By Don McClatchy

Although the WTO Agreement contained many provisions for “special and differential” treatment, it is now generally accepted that developing countries have yet received rather few real benefits from the Uruguay Round. The hunt is on to find ways to better address the needs of these countries in the new Round; some suggest the credibility and viability of the WTO itself is at stake. Several suggestions already exist about what further might be done. This paper proposes an additional step which might be taken in the agricultural field.

Developing and transitional country governments have a need to protect their farmers (and, often, consumers) against external shocks, particular arising from world market price swings. Typically lacking fiscal resources, their only feasible approach to do this may be through the use of border measures to moderate price transmission to the domestic market. With non-tariff barriers and export subsidies now effectively removed from the choice set for most, what remains are variable tariffs, variable import subsidies and variable export taxes (and, to a limited extent, controls on export quantities).

Many developing countries emerged from the Uruguay Round with bound tariffs quite high relative to applied tariffs. This gives them considerable room to vary the applied tariff as a domestic price stabilizing measure. Some have formal policies in place to do so systematically. Others have done it on a more ad hoc basis. However, questions have been raised about the WTO-legality of such practices because the Agreement on Agriculture explicitly bans some types of variable tariffs (variable import levies and minimum import prices). The reality is that such “banned” schemes are still in operation in the EU and Japan, and some other existing forms of variable tariffs (e.g., ‘seasonal’ tariffs) have not been challenged, and appear to be widely acceptable.

It is concluded that clarification is needed about which types of variable tariff practices are to be allowed and which are not. Rather than opposing developing countries’ use of “sliding scale” tariff schemes and lamenting their high levels of tariff bindings, the OECD group could recognize these countries needs, not exaggerate the costs to themselves, and endorse the practice of varying the applied tariff as a stabilizing measure for import-competing agricultural producers and for consumers of the same commodities. As a special and differential concession, developing and transition countries could be allowed to retain tariff bindings at a level high enough to provide a capacity for using variable tariffs as a safety net measure. Conditions and incentives could be attached to ensure transparency, predictability, and a principally stabilizing (not permanently protective) tariff use. Any new disciplines on export taxes or controls should take into consideration the logical linkage and be made consistent with such a concession.
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