WORLD TRADE
ORGANIZATIONG/AG/16
4 July 2003
(03-3577)
Committee on Agriculture
COMMITTEE ON AGRICULTURE (REGULAR MEETINGS)
IMPLEMENTATION-RELATED ISSUES
Report by the Committee on Agriculture to the General Council
The present report concerns the follow-up by the Committee on Agriculture to the relevant
implementation-related issues that are referred to in the Decision of 14 November 2001 by the Doha
Ministerial Conference on Implementation-Rela ted Issues and Concerns (WT/MIN(01)/17,
paragraph 2).  The report was adopted at the meeting of the Committee on 30 June 2003.
_______________
A. ARTICLE 10.2 OF THE AGREEMENT ON AGRICULTURE : T HE DEVELOPMENT OF
INTERNATIONALLY AGREED DISCIPLINES TO GOVERN THE PROVISION OF EXPORT CREDITS ,
EXPORT CREDIT GUARANTEES OR INSURANCE PROGRAMMES , TAKING ACCOUNT OF
PARAGRAPH 4 OF THE MARRAKESH NFIDC D ECISION
1. The relevant recommendations by the Committee concerning the question of implementation
of Article 10.2 of the Agreement on Agriculture that were approved by Doha Ministerial Conference
provide as follows (G/AG/11, Section A refers):
"In the light of their discussions and informal consultations on this matter Members are
agreed and recommend that work in the regular meetings of the WTO Committee onAgriculture on the development of disciplines pursuant to Article 10.2 and the related
provisions of the Marrakesh NFIDC Decision s hould continue in line with the following
general understandings:
"(a) that the focus of the work in the regular Committee meetings would be on the
implementation of Article 10.2 and the disciplines foreseen therein, whereas the
Special Session negotiations would focus on the proposals tabled or to be tabled on
export credit practices;
"(b) that, without prejudice to further work to be undertaken in the regular meetings of the
Committee as provided for in subparagraph (a) above, in the event that a Sector
Understanding on agricultural export cr edits is concluded at the OECD, the
Committee would, as envisaged in the report of the Committee on Agriculture to the
Singapore WTO Ministerial (G/L/131, paragraph 11), consider how any such
understanding could be multilateralized within the framework of the Agreement onAgriculture and how the provisions of pa ragraph 4 of the Marrakesh NFIDC Decision
have been taken into account;  andG/AG/16
Page 2
"(c) that the Committee on Agriculture should submit a report to the General Council on
this subject following its regular September 2002 meeting."
2. The further work of the Committee on Agriculture on the implementation of Article 10.2 and
of the related provisions of the Marrakesh NFIDC Decision has been pursued on the basis of theforegoing recommendation.  Following the regula r meeting in March 2002 of the Committee, an
informal seminar-type meeting was held, with the general purpose of providing an opportunity for
Members, particularly developing country Members and their capital-based representatives, to
become more familiar with the basic concepts in the area of export credits, export credit guarantees or
insurance programmes and the development of international disciplines.
3. Following discussion in this regard at the June 2002 meeting of the Committee, Members
were invited to respond to a questionnaire in order to provide the Committee with more detailedinformation regarding export credit guarantee programmes.  The questionnaires that have been
submitted to date were issued as a Committee on Agriculture document (G/AG/W/56 and Add.1).
4. Implementation of Article 10.2 of the Agreement on Agriculture and of the related provisions
of the Marrakesh NFIDC Decision was on the agenda of the meeting in December 2001 and the
meetings in 2002 and 2003, and will continue to be followed-up by the Committee at its futuremeetings in line with the recommendation approved by the Doha Ministerial Conference.
B. E
XAMINATION OF POSSIBLE MEANS OF IMPROVING THE EFFECTIVENESS OF THE
IMPLEMENTATION OF THE DECISION ON MEASURES CONCERNING THE POSSIBLE NEGATIVE
EFFECTS OF THE REFORM PROGRAMME ON LEAST -DEVELOPED AND NET FOOD-IMPORTING
DEVELOPING COUNTRIES
I. Food Aid (paragraph 3 (i) and (ii) of the Marrakesh NFIDC Decision)
5. The Committee's recommendations in the area of food aid in the context of the Marrakesh
NFIDC Decision that were approved by the Doha Ministerial Conference provide as follows
(G/AG/11 Section B-I refers):
"(a) that early action be taken within the framework of the Food Aid Convention 1999
(which unless extended, with or without a decision regarding its renegotiation, would
expire on 30 June 2002) and of the UN World Food Programme by donors of food
aid to review their food aid contributions with a view to better identifying and
meeting the food aid needs of least-developed and WTO net food-importing
developing countries;
"(b) WTO Members which are donors of food aid shall, within the framework of their
food aid policies, statutes, programmes and commitments, take appropriate measures
aimed at ensuring:  (i) that to the maximum extent possible their levels of food aid to
developing countries are maintained during periods in which trends in world market
prices of basic foodstuffs have been increasing;  and (ii) that all food aid to least
developed countries is provided in fully grant form and, to the maximum extentpossible, to WTO net food-importing developing countries as well."
6. With regard to the recommendation in paragraph 5(a) above, it may be noted that the Food
Aid Convention,1999, as extended in 2002, will expire on 30 June 2003, unless further extended.  At
the meeting of the Food Aid Committee in December 2002, there was agreement in principle to a twoyear extension from 1 July 2003.  The further extension of the Convention to 30 June 2005 was
decided by the Food Aid Committee at its Session on 23 June 2003.G/AG/16
Page 3
7. With regard to the recommendation in paragraph 5(b) above, it is considered that notifications
in the NF series by WTO Members which are donors of food aid, provide an appropriate means for
informing the Committee concerning the manner in which this recommendation is being taken into
account in the framework of donors' food aid policies, statutes, programmes and commitments.  It is
the understanding of the Committee that the follow-up to the recommendations on food aid will besubject to specific review at the November meetings of the Committee on Agriculture in the context
of the annual monitoring exercise of the Marrakesh NFIDC Decision and that for this purpose updated
NF notifications would be submitted by food aid donor Members concerned.
II. Technical and Financial Assistance in the Context of Aid Programmes to Improve
Agricultural Productivity and Infrastructu re (paragraph 3(iii) of the Marrakesh NFIDC
Decision)
8. At the Doha Ministerial Conference, the Committee's recommendations in the area of
technical and financial assistance in the context of aid programmes to improve agricultural
productivity and infrastructure were approved as follows (G/AG/11, Section B-II refers):
"(a) that developed country WTO Members should continue to give full and favourable
consideration in the context of their aid programmes to requests for the provision of
technical and financial assistance by least-developed and net food-importingdeveloping countries to improve their agricultural productivity and infrastructure;
"(b) that, in support of the priority accorded by least-developed and net food-importing
developing countries to the development of their agricultural productivity andinfrastructure, the WTO General Council call upon relevant international
development organisations, including the World Bank, the FAO, IFAD, the UNDP
and the Regional Development Banks to enhance their provision of, and access to,
technical and financial assistance to least-developed and net food-importing
developing countries, on terms and conditions conducive to the better use of suchfacilities and resources, in order to improve agricultural productivity and
infrastructure in these countries under existing facilities and programmes, as well as
under such facilities and programmes as may be introduced."
9. With regard to the recommendation in paragraph 8(a) above, it is considered that notifications
in the NF series by WTO Members which are donors of technical and financial assistance, provide an
appropriate means for informing the Committee concerning the manner in which this recommendationis being taken into account in the context of their aid programmes.  It is the understanding of the
Committee that the follow-up to the recommendations on technical and financial assistance will be
subject to specific review at the November meetings of the Committee on Agriculture in the context
of the annual monitoring exercise of the Marrakesh NFIDC Decision and that for this purpose updated
NF notifications would be submitted by donor Members concerned.
10. In line with the recommendation in paragr aph 8(b) above, the Chairman of the
General Council, in letters to the respective heads of the international organizations concerned, most
of which were represented as observers at the Doha Ministerial Conference, recalled the relevant
recommendation. In view of the importance that WT O Members attach to this matter, the Chairman
invited the international organizations concerne d to inform the Committee on Agriculture on the
outcome of any deliberations and actions in this regard within the framework of their programmes and
policies.  The responses that have been received from the African Development Bank, the European
Investment Bank, the FAO and the World Bank were circulated as documents G/AG/W/57 and
G/AG/W/57/Add.1.G/AG/16
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III. Financing Normal Levels of Commercial Impo rts of Basic Foodstuffs (paragraphs 4 and
5 of the Marrakesh NFIDC Decision)
11. The Committee's recommendations in the area of financing difficulties of imports of basic
foodstuffs in the context of the Marrakesh NFID C Decision that were approved by the Doha
Ministerial Conference provide as foll ows (G/AG/11 Section B-III refers):
"(a) that the provisions of paragraph 4 of the Marrakesh Ministerial Decision, which
provide for differential treatment in favour of least-developed and WTO net food-
importing developing countries, shall  be taken fully into account in any agreement to
be negotiated on disciplines on agricultural export credits pursuant to Article 10.2 of
the Agreement on Agriculture;
"(b) that an inter-agency panel of financial and commodity experts be established, with the
requested participation of the World Bank, the IMF, the FAO, the International
Grains Council and the UNCTAD, to explore ways and means for improving access
by least-developed and WTO net food-importing developing countries to multilateral
programs and facilities to assist with short term difficulties in financing normal levels
of commercial imports of basic foodstuffs, as well as the concept and feasibility ofthe proposal for the establishment of a revolving fund in G/AG/W/49 and Add.1and
Corr.1.  The detailed terms of reference, drawing on the Marrakesh NFIDC Decision,
should be submitted by the Vice-Chairman of the WTO Committee on Agriculture,
following consultations with Members, to  the General Council for approval by not
later than 31 December 2001.  The inter-agency panel shall submit itsrecommendations to the General Council by not later than 30 June 2002."
12. With regard to the recommendation in paragraph 11(a) above, it is understood that in the
context of the Committee's work towards the development of disciplines on export credits, export
credit guarantees or insurance programmes, special and differential treatment for LDCs and WTO NetFood-Importing Developing Countries (NFIDCs) will be taken into account (see Section A above).
13. Following the establishment of the Inter-Agency Panel on Short-Term Difficulties in
Financing Normal Levels of Commercial Imports  of Basic Foodstuffs in accordance with the
recommendation in paragraph 11(b) above,  the Committee, at its December 2001 meeting, adopted
the detailed terms of reference of the Panel which were approved by the General Council (G/AG/12
refers).  On 28 June 2002, the Inter-Agency Panel submitted its report to the General Council,
including a number of specific recommendations (paragraph 168 of WT/GC/62 – G/AG/13).
14. At its meeting on 15 October 2002 the General Council approved the recommendations
contained in paragraph 168 of the Inter-Agency Panel report (see Annex 1 to this report).   With
regard to the recommendations in paragraph 168(a), (c) and (d), the General Council, through its
Chairman, requested the IMF, the World Bank and the Integrated Framework agencies to review the
Panel report as it relates to the issues within thei r competence.  With regard to the recommendation in
paragraph 168(b), the General Council noted that the question of the feasibility of an ex-ante
financing mechanism aimed at food importers would be pursued by the Committee on Agriculture, on
the understanding that a proposal regarding the establishment of an ex-ante financing mechanism
would be submitted by the NFIDCs (WT/GC/M/76, paragraphs 63-64 refer).
15. On 28 October 2002 a proposal for the establishment of an ex-ante financing mechanism was
submitted by Bangladesh, Cuba, Egypt, Jordan, Kenya, and Sri Lanka on behalf of  the NFIDCs and
LDCs (see Annex 2 to this report).  A series of informal consultations were held under the auspices of
the Chairman of the Committee to discuss the proposal, in the course of which the NFIDC sponsorsG/AG/16
Page 5
provided written answers to 21 questions from donor countries.1  The proposal was also discussed at
the Committee meeting in November 2002.
16. While the consultations were useful in exploring and clarifying technical details of the
proposed ex-ante financing facility, wide differences of opinion remained between the donor
Members and the sponsors of the proposal. In particular, donor countries were not convinced that theex-ante revolving fund financing idea was a viable option for addressing the potential future short-
term financing needs of LDCs and NFIDCs.  These countries suggested that they were prepared to
consider alternatives other than the ex-ante revolving fund. For their part, the NFIDC expressed
frustration over the pace and direction of the consultations.
17. In light of the fact that there was no donor support for the establishment of an ex-ante
financing facility, the Committee on Agriculture decided to continue and broaden the search for
options and solutions within the framework of  the Marrakesh Decision, building on the work
previously undertaken in this respect.   On this basis, an inter-agency roundtable was convened by the
Committee with the mandate:
(i) to explore, in the context of the Marrakesh NFIDC Decision, the need for a safety net
to be established to assist the LDCs and NFIDCs during the reform process leading to
greater liberalization of trade in agriculture, including an examination of objectivecriteria and trigger mechanisms to determine a need;
(ii) to identify, in the light of (i) above, appropriate mechanisms within the framework of
the Marrakesh NFIDC Decision, taking into account their technical feasibility, as well
as their financial and institutional implications on potential donors and beneficiaries.
18. The Secretariat summary of the roundtable discussion held on 19 May 2003 is attached in
Annex 3 to this report for information only.
19. In the light of the discussions and informal consultations in connection with the Committee's
examination of possible means of improving the effectiveness of the implementation of paragraph 5
of the Marrakesh NFIDC Decision, the following r ecommendations are forwarded for approval by the
General Council:
(a) that in the context of the current review of the Poverty Reduction and Growth Facility
and the Compensatory Financing Facility of the IMF, WTO Members, in their
capacity as members of the IMF, consider the concerns by LDCs and WTO NFIDCs
concerning short-term difficulties in financing commercial imports of basic
foodstuffs; and
(b) that the General Council invite the World Bank and other relevant international
organizations to report on the feasibility and effectiveness of commodity price riskmanagement instruments for use by LDCs and WTO NFIDCs as part of strategies to
address short-term difficulties in financing commercial imports of basic foodstuffs, in
particular during phases of rising world market prices.
                                                     
1 Copies of the questions and answers are available upon request from the Agriculture and
Commodities Division of the Secretariat.G/AG/16
Page 6
(c) that, building on the work already undertaken, including the WTO roundtable of
19 May 2003, the Committee will continue to explore, as a matter of priority and on
the basis of proposals submitted by Members, options and solutions within the
framework of the Marrakesh NFIDC Decision to address short-term difficulties of
LDCs and WTO NFIDCs in financing co mmercial imports of basic foodstuffs.
C. THE SUBMISSION  BY  MEMBERS ADMINISTERING TARIFF QUOTAS OF ADDENDA TO THEIR
NOTIFICATIONS TO THE COMMITTEE ON AGRICULTURE (TABLE MA:1) IN ACCORDANCE WITH
THE DECISION OF THE GENERAL COUNCIL IN WT/L/384 R EGARDING THE ADMINISTRATION
OF TARIFF RATE QUOTA REGIMES IN A TRANSPARENT , E QUITABLE AND NON-
DISCRIMINATORY MANNER
20. Paragraph 1.1 of the General Council decision WT/L/384 provides that "Members shall
ensure that their tariff rate quotas regimes (TRQs)  are administered in a transparent, equitable and
non-discriminatory manner.  In that context , they shall ensure that the notifications they provide to
the Committee on Agriculture contain all the relevant information including details on guidelines and
procedures on the allotment of TRQs.  Members administering TRQs shall submit addenda to their
notifications to the Committee on Agriculture (Table MA:1) by the time of the second regular meeting
of the Committee in 2001."  The understanding was that this decision should not place undue newburdens on developing countries (WT/GC/M/62, paragraph 14, refers).
21. The following Members administering tariff quotas have submitted the requisite Table MA:1
Addenda:  Australia (G/AG/N/AUS/1/Add.1);  Canada (G/AG/N/CAN/ 2/Add.2, 6/Add.1, 10/Add.1,
19/Add.1 and 45);  Czech Republic (G/AG/N/CZE/Rev.1/Add.1);  European Communities
(G/AG/N/EEC/1/Add.2, 3/Add.1, 14/Add.1 and 15/Add.1);  Hungary (G/AG/N/HUN/1/Add.1,5/Add.1, 8/Add.1, 13/Add.1 and 18/Add.1);  Japa n (G/AG/N/JPN/1/Add.1, 8/Add.1, 23/Add.2 and
57/Add.1);  Latvia (G/AG/N/ LVA/1/Add.1);  New Zealand (G/AG/N/NZL/1/Add.1); Norway
(G/AG/N/NOR/1/Add.1); Slovenia  (G/AG/N/SVN/1/Add.1);  Sw itzerland (G/AG/N/CHE/13/Add.4);
Thailand (G/AG/N/THA/38/Add.1);  and the Unit ed States (G/AG/N/USA/2/Add.3 and 34/Add.1).
22. In accordance with the recommendation by Committee endorsed by the Doha Ministerial
Conference that implementation of the General Council Decision referred to above be kept under
review by the Committee on Agriculture at its regular meetings, at each of its meetings, the
Committee reviewed the position with regard to Addenda to Table MA:1 notifications
((WT/MIN(01)17, paragraph 2.4).    This review has been undertaken on the basis that Members are
able to raise any matters relating to these Addenda or relating to the administration of particular tariff
quotas in the course of the Committee's regular review process.
23. In general, compliance with the General Council decision has been satisfactory, although in a
number of cases Addenda to Table MA:1 notifications are still outstanding.   The Decision will be
kept under regular review by the Committee.G/AG/16
Page 7
Annex 1
Recommendations by the Inter-Agency Panel on Short-Term Difficulties in Financing
Normal Levels of Commercial  Imports of Basic Foodstuffs
(Paragraph  168 of WT/GC/62 – G/AG/13)
"168. In the light of our conclusions above and having regard to the Marrakesh NFIDC Decision,
we make the following recommendations concerning ways and means for improving access by LDCs
and NFIDCs to multilateral programmes and facilities to assist with short-term difficulties infinancing normal levels of commercial imports of basic foodstuffs:
(a) that in the context of the impending review of the CFF of the IMF, consideration be
given by member governments to
(i) extending the product coverage of the facility to cover all basic foodstuffs,
(ii) clarifying access in the context of an existing arrangement with the IMF,
(iii) providing a greater degree of automaticity without requiring an IMF-
supported programme,
(iv) reviewing the procedures and timeliness of disbursements, as well as
encouraging governments to come forward with purchase requests;
(b) that in the light of the limited potential usefulness of an ex-post revolving fund to
support food imports in times of need, the feasibility of an ex-ante financing
mechanism aimed at food importers be explored;
(c) that the terms of reference of the Diagnostic Trade Integration Studies to be
undertaken in the context of the Integrated Framework include, as appropriate and ifrequested by the beneficiary country, the items of
(i) food security implications of trade development strategies,
(ii) availability of, and access to, adequate financing, in particular by the private
sector, to support food imports;
(d) that strategies of commodity price risk management from the perspective of
developing country food importers be addressed by the Commodity Price Risk
Management Group of the World Bank."G/AG/16
Page 8
Annex 2
Proposal for Follow-up to the Recommendation of the Inter-agency Panel on Examining the
Feasibility of the Revolving Fund Operating as an Ex-Ante Financing Mechanism
Submission by Bangladesh, Cuba, Egypt, Jordan, Kenya and Sri Lanka
on behalf of the NFIDCs and LDC Group of the WTO
(G/AG/W/58 and Corr.1)
Background
The General Council examined the Report of the Inter-Agency Panel on Short-Term
Difficulties in Financing Normal Levels of Commercial Imports of Basic Foodstuffs ("the Panel") atits 8 July and 30 July 2002 meetings.
1   The establishment of the Inter-Agency Panel had been
approved by the fourth WTO Ministerial Conference at Doha in November 2001 following a
recommendation by the WTO Committee on Agriculture in the context of the implementation of the
Marrakesh Ministerial Decision on Measures Concerning the Possible Negative Effects of the Reform
Programme on Least-Developed and Net Food-Importing Developing Countries ("the MarrakeshNFIDC Decision").
2
The terms of reference of the Panel, as agreed by the Committee on Agriculture and approved
by the General Council, included:
"1. To examine the terms and conditions of existing facilities of the international
financial institutions (namely: IMF and the World Bank) to which least-developed
and WTO net food-importing developing countries could have recourse in order to
address short-term difficulties in financing normal levels of commercial imports of
basic foodstuffs, principally cereals, rice, basic dairy products, pulses, vegetable oilsand sugar, during periods of rising world prices for such basic foodstuffs, including,
as appropriate, other relevant sources of concessional financing …
"2. To examine the concept and feasibility of the proposal for the establishment
of a revolving fund in documents G/AG/W/49 and Add.1 and Corr.1…
"3. In the light of its review and examination under paragraphs (1) and (2) above
and having regard to the Marrakesh NFIDC Decision, to make such recommendations
for the consideration of the WTO General Council as the Panel considers appropriateregarding:  ways and means for improving access by least-developed and WTO net
food-importing developing countries to multilateral programmes and facilities to
assist with short-term difficulties in financing normal levels of commercial imports of
basic foodstuffs."
                                                     
1 Inter-Agency Panel on Short-Term Difficulties in Financing Normal Levels of Commercial Imports of
Basic Foodstuffs, WTO document WT/GC/62-G/AG/13  (28 June 2002).
2 Decision of 14 November 2001 concerning Implementation-Related Issues and Concerns (see
WT/MIN(01)/17, dated 20 November 2001, paragraph 2.2).G/AG/16
Page 9
The Panel's recommendations, concerning ways and means for improving access by LDCs
and NFIDCs to multilateral programmes and facilities to assist with short-term difficulties in
financing normal levels of commercial imports of basic foodstuffs, are summarized in
paragraph 168(a) to (d) of the Panel Report.3  Of these, 168 (a) (c) and (d) refer to explicit actions that
may be taken in the context of on-going activities by other institutions and the General Council isalready considering ways of following up on these issues.  The purpose of this paper is to put forward
to the General Council a concrete proposal for pursuing the Panel's recommendation contained in
paragraph 168(b), namely, to examine the feasibility  of the Revolving Fund operating as an ex-ante
financing mechanism.  In doing so, the proponents of  this proposal are mindful of the specific points
and questions raised by Members in the examination of the Panel Report and seek to take these into
account in this follow-up proposal.
Main issues raised as regards the functioning of the Revolving Fund
In examining the concept and feasibility of th e proposal for the establishment of a revolving
fund, the Panel concluded that:
(a) Most government-owned food import agencies in developing countries have been disbanded
or exposed to competition from private sector importers.  A  revolving fund would therefore
need to have appropriate mechanisms to provid e financing to all importing enterprises (both
public and private) in the countries concerned to ensure that they can secure commercial
                                                     
3  "168.  In the light of our conclusions above and having regard to the Marrakesh NFIDC Decision,
we make the following recommendations concerning ways and means for improving access by LDCs and
NFIDCs to multilateral programmes and facilities to assist with short-term difficulties in financing normal levelsof commercial imports of basic foodstuffs:
(a) that in the context of the impending review of the CFF of the IMF, consideration be given by
member governments to
(i) extending the product coverage of the facility to cover all basic foodstuffs,
(ii) clarifying access in the context of an existing arrangement with the IMF,
(iii) providing a greater degree of automaticity without requiring an IMF-supported
programme,
(iv) reviewing the procedures and timeliness of disbursements, as well as encouraging
governments to come forward with purchase requests;
(b) that in the light of the limited potential usefulness of an ex-post revolving fund to support food
imports in times of need, the feasibility of an ex-ante financing mechanism aimed at foodimporters be explored;
(c) that the terms of reference of the Diagnostic Trade Integration Studies to be undertaken in the
context of the Integrated Framework include, as appropriate and if requested by thebeneficiary country, the items of
(i) food security implications of trade development strategies,
(ii) availability of, and access to, adequate financing, in particular by the private sector, to
support food imports;
(d) that strategies of commodity price risk management from the perspective of developing
country food importers be addressed by the Commodity Price Risk Management Group of the
World Bank."G/AG/16
Page 10
imports at reasonable borrowing cost during periods of rising world market prices for basic
foodstuffs.
(b) If funds from the revolving fund were to be made available ex-post, i.e. after importation, to
countries affected by excessive import payments, disbursements would allow them toreconstitute their foreign exchange reserves that have been depleted through higher food
import bills.  In this respect, the revolving fund proposal has similar characteristics as the CFF
of the IMF.
However, given the prevalent system of food imports in developing countries, a fund that
would provide ex-post loans would have little or  no impact on the ability of private traders to
continue importing food.  Local traders who need to import more food need funds, or newcredit lines, at once.  The possibility, not certitude, that one or two years in the future, their
governments will receive a new loan is unlikely to influence the willingness of international
trading companies or banks to provide them affordable loans when needed.  Moreover,
governments are unlikely to authorize a new, dedicated credit line for food imports without
being certain that the disbursements under this credit line will be refinanced from aninternational fund credit line.  In the view of the Panel, the proposed revolving fund, if it were
to operate as an ex-post-borrowing facility would be of limited value in reducing short-term
financing difficulties.  The proposed revolving fund would be of potentially greater value to
the countries concerned if it were to operate as an ex-ante borrowing facility.  While the Panel
considered some of the elements of such an ex-ante financing mechanism, it did not addressits operational modalities and cost implications in any detail.
(c) Import bills as a trigger for a revolving fund are problematic because they are partly
determined by government actions.  Some country-specific review of macroeconomic
management and sectoral policies might be required, if such a monitoring mechanism is notalready in place.  It may be necessary to consider adequate safeguards to ensure the viability
of such a revolving fund.  The practical arrangements for such a fund's operation would
therefore require certain preconditions for lending, with similar characteristics to those of the
CFF of the IMF.
If the triggering mechanism were to be based on exogenous factors, such as increases in
world market prices and less favourable terms in financing food imports, no suchpreconditions for lending are necessary;  and one positive effect would be that funds could be
made available faster.  However, if access to a revolving fund were based on such an
exogenous trigger as prices, some countries which do not need short-term financial assistance
might obtain access to such a fund.  The eventual negative impact of this would need to be
mitigated by setting the fund's lending terms in accordance to the rates normally available inthe market, that is, at a non-concessional rate.
(d) The viability of a revolving fund would require monitoring to avoid defaults.  Again,
appropriate conditionality would be necessary to reduce defaults.
(e) Demand for funds from a revolving fund may exceed available resources, particularly during
times of high world market prices for food.  Depending on the capitalization of the fund,
modalities would have to be established for rationing available resources.
(f) Drawings from a revolving fund might increase some countries' external debt, possibly
resulting in difficulties related to a country's debt profile and the external debt ceilings agreed
in the context of an IMF arrangement.G/AG/16
Page 11
As regards these observations, the following may be noted.  First, the proponents of the
Revolving Fund proposal, as elaborated in documents G/AG/W/49 and Add.1 and Corr.1, did not
make any reference to an ex-post or ex-ante approach as regards its operational modalities.  The
concept of the Revolving Fund operating as an ex-post approach was the Panel's interpretation and not
an explicit modality suggested in the proponents' proposal.  Second, while the Panel limited itsconsideration of the Revolving Fund to that of an ex-post mechanism, it recognized that an ex-ante
approach might be more promising as regards its effectiveness in assisting the countries concerned.
Third, most of the issues raised in the Panel's examination of the Revolving Fund proposal, as well as
by some Members during the review of the Panel Report by the General Council, apply equally to an
ex-ante and an ex-post approach and hence have to be dealt with irrespective of what approach is
pursued.  Finally, in view of the fact that the Panel's terms of reference did not prescribe any specific
approach in the consideration of the proponents' proposal, it is only fair to argue that the Panel did notfully complete its work and consideration of the Revolving Fund as an ex-ante financing mechanism;
its most promising operational modality will have to be pursued.
Salient features characterising short-term diffi culties of LDCs and NFIDCs in financing food
imports
Before responding to the points made in the Panel Report and addressing some specific issues
related to the feasibility of the Revolving Fund operating as an ex-ante financing mechanism, it is
appropriate to recall also some pertinent observations and conclusions reached by the Panel as regards
the particular food situation in the LDCs and NFIDCs.  The Panels noted, inter alia , that:
- The concerns of the LDCs and NFIDCs stem partly from their dependence on the
world market for a large share of their food consumption.  In the case of cereals,
NFIDCs imported 35 per cent of total consumption in 1998-2000.  For the LDCs the
dependence on cereal imports was 14 per cent compared to 11 per cent for the rest ofthe developing countries.
- During the most recent period of high wo rld food prices (1995/96 to 1996/97), there
was a surge in the aggregate cereal import cost of LDCs and NFIDCs and a
significantly increased proportion of their imports was sourced commercially, as food
aid and concessional sales declined drastically.
- During the same period, the aggregate volumes of cereal imports were not maintained
by the LDCs.   Although the factors behind this were not analysed in the Panel
Report, the outcome may well be a downward adjustment in consumption, especially
by poor households in these countries.
- Some of the LDCs and NFIDCs in a weak financial position often face highly
unfavourable terms on world financial markets in financing of food imports (the
implicit interest rates can easily be in the 20 per cent range).
- The existing IMF Compensating Financing Facility (CFF) has been of limited use by
LDCs and NFIDCs, partly as a result of limitations in its product coverage,
conditionality and degree of concessionality for borrowing from it.
- Price spikes on world markets for basic foodstuffs, as occurred in the past, are likely
to recur in the future.
It is also with these considerations in mind that the proponents of the Revolving Fund made
their earlier proposal for the creation of such a fund to assist LDCs and NFIDCs with short-term
difficulties in financing normal levels of commercial imports of basic foodstuffs, as envisaged underG/AG/16
Page 12
the Marrakesh Decision.  In this connection, it is also to be noted that while the world market situation
in recent years has given a breathing space to LDCs and NFIDCs heavily dependent on the world
market for a substantial part of their food needs, past experience has taught us clearly that
complacency is often paid dearly.  It is now the time that action has to be taken to create an effective
instrument to deal with the next price spike.
Some initial considerations of a Revolving Fund operating as an ex-ante financing mechanism
The availability of finance for food imports from private sector sources and indeed, from
official export credit agencies is limited by ceilings which are expressed in US$ terms.  Thus, when
financing needs for the import of foodstuffs increase  strongly during a year relative to the previous
year, it is often difficult to find the needed new credit lines.  In such situations, importers may beforced to reduce their import volumes, even if this  would lead to inadequate food supplies at the
national/local level and to large domestic/local price hikes.
Speed is of the essence in food import finance.  Many of the net food-importing countries
depend on the food imports to feed a large part of their population, and they need to maintain a timelyflow of certain import levels, as foregone food consumption implies hardship or even starvation.
When nominal world market prices increase, or the average import prices increase otherwise (e.g. due
to a reduction of food aid and concessional sales), importers with limited foreign exchange resources
and borrowing possibilities need access to supplementary finance at once.
A financing facility supported by a Revolving Fund could make it possible for importers to
contain the reduction of (or preferably maintain) the volume of food imports during such periods of
high world food prices and thus limit the downward adjustment in consumption and hardship of
domestic households many of which are already in a precarious nutritional situation.
Bearing in mind the issues raised in the Panel Report as well as during its consideration by the
General Council, such a financing facility should meet, among others, the following requirements:
- avoid tying up large resources unproductively
- recognise the predominant role of private sector in food imports and allow both
private and public entities to draw on the facility on an equitable basis
- have an external triggering mechanism under which funds would be released from the
Revolving Fund, which in addition would enable importers to obtain finance rapidly
when imports are effected
- have appropriate mechanisms in place to ensure reimbursement of funds borrowed
and reduce default risks
- allow for rationing of available resources in situations where excessive demands are
made on the facility and implications for the capitalization of the Revolving Fund and
need for a back-up arrangement
- avoid negative market distortions
- limit the secretarial costs of administering the facility.
With respect to the first requirement, the IMF' s experience clearly shows that it is possible to
create international contingency facilities that do not put an undue burden on member (donor)
countries, and that do not result in large idle resources.   The experiences and modalities of operation
of such existing facilities in the IMF and elsewhere could be used in constructing the modalities of the
Revolving Fund facility.
The role of the government will be to guarantee the loans to importers, whether they are
public or private enterprises.  Mechanism would need to be in place at the national level to make loansG/AG/16
Page 13
available to such enterprises.  In this connection, methods used in financial markets on trade financing
can guide the design of the operational mechanisms of the Revolving Fund facility.
External factors are, by definition, outside of the control of a country's government.  Thus, a
trigger mechanism that would set off the disbursements under the facility on the basis of externalfactors such as world market prices does not require any checks on a country's policies, nor does it
require any policy conditionalities (at the most, one might want to list countries that are eligible to
access the facility, and those that are not, e.g., because of past reimbursement record).  Disbursement
can therefore be fast.  Particular triggers need to be tailored for each country (e.g., a country that
imports mostly rice should have different triggers from a country that imports mostly wheat), but this
can be worked out on the basis of past import statistics, and reviewed every few years.
4
Reimbursement can be ensured in the same way that banks deal with credit risks in
commodity trade finance.  In this particular case, one could think of a three-step mechanism: the
importing agent  (private or public) is liable to reimburse the loan;  the local bank  (which can be a
subsidiary of an international bank) through which the importing agent obtains the loan, guarantees it
up to x%;  and the government  entity which administers the scheme in the country gives an
unconditional guarantee to reimburse the full loan, irrespective of whether the individual borrowers
have paid or not.  This would leave a residual "country risk", which, if one wishes, can be insured on
the private market for sovereign risk insuran ce (annual coverage for many net food-importing
developing countries is available at 1% or so) – the margin between the costs of funds and the rate
charged to importers (to avoid distortions) is large enough to cover such insurance costs.
Just like international banks usually do when providing credit for imports, the facility can
control the use of the funds by not disbursing them to the importing agents, but directly to the
international traders or export agencies from which they are buying.  Local banks should be
encouraged (and trained) to manage their credit risk vis-à-vis the importers, e.g., through the use ofcollateral management techniques.  The latter will, in the long term, lead to larger credit lines and
greater flexibility of banks in reacting to the financing needs of importers, and one can thus expect
that after a number of years, in some countries fa ster than in others, the needs for the facility will
disappear.
If food prices increase dramatically and across the board, there may be a large call on the
facility's resources.  The facility could re-insure its risk, if it wants (the risk is basically a price risk,which can be covered quite easily on the international market for commodity risk management
instruments).  But if it does not, a system of finance quota has to be established, and a formula
acceptable to all eligible countries needs to be elaborated.
Market distortions can be avoided by using the established marketing channels.  For example,
consider that trader X usually imports 10,000 tons of maize, under a credit line from international
trader Y.  Maize prices increase strongly, and Y informs X that under the existing credit line, he can
now only deliver 6,000 tonnes.  If the international facility has been triggered, X can then approach
(through a national coordinating office) the facility to request for a credit line for the remainder.  If
approved, the facility will either pay Y directly, or cover the credit risk of Y giving a larger credit lineto X.   In order to ensure that the financing faci lity complements rather than replaces existing credit
arrangements, the interest rate should be set at a level commensurate with what X is already paying
                                                     
4 These "tailored" triggers ensure that not all countr ies start benefiting of the facility at the same time,
which reduces the risk of short-term effects on prices that could result if all countries were to come to the
market at the same time.  Note also that the facility does not act as a buffer stock supplying an unlimited amountof foodstuff to the market at a given price – rather, net food-importing developing countries are given the meansto maintain import levels even if world market conditions become more difficult for them (the world market
conditions themselves are only marginally affected).G/AG/16
Page 14
(given the costs of capital of the facility, this will generate considerable earnings to the facility, which
can be used to cover secretariat costs and performance risks).
Finally, the administrative costs of a food import financing facility can be reduced by
adopting fairly straightforward triggering mechanisms  (reducing the review role of the secretariat),
and through cooperation with appropriate counterparts (which could, for example, supply the relevant
data).
In conclusion, all indications are that a Revo lving Fund facility for the financing of food
imports can be established in such a way that the risk of disruptions in imports due to import price
increases are largely avoided, and without any negative effects on the market or on the position of
private versus public sector importers.
The way forward
Further work on the Revolving Fund facility (or some form of a trust fund) for the benefit of
LDCs and NFIDCs could evolve along two lines: operational, and institutional and administrative.The point of reference should be a decision of the General Council to explore "the feasibility of an ex-
ante financing mechanism aimed at food importers" as contained in paragraph 168(b) of the Panel
Report.  Future work would build on the analysis contained in the Panel Report.  To the extent
relevant, the design of the Revolving Fund facility would draw on the operational and institutional
experience of existing financing mechanisms, such as the IMF's Compensatory Financing Facility(CFF).  The intent would be to avoid duplication of CFF conditionality, which the Panel Report
identified as unacceptable to the proponents of the Revolving Fund facility.
With respect to operational features, as already discussed above, further consideration is
needed with respect to eligibility criteria and tr igger mechanisms.  For example, there would be a
need to identify the global and country-specific variables, including definition of the commodity
coverage, that would establish the basis for country access to Revolving Fund financing.  Additional
areas requiring exploration could include country-sp ecific ex post assessment of developments in food
imports compared to the assumptions used to trigger disbursements; interest rates and charges; normal
and accelerated repayment schedules; provisions for delayed repayments; and investment of financial
resources provided by donor countries not yet disbursed to eligible countries.
Institutional and operational considerations would need to be elaborated, based on the
assumption that the overall management and administ ration of the trust fund would be lodged within
an existing international agency, and the decision-making body of the said agency would oversee
operations of the Revolving Fund.  A small staff would be necessary to monitor economic
developments, prepare loan requests, monitor ex-post developments, and administer repayments andfinancial investments. The intent of the proponents of the Revolving Fund is clearly to avoid the
creation of a new international agency.
Finally, as regards the specific approach of ex ploring the feasibility of this Revolving Fund
ex-ante financing mechanism, it was agreed by the Committee on Agriculture that this proposal wouldbe discussed at its next formal meeting, and the appropriate decision be taken by the General Council
at its meeting in December 2002.G/AG/16
Page 15
Annex 3
WTO Roundtable in the Framework of the Marrakesh NFIDC Decision
held on 19 May 2003
Summary Report by the Secretariat
1. At its meeting on 27 March 2003 the Committee on Agriculture agreed to convene a
roundtable with the task to:
(i) to explore, in the context of the Marrakesh NFIDC Decision, the need for a safety net
to be established to assist the LDCs and NFIDCs during the reform process leading to greater
liberalization of trade in agriculture, including an examination of objective criteria and trigger
mechanisms to determine a need;
(ii) to identify, in the light of (i) above, appropriate mechanisms within the framework of
the Marrakesh NFIDC Decision, taking into account their technical feasibility, as well as their
financial and institutional implications on potential donors and beneficiaries.
2. The following organizations were invited to designate experts to participate in the roundtable:
FAO, the International Fund for Agricultural Development (IFAD), the International Grains Council
(IGC), the IMF, UNCTAD, the World Bank and the World Food Programme (WFP).1
(a) Statements by the panellists
FAO
3. The representative of FAO stated that FAO had long argued that international support,
through appropriate mechanisms, was needed to supplement at the national level the efforts of LDCs
and NFIDCs to enhance their food security. The impact of the reform process in agriculture initiated
in the Uruguay Round and continued in the current WTO negotiations, should be seen in a broader
context, in the sense that the terms and conditions for the international procurement of basicfoodstuffs by LDCs and NFIDCs had drastically changed compared to those that prevailed in the
1980s.  In the 1980s, concessional sales and food aid constituted a large proportion, in some cases up
to 70%, of the food imports of LDCs and NFIDCs. World prices for basic foodstuffs were also
relatively low. Thus, not only were commercial im ports a small proportion of the imports of these
countries, but the prices of commercial imports were also lower.
4. As a result of the depressed world prices for basic foodstuffs that prevailed during most of the
1980s and early 1990s, investments in domestic production in LDCs and NFIDCs, both from nationaland international sources (including the multilatera l financial institutions and ODA) lagged far behind
– in fact declined in most instances –  relative to what was required to develop and sustain a viable
domestic capacity.  At the same time, there were pressures on LDCs and NFIDCs in the context of
structural adjustment programmes since the 1980s to open further, unilaterally, their markets to
imports. The result had been an increased deficit in the domestic production of basic foodstuffs inmany of these countries – despite in most cases an untapped agro-ecological potential for viable
agricultural production – necessitating a rising trend in their food import requirements.
                                                     
1 The panellists were Mr. Harmon Thomas (FAO),  Mrs. Mylene Kherallah (IFAD), Mr. Alexei
Kireyev (IMF), Mr. Lamon Rutten (UNCTAD), and Mr. Allan Jury (WFP). The Attachment hereto contains a
written contribution by the World Bank.G/AG/16
Page 16
5. In conjunction with such pressures to liberalise imports, there were pressures to privatise
and/or dismantle state marketing boards and other governmental mechanisms for the domestic, as well
as international, procurement of basic food stuffs. As a result, private traders and processors
dominated food marketing and import procurement in most LDCs and NFIDCs. This shift had given
rise to a new set of problems, many of which were related to the small size of private operators inmost of these countries and the lack of sophistication of local traders and processors concerning
international food procurement and import financing.
6. All of these changes in the trading environment marked a sea change in the situation faced by
LDCs and NFIDCs in the 1980s and 1990s prior to the taking hold of the reform process in
agriculture.
7. The representative of FAO drew the attention of participants to two FAO documents that
were of relevance to the issues under consideration in this roundtable.  The first was a document thatpresented the food import profiles of LDCs and NFIDCs from 1981 to 2001.  The commercial food
import bills of many LDCs and NFIDCs had been rising since the 1980s and had experienced, in
addition, considerable surges above their trend in the 1990s, reflecting both price spikes and reduced
concessional sales.
8. The second document was a paper entitled "Mechanisms for Financing Imports of Basic
Foodstuffs by Net Food Importing Developing Countries and Possibilities for Improvement".  This
was a background paper prepared in collaboration with UNCTAD and presented at an FAO
roundtable held in Geneva on 2 May 2003.  The FAO roundtable had examined how commercial
imports of basic foodstuffs by LDCs and NFIDCs took place and the conditions for their financing;
how short term financing difficulties may occur given current practices; and what could be done at thenational and international levels to alleviate those difficulties.  With the assistance of representatives
of food import agencies, private traders and food import financing institutions, the roundtable had
reviewed current practices and recent experiences of NFIDCs in food import procurement and its
financing.
9. Several difficulties or weaknesses were identified in the current ways of financing food
imports in the context of the new market environment and higher commercial food import
procurement requirements of LDCs and NFIDCs.  The weaknesses and constraints were shown to
become magnified during periods of rising food prices.  The short-term difficulties in financing
normal levels of food imports were, for the most part, related to issues of access to credit that was
determined by financial capacity and risk-taking capacity.  Given that finance was scarce in LDCs and
NFIDCs, access to credit for financing food imports was constrained, on the one hand, by high
interest rates, often in double digits in real terms.  It was further constrained by the risk-carryingcapacity of operators, i.e. international traders or international banks in their dealings with counter-
parties in LDCs and NFIDCs (private traders, loca l banks or government agencies).  International
banks as well as international traders had credit ceilings for their exposure to developing country
clients. These were expressed in nominal terms and difficult to adjust to increased financing needs.
This was a well-known trade financing problem associated with limits to the risk-carrying capacity ofprivate financial markets.  It was in recognition of  this problem that several governments - such as
United States, Canada, Australia, France, etc. -  had set up export credit guarantee schemes to
facilitate access to credit for buyers of their food exports who otherwise would not be able to obtain
credit on financial markets, or only on unreasonable terms and conditions.
10. To address the food import-financing problem, two broad approaches were possible: one was
to provide credits directly to the importer; the other was to create conditions under which international
financiers were able to provide such credits.  A solution presented and discussed at the FAO
roundtable combined elements of these two approaches.  In particular, an international facility similarG/AG/16
Page 17
to some bilateral export credit guarantee schemes, which might be called multilateral export credit
guarantee facility (ECGF) for basic foodstuffs, could do some of the following:
(1) give credit insurance on part of the credit risk exposure of food exporters;
(2) give avals or guarantees on local bank risks involving food imports; and(3) provide sovereign risk insurance for goods (foodstuffs) in warehouses to facilitate
warehouse receipt finance.
11. The specific type of action taken by the ECGF would be tailored to the situation of each
country and would be in support of market transact ions.   Thus the ECGF would facilitate access to
food import finance and lower the financing costs of  LDCs and NFIDCs. It would be market-friendly
and would use leverage to good effect, i.e. relatively low cost action would make available significantsums of additional finance for food procurement at lower financing costs than those currently faced by
LDCs and NFIDCs.  The mechanism would not require paid-in capital but only callable capital in the
form of loan guarantees up to a pre-determined amount and conditional on certain trigger criteria
being met.  With such an interna tional mechanism in place,  the bene fits of an efficient international
financial market could be extended to food impor ters in LDCs and NFIDCs while minimising the
market distorting practices inherent in some of the bilateral export credit guarantee schemes.
IFAD
12. The representative of IFAD explained, that IFAD, as a United Nations development agency,
provided project loans and grants to the agricultur al and rural sectors, with the main objective of
enabling the rural poor to overcome poverty.   IFAD believed that investment in agriculture was a key
element for improving food security in developing countries. Such investment was also necessary to
enhance the capacity of weathering shocks, such as short-term difficulties in financing food imports.
Access to markets was also crucial to be able to  increase production and income.   In the view of
IFAD, any short-term mechanism that might be established should be linked with longer-termdevelopment assistance programmes.
IMF
13. The representative of the IMF noted that, in the context of the General Council meeting on
Coherence in Global Economic Policy-Making in May 2003, the Managing Director of the IMF in
had stated that the IMF was reviewing the design of the Compensatory Financing Facility (CFF) and
the Poverty Reduction and Growth Facility (PRGF), with the objective of providing more flexibleassistance to low-income countries facing signifi cant exogenous shocks. The review of the PRGF and
the CFF was due to be completed by the end of 2003.
14. The IMF was currently examining issues arising from exogenous shocks in developing
countries and the circumstances leading to such shocks.  In this regard, the concerns of the NFIDCs
were examined in a broader context, with food import shocks being one of the potential shocks.  TheIMF maintained its position that financing must be accompanied by adjustment measures, especially
where shocks were likely to be lasting.   Shocks in countries that had active IMF programmes or were
eligible could most effectively and rapidly be accommodated through augmentation of those
programmes rather than use of stand-alone facilities, be it the CFF or any other IMF facility.
15. The following were preliminary findings of the "shocks paper" being prepared by the IMF:
• The frequency of natural disasters had more than doubled in developing countries since the
late 1970s.  As a result, the average annual real damage from natural disasters had also morethan doubled in the same period.G/AG/16
Page 18
• Large and frequent negative shocks to real export prices which had also increased in recent
years had caused significant direct income losses in developing countries.  There had been apronounced long-term downward trend in commodity prices, particularly since the 1970s.
• Low-income countries were more vulnerable and less resilient to such shocks than other
developing countries, as exports were more concentrated and natural disasters occurred morefrequently and caused larger economic losses as a percentage of GDP.
• Ex-ante measures, such as risk-reduction mechanisms, self-insurance schemes, risk insurance
or risk-hedging mechanisms, that could be taken to prevent or cushion the income losses
resulting from shocks were either unavailable or very costly for low-income countries,
particularly when shocks were prolonged.
• Different types or shocks and differences in the frequency or length or such shocks suggested
that the response in terms of appropriate macroeconomic policy adjustment and externalfinancing should vary with the circumstances.
UNCTAD
16. The representative of UNCTAD drew attention to the paper entitled "Mechanisms for
financing imports of basic foodstuffs by Net F ood-Importing Developing Countries and possibilities
for improvement" prepared by UNCTAD.   UNCTAD been requested to examine the issue of credit
constraints in international food trade, as well as sudden additional needs for financing, either because
increases of food prices or reduced availability of non-commercial food.2  The likelihood of such
shocks occurring had not been explored, nor the link between the Uruguay Round and such shocks but
there were prima facie  reasons to believe that with lower food stocks and less subsidized food
production food prices would increase and become more volatile.  Indeed traders generally believed
that international prices were driven by stock levels, with stocks being affected by the implementation
of the Agreement on Agriculture.
17. The international food trade had evolved from a situation where food imports in NFIDCs and
LDCs were largely controlled by governments to a situation where trade had generally been privatized
while adequate support mechanisms to enable private traders had not been developed.  Moreover,
there was a also clear link between financing costs and financing needs – in the situation of a shock
with triggered increasing financing needs, financin g costs increased.  It was also noted that food
imports were the largest import item after oil, with oil being reasonably financed by international
banks.
18. The proposed financing facility in the paper referred to above was a mechanism that could
potentially address some of these financing constraints of LDCs and NFIDCs and be established at
relatively low cost since is was based on existing food financing mechanisms used by private banks.In the experience of UNCTAD, the establishment of financing institutions tended to have a significant
benefits.
World Food Programme (WFP)
19. The representative of WFP stated that WFP did not take a position as to whether a new
facility or any kind of compensatory mechanism was needed.  The objective of WFP was to discussunder what conditions food aid might be one element of such assistance, if WTO Members were to
decide to establish a compensatory mechanism.
20. There were two types of food aid:  targeted food aid provided in project and emergency
situations, and programme food aid.   Programme food aid was usually provided as a resource transfer
                                                     
2 Mechanisms for financing imports of basic foodstuffs by Net Food-Importing Developing Countries
and possibilities fo r improvement", paper presented at the FAO roundtable in Geneva on 2 May 2003.G/AG/16
Page 19
for balance-of-payments or budgetary support objectives, and was not targeted to specific beneficiary
groups but sold on the open market of the recipient country, where it did not necessarily reach the
poorest and most in need.  WFP provided only targeted food aid.
21. The value of targeted food aid was to reach the individual or household that were
disadvantaged - it was not intended nor effective in supporting macroeconomic stability.  If theobjective of one element of a new facility was to reach those who had lost access to markets due to
rising prices or other market disruptions, targeted food aid could be a valuable tool.
22. Targeted food aid in 2002 totalled 7.5 million tonnes, representing more than 75 per cent of
global food aid in that year.  Targeted food aid was relatively stable in terms of volumes as prices
went up and down, whereas the volumes of progra mme food aid were more volatile and subject to
prices. As a result, the supplies of programme food aid became greatly decreased in times when prices
were highest.  If food aid were to be one element of a new facility, an important issue was thereforehow best to give greater predictability to any additional food aid above current project and emergency
food aid volumes.
23. The representative of WFP stated that WFP supported food aid being part of a new facility if
such a mechanism was created, only if its objective was to reach the individual households in need.
WFP would be willing to participate in a mechanis m designed to increase the volume and efficiency
of targeted food aid.
(b) Discussion
24. In response to a question by the representative of Egypt concerning the relationship of import
prices for food with the Uruguay Round reform process, the representative of FAO noted that the
issue went beyond the question of food prices.  The trading environment had changed to an extent thatit had affected the availability of imported food "on reasonable terms and conditions".   The current
situation was a direct outcome of the reform in global agriculture.
25. The representative of Sri Lanka sought further clarification regarding the multilateral export
credit guarantee facility proposed by FAO, including as to how the proposal could be brought into the
agriculture negotiations concerning export credits that focused on bilateral schemes.
26. The representative of Argentina stated that such multilateral scheme, if it were to be
established, would need to be subject to disciplines to be developed at the WTO.
27. The representative of FAO stated that the proposed export credit guarantee facility would not
operate in the same way as bilateral schemes that  addressed food-financing problems from the point
of view of exporters rather than importers.  In his view, the proposed multilateral scheme might be
considered a first-best option;  disciplining existing bilateral schemes in the agriculture negotiations
was a second-best option.
28. The representative of Canada made the observation that the choice of appropriate instruments
depended on whether countries, private traders or individuals were targeted.  If the financing
difficulties of governments were at issue, the IMF appeared to be one of the appropriate institutions to
address such problems.  If private trading companies were facing financing constraints, the
examination of possible options should focus on the banking system and instruments addressed in theFAO paper.  If individuals were in need, targeted food aid appeared to be one of the appropriate
instruments.  There was also a question of whether the financing difficulties faced by the private
sector should be addressed in terms of a chronic problem, as opposed to establishing a trigger
mechanism that opened a financing window on an ad hoc basis.G/AG/16
Page 20
29. The representative of the United States raised concerns regarding a possible overlap between
the PRGF/CFF and a new financing facility that might be established.   There was also a question
regarding the benefits of the proposed multilateral ECGF to the extent that it was designed to replace
existing bilateral export credits schemes.
30. The representative of UNCTAD noted that, on the one hand, the WTO negotiations
concerning export credits were driven by the  argument that some of the bilateral schemes were trade-
distorting.   On the other hand, the bilateral schemes addressed real financing needs and many food
importers would have great difficulties without these schemes.  A multilateral scheme would both
respond to real problems and could alleviate concerns about trade-distorting effects since it performed
many of the same functions provided by bilateral schemes without trade-distorting impact.  The
proposed scheme would allow local banks to improve their financing skills in the food trade, with
positive spillover effects for financing domestic trade (for instance, to help finance food trade betweensurplus and deficit regions within countries).   The capacity/institution building aspect was an
important element of the scheme; if successful, the scheme might eventually disappear.  The
classification of whose financing needs was useful for purposes of avoiding overlap.  The risk of
overlap of the proposal with IMF facilities was quite small.
31. Australia noted that the PRGF excluded many NFIDCs and some LDCs that were not
currently eligible.  It was also difficult to envisage how finance could be made available to private
traders/importers under this option.  The representative of the IMF responded that IMF financing was
available only to its members, that the PRGF was based on poverty reduction strategy papers, that
countries should meet certain criteria for accessing IMF resources (including the existence of the
balance-of-payment need, a strong macro-economic adjustment programme and the capacity torepay), and that conditionality was mandated by the IMF to safeguard the resources that belonged to
its members.
32. The representative of IFAD expressed the view that short-term assistance mechanisms should
be  targeted to vulnerable groups, including through such safety nets as food for work or food for
education programmes.  Any new mechanism should also be linked to the recipient country'swillingness to find long-term solutions to food sh ortages and food insecurity through investment in
agriculture and rural areas.  Otherwise, there was a risk that crises would keep repeating themselves.
33. The representative of Canada sought clarifi cation concerning the African Trade Insurance
Scheme.
3  The representative of UNCTAD explained that this scheme established by the World Bank
was currently available for a group of Eastern and Southern African countries to obtain low-cost
insurance on pre-positioned commodities.  Such pre-positioned food stocks substantially reduced the
financing costs of local importers as they were required to finance the goods only at the moment whenthey were taken out the warehouse in the country of destination.  However, there was a risk for traders
that commodity disappeared (as a result of riots or others reasons), which the scheme sought to
address.
34. New Zealand noted that a variety of options ha d been proposed to assist LDCs and NFIDCs,
including a revolving fund, an export credit guarantee facility, the CFF and PRGF, price riskmanagement tools, long-term supply c ontract schemes.  In light of this diversity of possible solutions,
it was difficult to come to early conclusions or preferences.
                                                     
3 Paper entitled "Mechanisms for Financing Imports of Basic Foodstuffs by Net Food Importing
Developing Countries and Possibilities for Improvement", page 31.  The web site of the Africa Trade InsuranceAgency is http://www.ati-aca.com.G/AG/16
Page 21
Attachment
Contribution by the World Bank
World Bank staff participated in the Inter-Agency Panel's discussions in 2002 on a proposal
to establish a Revolving Fund to finance food imports, one recommendation of which (para. 168b of
the Panel's report1) was to explore the feasibility of an ex ante mechanism.  Staff have reviewed the
proposal of the Chairman for a roundtable discussion (i) to explore the need for a safety net to assist
the LDCs and NFIDCs during the reform process leading to greater liberalization in agriculture,
including an examination of objective criteria and trigger mechanisms, and (ii) to identify appropriate
mechanisms within the framework of the Marrakesh Decision, taking into account their technicalfeasibility, as well as their financial and institutional implications on potential donors and
beneficiaries.  Staff have also reviewed the Background Paper drafted for the FAO roundtable
discussion on this subject on 2 May 2003
2 (hereinafter the "Background Paper"), and an excellent
paper commissioned by DFID3 (hereinafter "Ruffer and Roe").  We submit the following comments
as inputs into the roundtable discussion to take place on 19 May.
First, we commend the authors of the Background Paper for a careful and authoritative
analysis of the difficulties faced by private sector food importers in these countries in periods when
financing requirements rise above normal levels, and for a carefully thought out proposal to resolve
some of these difficulties. The paper makes a very plausible case that the ceilings on credit todeveloping country importers constrain  their ability to rapidly increase food imports in times of price
spikes or increases in local demand.  There are various ways that importers use to deal with these
situations, but these all raise local food prices.  The case would be more compelling if it were
quantified (e.g., by estimating imports foregone or extra financial costs incurred in episodes of food
price spikes).  We recognize of course that this kind of quantification is difficult, and would probablyrequire extensive survey data of importers, exporters, and banks.  We presume that this fell outside the
terms of reference for this study.  However, its absence makes it impossible to carry out any rigorous
cost-benefit analysis of the proposal.
Second, we note that several of the observations made in the World Bank submission to the
Inter-Agency Panel remain relevant to the deliberations of the current Roundtable:
• Available evidence does not suggest that reforms resulting from the Uruguay Round
Agreement on Agriculture (URAA)   caused structural increases in the world prices offoodstuffs; to the contrary, world food prices have shown a secular declining trend, which
does not appear to have been interrupted by the URAA.  This observation does not imply that
there is no need for the proposed fund, but it does imply that such need cannot be linked to
the URAA, as envisioned in the Marrakesh Decision.
• Food insecurity is an individual, not a national, phenomenon.  It does not appear that there
would be a rationale grounded in equity concerns for providing special assistance (e.g.,subsidies) to the LDCs and NFIDCs, when many poor consumers in other countries would be
hit equally hard or harder by food price increases.  It is also not clear what kind of
                                                     
1 "Report of the Interagency Panel on Short-term Difficulties in Financing Normal Levels of
Commercial Imports of Basic Foodstuffs", WT/GC/62/G/AG/13, 28 June 2002.
2 "Mechanisms for Financing Imports of Basic Foodstuffs by Net Food-Importing Developing
Countries and Possibilities for Improvements", drafted by Lamon Rutten and Frida Youssef of the UNCTADsecretariat, supported by Mohamed Elkeiy and Ton Schurink, with research financed by the FAO.
3 "Mechanisms to Implement the Marrakesh Decision: an Options Paper", T. Ruffer and A. Roe,
Oxford Policy Management, March 2003.G/AG/16
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mechanisms could be designed to ensure that any aid to the LDCs and NFIDCs is targeted to
the appropriate population of poor consumers.  If it were possible to design mechanisms to
target them, then the aid could be given in the form of food vouchers.  That said, it must be
recognized that the benefits of even untargeted measures that reduce the magnitude of food
price increases would flow disproportionately to the poor, who spend a greater proportion oftheir incomes on food.
• If the mechanism would involve subsidizing f ood imports—e.g., through subsidized credit—it
would have the effect of discouraging local food production and storage.  For this reason, theBackground Paper recommends against any explicit subsidy element in the on-lending terms
to traders, though it does apparently suggest that the rate to be paid by the national window
should be subsidized, with the resulting profits from the spread used to subsidize food
distribution to vulnerable groups or to deal with credit risk.
• Criteria for country's access to the fund—both long-term and year-to-year— would have to be
crafted carefully.  First, consider long-term eligibility.  It is not clear which, even among the
net food importing countries, would be net losers from an agreement liberalizing trade.
Export revenues in many of these  countries would be increased by the better market access
resulting from an agreement, and prices of their other imports might decline.   Second,triggers for year-to-year access would need to be carefully defined. Automatically granting
access based on an increase in import bills for food would reward poor economic policy.
(Food subsidies and macroeconomic mismanagement, together or separately, could trigger a
sharp increase in food imports).  Thus, if triggers were defined in this way, access would need
to involve some kind of policy review, which is one of the major complaints with theoperation of the CFF.  Access triggers would also have to take into account the overall
financing needs of the countries in question, not food alone. It would not make sense to give
help to countries when their food import bills are rising, if at the same time their export
receipts are rising even more, e.g. from oil export receipts.  Taking into account these
shortcomings of triggers based on variables over which the country itself has substantialcontrol, there is a strong argument for using some more objective indicators as triggers, as the
Background Paper recommends.
To these, we would add some further observations relevant to the discussions of the proposal
elaborated in the Background Paper.
• While the Background Paper clearly and convincingly identifies constraints to the operation
of trade finance mechanisms for food imports, these constraints are not unique to food
markets. They are in fact common to every kind of credit market in developing countries,
which is why credit is expensive and generally requires high collateral.  To make a case for
the kind of proposal that is made here, given that donor funds are limited, one needs to
consider the issue of  why resolution of this credit constraint in food import markets should be
given priority over its resolution in other markets, and indeed, over other alternative uses ofdonor funds.
• The proposal itself (as described in detail in chapter 6 of the Background Paper) seems
reasonable on its face, though the devil may well lie in many details.  For example, as itrecognizes, in setting the degree of risk that is  shared with the local banks, there is a tension
between minimizing moral hazard (i.e., making sure the bank has an incentive to assumeresponsibility for a "due diligence" assessment of borrowers' risk)  and making sure the
scheme would increase the bank's  incentives to finance imports.  The former argues for
making the bank assume a high share of the ri sk; the latter for a low share.  This tradeoff
would need to be carefully considered.  Another crucial design detail would be theG/AG/16
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mechanism for determining w ho (within a qualifying country) would have access to the
guarantees.  The ex ante financing mechanism is directed at private sector importers.
Presumably, a large number of firms would like to import during a food price spike if  they
had special access to credit, and  it is not clear that there is any workable way to select among
importers, especially since there would be pressure to make the decision quickly while importprices are rising. One mechanism could be go vernment designation of approved firms, but
this could lead to cronyism and corruption.  Another would be selection by the international
fund secretariat, but it is not clear on what basis this could be done quickly, especially with
the small secretariat envisioned.  The access could be auctioned, but this would raise the price
of the credit and consequently raise the price of food.
• It is not clear that the technical assistance  proposed (p. 51) would be simple or cheap to
administer; it might in fact require more than the minimal secretariat the proposal envisages.
• Before a final decision is made, options other than that proposed in the Background Paper
should at least be explored. The Ruffer and Roe paper mentions several, including a
mechanism based on existing price risk management tools available on international markets,
and a scheme based on long-term supply contracts.  (They consider others as well, such as the
IMF's CFF and PRGF, but conclude that provision of finance to the private sector is notconsistent with the IMF's Articles of Agreement.  It should be noted that the IMF is currently
carrying out reviews of both these.)  There is already a pilot program connecting small
producers in developing countries to international price risk management markets, operated
by  the World Bank's Commodity Risk Mana gement Group in the Agriculture and Rural
Development Department, with the International Task Force on Commodity RiskManagement as its steering committee.  This could in principle be expanded to help
consumers of imported food products deal with upside price risks, though these risk
management instruments are short-term (a year at most) and so only useful in dealing with
short-term price movements.  The group's modus operandi explicitly excludes subsidies. It
operates right now only on a small scale.
Conclusions:
• Since the proposed fund cannot be linked to the URAA, the argument for its establishment in
the context of the ongoing trade negotiations woul d need to rest on the probable effects of the
liberalization that will eventually result from this process.  Available research does indicatethat if there is significant reduction of import barriers, export subsidies, and domestic support,
there will be significant, though not enormous, structural increases in prices of many
foodstuffs.  Depending on the commodity and the study, the effects on average prices of a
comprehensive liberalization have generally been estimated to run from 5 percent to 20
percent, with a few commodities higher.  This structural increase in average levels would be
accompanied by a reduction in volatility of prices. At this point, it is uncertain how much
liberalization will indeed occur and over what time horizon, but it would appear likely that theeffects will not begin to be felt for several years, at the earliest.
• Given that the financial sectors in developing countries in general face many of the same
problems as the shortcomings in the market for food import trade finance (e.g., low creditlimits, lack of collateral, reluctance of lenders to lend without collateral, high finance
charges), both potential donors and beneficiaries of the proposed scheme need to consider thequestion of whether it would be more cost-effective to tackle these issues on a broader basis.
An argument for the narrower approach might rest on some special characteristics of the food
market or its significance for the poor, although it should be recognized that this would not be
a targeted intervention.G/AG/16
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• The design of the ex ante scheme proposed in the Background Paper has a number of
attractive features, including its reliance on, rather than displacement of, private sector trade
and finance mechanisms.  If it could be made to operate well, it could even have the
concomitant benefit of increasing linkages between financial institutions and traders in
developing countries on the one hand, and international financial markets on the other.  Theuse of exogenous indicators as triggers, as recommended in the proposal, is also attractive, in
that it would minimize the problem of moral ha zard and the need to carry out an extensive
country policy review before granting the country's banks and importers access to the
financing mechanism.  In our view, there would remain some policy issues, however, that
might require some kind of ex ante review to qualify for access to the mechanism.  It might be
necessary, for example, to ensure that there are no general food subsidies or price controls in
place that would artificially inflate the requirements for imports.  Perhaps this kind of reviewcould be carried out in a pre-qualification process, so that access would not be delayed when
it is actually needed.
• The detailed design of the fund would clearly require more thought, including addressing the
issues raised above, before deciding if the scheme laid out in the Background Paper is
feasible.  In  addition, Ruffer and Roe note that some LDCs may not have the basic privatesector institutions needed, and raise some other questions that would need to be addressed.
Perhaps none of these are insuperable, but they clearly require more thought.  In any case,
before a final decision is made to move eventually to a large-scale scheme, it would be
prudent to carry out a pilot project first.
• It is not possible on the basis of the available evidence to conclude whether the benefits of the
proposed scheme would exceed its costs.  This would require further study, includingquantification of the effects of the constraints on financing for food imports.
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