Brazil, EU Propose Tighter WTO Rules on Agricultural Export Competition

19 November 2015

The EU has joined forces with Brazil and five other farm exporting countries to propose tighter WTO rules on export subsidies and similar measures, one month ahead of the global trade body’s ministerial conference in Nairobi, Kenya.

Trade sources told Bridges that the proposal, which was presented at an informal negotiating meeting on Wednesday afternoon, raises the pressure on the US to make concessions on export credits and food aid – two areas where Washington has indicated it might have problems in accepting stronger WTO disciplines.

“How the US responds will be critical,” one negotiator said.

Agricultural exporting countries Argentina, New Zealand, Paraguay, Peru, and Uruguay also co-sponsored the proposal, a copy of which was seen by Bridges.

The paper calls for developed countries to eliminate their export subsidies in 2018 – in other words, five years later than a 2013 deadline that was missed by WTO members – and for developing countries to do the same by 2021.

Under the proposal, developing countries would also be allowed to provide export subsidies that cover transport and marketing costs until 2026, by extending article 9.4 of the WTO Agreement on Agriculture. This clause had previously authorised developing countries to use these payments until the agreement’s implementation period ended in 2004.

Australia: India’s “substantial” sugar subsidies

However, Australia – another farm exporting country that has long sought more stringent rules on export subsidies – circulated a separate communication arguing that developing countries should not be granted this additional flexibility.

“Australia sees no development policy rationale for the formal reactivation of a legal entitlement to use Article 9.4 export subsidies,” the Australian paper argues.

Some developing countries such as India have emphasised that the WTO’s Hong Kong ministerial declaration, which was agreed in 2005, would have allowed article 9.4 payments to continue for five years after the original 2013 end-date for eliminating all forms of export subsidies. Other countries underscore that the declaration does not have the same legal force as the Agreement on Agriculture, and that the authorisation to provide these payments has therefore expired.

The Australian paper, a copy of which has also been seen by Bridges, finds that India has applied an export subsidy for exports of up to four million tonnes of raw sugar. It concludes that it would “be difficult to export significant volumes without a subsidy” given the difference between domestic and international sugar prices.

US export credits

The co-sponsors of the EU-Brazil paper call for export credits, export credit guarantees, or insurance programmes to be subject to new rules, basing their proposal on draft text that was originally prepared in 2008 by the then-chair of the WTO agriculture negotiations, New Zealand Ambassador Crawford Falconer.

Although the US has indicated it would have difficulty accepting the 180-day maximum repayment term for export financing that was proposed in the 2008 draft, the co-sponsors have maintained this term – but added a footnote that may provide some additional flexibility that sources said could make it less difficult for Washington to accept.

The new footnote allows for longer repayment terms, up to a maximum of 270 days, subject to additional conditions. These include using “minimum premium rates” as defined by the Organisation for Economic Co-operation and Development (OECD) and country risk categories as a benchmark for calculating risk based fees.

A similar arrangement formed the basis for the US and Brazil to reach an agreement in 2014 on their long-running dispute over cotton subsidies. (See Bridges Weekly, 2 October 2014)

Food aid “monetisation”

In another move aimed at accommodating Washington’s concerns, the co-sponsors also propose adding a footnote to the 2008 draft text that could make it easier for countries to sell in-kind food aid in non-emergency situations – a process known as “monetisation.”

While the proposed new rules would establish a “safe box” for humanitarian aid in emergency situations, they would also establish tighter disciplines on non-emergency situations so as to ensure that in-kind aid does not cause commercial displacement and harm local producers.

Under the co-sponsors’ new proposal, aid donors would be able to monetise some in-kind food aid in non-emergency situations, on condition that this did not exceed a to-be-determined share of total in-kind food aid donations.

Special safeguard mechanism

At Wednesday’s meeting, negotiators from the G-33 group of developing countries also presented a proposed ministerial decision on the “special safeguard mechanism” – a tool which several food-importing developing countries have argued is necessary to protect their domestic producers from surges in import volumes or sudden price depressions.

The G-33 – which includes major trading countries such as China, India, and Indonesia, as well as far smaller economies such as Barbados and the Dominican Republic – also propose that WTO members would agree not to challenge developing countries that use the new safeguard under the trade body’s dispute settlement mechanism.

The G-33 would like a political commitment that would allow them to use the SSM “from day one after Nairobi,” one source familiar with the proposal told Bridges.

“We’ve learned our lesson from the Trade Facilitation Agreement,” the official added, in a reference to the lengthy ratification process that has followed the conclusion of that agreement at the WTO’s Bali ministerial conference in December 2013.

Two years after the Bali meet, the trade facilitation pact is still not in effect, with only 52 “instruments of acceptance” having been submitted to date – less than half of what is required to bring it into force, though more are expected in the coming weeks and months.

However, many agricultural exporting countries remain opposed to the SSM in the absence of a broader negotiation on market access issues.

“We have already made it clear that we won’t accept the SSM without an outcome on market access,” one developing country negotiator said.

SSM and export competition linkage?

The G-33 reportedly had asked for the chair of the agriculture negotiations to convene meetings on the special safeguard mechanism in parallel to similar consultations on export competition in the remaining time leading up to the ministerial.

However, one African country official expressed concern about linking progress on export competition to the SSM outcome.

“Suppose the linkage created a stalemate: then we’d get nothing on export competition,” the source said.

Another negotiator said that the linkage was more on process than substance.

“The issue is not that the G-33 will block export competition,” the source said. “We want our issues also to be on the Nairobi agenda.”

Draft declaration talks bogged down

Disagreement between WTO members over the fate of the long-running Doha Round of talks continues to plague efforts to prepare a draft declaration for the Nairobi ministerial, sources said. (See Bridges Weekly, 12 November 2015)

Negotiators said that the US, EU, and Japan in particular were determined to avoid any reference that would reaffirm previous declarations from the Doha ministerial in 2001 onwards. In contrast, various developing countries were anxious to preserve aspects of the progress that they felt had been achieved.

While a number of negotiators expressed anxiety about the slow progress, one source pointed out that the drafting process had effectively only just begun.

“We hope there’ll be compromises,” the source told Bridges.

ICTSD reporting.

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