WTO AGRICULTURE WEEK SEES G-10 PROPOSALS, BUT LITTLE PROGRESS

WTO Members made little progress during their first talks on agriculture since the Hong Kong Ministerial Conference in December. The week of discussions from January 23-26 focused more on procedure than substance. Members generally agreed with agriculture Chair Crawford Falconer's assessment that they should begin developing texts on a number of technical issues that need to be finalised at the end of April as per the deadline for 'full modalities' set out by the Hong Kong Ministerial Declaration. Those issues include formulas and figures for reducing farm tariffs and subsidies.

The G-10 -- comprising net food-importing, mainly developed countries, including Switzerland and Japan -- released a position paper on domestic support as well as a new proposal for the treatment of 'sensitive' products, which both developing and developed countries would be able to designate for relatively lower tariff cuts. Sensitive products occupied the bulk of discussions; many trade observers believe than an agreement on the issue is an essential first step for an eventual deal on overall modalities.

Falconer outlines process for developing April text

Falconer indicated that he would produce a set of questions for Members well in advance of the next agriculture week, scheduled to start on 13 February. This process appears to be similar to that followed prior to the December Ministerial Conference, when ministers were posed a set of questions about areas of the negotiations that required political guidance. The answers to Falconer's questions will be compiled to develop a text that would in turn serve as the basis for negotiations through April. In addition, he will prepare a list of issues to be addressed during the upcoming agriculture week, in an attempt to produce more focused discussions.

G-10 proposal on sensitive products

Sources report that Falconer held consultations on all three pillars of the agriculture negotiations, i.e., export competition, domestic support, and market access. The consultations on market access had been more constructive, he said, particularly with the discussions on a new proposal from the G-10 on the treatment of sensitive products.

G-10 countries generally have high levels of farm subsidies and import tariffs. The proposal circulated by the group last week had first been unveiled at the Hong Kong Ministerial Conference, and reiterated the group's "strong objection to the concept of tariff capping for any product." The G-20, the EU, and the US, in comparison, have been calling for tariff caps between 75 percent and 150 percent.

Though it allows Members to slate sensitive products for lower tariff reductions than those negotiated for products at comparable tariff levels, the July 2004 Framework (WT/L/579, available at http://www.wto.org/english/tratop_e/dda_e/draft_text_gc_dg_31july04_e.htm), requires them to provide "substantial improvements in market access... for all products." In order to meet this stipulation, the G-10 would have Members compensate for the lower tariff cuts by expanding tariff-rate quotas (TRQs), i.e., by raising the volume of imports eligible for lower tariff rates.

The proposal would set tariff reductions for sensitive products at a to-be-negotiated fraction of the cut for other farm goods in the same tier of the overall tariff reduction formula. It includes a further element of flexibility: Members would be able to make tariff reductions smaller than the already lower level for sensitive products in exchange for expanding TRQs by a correspondingly higher extent -- or vice versa.

The G-10 sets out a methodology for the extent of TRQ expansion, linking it to the proportion of domestic consumption of the product in question that is currently eligible for importation under the low, in-quota tariff. If the current TRQ for the sensitive product is equivalent to less than 5 percent of domestic consumption, it would be doubled. TRQs accounting for 5-10 percent or greater than 10 percent would be increased by progressively lower amounts.

Another flexibility provided for in the paper would let Members designate products not currently subject to TRQs as sensitive, provided that the tariff cut is implemented over a shorter period. It would also let them avail of a longer implementation period in return for making these products subject to the full tariff reduction required by the tiered formula.

Falconer said that the proposal received a generally positive reception from other Members. Sources report that the EU suggested that linking TRQ expansion to domestic consumption would be problematic -- even though this was the practice followed during the Uruguay Round to calculate required increases in market access -- because it would be difficult to disaggregate consumption data to the tariff line level. Instead, it argued for using import volumes to determine TRQ expansion. Several other Members countered that this would not substantially improve market access for commodities in markets where their import levels are currently insignificant. In addition to the G-10, the G-20, the US, and the Cairns Group of agricultural exporters support linking TRQ expansion to products' share in domestic consumption. The EU is said to be meeting bilaterally with a variety of Members to discuss specifics about the designation and treatment of sensitive products.

G-10 position paper on domestic support

The G-10 tabled a new position paper on domestic farm subsidies on January 25, calling for cuts of between 45 to 75 percent in overall trade-distorting support (OTDS). It proposes that the EU slash its ceiling level for OTDS by 75 percent, while Japan and the US do so by 65 percent. Other WTO members -- including all G-10 members except Japan -- would reduce their overall support by 45 percent, with a lower reduction rate for developing countries. In comparison, the G-20 has called for OTDS cuts ranging from 70 to 80 percent; the US, from 31 to 75 percent; and the EU, from 50 to 70 percent.

For reductions to the 'total aggregate measurement of support' (total AMS) or 'amber box' subsidy caps, the G-10 proposes that the EU make reductions of 70 percent; Japan and the US, of 60 percent; and all other countries, of 40 percent. The paper notes that G-10 members with relatively high levels of amber box support (namely Japan, Switzerland, Norway and Iceland) are willing to make additional reductions.

WTO Members calculated their AMS (amber box) levels during the Uruguay Round on the basis of the amount of trade- and production-distorting subsidies they allocated to their farm sectors during the 1986-88 base period. Developed countries were required to cut their AMS levels by 20 percent during the Uruguay Round's 1995-2000 implementation period. However, in most cases Members' ceiling AMS levels were sufficiently high that this did not force real reductions in the amounts they were actually spending.

The G-10 proposes that Members cap product-specific AMS at the average of actual spending levels notified for the product in question between 1995-2000, excluding the highest and lowest annual spending levels from the calculation. Countries with very low or no product-specific support during this period would have limits fixed as a to-be-negotiated percentage of the value of production of each commodity.

With regard to special and differential treatment, the G-10 proposes that developing countries be allowed to make lower cuts (when applicable) to overall and amber box support, over longer periods of time.

On the 'blue box' (partially decoupled payments under production-limiting programmes), the proposal says that existing criteria spelled out in the July 2004 Framework are adequate. The G-10 proposes that the issues related to any additional blue box criteria require further technical work immediately to develop appropriate disciplines. It also calls for "substantial reductions" to 'de minimis' support -- the maximum level of exempted trade-distorting subsidisation -- which is currently at 5 percent of the value of total farm production in developed countries.

Finally, the G-10 rules out any new disciplines that would cap 'green box' support (domestic support exempt from reduction commitments), or change its character.

Notably, the G-10 proposal calls on WTO members to cut their OTDS levels -- amber box, blue box, and de minimis spending together -- by a percentage amount greater than the cuts foreseen for amber box support alone. This aims to prevent countries from engaging in 'box-shifting,' i.e., reclassifying subsidies in different boxes so as to avoid having to cut them. The Hong Kong Declaration requires Members to make the applicable reduction in OTDS even if the sum of the reductions in amber box, de minimis and blue box payments "would otherwise be less than that overall reduction." The US and EU proposals on domestic support, on the other hand, provide for OTDS to be cut by lower percentage amounts than AMS.

Hong Kong timeframe reaffirmed in Davos

At a 27-28 January 'mini-ministerial' meeting on the sidelines of the World Economic Forum held in Davos, Switzerland, trade ministers from some 25-odd WTO Member governments reaffirmed the series of deadlines for the negotiations set out in the Hong Kong Ministerial Declaration, including the 30 April deadline for full modalities on agriculture.

ICTSD reporting; "G-10 alliance proposes reductions in farm subsidies of 45-75 percent", WTO REPORTER, 26 January 2006; "WTO ag talks make little progress in Geneva, with focus on procedures", WTO REPORTER, 27 January 2006.