co-operation projects organize seminars to disseminate a variety of information relating to the economic and social, institutional and legislative contexts, the evolution of agricultural techniques and technologies, etc. There is even a private publication specialized in agricultural information, "LaVoix du Paysan". Private operators often intervene in specific sectors. These include the coffee and cocoa International Council (CCIC) the Cocoa, Robusta and Arabica Coffee Market Information System (CRAMIS) which specialize in cocoa and coffee. CRAMIS monitors and publishes international prices and price proposals to farmers in the various production areas. With the end of STABEX financing in 1996 and the takeover by the government, the availability of information has become very irregular. Using an information bulletin, CCIC publishes information on the functioning of cocoa and coffee sectors and on reforms of their institutional frame. Private distributors of inputs advertise their products through traditional channels. A user-friendly information system specifically designed for farmers can be said to exist at present, which provides them with information needed to improve the production and marketing process and which is available all over the zones of production (Varlet and Berry, 1997). This information system is plagued by numerous constraints: The lack of real co-ordination between the various operators engenders overlap and fragmentation of responsibilities; The incomplete training of extension workers which gives way to a lack of technical know-how; as a result they are often unable to answer all questions asked by peasants; The lack of institutional links between research and other agricultural extension agencies, which often creates conflicts of interests that do not permit a proper utilization of numerous research results; The rural communication system is less effective owing to the poor command of local languages by extension employees and; The lack of genuine motivation for extension workers and the unavailability of funds, logistic and of equipment is the root cause the irregular flow of information. 1V.5. Phytosanitary protection Before the reforms introduced by the SAPSsince 1989, the Cameroonian government used to organize the supply of inputs and agricultural equipment to farmers. The National Rural Development Fund (FONADER) ensured the financing of these supplies. The funds of this body came from government transfers and price stabilization of primary commodities. The latter were marketed in a bidding system, with cooperatives playing the role of intermediaries between these organizations and farmers in some cases. Phytosanitary treatment operations were however left to farmers. Conversely, the government was heavily involved in the treatment against insect pests. Treatment was entrusted to public organizations. This type of intervention was justified by the extent of the insect pest invasions and their mobility, which sometimes required the treatment of an entire zone. The advent of the economic crisis and the implementation of reforms signaled the end of government intervention in the distribution of phytosanitary products and the treatment of vast infected areas. The FONADER ceased its activities by the end of the 1980's. Since 1994, farmers and their organizations (cooperatives) have been left to themselves for the acquisition of phytosanitary products. Non-public or quasi-public organizations do not intervene in this channel any longer. Phytosanitary supplies and treatment are then left to the interplay of market forces. Technical training programs for young farmers to acquire phytosanitary know- how have been organized to accompany this liberalization. Similarly, the material that belonged to the government was put on sale to facilitate access to equipment (Varlet and Berry, 1997). Law No. 90/013 of August 10, 1990 outlines Phytosanitary regulations in Cameroon. This law specifies the conditions governing importation, exportation, conditioning, storage and distribution of pesticides for agriculture. Decree No. 92/223/PM of May 25, 1992 defines the terms and conditions relating to the enforcement of this law. It is aimed at preventing the introduction or the propagation of plant diseases, and to ensure the legality and the quality of phytosanitary products in use within the national territory, as well as the use of these products with minimum harm for humans and environment. The implementation decree of this law stipulates that the importation of plants and plant products, soils or cultivated environment be accompanied by a country of origin document and by an import authorization. Similarly, the exportation of the above mentioned products require a phytosanitary certificate on the sanitary status, the origin and destination of those products. The authorization and the certificate are issued in Cameroon by the phytosanitary services at the request of the importer or the exporter according to the terms and conditions fixed by the Ministry of Agriculture. The provisions of the decree also regulate the procedure for the preliminary authorization to market and to use pesticides for agricultural purposes. This procedure goes through the followings steps: A chemical analysis by a national or foreign laboratory; An efficiency test over the last two years on the uses indicated, to be conducted by IRAD or any other dully authorized national organization; The pre-popularization of the pesticide, in case of conclusive test over a minimum of one year, by the national extension services. This procedure is quite long and costly. In addition to the fact that the promoter of the pesticide is responsible for the expenses resulting from these tests, one must wait for up to three years to start marketing a new pesticide in Cameroon. Besides, this procedure of authorization is subject to the promoter filing the following documents with the Ministry of Agriculture: An application bearing the name of the manufacturers or the importer as well as the nature and the characteristics of the pesticide; A certificate or a copy of the documentjustifying the authorization of the pesticide in other countries, or its recognition by the FA0 and lor the WHO; A model of the labeling; The technical characteristics of the product, the description of the packaging and the conditioning, the analytical methods used to determine the active ingredient and the amounts of pesticide residue; A report on the pharmacotoxicology of the pesticide; A report on the effects of the pesticide on humans and the environment; Instructions, dosage (indications, contra-indications and antidote); Authorization for the exporter of the country of origin; The position of the pesticide under a sealed confidential envelope. The authorization procedure is under the responsibility of a commission comprising representatives from seven ministries (Agriculture, Research, Animal Husbandry, Industry, Public Health, Environment and Water and Mines). All of the phytosanitary products used in Cameroon are imported. France is the main supplier with nearly 46% of total imports. V. Unilateral agricultural trade policy The identification of Cameroon negotiation position requires an adequate overtime profile of agricultural trade policy in recent times. We consider two main periods: prior to 1988189 and since 1989190.The first period predates the countries unilateral SAP-driven liberalization and the second combined the SAP and WTO liberalization efforts. V.1. Agriculture and trade until 1988. The main objective of trade policy adopted during the two decades following independence was the need to protect the national infant industry from foreign competition. Important tariff barriers and quantitative restrictions (QRs) based on the General Trade Program (GTP). The GTP prescribed import and exports authorizations, export and import price adjustments, a twinning of local and import products and price controls3. Table 7 gives an inventory of agricultural, food and agricultural input products subject to those trade restrictions. Another characteristic of the protectionist trade policy of this period is reflected in the fiscal structure of the country. It comprised more than 20 different taxes, applicable selectively to import and export products at rates sometimes reaching 90 per cent of the cost, insurance and freight (CIF) value (see table 8). In spite of the above-listed tariffs and QRs, State-owned corporations also indirectly managed the agricultural market during that period4 On the internal market, State direct intervention was through laws, to keep price fluctuations under control by defining reference prices and maximum margin per commodity and per category of dealer. In some cases, the State went as far as substituting itself for private agents. On the international market, the National Produce Marketing Board (NPMB) was set-up to trade basic commodities, such as coffee, cocoa and cotton. The Board then enjoyed monopoly for the international transactions of these commodities. In addition, it played the role of broker between the international bodies involved in this sector and the farmers. Thus, the NPMB monitored the STABEX funds with European partners, as well as discussions within the International Cocoa Organization (ICO) among others. The NPMB was also expected to stabilize the main agricultural export prices. Part of the producer price was thus converted into procurement that was often paid to farmers during the planting season. The Government also assisted farmers by subsidizing agricultural inputs (fertilizers, phytosanitary products). This support was provided through some public enterprises, which were closer to farmers. Depending on their main activity, such enterprises provided assistance to farmers, served as autonomous economic agents or could be involved in the trading of agricultural products. Various forms of assistance were developed and specific enterprises were set-up for the purpose. Other enterprises were settled in specific production zones, with responsibility of promoting the adoption of new seeds varieties and more efficient production techniques5. Table 8 gives the tariff structure of main agricultural products before and after 1994. Tables' 9 and 10 gives the extent of tariff protection in 1989190. The first table shows that about 14 taxes and duties were applied to the main agricultural import and some 10 taxes and duties were applied to the corresponding exports. The total rate of those taxes ranged from 41.4 to 87.9% on which other charges of CFAF 875 per tone are added. It can be shown in the other tables that, contrary to the industrial sector, the agricultural sector rates of protection are lower as compared to that of the industrial sector. The NRP and ERP for the agricultural sector are only around 20 per cent. Nguidjol(1998) has shown that most industrial sub-sectors were nominally and really given a protection of 50 and 70 per cent in 1989190. However, it can be seen in table 11, that most important foodstuffs are facing non-tariff barriers such as QRs, import and export licenses, twining import and local product process. 3 Price adjustment consists in using import tax revenue from a particular product to subsidise local producers of the same product. The twinning of import and local products consists of authorising the importation of a quantity of a specific product in proportion to the local purchase of the product. 4 See below for the analysis of the importance of STE in the country. 5 See section on input policy. 16 In addition to the very deep involvement of the government in trading channels and the very high number of taxes levied on agricultural trade, these non-tariff constraints engender acute - inefficiency at the level of local production and food security. The price determination system, independently of world market trends has instilled heavy losses on producers and has consequently frozen new investments that could have been realized in the sector. Thus, the equivalent taxation threshold borne by cocoa farmers have been estimated at 24 to 76% between 1970 and 1985. While that of coffee farmers has been evaluated between 35 and 76% within the same period (Banque Mondiale, 1989). As concerns food security, holders of licenses ascertain that maximum use is made of the advantage situation conferred to them by the monopolistic rights derived from licenses. They artificially maintained a shortage of the product for which they hold licenses. This is the case with rice, vegetable oil, sugar, meat and fish of which, in addition to QRs, consumer prices are regulated. V.2. Agriculture and trade Since 1989190 As a result of the implementation of Structural Adjustment Programs (SAPs), the policy regimes changed significantly beginning in 1988. The QRs as well as price controls were gradually abandoned. An important aspect of the liberalization of the markets was the restructuring of marketing of major agricultural exports and the break-up of the NPMB with the private sector empowered to set prices to farmers and exports. This State withdrawal was accompanied by a number of measures among which were the compilation and liberalization of professions. The compilation refers to a simple invoice, which enables the exporter to acquire a compilation certificate indicating the sale price of the product exported. During effective shipment, this price is compared to that of the season. The State levies or compensates the exporter if the price is higher or lower than that of the season. A consequence of this process vis-a-vis the exportations is the ensuing rebate ranging from 40 to 70% on cocoa and coffee as well as the lost of the Cameroon label on those products (Douya, 1995). The liberalization of the export processes has intensified the deterioration of the quality of product by favoring the entry of non-professionals without the necessary skills in the assessment of the quality of products. Another significant impact of SAPs is the adjustment of the national agricultural policy through the Agricultural Sector Adjustment Program (ASAP) implemented in 1994. This program comprises four main objectives: (1) create a favorable agricultural sector environment to boost production, (2) ensure food security, (3) improve agricultural productivity by reducing production costs and (4) increase agricultural competitiveness (MINAGRI, 1994). In 1994, a substantial reform of tariffs and indirect taxes, proposed within the framework of the UDEAC Regional Fiscal Reform Program (RFRP), was implemented. This reform implies the reduction, not only of the tariff and indirect tax instruments, but also of the scope of fiscal exemptions and customs duty and tax rates. It aims to (1) simplify the fiscal system to allow for easy and transparent administration, (2) increase fiscal yield through improved revenue collection and (3) improve the efficiency and competitiveness of enterprises within UDEAC through a wider tax base and reduced and uniform tax rates6. The fiscal liberalization is reinforced by the devaluation of the national currency (CFAF) of which the impact on the agricultural sector was important. The impact of the reform on the tariff structure and rates can be seen in table 12.An important reduction is noticed in the number of taxes and rates. a. Country's Experience with and in the URAA. The focus is on the three pillars of the negotiations: market access, domestic support and export subsidies. The level of (direct) subsidies to agricultural production and exports was minimal even before the SAPS,such that our main focus is on market access. V1.1. Agricultural tariff market access The first aspect of market access is the identification of main agricultural exports as well as destinations. The European Union remains the main outlet for Cameroon' products, thanks to the preferential trade agreements of the LomC Conventions. There are some openings in America, Africa and Asia as can be seen in the data on table 13. The opening towards Asia became remarkable in 1991, and trade within Africa was timid due to the drop in the share of the Maghreb, which somehow contra-balanced the upsurge of the SSA market. The North American market is still very small, mainly the USA that takes more than 95% thereof. Fourteen products make up 99% of total agricultural exports (See table 14). 95 of 514 lines Cameroon' products of the 9506 customs schedule lines of the EU code, faced a zero Most Favored Nation (MFN) duty rate. Overall, 98% of the schedule lines on which Cameroon exports into the EU take place pay no tariff once restrictions such as on rules of origin are met. In the EU the pre- and post-UR applicable tariff facing Cameroon exporters are quite low (see table 16). In addition the country had a comparative advantage as most competitors were trading at MFN rate. These MFN rates are due to fall and some preference schemes such as that of the ACP-EU accords are due to be either dismantled or opened to competitors that on average has a better cost structure. One of the main consequences of the UR negotiations on Cameroon' agriculture is, therefore, the erosion of preferences and lost of competitive positions. Analysis of preference erosion using 1992 data indicates that the country' non-oil product exports faced a 3.81 average tariff but a zero rate was applied because of special treatment. This yields a 3.81% preference margin. The post URAs MFN rates is 1.62% leading to preference margin erosion resulting from the implementation of the URAs. Only 28.5% of the country' exports outside UDEAC experience a reduction in MFN rates of an average of 3.7%. The post rate is a mere 1.2. Other factors behind the preponderance of the EU include history, existing legislature and regulations, logistical considerations, information on markets and institutions in partners' countries, and language. To increase diversification, useful trade policy have to be formulated taking into account conditions in countries supplying similar products (see table 15). African 6 See Njinkeu (1997). kamgnia (1997) and Bamou (1997 and 1999b) for more developments on that fiscal reform. competitors have also to be considered as possible partners for negotiating a smooth integration in the world economy through regional integration. Table 13 shows potential for Cameroon' agricultural market diversification. The EU market will be an important destination for many more years; hence the importance of trade relationship with EU in hture negotiations. As concerned import regimes, the level of protection to domestic agriculture is given in tables 6 and 7. In spite of the lower protection of the entire agricultural sector, it can be noted that the perennial and fishing sub-sectors were highly protected before the 1994 fiscal liberalization and currency devaluation. The observed general decrease in the rates of protection is realized through the liberal trade policy option adopted by the government during the period under study. The relative increase in protection after the devaluation can be explained, not only by the taxes imposed on the main agricultural exports, but also by the improvement of the tax collection system due to the computerization of customs and duties. The country also reduced all non-barrier tariffs on agricultural imports. The country undertook to bind agricultural products at a ceiling rate of 150% and a maximum 80% for other duties and charges. The bound rates for most products are considerably higher than applied custom duties7. VI.2. Agricultural non-tariff market access In general, progress on agncultural non-tariff trade restriction was important during the URAs with the progressive phasing out of the Multi Fiber Agreement (MFA). However, agncultural exports still facing heavy non-tariff barriers (NTBs): (1) safeguards, (2) sanitary and phytosanitary (SPS) measures, (3) technical barriers, (4) dumping and countervailing duties. The SPS measures are probably the biggest constraints both on import and export. They are used to protect food safety and animal and plant health but can be subject of abuse if used indiscriminately8. Through 1993, 43 agricultural and food products have been concerned by safeguard measures. Products covered by SPS include most country' agricultural non- traditional exports (fresh fruits and vegetables, food preparations, meat and meat products...). The lack of information on the SPS measures applicable to products in target markets is constraining the Cameroon' agncultural exports diversification process. Mostly as part of SAP non-tariff barriers such as quantitative restrictions have been eliminated. See progress on QRs liberalization summarized in table 11. V1.3. Domestic policies and constraints for the forthcoming WTO round Cameroon removed most of the policies that previously biased the incentive structure against exports as part of unilateral SAP-driven liberalization. Cameroon made no specific commitment on domestic support for agricultural production and those in operation after the SAP are in general WTO compatible. For example, these measures include government assistance for inputs, exports transport and marketing, research, pest or disease control, infrastructure, and food security. 7 See the section on regional integration. 8 See the section on Cameroon laws and regulations pertaining to SPS. 19 Constraints to export-led development are mainly in export support services and institutions that are either lacking or are inefficient. These include infrastructure for production and export (sea and air transport, storage, packaging and normalization), investment promotion for domestic and foreign investors, export promotion schemes, duty exemption schemes, bonded houses and entrepreneurship or private sector development programs. Slow progress on the reform of telecommunication, electricity, water, rail-sea-air transportation and the financial and insurance sectors has not allowed the enhancement of competitiveness. The average border protection to agricultural products in developed countries increased after the entry into force of the URAAs. This is particularly true for temperate-zone food products such as the major staples, fruit and vegetables, and processed foods. In the EU average tariffs is higher than 20% for 60% of tariff lines in cereals, 54% of tariff lines in dairy products, and 53% of tariff lines in Sugar, Cocoa etc). Meat, life animals, prepared fruit and vegetables, and other food products have more than one third of their tariff lines affected by tariff peaks (i.e. duties of 20% and above). Some tariff lines attracted more than 100%rate. Furthermore, tariff escalates on important product categories, thereby limiting possibilities of developing a strong agro-industrial sector and keeping the incentive to export primary, low valued-added products. The SSG measures give the right to Members to increase tariffs above bound rates in response to a surge in imports or a decline in import prices. Cameroon did not incorporate this right in its WTO submission, purely due to lack of expertise. This was the case for most countries and as a whole the SSG has benefited only the developed countries. In the pre-liberalization phase the government was involved almost at each phase of production and marketing of agricultural products. This policy is being implemented through commodity and marketing boards, and state trading firms. This policy was in the framework of a Green Revolution that viewed agricultural development as an integrated process to ensure economic take-off and addressing comprehensively rural problems such as rural exodus and labor mobility, rural poverty and integrated social development. Most of these features, at least for the transitional period, were missing in the country's development strategy. The current agricultural policy regime is more liberal with a more neutral incentive structure. Other related agreements As shown in table 3 several agreements have a direct bearing on the performance of the agricultural sector and should be considered in an overall process of ensuring that the negotiations lead to enhance performances. One of these is on Sanitary and Phytosanitary Standards (SPS) as well as on technical barriers to trade. Members of the WTO have the right to enact measures that adequately protect their population, food supply, animal and plant life and the overall environment. This protection needs to conform to international norms. Members can also mutually recognize their standards and should put in place a transparent system of testing. CurrentAgricultural Policy Regime Orientations of the New Agricultural Policy (NAP) revolves around three major axes that successively cover: The increase agricultural production competitiveness with a view to promote agricultural exports and to strengthen food security; The improvement of environmental factors and of a suitable frame for the agricultural sector; The modemization of the institutional frame of the sector (MINAGRI, 1998). Specific guidelines are outlined in the implementation of each of these three axes. The following actions are envisaged in relation to improving production: Develop modernization of agricultural exports by improving access to technical, financial and land inputs; Promote a rational and sustainable use of natural resources, while assuring compatibility between the various social, economical, technical and ecological constraints; Consolidate the organization and develop the main production sectors directed towards exports and industrial processing given the importance of their social and economic importance; Strengthen food security, notably in high population density and fragile ecological zones within the frame of integrated development programs. In order to improve the environmental factors, as well as the suitable frame for the agricultural sector, four main strategic guidelines are outlined: Define and institute a suitable frame specific for Small and Medium-size Agricultural Enterprises (PMEA) in production and processing so as to increase the mobilization of private national investment in a modem, competitive and job-generating sector; Develop access to regional and sub-regional markets that presents important market possibilities for several domestic products; Complete the withdrawal of government from the activities likely to ascribe to competitiveness; this reform has as corollary the need to consolidate professional organizations so as to develop a new partnership in the management of the sector; Increase agricultural revenue by relying mostly on improving productivity at the level of production and marketing so as to consolidate the competitiveness of agricultural products and to contain the inflation of consumer foodstuff prices. With regard to modernization of the institutional frame, the main strategy consists in consolidating the State of Law in the trade and financial domain, by assuring a flexible management of procedures so as to create a more favorable and foreign investment in the agricultural sector. The current policy regime is consistent with the overall move toward liberalization. Protection is limited and is almost exclusively provided through tariff. Input supply and distribution has by and large moved from heavy government involvement to greater private sector participation. One drawback of the liberalization is the possibility that on some products, because of several market failures such as lack of information among partners, competitive market operation is not operative. As a result the objective of protecting the 2 1 remuneration of farmers cannot be achieved. Also the quality has declined and thereby limiting government revenues from agricultural exports. VII. Impact assessment of unilateral liberalization Partial equilibrium and general equilibrium analysis are used to assess the impact of the country unilateral liberalization on the agricultural sector. VII.1. Partial equilibrium analysis We shall in turn consider the impact of the currency devaluation and the rest of unilateral trade policy. The costshenefits approach is used to analyze the 1994 devaluation with focus on selected export and food products. Despite an upturn of production costs of about 35%, there was an overall increase in profit of cocoa, coffee and cotton after the devaluation. (See tables 17-21). These results reaffirm conclusions drawn by studies of the World Bank (1991) on the existence of a potential comparative advantage within the Cameroon agriculture. Recent studies, conducted by Douya (1998) and Bamou (1999) and using the Domestic Resource Cost (DRC) approach, strengthen these conclusions. At the level of foodstuff commodities, though the devaluation led to a reduction in imports, the links between local production and imports in the supply of basic commodities to the population remained unchanged. However, some local products, like maize and palm oil, recorded a high supplementary demand. Unfortunately, the absence of a coherent policy did not help producers to take advantage of this opportunity. There has been an immediate upswing in imports (see table 22). The expected effects of the devaluation on exports were even inhibited by certain measures undertaken by the Government such as the introduction of excise duties on the main agricultural exports (15% tax rate on cocoa, cotton, sugar, rubber and medicinal plants, 25% on coffee, 30% on palm oil and FCFA 6500 per tone of banana). The 25% tax rate on coffee exports reduced not only the margin of brokers but also and above all the price paid to farmers by about 30%. This situation therefore helped in eroding the incentive of farmers to increase production and in addition it helped the smuggling of goods into Nigeria, where no taxes are paid. A second assessment is that of the overall trade reform on the agricultural sector. The new trade policy option ,adopted by the Government in this last period has directly and significantly affected the agr~culturalstructure and level of protection. Due to lack of data on individual agricultural product tax rates, nominal and effective rates of protection (NRP and ERP) are calculated for the main agricultural sub-sectors. Due to the unavailability of data on sub-sector's product international prices, the tariff nominal rate of protection is used as a proxy of the NRP. The output-based NRP is used for calculating the EW~. The following formulas are thus used for the calculations: (1+t). (1 +rmi) NRP, = - 1 (1+ td,) 9 The Balassa calculation approach of the ERP is preferred to Corden's. Data used are from the recent input-output tables published by MINEFIlDSCN (1999). 22 NRP, + x a , NRP, Where t, tmi, tdi, a,,, W i , NRP, are ad-valorem total imports tariff rate, sub-sector imported products tariff rate, domestic sub-sector products tax rate, in-putfout-put coefficients and nominal rate of protection on out-put and in-put respectively. The results, summarized in tables 9 and 10, show that, contrary to the industrial sector, the agricultural sector rates of protection are lower. From 1989190to 1996197, its hTRP and ERP are only around 20 per cent. One important feature of this is the process of liberalization followed as compared to what was done by developed as part of the URAA. In two cases, namely on perennial agriculture and fishing we did observe a sharp increase as a result of taxation of quantitative restrictions. In the case of perennial agriculture the rate went from 4.1 to 74 but within two years it had been brought down to 26% and at the entry into force of the URAA it was only 18.4%. An even faster rate of liberalization is obtained for the effective protection that goes from 131.7 in 1992 to 25.2 in 1995(See tables 9 and 10). Another outcome of the liberalization process is the profound change in the government behavior vis-a-vis domestic subsidies. There is no direct export subsidy in place in the country. The URAA permits export subsidies on agricultural products for those that existed. The structural adjustment programs eliminated all possible subsidies, including some of those for which developing countries obtained the possibility of an exemption. Meanwhile, the government has undertaken to create an enabling environment for the development of agricultural activities, both at the level of exports and in the domestic market. At the level of exports, for instance, measures tailored to favor competitiveness of the agricultural exports were taken as from 1996. The new taxes introduced immediately after the 1994 devaluation were cancelled for two products (rubber and cotton). Likewise, a mean due period is setting for annulling those specific taxes levied on other products. Those taxes were expected to disappear from the year 2000. Since June 2000, they have been suppressed. In the domestic market, though all forms of direct subventions have been suppressed, Government is endeavoring to indirectly assist farmers and other operators of the agncultural sector. This assistance takes the form of credit grants and provision of scientific, technical and business information relating to their activities. Financial is thus granted through the public institution such as Capital Investment in Community-based Micro-Agricultural Projects (FIMAC), created since 1996 to facilitate the financing of the micro-agricultural projects. By 3 lMarch 1999, the accrued amount of loans granted by this institution to farmers reached the neighborhood of CFAF 2 billion. Despite the smallness of the sums granted, FIMAC has the advantage of covering the entire country as is shown by table 23. In conjunction with international organizations, (World Bank, ABD, IBRD...) government structures (National Project for Extension Work and Agricultural Training -PNVRA-, Support for Peasant Strategies and professionalism of the Agriculture -ASPPA- in its information facet) were set up to provide farmers and other operators within the agricultural sector with economic, business, scientific and technical information necessary to the development of their activities. Non-Governmental Organizations (NGOs), co-operatives and private service providers are at the same time assisted to support government action towards information and b extension work. Further details on this point are given in the paragraph dealing with the AMIS. V11.2. CGE analysis The above partial equilibrium approaches cannot allow the analysis of the overall impact of agricultural trade liberalization options (Goldin and Odin Knudsen, 1990). As such, simulations using a computable general equilibrium approach complement their resultsI0. Five main hypotheses are implicit in the model: (I) there exists a competitive market where price, quantity of goods and services, and factors are adjusted to determine supply and aggregate demand at equilibrium. (2) The sectoral supply of capital is fixed. Consequently, one can have different sectorial remuneration rates of capital in the economy. Technological parameters characterize the heterogeneity of the sectors. (3) The hypothesis of a "small country being a price-taker on the international scene" is admissible on the external markets. The share of Cameroon's market in intemational trade is too small to have any influence on intemational prices. (4) The hypothesis of underemployment of labor is admissible, taking into consideration the phenomenon of unemployment raging nowadays in the country. (5) The sectoral production is homogeneous. The specificity of our model resides in a deeper decomposition of the agricultural sector and the specification of the country external market. The agricultural sector is divided into five main sub-sectors: (1) subsistence agricultural (SAG) whose products are supposed to be tax exempted on the CEMAC market, (2) perennial agricultural (PAG), whose products are at present subjected to rising tariff in spite of the liberalization option, (3) hunting and breeding (HUB) for their importance in the food security of the population, (4) forestry (FOR) for the increasing importance of timber in agricultural exports and (5) fishing (FIS) is distinguished because of the importance of fish in imported food products as well as the important role its can plays in combating malnutrition of the population. In line with our food security analysis objective, the food industries sector (FIN) is distinguished from other industries (OIN). The oil sector (OIL) is also distinguished because of its importance in the economy. This sector desegregation also constitutes one of the originalities of our model as well as the use of a recent data base (1995196)which is supposed to incorporate the adjustment of the structure of the economy after the 1994 national currency devaluation' I . To take into account the specific character of the CEMAC market, due to the fact that Cameroon is a member of that regional grouping, and that market is distinct from the rest of the world (ROW) market. This markets distinction is also done with a view to analyze the opportunity offered by the WTO agreements to the developing countries to reinforce their trade and/or economic unions. - ' O The structureof the model and the list of variables and parameters are giving in tables 24 and 25 " The database of the earlier models for Cameroon is dated 1984185 and 1989190. See Njinkeu (1997)for developmentson the advantagesof using a recent data base in the CGE model analysis. The model is made up of five main blocks (production, incomelsavings, demand, price and equilibrium). In the production block, the sectors produce by combining primary factors (labor and capital) and intermediate inputs (CI) in a two-level procedure. Products sold on markets are then distinguished from sectoral production. In the demand block, the distinguishing feature of the CEMAC market as a second external market for local economic operators gives rise to a special modeling of demand of domestically produced and composite products. A two-level constant elasticity transformation (CET) function, following the Njinkeu and Bamou (1996) approach, permits us to distinguish the products produced and sold locally (DC) from those exported to the CEMAC zone (EXUC) and the rest of the world (EXRC). In like manner, a two-level constant elasticity substitution (CES) function made it possible for us to obtain the Armington demand for composite products (Q). In the incomelsavings block. households receive salaries while the capital revenue is distributed among local agents (households, companies and government) who are owners of the capital invested in production activities. These agents save after paying taxes, consuming and making transfers. The sum of savings is used to finance the global country investment. Price specifications are standard. Nevertheless, Krueger et al. (1991)'s suggestion of taking into account the relative agricultural sector distortions due to export and import-substitute tariffs is considered. On the international market, prices are determined according to the origin and destination of the products. On the labor market, the practice of work contracts would suggest that salaries are rigid in the short term. In practice, this rigidity is conveyed by a personnel reduction during periods of economic recession and massive recruitment in case of revival (this is what happened in the public service, the country's main employer). This short-term rigidity of salaries is expressed in the model by unemployment equilibrium where a variation in the labor demand is conveyed by a modification of the unemployment rate (tch). The total labor supply (LS) and the salary rates are thus fixed and the endogenous rate of unemployment plays the role of labor market equilibrium factort2. One of the major implications of the foreign market segmentation is its impact on the trade balance, which becomes the sum of trade balances with other CEMAC member states (BCU) and with the rest of the world (BCR). The government cannot borrow indefinitely to finance the country's development. To avoid the financing of investment through increased foreign indebtedness, we have chosen to set the country's global trade balance at its initial level. To this end, regional trade balances (with CEMAC and the ROW) adjust themselves to equilibrate the foreign market. This approach is appropriate as welfare analysis is among our concerns. With such a closure, the welfare depicted in the model is specific to the generation under analysis and not the one borrowed from the future generation through indebtedness. Public expenditure is exogenous and government savings are endogenous so as to allow for an adjustment in budget expenditure on government revenue as recommended by the restrictive policies prescribed in the SAPS in place. The general consumer price index is thus used as a "numeraire". I 2 See Bamou (1997), Njinkeu and Bamou (1996) and Dissou and DecaluwC (1994) for alternative closures of the labour market in CGE models. 25 With a view to analyze the effects of future WTO negotiations on resource allocations and the food security population, a welfare variation model is added to the CGE model constructed. This model is inspired by the compensating variation (CV) and equivalent variation (EV) defined by Hicks (1956), associated with the development of purchasing power suggested by Hicks (1946) and Harberger (1971). The indirect utility function associated with the Cobb- Douglas demand function type deriving from the household consumption function in the CGE model is used in the specification of that welfare variation model. On the other hand, the liberalization options considered are the following: Tax exemption on agricultural imports; Scenario 1 with exemption of industrial food products imported from CEMAC zone; Scenario 2 with 25 per cent tax reduction on industrial food products imported from the rest of the world (ROW); Scenario 3 with exemption of agricultural exports; Scenario 4 with increased transfer from the ROW to the government equal to the fiscal revenue deterioration due to scenario 4, as international organizations promised external support to agricultural trade liberalization options in developing countries; Scenario 4 with double transfer of scenario 5 and exemption of subsistence agricultural products sold locally. Results analysis Our analysis is centered on the impact of simulated measures on agricultural and agro- industrial sectors, household incomes and consumption of food commodities. The implications on the main macro-economic indicators are likewise considered. The results, summarized in table 26, show that the exemption of agricultural imports (scenario 1) generates relatively positive effects on the overall production of foodstuff commodities as well as on the food security of households. The immediate impact of this measure is the reduction of import prices as compared to those of local production. These price reductions are accompanied by deterioration in the relative prices, which is prejudicial to local products. A slight decrease in production is recorded within the hunting and ago-industrial sectors, which are much in competition with exonerated imports. Moreover, this drop is less than proportional to the recorded increase within the remaining three agricultural sectors. Given that public expenditure is exogenous and fixed, tax exemption reduces budgetary surplus and, as result, the investment through a reduction of total investment accompanies global savings because of a decrease in Government savings. There follows a slight reduction of economic activities, accompanied by a slight aggravation of unemployment and a down- surge in household incomes. This reduction in income is, however, not strong enough to compensate for the positive price effects on the consumption of food products, which have slightly increased. Hence, the relatively positive variation in the household welfare due to foodstuff consumption increased, and thus a relative increase in the population food security. The exemption of agricultural imports accounts for Government's twin objective of budget equilibrium and improved agricultural production, as well as food security of the population. The macro-economic, sectoral and food security impacts of scenario 2 are almost similar to those of scenario 1. All the same, a clear reduction of the trade balance surplus with CEMAC is recorded, as compared to the initial year and scenario 1, which reveals that a sound 26 discriminatory regional agricultural and ago-industrial policies vis-A-vis the rest of the world could revive sub-regional co-operation within CEMAC. As regards scenario 3, the positive effects observed above in relation to food security are intensified just as much as positive agricultural production effects. However, the negative effects on industrial production, including ago-industry, reinforce the negative macro- economic effects of the two previous scenarios. The decrease in GDP now approaches 0.5% and unemployment increases by 1%. The drop in the tax rates on agro-industrial products from other countries did more than deteriorate relative prices between domestic production and imports to the benefit of imports. This resulted in a drop in local ago-industrial product demand as opposed to imports, which affected supply in the agro-industrial sector. This disproportionate drop, as compared to the upswing in the agricultural sector (it is not worth pointing out that the ago-industrial sub- sector is predominant in the country' industrial sector), coupled with compression in the global economic activity, resulted in relatively high rates of unemployment. With lower rates of local supply in agricultural and ago-industrial products as compared to imports upswing, there has been an increase in available food resources. Once more, the positive price effects due to tax rate decreases more than compensated for negative revenue effects, and resulted in a relative increase in household food consumption and the equivalent welfare and consequently an increase in their food security. According to scenario 4, the strengthening of positive production effects on overall agricultural sub-sectors offsets the negative effects on the industrial production in scenario 3, and enables a revival in global production which results in a notable drop in unemployment rates. The repeal of taxes on exports has enabled a readjustment of farmers' prices, which in turn has stimulated supply. The perennial agricultural sector, which suffered from more taxes as compared to other agricultural sub-sectors, is consequently the main beneficiary. The deterioration of the relative agncultural local sale and export prices to the detriment of local sales resulted in a significant upswing in exports towards CEMAC and the ROW. The respective increase in imports is an indication of the increase in the country's overall volume of international trade, which goes to confirm the theoretical expectations of that trade liberalization process. The results of both positive revenue and price effects on agro-industrial imports, due respectively to the salary increase and the prices decrease of scenario 4, have resulted in a significant positive impact on food security. However, tax exemptions on imports have caused the reduction of more than half of the budgetary surplus. Scenario 5, which reasserts the commitment by international organizations (World Bank, IMF and WTO) to assist agricultural liberalization programs in DC's, is an attempt to solve the budgetary problem that could originate from agricultural trade liberalization. In general, the effects of scenario 5 are positive, both at sectoral (agricultural, ago-industry and food security) and macro-economic levels. There is a notable improvement in agricultural production as well as a clear increase in the volume of consumed food products and in the households' welfare resulting from the foodstuff consumption. At the macro-economic level, the GDP growth rate has been higher than in scenario 4. Consequently, the decrease in the unemployment rate is almost the double of the level in scenario 4, thanks to relatively positive production effects noticed in the industrial sectors. In addition to these positive production effects, the budgetary surplus of the base year has been regained and even overtaken by more than 20%. Sector demands being addressed through a basket of composite products, increase of these demands is accompanied by producer price increases, which react by boosting supply. This then has a positive bearing on households' income. The combined positive effects of producer price and household revenue which adjust to demand and supply trends, are balanced by a substantial spur of households' welfare due to food consumption and, consequently, by an improvement of their food security. These positive effects are more than strengthened in scenario 6. VIII. Regional Analysis The regional analysis is considered in the framework of CEMAC and centers on two points the regional trade protocol and food security and the constraints and opportunities of CEMAC countries of negotiating together in the WTO framework. We conclude the section with the implications for the WTO 2000 agriculture negotiationsI3. VIII.1. Regional Trade Protocol and Food Security Like most developing countries members of the CEMAC had put in place since the 1940s a framework for economic and social polices coordination and harmonization. On the trade side this process was driven for a long time by protectionism, including important tariff barriers and quantitative restrictions (QRs) on imports leading to general bias against exports. Since January 1994,trade policy is legislated by a more liberalized fiscal regime namely the UDEAC's regional fiscal reform program (RFRP)'~.The Council of Head of States and a region-wide conference of Ministers of agriculture, forestry and livestock created since 1990 monitor policy harmonization in trade in apcultural and livestock products at the highest level. We first present the main elements of this harmonization before considering the trade regime. a. Regional Harmonizationof Agricultural Policy The agricultural, pastoral and fish breeding policy described under article 35 of the convention governing the Economic Union of Central Africa (UDEAC) of CEMAC, is elaborated within the frame of sector policies of CEMAC. Its objectives are as follows: Increase productivity in the agricultural sector by stimulating technical progress, by assuring a harmonized development of production factors, particularly labor, and thus improve living standards of the population; Assure profitability in agricultural sectors; Stabilize markets; Guarantee security for supplies; " Communatt Economique et Monetaire d'Afrique Centrale (CEMAC) which was created in 1998 as a transformation of UDEAC. Member countries of CEMAC include Cameroon, CAR, Chad, Congo, Equatorial Guinea and Gabon. l4 See Decaluwe et al. (1999) for the analysis of the regional tax reform and its relationship with regional integration. 28 Assure market prices in the distribution of products to consumers. - The following points are considered, in the elaboration of the guidelines of this common agricultural policy: The importance of agricultural sectors in the economy of members States; Structural and natural disparities between the various regions; The need to gradually conduct timely adjustments. b. Production and Trade of Agricultural and Livestock Products The new fiscal code created a more neutral and flexible trade and fiscal incentive system. On the import and export side, the program distinguishes goods according to their origin and destination within or outside the region. Contrary to the former tax system with four main taxes, the new system comprises only two main groups of taxes. The first element is the comprising customs duty and temporary surcharge taxes (excise and progressive taxes). The second is the turn over Tax (TCA) whose base is the sum of the Cost, Insurance and Fret value. the customs duty and the temporary surcharge taxes. In the customs duties code products are classified in either of four groups, representing successive levels of product transformation. Group I products includes necessary goods and has the smallest rate. Group II includes primary and equipment products. Group I11 products include semi-fmished goods and group IV comprises consumption goods. The tax rates per category are 5%, lo%, 20% and 30% respectively. A temporary surcharge tax was put in place to substitute for the protection formerly provided to firms via No-Tariff Bamers (NTBs). It is thus temporary and its rate varies according to products but may not exceed 30%. All QRs were mandated by the reform to be abolished in all UDEAC's member States by June 30th 1996 and the rate for the temporary tax reached zero by 1999. Sales on local markets are subjected to indirect taxes that are made of two components: (1) an excise tax and (2) a turnover tax. Each of these taxes has budgetary considerations. For locally produced goods and services the tax base is either the ex-factory price or the market price, net of other taxes. The turnover tax has two rates: (1) a normal and a (2) reduced one with the latter being applicable for necessary products.'5 There are preferential treatments on agro-processing; with exemption on equipment and taxation of intermediary goods. The turnover rates are freely fixed by each member state within the range of 3% to 6% for the reduced rate, and of 7% to 18% for the normal rate. In July 1994, the rates fixed were 5% and 15% in Cameroon. Since July 1996, these rates went respectively to 7% and 18%and the excise as well as the temporary taxes on imports and exports still not applicable. There was no tax on No-processed goods, hence most agricultural and livestock products are duty-free. The turnover tax rate is zero. The reform had introduced an initial duty of 20% to be reducing to 10% during the second year and to zero on the third. The entry into force of the regional reform program varied from countries to countries. It is effective since early 1994 in most countries. The tariff structure follows the regional ' The turnover tax is comparable to a value added tax. Among others, manufacturing equipment are exempted from the TCA and the TCA paid on raw materials is deductible when the finished product is sold. ~ommitrnent'~.Additional taxes are applicable especially on food products as follows: 1% ad- valorem data processing tax; 0.95% inspection tax for imports in excess of CFAF 2 millions; a veterinary tax of CFAF 5,000 per animal and between 2 and 3% for other animal products; a duty for phytosanitary control; a port tax with variable rates per ports; a toll tax for meat transport; and some specific taxes on some products such as rice, flour and wheat. Some of these taxes no longer have legal status and will be dropped. Export subsidy and taxation There is no export subsidy currently in the policymaker tool kit. The regional authorities left to the discretion of individual state the decision on the need for an export tax. Export tax is in force in Cameroon, CAR and Gabon. (See table 27). The main rationale for the tax was to capture in the public budget some windfalls profits due to the 1994devaluation. The implementation of these taxes has impacted on the level of trade. Agricultural products, although dominated by five products, represent about 25% of the value of regional trade. The main products include wood, fat and oil, tobacco, food preparations and sugar, trade in some products such as cocoa, rubber, fruits, milk, vegetables, cereal-based preparations. Cameroon is a net-importer of cereals, cereal-based preparations and milk. In CAR there is no ban on either import or export, except for ivory and some variety of logs. All derogatory regimes have been eliminated; there is a preferential taxation on intra-CEMAC trade. Exports are exonerated from the turnover taxation. Food production is also exempted from the turnover tax. To stimulate exports there is a preferential treatment of 15% turnover rate on equipment used as input in forestry exploitation. Tables 28-30 give respectively the level of agricultural and food crop production in CEMAC, the listing of products traded within the region and the characteristics of taxation applicable. Production is provided for two periods 1988 and 1996 and as such corresponds to the period of country-specific unilateral, SAP-driven liberalization implemented between 1988-90 and 1994. Two general observations are in order. Whereby Cameroon predominates on the production of agricultural products, for livestock it is only a major player. Chad in several cases is the dominant player and overall CAR is a respectable third player in the region. The flow of intra-agricultural trade shows a clear dominance of Cameroon on export. To the contrary, Chad exports its livestock production only in Cameroon, probably because of sanitary reason since Gabon and Congo would have constituted even more lucrative markets. Equatorial Guinea imports from Cameroon only and has no exports to any other member of the community. The matrix of intra-regional trade flows confirms the uneven pattern of benefits in the region. However, contrary to the case of industrial goods and services where the dominant players are Cameroon, Gabon, or Congo (until the 1980s), agricultural trade is filly dominated by Cameroon, livestock by Cameroon and Chad. As indicated, country-specific liberalization did not have a discernible impact on trade of agriculture or livestock. One reason is that the major bottlenecks had not been removed. Namely the Tax Unique, which was meant to stimulate intra-regional trade, became very distortionary (see Decaluwe et a1 1999); it was removed only with the 1994 reform. This was 16 Some countries considered these rates as a maximum. Since the entry into force of the regional refonn coincided with a major currency devaluation Cameroon and Gabon end-up using lower rates than those prescribed by the reform. 30 compounded by an overvalued currency that was also devalued in January 1994. Overall there has been a return to positive growth rates in the region as a whole. The extent of multilateral liberalization is given in table 31. There are two characteristics that are relevant for AoA. First, the level of participation is low. Only Cameroon and Gabon have submitted notification to the WTO. Equatorial Guinea is not yet a member of the Organization. Second characteristic is the low level of commitment made. The average applied tariff on agricultural goods in Cameroon and Gabon are quite low at 18.7 and 22.6% compared to the maximum notified rates that are between 9 and 12 times the applied average rates. Given that there is no quantitative restrictions on agricultural trade one would have expected the bindings to be close to the actual maximum TEC value of 30% plus the maximum surtax rate of 30%. One possible implication to this is the relative liberalization that can be attained in unilateral versus multilateral framework. Regional liberalization offers several desirable features the most important probably being the policy lock-in. For this reason, properly designed, regional rather than multilateral liberalization framework offers a better alternative to African countries integration in the world trade system. c. Food security in CEMAC The joint FAO, Economic Community for Central African States (ECCAS) and Central African Economic and Customs Union (UDEAC) report of 1993 (FA0 et al., 1993), show that if food availability is averagely sufficient to satisfy the energy requirements of the population of the Central African sub-region, it is however so unevenly distributed, that within the zone the following are generally noted: A frequently low calorific value; A very often lipid deficient diet, particularly in the Sudanese-Sahelian zone; A protein deficiency, particularly in animal proteins; More than a quarter of children at pre-school age are suffering from acute malnutrition in certain countries; Anemia is among the first ten causes of diseases in the whole sub-region and may be an important cause of death. This food situation is consequent to several causes that can be grouped under five main categories: The technical causes that group low agricultural production, insufficient supply of agricultural products and the ineffectiveness of conservation and processing methods; Material problems including insufficient road infrastructure and means of transport are of major important; Institutional or political causes including, the poor sub-regional integration, the non application of marketing and common customs policies, difficult access to credit lack of bargaining power, the inadequacy of the information system and of the training system; Economic causes including the inadequacy of price and inputs policies and the poor diversities of economies; 31 Social cause mainly due to rural exodus, which particularly affects the youth and which, by extension, contributes to the ageing agricultural population. This agricultural problem common to the sub-region is taken into consideration by the executive organ of UDEACJCEMAC in its common agricultural, pastoral and fish breeding policy and the food security program of the sub-region, which aims to eradicate the causes or to alleviate them. The common program of the food security policy jointly drawn with FA0 and ECCAS, aims on the other hand to: Improve physical and technical conditions favorable to the quantitative and qualitative increase of the supply of food products; Increase the marketing and processing potentials of food products; Strengthen the marketing potential of food products; Generate more jobs and revenue for the population. Specific actions are earmarked towards achieving these main objectives and thereby guaranteeing food security for vulnerable groups. That is why the realization of the first objective depends on: In marginal zones, where vulnerable groups live, a wealth of available and adapted technologies is introduced; Quest for new technologies to improve productivity and diversify production; Transformation of the animal production system to make it more effective; Equipping rural areas with social infrastructure. Action specific to the realization of the second objective are as follows: Reinforce the conservation and the processing capacities at the level of peasants through an inventory and spread highly-performant rustic technologies among others; Stimulate investment in the industrial processing of local products, notably by adopting and implementing tax-customs measures favorable to the development of the agricultural sector, including all activities related to agriculture. The following four actions make way for the third objective to be achieve: Promotion of intra-community and regional exchanges which requires the effective application of community measures aimed among others at, (1) eliminating tax and non tax bamers to sub-regional trade, (2) strengthening the economic information system on the production capabilities of member countries, (3) rehabilitating andlor constructing roads plying borders markets, encouraging and using insurance in the agriculture field including the transportation of foodstuffs and the standardization the quality norms relating to foodstuffs; Stabilization of the supply of food products in markets of urban centers and zones highly vulnerable to food insecurity by promoting consumption- based cooperatives; Ensuring that zones highly vulnerable to food insecurity are adequately supplied by constituting food reserves within such zones; Creation of an enabling environment for trade expansion within the sub-region as regards food products by ensuring that national legal instruments conform with sub-regional legislature on free circulation of goods and services. The fourth objective has as final goal the raising of the purchasing power of the population and facilitating their access to basic foodstuffs. The realization of this objective requires among others: The promotion of job opportunities which depends on encouraging agricultural activities within the peri-urban zones by developing lands and small-sized pasturelands, water supply and installation of veterinary and extension services; The setting up of proper mechanisms to consolidate relations between the formal and informal sectors; The training of youths to build-up the enterprising potentials; The creation within government organs of negotiation facilities for contracts and transfer of technology within the frame of partnerships between enterprises of the sub-region and outside the sub-region. VIII.2. Using Regional Arrangement for Multilateral Liberalizationby CEMAC a. Some Desirable Features The Enabling Clause of 1979made possible the introduction of preferential and No-reciprocal market access schemes, with the extent of preferences and the level of reciprocity left to the discretion of each country that extended them. The concept of graduation accounts for the fact that the capacity of developing countries to comply and fulfill their rights and obligations of the multilateral trading system would increase with the improvement, over time, of their economic status and trade situation. Transitional time frames and technical assistance in the implementation of the various agreements was introduced as recognition of the fact that developing countries have weak capacity that cannot allow them to fully participate. As a result their implementation capacity needs to be taken into account in all Agreements, through positive actions by developed country members or international institutions and through exceptions to the overall rules applicable to developing and least developed countries. Overall, except for selected cases weaknesses in the human and physical infrastructure and institutions related to international trade have been identified as key impediments. The objectives of CEMAC include lowering of trade and No-trade barriers among members with a long-term goal of establishing an economic union. The realization of such a goal is obtained through scale and competition effects, trade creation and trade diversion, fiscal revenues, trade and location effects, and transfer of technology (World Bank, 2000). Economies of the CEMAC region have heterogeneous characteristics. On one hand, that of Congo and Gabon depends largely on oil exports while economy of Cameroon is relatively more diversified although the base remains quite fragile. The success of regional integration will depend on greatly enhanced policy cohesion among the members, pulled by strong and sustained trade performance of the biggest three economies. Although some progress is required CEMAC builds on the over 50 years of 33 monetary and exchange rate policy coordination that has in recent years been extended in the areas of insurance, accounting and business laws. All these have enhanced policy lock-in. Given an adequate understanding of their specific problems by the international community the current framework could speed the integration in the world economy. One impediment to progress in CEMAC has been the heterogeneity and uneven distribution of benefits of trade. Transportation and other communication cost reducing policies could significantly reduce the scope for such uneven pattern of benefits. Evenly spread benefits are also more likely if countries engage in deep integration, through policy coordination in several areas. Policy coordination will facilitate the implementation of regional projects that reduce transactions costs, easing the integration in dynamic production and distribution networks that in turn foster investments. An important aspect to consider, at the WTO or in the Cotonou Partnership Agreement negotiation, is the need for an overall supportive policy framework. Furthermore, there is a need to build ad-hoc coalitions with partners with shared interest in particular issues, with the aim of presenting a common front in whatever forum may be relevant. A regional integration arrangement could be more apt to internalize the market access benefits than a multilateral arrangement. Exporters from a country would anticipate benefiting from concessions from other partners if these concessions are not open to third party. In CEMAC unilateral liberalization has been deeper than WTO commitments; this reinforce the case for the superiority of regional over multilateral liberalization. The crucial element centers on the degree of reciprocity that should be allowed without loosing the focus on development. In the CEMAC it means reconciling the interests of developing countries (Cameroon, Congo and Gabon) and least developed as per the UN classification (CAR, Chad, Equatorial Guinea). A related aspect is the flexibility regions have for forming WTO-compatible trade arrangement. The necessary framework is provided by article XXIV of GATT or article V of GATS. The main requirements for such a scheme are the following. The regional trade agreements should have an extensive coverage of trade, it should not lead to increase in protection vis-A-vis third parties, no sector can be excluded a priori, a maximum then years transition period for interim agreements leading to the FTA or CU. Least developed members of CEMAC will probably, at the end of the millennium negotiations, enjoy No-reciprocal preferences along the lines of the package proposed by the EU and covering "everything but arms (EBA)". The implementation of the EBA will considerably enhance the market access of this group of countries. This could unfortunately de facto require some reversals on regionally adopted policies in CEMAC. In particular, it could be necessary to define rules of origin to minimize the abuse of preference by No-LDC countries. This could distract attention away from the more pressing need for export and production diversification. One way out of this would be to revisit the classification of countries. Since the WTO does not have its own classification one could be determined characterized by economic and trade performance, the spillover effect that would facilitate the emergence of a strong economic base, with competitive firms better prepared to face the requirement of globalizing world. This option for a regional partnership with the EU in which probably the LDC's would keep the same No-reciprocal preferences and the No-LDCs would have reciprocal trade should be avoided. A second option is the GSP for No-LDCs with its associated uncertainty. Stevens et a1.(1999) identified four possibilities: (1) preferences at a reduced level for products where some competitors trade on MFN terms and there is a GSP option; (2) The competitors is allowed to trade on same terms either under GSP or MFN terms; (3) The competitor is allowed to enjoy equal treatment in case GSP terms are less favorable than Lome preferences and these are - extended to the competitor i.e. equality is replaced by discrimination; (4) Preference is replaced by discrimination, with the more favorable Lome preferences given to competitors because the GSP provides less favorable access. Table 32 assesses the loss to CEMAC members associated with each of these options. Products are identified, together with other ACP countries facing the same problem and the likely beneficiary. In the case that preferences are retained but reduced, all three No-LDC members will experience losses. Given its diversified production base, Cameroon looses on all the five products considered. The direct beneficiaries are Brazil and some South East Asia countries, such as Thailand, Indonesia and Malaysia. In the second case of elimination of the preferences the list of products increases to ten. Two of these products, bananas and sugar, are covered by the ACP-EU protocols. In the third option where equality is replaced by discrimination only Cameroon is affected. The main beneficiaries include developing and developed countries. In the last case, only one CEMAC product is affected and all No-LDC in the region loose, to the benefit of Ecuador. Overall each No-LDC member of CEMAC will loose in case of termination of preferences, hence the pressure to negotiate an economic partnership that would not require reliance on GSP. The greatest loss will be incurred by Cameroon. Alternative option would be continuation of commodity protocol products agreement covering sugar, beef, bananas and rum all of them excluded from the EU GSP. Simple inclusion of these into the GSP would lead to losses as competitors already enjoy these preferences. Protocols offer preferential treatment either in terms of access, prices or both. The arguments for the negotiations of the protocols are basically the same as other SDT. Discussions on protocols need to address three interrelated issues: (1) ensure that the legal status and the transition period protect the interest of producers; (2) include the protocols in what is not covered by the "substantially all trade clause" in Article XXIV;(3) technical assistance clauses that would minimize the impacts on the beneficiaries of commodity protocols of the reforms in the CAP. The two countries considered by the protocols are Cameroon (bananas) and Congo (sugar). These two products represent respectively 3% of exports to the EU for Congo and 5% for Cameroon. The EU's option for each of these two products is to bring them in the economic partnership discussion with a need to ensure WTO- compatibility. Special financing could be provided, including assistance for export diversification (Dunlop 1999). Some special features of each of these two products would be important in setting a negotiation strategy. Both products enjoy tariff preferences, duty free and tariff quota access. There are country allocation and conunitment to purchase and sale sugar. In the case of bananas there are trade development provision. Sugar is also produced in the EU. The sugar protocol guarantees to ACP producers a price equivalent to the EU price that is in turn affected by the level of export subsidies. Negotiations on export subsidies and of out-of quota tariff on imports of sugar will therefore have a direct impact on the economic benefit of the sugar protocol. The main elements of the protocols are better appraised by the case of bananas in Cameroon. b. Cameroonian Banana and WTO Negotiations Initially produced mainly by small-scale farmers at the beginning of the 19301s, banana exports witnessed strong growth and peaked at 140 thousand tons per year during the 1960's. Because of phytosanitary problems, and new and more rigorous international trade standards, output dropped to 40 thousand tons during the decade of the 1970's. It was then that the Cameroonian Government decided to intervene directly by creating vast agro-industrial farms such as the Cameroonian Banana Board (OCB) and the Cameroon Development Corporation (CDC). These succeeded in boosting output to the neighborhood of 80 thousand tons and ensured almost 50% of banana exports by the end of the 1970's. Nevertheless, phytosanitary problems once more affected the harvests during the 1980's, and as a consequence, banana exports fell below 25 thousand tons in 1986. This crisis initiated a reorientation of the Government's strategy towards the liberalization of the banana channel. This liberalization resulted in to the privatization of the OCB in 1990 and the takeover of CDC's banana operations by Del Monte. In addition, this period favored the entry of new and large-scale farms. These new companies merged around three main corporate interest groups focus of which the most important is controlled by the French Group "La Fruitiere de Marseille" which comprises three companies, namely SPNP, SBM and PHP, that control 56% of output in 1999. The CDC, under the American group Del Monte, represents the second main producer with 40% of output the same year while the third group, controlled by nationals, represents only 4% of output in 1999 (MINAGRIIDEPA, 2001). At the marketing level, the same shares are found with 49% of the banana exports controlled by the first group while the two others respectively control 48 and 3% of these exports. In general, large agro- industrial farms control exports while small size farmers supply the domestic market. The liberalization of the banana industry has also manifested itself through numerous positive effects on production, quality and yields, as well as on its contribution to the fight against poverty, During the 199OYs,not only areas under cultivation have increased by almost 46%, but productivity also rose to nearly 36%. Better still, the latter went from 16 tonslha in 1989 to 46 tons in1999. Output almost doubled during the decade while the number of jobs created rose by almost 114% as can be seen in the table 33. Also, the European market where most of the Cameroonian banana is exported due to new investment efforts and to the preferential conditions provides for these performances. Starting in 1990, the CDC invested nearly CFAF 15 billion in developing banana in the Moungo and Fako regions. In 1991, the SPHP set itself up in business with CFAF 610 million in capital investment. Adapting the European market's supply system to the WTO norms will certainly impose new condition constraints on the Cameroon banana industry. On the basis of the 1995 exports trade volume, Stevens et al. (1998) have estimated that the losses in Cameroon banana exports were likely to reach ECUS 10 million as a result of the preferential erosion. These losses could actually be higher if we were to take into account the present positive trend recorded in world aggregate exports. Besides these losses, tremendous effort must be made in terms of competitiveness for the Cameroon banana industry in order to survive the competition of its Latin-American competitors. The globalization of the import quotas of the ACP's banana starting in 2004 or the implementation of a single tariff (at customs), which implies the cancellation of quantitative restriction with preferential access however for ACP's countries, involve a cost- competitiveness challenge for Cameroon banana. The MMAGRVDEPA (2001) study shows that the banana channel has to reduce production cost by FF 0.95 per kg before 2004 in order to attain the competitiveness of Latin-American production. The reduction may amount to FF 1.1 per kg if the effort being made by competitors to improve their productivity is taken into consideration. The reduction in costs thus wished-for can only be achieved through increases in output and productivity, the streamlining and the optimization of subsidiary operations, and the reduction of the tax burden. As concerns output, it must practically be doubled to achieve the optimal size that will enable the banana channel to realize economies of scale. However, the pressure on the land makes it very costly to extend the areas under cultivation, especially in the Moungo zone where land is presently leased for CFAF 75000 ha against CFAF 25000 ha previously. Increase in yields should therefore be given priority. Given the results that have been obtained on modernized land, yields must increase to up to 60 tonslha. At that level, savings of FF 0.38 kg would be achieved on the cost price. This yield can be attained by improving: (1) the system for supporting the banana plants against wind damage which would enable operate to cut down on losses to tornadoes estimated at 15 thousand tonslyear, (2) soil fertility, (3) irrigation, (4) phytosanitary treatment and (5) harvesting and transportation systems. The reduction of the tax burden, which is the same as that for most agricultural products, could be initiated through the reduction of taxes on the main inputs (phytosanitary products and gas-oil). Given the magnitude of capital investments required, and estimated at Euro 124 million for the next five years by the different enterprises of the banana channel for improving the Cameroon banana channel, and given the urgency of the situation, Cameroon has taken a cautious stand relating to the banana battle. Legally the bananas protocol is part of the LomC convention whereby the sugar protocol has its own legal status. In the WTO framework the legal status of the convention, hence of the banana protocol is through a waiver to the MFN clause as well as the Enabling clause. Securing the waiver is therefore a relevant and important aspect of a negotiation strategy for Cameroon and CEMAC. There are difficulties in obtaining the waiver in the current configuration at the WTO and the EU's own internal dynamics. These range from the fact that preferences, as have been provided so far, have failed to stimulate production and trade in ACP; EU members have different interests and opinions vis-a-vis the protocols products, with duty-free imports of bananas in France, UK, Germany and Italy; and 20 percent duty-paid in Benelux countries, Ireland and Denmark; need for WTO-com atible arrangement; possible lack of relevant number of votes, should this option be required19. Another alternative, given that the proposed super GSP is likely not to erode the preference margins for No- LDCs one way of limiting the impact on African countries to obtain a reclassification of countries allowing giving regions such as the CEMAC the LDC status. One criterion for classification is to base it on income level. Table 34 illustrate the implication for one classification using as cut-off points the 1995 per capita GNP of $500, $3,300, and $5000 17 A three-quarter majority is required for a waiver. The ACP and all the 16 EU members in case all support a waiver will still need the endorsement of 29 members of the WTO. Some tuff lobbying is therefore needed. 37 (Stevens et al., 1999). If we use as reference the category that includes Cameroon or the "normal-income" category, for all products in table 34 preferences have to be extended substantially to No-ACP and several of them developed. Defending a Lome-type preference for South Africa for example in the case of fresh or dried pineapples will meet strong resistance to European lobbies. The income level needs to be complemented by other criteria that lead to more restrictive number of countries with which the international community will leave. A final alternative is to accept existing regions in Africa, which are still too small in size based on total GDP and compute an index the components of which need to be agreed to. Elements of such and index could include income level, trade performance and vulnerability. It should also have a graduation criterion. Such an index would most likely qualify the CEMAC region to a LDC status. Finally these options will require human and financial resources to negotiate both with EU and in the WTO. An achievable negotiating position can be summarized as follows (Njinkeu, 2000): An umbrella ACP agreement focusing on systemic participation issues such as capacity building, supply constraint alleviation and ad-hoc coalition building; An observer status to the AEC with mandate to coordinate intra-REC relations and public goods that enhance firm competitiveness; LDC status to African RECs, with broad definition of the "substantially all trade" clause to encompass commodity protocols and other products with potential comparative advantage; A long-term objective of reciprocal trade with benefits giving to all partners. IX. Policy issues, options and strategies for the forthcoming WTO Round IX.l. Main fucus points The economy of Cameroon is essentially based on agriculture. The country can expect to reach high growth rates and expansion in international trade only under specific conditions. First productivity and competitiveness should increase in the sector. Lack of competitiveness can be associated with several factors, such as the high ocean freight cost, inland freight rates. The improvement in transport and communication and other relevant issues explaining the high transactions cost is crucial. Second, particular attention should be paid to external factors to the agricultural sector, including non-farm domestic economic policy. The most important characteristics of the agricultural sector in Cameroon are the over exposure to external shocks due to reliance on rain for cultivation, dependence on foreign capital goods and on export revenues of a narrow production base. Exports of agricultural commodities provide the foreign exchange needed to acquire capital goods that can increase the country's productive capacity. The performance of the agricultural sector is, therefore, dependent upon the availability of foreign exchange. The structure of production and the terms of trade (TOT) are, therefore, relevant. The slow down in the TOT (from 102.1 in 1998to 76.7 in 1992 (World Tables, 1995)) has confirmed the Singer- Prebisch-Singer hypothesis according to which the terms of trade of commodity exporting countries have a long-term negative trend. Any policy aiming at a sustainable development of agriculture should take this fact into account. To address the TOT deterioration there is a need for export diversification that can be realized if the necessary structural policies are undertaken. Productivity matters can be increased if there are improved efficiency in the delivery of public goods and an adequate human capital stock. Cameroon market shares in its major agriculture products have declines, to the benefit of competitors in mainly in South East Asia. The declining market shares can be attributed to: (1) the macroeconomic pricing policies that are biased against agriculture, (2) the high marketing and production costs that reduce competitiveness and (3) the reliance on acreage expansion for output growth. There is a need to expand production through cost reduction and enhanced competitiveness rather than the focus on acreage expansion. Third, increased resources for research and development, adequate pricing of agricultural inputs, enhanced market access for agricultural products should be part of the overall approach to integrating Cameroon' agriculture in the international economy. To stimulate agricultural production and competitiveness there is a need to increase investment in the agricultural sector, which can be financed by domestic and foreign savings. For the agricultural sector basic education needs to be coupled with well-designed research and extension service. As the profile of crop yield has shown, Cameroon compared to its competitors cannot be competitive. Fourth, in addition, the structure of incentives needs to be changed in favor of production and export diversification. The most important aspect is the elimination of anti-agricultural bias through macroeconomic policy. There is, therefore, a need to enhance the incentives for agriculture by deeper reforms at the sector level, especially in the interface between reforms in commodity-specific and sector policies as compared with economy-wide issues. Fifth, because of the small size, the external shocks can easily disrupt the growth process. There is therefore a need to enhance the capacity for resisting to external shocks without significant changes in long-term development priorities. Crucial to this is the diversification of the production and export bases. This can be adequately done if farmers have access to credit to allow them acquire the needed machinery and plant varieties. Overall, production and distribution costs will be reduced to facilitate competitiveness if there is a coherent program pertaining to rural infrastructure, basic education, and technology and extension services. Sixth, an effective partnership between the State, farmers, and the private sector is necessary to improve agricultural productivity and competitiveness. The State should be responsible for creating conducive environment for agriculture and in addressing the structural constraints to increased productivity. It should not undermine the ability of farmers to make decisions or the private sectors to provide inputs and services at affordable prices. Farmers may suffer if services provided by the state are abruptly withdrawn before the private sector is ready to fill the gap, or other alternative institutional arrangements have been organized and developed sufficiently to undertake prompt and efficient delivery of such services. There is a need to use existing capacity more effectively and in that connection, the empowerment of farmers' association ensures effective participation of all, in particular of small holders. Seventh, agriculture needs to be considered in the overall context of rural development, hence the importance of access to education, health and other infrastructures by rural populations. Marketing channels, intellectual property rights, patent rights are all important. There is also a need to understand the context and the instruments of international trade negotiations, appropriate strategies and regional alliances to strengthen negotiating position. Eight, the extent of agncultural liberalization will depend on the tariff bindings and tariff commitments incorporated in the GATT schedules, as well as other commitments on domestic support and export subsidies. The framework for the negotiations, already agreed to during the URAs, will aim at lowering bound rates and on the use of export subsidies. The agricultural negotiations should take into account: (1) the experience of the implementation of reduction commitments under the GATT. (2) the effects of these commitments on world trade in agncultural products as well as the non-trade concerns, (3) the special and differential treatment to be accorded to developing countries, (4) the overall objective of establishing a fair and market-oriented trading system and other objectives mentioned in the agreement's preamble, and (5) any further commitments that will facilitate the achievement of overall objectives of liberalized trade. Once the topics will be decided there will be a need to decide on the negotiation strategy. On this, Cameroon will need to coordinate its position with that of other relevant trading partners, and taking into account what can be obtained from the negotiations. It is important to note that the most outspoken liberalizes, such as the Cairn group are prepared to include the principle of special and differential treatment for developing countries, as well as other issues of interest such as tariff peaks and tariff escalation. However, these will not be given. There is a need to negotiate for improved market access for products where there is actual and potential competitive advantage. Improvements in market access will largely be a matter of tariff bargaining, but the general formulas for tariff reduction is yet to be decided. Cameroon, in coordination with other African countries should lobby for more balance between trade in agricultural and industrial products, with particular focus on tropical products. In doing this, the main focus shall be on the factors that have constrained expansion on agricultural production to make better use of preferences available in previous agreements. The European Union is the main market for Cameroon' agricultural exported products. Negotiations on agricultural products are therefore also related to those connected with the Lome convention or the position regarding reciprocity and S&D. Discussion on this should account for the EU's proposal in creating Economic Partnership Arrangements (EPAs). A related issue is that of the compatibility between EPAs as suggested by the EU and GATT article XXIV or GATS article V. A special attention should also be given to the preferential treatment of commodity protocols. Also it is useful to consider that an agreement with the EU in the current framework of the Common Agricultural Policy (CAP) could facilitate the importation of European subsidized products that could in turn affect domestic production of food crop. Nineth and last condition, trade liberalization and market access may be necessary but not sufficient for improvement in trade and economic performance. A new trade agreement should include the "missing link" which consists of production and supply capacities, human resource development, physical infrastructure, trade related technical standards, support for regional integration as an instrument for enhancing competitiveness and ease the integration into the global economy. Any trade arrangement will translate into growth and development only if the above are addressed and enough flexibility is introduced. Against the above background the next section articulates Cameroon's negotiation proposals. These proposals are summarized in table 35. IX.2. Towards a Negotiation Position The overall thrust of the agriculture negotiation is likely to be similar to that initiated during the UR. Namely, a long-term objective of establishing a fair and market-oriented agricultural trading system using a reform process that would provide for substantial progressive reductions in agricultural support and protection, hence resulting in correcting and preventing restrictions and distortions in world agricultural markets. This should not pose a major problem to Cameroon and other countries at same level of agricultural development, as long as their specific conditions are properly factored into the agreements. The main elements of a negotiating position will center around those associated with the agricultural negotiations proper and some other systemic aspects that have direct bearing on the performance of agriculture: preference erosion, tariff escalation and tariff peaks, tariff rate quotas, export subsidies, domestic subsidies, capacity building, state trading, special and differential treatment and consideration of multi-functional character of agriculture, especially as it relates to food security. The forthcoming WTO negotiations will provide an opportunity to examine key issues with potential important implications for developing countries. Opportunities associated with these negotiations are mainly related to systemic changes that will create a more credible environment for international trade. a. Market access Market access concessions relate to bindings and reductions commitments of tariffs, as well as other border restrictions. Review of implementation unearths several problems that need to be properly ascertained and corrected. Contrary to expectations, the implementation of the Agreement on Agriculture with respect to greater market access did not benefit developing countries. Exports from the developed countries into the markets of developing countries increased. The share of developing countries in world agricultural exports in 1997 was almost at the same level as in the early 1970s against a continued increase of exports by OECD countries of primary agricultural commodities and processed agricultural products. This pattern of growth in the two groups of countries is problematic. The future negotiations need to correct this imbalance. Before that, it is necessary to properly identify the problems. The implementation of the 36 percent tariff reduction by developed countries as per the URA has been less than satisfactory. First the base tariff used was higher than applied levels. Also sensitive and non-sensitive products were treated differently. For several reasons developing countries did not follow the same approach, leading to imbalances in the distribution of benefits of trade liberalization. Likewise the objective of simplified and transparent tariff protection has not been achieved in the case of developed countries. In particular several non- ad valorem tariffs have been introduced and increasingly used. Up to 42% of EU tariff lines are expressed in non-ad valorem firm (WT0/37,2000). The URA introduced tariff quotas to ensure that the tariffication process would not reduce prevailing market access opportunities. There has been abuse by developed countries through the declaration of more than the level of effective trade. This has resulted in quota under-fill, i.e., imports falling short of the volume specified under tariff quota commitments. The administration of tariff rate quotas by developed countries needs to be simplified and made more transparent and equitable for all trading partners. In all, tariff rate quotas (TRQs) should not act as quantitative restrictions. Dirty ratification was also obtained in the process of converting non-tariff baniers to tariffs. Developed countries in general converted to levels above the relevant non-tariff equivalents. In particular the tariff profile has high rates on temperate-zone food products. Several tariff peaks are also found, especially on major agricultural staple and other export of interest to Cameroon and other developing countries such as sugar, tobacco, cotton and fruits and vegetables. Tariff in several key items rise as the processing chain advances and this limits prospects for production and trade diversification that would allow a country to shift to trade of products with high value added and more stable terms of trade. Variable tariffs used by developed countries such as price band schemes, as well as seasonal tariffs, should be eliminated. Variable tariffs should only be allowed as a Special and Differential Treatment for developing countries. Tariff structures in developed countries should be made more transparent and less complex and all tariffs should be converted to ad- valorem tariffs. Market access commitments were based on the average price level in 1986-88. Members, according to Article 5 of the AoA can introduce import control measures when price is higher than the above average. There is a complicated guideline for calculating the reference price and this is subject to abuses. Special Safeguards need to be simplified and made available in non-discriminatory manner. They should be either broadened in scope to make them available to all markets, or abolished altogether. Overall it would be desirable to introduce a framework for their phasing out. Agreements that constraint exports of agricultural commodities such as the SPS agreement need to be properly revised to ensure that they are not used to indirectly protect. Developed countries are not ready to enter into mutual recognition of inspections and standards with developing countries. These countries lack the human, technological and financial resources to properly comply with the associated stringent requirements. A negotiation objective, therefore, shall be to ensure that the relevant articles be revised to ensure binding technical assistance to developing countries. Developments at the WTO, especially illustrated by the bananas' case, suggest that Cameroon's competitive position could be significantly eroded. Such erosion could be associated with the outcome of ACP-EU negotiations and the generalized system of preferences (GSP). The competitive position is also eroded by the continued reduction in tariff in the multilateral framework. Overall these developments will force Cameroonian agricultural products to face competition from its competitors that on average have better cost structures. Regional integration has been identified as the building block to integrating the world economy. Collaboration with other countries at the comparable level of development or shared interest should be the modus operandi for Cameroon. The country lacks the economic power and negotiating capacity to make a difference in individual undertakings. The various forums could include the following: CEMAC, AEC, ACP. Market access negotiations need to properly account for the preferential access enjoyed by Cameroon and other African countries in their traditional OECD export market where agriculture is highly protected. There are two main benefits to this preferential access: availability of markets at preferable condition and price stability. The forthcoming negotiations could significantly change these benefits. First other WTO members are challenging these special trade arrangements. Second, important preference erosion will take place leading to important losses. A case in point is that of bananas. The market issues for agricultural products are also associated with the progress on regional integration in CEMAC. Cameroon can enhance its market access through continued reform in CEMAC. The adoption of common policies increases the market size, reduces transactions cost and increases economic efficiency. A more integrated group can mobilize the human and financial resources necessary to formulate negotiating positions. Furthermore, such regions, with well-organized private sector, can easily be structured to support the process, including the move toward more open trade. A market thus created for the exporter becomes a learning ground for trade at the international level. We showed that unilateral liberalization within CEMAC accomplished much more than the multilateral WTO undertakings. Properly designed, regional trade agreements (RTAs) can therefore be a building block toward integration in the world trading system. A suggested approach is to amend Article XXIV of GATT or V of GATS in such a manner that allows Cameroon and other countries at the same level of development to form the type of regional agreements that are consistent with their long-term development. Such long-term objective is best obtained with a focus on reciprocal trade but obtained through a program that progressively remove the supply constraints. In the case of CEMAC, this would mean extension of programs for least developed countries to all members of the regional integration scheme and a partnership with the European Union in a framework that ensures that all parties benefit from the agreement. One prominent aspect is the case of commodity protocols. Protocols offer preferential treatment either in terms of access, prices or both. The arguments for the negotiations of the protocols are basically the same covered under SDT. Discussions on protocols need to address three interrelated issues: (1) need to ensure that the legal status and the transition period protect the interest of producers; (2) need to include the protocols in what is not covered by the "substantially all trade clause" in Article M I V ; (3) technical assistance clauses that would minimize the impacts on the beneficiaries of commodity protocols of the reforms in the CAP. Given that the proposed super GSP is likely not to erode the preference margins for non- LDCs, one way of limiting the impact on African countries is a reclassification giving all African regions LDC status. This is directly related to the overall reform in the ACP group (Njinkeu 2000). In sum, for enhanced market access for Cameroon agricultural products, an objective shall be to remove remaining non-tariff barriers, tariff peaks and escalation prevailing in developed countries' markets. Cameroon needs to support significant reduction in these tariff and non- tariffs. The tariff reduction formula that the country should support should be one that can lower and harmonize applied tariffs and quotas such as to reduce tariff escalation and peaks. The reduction formula should not have differentiated treatment between sensitive and non- sensitive products and should ensure reduction of tariff escalation by linking tariff levels in primary commodities to those affecting their processed form. It is important that appropriate measures be taken to clarify the administration of quotas and to ensure quota-fill. A desirable approach would be to rely on an auction system, with adequate monitoring of quota fill and sanctioning in case of non-observance of commitments. The country should 43 offer to reduce the level of its agricultural tariff binding and set it closer to the current applied tariff level i.e. lock-in at the current level of commitments achieved within CEMAC's regional reform. This contributes to enhanced policy predictability, favors investment and the associated spillover effects on efficiency and market access. A market access issue-related aspect is state trading. One important achievement of SAP- driven liberalization has been in the marketing of export crops. The liberalization program has eliminated all forms of export subsidies and most direct domestic support. Most forms of state trading and granting of monopoly status to some prostates has been abolished. The restructuring of the ONCPB and the creation of the ONCC have affected especially marketing of cocoa and coffee. However, several problems remain unresolved in these activities: quality of products has deteriorated and lower standards has eroded competitiveness, inefficient input use has led to reduced inefficiency of production, reduced competitiveness due to inappropriate regulatory framework. Developed countries, in particular, have suggested that the negotiations should also focus on the role of state trading enterprises (STEs), with ultimate objective of introducing more competition. The rationale for this move is the possibility that state involvement could bias the process vis-A-vis domestic firms that would then enjoy a monopolistic condition with associated possibilities of abuse of market power. This is fine for a country like Cameroon as long as it is recognized that prostates need reform for a completely different set of reasons, namely to increase efficiency. Accordingly, the negotiation should account for the specific conditions of developing countries and allow a privatization schedule that is consistent with overall development of the rural setting concerned. STE activities in Cameroon are not a threat to free and competitive international agricultural markets. The negotiation should keep the option of using STE to meet specific developmental objectives. Proposals for greater transparency are appropriate and worthy of support, provided adequate exemption for developing countries are properly articulated in the agreements. Cameroon should support measures aiming at a more stable and predictable international export marketing as long as this is accompanied by adequate implementation of the Ministerial Decisions on net food importing countries. Cameroon can also support the application of stricter disciplines for food commodities combined with appropriately crafted SDT provisions for developing countries. As reviewed earlier, the country has engaged in an ambitious reform of its STE and there is no doubt efficiency has increased and could continue. The rationale for creating these parastatals was to account for multifunctional of agricultural activities and the weak production and marketing base. Support to the privatization programs to alleviate the heavy short-term cost should be part of the package the country like Cameroon should obtain in the negotiation as credits for autonomous liberalization. Overall, State-trading entities should progressively discontinue their direct involvement in import and export activities as well as the control of domestic supply and distribution of agricultural commodities. b. Domestic support During the UR negotiations, WTO members agreed to a discipline on the annual level of support that can be provided to farmers. One of the objectives of the agriculture negotiations in the UR, viewed from the developing countries perspective was the establishment of rules that restraint the use of domestic policy measures such as support to agnculture and export subsidies that have trade distorting effects. Overall the implementation of the agreement led to increases in the imbalances in the legitimate use on these trade-distorting measures. These imbalances fall into three main areas: failures to substantially reduce trade barriers in the agricultural sector, the legalization of the use of trade-distorting support measures by developed countries while their uses in the developing world was curtailed; failure to properly define the non-trade concerns to be taken into account while implementing the URA commitments. (Shirotori, 2000) Most African countries declared a zero value of aggregate measures of support (AMS) in the base period and therefore limiting their rights to use Amber Box measures only within the de minimis limit. Developed countries declared positive value hence kept the option for greater support to their agricultural sector. Given that the AMS is not sector-specific, developed countries indirectly could use this possibility to increase support to sensitive products. The calculation of the AMS is based on the difference between the administered price of the product and import price in 1986-88.The real value of the AMS would fall for those countries that experience higher inflation. For some products the value could be negative, making the AMS an implicit tax on farmers. It is necessary that the negotiation adjust the calculation method to account for possibility of excessive inflation, otherwise the country could be considered in violation of its domestic support commitments without actually providing meaningful support to its farmers (Josling and Tangermann 2000). The framework shall leave the option to Cameroon and countries at the same level of development to keep government support to domestic production especially in the areas of recurrent and capital support to agricultural activities. In addition, domestic support measures that are less than 10% of the value of the annual production (the so called de minimis limit) can be exempted and this is the only value countries that declare zero AMS value are entitled to under the Amber Box support. Given that the values of de minimis limit cannot be aggregated across products countries are constrained. Supports allowed were of various categories and there have been some difficulties with implementation. Contentious issues are associated with the coverage of 'blue ' versus 'green' box measures. Main problems and shortcomings of the Green Box are the following18: Green Box has provided the legitimacy for higher overall domestic support levels; Due Restraint Clause has provided protection from countervailing duties Green Box meets non-trade and interest of developed countries only Green Box structure creates loopholes and is a heavy administrative burden Cameroon has interest in each of the dimensions, especially the possibility of revision of initial AMS submissions, and subsequent revisions should be a focus. The new submissions should allow the country to ensure that all relevant measures are taken into account or included among the 'de minimis' exemptions. Bluelgreen provisions need to be the focus of the negotiations, with overall aim of ensuring an equitable level playing field in international markets. These measures could come in terms of financial and technical assistance. Developed countries have used provisions of the blue-box to further enhance their competitive position. Since these measures were not meant to be permanent it is important to speed their termination. If the box is not abolished, at the minimum, exemptions need to be I8 This opinion is supported in various submissions, particularly from developing countries. of which severaljointly submitted with African countries. See www.wto.org. 45 significantly curtailed and AMS calculations better monitored. In addition, the current S&D measures regarding input and transport subsidies will need to be included as green box exemptions for developing countries. A more straightforward situation is collapsing all domestic support categories into one 'General Subsidies' box. Flexibility should be provided to developing countries in the form of a ' ~ e v e l o ~ m e nbox t " ~ that would allow these countries to maintain or increase their present domestic production capability, as well as to protect small fanners. Protection under the Due Restraint Clause for the Blue Box should be terminated and be formulated as a special and differential treatment provision that will protect only developing countries. c. Export subsidies The URAA included among the agricultural export subsidies those that are contingent upon export performance, such as provisions of direct subsidies, payments on the export of an agricultural product that are financed by virtue of government actions, the provision of subsidies to reduce marketing export costs, favorable internal transport and freight charges on export shipments, subsidies on agricultural products contingent on their incorporation in exported products. These are of interest to Cameroon. The main issues for discussion could include further restriction or clarification of definitions. Cameroon does not have the necessary resource and capacity to subsidies its agricultural sector. Subsidies to crucial agricultural inputs were phased out as part of Structural Adjustment Programs. The current situation leaves the country's agricultural productivity at lower level than prior to SAPS. Negotiations on agricultural subsidies need to provide for market-based mechanisms for raising productivity. This could come in terms of adequate support to agricultural research and extension activities that would allow farmers to adopt modem production techniques and technologies. It is also important to consider that although some export support mechanisms are not currently in the policymaker's tool kit they should have been included among the S&D measures. The negotiations should allow Cameroon to keep the option to use those measures that can enhance the competitiveness of its products. The SDT flexibility on export subsidyltaxation should explicitly leave the option to continue to tax export for budgetary purposes. In sum, a negotiation position could include a support for the reform of export subsidies and credits in order to ensure that developed countries, as instruments of indirect subsidies, do not use them. Adequate S&D provisions need to be introduced for developing countries. In the long run these instruments should be totally banned. Finally, it is important to note that Cameroon and other African countries eliminated subsidies as part of their unilateral SAP-driven liberalization. This has left problems some of which were reviewed in our analysis of the fertilizer sector reform. It makes sense for these countries to obtain credits for these autonomous liberalization undertakings. These credits could be in the form of assistance in completing the reform in the least painful manner. '' See presentation below on the "Developmenf Box" 46 d. Food Security, S&D and development box - Although Cameroon is not on the list of net food importers, the analysis of the country's food situation points to deteriorating situation. The country, therefore, has interest in the discussion on this issue during the agriculture negotiation. Cameroon should joint-in with its partners in CEMAC for which food security is a greater concern. Solidarity with other CEMAC members on this issue would ensure enhanced productivity of the country's agriculture. Furthermore, it could buy-in their support for some agricultural export crops that are of interest only to Cameroon among the CEMAC countries. Cameroon could support introduction of additional protection for a range of basic food commodities that are sensitive from a food security perspective. CEMAC countries, they should ensure that key elements of the Marrakech agreement, especially with respect to food aid; compensatory financing; and technical and financial assistance are properly revised and put in legally binding terms. It can be argued that a more liberal international trading environment is, in the long run, to the advantage of Cameroon and other CEMAC countries. Such a long-term objective is however attainable only if proper actions are taken in the short- run. The short-term actions include redressing the imbalances in the current trading system. A key aspect for the agricultural negotiations is a proper inclusion of special and differential treatment in various aspects of the agreements. The main issues include combination of usual market access focus of the negotiations with development concerns. Oyejide and Njinkeu (2000) argue that a development round, as requested by many, would be inconsistent with sole focus on market access. Taking into account the lingering supply and capacity constraints needs to be a pre-condition for new negotiations. These could be in binding terms and with focus on the needed structural transformation of production and distribution that is required by the liberalized international markets. Selected elements of SDT include introduction of sufficient flexibility with respect to implementation of commitments and the introduction of a development box, together with the restructuring of greenblue boxes to limit possibilities of indirect protection by developed countries. A related issue is the need to ensure that the classification of members will avail sufficient markets for developing countries. Regional integration has been identified as a building block for African countries' integration in the world economy. The supply and capacity constraints will be properly addressed if Cameroon and its partners in CEMAC enjoyed the same set of conditions in the WTO. Considering this group of countries together will fit the profile of economies considered as least developed. A proposal that could be put forth by Cameroon is to explicitly recognize African regions as least developed (Njinkeu (2000)). A complementary aspect would be to strengthen existing funds for adequate provision of food aid. Agriculture in Cameroon serves several purposes and transfer entitlements will be required to support some good paying and labor-intensive activities. Adequate transition period and activities need to be included in the capacity building programs to include in the agreement; such activities shall be sufficient to enable the country to graduate to conditions compatible with competitive international market. Cameroon needs to take an active role in the formulation of SDT. Most agricultural exports are currently under zero or relatively low tariff. It is important to have these tariff preferences "bound" in the current round. Cameroon could support measures aiming at export diversification. These measures could include the cost of searching for new markets in view of the likely under-investment by private sector operators. Specific assistance for building local capacity, providing a discussion forum for them on trade and related issues, maintaining trade-related databases and providing information, undertaking high-quality analyses, providing technical assistance in norms and standards and in dispute settlement, advocating better market access in industrial countries, and helping to build coalitions and achieve common developing country positions in multilateral trade negotiations. All reviews of the implementation to the URAs show that developing countries, on the whole, are not benefiting economically from agricultural liberalization. This has been accompanied by a call for the millennium round of trade negotiations to have an explicit development focus. Hence, the need for a development box that should be formulated in legally binding terms. Selected elements of such a box include the following20: Protect and enhance domestic food production capacity particularly in key staple items. Increase food security and food accessibility through productivity enhancing measures. Support for employment generating activities in rural poor areas Adequate protection of farming activities from cheap imports Use of a positive list approach to declare which agricultural products or sectors should be disciplined under AoA provisions. Flexibility in levels of domestic supports. Prohibit developed countries from the use of the Special Safeguard Clause against developing countries. Developing countries should be allowed to invoke this based on low prices or excess volume. Capacity building and technical assistance to support research for increased productivity support for market information collection and distribution, standards. e. Other related areas Other issues with direct bearing on agricultural performance are those of capacity of the country to honor its WTO commitments. This capacity problem covers the domestic infrastructure as well the institutional capacity. The associated agricultural WTO issues include domestic support to agriculture, state trading and the SPS agreement. Some other WTO issues such as TRIPS, TRIMS and competition policies have a direct bearing on the performance of agriculture. Negotiation issues are common to those that could form an African consensus position and reviewed by Oyejide and Njinkeu (2000). Main elements include adequate transition period, flexibility in implementation, mandatory capacity and technical assistance for compliance. *' Elements of the "Development Box" are included in the submission by several developing countries to the Committee on Agriculture of June 2000. 48 X. Conclusion The forthcoming WTO negotiations will provide an opportunity to examine key issues with potential important implications for developing countries. These countries are likely to be called upon to participate more actively and commit themselves to further during the next multilateral negotiations, which will provide for them to go beyond their recent and impressive unilateral efforts at trade liberalization. Opportunities associated with these negotiations are mainly related to systemic changes that will create a more credible environment for international trade. Due to the potential complex economic implications of the next negotiations, developing countries have requested assistance in evaluating their interests and policy options, tradeoffs, and strategies as part of their preparations to fully participate in these negotiations. The present country study provided an analytical framework for evaluating issues and policy options of interest to Cameroon and covered topics in both the building agenda and the new trade agenda. It has appeared that Cameroon' agriculture is limited by lack of capacity to respond to emerging opportunities offered by URAs rather than lack of market access. Supply-side constraints as well as institutional and human capacity especially limited the firms' competitiveness. Consequently, the ability of the country to fulfill its WTO commitments is limited because of an inefficient administration, and low levels of human and financial resources. Nevertheless, appropriate strategies can help the country' agriculture and food sectors to take maximum advantage of the opportunities offered by the next round. The structural reform of production structure, the reinforcement of regional integration, the promotion of agricultural export diversification can be cited among others. The forthcoming WTO agricultural negotiations present several challenges that require an active participation of Cameroon. The country's negotiations focus and positions are summarized in the table below. In various places the position have consolidated submissions to the WTO, particularly by developing countries through the WTO website www.wto.org, regular updates by the International Center for Trade and Development (ICTSD) in ((Bridges: Between Trade and Sustainable Development )) and its ctBridges Weekly Trade News Digest ))electronically distributed at bridnes@iatp.org. - Table C.1. Cameroon and the WTO multilateral agricultural negotiations Negotiationsfocus Prior to 1988189 1990-1994 Since 1995 Implications for 2000 negotiations 13.3%average tariff of Reduction in numbers and CEMAC reform (reduction, Harmonization formula to Border protection-tariff(e.g. agriculture NRP level of import tariff; abolition TU, four part TEC); eliminate tariff peaks and import incentives, number 14taxes and duties 16.45% average tariff of WTO binding at 80 to 150% ; escalation; of rates, average tarifTJ 41.4 to 87.9% average tariff agriculture NRP 13.83%average NRP Reduction tariff in developed rate countries. Extensive use of import QRs Abolition of QRs; No banned products; and prior authorization on Reduced use of IL; No QR; Border protection NTB (e.g. about 19 products; QRs, banned products...) Import licences (IL); Twinning distribution of local 1 - and imported rice and sugar.I 1 Indirect taxation through I Liquidation of NPMB; I Rebates in taxation of selected I Role of STE; 1 - ONCP I ~bblitionof price control; exports and total cancellation Regional agreements; I Producer price determination since year 2000. 1 Export by accredited Preference erosim; Export regimesand market Exclusive right of export to expor!~rs; Protection of Lome protocols. access for exports (e.g. government; / New taxes on some selected export incentives,SPS and Procurement price; exports from (15 to 30%); other norms. safeguards); ~~~~~~l~ of STES; No direct subsidy to exports Exportsubsidy (e.g. direct Lome Preferences on agro- subsidy and rebates...) industrial products; Lome commodity protocols; GSP; No direct subsidy to exports; J 100%subsidy for fertilizer; Progressive rebates of input Enhancement of micro-finance Recalculation and resubmission of 1OW others; subsidizes; (Credit Agricole. FIMAC.. .); AMS. Domestic Support (e.g. input Marketing board; Rebates on input credit; All forms of input subsidies BluelGreen box conditions; policy, transPo6 marketing, Input credit (100% subsidy on Withdrawal of marketing Removed; S&D measures; research,extensim, farm selected inputs); board; Enhancement of AMIS. Need to build capacity of credit, procurement price,) Extension services; Fertilizer reform; cooperatives; Access to research results; Pesticide and others reform. Enhance market development, Price controls; regulation and operation Non-trade concernsand Developed research and Functional AMIS; food policy (non-farmrural extension; Functional EWS; investmen6TRIPS, Mideviv ; Reduced # and level of developmerds in sectors of Price stabilization schemes; ( operation of IDP. direct interest, labor- ·Greenrevolution; intensive Programs. price lntegnted development stabilization,market projects (IDP). infnrmation) Table C.2. Summary of Cameroon Negotiation Position Simplified tariff structure and elimination of escalation and peaks. TRQs simplified and transparent Variable tariff only for S&D WTO-ACPlEU interface: support a waiver Market Regional integration: Support a reform of Article XXIV of GATT access and V of GATS to allow formation of regional grouping consistent with long-term development. Protect commodity protocols Address shortcomings of boxes. New AMS submissions and subsequent revisions Domestic Collapse green and blue box into a general box support Create a development box otherwise amend green box to include development-linked measures Flexibility in the use of de minimis Export Further restriction and clarification on definitions. subsidies Abolish export subsidies by developed countries. SDT flexibility on export subsidy/taxation. Specific protection of products crucial for food security Food Proper review and binding implementation of Marrakech Security agreement. Measures to enhance productivity for long-term liberalization. Proper focus on supply constraints. S&D, / Flexibility in implementation of commitments. development Classification of members according to development imperatives. box Introduce a Development box. (State trading Stricter discipline to ensure STE does not abuse market power. S&D provision for STE use to meet developmental objectives Legally binding TA for SPS and TBT capacity building. SPSITBT not used as indirect protection instrument. Measures Exempt developing countries from higher than international for domestic standards. capacity and Financial compensation when SPSiTBT disrupt or cause serious institutional losses. weakness. Transitional periods for TRIPS accounting for implementation capacity. L Mandatory technical and financial assistance, and transfer of technology. Source:By au Exemption of discipline on TRIMS domestic-content requirement. hors XI. References Amin, A.A. 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(2000) African Countries' Proposals and Objectives in the Post- Seattle Framework of WTO Negotiations. UNCTACIUNDP, OAUIAEC and ACP Secretariats (November). Planistat (1998) Etude de I 'Impact Economique sur 1'UDEAC-CEMAC de I 'Intkgration de la Rtciprocitk dans les Relations Commerciales UE-ACP. Rapport Final 10198.Planistat Belgique, Bruxelles, Belgique. Shirotori, M. (2000) "Notes on the Implementation of the Agreement on Agriculture." In Positive Agenda and Future Trade Negotiations, UNCTAD (2000), United Nations Publication, New York and Geneva. Stevens, C., McQueen, M. and Kennan, J. (1998) "After Lome IV: A Strategy for ACP-EU Relations in the 21" Century: Commonwealth Secretariat and IDS, (December) Stevens, C.; Greenhill, R.; Kennan, J. And Devereux, S. (2000) The WTO Agreement on Agriculture and Food Secutity. Economic paper hP42, Commonwealth Secretariat. UDEAC (1998) Annuaire du CommerceInter-Etats :Annie 1997. Bangui, RCA. Varlet, F. et Beny, D. (1997) Rdhabilitation de la Protection Phytosanitaire des Cacaoyers et Cafiiers du Carneroun.Tome1Rapport no96197lSAR ;CIRAD. Varlet, F. (1992) Relations entre les Pouvoirs Publics et le Secteur Agricole du Cameroun:Cas des Filigres d'Exportation et des Filigres de Produits Destinb au Marche' Intdriatr. ENSA Montpellier. World Bank (1991) WorldDevelopment Report 1991. The Oxford University Press, New York. World Bank (2000) TradeBlocs. A world Bank Policy Research Report, Oxford University Press, New York. Table 1. Trend of some agricultural sector indicators and international prices of main export products 3. Growth rate of Real GDP 4. GDP' agricultural share 5. Subsistence agricultural share of agriculture 6. Perennial agricultural share of agriculture 7. Hunting and breeding share of agriculture 8. Forestry share of agriculture 9. Fishing share of agriculture 10. Growth rate of agricultural production 12. Growth rate of perennial agricultural production 13. Growth rate of hunting and breeding production 14. Growth rate of forestry production 15. Growth rate of fishing production 16. Share of agricultural exports in total exports 17. Share of agricultural exports in non-oil exports 19. Share of food products in total imports 20. Growth rate of imported food products 2 1. International price of main agricultural exports - Banana (in cents $/pound) - Cocoa (in cents $/pound) - Coffee (in cents $/pound) - Rubber (in cents $/pound) Notes: ':Period beginning 1stJune and ending 31 July of the years indicated. Sources: Authors' calculations using data from MINEFIIDSCN (1996, 1997and 1999),Barnou (1 999) and FMI (1999). 54 Table 2. Repartition of the resident active populationof Cameroon (In thousands of individuals) Source: MINEFIIDSCN (1999), page 77. Table 3. Cameroon and the WTO multilateral agricultural negotiations 1 Policy by Policy ~ e l e v a nWTO negotiation focus t 1. Input credit 1. Domestic subsidies Food production 2. Subsidized or free inputs 2. Domestic subsidies (production 3. Research and extension entitlements) 4. Capital expenditure and 3. TRIPS investment promotion 14. Domestic subsidies 1 I . Market develo~mentand I 1. No direct focus I Marketing regulation. (trade , 2. Parastatal reform 2. State trading enterprises entitlements) 3. Food price stabilization 3. Domestic subsidies and tariff: Green (buffer stock or funding) Box conditions, export regulation I crops 1. Market access, domestic subsidies 2. No direct focus 3. Minimum wages 1. Labor-intensive public Transfer and works programs. safety nets 2. Targeted feeding 2. Export subsidies programs. 3. Food price subsidies 3. Domestic subsidies 1. Infrastructure (transport, Enabling macro communication) 2. No direct focus policies 3. Health 3. No direct focus 4. No direct focus Source: By the authors Table 4. Actors in the inputs sector as per their level of activities 1 Enterprises - 1 ~ [~ctivities 1Importers 1 CAMATREX:., IBEX and TBE GROUP . ---.- .-. -- .- --. - - -- Importers1distributors 1 GROUP ONE and FERTIMEX Distributors ( DIANA-SICAC, BAKAH Enterprise, I SABEX AND FBI Local producers of fertilizers ( HYDROCHEM Source:By authors Table 5. Trend in imports of agricultural inputs in Cameroon after the Reform I Seasons 1Total imports 1 Imports Under SPFFS and SPIF 1 I contract Quantities ( In % of total I I 1 (Tones) 1 1 1998199 1 85020 Source:Ntsama (2000) Table 6. Pre and Post UR agriculturalState extension service enterprises Enterprises Activities/products Characteristics in Present 1994 situation FONADER Supply of inputs Monopoly of credit to Liquidated production SOCAPALM Palm oil 55% production of Privatized Palm nuts palm oil. CDC Banana, palm oil, tea, palm nuts, Monopoly of tea and Partnership with rubber rubber Del Monte for the production banana. Privatized SODECOTON Training and supervision, credits to Monopoly of the Undergoing production, productions: cotton sector privatization 1 fiber, oil and cake marketing 1 SODECAO I Training and supervision of I Monopoly of the I Liquidated 1 1 peasants, phytosanitary treatment of 1 cocoa zone 1 1 NPMB Marketing of export products, Monopoly of export Liquidated financing of subventions commodities Monopoly Liquidated pp SODEMM (Rice Development of farmlands, Cartel cultivation in the Hiring of equipment and Rice hauling West) SEMRY Development of farmlands, Cartel Restructured (Rice cultivation in Hiring of equipment Rice hauling the North) U W D A (Rice Development of farmlands, Cartel Restructured cultivation in the Hiring of equipment, Rice hauling North West) CAMSUCO Sugar Cartel d ought by SOSUCAM (private) P W R A Vulgarization of interface research results-production IRAD Development of research (selected Monopoly seedlings of maize, cassava, palm P MIDEVIV Foodstuff trading Liquidated Cereals Board Cereals trading in the North Liquidated SNAR Prevent food insecurity End of Japanese Activities have grants, integration slowed down into MINAGRI CENEEMA supply of agricultural equipment UCCAO Supply of inputs, decortications of Monopoly of arabica arabica and robusta coffee, exportations OCB Banana Privatized in 1990 Source: By authors Table 7. Cameroon's foodstuffs and agricultural input products subject trade restrictions before 1989 Wheat flour IEA and PC Fungicides, herbicides and Insecticides IEA and PC Plastic bags and sacks IEA and PC Concentrated sweetened milk IEA and PC IEA and PC IEA, PC and IEPA~ Cotton wool IEA ,PC and IEPA IEA ,PC and IEPA IEA ,PC and IEPA IEA ,PC and IEPA IEA ,PC and IEPA Soya-bean and groundnut oil IEA ,PC and IEPA Palm, cotton and coconut oils IEA ,PC and IEPA Raw and refined sugar IEA ,PC and IEPA Edible meat IEA ,PC, IEPA and S& Fishery and livestock products IEA ,PC, IEPA and SMV Food for animals IEA ,PC, IEPA and SMV Medicaments for cattle IEA ,PC, IEPA and SMV Other pharmaceutical products IEA ,PC, IEPA and SMV Alcoholic beverages IEA ,PC, IEPA and SMV Notes: ':Import and Export Authorisations *: Price Controls 3:Import and Export Price Adjustments 4: Supervisor Ministry's Visa Source: Compiled by the authors from MINDIC (1989). Table 8. Elements of the country' tariff structure before the January 1994 reform Turnover tax loading slip (customs) Fees for registration in the permanent survey on merchandise transactions Board (CNCC) tax Notes: ':According to products : Not available Sources: Compiled by authors from "TarifDouanier UDEAC' (1988) and Bamou (1999a). Table 9. Trend of nominal rate of protection of Cameroonian key agricultural sub- sectors (in percentage) Source: Authors' calculations using data from MMEFIIDSCN (1999). 59 Table 10. Evolution of effective rate of protection of Cameroonian key agricultural sub-sectors (in percentage) unting and breeding Note: ': Not imported. Source: Authors' calculations using data from MINEFIIDSCN (1999). Table 11. Evolution foodstuffs and agricultural inputs under different trade regimes Before 1989 1990-1994 Since 1995 Products under QRs Wheat flour Pasta Concentrated sweetened milk Animal food Table salt Tea Maize Rice Refined oil None None Palm oil Sugar Cotton wool Fungicides Herbicides Insecticides Products requiring a technical visa before importation Meat Livestock products Fishery products None Fishery products Food for other animal Medicaments for cattle Banned products None None None Source: MINDIC (1989) Table 12. Elements of agricultural products tariff structure before and after the January 1994 fiscal reform Bei Sincejune2000 I Import Export Import Export Taxes and duties (% CIF val.) (% FOB val.) (% CIF val.) (% FOB val.) I Exit tax 2.0 Custom duties 5.0 - 7.5 Entry tax 10.0 - 30.0 Turnover tax 11.5 - 20.5 Value added tax Complementary tax 5.0 - 20.0 Sanitary and veterinary tax 50 FCFAlT 50 FCFAlT 50 FCFAlT 50 FCFNT Packaging tax 0.5 0.5 Loading tax 247 - 588 FCFA 247 - 588 FCFA Preferential tax 0.1 0.1 0.1 0.1 Unloading tax 595.1 FCFA Computer dues 1.5 CNCC tax 0.3 Minimum tax 5.o Pre-account 2.0 Council tax 180 FCFA/T 180 FCFAlT 180 FCFAlT 180 FCFNT Phytosanitary tax 50 FCFAtT SOFCFAlT 50 FCFAlT SOFCFAIT Credit distribution tax 1.o 1 .o 1.o 1.o Total 41.4 - 87.9 + 875 FCFAIT Notes: Val = value; T = Tone; Source: By authors using data from the National Department of Customs Table 13. Main market destinations of the country's agricultural products (Value in millions of US dollar and share in percentage) Notes: ' :The analysis is done with 11 products ((I)Food And Live Animals, (2) Fish And Preparations, (3) Bananas And Plantains Fresh, (4) Coffee, (5) Cocoa, (6) Tea And Mate, (7) Palm Nuts, Kernels, (8) Palm Oil, (9) Rubber, (10) Wood (timber) and (11) cotton) representing almost 95% of the quantity and 85% of total revenue of agricultural exports in 1997t98 Source: COMTRADE Data base. Table 15. Country' agricultural export product main competitors Notes: ': The first figures are in percentage and representing the share of the country's export in the world market. 2:Non-producer countries are in italic. Source: COMTRADE Data base. Table 16. Pre and post-UR MFN rates (in percentage) of some main country's agricultural products to EU and USA markets in 1995 Commodities E u r o p e a n Union USA Pre-UR Post-UR Percentage Pre-UR Post-UR Percentage Changes Changes Agriculture excluding fish 4.83 0.75 -84.5 0.04 0.02 -50.0 Fish and preparations 17.61 11.72 -33.4 0.00 0.0 0.0 Bananas 20.0 16.0 -20.0 Na Na Na Coffee 5.0 0.0 -100.0 0.0 0.0 0.0 Palm oil 5.0 1.9 -62.0 Na Na Na Cocoa 3.0 0.0 - 100.0 1.2 0.3 -75.0 Wood products 3 5.2 2.6 -50.0 5.7 3.2 -43.9 Leather, rubber, footwear 0.28 0.2 1 -25.0 0.2 1 0.07 -66.7 Note: Na: Note available. Sources: Njinkeu and Monkam (1999) and Arnjadi et al. (1996) Table 17. Comparative costslbenefits analysis for arabica coffee (in CFAFIkg) Notes: I :Pure Traditional, 2:Traditional with associate crops. Sources: CIRAD (1993) and authors calculations Table 18. Comparative costslbenefits analysis for robusta coffee (in CFAFIkg) (1 Fannings stem g [Zone IProcer Associate fedi return (Produc Input Margin Pmduc \ hpr Margin 174 110 Sources: CIRAD (1993) and authors calculations ' Table 19. Comparative costslbenefits analysis for cocoa (in CFAFIkg) Yes Solar 167 108 No Partial Solar Note: ': Southwest. Sources: CIRAD (1993) and authors calculations Table 20. Comparative costslbenefits analysis for cotton (in CFAFIkg) Source: Madi (1994) and authors calculations Table 21. Comparative costs/benetits analysis for paddy rice (in CFAFIkg) Description Pre-devaluation Total cost Production 2 560.0 Sources: D. Harre and E. Oyep (1992) and authors calculations Table 22. Main agricultural and food imported products (Quantities (Q) in tones and Volumes (V)in millions CFAF) Source: MINEFIICustom Department Table 23. Summary of FIMAC credit on 30 June 1999 Number of Far North 267 114.8 85.7 Center 153 123.2 72.0 Littoral 245 148.0 68.1 Adamawa 243 368.2 66.5 North 382 234.0 63.3 North-west 562 366.9 92.3 South 215 90.7 58.3 East 254 108.8 73.4 West 385 162.3 82.5 South-west 179 98.6 75.5 Cameroon 2885 1815.6 74.7 Source: MINAGRT (1999) Table 24. Complete specification of the CGE model Sets definition i E I = {SAG, PAG, HUB, FOR, FIS, FIN, OIL, AIN, NTS) Production sectors ; j E J = Alias I in terms of products; mc E ECH= {SAG,PAG, HUB, FOR, FIS, FIN, OIL, AIN) Tradable products; mr E MR = {SAG,PAG, FIN, OIL, AIN) Imported products from the ROW; mcr E MCR = {SAG, PAG, FIN, A N ) Imported products from CEMAC and ROW; msc E MSC = { HUB, FOR, FIS ) Imported products only from CEMAC; xc E XC = {SAG,HUB, FIS, FIN, AIN) CEMAC' exported products; xr E XR = {SAG, PAG, HUB, FOR, FIS, FZN, OIL, AN}ROW' exported products; xsr E XSR = { PAG, HUB, OIL ) Products exported only to the ROW; a1 E AL = {PAG, HUB, FIS, FIN) Pure food products; snmE SNM = { SNM) Non tradable services; oil E OIL = {OIL) Oil products . Production block No. No. of equations (I) VAi= Ai,~ 7 . K$'-~'' 9 (2) Cl;= io,.VAi1v, 9 (3) XSi= CI,1ioi 9 (4) CIJq= a,.Cli 81 9 Revenuelsavings block x x y~ = W . A?. ~f 4- 2; . RK,+ TGM .Pinde.~ I 1 DIM = tdi .(YS - TAXRKS - TSR) x TAXRKS = trks .,If. RKi I YDM = (I - tym).YM - (TMS .PINDEX +THR) SM = pms. YDM TAXD = tdj .PDj .Dl e .P WE,,.EXR,, TAXERx, = (1+ter,,) PWE,, .EXU,r, TAXEU, = (1+teu.,,.) SG = YG- (CG+(TGM + TGS).Pindex + TGR) YS = a:. x KR, + (TMS + TGS).Pinde.~+ e .TR S Demand block 0/vcc*) XSech = BLh .[Y,, .E X 3 +(1-~ , , h ).D2hh I xs,, = Dm, I EXR,, - PEUrc '-Yxc I (32) -- [-.-la:: - I , 0:;= . EXU ,, PER, Y,, (Y:=- 1) (33) EXnr = EXR.,, (34) CM = YDM - SM (35) PC,.C, = P C .CM +P:. CG (36) PC,.INV, = P; .IT Ca,.CIi (37) DINT; = j Prices block (Pi.XS,- CPCj.C I J ~ ~ ) I (38) PVAi = VA, (40) P,,, = PDJnm (41) p M U m c = P W M m C . ( ~ + t m u m , ) (42) PMR,, = e .P WM,, .( 1+tmr,,,, ) (43) PDM, = P D I . ( l + t d I ) PDM.wnr .Dsnm (45) PCS", = Qsnn, (46) PM ,,, .M ,,., = PMU +PMRmcr .R.M mcr tncr .UM (52) PErSr= PER,, xP:. (53) Pindex = PC, I Equilibrium bloc I (56) BCR = (I-A;).w.C+CPWM,,.M.,~+-.(TGR+TSR+TMR) e LD, mr - ( C PWE,r .EXR ,+TRG +TRM +TRS) 1 rr 70 (57) LCon = Q,, - Csnm-DINT,,, - INVSnm (58) QeCh = Cech+DINTech +INVech (59) ( l - r c h ) . ~ ~ = x ~ f (60) BC = e .BCU +BCR Household welfare variation model (bl) CV = [ ( U - U O ) / U ] . Y M (b2) E V = [ ( U - U O ) / U O ] . Y M O I (b4) H ' = -2. ( C V + E V ) Total Table 25. List of variables and parameters of the CGE model a. Endogenous variables BCR Current account with the ROW BCU Current account with other CEMAC countries Ci Final consumption of goods CI; Total sector's intermediate consumption CIJij Sector's intermediate consumption CM Households' total consumption CV Compensating variation Dj Domestic sales DIM Dividends received by household DINT, Intermediate demand of goods EV: Equivalent variation EXwh Total composite exports EXUxc Exports to CEMAC Exports to the ROW Household average welfare variation Investment in goods Total investment Sector's employment Leon Equilibrium checking variable Mech Total imports Pi Sector's production cost PC, Composite good prices PD, Domestic producer prices PDMj Domestic market prices all taxes comprised PEcch Domestic price of total composite exports PEUxc Domestic price of total composite exports to the CEMAC zone PERxr Domestic price of total composite exports to the ROW zone Pindex General consumer price index 71 PMcch Domestic price of total imports PMU,, Domestic price of imports from CEMAC PMR,, Domestic price of imports from the ROW PVAi Sector's value added prices Composite good supply Qi RKi Sector' capital remuneration SG Government saving SM Household saving SS Firms saving TAXRKS Firm' capital remuneration tax revenue TAXDj Indirect tax on local product revenue TAXER,, ROW' export tax revenue TAXEU,, CEMAC' export tax revenue TAXMR,, ROW' import custom duties revenue TAXMU,, CEMAC' import custom duties revenue tch Unemployment rate U Household food products consumption utility U M m c CEMAC imports RMmr ROW' imports VAi Sector's value added XSi Sector's domestic output YDM Household disposable revenue YG Government revenue YM Households' total revenue YS Firms revenue Total b. Exogenous variables BC Global current account e Nominal exchange rate with the ROW Ki Sector's stock of capital L~ Total labor supply PWEcch Exports world prices PWM,, Imports world prices CG Government consumption TMS Household transfers to f m s TGM Government transfers to households TGR Government transfers to the ROW TRG ROW' transfers to the government TSR Finns transfers to the ROW TMR Household transfers to the ROW TGS Government transfers to firms TRM ROW' transfers to households TRS ROW' transfers to firms UO Initial household food products consumption utility YMO Households' initial revenue w Average wages rate Total c. Parameters aij Input-output coefficients Ai Cobb-Douglas shift parameter Labor share parameter in value added hnction Share of salary received by household Capital remuneration share own by household Capital remuneration share own by firms Pms Household average rate of saving tdi Dividends share received by household tY" Household direct tax rates trks Firms profits tax rate tdj Indirect tax rates on local products tpdi Production tax rate on local products tmrmr Average ROW imports custom duty rates tmumc Average CEMAC imports custom duty rates teuxc CEMAC exports tax rates ROW exports tax rates Share of good in household consumption Share of good in public expenditure Share of good total investment Technology coefficients Idem Armington shift parameters Idem 6ech Armington exponents 61mcr idem Pcch Substitution parameters in the CES functions p1mcr idem M occh Substitution elasticity of imports IM Omcr idem E oech Transformation elasticity of exports 1E oxc idem ~~~h~ CET shift parameters BxclX Idem Tech CET functions exponents ylxen idem cpech idem cplxcn idem Table26. Scenario impact on agricultural, food security and macro-economic indicators (in percentage change from base run model) - Perennialagriculture - Pcrcnnial agriculture - Hunting and breeding .Food industrics Total demand of local agriculture and food prodlrts - Imports of subsistcncc agricultural - Imports of perennial agricultural .Imports offorcstry - Imports of hunting and breeding - Budga deficit or surplus -Balance account with CEMAC - Balance account with the ROW - CEMAC agricultural and food cxports - ROW agricultural and food cxports - CEMAC agricultural and food imports - ROW agricultural and food imports - Rate of unemployment - Household' revenue - Household'agricultural and food products consumption Note; I :Scenario. Source: Authors' calculations using data from GAMS' results sheets of the model Table 27. Taxation of agricultural exports in CEMAC 6 Inspection, control and Products Tax rates Cameroon Rough timber n Cocoa CoFfee Cotton Bananas Palm oil Medicinal plants CAR I l Cotton 4 % CIF Logs 40% FOB I Wood 20% FOB 1 1 Equatorial Guinea Logs 1-50% FOB Cocoa 1-50% FOB 1 Coffee 1-50% FOB Source: Compiled from Planistat (1999) Table 28. Production of some agricultural products of UDEACICEMAC countries (in million tones and heads for animals) /Poultry (10065 ( 2400 ( 10051 6952 1 1 20422.0 15100125341 14201 38001 1 112854.0 Source: 'Bulletin des Statistiques Ghnhrales de la CEMAC' (1999) Table 29. UDEACICEMAC Trade Matrix in 1996 Cameroon Central Congo Gabon Equatorial Chad African Republic Guinea ------ Republic Live animal Live animals Live animals Palm oil Palm oil Palm oils Palm oils Milk Fish Fish Milk Eggs Milk Milk G. vegetables Food prep. Cameroon Eggs Eggs Eggs G. vegetables Sugar G. vegetables G. vegetables Cassava Chocolate Beans Ground-nuts Coffee Yam Food prep. Sugar Sugar Ground-nuts Fruits Chocolate Sugar Coffee Chocolate Sugar Food prep. Chocolate Beans Food prep. Conon cake Central Ground-nuts Live animals Coffee African Cotton cake G. vegetables Republic Ground-nuts Congo Sugar Fish Republic Cocoa Tobacco Fish Fish Sugar Gabon Vegetable oils Tea Cocoa Equatorial Guinea Live animals Ground-nuts Ground-nuts Vegetable oils Chad Fish Fruits Meat Note: Exports are in the vertical lines and imports are in the columns; G.= Green; Prep. =Preparations. Source: UDEAC (1998) 'Annuairedu Commerce Inter-Etats: Anne'e 1997' Table 30. Some agricultural products tariff structure due to 1994 UDEAClCEMAC RFRP Products TEC Category TCA rate Excise tax Meat and consumable offal 111 Reduced No Milk [[I (I for powder) Reduced No Rise I1 Reduced No Food preparations I I Reduced No Tobacco 111 Normal Yes Fresh and frozen fish 111 Reduced No Sugar 111 Reduced No Cattle. Sheep and Goats I Normal No Vegetable oils 11 Normal No Green vegetables 111 Normal No Banana and other fruits Ill Normal No Cocoa I Normal No Coffee I11 Normal No Cotton cake and Ground-nuts 11 Normal No Bran rise, maize and Wheat 11 Normal No Leather and skins 11 Normal No Tea I1 Normal No Sorghum and millet I Normal No Ground-nuts I Normal No Cotton seeds I Normal No Cotton pod I Normal No Eggs 111 Normal No Prawn, Crabs and Lobsters I11 Normal No Fresh flowers I11 Normal No Cassava, Sweet potato and Yam 111 Normal No Source: By authors using data from the Common External Tariff of 'UDEAC and Act No. 1/92-UDEAC-556-CD-SE1 of 30/04/1992 on the adoption of a turn over tax and excise tax in UDEAC countries Table 31. CEMAC Tariffs and Taxes Other Total duties duties Average bound tariffs (I) Average applied tariffs (2) charges charges Agriculture No- Total Agriculture No- Total agriculture (Yo) agriculture (%) Cameroon 230.0% (4) (4) 18.7 15.0 15.5 26.7 42.2 CAR (1) (4) 16.0% (4) 6.4 14.0 12.6 22.6 35.2 Congo (4) (4) (4) 24.4 12.2 12.9 25.1 38.0 Gabon 200.0% 150.0% (4) 22.6 6.8 7.6 10.5 18.1 Eq. Guinea (4) (4) (4) 25.2 17.3 18.2 18.5 36.7 Chad (4) (4) (4) 28.9 12.6 15.5 24.3 39.8 CEMAC (4) (4) (4) 21.5 11.0 11.8 20.1 31.9 Notes: (1): Uruguay Round depositions partial; Equatorial Guinea not WTO member; (2): Common External Tariff as applied to imports from EU; (3): Temporary surtax, VAT/TCA, Excise and (4): No Uruguay Round deposition. Source: Planistat (1999) Table 32. Products on which lost of preferences is possible for UDEACICEMAC members CN-1995 Description(abbreviated) No-LLDC ACP exporters(CEMAC Competitor(s)' countriesbold and underlined) Preference reduced 03061390 Frozen shrimps and prawns (excl. Nigeria. Senegal, Surinam, Gabon, Thailand "pandalidae" and "crangon") C.d'Ivoire, Coneo, Cameroon, Kenya, Trinidad & Tobago, Ghana, Guyana 08043000 Fresh or dried pineapples C.d'Ivoire, Ghana, Dominican Rep.. Thailand Cameroon. Mauritius, Swaziland, Kenya, Zimbabwe, Nigeria Senegal 151 1 1090 Crude palm oil (excl. for PNG, C.d'Ivoire, Ghana, Gabon,Cameroon, Indonesia. Malaysia industrial use) Nigeria, Senegal 18031000 Cocoa paste (excl. defatted) C.d'lvoire, Cameroon, Ghana, Nigeria, Brazil Dominican Rep. 18040000 Cocoa butter, fat and oil C.d'Ivoire, Cameroon, Ghana, Nigeria, Brazil Dominica1 Rep. Preference extinguished 03061390 Frozen shrimps and prawns (excl. Nigeria. Senegal, Surinam, Cabon India 'pandalidae' and 'crangon') C.d'Ivoire, Coneo Cameroon, Kenya Trinidad &Tobago, Ghana, Guyana 06031069 Fresh cut flowers and buds from Kenya, Zimbabwe, C.d'Ivoire, Mauritius, S. Africa I November to 3 1 May Surinam, Jamaica, Namibia, Cameroon, Swaziland. Barbados, St Vincent, Trinidad & Tobago, Grenada, Nigeria, Guyana, Dominican Rep. 08030019 Bananas, fresh (excl. plantains) C. d'Ivoire, Cameroon, St. Lucia, Jamaica, Ecuador, Costa Rica, St Vincent, Belize, Surinam, Dominica, Colombia Grenada 08043000 Fresh or dried pineapples C.d'lvoire, Ghana, Dominican Rep., S. Africa, Brazil Cameroon,Mauritius, Swaziland, Kenya, Zimbabwe, Nigeria, Senegal 15111090 Crude palm oil (excl for PNG, C. d'lvoire, Ghana, w, Brazil industrial uses) Cameroon,Nigeria, Senegal 17011 1I0 Raw cane sugar, for refining Mauritius. Fiji, Guyana, Swaziland, Jamaica, Brazil, Cuba Zimbabwe, Trinidad & Tobago, St Kitts & Nevi- 18031000 Cocoa paste (excl. defatted) C, d'lvoire, Cameroon, Indonesia Ghana, Nigeria. Dominican Rep 18040000 Cocoa butter. fat and oil Ghana, C. d'lvoire, Nigeria, Cameroon, Malaysia. Indonesia Dominican Rep. 41051210 Unsplit sheep or lamb skin h'igeria. Kenya, C- Saudi Arabia. Brazil leather. pre-tanned 41061200 Goat or kid skin leather, dehaired, Nigeria, Kenya, Cameroon, C. d'lvoire, Nepal, Pakistan, China mineralslspthetic, pre-tanned Dominican Rep. 7601 1000 Aluminium, not alloyed, Ghana, Cameroon, Surinam, C.d'lvoire, Russia, Canada unwrought Namibia. Guyana - Equality replaced by discrimination 03026996 Saltwater fish, edible, fresh or Senegal, C d'lvoire, Trinidad &Tobago, Morocco, Turkey chilled n.e.s. Belize, Seychelles, Ghana, Jamaica, Nigeria, Kenya, Namibia, PNG, Mauritius, Grenada, Zimbabwe 06031069 Fresh cut flowers and buds from Kenya. Zimbabwe, C. d'lvoire, Mauritius, Israel, Ecuador 1 November b 3 1 May Surinam, Jamaica, Namibia, Cameroon, Swaziland, Barbados, St Vincent, Trinidad and Tobago, Grenada, Nigeria, Guyana, Dominican Rep. 07082010 Fresh or chilled beans 'vigna Kenya, Senegal, Zimbabwe, Cameroon, Egypt, Morocco, spp., phaseolus spp. from I Dominican Rep., Surinam,Nigeria, Turkey October to 30 June Swaziland. C. d'lvoire, St. Lucia. Ghana 18031000 Cocoa paste (excl. defaned) C.d'lvoire, Cameroon, Ghana, Nigeria, Norway Dominican Rep. 4 1051210 Unsplit sheep or lamb skin Nigeria, Kenya, Camerooq Algeria lealther, pre-tanned 7601 10000 Aluminium, not alloyed. Ghana. Cameroon, Surinam, C. d'lvoire, Norway unwrought Namibia. Guyana Preference replaced by discrimination 03061390 Frozen shrimps and prawns (excl. Nigeria, Senegal, Surinam, Q&, Ecuador 'pandalidae' and 'crangon* C.d'Ivoire, Coneo. Cameroon, Kenya, Trinidad & Tobago, Ghana. Guyana No change 08030019 Bananas, fresh (excl. plantains) Dominican Rep., Ghana, Kenya, Gabon, Ecuador, Costa Rica, Bahamas Colombia Note: The three largestNo-LLDC ACP competitors only. Sources: Adapted from information in Stevens et al. (1999). Table 33. Recent Data on Cameroon Banana Industry Source: ASSOBCAM Table34. Implications for No-LCCD ACP of systematic income differentiation within the GSP CN 1995 Short description Exportersa MFN Upper Notmal-income Low-income Inconle 07082010 Beans 'vigna Senegal, Zimbabwe, Kenya, Nigeria, spp./phaseolus spp.',, Cameroon, Dom. Rep., Ghana 1 0ct.-30 June C. d'lvoire. No-ACP Egvpt, Morocco. Turkey 08030019 Bananas fresh Gabon Cameroon, C.dtIvoire, Ghana, Kenya Jamaica, NO-ACP Dom. Rep. Ecuador, Costa Rico, Colombia 08043000 Freshldried Mauritius, C. d'lvoire, Dom. Rep., Ghana, Kenya, pineapples Brazil Cameroon. Zimbabwe, Nigeria Senegal, NO-ACP S Africa, Thailand 15111090 Crude palm oil Gabon PNG, C.d'Ivoire, Ghana, Nigeria Malaysia Cameroon, Senegal, Brazil Indonesio 18031000 Cocoa paste Noway Brazil C.d'Ivoire. Cameroon, Ghana, Nigeria NO-ACP Dom. Rep. lndonesio 1804000 Cocoa butter, fat and Malays~a. C.d'lvoire, Cameroon Ghana, Nigeria oil Brazil No-ACP Dom. Rep. Indonesia 4 10512 10 Sheepllambskin Saudi Brazil Cameroon, C.d'lvoire, Nigeria, Kenya leather No-ACP Dom. Rep. 41061200 Goatkidskin leather Camemon, C.d'Ivoire, Nigeria, Kenya NO-ACP Dom. Rep., China No-ACP Nepol, Pakistan 61051000 Men's cotton shirts, Hong Mauritius Dom. Rep., Zimbabwe, Nigeria knittedicrocheted Kong Jamaica NO-ACP Turkey, China Source: Adapted from information in Stevens et al. (1999) Agriculture and the New Trade Agenda in the WTO 2000 Negotiations: Economic Analyses of Interests and Policy Options for Tanzania Flora Mnderne Musonda Introduction This report is concerned with discussing the WTO Agreement in tlie context of Tanzania. Although the country is ranked as one of the Least developed Countries (LDC), still tlie Uruguay Round has effects in its perforniance and has sectoral effects. Tanzania has liberalized its economy to a large extent following World Bank and IMF reform programmes since 1986. Tlie liberalization is both in the tariffs and non-tariff barriers to trade. In addition other types of refomis have been introduced and the completeness of these reforms and the extent of performance differs froni sector to sector and also depending on the type of the reforms themselves whether it is tlie easy or difficult ones. For example, it has been easier to liberalize trade rather than instituting the more difficult systemic reforms including the privatization programmes. Agriculture Sector in Taiizaiiia Agriculture, a livelihood to most people in the country, and the economy in general is still underdeveloped and backward. Major challenges facing Tanzania include: poverty alleviation, food security. eradicating malnutrition, and environmental protection. Tliere is need to move from current traditional subsistence farming methods to the modem conimercial ones through transformation. Tanzania exports six major export crops (Traditional exports). Countries of destination for exports include: U.K. Gennaiiy, Netherlands, Italy, India and Japan. Tanzania's Agriculture was over taxed in 1970s and 1980s at the height of trade confinement. Explicitly by taxing exports commodities through governnielit controlled domestic prices below world-prices. Tanzania mainland does not subsidize agriculture or its exports - but rather tax agriculture implicitly by protecting industries. Tanzania started to implement refbrrns and liberalised tariffs. Exports restrictions have been eliminated, foreign exchange controls have been eliminated Concerted efforts to create a conducive environment for domestic and foreign investment were made. The government has realized that although transformation is difficult but it has to be done for agriculture. Several initiatives have been taken including introducing marketing boards for major export crops, assisting some agricultural exports such as cashewnuts, providing inputs at the right time, among others. CHANGES MADE TO MEETURUGUAY COMMITMENTS Market access: border protection tariffs and non-tariff barriers. Changes made in tariff - liberalisation. Changes in Taxation since 1998 (I) Value Added Tax Act 1997 1998July 1" Value Added Tax was first introduced to replace sales tax, receipt based stamp duty, entertainment tax. Exports are zero rated for VAT purposes VAT Act enumerates goods and services that a1 exempt, which include: - (i) Agricultural products mainly food crops. (ii) Supply of pesticides and fertilisers and other products, used for agricultural sector purposes. (2) The Export Tax Act, 1974 1999July 1'' Governnlent abolished export tax on coffee, cotton, tobacco, cashewnuts, sisal, tea and pyrethruin. (3) The Excise Tariff Ordinance Cap 332 Government recently repealed the schedule to the ordinance and replaced to it by the new schedule and harnlonized excise duty on locally produced and imported goods. Number of excisable goods were reduced from 16 categories to 6 groups: cigarettes, beer, spirits, wines and soft drinks and vermouth. (4) The Local Government (finance) Act 1982 Government through an~endn~entreduced maximum rate of produce less from 10% to 5% of the farm gate price. (5) The Stamp Duty Act 1972 Under the Finance Act 1999, Article 51 was amended by Government exempting from stamp duty on agricultural produce and livestock less at markets under municipal authorities. THEAGRICULTURALPOLICYREGIMEAT THE ENDOF 1999 Situation at the end of 1999 Iirtporr Policy Government desire to opening up the econonly through incentives for domestic and external investments in priority sectors: Agriculture, tourism, mining. The tariff rates have been reduced considerably with the highest being 25% and the non-zero bands reduced to three. Tanzania Investment Centre (TIC) is the main window for investments. Regionul Agreeittents Regioirul Trade Protocol Tanzania was signatory.to COMESA (although it withdrew in 2000) Tanzania is active nlember to SADC Tanzania is active member to the EAC (Kenya,Uganda and Tanzania) Regioir ul Agricultural Policies Being nieiiiber to EAC and SADC Tanzania anticipated benefits from liberalized trade in agricultural commodities e.g. increased official trade, rural employment, income generation, improved food security reduced informal trade and reduced government spending on trade restrictions. The importance of Tanzania to effectively participate in sessions held by the standardization bodies: Codex, OIE, IPPC and WTOISPS committee sessions. The Agreement on Agriculture is of importance to Tanzania's food security issues, rising i~nportbills and potential loss to niarket share in the face of loss in prefereiltial margins. Tanzania views that the WTO agreement would make global trading system more transparent, provide substantial improvement on market access opportunities for the LDC (includiiig Tanzania). Tanzania faces many challenges including the review of its legal and regulatory framework to be consistent with WTO comn~itments,the notification process which is a heavy burden, requiring enhancement of institutional and Huinan Resources capabilities in trade related information management. Identified technical cooperation needs include: Solving the supply capacity constraints Building capacities for enhanced productivity Product developii~entldiversificationthrough improved research activities Developn~entof infrastructure linking production centres to export outlets Provision of reliable energy for industrial production Upgrading of telecommunication systems and infrastructural systems. Domestic measures Tanzania could take to support own agriculture include the following: Improve the Agricultural infrastructure to reduce production and transport costs there by improving farm productivity. Make farm inputs affordable by majority of farmers through where necessary agricultural credit schemes. Deliberate support to processing of agricultural products for "Value Added" especially on Agricultural exports thus improving farmers net incomes. Seriously exploit through diversification where Tanzania has comparative advantages e.g. forest and marine products. WTO Agreement on Agriculture seeks to promote fair and free trade, Tanzania must ensure that she does not become victim of unfair competition including dumping. Tanzania to vigilantly watch on import s brought into the country, and niust plug up all loopholes being exploited to foster unfair conlpetition or dumping. To inipose whatever restrictions or exceptions the WTO Agreement does not exclude in protecting Tanzaiiiaiis interests. Pending obligations facing most LDCs (Tanzania included) is the urgent need to enact new laws and align the domestic legislations to the WTO agreements. There is also need for setting up new institutions whilst restructuring old ones to fully discharge new tasks. . -- . -~ -7 ~ 1.0 INTRODUCTION 1.1 Overview of the Agriculture and Food Sector The economy of Tanzania depends on agriculture and hence the sector's good performance signifies how well the econorny has performed. Generally, agricultural perfomlance for the past four years has been improving and the main contributing factors to this improved performance are attributed to macro-economic policy reforms and good weather conditions. The sector employs about 80% of the active labour force of the population and accounts for niore than 50% of the GDP and 75% of the foreign exchange in the 1990s. Not only that, but the sector is also the main source of domestic supply of food and foreign exchange, raw materials for domestic industries and livelihood investible capital and stimulates demand in the non-agricultural sector. According to the available national accounts, food crops production dominates the agricultural econoiny totaling 55% of the agricultural GDP at current prices, of which livestock accounts for 30%, traditional export crops for eight percent, fishing and hunting six percent and forestry for one percent. Export crops include coffee, cotton, tea, cashewnuts, tobacco, sisal, pyrethrum, cocoa, oil seeds, and cardamom. According to Bank of Tanzania 1998, provisional data shows that the first six crops listed above contributed US $ 184.14 million to the total value of US$ 310 nlillion foreign exchange earnings that were obtained from export crops in 1997. Major reforms that were carried out and the introduction of Econonlic Recovery Programme (ERP) in mid eighties have facilitated the achievement of good export crop performance. These reforms contributed to a large extent into rising of the agricultural growth rate from 3% in the 1981-85 period to 5.7% in 1986. The rate fell slightly to 4.4% in 1987 and rose again to 4.8% in 1988. This recovery contributed to the GDP growth rate rising from 4.1% in 1988 to 4.5% in 1997. Some of the important agricultural sector reform measures undertaken by the government include: the move froni a controlled to a freer marketing system in 1986187; the de-confinement of export crops which started from non-traditional crops in 1987 and extended to traditional export crops (coffee, cotton and cashew) in 1990by making marketing boards the agents of Co-operative Unions and the 1991 Co-operative Act which allowed Co- operatives to become private institutions with n~ininiunlgoverninent intervention. Crop boards \yere empowered with the regulatory functioil on behalf of the Ministry of Agriculture and Cooperatives. 1.2 Total Population, Agricultural Population and their Developments Tanzania being the largest country in East Africa has an estimated population of about 31 Million people. This population tends to grow at an average rate of growth between 2.7-2.9 annually. This rate of growth of population however does not match with the rate of which food production is growing and hence exerting serious consequences to the national economy. Out of the total active labor force, agricultural population accounts for almost 80% of which most are confined in the rural areas. 1.3 Area and Land Use It is estimated that Tanzania is endowed with 88.6 million hectares of cultivable land of which 60 million hectares are suitable for livestock production. Of this entire total, only 6-7 million hectares are used for rain-fed agriculture while 24 lnillion hectares are used for keeping livestock. Briefly, the National Sample Census Survey of Agriculture of 199411995 estimates that there were 3.87 niillion sniall-scale holdings in the rural areas of mainland Tanzania where the size of area cultivated averaged 0.86 hectares. About 90% of all farmers cultivated less than 2.0 hectares. The most comnion holdings are the family or homestead holdings, and these are operated individually. With tlie exception of few agricultural commodities such as sisal, sugar, tea, coffee, wheat and flowers, most of the agricultural output comes from small- holders. As far as the food crop sector is concerned, out of the total area cultivated in 1995196, about 3.35 million hectares were planted with cereals, which included maize, sorghuni millet, wheat and paddy. On average, 1.630 niillion hectares of lion-cereals were cultivated making the proportion of cereals and non-cereals to be 66% and 34% respectively. This can be compared with the total area under food production during 1996197 where 3 million ha (64.2%) were under cereals, which was aboui 9.4% less than 1995196 area which stood at 3.35 million ha. At the same time, a total of 1.7 million ha (or 35.8%) of lion -cereals were 2.7% higher than 1.65 niillio~iha. in the 1995196 season. Estimates for 1997198 season indicate much higher figures of cultivated areas in all cases, suggesting a better situation than the one observed in 1996197season. Small-holders living in the rural communities keeping niostly indigenous types of livestock own over 90 percent of livestock in Tanzania. The livestock sub-sector contributes to about 18% of GDP and contributes to national food. According to the 1994195-sample census, about 1,440,000 households or 37% of all agricultural households in Tanzania mainland own cattle. This estimate is 1 1% higher than the estimate obtained in 1993194. Of the household raising livestock: 1,I 39,000 (79%) raised cattle; 1,262,000 (88%) raised goats; 522,000 (36%) raised sheep; 202,000 (14%) raised pigs, 134.000 (9%) raised donkeys; 48,000 (3%) raised rabbits and a significant sniall number of 5,000 raised buffaloes. About 2% of tlie national cattle populations or 212,000 were improved dairy cattle and only 92,000 (0.6%) were improved beef cattle. The total number of goats was estimated to be 10 niillion, which was 24% higher than the estimate for 1993194, while tlie number of estimated sheep was 3 niillion. Generally the economic reforms contributed to a rise in the growth rate of agricultural production which in the 1996-1997 period marked 3.2 % compared to growth rate of 2.07 % recorded between 1981-1983. The sector is nevertheless faced by many constraints, which in one way or another have become big barriers to its developnient. There are factors related to problem of technology development and transfer and these includes, poor crop and animal husbandry practices, use of hand tools in farming by the ~iiajorityof producers, dependence on rain-fed agriculture as well as high cost of modern technological packages and an unreliable supply of inputs. Other problems include poor extension services, which in itself is attributed to such factors like inadequate funding, (particularly funds from the Treasury have been inadequately disbursed over the past five years mainly because of economic constraints); weak research- extension-farmer-input supplier linkages; lack or inadequate logistical support such as transport facilities and working gear and low staff niotivation due to poor personnel remuneration, weak supervision, and poor staff utilization. In terms of infrastructure, agricultural sector has been very much devastated as there is poor transport infrastructure, i.e. weather roads, inadequate railway system which makes transportation of agricultural producelinputs to the needy areas quite difficult. There are financial and rural credit constraints while in tenns of agricultural marketing and pricing, there are constraints related to flow of information on products and inputs, institutional arrangements, marketing services, and output transformation issues. There are also niajor niacro economic policy issues that need to be resolved before agriculture can show growth on a sustainable basis and benefit from WTO agreements. For instance, issues of tax regimes associated with some export crops, the debt crisis and deteriorating teniis of trade for agricultural products and unrealistic government budgets must be addressed in order to harness development of agriculture sector. In addition, diverse and uncoordinated units in the government make many of tlie development policies in the country and tlie basis upon which agricultural policies are foriiiulated is rather weak. The environmeiit also does not support agriculture since there is a high level of environmental degradation, which results in water shortage, land degradation, soil erosion, water pollution, deforestation, overstocking, and drought and flood hazards. Gender imbalance in this sector lias also been manifested in agricultural productioii whereby women do most of the work even though they lack access to the productive resources and supportive services, while at the sanie tinie, aspect of agricultural research has not been given enough weight as there are inadequate funding, poor management and coordination, ineffective implementation of the research agenda and weak research-extension services-fanner linkage. Tanzania depends to a large extent on cash crops exports. Smallholder farniers produce most of these crops mostly using outdated or dilapidated farm machines equipment and implenients. The drastic drop in tlie purchase of new tractors is an indication of this poor state of agricultural machines. Improper and inadequate use of agricultural inputs; for these inputs are unaffordable to most farmers after the removal of subsidies and unavailability of credit facilities to formers. Erratic market for crops resulting from trade liberalization and nearby collapse of primary cooperative societies and unions has been another problem also. World price fluctuation lias made it very difficult if not impossible, for famiers to plan their production or make a fair predictioii of their incomes froin their fanning operations. -- .- -- --- --- pp 2.0 THE TRADE REGIME IN AGRICULTURE BEFORE AND AFTER THE I I URUGUAY ROUND I Tanzania undertook economic reforms and more so trade liberalization policies since the mid-1980s. WTO agreements came into force in 1995. This implies that the country started implementing and re-orienting its economy consistent to WTO agreements even before WTO was conceived. Such a situation makes it difficulty in identifying the measures that were taken in Tanzanian economy as a response to WTO. In fact, much weight of the reform thrust is significantly attached to the World BanWIMF sponsored economic liberalization policies to open up the economy. 2.1 Border Protection-tariffs and Non-tariff Barriers Prior trade liberalization Tanzania pursues policies which advocated government interventions in market prices of both food and cash crops, domestic food self sufficiency and exchange rate controls which resulted into discouraging formal intra and inter-regional trade. Liberalization of the agricultural trade was expected to increase intra and inter regional trade by removing trade barrier. In fact, Tanzania's membership to SADC, WTO, etc. aimed at attaining that objective. Liberalization of food crops started as early as 19981182, but it was until 1988189 that the marketing of all food crops was decontrolled at the level of cooperative unions and a year later at the level of primary societies (MoA, 2000). The government stopped fixing producer prices of food crops and instead announced indicative prices, which was stopped in 1993/94. The role of cooperative unions continues to diminish due to lack of competitive power and financial resources. On the other hand the share of the National Milling Corporation (NMC) which once enjoyed the n~onopolyof food crops marketing in the local market including importation of food has declined rapidly because of the competition with the private sector. For the case of cash crops, marketing boards of respective crops did the marketing. Most cash crop exports were marketed through a single channel three-tier system, which iiivolved producers, primary societies, cooperative unions and crop marketing boards. 2.2 Agricultural and Food Tariff and Non-tariff Barriers General tariff barriers in Tanzania vary from 0% to a maximum of 25%. Safeguard measures to protect local industries exist in the form of suspended duties. Suspended duties for selected agricultural conlmodities are levied at 20% level, which is applied, on such items as sugar, cooking oil, dairy products, etc. Sonie items are also charged VAT on import at the level of 20% of their iniport value. Excise duty is chargeable to some imported itenis but most agricultural comnlodities are not subject to excise duty. These tariffs are prohibitive to trade and need to be hannonized with important Tanzania's trading partners. Import duty rates for agricultural inputs are fairly low with the exception of packaging materials, which are levied 20% import duty. Other agricultural inputs are charged an import duty of between 0% and 5%. Non-tariff barriers identified in Tanzania are many and have been changing with the need to ensure food sufficiency. The non-tariff barriers include bureaucracy, poor infrastructures, erratic production and lack of economies of scale, inadequate trading skills and trade information. Other non-tariff barriers entail sanitary and phytosanitary measures, food security concern, insufficient credit facilities, standards, quantitative restrictions, discretionary licensing and variable levies. 2.3 State of Trading in Agricultural Commodities-internal and External Table 2.1: Country's Trading Partners in Exports of Agricultural Colnlnodities before Uruguay Round EXPORTS-1986 Tshs Millions -1 Country 0 1 1 I 2 -A 3 4 / Total I CrandTotal FRANCE - 1 2 5 7 9 1 19 21 1 I 1 1 2620 I 2678 ---.- U.K 1 564 258 32 i---'?~55 I 1367 , ! 7-- ~ F ~ N L A N D 1 933 I ; 934 j I 9 3 4 7 :NETHERLANDS 577 I 96 46 ! 1 719 1 774 --- -> - 1 , .- ITALY 389 ! ____1 0 127 1 ~ ~ - - - 516 ; 540 -___-.- ; I ~ ;INDIA 9 503 I 1 I I -- 1 1 1 EXPORTS-1987 -- ~ I k`4NCE -..J_____+ 2579 I 19 2 -- 2620 j _ 1 6 7 8 a~~ t--. - . -_&--.___-.-..--_+._.- : ~ 564 I 258 32 : -Lt8!!.-L -__-- -I 136- - I - -- FINLAND- 933 i 1 934 j -..---- - :--~]---i- 934 _ _j ~ NETHERLANDS 577 96 46 A__, 719 1 -.-- ! 1 ' i 774 I !ITALY +, 516 540 . -- ~ ~ INDIA-- -. 9 . 474 503 _ l _ ~ - _ . . - _ - - _ - I _ * , -... .- - i ~~ I EXPORTS- I990 ~ .---- -. -.-- - -- ,3,99 I - -. -.-. - .- --.- ---.. INDIA 115897 71610 13527 -. ' -. .- --- -- FRANCE 1-6~:~- ~ 123.. 1 309 -i --I 1 i 6981 I 7422 (!!-A- I +- ~ i --- . - -- .-- --- d !UK 2925 ~TO-- 701 ; 3 3 7 - 4479 ' pp TAIWAN 1 3322 ; --_ 1 3322 1 3329 .. -- -- 1___i_ I - ___LANDS NETHERL 1 1 120 _ i 1 ...__ 234-3 .-. - 12_ _ I 6 .1__277!4!+29?3-- ~ - ~ 4 SINGAPORE ! 1610 1 946 1 1~-- 11 2557. 2565 . . . ' . . -- Tanzania's major export market for its agricultural comlnodities before the Uruguay Round was mainly the industrialized countries in Europe including France, United Kingdom, Netherlands, Finland and Italy. There are however some outliers including India, Taiwan and Singapore. Table 2.2: Country's Trade Partners in Imports of Agricultural Commodities before Uruguay , ----- Round (T.Shs Million) -- -1 - - IMPORTS1986 1 Country 0 1 2 3 4 Grand Totall &do. 200 20 75 24 34 3613 1 JAPAN 0 - 44 7 1 353 128 1 3471 l --- - --+--- t- 76 86 -- --i ----- France 154 6 44 86 3203 i -- - -7 - - -- ---t----p-. IITALY 18 4 I05 y40-7- 3 1 470 1 2011 1 --- !unitedArab Elmrates 3 0 3 ! 1451 17 1 1 4 7 4 . 1653 -- - ----- -. 'KENYA ii --A 1 - +I7---- 3 - 3 416 1 441 1 1256 I -- --- i I I , I k-T-- IMPORTS-1987 I - .- ~-! ,UnitedKingdom I l l 8 24 T I 4 3 ( 32 2 0 1 T 3 3 7 - r 8987 + France ~ A P A N 128 ; 1 1 JITALY 5749 .-: PETHERLANDS 3136 - I-- DENMARK 2 37---_--- I 258 561 , - ~ 293 ~1 . . -L.5 . . 2884 L . - 1 -1 ___1.--_--- ~L L L L . i 1 - -- -- I 194 128 1 IMPORTS-1990 1120 / 466 34 i 1 9 4 u 34104 ' 1 7--- France 591 i 23 2 2 1 - 2 3 1 4 m 9 3 20059 , I 3APAN t 7- ~ 0 ~ ; -23 - (_..~___~-1 - _~33- _! _74. t,______--15426 k1 ~ - ~ ~ ~ ~ T 1 h x ~ a bsics r 79 3424 8861 I Tanzania's source of imports before tlie Uruguay Round is basically European markets, reflecting the historical ties. Japan is also a niajor trading partner likewise United Arab Emirates, Iran and Kenya. 2.4 Country's trading agricultural commodities and producer prices before and after Uruguay Round 2.4.1 Exports Export of cash crops during the past decade has exhibited undefined pattern, as there were some periods of rise and fall in the volume of exports. This may be explained by, first, unreliable rainfall tliat causes boom or recession in the production of export crops (cash crops) and second, due to surges in the intematio~ialcommodity prices, which in most cases, tlie prices have reiiiaiiied at a lower level. To tliat extent, the performance of export crops to the growth and prosperity of national econoniy has not been encouraging. Table 2.3: Tanzania Exports by Type of Cotntnod~ty January-December COMMODITY 1990 1991 1992 1993 1994 1995 1996 1997 1998' Coffee Value Volume Unit I'rice Cotton Value Volulne Unit Price Sisal Value Volume Un~tPrice Tca Value Volume Unit Price Tobacco Value Volu~ne Unit Price Cashe\vnuts Value Volume Unir Price * Provisional data subject to revision Volulne in '000' Tons Valuc in Millions of US $; and Unit Price in US $/Ton. Source: Bank of Tanzania, International Economics Department. With respect to evolution of output prices for traditional exports crops, it was evident that the rise of Real Exchange Rate (RER) from 1986 to 1993, accompanied by increasing liberalization measures, should have increased real producer prices several folds, restoring profitability and economic viability to the sector (World Bank, 2000). In reality, six of the main export producer prices rose substantially (24-68 percent) over the period (robusta producer prices remained unchanged and cotton prices fell). The increase was less than anticipated for the reasons associated with falling in the real J0.b prices of all crops excluding tobacco and pyrethrum, and the crop authorities increased their marketing margins, absorbing part of the benefits of devaluation. Since 1993, real producer prices for the mainland's major export crops have fallen between 25 and 70 percent (World Bank, ibid.). Since this corresponds to the period that private traders began to purchase and export many of these crops, one might attribute the lower producer prices to liberalization and lack of colnpetition among private traders. However, producer prices have risen as a percent ofJ0.b price for five of the six commodities that have been liberalized (tea and pyrethrum are not yet full liberalized). Appreciation of the real exchange rate explains the falling producer prices for export crops over 1993-98. Despite Tanzania possessing the vast arable agricultural land, the countly has, in some periods, continued to import food from outside. This is due to the fact that agriculture sector (crop production) in Tanzania is totally dependent on rainfall whereby during drouglit periods, production of food corps drops drastically, necessitating food importation in order to curb the deficit so created. For example, according to joint in-depth assessment of the situation by the World Food Prograniine (WFP) and the Food and Agricultural Organisation (FAO), Tanzania's deficit of grains reniailis high at 560,000 tons for the period through mid- 2000. An earlier evaluation established by the government indicated a deficit of about 600,000 tons. This deficit can only be covered through importation if the goveniment seeks an immediate rescue of the situation instead of relying on the next season's crop production of which most crops do exhibit a longer gestation period. Apart from that, importation also is done in tenns of fertilizers, pesticidesiinsecticideslherbicides and other farm inputsiiniplenie~itsthat the sector can 11ot do away with. Table 2.4: Tanzania Iinports by Major Category (Ag~culture)Millions of US $ January-December CategorvNear 1990 1991 1992 1993 1994 1995 1996 1997 1998 D . Fertilizers 8.5 37.2 16 I I 11.7 11.7 23.3 19.4 15 Food/f.stuffs 63.1 0.9 48.9 93.7 127.5 44.2 52.7 57.8 97.2 Total 71.6 38.1 64.9 101.7 129.2 55.9 76 77.2 112.2 Source: Bank of Tanzania, lntemational EconolnicsDepartment. Table 5 shows the evolution of real producer prices for the five important staples including the official procurement prices for the 1980s and annual inarket prices since 1991. World Bank (2000) indicates that market prices after 1991 are 50 to 165 percent greater than the official procurement prices in the 1980s. Between 1995 and 1997, the real prices of all five staples began to fall significantly. Wheat and price fell by 67 and 69 percents, respectively, whereas the other staples fell by substantially less. Food producers as a whole would have had to double or triple output to purchase the same basket of consumer itenis in at the end of the first quarter of 1999 that they bought with food crop sales income in 1993. 0 1 1the other hand, livestock products, real beef prices fell modestly from 1987190 to 1991194 in niost markets and stayed rougllly constant thereafter. Real ~iiilkretail prices barely changed fro111 1987190 compared to the average for the next four years, but then fell by about a third through the I995199 period. These changes are explained by the fact that World prices for cereals, milk, meat, and traditional commodity exports have all trended downwards in real tenns over time. Table 2.5: Real Producer Prices for Food Crops 1981-99 Year Price indexa Maize Paddy Wheat Millet Beans Cassava Oficral procurementprices (constant 1998-99 Tshslkg) Market prices (constant 1998-99Tshslkg) 106 212 473 279 47 1 279 370 495 289 508 298 49 1 525 365 533 256 424 497 376 712 181 254 452 484 797 165 216 423 538 571 138 245 362 245 475 117 195 272 175 43 1 1998-99b 100 118 151 228 175 317 53 a National Consulner Price Index where 1998-99=100 bTo April 1999. Source: Quoted from World Bank, Agriculture in Tanzania since 1986, Follower. or. Leader ox Gro~l~tli?, June 2000, p26. The prices of Zanzibar's major exports have also not benefited the region. Cloves, traditionally Zanzibar's most iinportant agricultural export, have fallen dran~aticallyin value since the mid 1980s. Export unit value in the 1990s are approximately 10 percent in nomial temis of what they were in an average year in the 1970s arid 1980s. Nominal producer prices of cloves fell from near 20 Tshikg in 1980 to below 5 Tsl~ikgin 1994, even greater than the decline in world market prices in real tenns. On the other hand, the producer prices of both copra and chillies, while erratic, have not declined in real ternls between the early 1980s and mid 1990 (Mabele, cf. World Bank 2000 p.23). The "own firms" import scheme that was initiated in 1984, allowing exporters to use part of their foreign exchange earnings on pre-detem~inedimports was a good incentive to imports. In 1988 this was further strengthened by an Open General License (OGL) scheme allowing a more market-oriented allocatioii of foreign exchange. Import liberalization was contained in the 1992 Foreign Exchange Act that perniitted the establishnient of the bureau de changes and made it free for citizens to possess and sell foreign exchange. The bureaus acted as another window for financing inlports until January 1996 when the Bank of Tanzania restricted the bureaus operations to over-the-counter nioiiey changing operations. Further sin~plificationsof import procedures have also been made. In 1995 tariffs were rationalized to 5 rates, the ~naximunirate being 40%, down from 50% in the previous year. To diversify the tax revenue sources, more eniphasis was to be shifted from trade taxes (especially tariffs) to income and indirect taxes. The Tanzania Revenue Authority (TRA) was introduced in 1996, and in July 1998, valued-added tax (VAT) was introduced. 2.5 Export Regime 2.5.1 Agreerr~entotr Sanitary artd Pl?yro-sanitaryStatzdardsfor Exports of Agricultural Con~morlities The Uruguay Round of Multilateral Negotiations include a number of Agreements, among then1 are the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS) and the Agreement on Technical Barriers to Trade (TBT). The provision of pl~yto-sanitary'servicesin Tanzania is still the responsibility of the Ministry of Agriculture and Cooperatives under the Department of Plant Protection. The department is mainly concerned with diagnosis, forecasting and preventing pest outbreaks; inspection and Phyto-sanitary Inspectorate Services involving Quarantine services, pesticide testing, licensing and registration, enforced by plant protection legislation; it is responsible for day to day enforcement of the plant quarantine regulation. It is tasked with ensuring that the importation and exportation of plant or plant material is certified in accordance with the laid down quarantine regulations. Currently there are more than 20 phyto-sanitary Inspectorate service posts in Tanzania but only a few are operating below standard due to lack oftpoor infrastructure and lack of necessary resources. These service posts include: The Dar es Salaam International Airport, Dar es Salaam Sea Port, Kilimanjaro International Airport, Mtwara Sea Port, Lindi Sea Port, Lake Posts at Kigoma, Mwanza, Bukoba and Musoma, Overland Border Posts at Namanga, Tunduma, Holili, Tarakea, Mutukula, TAZARA, Mbamba Bay, Itungi, Karagwe, Kalema (Rukwa), Isongola (Mbeya), Horohoro, Sirari, Kasumulo and Ngara. The SPS Agreements has as its prinlary purpose the protection of human, animal and plant life and health through the implementation of sanitary and phytosanitary measures, which are justifiable necessary and are not disguised technical barriers to trade. Considering only those provisions related to sanitary protection measures the SPS Agreement has specific provisions related to risks arising from additions contaminants, toxins or disease - causing organism in food, beverages or foodstuffs. Measures to control these problems based on internationally adopted food standards of the Codex Alimentarius Conlmission are presumed to meet the requirements of the SPS Agreement. The SPS Agreement also requires that member countries harmonize sanitary and phytosanitary measures 011 as wider a basis as possible with international standards, guidelines and recommendations, apply equivalence principles in food control programllle evaluation; and establish and impleiuent sanitary and phytosanitary measures in a transparent manner. The Agreement requires that measures taken which impose a higher level of protection than that established internationally by Codex must be based on sound scientific evidence, and internationally acceptable risk analysis methods, and must be the least trade restrictive. TBT Agreement applies to all aspects of food standards, which are not covered by the SPS Agreement. It seeks to ensure that technical regulations and standards for food including packaging, marking and labeling requirements and procedures for assessing conformity with technical regulations and standards. do not create unnecessary obstacles to international trade. TBT measures must be shown to have legitimate purpose, should be based on international standards and be proportional to the desired purpose. According to Codex framework, provisions such as quality and coiuposition requirement labeling, nutrition and methods of analysis are relevant to the TBT Agreement. 2.6 Compliance with the Uruguay Agreement on Sanitary and Phytosanitary Standards The Sanitary and Phytosanitary Measures in Tanzania are not very strict. The Laws or ordinance that are used are out-dated and ineffective. For example Chapter 133 of the Government Ordinances, Section 8, the Plant Protection (Import) Amendment) order, of 1964 is still being used, which states that Coffee plants, coffee seeds, coffee fruits (cherries) and vegetative material (coffee robusta and arabica) for planting and similar purposes may only be imported into Taiiganyika by the officer in charge or Coffee Research Station, Lyamungu and only where the said officer - in charge has been authorized by an import perniit for plant material issued by an authorized officer. Such a provision is very vague and excludes a lot of agricultural crops as well as agri- chemicals. Hence, there is a big loophole of importing crops and agri-chemicals without passing through inspection. There have been cases of dumping rotten rice and expired agri- chemicals in Tanzania. However, several organizations like Tanzania Bureau of Standards, Ministry of Agriculture, Ministry of Health, Custonis Ministry of Trade, and Government Chemist are being involved in the guaranteeing and inspecting the imported products. The actual exercise is still not very accurate and in many cases clear abuses are ignored especially when involving well to do people. The probleni is exacerbated by lack of consunier watchdog body. Tanzania is not a member of IPPC, a body that deals with the protection of plant health standards under SPS agreements. 2.6.2 Exports Tanzania as a nieniber of WTO is a member of two standardization bodies i.e. Codex, OIE, excluding IPPC. These bodies have several principles including: (a) Good Agriculture Practice which deals with efficacy and minimum effective levels of pesticides as they are used in agriculture to control crops pests and diseases. Evaluation is supposed to be done on the use and presence of chemicals used in priinary agriculture produce. In Tanzania, Ministry of Agriculture and Government Cheiiiists and TBS do this. (b) Good Practice in the use of Veterinary (GPVD), which assess the food of animal origin. The institutions involved include Ministry of Agriculture and Livestock, TBS and Government chemists. (c) Good Manufacturing Practice (GMP) which assesses the processed food. The institutions involved are ministry of Industries, TBS and Government Chemists. However, the extent of compliance to the above standards in Tanzania may be limited due to the followiiig reasons: Poorlabsolute technology used in processing of food; Inadequate skills in processing and manufacturing; Poorlabsolute instruments used to inspect the products; Ignorance of farmers, manufacturers to the existing laws and standards to be adhered. Evidence of GMP is the case of fish industry in the country. Fish for export from Lake Victoria was banned into the European Union Market in 1998 and 1999 on the basis that they were not adhering to the European Union (EU) standards. Many reasons for this event are offered but one cannot exclude the issue of differences in levels of standards between Tanzania and EU. The 1994 WTO Agreement on Technical Barriers to Trade (WTO TBT), which took effect - after superceding the 1979 TBT Agreement negotiated in the Tokyo Round of Multilateral Trade Negotiations between 1974 - 1979, instituted among others, the Agreement on the Application of Sanitary and Phytosanitary (SPS) measures which took effect on 1 January 1995 for all WTO member countries with the exception of Least Developed countries like Tanzania. The countries are required to implement the SPS measures, the application of food safety and animal and plant health regulations. For the purpose of the Agreement on SPS, "animal" includes fish and wild fauna, "plants" include forests and wild flora, "pests1'include weeds while "contaminants" include pesticide and veterinary drug residues and extraneous matter. For food safety the SPS Agreement recognizes standards, guidelines and recommendations established by the CODEX whereas for animal health, the SPS Agreement recognizes standards and guidelines established by OIE and Plant Health protection standards prepared by IPPC are recognized under the SPS Agreement. While Tanzania is a member of WTO and of the two standard setting bodies, CODEX and OIE, and is yet to be party to lPPC besides being a member of the Food and Agriculture Orgaiiization (FAO) of the United Nations it still finds it quite difficult to adhere to even the mininium international standards for food safety and does not even have the necessary capacity, institutions, equipment and manpower-wise. 2.6.3 National Obligatiorts Towar& I~~lple~~ientrrtio~i of tlie SPS -Agreement + Publication of Regulations that each nien~bercountry shall adopt publish and avail - copies to interested members - all sanitary and phytosanitary laws, regulation and standards. + Establishment of an Inquiry Point which shall respond to inquiries from interested - members all sanitary and phytosanitary laws, regulation adapted or proposed with its territory. The enquiry point shall also provide information to any interested member, on any control and inspection procedures, production and guarantee treatment pesticide tolerance and food additive approval procedures which are operated within its territory, Again, the inquiry point shall also provide to, interested member country, with risk assessment procedures, factors taken into consideration, as well as the determination of the appropriate level of sanitary or phytosanitary protection. An inquiry point shall also make it known to a requesting member, tlie illembership and participation of the inember or of relevant bodies within its territory, in international and regional sanitary organizations and systenis, as well as in bilateral and multilateral agreements and arrangements within tlie scope of the agreement, and the texts of such agreements and arrangements. + Every member country has to follow notification procedures as detailed in the agreement wherever a sanitary and phytosanitary regulation is prepared in case 011 international standard guidelines or recommendations do not exist or the content or a proposed sanitary or phytosanitary regulations is not substantially the same as the content of an international standard, guideline or recommendation and if the regulation effect on trade of other member countries. 2.6.4 Export I~lcentives During the first six years of independence (since 1961), economic policy aimed at higher growth of income, and import substitution industrialization, with a wide room for private and foreign investment. Priority to import substitution industrialization can be traced in the industrial development strategy articulated by the Three - Year Plan (1961 - 64) and the First Five - Year Plan (1 964 - 69). It was expected that largcly private and foreign capital would play a leading role in its implementation. Government offered tariff protection and guarantees against nationalization and the private enterprise response was forthcoming. However, the shift of policy toward socialism in 1967 touched off significant new changes empliasizing inward-orientation to be dominated by the public sector. The acconipanying policies discriminated against agricultural exports and blighted prospects for manufactured exports. While impressive econonlic growth was recorded in the 1960s up to around 1978, with an average annual growth rate of about 5.4 per cent, the period 1979-85 saw economic performance faltering. The rate of inflation shot up from just about 10% in most of the 1970s to 36.14 per cent in 1984. Monetary accommodation of public sector deficits added to inflationary pressures. Shortages of manufactured goods were invariably due to excess capacity caused by the decline in the imports of intermediate and other vital inputs. This reflected on the inability of the country to generate enough output to export so as to eani foreign exchange with which to iniport vital inputs to sustain the domestic productive capacity. Efforts were made to encourage diversification of export markets to East Africa and the socialist countries, and an export promotion department was established at the Bank of Tanzania in 1972. However, policy emphasis on exports evolved towards the end of the 1970s in response to the emerging foreign exchange crisis. Export drive was niade a conierstone of the early 1980s adjustment efforts. A number of instruments of export promotion were also launched, including the export rebate/duty drawback, export revolving fund and foreign exchange retention schemes. The export promotion schemes in the early 1980s did not yield intended results due to operational problems and an unfavorable macroeconomic environment characterized by real exchange rate ovenraluation. Starting with the first Economic Recovery Programme in 1986 onwards, active trade policy has increasingly relied on market incentives and less on controls. The export incentives were aiined at export developnlent, to encourage export output and diversification into non- traditional export. Trade and exchange rate liberalization and macroecononiic reforms are among the significant hallmarks of policy toward outward-orientation. Trade policies within this period covered import trade and export trade, with policies within this period covered import trade and export trade, with policies reinforcing both aspects with respect to particularly proiiioting export development. Import liberalization was done through reducing and conipressing tariff rates and reducing quantitative restrictions. This was necessary to relax shortages of imported inputs domestic manufacturing, shortages of consumer goods and rent-seeing activities. Exporting firms benefited from this action. The rationalization of tariffs was made gradually being revised each fiscal year. In 1992, the Tax Commission proposed further measures of simplification of customs duties, reducing exemptions and increasing efficiency in revenue collection, a reduction of import duties on raw material inputs for exporting firms (CREDIT 1998). 2.7 Domestic Agricultural Policies In general, and currently most of the non-tariff barriers have been removed, although in agriculture sector importation of some cereals requires a permit. This is for the purpose of encouraging domestic agriculture. Most of the tariff barriers are relatively lower in agricultural commodities as compared to other manufactured imports. The government also liberalized trade in 1984,allowing Tanzanians with foreign exchange to import goods to close the gap that existed between the supply and demand of common goods, which were acutely short in supply. Tanzania introduced key policy reforms commonly associated with econon~icliberalization packages and of particular importance in this regard were:- devaluation of its currency; increase in import facilities; an adjustment of the prices paid to agricultural producers to more accurately reflect the prices obtained in the world market, and an increase in the prices of consunler goods. However, the success of SAP depended on the mobilization of funds from external sources, which did not materialize, for three year period of $900 million, of which $690 million were required from the IMF and the World Bank in the form of balance of payments assistance. The rest was to be provided by bilateral donors, mainly by shifting resources from project aid to support for imports (Wagao, 1989). 2.7.1 The Ecortor~ricRecovery Prograr~rr~reI(1986-89) In June 1986 the government launched ERP to continue to intensify the earlier adjustment initiatives. ERP relied on macroeconomic and sectoral measures. Its specific objectives were to increase the output of food and export crops, channel investment resources towards the rehabilitation of physical infrastructure and directly productive activities elevate capacity utilization in industry, restore internal and external balances and augment the foreign exchange earnings form exports. The measures adopted included a substantial devaluation of the shilling; to be followed by gradual adjustment; the adoption of tight fiscal and monetary targets, additional measures aimed at getting the prices right for rural producers, and a schedule for the dismantling of the controls over prices and distribution. 2.7.2 Tlze Econonric Recovery Progranr I1 (1989-92) The ERP 11 was introduced as a follow-up on program form the first major reform package, its initiation indicated that the IMF had been satisfied with the direction Tanzania was taking so far as econonlic refomis was concerned. This program, gave priority to the following: the strengthening of social services delivery by creating an enabling environment for improved efficiency, accountability and community support; the inlprovernent of existing water facilities; and the acceleration of employme~ltcreation and income generating activities in small scale manufacturing and services. 2.8 Impact of Policy and Macroeconomic Reforms to Agriculture The adoptcd gradual refomis in summary meant economic policy characterized by moving away from an economy largely planned and controlled by the government towards a market- based economy. Most of the importation of inputs, production, processing and marketing functions are now left to the private sector: farmers, farmers associations, entrepreneurs and free-enterprise institutions. The ilnplenientation of these macro-economic reforms and structural adjustment programmes has changed drastically the agricultural sector. Farmers are now free to sell their crops to cooperatives or private traders. A higher efficiency of marketing systems for some crops has meant that fanners have been able to dispose of their crops faster than in the past, often with a cash payment. Fanners are also not confined to a single source for their fertilizers, agro-chemicals, improved seeds, farm implements and/or veterinary drugs. However, for some crops the liberalized system has meant hardship for fariners as the marketing system has been disrupted and yet a new one has not been in place. In some remote places, there is nobody buying produce from farmers and this has contributed to even more hardships. 2.9 Removal of Government Subsidies Economic reforms have included removal of government subsidies on sonie of the basic commodities. This has created economic suffering to the majority of .the population who had access to subsided goods. This is particularly significant given the fact that the majority of the population in Tanzania earn income, which is below a living wage. Subsidies to agriculture have been a major component of agricultural policy in Zanzibar since the revolution. In the 1980s it became clear that subsidies were largely unsustainable. Despite period statements about reducing them, they have not been eliminated entirely Table 6, shows the recent trends in the provision of subsidies to agriculture. Although Zanzibar Developnlent Budget resources have been declining quite rapidly in nominal and real ternis, the share going to subsidies to agriculture has increased to more than 6 percent, compared to less than 4 percent in 1994. This is because agricultural subsidies tend to be soniewhat sticky in nominal tenns, with the effect that they have fallen less than overall expenditure (World Bank, 2000). Table 2.6: Trends in the provision of subsidies to Agriculture in Zanzibar Tshs Thousands Total available Agricultural % Fiscal year Development Budget subsidies 1994-95 1 3.9 1998-99 503,000 31,867 6.3 Source: Quoted from World Bank. Aericulture in Tanzania since 1986. Follorr~er-or Leader- of - G~.ou,/h June 2000, p16. ?, With respect to agricultural subsidies elimination in the mainland, it appears that the fiscal savings fro111 eliminating fertiliser subsidies and the loss-making activities of the National Milling Corporation (NMC) and other parastatals has not been reallocated to investments in agricultural research, extension, and market development activities. 1 Box I: The Trade Rcgin~cin Agrirulturc bcforc and aftcr thc Uruguay Round WTO Agreements came into force in Tanzania in 1995 2.10.1 Border Profecfiorr- Tariffs arrd Nnrr-tariff Barriers ' 1961164 The three year plan spelt out the Industrial development strategy 1 964169 The first five-year plan expected private and foreign capital would play a lead -role in industrialization. Tlie shift of policy towards socialism touched off significant new changes emphasizing inward-orientation to be dominated by public sector. Bank of Tanzania established an Export Pronlotion Department 1982182 Liberalization of food crops started in Tanzania. 1988189 Decontrolled niarketing of food crops at cooperative union level 1989190 Further decontrolization of food marketing at primary societies level 1993!94 Government stopped announcing food crops iridicative prices 1993i94 Marketing Boards entrusted to ~narketmost of tlie cash crops Agricultural Sood tarifsbarriers in Tanzatiia vary fiom 0% to 25%). Safeguard measures to protect local industries exist in form of suspended duties. Suspe~idedduties for selected agricultural commodities are levied at 20%. Other agricultural inputs are charged import duty between 0% to 5%. 1984 "Own firms" import schenie initiated allowing exporters to use part of their foreign exchange earnings for selected imports. 1984 Government Trade Liberali~ationallou.ed Tanzanians with foreign exchange to import goods thus close the gap between supply and demand of goods which were in acute short supply. 1986-89 The ERP I - Economic Recovery Programme I, launched by Government to continue the intensity of earlier initiatives on niacroeconomic sectoral measures. 1989-92 ERP I1 -The Economic Recovel.y Programme I I introduced as a follow up to the first with major reform packages:- Policy reform and macroeconomic shocks Removal of Government subsidies 1988 The (OGL) Open General license scheme introduced allowing a more market-oriented allocation of foreign exchange. 1992 Tax Coniniission proposed further simplification of customs duties, reduced exemption, increasing efficiency in revenue collection, reduce i~iiportduties on raw material inputs for exporting firms. 1995 Tariffs \\,ere rat~onalisedto 5 rate bands. the maxlmum pegged at 40% (previously 50°/0). 1996 July, the Tan~aniaRewnue Authority was introduced 1998 July, value-added Tax was introduced with a Tshs. 20 niillion threshold. Accompanying policies discri~iiinatedagainst agriculture exports and thus blighted prospects for manufactured exports. 3.0 URAA COMMITMENTS MADE BY THE COUNTRY Evolution of applied tariffs in agriculture, in-quota tariffs tariff quotas, and applied tariff over the quota since URAA (1995-2004 levels) 3.1 Market Access: Border Protection-tariffs and Non-tariff Barriers 3.1.1 Tariff Liberulization Tanzania is in the course of implenienting major tariff reforms through concentration and reduction of tariff bands and rates within the Hannonized Coding System. Maximum tariff rates have been reduced froni the high level of 120 percent prevailing due to fiscal constraints in the 1980s to 40 percent in 1995. Tanzania has now resunled a steady liberalization of its tariff regime. The trade-weighted tariff fell from 25 percent in 1993194 to 20 percent in 1997198 (URT, 1999). In 1999, the maximum rate was down to 25 percent. Non-tariff barriers (NTBs) have largely disappeared. In 1980-86. NTBs covered over 50 percent of imports. By 1993194, following iniport liberalization and the reinoval of export restrictions, NTBs covered 15 percent of goods. Currently the remaining NTBs are restrictions on petroleum imports, which reflect physical capacity at the port (URT, ibid.) and the private sector operating in the petroleum sector storage capabilities others include minimum dutiable values as a sort of NTB. 3.2 Export Regimes and Import Protection 3.2.1 Export Subsidies ill Place Most African countries including Tanzania (except the little subsidy extended by the Zanzibar Governnient to support agriculture) do not subsidize agriculture or its exports but rather tax agriculture either implicitly, by giving protection to industry, or more explicitly by taxing export commodities, or by maiiitainiiig government-controlled domestic prices below world prices. This implies that despite the window given by the WTO Agriculture Agreement to African countries to subsidize agriculture tlie countries do not stand to benefit. In fact many countries have responded to WorldIIMF advice of eliminating subsidy in agriculture. 3.2.2 Sclzedules of Applied Tariffs The reforms that Tanzania has undertaken since 1985 - and at a more accelerated pace in the past few years - have resulted in a trade policy framework that has been significantly liberalized and that is essentially based on tariffs. Export restrictions have been eliminated, as have foreign exchange controls. Tanzania has been making a concerted effort to create an environment that is conducive both to domestic and foreign investment. In keeping with the Government's desire to promote Tanzanian exports, particularly agricultural products, it has placed emphasis on open markets abroad. Nevertheless, its severely limited export capacity has hindered any significant export-led growth. Under the custoii~sduty rate structure, there is four tariff bands. This entails 5%, lo%, 20% and 25% depending on the degree of processing. The zero rates which is maintained for strategic and lead investment sectors is applied on several items including agricultural inputs like fertilizer, pesticide, agricultural tractors and on capital equipilient to be used for investment in the area of infrastructure in the area of infrastructure sectors. Consistent with the COMESA Tariff reduction program, imports from COMESA member countries were charged import duty at one fifth of the rate charged on imports from non- COMESA countries except sugar, which was charged COMESA rate of 25%. The highest COMESA duty rate was 5% based on the 25% rate of ilnports from other countries (MoA, 2000). Furthermore a suspended duty at the rate of 20% was levied on a number of specified items from the COMESA member states for the protection of local industries. It is worth noting that Tanzania has withdrawn from COMESA effective from September 2000. 3.2.3 Safeguard of Donrestic Producers arrd Iiirport Prolribitiorz Special safeguard measures responds to the concern of the importing countries that the removal of quantitative restrictions may lead, despite the tariff equivalent, to sudden increase in imports, by allowing them to impose special safeguards on tariffs products. Special safeguard measures are provided under the WTO agreement on Agriculture, Article 5 where the provisions allow the ilnposition of an additional tariff when certain criteria are met. In Tanzania, apart from general tariff rates, suspended duties are imposed on selected colnniodities originating from COMESA member states to protect local industries. These products, which suffer suspended duties of 20 %, include dairy products, crude and refined edible oil, sugar, and eggs not for hatching and tomato ketchup & other tomato sources (MoA, 2000). 3.3 Agricultural Production and Trade Production of the sector has relatively not been so well during the past decade. To some extent, the cause of this poor performance has been identified as drought, late onset of rainfall and an outbreak of destructive insects like annywonns, poor famiing methods and tools. 011 average, food crop production has been a bit satisfactory during the past decade despite some intennittent food deficits caused by the prevalence of bad weather conditions. For example, the 1993194 season has initially been characterized by failure of the short rains and the late onset of the long rains in most pan of country leading to uneven fluctuation in the overall crop production in the country. * - in some selectedregions in Tanzania. ** - estirnatcs. Source:MAC, 1998(basic data-agricultureand livestock sector) Cash crops production performance was not very much encouraging either. Levels for most cash crops as it is indicated in the table have been showing a rising trend during this period. - A number of factors can be accounted for this favorable trend in the cash crop production of which the main ones are such as expansion of areas under production, better domestic producer prices, as well as improved marketing arrangements. Most casli crops produced in Tanzania are for export. These include traditional and non- traditional export crops. Traditional export crops are coffee, cotton, cashew nut, tobacco, sugar. pyrethrum, tea and sisal. Non-traditional cash crops include export crops such as several fruits, vegetables and flowers. Table 3.2: Ap~culturalProduction (selected casli crops in '000' Tonnes) Crop/year 91/92 92193 93/94 94/95 95/96 96/97 Tobacco 1007 1232.3 867.2 1384.4 1521 840 , Seed cotton 260.7 302.4 144.6 125.1 247.8 252.4 Coffee* 36.9 43.9 25.8 21.1 41.3 3 1.2 Cashewnuts 41 2 39.3 46.6 63.4 81.7 65.4 Pyrethrum 1.9 2.1 0.5 1.5 0.9 0.5 Tea 19.4 21 22.3 25.5 20.5 19.8 Sugarcane 1081 1371 1467 1284 1369 1298 ' Sub-total 2448.1 3012 2574 ; 2905 3282.2 2507.3 ] *=coffee purchases in '000' tonnes. Source: MAC. 1998 (basic data-agriculture and livestock sector) On the side of livestock sub-sector, the performance has been a bit satisfactory. The general performance of the nieat sub-sector during the 1997198 was satisfactory. Meat production was agreeable in the sense that it continued to nieet the demand of local consumers. In tenns of dairy production, there has been a considerable iniprovenient both from traditional sector (e.g. milk from the rural sector) and the conlmercial sector (i.e., milk from the peri-urban, large -scale farms such a DAFCO, NAFCO. the army or Jeshi la Kujenga TaifaIJKT farms, Magereza (the prisons) and private dairy farms. Table 3.3: Production of Livestock Products (in Tons) for the Period 1996197-1998199 Product 1996/97 1997/98 ( 1998/99(target) 1Meat Production 257,000 260,000 297,700 ~ilkProduction 600,000 670,000 700,000 Eggs Production 396,000 400,000 450,000 Skin Collection 2,560,000 2,600,000 3,400,000 Total 3.8 13.000 3.930.000 4.847.700 Source: Budget Speech, 1997/98. 3.3.2 Export and Inzport Incentives There are many domestic policy instruments, which have either direct or indirect impact on stimulating trade. Major policy instruments include tariff and non-tariff barriers. Some other instrun~ents,such as the investment code and tax exeniptions, work through creation of incentives to attract investments while others, such as taxation, create disincentives. The prioritization of specific instruments depends on the state of the economy and magnitude of market imperfections, which necessitate re-course to interim intervention measures while conditions are created for establishing conducive environment synonymous with an efficient market economy. The move of Tanzania from an economy largely planned and controlled by the government towards a market-based economy is one of the major incentives to external trade. Most of the importation of inputs, production, processing and marketing functions are now left to the private sector: farmers, farmers associations, entrepreneurs and free-enterprise institutions. On the other hand, the export trade has been liberalized taking on board private business, which has led into efficient and more rewarding trading activities. Tanzania's emphasis on export promotion has led to the offering of a variety of incentives to local producers, including tariff concessions--rebates although in practice these promotional measures have been difficult to implement. Some of the incentives are subject to local- content requirements. Of recent higher tariff protection have also been afforded to local producers on a selective basis. Tanzania has maintained export controls on certain products for different reasons such as conservation purposes of such products as hard timber. For the case of exportable cash crops, for example, niarketing boards are now bestowed to regulate the buying and selling of respective exportable products. In the 1970's aiid 19801s, the marketing boards played the role of price setter for many export crops. The role of setting price has however been abolished as the function of the marketing boards. The boards were also heavily criticized as introducing severe distortions to the economy especially in the sphere of producer prices as compared to international or border prices. Marketing boards of the past had heavy operating costs and to cover for the costs they ate into the prices offered to producers as they fixed this. Even when there were booms in international prices this was not passed on to farmers resulting into plummeting production of inany export crops. The main marketing Boards include Tanzania Coffee Marketing Boards; Tanzania Cotton and Lint Marketing Board; Tanzania Pyrethrum Marketing Board; Tanzania Tea Marketing Board; Tanzania Tobacco Marketing Board; Tanzania Cashew Marketing Board; and Tanzania Sisal Marketing Board. These products constitute the main agricultural exports in Tanzania. Although the purchasing and niarketing strategies of these products may differ, the roles of their boards in teniis of niarketing mechanisni and regulations are very similar. The Marketing boards are currently given the functions of regulatiiig and control the marketing and export of the product, and to secure the most favourable arrangements for tlie marketing and export of the product; advise the government on all matters affecting the product production and its niarketing; control quality of products and inspect before the product is marketed (exported); and to issue license and pennits for purchasing and marketing of products both local and export. Other functions entail provision of extension officers; to provide data and information for producers as well as buyers; to undertake, finance and provide facilities for research in the production, marketing and uses of the products; and to solicit funds for crop development. The government has also given incentives with respect to tariff charged on different input and farm implenients. In the 1999 aiid 2000 nation budgets, for example, tlie govenlment has removed import duty, fertilizer; tractors; and other fann implements to attract invest and develop the agricultural sector. Tlie increased use and proper application of fami inputs and effectiveiiess of extension and credit services have always been stressed as fundamental for the increase of agricultural productivity and production in Tanzania. Hence the Government of Tanzania since the start of tlie Maize Prograinme in 1973 heavily supported the supply aiid use of fertilizers, at the first instance free of charge. During the 1970s and 1980s the supply was characterized by a large component of subsidies, and it was the overall view that tlie adequate and timely availability of agricultural inputs (fertilizers being most important one) were the niost important contributing factors for an increased agricultural output. 3.4 Zanzibar Trade Policies Although in general Tanzania's trade policy is similar for mainland and Zanzibar, in practice there are sonie significant differences. It is therefore important to review the Zanzibar trade policy. Since 1964 there have been niany involving trade policies in Zanzibar. It started with econoniic boards, which were given economic development responsibilities in Zanzibar as a whole and has regions and districts. In 1971 public shops were started to sale goods in retailing. However, tlie government withdraws evolvement of the public shops and remained with very few, including retailing of petrol and bread. In 1981, new policy was set and regional trading corporations were formed which were given tlie responsibilities of buying selling and distribution of goods in he regions and districts. All tlie time, the governlnent continued giving subsidies to these corporations as capital. The experience was not so satisfactory as a lot of goods were stolen.. Regarding inlportation of goods from abroad Crown Agents was given this responsibility. However the importation of food, medicines, agriculture parts and fertilizers and raw niaterial were iniported directly buy tlie users. Tlie governnient continued controlling tlie exportation of goods. When the economic development program was initiated in 1978, the importation and exportation of products responsibilities were given to the committee of economic development called BML. Tlie committee was evaluating all the tenders and choose one among niany. In 1981 another change occurred whereby a commission of Trade was fornied and tliis comniission was given the responsibilities of importation and exportation of goods. However, witli trade liberalization and Zanzibar becoming a free port, then the exercise of importation and exportation are left to individuals. 3.4.1 E-vterrlal attd Ittter - Stute Trude Total overall trade of imports and exports for Zanzibar in 1997 was 52.0 billion Tshs. This compares witli tlie previous year total trade of Tshs. 52.5 billion, showing a decrease in trade of 0.8% compared to 1996. Trade balance is the different in the value of exports and imports. Zanzibar has never experienced a positive trade of balance, tliis means Zanzibar imports Inore then what it exports. The establishment of the Zanzibar Freeport Authority in 1992 was an important incentive to boosting extenial trade with the island. Tlie important functions performed by tlie Zanzibar Freeport Authority include colitrolliiig and managing the free port zones set; promote and facilitate transit trade in which goods imported in transit or for transshipnient shall be encouraged; and provide facilities relating to Freeport activities. including infrastructure, storage and ancillary facilities to the licenses in the Freeport zones. Tanzania is a member of the WTO as a LDC country and has bound certain of its tariffs. WTO tariff bindings apply to a list of itenis not locally produced. As a LDC country, Tanzania does not have to open its doniestic markets as much as developed countries, benefiting from the principle of non-reciprocity that had been agreed as part of GATT 1970. It has nevertheless to notify on the Agreement issues according to a specific agenda. 3.4.2 Inzpuct of Uruguay Corirrnitrizerztson Export Policies For countries that do subsidize exports, the Agreement requires that budgetary expenditure on export subsidies for the base period 1986-90 or 1991-92 whichever is higher to be reduced by 24 per cent over the ten-year implementation period. Reductions are also required in the volume of subsidized commodities: a 14 per cent reduction over 10 years. For Tanzania, export policies have generally taken the form of export restraints rather than export subsidies. The restraints have been in the form of taxes, quotas and prohibitions. The Agreement introduces restrictions on the use of export restrains where such restraints relate to foodstuffs. These restrictions do not apply to developing countries unless they are net exporters of the particular foodstuff in question. However, there is no definition of what a net exporter means. For countries which are net exporters, the country instituting the export prohibition must give due consideration to the effects of such restriction on importing countries food security and before a restriction is imposed, notice in writing as far as in advance as possible, should be given to the Committee on Agriculture giving infomiation regarding the nature and duration of the restriction. The Agreement allows for sanctions if the two conditions are not met. The developing country share in world trade is relatively sniall. However, their share of world imports of agricultural co~nmoditiesis increasing. Since developed countries have taken a commitment on export subsidy and domestic support measures. Tanzania and other developing countries are likely to be affected in a number of ways including there shall be a reduction in domestic suppon thus creating a reduction in supply available for exports or an increase in import demand in developed countries; the reduction in export subsidies should increase the opportunities on world niarkets in teniis of volunie for non-subsidizing exporters; and market access comniitments in teniis of specific tariff quota com~nitments provide an assured access to niarkets; the reduction of existing tariffs can provide improve access opportunities. 3.5 Domestic Support Although the spirit of WTO Agreement on Agriculture is to promote fair and free trade, Tanzania must take measures to ensure that we do not become victims of unfair competition including dumping. Vigilant watches on imports brought into these countries to make sure that no loopholes are being exploited to carry out unfair co~iipetitionor duniping. There have been cases of dumping rotten rice and expired agrochernical in Tanzania. Tarrification of agricultural trade barriers under the Agreement could act as a foundation for much deeper cuts in agricultural protect at the global scale and open market to Tanzania and African states as a whole. A niain benefit of the Agreement is the greater transparency that it provides when compared to NTB. This should provide both traders and policy makers in Tanzania with easier access to knowledge of the level of protection being imposed in various sub sectors of the agricultural economy. The worry is that access provisions may not have an immediate impact on the overall volunle of imports to developed countries from Tanzania mainly due to limited export capacity. In fact the problem is more complicated by the total removal of subsidies, which was then extended in various works of agricultural production, distribution and marketing. Although WTO supports extension of subsidies to agriculture by the Least Developed countries, this is not possible, as the countries would go against the World BankiIMF prescriptions. On the other hand, the Agreement on Agriculture seeks to protect exports of existing exporters i.e. to safeguard current access. Current access by Tanzania to developed countries markets has frequently been provided under bilateral and preferential terms under the Loine Convention or the GSP. These arrangements are protected by the Agreement. Table 3.4: No~ninaland Effective Rates of Protect~onin Key Productssslnce URAA TOTAL NOMINAL PROTECTION (ADDITION OFALLTRADETAXES) ' -6 1 ------ 1997 1998 I 1999 1 - - to 00 0 0.63 I 0 0 01 L~vean~rnals _- i24 0.056 0 121 Lo128 0099 1 1 02 Meat-& edible meat offal 0.0541 0.346 0. I66 0.213 0.213 - -. , Fish & crustacean,molluscs & other aquatic I 03 invertebrate ____---.__C___ 0.105 O 1 0.329 0.080 ________._.-__ E. 0.407 - 04 Dairyprod;birdsqeggsinatural honey I 0.353 0.389 0.373 : 0.309 0.300 !. 05 Products of a~iimalorigin, nes or included_ --, - -~0.4271 0.264 0.043 :,0.180 0.255 ! P.006- ._0.002 ~ -06.~-.~livety&other e e p!anl; b_ulbb,root,cutJ!oO~er.. 0.0!5 10.087 !?.234! 07 Edible. vrgetables andcc'tain yootsand-!ubers 1 - 0 0.004 0.027 0.008 0.008 ~- . _ . . i._g_ -- . ~ _ fiible fiuit and 11uts;peel of citrus or 11ielo1ls 1 0.044 1 - 0.236 -- 0.359 0.254 0.231 , &- -- -- -- - P i o ? - ~ o t ' f e e $ ~ n m?Pi? . 0.694 -- 0.584 0.606 ( 0.541 0.263 - + 10 Cereals 0.062 0.081 0.102 _ _ _ _ - ' _ _ _ _ - _ _ _0.181_ _(0.140 _ _ 1 1 Prod mill indust;starches;i~isuli~i;~vheat gluten J0 . 1 9 1 0.332 0.254 1 0.143 0.081 1 I I---' 12 Oil seed,olea~~ts;niiscellgrain,seed,fruit 1 0.031 0.05I 0.066 -~~~~ Lac;gums,resins and other vegetable saps and ! L i !-- 1 3 _ _ _ ~ extras ! 0.048 '0.255 0.213 j 0.298 0.225 1 ~ - - ' Vegetable plaiting maleria1s;veetable products I c-.!? Iles 0.019 0.113 0.390 0.I01 0.434 , I Animali\~egfats& oil & their cleavage --* I 15 products 1 0.249 0.291 0.379 j 0.350 0.361 I Prep of meat,fisl~or crustaceans,niolluscs ! 0.524 0.068 0.177 0.171 0.092 0.423 0.471 0.330 1 18 Cocoa and cocoa preparations 1 0.13 1 1 , 0.747 0.709 0.359 0.430 1 , Prep of I 1 ~er~al.flour,starcli/n~ilk;~a~tr~~~ok~'pr~d0.199 o.668 0.148 1 0.1-____- 0.367 13 -1 Prep of vegetable,fruit,nuts or other parts of I 20 0.573 , I---?_ lants -___-__. __- 0.485 0.476 - .- Miscellaneous ediblepreparatio~is 0.335 0.434 L434 0.353 0.340 Residuals 61 baste From the food indust: oreo . . 1- I 1 23 anifodder--- - (0.081 0.366 _ 0.866 ---~-1 0.118 0.109 1 1 Tobacco and manufactured tobbaco I 24 substitutes 0.043 1.473 0.158 j 0.282 . 0.482 3!- Fertilizers -- I 0.043 0 . 0 0 8 0.243 1 0.001 0.0003 -. - --- ,! - - .-- _- I Essential oils & resinods: ~erf.cosmeticitoilet ! - 33 -- prep ----0.010 i 0.660 - 1 0.019 0.542 0.515 I Raw hides and skins ( ~ ~ hthan furskins) and e r I ! C2- leather ____- - . --_C!!:116-_~-0:22 2 5 - - 3 - 0.346 0.065 I Furskins and artificial fur ;manufactured -- thereor ._ _ - . . - . 44 Wood and articles of wood; wood charcoal 0.1 13 0.143 - 1 45 1 0.030 0.178 0.148 ; 0.302 0.230 : C o r k a I 7 d a r * ~ o L - - ~ . ~ . *- . 1 I Manufactured os stra\v,esparto/other plaiting i ; 46 materials 1 0.124 0.276 0.060 0.353 0.277 I P u l ~of woodlof other fibrous cellulosic 1 47 mat;waste 1 0 . 4 0 7 0.603 0.536 i 0.571 0.541 ----p~-paperboard; art of paper I ! ! _ 18 p u l m ~ e r ? ~ a ~ e r b o a r d ! 0.!.21__ 0.395. q1368. 0.300__0.328 - . .. ! Calculated using addilion o f import duty, sales tax(VAT) for imports and excise duty as a ratio o f imports for h o m e use. Table 3.5: Effective Rates of Protection - . ~ G G ~[ 1995 Y ~ 1996~ 1~ 1997 1998 1999 2000-1 -Growing olpaddy -4.64085 Growing oftca --- &-.- - @win; of c a s l ~ c w n u t ~ 'Growins ofcoconuls 19.8 1 27.31 2.306 24725' ;Opc~ioll_o[p!I~ry - Fiahincl and lisl~faniis J~!licrFar~~~i~~;ofmi~i~als ! -35.3449 2.9630311 I ~ o ~17,48712 ~ ~ ~ 70.f17054 I __14520731 0.92Q404 L3X96654~ Hullting and game 1 f 1 , P ' O " _ I 1 3 . 9 9 7 9 l 7 . 4 1 3 6 ~ 4 . 5 ! 6 3 4 36.X!0)3! l!gK X.080666 10.1620~~. .~--__-~ - : - - Fol-cstry and l o g ~ n g - -. 1 -16.248?: -0.30')671 Quamyins ofstonc, clay and sand i ~ l n i ofgcmstoncs n ~ 10.465601 -1.80124 1.983051,' ~--86.60371 ~ o c abrctvinn acti\.itics l ; 39.0721i 33.84085 0552909 -53.6176' 6.701662i 12.38679 12.313331 1 hlanuiaoul-c ol.bcvcraeci ---72.68211 : -~~ _-:6.4553 1 13 7 6 6 7 6 1 ,O.h35YI-. !65876l: 12.379291 7.725XK- -4.53634 Manulhcturc of tobacco 1 7 - - - I ]products i -79.4084j -3.592011 35.765631 -3.91365 19.105181 12.5846) 12.09035, I 4.41444; Spi11111ngand tinlshing of 1 -. ----~ tcxt1Ics -~.-~ ; -62 60%; :).25101 -9.nhnpu ? ~ 5 7 5 7 ~ ~ - 9, 7~~ x5 l ~ 7 - , - 7 ~ . y n !i~. ~l p 3 ~ ~ 1 ' ~ hla~~uiacturc made-up of I C \ I I I C S 1 - - .. -48.653 -3.50408! -2.~j(!3L3.4(~5354__8,580086! _lI.Yj59~- 6.938298 ~ .---- 1: _- j.81!17h, Manufacture ofcor~lagc,rope I tii.inu -68.335' :?593341 5.5896111 3.007(>24 -3.1~311_.h01092' -3.12618 -2.92722 I 1996 1 1997 1998 I 1999 1 2000- J Manufacture of wcarlng p - -64 OXXI! 3 9 322! -134542' I9 0705 -18 9X9(1I -19 5798 -21 9612 -22 77789/ 1 -- Prinling and publisliing - 5 r ~ ~ l .-I*.]*@[--~ . -30.4855; ] -24.79751 -23.1996 - ~ 6 . ~ 7 ~ ~ . ~ . _ 1 l l : i l 2 2 ~ 8 6 ? __ IManuiacturc ofhasic and : 1 jindus!rialclicniicals -35,3719' -49.6Yl5 47.42091 -4L9600 - Y . U ~ I ~ J -17.73971 -50.7051 53.3984 !Manufdcturcof fcrtili/crs and , ~pcsric~d. i -34.8688; -57.44691 -52.9422i - 5 3 . M -59.67801 5 . 4 9 -57.3703 -57.407: -34l!32.1292~I ~~ctrolcun~rcfincrics '-17.3265' :31.553 -34.1997:- ,M;inufdcturc oiruhbcr iproduc~s ; -6!.ll3I , -27.7179i-~~-..,2ylx133i -28 67YJ -23.3~;6L-_- -2Z.M)86I .~-.-26.8309 --?8821 Manufacturc ofplnsr~c 1 broducls _6!.6I~4L 224~--1~.773[ -lX.OIXJ - 1 7 . 6 3 ~ ~ ~ ~ . ~ - 1 3 . 3-.!3-.8!L5--- 5 ~ . ~ 7 7 -11.32431 , . Manuhclurc of glass and I lass roducts ( -81.4791 -13.5529 -14.34171 -23.4667 -17.74811 .__.- -1Y.XjYSI -IX.1059 -4.085831, ManJacturc of ccnicnt a n 7 I I , , 7 . 3 :!7.1858[J.~.~~iYI -5.16739 9.074014' -. -13.07591 -9.68927 -7.633351 Proccss~ngof ~ron.s~ccland I I non-fcrrous mctals - - Manufacturc of metal P ~ S - . ~ - -- ,.El !Manufacture of tnacli~ncry , a n d u i p m c n r I - - 4 9 . ~ 9 2 ~ ; Mnnu~dclilrcof clcc!rical 1 !cquip!ncnl 1 -3z.56591 -38.4459 -3h;l0!0; -34.8099 -33.9577' _-~~.-!YUXL -35.4356 -35.832; '~anut2cturco i transpon r -31~7131- 13h.5,71?1p_,3~~L02!---.-33.8179 -21.5j0Jl- - ! 7 . 3 ~ ~ [ -35.501 . . - -32.018$ ManuFdcturc ofollicr goods -36.1665! -23.32391 -3 1.30991 -30.179, -30.15331 -26.156, -28.3192 -22.6742, Calculated using data from Input output table 1992, and import data and using the formula ERP =tj - aijtill- aij where tj is duty for final good, ti duty for inputs and aij is the technical coefficient. From the table we find that the agriculture sector is negatively protected (de-protected) and this trend has continued over the years although the actual extent is diminishing. 4.0 URAA COMMITMENTS MADE BY THE COUNTRY 4.1 Market access: border protection - tariffs and non-tariff barriers 4.I.I Tariff Liberulisatiort Fertilizer supply was characterized by large component of subsides for timely availability of agricultural inputs for increasing agricultural output. 1973 Maize programme: Government supported the supply and use of fertilizers Tanzania is iniplementing major tariff reforms through concentration and reduction of tariff bands and rates within the Hannonised Coding System. Tariff rates of 120% (1980) were reduced to 30% in (1995) Trade weighted tariff fell from 25% (93/94) to 20% (97l98) 1980-86 Non tariff Barriers covered 50% of Imports Tanzania started to implement reforms and liberalised tariffs. Exports restrictions have been eliminated Foreign exchange controls have been eliminated Concerted efforts to create a conducive environment for domestic and foreign investment were made. 1993194 NTB covered 15% following import liberalisation and removal of export restrictions. NTB remain on petroleum iniports due to physical capacity at the ports 199912000 Government removed import duty on fertilisers, tractors and other farm iniplenient to attract investnient and developnient in the agriculture sector. 4.1.2 Zartzibar Trade Policies Since 1964 there have been many players involved in trade policies in Zanzibar. In 1971 public shops were established to sell goods on retail basis. 1980 New policy established regional trading corporations charged with responsibilities to buy, sell and distribute goods in the regions and district levels. "Crown Agents" London was given respo~isibilityto import goods from abroad into Zanzibar. 1978 Coniniittee for Economic development (BML) was given responsibility to Import and Export products including evaluation of tenders before selecting one among many. 1981 Trade Coiiiniission was fornied to replace the Committee whose responsibilities were to supervise Importation and Exportation of goods. 1992 Zanzibar government established the Zanzibar Free Port Authority to provide incentives and boost external trade with tlie Island. 4.1.3 Effects of URAA's Irrtplernerttatioit ort Dorriestic Support fAgricultural Products) The current iniplications of the Agreement with regard to domestic policy may be limited. However, the future significance lies i11the fact that the agreement enshrines international law limitations on domestic policy formulations. Policies that distort agricultural trade will have to be avoided. The Agreement is largely designed to affect domestic policies in developed countries where policies subsidize agricultural production. In contrast, developing country policies tax agriculture. There is no provision in the Agreement, which requires countries to reduce the volunie of taxation. It is worth noting however that, the domestic support commitments are less demanding on developing countries than on developed states. This is so because Least-developed countries are exempt from all domestic support reduction comn~itnientsand tlie Green Box Policies as exeniptions to AMS are open to Tanzania and other developing countries. Annex 2 of tlie Agreement tabulates the Green Box policies. Policies of great significance to Tanzania include domestic food aid policies aimed at providing food aid to vulnerable sections of the conlmunity. These can be excluded from AMS calculation; public stockholding for food security purposes. This refers to expenditure in relation to accumulation and holding of stocks of products, which form an integral part of a food security program identified in a national legislation. Such expenditures may be excluded in the AMS calculations. Other policies of great interest to Tanzania are General services: policies under this heading involve programmes that provide services or benefits to agriculture or the rural community but which do not involve direct paynlent to producers; direct payments to producers: certain payments may be included in green box category so long as they have no or minimal effect on production (examples of the types of payments permitted are payments for relief from natural disasters, structural adjustment provided through producer retirement programnles or resource retirement programs and payments under environmental programmes); De Minimis provisions; and Blue Box policies. Developing countries that are at present taxing their agricultural sector will be bound never to raise their support levels above those excluded from AMS calculation under the de niinimis provision. Evaluation of domestic adjustments resulting froin the URAA: Changes in applied protection and other trade barriers: Post-Uruguay Round 5.1 Market access: border protection-tariffs and non-tariff barriers 5.I. 1 C/~angesMade itz Applied Irirport Protectiorz Resirltingfrofir If~rplementationof URAA The recent reform of Tanzania's customs duties has resulted in a simplified five-tier structure with a simple average of applied import duties of 16.2%. The tariff structure is somewhat escalatory with many processed products facing a higher effective rate of protection along the processing chain. Such a tariff structure provides substantial import protection to higher-level processing activities, causing resource misallocation and inflicting higher costs to Tanzanian consumers. On the other hand the Government of Tanzania still relies heavily on revenues from tariffs and VAT and that consequently there is pressure to maintain revenues through high tariff levels. Non-tariff barriers have also been dealt with bringing then to lower levels. 5.1.2 C/~utrgesMade it1 Turqf Liberulizatiott Tariffs feature the most prominent trade impedimeilts to trade. A tariff, which is a tax iinposed on imports as they come into a country, raises the price of imported good as compared for instance, the domestically produced equivalent. Tariffs are imposed, among other things, to protect the local industry or producers of similar product and as a source of government revenue. In Tanzania, tariffs structure has been exhibiting different shapes over time partly explaining the need to open up and building the country' econonly. In 1996197 financial year, the custonls tariff had widely dispersed rates from zero to 40 percent (5. 10, 20, 25, 30, 40). I11 1997198 refornls on custonls tariff were introduced to reduce the dispersed rates to four, (5,10,20,30) thus reducing inaxirnum rates froin 40 percent to 30 percent. Starting from July 1, 1999, further liberalization were made and the highest rate was reduced from 30 percent to 25 percent with rate categories remaining 0%, 5%, lo%, 20% and 25%. Table 5.1: Changes in CustomsTariff (1996197- 1998199) Financial Year Number of Tariff Bands and Percentage 1996197 5, 10, 20, 25,30,40 1997198 5,10,20,30 1998199 0,5.10,20.25 There has been considerable rationalization and streamlining of taxes since the MAC issued its report in 1998. These include taxes that are levied on the agricultural sector by local authorities, with a view to impose new, or alterlabolish certain taxes and duties. The changes iilclude the following: (a) The Value Added Tax Act, 1997 The Value Added Tax was introduced in Tanzania in Julyl" 1998 to replace sales tax and absorb receipt-based stamp duty and entertainment tax for traders who are registered as taxable persons. Under the VAT system, exports are zero-rated and exporters are allowed full credit of the input tax on the exported products (First Schedule). The second schedule to the VAT Act enumerates goods and services that are exempt from Value Added Tax. Upon the commencement of the Act, such goods and services iilcluded inter-alia: (i) Agricultural products mainly food crops. (ii) The supply of pesticides and fertilizers and other similar products, which are used for agricultural purposes. Within a period of one year the Act has undergone another amendment that affect the Second Schedule as follows: (i) The exempt agricultural products include cash crops such as "cashew nuts, tobacco, coffee, tea, cottor~,sisal, sugarcane, seeds and plants thereof'; and (ii) Agricultural implements, which include tractors for agricultural use, harrows, ploughs, hoes, spades, shovels, mattocks, picks, forks, rakes, axes, seeders, planters, manure spreaders and machinery and equipment solely to be used for spreading or spraying any of the items exempted under item 2 of this schedule". (b) The Export Tax Act, 1974 With effect frorn July 1, 1998 the Government through the Finance Act 1998 abolished export tax on seven traditional agricultural exports namely: coffee, cotton, tobacco, cashew nuts, sisal, tea and pyrethrum which were subject to this tax at 2% of the fob value. (c) The Customs Tariff Act 1976 The first Schedule to this Act that contains the rates of import duty of various items was repealed and replaced by a new schedule. The change involves the reduction of the highest rate from 30% to 25%. Nonetheless, the rate categories remain the same (five categories) that is 0%, 5%, lo%, 20% and 25%. (d) The Excise Tariff Ordinance CAP 332 The Schedule to the Ordinance that contains the excisable goods and the respective rates has been repealed and replaced by a new schedule. The Government has effected the change by harmonizing excise duty payable on locally produced and imported goods. In addition, the number of excisable goods has been reduced from about sixteen (16) categories containing more than fifty (50) products (including sugar and textiles) to only six (6) groups, which comprise cigarettes (all types), beer, spirits, wines and vermouth and soft drinks. (e) The Local Government (Finance) Act, 1982 Sections 6 and 7 that deal with sources of revenue of Urban Authorities and District Councils respectively have been aniended. The changes include new sources of revenue to the Local Government Authorities. The new sources are the registration of commuter buses plying in towns; hunting fees for districts which have hunting blocks, registration of health centers, dispensaries, clinics, pharmacies and drug shops; inspection of abattoirs, collection of land rent and service levy (formally.known as industrial cess) payable by corporate entities at the rate of 0.3 percent of the turnover net of the VAT. The corporate entities are therefore, not liable to pay produce cess due to this change. Furthemiore, the government has reduced the maximum rate of produce cess in respect of major export crops from 10% to 5% of the farm gate price. The ~iiainobjective of these changes was to provide more autonomy on part of Local Government Authorities, because prior to such amendments such authorities, on behalf of the central government, collected revenues from some sources. The Government also, has introduced a new section 9A, which appoints the local Government Authorities to beconie licensing authorities in respect of categories of businesses specified under that section. The license fees collected should be treated as revenue accruing to the Local Government Authorities. (f) The Stamp Duty Act 1972 In accordance with section 41 subsection ( I ) and article 51 of the Stamp Duty Act, any person who effects a cash transaction by receiving a sum of money of shillings five hundred or more, or has received a bill of exchange, cheque or promissory note for an amount of shillings five hundred or more, is obliged to issue a duly stamped receipt for the suin whether or not the buyer demands to be issued with such a receipt. However, article 51 provides exemptions in respect of certain cash transactions and instruments. With respect to this the Finance Act 1999 has aniended article 51 by exempting from stamp duty agricultural produce and livestock cess sold at markets under municipal authorities. This amendment iniplies that stamp duty of 1.2% is still chargeable and payable on export receipts. It is interesting to note that the Finance Act 1998 amended section 41 of the Stamp Duty Act 1972 by deleting subsection (2) and substituting for it a new provision as follows: "(2) The provisions of the subsection (I) shall not apply to a trader who has been registered for Value Added Tax or to any payment to or by a banker in the ordinary course - his business". This is evidenced by section 74 of the VAT Act, 1997 which stipulates that "The Stamp duty Act, 1972 is amended in the Schedule by adding in article 51 the following item: (g) by any person or body of persons; registered under part IV of the VAT Act, 1997 from the in~positiondate of VAT". Under the Value Added Tax Act 1997 exporters are registered taxable persons, though their supplies are zero-rated (refer to section 9 and 1" schedule of VAT Act). Taking a strict interpretation of section 41 (2) of the Stamp Duty Act and section 74 of the VAT Act, exporters are not liable to pay stamp duty on their exports. (g) The Income Tax Act, 1973 The Finance Act 1999 has effected changes to certain provisions of the Income Tax Act which include iilrer alia, an amendment of the third scliedule in item 1 Head B which relate to individual tax rates. In accordance with the changes the tax brackets have been reduced from eleven (1 1) to four (4) and tlie highest marginal rate from 35% to 30% hence the current rates are 17.59'6,20%, 25% an&30%. Furthermore, the threshold has been raised from Tshs. 20.000/= to Tshs. 45,000/=. (h) The Land Act, 1999 According to Sub-section (1) of Section 33 of tlie Land Act No.4 of 1999, the holder of a right of occupancy, is required to pay an annual rent. Prior to July 1999, both the Central Government and Local Authorities collected land rent through district councils giving rise to niultiplicity. In the move of hamionization of taxes, tlie Government tlirougli the Finance Bill 1999 made an amendment to Section 6 (I) of the Local Governnient (Finances) Act, 1982 by adding a new paragraph that "(u) twenty percent of all moneys collected by the Central Government as land rent under the Land Act 1999" should be retained by local government authorities. It is obvious that, this is for the betterment of local projects. Clearly, the Central Governnient has the mandatory power to collect land rent and not local government authorities and so the ~nultiplicityhas been removed. 5.1.4 Other Specific Agricultrrral Taxes and Fees (i) Taxation of Export Crops Wide arrays of levies, fees, cess, license fees, Board fees, crop development fees, etc., are imposed on all export con~modities.This varies between crops as well as between districts. The taxes are designated as central or local taxes and collected by central or local government. Depending on the kind of crop and the district, the tax burden on farmers is quite significant. This is the amount of income farmers have to surrender to local and central government from income earned by producing a unit of the crop. In all the four con~modities selected for the analysis, the share of local and central tax from producer prices is higher than 10% and in the case of coffee and tobacco, is as high as 22%. Except for coffee and tobacco, local taxes are higher than central taxes and this is also the case for other export crops that are not included in tliis analysis. For coffee and tobacco, central tax is twice as much as that of local taxes. or two third of total tax. A breakdown of the taxation on major export crops for 1997198 is shown in Table 10 below. According to this study by ASMP, 1998 on lmpact of Taxes and levies on Agricultural Sector, has been shown that total taxes and levies on coffee in the surveyed districts were on average 8.7% of the producer price'. District taxes were increased from less than 1.5% of the producer price during the period 1990-1996, to 4.2% in 1997198. The figures of the table do not include the taxes, which were abolished or zero-rated in July 1998 (i.e. stamp duty, withholding tax and export tax). Those taxes were equivalent to about 7.2% of the producer price in 1997. Total taxes on cotton were on average 8.3% of the producer price in the surveyed districts. On the other hand if research cess and crop board levy is not considered as a tax, but as a cost (of a service to the sector), the total tax rate was 6%. District taxes varied from 5 Tshslkg, equivalent to respectively about 2.5% and 5% of the producer price. The district cotton taxes have been increased from about 1% on average before 1996 to 3.1% on average in 1998. The central taxes after taking into account abolished (withholding tax and stamp duty) or zero- rated (export tax) in July 1998 were equivalent to about 8% of the producer price in 1998. A breakdown of the taxation on cashew for the same period shows that total taxes were on average 9% of the producer price. District taxes varied from 2-4% of the producer price. The district tax on cashew has increased from 1.3% during the period 1990-95 to 3.3% of the producer price in 1997198. More recent information revealed that district taxes were raised further in 1998199,and is now in the range of 5-15% (ASMP, 1999). The taxes abolished or zero rated in July 1998 is not included in the Table. They were equivalent to 8.6% of the producer price. The total of the taxes on tobacco was on average 7.7% of the farm gate price. This figures does not include the withholding tax, stainp duty and export duty, which were abolished or zero rated in July 1998. Those taxes were equivalent to 7.2% of the producer price in 1997198.The district taxes varied from less than 1%-10% of the producer price. The average of the district tax has increased froni about 1.4% of the producer price throughout 1990-96 to 4.3% in 1997. Table 5.2: Taxes on Selected Export Crops 1997198(excludingwithholding tax. stamp duty and , export Tax) 1 i I Tax -- ---- - - ---- I pp I District Tax L-A 3.1 4.2 A~-_--- 1 3 3 4.3 ! 'Education Levy- - I 0.7 ' 1.9 I 0.8 0.4 1Crop Board Levy 1.5 p t i o n Fee I ' Total 8.7 8.3 1 9.0 7.7 ! .--Ap-- Source:ASMP, 1998. Impact of Taxes and Levies on the Agricultural Sector ' If research cess, crop board levy and auction fee is not considered as a tax, but as a cost of service to the sector, the lax amounted to 6.9% of the producer price excluding the taxes abolished in July 1998. (ii) Taxes on Food Crops District produce cess is the only tax levied on marketed food crops. Prior to 1999 district produce cess was also collected from transporters or traders. The use of roadblocks in collecting the cess, however, proved to be less effective and encouraged evasion of the cess. Most districts charge district cess using specific rates for all food crops. These rates niay be the same or may vary froni one region to another or within one region. When specific rates are used for all food crops, as is the case in many districts, it means that the higher the value of the crop the lower the tax. On the other hand, some district councils charge the cess using ad-valorem rate, which is levied as a percentage of the value of the crop marketed. The third way used for charging the district cess is by using differential rates for different food crops. Tlie rates used vary from one region to another or within a region, depending on the type of crop and priority given to a particular crop. For example, in niost districts rice and niaize are the most taxed food crops compared to others, but in Moshi finger millet is heavily taxed crop (Tshs 1,000 per bag of 100kgs)than rice and niaize Tshs5OO per bag of IOOkgs). It is noted that food crops are not heavily taxed compared to cash crops. This is partly because tlie district produce cess is the only tax levied in niost districts. For those districts, which levy the cess using percentage of selling price, the value ranges from 5 per cent to 10 per cent of fanners' price per kg. Most of tlie food crops such as maize, sorghum and rice produced and marketed by sniall fanners have very small gross margin and a cess of 10 per cent 011 producer prices is high. When discussing food crops, it is appropriate to examine taxes on milled food grains, as well as iniported food grains. Wheat milling is in most cases dolie by large industrial niills while most of the niaize is milled in small niills in the country. The large industrial mills tend to be taxed relatively higher than the sniall mills. It is imposed on all imports into the country cui-reiitly at single rate of 20 per cent. However, there are exeiiiptions, wheat, which used to be levied a sales tax of 10% is now exempted froin VAT while wheat flour domestically produced and iniported, \vliich used to be levied a sales tax of 5% and lo%, respectively, are now levied a VAT of 20%. Malt used to be levied a sales tax of 25% but currently is levied a VAT of 20%. Other cereals such as rice, maize and sorghuin (seeds and flour) are exempted froni VAT. According to the 1999 Finance Bill, the import duty is currently levied on iniported goods with a niaxiiiiuin rate of 25 per cent. In this case, the import duty for wheat, malt, sorghum and rice is 25%, reduced by 5 per cent froni tlie previous rates. (iii) Taxes on Livestock A large nuniber of taxes, levies and fees are charged on livestock, niost of them at district and towniniunicipallcity level2. Tlie type and level of taxes, levies and fees and the stringency of application varies largely froin one district to another. In most districts, there is a livestock cess and an educational levy per head of cattle. Furthemiore there are market fees, movement fees, grazing fees, stock route fees, holding ground fees and consolidation fees. In case of slaughter, slaughterhouse fees, meat inspection fees and hide and skin fees have to be paid. As of July 1,1999, the following changes were introduced in the tax system that affect the livestock sub-sector: See AShW study, Impact of taxes and levies on the agriculturalsector, 1998, pp.74-79. (a) Not to charge stamp duty on livestock sold at markets under municipal authorities; (b)' Slaughter and meat inspection fee be collected and retained by Local Government Authorities; and (c) Producellivestock cess to be charged at the source only and "user charge" fee to be levied at the destination market. These changes were introduced during the 199912000 Budget Speech and the decision was in line with the recommendatio~l given in the 1998 MAC study on taxation, which suggested harmonization of taxation system between local and central government to remove multiplicity in the livestock subsector. It has also been observed that 25% import duty plus VAT taxed on the livestock protect the local dairy sector. This is a high level of protection and faces a danger of encouraging illegal imports. On the other hand, the dairy industry also faces the following taxes: (a) Withholding tax (2%); (b) Service levy (0.3%) of net VAT turn over in case of companies e.g. Tanga Fresh Ltd.; (c) VAT (20%) on electricity, packaging materials and processed dairy products; and (d) Import duty 25% on packaging materials. Total tax burden is about 47%, which is, indeed, very high and therefore considered to be a disincentive for the growth of dairy industry. On the other hand taxation in the livestock sector is still constrained by various bottlenecks as identified in the previous study. There are still variations in types and rates of taxes; most taxes are paid more than once per animal; sales prices differ in each market per day per animal; fixed rate is usually used instead of an ad valorenl rate and, ~iiultiplicityof tax is still prevalent. (iv) Taxes on Agriculture Inputs In the last three years, taxes on almost all agricultural inputs have been removed. The import duty of 5% on fertilizer was removed in 1996197, a year after the complete withdrawal of the subsidy on fertilizer. The import duty of 5OA on agro-chemicals has also been removed a few years ago. Before the introduction of the VAT in 1998, no sales tax was charged on fertilizers and agro-chemicals, and presently no VAT is charged. Veterinary products and seeds are also exeli~ptedfrom import duties and VAT. Since July 1998 taxes imposed on agricultural inputs include import duty, VAT, and industrial cess. However, industrial cess has been replaced by service levy of 0.3% of tunlover net of VAT payable by corporate entities. Prior to the introduction of VAT in July 1998, tractors were subjected to the 5% import duty plus a sales tax of 5%. Starting from July 1999, agricultural tractors are chargeable to import duty at 0% and are exempt from VAT. Other changes, which were effected from 1st July 1999, are introduction of 5% import duty on fertilizer, agrochemical, seeds, breeding stocks (live animals) and reduction of import duty on packing materials from 30% to 25%. Agricultural inputs are exempted from VAT except packaging materials which are charged at 20%. Although tractors are exempt from any kind of tax, agricultural implements and machinery such as harrows, ploughs, hoes, spades, shovels, mattocks, picks, forks, rakes, axes, seeders, planters, which are n~ostlyused by small scale fanners; and ~ilachineryand equip~nentsolely used for spreading or spraying seeds and plants are charged an import duty of 5%. Also import duty of 5%is imposed on iron bars used in the production of ploughs by local manufacturing industries. (v) Business licenses Traders and processors in the export crop sectors (coffee, cotton, cashew, tobacco, tea, sisal and pyrethrum) need a number of licenses. The fees for most of these licenses can be considered as a tax, because they do not represent the costs of a specific service. Traders and processors have also to obtain buying, processing and export licenses from the Crop Boards (all normally with validity of one year). Furthermore an export permit is needed for each export consignment. Agro-processing industries and trading companies need a business license from the Tanzania Revenue Authority. Recently, various District Authorities have started to oblige crop buyers to obtain a business license for operating buying posts in villages. Some districts charge a fee per buying post, others an overall amount for the whole district, irrespective of the number of buying posts. The great variation in the costs of district licenses, the uncertainty of the costs of the licenses and the inconsistent application of the fees for these licenses, create distortions in the competition among traders. In his budget speech in June 1999, The Minister of Finance recommended a revision of the distribution of licensing authority between local governments and the central government, with a view to enable each authority to collect and retain the license fees and to broaden the tax base of local authorities. 5.2 Export regimes and import protection 5.2.1 Problerrrs tlre Courttry lras Errcorrrttered iri Irriplenrentir~gits URAA Conrnritrlierlts In Tanzania awareness and understanding of the WTO Agreements are vely weak within both the public and private sectors, and this explains why no action has yet been taken with regard to the implementation of the Uruguay Round Agreements (notifications and legislation). This is partly attributed to lack of or limited capacity in understanding what is to be done. Having signed the Final Act of Uruguay Round and the Marrakesh Agreement establishing the World Trade Organization, all the WTO Agreements became binding on Tanzania. The effective implementation of WTO commitments by Tanzania continues to be hampered by lack of adequate financial, institutional, technological, and technical capacities, a situation that will exacerbate our participation in new and future negotiations. Tanzania therefore calls for renewed coninlitment to technical cooperation through adequate provision of resources in the regular budget of the WTO and other core agencies according to their mandates. Further emphasize is needed for improved coordination in the delivery of this assistance as a necessary requirement to facilitate effective participation on our part. Tanzania has, however, in spite of those shortcomings made efforts to comply with certain requirements such as establishing a National Inquiry Point and Acceptance of Code of Good Practice on Voluntary Standards. 5.2.2 Experierrce with Irrrplenrerrtatiorz of the Uruguay Round Agreerrrerrt on Agriculture The Uruguay Round Trade Negotiation, which was held between-1986 - 1994, came up with the WTO Agreement on Agriculture, set up at Marakesh Protocol. The relevance of the WTO Agreement on Agriculture to Tanzania emanate from the position of Agriculture in the economy of the country. The Agreement on Agriculture is pivoted to Tanzania because of the following facts: i) Tanzania relies on agricultural sector both for subsistence and export earnings. ii) Over the last two decades, food production in Tanzania rose at a rate of one percentage below the population growth rate. iii) Tanzania is dependent on food import and food aid. iv) Exports from Tanzania still largely consist of traditional agricultural commodities, which cannot keep up with the increasing and to earn foreign exchange. v) The agriculture sector of the developed countries particularly the OECD states, is heavily protected and subsidizes and detennines trends in world market pricing thereby affecting Tanzania adversely. vi) The protection of developed country agriculture's sector implies that food prices and the food import bill of Tanzania is determined by events in developed countries. vii) Surplus production in developed country markets is exported at artificially low prices thereby having a dumping effect in Tanzania and Sub-Sahara Africa as whole and depressed world niarket prices. viii) Trade preferences enjoyed by Tanzania under the Lome' framework or the Generalized System of Preferences (GSP) is continuously being eroded in a liberalized trading environment. ix) Agricultural sector is the major eniployer in Tanzania and thus when agriculture is not doing well major problems arises. Tanzania's effective participation and tapping of benefits from agricultural trade preferential extended by different MTS is limited by supply constraints facing agricultural sector. In addition, under the circumstances described above the WTO Agreement on Agriculture, if the waiver sought by EU to continue giving preferential treatment for Tanzania, as a member of ACP will not be offered, this will hit hard on Tanzania's agriculture sector especially in the export commodities such as sugar that was offered niarket preference. Tanzania will not be able to con~pletewith other countries on quality, quantity and prices. This will lead to increased uneniployment and loss of income. 5.3 Development in Agricultural Commodities: Exports and Imports 5.3.1 Internul Trade Tanzania's internal trade is not well developed. Tanzania's exports show that its structure is not symmetrical with the structure of domestic demand. Tanzania's exports are not an extension of doniestic demand (linder theorem). In an ideal situation export should reflect, to a large extent, what the Tanzania economy is able to produce and consunie and not only a satellite of overseas demand. Internal trade has not been a strong engine of economic growth of Tanzania because of the following reasons: First, a weak and problematic marketing infrastructure has delayed the full monetisation of the economy. In an economy where money is accepted as a means of payment transactions are efficient, fair and provides incentives to produce more. A major bottleneck to full monetisation in Tanzania is a weak transport and conln~unication infrastructure. Most parts of the country are not easily accessible either by roads, rail, sea or air. Telephones, telex and telefax facilities are poorly developed so much so that conimercial transactions from one part of the country to another are executed over an uneconon~icallylong period of time. The second problem that militates against full monetisation of the economy is low productivity particularly in (peasant) agriculture. Low productivity in this major preoccupation of the majority of Tanzanians means low income earnings and this coupled with a poor marketing infrastructure make the situation much worse. Low- income earnings mean low effective demand, which also llleans weak inertia for trade to act as an engine of growth. The third problen~that militates against full monetisation of the econolny is the low level of education of Tanzanians. A highly educated population will not only be more productive, particularly in agriculture but will also manage its affairs at a higher level of efficiency. Some of the problems, which are related to marketing infrastructure, have to do with poor managerial capabilities. Hurnan resources development is very essential for raising productivity in all spheres of econon~icactivity and therefore for achieving a high level of monetisation of the economy (ERB, 1994). 5.3.2 Foreign Trade Over the past two decades Tanzania has maintained a persistently large trade deficit. In 1998, Tanzania's merchandise exports were US$ 676 million, compared to imports of US$ 1.3 billion. This discrepancy resulted in a continued trade deficit that was US$ 590 million that year. Between 1995-97, exports grew at an average annual rate of 12.3 per cent (see Table xv). However, both traditional and non-traditional exports performed poorly in 1998, resulting in an overall export decline of 8 per cent. This was due to several factors. The volumes of traditional exports fell partly because of El Nino and poor world prices prevailed for several of Tanzania's con~modityexports. A contraction in world demand due to the Asian financial crisis compounded these unfavourable trends. Weak performance in petroleum products and the inanufacturing sector contributed to the decline in the non- traditional export growth rate. Unrecorded exports are also estimated to be sizeable - up to twice the official export figures - and the problem is particularly acute in the gold and gemstones sectors. The weak export perfomlance has been insufficient to finance irnports indeed; the export to import ratio has remained unchanged for almost two decades. Table 5 3: Recent Trends in Trade, 1995-98 Net Ex o r t s l ~ ~ ~ l ' -- 1 ; ~ o r tgrowth rate (USEterms) 27.3 -6.6 I Import growth rate (US$ terms) Source: Econo~nicSurvey 1998, and URT, 1999 Report Prepared on the Consultation on Trade related Assistance Agriculture (including fisheries and forestry) dominates Tanzania's economy. The sector accounts for 50 per cent of GDP, and about 80 per cent of employment. Given this structure, it is not surprising that Tanzania's exports remain heavily dependent on agricultural con~modities(see Table 11). Coffee and cotton alone account for a third of its exports. Other important agricultural exports are cashew nuts, tea, tobacco, and sisal. As a group, agricultural comniodities made up over half of Tanzania's merchandise exports in 1998. The manufacturing sector is small in Tanzania, accounting for 8% of GDP in 1998. For years the sector was dominated by parastatals and enjoyed a high level of protection. The resulting anti-export bias (compounded by an overvalued exchange rate) did not encourage production for export. Manufacturing exports averaged 13.8% of exports between 1995-98. Minerals (gold and gemstones) are rising in importance, growing at 27.4 per cent in 1998. They contributed 15.2 per cent of the export basket in 1998. They are starting from a sinall base, however, and much trade in the sector liiay be unrecorded. Tanzania's dependence on primary commodities constrains its export performance. It makes the country vulnerable to weather variability and shifts in world comnlodity prices. An important government priority is to diversify the composition of its exports. 1 1 Table 5.4: Co~npositionof Merchandise Trade, 1995-98(Millions of US dollars) . -- -- , 1 1 1997198 I 1995 1996 1997 11998 I 1 Growth Rate -- :d;?al Exports 383.6;436_2 360% 345.6 -4.1 + - 1 4 2 . 6 1 136 1 117.4 / 114.9 -2.1 - -- 120.2 1 1- Cotton 125.3 11655---- I -53.6 I - Sisal 6.3 , 5.3 8.5 6.8 I -20.7 t- - -. --- -. - - ~TG- 30.1~3 ~. 23.4 L - . 22.5 ~-4- 7.2 -- + Tobacco - 27.1 49.2 12.9 i 2 5 . 5 1 97.8 - I , t ~ Cashew nuts 64.0 97.8 75.1 49.2 1 ,112.1 1 1 Non-traditional Exports Petroleum products - Minerals -- 1 Manufactured products Other non-tradit~onk-_ GRAND TOTAL I Source: Economic Survey 1998. June 1999, URT, 1999. deport prepared on the Consultation Trade related Assistance Tanzania's major export markets have remained largely ~lnchangedsince the late eighties with industrial countries, particularly Europe being the maill destination, followed by Africa and ' Includes unrecorded trade and statistical discrepancy Asia. Tanzania's main trading partners at present are the European Union (Germany, the United Kingdom, and the Netherlands), India, and Japan. As a group, industrial countries, particularly Europe, are the main destinations followed by Africa and Asia. Despite its membership in the Southern Africa Development Comnlunity (SADC) and the Common Market for Eastern and Southern Africa (COMESA), Tanzania's trade with members of those groupings remains minimal. Tanzania is no longer a member of COMESA after announcing to pulling out of the Association early Septenlber this year. Tanzania's main imports are machinery, transport equipment, petroleum and related products, textiles and clothing, and food and beverages. While the country's reliance on capital goods has fallen since the early nineties, the category still accounts for 42.3% of total imports (see Table 19). Tanzania exhibits continued high import dependence. The high input costs faced by producers exacerbate this dependence. Important sources of imports are Kenya, United Kingdom. Japan, India, and Italy. Import sources have become more diversified in recent years. Table 5.5: Co~npositionof Imports, 1995-98(Percentof Total Imports, f.0.b.) r - 1-1996 1997 - 1 9 9 8 1 ----- - -- cipital goods ! 36.0 36.0 37.1 1i 42.3 ;--Transport and equipment 1 14.0 1 14.0 i 14.0 1 14.4 1 _~ -A- / i i Building and construction 3.0 I 3.0 2.3 4.1 'i -.-----..-----. + --- -p--C--- Machinery- .---l !--- ,- --- - --.+-~--~.--- 19.0 18.0 1 20.7 ' 23.8 -- -1 I i2. ! L 'ntemediate g o o d s ~ . - - )9:0 ~-~-.~8..0 - - - .22:2_--j Of which: oil imports , 13.0 t-.~ 1 11.0 ,.--- ! 14.0 7.3 ~ ~ ~~ --.-~ -- Consumer goods 1 25.0 26.2 30.5 -- 1 Unclassified iinpons ! 0.0 0.0 0.0 ~ o k c eBank of ~ a n z a n i a - ~ ~ . : The current account deficit widened further in 1998 in dollar tenns from US$ 589 nlillion to US$ 846.6 million. The deficit on the services account widened by about 0.3 percent of GDP, due primarily to interest paylnents on external debt. These higher payments were offset partly by a further increase in tourist receipts. Foreign directs investment into Tanzania is low but increasing. It rose from US$ 12 million in 1992 to US$ 172 million in 1998. The main sector attracting FDI is the mining sector. Given Tanzania's low investment and savings ratios, FDI can play an important role in achieving the govemnient's development vision. Reaching this potential, however, will depend on Tanzania reducing the administrative gridlock that investors face. Reforming the regulatory framework thus continues to be an important priority. Table 5.6: Import Taxes before and after Uruguay Round I Import dutiesltotal SalesTaxttotal Excise taxltotal Total Taxesltotal imports imports -imports imports4 0.054 - I 0 1.049 1 103 ,-- 1 --L - .----. For all products 0.034 i 0.007 0.108 0.149 I 1995 E or agriculture -- , - .-- 0.095 1 0.076 __1 0.076 1 0.171 ----. - 1 For all products I - 0.096 - 0.08 0.08 0.185 ' 1 I ---. -1 I 1996 1 For agr~culture I 0.141 0 073 0.001 0.2 16 , , )1 For all products4 r---0.096 -- -4 1997 For agrFulture - 0.207 0 0.097 0.304 1 I I For all roducts 1 -1 --0.105 0.018 L@79 - 0.201 I 1 1998 ( For agriculture / 0.163 _l_-l_ 0 0.121 -- 1 0.285 C- i r-- j 0.087 11 0.02 I 0 086 0.193 j - -. For all ~ o --c t s 1 d u 1 -L__~__ i 1999 1 For agriculture- _ 0.119 .~ +-- - -. 0.002 0.091 --.- -- I 0.212 - - - .- . -- - .- 1 1 - For all products 0.074 i 0.018 0.083 0.169 ' ! 2000 0-.. ' ! For agriculture 0.13 ! 1 0.249- 1 -.--- -- -.-. . ~ ~ ~ .~ 1, -- - -- .- - - 1 1 L - - i - . ~ o ~ ~ ~ ~ ~0.077s_ ~. _-t _ 0.044 0.121 0 242 l-~-.- .-_~.-__L_-L -_-, _l_l_l_l_l The table shows tlie taxes actually paid and it is surprising to note that agricultural products are taxed niore as conipared to other iniports. In 1997 the total import taxes, as a ratio of imports was 30.4% as compared to20.1% for all products. This trend is consistent over the years tliat in year 2000 the total import taxes for agriculture was 24.9% and 24.2% for other products. This is a unique result as many of the agricultural inputs are zero-rated or have lower scheduled taxes. The result indicates therefore that agriculture as a sector is taxed more than other sectors and yet the country states tliat it wants to promote the sector. 5.4 Domestic Support 5.4.1 Agriculturul Sector Envirori~rieritin Turizariia Tanzania has enonnous agricultural potential in terms of land resources and range of climatic conditions. The performance of agricultural sector in the country is still poor for both cash and food crops. Likewise, livestock and fish productivity and their per capita consumption are low despite the large national herd and the enomlous water resource endowment. Tanzania is one of the heavily indebted countries and still relies on foreign donors to support its socio-economic reforms. The deterioration of economic infrastructure in Tanzania in the recent past has made it difficult for tlie productive sectors to respond adequately to the changes in policies and incentives that began to take shape through the established economic recovery programs. As higliliglited in Table 14, Cereal yields in Tanzania are far below those of the other states in East Africa, Kenya and Uganda. Yields in Tanzania are about 1063 kegs per ha while those of Kenya and Uganda are 1364 and 1555 kegsfha between 1979 and 198I. Even after the reform period (1986-96). yields of cereals in Tanzania are still below those of Kenya and Uganda. Tanzania is below average of the three states by 16% during this period. Talking of Average Annual Growth Rates of Food Production, we also see that during 1991-95, Tanzania had a negative growth of 2.4% while the other states had positive growths of over 2.5% over the period (Table 2 1). Table 5.7: Cereal Yields and Average Annual Growth Rate of Agricultural Food Production - r--- -. -- I ; Average Annual Growth Cereal Yields I State Tanzania 1063 1310 0.9 i -2.4 1 i ----_I_ !Kenya -_L 1364 I ~- 1822 0.9 3.2 -- - l~eanda 1 l 5 5 5 1 - ~ 2.6 (TZas %of-- 1 I 1 / I i - - --~~* i :Average PoBelow 80L_..!-.83.9 4 5 . 8-.--- 1 -271.8 AVG ; -19.9 1 - 1 6 . 1 -54.2 L1 -311.8 I Source: Maro, 1999.Rural lnfrastructure and its implication for Rural Development in Tanzania This deterioration is attributed to tlie inadequate funding levels for investment and maintenance of the econoniic infrastructures. Together with this are the weak institutional structures (lack of capacity), poor nianagelnent and inadequate technical capacity. The goveni~nenthas realized since mid 1980's that the poor transport infrastructure, for example, costs the economy nearly US $ 200 million per annuln which is almost half of total export earnings (WB, 1989). In cognizance of the above, the government had set up a comprehensive program for restructuring and rehabilitation of the transport sector in 1987. Since then the government and tlie donor community have prepared specific progranis to improve roads and railways. This initiative is in line with the government's ainl to undertake concrete measures which would both protect social development objectives and complement the overall refonii program. So a renewed policy decision was taken in 1993 to increase the participation of local governinents and communities Inore actively in design and iiilplementation of social service delivery, as well as building physical lnfrastructure. The government expenditure on economic infrastructure indicates an increasing trend both in nolninal Tshs and in US $ tenns. Substantial increases have occurred especially since 1995. While the expenditure amounted to US $ 3 10 mill in 1995 it was US $ 530 mill by 1997, and increase of about 71% over the period. The expenditure on public debt on the other hand, was US $ 610 Mill (almost twice as niuch that on economic services) in 1995 and it reached US $ 780 Mill in 1997, an increase of about 28%. This means that expenditure on economic infrastructure has risen faster than that on debt servicing over the three-year period, although in absolute tenns expenditures on public debt is on average slightly more than 90%. This higher expenditure on public debt averaged 73% over and above that on economic services, between 1985 and 1994. lniproved economic infrastructure leads to increased specialization in production and promotion of migratory movements. The effect of infrastructure improvement is also on increased trading activities and improved niarket operations. It also leads to promotion of the development of towns and urban areas being maintained with food surplus from the rural areas. 5.5 Problems and Issues in Implementation of UR Commitments Production pattern of the agricultural sector changed as a result of the change in the world market conditions and the internal agricultural policy 5.5.1 Trend in Food Security Progress in improving poverty, food security, and malnutrition in Tanzania is highly dependent on the performance of the agricultural sector. This can be explained by the fact that poverty is primarily a rural phenomenon. The incidence and severity of poverty is twice as high in rural areas as niuch as illurban area, urban incomes are 2-3 times greater than rural incomes, and rural households lag behind urban households in almost every indicator of standard of living. Furthermore, 84 percent of the workforce in Tanzania is involved in agricultural production. Even if farmers were not poorer, no development strategy could expect to improve the lives of the majority of the population without significant investment in agriculture (WTO, 2000). 5.5.2 Role of Food Aid International food aid began in the period after world war two. Previously it was largely in tlie form of supplies from the United States to Europe intended to help the war torn European economies recover. Later, the group of recipient countries was soon expanded to include developing countries. During the 1950s and the eve of the 1960s,United States was the principal food aid donor, donating approximately 90% of the total global food aid flows. The position of US became less dominant especially after signing the first Food Aid Convention (FAC) in 1967. Under this convention, donors reached a consensus on the scope and co~npositionof food aid. In comparison to the mid-1 960s, food aid is currently provided by a much larger nuniber of donors, however US still continues to provide more than half of the total supplies followed by the European Union, Japan and Cliina (DAC Development Cooperation Reports). Unstable agricultural production coupled with fluctuation in cornniodity prices has adversely affected regional food security. For instance, in a case whereby food production declines drastically (without import tariffs to offset the differences) and prices are rising, causes direct effects to the quantity of local food available, reduces real incomes and access to food, and more worse, this later leads to the increases in the level of poverty and vulnerability of the society. Under this situation, the role of food aid to the region is seen as a mechanis~iithat could help lessen the tension of the structural deficits and the weakening economies. In particular, food security in Tanzania has been dwindling in the past 10 years, calling for both continued food aid and food importation from outside. For example, World Food Programme (WFP) and the Food and Agriculture Organization (FAO) in their in-depth assessmelit of food situation in the country in 1999, revealed that the national food deficit stands at 560,000 tons for the period through mid-2000, while an earlier evaluation by the governruent of Tanzania indicated a deficit of about 600,000 tons. That means, the country will continue to need food aid from outside. Food aid is also one of tlie development instruments. Even though it is associated with emergency situations of famine, it is more often provided for purposes other than elimination of an acute hunger. For example, food aid may be given in the form of programme assistance, or to provide financial assistance to projects. Some few examples will help elaborate this point; for instance, food-for-work activities whereby labour is being rewarded with food rations is ail example of food aid in tlie form of project assistance, while, food aid provided as programme assistance usually includes products (such as wheat) of which there is structural deficit, and which the recipient nation has to import in order to meet its needs. Cereals have dominated the various food aid programmes and the dependence of developing countries on cereal imports both of which in terms of con~mercialand food aid has been considerable. For instance, overall cereal iiiiports accounted for about 10% of developing countries' cereal consumption in 1991 and this ratio has been growing by 3% annually since then, at the same time, the share of food aid in total food iniports to developing countries was around 12% during the same year. Donors provide food aid through three channels: bilateral, multilateral, and non-go\lernrnental organizations (NGOs). The distribution anioiig the three channels looks as follows: bilateral 65%, multilateral 20% arid NGOs 15%. In tenns of global scale, it is provisionally perceived/estiniated that iiiore than half of food aid is of programme aid nature followed by emergency aid, while project aid beconies the last. That implies therefore that food aid has a bigger role to play in the economies of the recipient countries (i.e. Tanzania) as they help these nations solve their structural deficit. Table 5.8: Cereal Food Aid Category, 1984185-1988189 Years 81/85 85/86 1 86/87 87/88 88/89 Programne aid 53 46 57 60 5 1 Emergency aid % total Source: WFP, Food aid revlew, 1990. However, food aid, particularly of prograniiiie aid nature does not always reach tlie most vulnerable groups. Apart froiii that, food aid may have some forms of devastating elements as it can spur a change in tlie eating habits of the recipient nations or act as a disincentive to local food production and therefore causing a greater dependency of food aid recipients on donors. Moreover, due to subsidization of food iniports, the distortion that can be created out of subsidizatioii may accelerate total substitution of domestic produce by imports. The markets for locally produced traditional foods have consequently been compressed. These cheap imports, combined with inefficient local policies have also reduced the incentive to process traditional foods in ways which render them iiiore acceptable to urban and high- income brands of households. Local coarse grains, owing to discriniinatory pricing policies, tend to lose in tlie competition with imported grains. 111 view of the riiininial effects, effectiveness and efficiency of food aid as a development instrument, the IOV recommends that it be subject to a critical review. This applies particularly to the food-for-work approach of the World Food Programme (WFP) and NGOs. As far as developnient is the main objective, a project should be approved only if it has passed a cost-efficiency analysis. 5.5.3 I~rtpacron Food securityJ Al~liougliTanzania's data 011 food crop production may indicate surplus balance, however, it is nonnal to hear of food insecurity in some parts in the country. The reason lies mainly in tlie difficulty of moving the sui-plus from one area to another due to problerns associated with internal tradiiig/marketing (Maro, 1999). Food security is defined by FA0 to have three d~rnensions:food supply, access to food; and stability of flows over time Table 5.9: Food Balance (1985186-1997198) Metric tons I 1 I c..-..l.." Total SuroluslDeficit as % i ~-AI~L3 1227.84- . - - ~ - _ I 38.47,1 ~ 4 7 , ~ .375-18-LJ 1 519.49 -.- Source:Quoted Miema, G.D. (ed.), Food Seasity, Agriczrlfi~reand Trade: So~neLocal and Global Potential limitations for achieving food security in Tanzania are characterized by many factors. Some of the limiting factors include the physical and human resources exist to produce and distribute adequate food to meet needs of all households given current population and inadequate production and supply of food by households; reliance on subsistence farming (hand to mouth famling); high population growth rate relative to existing resources; lack of efficient infrastructure; and con~binationof trade restrictions and market related policies including regulations which restrict the actual and potential for interregional trade. The Agreement on Agriculture is likely to influence food security in four ways: 4 Influencing the foreign exchange earning capacity. There is the potential of increasing foreign exchange earnings from increasing markets. However, this depends on the response of supply. Developing countries may however be unable to make gains via export earnings due to supply constarints and loss of market share. 4 Influencing the price of food imports and market stability. The projection is towards an increase in the food iniport bill. In tlie food-deficit countries, the import bill is set to rise as domestic policy reforms in developed countries will see reduction in production of major agricultural food coniniodities and thus supply reduction. 4 Influencing the availability of food assistance. The Decisions made at Marrakech Compensates for tlie increased food iniport bill by accommodating the need for greater food aid. 4 The likely impact of the Agreement is to create a two-tiered system of food security with rich and rapidly growing countries elljoying abundant affordable food supplies and poor countries suffering from nial~iutritio~~and food insecurity. The losers from the Agreement are likely to be the net food importing countries and that include Tanzania. The country will be affected both as exporter and importer. As exporters, developing countries face loss of preferential margin, increase in con~petition,limited trade creation and potential loss of market share. As importers, developing countries will have an increase in food import bill as world prices increase. The negative impact will also result as export subsidies are renioved thereby raising effective price paid by importers. The negative effect will be worsened by loss in market share, which means lack of foreign exchange with which to pay the import bill. 5.5.4 Policy Inrpact of the Agreettrent on Food Aid The Agreement indirectly addresses food security issues via the Special and Differential measures. The Agreement allows developing countries niore time and smaller reductions in areas of market accesses, domestic policies and export subsidies. In addition, the de r?zinirnis commitment is raised to 10 per cent and there are fiirther exemptions related to input subsidies and export marketing. The Marakesh Ministerial Meeting foresaw aiid acknowledges the likely negative effects of the Agreement on Food Security and Food Aid. To this end, the Special and Differential treatment for developing countries had to be supplemented with other measures. Consequently, The decision on measures concerning the possible negative effects of the reform programme on least developed and the decision on net food importing countries was taken. The decisioii on measures in favour of the least developed countries was made. These decision address food security issues by reviewing the level of food aid and providing increasing amounts under grant terms. There is also provision for short-tern1 assistance in financing normal imports from international financial institutions and provision for differential ternls with respect to export credit. These measures are aimed at alleviating the burden on the food import bill and balance of payment as well as to enhance the capacity of the developing countries in increasing their agricultural production capacity in order to reduce the high dependence on imports. 5.5.5 Trend in Agricultlrral Prices Prior to trade liberalization, all export crops were marketed through a single channel three- tier system, which involved Producers, Primary Societies, Cooperative Unions and Crop Marketing Boards. Tea and sisal were under Tanzania Tea Authority aiid Tanzania sisal Authority respectively. Marketing Boards handled other crops. Apart from crop buying, Crop Boards through Cooperative Unions and Priniary Societies distributed production inputs to farmers on credit. Loans advanced to farmers in the forn~of inputs were recovered during crop buying. Uiider trade liberalization, private traders/institutions are participatiilg in buying and exporting traditional export crops. Marketing Boards have been exempted from crop buying and are entrusted with regulatory functions only. For domestic markets such as that of rice, the most important marketing channels starts with a large number of small local traders who buy paddy from farmers and transport to rice mills where it is processed and sell it to interregional traders and local retailers. 5.6 Mainland Domestic Markets 5.6.1 Food Crop Marketing The period since 1986 has seen rapid growth in market flows of food crops within Tanzania, due to both liberalization of distribution systems and the phenomenal growth in the population of Dar es Salaam relative to the rest of the country. A large proportion of food crops are still consumed within the household or locality that produced them. Maro (1999) reports MAC estimates that between 1992193 and 1997198, only 26% of niaize and 50% of rice produced was sold, Dares Salaam is by far the main destination for sales. MAC estimates that over the 1992i93to 1997i98 period Dar es Salaam was the destination of 13%of maize marketed surplus, 70% of marketed domestic rice, and 95% of marketed beans (Maro, 1999). The rapid increase in quantity of food marketed to Dar following liberalization as well as improvement in quality (fruits, vegetables, animal products) is the unheralded success story of Tanzania agriculture, at least for the first half of the 1990s four areas are listed as supplying 90% of maize to Dar es Salaam: Dodoma (46%), Iringa (19%), Mbeya (16%) and Songea (lo%), although much of the Dodoma grain is undoubtedly transiting through from further inland. Dar es Salaam's rice supply comes from Mbeya (43%), Morogoro (29%), Shinyanga (19%) and Tanga (8%).On the other hand 95% of the marketed surplus of beans are sold to Dar es Salaam, and 6 regions (Mbeya, Arusha, Tanga, Morogoro, Iringa, and Songea) account for 95% of Dar es Salaam supply. Poor road communications infrastructure greatly increases the cost of agriculture trade within Tanzania, as does arbitrary official taxation at the local level not to mention unofficial levies. Maro (1999) reports MAC estimates that the total cost of marketing 40 bags of maize from wholesalers in Morogoro to wholesalers in Dar es Salaani in 1995i96 season, excluding returns to traders were 27% of the final wholesale value on Dar es Salaam. Sixty percent of the marketing cost was attributable to transportation, 19% to packing materials, 9% to local taxes and the reminder to a variety of storage and handling charges. Since traders, cannot be expected to continue to work without return, trader profits need to be factored into marketing costs. Maro (1999) showed that the liberalization of food crop marketing after 1988 led to a lower cost distribution systeni compared to the previous distribution operated by the National Milling Cooperation. In the maize example above, the total return to traders, as inferred fro111 the difference between total revenue and total cost, was 7.6% of the final wholesale price in Dar es Salaam. Although studies of actual marketing cost are hard to come by, World Bank Study, 2000 has made possible to track with some degree of accuracy the evolution of spreads between food prices in different parts of the country and Dar es Salaam. This is by assunling that wholesale-to-retail markups do not differ greatly in percentage terms across markets and, the difference between retail prices between two locations between which trade is actually occurring is a good indicator of total marketing costs, including the traders margin. Also the abundance and quality of price data from the Market Development Bureau of the MAC permits statistical analysis of the evolution of monthly price spreads between outlying markets and Dar es Salaam between January 1986 and December 1998. The dependent variable in this analysis by WB is the difference between the deflated monthly retail price in Dar es Salaam and those of other markets. The explanatory variables include a monthly time trend, the road distance fro111Dar es Salaam, road distance squared (to allow for a non-linear relationship), and twelve monthly duniniy variables, to control for seasonal effects. They have included a dummy variable for isolated markets), for markets physically - situated on railroad (a little more restrictive than "line-of-rail or road"), and for markets in port town. The purpose of these dummy variables is to partially control for the fact that not all niarkets actually trade with Dar es Salaam, in which case price differences may be less than the marketing cost. Results for wheat, rice, maize and cassava are also shown in Table 17. The first raw shows the mean price spread (in December 1998 Tslis) for the crop in question between all niarkets and Dar es Salaam in all months over the 1986 to 1998 period. Spreads are highest for wheat (93 Tshs) and rice (less liberalized); next comes fresh cassava root, a perishable. Spreads are lowest for maize (24 Tshslkg). According to this study the time trend coefficient indicates that spreads have declined at an average monthly rate of Tshs 1.35 over the period, inostly because of liberalization towards tlie end of the period. Maize and rice spreads declined moderately at about 1 Kglkg per annum (Tshs 0.06 to 0.08) per niontli). Cassava spreads which involved a smaller number of markets due to missing observations, increased significantly over the period (0.6 Kglkg per month). Unlike the grains, cassava was not previously marketed by parastatals, so there is a no compelling reason why liberalization would have caused margins to decrease. However the lack of statistical significance of the other explanatory variables raises questions as to whether this crop is actually being actively traded to Dar most of the time. On the other hand tlie study has shown tliat distance to Dar es Salaa~uhas a positive effect on the spreads for wheat, rice and maize, as expected. For rice for example, an extra km of distance froni Dar adds 0.1 1 Kglkg to tlie spread (or US$O.16 per tonlkni), in between Maro's estimated spreads per lun for rice and niaize shipments to Dar from Morogoro. The presence of statistically significant but very sniall negative coefficients for distance squared is interpreted as evidence of unit economies of distance as expected. If a market is on a rail line, other things being equal, the spread for wheat and maize will be reduced by 12 Kglkg and 4 Tshslkg respectively. However, it increases the spread for rice significantly, perhaps because the main rice producing regions of tlie country are all on railroads, and Dar is in a part supplied by imports. If the supplying market is a port city, the spread is much lower for wheat and rice, both importable crops, although this is much less important for maize, as expected. Finally, spreads can be expected to be lowest when inland prices are high. This is the case at the start of tlie cropping season for the three cereals, and right after tlie cereals harvest for cassava, and is shown in Table 17. In sum, there is solid evidence froni both point studies aiid broad-based statistically- significant trends tliat spatial marketing niargins have decreased over time for previously regulated tradable food crops like wheat, rice and maize. However, transport costs remain very high, and thus absolute spatial margins are still quite higli in Tanzania. This, combined with occasional prohibitions on cross border trade, is a fundamental reason why a quarter of tlie country's maize supply was seen to behave as a non-tradable crop. Market-mediated structural reforms will continue to be difficult to implenient until spatial marketing niargins can be brought down further, through infrastructure improvements and rural transportation policies tliat reduce tra~isportationcosts. Table 5.9: Determinants of Spread Between Dar es Salaam Monthly Retail Price for Food Staples and Interior Market Retail Prices 1986-98 i- Result ---- -- -- I a-. e e a n real spread overper~od , 174.09 , 135.30- 45.88 101.90 1 Conttnuous time trend 1 -1.35 1 -0.06 ' -0.09 0 . 6 0 1 i Road distance from Dar (hn) 1 0.1l 1 0. l l 0.05 1 n.s. Road distance squared ' 0.00 1 -0.00 -0.00 1 n.s. i Markets on a rail line 1 -i2.41 1 21.32 1 -3.71 1 n.s. ( I Market is lsolated 1 n.s. 1 10.87 ' n.s j ; Market 1s a port crty -5.53 n.s. Lowest two of 12 monthly j Oct. Nov Jul. Aug L--__----_-- -- 1 - . - - - I - - pp ' Number of observations -,- m---- -.4 8 6 1 - 7 '----- 4 721 L_ 1.220- 7__------- -1_-,__1--.- i Adjusted R- 0.67 0.68 0.71 , 0.60 Source: URTIWB. 2000. From OLS regressions by crop using data f r o ~ FEWS ~ ~ n ~ (1999); tl; dependent variable is the local price minus the Dar price; prices are in December 1998 Tshs per kg. All coefficients are statistically significant at 5% or better unless shown as n.s. (n.s means not statistically significant). 5.6.2 Mairzlarzd TraditiorialExport Crops E-rportMurket The export performance of the traditional export crops, expressed in US$ and per capita tenns, over the past nine years, is shown in Table 18 and 19. There is a clear increasing trend in export eaniings. In the early 1990s earnings aniounted to about US$ 200 niillion per annunl, and increased to almost US$ 450 million in 1996. However, this volume was not maintained over the following years, and earnings dropped to around US$ 350 million. Falls in coffee, tobacco and cotton earnings are mainly responsible for this. Cashew has made a remarkable comeback. The crop's foreign exchange earnings have increased from US$ 5.6 million in 1990 to US$ 112 million in 1998, about one-third of total export eamings of the traditional cash crops. Tea is the most stable contributor to foreign exchange earnings, providing 1 0%- 1 5% of the total. During the 1960s sisal was fhe most important foreign exchange earner, but by 1972 this position had been taken over by coffee and cotton. The contribution of sisal has fallen drastically until it now contributes only 2% of total annual export value of traditional cash crops. Although the increase of earnings per capita increased during the 1990s roughly by 50% from US$8 - 10 to US$12 - 15, the absolute level is small. The per capita eamings are about 70% lower than the level of the second half of the 1960s, which averaged US$64 (annual average of 1966-69, OED, World Bank, June 30, 1998.) This decline is the outconie of reduced production, stagnating or falling world comnlodity prices and population growth. Table 5.10: Volumes and Trends for Traditional A~iculturalExport 1990-1998 -- ~- - Quantity of Exports of Cash Crops ('000'Tonnes) --- ; - 1991 1992 1 1993 1 1994 1 19951 1996 j 1997-i.- 1998 L.--_1_. -__ -___ Coffee : ,1 52.7 37.0 64.0 40.2 53.6 7--1 45.0 ; 1 -58.6 + -. 52.5- . -- - -.- .-__--. - & ~ Cotton seed 38.7 72.8 -- 61.2 :+",%+ ' 60.0 70.6 ' 38.0 _j ~. , L ~ 4.8 .'~.19.8 -, , 4.1 , 5.0 7.2 , 11.3 13.0 10.9 Tea---- -Z69-: -, .-. -- _ -_ -- - 1 -. 20.4 iK6 , -1 -..- 21.7 . - 21.6 24.7 19.3 22 -. ~ - - - -.- PObaCCd- 8 6 1 I., - .L 127 -L15.4 .- 17.1 f 24.0 21.5 12.7 i ' -- -- ---- .~ !Cashewnut ' 19.0 1 29.3 I 32.2 65.0 75.6 1 ..~ 121.2 56.7 140.4 j ~ Source: MAC, 2000. Basic Data. ~gricultu~aiandLivestock Sector 5.7 Zanzibar's Agricultural Exports 5.7.1 Tlte TruditiorzulExport Crops Zanzibar's three most important agricultural exports have traditionally been cloves, copra and chilies, with cloves occupying first place by a wide margin. Most of the cloves are grown in Pemba, The international clove market has been bleak for sometime, with recent prices being only a tenth in nominal terms of the high prices in 1980s, when Zanzibar still enjoyed a virtual nlonopoly on clove exports accounting for over 90% of the value of total export on average. While inherently volatile due to fluctuations in yields, prices have fallen dramatically since the early 1980s with changing sources of supply in South East Asia. Annual production in Zanzibar between 1985 and 1997 fluctuated in the 1,000-2,000 metric tons range, interspersed with occasional years with over 10,000 metric tons production. At present production is static at around 8,OOOtonesiyear. The decline in production and exports have been due to growing competition in the world market, climatic variations, insecurity of the three-acre land tenure system, disease and poor management which has resulted in low returns. On the other hand clove yields are low, particularly because of the old age of many of the trees. Replanting has not proceeded at a pace fast enough to increase proportion of young trees. Husbandry practices area also said to be poor. Although declining in output and value, cloves are still very important to Zanzibar for foreign exchange and as a source of income to many rural people. In the new agricultural policy currently being debated in Zanzibar's political institutions, it is intended to improve extension services for cloves and to create incentives for replanting. Production of chilies has not fared niuch better. Its production has decreased from 250tonnes in 1905 to 3tonnes in 1993 because of the deterioration in quality of the dry chilies, high labour requirements and introduction of seaweed which provides higher and ready cash returns to the fanners .the yield of dry chilies ranges from 0.5-2.0 tontha. However, output reached a peak of 4.2 metric tons in 1990. When prices have been good, producers have responded positively by increasing production. However prices have at times been discouraging and production was ~iegativelyaffected. Zanzibar has at tiines failed to adapt export production to changes in the preferred varieties and qualities, with a consequent fall in average prices received. The new agricultural policy intends to encourage the production of the preferred varieties and to help improve yields through extension services. Provisional data, subject to revision Copra, which is predominantly grown in Unguja, comes from processed coconuts. Like cloves, the age of the trees and slow replanting rates have contributed to low yields, in addition to poor husbandry, which is responsible for heavy pest and disease infestation of coconut trees. Production of copra has fallen steadily in the 1990s. 5.7.2 Non-Traditional Export Crops In recent years, following liberalization programs, non-traditional exports have grown in importance. While cloves are still the dominant export in most years, accounting for over 90% of the value of total export on average, some non-traditional exports have shown that they can contribute significantly to export earnings. Several fish species and seaweed in particular has shown great potential. While seaweed is not bought and exported by a state monopoly, oligopolistic private buyers reportedly at present pay only 10% of the export price to producers. The government of Zanzibar is exploring ways to facilitate a more competitive environment that can pass on a higher return to the producer. Other non-traditional export crops in Zanzibar include citrus fruits, rambutan, mango, sugarcane, ginger, turmeric, black pepper and cinnamon. Mango, which is grown all over Zanzibar, the competition of its market is stiff. Boribo Muyuni is the preferred variety for the export in the Gulf States. Zanzibar currently exports approximately 150tonnes per year and there is still potential for higher exports if quality can be improved. Ginger which, is usually grown under partial shade with areas receiving high rainfall and fertile soils enriched with organic matter content has high market demand in Europe and Asian Countries. Tumeric is normally exported to the Gulf States. Its establishment costs are very high due to the cost of planting material, which is about 65% of the total cost. Yields of about 45tonnes/ha can be obtained, and the return per hectare is about Tshs 115.000 for fresh tumeric. Black pepper grown in Zanzibar has a high export potential but the quality and quantity is not promising. At present about 2tonnes/year are exported to Mombasa. Cinnamon has a good export prospect in Kenya and Mainland Tanzania. Its yield ranges between 0.5kg to IOkg of dry back depending on the age and size of the plant. -- ---- .- ~~~~~ 6.0 THE AGRlCLrLTURAL POLICY REGIME AT THE END OF 1999 6.1 Situation at the End of 1999 6.1.1 I~nportPolicy Adjustnient made to the country's import agricultural policy as compared to the world market conditions at the end of 1999 The major policy adjustment in this area hinges on the government's policy objective of opening up the economy and providing incentives for domestic and external investment in the priority sectors like agriculture, tourism, mining, transport sector, etc. In this case all projects passing through Tanzania Investment Centre (TIC) enjoy some incentives mainly in setting up projects including capital good imports. Elimination of import duty all farm input and implement is another measure taken to develop agricultural sector. 6.1.2 Export Policy Adjustment made to the country's export agricultural policy as compared to the world market conditions at the end of 1999 Liberalization of traditional exports started far back in 1993 (for Coffee, Cotton, Tobacco, and Cashew) allowing private traders to buy, process and export these crops. Removing nuisance taxes on cash crops has strengthened this policy. The government has tried also to harmonize the local government taxation to the central government one to remove double taxation of the exportable crop traders. Private traders began to operate legally in the coffee and cotton sector in 1994-95 and in the tobacco sector the following year On the other hand, the Pyrethrum Board's factory was closed in 1997due to financial problems and privatized in 1998. The owner has started operations (World Bank, 2000). Private tea estates already account for 70 percent of production, and the remaining estates and processing plants of the Tanzania Tea Authority are being privatized. 6.1.3 Donrestic Policy Since the major ecoilomic reforms of 1986, the government of Tanzania has realized that agriculture has been affected adversely especially in the area of marketing and input supply. One of the major domestic policy changes is that of new land policy of 1995 but which became effective in 1999. The new land policy has introduced markets in land although limited, it has created national customary land tenure law, land ownership to all and the recognition of the village to control land tenure administration. In 1999 there has also been more involveme~itof the private sector organizations in agriculture. The Tanzania Chambers of Commerce, Industry and Agriculture trade (TCCIA) for example has opened branches all over the districts, regional and national level in order to assist in input delivery and procurement. The private sector organizations and other private companies have also involved themselves with market interventions, extension services and credit supply. This is more apparent in the cashew nuts production and marketing and this has made this crop one of the top contributor to export earnings in Tanzania. Theoretically Africa should gain from the expansion of trade that would result from the lowering of tariffs in non-European markets, including the US and Japan, not previously covered by special preferences, but in practice, this seems to be not forthcoming. GATT: Analysis of the Draft Final Act of the Uruguay Round, with special attention to the aspects of interest to Developing Countries, Geneva, 1993 shows that tariff cuts on goods of export interest to developing countries are less than those on goods of export interest to developed countries. For instance, in developed countries, tariff reductions for industrial goods average 38 percent for imports from all origins, but only 34 percent for imports from developing countries. Escalation of tariff rates according to degree of processing will remain high on several product groups of export interest to developing countries, particularly leather, coffee, tea, jute, fabrics, cocoa products and tropical fruits. This problem is likely to be compounded by the low Africa's level of competitiveness making it difficult to exploit lower tariffs. 7.3.2 Coulitry 's Priority Agriculturul Exportsfor Negotiatioiis For Tanzania, the foregoing concerns translate into the erosion of the margin of preferences enjoyed in the EU market under the Lonie Convention and loss of GSP preferences in other major developed country markets. It also excludes the existence of peak tariffs (exceeding 12 percent and in some cases reaching or exceeding 300 percent) resulting froni the tariffication of non-tariff measures and tariff escalation affecting many agricultural items. This limits the scope of expansion of production into value-added and higher priced products such as coffee. Other concerns are of non-trade nature and include the impact of agriculture liberalization on rural employment, etc. The issues require priority attention on part of Tanzania's given the centrality of the agricultural sector in the economy. The principles of progressive liberalization and free markets underpinned by the Uruguay Round Agreement will inevitably favour those countries that have been able to achieve a high level of productivity and con~petitivenessvis a vis those, like Tanzania, that still have a long way to go to achieve such status. Take the case of liberalization of agricultural exports. Such exports from countries countries like Tanzania will face the challenges that include: + Their competitiveness will improve only in relation to the domestic supplies in importing developing countries. They will still have to compete with suppliers in developed countries and newly industrializing countries. + Advantages gained by way of higher market prices may be outweighed by the disadvantages of exchange rate fluctuation. + Price is not the only factor of conipetitiveness. Agricultural exports depend on efficiency and effectiveness of micro-management-over issues such as product quality, adherence to product specifications, delivery schedules, among many others. Infrastructure bottlenecks niay also militate against required efficiencies. By committing to eliminate subsidies, which have an impact on export prices, countries like Tanzania have lost one of the most important instruments for pursuing an export-led growth. However, budgetary constraints in turn. the ability of Tanzania and other developing countries to impose quantitative restrictions for balance of payment purposes is severely curtailed. Tanzania needs to make a scientific analysis of the inipact of the market access aspects: tarrification; tariff reduction; and market access with a view to identifying strategies to make - advantage of the agreement. One priority direction is product diversification to production of non-traditional food products for export. Successful implementation of this strategy depend on creation of awareness and understanding of the issues involved prior to implementation, which can be achieved through accessing technical assistance offered under the Agreements on Technical Barriers to Trade (TBT) and the Sanitary Phytosanitary nieasures (SPS). The tropical fruits and fresh produce is one area where Tanzania possesses comparative advantages and can develop high export potential. However the sub-sector is also affected by TBT and SPS requirements on value added products. Market access for Tanzanian horticultural products into Japan and Europe has become increasingly difficult because of packaging requirements, shelf lifetime requirements, allowable levels of additives and disease free areas requirements. These constraints call be tackled through request for technical assistance provided under the WTO fra~iieworkas well as domestically formulating export product diversification strategies. The liberalization of agriculture sector will have positive impact to other processing and agri industries. The new investment act has proved to be able to attract investors in this area. In 1999 investment in agriculture has cumulatively increased from a sniall figure in 1996. Other sectors that will expand with liberalization of agriculture is textiles and footwear. However, with textiles there trade-offs as all are labour intensive and they can compete for the resource. I11 addition quick import liberalization has made many textile industries that were earlier heavily protected suffer because of failure to compete. However, agriculture being the largest sector in Tanzania will have positive effects on other sectors and good linkages with manufactured sectors and processed goods. But invest~nentneeds to be expanded in these areas including other systemic constraints to be solved. Although agriculture contributes a large share illthe country's GDP, the share of public expenditure to the sector is not high. 7.3.3 Domestic Support Transformation of agriculture in Tanzania requires the positive net-inflow of resources into the sector. Agriculture was highly overtaxed during the 1970s and 80s at the height of trade confinement regime. As shown above its revival is constrained by inadequate public support for productivity growth and little or absence of investment in agribusiness. Transformation of agriculture will require iniplementation of viable agricultural sector development strategy that itself requires investment. There is the need for incorporating WTO trade issues with those of foreign direct investment so that Tanzania could be assisted through support before being required to compete in the world market. Cognizance of the fact that developed countries subsidies heavily their agriculture should be the basis for assisting developing countries so that they can provide domestic support to their agriculture. Public expenditure is an important component of economic policy affecting agriculture. As shown 011 Table 20, the real value of budget allocations to the Ministry of Agriculture and Cooperatives (MAC) since the 1990-91 fiscal budget. Although there is solne fluctuation fro111year to year, the overall pattern is a sharp decline in budgetary support for the MAC (World Bank, 2000). For instance, the real allocation in 1997-98 is about on third the average ai~liualvalue in the I99 1-92 to 1993-94 period. There is some recovery of the agriculture budget in the approved 1998-99 budget and the estimated 1999-2000 budgets. The allocation of the agriculture budget among different spending categories suggests crop and livestock developnient to be the largest item, showing a declining share after 1991-92. The declining share of research and development is especially worrisome for future productivity growth in agriculture, falling from 25-30 percent in the early years to an estimated 12 percent in the 1999-2000 budget. Table 7.1: (million 1998-99 Tsh) Administration 9 13 20 i ! I i 3 . 5 strategic grain ! I I ! Ireserve I I I I Livestock develop. / 33 i I2 1 12 / 12 i 1 I-;-. 13 16 4 15 13 13 : kota~ ; 100 ,100 i 100 / 100 1 100 1100 1 100 100 100 100 1 100 : -, A 1990i91 distribution by sector includes only recurrent expenditure because development expenditure figures are not allocated by sector. Note: Total vote includes recun-entand development expenditure. "Administration" includes policy and planning. "Crop development" includes input trust funds. Totals may differ by 1 pel-cent from 100due to rounding emor. Source: Quoted from World Bank, Agriculture in Tanzania since 1986, Follo~veror Leader. of Gro\vth?, 2000, p 14 Table 7.2: Public L 1 ecurrent To Total Exps Ratio: National . 0.966 0.998 0.782 0.752 0.757 1 apital To Total Exps Ratio: National 1 -0.034 0.002+IgT 0.248 --. 0.243 -; Total Exps Ratio: Apiculture _l_--LOOOP 0.992 , -- .-.-.- -- i0.457 ! 0.737 , 0.354 : apital To Total Exps Ratio: Agriculture i - 1 o . E ! L , 1 I 0.263 .---0.543 0.646 1 Source: URT VOTE BOOKS, Ministry of Finance, 1997-2000. 7.3.4 Trade and Etivirortnrerrt Environnient issues are intimately linked to the sustainability of trade. This fact should not be ignored and Tanzania needs to place efforts in safeguarding its enviroi~ment.However, it is not justified to link these issues at the current level of developnient in promoting or hindering international access. What sl~ouldbe done is to encourage national policies that are environnientally friendly. Tanzania also needs to be assisted in putting the right regulatory frameworks and legal systems conducive to the implementation of WTO issues. So far some progress has been Table 7.3: Private and Social DRCs for Selected Tanzanian Crons sustainable growth. African countries including Tanzania tend to be importers of food, particularly wheat, rice and dairy products. The increase in prices of temperate food product normally imported into Africa implies that the food import bill will increase. The increase is also attributed to other factors such as population growth. As a result of export subsidy reduction, there is a possibility of trade creation as countries get a share of the world market. The value of agricultural exports will rise but the gain from this will be reduced or eliminated by loss of preferences. For Tanzania, the overall impact on trade creation may be negative and import bills high. To overcome this, policies to increase food production and promote export commodity diversification are necessary. 7.5 Impact on Agricultural Commodities - The impact of the Agreement on commodities is largely to be felt in temperate products. It is likely that there will be a reduction in world output of temperate coniniodities as production in some major developed countries fall. The effect is likely to be strong among OECD cou~itrieswhere protection has been substa~itial,namely cereals (wheat, rice, and coarse grains), meat, dairy and sugar. - It is expect that the quantity of temperate commodities sold at subsidized rates at the world market will decline and there will be an increase in import of these products by some developed countries. - The effects on world market supply and demand will tend to push up the world market prices for the products concerned. - There will be a shift in production and trade flows to less subsidizing net importers primarily in developing countries. food. In the context of WTO, the provisions of Article XXIV of GATT 1994 are applicable to bilateral and regional trade agreements and do not prevent the formation of custom union or a free trade area between the territories of the contracting parties. 8.1.2 Production Patter11of tire Regiorral Agricultural Sector Agriculture remains to be the back-born of econon~iesof most African countries and is the prinie vehicle for economic growth. It accounts for about 70 percent of total employment and about 40 percent of total merchandise exports. Although agriculture accounts for only 43 percent of African GDP, one to two-thirds of manufacturing value-added in most African countries is based on agricultural raw materials, and many services are linked to agro- processing. Agriculture in Africa accounts for about 1.1 percent of world GDP and about 1.5 percent of world exports. Analysis undertaken for Sub-Saharan Africa found that agricultural growth was the most important contributor to the growth of manufacturing and services. Agriculture is the major source of raw material for industry, the main purchaser of simple tools (farm implements) and services (farm mechanics, transport), and the farmer are the main consumers of locally produced consulner goods. The analysis suggested that a 1 percent growth in agriculture causes economic growth of 1.5 percent times this amount due to the stimulus to industry, transport and services (Cleaver, 1993). The poor performance of Africa's agricultural and trade sectors, among other factors, inevitably leads to a low pace of industrialization on the continent (ECA, 1999). At EAC level, agriculture contributes about 41.7 percent of the EA countries GDP and employs up to 85 percent of the population. The EA countries depend on export of agricultural commodities for foreign exchange generation. Export markets are widely dispersed depending on the type of crop and marketing arrangements that have been established between trading countries. Industrialized countries provide 46 percent, 82 percent and 39 percent of export destinations for Kenya, Uganda and Tanzania respectively. 8.2 Regional Trade and URAA 8.2.1 Food Securi41 Most African countries are signatories to the declaration on household and national food security that came out of the 1996 Food Summit held at FAO. The commitment is to provide access to food that is at all times qualitatively and quantitatively adequate for a healthy life within the overall context of international trade in food and other comn~odities.To realize that objective, African countries still face a formidable challenge especially in ensuring that agricultural production and distribution systems are competitive and can ward off stiff co~npetitionfroin cheap food imports in an era of trade liberalization and lower tariffs. Infrastructure and market information to integrate national domestic markets spatially and temporally is inadequate, this entails also weak institutional and regulatory environment that removes inipediments to the free flow of agricultural commodities between and within countries. 8.2.3 Policies Addressirig Regional Export Corltrols There is a need for the country to remove laws especially local govemnient laws and regulations that hinder cross border trade. Some re~noteborder areas can benefit more with legal trade across borders in the region. Given the high transport costs and other iiifrastructural problems, it is better to have across the border trade rather than the movement of products especially food to the large towns. But for this to happen export controls have to be removed. 8.2.4 Regional or Inter~tutionulPolicies to Address Cltaitges in Market Conditions World market conditions have undergone significant changes on one hand due to technological innovations and on the other due to the move towards free international trade. Also, it is evident that the world economy has, especially in the recent past, witnessed regionalization of the world economy in view of forming more free trade areas aniong the member countries. Such trends bring about inconsistency of trade policies aniong different regional groups. This implies that African countries. individually and as members of sub- regional and regional groupings such as the Cornrnon Market for Eastern and Southern Africa (COMESA), Southern Africa Developn~entCooperation (SADC), the Economic Community of West African States (ECOWAS), need to forniulate national agricultural and trade policies in relation to policies of other regional groupings such as the Common Agricultural Policy of the European Union. among others. The policies should ensure that the interests of agriculture are adequately represented in all international negotiations. 8.2.3 Preferetrtial Access und ED' Preferences have been used as policy instrument to encourage trade between LDCs and the developed countries through the Generalized Scheme of Preferences (GSP) on one hand, and among developing countries through the Generalized Scheme of trade Preferences (GSTP) on tlie other. They are also the principal instrument in trade development in regional economic integration schemes such as SADC, COMESA, SACU, ECOWAS, NAFTA, EU, etc. Preferences nornially take the form of lower tariffs than MFN rates with the intention to increase trade and stiniulate econonlic growth. Preferences are also extended on a bilateral basis between different economic groupings as in the case of EU and ACP through the application of lower tariffs or non-quota units. Benefits of preference include access to markets, which would have bee11 difficult to penetrate under nornlal trade circumstances. Market access opportunities eiicourage investment leading to better resource allocation, technology transfer, employment creation, and income generation. Tanzania has a wide choice of access to trade preferences in the multilateral and regional trading arrangenients in which the country participates. Many opportunities have risen from membership in the MTS as an LDC hence eligibility for preferential treatment in trading relations with developed countries and technical assistance to facilitate effective participation in internatio~ialtrade. Specific opportunities include those fro111 EUJACP schemes, AGOA and others. Other opportunities emanate from participation in regional arrangements such as SADC and EAC. However, the country has not benefited niuch from these preferences especially with respect to driving towards export developnient. For instance, under the Lome Convention, Tanzania receives the full range of aid niade available to ACP countries by the European Union,. As a result, niany Tanzanian exports to tlie EU are exenipt froni iniport duties. Likewise, Tanzania's goods er~joynon-reciprocal preferential access to the markets of other developed countries through the Generalized System of Preferences. However, due to Tanzania's limited export capacity, the benefits that Tanzania reaps froni these preferential arrangements are minimal. 8.2.4 Loss of Preferer~tialTrudirlgAgreerlrerlts The commitments made towards greater liberalization of world trade and trade in agricultural products will have an impact on developing countries with regard to the level of preferences they will enjoy. The reduction in rates of an MFN basis will lead to a fall in value of preferences. The liberalized global trade implies loss in margin of preferences and thus an increase in competitiveness. The importance of the MFN rates is that their level deternines the size of benefits from a preference. The lower the MFlV tariff rate, the less the preference is worth. Since global liberalization lowers the MFN rate, it inlplies that over time, the preferences granted to Tanzania are worthless. The implication of the erosion of preferential margin makes the export impact of the Agreement less clear. Erosion could lead to a fall in export conlpetitiveness and in market share. There is in overall a likelihood of losses of export market share for some developing countries. 8.2.5 Zrtzpact of the Agreemertt on Regio~zulism Regional Trade Arrangements are not new plienomena in international scene. However, in most of these arrangements, agricultural policy has not been fully integrated. a) The impact of the Agreement on Agriculture on Regionalism stems from the fact that regional arrangements will have to integrate agricultural policy in their agenda. b) In general, the loss of preferential trading agreements will stitnulate the growth of regional groupings. c) Further, the process of liberalizatio~iindicates that agricultural policies in many developing countries are becoming closer. The commitments provided in the Agreement will provide the basis from which greater coherence could develop with respect to both trade policy via tariffication and tariff reduction. 8.3 Regional trade and WTO 2000 Issues 8.3.1 Net Food lr~zportirrgCourttries For net importing countries such as Tanzania, regional trade issues and WTO are basically those of increasing productivity of this important sector through joint regional efforts such as research and technological innovations. The regional grouping in Eastern and Southern Africa have all shown that they are interested to conduct joint research since the climate and other agriculture condition are nearly the same. Joint research will reduce duplication of efforts and scarce resources wliile sharing of knowledge and expertise. This will eventually increase productivity for the region thus increases production for regional use and for exports. The regional efforts can thus be utilized as a stepping-stone towards WTO compliance and also for easier bargaining for market access in the more developed market. Regional grouping can also assist in increasing regional trade by reducing or eliminating intra-regional barriers, and then through inlprovelneiit in quality of goods Inore access to Enterprises, urban farmers, urban non-farmers, rural farmers, rural non-farmers, government, rest of the world and the savings-investment account. 8.5 Modeling Approach We have basically used a Con~putablegeneral equilibrium (CGE) modeling approach using General algebraic modeling system (GAMS) program (a la Sherman Robinson, Hans Lofgren and Peter ~ o b s t ) . ' The structure is trade focused and adjusted to accommodate the policy sin~ulations. The Tanzania CGE model follows the neoclassical specification of general equilibrium models. Markets for goods and factors and foreign exchange are assumed to respond to changing demand and supply conditions, which in turn are affected by government policies, the external environment and other exogenous influences. The model is Walrasian in that it deternlines only relative prices and other endogenous variables in the real sphere of the economy (monetary factors are not considered, such as interest rates). Sectoral product prices factor prices are detern~inedrelative to Consumer Price Index (CPI) which serves as the r~umeraire.There are four blocks of equations in the model, for price, production, institutions and system constraints. The price block defines the don~esticprice of imports as the world price times the exchange rate adjusted for tariffs. The price of exports is also world prices times exchange rate of exports adjusted by subsidylexport taxes. The two prices of imports and exports follows the "small country" assun~ptionand are given in domestic currency and thus the exogeneity of foreign currency import and export prices. The Absorption price for each comniodity is also defined in the price block, and is expressed as the sum of spending on domestic output and imports, including an upward adjustment for sales tax. The composite price is paid by domestic demanders (households, the government, producers, and investors). Domestic output value at producer prices is divided between export value and domestic output sold domestically. This equation reflects CET and that it is linearly homogeneous. Activity Price is the sum of producer prices of different cominodities and the yield of output of commodities per activities. Value added price is the price of activities times the input cost per activity unit. In thc production and coinmodity block, the production technology is presented by a set of CES (constant elasticity of substitution), CET (constant elasticity of transformation) and linear expenditure functions. The activity production function is defined by CES technology. Factor deinand is a CES function of wage distortion factor for factors - land, capital and five types of labor (urban professional, urban white collar, urban blue collar, urban unskilled and rural labor). Intermediate demand is fixed as a share of level of activities. Output is a function of yield of activity tinlcs its level. Export-domestic supply ratio for commodities is a CET function while iniport-domestic demand ratio for coinmodities is a CES function. The Armington assumption is used for aggregating domestic demand and import demand. The model allows for product differentiation between import and doinestically produced goods in deinand and between exports and doincstically consumed goods and this permits two-way trade. This assumption is realistic in the case of Tanzania as we find that imported and domestically produced goods are not perfect substitutes horizontal as well as vertical differentiation exists. 1 appreciate the CGE course at Bunda Malawi offered by lnternat~onalFood Research lnst~tute(IFPRI ) and the model used was developed and estimated while there. However the differentiation will vary from sector to sector and different levels of elasticities of substitutions and transforniation represent this across sectors. Tlie institution block deterniines transfer of income from factors to institutions, which is defined as the share to institutions and factors and factor income and transfers from rest of the world. Transfers are also determined as well as household demand and expenditure, investment demand, government revenue and expenditure and government saving which is just the difference between government revenue and expenditure (fiscal balance). Household consumption demand is based on LES utility function with constant expenditure shares. Household and enterprise savings are specified to be in fixed proportion to after tax income. The system constraint block specify four macroeconomic balances, the external balance (current account), factor demand and supply balance, commodity supply and demand balance, the neoclassical macroeconon~icclosure that total investment is determined by total savings. In addition in the system block we have the price normalization equation (t~~ltneruire). Based on the small country assumption (price taker), domestic prices of imports and exports are expressed in terms of the exchange rate and their foreign prices, as well as the trade taxes foreign transfers. The tariff rate on imports tax rate represents the import duty collected divided by total imports. In the Tanzania data there is no subsidy given although the specification in equations is made to allow for policy experimentation. The different macro and iiiicro closures are used in the model. Savings-driven investment, which implies flexible investment adjustment factor, fixed foreign savings therefore flexible exchange rate, fixed direct tax rates for iiistitutions and factors. Further, all factors are fully employed, available in fixed supplies and mobile in each market so the average wage rate is the clearing variable. We assume that producers maximize profits subject to specified production functions with primary factors as arguments while households maximize utility subject to budget constraint. 8.5.1 Horv tlte ifidel Works This model as with other CGE models recognizes that an exogenous change (in policy or from soiiie other source, such as world market) that has an impact on any one part of the economy can give rise to consequences throughout the system, direct and indirect effects. The model satisfies Walras' law in that the set of commodity market equilibrium condition is functionally dependent. We drop the equilibrium condition for one variable using the closure rules. The model is homogeneous of degree zero in prices to assure that only one solution exists. A price normalization equation in our case consumer price index (CPI), has been added-equal number of endogenous variables and independent equations. Given that we have the nunzeraire, all simulated price changes can be directly interpreted as changes vis-a vis the CPI. 8.5.2 Lintitutiu~lsof tlte study There are few limitations that we encountered when using the model for our particular objective. First the model is static and therefore it does not have some attractive qualities present in dynamic models. It is thus difficult to see the effect of tlie policy changes in some Table 8.1: CCE Model Si~nulationResults based on Tariff Cut (TC) 50% and Exchange Rate Chan e 20% --L~iiir-r s 1 ~ 1 - 7 - 7 - i - _ Real absorpt~on 1937.7 I I -13.9 ; 1 Real Investment 1 419.5 1 -+ - _ - I - - Real governmentconsuinption , 331.6 I I i Real household consuinption : 11~86.6 t.- -9 -22.8 1 -- -- - -- -. - - . - ~ - ! pp - ~ Total real exports 165.7 , 2.1 2.5 41.6 123.4 Total real imports -- Real exchange rate Nominal exchange rate~. 100 1.l -'~~ ~ 7 0 . 2 I i 20 - - ~-.- 1 Domestic price index I 100 0.2 4.1 Tariff rate 5 2.5 i 2.5 1 ..~ ! - . 4.9 _..A1 - ~.: ---__ ~ Percentageof nominal GDP 1 nvestment 27.1 i -0.1 ! -0.1 3.5 1 3.2 . _ -- - -- ..- ..- -- - - - . - - . 4 .-+ Private savings : 0.2 I 0.1 i 0.2 -- .' - . - Foreign savings 10.2 -5.8 Trade deficit 26.5 .-~I- , -0.4 1 -3.2 _ . -_ . - -0.4 _ .i--~- I - . .- -O!_-i.-- ~~~ Government savings L. .iL! -0.7 1 -~ -~ 0.5 -.____-- Tariff revenue 1 1.5 -0.7-+- -0.7 1 , 0.1 I I - -- 53--0 - + PA- D~recttax revenue -- - A- . 2 _ 7 - - o r - -- -- ](a) When tariff was cut by 50 percent with activity-specific total export increased by 2.1 percent. Total imports increased marginally by 0.6 percent. Real exchange rate depreciated by 0.9 percent. Trade deficit improved by 0.4 while prices increased by 0.2 percent. Goveinnleiit savings as percentage of GDP widened by 0.7, tariff revenue decreased by 0.7 while foreign savings as percentage of GDP increased by 0.2. The decrease in tariffs had some effects on tlie micro variables, thus housel~oldconsumption increased in total but for different household we observed different effects. For urban farmers consumption decreased, urban noii-farniers it increased while rural fanners consuniption decreased and rural non-farniers it increased. The cut in tariff had no much effect in the factor income except for rural labor that decreased marginally by 0.1 percent while capital gained by 0.1 percent. Light nianufacturing increased by 0.3 percent and services increased by 0.1 percent. Prices of activities had different effects, agricultural export prices increased by 0.3 percent, light manufacturing and services by 0.6 percent respectively, while heavy manufacturing price decreased by 0.2 percent. l(b). In comparison with the above results with the case of mobile capital we found that all tlie variables explained above move at the same direction but the changes are smaller except for total export and imports. Real exchange rate depreciated by 0.8 percent, while foreign savings increased marginally. Total household consumption increased, activity output and price increased while factor income had a marginal change. This might be explained by the fact that tradable sectors are more profitable after tariff cut so more investments might move to production of tradable goods. 2(a) A sinlulation with an increase in the exchange rate by 20 percent with activity-specific we found that total export increased by 41.6 percent. Total imports decreased 5.6 percent. Real exchange rate depreciated by 15.2percent. Trade deficit decreased by 3.2. Government savings as percentage of GDP decreased by 0.4, tariff revenue increased by 0.1 while foreign savings as percentage of GDP decreased by 5.8. With micro variables, we observed different effects. For urban farniers consumption decreased, urban non-farmers increased, while rural fanners consumption decreased and rural non-farmers increased. The cut in tariff had a greater effect on rural labor and a low effect on land, which decreased by 6.6 and 0.4 percent respectively. Prices of activities had different effects, agricultural export prices increased by 5.3 percent, light manufacturing increased by 15.5 percent, services increased 12.2 percent, while heavy manufacturing price increased by 15.1 percent. 2(b) In the exchange rate depreciation with mobile factors, we found that absorption changed more by 13.9 percent, consumption decreased by more by 22.8 percent compared with the case of fixed factors. Total real export increased more by 123.4 percent, imports decreased by 6.6 percent while real exchange rate depreciated by 16.8 percent. Trade deficit improved by 13.8, while foreign savings decreased by 16.4points. Household consunlption in different sectors changed much more, For urban farmers coiisu~nptiondecreased by 39.4 percent, urban non-farmers increased by 10.3 percent while rural farnlers consumption decreased much inore by 32.1 percent and rural non-farmers decreased by 10.1 percent. The simulation effects are dramatized more when there is factor mobility as compared to the case where factors are fixed. This is important because it shows that when factors are not mobile policy changes will not produce the expected effects and this is the problem for many developing countries such as Tanzania that have structural rigidities that and lack of skills for its majority of workforce, and in addition lack of investible resources and underdeveloped financial internlediaries thus factors do not move freely. The four simulations produced larger effects 011 the trade variables as coinpared to macro variables such as GDP, govenilnent savings etc. The closures applied have large influence on the kind of results obtained. Table 8.2: Simulation Results: Micro and Activity Prices / Base 1 SIMl SlM2 1 SlM3 1 SIM4 1 -- 1 -- -- ------Disaggregated real household consumption- - - - 1 Household urban farmers 1 165.3 1 -0.3 -0.2 -181-3F4-- Household non urban farmers 1 260.6 0.5 0.5 11.4 10.3 k - -- - ---.-. -- -- Household rural fanners -.- 705.1 -0.2 -0.1 ---. I -15.2 -32.1 i Household rural non fanners 55.5 0.2 0.1 0.9 1 -10.1 --i Total household consulnption I 1 186.6 1 -.t-- -- ____-___A -22.8 I Disaggregated factor income distribution - i Urban professionals 8.1 1 T - - F T . m Urban white color - --- -- - Urban blue color I Urban unskilled : 3.9 0.5 0.5 I 1 - 1 Rural 35.6 ' -0.1 -0.1 -6.6 -6.3 Land 2 8 -0.4 -0.2 - . . . - . - L ' - - - - - - ~ . . ; ~ Capital 36.9 0.1 4.1 3.7 Total factor income 100 i -- -- . - . ~ Disaggregated activity production levels 'Agricultural-exports 75.71 1.8 2.1 61.91 242.2; ----- -- .-- - - . - - - - -~~-- ..- - .-- - ~ Agricultural food 33- -0.2 -0.3' -6.2j -2 1.3' -- ~- Other agricultural i 471.81 -2.9! -12 9. C 4--- , Mining 60 1 -0.4 -0.6 I 3.5 I Non agricultural food processing 401.2 -0.2 -0.2 -4.7 1 -18.5 ' ---- .~~ I - - - ~ - ~- _.____.-I ~ Non agl.icultural light 227.7 0.3 0.7 3.9 17.3 manufacturing +-__ ---_ - . Non agricultural heavy industries 360 ---0.4 -0.6 - 2 3.5 - .- 1 Non agricultural services 1097.6 0.1 0.1 , 0.6 i 1.6 1 -- ---, . -- - . - -. --< - ~ Total production 3032.4 0.6 1 1.7 L .~Disaggregated activity prices ~ Agricultural exports I ioOTT3 0.1 5.3 -1.1 I Agricultural food 100 i 0.2 -11.3 -9.4 ~- L - . + Other agricultural - / 100 0.1 0.2 -8.1 1 -6.4 Mining 0.4 13.7 11.5 I ~---- Non agricultural food processing ! 100 0.2 -0.8 1 0.5 1, -- --.- --.---. - .. - - - -- -- -- - - -. .-- - -- -i Non agricultural heavy industries i 100 0.6 0.1 15.5 ___ 9.5 -- + Non arrricultural heavv industries / . 100 -0.2 1 1 5 . 1 1 12.5 : u I 8 Non agricultural services : 100 1 0.6 0.3 ' 12.2 1 10.2 1 .- ~.- ~-p~-2 ~ Key: SIM 1 tariff cut with activity-specific capital SIM2 tariff cut with lnobile capital SIM3 increase in exchange rate with activity-specific capital S1M4 increase in exchange rate with lnobile capital From the niodel we can conclude that cutting down of tariffs by Tanzania will have positive results to the activity levels of agricultural exports, but negative results to agricultural food. The houseliold income of rural fanners will go down but those of rural non-farmers will go up. The same effects in the level of direction is obtained using exchange rate devaluation but the levels of changes are much more dramatic. Devaluing of the Tanzanian shilling increase the exports by 61.9% with no factor mobility and by 242.2% with factor mobility. Agriculture food decreases by 6.2% with no factor inability and by 21.3% with factor mobility. This indicates that with Uruguay Round Tanzania does not gain or lose very niuch in the agriculture sector by cutting down tariff. However, if Tanzania devalue exports increases thus there is the need for accessing other markets thus other countries that Tanzania export to will have to also open their markets in order for Tanzania to reap some benefits from liberalizing of its trade. On the other hand in temis of food security, opening up threatens food security as shown from the CGE results. It is evident therefore that with trade liberalization as a result of Uruguay Round Agreement, Tanzania can have some benefits as tariff are reduced both domestic tariffs, thus agriculture exports increased and when other countries who Tanzania trade with cut down their tariffs thus increasing market access - a sort of trade creation. However, tlie increased exports will be at the expense of diminishing levels of agricultural food and this is expected as we have assumed that resources are full eniployed so a kind of substitution in production must take place. In addition, we also expect that factor nobility in Tanzania is limited thus the positive benefits expected froni more flexibility in factor utilization as they move from one sector to another are limited. This point then to the issues of supply constraints facing Tanzania that needs to be addressed to if we expect more positive results froni Uruguay Round Agreement in agriculture. 9.0 CONCLUSlON i Despite the fact that agriculture is the livelihood of most people in the country and of the economy in general, the sector is still underdeveloped and backward. The critical contributing factors for this have been identified largely as internal and external natural and man-made related factors. The major conteinporary challenges facing Tanzania therefore include poverty alleviation, assurance of food security and eradication of n~alnutrition,as well as the protection of the environment. These cannot be realized without raising agricultural productivity, which is the biggest challenge. To raise productivity in agriculture there is need to move from the current traditional and subs~stencefarnling methods to modem and conimercial ones through - transfomlation. Since transformation is not very easy especially for resource scarce country like Tanzania, there is need for assistance using the available internationally based resources. In the same token much needs to be done by the producers, the government and other stakeholders in temls of commitnient, the development of a systematic approach, public awareness and international co-operation in all aspects dealing with agricultural developnient. At the same time, it is also imperative to encourage full support and involvement of s~iiallholderfarmers, who have been and will continue to be the main agricultural producers for quite a longer period in tlie agricultural development policy issues. The WTO Agreement on Agriculture has many aspects that are of benefit to least developing countries such as Tanzania. For instance, the Agreement does not ban any specific production policy even those that have trade distorting effects. In content and spirit, the Agreement demands that the trade-distorting policies be reduced and avoided in tlie long run. The Agreement and Country Coninlitments are legal binding and WTO ~ileniberstates are obliged to iniplement the con~mitments.The Agreement further extends support to least developing countries that face difficulties in complying with the conin~itmentsof the Agree~iient. The issues of food security are of utmost iniportance when considering the i~nplenlentationof the Agreenient so that freer trade in agricultural co~nmoditieswill not impinge on food security. Careful analysis therefore is necessary in order to safeguard the welfare of the people in these developing countries and that for those countries that are net food importers are not disadvantaged. These issues need to be built in the new negotiations. Special and Differential Treatment is still valid for many developing countries such as Tanzania given the level and constraints of its agricultural sector. Special and Differential Treatment is important if the LDC's will be able to participate in the WTO agreement in agriculture and these issues should be taken squarely in the new round of negotiations including capacity building. Standards and technical barriers are still a problem to market access for Tanzania's export of agricultural commodities. These issues need to be dealt with squarely in the next negotiations so that they do not become non tariff barriers to trade and hinder sinooth flow of goods in the international market especially goods originating from developing countries such as Tanzania. At the same time assistance need to be availed for these countries to be able to reach the required standard, while using the safeguard measures when dumping and other distortions are indicated. Regional cooperation can also be used to assist the member countries to reach a common agreed standard and this may act as a stepping-stone toward international trade. Participation in international meetings - It is important for Tanzania, and for all the other developing countries to participate effectively in sessions held by the three standardization bodies, i.e. Codex, OIE, IPPC and in the WTO - SPS committee session. For Tanzania, it is apparent that the Agreement on Agriculture will have significant impacts at various levels. Of i~ilportanceis the food security issue, rising import bills and potential loss of market share in the face of loss in preferential margins. It is thus prudent for Tanzania to come up with domestic policies that address these issue. Such policies niust comply in content and spirit with the Agreement on Agriculture. It is also critical for Tanzania to formulate policies on a product-by-product basis taking into account that temperate products will experience more impact than tropical products. Tanzania should also improve her supply side response to any new market that may be created as a result of developed country reduction in donlestic support policies and export subsidy. Tanzania is of the view that the WTO Agreement would make the global trading system inore transparent and would provide a substantial improvement in the nlarket access opportunities for least developed countries. The new rules for international trade could be useful if the special and differential rules provided in the various decisions and measures in favor of least developed countries were fully implemented. In this regard, Tanzania is faced with various challenges such as a review of its legislation to make it consistent with WTO comn~itnientsand the notification process which is a heavy burden, all of which requires enhancement of institutional and human resource capacities in trade-related information inaiiagenlent. Improvement of Tanzania's exports and of its share in global trade has been the major focus of Tanzania's trade policy. Some specific promotion measures, which were being applied included trade infomiation, export incentives, duty drawback schemes, trade facilitation for documents and procedures for siniplification. as well as trade fair pal-ticipation. The central challenge of the new negotiations is to ensure that issues of development are addressed seriously. With developnlent in mind, agriculture, which is still the backbone of the economies of many developing countries, can be assisted to develop and thereby offer a sustained rise in income of these countries and even niore prospects for econoinic growth and poverty eradication. There should therefore exist a certain degree of flexibility to acconimodate constraints faced by the least developed countries such as Tanzania. The following needs for technical cooperation had been identified. Needs related to solving the supply capacity constraints, including building capacities for enhanced productivity, product development and diversification through improved research activities; development of infrastructure linking production areas with export outlets; and provision of reliable energy for industrial production; partnership in upgrading telecom~nunicationsystems and other infrastructural systems. Needs related to policy for~nulationand iniplementation, including strengthening the private sector, particularly human resource and iilstitutions, as well as ministerial departments to enable then1 to become active in trade policy formulation, review and implementation; review of the regulatory system to align it with WTO rules and increasing the awareness of the public of the WTO Agreements. Resources and technical assistance are needed to establish efficient information systeiils to identify market access constraints in the area of finance and credit facilities and to facilitate market development and adaptation programmes; studies in product design, quality packaging and standardization. Furthermore, assistance is needed for the rationalization and inlprovement of the efficiency of trade support service institutions. Tanzania has established Business Council and an Investment centre as a one- stop shop organization for the purpose of facilitating new and current investments. Assistance is needed for liuman resource development, including training of public and private personnel in market research, training of customs and other staff involved in trade efficiency and in the use of different inforn~ationand training of the private sector exporters and institutions, in particular the small to medium enterprises, to enable them to strengthen their role using the opportunities of trade liberalization. Domestic measures that could be taken by Tanzania to support their own agriculture include the following : To improve agricultural infrastructure in order to reduce costs of production and transportation and hence improve farnl productivity To use their best endeavor to make farnl inputs affordable to most farmers and also to make agricultural credit accessible and affordable to the farmers. To take deliberate steps to support processing of agricultural products in order to increase "value added" on our agricultural exports so as to improve farmers income and increase employnient opportunities for Tanzania. To seriously exploit areas in which Tanzania has conlparative advantage over other countries. These include forest products marine products. m Altl~oughtlie spirit of WTO Agreement on Agriculture is to promote fair and free trade, Tanzania iilust take measures to ensure that they do not become victims of unfair competition including dumping. Such measures could include the following: Vigilant watches 011imports brought into these countries to make sure that 110loopholes are being exploited to carry out unfair competition or dumping. To apply whatever restrictions or exceptions those that are allowed under the WTO agreement to protect Tanzania's interest. To ensure that future rounds of WTO negotiations address tlie need for greater access to existing and new markets in the EU and other global markets Tanzania should take the initiative to influence the course of events in the rounds of negotiations under tlie WTO agreement and also take keen interest in the planned time table of WTO events and make adequate preparations including research, consultations and lobbying in order to make a strong case and get support for our position. One of the pending obligations facing most LDCs, including Tanzania, is the need to enact new laws designed to align domestic legislation to the WTO agreements. Other measures involve the setting up of new institutions and restructuring of old ones to fulfill new tasks. These requirements impose relatively heavy demands on Tanzania, where there is a dearth of specialized legal and administrative skills. APPENDEX: PARAMETERS OF THE MODEL 1 PARAMETERS - ad, efficiency parameter in the C-D prod function adcesa - efficiency parameter in the CES prod function - ala - share of value-added to factor f - - aqc Armington function shift parameter ate - CET function shift parameter - marginal sliare of household consuniption spending P c h CWtS, - weight of coininodity in tlie CPI - hala CES production function share parameter - hqc Armington function sliare parameter - tc CET function sliare parameter - per-capita subsistence consumption Sch leaca - inteniiediate input per unit of activity pdwts, - weight of con~modityin tlie PDI - pwec export price(foreign currency) - pwmc - import price(foreign currency) rhoa, - CES production function exponent - rhoqc Armington function exponent for conimodity c - rhot, - CET function exponent - shrtri.ip - houseliold share in distributed enterprise income shryir - - ente~prisesliare in factor income ta , - enterprise rate tee - export tax rate - 02, per unit enterprise output yield - qgr governnieiit coniniodity deniand base-year investment denland iniport tariff rate rate of sales tax - - 1 - -PA--- MODEL EQUATIONS Priceblock I . Phf. = (I +tnt.) . EXR . pwrq import price 2. PE<, = (I r e ) . EXR . pwg. export price 3 PQc . QQc=( P D c - QD, + (PMc . Q M C ) ) (l+fG".) absorption for colnlnodity 4 . P X c . Q X ( = PD' . QQ + (PE<. . QL') output value for conimodity 5.PA, = Z P X , . 0(,<. <.C price for activity 6. PVA ,, = PA ..(I - .)- ta C PQ ;ica ,, ,il value-added price for activity a Productiorz urzd cornntodityblock - I CES production function -I WF, - -:doafl WWFDIST,o = PVA, . ndces (h,p,, . QF/!J ).llo~.- 1 + 8. fi,tF factor demand 9 . Q I N T r , ,= i c ~ l ~ '., QA , intermediate demand U t A output of commodity -I 1 1 QQ. = aqc. ,lqc- QM;'"''"~ + (1 -delioq' ).(QD~'"'* )G composite supply (Amiington) function import-domestic demand ratio 13. QQc = QD,. coniposite supply for non-imported co~nmodities output transformation (CET) function export-domestic supply ratio 16. Q,Y< = QDc output traiisforiiiation for non-exported commodities Institution block 17.Y<0, = . ( 1 - TY,) . C W F , . WFDIST, . QF,, " C 4 , -E R Y !I-bar,,,,, factor income - 18 .TR ,,I ,I,,<- shr-tr-,', ,d,,, . (1 - MPS ,',,,l: . (1 - TY,I,,,. YI - EXR . tr-bar- ,,,,, ,,,,,L: transfer from doniestic non-government institution to domestic institution CYF+ X T ~+tvbay +EXRtrbay,, lo Yt = !f ,idt1g ,gap income of doniestic non-government institution 20. EH, =(I- Cshrt&.,) (1 -MPS) (1-TK).Y/,-EXR. trbay,,,:, ilil consumption expenditures for household 21. PQc. QH, = PQL-.'ol.tswere subject to thc sales tax. Table 4. Market Share for Ghana's Major Trading Partners for Selected Agricultural Exports. Country Percent 1992 1995 1998 European Union 43.430 57.46 75.7 of which: Belgium France Italy Germany, F Netherlands Spain United Kingdom United States Japan Russia 1.180 5.01 2.59 -- Notes. This table provides data for 16 HS com~noditycodes at the 8 digit level. They account for about 80% of the total agricultural exports. 1. A major trading partner is a country that receives at least 3% of the total value of the selected exports. Source: Ghana Statistical Services External Trade Statistics various issues, Accra Table 5. EU share of selected agricultural exports 1995, 1997, 1998 (%) colate & other food Source: Calculated from Ghana Statistical Services data files. is tlie major destination for most agricultural exports (Table 4). The share of agriculture exports going to the European Union has increased in the 1990s and is estimated at 75% in 1998. For some commodities the EU accounts for more than 90% of what is exported (Table 5). This suggests that for Ghana developments in the EU agriculture and trade policies are of critical importance. The trend in cocoa export volun~eshas been upward since 1995 (Table 6). Cocoa prices paid for Ghana's cocoa rose until 1999 when they declined. The effect was therefore for cocoa export earnings to rise until 1999 when they recorded a decline. The export volumes of pineapples, yam, bananas and plantains were higher in 1999 than in 1995. However in the instance of pineapple exports, these peaked in 1996. Volumes have declined since then although they remain higher than levels recorded in 1995 (Table 6). Table 6. Trends in Export Volunles of Selected Agricultural Products 1995 1996 1997 1998 1999 Cocoa Beans 237.2 349.0 261.25 327.32 346.76 Cocoa Products 13.86 43.38 53.26 48.38 35.32 Pineapple 15.7 27.6 25.12 24.8 23.44 Yani 6.86 8.08 7.01 7.42 9.76 I I I Source: Ghana Export Promotion Council and Bank of Ghana. Table 7. Market Share of Ghana's Major Trading Partners for Selected Agriculture Imports Country 1992 1995 1998 European Union 16.892 25.92 24.6 of which: Belgium 4.4 17 1.63 3.36 Germany, F. 2.501 2.1 1 2.30 Netherlands 3.298 5.23 7.12 France 4.224 5.34 2.61 United Kingdom 1.071 8.12 4.78 United States 22.320 21.50 22.77 Canada 3.741 9.03 15.87 Pakistan 9.908 Thailand 10.906 13.08 1.53 Vietnam 10.320 3.97 4.23 China 7.829 Notes. This table provides data for 20 HS commodity codes at the 4 digit level. They account for about 90% of the total agricultural imports. 1. A major trading partner is a country that receives at least 3% of the total value of the selected exports. Source: Ghana Statistical Services External Trade Statistics various issues, Accra The European Union emerges as a major source of imports. However it does not dominate the direction of import trade as it does the direction of export trade. On the basis of selected imports that account for at least 80% of Ghana's agricultural imports in 1992, imports from the European Union account for about 17% (Table 7). The share of imports originating from the European Union is estimated at about a quarter in 1998. The USA and Canada are major sources of agricultural impoi-ts. This is largely because wheat imports are sourced from these countries. Wheat imports accounted for over a fifth Table 8. Developments in the Structure of Exports and Imports since 1995 - HS lSelected Imports 1995 1998 - Milk arid Cream, not concentrated or sweetened- -------. 0.1 12 0.153 Milk and cream concentrated or swectencd ----- 2.662 7.869 Maize 0.984 0.879 14.404 Whcat or meslin flour Rice I -0.135 - - - ~ Wheat or incslin 21.250 28.935 Soya bean oil and its fractions 0.738 0.921 -- - Palm oil and itsfractions 0.329 3.308 -- I- (Cane or beet sugar and chemically pure sucrose 1 18.296 1 18.7001 -Other sugars in solid form 0.161 0.295 --- - Coffee; coffee husks and skins 0.033 0.037- Ten 1 197 Cereal Grains otherwise worked 0.373 / 0.620 3.88 1 4.332 Margarine Malt extract Toinatoes prepared or prcserved otherwise than 1.527 1.804 Winc or fresh grapes(lnc1. Fortified 1.146 I .33 1 Ethyl alcohol undernat~lratedof Breadgastry. cakes c ~ o m m u n i o nwafers - 1Selected Exports 1 Roots and tubers with high starch kn- - 1.863 1 0.687 Bananas ---includingplantains,frcshordried 0.430 Dates, figs, pineapples.. .etc. fresh or dried 1.382 --- M e l o n s and pawpaws, freshp- 0.036 0.112 Coco~iuts 0.152 0.850 pz?fee, coffee husks and skins 1 1.726 1.082 Pepper of thc Genus ofpiper... 0.0% 0.139 Cocoa beans. wholc or broken 51.840 68.260 Source: Estimated on the basis of data obtained froin data files of Ghana Statistical Services of agricultural imports. The East Asian countries also emerge as major agricultural exporters to Ghana. This again can be explained largely by the structure of imports. Rice inlports made up about 15% of agricultural imports (Table 8). There is a fair degree of concentration in the structure of Ghana's agricultural imports. Rice, wheat and sugar account for just over half the agricultural imports. They accounted for 55.9% of total imports in 1995. Their share rose to 62% of the imports in 1998 (Table 8). The value of rice inlports have declined between 1995 and 1998 and rose quite substantially in 1999. The value of wheat imports on the other hand rose continuously between 1995 and 1998, declining in 1999. Unlike rice where there is some domestic production, there is no domestic production of wheat and sugar. IV. The Trade Regime In Agriculture Before the Uruguay Round. A. Border Protection -tariffs and non-tariff barriers. The economic reform package in April 1983 aimed at reversing the decline in the economy and begail a process of liberalisation that has pervaded all sectors of the economy. Iirrport Tariffs aird otlrerI~rrportRestrictions In 1990 there were five tariff lines, i.e. 0%, lo%, 1596, 20% and 25%. Sales taxes were imposed on imported items in addition to inlport duties. In 1990 there were four sales tax lines, i.e. 0%, lo%, 22.5% and 35%. A super sales tax ranging from 75%-500% on luxury goods was introduced in that year. The super sales tax of 500% was imposed on imports of edible fruits and nuts (HS code 8) and some fruit preparations (HS code 200819 to 200990). A rate of 200% was Imposed on alcoholic drinks (HS code 2204- 2208) and caviar. Vegetable preparations, i.e. HS code 2001-2007, some ~niscellaneous edible preparatioils under HS code 21, margarine, cheese and butter were subject to the 100% super sales tax. The import tariff regime was restructured in 1994 to 0%, 10% and 25%. Items that had tariff rates of 20% had their rates increased to 25%. A zero tariff rate applied to imports of seeds, some inputs and baby food. Raw materials for domestic industry had a 10% tariff rate and the 25% tariff rate applied to agricultural consumer goods. The inlport licensing system was dismantled in 1989. Except for a limited number of items on a negative list, all iteins could be imported without prior approval. B. Export Regimes Esport Taxes and Otller Esport Restrictions With the exceptioil of cocoa, there were no export taxes on agricultural products. The cocoa tax is what remains after farmers have received the producer price and the marketing costs of the Cocoa Board have been deducted. Restrictions on the export of cotton and palm oil and on the import of palm oil were removed. Export Prortzotion A package of incentives was introduced in 1983 to encourage non-traditional exports3. The package included a customs duty drawback scheme, income tax rebate scheme and retention of foreign exchange earnings for non-traditional exports. Export subsidies were withdrawn in 1983. C. Domestic Agricultural Policies At the start of the reforms in 1983 the economy suffered two shocks. The first was the drought and bush fires that adversely impacted agriculture and the second was the return of approximately a million Ghanaian emigrants from Nigeria. The effect was to increase tremendously the demand for food. The focus of the agriculture policy in 1984-1986 was to increase the production of food crops through an increased supply of inputs. In the following period the focus of policy shifted towards self-sufficiency in food crops, industrial raw materials and animal products. Other objectives during this period were increasing the production of export crops, reducing post-harvest losses, improving credit and market facilities and the research stations, and maintaining buffer stocks for price stabilisation and security. The emphasis of the agriculture strategy during the period of reforms was on privatisation. It was considered that privatisation of the supply of inputs would increase their availability and the expected increase in competition would reduce the price to farmers. The liberalisation of the food marketing system was expected to result in h~gher prices being offered farmers compared to what Government could offer. Another reason given for the privatisation of the sector was that the shedding of some functions performed by staff of the Ministry of Agriculture would allow them to concentrate more on policy issues and monitoring. Finally the parastatals were a drain on state coffers. By 1990, except for cocoa beans, the farm gate prices of agricultural products were determined by market demand and supply conditions. The prices of cotton were based on negotiations between the producers and the commercial enterprises. The monopsony of the Ghana Cotton Company in the buying of cotton and its monopoly in cotton ginning was broken. The Ghana Seed Company, responsible for the production and distribution of seeds to farmers was abolished. The monopoly of the Produce Buying Company of the Cocoa Board in cocoa haulage was removed. In 1990 the guaranteed minimum price scheme for maize and rice was ended. Input subsidies were phased out and their sale was privatised. Subsidised credit to agriculture had ended in 1987. In 1990 the requirement that at least 25% of commercial bank loans go to the agriculture sector was removed. The Livestock Marketing Board was closed down and the Ghana Food Distribution Corporation ceased to expand its storage facilities for price stabilisation purposes and 'Traditional exports arc exports of cocoa beans, timbcr, mincrals and clcctricity. Non-traditional exports are all othcrs. food distribution. Plantations of tlie Cocoa Board and 40 livestock farms were either closed down or divested. There has been a definite movement iiiagricultural strategy away from the state's direct involvement in the production, distribution and marketing of output and inputs. There is also a clear movement away from directly intervening in the market through minimum prices and tlie provision of production andlor input subsidies. The niediuni term agricultural development programme (MTADP) for the period 1991- 2000 reflected quite clearly this re-thinking of the direction and bias in agricultural strategy and policy-making in Ghana. The objectives of tlie strategy were food security, n~ralemployment, increased agricultural exports and increased production of raw materials. Critical to achieving these objectives was the provision of an appropriate incentive structure, improvements in agriculture support, increased private sector participation, strengthening of agriculture management and more rational allocation of public resources. Unfortunately the perforinance of agriculture during tlie period of implementation of the MTADP was poor. Production rates did not rise significantly and the constraints of marketing and access to credit remained. V. URAA Commitments Made by Ghana A. Export Subsidies. The URAA requires that provision of export subsidies conform with what has been agreed upon. The Agreement stipulates the types of export subsidies that are subject to reduction coinniitments (Article 9). Ghana did not make any export subsidy reduction commit~iientsbecause it does not have any export subsidies. B. Market Access. By the time URAA had been concluded Ghana did not have any quantitative restrictions, so that the issue of tariffication did not apply to it. Ghana chose to bind its tariffs and reduce thein over a ten-year period. It bound its tariffs at rates much higher than actually applied (Table 9). Ghana does not have tariff quotas so did not submit a schedule of cominitnients. Ghana's trade regime does not have non-tariff measures such as non- auto~iiaticlicensing, tariff quotas, variable levies and import monitoring. C. Domestic Support. Ghana had very little in the way of price or income support measures for its farmers. The URAA exempted investment subsidies and agricultural input subsidies provided to low- income or resource poor producers in developing countries from don~esticsupport reduction commitments. Gliana provided a schedule indicating the investment subsidies it had in place. Subsidies are provided to the extension services, research services, veterinary services and to encourage afforestation and control of post-harvest losses. D. The Agreement on Sanitary and Phytosanitary Standards Ghana had until January 1, 2000 to implement its obligations under the SPS agreement. Unfortunately it was unprepared for the January 1 deadline. The set of regulations were not developed. It had been agreed that the Inter African Phytosanitary Council would provide the framework and guidelines within which national regulations would be developed. The expected guidelines from the Council had not been received and this held up the development of national guidelines. The Quarantine check-list was not completed. This meant that Ghana had no scientific basis on which to defend its ban on imports of for example, maize seeds from the USA. The national enquiry point has not been established. The FA0 provided Ghana with assistance to develop its Plant Quarantine Legislation. This process was completed in 1997. However very little progress has been made in the process of ensuring that the instrument becomes law. VI. Changes Made to Meet URAA Commitments By the time of implementation of the URAA Ghana had a fairly liberalised agricultural trade regime compared to those of its major trading partners. Applied tariffs have remained fairly constant since the start of the implementation period of the URAA. There Iias been very little in the way of reversal of its trade liberalisation. The main challenges facing Ghana are conipliance with the institutional requirements of the other agreements, for example the Agreement on Sanitary and PhytoSanitary Measures, Technical Standards and Customs Evaluation. There have been no significant changes made in applied import protection due to the URAA. There are presently four main tariff rates, i.e. 0%, 5%, 10% and 20%" '. The upper rate of 25% was lowered to 20% in 2000. Ghana's trade liberalisation has been driven largely by agreements made with the IMF and the World Bank rather than by what has occurred at the WTO. I11 1995 the sales tax schedule was revised to 0% and 17.5%. Products that were either classified as zero-rated or exempted under the import tax regime were subject to a sales tax of 0%. The excise tax of 17.5% was imposed on luxury items. By 1998, the sales tax rate of 17.5% was reduced to 15%, and the super sales tax was replaced by the special tax rate of 17.5%. The sales tax of 15% was replaced by the value added tax of 10% in December 1998. The VAT applies to imported agricultural products. The agricultural itenis exempt from the VAT are: live animals, livestock and poultry, imports of animals, livestock and poultry ''A special iniport tax of 20% was introduced in Arpil 2000 and is applicable to about 7% of tariff lines. This tax was i~nposcdin the aftermath of a dcclinc in the tcrms of trade in an attempt to stem the denlarid for forcign exchange. Unprocessed goods from within ECOWAS with an ECOWAS Certificate of origin are cxpcctcd to cntcr duty free. for breeding purposes, raw animal products produced in Ghana and agricultural and aquatic food products in their raw state produced in Ghana. Also exempt are seeds, bulb rootings and other forms of propagation. There has been a decline in the tax rates for imported goods in the 1990s. The maximum tax rate for products not subject to the super sales tax was 60% in 1990 compared to a maximum tax rate of 35% in 1999. Table 10. Evolution of the Agriculture Import Trade Regime. 1 Year IAction Taken I 1990 Import Tariffs: 0% 10% 15% 20% 25% Sales Tax: 0% 10% 22.5% 35% Introduction of super sales tax with rates ranging between 75% and 500%. 1994 In~porttariffs rescehduled to 0% 10% 25% 1995 Sales Tax schedule revised to 0% and 17.5% Excise Tax of 17.5%on luxury items I 1998 Sales tax schedule revised to 0% and 15% I 1Sales tax replaced with 10% VAT in December. 1 Super salestax r e p p Removal of special tax 2000 Import tariff rate reduced from 25% to 20% Special import tax of 20% introduced on selected items VAT increased to 12.5% in June. No~~zitialProtection Nominal tariff rates on agricultural products have not changed substantially in the period 1995-1999. It was only in 2000 that agricultural consumer goods would register a decline in nominal protection conferred on tariffs with the reduction in the 25% tariff rate to 20%. However the nominal protection conferred by the exchange rate declined in the period since 1995 due to the real appreciation of the exchange rate. An assessment of the impact of sector and macroeconoinic policies on agricultural price incentives can be made by decomposing real agricultural prices in the following manner: Where Pi, is the national average wholesale price of product i PI is the domestic consumer price index El is the nominal exchange rate, cedi per US dollar P*,,is the border price of product i in foreign currency P*, is the international price index The first expression in brackets is the nominal protection coefficient (NPCd). It is a measure of direct price incentives resulting from sector policies. The second expression in brackets is the international terms of trade of the product (TOT). The final expression in brackets is the real exchange rate and captures the effect of economy-wide policies on agricultural prices (RER). The direct and indirect incentives (NPC,) is given by (NPCd).(RER). It measures the effect of both the sector and economy-wide policies. The total effect on price incentives is the combination of the policy-induced incentives and the temls of trade movements (NPG ). Developments in price incentives were estimated for cocoa beans (1990-1997), maize and rice (1995-1997). The choice of these crops was determined largely by the availability of data. The real exchange rate and tenns of trade were estimated as indices using 1995 as the base year. The domestic price of cocoa used for the analysis is the producer price announced by government. The domestic price of maize and rice are the national average wholesale prices for these crops. The cif border prices of maize and rice are obtained by dividing the value of imports by the quantitites imported. This data is obtained from the external trade statistics division of the Statitistical Services. The foreign price used in the calculation of the terms of trade of the product is the USA consunler price index. Cocoa Beans The farmer's share of the world price in the period 1990-1997 ranged between 30% and 49%. Except for 1993 when the farmers received an unusually low share of the producer price, the non~inalrate of protection ranged between -0.5 1 and -0.61 during the period under review (Table 11 ).' With the exception of 1991, the real exchange rate depreciated each year between 1990 and 1995. It has appreciated in each of the two subsequent years. The depreciation reduced the negative impact of the sector policies on cocoa price incentives. A coniparison of the nominal rate of protection for direct and indirect effects finds that it was lower than the NRPd until 1996. In 1996 and 1997 the nominal rate of protection due to direct and indirect effects is higher than the NRPd indicating that the appreciating real exchange rate contributed to taxing the cocoa sector. The terms of trade for cocoa deteriorated between 1990 and 1994, but have risen by about 13%between 1995 and 1997.The ilnprovement in the terms of trade has counteracted the negative effect of the appreciating real exchange rate on cocoa incentives. "he noininal rat'e of protection (NRP) for the direct, policy-induced and terms of trade effect$ is ~ncasured as: NRP,, = NPC,]- I NRP,= NPC, - 1 NRP, = NPC, - 1 Maize The national average wholesale prices for maize were below the cif border price during the period under review. The national average wholesale price for maize has been rising since 1990 and a substantial increase was registered in 1997. This can explain the improvement in the NRPd in that year. The econon~y-widepolicies however have impacted negatively on price incentives for maize so that the NRP, was slightly higher than the NRPd in all years (Table 11). The border price of maize fell during this period and there was a drop of about 40% in 1997. Rice In contrast to maize and cocoa, the price of local rice has remained consistently above the cif border price. In 1995 the price differential was larger than could be explained by the import and sales tax on imported rice. The differential has declined since then. The cif border price of rice unlike that of maize increased between 1995 and 1997. The NRPd declined in the three years being reviewed (Table 11). The sum effect of the direct and indirect policies was to reduce incentives for rice. However the improvement in the terms of trade more than compensated for the erosion that had occurred in the NRP,. Table 11 Agriculture Price Incentives for Selected Crops p e a r I NRPd Direct Price 1 NRP, Direct and INRP, Direct, Indirect and ( 1Effect 1Indirect Price Effects 1Terms of Trade Effects 1 Icocoa I 1 Maize 1 1 1995 1 -0.87 -0.87 -0.87 Effective Rates of Protection The effective protection coefficient is the ratio of value added in private prices to value added at world prices. Values less than one iniply that policies are not conferring any protection on the activity. The effective protection coefficients of maize were greater than one in 1984/5 but were estimated to have declined to below one in 1992 and 199415. Unfortunately no estimates of the effective protection coefficient have been found for maize since 1994195 so it is difficult to comment on what has happened since the coming into force of the WTO. The effective protection coefficient for rain fed rice production registered a decline in the up until the mid 1990s (Table 12). It is estimated that in 1999 there was an increase in the effective protection conferred on rice. The effective protection coefficient on cocoa production has also registered a similar increase in the period since 1994195 (Table 12). Table 12 Estimates of Effective Protection Coefficients Product 1986a 1992" 1994195 1999 --- Maize 1.89-2.23 0.63 - 0.9 1 0.83- PP Cocoa 0.77 1.05 -- 0.82 fee-- 1 0.67 (Rainfed rice 1.42-1.95 1.17- 1.35 0.75 1.33 a. The rate varies depending on the different types of production methods, i.e. tradition2 .. through to mechanised methods. Source: Asuming-Brimpong (19 ), Seini, W. (1997) and Seini et. a1 (2000). The evidence though patchy, suggests that the trade regime since 1994 has provided protection to some agriculture products. Ghana's applied tariff rates on agriculture imports have not changed significantly in the period the conling into force of the URAA. Compared to the tariff rates of the European Union its main export destination, Ghana's import tariff rates are high. However unlike the European Union, Ghana has virtually no non-tariff barriers on its agricultural imports. An important result of the URAA was the move away from non-tariff measures to tariffs. Thus countries were required to go through a process of tariffication of the non-tariff measures. An assessment of the tariffication process by Ingco (1996) finds that "If the EU applied the maximum specific tariffs committed in the UR, the estimated post-UR ad- vulo~,en~ tariff equivalents in 1995 and 2000 indicate significant increase in protection in major commodities relative to recent levels and relative to the average protection over the last fifteen years" (p. 436). It is estimated that tariff rates for sugar and meat in the EU in 2000 would stand at 152% and 76% respectively. These are significantly higher than Ghana's tariff rates. VII. Experience with the implementation of LTRAA Commitments Although not part of the URAA, the Sanitary and Phytosanitary (SPS) Agreement has direct for agriculture production methods and trade. It is with the SPS Agreement rather than the URAA that Ghana faces severe problems of implementation. Exporters have experienced problems with quality and phytosanitary requirements. Cassava leaf exports were rejected in the UK market because of the presence of insects. Inspectors were trained to identify the insects, so the problem was solved. In the US market there is a particular problem with the import of yam. Yams to the US market have to be fumigated before they are allowed entry7.This process of ensuring health standards creates costs for the yam exporters. The yam is not able to withstand the extreme changes in temperature that occur because of the fumigation process. It is a particular probleni during winter when the yam is transferred from the heat of tlie tropics to the cold temperate weather and then is subject to the extreme heat of the fumigation chamber. The cells of the yam break down and it deteriorates. One exporter estimates that during winter between 20-30% of tlie yam is lost due to tlie fumigation process. Article 2 of the SPS agreement outlines the rules and obligations in the application of SPS measures. However the article does not provide measures to protect the importing country from practices that destroy the supplies of the importer in the process of health standards being tested for. In paragraph 2 of the SPS agreement it is stated that lneasures be applied "only to the extent necessary to protect human, animal or plant life or health". Article 2 of the SPS Agreement needs to be more explicit in also protecting the interests of the suppliers as they work to satisfy market requirements. There needs to be included in the agreement a paragraph that stipulates that procedures to ensure that standards are met do not result in the destruction of the consignment. A secolid weakness with the agreement is tlie failure to explicitly deal with tlie time frame within which new measures should be implemented. In the first paragraph of Annex B to the agreement, it is stated that "Except in urgent circumstances, Members shall allow a reasonable interval between the publication of sanitary and phytosanitary regulation and its entry into force in order to allow producers in exporting Members, and particularly in developing country Members, to adopt their products and methods of production.. .". A probleni with this provision is with the definition of "reasonable interval". Who should decide on how long a reaso~iablei~itervalshould be? It appears that this is left to tlie discretion of tlie iniporting country. Ghana's experience so far has been that the importing country sets tlie requirements and the time period within which tlie measures should be implemented. A major concern is that the time period is not long enough for the necessary adjustments to be introduced without losing a foothold in the market in the meantime. The experience of the fish industry (which is not part of the Agriculture agreement is quite revealing). The time frame within which the EU wanted its health related requirements to be iniplernented was not long enough for most operators in tlie industry to adjust. The result was a sharp decline in tlie number of exporters involved in fish exports in the first year that the directives were enforced. Nevertheless giving the developing countries tlie opportunity when it is possible, to phase in the SPS requirements over a longer time period than do other suppliers may put tlie developing country suppliers at a disadvantage. This is because at a point in time the market will perceive that supplies from developing countries will not be of the same standards as that of other suppliers. Markets could be lost as a result. A preferable option is to offer all suppliers tlie same time frame within which to meet the health and safety - - - - 'The US claim is that Ghana has an insect that it does ~lotwant to cntcr its tcrritorics. Thc inscct feeds internally in the yam, hence the necd for fumigation. requirements. In deciding on the time frame the implementation capacity of the developing countries must be taken into account. Ghana is not ready to implement the SPS agreement. There is not enough information and knowledge about the contents of the agreement. Many personnel who should be enforcing it do not know what it is about. Ghana needs more time to be able to put in place the legal instruments, data base and institutional structures necessary for the implementation of the SPS. At present the playing field is uneven. The mechanisms to enforce its SPS requirements are not in place and there is inadequate knowledge about the SPS requirements of trading partners. VIII. Country's Interests and Options for the New WTO Round of Negotiations Estimates of the revealed comparative advantage suggest that Ghana has a con~parative advantage in most of the agricultural cornn~oditiesit exports (Table 13). It appears that except for cocoa products, Ghana's comparative advantage currently lies in the production of primary products. Son~ecommodities have been selected for intensive production and promotion. They are cashew nuts, cocoa butter, plants and parts of plants, black pepper, papaya, fresh cut flowers, coffee not roasted, yams, ginger and pineapples. Other products that have been earmarked are palm oil, beans and peppers! The long-term objective is to move into processing of primary products. The selection of the products whose production is to be encouraged is based 011 the identified market demand, the country's geographical position and the agricultural traditions of the country. It is recognised that Ghana is closer to the European Union market for the supply of fresh fruit and vegetables than are the Far Eastern Countries. It therefore wants to grasp the opportunity that this geographical advantage provides. Ghana's major interest in LIRAA negotiations is to improve upon market access for its agricultural products. This is particularly important for Ghana because a major plank of its current agricultural strategy is the expansion of exports. In the policy document outlining the accelerated agricultural growth strategy it is stated that Ghana is going to be proactive rather than reactive in developing improved market access to traditional and new markets. This it intends to do by improving access to inforination on import regulatio~lsin the importing countries. "he first set of products was obtained from the Ministry of Tradc and Industry. The additional products wcsc obtained from thc Ghana Export Promotion Council. 16 Table 13. Estimates of Revealed Comparative Advantage 1995-1998 Notes: The Revealed Comparative is calculated as (Xi-Mi)l(Xi + Mi), where Xi is the exports of comtnodity "i" and Mi is itnports of commodity "i". A. Market Access. Tariff Rates and Preference Margins In discussions with officials of the Ministry of Trade and Industry, the Ghana Export Promoti011 Council and exporters the consensus is that given the current trade regime, tariffs are not a constraint on market access in the industrialised countries. Tariffs are a problem however in gaining access to the Ecowas market. Tariffs do not constitute a problem in industrialised country markets, particularly the EU, because of preferential trade arrangements. With the exception of bananas, Ghana's agricultural exports can enter the EU market duty-free. The EU market is the major destination of Ghana's agricultural exports. The US emerges as a significant destination in only a limited number of agricultural commodities, i.e. palm oil, cocoa beans and fruit juices. Thus the discussion on preference margins will concentrate on the EU market. Under tlie Lome Convention, Ghana benefits from duty-free access to tlie EU market. The effect of the reduction in MFN tariff rates resulting from the Uruguay Round is the erosion of Ghana's trade preferences. However the extent of the erosion varies considerably. The MFN duty rates on cocoa beans, yams, cassava and coffee were very low conferring extremely limited advantages (Table 14). Several tariff peaks still remain. The preference margins for cocoa products exceed 5%. The margins for processed fruits, fruit juices and bananas are extreniely Iiigh despite the reductions that have occurred. Altliough nominal tariff rates on many of tlie products have been cut, tariff escalation still remains. Tariffs on fresh or raw products are considerably lower tlian tariffs on processed products (Table 14). A furtlier reduction in EU MFN tariffs on items of export interest to Ghana could ironically put Ghana at a disadvantage since it will erode the advantage it has against non-preference receiving countries. Since Ghana is unlikely to be able to stop the process of tariff liberalisation it should negotiate for a reduction in any domestic taxes that niay discriminate against foreign goods but tend to favour domestic producers. The trade regime of the Lome Convention is not consistent with the WTO rules. A waiver was requested and obtained by the EU to allow it to maintain the Lome trade regime until its expiry. The EU is in the process of detemiining what form future trade relations with the ACP countries should take. It appears to be disposed towards forming regional econoniic partnership arrangements (REPAs) with groups amongst ACP countries. The REPAs are intended to be free trade areas. ACP partners would maintain their preferential access but would have to reciprocate by opening up tlieir markets in return. Ghana's negotiating position on the issue of tariff reduction is therefore determined by what the conditions of its trade regime with the EU in the future. The domestic support provided by other countries to products Ghana exports, gives these countries an undue advantage in third countries. A particular concern is with the support given to niaize. Ghana in the last couple of years has begun exporting maize. From this perspective it would be in Ghana's interest to press for further reduction in domestic support and export subsidies to these products. The dilelnnia Ghana faces however is that this may result in higher prices on the world market. Ghana needs to consider the gains to be had from losing consumer surplus due to higher import prices of some food products against the increased producer surplus from the possible expansion in the production and export of maize and other products that may result from the decline in domestic support and export subsidies in its major trading partners. At present iniports constitute a minute proportion of total domestic consumption of maize in Ghana. The import bill will not be affected to any large extent if world maize prices should increase. Table 14. Tariffs and Trade Control Measures in the EU market 1994, 1996, 1998. HS code Itcm Year MFN range MFN average NTM incidence ("/U) pp 0702 To~natoes(fresh or chilled) 1994 11-18 14.5 1996 10-17 11.3 1998 9.5-15.6 13.2 100 , 0714 Roots & Tubers with high .. 1994 3 3 1996 3 1998 - -- ---- 0803 Banana & Plantain 1994 20-20 20 0 1996 -19-19 /I() 0 1 1998 17.3 17.3 100 0804 Pineapples, mangos.. 1994 9 9! 1996 8 8 0 1998 6 9 6 9 n 0901 1 Coffec; coffee husks &... 1 1994 1 4 1 4 11996 3 3 1 1998 100 1511 Palm oil & its fractions I994 4-6 5.0 0 [ 1996 3-5 4.0 0 - - 1998 I .3-4.5 2.9 0 1801 Cocoa Beans 1994 3 3 0 1996 2 2 0 1998 1 I 0 L 1803 Cocoa Paste 1994 12 12 0 ---1996 12 12 0 1 1998 1 1 4 1 1 4 I n 1804 Cocoa Butter 1996 9 9 0 1998 9 9 0 1805 Cocua Puwder 1994 12 12 0 1996 12 12 0 1 1998 10.7 10.7 2006 Fruits, iluts, fruit pcel I994 0-25 18 1906 0-23 17.6 10 0 r 1998 0-2 1.7 15.4 10 2009 Fruit juiccs 1994 19-42 30.5 1996 17-39 28 100 - 2009 19 Orange juicc 1998 14.5-36.4 25.5 100 200940 Pineapple juice I998 16.5-36.7 21.7 16 Source: m C T A D TRAINS. Non-Tariff measures Except for bananas, tomatoes, coffee, cassava and processed fruit Ghana's agricultural exports are not subject to non-tariff measures in the EU (Table 14). The EU's banana import regime for the ACP states is governed by Protocol No. 5 of the Lome Convention. This provided duty-free entry to traditional exporters of bananas to the EU market. Ghana is not a traditional exporter. Ghana had a quota limit of 5000 tonne a year and paid approximately $100 a tonne on its exports of banana as well as an import licence fee of $0.25 a kilo. In 1996, the banana import regime was challenged by the US, Ecuador, Honduras, Guatemala and Mexico. They argued that it was inconsistent witli WTO regulations. The Dispute Settlement Board ruled that sonie aspects of the regime contravened the WTO rules and that the EU had to bring the regime into conformity with the WTO provisions. The EU introduced a new import licensing regime to become effective at the beginning of 1999. This has improved the market access conditions for Ghana's bananas. Two tariff quotas with a cumulative volume of 2.553 million metric tonnes will be provided annually for non-traditional exporters. The duty rate for non- traditional ACP exporters within the quota will be zero. Other countries will face a duty of ECU 75 per tonne. Non- traditional exports that exceed the quota will be subject to a duty of ECU 300 per tonne. However the quota is to be shared with the more efficient Latin American producers. If Ghana is to take advantage of the improved niarket access conditions it will need to improve upon its efficiency. From the discussions with staff of the Ghana Export Promotion Council and the Ministry of Trade and Industry lion-tariff barriers are the main barriers to entry into the major markets. One concern is with the costs that these barriers, in particular the SPS measures impose on exporters. There is the fear that increasingly health and quality standards will become trade control measures and not merely measures to ensure the life and health of plants, animals and people. B. Import Policy Although the cuniulative effect of import tariffs, sales tax and special tax in 1998 for some products stood at approxiinately 60%, these price instruments are the only significant source of price support received by the agriculture sector. As indicated earlier the WTO rules allow a country like Gliana to provide subsidies to reduce costs of marketing exports and subsidised transport and freight charges. Unfortunately these are not available in Ghana. Tariffs are a subsidy to the producer and a tax on consumers. A further decline in import tariffs would reduce the subsidy received by agriculture. Some crop and livestock producers would find it difficult compete, and tliis could increase the reliance on imports. Further, liberalisation inay not be an optimal strategy to pursue from a food-security perspective. Trade taxes are not the best way to achieve an increase in production. However in the absence of production and input subsidies trade taxes may be considered a second-best alternative. If further trade liberalisation is to be implemented it is imperative that other support measures be introduced to enable domestic producers compete with imports comiilg froin countries that provide their famiers with substantial support. In consultations witli stakeholders in agriculture conducted in 1995 it was recommended that subsidies be provided the agriculture sector in order to increase production. A portion of the cocoa revenue could be allocated to provide a 20% fertiliser subsidy over a 5 year period. It was estimated that the subsidy would cost approxiinately US$5 nlillion per annum. The advantages of such a measure would be the increase in agriculture production, reduced feed costs to the livestock and fish industry as prices fell and the resulting increase in the production of these sectors. These benefits would have to be weighed against the loss of part of the cocoa revenue to government. The government's position on subsidies is determined not by WTO rules but largely by the requirements of the IMF and World Bank agreements. Its obligations with these institutions make it difficult for Ghana to take advantage of some of the rights conferred on it by the WTO. C. Export Policy The possible option for further liberalisation within the cocoa sector is the increase in the share of the world price received by fanners. I11 1998 farmers received approximately 59% of the fob price. This is more than the target of 55% that was recommended in a consultation with stakeholders in the agriculture sector. In deciding to liberalise the cocoa sector with an increase in the farmer's share of the world price it is necessary to consider possible repercussions on world prices and the national budget. An increase in the farmer's share of the world price, if it is accompanied by an increase in the real producer price of cocoa, will generate an increase in supply and could encourage the planting of new trees. Ghana is no longer the world's largest exporter of cocoa beans and comes a distant second to Cote d71voirein the EU market supplying not more than 20% of that market. The impact on world prices of an increase in cocoa bean exports from Ghana may therefore not be very large, but could still put some downward pressure on prices. Cocoa tax revenue does not account for more than 20% of total central government revenues. A decline in government's share of the world price may not dent revenues to any large extent especially if alternative sources of revenue generation are tapped. Thus the possibility of liberalising the cocoa trade reginie exists but the benefits of increased real incomes to farmers in the short run need to be weighed against the possible downward pressure 011 world prices and impact on the budget. Barriers to tire Expansion of E-vports A limited survey was conducted of producerslexporters of agricultural products. The export items covered by the survey were pineapples, papaya, assorted vegetables, yam, cashew nuts and pineapple juice. Except for the yam and cashew nut exports that were sent to the US market, the exporters of fruit and vegetables were concentrated in the EU market. Some of the exporters to the EU inarket commented that quality considerations had increased in the last five years. In the case of pineapples for example the buyers were becoming more particular about the minimum residual level of pesticides in the fruit. The buyers of papaya from the UK come down regularly to inspect the facilities and conditions under which the workforce operates in order to ensure that the conditions meet their specifications. The entrepreneurs attributed the growing concerns about quality to the rising competition in the fruit market and the need for buyers to maintain their share of the domestic market. They did not perceive the quality requirements to be a problem.9 One produceriexporter was installing a new factory to ensure that quality requirements 'Therc is a sanlplc sclcction bias hcrc. Thosc cxportcrs who cannot meet the quality standards will probably drop out of thc market. were met. All exports require a phytosanitary certificate to be issued by the Ministry of Food and Agriculture. For exporters sending their items to the EU, a form had to be completed which would allow them to benefit from duty-free entry. The producers/exporters interviewed do not perceive access conditions in the EU to be a constraint on their activities. For all of them the concern was with shortcomings on the side of domestic policy. Several problems and shortcomings were cited by the entrepreneurs. Freight charges for the shipment of pineapples from Ghana are higher than in Cote d11voire.The larger export volumes from Cote d71voire,making it possible to take advantage of scale economies, and higher port charges in Ghana were cited as the causes of this. The potential to increase production and export of fruits exists, however there is a lack of labour with skills to manage the production of horticultural products. There is inadequate scientific support to analyse and advice on plant disease. In some years the reason why production and export is low is because the crop has become diseased. The producers claim that unfortunately there is inadequate support from research laboratories to help them deal with these problems. Inadequate storage facilities at the ports and poor road infrastructure contribute to undermining the quality of the product before it gets to its final destination. D. The New Issues Investment Policy Ghana would like the WTO to set rules that are explicit about the obligations of tlie recipient countries and investors. It is of tlie position that nationals should have the right to decide where investment flows should go and this should not be the prerogative of a multilateral institution. Discussions 011 the rules regarding investment policy should be guided by the links between development and investment. Within Ghana further work needs to be done on tlie analysis of the implications of an investment policy in WTO for Ghana. Thus at the international level the negotiations should not be rushed i11order for there to be a full appreciation of what is being agreed upon. Competition Policy Ghana is in the process of putting together a restrictive business practices law. Its discoinfort with discussions on con~petitionpolicy in the WTO is the fear that the OECD niultilateral agreement on investment will not be a negotiating fi-aniework, but may be imposed on countries to accept. Its perspective regarding discussions of competition policy issues at the WTO is that the negotiatioiis should focus on introducing rules tliat will allow countries to monitor the activities of transnational corporations. This is to reduce the incidence of restrictive business practices amongst these entities, for example collective bidding. Environment Issues A major concern for Gliana is the costs acconipanying the introduction of measures that are environment sensitive. How is the burden of these costs to be distributed? The fear is that the costs of implementing enviroiinientally seiisitive measures iiiay render some of Ghana's products uncompetitive. Resources will have to be provided to assist in the development in environment friendly technologies. Intellectual Property Ghana had until December 1999 to meet its obligations and commitments under the TRIPS agreement. The copyright law has been updated to conform to the rules of the TRIPS. The Law has been presented to Cabinet and is yet to be put before Parliament. A problem with attempts to monitor the infringement of copyright laws is the lack of basic infrastructure, such as computers and vehicles. It would be in Ghana's interest as well as in the interest of other developing countries to lobby for firmer commitments from the industrialised countries that have been tlie clianipioning tlie cause of TRIPS to provide resources to developing countries to enable them meet their obligations. Conclusions Ghana needs more tiiilc to be able to analyse the short to long run implications of the rules that will be agreed upon. Since Ghana has made much more progress in liberalising the agriculture sector than have many other countries, its concerns should be in how it can iniprove upon agriculture yields and productivity. If indeed the WTO negotiations are to provide benefits for developing countries the emphasis should not be only on the establishment of rules but also in assisting tlie developing countries adjust to the new rules and increase their production and incomes. IX. Food Security Issues. Tlie production of cereals has followed a downward trend since 1995. This contrasts with tlie upward trend that was recorded in the period 1992-95 for most cereals (Table 2). The production of starchy staples such as yam, cassava and plantain on the other hand have tended to increase since 1995. Tlie decline in the domestic production of cereals raises concerns about food security. Domestic demand for wheat is satisfied entirely from food aid and commercial imports because there is no domestic production. The volume of coni~nercialimports has risen since 1995. Food aid import volumes fell in 1996 rose in 1997 and have tended to remain fairly constant since then. This category of imports constitutes a smaller share of total domestic supply in1999 that it did in 1995. International wheat prices have tended to follow a downward trend since 1995, with prices in 1999 approximately 27% below their 1995 level. Domestic production dominates the supply of maize on the local market. Maize imports are quite small and have not exceeded 1% of total domestic supply over the period 1995- 1999. The price of maize on the world niarket has declined since the signing of the URAA. Despite this it does not appear that imports have substituted domestic production. There is very little inlportation of millet. Virtually all doniestic consumption of millet is met from domestic supplies. The picture is quite different for rice. Domestic rice production has not been able to keep up with demand over the period 1995-1999. Rice imports constitute a significant share of the supply of rice on the local market. In 1995 commercial rice imports made up approxi~nately43% of the domestic supply. In 1998 it is estimated that commercial rice imports made up about 67% of domestic supply. Food aid import volumes dropped quite sharply after 1995 with volumes staying fairly stable thereafter. Table 15. Production and Domestic Supply of Selected Cereals -- Maize Rice Wheat 000 MT 1995 1999 1995 1999 1995 1999 Net Production 723.94 710.15 104.45 109.12 0.00 0.00 Commercial Imports 0.89 0.20 104.26 227.78 29.18 181.64 Food Aid Imports 3.21 1.12 37.98 3.56 51.OO 48.97 Exports 0.00 5.57 0.00 0.70 0.05 9.00 Total Domestic Supply 728.04 705.89 246.69 339.76 80.18 230.61 Ratio of Total Domestic Maize Rice Wheat Supply 1995 1999 1995 1999 1995 1999 Net Production 0.99 1.01 0.42 0.32 0.00 0.00 Commercial Imports 0.00 0.00 0.42 0.67 0.36 0.79 Food Aid Imports 0.00 0.00 0.15 0.01 0.64 0.21 Exports 0.00 0.01 0.00 0.00 0.00 0.04 Total Domestic Supply 1 .00 1.OO 1 .00 1 .OO 1 .OO I.OO World Price Simt 104 87 270 240 149 108 ------ -- Source: Production and Trade data obtained from CEPA (2000), Price data obtained from World Bank data files. In the case of rice, therefore developments in the world market will have implications for domestic food security. The price of rice on the world market has fallen since the signing of the URAA. This means that if there is to be lower dependence on foreign production for the domestic supply of rice, measures have to be implemented at home to improve upon the rice farmer's ability to compete with imports. X. Policy Lessons and Recommendations for the Next WTO Round Ghana has made more headway (albeit within the context of the structural adjustment programmes) in liberalising the agriculture sector than have many other developing and industrialised countries. The experience of Ghana's agricultural liberalisation is pertinent for other countries even though it was not implemented as part of its URAA commitments. The main lesson from Ghana is that as government withdraws from certain activities, it ~iiustensure that the private sector is in a position to effectively fill in the gap left by government. For developing countries in particular this suggests that the liberalisation process should not be rushed. It is important that the process is sustained so as not to create time coiisisteiicy and credibility problen~s.The private sector's capacities must be assessed and analysed and the information obtained used to design the liberalisation strategy. There are several domestic constraints that make participation in the talks and imple~nentationof the various agreements difficult. A great deal of effort needs to be made for staff of the ministries, departments and agencies to be informed about the WTO agreements. There does not appear to be enough co-ordination between the Ministry of Trade which is responsible for the WTO and the other ministries and departments that have to institute the changes that the agreements require. The second constraint is the relationship with the Bretton Woods institutions. The coilditionalities of the agreements made with these institutions can act as a constraint on the ability to negotiate within the WTO and take advantage of rights. The third constraint is the limited number of personnel in Geneva to actually participate in the discussion of issues pertinent to Ghana. Implementation of the agreements' requirements will be enhanced if personnel in the implementing institutions are able to participate in the negotiations. The Ministry of Trade personnel may not have the necessary competencies to negotiate on issues related to technical barriers and sanitary and phytosanitary measures. If however there is qualified personnel from the relevant section of the Ministry of Agriculture also participating in the negotiations, the negotiating strength of the Ghana team will be improved and the concern about the flow of inforillatioil will be addressed. Limited resources are a major reason why there is only Ministry of Trade personnel participating in the talks. The WTO agenda should therefore also include a session 011the funding of developing country participation as a means of avoiding their margiilalisation in the discussions. There is also the need for discussions that will culminate in a framework to provide assistance to developing countries that need to invest substantial resources in order to implement the Uruguay Round Agreements. Within the context of agriculture this issue is particularly relevant for the SPS Agreement. Ghana as is the case for other African countries, is constrained in terms of human capacity and the physical infrastructure to ensure that there is in place sanitary and phytosanitary standards that match international standards. Table 9. Market Access conditions for selected agricultural products HS UR Actual Base Bound Quota Applied Tariff Other duties Quota In Quota tariff Over Quota Tariff Tariff (1998) and charges (Quantity) Tariff Pre UR Post Pre UR Post Pre UR Post Pre UR Post Pre UR Post UR UR UR I UR UR Wheat 125%- 99% none 10% 10% 22.5% 15% none none none none none none Ma~ze none 25% - 125% ( 99% 25% 15% 15% none none none none none none -- Rice 125% 99% none 25% 25% 15% 15% none none none none none none Cane or 125% 99% none 10% 10% 15% 15% none none none none none none Beet SugarI I I Agriculture and the New Trade Round: Economic Interests and Policy Options for Nigeria E. Olawale Ogunkola I. Introduction African countries' participation in thc Uruguay Round (UR) of niultilatcral tradc ncgotiations (MTN) was more noliiinal than purposeful as they were not engaged in the real business of ncgotiation. The motive for participation was an overt dcfencc of special and differcntial (S&D) trcatrnent. Hencc thcy offered littlc concessions and consequently, the expectcd bcncfits to these countries were low (Oyejide, 1997 and 1990; Ohiorhenuan, 1998 anlong others). The passive participation of thesc countries in the last UR notwithstanding, awareness and gcnuine willingness to lock-in various unilateral trade liberalisation measures cannot be totally ruled out of their niotivc for participation. Their participation was, howcver, constrained by niany factors cspccially inadcquate understanding of thc coniplexity of issues to be negotiated and a dearth of in-depth analysis of inlplications of various proposals for their national interests (Ohiorhenuan, 1998). Nigeria's participation in the UR was modest (Ogunkola and Agah, 1998) and thc country's cxternal affairs niinistry conductcd thcncgotiation. This level of reprcsentation raised at least two issues. First, foreign policy rather than econoniic consideration became the negotiating factors; and sccond, the Ministry lacked the power and capacity to co-ordinate consultations, as it was improperly positioncd to secure neccssary backup from home. Notwithstanding, Nigeria niadc some con~mitnientsin the Uruguay Round Agreement on Agriculturc (UR AoA). The backlash of such lcvcl of representation is thc probleni of implementation. Even if thc implementcrs wcre to be actively involvcd in thc UR negotiations, thc probleni of capacity to ncgotiate the agreement was still a major constraining factor. UR AoA ainlcd at establishing a fair and niarkct-oriented agricultural trading systenl under three liiain issues: niarket acccss, doniestic support and export subsidics. The agreement provides for review of iniplenicntation (Article 18) and continuation of the libcralisation process (Article 20). Experience with and cffects of iniplenientation of the UR AoA arc to guide the future libcralisation in tlic scctor. Another factor in the continuation of the reform process is the special and differential (S&D) treatment to developing countrics. The continuation of thc liberalisation process in tlie scctor is justified on many grounds. First, the long-ternied nature of the objective of thc agreement rcquires a gradual process. Second, thc difficulty in reaching the agreement calls for a revisit. In any case the new round offers a second chance for re-negotiations especially to developing countries like Nigeria. As thc ncw round is around the corner, this paper exarnincs issues of interest and policy options for Nigeria. It tries to provide justification for the country's Interest in tlie ncgotiations. The country's various agricultural policy regimes. with emphasis on the conlniitnicnts and implcmentation of UR AoA, wcrc cxaiiiincd. Iniplc~iicntationof the UR AoA by the country's niajor trading partners in agricultural con~nioditiesalso received attention. Impact of both the changcs in domcstic and extcrnal policies on agricultural production and tradc in the country was not left out of the discussion. All these arc gcarcd towards charting the country's position in the forthcoming round of ncgotiation. The rest of this paper is organiscd as follows: Sections I1 through IV trace the evolution of Nigeria's agricultural trade regimes. Thc effects of thc structural adjustment programme (SAP) and UR AoA on this evolution were eniphasised. The niajor observation was that over the pre-UR pcriod, thcre has becn substantial trade liberalisation in the agricultural trade. While the desire to fulfil its WTO commitments was a major force, budget constraint was another significant force. There are still substantial barricrs on trading in some itcms. These are food items and other agricultural products where the country has conlparative advantagc. Scction V evaluates the external environment facing agricultural conlniodities that are of interest to Nigeria in some major markets. Market access conditions remain difficult, domestic support to farmers remain high and export incentives continued unabatcd. Section VI is on recent trends in Nigcria's trade in the agricultural products. There seems to be a wide gap between agricultural exports and imports to the country. Food imports continue to increase. Sections VII and VIII present the country's interests and options in the new round of negotiations and regional diniension of agricultural trade respectively. Section IX concludes the report. 11. Overview of Nigeria's Agricultural and Food Sector Nigeria is naturally an agrarian ccononly in spite of the oil scctor's dominance of exports. The importance of agriculture to the Nigerian ccononiy stems fro111 its linkages (backward and forward) with other sectors of thc economy. Notwithstanding, that oil currently generates the bulk of foreign exchange earnings (a role that was pcrformcd by the agricultural sector in the 60s up to thc oil boon1 of the early 70s), oil sector's linkagc is not cornparablc with that of the agricultural sector. The agricultural sector still plays its traditional role of providing employment for majority (betwecn 65% and 70%) of the labour force and of contributing substantially (30 to 40%) to the gross domestic product (GDP) of the country (Figurc 1). A population of about 120 niillion that is gro~vingat about 2.83% per annurn makcs Nigeria the most populous country in Sub-Saharan Africa (SSA) demographically, and one of the fastest growing countries in the world. Coupled with the human resources, the country is endowed with abundant natural resources including agricultural and niineral resources. Apart from covering a widc expansc area of land, about 92 rnillion hectares, Nigeria's diverse pattern of endowment niakcs production of varieties of agricultural conimodities a natural phenonlcnon. Arable land and pasture account for about 60% of total landmass. Water bodics; rivers, lakes, and reservoirs account for about 14% of landmass. Forests and woodland occupy about 12% of total land use. The quality of thc Nigerian soil is low and, thus, extcnsivc application of fertiliser is required to enhancc productivity. Indecd, on the basis of Food and Agriculture Organisation (FAO) scale of quality of soils, none of Nigeria's soils is in the high productivity category. Only 5% of the land arc adjudgcd to havc good productivity while ovcr 60% are classified as having low productivity. Thc cliniatic condition is largely tropical, thus, pcmiitting production of sonie tropical crops. Mild winter, in some parts of the country, niakes cultivation of some winter crops possible (Vision 20 10). Farm holdings fall into three broad catcgorics with small holders, 0.1 to 5.99 hectares, accounting for about 81% of total farni holdings. Medium holdcrs, 6 to 9.99hectares, constitutc 14% of farm holders. Largc holdcrs. 10 or more hcctares, are only 5%. Thc small holders provide 95% of total crop output and they arc family-bascd, labour intensive and havc limitcd access to institutional crcdit. Traditional rotational fallow agricultural practice dominates thc two othcr farni practices: pcrmancnt agriculture and mixcd farming. Anccstral claim to land is vcry strong thcrcforc, niakcs thc land policy that vests all lands in tlic statc government incffcctivc. A majority of the agricultural population is poor and resides in rural areas, lacking in capital and usually unorganised. Apart from being small landholders, they are n~ostlyilliterate; making - adoption of irrigation farming andlor agricultural mechanisation difficult. These farnlers depend on rains and simple faml implements for cultivation of land. Net rural-urban migration has co~npoundedthe problen~of agricultural developinent in the country, resulting in the aged dominating the agricultural population. These resources are under-utilised, as actual agricultural production is less than the potential suggested by these resources. Many factors account for this less than optimal utilisation of resources: under-employment of resources; low productivity mainly due to technological and invcstrncnt constraints; and infrastructural constraints, among others. Less than half of the potential agricultural resources are currently under cultivation.' Since the technology of agricultural production is still backward, the fortune of the scctor depends to a large extent on favourable weather conditions (timely and well distributed rainfall) and various activities of government agencies directed at minimising some of the constraints to agricultural development in thc country. Apart from low technology that limits productivity, nlarketing and infrastructural (inadequate storagc facilities and bad rural road networks) constraints further rcduce delivery of agricultural output. Post-harvest loss is substantial and it is currently estimated at about 40% of farnl gate output (FGN: Vision 2010). Two forces drive domestic demand for agricultural output: first, the tceming population's demand for food and, second, domestic demand for agricultural products by thc fledgling agro-allied based firms. The disappearance of traditional exports from Nigeria's list of cxports inay be partially explained by production and marketing constraints and partly by the deniand for these products by the fledgling domcstic agro-allicd firms. Processcd agricultural products, however, encounter higher trade control measures (mainly tariff escalation) than the raw agricultural products in the traditional market for Nigeria's exports. It is paradoxical that a country that is endowed with such abundant agricultural resources cannot produce enough food to feed her teeming population. This is a post-1974 phenon~enonthat has deficd all solutions despite various programmes aimed at boosting food production. Recent trends in food cxports and imports in Nigeria raise the concern about thc implen~entationfood aid and safeguard measures contained in AoA. Given the general characteristics of the Nigerian agricultural sector, a positive change in the fortunc of tlie sector is a means to poverty allcviation, rural development, sustainable and balanccd dcvclopincnt and cfficicnt utilisation of resources. What are roles for trade in promoting the development of the sector and the econonly in general? 111. Evolution of Nigeria's Agricultural Trade Regime 3.1 Pre-1986 Agricultural Policy Environment Before thc introduction of SAP in 1986, marketing of agricultural con~moditieswas heavily regulated. Government marketing agencies wcre cstablished and empowered to administer coiiimodity-niarkcting policies. While private individuals wcre responsible for domestic trade in food itcii~s,govcrnmcnt intcrvention at this levcl was limited to setting official guaranteed niinimum prices at which appropriate commodity boards would act as a buyer of last resort. The ' ~ c c o r d i to~\VTO (1998). arca currcntly under cultivation was about 34 million hectares. This translates to about 37?4of n tot;~lal-ablclandmass. guarantecd mlnimuni prices were sct at levels which did not adcquately provide incentives to the farmers, hence this strategy failed to serve as an incentive for increased production. Marketing boards had played important roles in thc purchase and sale of export crops such as cocoa, rubber, groundnuts, cotton, palm kernel, palm oil, and soybeans. Produccrs were required by law to sell their crops at officially determined prices to the commodity boards which were the sole exporters of specified crops (Oyejide, 1986). During this period, six-state trading entcrprises (STEs) in agricultural comniodity market were responsible for marketing fifteen crops in the country. The Nigerian Cocoa Board was in charge of marketing of cocoa and coffcc. The Nigerian Cotton Board was responsible for purchasing seed cotton, cotton lint, and cottonseed. The Nigerian Groundnut Board had five crops under its operation: groundnut, sheanuts, soybeans, benniseed and ginger. The Nigerian Grains Board was in charge of maize, rice (paddy), wlieat, sorghum, and millet. The Nigcrian Palm Produce took charge of palm kernel, palm kcrncl oil, palm kernel pellets and palm kernel cake, and the Nigerian Rubber Board was in charge of natural rubber. Conimodity and marketing boards wcre established to stabilise both the prices and income of farniers. The desirc for a buffcr stock bctween farmcrs and foreign markets as a protection from short-term world price fluctuations Icd to thc creation of stabilisation funds by the Boards. Other functions of the Boards included funding of research into the conditions of production such as plant breeding, iniproved husbandry and pest control and supplying of inputs such as fertilisers and insccticidcs, and crcdit against crop deliveries. The boards in some cases also finance farmers' working capital. The board was involved in the grading of produce and offering of different prices for different grades to induce farniers to improve the quality of their produce and campaigning against swollen shoot diseasc and capsid infection of cocoa trees; and provision of storage facilities, transport and processing. Thcse arc laudable functions, howcvcr, they werc perverted over time as stabilisation funds wcrc diverted to government uses thus becarnc a convenient way of taxing the sector. Farniers were paid wcll bclow world market prices for their products. For example, groundnut producers wcre paid about 32% of the world price. Groundnut farnicrs, for instance, wcrc subjectcd to a tax of approxiniately 68% in 1950 (Oyejide, 1986). Prices paid to coffee, cocoa, rubber, and ginger farmers were less than 70% of their world market prices (CBNNISER, 1992). Farn~ers'incentive to produce was danipcncd by the activities of thc marketinglcomniodity Boards. Between 1970 and 1985, cocoa farniers received on the average 61% of world market prices. For coffee producers, only about 47% of the international market price were receivcd. Rubber producers earned about 5 1% of world market price while the ginger farmers' incomc was about 52% of inconic at world market pricc. Table 1: Ratio o f Pr-oducel-prices to IVor-Id Market Prices Comnlodity 1970-75 1976-80 1981-85 Average, 1970 to 85 Cocoa 6 1.2 53.4 67.0 60.5 Coffec 32.2 39.9 68.1 46.7 Rubber 65.4 36.7 50.4 50.8 Ginger 41.1 47.1 68.5 52.2 Source: CBN/NISER ( 1992) Thus, exports of agricultural commodities are donc by STEs. These cnterpriscs provided some support scrvices to thc farmers. Since the domestic prices of agricultural commodities are set below the world prices, smuggling of these products across the border was rampant. Cocoa sniuggling into Benin Republic was so rampant that Bcnin's cocoa exports were highcr than its production figures. During this period, domestic agricultural policies were inanifcstcd in thc cstablishment of various institutions. These institutions provide services ranging from credit financing, input subsidies, research and developnient. Agricultural Development Projects (ADPs), National Fertiliser Corporation of Nigeria (NAFCON) and the Federal Super-phosphate Fcrtiliser Company (FSFC), River Basin Developmcnt Authorities (RBDAs), and National Agricultural Land Development Authority (NALDA) were established. Overlapping mandates, lack of effective co-ordination and varying governnient subventions are sonic of thc factors hindering the effective pcrformance of these institutions. Thc ADPs were involved in the provision of infrastructure such as rural road construction, maintenance and rehabilitation; supply of farm inputs (fertilisers, seed, rootltubers, cheniicals etc); extension and training services and agricultural production within the project areas. Operations of ADPs in rccent tinies have declined as a result of lack of fund. Substantial decline in both thc World Bank and thc Fcdcral Governmcnt subvention to the organisation since 1995 still continued in 1997. The two state-owned fertiliser companies, NAFCON and FSFC were cstablishcd for the purpose of supplying fertilisers at affordablc priccs to farmers. As result of lack of adequate fund, the opcrations of these companies deteriorated over the years. For example between 1996 and 1997, capacity utilisation rate fell froni about 45.2% to about 22.4%. The RBDAs focus thcir opcrations on land dcvclopnicnt (mainly prcparation and irrigation) and provision of infrastmctural facilities (dams, boreholes and roads). NALDA's opcrations in the areas of land development and extension services fell substantially ovcr the years. In the arca of finance and risk, some institutions such as Nigerian Agricultural and Co-operative Bank (NACB) and Nigerian Agricultural Insurance Corporation (NAIC) were also established. NACB was mandated to provide financial support to agricultural production. The NACB was cstablishcd in 1973 to promote agricultural production and rural developnicnt; assisting in the iniprovement of inconie and quality of lives of far~iiersand other rural dwcllcrs. This is a vital contribution to thc overall growth and the dcveloprncnt of thc Nigerian ccononiy. The level of self-sustainability of the Bank is however low and hencc its heavy depcndencc on government subsidies that are no longer forthcoming. Thus, the activities of the Bank rcmained uninipressivc sincc 1994 (CBN, 1997). Siniilar organisations that have suffered from rcduction in governnicnt subventions includc thc RBDAs, NALDA and ADPs.. Perhaps the fertiliscr policy of the governnient has generated a lot of debate morc than any othcr domestic support programme. Gross under-funding handicapped operations of state-owned fertiliser companies. Available fund froni the government was not sufficient to procure (import) inputs neccssary for thc niaintenancc of thc plant and niachincry. Government is currently considering the privatisation of these two companies. According to officials, governnient will refurbish thcse plants before they are put on thc market. Meanwhile, inquiries arc on thc activities of thc two companies. Trading in fertiliscrs is being liberaliscd, as the ban on the importation of fertilisers has been lifted and the import duties on it rcduccd by 50% froni 10% to 5%. Howcvcr, govcrniiicnt is still involved in the importation, distribution and niarkcting of fertiliscrs. A host of other institutions indirectly pronlotc their objcctivcs through the developnient of thc agricultural scctor, as they pcrceivcd thc developmcnt of agriculture as a Incans of achicving thcir goals. These institutions rcflect governments' implicit integrated approach to addressing rural poverty, agricultural production and rural infrastructure. National Directorate of Employment (NDE), Directorate of Food, Roads and Rural Infrastructure (DFRRI), Peoples' Bank of Nigeria (PBN), Community Bank and the defunct Directorate for Social Mobilisation (MAMSER), were involved in agriculture and rural development. For example, the defunct MAMSER, a political organ for social niobilisation, launched Operation Food First in July 1988 as a means of promoting self-reliance. The operation was to mobilise small-scale farmers to organise themselves into co-opcrative groups in order to facilitate appreciable increase in food production. It was a nieans of identifying niajor constraints to increased food production. Siniilar organisations have a strong link with agricultural development. NDE found it easier to creatc more employment in the agricultural sector than in other sectors of the economy. Various agricultural research institutes and universities were established. However these institutions were inadequately funded. These institutions are not properly linked with those who require their services and hence most research findings are not commercialised. They are hardly patronised by thc private sector, and even by the governnient that cstablishcd them. A common factor to all thcse organisations is declining governnient subvention. Figures 2a and 2b show that Federal Govemnient cxpcnditures on agriculture, rural development and water resources was not only small (1.58% and 4.59% of total govcrnmcnt cxpcnditures), but have declined from an average of $128.7 million in 1986188 period to about $94 million in 1995198 period. 3.2 Nigeria's Agricultural Trade Regimes Since 1986 Before the negotiation of AoA was concluded, SAP implementation was in progress and indeed the post UR saw little no change in the agricultural trade policy of the country because the country made rnininial conimitnient. In what follows, I looked at the SAP implementation, thc UR AoA commitments niade by the country and development in the international trade in agriculture environment. 3.2.1Measures relatirtg fo SAP As part of the provisions of SAP, n~arketing/comniodityboards were abolished. Agricultural commodity prices were liberaliscd. Farmers' remuneration was further boosted by the development in the niacroeconomic environnient especially the depreciation of the Nigerian currency- the Naira. Farmers were ablc to compete more freely in thc product as well as factor markets. The post-SAP analysis revealed that farmers received close to world markct prices. For instance, cocoa farmers received up to 98% of World market price in the post-SAP era. Apart from the high prices received by the farmers, payments were prompt unlike the delayed payment experienced during the era of conunodity/marketing boards. Some cases of prepayment or credit to farniers were also observed during this period. Apart from the dircct effects of commodity marketing rcforms, other componcnts of SAP created indirect effects. All these reflected on the pcrforiiiance of the agricultural sector. The exchange rate policy reform, for example, provided sonie incentives. Before the introduction of SAP, the Naira was overvalued and thus crcatcd disincentivc to local production. The ovcrvalued currcncy altcrcd the competitiveness and profitability of agricultural practicc and hcncc darnpencd agricultural production. SAP had reversed the trend in such a way that exports of cash crops were encouraged. The indirect effects of exchange ratc liberalisation on agricultural production and exports also prcsented adversc cffects. The imported componcnts of agricultural production increased its operating costs. The net effect of exchange rate policy reform was positive only because farmers (especially small-scale farmers) wcre less depended on foreign inputs. Besides, there werc incentivcs directed at reducing factor-input costs. In the case of agriculture, government policies on fertilisers, iniproved seeds, herbicides, pesticides and agricultural niacliinery provided significant incentivcs. Indecd, most of the special programmes for boosting food production in Nigeria since the 1970s relied on farm input subsidics as the niain channel of providing incentives to farmers (CBNNISER, 1992). These supports were to be rcduced gradually thereby leaving the farmers to free market forccs in the long run. Other supporting ineasures directed at boosting agricultural production included monetary and credit policies, public expenditure and invcstment policies. Banks were directed to grant credits to the agricultural sector at preferred interest rates. In summary, the reforni disbanded conlniodity boards, liberalised trade and foreign exchange niarkcts and provided various incentives for agricultural production. All these creatcd a more favourable environnicnt for agricultural practice. Indced, indircct taxes on agricultural production gave way to subsidies during the implenicntation of SAP. 3.2.2 URAoA C o n l ~ ~ ~ i t ~nradeebv~Nigeria ~ ~ r t s The UR multilateral trade ncgotiations were hcld between 1986 and 1994 and the economic reforni in Nigeria was put in place in 1986. Thus thc country enibarked on both unilateral and multilateral trade refornis in parallel sessions. However, they were neither co-ordinated nor rcfcrenced. Indecd thcy wcrc treatcd as two unrclatcd programnics. Since, the economic rcfornl was initiated and supported by thc Bretton Wood Institutions (IMF and the World Bank), and the round was held under the auspices of GATTIWTO, lack of (effective) co-ordination was implied on the parts of thcsc international organisations. Even, if a new (further) refonn undcr WTO have i~nplicdtoo niuch libearlisation, the achievcnicnt under SAP would have been locked in. Credits for unilateral liberalisation were neither sought nor given, even on domestic supports and cxport subsidies refornis'. More importantly it sccnis thc country continued with the implcmentation of unilateral tradc refornl. Market Access Bcforc the Uruguay Round, only one tariff itcm (stockfish) was bound in Nigeria's tariff. At the conclusion of thc Round, Nigeria undcrtook bindings for agricultural products at a ceiling rate of 150% and a niaxinium 80% for othcr duties and charges (oDc)'. The bound ratcs for most products are considerably higher than applied custon~dutics. These bindings provide the country with substantial degree of freed0111without necessarily violating the country's obligations in the WTO. Although Nigcria as a developing country is expcctcd to reduce her tariff, the country and some othcr developing countrics, wcrc not coniniitted to reduction froni her ceiling bindingJ. The argument that if Nigeria wants credit for unilateral trade liberalisatio~~,the country should have hounded its tariffat the u~iilateralrate does and cannot co\.er the conin~itmentsunder the domestic support and expon regime and inipon protection components of the UR AoA. 'lt is noted that custom duties on 333 six-digit !IS tariff lines were also bound at between 40 and 80% .' Non-commitment of the coutitry to reduction in tariff rate on agriculhlral products \vas acceptable to member, hencc there \vas 110objection. This raises a point abour the UR Agreement in gencrol. As long WTO members are not complaining about implcmentation andlor non-iniplernentation of a particular agrecrnent, the violator will not be brought to book. Developing countries are at a disadvantage in this situation bccausc they lacked the \vherewithal to srck redrcss from an erring member. Domestic Support Nigeria was not committed to reduction in domestic support for agricultural production'. It is noted, however, that most of the supports operating in the country are WTO compatible. URAA excluded from reduction commitments some domestic assistance that has minimal impact on trade. These measures include government assistance for inputs, export transport and marketing, research, pest or disease control, infrastructure, and food security, as well as direct payments in the framework of environniental or regional assistance programmes (Ohiorhenuan, 1998; Ingco and Townsend, 1998). It is also noted that measures directed at promoting corporate savings and investnient and differential taxes (value addcd tax and cxcise tax) on domestic production and consuniption still reniain outside the scope of WTO agreement. Import Protection and Export Subsidies Although Nigeria is not comruitted to reduction in export subsidies, import protection and export incentives arc being rcfornied in line with WTO obligatio~isand for ease of administration. The country's obligation in this area is the filing of notifications on support programmes that are in existence. The country is also required to subniit notification on export prohibitions and restriction on food products. Froni the foregoing it is clear that Nigeria made very little conimitments in AoA, hence iniplementation has been li~iiitedto notification of changes in existing policy environment. Evidcncc point to lack of capacity (lack of resourccs and lack of understanding of the issues involve) rather than deliberate policy as the main determinant of the commitments made. This point is informed by the developnlent in the policy environment since the UR AoA came into effect and the role and place attached to the agricultural sector in the devclopment of the country. Other related agreements Sanitary and phytosanitary standards, technical regulations and industrial standards, if set arbitrarily, could constitute barriers to tradc. Both the agreement on technical barriers to trade (TBT) first negotiated in the Tokyo round and the agrccnicnt on the application of sanitary and phytosanitary (SPS) nieasures thcreforc attempt to ensure that regulations, standards, testing and certification procedures do not create unnecessary obstacles to trade. The agreements rccognise the rights of WTO mcnibers to adopt the standards they consider appropriate, for example, for human, animal or plant life on health, for the protection of the cnvironnient or to meet other consumer interests. However, in order to prevent too much diversity, nienibers are encouraged to use international standards where appropriate. In addition, the agreements set out a code of good practice for the preparation, adoption and application of standards by central government bodies. It is refined that such standards must be fair and equitable without giving unfair advantage to domestically produccd goods. Members are also encouraged to rccognisc each other's testing procedurcs. All members are required to establish national enquiry points to ensure infomiation regarding latest standards is made available conveniently. In Nigeria, the National Agency for Food and Drug Administration and Control (NAFDAC) and the Standard Organisation of Nigeria (SON) are the enquiry points that have been notified to the WTO regarding standards and technical regulations. Nigerian standards specify production process, quality characteristics on mandatory testing procedurcs. Notices of technical regulations, standards and certification systems adopted by governnient are published in the Official Gazette. Although Table 2 suggests that all dcvcloping countncs be committed to tariff reductions of 215; un\vcightcd average over 10 years, only three countries (Cote d'lvolre, Mali and Senegal) mads conl~nitnle~ltson domestic ngric~rlturalsupport progranimes (lngco. 1998). Both NAFDAC and SON are mandated to secure uniformity in standards spccitication through co- operation with national and intcmational organisations. In that rcgard, Nigeria is a member of the - International Organisation of Standardisation and the CODEX. Both SON and NAFDAC are further required to cany out investigations into the quality of both domestically produced and importcd products. Thcy are also en~poweredto seize, confiscate and destroy substandard, fake or defective goods and to close factories producing them. SON issues official standards covering processcd food, beverages, medical deviccs, chemicals, chemically related products (including and raw materials) and other manufactured goods. NAFDAC is responsible for the control and regulation of food and drug andlor pharn~aceuticalproducts. Standards for processed food and SON sets related items in conjunction with NAFDAC. Howevcr, SON is exclusively responsible for conformity asscssnlent through inspcction, testing and ccrtification of all products in the area of textile, leather, electrical, electronics, civil, building and mechanical engincering. Under the Drugs and Related Products Decree of 1993, the manufacture, import, export, sale, distribution and advertising of rcgulatcd products is subjcct to rcgistration with NAFDAC. Thcsc products include all processed food, bcverages, tobacco, cosmetics, drugs, drug products and chemical, including both raw nlatcrials and finishcd products such as pcsticides. It is prohibited to scll non-registcred products. Applications for registration nlust be nladc by thc manufacturer or by a registered conlpany representing a foreign manufacturer. Imports of non-registered products are dctained until the registration process is achieved. In the areas of marking, labelling and packaging, all manufactured products are rcquircd to bcar namcs or identification marks of the manufacturer. In particular, infonnation carried or packages and lcaflct inserts of imported drugs must not differ from that in the product's country of origin. All items entering the country must be labelled in metric temls exclusively. As rcgards sanitary and phytosanitary (SPS) nlcasurcs, imports of livc aninlals and birds and animal products are subject to pernlits from the vctcrinary authorities. Inlports of cattle and beef from countries affected by Bovine Spongiform Enccphalopathy (BSE) are banned. Inlports of fresh plants, plant products? soil and fish requircd certificates issucd by the authorities of exporting couiltries as well as a phytosanitary certificate issued by the National Plant Quarantine Service of Nigcria. A National Hazardous Chenlical Tracking Prograinme is also administered by the Federal Environmental Protcction Agency (FEPA) under which both chcnlicals and raw materials are inspected. The objective is to prevcnt thc in-rportation of products whose domestic sale or use is banned or scvcrely restricted in the country of origin. The policy was put in place following the discovery of a shipment of toxic waste in the early 1980s. Although Nigeria is a member of some of the international standard-setting organisation recognised by WTO~,effectivc participation of the country in these organisations arc constrained by lack of rcsourccs (mainly financial and inaterial constraints). Thus, the country has not been able to play "~rticle3 paragraph 5 of SPS ageeinent recognised the following international standard-setting organisatioils and enjoins lnembers to be active in these bodies. ( I ) The Food and Agricultural Organisatiolx'liorld Hcalth Organisation (FAOIWHO) Codex Ali~nentariusCotnmission (CODEX) for food safety, (2) the office of internationale des epizooties (01E) for animal health, and (3)the FA0 International Plant P~.otectionConvention (IPPC)for plant protection.Nigeria is a member of CODEX. any significant role in international standard-setting even where its own interests are directly affected. This constrain has also impacted on the country's ability to take advantage of benefits offered by SPS agreement. A case in point was the country's non-response to the EU's proposal on standards on aflatoxins. Given Nigeria's trade relation with EU, its development aspirations and the conlniodities involve, a reaction was expected. The procedure for introducing new measures rcquircs that advance notice of at lcast 60 days for comments from members. Although thc provision allows for extension of period for comments, the period is too short for meaningful analysis of the impact of proposed regulation because resources for such analysis are not readily available. Moore inlportantly the mode of transmitting the notification, through e-mail, assumes a level of tcchnology, which is not easily available to all parties. The level of infomiation system in the country has not developed sufficiently to a level where e-mail will be a reliable and dependable means of communication. With respect to SPS, given the characteristics of Nigerian famiers, dominated by peasants and small-scale famiers, SPS measures are hardly understood and are difficult to meet. Education and training, financial and technical resources arc required both at fami and national levels for a meaningful understanding and conipliance (Oyejide, et al, 2000). This problem is conipounded by lack of mutual recognition of inspections and standards given rise to delays and unpredictable trading environment. 3.3 Changes in the Agricultural Sector Policy Environment since 1994 Although the country is not committed to reduction in tariff rates, liberalisation of the agriculture sector has continued. Market access conditions have improved tremendously over the pre-UR period. Implenlentation of URAA has brought some changes: tariff liberalisation and the removal of non-tariff barriers in the agricultural sector. Applied tariffs on agricultural and livestock production increased slightly froni 26.5% in 1990 to 27% in I998 (a 1.9% increase). While the applied tar~ffson forestry and logging dccrcascd from an average of 14% in 1990 to 9% in 1998 (a 35.7% decrease); the applied tariff rates on fisheries declined by about 75.6% from 59.5% in 1990 to 14.5% in 1998. Thus, the applied tariff on agriculture, forestry and fisheries decreased from an average of 30.5% in 1990 to 23% in 1998 (i.e. about 25% decrease), the range of duty was 4% to 120.5% in 1998 (Table 2). This compared with food, beverages and tobacco manufactures where the averagc duty declined froni about 88.5% in 1990 to about 52% in 1998 (i.e. about 41% decrease). The range of duties for 1998 was 4-160.5%. SlTC YroductlActivity group Applied Import duties Share of bound tariff lines % Average 1990 Average 1998 // i i 11 I I I I I Agricultural and livestock production 26.5 27 1111 / 11 I I I 121 Forestry and logging 14 9 ( / I I I 130 Fisheries 59.5 ) 14.5 1 11 1 I I I I 100 1Agriculture, Forestry & Fisheries 1 30.5 23 Source: WTO ( 1998) Annexes I to V present import and export prohibition list for 1991, 1995 and 1999. The list is getting shorter by the year. Since 1995, most items that were ren~ovedfroni the list attracted high duty rates. For example, following the 1999 budget, the following itcnis were rcmoved from the import prohibition list and replaced with the following level of tariff: Live, chilled or frozen poultry and cggs, (excluding day-old chicks), 150%; beer and stout, 100%; barley and malt, 20%; and mineral and similar waters, 100%. WTO members have qucricd the continued use of sonie quantitative measures for balance of payment reasons noting that nieasures to protect balance of payment are supposed to be temporary. The government is asking for an extension of application of these measures pending some major port reforms. Import prohibition measures for the purpose of safeguarding donlestic producers faced some obstacles. Lack of adequatc capacity to con~plyfeaturcd in Nigeria's notification to WTO Committee on Safeguards Sincc there are no formal legislation on safeguard actions, the country cannot justifiably apply such. However, the country banned importation of some agricultural products (millet, sorghum, and wheat flour) and gypsum for safeguard reasons. This action by Nigeria elicited criticism from WTO members. Other tradc control measures applicable to agriculture are prohibitions, sanitary and phyto-sanitary inspection and certification. Agricultural products fcatured proniinently on the list of export prohibitions. These products include raw hides and skins, and wet-blue leather; maize; yam tubcrs; palm kernels; beans; rice; timber and unprocessed wood, except gnielina logs; scrap metal; and unprocessed rubber. A mandatory pliyto-sanitary requirement for the cxports of fresh plants and plant products is rcquired. S~rnllarly,a mandatory ccltificatc of origin and a declaration of valuc for cxports of cocoa is rcquircd. Export of animals and related products requirc sanitary certificate (WTO, 1998). Thcrc is no export subsidy in place in Nigcria. Thc government has notified the WTO that agriculture is not being subsidised and that the country does not give any export subsidies on agriculture. Howcvcr, thcre are a host of cxport incentives that are applicd on non-discriminatory basis. Thus, there are no incentives (or subsidics) directcd at agricultural exports. The operations of thcse schemes have been declining over the years. Lack of funds to backup somc of the schcn~csand tlic burcaucracy of iniplcmcntation rendercd thcm ineffective. A repackaged incentive was introduced in August 1999. According to governmcnt officials the need to minin~isegovernment expenditure on soiile of these schemes and the desire to conlply with WTO regulation on the use of non-cash incentives to support export activities pron~ptedthe rcview. The scrapped incentive schemes are presented in Appendix Table A2. In place of these scrapped incentives, government introduced a Negotiable Duty Credit Certificate (NDCC). The new schcmc will not involvc transfer of cash from governmcnt to beneficiaries rather the lattcr can use thc Certificate in settling future import duties or charges. The schcnle allowed manufacturers access to raw materials and other intermediate products for the production of exportable goods. A pcrfomiance bond by any recogniscd bank or insurancc company is, however, requircd. Manufacturers will be grantcd automatic refund of 60% of import dutics paid on import used for producing exportable products. The remaining incentives are presented in Appendix Table A3. IV. Nigeria's Current Agricultural Policy Regime The current policy focus is to rctum agricultural exports to its former (pre-oil boom) position although wit11 e~npl~asison incrcasing thc value added of export by processing agricultural co~n~noditiesfor cxport market rathcr than exporting them in raw form. Provision of food for the teeming population with thc aim of attaining self-sufficiency in food production and ensuring national food security is a priority assigned to the Nigerian agricultural scctor. The sector is also expected to provide raw materials for agro-allied industries, gcneratc cmploymcnt and provide markcts for locally manufactured goods. By performing thcse roles, thc industrial base is expected to expand, generate greater employment and reduce the dependence of local industries on imported inputs (FGN: Vision, 2010). It is also recognised that agricultural trade can enhance the technological innovation of the sector. If agro-allied industries that depend on cheap local raw materials are expanded, the demand for agricultural raw material will increase and encourage farmers to enibrace modem farming methods. Also, since liberalisation makes technological artefacts available in the global market, skills that are ncccssary for efficient utilisation of equipment and machinery can easily be obtained by farmers. Thus, improved farni implements, storage, and distribution facilities can be dcveloped to enhance productivity of the sector. The accompanying socio-economic devclopment of thc rural areas will also go a long way in alleviating poverty at this level. Trade policy is therefore an important tool in ensuring that agriculture attains its potential. Indeed, the diversification of thc country's export base and further liberalisation of import trade are the niain objectives of Nigeria's trade policy. The promotion of the traditional non-oil exports of cocoa, rubber and palm produce is central to the diversification policy. These sectoral objectives are backed up by trade control nieasures that are designed to discourage importation of agricultural conlnlodities that the country has comparative advantage in their production. Using the United Nations Conference on Trade and Developnient (UNCTAD) coding systeni of trade control nieasures, the structure of tariffs and other nieasures on agricultural trade in Nigeria is cxan~ined.' The main policy instruments in Nigeria are import tariff and quantitative restriction^;^ the latter consists of prohibitions. All the tariffs are ad valorem, as there are no variable or seasonal dutics. Preferential treatment agreement aniong the Economic Coniniunity of West African States (ECOWAS) countries is not active hence imports froni all countries entcr Nigeria on a most-favoured-nation (MFN) basis. However, under the gcneraliscd system of preference (GSP), Nigeria grants rebates to all GSP countries. No Hamioniscd System (HS) line within the agricultural sector is included in the rebate. Para-tariff nieasures include a surcharge of the duty payable, a value-added tax (VAT) which also apply to doniestic goods and services, and two specific levies: sugar levy on sugar imports and national automobile council tax on value of imported vehicles and parts. In 1998, import duties included thc followings: customs duty that is based on the published Custom, Excise Tariff etc. (Consolidation) Decree, 1995, as may be an~ended.~A rebate where applicablelOa port 'The UNCTAD coding systeni of trade control measures is arranged into 9 broad categories according to their nature. The nine categories are (I) tariff measures (1000). para-tariff nieasures (2000). price control measures (3000). finance nieasures (4000). automatic licensing measures (5000), quantiw control measures (6000). monopolistic measures (7000). technical measures (8000) and miscellaneous measures (9000). Within the broad cateporics, the measures are h~rthersubdivided according to their nature or objective. An example of further classification according to nature is prohibitions (total prohibition. seasonal prohibition. and suspension of issuance of licence etc.) under the broad category of quantity control nieasures. In the case of sub-categorization according to objectives. nieasurcs for sensitive products. be it internal taxes or chargcs levied on imports or technical measures. arc Surthcr classificd according to objectivcs of protecting animal health and life, plant life, environment, wildlife. control d n ~ yabuse, cnsure human safety, cnsurc national security etc. "niport tariff is detincd to include para-tariff nieasurcs ' ~ l t h o u ~custonis duties for a period of seven years are published sonic changes arc usually made during annual budgct h presentation. For example, in 1998, thc following amcndnicnts were made \vith rcspcct to agricultural products. Review of the Customs and Excisc Tariff. 1998. Thus with cffcet from 01 January. 1998, the import duty rates applicable to textilc fabrics in HS Chapters 50 to 60 was 65% instead of the published rate of 45%. Siniilarly. the follo\ving items that wcre removed from import prohibition list attracted high duty rates as live. chilled or frozen poultry and eggs. (excluding day-old chicks) attracted 150%. beer and stout. 100?b: barley and malt. 20%,and mineral and similar waters, 100%. I I1In the 1999 budget. all rebates wcre canccllcd development tax of 5%, a raw materials and development council surchargc of l o !and a shippers' council surcharge of 1%. Sugar imports attracted a 5% tax on the cost-insurance-freight value while imported vehicles and parts attracted a 2% on c.i.f. value. A five per cent VAT was calculated on the duty-paid CIF valuc of imports. A landing charge, equivalent to excise duties on some donlestically produced goods, is charged on competing imports. These dutics were all abolished in 1998 without removing the landing charges on the corresponding imports, thereby enhancing the rate of protcction of domestic production for thesc goods. Generally, tariffs on agricultural raw materials wcre reduced with the exception of those that compete with domestic production such as millet, sorghum, maize, and live poultry. Protection of domcstic production is reflected in high tariffs on processed agricultural products where domestic production capacity exists. Poultry, ccreals, confectionery, grain mill products, animal feeds and mineral waters attracted high import duties sinlply because domestic production capacity exists for thcsc products. High tariffs on tobacco and bcer arc for health policy reasons. Notwithstanding that all the tariff lines in agriculture, (HS Codes 1 to 24), were bound at a ceiling rate of 150% and a maximum of 80% other charges, the applied rates wcrc lower than the bound rates. An exception is the list of products that wcrc recently rcnioved from inlport prohibition list where the rates are closc to the ceiling ratcs. There are no pricc control measures currently opcrating in Nigeria. Anti-dumping actions were last takcn in 1991. These were in respect of tomato paste and puree, starch and some other non-agricultural products. The fact that there arc no anti-dumping cases does not imply that there are no dumping. Rather a lack of capacity to establish such a dumping is a major problem as technical and stringent requirements for establishing dumping are not within thc reach of the country and thc firms concerned (Ogunkola, 1999). The Customs Duties (Dumped and Subsidiscd Goods) Act, 1958 has been under rcvicw since 1991 to ensure conformity with WTO rules. Until this is done and the WTO notified, anti- dumping measures cannot bc lcgitimatcly takcn. Quantity control mcasures, especially import prohibitions arc being used in Nigcria for various reasons. Conccrning agricultural products, import prohibitions for the purposcs of safcguarding domestic production and for balance of payment reasons are common. Liberalisation process has led to a reduction in the list of inlport prohibition. Most of thc items removed from the list are tariffied at close to the bound rate (Scc Appendix Table A I). On the input sidc, tariffs on agricultural cquipnlent and chenlicals arc very low. In 1997 government liberalised the importation of fertiliser, a major agricultural input that was initially under the control of government. Private individuals can now import fertilisers subject to import certificate from National Agency for Food, Drugs Administration and Control (NAFDAC). In summary, agricultural trade policy is directed at protecting domestic production, encouraging the development of agro-allicd based industry and ensuring food security. Trade control measures werc directed at providing higher protection to domestic industry, by imposing low import duties on inputs into thc production of agricultural comn~odities,while the importation of agricultural outputs that can be easily obtaincd from the country attracted high import duties or wcre banned. From the analysis presented, the general direction is towards a more liberalised trade regime; hcnce, items on import and cxport prohibition lists are getting shorter. However, the agricultural pricing policy airncd at ensuring that farmers obtain appropriate remuneration, price and income stabilisation as well as quality control are not given appropriate attention in the ncw marketing arrangement. Farmers are now exposcd to sharp fluctuations in the international market. The agricultural pricing policy also ainlcd at ensuring that Nigeria's agricultural commodity prices are competitive in the international market in order to expand agricultural exports. Another aim of the policy was to cnsure that agricultural imports do not enjoy undesirable comparative price advantages over local commodities, and that agricultural comnlodity prices be in parity with thosc of non-agricultural commodities in Nigeria (Federal Ministry of Agriculture and Natural Resources, 1987). V. Development in the External Markets of Interest to the Nigerian Agricultural Sector 5.1 Market Access The average border protection to agricultural products in the Organisation for Econonlic Co- operation and Developnlcnt (OECD) was highcr in 1996 conlparcd to its level in 1993 in eight out of the I0 OECD countries (FAO, 1999). This protection is achieved through high agricultural tariffs. The post-UR tariffs remain high on temperate-zone food products with tariff peaks cornnlon in major staples, fruit and vegetables, and processed foods. Table 3 shows the structure of tariffs in agricultural products for EC, Japan, and the United States. On the aggregate, 26 percent of tariff lines in agriculture chapters (SITC 1 to 24) attracted duties above 20% in the EU. More revealing is that morc than half of tariff lines in ccrtain product groups attractcd dutics of 20% and above. (60% of tariff lines in cereals, 54% of tariff lincs in dairy products. and 53% of tariff lines in Sugar, Cocoa etc). Mcat, life animals, prepared fruit and vegetables, and other food products have more than one third of their tariff lincs affected by tariff pcaks (i.c. duties of 20% and above). Some tariff lines attractcd more than 100% rate. In Japan, tariff peaks also manifested in about a quarter of tariff lines in agricultural products. About 84% of tariff lincs in dairy products, 64% of lincs in sugar and cocoa and preparations attracted 20% and above duties. Tariff peaks are also significant in cereals, flours ctc and in other food products where about half of the lincs in these categories were charged duties at 20% and above. In the United States, tariff pcaks are relatively less than what obtains in EU and Japancsc markcts. On thc aggrcgatc, only about I0 of the lines in agriculture arc chargcd at 20%) and above duties. About 38% of tariff lincs in dairy products and about 20% in other food industry faced tariff peaks. Perhaps it should be notcd that all tariff lines in fish and crustaceans are chargcd duties below 20% in both Japanese and Amcrican markcts while about 54% of thc lincs for this category of agricultural products arc faccd with tariff pcaks in thc European market. Baring any other barriers, thc Japanese and American markets should be attractivc to exporters of these products. Similar argument holds for Ccreals, flour, etc. Tariff escalation is another problem. It remains an effective way of protecting process products from the developed markets. This is not in tandem with the development aspiration of Nigcria. Figurcs 3a through 3c show the trends in tariff rates facing some products of interest to Nigeria as thc processing chain advances. There is no significant change in the pre- and post-UK in tariff escalation. Problcnls with thc iniplenlentation of tariff rate quotas (TRQs) have been identified to include lack of transparency in thcir administration, poor performance with respcct to quota fill rate, and thc gencl-ation of large number of bilateral trade arrangcnlents. Allocations of quotas on any other bases apart from most-favoured nation basis is bound to result in discrimination and thcreforc jeopardised the objective of increasing market access. Tablc 4 shows that the administration methods have shifted gradually from applied tariffs, an approximate most-favoured-nation principle, to licences on demand, historical importers and conlbinations of various methods" " 13. By allocating quotas on the basis of historical importers ncw entrants to the market for the particular products are discrinlinatcd against. Licences on demand are also prone to lack of transparency. Broad classification of products for TRQs allowed undcr thc UR AoA has prevented opening up of market access in somc sub-product categories within a broad product category (FAO, 1999). EU's treatment of vegetables and fruits into different categories is a casc in point. This dis- aggregation circumventcd the minimum access con~mitnicnt. All these and some other practices such as counting existing preferential treatment and allocation to non-WTO members as part of quotas, etc have affccted the fill rates by countries and by products over the years. Thc right to incrcasc tariffs above bound rates in responsc to a surgc in imports or a declinc in import prices were reserved by 38 members (16 devcloped and 32 developing countries). Relative to the size of these groups in the WTO, therc is an imbalance in this conunitment. The invocation of thc SSG has also been biascd in favour of thc developed countries. Four membcrs have rcportcdly taken action with rcspcct to SSG in 1995, 5 in 1996, 6 in 1998 and 4 in 1999 (WTO, 2000). Only Korea anlong the developing countries that rescrved the right to use SSG measures had invoked it. Tablc 5 shows that Japan, EC and the United Statcs dominatcd SSG actions betwccn 1995 and 1998. Thcy jointly accounted for 80% of the pricc-bascd action and 98% of the volunle-based action lndccd only two other countries, Poland and Slovak Republic had undertaken SSG nlcasures among the relcvant group of devcloped countries. Potential applications of SSG act~onsare conlnlon in meat, cereals, fruit and vegetables, oil seed and oil products and diary products. Table 6 shows that actual price-bascd SSG actions wcre made on sugar and confcctionary, cereals, food preparation, coffcc, tea, mate, cocoa, ctc. The volume- based actions were mainly on fruit and vegetables, animal and animal products and agricultural fibrcs. Dairy products attracted both prlce- and volumc-bascd SSG actions. 5.2 Domestic Support: Dirty Implementation? Bascd on notification to WTO conmlittcc on agriculture (CoA), Table D shows that there is substantial increasc in exempted domestic support expenditure categories especially expenditure on grecn box measures. For EU and the United Statcs, the expenditure on grecn box mcasures almost doublcd the bascd year figurc in 1995 and by thc end of the subsequent years thcse expenditures were inore than doubled the base year figures. Japan has no other excrnpted cxpenditurc othcr than grccn box expcnditurc. Unlikc in the EU and thc United Statcs, expenditure on green box measures though werc higher than thc basc year in the first year of implementation, 1995, it has since been declining. It was still slightly higher than the basc ycar figurc in 1997. " 1;nder applied tariffs, 110 shares are allocated to importers. Imports are allowed in unlimited quantities at the in-quota rate or belo\v. ''Under licences on denland importers shares arc generally allocated, or licences issued. In relation to quantities demanded and often prtor to the conimencenient of the period in which the physical importation is to take place. This includes nicthods involving licenses issued on a first-come. first servcd basis and thosc systcms whcrc liccncc requests are reduced to pro-rata where thcy c ~ c e c davailable quantities. I 'llistorical in~porrcrsinvol\.e allocations of shares or issuance of license on the basis past itnports of the product concerncd Fizure 3 ~Tariff Escalstic~nin ('ottcln in : kiguw33b:lariRLdrtiunin C~rua:Prc- E(1. Pre- and Pust-I'R aid Ust-I R Figure 3d: Tariff Eacalaliu~~\ V d in Figure 3c: Tariff Escalation in llidrs and Productr:h e - and Plat-1IR Skin. Pre- and Post-IR 440100 4.10799 4.110920 4.11820 .1110511 410512 -IlOjlr) 410520 1IS line IIS line Table 3: Tarirr Peaks by Agricultural Product Croups (EC, Japan and the US) Product group L! Number of tarirrlines within a tariff range / Total 20-2930-99 Oh >I00 % European Community (EC) Meat, live animal (1-2) 351 68 79 14 161 46 Fish and crustaceans (3) 373 45 0 0 45 I2 Dairy products (4) 197 2 1 77 9 107 54 Fruit and vegetables (7-8) 407 10 5 I 16 4 Cereals, flours etc. ( 10-I 1 ) 174 29 75 0 104 60 Veg. Oils, fats. oilseeds ( 12.15) 21 1 0 8 -7 10 5 Canned and prep.meat. fish (16) I05 17 8 0 25 24 Sugar, cocoa and prep. (I 7.18) 75 34 6 0 40 53 Prepared fruit, vegetables (20) 310 70 30 1 lI0 35 Other food industry prod. (19.2 1 ) 90 27 8 0 35 39 Beverages and tobacco (22,24) 202 9 15 -7 26 13 Other agri. Prod (5-6, 13-14.23) 23 1 4 I4 4 77 10 All agri.. fishery products (1-24) 2,726 343 334 33 70 1 26 Japan Meat. live animal ( 1-2) 136 3 19 7 29 2 1 Fish and crustaceans (3) 189 0 0 0 0 0 Dairy products (4) 146 15 57 22 I?? 84 Fruit and vegetables (7-8) 209 I 2 7 10 5 Cereals, flours etc. ( 10-1I ) 132 37 24 10 71 54 Veg. oils, fats, oilseeds (12.15) 161 I I 3 5 3 Canned and prep.meat, fish ( 16) 101 2 1 3 3 27 27 Sugar, cocoa and prep. (17.18) 80 26 19 6 5 1 64 Prepared fn~it,vegetables (20) 23 1 52 5 2 59 26 Other food industry prod. ( 19.21 ) 232 113 -7 15 130 56 Bareragesand tobacco (22.24) 65 8 0 0 8 I2 Other aeri. Prod (5-6. 13-14.23) 208 0 0 0 0 0 All agri., fishery products (1-24) 1.890 307 132 75 514 27 United States Meat, live animal (1-2) 116 6 0 0 6 5 Fish and c~ustaceans(3) 114 0 0 0 0 0 Dairy products (4) 25 1 29 58 9 96 38 Fruit and vegetables (7-8) 269 13 O 0 13 5 Cereals. tlours etc. ( 10-I I ) 59 0 0 0 0 0 Vcg. oils, fats, oilseeds (I 2.15) 124 0 2 -7 I 3 Canncd and prep.mcat. fish ( 16) 90 I I 0 2 7 L Sugar. cocoa and prcp. (I 7,18) 144 6 13 2 2 1 15 Prepared fruit, vegetables (20) 169 3 2 3 8 5 Other food industry prod. ( 19,21 ) 156 I I 18 2 3 1 20 Beverages and tobacco (22.24) 126 I 3 8 I2 10 Other agri. Prod (5-6. 13-14. 23) 161 0 2 0 -7 I All agri.. fishery products ( 1-24) 1,779 70 99 26 195 11 Tariff peaks are defined as tariff rates that are 20 percent or more. All are MFN tariffs. " The numbers within thc parcnthcsis in the product are SITC numbers. Source: FA0 (1999). Table 4 Table 4 Principal TRQs Administration Methods, 1995-1999(Kumber of Tariff quotas) Principal Administration Method 1995 1996 1997 1998 1999 Applied Tariff 49 36 38 26 20 First-come, first-served I 3 I I Licences on demand 13 22 25 25 32 Auctioning - 3 8 10 10 Historical Importers 6 20 25 35 35 State Trading 3 Producer groups 2 Other 5 4 6 9 10 9 23 10 108 108 108 108 108 Source: WTO (2000). Committee on Agriculture Special Session. C1larigc.s in Tor-t[f Quola Adrilirrirlr-i~tioriatid Fill Rule, GlAGINGISI20. 08 November. Table 5: Special Agricultural Safeguard (SSG): potential application and action by members Member Potential application of SSG SSG action by member and number of tariff - Number of 1 numberof product groups (HS 4-digit 1 Itar~ffitems head~ngs) Developed countries: 1 3856 967 64 128 ' 539 72 26 a 47 " 121 27 4 "' 73 189 26 24 " I I I I Developing countries: 1 2216 1 728 8 l ~ n r m 1 I. .I .I 1 1 - . 34 8 1 I I 6,072 1 1,695 74 Source: FA0 (1999). Table 5. a/ HS 8-digit items. b/ HS- 9-digit items. c/ HS 6-digit items. Table 6: Special Agricultural Safeguard (SSG): Potential Application and Action by Product Category =ategory Potential application of SSC 1 SSC action by member and I - . number of tariff items, 1996-98 Sugar and confccrionar-y 291 4.8 23 Dairy products Animal and product thereof 1327 21.9 5 47 73 1.2 13 0.2 5 and preparations; spiccs 277 4.6 6 I and other food preparations Other agricultural products 37 1 I 6.1 8 I /Allcommodity categories 123 - Source:FAO(I999). Table 6 Table 7: Trend in Domestic Supports in European Union, Japan and the United States, 1995 to 1997 USA (million S) Base 1995 1996 ( 1997 I I I I I Green Box Measures 24098.0 4604 1.0 5 1825.0 51249.0 I I 1 I Development Programme Measures 0.0 0.0 I I I I Direct Payment Under production-limiting 7030.0 I Non-exempt categories I 25470.0 7696.9 7052.8 7042.7 NOII-eve~l~prculegories I1 6213.9 j897.7 6238.4 TOTAL DS 49568.0 60767.9 58877.8 58291.7 I J Total AMS Commitment Level 23083.1 22287.2 21491.2 1 EU I I I I (million ECU) Base 1995 1996 / ~ r c e nBox Measures 9233.4 I L I Development Programme Measures 0.0 / 0.01 0.0 I 1 1 D~rcctPayment Under production-limiting 20845.5 2 1520.8 I I I Nan-ese~nptcategories I 73644.9 50600.1 51478.0 I I I TOTAL DS 82878.3 90224.8 95 137.4 I I I I Total AMS Commitment Level 78670.0 76370.0 I 1 I Japan (billion yen) Base 1995 1 1996 1997) 1 / I Grccn Box Mcasurcs 2204.6 I I Dc\~elopmenrProgramme Measures I I Direct Paynient Under production-limiting 1 / --I I Total AMS Commitment Levcl 4800.6 I I I I I I SOLII.L.CS: Based on ( I )WT0 (2000), Committee on Agriculture. Special Session. Domestic Support. GAiGMGiSil (2) WTO (2000), Comrnitrcc on Agriculture. Special Session. Green Box Measures. GA/G/NG/S/2 Note: The figures in ro\v for non-exempt cate~oriesI \vere calculated from product by product notitication of expenditure. This did not distinguished from \vliether dc minimis clause was satisfied or not. On the hand. the figures in row for non-exempt catcgories I1 only included expenditure within the de niinirmis level. Thus. all the sampled countries violated the dc minlniis clause. The rate of violation was more pronounccd in the United States. Table 8: Liberalisatior~Cor?~rl~itr?~eritsill Agriculture Subsidies Price Quantities Outlays Quantities Tariffication and Tariff quotas for 20%) 36%) 21% tariff reductions of 3% of domestic reduction reduction 6 reduction 6 36% unwcighted consumption, in years years average over 6 years rising up to 8% aggregate after 5 years in 6 years Developing Tariffication and None 13.3% 24% 14% tariff reductions of reduction reduction reduction 10 24% unweighted in 10years 10 years years average over 10 years Least None None None None None Source: Adapted from Ohiorhenuan ( 1998) Table 9h: U~zitedStates' Export Subsidies, 1995 to 1998, US $ --- - 7- ~ PRODUCT - ~ ~ ~ . ? ".a. 444151539 - --- . --- 0 n.a. 50441295 - .----- .. . ..--~-. ---- ~ ~ RICE 15705850 ; 0 n.a. 5036310 - - - - . ~ .. .~ ~ ~ CHEESE 43 17320 ; 4 164216 96 3976479 BOVINE MEAT 29240900 : --.-.- -- -- - - . -- - PIGMEAT 0 n.a. 543654 -- 0 n.a.~- 12995302 . ~ - ~ EGGS (do7cn) 639 1233 0 01 5194545/ 0 n.a. 2801 167 Bud1995: annual eommitmenl lcvcl for 1905 for each product in tcl-rnsof budgetary outlays. Similar lnterprctatlon holds for other years BUDn1995: notified use of budgetary outlays in 1995 for each product. S~rnilarinterpretation holds for other years XS9Shud: notified use of export subsidies expressed as a percentage of the relevant annual comrnitmcnt level. Similar intcrprctation holds for other ycars. Source: Su~nrnarisedfrom WTO (2000), Committee on Agriculture, Export Subsidics, G/AG/NG/S/S In most cases, the non-exempt expenditures wcrc substantially reduced from the base and have been declining since. However, the total domestic support (excn~ptplus non-exempt categories) has been increasing. The figurcs were higher than the based year figures in both EU and the United States. Japan has been ablc to maintain figures lower than the base year figure over the years. Thus, the implementation of reduction in domestic support was at bcst a change in thc categorisation of expenditures. Thus, the ratio of expenditure on non-exempt categories to total AMS commitment lcvcl is a mislcading indicator of the reduction in donlestic support, a look at total (cxempt and non-exempt expenditures) donlestic support givcs a rcalistic picture of the devcloprncnt in this area. 5.3 Export Subsidy Two levels of refomis arc cxpcctcd in the export subsidy commitment. First, cxpenditurcs on export subsidies are to be reduccd by 36% in industrial countries by the year 2000 and by 24% by devcloping countries by year 2004. Second, the quantity of subsidised exports is to be rcduced by dcvelopcd countrics by 21% by thc ycar 2000 and by developing countries by 14% by the year 2004. The summary of commitmcnts in agriculture is presented in table 8. Although Nigeria is classified as a dcveloping country; corrcsponding to thc shadcd row, the country opted out of some commitmcnts. Scc section 3.2.2 for thc country's con~mitmentsunder AoA. In gcncral, Nigcria and othcr devcloping countrics arc expected to achieve two-thirds of thc dcvelopcd countrics' con~mitmentwithin one two-thirds of the pcriod of implementation by the dcvcloped countries. The two-third and one two-third rulcs neither reflect thc structural and institutional constraints by the dcvcloping countrics as a group, nor dircctcd at individual country's capability. Thc inlplc~ncntationof cxport subsidy co~~in~itn~cntsby Nigeria's main trading partncrs, EU and thc Unitcd Statcs is sumn~arisedin tables 9a and 9b. Japan has no comn~itnientin export subsidics. The trcnd in thc aggregate subsidics revcalcd that EU's cxport subsidics on agricultural products, though is w~thinthe co~~i~iiit~iientIcvcl, is on the upward trend. It increased from about ECU6.9 billion in 1995 to about ECU7.3 billion in 1998. Ricc, Sugar, milk products, bccf meat, alcohol and 'incorporated products' wcrc highly subsidised. In some cascs the subsidy on each products or product groups was greater than the committed level.. Article 10, paragrapli 2b of the AoA allows for cxport subsidies 011 a given product to be in exccss of the corresponding annual conlrnitment lcvcl undcr ccrtain conditions. One of such conditions IS that the end of the iniplementation pcriod the budgetary outlay should not be greater than 64% of thc 1986-1990 bascd pcnod. Although thcrc arc no data for budgetary outlays for 1999 and 2000, the available data shows that substantial reduction is requ~redin ccrtain groups of products if thcse conditions are to be mct. For exaniple, export subsidics on sugar have not only being greater than conimitnicnt levels sincc 1995, the budgetary outlays have increased froni about ECU 379 niillion in 1995 to about ECU795 million in 1998, niore than double. Similar trends arc observable for 'other milk products' l'hc United States' export subsidics commitmcnts on about a dozen of food products or product groups was to decrease from about $1.17 billion in 1995 to about $0.71 billion in 1999 (table 9b). l'he actual export subsidics granted wcre, howcver, liniitcd to buttcr and milk products. Similar to that of EU tlic budgetary outlays are on the upward trend increasing fro111about $26 million in 1995 to about $147 niillion in 1998. Whilc expcnditurc on niost of thc itcms increased ovcr thc year, tlicy wcrc within the conin~itn~cntlcvcls for each product or product group until 1998 the export subsidies on skimmed milk and other milk products increased more than the conunitment levels. They were about 136 and 129% percent of the commitment levels respectively. Substantial reductions in thcsc subsidies were required if overall the country is to be within its overall comnlitrnent at the end of the iinplementation period. VI. Performance of Agricultural Sector in Nigeria The preceding sections have demonstrated that the implementation of agricultural sector reform (liberalisation and production reforms) has been minimal both in Nigeria and in the external markets that are of interest to Nigeria. The implications of this development on the Nigerian agricultural system arc the focus of this section. Basically it exanlincs trends in production, cxports and imports of agricultural products with emphasis on developnlents in the food sub- sector. 6.1 Development in the Production, Exports and Imports of Agricultural Commodities An analysis of the perfomlance of the agricultural sector between 1970 and 1985 revealed that average annual growth of the major agricultural crop production was - 1.23% (Table 10). Varying distortions in thc ccononly during this period include ovcr-valued exchange rate, marketing controls, price setting and restrictive trade policies, among others. It is noteworthy that staple crop production recorded the highest decline. Apart from exchange rate overvaluation that made imported food items chcapcr, liberal food import policy, especially between 1970 and 1977, was responsible for the decline in staple crop production. Fish production that recorded an impressive growth bctwecn 1970 and 1980 suffercd a great shock in 1985; hcncc the sector recorded a negative growth for the entire period (1970 to 1997). The changcs in the fortune of tish sub-sector is explained by the constrained opcrations of National Accelerated Fish Production Programme (NAFPP): ineffcctivc operations of thc programme especially inadequate funding, poor input distribution to states and incffcctive usc of fishermen co-operative societies. Sources: (I) Data for 1970-1990 from Central Bank of N~gcria(CBN), Stutisrical Bullerir~.Volume 7 Number I. (2) Data for 1995-1997 from Central Bank of Nigeria (CBN). Arlrrlrol Report urld Sfufeti~erltofAcco~rrlfs/or the Yeur ended 3 1st Dec.rt~ihet-1997Lagos. The second period (1985-95) was characteriscd by econon~icreform. Apart from creating an enabling environment through pricc inccntivcs, there wcrc supportive programlnes that addressed the non-pricc factors. The sector rccorded a positive growth rate of close to 8% during this period. Staple crops rccordcd the highest growth ratc, 10.7%. Thc lowest, 1.74?/0came from fish sub- sector. In the third period, 1995-1997, tradc liberalisation that began in the second period was strengthened. Tariff rates were further reduced and all the tariff lines in agriculture were bounded. Non-tariff measures were sparingly uscd. These and other measures resulted in an average annual growth rate of agricultural production of about 3.91%. For the entire period, 1970-1997, all the identified sub-sectors recorded positive growth rates between 1.82 and 3.29%, except fisheries that recorded negligible negative growth rate of - 0.08%. The annual average growth rate of the sector for the entire period, 1970 to 1997, was less than the average growth ratc of the population (2.32% compared with 2.83% population growth ratej. These favourable conditions not withstanding, the performance of the sector was below the projected 5.5% by the 1997-1999 Rolling Plan. Nigeria's inlports of agricultural comnlodities have been consistently below its exports at least in the last decade (see figure 4). Indeed Nigeria's exports of agricultural commodities increased marginal and stabilised at about $0.5 billion since 1995. The imports rose gradually from a little over $1.0 billion in the pre 1994 to about $1.5 billion in 1998. Evidence point to declining agricultural commodity prices as a significant factor. For example the price Cocoa, a major agricultural product of Nigeria declined from an annual average of about 168 Cent per kg in 1998 to about 91 per cent in 2000. Similar trends arc observable in other commodities that are of interest to Nigeria. 6.2 Food situation The importance of food in Nigcria's agricultural trade is capturcd in table 11. The share of agricultural food exports by Nigeria has been declining over the years and agricultural food imports dominated agricultural inlports by the country to the tune of 90% on the average. The country is a net food inlporter and government actions have focused on reversing this trend. Food supply in sufficient quantity, improved nutritional status and, food accessibility of Nigerians are sonic of the policy issues. Instability in food production (measured as grain equivalents of maize, rnillct, sorghum, rice, wheat, yam and cassava) are pronounced. In the first half of the 70s food production grew at an average annual rate of -1.74%. In the last half of the 70s growth ratc of food production declined to -4.41%. By the first half of the 80s (1981-85) the growth rate of food production was +9.3 1% and this increased to reach a peak in the second half of the 80s when it was 14.55%. Indeed the 80s were a glorious decade for food production in Nigeria. Its growth rate for the first three years in the 1990s however, recorded an average growth rate of 5.71%. Food import bill is on the increase as the share of food in total inlport was as high as 15% in the first half of 1980 (Table 11). The share declincd in the second half of 80s to about 8.3% of imports. This translates to a reduction in food import bill from about $2.2 billion in 1980 to about $0.43 billion in 1990. This reduction in food imports was, however. not sustained as it increased to about 11% in 1995 and further to about 12.7% in 1996. In value ternis, food inlport bill was $0.53 billion and S0.66 billion in 1995 and 1996 respectively. Indeed food import ranked second behind n~anufactures.The share of food export ranged between 1.7 and 2.7% during the period. The value food exports also declined from about $0.57 billion in 1980 to about $0.23 billion in 1990. It however increased marginally to $0.34 billion and $0.39 billion in 1995 and 1996 respectively. Figure 5''' shows that before 1975, Nlgeria was a net exportcr of food. However, since 1975 Nigeria's import bill has been in excess of food exports. I" SITC 0 is uscd as prosy for food imports and food csports. The food gap that was reduccd between 1985 and 1990 is now widening. Effects of SAP explain the developnient betwecn 1980 and 1990 while the development in the latter period is attributable to the effect of AoA. Figure 6 shows the trend in import of wheat and sugar. The high jump in import of thesc conimodities is attributable to trade libcralisation efforts by the government. The current food situation is worrisome and efforts are geared towards meeting the country's food deniand through local production. Efforts are being directed at mininiising post-harvest losses, and in bringing food prices within the reach of most Nigerians. The situation where more than 70% of average income is expended on food itcnis is worrisome to the government. Government has no doubt shown that with appropriate policies in place, Nigeria can conveniently meet her food rcquirenient locally and even become a net food exporter. Observations on the trend of agricultural prices, output and exports tcnd to suggest that liberalisation and economic policies in the last half of the 80s have impacted positively on developnicnts in the sector. First, domestic prices of agricultural coninioditics increased substantially. Figures 7 and 8 also reflect differences in the prices of cash crops and staples. Whilc the prices of staplcs continued the upward trend in the 1990s, prices of sonie cash crops were either constant, or unstable or declining. In terms of output, the incrcasc that started in the last half of the 80s was not sustained in thc 90s. Indeed, output of some comniodities fell. Figures 9 and 10 prcsent a vivid picture of trends in sclected outputs of agricultural products. Figure 5 for instance shows that while exports of food has been on the increase since 1990, its import declined, spiralling another wide gap between food imports and exports. 6.3 Food policy: to import or to produce? For various reasons ranging from cmployliicnt consideration to foreign cxchangc constraint, the government favourcd niceting its deniand for food through domestic production rather than food iniports. Indeed, the current administration in the country puts food security and affordability on topmost priority. Adequate food supply is not only a nicans to poverty allcviation; it also posscsses sonie econoniic benefits. The fact that poor nutrition impacts negatively on labour productivity necessitates meeting food demand from local sources which are considered a cheaper source than that of imported foods items. This, coupled with government's policy of affordablc food prices, substantially favours local food production. Even if food imports are relatively cheap, there are important benefits of donicstic production of food items. Local food production provides cniployment for the teeniing population and also generates inconie for them. Given the quality of available rcsourccs especially, the low skill level of agricultural population, an alternative employment of resources that is supposed to be cngaged in food production niay not be easy. Thc forward linkage between agricultural production and the manufacturing sector is another advantage in local food production as locally produced food items are to serve the food processing industry in thc country. It has also been argued that local food production provides a market for manufacturing firms and it also promotes inconie distribution. Table 11: Structure of Nigeria's lt?zportatld Exports, 1980 to 1996 I l l Exports Iniports 1980 1985 1990 1995 1996 1980 1985 1990 1995 1996 Pcrcentage share Food 2.2 1.7 1.7 2.7 2.5 15.1 15.1 8.3 11.0 12.7 Agricultural raw 0.2 0.3 1 . 1 2.4 1.8 0.4 1.2 0.8 0.9 0.4 material Mining 95.6 96.0 92.9 86.8 92.0 1.7 1.7 1.5 1.0 0.7 Manufactures 1.8 1.9 4.2 8.0 3.7 82.6 80.2 88.5 85.5 85.2 Value in $ billion I Total 126.1 1 15.6 /13.5 112.7 /15.5 114.3 16.19 15.18 14.82 15.20 11 Food import bill 10.57 /0.27 10.23 10.34 /0.39 ) 2.16 /0.93 10.43 10.53 )0.66 1 ! ! I Source: Co~iiputcdfrom WT0 (1998) VII. Nigeria's Interests and Options for the New WTO Round of Negotiations Thc main purpose of the AoA is to bring agriculture under multilateral trading system. Two iniportant elcinents in this process arc tariffication and binding of coniniitnlents and to a large extent substantial progress was made in this regard in the last round. Of course, thc ultiniate objcctive relatcs to agricultural trade libcralisation and froni the evaluation presented above, not niuch has been achieved in this arca notwithstanding the conlniitnients made by the WTO iiienibers. Given these observations, this section takes a look at what should be thc preoccupation of WTO nienibcrs in the forthcoming round of negotiations From the foregoing, new round of negotiations provide an opportunity for re-tooling the AoA in order to reduce protection and distortionary trade policies in agriculture. Using thc three pillars of AoA: market access issues, donlestic support and export subsidies, this section attempts to articulate a Nigcrian position in the new round of negotiations. Nigcria's aspiration is to develop its traditional and nontraditional exports in line with thc country's coniparative advantage and past performance. It will be recalled that bcfore the oil boom, raw agricultural exports were significant and contributcd substantially to foreign exchange earnings. There is therefore no doubt that the country has the potential for attaining these goals. However, some factors, both donicstic and external, arc restricting the development (production and exports) of the sector In thc following paragraphs, options for the devclopnlent of the sector are examined under the three pillars of the UR AoA. 7.1 Market Access Issues Evaluating thc country's iinplenlentation of agricultural tradc libcralisation on the basis of changes in policics in thc post-UR is likcly to bias thc country's coniniitnient (not necessarily to multilateral trade negotiation) and iniplementation of reforms. A whole ganiut of liberalisation since thc adoption of SAP should be considered in evaluating and strengthening trade Iiberalisation. The country has come a long way from taxing the sector to minimum government intervention. To an average farmer, there is no distinction between unilateral trade liberalisation and multilateral trade Iiberalisation and the best that WTO can do is to integrate agricultural trade liberalisation under SAP with the negotiation in the next round. On the doniestic front the across-the-board unifornl rate should be revisited. Within the agricultural sector, there are sub-sector conlparative advantages and different levels of priority that should be reflected in thc binding conmiitnients. The country should reflect all these in its agricultural tariff bindings in the forthcoming round of negotiations. Nigeria has not conipleted the process of full tariffication. A fcw non-market based trade control measures such as bans are still in place. The country should consider tariffication of these con~n~odities.Related to this is liberalisation of the sector. a preference for floor binding over tlie current ceiling bindings possesses the required transparency for trade policy to play a significant role in the development of the sector and tlie economy in general. Of course, this should incorporate the level of development of the country. In this vein, the country should consider rcduction in tariff ratcs on the non-strategic sector, where the country has no comparative advantage. Reduction in bound rate close to the applicd rate in this sub-sector may be considered. On the stratcgic sub-sector such as food the country may maintain the current bound rate and possibly raise the applicd rate close to this level. Thcse suggestions are aimed at achieving transparency and possibly to attract foreign direct investment in the scctor. Of course high applied tariff on food is bound to gencratc high consunicr cxpcnditurc at least in short-run, tariff rcvcnuc from the scctor could be used to develop the sector. Investiiients in infrastructures such as rural roads, storage and preservation facilities, and even processing units are in dire need in thc country. This does not necessarily niean that the country would violate thc AoA on doniestic supports (see below). In thc n~ediuiii-run,such a policy will attract dcveloprnent of local altcrnativc to imported product and this is the niore reason why the binding should be as close as possible to the bound rate so as to give a clear signal to investors in certain key areas. Perhaps the country should seek to anchor its tariff policy in ordcr to cscape from various interest groups that had succccdcd in the past to rcvcrse govcrninent policics in this area. Governnient policies on wheat production in recent past are a case in point. Apart from liberalisation through tariff reduction of the sector, the country should seek a re- negotiation of other issues in the market access component of thc UR AoA, such as SSG and TRQs. For example the country should seek to reserve the right to apply SSG measures. This would act as insurance against unforeseeable developnlent in the sector, which would have ordinarily necessitated adjustment in tariff rates. Perhaps government's reluctance in liberalising the sector is justified given the developnient in the relevant external ~iiarkets.As presented in thc Scction VI, external markets that are of interest to Nigeria are still charactcrised by tariff peaks, tariff escalations, TRQs shrouded in conceptual and iniplementation laxity, SSG iiieasures that perpetuate discriniination and, trade-restrictive SPS and TBT nleasures. The country's position on thcsc issues are suggcsted in what follows Tariff peaks affect about a quarter of tariff lines in agricultural products in EU and Japan and about a tcnth of the lines in thc United States. More iinportantly is that thcrc arc still sonie tariff lines in agricultural products in thesc markets that attract morc than 100 percent duties. The import of this is that UR AoA tended to have increased tariff dispersion. Tariff peaks in the developed countries are important because of the binding was at floor binding and hence these peaks are the applied rates. Closely related to this is tariff escalation, which are manifested in processed agricultural exports that arc of interest to Nigeria. The case of cocoa and other products are illustrated in Section VI above. The country should seek for harnionisation of tariff rates occasioned by tariff peaks and escalations. This would involve defining the negotiation forniula to use. In any case the country should be interested in any forniula that reduced the very high tariffs niore and that have minimal impact on thc already very low tariffs. Thus the country niay propose a 'swiss foniiula' or its variant. This may also be applied to non-strategic agricultural coniniodities of the country. As I have argued earlier on, there is the necd to consider the current applied rate in non-strategic agricultural products as the level of binding. The other option is to use the highest applied rate in this category of agricultural products as the negotiating rate under the swiss formula. The country should also be interested in special safeguard provisions at least for two reasons: first, their uses in the EU, Japanese and the United State niarkets and their potential effect on Nigeria's exports. The concern should also manifcst in taking advantage of the SSG. As shown earlicr, thc currcnt access and application of SSG is biased against the developing countries in general. EU, JAPAN and tlie United States dominated tlie SSG actions so far taken. The frequencies at which these countries resulted to safeguard mcasurcs call for a revisit to underlying factors for SSG to be invoked. The currcnt dispensation should be reviewed to allow developing countries who are willing to liberalise their trading in agriculture have a recourse to in case unforeseen circumstances. If Nigeria is to liberalise trade in tlie non-strategic agricultural sector, such safeguard measures arc necessary. It would be recallcd that the country's attempt at invoking safeguard provisions on import prohibitions on whcat flour, sorghum and niillct in 1998 was not valid because it did not nlakc any comniitnlent in this rcgard. Various practices that are countcr to the objectives and intent of TRQs have been noted. The administration is far froin being based on most-favoured-nation principles and hence various methods of allocation have been used to circumvent the objective of not reducing market access. Manipulation of doniestic consuniption calculations was also noted. Nigeria sliould seek for clearer rules on TRQs to ensure transparency and on in-quota rates. All these efforts should be geared towards expanding and dis-aggregating the TRQs in order to have a fair acccss. 7.2 Domestic Support The discussion on doniestic support to agricultural production in those markets that are of interest to Nigeria shows that the calculation of reduction on domestic supports is bascd on average and this left rooill for various nianipulations at product level. The country should seek for product specific reduction especially as to ensure iniproved niarkct access condition for its products. Total support (exenipted and non-exempted cxpcnditurcs) has bcen on the upward trend. Indeed by 1999 the support to producers reached the high level of a decade earlier (OECD, 2000). Of course, the trcnd shows an inverse relationship bctwecn support to farniers and low conunodity prices. Lack of a cap on exemptcd expenditures andlor on total support has bcen responsible for tlie upward trend. Indeed tlie implenientation has resulted in a reclassification rather than constraining the expcnditurcs. The country should seek for a cap on total support andlor exemptcd expcnditurc. In addition, dc minimis allowances for countries with huge aggregate measure of support (AMS) levels should be revicwed. Further~iiore itenis on the list of exenipted expenditures should bc rationalised and sonie of then1 such as items under the general services should be reserved for developing countries. On the domestic front the need to develop domestic capacity for agricultural production includes, among others, improvement in production technology, distribution and processing. It is in this vein that input subsidisation, irrigation projects, assistance with provision of plant and machinery equipment services and other WTO cornpatiblc assistance to farn~ersare very important. Nigeria favours market-based incentives not only because they are compatible with WTO agreement they are administratively convenient and tend to lcad to better allocation of resources. However, market failure exists in the sector. Pcrhaps this explains the limited commercial farnling in the country as noted in section 11. More importantly because of the priority accorded to food production, government intervention cannot be ruled out at this stage of development of the country. While the country's support to thc sector will remain within the AoA, the country should seek for greater latitude in the forth-coming negotiations. An option is to revisit the domestic support commitnlents especially as they relate to the development of the strategic agricultural sub-sector. The country should press for the use of donlestic support such as the oncs that are necessary to addrcss rural development (infrastructures: road, watcr, housing, drainage, sewerage), rural poverty, environmental problems, and more inlportantly food sccurity for the teeming population. These supports are necessary for agricultural production to be more attractive and to reverse the rural-urban migration that was rampant during the oil boom era. Granting access to thcsc arrays of don~csticsupport does not guarantee that the country will providc these services. Indeed the implen-rcntation of some of these support programmes was discontinued because of budget constraints even bcfore SAP was introduced. One way out of this is to set aside tariff revenue from agricultural products for the purpose of dcvcloping the scctor. Sincc such revcnue may not be sufficient, external sourccs then becomes important. External development fund may conle as grant andlor in form of foreign direct investment into the scctor. To me the latter should be prcfcrred for various reasons: First, farnlcrs from the developed countries may establish joint ventured plantation with local farmers with government as guarantor. In effect this will imply relocation of farmers from developed countries to the country. The point is that the farmers may not require as much as the level of support being currently received by farnlers in various dcveloped countries. Second, such joint venture brings with (production, distribution etc) technology. Another advantagc of this proposal, which is akin to industrial relocation apart from efficient utilisation of resources and technological transfer, is that it is lllutually beneficial to both devclopcd and developing countries. Finally, it is in the spirit of globalisation. 7.3 Export Subsidies Export subsidies in the final analysis amount to dumping. Export subsidies depress world prices and thus distort thc true comparative advantage. The concern of net-food importing developing countries about thc adverse effect of removing export subsidies by developed countrics on their food import bill is not justified in the long-run. Although, Nigeria is a net food i~nportingcountry, it should clamour for completc abolition of export subsidies from a long-run perspective. While in the short-run assistance will be required to meet food demand by its teeming population, such assistance should be directed at stimulating domestic production of food. The country should be able to iilcct its basic food rcquirenients locally. It is this vein that the country should press for effective iniplementation of the ministerial decision on the possible effects of the reform programme on the least-developed and net food-importing developing countries. The country should also seek to be categorised as a net food-importing developing country'5. 7.4 SPS Measures The evaluation of the iniplenientation of AoA by the Nigeria's major trading partner is not coniplete without the discussion of the agreement on the application of SPS measures which is linkcd by Article 14 of AoA. There are indications that standards are set above internationally recognised standards and that WTO procedure on standards can be effective. Otsuki et al (2000) quantified the impact of EU's standards on aflatoxins on food exports from nine African countries including Nigeria. EU's standard was niore stringent than internationally recognised standards. It was found that EU's standard would decrease the relevant exports of the selected African countries by about 64% or about $700 niillion over and above what would have been obtained using internationally recognised standard. EU's standard would reduce health risk by less than 2 deaths per billion a year! This is a case study on how SPS measures can disguise as trade barrier. The standard at the proposal and coiimicnt stage by meiiibcrs generated concerns among some exporters of the relevant food products'! As a result of these objections, the EU relaxed the proposed standards although the standards that were eventually established were still higher than international standards. The need to be morc involve in standard-sctting at international level cannot be over-eniphasiscd and thc fact that Nigeria did not react to EU's proposal cannot be attributed to negligible effects of the proposal nor can it be attributed to the country's capability to cope with the proposed standard. It is rather, a manifestation of lack capacity to implement WTO agreements. The country's lack of capacity has been examined either at the country's level andlor at regional level. (Ogunkola and Agah, 1999, Ogunkola, 1999, and Blackliurst et al, 1999). The balance of the argument is that there is greater role for regional bodies than they are currently playing. Perhaps, it should be stated upfront, these bodies need to rc-focus and align their activities with that of the WTO. VIII. Regional, Bilateral and Preferential Trade Agreements As a niember of the Organisation of African Unity (OAU), Nigeria has ratified the Treaty establishing the African Economic Coniniunity (AEC) which was established by the Sunmiit of the OAU Heads of State and Government in Abuja, in 1991. The AEC Treaty provides for the creation of a pan-African econoniic and nionetary union over a 34-year period. It is worthy to note that the AEC is yet to fully take off. Thus, Nigeria like many other OAU member States is yet to take any specific 11icasurcs under the Treaty. However, Nigeria is a mcniber of other Pan-African tradc organisations like the Association of African Tradc Proniotion Organisations based in Tangier, Morocco. and the Inter-African Coffee Organisation. 15 The current list of nct food-importingdeveloping countries includes: Barbados, Botswana, Cdte d'Ivoire, Dolniliican Rcpublic, Egypt, Honduras, Jamaica, Kcnya, Mauritius. Morocco, Pakistan, Peru. Saint Lucia, Senegal,Srl Lanka. Trinidad and Tobago, Tunisia and Venezuela I6Reactions came from Bolivia. Brazil, Pcru. India, Argentina, Canada, Mexico, Uruguay, Australia, Pakistan, Gambia. Scnegal. South Africa and Thailand. At the sub-regional level, Nigeria is founding member of the Economic Community of West African States (ECOWAS), which has provisions for trade and investment liberalisation comnlitments. Under the ECOWAS Trade Liberalisation Scheme (TLS), Nigeria today has the largest number of companies and products participating in the scheme. It is also the only mcmber country that has fully paid its assessed contribution to the Compensation Fund for the TLS. However, the ECOWAS TLS has remained ineffective as a result of the preponderance of infornial trading activities in thc sub-region. The country's conmiitnient to the successful implementation of the ECOWAS TLS has further been demonstrated through the establishment of one-stop combined checkpoints at its borders as well as thc iniplcmentation of tlie ECOWAS Mission Agcnda on the Free movement of persons and goods. Nigeria has signed bilateral tradc agreements (BTAs) with Benin, Bulgaria, Equatorial Guinca, Jamaica, Niger, Romania, Turkey, Uganda and Zimbabwe. These BTAs aim at facilitating trade between Nigeria and the various countries; and provide for Joint Conmiittees to monitor and advise on measures for improving both thc volurnc and balance of trade between the parties. Furthermore, in order to attract and enhance foreign direct investment, Nigeria has signed investment proniotion and protection agrccnlcnts with Francc, tlie Unitcd Kingdom, China, North Korea, Turkcy and the Ncthcrlands. As regards preferential tradc agrcernents, Nigeria is a signatory to the Lome Convention bctwecn the European Union and developing countrics of Sub-Saharan Africa, the Caribbean and thc Pacific arca. Under the convention, Nigcria is grantcd duty-free access to the EU market for exports of all industrial and agricultural products which arc not subject to a conuiion niarket organisation in the franiework of the EU's Co~iunonAgricultural Policy. With exports of ECU4.9 billion amounting to 22 per cent of total EU-ACP imports in 1996, Nigcria is clearly the largest exporter to the EU. This figure mostly reflects trade in crudc oil, which cnters the EU duty-free on an MFN basis. It is also expcctcd that Nigcria can dcrive prcfcrcnccs fro111cxports of rcfincd oil products, which enter tlie EU duty-free from ACP countries, whereas MFN duties range to six per cent (WTO, Docunicnt WTILi235, I0 Octobcr, 1997). Under the UNCTAD Agreement on the global systcm of Trade Prefcrcnccs (GSTP) anlong developing countries, Nigcria has concedcd lower tariffs for i~uportsfrom other participating countries on a limited number of products, including pharmaceuticals and ccrtain machinery. The tariff conccssions are, however, being enlarged within the framework of the Second Round of the GSTP negotiations, which is yet to be concluded. North-South trade rclationship and South-South trade rclationship are captured in the various arrangeliients briefly examined. The north-south trade rclationship as represcnted by ACP-EU Lome conventions and currently replaced by ACP-EU partnership agreement are based on complementarity rathcr than competitiveness (Olofin, 1977, Ogunkola and Oyejide, 1999). Hcncc, it is usefulness as a basis for long-tcrni dcvelopmcnt of thc country is limited. Wang and Winters ( I 998) also cxamincd the preferences under Gencraliscd System of Preference (GSP) and the ACP-EU. Thcy submitted that the ~iiarginof preferences grantcd are usually very small, erosion of preferences will continue with future multilateral trade liberalisation, hcnce thcrc is no future for preferences, and prefcre~~cesarc usually encumbered with other requirements such as strict rule of origin, tariff rate quotas. Their conclusion is "thc preferences granted to SSA countries undcr the GSP and the Lome Convention scem to offcr little benefit. Thcy arc not particularly dcep quantitatively, but to tlie extent that are effective, thcy are probably pcrversc. To bc surc thc preferences transfcr sollie tariff rcvcnucs from OECD taxpaycrs and otlicr cxportcrs to SSA exportcrs, but tlicy do so in ways that could subvert long-run dc\~clop~iicnt.Thcy divert resources from critical sectors, create inefficiencies, encourage rent-seeking rather than productive investment and undermine inccntivcs for trade libcralisation." Wang and Winters (1998: 66) South-South trade relationship is bedevilled with many constraints. ECOWAS which, is cxpectcd form a building of African Economic Community has been involved with peace-keeping operations more than trade issues. It has not served as effective restraint on members trade policy. Trade infrastuctural facilities such as effective payments system, tclccon~munications,transport arc still undcrdeveloped. Couplcd with the fact that the ultiniate goal is intcgration to the world economy, there is a lii~iitcdscope for regional trade arrangement. Under the new dispensation, ECOWASIAEC should focus on align their policies with that of WTO. They should also aim at assisting their members to devclop capacity for effective participating of their members at the multilateral Icvcl. 1X.Conclusion T11c implenientation of SAP of which trade policy was a major component did not have a sustainable impact on the developments in the agricultural sector as littlc or nothing was donc to address fundamental problen~sfacing the production of agricultural production. Of course unilateral trade liberalisation as implemented by the country under SAP is quite different from multilateral trade libcralisation such as the UR, which was concluded in 1994. However, co- ordination and harmonisation of the two episodes of libcralisation would have bcen beneficial to thc country. While thc country has gone a long way in reducing trade barriers, development of the agricultural sector is constrained by non-trade factors especially agricultural production infrastructure. The necd to develop these facilities for any reform to have optinlunl impact on thc scctor should be accorded priority. Further liberalisation of the sector without addressing the infrastructural bottleneck is capable of aggravating thc problcni of agricultural trade in the country, at least from thc cxpericncc of the prcvious liberalisation. The charactcristics of Nigcrian farmcrs rcquircd that pcasant farmers be protcctcd and that efforts should be geared towards encouraging large-scalc farming In order to optinlally bcncfit from tradc liberalisation of thc sector. Development of the nccessary infrastructure and effectivc land reform will not only encourage largc-scalc farming but also cnsure that the benefits of refornl gets to the main actors, the farnlcrs. Agricultural scctor refornl in Nigcria is far ahead that of its major trading partners. Further reforms in the Nigerian agricultural sector should proceed at least at the same level with refornls in thc developed countrics or at best the dcvclopcd countries niust lead in the reform. The country should take advantage of the next round not only to seek better latitude for the use of various supports, to demand for reform of AoA and cffcctive inlplenientation by the developed countries. The ncxt round should also bc an avenuc for the country to bind its agricultural products at floor level and possibly liberalised the non-strategic sub-sector. Figure 1 Figure 2a Figure 2b Figure 4 Figu're5 Share of Agriculture in GDP Agricultural Expenditure: 1960 to 1998 Share and Dollar lndicles I i v J 40 2o !=7o 1980 1 9 9 0 199s ,998 19861988 1990'19'92 1994 19961998 Year Year share dollar value Average Expenditure in Agriculture 1986188 and 1995198 Period Food Import and Export of Nigeria 1965 to 1997 fimp fexp Figure 6 Figure 7 Figure 8 Figure 9 Figure 10 Imports of Wheat and Spelt, and Sugar Prices of Cash Crops 1975 to 1997 Naira per tonne 16000 1 160000 : 14000 *.,, 140000 f \ 1. 1 2000 120000 Q / I =u . ' :/ loo00 $ 100000 '. c 80000 / & 8000 ' 4 2 60000 5 6000 * 40000 - 4000 20000 i 2000 . 1 e d O 1980 199: 1996 1998 0 ' . r . . . c * f ; . year 1975 1979 1983 1987 1991 1995 Year - Cocoa Coffee Palm kernel Groundnut Palm oil wheat&spelt sugar + Average Prices of Staples Output of Some Crops 1980 1998 tonnes, 1970 to 1997 7 PalmKernel 25000 30000 Garri I I 10001200 ~alrnoil ,,/--FL I Yam V, a, 800 - Cocoa I = - 600 / I ,' - Maize " " 7 0 Coffee A 400 , Sorghum Rubber n l Year Year Sugar Cane Output of Staples 1970 to 1998 10000 8000 ------ - Commodities - -- Maize M~llet Sorghum - Rice I scheme Duty Customs Department: Standard To reimburse custonls duty paid by exporters on imported input Drawback Organization of Nigeria. Nigeria Export used for export production. This has not been widel), utilized by Scheme Promotion Council (NEPC). Commercial exporters due to the cumbersonle procedural requirements and Merchant Banks and CBN involved. although the fund has been increased to $50 million (US -12.5 million) Export NEI'C To encourage companies to engage in export business rather Expansion than domestic business. especially exporters who have exported Grant N50.000 worth of serni-manufactured or manufactured products. Export NEPC To assist exporters in partly paying the costs of participation in Derelopment trade fairs, foreign market research. etc. Fund 1 Manufacturing Federal Ministry of Com~nercc and To assist potential exporters of manufactured products to import in Bond Tourism free of duty, ra\v materials for production of exportable Scheme products. Source: Ministry of Financc. Abuja. Nigeria Incentive scheme I Operating agent I Objective and remark Refinmcir~e and 1 Central Bank of Nigeria 1 To provide liquidity. to banks in support of their . . . I I rediscounting facility (CBN) Nigeria Gports and Import exp& finance business. directed on exports (RRF) and foreign input Bank (KEXIM) promotions and development. facility (FIF) Currency Retention CBN. Co~nmcrcial and Merchant To enable exporters to hold export proceeds in Scheme Hanks foreign currency in their banks. Tax relief on Export Banks and Federal 13oard of Inland To encourage banks to finance exports by earned by hanks on export Rrvmue reducing their tax burden. credit Export Credit Guarantee CHN and NEXIM Assists banks to bear the risks in export business and insurance Sche~ne and thereby facilitating export financing and export volumes. Export Price Ad.justment NEPC This is a form of export subsidy designed to compensate exporters of products \\,hose foreign prices become relatively unattractive, due to I local raw materials in I 1 materials in export production I Abolition of export 1 Federal Minisrr! of Commerce and ) To remove administrative obstacles from the Licensing Tourism 1 export sector as much as possible. Supplementary allo\vance Fcderal Ministry of Commerce and To extend supplementary inccntive to pioneer in favour of Pioneer Tourism companies that export their products. companies Accelerated depreciation ] Federal Ministry of Commerce and I To extend supplementary incentive to industrial and capital allo\vance Tourism organizations for export of their products. Export 12iberalisation Federal Ministry of Co~nnierce and To liberalize and promote export trade. Measures Buyback 'Tourism Arrarlgenlent I Export Processing %one Federal Ministry of Co~nmerceand Opened in mid - 1996 in Calabar. to facilitate 'Touris~n and enhance exports. Source: Ministry ofCommcrce and Toursinl. Abuja. Nigeria Date removed - Live or dead poultry (i.e. fowls, ducks. geese, turkeys; and guinea fouls) 1998 excluding day old chicks, grandparent and foundation stocks for research and multiplication purpose (H.S. 0 105.1200-0105.9990and 0207.1100-0207.3600): Eggs in the shell, Including those for hatching (0407.0000) Maize ( 1005 1000-1005.9000) Sorgliu~n( 1007.00(XJ) I50 hl~llcr( I008.?000) 150 SDI' I I I \4'heat flour 11 101.0000) 60 60 SDP I I Vegerable oils, excluding licensedand castor oils used os industrial raw 1545 15-15 BOP material (1515.1100.1515.1900 and 1515.3000) ,Beer and stout (2203.0000. 1998 Barley ( 1003.0000) Malt (1107.1000-1107.2000) Evian and similar waters (2201.I000-2202.9000) Baryes and Bentonite (251 1. l 100-2511.2000.2508 1 100) 1996 I Gypsum (2520.1000) BOI' I Mosquito Kepellanrcoils (3808.1l 10) SAF I Do~ncsticarticles and wares made of plastic materialsexcluding babies' feeding BOP bottle (3922.1000-3922.9000.3924.1000-3924-9000) Ketreatedlusedlyres (4012.100040 12.9000) Textile lhbrics of'nll rypes and articlesthereof. Chapters 50-63, but excluditig: 1997 (a) Kylon tyre cord (5902.100-5902.9000) (b) Multifilament Kylon chaffer fabric and tracing cloth (511 1.2000.5112.2000 and 5901.9000) (c) Mattrcss tickings (5901.1000-5903.9000) 1(d) Karrow fabrics (5806.1000-5806.4000) , (e) Made-up fishing nets (5608.I100)and tnosquito netring materials (5608.1900and 560R.9000) (I) Gloves I'or industrial use (6116.1000-6116.9900) (g)Canvas fabric Ibr the manufacture of fan belt (5907.0000and 5908.0000) (11) hloulding cups and lacra (6212.90000Elastic bands (5604.9000) Motili (5810.10W - 5XI09000) (i) Texttle products and articles Sor technical use (5911.1000-59119000) Cj) Transmissionor Conveyor belt or belting ol'texrile material (5910.0000) (k) Polypropylene primary backing material ( 5 5 12.1100-5512.9000) (I) Fibre rope (5607.1000-5607.9000) (m) Mu~ilatedrngs (6310.1100) (n) Sacks and bags (63051000 and 6305 2000) I I I I Motor Vehicles and motor cycles above eight (8) years fio~nthe date of 1998 5-40 5-40 manulacti~re(8702.1100-8702.9900.8703.1000-8703.9000. 8701.1000- Fum\ture and Surntture products (9401 1000-9401.9000.9103.10W to 1996 30-50 45-65 9106.0000) Ganiing machines (9504.1000-9504.3000) 55 55 PhlO U I I I I Key Ibr reason: BOP= Balancc of Payment; SDP= Safeguardingdomestic production: SAF- Safety: PMO= Public morals Sourcc: Based on the itifonnation from the Federal Ministry of Finance, /\bu~a.Nigeria Annex I: Co~~dirioriuli111poriprohibiii011lisl of Nigeria. 1991 I Livc or dead poultry. that is, fowls, ducks, gcese. turkeys, fowls excluding grand-parent and foundation stocks for research and multiplication purpose. eggs in the shell. including those for hatching. 2 Vegetable, including tomato puree and paste, roots and tubers, fresh or dried. whole or sliced, cut or powdered and sago pith. 3 Processed wood excluding wood in the rough. squared or half squared but not further manufactured and particle board; furniture and hrniturc products; wooden cabinets for radio and television sets. Fruits fresh or prcscrved and fruit juices. 5 Mosquito repellant coils (HS Code 3808.11 I). 6 Textile fabrics of all types and articlcs thcrcof excluding: (a) Nylon tyrc cord; (b) Multifilament nylon chafer fabr~cand tracing cloth; (c) Mattress tickings; (d)Narrow fabric, trimmings and linings; (e) Made.up fishing nets, mosquito netting materials; (f) Gloves for industrial use; (g) Canvas fabric for the manufacture of fan bclt; (h)Moulding cups and lacra, elastic bands and motifs; (i) Textile products and articles for technical uses; Cj) Transmission or conveyor bclt or betting of textile material; (k) Polypropylcnc Primary backing material; (I) Fibrc ropc product (HS Code 56.07). 7 Domestic articles and wares made of plastic material including babies feeding bottles. 8 Evian and similar watcrs, soft drinks and beverages. beer and stout, malt and barley. 9 Maize and maize products. 10 Wheat and nhcat products. 1 1 All sparkling wincs including champagne. 12 Vcgctablc oils excluding linsecd and castor oils used as industrial raw materials. 13 Aluminum sulphate including alum. 14 Retreaded sulphate including alum. 15 Branched alkyl bcnzenc. bcntonitc and baryes. Annex 11: Import P~.ohibi/io~~Lisi ilrud~.).199.5 I. Livc or dead poultry (i.c. fowls. ducks. gecsc, turkeys; and guinea fowls) excluding day old chicks, grand parent and foundation stocks for rescarcli and multiplication purpose (H.S. 0105.1200-0105.9990 and 0207.1 100-0207.3600): Eggs in the shell, including those for hatching (0407.0000) 2. Maix ( 1005.1000-1005.9000) 3. Sorghum ( 1007.0000) 4. Millet ( 1008.2000) 5. Wheat flour ( l 101.0000) 6. Vcgetablc oils, excluding licenscd and castor oils used as industrial raw material 1507-1517 (excluding 1515.1 100.1515.1900and 1515.3000) 7. Becr and stout (2203.0000. Barley and Malt (1003.0000 and 1107.1000-1 107.2000 evian and similar waters (220 I.1000-2202.9000) 8. Barq-tesand Bentonite (251 1.1 100-251 I .2000.2508.1 100) 9. Gypsum (2520.1000) 10. Mosquito Repellant coils (3808.1 I 10) I I . Domcstic articles and wares madc of plastic materials excluding babies' fecding bottle (3922.1000- 3922.YOOO.3924.1000-3924-9000) 12. Retreadlused ryrcs (4012.1000-401 2.9000) 13. Textile fabrics of all types and articles thcreof. Chapters 50-63. but excluding: (a) Nylon tyre cord (5907,.100-5902.9000) (b) Multifilament Nylon chaffer fabric and tracing cloth (51 1 1.2000.5112.2000and 5901.9000) (c) Mattress tickings (5901.1000-5903.9000) (d) Narrow fabrics (5806.1000-5806.4000) (e) Made-up fishing nets (5608.1 100)and mosquito netting materials (5608.1900 and 5608.9000) (0 Gloves for industr~aluse (61 16.1000-61 16.9900) (g) Canvas fabric for the manufacture of-fanbelt (5907.0000 and 5908.0000) (h) Moulding cups and lacra (6212.90000 Elastic bands (5604.9000)Motifs (5810.1000 - 5810.9000) (i) Textilc products and articles for rcchnical use (591 1.1000-591 1.9000) Cj) Trans~nisbionor Convcyor bclt or belting of textile matcrial (5910.0000) (k) Polypropylcne primary backing material (55 12.1100-5512.9000) (1) Fibre rope (5607.1000-560779000) (m) Mutilated rags (6310.1100) (n) Sacks and bags (6305. I000 and 6305.2000) 14. Motor Vehicles and motor cycles above eight (8) years from the date of manufact~~re(8702.1 100-8702.9900, 8703.1000-8703.9000, 8704.1000-8704.9900,87I I .1000-87 I I .9000) 15. Furniture and fi1rnihh-eproducts (940 1.1000--9401.9000,9403.1000 to 9406.0000) 16. Gaming machines (9504.1000-9504.3000) Annex 111: Iti~por/Prol~ihi~iotiLi.t/ (/rude). 1999 I . Maize ( 1005.1000-1005.9000) -. 7 Sorghum ( 1007.0000) 3. Millet ( 1008.2000) 4. Wheat flour ( l I0 1.0000) 5 . Barytes and Bentonite (25 I I. l 100-251 1.2000.2508.1100) 6. Gypsum (2520.1000) 7. Mosquito Repellant coils (3808.1 110) 8. Retreadlused tyres (4012.1000-4012.9000) 9. Gaming machines (9504.1000-9504.3000) Annex 1V:Evporl Proliihi~io~iLisl. 1995 I . Beans -. 7 Rice 3. Cassava 4. Maizc 5. Yam 6. Timber, rough or s a w 7. Raw hides and skin 8. Scrap metals 9. LJnprocessed rubbcr latex and rubber lumps Annex V: E.q~ot-/Prohihi~ioriL;.v/. 1995 I. Timber. rough or salvn 2. Raw hidcs and skin 3. Scrap metals 4. Unprocessed rubber latex and rubber lumps References Blackhurst, R., B. Lyakurwa, A. Oyejide (1999), "lniproving African Participation in the WTO," Paper Comniissioned by the World Bank for a Conference at the WTO on 20-21 September, 199. Central Bank of Nigeria, (1997). Anriual Report atld Stateiner1t of Accouilrs,for rl?e Year Ended 31st Deceiriber 1997 Abuja. Central Bank of Nigeriamigerian Institute of Economic and Social Rescarch (CBNmlSER) (1992) The Impact of SAP oil Nigeria11Agriczrltzo-e arld Rliral Life, Volume I: The National Report. Federal Ministry of Agriculture, Water Resources and Rural Development, (1987), Agt-iculture Polic)~.forAiigeria, Lagos. Federal Governnlent of Nigcria: Vision 2010 Committee (1997) Report of the Visioti 2010 Corlzi~iittee,September. Food and Agricultural Organisation (FAO) (1999), Issucs at Stake Rclating to Agricultural Developnicnt, Trade and Food Security, Paper Number 4 Presented at the F A 0 Symposiuni on Agriculture, Trade and Food Sccurity: Issues and Options in the Forthcoming WTO Negotiations from the Perspective of Developing Countries, Geneva, 23-24 September Ingco, M. D. and R. Townsend (1998), Expcricncc and Lessons from the Implenientation of Uruguay Round Comn~itn~ents:Policy Options and Challenges for African Countries, Paper presented at the International Workshop on Agricultural Policy of African Countries and Multilateral Trade Negotiations: Challenges and Options, Harare, Zimbabwe, Novcnlber 23-26. Olotin, S. 0 . (1977), "ECOWAS and the Lome Convention: An Experiment in Complementarity or Conflicting Custon~sUnion Arrangements," ./oltriial of Coirri~ioiiMarketStudics, Volunlc XVI, Numbcr 1 OECD (2000), Agricultural Policy Reform: Developments and Prospects, Policy Brief, June. Ogunkola, E. 0 . and T. A. Oyejide (2000), "Nigeria's Exports, Lome Conventions and the Uruguay Round," niinieo: Department of Economics, University of Ibadan, Ibadan. Ogunkola, E. O., (1999). "African Capacity For Conipliance and Defence of WTO Rights", Paper presented at a Dissemination Workshop of the Collaborative Research Project 'Africa and the World Trading System.' April 17-18, Yaounde, Canicroon. Ogunkola.,E. 0.and Y.F. Agah, (1998). "Nigeria and the World Trading System", A Draft Final Report for the AERC Collaborative Project on "Africa and thc World Trading System". Ohiorhenuan, J. F. E., (1998). "Capacity Building In~plicationsof Enhanced African Participation in Global Trade Rulcs-Making and Arrangements." AERC Working Paper, CR-3 Otsuki, T.. J. S. Wilson and M. Sewadeh (2000), Saving two in a billion: A case study to quantify the trade cffcct of European food safcty standards on African Exports, Minieo, World Bank. Oyejide, T. A., E. 0 . Ogunkola and S. A. Bankolc (2000), "Quantifying the Impact of Sanitary and Phytosanitary Standards: What is Known and Issues of Importance for Sub-Saharan Africa", Paper prepared for the workshop on "Quantifying the Trade Effect of Standards and Regulatory Barriers: Is It Possible?" Held at the World Bank, Washington, D. C., on Thursday, April 27, 2000. Oycjidc, T. A., ( 1997). Africa's Parficipatiorl it1 flle Post-Uruguay Rozrt~dWorld Trading Systetn, Program for the Study of lntcrnational Organisation Occasional Paper WTO Series Number 6. Oyejide, T. A. (1990), "The Participation of Developing Countries in the Uruguay Round: An African Perspective." The World Econor~~q), Volun~c13 Number 3. September Oyejide, T. A., (1986). Tlze Effects of Trade and Exchange Rate Policies on Agriczrlture in Nigeria, Washington: International Food Policy Rcsearch Institute, Research Report Number 55. Wang, 2. K. and L. A. Winters (1986), "Africa's Rolc in Multilateral Trade Negotiations: Past and Futurc" ./oul-l~alof 4fi.ican Eco~zomies,Volunle 7 Supplement 1: June World Trade Organisation, (WTO), (1998). Trade Po1ic:v Review, Federal Republic of Nigeria, May. WTO (2000a), Committee on Agriculture, Special Session, Dorncstic Support, GA/G/NG/S/I WTO (2000b), Committee on Agriculture, Spccial Scssion, Green Box Measures, GA/G/NG/SR WTO (2000c), Conunittee on Agriculture, Special Scssion, Export Subsidies, GA/G/NG/S/S WTO 2000 and Agriculture in Africa : The Case of WAEMU Countries Kouassy Oussou and Pegatiinan Jacques 1. Introduction The Uruguay Round, which led to the Marrakech agreement establishing the WTO, was different from the former rounds in many ways. One major difference is the coverage of agriculture and services as well as of textiles (integration of the multifiber arrangement, MFA, in GATT). The 1994 WTO, agreed upon in Marrakech, set up an agenda commending a progressive integration of these activities in the WTO rules. This is a reason among others that justify the characterization of the construction of the new world trading system as a "built in agenda". h number of important issues remained unsolved and will be subject of intensive negotiations during the coining rounds. In fact the agenda of these negotiations will comprise these new issues. The new negotiations in agriculture is part of this "built in agenda" of the WTO. For agriculture and agriculture based products they will be organized around the following key areas: full liberalization of agricultural markets; market access; domestic support and export subsidies. The two first areas have to do with the dismantling of NTBs, that should be replaced by tariffs, and tariffs binding and reduction. The last one will be tackled by provisions of the WTO agreement relating to the classification of agricultural goods and activities (in red, green or white boxes), and various rules applied to domestic support (de niinimis and.aggregate measurement of support, AMS). This WTO agenda for agriculture is supposed to be carried out along with the negotiation in services and the conduct of a new comprehensive multilateral negotiation of the WTO agreement. The WTO agricultural issues are of a great interest for developing countries for five main reasons: agriculture arld agricultural based activities dorninate the ecoriornies of rnost developirlg countries. The operri~lg up of ugricirltural nlarkets might generate sign~ficant opportunitiesfor rrlost ofthem ; .for. rlet ,food inzportbig developirlg courrtries liberalization of the \r,orld agriculture ~vill result ill art i11cr-easein their.food inipoi? bill. This rnight jeopardize their food security pr-ograrns and appropriate correcting measures should be adopted; given the low technological level of rnost developing countries, an accelerated liberalization of agricultural nlarkets will prtt pressures on their supply and tradir~g capacities. Agric~rltural intensification, rationalizing arid strticturir~g of rnarketirig rtetworks, etc.. will reqirired ,focused support that sliould be compatible to tlle WTO provision; overall, the coniplexit~iand sophisticatior~of some dimeruions of the issires subject ofthe rregotiatioru and tlie foreseeable irriplerneritutior~d[fficulties of the WTO agricltltural rig/-een~eritcall for a signficant technical assistance in the for-niulation of specific preoccupatiorls of groirps of developing countries and help thenz to corforni to the agreenzent that bt'illelnet-gefionz the negotiations; the provisiotial agreernerlt on agriciilture adopted in Marrakecl~contait1ed special arid differential treatnient (S&D) and enhanced safeguard t?leasures,fordeveloping countries. It appears that these countries have not been able tofully zirtderstnnd and take advantage of these provisions. Developing couritries should better utiderstand, seek for an extension arid an intensive use of S&D atid safeguard rlieasures in order to strerigthen their agr~iculturalsectors. This can not be taken ,for granted within the corning negotiation round. This set of issues is topical for West African Economic and Monetary Union (WAEMU) countries, for which agricultural and natural resources are the basis for an integration to the world economy. For instance coffee and cocoa represent more than 60% of C8te d'Ivoire's exports, peanuts and phosphates the bulk of Senegalese export, cotton and livestock the essential of Burkina Faso's and Mali's export. WAEMU countries are also net food importers (50% of rice consumption of C8te d'Ivoire, more than 60% of rice supply of Burkina Faso, the quasi totality of wheat consunlption of all the countries, etc.). From this stand-point liberalization of the world market of cereals will affect food import in WAEMU countries as well as changes on the markets of prinlary goods brought about by the WTO agreement will affect their export positions. Given the tradition of important unilateral liberalization programs undertaken by individual member countries and a recent acceleration of regional integration efforts, through the launching of the WAEMU, the discussion should also cover the compatibility of ongoing trade and agricultural policies with the WTO rules and discipline as well as individual countries' commitments to the WTO. This paper is set in order to inquire in the likely impact of WTO agricultural agreement on WAEMU countries, the compatibility of individual countries' and of the comn~unitytrade and agricultural policies with the WTO agreement. We will also investigate the institutional arrangements adopted in the countries and at the community level in order to ensure a maximum gain fro111WTO to WAEMU countries and increase their participation into the WTO negotiation process underway. From this stand point questions raised by the discussion above are the following: how the participntion of individual countries arid of WAEMU in the WTO fiegotiation as well as in the ~vorldecononi)]can he increased; what cat1 be done to better articulate the other (!he IMF and World Bank inspired) reforrns arid agricultural policy priorities of countries nrid of WAEMU atid their WTO coinrt~itr~?elits; ~c#hatslio~ildbe done in order to li~liitand nlitigate M'TO agreements iniple~nentation problenis in WAEMU cou~ztrieslikely to increase theirpositive i~npact. In order to answer these questions three country case studies (C8te d'Ivoire, Senegal and Burkina Faso) are presented co~nplemented by the WAEMU case. Before the detailed exposition of these cases let us turn now to a summary of the results of the UR agreement in agriculture. The agricultural components of the UR agreement (URA) adopted in Marrakech are the following. NTBs have to be elin~inatedand converted into bound tariffs of a similar protection level. Tariffs should decrease on average at a rate of 36% in developed countries within 6years, and at a rate of 24% in developing countries, except the least developed countries (LDCs), within 10 years. The first tariff reduction comes with the enacting date of the WTO agreement, - subsequent reductions intervening the 1rst January of each year. Apart from allowed supports (health, food security and environniental protection), supports and export subsidies to the agricultural sectors should decrease over the compliance period. Indeed, the aggregate measure of support (AMS) should fall by 20% in developed countries within 7 years, and by 13.3% in developing countries with~n10years. Export subsidies should fall by 36% and subsidized exports by 21% in developed countries within 6 years, the standards set in developing countries being 213 of those of developed countries, this within 10 years. The agreenient provides for a clear definition of subsidies and support and characterizes different kinds of support to activities and investment, classified into different boxes (green, white, red ). Main African countries did not make any commitment under the AMS rule. Nevertheless they are likely to benefit from the de minimis rule, which allows for support to specified products up to 10% of their traded value. In addition, safeguard measures (in presence of import surge, a suddeii drop in international prices of major goods, or balance of payments difficulties) can be taken. Beside tliese rules countries commit theinselves to a minimum access to their market (3% of the volume of consuniption in 1986-88, rising to 5% over the implementation period). Overall, the URA in agriculture opens significant opportunities to developing countries on the markets of developed countries despite some limitations. Among obstacles to the access to the markets of developed countries there is the agreenient on sanitary and phytosanitary measures (SPS). Indeed, under the SPS agreement, another important feature of URA for agriculture, countries can set their own health and safety standards, that have to be scientifically documented and internationally accepted. Import restrictions based on health and safety reasons should be non- discriminatory and should not be used as disguised trade obstacle. 011 request, some exceptions from SPS obligations may be granted to developing countries based on their financial trade and development needs. In fact, the SPS agreement proved seriously limiting for agricultural and agriculture-based products exports froni developing countries. Despite its "single undertaking" nature, the WTO agreenient allows for some special and differential treatiiients (Oyijide,1998).Regarding tariffs, reduction efforts are linked to the level of development (higher for developed countries and not required for the least developed countries). Safeguard measures are more important for developing countries, particularly regarding the replacement of NTBs by tariffs. these countries are allowed to maintain some them or to introduce new ones based on financial, trade and development needs. Developed countries are allowed to concede non reciprocal concessions to LDCs and other DCs. These provisions mitigate the MFN principle and reduce full reciprocity in this respect. In addition to that, couiitries. particularly developing ones, are allowed to use import restrictioii measures or supportive policies for infant industries, products of special importance and balance of payment problenis (caused by a sudden surge in iniports for example). Special tariff reductions can also be granted to the least developed countries by developed countries. This exercise consists of an assessment of the impact of URA in agriculture and examine directions in which tliese could be inlproved while increasing WAEMU countries participation in the WTO processes. The rest of the paper coniprises 4 sections. Sections 2 and 3 deals with the country cases, followed by the WAEMU presentation in section 4. Section 5 concludes the paper. 2. UR agreement and agricultural issues in CGte d'Ivoire Over the two first decades of its independent State life CBte dlIvoire's economy was dominated by agricultural which represented more than 45% of GDP and 75% of export and employment at the end of the 1970s. Though its weight has declined over the recent years agriculture accounts in the middle of the 1990s for 30% of GDP, remained the main source of employment, export earning and government revenue. C6te d'Ivoire is the first world cocoa producer and exporter, it holds significant share in the world market of tropical fruits, tinned fish, coffee, cotton, rubber and palm oil, and enjoys a good coverage of its food needs by domestic production (namely for yams, cassava, vegetable cooking fats, etc..). The country has also developed over decades an agriculture based industries and an appreciable food industry. Given these features C6te dlIvoire is particularly concerned by URA in agriculture. 2.1. C6te d'Ivoire's recent agricultural performance and policies The following table summarizes the production performance of C6te dlIvoire's main agricultural products between 1975 and 1995. Table 1:Food- and cash crop production and objectives between 1975 and 1995 Products 1975 1980 1985 1990 1995 1997 1998 (1000t) R 0 R R R -- R Coffee 270.3 330 249 277 285 189 Cocoa 241 335 398 565 1061 1120.9 1100 ----- 725 Palm oil 963 1262 1083 909 230.6 273.1 - P pp Rubber 2 1.24 22.24 22.20 22.2038.80 /82 107 -61 105 143 212 242 209.60 337.1 360.8 Rice 496 540 683 743 1263 1197 pppp Yam 2172 2172 2040 2500 2800 2911.30 2966 2921 Cassava 939 750 1010 1200 1500 1660.50 1699 1692 Plantain 1168 900 910 1000 1200 1385.50 1440 1400 Sources: Kouassy and Diop-Boare, 1998. R = result; 0 = objective. From table 1 it appears that cocoa, palm oil and rubber are the most perfornling cash crops, while yam, cassava and plantain are the most perfomling food crops in Cote d'Ivoire over the period reviewed. Rice production declined from 1975 to 1980 and stagnated afterwards, whereas rice consumption increased, resulting in a low coverage by domestic supply (50%). The other items of food import in C6te d'lvoire are mainly wheat and livestock and meat (50% and merely 100% of consumption respectively). In fact, an aggregate index of food security (aggregate demand over aggregate demand excluding food aid) computed by Kouassy and Diop-Boar6 (1998) shows a rather good coverage up to 1996 (0.9 between 1970-80, 0.78 in 1980, 0.85 between 1985-95).The other agricultural products of interest for Cote d'Ivoire's international trade are tropical fruits (bananas, pineapples). oil seeds (palm kernels, cashews, etc.) and sugar. Agricultural and agriculture based exporting goods are likely to suffer from the gradual dislllantli~lgof European preferences under the WTO rules and from the liberalization of trading systems and the privatization of producers advised by the IMF, the World Bank and the WTO. Jt is worth to note that production performance of almost all agricultural goods improved in 1995. This should be linked to the CFA franc devaluation which took place in 1994. In fact, such a connection raises the issue of the inter-play between agricultural performance and policies. Since the early 1980s agricultural policies in C6te d'Ivoire have the hallrnark of a gradual retrenchment of the State from production, marketing (including pricing policies), and the financing of main activities. This was a dramatic change regarding the approach adopted during the first two decades of the history of the country. Policy objectives of the early period were: development and diversrfication of perennial a-ops (palin oil. coconut arid rubber in additiori to cqfee arrd cocoa) arid tropicalfruits (banurias,pineapp1e)for e.xpor-t, located in the south ofthe country; specialize the rest of the couritry irt food crops arid raw materials required by the industrial developl~ierit(cotton,sligur, tobacco); rnoderriize arid iritensif:~'the agr*icult~rr-eof'the colrntry The instruments used then were price fixing and direct involvement in marketing systems (around the marketing board model), public agricultural investlilent (in direct production, marketing, and processing activities, through SOEs, in rural infrastructures, in training, extension services and research). and agricultural financing facilities. Within the SAPS, launched over the early 1980s in order to address econon~icand financial difficulties that emerged then and supported by the IMF and the World Bank, this model was abandoned. The new agricultural policy relies on an active privatization of SOEs, a liberalization of prices and tnarketing systems for most exporting goods, and a leading role devoted to the private sector. Nevertheless government kept an iiuportant role in areas of rural infrastructures, extension services, training and research activities, in addition to the provision of an enabling macro environment for productive activities including agriculture. This mission is particularly important given the weak intensification and low yields that characterize most agricultural products in C6te dlIvoire as can be seen on table 2 bellow. Table 2: Potential and actual yields of main crops Products (tlhcctarc) Potential yields Actual yields Cash cram Cocoa 1.5 0.5 Coffce 1.O 0.3 Cotton 2.4 I .3 Palm oil 18.0 9.0 Rubber 2.2 1.8 Food crops Rain-grown rice 4-6 1.2-1.5 Irrigated rice 8-8.6 2.5-3.5 Maize 6-11 2.5 Yam 20-50 8-16 Cassava 15-35 8-12 Sourcc: Kouassy and Diop-Board,l998 From the table it appears that actual yields are far bellow potential yields obtained in research stations. Recent agricultural policies seek for substantial improvements at this level and for an active integration to the world economy. This concerns both agricultural and other policies affecting the agricultural sector. Policies in this area concern first the liberalization of the trading systems of agricultural exporting sectors and the privatization of main agriculture-based SOEs-SAPH and SOGB in the rubber sector, PALMINDUSTRIE and PHCI in the palm oil sector, and ABATTOIRE DE FERKE in livestock. Domestic and external marketing of most agricultural products (cocoa, coffee, cotton, palm oil, rubber) were Liberalized through the restructuring and the dismantling of Caistab, the marketing board that handled the trading of these products formerly. Given the crucial role of infrastructures in the development of agriculture and agriculture- based processing activities, policies in this area play a paramount role in agricultural performance. In this area a greater involvement of the private sector is sought through the partial privatization of the telecomn~unicationpublic company in 1997, following the full privatization of the water and energy supply companies since 1992. The new strategy also relies on contracting out the provision of infrastructures under the BOT scheme (rebuilt of the Abidjan airport, the Abidjan third bridge project, road repairing, etc) and commercialization of the two ports (PAA, in Abidjan and PASP, in San-Pedro). In the industrial sector, recent policies relate to the developnlent of mining activities (oil, gas and precious metals) and of primary products processing industries (cocoa, coffee, cotton, palm oil, rubber, etc.). The strategy adopted by C6te d'lvoire is an accelerated privatization of SOEs, a better organized investment institutional framework (adoption of a mining code, a new investment code and the setting up of the investment promotion center-CEPICI-) in order to attract foreign investors, and an active infrastructural development policy. C6te dlIvoire has also updated its strategic industrial plan ("schCma directeur") with the support of UNIDO. The new industrial policy is a reflection of the current policy stance based on an acceleration of the processing rate of most agricultural products, accompanied by an active promotion of the private sector, the liberalization of the marketing of exporting agricultural goods, the boosting of infrastructural developments. Since these refonns try to enhance the supply of infrastructures and of goods and services in C6te d'Ivoire they are likely to help the country to conform with the WTO rules and discipline. It is also worth to note the strengthening of professional associations such as OCAB (producers and exporters of bananas and pineapple), UPHCI (producers and exporters of flowers), (Apronlac and APPH) (producers and exporters of rubber products) and (SPIB) (exporters of wood products) and PPDEA, etc.. OCAB, which operates as a marketing agency, searching for new markets, tracing the move of competitors from Africa and other regions, organizing the contacts between Ivorian exporters with potential foreign importers and financing structures, helped to increase the average yield (+180%) and the quality of the products. PPDEA is a World Bank funded project aiming at the diversification of agricultural exports. The project evolves around an association for the export of non traditional agricultural products (PROMEXA) which provides technical assistance in production, marketing activities as well as R&D and infonuation diffusion. In fact, C6te revamped its export promotion strategy. A publiclprivate joint export promotion agency, APEX-CI replaced CCIA the former public agency, which failed to mobilize the private sector and accelerate trade expansion of the country. APEX-Cl's board is dominated by private firms and professional associations and operates on a market basis. 2.2. Market access for Ivorian Products The products of interest for C6te d'Ivoire listed above can be classified into five categories regarding their market access situation: - export of raw materials and tropical fruits; - export of agriculture-based processed products; - iniport of cereals; - iniport of livestock and meat; - import of fertilizers, pesticides and light agricultural materials, used as inputs in agricultural productions. The following table reports internationally traded volumes of the main products of these categories. Table 3: Main agriculture-based exportingand importing products of CBtc d'lvoire 1(1000 t) 1 9 6 1 /1970 11980 11990 1 1997 1Rice 120 16.5 I105 I490 I Source: Nathan Associates (1999) from FA0 data base From table 3 one can see that export of cocoa and derived products and of rough pineapple boomed over the post-devaluation (also the post WTO) period, whereas coffee, cotton and processed pineapple collapsed. Rice import fell sliglitly, wheat import kept on increasing. Obviously the grain i~iiportbill of C6te d'lvoire increased over the second half of 1990s, moving from USD 202.6 in 1990 to USD 220.7 in 1997 (+9%). This is certainly true for the other items of food import of the country. But this evolution did not compromise the food security of the country given the good level of its export. Still, on the long run there might be some problems According to Kouassy and DioniandC (1998) the destination C6te d'Ivoire's exports of raw materials, including glycerin and tropical fruits is Europe, the Middle East, North America and a few Asian countries (Japan, China and India). Export of processed coffee and cocoa, rubber, tinned fish, shaped timber is directed toward the EU and North American markets. The export of oil seeds, rough timber, cashew is directed toward East Europe, Asian markets. The export of refined palni oil and other derived products, products of food industries and of peti-oleurii products are destined to the regional markets (mainly WAEMU, Ghana, Guinea and Libel-ia). These products face different market access probleins 011 their destination markets. The products that suffer the most from the WTO type changes are tropical fruits (bananas and pineapple). Indeed, as a consequence of preference erosion on the EU market these products faced fierce competition froni Latin American non ACP countries. Particularly, the EU-ACP bananas protocol has been attacked successfully before the WTO dispute settlement scheme by the USA and some Latin American countries. The export conditions of tropical fruits should be among specific questions of interest for C6te d'Ivoire. Regarding the export of raw materials it suffers from a sharp decline in international prices (coffee, cocoa, palm oil, cotton, rubber). This happens in the context of an active privatization of the SOEs of the sectors and a rapid liberalization. The liberalization process took place through the dismantling of NTBs, a revision of export taxes (DUS on coffee, cocoa, cotton and timber), and an accelerated liberalization of producer prices and of marketing systems. Market determined producer prices and strategies of the new private actors of these sectors do not take into account the preoccupations of non organized small producers, that might suffer from low prices and stringent trading conditions. As a consequence these changes might result in an increase in rural poverty while creating some difficulties in the supply of raw materials to local processing industries and exporters. To some extent appropriate support should be granted to small producers, that have to be WAEMU and WTO compatible. Agriculture-based processing goods toward extra-regional markets, namely European and American markets face tariff escalation and stringent standards and SPS measures combined to true technological and quality gaps. Nathan and Associates (1999) showed intolerable biases against processed coffee in Japan (with tariffs moving from 0% on rough coffee to 20% on roasted coffee and 35% on coffee product with sugar, niilk and other ingredients), in the USA (with tariffs moving from 0% 011 rough and pure coffee to 3.3 centslkg on products containing coffee) and in the EU (with tariffs nioving from 5% on non roasted coffee up to 18% on decaffeinated coffee). Tariffs escalation was also found by Kouassy and Diomande (1998) with the highest tariffs applied on processed coffee, chocolate, tinned fish and processed pineapple on EU markets. For the time being these obstacles are not too much penalizing since the regional iiiarket is in excess of demand. Still, external competition on the regional market and the need to put pressures on manufacturers in order to adopt competitive production and marketing methods, should push then1 toward extra-regional markets. Appropriate actions should be taken toward this end. These two last issues are more general problems facing some WAEMU and ECOWAS countries. On the import front, products of interest are food products (rice, wheat and flour, livestock and meat, and sugar) and agricultural niaterials and inputs (fertilizers and pesticides). Most food products were subject to import restrictions before 1994, they were produced or marked by SOEs. Changes colicern the privatization of SOEs of the sectors, price liberalization , dismantling of NTBs and price liberalization accompanied by the institution of low tariffs. Frequently private firnis that took over SOEs sought for additional protection (increasing tariffs) and incentives (tax exemptions). Regarding Agricultural niaterials and inputs, they were tax exempted before the recent changes. Under the WTO commitment the country brought under ordinary reginie these products that were subject to domestic indirect taxes under WAEMU regulation. These changes create additional problems to the realization of the agricultural intensification and modernization. Overall despite some significant obstacles on extra-regional markets (EU and American markets) the main problems that face Ivorian agricultural and agriculture-based processed products lie rather on supply weaknesses. This in turn raises the issue of WTO compatible domestic support in the view of an active modernization of the Ivorian agriculture. In the short - run food security is not at risk in the country. 2.3. Status of UR implementation, institutional arrangements and priority issues for next WTO negotiations in Cate d'lvoire According to CBte d'lvoire's WTO list for agricultural products the country commits itself to : bind cilstonls duties on all agricirlturalproducts at a ceiling rate of15 %, e.xcluding a list of29 tariffpositions wllose respective tariffs are to be bound at rates varying between 5 ar~d75 % ir~itially.then het\veen 4 and 64 % it[0 0 4 ; on the original list there was a ceiling ofotirer additionnl taxes of200%. According to tile officials this additional tax has bee11dropped.fi-on1tile working list ofcornmitrnent ofC6te d 'Ivoire; based on tl~ebelief that tlrere is trot ary support~fnllingundet-tlre WTO scherne the country did ?rotri~akeany coinniitnient on the AhfS rules Overall C6te d'lvoire adopted low tariff bounds and few exceptions. Only 29 product lines are subject to exception to the generic conimitment of a maximum tariff of 15%. This represents 1% of the 2700 product lines of the sector. As to the implementation of the URA, C6te d'lvoire failed to make use of safeguard measures by introducing a reference prices on sugar after the privatization and liberalization of the sector. The country was also attacked for an anti dumping preventive action against jute bags imported froni Asia (Bangladesh). Like Burkina Faso C6te d'lvoire claims that it does not subsidize exports and does not grant non WTO conlpatible support to agricultural products. However. the country ran a number of support prograills to the agricultural sector that are not necessarily out of the field of WTO support rules. This in the case of : - extension services that remain important despite the recent refonns; -social funds, launched as part of the CFA franc devaluation accompanying measures. A substantial share of these funds with an initial provision of I billion in 1995, increased to 3 billion in 1996197, went to agricultural activities; -many donors funded - agricultural projects are underway aiming at the strengthening of productions capacities and professional associations. Unfortunately these support prograins are not aggregated in such a way as to allow the conlputation of AMS or of ratios along the line of the de minimis rule. This deficiency should be corrected during the next negotiations. In order to coordinate and handle WTO related issues C6te d'lvoire set up an inter- institutional coininittee that started operating the late 1996. The secretariat of the committee was located at the ministry of trade. It comprises a sub-corninittee devoted to URA for agriculture. Unfortunately the subcommittee suffered froni a weak participation of the ministry of agriculture, which did not allow the proper handling of WTO agricultural related issues. In particular, CBte d'lvoire has not comply with its notification obligations regarding notably the agricultural issues. And most of the issues raised above were not precisely documented and incorporated in positions to be defended by C6te d'Ivoire during the Seattle Ministerial Conference. Efforts have been done recently to improve and strengthen the work of the committee with the support of the ITCLJNCTADIWTO joint assistance program to Developing countries (JITAP). Four sub committees defined along the line of the working groups set up during the Seattle Ministerial Conference are now operational. Agricultural issues are still handled by a specific sub committee. An active participation of the ministry of agriculture to the meetings and activities of the inter institutional committee is still to be secured. From the presentation above it comes that priority issues for the next WTO negotiations are the following: food securit-y: secure provisions for a better coverage of food needs by domestic production and.for tlie,financi~igoffood securitj) stocks. Manage to benefit fi-on? thefood aid andfio111inter~iatio~ialassistance progml1,for netfood inzporters food early warning syste~n--FEWS--fbr instance) ; increase and ease nrarket for Ivoriaii agricttltural and agriculture-based products to tlie EU and other developed countries ~~iarkets.111 particular seek,for techliical assistance in the areas of qliality and industrial standa~-dsa~idSPS; ensure a reiienlal and an' e.vte~i.sioiiof' S&D and safeguards ~neasuresfor developitzg countries and seek for technical assistatice in the view of a better use of these facilities lvitli respect to dcvelop~nentand povertj*alleviation progranis. Tlie areas of interest here should be BNTs, AMS, de ~ni~ii~iiisrule arid allowed export subsidies; develop collective positions \tithin WAEMU; better articulate EU-ACP agreenient and WTOpositio~i.~ bene/itjro~nfood net inlporter international assistance prog~-anl.r benefit ,f,wli techi~icalassistance in order to strengthen the iiistittrtioiial capaci[y,for a proper handling o f WTO relrrted issues. Most of these issues were reflected in the speech of the Ivorian Minister of Trade at the Seattle Ministerial Conference. Unfortunately, as stated above the elements were not fully documented and discussed within the CNS, the national Committee and in the delegation. As a result the 12 members of the delegation could not participate fully in the group discussions and defend there the Ivorian positions. The Minister was obliged to move from group to group to ensure a wide expression of the Ivorian positions in the working groups. In order to avoid such a situation during the next negotiation C6te d'Ivoire should better prepare issues and train negotiators. 3. WTO and agricultural issues in two other WAEMU countries 3.1. URA in agriculture and Senegal The Uruguay Round Agreement on Agriculture (URAA) is in effect since January 1995; the signing of the WTO agreement by Senegal confirms the commitment of the Senegalese government to open up widely to the external trade and markets. The URAA intervenes in a context where the Senegalese agriculture is not in a brilliant situation; in 1998-99, agriculture contributed 20% of GDP and employed 60% of active population, showing no change from 1995. The overall lack of progress is accounted for by supply constraints that limited the growth rate of agricultural production in 1997-98 to 1,4% for rice, 2,5% for maize, 0,5% and 9.1% for peanut and cotton, respectively. During the same period, agricultural exports fell by an average of 0,796 whereas agricultural imports increased by an average of 4%. The supply constraints mentioned are recurrent and severe, namely, lack of intensification, traditional implements and production techniques, inability to control water and environmental degradation Put in the context of these supply constraints, it is justified that Senegal does not feel conifortable with the new rules spelled out by URAA about the following items: market access, domestic support and export subsidies; additional areas of concern will also be taken UP. 3.1.1. Market access for most products Senegalese of interest Senegal exports vegetable oils, cotton fiber, fruit and vegetables. Peanut production is a major activity in Senegal, providing a significant share of income, employment and foreign exchange earnings. Since the 1990s, this activity suffers a crisis with declining yields, production and exports. The production of industrial peanut is controlled by a state owned enterprise (SONACOS) while a private enterprise, NOVASEN, is in charge of the different steps of the production (including extension services, provision of fertilizers) and export of mouth peanut. The cotton production is constrained by the instability of world market and is badly hit by the high cost of imported intermediate inputs; 20°/0 of the production of cotton fiber are used as raw material by local industry and 80% are exported. The production of fruit and vegetables is responsive to ecoiiomic incentives and its potential for diversification and export is high. These exports are shipped to the Economic Union market with preferential access granted by tlie Agreement of the LomC Convention. Therefore, for an extra 10 to 15 years after the renewal of tlie Lome Convention, these preferences will still be in force; but there conies a time when Senegalese exports will have to face more competition from other countries in the context of WTO ;the country has to get prepared for that competition. For the time being, exports of peanut oil suffer from several problems induced by the conipetition of vegetable oils extracted from raw materials other than peanuts. These European oils benefit from internal supports and export subsidies in the context of European colnmon agricultural policies. The second problem faced by Senegalese exports relates to the non trade barrier of quality, sanitary and phytosanitary norms that have become more stringent and will evelltually contribute to reduce the volume of exports and increase the costs incurred to comply with the new norms. The probleins ahead are those of the lack of expertise within the country to evaluate and control quality and technical nonns on one hand, and to guarantee the adequate certification of these nonns, on the other hand. 3.1.2. Export subsidies and domestic support Senegal implements a zero export subsidy strategy. This policy stance contrasts with the existence of export subsidies in foreign countries for products that compete with Senegalese exports. However. this must be balanced against tlie indirect benefits that Senegalese consumers get from these subsidies through lower prices; sometimes, some Senegalese producers benefit too through the reimbursement of some of the differentials earned on cheap imports sold at higher local prices on the domestic market. Since mid 1980s Senegal is engaged in structural adjustment programs(SAPs); in the context of the A'ouvelle Politique Agricole (New agricultural policy) launched in 1984, there was a sweeping liberalization of the entire agricultural system. Virtually all subsidies to fertilizers, agricultural implements, seeds and rural credit were discontinued; ever since, farmers have to pay all crucial inputs in cash or by borrowing, at market prices and interest rates. With the reforms implemented under SAPs, Senegal has overshot the limits set for the ten years transition period of URAA, thus the country cannot take advantage of the possibilities offered by the agreement of supporting its agricultural production. Hence, there is a strong risk of time inconsistency of agricultural policies if SAPs come to an end during the transition period; this policy stance would not be unjustified given the fact that, for example, the EU products that compete with Senegalese exports benefit from these internal supports. 3.1.3. Agricultural policies and food security As mentioned earlier, SAPs molded agricultural policies over the last two decades. Policy actions are still needed in three areas : (i) consolidation of the positive results of liberalization, privatization and restructuring of agricultural institutions mainly through appropriate pricing of agricultural inputs and implements; (ii) support of private investment in agricultural production by permanent efforts at improving the legal and regulatory environment to make agricultural production less risky and more productive; (iii) structural changes to remove the supply constraints, in the following areas: transfer of more responsibility to agricultural professional organizations; provision of good quality basic iilfrastructural services (rural communications, education and health); adaptation of rural credit institutions to the real needs of peasants; water control techniques and services; quality control of export crops. Senegal is a net rice importer; the rate of cereal self-sufficiency declined from 70% in 1970 to 520h in 1995. The rising demand for food products is due to a high rate of demographic growth (2,6%) whereas food production declines because of the supply constraints mentioned earlier; as a consequence, food imports increases over the years. The Senegalese consuiners will suffer from the price increases expected to result from the reduction of internal supports and export subsidies in net export countries when the URAA is fully implemented. For the time being, the country is concerned about the security of its consumers which can be ensured by colltrolling the quality of rice imports and by using anti-dumping measures. The new WTO rules tend to increase the price of technologies, increase the barrier to entry with SPS measures and other technical obstacles such as the rules concerning the certification of norms; as a result, there is a big risk that, with its limited technological capacities, Senegal will be crowded out of the international market. There is an additional threat linked with the patenting of agricultural seeds (GMO). The only way out of these threats is training as well as access to large flows of effective technical assistance. 3.1.4. Status of UR implementation and priority issues for next negotiations in Senegal The first issue to settle relates to the actual translation of the WTO rules endorsed by Senegal into Senegalese law so that there is a complete inteinalization of these rules. Besides, Senegal committed itself for a rate of protection of 180% made of two elements: a consolidated ceiling rate of 30% of the tariff applicable in 1995 and a rate of 150% for other taxes. Priority issues for Senegal for the next WTO negotiations are the following: 3.2. UR and agricultural issues in Burkina Faso 3.2.1. Recent agricultural performance in Burkina Faso Burkina Faso did not niake specific commitment relative to agriculture during the UR. Being a less developed country, tlie Marrakech agreement left reasonable room for maneuver to Burkina in terms of compulsory obligations in the agricultural area. In addition the transition period for a full compliance any UR comniitnient of Burkina Faso is above 10 years. Inipact of UR in agriculture on Burkina Faso comes through market access for its products (cotton and derived products, sugar, livestock and derived products, fresh and dried fruits and vegetables). It comes also from UEMOA regional commitment (especially, common external tariff). Finally it comes as a consequence of the dismantling of subsidies granted by developed countries to their food export that may result in increasing food import bill. These different channels of the impact of URA on Burkina Faso are investigated now, as well as recent and current agricultural policies aiming at a preparation for WTO 2000 negotiations and help to accommodate to the potential adverse effects of URA on the country. The following table summarizes the recent agricultural performance of Burkina Faso. erformance in Burkina Faso 1991 11992 11993 11994 11995 11996 / Agricultural Export/Total export 40 44.10 38.90 33.10 42.60 42 Agricultural Growth rate 20.70 1.I0 4.50 1 3.20 5.60 Agri.public invest1Total public invest 23.30 18.50 21.90 20.80 Source : PASA Agricultural VA accounts for a substantial share of total VA (above 36%). This picked to more than 40% in 1994 tlie year of the CFA devaluation. Agricultural export represents a higher share of total export (above 40% on average except in 1993 and 1994). The agricultural sector provides most of employment (86% of total employment). But, agricultural growth rate is very unstable (merely 2 1% in 1991. 1% in 1992 and 1994 and between 3 and 5.5% the other years). The instability of Burkina Faso agriculture is mostly explained by its extreme dependency to the weather and natural factors. 3.2.2. The main agricultural products in Burkina Faso The main agricultural products in Burkina Faso are the following Table 5: Main agricultural products of interest in Burkina Faso 1997198production (metric tons) cereals millet 603932 sorghum 942885 rice 37602 maize 366467 cotton 343 106 livestock* poultry 21 133 100 cattle 46 1 1900 tropical fruits and vegetables (fresh and dried) sugar fish (fish breeding) skin and leather Burkina Faso has put the emphasis on food productioii, including livestock, fruits and vegetables for both the domestic and export markets. Its main export markets are the regional markets except for cotton, tropical fruits, leather, vegetable oil and fats. In particular, cattle and ineat are exported to CBte d'Ivoire, Mali, Niger, Togo and Benin. Between 1992 and 1996 cotton represented on average 40.6% of total export, cattle, meat and leather amounted to 30.8% of total export, vegetable and tropical fruits represented 12% of total export. 3.2.3. Food import constraints and market access of Burkina Faso's main products Regarding food import, URA rules affects particularly the rice sector. Indeed, measures adopted under SAPS comprise a liberalization of rice import, trading systems and prices. URA, while reinforcing rice import, has resulted in increasing import bill of Burkina Faso as can be seen on the following table Table 6: Profile of rice demand, production and import Year Demand supply Production Import % of supply CGP* OA of Import 1994 60342 65869 25776 40093 60.66 40093 100 1995 78492 108133 35501 72632 67.17 72632 100 1996 123362 132108 47239 84869 64.24 84869 100 1997 126750 131757 37820 93937 71.29 53943 57.42. 1998 129773 167851 37602 130249 77.57 76008 58.37 * CGP =public import marketing board CIF prices of rice fell continuously since 1996 : January 96 = 160 CFhlkg ; January 97 = 148 CFAIkg ; January 98 = 141 CFA1kg ; December 98 = 146 F.CFA1kg. Extent of rice market liberalization in developed countries and Asian countries Compliance and implementation of URA illcereals. Maybe a weak implementation of URA - for cereals maintained some subsidies and specific aid programs. The CIF price of Burkina Faso import of rice declined from 1996 to January 1998, and turned to an increase at the end of 1998. It appears that there is an excess supply due to excessive import. This resulted into an increasing proportion of non sold domestic production. Priorities of agricultural policies in Burkina Faso are the following: food security ; agricultul-e intensification ; promotion and diversljicafionofe,xpol-ting agricultural products ; reforins of agricultural trading systenis (liberalization and privatization), but necessity to ensure guaranteed producer-prices; suppol-t to peasants associatioris in order to strengthen producel-s ' level oforganization Since URA is likely to affect food import prices it may affect adversely food security objective of Burkina Faso. To this regard the country is particularly interested in the assistance programs envisaged for net food importing countries. But, so far there has not been effective in Burkina Faso. The external common tariff in place between UEMOA countries since January 2000 set different categories for traded goods. Fertilizers and pesticides fall under taxed categories (category 1 and 2). Their import is subjected to a tariff comprised between 5 and 10%. To which statistical tax, PCS (conlmunity solidarity fees) and VAT are added. This provision on fertilizer and pesticides clearly impedes the intensification program of Burkina Faso, requiring substantial import of these products. In fact the need for intensification and the diversification objective require additional support programs. Another probleln facing Burkina Faso in trying to cope with the new WTS is the instability of the structure of its external trade. Some products appear a few years then disappear. This is the case of gold, which came close to the second highest export of the couiltry over the early 1990, but is merely disappearing today. Another example is cashew and other nuts which are cash crops, that depend entirely upon the weather and the willingness of peasant to harvest them. During bad years and when there is no motivation the export of these products may fall drastically. Above all, the agriculture intensification programs, and the promotion and diversification policies include various support programs. Indeed, within the current agricultural developnlent program, supported by a World Bank sectoral adjustment loan, the repayment of cotton producers' debt to the cotton factories amounted to 3-4 billion of CFA (between 25 and 40% of the World Bank total sectoral loan). Under the same program a support fund of 8 billion of CFA was set up to help cotton producers. In other sectors support effort were also done. In the livestock sector support measures were of three types. Aid tending to facilitate compliance to export regulation through aid to sanitary controls, training of exporters for a better understanding of papers required for export and the dismantling of restrictions on the export of leather ; privatization or aid to the restructuring of firms of the sector ; building wholesale markets for cattle, particularly at the boarders. Despite these obvious domestic support to agricultural activities Burkina Faso did not make any commitment to the WTO on domestic support. The reasons invoked for this is the length of the transition period and the status of Burkina Faso, a less developed country. However, officials think that there is a need to identify and exploit the favorable provisions of the WTO relating to domestic support and articulate them with the sectoral and macroeconomic adjustment programs, supported by the IMF, the World Bank and other donors. 3.2.4 Status of UR implementation and priority issues for the next WTO negotiations in Burkina Faso As stated above the UR agreement in agriculture has three niajor components :dismantling of NTBs and their replacement by tariffs and tariff binding; eliminate export subsidies, measure and reduce domestic support ; coinply with SPS provisions. Though Burkina did not make specific commitment in these areas given its status of less developed country the evolution of the agricultural sector and policies might help to assess the extent to which the country is prepared to face tlie WTO rules in the future when the transition period expires. Toward this end and in order to prepare the Seattle Ministerial Conference Burkina Faso set up an inter-institutional committee in order to deal with WTO related issues. The committee, which benefited also froin the ITCIUNCTADIWTO JITAP program, had a specific sub-committee devoted to the notification of Burkina Faso WTO related measures to the Secretariat. The sub-committee met once every week in order to clear the backlog and ensure the timely conliiiunication of any relevant measure. Thus, the country has notified regularly new measures adopted in the agricultural sectors. In fact, given the very slim specific coniinitment on the WTO list related to agricultural issues, very little was done. Burkina Faso claim that the country does not subsidize its agricultural exports and does not have any non WTO compatible domestic support without having presented a coniprehensive picture of the existing support. For example the country has not provided for a set of infomiation allowing for the computation of its AMS level, nor an attempt of de ininiminis calculation was done for any agricultural product. These issues should be taken into account in the next negotiations. As shown above the country has embarked i11a coniprehensive refoml of the trading system of its major exporting goods within the IMFIWorld Bank types programs. Again, WTO implications of these far reaching liberalization efforts are not drawn, at least for getting credit from them regarding tlie WTO commitments. In addition, the country did not make any specific effort to take advantage of the acconlpanying measures in the areas of net importing countries support programs, of LDCs technical assistance programs, of other S&D provision s of the URA. In the future efforts should be directed toward a better use of S & D provisions of the UR agreement in agriculture and of other specific advantages granted to LDCs. Priority issues of Burkina Faso for the next negotiation round right of developir1g courltries to resort to some e.rport subsidies ; irlcr-easethe de rnirlirnus level grurlted lo developirlg courltr-ies; ullolv developing courltries 10 corllplrte AMS level arld riluke serlsihle corlzrtlitrtlerlt at t11i.s level ; ittclude in greerl box tneasures strhsidies to investrnertt artd to agricultural inputs ; itttroduce con~pulsot~~ S&D and cotttpensation o f negative ittrpacts o f the UR in agriculture ott developing countries ; I-einforceiriternational technical assistance to developtlzent countries it?order to increase agricultural productivity and food security it1 developitlg countries. Burkina Faso also expresses the opinion that poverty alleviatiorl policies deserve explicit provision in the next WTO agr-een~ettton ngricultural issues Unfortunately these issues were not articulated and incorporated in the Burkina Faso positions at the Seattle Ministerial Conference partly because of a weak involvement of the ministry of agriculture in preparatory exercises. This should be corrected for the conling negotiations. 4. WAEMU and URA in agriculture 4.1. A general presentation of WAEMU Burkina Faso, C6te d'Ivoire and Senegal belong to the West African Economic and Monetary Union (WAEMU)'. The WAEMU treaty, which prolonged and extended the West African Monetary Union (WAMU) by incorporating most of the West African Economic Community (CEAO) provisions, was signed just a year before the signatory of the WTO agreements. WAEMU appears as one of the most successful regional arrangements in Africa. It is built around a common currency (the CFA franc) combined with a custom union, thought to become quickly a comnion market. A regional agreement is by definition discriminatory and violates the fundamental non- discrimination principle of GATT (generalization of the MFN principle). Nevertheless, article XXIV of the WTO general agreement provides that free-trade areas and customs unions are allowed to depart froin the principle of non-discrimination on certain conditions: it should not adopt custonls tariffs or other border restrictions that would be more restrictive on average than those previously applied; a plan or program should be prepared for the establishment of a customs union or free trade area; and, in the case of a free-trade area, they must cover essential trade between member States. Based on European and Asian experiences, regional trade agreements have been considered capable of inducing greater liberalization and helping developing countries fit more easily into the world trading system. Globalization does not appear therefore as an obstacle to the process of regional integration, and vice-versa. This is especially true for developilig countries. which are weak when taken individually, and seek often for the benefits of the clause of non-reciprocity. - - 'The nleniber countries of WAEMU are Benin, Burkina Faso, C6te d'lvoire, Guinea Bissau, Mali, Niger. Senegal, Togo The WAEMU treaty was signed on January 10, 1994, at the same time as CFA franc devaluation. This treaty resorts to two fundamental principles: the primacy of community law over national laws, except for sectoral policies for which primacy is replaced by subsidiag, and a centralized approach in pursuing the objectives of the union. WAEMU envisions, as the European Union, to improve and coordinate the macro-economic policies of member States and to create a common market by gradually eliminating trade barriers between them, by establishing a common tariff toward non-member countries, common rules for competition and public support, and pern~ittingthe free movement of goods, services and persons. Initially set on January 1, 1998, for the union to start operations, but likely adverse effects of the TEC on government revenue in most member countries and possible incompatibility with some aspects of URA, implementation of the TEC was delayed up to the year 2000. WAEMU institutions (the Commission, based in Ouagadougou; the Common Arbitrage Court and the Regional Stock Market, based in Abidjan) have been set up, and major non trade measures are in place (the common private accounting system, SYSCOA; the harmonized business regulation; the harmonized insurance regulation, the common public finance frame, etc.). 4.2. Trade related measures of WAEMU The objective set to trade related measures is to lead WAEMU to a full common market within a reasonable period of time. The common market will be based on: (i) an elimination of tariffs and NTBs between the member countries; (ii) the adoption of a common competition regulation; (iii) the adoption of a comnlon external tariff; (iv) the adoption of common trade policies and external multilateral relations. The ultimate goal is thus to constitute a common market of 67 millions people ensuring a free movement of persons, goods and services. The first step of this process, realization of the customs union through the adoption of a cominon external tariff TEC and the abolition of tariffs on community trade is operational since January 2000. In accordance with WTO provisions, finalization of the customs union of WAEMU is conditional on the following constraints: (i) the average rate of the TEC must not be higher than the current average rate in all the member countries; (ii) the preferential scheme for intra-community exchanges must include all the products originating from member countries, a provision entailing the annulment of the procedure of prior approvals, applied by the now defunct CEAO, felt to be too selective; and (iii) if WAEMU failed to implement a full customs union by January I, 1998, the timetable decided on, should allow the Union to attain a zero tariff rate within a reasonable period of time. 'The subsidiary principle means that comnlunity laws prevail in the areas where the con~munityis likely to do better than countries taken individually. Before the introduction of the TEC WAEMU member States made important efforts to bring their rates structure and levels closer. Table bellow shows tariff structure of individual countries in 1996. Table 7 : Tariffs number and rates of WAEMU countries in 1996 Rate category Benin Burkina C6te Mali Niger Senegal Togo Faso d'Ivoire Custoins duties -- 5YO 5% 5% --- 10% -- Number of fiscal duty 5 3 7 3 3 4 3 Rates of fiscal 0;s;10; 0;10;15 0;s; 10;15; 0; 10;25 5;10;30 0;20;30; 5;10;20 duty 15;20 20;25;30 50 Statistical tax 2% 4% 2.5% -- 5% -- 3% Customs stamp -- -- -- -- -- 5% -- PCS 1% 1 % 0.5% 1% 1% 0.5% 0.5% Special tax -- 2% -- -- -- -- -- Total charge range 3-23% 12-27% 7.5-37.5% 6-31% 9-39% 15.5-65.5% 8.5- 28.5% Source: Kouassy and DioniandC (1998) An examination of the tariffs structure of the nieiiiber States of WAEMU shows that it has been greatly simplified since the creation of the new union in 1994. The range of customs taxes were reduced considerably up to 1996; four countries, Benin, Mali, Niger and Togo now have a simplified scheme consisting in three custonis taxes including the comniunity solidarity tax; C6te d'Ivoire and Senegal have four taxes, Burkina Faso five. Since then the TEC being in force the tariff structure, actually the TEC structure, is common to tlie member states. The following table shows the tariff structure in place in the WAEMU countries currently. Table 8: The TEC structure across different good categories In % I Maximum tariff rate Statistical ( ( PCS* ( VAT 1Other excise 1 tax taxes PCS = Prelevement Communautaire de Solidarite (community solidarity tax) The TEC is applied to products originating outside WAEMU classified into 4 categories: catego/y 0 = social goods listed ori a limited hhcis (they concert7 mainly health, security. education and cultur-e--books,riotebooksand school rrzateriuls--,efc.); categor?, / :esserlfialgoods, raw ~iiuter-iulsa11deyrtiprr~errtgoods, etc. (tr~ostagt-ictOtrtral goods) ; category I :illputs n~idinter-n~ediutegoods ; category 3 :rnunufi~ctu~-edgoods,fit~alconsur~iptiongoods rio~iclassified elsewhe,-e TDP ("Taxe Degressive de Protection") and TCI ("Taxe Conjoncturelle a l'lniportation") are two exceptions to the general tariff frame. TDP is an temporary ad valorem tax applied to major processed products that confront to a risk of disappearing due the iniplenientation of the TEC. TCI is an instrument ainiing at tlie protection of products facing price instability or sudden decline or to mitigate unfair import competition practices. WAEMU adopted additional provisions allowing countries to resort to reference prices in case of persisting decline in international prices of their major products. These exceptions are the first areas of possible conflict with URA. They should concern products that are of a great importance for tlie countries, and sudden import surge and the threat of dumping should be demonstrated. The problem could also arise froni the lack of an antidumping regulation within the WAEMU legal framework. Another area of possible conflict is the structure of the TEC itself. Indeed, given that the TEC rates are average of previous rates prevailing in WAEMU member countries, they might be above the pre-TEC rates of some countries; violating the WTO provision of non-increased tariffs for custom unions under article XXIV. In addition the budgetary loss compensation scheme necessary for the sustainability of the customs Union, sliould be WTO compatible. Indeed, in order to accommodate to the fiscal adverse effects of the TEC an initial provision of 12 billions CFA franc, increased to 15 billion in 1998. has been adopted (UEMOA). The allocation scheme to WAEMU member countries of the conipensation funds is not publicized. Given that the co~iipensationfunds could be support provided to countries, they should be analyzed in tlie light of the WTO rules and discipline. Goods originating from the cornniunity and co~iformto tlie rules of origin access tariff free the market of any of the ~nenibercountries. The rules of origin that will regulate this process are being implemented. Are considered as community goods : not1processed natur-a1goods appearing on the limited list ofcategory 0goods; - traditional ct-afisn~angoods; a and processed goods with 60% content o f local raw materials or generating locally 40% VA. Tariffs are greatly simplified and their rates very low compared to previous levels. In addition given that the liberalization takes place within a regional grouping does not allow countries to reverse it as easily as in the past. Indeed, one of the niost striking features of unilateral liberalization in African countries has been the frequent reversals (Bohoun, Kouassy and McKay, 1996; Oyejide and Ndulu, 1996). WAEMU trade related measures do affect community agricultural policies and their compatibility with URA. Indeed, niost agricultural goods move freely inside WAEMU and enter the community market with niinirnum restrictions. More broadly WAEMU agricultural policies should be examined in the light of URA in agriculture. Adoption of rules of origin implies the disniantling of the tax draw back on exports toward community markets. In addition to tariffs and rules of origin doniestic tax harmonization might affect agricultural policies and performance. Though agricultural products are not concerned, taxing agriculture based processed goods, fertilizers, pesticides and agricultural materials might affect adversely agricultural productions. This issue is particularly important in C8te d'Ivoire where food production and new agricultural exporting products (cotton, palm oil and rubber) are rather intensified. More generally, WAEMU trade and tax related measures seem to contradict to some extent sectoral policies. 4.3. WAEMU agricultural policies and URA WAEMU is a built in process coniprising n~acroeconomicand sectoral issues. So far this process has been dominated by inacroeconoinic issues. Sectoral issues and policies have been just introduced. A cornmon industrial policy has been sketched en 1999. Co~umonagricultural policy is being designed according to the following steps: review of co~rr~t~yitidividuul agricultirr-a1policies in order to identifi c'ornnlonu/tiesand differences in the vieu~to better-coor-dinatethein; e.varnii~eI-elevuntpolicies and optioia arid deter-inii~eat-eus in which WAEMU rnight be tliosrperfoi-tning; elahorute und inzplement U I Iuction plaii conzbiriii~gcon~rliunityand advised individual countt~~~policie.~. Regarding this agenda WAEMU colnmon agricultural policy in preparation is unlikely to be in conflict with URA in agriculture since this policy can be tailored to the URA. However, given the priorities of member countries and WAEMU as an institutions, some possible conflicting areas with URA and the WTO rules and discipline are foreseeable. From the review of member countries policies tlie following directions are being considered by WAEMU for the common agricultural policy : agr-iculturalirltenslfication andproductit~ityiricrease ; food security ;localprocessit~gof agric~rlturulprin~u,:~goods ; developrlle~lt of itltru-co~r~i~~lr~~itytrade development: protection of corn mu nit^^ agricultural prod~rction--thi-ougkcollmlon e.rtenra1 tariff structure, product categorization arid rules of origin, corlrrli~lnityagricultur-a1support progranu-- ; pricing policies ; develop agr.icultura1 resear-chatrd fsriinirlg ; developrrle~~tof conzrn~rrti~vpolicies,for- infrastructures; measures ailnirtg at a11increase in intra-WAElClUtradeflows. Among these policy areas WAEMU emphasizes four main areas that have received most attention and resources. a special regiorial .food security pr.ogr.all1 llas heel? set up .firzanced bj' a co~npulsor~~ fiduciatyfiolds; anot1re1-fiotdsltas been set rrp in order tofacilitate the parricipatiorl oflnerl1ber coulztries in the regional development " Fotlds d'Aide a I'Itiser-tion Rkgional--FAIR--), which I-eceivedthe PCS mid allocates it accordirtg to develop~nentneeds of countries; e.rceptioris to tlre TEC (TDP. TCf w d refer.ertce prices) are price type instrunlentsfor the protectioti ofcolnll~rrllit~~products wlrere /reeded; agricultural research and training. Regarding food security, WAEMU has adopted a collective approach, that is at the Union level. To this regard an increase in trade flows is perceived as a means for the transfer of food production from surplus areas to deficit areas. Efforts toward increased intra WAEMU trade is justified given the low level of current trade flows between the member countries. According to Kouassy and DionlandC (1998) the share of export of most member countries to WAEMU is well below lo%, except Senegal (16.3%) and C6te d'Ivoire (9.7%), and the share of their import from WAEMU is also less than 10% on average except Mali (23%) and Burkina Faso (20%). An important share of the intra-WAEMU trade is consisted of agricultural and other food products, often non recorded (trans-boarder trade). This dimension of food security policy comprises efforts towards a strengthening of agricultural production and trade statistics services. WAEMU coninion agricultural policy takes place also within the new EU-ACP convention. This convention has renewed some provisions of tlie Lome convention (Satbex and specific protocols --bananas, sugar and fishing--), which are not WTO con~patibleand projected to conclude a regional cooperation agreement (Regional Economic Partnership--REP--) in 2002 the latest. The REP will be fully WTO compatible. Meanwhile, the non conlpatible provisions of the new EU-ACP convention should be dealt with properly in the course of the WAEMU common agricultural policy. Stabex concerns primary exports such as coffee, cocoa, cotton, etc. which are of greatest interest for the WAEMU countries. Areas of possible conflicts between WAEMU common agricultural policy and URA in agriculture are the following: e.~ceptionsto tlie TEC (TDP arid TCI) slio~rldbe WTO cor?ipatible iiiterisificatio~tprograni and the need to support agricultural productioris rniglit he cor?flictingwitli tlie WTO doinestic support mles agricultur-a1 liberalization and intra-WAEMU trade developnteiit initiatives rnigltt be contradictory allocation o f \~ariousWAEMU ,fui~dsin slipport to .food sccurity ai~dothei- agricultural objective WTO cor!flictirigprovisions o f the nelv EU-ACP converltiori WAEMU should deal with these possible conflicting areas in the design of the final version of its common agricultural policy. 4.4. WAEMU institutional arrangement for URA in agriculture related issues During the preparation of the Seattle Ministerial Conference WAEMU did not play a paramount role. Since the first semester of 2000 WAEMU Coninlission following a judgement of the Arbitrage Court has been empowered for international trade negotiations. This is a dra~llaticchange. The thing is that the WAEMU Commission seems better prepared to handle strictly trade issues though a WTO delegation has been set. Given the functioning of the Conimission, with independent departments with few links, the mandate of trade negotiation assigned to the customs and trade department might result in iiistitutional gaps and weaknesses. Indeed, though the setting up of a WTO related group, under the leadership of the customs and trade department, there might be a sluggish cooperation between departments like that observed in the WTO related inter-institutional comnlittees in individual countries. 5. Conclusion URA signed in Marrakech covers agriculture, services and textiles which will be object of progressive integration into WTO rules and of conling negotiations; the issues to be dealt with are: full liberalization, market access, domestic support and export subsidies. WTO rules are important to LDCs in general and to WAEMU countries in particular, because agricultural exports are their illain suppliers of foreign exchange and these countries are net food importers. The four case studies (WAEMU, CBte dtIvoire, Senegal and Burkina Faso) show that these countries' trade practices may conflict with WTO rules. C6te d'lvoire exports tropical fruit (bananas, pineapple) and faces the issues of EU trade preferences and competition from Latin American similar products; the Ivorian peasants exporting agricultural raw materials(cocoa, coffee, palm oil, cotton and rubber) suffer from the full liberalization programs in temis of rising poverty and falling quality of their products; the country's exports of processed agricultural products to non regional countries face tariff escalation, stringent quality norms and SPS measures combined with other technological problems; the full liberalization of imports of agricultural materials and intermediary inputs limit the scope of agricultural modernization and intensification; as a major net rice importer the country faces rising import bills. CBte d'Ivoire adopted low tariff bounds and 1% of product items (29/2700) were subjected to exception to the commitment of maximum tariff of 15%. It failed to use safeguard measures by introducing reference prices on sugar after privatization and liberalization of the sector; it also took a preventive anti dumping action against jute bags imported from Bangladesh. The country also rail support programs to the agricultural sector; it did not comply with its notification obligations related to agriculture. Senegalese agriculture suffers from severe supply constraints; full liberalization will increase existing conlpetition pressures on peanut oil exports of vegetal oil imports extracted from raw materials other than peanut ; non trade barriers of quality and SPS norms will also limit exports; the country faces a lack of local expertise in quality control, technical norm setting and certification. The country ran a zero export subsidy while competing oils imports are subsidized; there is a risk of time inconsistency in agricultural support policies when the government decides to take advantage of the WTO provisions of the transition period and grant the support foregone during the implementation of SAPS. priority issues are the translation of WTO rules into the Senegalese law and internalization of quality and SPS norms through access to training and technical assistance. Burkina Faso's agriculture represents 36% of total value added, about 40% of total export value and 86% of total employment; its growth rate is very unstable because of its highly dependence on weather and other natural conditions. Its main export markets are located in the WAEMU region, except for cotton, tropical fruit, leather and vegetable oil and fats; it is a net food importer. As a less developed country Burkina Faso has a much longer delay before it conlplies with WTO rules; although the country did not make explicit commitments to WTO despite a number of agricultural support programs; but the officials are conscious that they could make a better use of the opportunities offered by the WTO rules. WAEMU's TEC n~aximumtariff rate varies from 0 to 20% and is applicable to products originating outside the Union; there are two exceptions to this general tariff: TDP and TCI; there are also additional provisions allowing the resort to reference prices in case of persisting decline in international prices. These exceptions as well as the structure of the TEC itself (in case its level is above the pre-TEC average) may conflict with WTO rules. Besides, derogations and transitory tariffs meant to minimize or avoid fiscal revenue losses generated by the in~plementationof TEC may be incompatible with WTO rules which require that the post reform medium tax rate be lower than or equal to the pre refonn rate. WTO rules provide WAEMU countries for opportunities to curb the low intra-Union trade flows as well to increase trade flows between the Union and non regional countries; but provisions to mitigate anticipated fiscal revenue losses to individual union member countries may conflict with WTO rules. Besides, these countries need technical assistance to seize all the opportunities offered by WTO on one hand, and to intenialize new quality and SPS norms. - EU-ACP convention compatibility - Institutional gaps and weaknesses (both at the individual countries level and WAEMU level) REFERENCES - Anderson K. (1998), Agriculture, WTO, and the next round of multilateral trade negotiations. 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