WTO AG CHAIR’S NEW TEXT: GRADUAL PROGRESS ON MARKET ACCESS, ‘HEADLINE NUMBERS’ UNCHANGED

A new text outlining a plausible Doha Round deal on farm subsidy and tariff cuts circulated last week by the chair of the WTO agriculture negotiations contained no big surprises, according to trade diplomats in Geneva.

The text, dated 8 February, did reflect convergence in recent months on a number of issues, particularly on market access. However, the controversial ‘headline numbers’ for overall percentage cuts to tariff and subsidy levels remained largely unchanged from the previous draft deal issued in July 2007.

Differences on these politically sensitive figures are not likely to be resolved – if at all – except with the involvement of trade ministers, in conjunction with other issues in the Doha Round negotiations, especially industrial goods trade.

In a press conference after the text was released, agriculture negotiations chair Ambassador Crawford Falconer (New Zealand) said that the new draft incorporated progress made in intensive informal meetings he had convened since September.

Falconer had already distilled some of the progress made in these talks in some sixteen issue-specific ‘working documents’, circulated from November onwards (see BRIDGES Weekly, 16 January 2008).

Unchanged from the July 2007 draft text on were the figures for how much Members would have to slash spending limits on overall trade-distorting domestic support – which includes the most trade-distorting ‘amber box’ subsidies, ‘blue box’ payments less directly linked to production, plus the ‘de minimis’ level of trade distorting support that was exempt from reduction during the previous trade round. The text indicates that the EU would have to cut its cap on overall spending by 75 or 85 percent. The US would have to do so by 66 or 73 percent, which would bring its spending entitlement to between $13 and $16.4 billion – both above current US expenditures, but below the caps Washington has proposed thus far. Falconer explained that Members had barely discussed these figures since last July.

Figures for the overall tariff cut formula similarly remained largely untouched – developed countries would have to cut duties falling into the highest tier of the formula by 66 to 73 percent. However, the revised text included a new requirement for developed countries to make a minimum average tariff cut of 54 percent, even if the distribution of their tariffs in the tiered reduction formula would have otherwise resulted in a lower average reduction. The comparable figure for developing countries is 36 percent, in line with what had been proposed by the G-20 group of developing countries (a 40 percent option, present in the July text, was dropped).

In a significant departure from the previous draft deal, the latest document was presented entirely in the form of legal text. The July 2007 version had included discursive passages on issues where the chair said that Members’ positions were too far apart for him to discern potential compromises.

These passages, some of which dealt with contentious exceptions for developing countries, were all replaced by options for potential agreement on a wide range of issues. Although this reflected real progress in the talks, numerous figures and phrases nonetheless remained in square brackets – a drafting convention indicating lack of consensus.

Options for special safeguard mechanism

One important example of this was the special safeguard mechanism, which developing countries alone will be able to use to raise duties beyond bound ceiling levels in order to provide farmers a measure of defence from import surges and price depressions. The issue has been the subject of heated exchanges between the safeguard’s proponents in the G-33 bloc, and exporting nations wary of finding their access to overseas markets curbed.

In the new text, Falconer made his first attempt to set out a potential legal structure for this instrument. However, the fault lines in the negotiations meant that multiple sets of figures and options were threaded throughout this section of the text.

For instance, Falconer envisages different responses to low, medium and high import volume surges. However, the size of the import surges necessary to trigger safeguard duties, as well as the magnitude of these duties, vary significantly. Under one set of figures for the lowest volume surge, a 5 to 10 percent increase in average import volumes over a three-year period would be enough to trigger additional duties equalling up to 40 percentage points or half the current bound rate, whichever is higher. For the other set, which is closer to exporters’ demands, no duties could be imposed until imports reached 30 to 35 percent above the base level - and even then the additional tariffs would not exceed 20 percentage points or one-fifth of the bound rate.

Other bracketed provisions would constrain even the highest safeguard duties within the maximum ‘bound’ ceiling tariff levels established prior to the Doha Round. This is another bone of contention between importers and exporters. Importers argue no that such limitation should be imposed if the safeguard is to achieve its goals.

The price-based safeguard, provisionally triggered by a 30 percent price reduction, would be similarly restrained – additional duties would not be enough to make up the difference between the new import price and the average.

Least-developed countries, which are not required to cut tariffs in the current round, would be permitted to impose safeguard duties exceeding pre-Doha bound rates by some 20 percentage points, according to a bracketed provision. So would small and vulnerable economies, albeit in limited circumstances.

Furthermore, Falconer’s text furthermore provides for safeguard duties to be levied over and above applied rates, rather than from the bound ceiling level. Some negotiators are already pointing out that their applied rates are often much lower than their maximum tariff bindings, and that they do not need a safeguard mechanism to increase tariffs within their bound ceiling rates.

Falconer provides two options for the duration of additional duties: to the calendar year’s end, or for a six- or 12-month period after the mechanism is invoked. He also provides an option for the special safeguard mechanism to expire at the end of the Doha Round implementation period – a stipulation opposed by the G-33.

Special products: continued controversy over tariff cut exemptions

‘Special products’, which developing countries alone will be able to slate for gentler tariff cuts on the basis of food security, livelihood security and rural development criteria, have been among the most controversial issues in the negotiations. As with the special safeguard mechanism, the coverage of these exceptions has divided the import-sensitive G-33 and exporters wary of reduced overseas market opportunities, most vocally the US.

The draft suggests that consensus exists on allowing developing countries to designate a minimum of 8 percent of agricultural tariff lines as ‘special’, without any reference to food and livelihood security ‘indicators’. It proposes a maximum, to be agreed, of either 12 or 20 percent, with the additional commodities guided by indicators that would demonstrate that a product satisfies the criteria for selection.

Bracketed figures in the text provide several different options for the tariff treatment of these products. Six percent of all tariff lines could have to be reduced by either 8 or 15 percent. A further 6 percent could face cuts of either 12 or 25 percent. A possible third band of 8 percent of tariff lines – which could either replace part of the first two bands, or round out a total of 20 percent – could be exempt from cuts. Alternately, there could be a specification explicitly prohibiting the complete exemption of special products from tariff reduction.

Falconer’s July 2007 draft text contained few specific details on special products, pointing more to Members’ divisions on the issue. He had subsequently suggested that special products could be classified into two bands, each with minimum, maximum and average cuts, with an option for allowing some products in the first band to be fully exempt from tariff reduction.

A list of indicators is annexed to the text, which replicates a proposed list submitted by the G-33. Exporters are arguing that even the minimum special product entitlement should also have to be guided by these indicators.

Countries that recently acceded to the WTO would be allowed slightly greater flexibility, such as a larger number of permitted special products and lesser cuts, in what sources indicated was an attempt to accommodate the particular needs of China.

Sensitive products: major differences unresolved

The chair’s text leaves unresolved the important question of the level of detail at which both developed and developing countries will be able to designate products as ‘sensitive’ - eligible for gentler tariff cuts in exchange for the expansion of import quotas. The Cairns Group of agricultural exporters, which favours allowing product selection at the broader 6-digit HS tariff level, has clashed repeatedly with importers such as the EU, which wants to be allowed to select products at the more detailed 8-digit level in order to avoid using up its limited sensitive product entitlement on commodities that are not especially sensitive. The draft includes both camps’ approaches as alternative options.

Cairns Group negotiators told Bridges that they welcomed the inclusion of a new requirement stating that the complex calculations on quota expansion should be made available to Members before they adopt the template deal on the formula for tariff and subsidy cuts and exceptions to them – known as ‘modalities’. The results of the calculations would be an “integral part” of the modalities, the text now says.

The text specified that Members maintaining duties of over 100 percent on more than 4 percent of tariff lines - rather than the 5 percent proposed in the July text - would have to compensate by expanding import quotas by an additional unspecified proportion of domestic consumption. This requirement compensates for the absence of an absolute tariff cap, a proposal that has been fiercely opposed by import-sensitive countries such as the EU and Japan.

Options for special safeguard

The new text provides two options for the fate of the special agricultural safeguard (SSG), an existing tool against import surges used mainly by developed countries, and distinct from the ‘special safeguard mechanism’ currently under negotiation for developing nations.

One option, immediate elimination of this safeguard, has been supported by the Cairns Group, but resisted by the EU until recently (see BRIDGES Weekly, 16 January 2008, http://www.ictsd.org/weekly/08-01-16/story1.htm).

The text now provides an option for developed countries to maintain initially the safeguard for no more than 1.5 percent of tariff lines, prior to further restrictions on its applicability – potentially culminating in elimination after a certain number of years.

Tropical products and preference erosion: still deadlocked

Negotiating mandates to liberalise trade in tropical products while addressing the effects of preference erosion have pitted Latin American liberalisation proponents against countries in the African, Caribbean and Pacific (ACP) group that have long benefited from preferential access to major markets, especially on products such as bananas and sugar.

The chair’s text presents different options for both issues, and includes lists of products for each mandate tabled by the respective bloc.

One option is for tariffs on tropical products below 25 percent to be eliminated, while the rest are subject to an 85 percent reduction, with no commodities in the tropical product list eligible to be designated as ‘sensitive’. Another would subject most tropical products facing tariffs of over 10 percent to the highest percentage cut required by the standard reduction formula (even if they would not otherwise fall in the highest tier).

For preference erosion, one of the options in the text would postpone tariff reduction on affected products for ten years – the ACP position. The other provides for a longer implementation period for tariff cuts on those products that account for a significant share of preference-receiving countries’ agricultural exports to preference granters.

Nevertheless, the text takes only small steps to resolve the stand-off between the two camps: a bracketed provision states that when the products listed for each issue overlap, tropical product liberalisation shall prevail, except for a limited number of specific products on which negotiators have yet to agree. Not surprisingly, bananas and raw cane sugar are on the list for tropical products as well as that for preference erosion.

Subsidies: few major changes

The draft text’s provisions on subsidy cuts remain broadly unchanged since last July.

The new text removes brackets around the magnitude of cuts to spending limits on ‘amber box’ subsidies – which would be 70 percent for the EU, 60 percent for the US and Japan, and 45 percent for all other countries – suggesting that consensus might have emerged on this issue, a large component of overall trade-distorting support.

Another change in the new draft compared to the July 2007 text is the increased front-loading of subsidy reduction commitments by the EU and the US, with both required to cut overall trade-distorting support by one-third on the first day of implementation, and ‘amber box’ support by an undetermined amount (25 percent was the figure in brackets). A working paper released in the interim had provided for slightly higher cuts up front.

Negotiators were still mulling over language stipulating that, if Members exceed their limits for either product-specific or overall blue box support, the entirety of this support must be counted in the amber box. In principle, such a restriction could provide an additional incentive for Members to keep blue box support within their formally scheduled limit. However, one negotiator from a country that favours subsidy reform suggested that it might in fact complicate the task of disciplining subsidies.

Negotiators remained at loggerheads over ‘green box’ payments – the WTO category for subsidies that ostensibly cause not more than minimal trade distortion. Proposed language allowing occasional updates to the base periods used to calculate support that is ‘decoupled’ from production has proved controversial: some countries say that these updates would ultimately give farmers an incentive to increase production, by affecting producer expectations. The text proposes two options for this. The more restrictive option would allow updates only for base periods far enough in the past not to affect producer expectations or decisions. The EU is not enthusiastic about this. A less restrictive formulation would allow updates if producer expectations and production decisions remain unaffected. Other countries, such as Argentina, were reported to favour language from the July 2007 draft that would have only allowed base period updates if support to producers remained neutral or decreased. Additionally, the chair proposes allowing developing countries greater flexibility to account for some food stockholding payments under the green box – a move hitherto opposed by some Cairns Group countries.

While the deadline for eliminating developed country export subsidies has long been established as 2013, the new draft now also proposes that developing countries eliminate such support by the end of 2016.

On the road to an Easter ministerial meeting?

Falconer has given negotiators this week to read the text and consult with capitals and negotiating alliances.

An informal meeting open to all Members has been planned for 15 Friday, for delegations to exchange views and provide an initial response to the document.

Falconer has also announced his intention to hold further invitation-only consultations with 37 delegations representing a cross-section of interests in the talks the following week.

Progress in these ‘Room E’ consultations – as well as in similar talks in the industrial goods negotiating group on a new draft deal that was also released on 8 February – would lead to a ‘horizontal process’ involving senior negotiators debating trade-offs across different sectors, principally industrial tariffs and possibly also services.

If all goes according to plan, this process should culminate in a ‘mini-ministerial’ meeting around Easter (on 23 March this year), at which ministers would be able to take the final decisions necessary to iron out a modalities deal.

Some delegations are already expressing scepticism, however, about the pace and structure of the talks. One negotiator spoke of being “wary of a timeframe of agenda that is externally imposed.” Delegates would need more time, he suggested, to consult capitals, and debate the text in the informal consultation process that Falconer has been leading.

Others emphasised the large number of outstanding issues – some 235 sets of square brackets remaining, according to one count – and cautioned against bringing ministers to Geneva too soon.

Many of the numerous still-unresolved issues – such as blue box reform and tariff quota administration – will have to be ironed out by technical experts and negotiators before ministers can be presented with a manageable set of issues on which to make final trade-offs. Failure to clarify many of the remaining ‘moving parts’ in the agriculture negotiations will make it harder for them to strike a deal.

ICTSD reporting.