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TWN Info Service on WTO and Trade Issues (Sept05/6)

20 September 2005
 

REVIEW OF DIFFERENT POSITIONS IN WTO AGRICULTURE NEGOTIATIONS
 
The July 2005 meeting of the WTO General Council failed to produce an outcome in terms of "additional convergence" on a range of issues mainly
because of the lack of progress in the negotiations on agriculture among a small group of countries.

The core of this group was the "FIPs" or Five Interested Parties (the United States, the EU, India, Brazil and Australia).  For the most recent informal consultations held in the week before the General Council meeting of 27-29 July, the group was extended to include another nine countries.

The most important aspects in the recent agriculture consultations were on the issues of the tariff-reduction formula, and in the approach to domestic support, including the reduction of the amber box and overall trade-distorting support and the treatment of the blue box.

The positions of some of the major players have become clearer, from papers presented and information provided by some trade diplomats involved in the negotiations, with the most clearly articulated positions have come from the Group of 20 (G20).
 
Below is a paper reviewing the different positions in agriculture, at  the end of July.
 
With best wishes
Martin Khor
TWN
 
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Review of different positions in WTO agriculture talks

By Martin Khor (TWN), 4 August 2005
 
The meeting of the WTO General Council at the end of July 2005 failed to produce an outcome in terms of "additional convergence" on a range of issues mainly because of the lack of progress in the negotiations on agriculture among a small group of countries.

The core of this group was the "FIPs" or Five Interested Parties (the United States, the EU, India, Brazil and Australia). For the most recent informal consultations held in the week before the General Council meeting of 27-29 July, the group was extended to include another nine countries.

The most important aspects in the recent agriculture consultations were on the issues of the tariff-reduction formula, and in the approach to domestic support, including the reduction of the amber box and overall trade-distorting support and the treatment of the blue box.

The positions of some of the major players have become clearer, from papers presented and information provided by some trade diplomats involved in the negotiations. Generally, the most clearly articulated positions have come from the Group of 20 (G20), which has presented papers (dated first week of July) on various topics. The positions of most other members have been provided only verbally at the meetings.

On the market access issue, the G20 had presented its position first at the Dalian Mini-Ministerial in early July. Its proposal involved the following main elements:

Firstly, developed countries' tariffs are to be categorized in 5 thresholds (0-20%; 21-40%; 40-60%; 61-80%; and above 80%). There would be 4 thresholds for developing countries - 0-30%; 31-80%; 81-130%; and above 130%.

Secondly, there would be linear cuts for lines in each threshold, with the rate of reduction being steeper, the higher the threshold. The cuts would be on a line-by-line basis (in contrast to an average cut, as in the Uruguay Round).

Thirdly, the rates of reduction for developing countries would be lower than those for developed countries.

Fourthly, the G20 proposed that developed countries would cap their tariffs at 100% and developing countries at 150%.

Finally, a very limited number of tariff lines can be selected as sensitive products. For these products, the greater the deviation from the formula, the greater the compensation for this deviation through combinations of TRQ commitments and tariff reductions.

According to a G20 source, "sensitive products" would be treated within the formula and its tariff bands, and would also be subjected to the tariff caps. "Special products" of developing countries would not be treated within the formula but would be treated separately, in line with the July 2004 framework.

The United States proposed, on the tiered formula for making tariff reduction, that there be a single set of four bands to be applied to both developed and developing countries, with the following thresholds: tariff lines of 0-20%, 20-40%, 40-60%, and above 60%. The US also wanted the capping of tariffs.

At the consultations, the US suggested a mixed approach to the formulae to be used for making tariff reductions. Tariff lines which fall into the higher band(s) would be reduced using a Swiss formula, those lines in the middle band(s) would be cut by using a linear formula, and those lines which are in the lower band(s) would be subjected to a Uruguay Round approach.

The US was also willing to consider an alternative: to make use of the G20 proposal of a linear formula cut in each band with further adjustments to ensure deeper cuts; and to apply the concept of progressivity in each band.

The EC proposal (given only verbally) was that the formula would have three bands, with different thresholds for developed and developing countries. For developed countries, the thresholds would be 0-20%, 20-100% and above 100%. For developing countries, the thresholds would be 0-30%, 30-150% and above 150%.

The EC also proposed that the rates of reduction by developing countries would be two-thirds of the reduction rates for developed countries. It disagreed with the capping of tariffs.

At the meeting, the EC reportedly agreed with the G20 proposal of having linear cuts in each band. However, it wanted some flexibilities to be able to vary the reduction rates of some product lines within each band, and within the required rate in the band as an average.

On Sensitive Products, the EC preferred a single box, dealt with under a separate approach from that of the general products. The number of sensitive products should be appropriate. It supported the G10 proposal for a sliding mechanism (where lower tariff cuts would be balanced by more tariff quotas, and higher tariff cuts by less tariff quotas).

The G10 (developed countries with defensive interests such as Switzerland and Norway) reportedly proposed 3 tiers in the formula, but did not indicate whether these would apply equally to developed and developing countries. It wanted average cuts according to a linear formula in each band, with flexibility to choose the reduction rates of tariff lines within each band.

On the issue of sensitive products, the G10 submitted a paper in the form of a draft text. On the selection of sensitive products, the G10 proposed that each Member may designate an appropriate percentage (to be negotiated) of tariff lines to be treated as sensitive. This number will vary according to its tariff structure including existing commitments for these products.

On the treatment of sensitive products, the G10 proposed that sensitive products shall be taken out of the tariff reduction formula for other products. The magnitude of market access improvement for sensitive products will be less than that for other products.

"Market access improvement for these products will be achieved through a standard combination, to be negotiated, of tariff cut and TRQ commitments for each product. Deviations from the standard combination will be possible along a sliding scale system, to be negotiated."

The EC supported the G10 proposal that sensitive products shall be taken out of the tariff reduction formula for other products and put into a separate box, regardless of their tariff levels.

On domestic support, the recent consultations focused on three issues: reduction of aggregate measure of support (AMS) or amber box support; reduction of overall trade-distorting domestic support (amber and blue box, and de minimis support); and the blue box (criteria for the new blue box and disciplines for new and old blue box support).

On reduction in the AMS, the G20 proposed that cuts be made according to a tiered formula approach. There would be four bands, with the first band comprising countries with support of less than $2 billion; the second band comprising countries with $2-12 billion support; the third band comprising countries with $12-25 billion support; and the fourth band comprising countries with above $25 billion support.

The rate of reduction would be higher, the higher the band (i. e. with more support value). Developing countries would cut less than two-thirds of the cut made by developed countries in the same band.

On de minimis support, the G20 proposed that reductions shall be made to both product specific and non-product specific de minimis support. Developing countries with no AMS entitlements shall be exempt from reductions.

On overall levels of trade-distorting domestic support, the G20 proposed that these will be reduced based on a tiered formula. Developed countries would have three bands: those with less than $10 billion, those with $10-60 billion and those with above $60 billion in support. Developing countries would all fall within one band.

During the consultations on the AMS, Japan and the EC reportedly agreed to there being three tiers for developed countries. The EC should be within the top tier, while the US and Japan would be in the second tier. Others such as Norway and Switzerland would be in the third tier.

The US proposed four tiers, with the EC in the top tier, Japan in the second tier, the US in the third tier, and others in the fourth tier.

On the AMS, the EU is the world's biggest user, accounting for about 50% of the total AMS, with Japan some 20 % and the US some 10% . The US argued that given the differences (in the absolute levels of support) between itself and Japan, being placed in the same tier would lead to it making further cuts than necessary.

On the overall Trade Distorting Support, there was not much discussion or basic disagreement. The EU, Japan and the US reportedly agreed that the EU should be within the top tier, while Japan and the US would be in the second tier and others in the third tier. The reason is that the overall trade-distorting support for Japan and the US is about the same.

Regarding the Blue Box, the G20 proposal of early July stated that to be a genuine instrument of reform, the Blue Box support must be subject to disciplines that guarantee its less trade-distorting nature and safeguard against mere box shifting. It proposed additional criteria to ensure this. Its acceptance of a "new Blue Box" (as had been proposed by the US) remains contingent on agreement on the criteria.

The G20 proposed criteria for direct payments which do not require production

(placing limits on the rate and amount for counter-cyclical price payments) as well as for direct payments which limit production, and notification requirements.

During the discussion, the US was opposed to criteria involving limits placed on price compensation, and was unwilling to make concessions. The US also insisted that negotiations on the blue box should cover limits or criteria involving the existing blue box (and not just the new blue box), a move aimed at the EU which is a current heavy user of the blue box. On the other hand, the EU cited lack of movement by the US on the blue box, for not being ready to move on market access.

Regarding the Green Box, the G20 has previously proposed measures to clarify its use. The developed countries are reluctant to have disciplines or new criteria on this type of support. Developing countries have asked that additional criteria be accepted that would allow them to make use of the Green Box support. There is a possibility that developed countries will be sympathetic to this request, and make use of it to limit the demands that the developing countries may have to tighten the use of the Green Box by the developed countries.

On export competition, the main issue remains the date and schedule for phasing out direct export subsidies as well as export credits and other forms of subsidies. The G20 proposed that direct export subsidies be eliminated over 5 years, with 60% at the end of the first year, 20% at the end of the third year and the remaining at the end of the fifth year.

The G20 also proposed that all other forms of export subsidies shall be eliminated and disciplines shall be in force on equivalent measures by the same end date.

The developed countries have yet to indicate the end dates of direct or indirect export subsidies.

Much of the recent discussion on export competition was on food aid and state trading enterprises. Many developing countries have concerns that new disciplines may affect the supply of humanitarian assistance. The G20 proposed that food aid be provided in the form of grants only and be fully untied.

Whilst the above constituted the focus of the recent consultations among the "Five Interested Parties" and the extended group around it, many developing countries that have not been privy to the discussions are concerned that their interests have not been taken into account.

Some of them do not accept the premise that the issues of the tariff-reduction formula and the approach to domestic support must be settled first, before other issues (of major concern to developing countries) such as special products, special safeguard mechanism, and effects of preference erosion, are dealt with.

During an informal Special Session of the Committee on Agriculture on 25 July, a number of developing countries (Kenya, Nigeria, Zimbabwe, Jamaica, and Cameroon) raised the problem of countries that have ceiling bindings in agricultural products, as a result of the process of tariffication during the Uruguay Round.

They said that the very structure of the tiered approach and the proposals on the table on thresholds for the bands would penalise these countries by placing all their tariffs in the tier for maximum cuts. Developing countries with ceiling bindings would then make concessions much beyond those required from the developed countries.

They proposed that such countries with ceiling bindings be subject only to an overall average tariff reduction. They can also spread their tariff lines across the various tiers of the formula on the basis of their own assessment of sensitivities.

When the negotiations on agriculture resume in September, they have to involve not only a small group of countries, but also take on board the participation and views of the larger membership, especially the developing countries.

Most of these countries only have a defensive interest, with the main concern being that they are not asked to take on obligations to reduce tariffs too much, otherwise their small farmers may lose their markets or livelihoods. Some are of the view that most of the proposals for tariff reduction, including the G20 proposal, are not sensitive enough to these concerns.

These countries may not agree to simply accept what the FIPs or even an extended FIPs group may thrash out among themselves.

 


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