Revised Ag Text Shows Progress, but Final Deal Still Elusive

31 December 2008

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 subsidy and top-level tariff cuts that negotiators discussed during the mini-ministerial 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. 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, while developing countries would have to reduce import duties exceeding 130 percent by 46.7 percent. Despite the seemingly high level of cuts, numerous opt-out clauses - including those for developed and developing countries' ‘sensitive products' - are expected to result in relatively modest tariff reductions for key products such as beef, dairy or sugar.

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 reflects 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 reduction for a country's special products should be 11 percent.

Special Safeguard Mechanism: Signs of Progress

WTO Members decided in 2004 to establish a ‘special safeguard mechanism' (SSM) that would allow developing countries to protect their farmers from import surges and sudden price drops in a liberalised trading environment. Chair Crawford Falconer's working document on the SSM includes new options that might allow exporters and developing country importers to move towards agreement. The former generally oppose a far-reaching safeguard mechanism, while the latter insist it is a vital component of an eventual Doha deal.

Disagreement between the US and India on when safeguards might be allowed to exceed pre-Doha ceilings, i.e. the maximum permitted ‘bound tariffs' that currently apply, has been widely cited as the direct cause of the failure of the July mini-ministerial. Building on an informal proposal circulated by the EU at that time, chair Falconer's latest text would allow developing countries 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 exceeding 40 percent could be countered with safeguard duties that are half of current bound tariffs, while surges over 20 percent could be addressed by 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.

Compared to previous texts, the safeguard options expressed as a percentage of bound tariffs are more generous than those expressed in percentage point terms, suggesting that the revised draft would provide relatively more flexibility to developing countries with high tariff barriers such as India, and relatively less flexibility to countries with low tariff bindings such as China.

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.

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.

Concern over Sensitive Products

Rumbling discontent over sensitive products could still sink the talks. 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 exporters could perhaps accommodate the Canadian demand if appropriate compensation is provided, but 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 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 were allowed substantial flexibility on sensitive products. Expanded import quotas would not provide the same level of dependable access to markets as formula tariff cuts, they warn.

Divisions on Bananas and Sugar

While Latin American countries seek faster and deeper liberalisation for bananas and sugar, as well as 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).

In an introductory note to the text, chair Falconer admitted that he was ‘not privy' to all the understandings between parties in this area, and therefore the text might not fully reflect the actual state of negotiations.

Latin American exporters have warned that the provisional banana deal 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 per tonne by the start of 2016, with a -28 per tonne reduction in the first year (Bridges Year 12 No.4 page 6). Exporters have reportedly rejected the EU's request for a longer timetable for implementing tariff cuts.

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. 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 and Tariff Simplification

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 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 agree on the parameters for concluding the Doha Round.

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.

Drawing on compromise proposals recently tabled by exporters, Falconer's revised text sets out a timetable for simplification with the possibility of some tariffs being left in their more complex form at the end. It 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.

Simpler, Clearer Text on In-quota Tariffs

Developed countries would have to reduce in-quota tariffs by 50 percent, or to a 10-percent threshold. A new requirement stipulates that the maximum in-quota tariff on day one of the implementation period would be 17.5 percent. Tariffs below 5 percent should 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, would benefit from special treatment, with gentler cuts on in-quota tariffs and additional flexibilities for special products.

The current Special Agricultural Safeguard (SSG), which has been used primarily by developed countries since the end of the Uruguay Round, would be phased out after seven years. The text proposes that the SSG apply only to 1 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 wrote to delegates underscoring that progress on cotton was a prerequisite for the planned (and subsequently cancelled) mini-ministerial meeting. As things stand, 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 revised text still reflects the cuts put forward by the ‘cotton 4' African producers (Benin, Burkina Faso, Chad and Mali). Some analysts have speculated that the Obama administration might have more room to manoeuvre on this issue since US cotton-growing states are mostly Republican.

Special and Differential Treatment for Developed Countries?

In addition to the proposed exceptions described above for the EU, Japan, Switzerland and Norway, the draft also 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 foresees country-specific exclusions for a number of developing countries, including Cuba, Suriname and Venezuela, among others. The exception for Venezuela, which would be allowed to undertake lower tariff cuts if the overall average would otherwise exceed 30 percent, has reportedly provoked concern among neighbouring Paraguay and Uruguay, which fear that they might lose market access opportunities as a result.

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