RIFTS DEEPEN ON AG MARKET ACCESS FLEXIBILITIES FOR DEVELOPING COUNTRIES

WTO farm trade negotiators met in Geneva from 26-28 April to discuss key market access flexibilities for developing countries, as delegations kicked off six weeks of continuous negotiations aiming to result in an agreement on modalities for Doha Round tariff and subsidy cuts. However, positions remained far apart, as the rift persisted between the most competitive farm exporters and those developing countries that are seeking the ability to provide some protection to their agricultural sectors. New informal 'non-papers' from the US and Thailand only seemed to entrench existing differences.

At stake are two provisions, available only to developing country governments: the Special Safeguard Mechanism (SSM), intended to allow them to impose duties higher than bound ceiling levels in order to protect farmers from import surges, and the ability to designate 'special products' (SPs) to receive 'more flexible' treatment than other agricultural products.

The G-33 alliance of developing countries, comprising developing countries ranging in size from China, India, and Indonesia to Saint Kitts and Belize, has argued that both SP and SSM flexibilities are essential to protect poor farmers from negative effects that might arise from trade liberalisation. On 20 April, the group sent a letter to WTO Director-General Pascal Lamy, emphasising that "the G-33 should not be expected to join a consensus on modalities or any elements thereof, which do not incorporate the modalities on SPs and SSM."

Thai SP proposal provokes ire of G-33

The Hong Kong Declaration stipulates that developing countries "will have the flexibility to self-designate an appropriate number of tariff lines as SPs guided by indicators based on the criteria of food security, livelihood security and rural development." However, the number and treatment of SPs remains to be determined. So does the meaning of what self-designation 'guided by indicators' entails -- whether it means that all SPs will have to fulfil a set of universally applicable indicators, or whether countries will have more latitude in choosing them.

Following on Malaysia's proposal from March (BRIDGES Weekly, 5 April 2006), Thailand's new 'non-paper' worked from the premise that protecting SPs could potentially harm developing countries that export farm products. It thus sought to limit any adverse effects on South-South trade by setting criteria for SPs significantly narrower than those sought by the G-33.

The Thai submission, dated 26 April, set out indicators that would rule out SP status for certain products of export interest to developing countries. Specifically, it said that products should not be designated as 'special' if developing countries are the source of at least half of world exports. Furthermore, it stipulated that a country should be prohibited from giving SP status to a particular product if at least half of its imports of the commodity in question came from developing countries.

For products not thus excluded from SP eligibility, Thailand called for the establishment of three as-yet-undefined numerical thresholds. It said that SP status could be accorded to products for which domestic production accounts for a to-be-negotiated minimum percentage of domestic consumption, or a certain share of agricultural GDP. It would also allow products that contribute a specified proportion of the population's nutritional requirements to be designated as SPs.

Thailand further argued that SPs should also face tariff reductions "to achieve overall improvement in market access for all products." Specifically, it would subject these products to a minimum tariff cut that is a certain fraction of the reduction demanded by the overall formula. In addition, SP tariffs should be capped, albeit at a higher level than that for other products, and any existing quotas for them should be expanded.

Notably, the Thai document prescribed abolishing SP flexibilities at the end of the Doha Round implementation period, arguing that "SPs are viewed to be transitional measures employed by developing countries for structural adjustments in the agricultural sector."

Several agricultural exporters expressed support for the proposal, including Australia, Canada, Malaysia, New Zealand and the US, as well as Thailand's fellow G-20 members Argentina, Chile, South Africa and Uruguay. Although the EU expressed some concern about the suggested criteria going beyond 'self-designation,' it broadly agreed that there should be some tariff reduction for SPs.

The G-33, on the other hand, criticised Thailand's approach as far too restricting. The Philippines argued that it would be likely to "be ineffective in achieving the objectives which SP [designation] is intended to address," and that a single set of common thresholds was unlikely to respond to "the diversity of the situations in different developing countries." The group has consistently argued that SPs should be self-selected, although guided by an open-ended illustrative list of indicators. They believe that instead of negotiating a closed list of prescriptive indicators, it would be more appropriate for Members to negotiate the number of tariff lines eligible for SP status. The group has therefore proposed that at least 20 percent of all product categories be considered eligible, and that at least half of all SPs be exempt from any tariff reduction.

US circulates paper on SPs

A 3 May proposal on SPs from the US looks set to fan the flames further, based on initial reactions from trade negotiators. The US would allow Members to accord SP status to "no more than five" of their hundreds, if not thousands, of tariff lines, whether scheduled at the 6-digit HS level or the more specific (and thus more numerous) 8-digit level. Notably, this figure could potentially amount to significantly fewer tariff lines than the 1 percent of 'sensitive products' that the US wants developed countries to be able to partially shield from tariff cuts. The US specified that while SPs would have to face some tariff cuts, these would be smaller than those required for sensitive products.

The US proposal also specified that a developing country would not be able to grant SP status to any product that it is currently able to export on an MFN basis, that is, without the help of preferential market access. Furthermore, net exporters of a particular product would not be able to designate it as an SP.

One trade diplomat described the US proposal as "very limited," so much so that it was not a constructive contribution to progress towards an agreement on modalities. The negotiator noted that the US was yet to come up with a proposal on disciplining 'blue box' domestic farm subsidies, an area where it is resisting reform. "They're busy thinking about other people's problems." Another source reported that Falconer had suggested during small informal consultations that neither the US' favoured five tariff lines nor the 20 percent of all products sought by the G-33 was likely to gain consensus as the eventual number of SPs.

Special Safeguard Mechanism: clear divisions remain

Members were similarly divided in the discussion on the SSM. Most G-33 members continue to see the SSM as essential for preventing poverty and hardship amongst vulnerable farmers, while developing country agricultural exporters stress that making it too easy to invoke could impede South-South trade - a critical aspect of their own development priorities. Developed country farm exporters such as Australia, Canada, New Zealand and the US would also prefer a more limited SSM.

Countries continue to differ in almost all key areas under negotiation, from fundamental issues around product eligibility through to questions around possible volume- and price-based triggers for additional duties, and the issue of whether the mechanism should be a temporary adjustment tool or available indefinitely.

A 24 April US non-paper added further fuel to the SSM debate. It proposed that only "a limited number of products" should be eligible for the mechanism. In contrast, the G-33 maintains that all products should be eligible. Several other agricultural exporters argue that the SSM should only be available to protect products liberalised through standard Doha Round tariff cuts, with SPs in particular excluded.

The US proposal raises the bar that would allow a country to impose safeguard duties to a level considerably higher than that sought by the G-33. For instance, while the G-33 would allow the SSM to kick in whenever the import volume rises more than 5 percent above the three-year average level, the US would require a 30 percent increase. Similarly for the price-based trigger: the G-33 would let countries start introducing additional duties if import prices fall below the average monthly price for the most recent three-year period. The US, however, would have SSM duties triggered by the lower of two figures: 70 percent of the three-year average import price, or 70 percent of the 2002-2004 average import price. The US' preferred price thresholds are lower than those of the G-33, and would thus be harder to trigger.

Before Members can impose SSM duties, the US would require six-month long 'market tests' to check whether the price-based trigger is actually followed by rising import volumes, or the volume trigger by falling domestic prices, compared to the year before. The G-33 has resisted establishing any such link.

Another complicated issue in the SSM debate is that many Members have questioned how to distinguish between regular fluctuations caused by increased domestic demand, and genuine import surges or falls in domestic prices.

In terms of remedies under the SSM, the US proposed substantially smaller additional duties than the G-33. According to the US, the highest tariffs that a Member could apply, with the SSM duties included, should be halfway between its pre-and post-Doha Round bound ceiling rates for the product in question. The G-33 would allow Members to impose additional volume-triggered safeguard duties equal to 50 to100 percent of the post-Doha bound rate, or 40 to 60 percentage points, whichever amounts to more -- potentially allowing even Uruguay Round limits to be breached. The group proposed no precise limits for price-triggered safeguard duties, but specified that they must do no more than offset the fall in import prices.

Members also diverged on the issue of the appropriate duration of each particular safeguard tariff that is imposed. While the G-33 proposed that the tariff should last for 12 months, others argued that the additional duties should only apply until the end of the calendar year or notification year.

Negotiators also disagreed over whether the SSM should be applicable to all imports of a given product, or whether imports taking place under other sets of trade rules, such as regional trade agreements, should be excluded. The G-33 countries say that all imports should count towards the SSM triggers. However, bilateral and regional free trade agreements often contain clauses limiting the application of safeguard measures, which could prevent countries from applying the SSM to all imports. If imports under such trade agreements were solely responsible for import surges or a fall in import prices in a particular country, the imposition of SSM duties might simply penalise other exporters unfairly.

Also under discussion is the fate of the WTO's existing safeguard mechanism, the 'Special Safeguard' provided for in Article 5 of the Agreement on Agriculture. Although in principle this mechanism is open to be used by 'any Member,' many developing countries have either found themselves ineligible to use it, or have found it hard to use in practice. These factors were among the reasons that led the G-33 to push for an SSM that would better take into account their concerns.

Most G-33 members think that the SSM - which is only available to developing countries - should replace the existing Special Safeguard. The Cairns Group of agricultural exporters and the US have also taken this position. However, they have been opposed by Members such as the EU and the G-10 (a group comprising mostly developed country net food-importers with highly protected agricultural sectors), both of which have made frequent use of the Special Safeguard. They argue that the existing mechanism should continue alongside the new SSM.

Finally, while the G-33 wants the SSM to be permanent, other Members advocate limiting its lifespan.

One negotiator remarked that, although delegates had gone into greater detail than before, no major new developments had occurred. Instead, some Members had simply put longstanding positions on paper. In particular, Thailand and the US had moved to stake out their side of the argument, in response to the now well-known positions of the G-33.

Informal negotiations on sensitive products, small economies, and newly-acceded Members are planned for 4 May, with a discussion on SPs and an informal round-up meeting slated to take place the following day.

ICTSD reporting.