CHAIR'S AG MARKET ACCESS PAPER SPARKS FIERCE DEBATE ON TARIFF CUTS

The EU and the G-10 have rejected the idea that a proposal from the G-20 group of developing countries could form the basis for an eventual Doha Round deal on farm tariff cuts, rebutting a suggestion to this effect from the chair of the WTO agriculture talks. While the EU and G-10 argued that the G-20 cuts were too deep, trade negotiators from the Cairns Group of farm exporters expressed support for the chair's informal assessment, in an apparent departure from their long-held position in favour of substantially sharper tariff cuts.

The chair, Ambassador Crawford Falconer (New Zealand), made the controversial observation in a 'consolidated reference paper on possible market access modalities' circulated to Members on 9 May. The bulk of the document contained passages of draft text that encompassed most proposals Members had made on virtually every issue in the negotiating mandate on agricultural market access. Falconer accomplished this by placing large swathes of text within square brackets to indicate the continuing absence of agreement, and providing wide ranges of figures for tariff cuts and the number of products to be excepted from standard tariff treatment.

Falconer observed that the sections of draft text simply summed up Members' proposals and were thus "of rather limited operational use to anybody who wants seriously to reach a negotiated outcome." Stressing his commitment to the 'bottom-up process' and not trying to "invent solutions out of thin air," Falconer proffered some comments of his own -- "observations of where things were at" -- in an attempt to broadly identify where consensus might lie in certain areas of the negotiations. It is these personal observations that provoked strong reactions from a number of Members.

Members are under growing pressure to meet an end-June deadline for an agreement on agriculture 'modalities' -- formulae and figures for subsidy and tariff cuts. Falconer is set to produce an initial draft modalities text by the week of 19 June. He has repeatedly urged Members to narrow enough of their differences to enable ministers and senior trade officials to iron out a deal at a meeting scheduled for the end of the month.

Tariff cuts: the G-20 proposal a halfway house?

Members have proposed substantially different cuts to farm tariffs. For instance, while the US has called for rich countries to slash tariffs by between 55 and 90 percent, the EU has proposed reductions of 20 to 60 percent. The G-20 group of developing countries is seeking cuts of 45-75 percent, with the deepest cuts to tariffs over 75 percent.

In spite of the wide range of proposals on the table, Falconer observed in his paper that a "much narrower real potential zone" of agreement existed within the extremes. He said that this "real zone of engagement" would have to be "around the G-20 [proposal]." Precisely how close to the G-20 proposal was "moot," he continued, "but if we are going to have an agreement I have the sense that that is where the real negotiations will have to take place." Indeed, there have been some suggestions recently that the EU might be willing to move at least some way in the direction of the G-20 offer (see BRIDGES Weekly, 24 May 2006).

At the 12 June meeting, the EU and the G-10 (a group of countries with highly protected farm sectors, including Japan, Norway, and Switzerland) rejected Falconer's analysis, arguing that they had never considered the G-20 proposal to represent the 'middle ground' in the negotiations. Falconer had acknowledged in his paper that some G-10 countries "may just not prove to be able to make it" close enough to the vicinity of the G-20 proposal. Underscoring that the group was fully entitled to maintain its existing position, he noted that if Members did indeed eventually converge around the G-20 proposal, the G-10 would be obliged either to "swallow hard and accept" or block consensus.

The G-10 reiterated its opposition to the idea of an absolute cap on farm tariffs -- the G-20 and the EU have proposed 100 percent for developed countries, while the US has suggested a 75 percent limit.

Most other delegations also repeated established positions. However, the Cairns Group, represented by Australia, intervened to agree with the chair's assessment - even though its members have been seeking deeper cuts. The group of farm exporters includes Canada and New Zealand, as well as several G-20 countries such as Argentina, Brazil and South Africa.

Furthermore, Canada suggested a possible response to the concerns of countries with a large number of high tariffs that would fall into the formula tier slated for the steepest percentage reductions: they could be allowed to limit the deepest tariff cuts to no more than 25 percent of their products. Canada also said that some sort of arrangement might be possible for countries that find it particularly difficult to implement a tariff ceiling.

Sources report that the US did not directly address Falconer's contention that the G-20's proposal constituted the likely middle ground. However, in an interview the day after her 8 June confirmation as US Trade Representative, Susan Schwab told the Financial Times that the US would simply not accept a "Doha lite" deal that cut farm tariffs by less than the 54 percent average cut sought by the G-20. Furthermore, US farm groups have urged the Bush administration to scale back its offer to reduce agriculture subsidies -- already criticised as insufficient by the G-20 -- unless other WTO Members came close to its proposal to slash farm tariffs by around 66 percent.

Falconer: cuts to be made from bound levels

Delegates who spoke at the meeting seemed largely to agree with Falconer's stated impression that the notion that developing countries should make tariff cuts two-thirds the size of those made by developed ones "has a certain resonance as broadly 'about right.'" Some emphasised that other issues would need clarifying first, such as the specific thresholds for the tiers into which developing countries will classify their tariffs for the purposes of reducing them. While the EU and the G-20 have more or less followed the two-thirds rule in their proposals, the US has simply said that developing countries should make cuts "slightly less" than those demanded of developed countries.

The chair directly took aim at the argument that developing countries need to make larger cuts in order to force reductions in their actual tariff levels, as some developed countries have contended. Many developing countries have considerable gaps -- termed 'water' in WTO parlance -- between the tariff rates they apply and the maximum permitted ceiling that is 'bound' at the WTO. These gaps are in many cases the result of substantial autonomous liberalisation undertaken since the Uruguay Round.

Falconer said that bound tariffs had always been the common reference point in WTO negotiations and were the product of past bargains "to which all - including developed countries - have subscribed." "This negotiation cannot be expected to 'make up' for any regrets Members might have had about where past negotiations got them," he added. If Members accept "that a bound tariff is a bound tariff is a bound tariff and those are the only apples that we are comparing, life would be a lot simpler."

He further noted that, if Members were to establish the principle that tariff cuts should be made from bound rather than applied levels, this would also apply to agricultural subsidies. Few of the proposed subsidy cuts currently on the negotiating table would substantially affect the actual level of payments given to farms.

Sensitive products still controversial

Negotiators continued to disagree strongly on the number and treatment of 'sensitive' products which, in return for the expansion of import quotas, each Member will be allowed to shield from the full force of tariff cuts.

Falconer noted that Members would be unlikely to reach agreement on positions at either end of the spectrum -- from the G-10's desire for developed countries to be able to designate as many as 15 percent of tariff lines as sensitive to the G-20 and US' favoured 1 percent. The negotiating dynamic appeared to be pointing towards "a more medial number," he suggested.

Sources report that the G-10 has suggested that it might come down from 15 percent, depending on the tariff cuts required by the overall reduction formula.

Falconer also cautioned delegations that they would need to decide how to account for the fact that they do not all have the same number of tariff lines, as a result of which, for example, three percent of tariff lines would mean more sensitive products for one Member than for another. He suggested that this represents an equity issue "that cannot be easily brushed under the carpet."

In his reference paper Falconer notes that Members have made no concessions on the extent to which tariff cuts on sensitive products should be lower than those for other products. Attempting to estimate where middle ground could lie, he said "I frankly find it difficult to avoid the sense that the general zone we will end up negotiating is between 30 percent and 70 percent of the [standard] cut." The EU, for instance, has proposed deviations of 20 to 80 percent. However, he warned that "ministers - or whomever is in the room when we finally run out of time and simply have to make a decision" would have an "overwhelming temptation" to settle on a single number, which he suggested could well be 50 percent. If Members do not like this prospect, he added, they would do well to start more concrete negotiations now.

At the meeting, Members also made little progress on the basis for calculating tariff-rate quota expansions for sensitive products (see BRIDGES Weekly, 17 May 2006). Falconer said that it was unlikely that this issue could be resolved in "one final convulsion at the end of June," and that it would require "very intensive work over the next few days."

Developing country flexibilities still contentious

Familiar disagreements persisted during the discussion on rules for 'special products' (SPs), which developing countries will be able to designate for more gradual liberalisation on the basis of food security, livelihood security and rural development. Countries were similarly divided on the proposed 'Special Safeguard Mechanism' (SSM) to help developing countries protect farmers from import surges.

The G-33 group of developing countries, the strongest proponents of both, remained at odds with Southern exporters such as Thailand and Malaysia, which have argued that the flexibilities could undermine South-South trade (see BRIDGES Weekly, 10 May 2006). The G-33, which includes China, Indonesia, Mauritius, and Peru, would like at least 20 percent of tariff lines to be eligible for SP status; at the other extreme of the proposals on the table, the US wants SPs to number no more than 5 tariff lines -- a fraction of 1 percent in many cases. The G-33 expressed disapproval of Falconer's text for placing both proposals in square brackets adjacent to each other, arguing that the equivalence failed to reflect that the former was supported by many more countries.

The paper's bracketed list of tropical products and crops that could be grown in the place of illicit narcotics -- the July Framework mandates Members to address the "implementation of the long-standing commitment to achieve the fullest liberalisation of trade" in both -- also proved controversial (see BRIDGES Weekly, 24 May 2006). The list was based on a proposal from a group of Latin American countries pushing for deep tariff cuts on such products. The EU argued that the list included too many products, and instead proposed reverting to a list that had been negotiated but never agreed during the Uruguay Round.

Members are expected to conclude the discussion of market access issues on 16 June. At the same meeting, they are also due to discuss a new consolidated reference paper on export competition issues.

ICTSD reporting; "Farm groups: Scale back Doha if talks falter," DELTA FARM PRESS, 9 June 2006; "US not prepared to accept 'Doha lite,'" FINANCIAL TIMES, 10 June 2006.