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TWN Info Service on WTO and Trade Issues (May05/9)

21 May 2005
 

CAUTIOUS RESPONSE TO NEW "AVE" GUIDELINES ON AGRICULTURE AT WTO MEETING

An informal meeting on 10 May 2005 of the Special Session of the Committee on Agriculture of the WTO was presented with an updated set of draft guidelines on the methodology for converting non-ad valorem duties into ad valorem equivalents (AVEs).

The new draft contains certain paragraphs on certain issues that had been the subject of great contention among five major WTO players on agriculture in Paris before being agreed to by some 30 countries at a WTO 'mini-ministerial' meeting in Paris on 4 May.

The draft was received with some caution by members, with many saying that they needed time to study it or send back to their capitals. Some sugar-exporting developing countries expressed concern about the special treatment given to sugar.

The six-page draft guidelines contains two paragraphs (paras 25 and 26) that had been agreed to in Paris, after several days of well-publicised contention among the so-called Five Interested Parties (FIPs - the US, EU, Australia, Brazil and India).

The ad valorem issue had been holding back progress in other areas of agriculture negotiations. It has been contentious because the method agreed for calculating the conversion can significantly affect the extent to which the tariffs are to be eventually reduced.

Below is a report of the meeting of 10 May and an explanation of the AVE issue. It was published in the South North Development Monitor of 12 May and is reproduced here with permission of the SUNS.


With best wishes
Martin Khor
TWN

__________________________________________

Cautious response to new agriculture AVE guidelines at WTO meeting

Kanaga Raja, Geneva 11 May 2005, SUNS (South North Development Monitor)

An informal meeting on 10 May 2005 of the Special Session of the Committee on Agriculture of the WTO was presented with an updated set of draft guidelines on the methodology for converting non-ad valorem duties into ad valorem equivalents (AVEs).

The new draft contains certain paragraphs on certain issues that had been the subject of great contention among five major WTO players on agriculture in Paris before being agreed to by some 30 countries at a WTO 'mini-ministerial' meeting in Paris on 4 May.

The draft was received with some caution by members, with many saying that they needed time to study it or send back to their capitals. Some sugar-exporting developing countries expressed concern about the special treatment given to sugar.

The six-page draft guidelines contains two paragraphs (paras 25 and 26) that had been agreed to in Paris, after several days of well-publicised contention among the so-called Five Interested Parties (FIPs - the US, EU, Australia, Brazil and India).

Para 25 deals with alternative ways of calculating the conversion of non-ad valorem duties to ad valorem equivalents to take into account distortions arising from the use of sets of data. Para 26 gives special treatment from the general rules for sugar.

A last-minute agreement among the FIPs on these two paragraphs saved the mini-ministerial from what would have been a significant failure. The FIPs brought their short text on the AVE issue to the 30 countries meeting for a few hours on 4 May afternoon at the mini-ministerial, and they then agreed to forward it to WTO members in Geneva.

The ad valorem issue had been holding back progress in other areas of agriculture negotiations. It has been contentious because the method agreed for calculating the conversion can significantly affect the extent to which the tariffs are to be eventually reduced.

Non-ad valorem duties on certain products have to be converted into AVEs in order to ascertain the degree of market opening these products would undergo when applying the "tiered formula" for making tariff reductions.

Some developed countries such as the EU and Switzerland which use non-ad valorem duties most extensively, have been arguing for a method of conversion that would allow them as much flexibility to ensure that these products would not have to make substantial tariff reductions. This was opposed by efficient agriculture exporters like the Cairns Group countries that seek greater market access.

The informal meeting Tuesday at the WTO was held to circulate the draft to members and get preliminary feedback. The Chair of the Special Session, Ambassador Tim Groser of New Zealand, said that he was not seeking a decision that day as it would be unfair to ask delegations to endorse the new draft at short notice. He asked them to especially consider two unresolved issues: prices to be used to make adjustments for sugar, and details on how members would verify each others' calculated ad valorem equivalents.

Several countries made some preliminary comments on the draft guidelines with some saying that they needed more time to consider it, while others raised specific concerns. Nonetheless, according to trade officials, no one seemed to oppose the guidelines.

In his opening remarks, Groser outlined the difficulty that members had faced before the 30-or-so delegations agreed in Paris. He said that he had criticized them for inflating a technical issue instead of leaving the substance to the next phase when the tariff reduction formula is negotiated. He also observed that verification ought not to be a major task if the agreed method of calculating ad valorem equivalents is tight enough.

According to trade officials, some of the key delegations that were in Paris (US, Brazil, EU, Switzerland, and Australia) urged members to accept the package although some said that they themselves also needed time to think about some of the other parts of the draft guidelines.

Some countries described the guidelines as imperfect but added that they were willing to accept it in order to move on, said the trade officials. Others wanted more time to consider it.

Several sugar-producing countries expressed reservations about the text. Mauritius, the Philippines, Barbados, Antigua & Barbuda (speaking also for St Kitts and Nevis) and the Dominican Republic expressed concern that sugar was given special treatment in the calculation method. Australia said they should not be too concerned, adding that the decision not to use IDB and Comtrade data was because both are highly distorted by the amount of protection and support given to sugar.

Australia also predicted that whatever price is chosen, the two major sugar producers (implying the US and the EU) would end up with their sugar tariff in a high tier in the reduction formula and would then designate sugar as a sensitive product (implying a lower reduction than normal).

The Philippines also said it had reservations about the distinction between processed and unprocessed products, which it said is unnecessary since tariff escalation (higher tariffs on processed products than on raw materials) is already a problem.

The issue of the decision-making process, in which five members practically negotiated the guidelines and presented them to the rest for endorsement, was also raised, at least indirectly. Switzerland articulated concerns on the process, and said because of the pressure it exerted, it could participate in the Paris meeting.

Groser said he had his own concerns also about the process, while he also appreciated the leadership taken by these countries (alluding to the FIPs).

Zambia, coordinator of the LDC group, said that while it recognizes LDCs will not have to make commitments, it was relieved to see that countries with opposite views can eventually reach agreement. It urged members to continue to consider the interests of LDCs.

The Chair accepted Australia's and Mexico's proposal for major countries to supply their ad valorem equivalent calculations by 20 May. He agreed that much of the calculation had already been made, and said he would make it a "soft deadline". He added that smaller countries would be allowed more time and would need help from the Secretariat.

A Secretariat study notes that 34 countries have non-ad valorem duties covering some 7,977 tariff lines, with the EU-15 having the most tariff lines followed by Switzerland.

Australia also proposed a one-month verification period starting with comments by email and ending with one verification meeting. Groser said that members should think about this. He also urged members to get together to find a solution to the question of sugar prices.

Speaking to the media after the informal meeting, Ambassador Luiz Felipe de Seixas Correa of Brazil said that while the solution reached had not been ideal, it allowed members to move forward. It was a positive sign for the 'July approximation'. The real problem, he added, would be in the discussions on market access. With respect to verification, he said that this process should be transparent and done in an expeditious manner.

The next "agriculture week" starts on 30 May. With the AVE issue expected to be resolved by then, negotiations will move on to the more difficult core issues in market access.

Groser told the meeting that he wants negotiators to start on the tariff reduction formula during that week, as well as some other related questions such as sensitive products, special products and a special safeguard mechanism.

The draft guidelines center around the method for calculating ad valorem equivalents (AVEs, expressed as percent of the value of an import) of non-ad valorem duties (expressed as value per unit such as dollars per ton). A resolution of this issue is considered a necessary step for negotiations to begin on a tariff reduction formula on imported products.

At issue is the import price of the product to be used in converting non-ad valorem duties into ad valorem equivalents.

With regards to determining the price of the product, members had generally agreed to find the estimate of the price based on the Integrated Database (IDB) of the WTO. The approximation of the price that is obtained from this is the unit value of the import (total value of import divided and compared by the total quantity of import over a period).

However, some members (such as the agricultural exporters in the Cairns Group and the G20) had argued that this gives a price that is too high and they preferred the UN's Comtrade database (which looks at the global trade and an estimate of the world price for a product). Other members such as those in the G10 were not in favour of the Comtrade database.

So, what members agreed to was a filter process. The import value per unit calculated from IDB data is compared directly with the world price estimate calculated from the UN's Comtrade database. If the difference is more than 40%, (e. g. the IDB calculation gives $1 kg pound, and Comtrade gives $0.50 per kg, a difference of 100%), then this product's price would be caught in the filter. Products whose difference is less than 40% would pass through, and the IDB calculation would be accepted.

Products caught in the "forty" filter now face another test. The ad valorem equivalents would then be calculated and if the difference is less than 20 percentage points, then the product would pass through. For example, if the ad valorem equivalent using the IDB is 50% and the ad valorem equivalent using Comtrade is 65%, a difference of 15 percentage points, then the product would pass through. Only products that remain caught in this second filter would require some adjustment (use a number that is somewhere between the two).

Members had agreed that there will be different adjustments, broadly for processed products (Chapters 17 to 24 of the Harmonized System, i. e. products whose tariff code numbers begin with 17 to 24), except for raw and refined sugar, and basic products (Chapters 1 to 16, and some beyond chapter 24). Sugar (part of Chapter 17) will be treated differently.

The WTO mini-ministerial in Paris took up only paragraphs 25 and 26 of the 6-page draft guidelines involving the proposed method of adjusting the calculations when serious anomalies arise.

Agreement on the two paragraphs was reached on 4 May in Paris by the 'Five Interested Parties' and these were then endorsed by the other countries at the mini-ministerial. The paragraphs and the whole text had to be brought to the entire membership of the WTO.

Paragraph 25 of the updated draft guidelines says:

"The conversion of non-ad valorem duties, captured in the 40/20 filter, into their AVEs will be calculated using the following weightings based on unit values of Comtrade and IDB data:

(a) For HS Chapters 1 to 16, and the products in Annex 1 of the Agreement on Agriculture in the HS Chapters beyond Chapter 24, a 82.5/17.5 (Comtrade/IDB) weighting will apply.

(b) For HS Chapters 17-24, a 60/40 (Comtrade/IDB) weighting will apply."

Paragraph 26 says: "For all tariff lines for raw and refined sugar, world prices will apply, with prices to be agreed."

Members still have to decide which price reference to use for sugar. Members have also reserved the right to comment on some of the AVEs calculated by other countries. Discussions still have to be completed on how this would be handled.

The draft guidelines also covered such questions as how to deal with circumstances that do not fit the normal situation, for example, if data are missing.

 


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