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TWN Info Service on WTO and Trade Issues (Jan08/02)

28 January 2008


The following article was published in SUNS on 15 Jan 2008.  Permission for any reproduction is required from SUNS (sunstwn@bluewin.ch).

Best wishes
Martin Khor
TWN


Agriculture: Recent developments in negotiations on Special Products
Published in SUNS #6392 dated 15 January 2008

Kuala Lumpur, 14 Jan (Martin Khor) -- One of the most important developments in the past month at the WTO has been the evolution of the negotiations on "special products" (SPs) in agriculture.

The series of events began on 14 December with the G33 (the grouping of over 40 developing countries with defensive interests in agriculture) putting forward a new proposal on SPs which in some ways was a significant shift from their earlier position.

Then on 4 January, the Chair of the Doha agriculture negotiations, Ambassador Crawford Falconer of New Zealand, issued a "Working Document" on SPs, one of eight such new documents on market access, in addition to the five he issued earlier on domestic support on 21 December.

The Chair's paper covered the number of SPs as well as their treatment in terms of more lenient cuts than in the tariff-reduction formula that would apply generally to agricultural products.

The agriculture negotiations resumed very early after the Christmas break, with Falconer on 3 January re-starting consultations in the small-group format in "Room E" of the WTO (to which 37 delegations are invited).

The SP issue came up at the Room E meeting on 9 January, when the G33 reacted strongly and at length to the Chair's background paper on SPs. In its presentation, the G33 put forward not only objections against some aspects of the Chair's paper (particularly its treatment of SPs) but also some new Room E proposals and figures of its own.

And on 11 January, when the Chair convened an open-ended agriculture meeting (to which all WTO members are invited), the G33 summarised its position, while Falconer in his oral presentation on the state of the negotiations implied that SPs is one of the most contentious issues that remain unresolved.

The wide gulf can be seen in the differences between the G33 position and the Chair's proposal in his background paper.

The G33's 14 December proposal contained 5 components: (1) Designation of SPs; (2) Treatment of SPs; (3) Position on Footnote 3, which deals with the treatment for small, vulnerable economies (SVEs); (4) "Exchange mechanism" allowing developing countries to convert "unused" sensitive products to extra special products; and (5) Additional flexibilities for SVEs and recently acceded members (RAMs).

On the Designation of SPs, the G33 reminded that the mandate for negotiations states that SPs shall be self-designated, guided by indicators based on the criteria of food security, livelihood security and rural development needs of individual developing country Members.

On the Approach for Self-Designation, the G33 said that developing country Members shall have the flexibility to self-designate a guaranteed minimum number [x] % of total tariff lines as SPs, which shall be higher than the number of Sensitive Products for developing country members.

In addition, developing country Members shall have the flexibility to self-designate an additional of [y] % of SPs provided that these are guided by indicators. Based on this Hybrid Approach, developing country Members shall have the right to self-designate up to a maximum 20% of total agriculture tariff lines as SPs.

[This is a dilution of the original G33 position that developing countries can self-designate at least 20% of agricultural tariff lines as SPs.]

On the Treatment of SPs, the G33 underscored and reiterated that maintaining a "no commitment tier" (zero cut treatment) must remain a fundamental aspect for SPs. It said this is consistent with the Doha Mandate of providing maximum flexibility to developing country Members to address their food security, livelihood security and rural development needs. "The G-33 therefore will not be in a position to accept any design of SPs that does not provide for such a tier or category."

The paper proposes a "graded approach" to treatment that it said provides a practical and workable solution for all.

In the G33 proposal, SPs are placed into three grades or categories. Grade 1 contains 40% of SP tariff lines and are exempted from any tariff cuts. Grade 2 contains 30% of SPs which are subjected to a cut of 8%. Grade 3 contains 30% of SPs which are subjected to 12% cut.

"While emphasizing the fundamental importance of SPs in the first grade being exempt from any commitments, the Group is ready to provide new proposals on the numbers of tariff lines in each grade as well as enhancing the treatment for the two remaining grades," said the G33, emphasising that "this new G-33 proposal represents a significant movement from the Group's previous position."

[Previously, the G33 proposed that developing countries can self-designate at least 20% of agricultural tariff lines as SPs. Half the SPs are to be exempted from tariff cuts, 25% would have 5% cut and another 25% would have 10% cut.]

Referring to Footnote 3 of the Chair's July 2007 paper on draft modalities (TN/AG/W/4), the G33 welcomed the treatment proposed for Members entitled to utilize the footnote (which are SVEs and a number of other members specified in the footnote and in an annex to the paper).

In affirming an interpretation of the footnote, the G33 said: "This means that these countries will not be obliged to reduce their tariffs more than 24% in average and that there will not be any obligation to apply any minimum reductions per tariff line. The Group is also of the view that for these Members the concept and the mandate of Special Products shall be integrated into this solution through the inclusion of appropriate provisions in the modalities text on SPs. At the same time, it should be explicitly clear in the next modalities text that the Footnote 3 beneficiaries will not need to apply any indicators in the designation of their SPs."

On the proposed Exchange Mechanism, the G33 suggested that developing country members may designate additional SPs by converting unused Sensitive Products allowance by an exchange rate of a ratio of 3:2.

On Additional Flexibilities, the G33 proposed that SVEs or other beneficiary countries which choose not to use Footnote 3 provisions shall have additional flexibilities in the designation, number and treatment of SPs, in particular that they will not need to apply any indicators in the designation of their SPs. Also, recently acceded members (RAMs) shall have additional flexibilities with the number and treatment of SPs.

On 4 January, Falconer issued his Working Document 15 on SPs. It has 20 paragraphs, with the first 14 paragraphs containing the Chair's thinking and discussion on the various issues while paragraph 15 to 20 are in the form of what appears to be draft text. The draft text is as follows.

15. Developing country Members shall be entitled to self-designate special products guided by indicators based on the criteria of food security, livelihood security and rural development, on the following two-category basis:

16. In the first category, a minimum of [7] per cent of tariff lines up to a maximum of [12] per cent of tariff lines may be sheltered from the application of the tariff cut formula. The [8] per cent, shall exist as a minimum, and a Member need not have applied the indicators if it remains at or under that minimum. Above that minimum, the indicators shall have been applied to arrive at all the items concerned. For the tariff lines concerned there shall be a minimum cut of [10] [20] per cent and a maximum cut of [20] [30] per cent, provided that the average of the cuts is at least [15] [25] per cent.

[After the first line of para 16 is the following footnote: "Where a Member has already the entitlement under the relevant paragraph to apply lesser reductions to lower its average cut under the tariff formula to 36 per cent, it is understood that this provision is also applicable as an additional flexibility."]

The paper then provides a choice of options of EITHER para 17 OR para 18. It then deals with SVEs (para 19) and RAMS (para 20).

17. In the second category, a further [2] [5] percent of tariff lines may be sheltered from the application of the tariff cut formula. For those tariff lines there shall be no requirement for a minimum cut, but the maximum cut on any line shall be [10] [15] percent and the overall average of the cuts must be at least [5] [10] percent.

[An important footnote dealing with sensitive and special products is added to this paragraph as follows: Where a Member chooses not to, or is not in a position to, use this second category entitlement outlined above, that Member may transfer any unused sensitive products entitlement to obtain thereby additional special products, subject to the following: (a) that the maximum entitlement for transfer is [2] [5] per cent of tariff lines; (b) that the treatment for the tariff lines concerned will be a cut that is one-half of what would have been required under the normal tiered tariff cut for those lines; ( c) that in the event that use of this provision leads to a net special product entitlement greater than the [7] per cent minimum the indicators shall have been used for guidance on all the items designated; and (d) that there will be no tariff quota expansion commitment for those lines.]

18. [A maximum of 8 per cent of special product tariff lines shall not be required to face tariff cuts.] [All special product tariff lines must face a tariff cut, with the minimum cut being no less than 10 per cent.]

19. In the case of small vulnerable economies, they may, if they choose to do so, apply the moderated tariff tiered formula for SVEs plus the two-category special entitlement outlined above. Alternatively, they may deviate further from the moderated tiered formula cut provided for in that paragraph for as many tariff lines as they choose to designate as a special product provided that they simply meet the overall average cut of 24 per cent. The tariff lines that they so designate as special products need not be subject to any minimum tariff cut and this designation need not be guided by the indicators.

20. Where a RAM Member uses the first category of Special Products above, the threshold level above which indicators are not required to be used shall be 2 per cent higher, the number of eligible tariff lines shall be 2 per cent greater and the relevant cuts may be 5 per cent less than generally applicable.

There are a number of important differences between this draft text and the G33 proposal. These include the number of SPs to be allowed, but especially the treatment of SPs. The Chair proposes far fewer SPs that can be exempted, if at all, from tariff cuts.

One of the several options in the Chair's paper allows only a maximum of 8% of SPs to be exempted from cuts, and even then this proposal to allow exemption is in brackets. This compares with the G33 proposal that 40% of SPs be exempted.

In his introductory part, the Chair provides his rationale for the draft text. Some of the main points are as follows.

-- The number of Special Products shall be greater than the number of Sensitive Products that a developing Member may have. Given the current Draft Modalities canvasses that the number of sensitive products that a developing Member can have will be between [5.3] and [8] per cent of [dutiable] tariff lines, that suggests that we are into the territory of at least [6] [9] per cent for special products.

-- The absolute number cannot be divorced from the treatment, thus the number can be higher than the above, provided that the treatment is "reasonable in all the circumstances."

-- On "guidance by indicators", we are no nearer agreement on what those indicators may be. We need a tailored approach, managed through the concept of a minimum and a maximum, with SVEs freed from those constraints.

-- On treatment of SPs, the actual cuts should be closely around the sensitive cuts ranges for developing country Members (bearing in mind that the sensitive cut ranges would carry with them normally a tariff quota expansion obligation. Special Products will not have any such obligation.)

-- The centre of gravity for "default" special products cuts will reasonably end up around one-half of the deviation range. A table in the paper shows what this half-deviation means for each of the 4 tariff bands: (1) in tariff band 0-30%, the normal tariff cut for developing countries would be 32-34.6% and the half-deviation cut (for SPs) would be 16.5-16.7%; (2) in band 31-80%, the normal cut would be 36.6-40% and the half-deviation cut would be 18.3-20%; (3) in band 81-130%, the normal cut is 41.3-43.3% and the half-deviation cut is 20.5-21.5%; (4) in band 131 and above, the normal cut is 44-48.6% and the half-deviation cut is 22-24%.

-- Given that Members have differing tariff structures, it is doubtful that setting a single rate applicable to every line and situation will yield equitable results, while trying to micro-define the ranges applicable to various situations is impracticable. Therefore, the proposal is set an overall average rate, with a minimum and maximum cut.

-- In that spirit, we take the middle range above and stretch it in either direction by a couple of ad valorem points. On that basis you would have provision for, say, [7] [12] per cent of tariff lines to be sheltered from the tiered formula. For the sum of those (self-selected) tariff lines, they would need to meet an overall average cut of say [20] per cent with minimum cuts at [15] per cent and maximum cuts at [25] per cent.

-- We could live with a second but smaller category of "super-specials". It would be an even lesser cut, but as a consequence it would have to be a lesser number. The most difficult question is whether there shall be tariff lines with no cuts. If there are to be, it will not be a large number and it could be allowed either explicitly or implicitly. One way of dealing with these is to say that for an additional, say, [2] [5] per cent of tariff lines, there shall be an entitlement to meet, for those, a lower average cut of, say, [5] per cent with no minimum cut and a maximum of [10] per cent.

-- Only some Members will have this need for this second category. Others may need a larger number of special products in the "normal" category. Thus, there can be an alternative to the "super specials" based on some Members' suggestion to "transfer" from sensitive product entitlement to "special" product entitlement.

-- Since for such a "transfer", no tariff quota is provided, this "transfer" would not be at a full one-for one rate of maximum deviation from the sensitive tariff cut in isolation. But it is not going to be outside of that zone. The "premium" should be one-half (rounded) deviation from what would have been the rate if it was fully applied. The "transfer cuts" proposed by the Chair are 16% (for tariff band 0-30), 18% (for band 31-80%), 20% (for band 81-130%) and 22% (for band 131 and above).

-- This entitlement for additional transfer would be available for no more than a maximum of [3] [6] per cent of tariff lines.

-- SVEs are entitled to the above should they choose it. Alternatively, they have the option of choosing their more generalised entitlement to deviate from the tiered formula plus going to the 24 per cent average cut that would now be achieved through the Special Products vehicle.

(This is the first part of an article on the recent negotiations on special products within the negotiations on agriculture in the WTO's Doha agenda. The second part will be published in the next issue of SUNS.) +

 


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