AG CHAIR RELEASES SECOND INSTALMENT OF 'CHALLENGES' PAPER, SPARKING VARIED REACTIONS

The chair of the WTO agriculture negotiations on 25 May released the second instalment of his paper outlining parameters for a plausible deal on some issues in the talks, sparking a range of reactions from trade diplomats. Like the first one, it sought to 'challenge' WTO Members to depart from long-held bargaining positions in order to find consensus (see BRIDGES Weekly, 2 May 2007).

New Zealand Ambassador Crawford Falconer's document covered issues which, in the words of one delegate, "aren't on the radar screen every day" -- unlike the hotly-debated overall tariff and subsidy cuts and exceptions he addressed in the first part. It dealt with the functioning of the 'special safeguard mechanism' (SSM) which developing countries could use to protect farmers from import surges, an issue that has divided import-sensitive Members from those fearing impeded export opportunities. The paper also addressed the related matters of liberalisation for tropical products and the erosion of trade preferences (some of the most prized preferences cover tropical products such as sugar and bananas).

Falconer warned negotiators that they had given some issues so little attention that he was unable to comment on them meaningfully. Talks on tariff escalation, for example, had advanced so little that Members seemed to expect the issue to just "drop by the wayside." 'Green box' farm subsidies, commodities, and tariff simplification were also not addressed in great depth.

The paper did provide more detail on special treatment for small, vulnerable economies, least-developed countries and for countries which had recently acceded to the WTO.

Delegates reactions varied, with a number of them again suggesting that the paper was 'unbalanced' (see BRIDGES Weekly, 9 May 2007). Some developing country negotiators saw the paper as tending to favour developed country positions. However, some developed country officials were also critical, claiming that the zones in which the chair saw possible consensus were too broad, and were not always 'in the middle' of negotiating extremes.

One delegate suggested that Falconer had softened his tone in the second paper, making it "less challenging" than the blunt language he had used to assess Members' views in the first one. "Maybe he's realised that if you challenge everyone, who's going to listen to you?" the official wondered aloud.

SSM's applicability should be constrained

Falconer warned that there were "too many variables" on the special safeguard mechanism for him to begin defining 'centres of gravity' or zones of possible consensus. Developing countries will be able to use the SSM to raise tariffs beyond bound ceiling levels when triggered by an import surge or price collapse.

In the "few observations or suggestions" that he felt able to offer, he suggested that the SSM would give developing countries "greater flexibility" than the existing 'special safeguard' (SSG) in WTO rules, which most developing countries have been unable to use.

Developing countries criticised the paper for implying that the SSG could be continued beyond the Doha Round, a proposition opposed by farm exporters but favoured by the EU and G-10 countries that have used it often.

The chair argued that because of its 'special' nature, the SSM's application should be constrained, focusing, for instance, on situations where there is domestic production vulnerable to substitution by imports. It should respond to the "rural development, food security and livelihood security needs" of farmers, Falconer said. He signalled that he expected a range of conditions to apply to the SSM's use, concerning its scope, triggers, and remedies. In particular, he suggested that increased safeguard tariffs should be applicable for a period shorter than the twelve months proposed by the G-33 group that advocates a substantial SSM. One developing country delegate said that Falconer was offering his own interpretation of the mandate.

Falconer also argued that preferentially-imported products should face safeguard tariffs if they are counted in the calculation of SSM-triggering import volumes.

Tropical and diversification products

Members are still divided on how to fulfil the mandate for "the fullest liberalisation" of trade in tropical products and those grown in the place of narcotic crops. Falconer bluntly warned that fifty years had failed to produce a definitive list of tropical products. He said that negotiators could use an indicative list for such products developed during the Uruguay Round, with Members required to 'pay' for dropping a small number of commodities by adding other ones from a longer list tabled in March 2007 by the Cairns Group of farm exporters.

Falconer also described some options for enlarging the Uruguay Round list, which he thought should be expanded by one-third to one-half. With multilateral agreement unlikely, and bilateral discussions unfeasible, he suggested that Members could do a 'rejection process' that would allow them to exclude a product if they could justify why it would not qualify as a 'tropical or diversification' product.

One of the developing country proponents of liberalising trade in tropical products warned that such an 'à la carte' approach could enable Members simply to exclude whatever they wished.

As for the tariff treatment of such products, Falconer pointed the proposal for tariffs on tropical products currently below 25 percent to be eliminated, and those above 25 percent to be cut by 85 percent, though he said that the threshold for elimination may have to be lower. The minimum level of tariff reduction for tropical products would be the deep cuts foreseen for the steepest tariffs under the overall reduction formula.

Preference erosion

Falconer identified the tropical products that are most closely linked to concerns about preference erosion - essentially bananas and sugar. It was difficult to see any other "major areas of concern," he suggested. Many African, Caribbean, and Pacific countries that benefit from EU trade preferences fear that deep tariff cuts on these products would eliminate the advantageous access they currently enjoy.

Bananas, Falconer said, would require a "banana-specific outcome" - a deal involving "a full and final settlement by all involved" of which the Doha Round would not be a "principal determinant." Sugar would be affected by a number of still unresolved issues in the negotiations, but also, to a greater extent, by factors such as EU internal reform.

The chair therefore proposed that Members assess the significance of specific products in particular markets, and the extent of anticipated liberalisation. Ad valorem tariff cuts in single digits spread over a five-year period would not necessitate major adjustments. Higher cuts might require maintaining preference margins, longer implementation periods, or possibly other non-trade based solutions.

Green box subsidies

Falconer's paper outlined a short set of proposed amendments to the criteria for farm subsidies to be eligible for the WTO's 'green box', a reduction-exempt category for payments that in theory cause minimal or no distortion to production and trade. The short list led one delegate to conclude that the chair had limited himself to ideas that were unopposed.

There was little objection to letting developing countries include land reform programmes and associated administration and legal services under the exemption for government services, although other objectives such as rural development and infrastructure provision were more controversial. Falconer said that there was also support for letting developing countries include spending on the acquisition of food stocks for food security purposes in the green box, rather than counting this towards trade-distorting subsidy entitlements which would have to be reduced. Proposals to make the green box cover the purchase of foodstuffs from low-income and resource-poor producers in order to fight hunger and rural poverty were also broadly acceptable.

Other green box disciplines could be amended, so as to cover new programmes in developing countries, and to permit governments to compensate farmers for losses of less than 30 percent of average production in the event of livestock or crop destruction for disease control purposes. Members were also close to consensus on setting fixed base periods for calculating spending allowances, Falconer said.

One developing country delegate noted that Falconer had not discussed the possibility of disciplining rich country payments that might have more than minimal trade-distorting effects. The G-20 group of developing countries has charged that some subsidy spending sheltered in the green box does in fact have a significant impact on trade and production.

Recently-Acceded Members

Falconer suggests that, "absent any objection", some of the proposals from the group of recently-acceded Members (RAMs) be supported. These countries, including China, have asked for lenient treatment because of the extensive commitments they undertook during accession.

Different RAMs might merit different treatment, the chair indicated. Very recently-acceded Saudi Arabia, Vietnam and Macedonia should not be subject to further Doha Round undertakings, he said. Furthermore, small low income recently-acceded Members with economies in transition (such as Moldova and the Kyrgyz Republic) will not have to cut subsidy spending entitlements.

RAMs in general could be allowed to make smaller cuts to their 'de minimis' subsidy limits than developing countries generally. They could also be permitted to reduce tariffs in each band by 5 percent less what is required by the overall formula, Falconer suggested, arguing that the 50 percent flexibility the group had sought would not be acceptable. However, Members might accept RAMs' request to exempt tariffs below 10 percent from cuts.

In return for accepting less flexibility on tariff cuts, Falconer suggested that RAMs could win additional flexibility on the SSM and 'special products' -- which developing countries can shield from tariff cuts on the basis of food security, livelihood security and rural development criteria. Some RAMs could also be granted longer tariff cut implementation periods for some products, so that their Doha commitments do not overlap with accession-related ones.

Small, vulnerable economies

The chair proposes that the definition of what constitutes a small, vulnerable economy (SVE) could be the one proposed by the group itself: countries that can prove that they account for less than 0.16 percent of world merchandise trade, 0.1 percent of industrial goods trade, and 0.4 percent of farm trade. He suggested that SVEs would be able to address their import concerns if they receive some additional flexibility to maintain tariffs on 'special products'. However, the lack of consensus on the number and treatment of such products meant that there was little he could add.

Tariff escalation, commodities

Falconer berated Members for not having seriously addressed the issue of higher tariffs on processed goods than on raw materials, which can serve as a disincentive against moving up the value chain. He nonetheless presented some ideas for how they might approach doing so, such as agreeing on a list of affected products multilaterally or even in bilateral talks, and then determining a way for the duty on the processed product tariff to be cut substantially more than that on the raw material.

For commodity tariffs not sufficiently dealt with by the tiered formula and whatever specific measures are agreed to for tariff escalation and tropical products, the chair suggested that Members might be able to agree to language committing them to engage with commodity dependent producing countries to ensure satisfactory solutions.

Least-developed countries

Least-developed countries (LDCs) will not have to cut tariffs or subsidy entitlements as part of the round. Falconer suggested that developed countries should provide duty- and quota- free access to LDC imports covering 97 percent of farm tariff lines from the start of the Doha Round implementation period, as should developing countries that declare themselves able to do so, in keeping with what Members agreed to in 2005. He said that 100 percent access "is something to aim for at least by the end [of the implementation period]."

Other issues

The chair argued that an agreement on any major simplifications to the way that Members schedule their tariff commitments was unlikely. On a range of other issues, including the extension of geographical indication protections to food products other than wines and spirits (such as Parma ham), Falconer said that he had "nothing at this point to add."

Delegates speculated that Falconer may simply have lacked the input from Members necessary to make meaningful comments. However, some expressed disappointment that he had not addressed these issues.

Members react

Some Members criticised what they saw as a fatalistic acceptance of defeat in negotiating areas that had been supplanted by higher priorities, as in the case of tariff escalation or tariff simplification.

However, one official argued that the chair had done a good job, saying that he "makes some good observations on how we could move to agreement." The weaknesses in the text were partly Members' own fault, the source claimed. Faced with proposals that amounted to "extreme claims from some, and extreme rejections from others," the chair had done the best he could have done under the circumstances.

Falconer has been holding consultations with a group of about 20 Members on all of the major issues in the agriculture talks, during which delegates have reacted to his first 'challenges' document. He is set to convene further meetings on 1 June for countries to react to the new paper.

ICTSD reporting.