Export competition/subsidies

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The conceptual framework 

The proliferation of export subsidies in the years leading to the Uruguay Round was one of the key issues that were addressed in the agricultural negotiations. While under the GATT 1947 export subsidies for industrial products have been prohibited all along, in the case of agricultural primary products such subsidies were only subject to limited disciplines (Article XVI of GATT) which moreover did not prove to be operational.

The right to use export subsidies was limited by the Agreement on Agriculture to four situations: (i) export subsidies subject to product-specific reduction commitments within the limits specified in the schedule of the WTO Member concerned; (ii) any excess of budgetary outlays for export subsidies or subsidized export volume over the limits specified in the schedule which is covered by the “downstream flexibility” provision of Article 9.2(b) of the Agreement on Agriculture; (iii) export subsidies consistent with the special and differential treatment provision for developing country Members (Article 9.4 of the Agreement); and (iv) export subsidies other than those subject to reduction commitments provided that they are in conformity with the anti-circumvention disciplines of Article 10 of the Agreement on Agriculture. In any other cases, the use of export subsidies for agricultural products is prohibited (Articles 3.3, 8 and 10 of the Agreement).

 

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Reduction commitments 

Definition of measures

Under the Agreement on Agriculture export subsidies are defined as referring to “subsidies contingent on export performance, including the export subsidies listed in detail in Article 9 of [the] Agreement”. As specified in more detail in Article 9.1 of the Agreement, this list covers most of the export subsidy practices which are prevalent in the agricultural sector, notably:

• direct export subsidies contingent on export performance;

• sales of non-commercial stocks of agricultural products for export at prices lower than comparable prices for such goods on the domestic market;

• producer financed subsidies such as government programmes which require a levy on all production which is then used to subsidise the export of a certain portion of that production;

• cost reduction measures such as subsidies to reduce the cost of marketing goods for export: this can include upgrading and handling costs and the costs of international freight, for example;

• internal transport subsidies applying to exports only, such as those designed to bring exportable produce to one central point for shipping; and

• subsidies on incorporated products, i.e. subsidies on agricultural products such as wheat contingent on their incorporation in export products such as biscuits.

All such export subsidies are subject to reduction commitments, expressed in terms of both the volume of subsidized exports and the budgetary outlays for these subsidies.

Product categories

The reduction commitments are shown in the schedules of WTO Members on a product-specific basis. For this purpose, the universe of agricultural products was initially divided into 23 products or product groups, such as wheat, coarse grains, sugar, beef, butter, cheese and oilseeds. Some Members took commitments on a more disaggregated level. The volume and budgetary outlay commitments for each product or group of products specified in a Member’s schedule are individually binding. The reduction commitments on “incorporated products” (last item in the Article 9 list) are only expressed in terms of budgetary outlays. The ceilings specified in the schedules had to be respected in each year of the implementation period although limited “over-shooting” in the second to fifth year of implementation is permitted (“downstream flexibility”). By the last year of the implementation period, Members had to be within their final export subsidy ceilings.

Rates of cut

Developed country Members were required to reduce, in equal annual steps over a period of 6 years, the base-period volume of subsidized exports by 21 per cent and the corresponding budgetary outlays for export subsidies by 36 per cent. In the case of developing country Members, the required cuts were 14 per cent over 10 years with respect to volumes, and 24 per cent over the same period with respect to budgetary outlays.

The Agreement on Agriculture also states that developing country Members may, during the implementation period, make use of a special and differential treatment provision of the Agreement (Article 9.4) which allows them to grant marketing cost subsidies and internal transport subsidies, provided that these are not applied in a manner that would circumvent export subsidy reduction commitments.

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Products with no specific reduction commitment 

The Agreement on Agriculture prohibits the use of Article 9.1 export subsidies on any agricultural product which is not subject to a reduction commitment as specified in the relevant part of the Member’s schedule (with the exception, during the implementation, period of those benefiting from special and differential treatment).

 

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Anti-circumvention 

In addition to the provisions directly related to the reduction commitments, the Agreement on Agriculture contains provisions which are designed to prevent the use of export subsidies that are not specifically listed in Article 9 of the Agreement in such a way as to circumvent reduction on other export subsidy commitments (Article 10). The anti-circumvention provisions include a definition of food aid in order that transactions claimed to be food aid, but not meeting the criteria in the Agreement, cannot be used to undermine commitments. Food aid that meets the specified criteria is not considered to be subsidised export hence is not limited by the Agreement on Agriculture. The Agreement also calls for the development of internationally agreed disciplines on export credits and similar measures in recognition that such measures could also be used to circumvent commitments. Any Member which claims that any quantity exported in excess of a reduction commitment level is not subsidized must establish that no export subsidy, whether listed in Article 9 or not, has been granted in respect of the quantity of exports in question.

 

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Notification obligations 

All Members must notify the Committee on Agriculture annually with respect to export subsidies. For Members without reduction commitments, this involves only a statement to the effect that export subsidies on agricultural products have not been used (or a listing of those measures that may be used by developing country Members under Article 9.4 of the Agreement if this has been the case). For Members with reduction commitments in their schedules, the annual notification must contain the annual use of subsidies in terms of both volume and budgetary outlays.

In addition, as part of the anti-circumvention provisions, Members must notify the use of food aid on an annual basis if such aid is granted. Likewise, total exports of agricultural products must be notified by Members with reduction commitments as well as by a number of other “significant exporters” as defined by the Committee.

As in other areas, the export subsidy notifications form part of the basis for reviewing the progress in the implementation of the commitments by the Committee on Agriculture.

December 2015 Nairobi WTO Ministerial Decision on Export Competition

The adoption in the context of the agriculture negotiations of the WTO Ministerial Decision on Export Competition at the 10th WTO Ministerial Conference held in Nairobi in December 2015 constituted a major development on export competition.

Phasing out of export subsidies

The Nairobi decision commits WTO Members to eliminate all forms of export subsidies. The timetable for phasing out remaining export subsidy scheduled entitlements for agricultural products (see above) depended on the development status of Members. It entailed:

• immediate elimination as of the date of adoption of the Nairobi Decision for developed Members. However, there were exceptions on EU sugar quantities under existing programmes (until 30 September 2017) and processed products, dairy products, and swine meat under certain conditions (until the end of 2020).

• elimination by the end of 2018 for developing country Members, with some exceptions under certain conditions (until the end of 2022).

In addition, developing country Members retained the possibility to benefit from the provisions of Article 9.4 of the Agreement on Agriculture until the end of 2023. Least Developed Countries (LDCs) and Net Food-Importing Developing Countries (NFIDCs) as listed in G/AG/5/Rev.10 continue to benefit from the provisions of Article 9.4 of the Agreement on Agriculture until the end of 2030.

In addition, Members committed to not apply export subsidies in a manner that would circumvent the obligation to reduce and eliminate them. Members also agreed to seek to keep export subsidies within the average level of the past five years for each product.  Furthermore, Members committed to ensure that such subsidies have minimal trade-distorting effects and do not hinder other Members' exports, while also consulting and providing information upon request to affected Members.

Out of the 16 Members who still had export subsidy reduction commitments at the time of the adoption of the Nairobi Decision, 15 Members have taken steps to modify their schedules of commitments pursuant to the Nairobi Decision on Export Competition and 13 revised schedules were certified. On 1 April 2024, one Member had yet to take any steps for its schedules to comply with the Nairobi Decision.

Export finance

In addition to complying with all other export subsidy obligations under the Agreement on Agriculture and other covered agreements (with the exception of the second paragraph of item (k) of Annex I of the Agreement on Subsidies and Countervailing Measures), Members undertook not to apply export credits (not including working capital financing to the suppliers), export credit guarantees or insurance programmes comprising direct financing support, risk cover, government to government credit agreements and any other form of direct or indirect governmental support for agricultural products as listed in Annex 1 of the Agreement on Agriculture, unless such supports are in accordance with specific conditions as outlined in the Nairobi decision and described below:

• Maximum repayment term of 18 months for export financing support, effective from the end of 2017 for developed country Members, and after a four-year phase-in period for developing country Members.

Special and differential treatment is provided for importing LDCs and NFIDC countries, listed in G/AG/5/Rev.10 (and some small vulnerable Members listed in the Nairobi Decision) allowing repayment terms between 36 and 54 months for acquiring basic foodstuffs, with the possibility of extensions in exceptional circumstances.

• Export credit guarantees, insurance, and other risk cover programmes must be self-financed and cover the long-term operating costs and losses of a programme in the sense of item (j) of the Illustrative List of Annex I of the Agreement on Subsidies and Countervailing Measures.

International food aid

In international food aid, the main objective stated in the Nairobi Decision is to ensure food aid is provided in a manner that prevents or minimizes commercial displacement, while maintaining an adequate level of assistance, taking into account the interests of food aid recipients and ensuring the disciplines do not unintentionally impede the delivery of food aid in emergency situations.

Pursuant to the Nairobi Decision, international food aid shall therefore be needs-driven, in fully grant form, not tied directly or indirectly to commercial exports of agricultural products or other goods and services, not linked to the market development objectives of donor Members and not re-exported except in some exceptional circumstances.

The provision of food aid shall consider local market conditions and Members shall refrain from providing in-kind aid if it risks adverse effects on local or regional production or established commercial markets.

Members are also encouraged to continue providing cash-based food aid and to procure food aid from local or regional sources, provided that the availability and prices of basic foodstuffs in these markets are not unduly compromised. Members also commit to allowing maximum flexibility to provide for all types of international food aid in order to maintain needed levels while making efforts to move toward more untied cash-based international food aid in accordance with the Food Assistance Convention.

The monetization of international food aid is permitted only when there is a demonstrable need for transport and delivery or to address food deficits or insufficient production which give rise to chronic hunger and malnutrition in LDCs and NFIDCs (and some small vulnerable Members listed in the Nairobi Decision).

The monetization should be preceded by a local or regional market analysis that includes consideration of the recipient country’s nutritional needs, local United Nations agencies' market data and normal import and consumption levels of the commodity to be monetized, and consistent with Food Assistance Convention reporting. Moreover, the monetization process shall be made by independent third party commercial or non-profit entities that minimize or eliminate disruption to local or regional markets. Additionally, the government of a recipient country can opt out of monetization.

The Committee on Agriculture reviews these provisions on international food aid as part of the monitoring of the implementation of the Marrakesh Ministerial Decision of April 1994 on Measures Concerning the Possible Negative Effects of the Reform Programme on LDCs and NFIDCs.

Agricultural exporting State Trading Enterprises (STEs)

For the purpose of the Nairobi Decision, agricultural exporting state trading enterprises are defined as enterprises which meet the working definition provided for in the Understanding on the Interpretation of Article XVII of the GATT 1994 i.e. governmental and non-governmental enterprises, including marketing boards, which have been granted exclusive or special rights or privileges, including statutory or constitutional powers, in the exercise of which they influence through their purchases or sales the level or direction of export (as the matter of imports does not fall under the disciplines of the Nairobi Decision), and are engaged in exports of products listed in Annex 1 of the Agreement on Agriculture.

Members committed to ensure agricultural exporting STEs do not circumvent other provisions of the Nairobi Decision and to make their best efforts to minimize trade-distorting effects and avoid displacing or impeding exports of other Members when using export monopoly powers.

Cotton

The disciplines and commitments contained in the Nairobi Decision had to be immediately implemented as of the date of adoption of the Decision by developed Members and not later than 1 January 2017 by developing country Members.

Review and transparency

Building upon the Bali Decision on Export Competition adopted on 7 December 2013 at the 9th WTO Ministerial Conference and in addition to annual notification requirements under the relevant provisions of the Agreement on Agriculture in the case of export subsidies, Members committed to continue providing annually information on the four areas covered by the Nairobi Decision based on the export competition questionnaire (ECQ) annexed to the Nairobi Decision. Developing country Members were exempted during the five years following the adoption of the Decision, unless in a position to do so.

The Committee on Agriculture monitors the implementation of the Nairobi Decision through an annual examination process based on the information collected through the responses to the ECQ and relevant notification requirements under the Agreement on Agriculture, compiled in background documents prepared by the WTO Secretariat.

The Committee on Agriculture is also mandated to review every three years the disciplines contained in the Nairobi Decision, with the aim of enhancing disciplines to ensure that no circumvention threatens export subsidy elimination commitments and to prevent non-commercial transactions from being used to circumvent such commitments.

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