WTO MEMBERS REACH 'MOMENT OF TRUTH' ON SENSITIVE FARM PRODUCTS

A handful of key agricultural exporters and importers have reached an outline agreement on expanding trade in 'sensitive' farm products as part of the Doha Round global trade talks.

The six co-sponsors of the new approach - Australia, Brazil, Canada, Japan, the EU and the US - shared their proposed compromise with other WTO Members on 4 April, along with data revealing the likely extent of new market access under the approach.

It remains to be seen whether the compromise will be able to win support from the wider WTO Membership. Although the chair of the agriculture negotiations described the paper as a significant development, preliminary talks have seen several delegations ask questions about - and voice some criticism of - the complex mathematical approach.

The issue has been holding up the ongoing push for a framework 'modalities' deal on agriculture and industrial goods trade. Though confusingly technical, it is of crucial importance: some exporting countries say that any market access gains they achieve in the agriculture talks will be determined largely by how the matter is resolved.

WTO Members will be allowed to undertake lesser tariff cuts on products designated as 'sensitive', in exchange for expanded tariff quotas. They have yet to agree on how many such products each will be allowed: the most recent draft deal circulated by the chair of the negotiating committee suggests allowing developed nations 4 to 6 percent of tariff lines.

While Members now accept that domestic consumption levels should be the basis for calculating the size of future import quotas, agreeing on how to represent consumption data has proved problematic. Part of the reason for this has been a disagreement on the level of specificity at which sensitive products should be designated. While exporters wanted countries to do so at the 6-digit level of the harmonised system of customs classification, import-sensitive Members such as the EU preferred the highly detailed 8-digit level, since designating, say, particular cuts of beef (instead of frozen beef in general) would allow importers to pinpoint protection across a more diverse range of commodities. However, little consumption data is available at the 8-digit level, forcing countries to explore the use of various estimates and proxies.

Also controversial has been how to account for processed products in domestic consumption figures. Efficient producing countries, which are most interested in exporting relatively unprocessed commodities like sugar and wheat, have expressed concern that including more highly-processed products like sugary drinks and biscuits could end up reducing the consumption figures (and thus future quotas) for the raw materials. On the other hand, countries seeking to minimise sugar imports would have an interest in allocating as much as possible of the overall figure for domestic consumption of 'sugar' to processed products, so as to reduce by a corresponding amount the share of consumption that is allocated to the primary commodity.

The data issue is central because exporters want to be able to judge accurately what would happen if a target market designated a certain product as sensitive. This is necessary for them to make a full assessment of potential gains from a Doha Round accord. When importers released basic import data a month ago, exporters complained that it implied even less market-opening than they had expected.

Compromise text?

Broadly speaking, the compromise reached by the sub-set of the 'friends of the chair' group would require the vast majority of domestic consumption -- at least 90 percent -- to be counted as relatively unprocessed 'core' products. Processed products would only be allowed to make up the remainder.

For sensitive products designated at the 8-digit level, the outline agreement sets out a method for calculating the equivalent amount of primary product they contain: for instance, one hundred grammes of a butter-based dairy spread might be found to contain 60 grammes of butter equivalent. This latter figure could then be added to the domestic consumption total for butter, in order to calculate tariff rate quota expansion.

The six countries, two seeking to maximise market access and four attempting to protect import sensitivities, agreed to divide some 481 tariff lines into 'categories' such as barley, wheat, butter, and ice cream. These categories were then further divided into 'core' products - generally raw materials, with some processed foods like butter - and 'non-core', more processed products. The purpose of this division was to ensure that the majority of countries' estimates of domestic consumption would count as relatively basic commodities.

The document proposes separate methodologies for calculating domestic consumption of dairy products and for fruit and vegetables.

During the first wider talks on the paper, at a 4 April 'room E' meeting that the chair convened with some three dozen Members representing a cross-section of the different negotiating blocs, it became apparent that a number of areas of the proposed approach were controversial.

While many Members are still waiting for capitals to finish analysing the complex paper, certain concerns were already clear.

The six co-sponsors of the approach had been discussing sensitive product issues since last September as part of an eleven-member group informally dubbed the 'friends of the chair' (see BRIDGES Weekly, 19 March 2008, http://www.ictsd.org/weekly/08-03-19/story2.htm). Their decision to circulate a draft by themselves immediately prompted speculation that its contents were unacceptable to the other members of the 'friends' group (which also included exporters Argentina, New Zealand, and Uruguay, and importers Norway and Switzerland).

Sources report that some exporters that are part of the broader 'friends' group are upset that their export interests have not been taken into consideration. These countries complain that because the text is an agreement between only some exporters and importers, its compromises reflect the interests of these Members, but not necessarily those of others. The degree of market opening therefore falls short of these countries' expectations.

The share of domestic consumption allocated to the different core products within a particular category could well affect would-be exporters differently. For instance, the 'beef and veal' category includes no less than nine 'core' products, such as frozen boneless beef and fresh bone-in beef. Each is assigned a percentage of domestic consumption. It is conceivable that one beef exporter might prefer a higher percentage for frozen meat, while another would want fresh meat to receive a higher weighting.

A delegate from one country displeased with the paper described it as 'self-serving', claiming that it represented "a huge reduction in ambition." Others said that the most divisive issue was the question of sub-categorisation of product categories and sub-allocation of tariff quotas. According to the paper, Members are allowed to divide no more than two product categories into two, subject to certain conditions. For any given product category or sub-category, Members are required to establish a single tariff quota, with one exception: they would be allowed to 'sub-allocate' two tariff quotas each for up to three undivided product categories.

Splitting tariff quotas into allocations for different kinds of beef, for example, makes some would-be exporters anxious, since it could mean higher commercial opportunities for lower-quality meat that would have been unlikely to displace higher-quality meat in a single tariff quota.

Notably, the paper states that Members would have to specify any products to be sub-categorised or sub-allocated' "in advance of modalities," i.e., before a framework deal on agriculture and industrial goods trade is struck.

A third issue that led a number of Members to criticise the draft was the relationship between sensitive products, which are slated for slower liberalisation, and tropical products, on which tariffs are supposed to be reduced more quickly. A number of countries in the 4 April meeting complained that the data shared by the paper's sponsors included a number of tropical products. Tropical product exporters that do not receive trade preferences for their exports have argued that these commodities should not be eligible for designation as sensitive. Australia responded that the paper was in no way intended to prejudge the outcome of the separate negotiations on tropical products.

Sources reported that some countries welcomed the new paper. Those reportedly expressing concerns about it included 'friends' group members Argentina, Norway and Uruguay, as well as other exporting countries such as Ecuador, Paraguay and South Africa. Also expressing reservations were importers such as South Korea and proponents of tropical product liberalisation such as Costa Rica and Colombia.

One delegate emphasised in particular that Argentina "was still very far from agreeing to this", a view echoed by others. However, other sources reported that the sponsors had warned against tampering with their proposed compromise as it "reflects an overall balance". Still others warned that dissenting voices risked being "sidelined" in the interests of quickly reaching a Doha deal.

Countries in the 'friends of the chair group' are continuing to meet bilaterally to determine what future market access would be for specific products. One senior delegate described this as a "moment of truth" for the negotiations, in which countries' actual offers would become clearer. Agriculture negotiators are expected to discuss sensitive products in another 'room E' meeting at the end of the week Members have asked the paper's sponsors to prepare an explanatory note to "walk people through" some of the complicated concepts it contains.

One delegate said it was not surprising that officials who had not been part of the 'friends group' discussions would react to the compromise paper by saying "I don't understand a word of it". While the explanatory note is currently under preparation, sources say that capitals are still "trying to digest the paper" and work out what it means for specific products, in specific markets.

ICTSD reporting.