EU OFFER OF DEEPER FARM TARIFF CUTS FAILS TO RESTART TALKS

In response to heavy pressure from many of its major trading partners, the EU came forward on 28 October with a deeper proposal to cut its farm tariffs -- in return for specific, far-reaching concessions in virtually every area of the Doha Round negotiations (see related article, same issue).

Preliminary reactions from many governments and trade diplomats criticised what EU Trade Commissioner Peter Mandelson described as "Europe's bottom line" for offering insufficient gains on agricultural market access while making unrealistic demands in other areas of the talks. Mandelson is also facing demands from within the EU, most vocally from France, to make no further moves on agriculture.

After informal meetings on 31 October, WTO agriculture Chair Ambassador Crawford Falconer of New Zealand said that the EU's proposal, though a "genuine effort" to get the talks restarted, had failed to narrow Members' differences on market access for farm products.

Mandelson claimed that the EU's "middle ground" offer would lead to a 46 percent reduction in its average agricultural tariff, though the US has said that the real figure would be closer to 39 percent. The US, Brazil, and Australia have criticised the proposed tariff package's numerous provisions for sheltering several different products from the full force of increased foreign competition.

In addition to heavy cuts on industrial tariffs by developing countries, the EU is demanding mandatory, quantitative, and qualitative targets for countries to liberalise their services sectors -- a departure from WTO services rules, under which Members open their services markets to foreign competition through bilateral requests for and offers of market access. It is also seeking the extension of geographical indication (GI) protections, currently available only to wine and spirits like Champagne, to all food products. Furthermore, the EU paper appears to assume differentiated treatment for several different classes of non-LDC developing countries, something that has never been agreed to in the WTO and is anathema to many of the global trade body's Members.
With regard to development concerns, the EU challenged all rich country WTO Members to agree at the Hong Kong Ministerial Conference in December to grant full duty- and quota-free access to exports from least-developed countries (LDCs).

The EU puts forward 8 November as a target date for agreement on "the substance" of the agriculture talks along with an "explicit political commitment" from Members to pursue the conditionalities linked to its market access proposal.

EU cuts still lower than G-20

The EU would classify developed countries' farm imports into four tiers on the basis of their tariff levels: below 30 percent, 30-60 percent, 60-90 percent, and above 90 percent. Tariffs in the lowest band would be cut by between 20-45 percent, with an average of 35 percent for all of products within the tier. Tariffs on products in the other three would be slashed by 45, 50, and 60 percent, respectively. This is higher than the 50 percent cut that the EU had previously proffered for tariffs above 90 percent (see BRIDGES Weekly, 12 October 2005).

The proposal is considerably less ambitious than the G-20 proposal, which would have higher percentage reductions kick in earlier because the tiers are set at lower levels. For example, the G-20 would have developed countries impose a 75 percent cut on tariffs above 75 percent. The US, for its part, prefers an even deeper cut of about 90 percent for tariffs above 60 percent. An EU document states that the 75 percent cut alone "would have a hugely damaging effect on preferential access and farm livelihoods in Europe and elsewhere."

For developing countries, the EU adopts the same tariff thresholds as the G-20: below 30 percent, 30-80 percent, 80-130 percent, and above 130 percent. It proposes tariff reductions roughly two-thirds of those in the corresponding bands for developed countries, i.e., 25 percent (with cuts ranging from 10-40 percent), 30 percent, 35 percent, and 40 percent respectively.

EU wants several types of flexibilities on ag

In addition to the range of tariff cuts provided for in the lowest tariff tier -- a 'pivot' of the sort that had earlier raised the ire of the US and Brazil (see BRIDGES Weekly, 28 September 2005) -- the EU is seeking several other flexibilities in the implementation of its tariff reduction commitments.

Most significantly, it is seeking to designate about 8 percent of all products as 'sensitive,' and thus eligible for lower tariff cuts than those required by the formula. This would cover some 170 of the EU's 2200-odd specific products, or tariff lines. The EU would let tariff cuts on such products deviate by one- to two-thirds from the required level in the applicable band.

To increase market access for these sensitive products, albeit by less than would otherwise have occurred, the EU provides for expanding tariff rate quotas (TRQ) for trade in them. It proposes a mechanism by which higher deviations from the standard tariff cut would result in increased TRQ expansion. However, the extent of TRQ expansion would actually decrease for products in higher tariff bands -- the EU claims that this is because the lion's share of expanded market access would still come from the tariff reductions.

For the sake of comparison, the G-20 would like to see developed countries limit sensitive products to 1 percent of tariff lines (1.5 percent for developing countries), with deviations of no greater than 30 percent from the regular tariff cut (see BRIDGES Weekly, 26 October 2005). It would also prohibit developed countries from creating new TRQs, an option that the EU seeks to retain.

In addition, the EU wants to maintain its ability to use the WTO Agreement on Agriculture's Special Safeguard in order to be able to impose duties above bound tariff levels on beef, poultry, butter, fruits, vegetables, and sugar, in the event of import surges.

Domestic subsidies and export competition

The EU proposal indicates that it is willing to make a 70 percent cut in its ceiling amount for overall trade-distorting farm support (as well as on Amber Box subsidies), and would accept a 60 percent cut from the US. Japan, it says, could go into either of the two bands. It also calls for developed countries to cut the existing 5 percent 'de minimis' level of exempted trade-distorting subsidisation by 80 percent, and agree on rules to make sure that Blue Box payments are less trade-distorting. The EU is seeking checks on the US' ability to shift its countercyclical payments into the Blue Box.

Mandelson has acknowledged that the EU's subsidy cuts would be doing no more than locking itself in to the 2003 reform of its Common Agricultural Policy.

The market access offered by the EU is also conditional on Members agreeing to move towards untied (i.e., not linked to purchases from particular countries) cash-only food aid, a move that primarily targets the US; and on new disciplines governing state trading enterprises, which takes aim at Australia, Canada, and New Zealand.

With regard to cotton, the EU wants Members to agree in Hong Kong on commitments to "overcome" the trade-distorting effects of rich country policies, as well as on "dates and modalities for [their] early implementation."

Looking ahead

Key Members remain deeply divided. Brazil says that the EU's proposed tariff reductions on farm trade are too low while its demands on industrial goods and services are too high.

It is unclear whether Mandelson could come up with a deeper offer on agricultural market access before Hong Kong without incurring the open wrath of some EU member states. Furthermore, an offer made during the Ministerial Conference itself might run the risk that Members would simply not have enough time to thoroughly evaluate it, and would instead agree in to continue negotiations at a later date. This would not take the Doha Round two-thirds of the way to completion at Hong Kong, as per the roadmap set out by WTO Director-General Pascal Lamy (see BRIDGES Weekly, 19 October 2005).

Another potential obstacle to the negotiations is a looming US Congressional vote, scheduled for 3 November, on a wide-ranging package of spending measures that includes extending to 2011 billions of dollars in US farm subsidies that are currently set to expire in 2007. Although a WTO deal would be able to slate such subsidies for reduction whether or not they are renewed, a vote to extend them would call into question the Bush administration's ability to win Congressional support for an eventual subsidy-cutting Doha Round accord.

Meanwhile, the EU's 8 November target date for agreeing on the major aspects of the agriculture talks is rapidly approaching. Trade ministers from the US, the EU, Australia, Brazil, and India (the so-called 'five interested parties,' or FIPs) are set to meet in London and Geneva from 7-9 November. US Trade Representative Rob Portman told a Congressional committee hearing in Washington on 2 November that these meetings would likely determine whether the Doha Round talks could move forward.

"Making Hong Kong a Success: Europe's Contribution" is available online at http://europa.eu.int/comm/trade/issues/newround/doha_da/pr281005_en.htm.

ICTSD reporting; "WTO chief praises EU-U.S. trade efforts," ASSOCIATED PRESS, 30 October 2005; "EU offer to admit more farm imports helps to keep Doha talks alive," FINANCIAL TIMES, 1 November 2005; "EU's new proposal at WTO, NAMA offer unacceptable to India," PRESS TRUST OF INDIA, 28 October 2005; "Europe's final offer," INTERNATIONAL HERALD TRIBUNE, 30 October 2005; "Latest EU farm tariff offer fails to break deadlock, WTO official says," ASSOCIATED PRESS, 31 October 2005; "EU Offer to Cut Farm Support Falls Short, U.S. Says," BLOOMBERG, 28 October 2005; "U.S. trade official sees upcoming meetings in Europe as crucial to progress," WASHINGTON FILE, 2 November 2005; "A damper on WTO talks?" INTERNATIONAL HERALD TRIBUNE, 3 November 2005.