EU SIGNALS SOME WILLINGNESS TO MOVE ON AG MARKET ACCESS; TALKS STILL BLOCKED

The chair of the WTO agriculture negotiations concluded on 19 May that Members were making very gradual progress, and that much remained to be done for them to reach a framework deal with specific figures for farm tariff and subsidy cuts. Recent signs from the EU that it might sweeten its offer on agricultural market access appeared to prove unable, at least initially, to break the deadlock in the talks.

After months of largely unchanged positions, the negotiations witnessed a rare moment of excitement late last week when EU officials suggested that Brussels was willing to deepen, albeit not by a great amount, its offer to cut farm tariffs. Several countries have blamed the impasse in the Doha Round on the EU's unwillingness to do more on agricultural market access.

Since then, the EU has been sending conflicting signals. A spokesperson for EU Trade Commissioner Peter Mandelson told the Financial Times on 19 May that Brussels was considering "moving towards but certainly not as far as" the 54 percent average reduction in rich country farm tariffs currently sought by the G-20. The EU says that its own proposal would entail a 46 percent reduction, but others claim that the real cut would amount to only 39 percent (see BRIDGES Weekly, 2 November 2005).

On 22 May, EU Agriculture Commissioner Mariann Fischer Boel denied that any new offer would be forthcoming unless something was promised in return. "To be crystal, crystal clear: the EU is not going to make any unilateral offers. It is out of the question,'' she said. The EU has criticised the US for not offering greater cuts to its farm subsidies, and has also attacked developing countries such as India and Brazil for not opening their markets further to industrial goods and services.

In spite of this, press reports suggest that the very next day, Mandelson, speaking on the sidelines of the Organisation for Economic Cooperation and Development's 23-24 May summit in Paris, indicated that the EU would indeed be able to improve upon its offer. Reuters reports that an EU official said Mandelson outlined possible moves to future US Trade Representative Susan Schwab in an informal meeting, adding that it was now the US' turn to move on subsidy cuts.

In a statement issued that evening, US WTO Ambassador Peter Allgeier said that the unspecified "small improvements" the EU was hinting at would be insufficient. "A minimal change would not be nearly sufficient to the level that we believe is needed for there to be new trade flows," he said. The US maintains that the EU needs to arrive at a point between the G-20's 54 percent cut and its own proposal on agricultural market access, which calls for an average reduction of over 60 percent.

One Geneva-based trade diplomat thought it highly unlikely that the EU would come forward with a "revolutionary" new proposal on agricultural market access, given the reluctance of several of its member states to support the current offer. However, it might present increased export opportunities to other Members by making small changes to its tariff reduction formula, or expanding the size of the new import quotas for the 'sensitive products' that will not bear the full brunt of tariff cuts. A decrease in the total number of sensitive products -- the EU has been seeking eight percent of tariff lines -- would also lead to increased market access for others' exports.

This week has been marked by a temporary lull in the Geneva negotiations, as representatives from many Member delegations went to Paris. They were joined there by ministers and senior officials from several countries, including a number of developing countries not part of the OECD's club of primarily industrialised nations. Although trade ministers from Australia, the US and Kenya attended the meeting along with Mandelson, their counterparts from India and Brazil were not present -- a move that Indian government officials attributed to the lack of progress in the negotiations. Several informal consultations on WTO issues were held on the sidelines of the formal OECD events.

Simulations show proposals' impact on applied subsidies, tariffs

The results of a new informal 'simulation' exercise to assess how the main proposals in the agriculture negotiations would affect the current subsidy and tariff policies of a small group of Members were circulated to all delegations on 22 May. A group of senior trade officials from 12 countries had met to discuss the data on 17 May.

Developing country delegates in Geneva said that the domestic support calculations only confirmed what they already knew: that the proposals by the EU, the US, and Japan would have little to no effect on the sums they were actually planning to pay to farms over the next few years. Canada conducted the simulation examining the implications of the US, EU, G-10 (which includes Japan) and G-20 domestic support proposals on the WTO's three biggest subsidisers. It revealed that only the G-20's would require the US to make cuts to its current level of overall trade-distorting subsidies.

At the Hong Kong Ministerial Conference, governments agreed to classify Members into three tiers for the purposes of subsidy reduction: the first containing the EU, which would have to make the biggest cuts; the second containing the US and Japan; and the third containing all other countries.

Under this structure, the G-20 would require the EU to cut the spending limit for overall trade-distorting support (OTDS) by 80 percent, while the US and Japan do so by 75 percent. The G-10 proposal calls for a 75 percent cut in EU support and a 65 percent cut in US and Japanese support. The US proposes a 75 percent cut for the EU and a 53 percent cut for itself and Japan -- the largest difference between the two tiers. The EU would cut its own OTDS ceiling level by 70 percent, and slated the US and Japan for corresponding cuts of 60 percent.

The simulation also calculated the effect of each set of proposed cuts to 'amber box' trade-distorting support, as well as those to the other components of OTDS: partially-decoupled 'blue box' payments and 'de minimis' support, the permitted level of trade-distorting support allowed under WTO rules. Under the July Framework, 'blue box' payments are capped at 5 percent of the total value of production. A similar limit exists on non-product-specific and product-specific 'de minimis' spending by developed countries. Proposals on the table seek to halve the limit for blue box payments. Members including the G-20 are seeking to limit both kinds of 'de minimis' support to 1 percent of the value of production; others, such as the US, have offered 2.5 percent. Since the changes to spending limits will be calculated on the basis of the value of production, the time period chosen for determining production values becomes significant. Several Members want calculations to be based on production values from 1995-2000; sources report that the US would prefer 1999-2001. The simulation therefore examined the outcomes that would result for either base period.

The results of the simulation demonstrated that the US proposal would force no changes to the overall amount of money that Washington spends on trade-distorting support. Indeed, for either base period the US' post-reform permissible limit for OTDS would be in the neighbourhood of USD 22.5 billion -- significantly higher than the USD 19.6 billion that it spent in 2005. In contrast, the G-20 proposal would cut US OTDS to approximately USD 12 billion.

The US proposal would cut amber box support substantially, even from actual spending levels. However, if de minimis support were capped at 2.5 percent of the value of production, the US would be able to count roughly USD 4.8 billion worth of payments against its non-product-specific de minimis limits alone. Additional spending could be exempted as product-specific de minimis support. Furthermore, the US would controversially be allowed to shelter its countercyclical payments to farmers (which rise when world market prices fall) in the 'new blue box,' created in the July 2004 Framework (WT/L/579).

According to the simulations for the different proposals, the EU would see its OTDS levels reduced from EUR 58.1 billion in actual spending in 2004 to a future cap of EUR 22-34 billion. However, these seemingly substantial cuts would necessitate few real changes to EU practices: Brussels' ongoing reform of the Common Agricultural Policy (CAP) has already planned to reduce trade-distorting subsidies for the coming years to levels close to those foreseen by the proposals. Much of this will be accomplished by de-linking farm payments from production, so they can be shifted into the 'green box,' in which subsidies are exempt from reduction obligations on the grounds that they are minimally trade-distorting. The EU has opposed attempts to revisit the eligibility criteria for the green box (see related story, this issue).

None of the proposals will cut into Japan's actual spending levels, which are far below its binding caps as a result of domestic reforms.

A similar exercise, conducted by Australia, examined applied agricultural tariffs in Australia, Brazil, Canada, the EU, India, Japan and the US. It found that for Australia, Brazil, and India, the four major proposals on the table -- from the G-10, the EU, the G-20, and the US -- would leave them with average bound tariff levels that would still be higher than their current average applied rate.

According to the simulation, the US proposal, which demands far deeper tariff cuts from developing countries than any other, would leave India's bound tariff average at 38.3 percent, marginally above its current applied average of 37.9 percent. The G-20 proposal would reduce Brazil's bound tariff rate from 35.7 percent to 25.7, well above its applied tariff average of 10.13 percent. The same formula would cut India's bound rate from 113.8 to 74.8 percent.

However, this does not mean that other proposals would effectively exempt products from tariff reduction. The simulation shows that the G-20 and EU proposals, both of which ask developing countries to cut tariffs by an average of 36 percent, would 'bite' into 18.1 percent of India's dutiable tariff lines, leaving 21.7 percent of total farm imports subject to new reduced applied tariff rates. The US proposal would cut into almost a quarter of tariff lines, affecting 26.5 percent of agriculture imports.

India complained that no mandate existed for the simulation's use of applied tariffs, although it did not block the results of the exercise from being circulated to all Members. Many countries are reluctant to discuss applied tariffs, which are often considerably lower than the bound legal maximum rates. This is because WTO subsidy and tariff reductions have traditionally been made from bound rates, and they fear that a focus on applied rates could pave the way for a formula that effectively ends up penalising them for any autonomous liberalisation they may have carried out.

Discussions on bound versus applied tariffs often mirror those on subsidies, with developing countries countering rich country demands for 'real' market access by pointing to the absence of 'real' subsidy cuts.

Options for Ministers

The 19 May meeting of all delegations at the WTO in Geneva came at the end of the third in a six-week cycle of intensive talks aimed at producing an agreement on modalities. Trade diplomats are unclear as to whether an agreement will be possible in the three weeks that remain.

Chair Ambassador Crawford Falconer (New Zealand) set out two options which could be used to enable ministers to take a decision on the final modalities package. The first approach would be to provide a draft text containing square brackets to indicate areas of continuing disagreement: ministers would then need to make the political choices required to reach consensus. The second approach would be to offer instead alternative scenarios, with specific linkages between, for instance, the depth of subsidy and tariff cuts. Ministers would then have to decide on appropriate trade-offs.

Falconer was also due to prepare new or revised 'reference papers' on domestic support this week, describing areas of agreement and disagreement, and perhaps proposing initial draft text. Negotiators expect to discuss them next week. Market access discussions are to resume from 5 June.

ICTSD reporting; "WTO Ministers Seek Common Ground to Resuscitate Stalled Talks," BLOOMBERG, 23 May 2006; "Australia's Vaile says WTO colleagues welcome EU flexibility," AFX NEWS, 23 May 2006; "Simulations Show Projected Impacts Of Proposed Cuts in Ag Subsidies, Tariffs," WTO REPORTER, 18 May 2006; "Trade talk impasse: EU makes move," REUTERS, 23 May 2006; "India, Brazil opt out of WTO meet," FINANCIAL EXPRESS, 22 May 2006; "EU signals bigger cuts in farm tariffs in Doha round," FINANCIAL TIMES, 20 May 2006.