Farm exporting countries intensify reform push, despite US post-election uncertainty

18 November 2016

Negotiators from agricultural exporting countries have tabled three new proposals for WTO trade reforms, while acknowledging that last week’s unexpected US election result means that prospects for future progress are uncertain.

The three documents were sponsored by different configurations of members from the Cairns Group of farm exporters, and submitted ahead of a negotiating session of the WTO’s committee on agriculture yesterday in Geneva. Copies of the proposals have been seen by Bridges.

“We’ve just got to keep going,” one trade official familiar with the proposals said.

However, the source also said that the election of Donald Trump to the US presidency was “a major curve-ball.” (See Bridges Weekly, 10 November 2016, as well as this edition).
 

Informal paper: “Worst distortions in domestic support today”

An informal paper submitted on Tuesday by seven agricultural exporting countries from the developed and developing world throws a spotlight on what the sponsors call “the worst distortions in domestic support today.”

The paper – which was submitted jointly by Argentina, Australia, Colombia, New Zealand, Paraguay, Uruguay, and Vietnam – points to the concentration of farm subsidies on specific products as a major cause of concern.

The sponsors argue that product specific support “has a negative impact on the prices all farmers in the world receive,” especially when the support is provided by governments that are major agricultural producers or exporters.

The paper singles out dairy support as an example of the harm caused by concentrations of farm support on particular products. Instead of responding to lower world prices by reducing production, farmers in some countries have increased their output in response to government intervention.

“This leaves all dairy farmers worse off because the increased production puts further downward pressure on world dairy prices,” the exporting countries say.

The EU is among the members that have responded to lower prices in the dairy sector by unveiling packages of support for producers. (See Bridges Weekly, 17 March 2016)
 

Governments are “failing to be truthful,” some countries say

The exporting countries also criticise the delays and inaccuracies which they say are hampering efforts to understand clearly the scale and nature of farm support in the world today.

The members point to analysis by the WTO secretariat which shows that 733 domestic support notifications are outstanding. (See Bridges Weekly, 3 November 2016)

The chair of the WTO agriculture talks, New Zealand Ambassador Vangelis Vitalis, has repeatedly criticised delays in reporting farm subsidies to the global trade body. (See Bridges Weekly, 12 May 2016)

“It is becoming difficult to assess if a member is actually in accordance with their obligations or not,” the sponsors say.

Trade officials should therefore consider “punitive penalties” for countries that fail to meet their reporting commitments, especially for large producers or exporters of particular products, according to the paper.

Growing farm output eroding WTO disciplines

Mushrooming levels of farm output in many countries is quickly eroding the effectiveness of WTO subsidy disciplines, the exporters also warn.

Current WTO rules allow countries to provide trade distorting support so long as it does not exceed a minimum threshold of the value of farm production – dubbed “de minimis” support by trade officials. However, as farm output has grown rapidly in a number of countries to meet rising demand, the effectiveness of this ceiling is declining over time.

The sponsors of the proposal caution that some countries may be able to provide over US$200 billion each year under the “de minimis” clause – a level which they say was “never intended” to have been allowed.

Existing de minimis thresholds need to be curtailed, the exporting countries argue, especially for large producers and exporters.

They also argue in favour of reducing the concentration and level of input subsidies, which can be provided under existing rules on trade-distorting support classified as “amber box” payments or de minimis, or instead under a special provision which is only available to developing countries.
 

Options for progress?

A separate proposal, tabled by Friday by a similar group of farm exporting countries, looks at options for moving ahead in talks on domestic support.

The proposal was sponsored by a set of Latin American countries: Brazil, Argentina, Chile, Colombia, Paraguay, Peru, and Uruguay.

The submission builds on a document circulated by Brazil and three other countries in June this year. (See Bridges Weekly, 24 June 2016).

The paper re-visits the four options set out in the earlier paper, and now also includes consideration of cotton – which WTO members have consistently agreed should benefit from special treatment in negotiations on farm subsidies and other areas. West African countries in particular have long called for cuts in trade-distorting subsidies, arguing that these harm incomes and employment among poor rural communities. (See Bridges Daily Update, 19 December 2015)

The co-sponsors suggest that countries could consider: a comprehensive limit on trade-distorting support; cuts to farm support levels using existing WTO categories; disciplines aimed at reducing the concentration of support on particular products; and new measures to address types of domestic support that serve as “de facto” export subsidies because of their effects on products that are exported to world markets.

Disciplines on cotton subsidies should involve “specific and more ambitious commitments and shorter implementation periods” than those that apply to other products, the exporting countries say.

One developing country farm importer told Bridges that there had been little change in countries’ negotiating positions since the options were first set out in June.
 

Lower tariffs on farm exports

On Tuesday, six farm exporting countries tabled a separate paper on the tariff barriers for farm goods that can impede producers’ ability to access markets overseas.

The paper has been tabled by four Latin American countries (Paraguay, Argentina, Colombia and Uruguay), one Asian agricultural exporting nation (Vietnam), and a developed country (Australia).

The paper focuses on “tariff overhang” – the gap between the maximum permitted “bound” tariffs which countries have agreed to respect at the WTO, and the lower “applied” tariffs which they actually levy in practice.

The paper looks at a sample set of agricultural products, and finds that many countries have a large gap between their WTO ceilings and applied levels.

“The fact that some members have high bound tariffs, yet apply low tariff levels for the same products, raises the question of why those tariff peaks cannot be targeted,” the sponsors say.
 

Tariffs set at 800 percent

The sponsors say that the bound tariffs they have analysed range from zero to 800 percent, while nearly one-fifth of the bound tariffs in the study are set at over 100 percent.

In contrast, applied levels are much lower. “Only 1.6 percent of the tariffs go over 50 percent,” the agricultural exporting countries find.

Unusually high “tariff peaks” are particularly widespread among the bound levels for processed products, the countries argue, especially for cereals and oilseeds.

The sponsors find that one-tenth of processed cereals and oilseeds have bound tariffs that are set above the 200 percent rate.

In extreme cases, the gap between bound tariff rates for processed cereal products was between 36 and 79 times the applied rates, the exporting countries say.
 

Uncertain outlook

The chair of the agriculture negotiations has previously stated that the bulk of the WTO membership would like to see an outcome on agricultural domestic support at the next ministerial conference, which is scheduled to be held in just over a year’s time in Buenos Aires, Argentina. (See Bridges Weekly, 27 October 2016)

However, trade officials told Bridges that the election of Donald Trump as the next US president meant there was now much less clarity on what might happen next in WTO talks on farm trade.

“We’re going into very scary times,” said one. However, another said they remained hopeful that “checks and balances” in the US political system might prevent the real estate mogul from pursuing some of the policies he talked about while on the campaign trail.

Among other things, Trump has suggested he could impose high tariffs on Chinese and Mexican imports, or even withdraw the US from the WTO. Experts warn that punitive measures of this sort would push up prices for domestic producers and firms reliant on imported inputs, as well as sparking a firestorm of legal disputes.

Many negotiators cautioned that it remains “too soon to tell” what the Republican president-elect would do once he and his team are in power.

Trump has placed a particular emphasis on pushing through a series of reforms across various policy areas during his first 100 days in office, even though the normal process of a presidential transition usually means that several months will pass before all the necessary administration posts are filled.

“When they take office, in January, we may know more,” one Asian negotiator said.

However, some former trade officials in Washington were wary about the negotiating outlook, citing Trump’s demonstrated difficulty in accepting criticism and the unpredictable and often brash temperament that was repeatedly exhibited on the campaign trail.

One former Republican trade official told Bridges that Trump seemed to show little respect for international institutions such as the WTO – which for decades have been supported by both Democrat and Republican administrations.

“It’s going to be interesting to see who he settles on as cabinet choices,” the source said.

ICTSD reporting.

This article first appeared in Bridges Weekly, 17 November 2016.

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