CHINA, G-20 REACT TO AG CHAIR'S ASSESSMENT OF PLAUSIBLE DEAL

Developing countries continue to react to a paper by the chair of the WTO agriculture negotiations identifying some parameters of what he deemed to be a plausible agreement on cutting farm tariffs and subsidies (see BRIDGES Weekly, 9 May 2007). The paper, the first in a series of two, aimed to 'challenge' Members to depart from long-held bargaining positions in order to find consensus in the troubled talks. It has already provoked a range of responses from Members.

The Chinese government on 18 May detailed its reactions to the text in a letter to agriculture negotiations Chair Ambassador Crawford Falconer (New Zealand), WTO Director-General Pascal Lamy, and General Council Chair Ambassador Muhamad Noor Yacob (Malaysia). In it, Commerce Minister Bo Xilai and Agriculture Minister Sun Zhengcai expressed appreciation for Falconer's efforts, but pointed to a "fundamental problem" that the concerns of developed and developing country Members were not treated "in a balanced way."

They emphasised the need for "effective cuts" in trade-distorting support, arguing that these must ensure that the ceiling for US and other developed country subsidies is set at a level that is lower than current spending. Washington's current offer would cap its trade-distorting subsidies at over USD 22 billion, well above existing expenditure levels.

With regard to tariff cuts, the letter welcomed Falconer's use of the G-20 bloc's proposal for a tiered reduction formula as a 'working hypothesis'. China is a member of the influential group of developing countries. However, it said that his suggestions for the thresholds for the bands for developing countries, as well as the depth of tariff cuts for products that fall within them, were 'worth debating'. Although Falconer had indicated that the thresholds proposed by the G-20 for developed countries could ultimately work, he had implied that those put forward for developing countries might require changing.

China also expressed concern about the chair's interpretation of the mandate for more "flexible treatment" for agricultural 'special products', which developing countries would be able to shield from tariff cuts on the basis of food security, livelihood security, and rural development criteria. While the chair had suggested that all special products should be subject to at least a minimal tariff cut, China argued that some should be exempt from reduction commitments. China is part of the G-33 group that has championed special product flexibilities, including the ability to exclude some products from tariff cuts altogether. The group has argued that the chair's 'challenges' paper is biased towards developed countries in its treatment of market access.

As a result of extensive tariff liberalisation that it carried out to join the WTO, China has fairly low farm tariffs - and crucially, almost no margins between the duties it applies and the bound ceiling limits. Thus, most tariff cuts will force reductions in its applied rates, with the potential to displace farmers.

The ministers also questioned the wisdom of the chair's 'radical' suggestion for overcoming the ongoing disagreement about agricultural market access for developing countries: replace the tiered formula and assorted flexibilities with a "straight overall average cut" with a minimum specified cut for each tariff line. This would allow developing countries to make the minimal reduction for their most sensitive products, while making higher cuts to other ones in order to meet the average target. China warned that this represented a complete reversal of the negotiated approach, and cautioned that reopening this issue could lead to a 'spillover effect' where Members would seek to alter other already-agreed issues.

G-20 reacts on domestic support

The G-20 bloc as a whole also circulated two documents in response to Falconer's observations on domestic support and export competition, as the chair this week started a series of intensive small-group consultations on different issues in the talks.

A balanced agreement "will not be found by averaging negotiating positions," warned the group, emphasising that the mandates that Members have agreed on would have to be reflected in the outcome.

Referring to Falconer's suggestion that an accord on farm subsidy cuts would eventually cap US overall trade-distorting support (OTDS) "certainly below 19 [billion USD] and somewhere above the very low teens," the G-20 argued that the "high teens" should be discarded. The 'centre of gravity' the bloc said, should instead be sought amongst the "low teens." While some observers have interpreted this as a hint at flexibility, since the G-20's formal proposal would slash US OTDS to a maximum of USD 12 billion, the paper went on to reiterate that the USD 12 billion figure "remains broadly consistent with the Mandate."

The group also repeated its concern that cuts in OTDS be accompanied by product-specific restrictions on spending, though it warned that such disciplines would be useless if the overall ceiling level were too high.

On cuts to the most trade-distorting subsidies in the WTO's amber box, the principal component of OTDS, the G-20 reiterated their call for "a more ambitious contribution from the EU." The group argues that blue box programmes, another component of OTDS, should meet three new conditions: their distorting effects should be less significant than those in the amber box; they should be notified, monitored, and subject to surveillance; and direct payments should not increase the overall availability of subsidies per product, except for new users. The G-20 also wants anti-concentration disciplines and additional rules to prevent support for commodities from rising.

The G-20 did indicate a willingness to be flexible in response to US concerns about the implementation of product-specific caps for amber box support, provided that Washington "shows requisite flexibility and is ready to reciprocate." For instance, the US could be allowed to phase in the implementation of product-specific caps to match the staging of cuts to amber box support in general, the group suggested.

In terms of the base reference period for calculating these caps, the group reiterated its support for using spending in 1995-2000, a position shared by all WTO Members except the US, which prefers opting for 1999-2001 instead. The G-20 emphasised that the latter period would make the caps so high that they would "defeat the purpose of the discipline."

The group proposed allowing developing countries a choice of three different methods in order to calculate their own product-specific amber box caps: the average applied levels during the implementation period, twice the Member's product-specific de minimis level, or 20 percent of the total bound AMS in any year.

Throughout their paper, the group also emphasised the importance of special and differential treatment for developing countries.

Second instalment of paper expected soon

Falconer has indicated a 'second instalment' of his 'challenges paper' is forthcoming; it will address issues not covered in the first document, such as tropical products, preference erosion, 'green box' farm subsidies, and special treatment for small and vulnerable economies. While the chair was originally set to issue the second paper issued last week, it is now expected sometime this week.

On 18 May, Falconer met with ministers from the EU, Brazil, India, and the US to discuss the negotiations. He is now holding a series of consultations with small groups of Members as he works towards preparing a new draft text that could serve as a basis for finalising an agreement. Discussions on export competition issues took place on 22-23 May, with further meetings on domestic support and market access planned for 24-25 May and 29-30 May respectively.

An informal meeting open to all Members is scheduled for the afternoon of 30 May, in order to review the results of the discussions and to promote transparency, to be followed by further consultations afterwards.

ICTSD reporting.