DOHA: DRAFT AG TEXT MEETS LUKEWARM RESPONSE, NAMA LIKELY TO BE CHILLIER

WTO Members are in agreement that the parameters for a potential Doha Round agriculture deal identified last week by the chair of the negotiating committee constitute a "good starting point" for further talks in September.

However, they appear to agree on little else, at least in public: at a 23 July meeting organised for them to provide initial reactions to the draft negotiating text, most suggested that the outline would be greatly improved if revised in the direction of their respective bargaining positions.

Similarly, in remarks elsewhere, top officials from several influential Members said that the text was a reasonable basis from which to proceed, while expressing misgivings about some of the specific concessions it called for - or deliberately left vague.

EU Trade Commissioner Peter Mandelson was particularly positive, praising the agricultural negotiations chair and his industrial goods counterpart for having "distributed the pain fairly." Indian Commerce Minister Kamal Nath said that the text was a "good basis for starting intensive negotiations," even though it was "not a text of convergence."

During the meeting of the agriculture negotiating group, sources said that Switzerland described the agriculture text as "sufficiently good not to be rejected but sufficiently deficient not to be adopted."

The discussion led the chair, Ambassador Crawford Falconer (New Zealand) to remind delegations that they would need to yield on longstanding demands if the talks were to move forward. Agence France Presse reports that he said that Members' reactions "were largely predictable."

US: low teens for OTDS "out of the question"

The farm tariff and subsidy cuts called for in the paper divided Members along well-established fault lines.

For instance, the US' lead agriculture negotiator, Joe Glauber, told journalists in Geneva on 24 July that a cap in the 'low teens' on overall trade-distorting farm support (OTDS) was "out of the question," reports Thomson Financial.

Falconer's text had called for Washington to lower the OTDS spending limit to $13 billion or $16.4 billion (see BRIDGES Weekly, 18 July 2007). Either would be lower than the $22.5 billion ceiling the US has tabled formally, as well as the $17 billion figure it has broached unofficially.

Yet, during the committee meeting, the G-20 reiterated its demand for a ceiling on US trade-distorting support in the "very low teens." Moreover, even the lower end of the range cited by Falconer remains above the $11 billion that the US has actually spent in recent years, because high commodity prices resulted in lower farm payments.

Indian Commerce Minister Kamal Nath said last week that Washington would need to cap trade-distorting farm spending at comparable levels before he could contemplate the substantial reductions to India's applied industrial duties that the US is demanding, as opposed to cuts in its much higher theoretical maximum tariff levels.

"I would be happy with any reduction the US is willing to do on their applied levels" of farm spending, Nath told Bloomberg in an interview. "Even one dollar from what they are applying today, it's a deal. We'll move forward."

The US argues that even an OTDS entitlement well above $11 billion would constitute a real reduction because payments have more than exceeded that level for five of the past eight years. Nath countered that Washington was simply seeking to maintain the policy space to boost spending in the future, should commodity prices fall. "A development round doesn't mean you reserve the right to keep your subsidies and increase your distortion," he said.

Glauber, the US farm negotiator, also said that the provisions in Falconer's text for extra-deep cuts to cotton subsidies were "not acceptable." With no other specific proposals on the table, the text had incorporated a formula proposed by the so-called 'cotton four' heavily affected by US cotton subsidies - Benin, Burkina Faso, Chad, and Mali - under which heavily trade-distorting 'amber box' cotton subsidies would be slashed by over 80 percent even if the standard percentage was substantially lower. In contrast, the G-20 has announced support for the idea.

Broadly, Glauber unfavourably contrasted the draft text's provisions on domestic support with the access it offers US farmers to overseas markets (less than what Washington has sought). The US has maintained that it could not lower the subsidy ceiling any further unless its farmers were assured of greater market access elsewhere in the world.

Along with the G-20, the Cairns Group of farm exporters called for reductions in actual farm payments, rather than cuts to the theoretical spending limits.

The EU and Japan said that they would need to be offered substantial tariff reductions in the negotiations on non-agricultural market access (NAMA) in order to contemplate the steep farm subsidy reduction set out for them in Falconer's paper. The G-20 took a different view of this steepness, arguing that both would be left with "considerable amounts of 'water'" between real spending levels and their bound ceiling amounts. The developing country bloc complained that the EU would not even be obliged to fully lock in its ongoing farm subsidy reforms.

The draft text's provisions on 'green box' subsidies were also inadequate, said the G-20, which argued that the terms would not do enough to ensure that such payments - which account for the majority of EU and US farm support - remain "non- or minimally trade-distorting."

Market access: groups reiterate priorities

Farm tariff cuts, and the extent to which countries will be allowed to shield their agricultural markets from certain imports, have been among the most contentious issues in the negotiations.

On the paper's provisions for access to developed country markets, the Cairns Group, the US, and several developing countries focused on the issue of 'sensitive products', which Members will be able to shield from the full force of tariff reduction in exchange for expanding import quotas. Their broad goal was greater market access, with more certainty about potential hindrances to imports. The G-20, for instance, said that the 4 or 6 percent of tariff lines eligible for designation as 'sensitive' as per Falconer's text was too many, and the permitted deviation of up to two-thirds from standard tariff reduction obligations "excessive."

The G-20 noted that the draft negotiating text, which contained two options for many of the subsidy and tariff reductions, called for rich countries to cut the highest farm tariffs by 66 or 73 percent. This was lower than the 75-percent reduction demanded by the group's own proposal. However, the paper contained an option for developing countries to cut farm tariffs by an average of 40 percent (the other corresponded to the 36-percent cut that the G-20 had already proposed). The developing country alliance also called for a cap on all farm tariffs, something that was absent from Falconer's paper.

In contrast, the G-10 group of countries with heavily protected farm sectors such as Japan and Switzerland, said that the draft text's market-opening requirements already went too far. These countries oppose the notion of a cap on farm tariffs.

EU Commissioner Mandelson, for his part, told ministers from EU member states on 23 July that Falconer's text presented them "with a manageable situation within our red lines, if we can reach a mid-point outcome in the range tabled for cuts." He added that Brussels would have to "fight hard" on the amount of additional market access to give to sensitive farm products. In Geneva the following day, however, top EU agriculture negotiator Jean-Luc Demarty offered a different analysis, saying that "some parts of the paper overstep the red line."

Call for 'full modalities'

Falconer's text was deliberately vague about a range of developing country-specific issues, on the grounds that insufficient progress made it impossible to draw any useful conclusions about potential compromise. These included the number and treatment of the 'special products' that developing countries will be able to shield from tariff cuts to safeguard food and livelihood security and rural development concerns, the 'special safeguard mechanism' to shield farmers from import surges, and the apparently conflicting demands of countries seeking deep tariff cuts for tropical products and states fearing the erosion of trade preferences for the very same crops.

The G-20 called for "filling in the gaps" in these unspecified areas. The group said that 'full modalities' - a full suite of rules determining how Members will calculate their commitments to cut tariffs and subsidies - would be necessary to proceed to a final-stage negotiation based on a draft text for a potential accord.

In a direct reference to Falconer's allusion that he still believes that all 'special products' should be subject to at least some tariff reduction, the G-33 bloc of developing countries reiterated that they wanted some of these commodities to be exempt from cuts altogether. China, which belongs to the G-33, made a similar point, expressing disappointment "that the chair continues to rule out necessary exemptions" for some especially critical special products.

Many developed and developing countries argue that the worth of the various market access offers cannot be properly assessed, and that the offers themselves cannot be measured against each other without greater clarity about the different flexibilities.

The least-developed countries asked for permission to use the 'special safeguard mechanism' even though they will not be required to cut tariffs as part of the Doha Round. Some of these countries have low bound tariff rates and would like to be able to raise applied rates beyond the bound ceiling levels in order to shield domestic farmers from import surges.

Sources say that the group of small and vulnerable economies (SVEs) reported satisfaction with the special treatment spelled out for them in Falconer's text. This included an average tariff cut of 24 percent - two-thirds that of other developing countries - as well as lower reductions in each tier of the tariff reduction formula.

The agriculture chair's text refrained entirely from setting out provisions on the contentious issue of extending geographical indication protection to products other than wine and spirits. The EU and Switzerland reiterated their demand for doing so in the negotiating committee, arguing that such an extension could provide farmers of for example, Parma ham, with price premiums to compensate for subsidy cuts and increased competition from imports. Yet 'GI extension' is opposed by 'new world' countries such as Argentina and the US, which produce fewer foods linked to specific places. Nevertheless, Mandelson expressed confidence that other WTO Members now understood that it was a "political 'must have'" for Brussels.

Intensive negotiations on the draft text are expected to start from 3 September, after the WTO's August holiday. The agriculture chair said that he would issue one or more revised versions of the paper, in an effort to help Members salvage a compromise.

NAMA text likely to get colder reception

In comparison to Members' lukewarm reaction to Falconer's draft agriculture paper, the companion text on industrial tariffs appears set to meet with a much cooler reception.

At time of writing on 25 July, WTO Members were scheduled to discuss the draft text put together by Canadian Ambassador Don Stephenson, who chairs the negotiations on non-agricultural market access (NAMA).

The tariff cuts set out in the text would cap industrialised country manufacturing tariffs at 8 or 9 percent, with across-the-board reductions to all duties, while placing the ceiling for developing countries at between 19 and 23 percent.

Sources report that the NAMA-11 group of developing countries, which includes South Africa, Brazil, and India, finds this disproportionate both in terms of what is on offer in the agriculture negotiations, as well in its requirement for developing countries to cut their bound tariffs more steeply than developed ones.

In the agriculture committee session, some developing countries had called for a cap on farm tariffs, on the grounds that the mathematical formula used in the industrial goods negotiations will place a hard ceiling on the duties levied on nearly all manufactures.

The NAMA-11 and the G-90 group of developing countries were reportedly working on a joint statement criticizing Stephenson's text. Many members of the G-90 are not among the 31 developing countries that will have to apply the standard tariff reduction formula. Least-developed countries are exempt from reduction commitments. The text suggests different approaches for determining the future tariff ceilings of small economies and countries with a high proportion of unbound tariff lines.

Meanwhile, the US and the EU - and, more vocally, industry groups in both places - have suggested that Stephenson's text does not go far enough in seeking tariff reduction by developing countries.

The NAMA chair, too, has said that he would revise his text based on negotiations in September.

Without an accord by early 2008, the Doha Round is expected to go into hibernation for years, if not indefinitely, as election campaigns get underway in the US and then in India.

ICTSD reporting; "US has mixed feelings on WTO farm trade proposals: negotiator," THOMSON FINANCIAL, 24 July 2007; "India Wants 'One Dollar' More From U.S. for WTO Deal, Nath Says," BLOOMBERG, 19 July 2007; "WTO farm trade proposals get lukewarm welcome," 24 July 2007, AGENCE FRANCE PRESSE, 24 July 2007; "Countries pledge another WTO farm talks push," REUTERS, 24 July 2007.