WORLD TRADE
ORGANIZATIONG/AG/NG/W/69
29 November 2000
(00-5142)
Committee on Agriculture
Special SessionOriginal:  English
FOURTH SPECIAL SESSION OF THE COMMITTEE ON AGRICULTURE
15-17 NOVEMBER 2000
Statement by Hungary
Non-Trade Concerns (G/AG/NG/W/36/Rev.1)
We believe that for a balanced outcome of the agricultural negotiations there is a great need
for every Member to present its relevant interests and concerns as well as for all others to approach
them in a constructive way and with an open mind.  So we very much welcome the Note on Non-Trade Concerns and the attached discussion papers and we hope for a fruitful discussion on all the
issues involved.
The Agreement on Agriculture clearly recognizes the existence of non-trade concerns and
indicates that they shall be taken into account during the agricultural negotiations.  For us the primaryarea where our non-trade concerns lie is rural development.  We share the points made in the
discussion paper dealing with this issue and we agree with those previous speakers who emphasized
the key role agriculture plays in rural development policies.
While we do not dispute the fact that there are economic activities other than agricultural
production which can foster the development of rural areas and that there are situations where such
activities can even gradually take over the primary role of agriculture in this regard, we would like toemphasize that it is equally true that very often agricultural production is and in the foreseeable future
will be the main vehicle of rural development.  Denying this would be tantamount to simply ignoring
reality.  A reality which is being faced for example in our country.  In some instances major
diversification of economic activities is not possible for objective reasons (industrial production and
mining have largely been wiped out by more efficient foreign competitors, favourable conditions forcreating alternative employment opportunities like th e tourism do not exist).  In other instances, which
is very typical in many parts of Hungary, due to th e fertility of the soil, the topographical and climatic
conditions, the principle of efficient resource allocation unequivocally calls for maintaining and
developing agricultural activities, thus linking progress in the development of rural areas is
inextricably linked to the viability of the agricultural sector.
Against this background we consider it to be essential to ensure that the agricultural reform
process would not prevent Members from pursuing policies aimed at restoring the viability of rural
areas which due to the unique challenges of economic transition is a particularly high political and
economic priority in our country.
In concluding let me emphasize that we fully subscribe to the principle of using the least
trade-distortive measures available when pursuing rural development policies or for that matter in
addressing other types of non-trade concerns.G/AG/NG/W/69
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Cairns Group proposal on market access  (G/AG/NG/W/54)
Since the proposal is still under consideration by our authorities at this point of time let me
make just one observation. I would like to pick up on the approach of the so-called downpayment
advocated by the Cairns Group in the areas of market access, domestic support and exportcompetition.  We understand the reasons behind it, namely to ensure that the agricultural reform
process continues without interruption and we share the concerns with regard to the prospect for the
negotiations to become protracted.  But the proposed way of dealing with this problem seems to be
somewhat irrealistic, since it appears to mean a re trospective entry into force of the results of the
current negotiations which is rather unusual. Instead efforts to significantly broaden the negotiating
agenda of the WTO should be redoubled, because this seems to be the only guarantee for speedy
negotiations with meaningful results.
US proposal on Tariff Rate Quota Reform (G/AG/NG/W/58)
With regard to the proposed way of tariff rate quota reform Hungary shares the view that
additional disciplines should be established regarding the administration of tariff rate quotas in orderto ensure that administration methods do not become barriers to trade so that exporters can make use
of the access opportunities offered by the tariff rate quotas.  On the other hand concerning the
proposal on setting an automatic trigger mechanism to reduce in-quota duties when tariff rate quota
fill is low we have serious reservations since this suggestion presupposes a direct link between the
level of in-quota duties and quota fill which might be true in some rare instances but in most casesquota fill levels are determined by a variety of other factors.  Thus reduction of in-quota duties would
not result in the expected increase of quota fill rates.
Ad G/AG/NG/S/18
We would like to thank the Secretariat for the quick response to our request for a background
paper on the operation of the Green Box and to the quality of the paper before us.  This document
gives a comprehensive user-friendly overview of the issues that had been raised by Members in the
process of analysis and information exchange and the preparatory process for the Third Ministerial
Conference.  It clearly shows the rather commonly he ld view of Members that the criteria contained in
the Green Box should be reviewed in the light of the experience with its implementation and adjusted
as appropriate.  Now, it is also evident that on the question of the direction such an adjustment shouldtake the membership is divided.  To put it very simply there are those who want a further tightening of
these criteria in order to ensure that support programmes qualified as green do not distort production
and trade and there are those who advocate an increase in the flexibility for policy-making offered by
the Green Box with the aim to adequately reflect the inherent diversity of agricultural conditions in
various parts of the world.  It is clear from the excerpts in the background paper that Hungary,together with the other transition economies, is in this second group of Members since we firmly
believe that the Green Box criteria need to be read justed so that there will be a sufficient number of
policy options reasonably available for every Member of this organization.  In this regard we are
heartened by the apparent and hopefully continuing trend of growing support for this second position
which has manifested itself since the agricultural negotiations have started.  We believe that thisdocument will prove to be a useful tool when the detailed discussions on reshaping the Green Box
will commence.  Lastly let me ask for some minor co rrections in Annex 1, since references to the two
documents submitted by the transition economies, that is AIE/45 as well as WT/GC/W/217 have been
omitted.G/AG/NG/W/69
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Ad G/AG/NG/S/19
We would equally thank the Secretariat for the background paper on inflation and exchange
rate movements in the context of domestic support commitments which deals with an issue that was
somewhat neglected during the Uruguay Round despite its far-reaching implications on domesticsupport entitlements. Here we would like to make several observations.
1. With regard to example 2, it has to be noted that this example illustrates the specific case,
where in the base period there was no price support, since the administrative prices were below the
fixed external reference prices.  The title attached to this example, which reads "Market price support
subject to a de minimis  commitment" would suggest, at least to us, that the use of applied
administered prices higher then the fixed external prices would have been more appropriate in thisexample.
2. As to the conclusion drawn from example 2, it seems to be worth pointing out that without an
appropriate mechanism for inflationary adjustment, by virtue of their commitments, countries in the
illustrated situation, are allowed to operate price support programmes only as long as the appliedadministrative prices in nominal terms are below the fixed external prices irrespective of the
possibility that in real terms the applied administrative prices remain well below the base period
external prices.
3. There is the formulation in example 2 that "applied administered prices cannot be inflation-
indexed without sooner or later breaching the relevant commitment".  We find a similar formulation
in example 4 which reads "if the applied administered price were to be adjusted for inflation, the
resulting market price support would be in excess of the AMS commitment".  Here we would like to
ask for some clarification.  If these sentences are to mean that for the purposes of the calculations
illustrated in these two examples applied administered prices have to be taken in real terms whenmarket price support is calculated or by implication that they can be taken in nominal terms only if the
fixed external prices are "indexed by inflation", if a breach of domestic support commitments is to be
avoided, we fully concur with this assessment.  If on the other hand the necessity of inflationary
adjustment is being questioned, we would have serious concerns.
4. And this brings us to a fundamental point which seems to be missing from the whole
document although it is well illustrated by the various examples.  This is that without adjusting eitherthe applied administered prices or the fixed external prices for inflation before the calculation of
market price support the support calculation will necessarily be flawed and will lead to anomalous
results.  From an economic point of view to directly compare current nominal prices with prices
nominally fixed several years ago does make hardly any sense.  Such an economically unsound
calculation methodology artificially increases the level of the Current AMS leading to the breach ofcommitments.
5. As to the second of the above-mentioned two approaches to inflationary adjustment, that is
the adjustment of the fixed external reference prices, the examination of the relationship between the
rates of the exchange rate depreciation and that of inflation, just as in example 5, is also needed.  If therate of currency depreciation equals the rate of inflation the adjustment offsets inflation.  If the rate of
currency depreciation is smaller, which should be the most likely scenario, inflation is only partly
compensated for.  If, on the other hand, the rate of depreciation exceeds that of inflation, then the
opposite occurs.
6. As far as example 3 is concerned the document very rightly demonstrates how inflation
erodes the real value of domestic support entitlements and that the AMS constraint will be replaced by
the de minimis  constraint despite the fact that in the base period support level was above de minimis .
In other words without an adjustment high inflation would require affected countries to reduce
domestic support at a rate significantly higher than provided for in the relevant rules.G/AG/NG/W/69
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7. Lastly, we would ask a clarification from the Secretariat why in example 5 the presumption
was made that the rate of currency depreciation is greater than the rate of inflation since our
experience would suggest that the relationship of these factors is usually the opposite.  This would
mean that in most cases the use of foreign currency in the Current Total AMS calculation would only
partly compensate for inflation.  Over-compensation would seem significantly less likely.  In order tohave a full picture on the real situation we would like to request the Secretariat to expand Table 1 with
the relevant data for all those Members which had specified their AMS commitments and/or fixed
external reference prices in domestic currency without built-in deflator.
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