Higlights of the Draft Modalities for Agriculture

1 August 2007

On 17 July, the chair of the Doha Round agriculture negotiations circulated a draft text to the WTO membership aimed at galvanising shifts in countries’ bargaining positions by proposing a “compromise that no Member can quite bring itself to articulate.”

The text sets out two potential levels of ambition for reducing WTO Members’ overall trade-distorting support (OTDS). The EU’s current spending ceiling would be cut by 85 or 75 percent, and that of the US by 73 or 66 percent. Although the proposed cuts are greater than those offered by the two countries so far, both options are above the level currently applied by the US, and only the high ambition scenario might require the EU to reduce payments from the level projected for 2008 (see graph below).

Japan would cut OTDS by 79 or 70.5 percent, and other developed countries by 60 or 50 percent. Developing countries would as rule reduce their OTDS limit by a third less than developed countries.

The draft also spells out reductions for each of the components that make up a country’s OTDS. For the Amber Box, which comprises the most trade-distorting support, the EU would cut its current ceiling by 70 percent (from €67.16 billion to €20.1 billion) and the US by 60 percent (from US$19.1 billion to US$7.6 billion). The ceiling would be lowered by 65 percent for developed countries whose Amber Box support exceeds 40 percent of the value of their agricultural production, while other developed countries would make a 45-percent cut. Developing countries would cut their Amber Box support by two-thirds of the normal cut.

Amber Box support for individual products must not exceed the average actual payments provided from 1995 to 2000, alhtough the US may take into account the entire period from 1995 to 2004, when its payments were higher.

Of the relatively less distorting components of OTDS, developed countries’ Blue Box spending would be capped at 2.5 percent of the value of production, while ‘de minimis’ entitlements would be reduced either to a similar level or 2 percent. Both would be subject to some rules aimed at preventing spending from being concentrated on a small number of products. Developing country cuts would again be a third smaller, with additional flexibitilities to new Members, and an exemption for countries whose ‘de minimis’ support is predominently for subsistence and resource-poor farmers, as well as those that are net food-importers.

Tariff Cuts: More than EU, Less than US

Developed countries would slash farm tariffs higher than 75 percent by 66-73 percent, which is more than the 60 percent that Brussels has described as the most it could tolerate. Although the upper end of this range is close to what the G-20 wanted for industrialised countries, it is lower than the cuts sought by the US. Tariffs lower than 75 percent would be classified into three other bands, each slated for correspondingly gentler rates of reduction.

The two-thirds rule would generally apply to developing countries, although they would be allowed some adjustments to keep their average reductions below 36 or 40 percent. While the 36-percent average corresponds to the G-20’s own proposal, the group would have to move up to 40 percent in order to get the higher subsidy cuts from the US. Additional flexibilities would be available to recently acceded Members, and small and vulnerable economies.

The text makes no mention of a cap on farm tariffs, a G-20 objective to which Japan and the other G-10 countries with heavily protected farm sectors are adamantly opposed.

Flexibilities: Few Details on Special Products

Developed countries could ordinarily designate up to 4 or 6 percent of their tariff lines as ‘sensitive’, making them eligible for tariff cuts one- to two-thirds lower than that demanded by the formula in return for the creation of new import quotas. For developing countries, the figures for sensitive products would 5.3 or 8 percent.

For the smallest deviation, governments would create new tariff quotas equivalent to 3 or 5 percent of domestic consumption of the product in question. For the full two-thirds deviation from the formula, new market access opportunities would have to equal at least 4 or 6 percent of domestic consumption. If the country is already importing substantial quantities of a sensitive product, quota expansion requirements would be softened.

Due to insufficient progress, the text provides no specific details on the number or 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. Chair Falconer suggested that Members could work on the basis of a G-33 proposal to develop verifiable indicators for food and livelihood security and rural development, and possibly identify a minimum number of products that developing countries would be allowed to designate as ‘special’ irrespective of what the indicators yield.

Other issues on which the chair refrained from commenting in detail included the special safeguard mechanism (SSM), and the conflicting demands between Latin American countries seeking deep tariff cuts for tropical products and states fearing the erosion of the trade preferences they currently enjoy for the very same crops.

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