Revised Ag Text Reflects Progress, But Final Deal Still Elusive

10 December 2008

The chair of the WTO agriculture negotiations has released a revised version of his draft text, intended to serve as the basis for a deal on tariff and subsidy cuts in the Doha Round of trade negotiations. The text, along with a similar paper on industrial goods, was to be sent to trade ministers ahead of a planned high-level meeting this month, which has now been postponed (see related article, this issue).
 
The 6 December text and accompanying working documents reflect progress in a number of areas since the last such draft in July. In particular, it incorporates concessions made on the controversial cuts to subsidies and top-level tariffs that negotiators discussed at a ministerial meeting at that time.
 
These would have the US cut its overall trade-distorting subsidies by 70 percent, to roughly US$ 14.4 billion, with the EU making cuts of 80 percent, to around 22 billion euros. However, along with other WTO Members, both would be allowed to maintain billions of dollars of ‘green box’ subsidies which ostensibly cause not more than minimal trade distortion, with no cap or reduction commitments on this category of payments.
 
Developed countries’ top-level tariffs (those above 75 percent) would be subject to a 70 percent cut – although numerous opt-out clauses, such as those for developed and developing countries’ ‘sensitive products’, are expected to mean that tariffs on key products such as beef, dairy or sugar are likely to remain high. Developing countries would have to make a 46.7 percent cut in tariffs over 130 percent.
 
The number of ‘special products’ that developing countries would be allowed to slate for gentler tariff cuts on the basis of food security, livelihood security and rural development criteria also reflect the figures discussed in July. Developing countries would be allowed to select 12 percent of tariff lines as ‘special’; up to 5 percent of tariff lines could be exempt from any cuts; and the overall cut for a country’s special products should be 11 percent.
 
The revised text and accompanying documents put forward some new suggestions on the ‘special safeguard mechanism’ (SSM) that developing countries can use to raise tariffs temporarily in the event of import surges and price depressions – the issue widely seen as the main stumbling block to agreement in July. However, they also revisit the issue of the permitted number of ‘sensitive products’ that countries will be allowed, following calls from Japan and Canada for an expanded allowance in this area.
 
Despite Lamy’s suggestion that cotton and the SSM are the two key outstanding agriculture issues, along with sector-specific liberalistion initiatives in the industrial goods talks, many delegates acknowledged that the sensitive product issue is also critical. Fraying agreement on this question could cause the wider package to unravel, they said.
 
Similarly, decades-long disputes over bananas and sugar still have the potential to derail the talks. While Latin American countries seek faster and deeper liberalisation for these and other tropical products, African, Caribbean and Pacific (ACP) group countries seek the opposite, in a bid to preserve the traditional benefits they have received through trade preferences in importing countries (primarily the EU and US). An introductory note to the text from the chair, Ambassador Crawford Falconer, admits that he is “not privy” to all the understandings between parties in this area, and so the text may not fully reflect the actual state of negotiations.
 
The text is also noteworthy in continuing a tendency towards country- and product- specific exceptions that was already evident in earlier drafts, with new opt-outs for a string of both developed and developing countries. Also striking are new flexibilities for net-food importing developing countries (NFIDCs), and proposed disciplines on export restrictions, in what delegates suggested may be a bid to reflect concerns about the new high-price environment for many agricultural products that has prevailed for the last couple of years.
 
Special safeguard mechanism: signs of progress
 
A working document on the special safeguard mechanism contains Falconer’s reflections on the ways forward on this issue, and reflects the progress that has been made in the informal consultations he has held with negotiators since September. The text includes new options that might allow exporters and developing country importers to move towards agreement: while the former oppose a far-reaching safeguard mechanism, the latter insist it is a vital component of an eventual Doha deal.
 
Particularly controversial has been the issue of when safeguards might be allowed to exceed pre-Doha ceilings, or the maximum permitted ‘bound tariffs’ that currently apply. The text builds on an informal proposal circulated by the EU in July that sets out a two-tiered approach for doing so: in the chair’s latest text, countries would be allowed to impose heavier safeguard duties when import surges are more than 40 percent greater than average levels in the three years beforehand, and slightly lighter safeguard duties when import volumes are more than 20 percent greater.
 
Surges over 40 percent could be countered with safeguard duties that are half of current bound tariffs, while smaller surges over 20 percent could be addressed using safeguards that are one third of current bound tariffs. Countries would alternatively be allowed to impose safeguard duties that are 12 percentage points above existing bound tariffs in the event of a large surge that is 40 percent above average levels, or 8 percentage points more in the event of a smaller surge that is 20 percent above the average.
 
The safeguard options expressed as a percentage of bound tariffs are more generous than those expressed in percentage point terms, compared to previous texts and proposals, suggesting that the revised draft would provide relatively more flexibility to developing countries with high tariff barriers (such as India, which has a 70 percent bound tariff on rice), and relatively less flexibility to countries with low tariff bindings such as China (which has a 3 percent tariff on soy, for example).
 
The chair’s working document also proposes that calculations of average import levels in the three-year base period should exclude past months in which the safeguard was applied, unless import levels were in fact above average during these months – a key exporter demand. Importing countries nonetheless remain sceptical about the value of including this requirement.
 
In another new development, the text proposes various options for addressing perishable seasonable products. Countries such as Uruguay have reportedly expressed concern that safeguards could unfairly block exports of products such as fruit and vegetables. For safeguards that breach pre-Doha bindings, it also sets out various ways to limit consecutive application of the safeguard in a given time period, and to restrict the products on which safeguards are applied to 2.5 percent of tariff lines per year.
 
Sensitive products: a lurking iceberg?
 
Rumbling discontent over sensitive products could still sink the talks, delegates acknowledged. While the draft text proposes that countries be allowed to designate 4 percent of farm tariff lines as sensitive, hence slating these for gentler tariff cuts in exchange for expanded import quotas, it also notes that Canada and Japan have demanded 6 and 8 percent respectively. Negotiators have suggested that, while exporters could perhaps accommodate the Canadian demand if appropriate compensation is provided, the more far-reaching Japanese request has met with less sympathy.
 
Falconer proposes two options for accommodating the Canadian concerns, which would both involve compensating for the larger number of sensitive products by expanding import quotas on various sensitive product tariff lines in different ways. He notes that neither option would seem to be acceptable to Japan, however, nor have his consultations suggested “any other approach that might generate convergence.”
 
While a special exception for Iceland, Japan, Norway and Switzerland would allow these countries to maintain tariffs at above 100 percent for products that are not designated as sensitive, Falconer’s new text would now limit this to 1 percent of such tariff lines.
 
Exporters have expressed concern that their market access gains from the Doha Round could be severely curtailed if importing Members are allowed substantial flexibility on sensitive products. Expanded import quotas would not provide the same level of dependable access to markets, they warn.
 
Bananas and sugar: developing countries remain divided
 
Latin American exporters have warned that the provisional bananas deal that they struck with the EU in July cannot be reopened, and that it must be agreed as a stand-alone deal, rather than as part of the Doha Round. The deal would have the EU cut its MFN tariff on bananas to 114 euros per tonne by the start of 2016, with a 28 euro per tonne ‘down payment’ cut in the first year (See Bridges Daily Updates, 28 July 2008, http://ictsd.net/i/wto/englishupdates/14789/). Reportedly, the EU has asked to be allowed a longer timetable for implementing tariff cuts, which exporters have rejected.
 
The Latin American group also opposes allowing sugar to benefit from additional flexibility as both a sensitive product and a product on the list of commodities that would be affected by preference erosion. A recent informal paper by Guatemala and Colombia opposes granting ‘double dip flexibility’ to products in this way. The ACP group remains opposed to the proposed approach for these two products; however, one delegate suggested that EU aid to address adjustment challenges for these products would also be important as part of an overall Doha package.
 
TRQ creation: possible compromise in sight?
 
Exporters have vehemently opposed allowing importers to create new quotas for sensitive products – something that importers say they need in order to be able to accept the broader deal. The new text would limit the number of such new quotas to 1 percent of tariff lines for any Member (except Norway, which is accorded special treatment); include expanded import quotas, beyond what would otherwise be required for sensitive products; allow zero in-quota tariff rates; and provide that the amount of increased access will be clearly specified at the tariff-line level when Members agreed on ‘modalities’ – the formulae and figures for tariff and subsidy cuts, and exceptions to these.
 
Tariff simplification: a gradual approach
 
Exporters and importers have also fought over the extent to which specific tariffs - expressed as a unit value rather than a percentage – should be converted into ad valorem equivalents, with the former group of countries seeking rapid and complete conversion of all tariff lines to simplified forms. While a methodology for tariff simplification has been agreed, high prices for farm goods have subsequently diminished the potential gains from simplification.
 
Exporters have recently tabled compromise proposals that would allow importers to maintain complex tariffs until price decreases mean that the tariffs charged to importers would in fact decrease when tariffs are converted to the simpler format. Falconer draws on these proposals in his recent text, which sets out a phased timetable for simplification, and with the possibility of some tariffs being left in their more complex form at the end. The new text also includes an opt-out clause that could allow the EU to convert only 85 percent of tariffs to ad valorem equivalents, compared with 90 percent for all other Members.
 
In-quota tariffs: text becomes simpler and clearer
 
Developed countries will have to reduce in-quota tariffs by 50 percent, or to a ten percent threshold, on the same time-frame as quota expansions. A new requirement stipulates that the maximum in-quota tariff on day one of the implementation period is 17.5 percent. If tariffs are below 5 percent, they must be reduced to zero by the end of the first year of the implementation period – although Switzerland is granted a special exception to this rule for four particular tariff lines. Developing countries, and those classed as small vulnerable economies or recently-acceded Members, are given special treatment, with gentler cuts on in-quota tariffs and additional flexibilities for special products.
 
Special Agricultural Safeguard (SSG): reduced coverage, and a seven-year phase-out
 
The SSG, which has been used primarily by developed countries since the end of the Uruguay Round, will be phased out after seven years. Exporters had wanted it eliminated immediately, but importing countries had insisted that it be maintained. The text proposes that the SSG apply only to one percent of tariff lines during the implementation period, with particular requirements for sensitive products and in-quota tariffs.
 
Cotton: the great unknown
 
WTO Director-General Pascal Lamy has written to delegates underscoring that progress on cotton is a prerequisite for the planned mini-ministerial meeting. However, delegates remain in the dark about possible US concessions on cotton subsidies – still the missing piece in the jigsaw. In the absence of counter-proposals, the text still reflects the cuts put forward by the ‘cotton 4’ African producers (Benin, Burkina Faso, Chad and Mali). Some trade sources have suggested, however, that recent Democratic victories in the US congressional and presidential elections may leave the US more room to manoeuvre on this issue, given that the cotton-producing states tend to favour heavily the Republicans.
 
Special and differential treatment for developed countries?
 
The new draft is notable for the number of country-specific exceptions and opt-out clauses it now contains. In addition to the proposed exceptions described above for the EU, Japan, Switzerland and Norway, the draft already includes a country-specific base period for calculating reductions for US ‘blue box’ subsidies, leading one Member to query whether it effectively provides ‘special and differential treatment for developed countries’.
 
However, the draft also provides country-specific exclusions for a number of developing countries as well. The latest revision contains specific arrangements for Cuba, Suriname and Venezuela, amongst others; exclusions for the latter country, which is allowed to undertake lower tariff cuts if the overall average would otherwise exceed 30 percent, have reportedly provoked concern amongst neighbouring Paraguay and Uruguay, who fear that they may lose market access opportunities as a result.
 
Looking forward
 
While one delegate voiced fears that the draft agriculture deal could not easily be ‘reheated’ if Members failed to reach agreement now, most others emphasised the need to move forward with caution. “One failure this year is enough!” said one, in a reference to the breakdown of ministerial level talks in July. Members should instead build on the progress that has been made and seek to bridge the remaining gaps, before convening ministers for a final bid to clinch the deal, many said.
 

ICTSD reporting.

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