TWN Info Service on WTO and Trade Issues (Jun05/1)

14 June 2005


A session of mainly informal negotiations took place at the WTO on agriculture issues on 30 May to 3 June.

One of the key issues discussed was market access, especially the nature of the "tiered formula" for tariff reductions.

Below is a report of the first days of the agriculture negotiations, with a focus on the formula.

We will also send you another report or other reports on the agriculture talks.

This report was published in the SUNS (South North Development Monitor) on 2 June 2005.

With best wishes
Martin Khor


WTO members discuss "tiered" tariff cuts in agriculture

By Goh Chien Yen (TWN), Geneva, 1 June 2005

Agriculture negotiations resumed in the WTO from 30 May to 3 June, with members engaging since 30 May on issues relating to market access for the first time after an understanding was reached earlier this month among the major countries on the conversion of non ad valorem duties to ad valorem equivalents.

As announced at the General Council meeting last week, the agriculture negotiations continued to be chaired by Tim Groser, who had stepped down as New Zealand Ambassador to stand for parliamentary elections due to be held by late September. He is expected to remain as Chair of the Special Session of the WTO Committee on Agriculture until the beginning of the summer break at the end of July.

Various aspects of the tiered approach for making tariff reductions remain to be decided by the negotiations, including the number of tiers, the level of threshold for each tier (what the cut-off point should be), the formula or approach to be applied for making tariff reductions within each band, and whether there should be a tariff cap.

The WTO members also recognize that the approach for making tariff reductions is inextricably linked to the issues of sensitive products, special products and special safeguard mechanism (SSM). The Chair noted that while it is not possible to discuss all these issues simultaneously, it is important to bear in mind that they are inter-related.

On the number of tiers or bands in which the tariff profiles of members would fall under, it emerged in the first few days of discussion this week that several developed country members such as the US, the EU and the G10 think that having three or four tiers would be about right.

Some debate ensued whether this should be the case for both developing and developed country members. Some members said there should be the same number of bands for all members, but there could be different treatment for tariff reduction within each band for developing countries. For example, Brazil pointed out that its tariff profile is such that it would require more than 3 bands.

On the question of the level of threshold for each band that will determine how the tariff lines are to be distributed between the different bands, Switzerland (speaking on behalf of the G10) suggested that this could be done by splitting more or less equally the tariff lines between the bands.

Kenya pointed out that many developing countries have bound their agriculture tariffs at a single rate under the Uruguay Round. Hence, there should be sufficient flexibility in choosing the number of tariff lines to be placed in each band, otherwise all their tariff lines may end up in a single upper band, where deeper cuts on the tariffs may be required. This will lead to many developing countries, especially those in Africa, making far deeper commitments in tariff reductions.

With respect to the kind of approach to be adopted for making tariff reductions within each band, members appear to be sharply divided between those supporting a Swiss non-linear formula and those calling for a Uruguay Round linear-cut approach. The Swiss formula would lead to cuts applied more steeply the higher the tariffs, while in the linear-cut approach all tariffs are cut by the same rate, within the same band.

The US and the Cairns Group members argued that the Uruguay Round approach (to be used in the tiers) had already been rejected when this was first proposed some years ago by Stuart Harbinson, the former chair of the Special Session of the Committee on Agriculture. They said that experience shows that this approach has failed to achieve effective market access and hence a Swiss formula is required.

Other members such as the G10 and India have argued emphatically that the Uruguay Round approach is the only way to proceed.

Under the Uruguay Round, developing countries were obliged to make an overall average cut of 24%, with a minimum cut of 10% per tariff line, and developed countries had to make an average tariff cut of 36%, with a minimum cut of 15% per line.

Canada proposed a progressive tariff reduction formula, the result of which is a form of harmonization. Instead of applying a single rate of reduction to a single tariff line, that tariff line would be broken down into four parts, as an illustrated example in the Canadian proposal, where different rates of tariff reduction would apply. "The overall tariff cut is the sum of the individual cuts required for the portion of the tariff falling within each band," Canada said.

Under this formula, higher portions of the tariff line will be subject to deeper cuts. As an example given by Canada in its proposal, instead of simply reducing a tariff line of 200% by 80%, this tariff line would have four portions, for example, up to

15%, this portion will be cut by 45%, the next 20% will be cut by 55%, the subsequent 25% will be cut by 65%. The final remaining 140% will be cut by 75%. Therefore, the 200% initial tariff line will be cut to 61% as the final tariff.

China also proposed in the negotiations a formula with a "combination of both non-linear and linear elements in each tier." According to the Chinese proposal, "all bound tariffs should be divided including potential sensitive products to several bands according to the levels of tariff rates from low to high."

In the approach proposed by China, within each band, members may choose a percentage of tariff lines to be cut by a Uruguay-type formula, and the remainder of tariff lines to be cut by a Swiss type formula. The higher the tariff rate band, the bigger the proportion of Swiss type formula should apply. Also, the higher the tariff rate band, the bigger should be: (I) the simple average reduction rate, (ii) the rate of minimum cut of each tariff line in the Uruguay Round approach, and (iii) the coefficients of the Swiss type formula.

Reacting to members' strong positions on the type of approach to be used in each band for making tariff reductions, Groser said that "members should unlock themselves from certain ideas", adding that the debate is really about the degree of harmonization. He also indicated to members that he would not be producing a formula for them by the end of July.