TWN Info on WTO and Trade Issues (Jun05/3)

15 June 2005


The Special Session on agriculture, mainly involving negotiations on maket access issues (the tariff reduction formula and special products and special safeguard mechanism) took place on 30 May to 3 June at the WTO.

Below is a report with a summary of some of the main developments during the week. This is the third report on the agriculture week.

This report was published in the South North Development Monitor (SUNS) of 6 June 2005.

With best wishes

Martin Khor


WTO Agriculture Negotiations on Market Access Issues 30 May-3 June 2005

By Kanaga Raja (SUNS), Geneva, 3 June 2005

The Special Session of the WTO Committee on Agriculture, at a week-long meeting (30 May to 3 June), discussed market access issues under the agriculture framework of the 'July package' including the tariff reduction formula, sensitive products, special products, and various types of safeguards.

The meetings were conducted in informal mode under the socalled 'Room D' process (held in a smaller room at the WTO but open to all interested members). Members also briefly took up the domestic support issue of Green Box subsidies, a subject that was left over from the April meetings of the Special Session.

A formal meeting of the Special Session of the Committee on Agriculture was held on 3 June.

At the end of the formal session, the Chair of the Special Session of the Committee on Agriculture, Tim Groser, who is continuing to chair the talks until the end of July, said that he remained "deadly serious" about producing a "first approximation" by the end of July even though a number of difficulties remain.

Groser said the "first approximation" that he intends to produce at the end of July will not be full "modalities", but a further step towards it. He described it as the August 2004 framework plus what he would identify as further convergence on all three pillars (market access, domestic support and export subsidies). He said there would be other issues that members have raised (he did not mention any) that would have to wait. This would not mean that these issues are ignored - simply that there is no convergence.

Acknowledging the large task ahead, Groser reminded delegations that in early June 2004 many were sceptical about members' ability to agree on the framework, and yet the framework was agreed. "It's amazing what can be done with people of good will," he said.

He noted that some developed and developing country members had privately expressed their concern that some issues seemed to be going backwards because of some "very strong proposals" from some developing countries, a pessimism which he said, he did not share. He however did not mention which proposals were causing concern to some countries.

But Groser said that these proposals are a voice of the developing world that has to be heard. He urged members not to be too concerned about the difficulty. "Negotiations are about adjusting expectations," and the result of a negotiation has never been the same as a proposal submitted at the beginning of the process, he added. Some people believe that a good negotiator is a tough negotiator, he said. "I've never seen a tough negotiator who is any use at all because all they can say is 'no'." Therefore, members should listen to each other, and not just at the technical level, he said.

At the informal meetings, members held their first detailed discussions on the tariff reduction formula. The discussions were made possible when an agreement was reached earlier in May on the methodology for the conversion of non-ad valorem duties to ad valorem equivalents. (See SUNS #5798.)

During these discussions, differences emerged among members with respect to the kind of approach to be adopted for making tariff reductions, with some countries favouring the Swiss non-linear formula while others supported the Uruguay Round liner-cut approach.

The Uruguay Round approach involves average percentage cuts in tariffs with minimum percentage cuts in each tier, while the Swiss formula is a non-linear formula where a single coefficient determines both the size of the tariff reduction and the maximum possible final tariff - a coefficient of 25 would mean a maximum final tariff of 25%.

Groser, in responding to the diverging comments from members on the two approaches, said: "Don't lock yourselves into strong in-principle statements." He welcomed efforts by some delegations such as Brazil, China and Canada to look at possible and realistic alternatives.

Groser urged members to keep an open mind on the best way to resolve the difference and cautioned against being fixated on certain concepts or labels. "We will never have a Uruguay Round approach," he said, "because we've decided on a tiered approach." (The Uruguay Round approach only had one tier.) The Chair also told members that he will not produce a formula at the end of July, "because you'll reject it."

All the key countries with non-ad valorem duties have submitted their calculations of ad valorem equivalents, except for sugar, while work continued on verification of the calculations made, and on a suitable world price for sugar.

On the discussions on the type of approach to be used in the tariff reduction formula, countries in favour of the Uruguay Round approach included the G-10 (Switzerland speaking), the EU, the ACP group (Mauritius speaking), India and Indonesia (both G-20 members). These countries regarded the Swiss formula as "unacceptable" and they also opposed caps (setting a maximum tariff rate for any product), including via the Swiss formula (the coefficient of the Swiss formula is also the tariff cap). According to trade officials, several argued that over 70 WTO members signed a document in 2003 supporting the Uruguay Round approach.

The US however said that it was in favour of the Swiss formula. Others who had previously advocated the Swiss formula (some members of the Cairns Group and G-20, including some Latin American countries and Malaysia) said that they were willing to accept an alternative method that harmonizes tariffs, the trade officials said.

These countries and the US rejected the Uruguay Round approach arguing that it had been shown to fail to produce genuine improvements in market access in all products (a requirement of the July framework). Argentina, supported by several others, also said that the framework's inclusion of "sensitive products" moves the flexibility of the Uruguay Round to more specifically listed products.

A handful of countries such as Canada proposed an alternative harmonizing-type of formula. Instead of the Swiss formula, Canada proposed an approach where each tariff rate would be broken into components corresponding to the tiers, and the reduction in each tier would apply to the corresponding component. Members did not react immediately to this, preferring rather to study it.

China said members needed to consider a way to find a middle ground. As an example, a compromise between the two poles could be to have some products in each tier cut by a Swiss formula and some cut by the Uruguay Round approach, China said.

Brazil supported China's search for a middle ground between the Uruguay Round approach and the Swiss formula. It said that this part of the negotiation is a balancing act that is "on a knife edge". The objective, Brazil said, is to try to ensure genuine improvements in market access, and at the same time to avoid pushing so hard that countries that are defensive on the import side force a large number of products to "migrate" into the "sensitive products" category.

Costa Rica (for El Salvador, Guatemala, Honduras, Panama, Peru) said tropical products and crops grown as substitutes for narcotics should be taken out of the formula and be given maximum liberalization.

When discussions focussed on the number of tiers or bands and the threshold in the tariff reduction formula, many countries spoke of three or four tiers, in some cases with a possible additional tier for developing countries, according to trade officials. Some countries argued that more bands might be needed to ensure "harmonization" (making steeper cuts on higher tariffs). Brazil described this as a "chicken and egg" question that should be handled carefully to avoid going round in circles: the number of tiers could be related to the formulae that go into each tier.

The G-10 (Switzerland speaking) called for no more than three tiers and stressed that the tiers and thresholds would have to take account of countries' different tariff structures. The G-10 argued that the burden of adjusting because of tariff cuts should be shared among all WTO members and should not fall disproportionately on those with higher tariffs. Israel (a G-10 member) argued that a high tariff does not necessarily mean no market access. It said that it imports about half its garlic consumption despite a bound and applied tariff of 300%. In different circumstances, a tariff of only 15% could be enough to block trade, Israel added.

Kenya, supported by some developing countries, said that a number of developing countries have a single bound rate for all agricultural products because in the Uruguay Round they chose a "special and differential treatment" (SDT) option that allowed them to bind tariffs at a single ceiling instead of tariffying (converting non-tariff barriers into tariff equivalents). Countries with these ceiling tariffs would have all products in a single tier, and probably a high one, which would normally require a steeper cut. That would amount to a penalty for having used SDT in the Uruguay Round, Kenya said.

Countries also differed in their interpretation of a "single approach"(a phrase used in para 28 of Annex A of the July framework). Some (including the G-10 and Peru) said this meant the tiers (and the type of formula used in each tier) should be the same for developed and developing countries (the difference being in the coefficients in the formulas). Others said the phrase should be interpreted more broadly.

Canada and the G-10 said the thresholds between the bands should be determined as mechanically as possible, for example, by listing all tariffs (for the entire membership or for key countries) and splitting these appropriately without looking too closely at the products concerned. Israel suggested as an option doing that for each member (meaning the tiers would vary from country to country). China said that would be far too complicated. The US said it had looked at the three tiers proposed by the March 2003 draft modalities (the "Harbinson text") and concluded that the middle tier was too broad and the top threshold should be lowered in order to produce a result that is sufficiently harmonizing.

Members also held detailed discussions on sensitive products (available to all members and allowing some exceptions from what is generally agreed for improving market access) and special products (available to developing countries, allowing exemptions for food and livelihood security and rural development).

With respect to sensitive products, the July framework says that these products must not undermine the objectives of tariff reductions, which includes "substantial improvements in market access ... for all products" and "substantial trade expansion".

The G-10 and the EU said that sensitive products are to be negotiated in parallel with the tariff reduction forumula, and not to be treated as an exception. The G-10 wanted the number to be negotiated by country, and then for each country to be free to select the products. The EU said that the negotiated number could depend on the formula. These countries propose a standard combination of tariff reductions (which would be less than the reduction from the formula) and tariff quota expansion, allowing some flexibility and trade off between the two.

They also oppose restricting sensitive products to those that already have tariff quotas and argue for the possibility of creating new tariff quotas. They want to see quotas expanded in proportion to the current quotas, not in relation to domestic consumption. According to trade officials, India while sharing some of these views, rejected the idea of restricting sensitive products only to those that currently have tariff quotas. The G-10 included in its proposed trade-off, increased market access opportunities as a result of better tariff quota administration and cuts in in-quota tariffs.

On the other hand, the Cairns Group, several G-20 members and the US said that sensitive products are exceptions; that there could be a trade off between the deviation from the tariff formula and the number of sensitive products; and that there should be a trade off between the deviation from the formula and tariff quota expansion.

They said that genuine improvements in trade are needed, and argued in favour of expanding quotas by a percentage of domestic consumption They also said that products that currently do not have tariff quotas cannot be designated as sensitive. Some added that a country's export products cannot also be its sensitive products, that tropical products and products enjoying domestic supports cannot be sensitive products. Several argued that improved tariff quota administration cannot be part of the market access trade-off since this is already an obligation.

The ACP Group (Mauritius speaking, supported by Kenya) argued that sensitive products are critical to preserve the interests of countries enjoying long-standing preferences, and to conform with the "development" agenda of the Doha Round.

Debate at previous meetings of the Special Session on the question of preferences between the ACP and some Latin American countries resurfaced in the discussions, according to trade officials. Costa Rica, supported by several others, said the "development round" should not be defined to serve the development of some developing countries and no one else. The guiding principles of the Doha mandate must prevail, Costa Rica added, namely, opening markets in order to serve development. The problem of preference erosion will be tackled, but not at the expense of other developing countries, particularly in tropical products, Costa Rica said.

With respect to special products, the July framework (para 41) envisages criteria for selecting these products and their treatment to emerge from negotiations.

The G-33 (Kenya speaking) outlined some key principles in its paper. It said having a single set of criteria would not be possible because of the differences in situations among developing countries. Therefore, when countries designate products as "special products", they could broadly take into account a list of issues such as the importance of a product for subsistence or livelihood in a region or country, its significance in consumption or for import substitution, its contribution to national income or its wider developmental role, the G-33 said. As for treatment, the G-33 proposed that special products would not require tariff cuts and tariff quota expansion, and would be eligible for the new special safeguard mechanism. Some countries such as El Salvador and Guatemala supported the G-33.

According to trade officials, several members within the group expressed some differing views. For example, China (supported by Nicaragua and Cuba) proposed limiting the number of special products to a percentage of products ("tariff lines"). India and Mauritius opposed any set limits, although India said it was not planning to designate unlimited numbers of products. Peru said that tropical products should not be eligible. Barbados recognized that exporting countries also have an interest and that their concerns will have to be addressed.

Other countries such as Malaysia, Thailand, Chile and Colombia, said that exports, including to other developing countries, are also an important part of achieving developmental objectives. Malaysia supported China on limiting the numbers and with Peru on preventing tropical products from being eligible. Thailand said poor, subsistence farmers also produce for export, including exports to other developing countries, and the range of products they can produce is limited. Therefore, these farmers' interests in South-South trade also need to be taken into account.

The US, the EU, Australia and New Zealand said they recognize the need to deal with the vulnerability of poor farmers through special products. The US said the best way to deal with these "compelling and important concerns" is to recognize the problem and isolate it so that the bigger picture of liberalization is not watered down. For the criteria, the US proposed looking at a similar list to the one suggested by the G-33 but including such questions as whether the country is a net exporter or importer of a product. However, to meet the overall objective of improved market access in all products, the US said that it opposed total exemption from tariff reductions or quota expansion.

In summing up, Groser said that members need to see the G-33 paper, adding that he will hold smaller group consultations in order to work on his July text.

On the special safeguard mechanism, the G-33 introduced its views (Turkey speaking) including: this special safeguard should be open to all developing countries and for all products covered by the Agriculture Agreement; it should be applied to imports from all sources (non-discrimination); it should be triggered either by import surges or price falls; it should take the form of additional tariff and, in some cases if that fails, by quantitative restrictions; it would have a one-year renewable period; and it would have to be notified.

With respect to the Green Box, a number of detailed amendments to Annex 2 of the Agriculture Agreement were discussed.

The G-20 (Brazil speaking) introduced a new paper with a number of proposals dealing with that question as well as modifications designed to make the Green Box easier for developing countries to implement without distorting trade. This paper was distributed after the main discussion, and hence was not debated.

In its paper, the G20 recalled para 16 of the July framework saying that the main objective of review and clarification of Green Box criteria is to ensure that domestic support measures notified conform to the fundamental requirement that they have no, or at most minimal, trade distorting effects or effects on production (annex 2, para 1).

A major flaw of the Agreement on Agriculture, it said, derives from the fact that there are no effective controls on the benchmarks of Annex 2, thus generating the incentive for members to notify distorting support in this category not subject to reduction commitments, a type of 'box shifting' which does not change the distorting nature of the support. As a consequence of this, the result of the review and clarification process should, as a general principle, ensure that the value of domestic support commitments to be undertaken, will not be undermined.

The G20 suggested that a review and clarification of the provisions of the Green Box to ensure that direct payments , for which exemption from reduction commitments is claimed, conform to Annex 2, para 1, should include:

* eligibility conditions for receiving these direct payments should be such that the wealth effects of payments are minimised;

* support should continue to be provided through publicly-funded government programmes, not involving transfers from consumers and should not require production, i. e. land, labour or any other input shall not be required to be put to agricultural use;

* credible and time consistent policies with no changes in the eligibility rules, base periods or eligible products or farmers;

* depending on the impact of the programmes, coupled programmes providing support to products receiving direct payments; and

* review of benchmarks and conditions for other direct payments.