TWN Info Service on WTO and Trade Issues  (June 07/10)

15 June 2007

Agriculture talks on 4-7 June on  Chair's 2nd Challenge Paper

On Thurs 7 June, the chair of the agriculture negotiations, Crawford Falconer, reported to a WTO meeting that progress is well short of what is needed in the schedule.

Falconer gave an assessment of the consultations in the week of 4-7 June on the second installment of his Challenge Paper.

The paper, and the consultations, were on issues such as the Special Safeguard Mechanism, tropical and diversification products, small and vulnerable economies (SVEs), commodities, the Green Box, etc.

Below is a report of Falconer's assessment of the negotiations.

It was published in SUNS on 11 June.

With best wishes
Martin Khor

Agriculture talks on Chair's 2nd Challenge Paper

By Kanaga Raja (SUNS), Geneva, 8 June 2007

While consultations among some 36 key WTO members on the second installment of the Challenges Paper by the Chair of the agriculture negotiations showed progress - with more openness to each others' positions and a focus on practical questions rather than broad principles - in many cases, the progress is well short of what is needed in the schedule that members have set themselves.

This assessment of the consultations in the past week on the second installment was provided by the Chairperson, Ambassador Crawford Falconer of New Zealand, at an informal meeting of the Special Session of the Committee on Agriculture on Thursday.

Falconer's second installment, issued on 25 May, covered issues such as the Special Safeguard Mechanism, tropical and diversification products, small and vulnerable economies (SVEs), recently acceded members, cotton, commodities, as well as the Green Box, tariff escalation, tariff simplification and preference erosion.

His first installment, issued on 30 April, addressed subsidies (both domestic and export) and market access. The first installment was widely criticized by both developed and developing countries.

In total, three weeks' of consultations were held covering the issues in both installments.

Falconer informed delegations at the informal meeting Thursday that there will be a pause in his series of meetings in order for him to focus on revising the draft modalities that he circulated last year.

More discussions will take place after the revised draft modalities is circulated in the second half of June, as members will want to make further alterations to his assessment of where agreement might be reached, he added, saying that the revised draft will not be a take-it-or-leave-it document.

He welcomed more inputs from members, noting that some members are preparing papers. (The Cairns Group and G20 are understood to be preparing drafts on notification, monitoring and surveillance, and the ACP Group said that it is revising its list of preference products.)

Speaking to journalists after the meeting, Falconer was of the view that while progress has been made in the three weeks' of discussions, it was not enough to say that members have gotten beyond the point of no return to getting a deal. There was still an awful lot to do, he said. (See his comments below.)

Several country groupings spoke at the informal meeting Thursday. These included the Recently Acceded Members, the Small and Vulnerable Economies, the G10 and the African Group.

In his assessment of the consultations in the past week on his second installment, Falconer told delegations that while the atmosphere has been constructive, one "constant refrain" was "when we come back to this". He wondered when this would be possible, since in his view, it will be difficult to maintain the political momentum beyond the summer break (in August).

On the special safeguard mechanism, he said that gaps have narrowed on a number of questions, with "absolute agreement" that the safeguard will not be triggered hundreds of times. Falconer also noted a "preponderance" of views, but not consensus, that the safeguards should not raise tariffs above the present ceilings, which were bound in the Uruguay Round.

The discussion on tropical and diversification products was predictable, Falconer said, but starting to be a bit more pragmatic because members are starting to talk about actual products.

However, he said that he will have difficulty in drafting a list when members are still far from agreement on the products. One idea on the table is for a list of core products that should be fully liberalized and others that might be optional, he added. Falconer also observed that this question is linked to other subjects such as tariff escalation and preferences (where lists of products are also being examined).

Falconer said the discussion on SVEs was relatively straightforward, with some discussion of the criteria for identifying these countries. He said that the Secretariat is compiling a list based on the criteria (which have been used in the non-agricultural market access talks) and it could contain some surprises.

With regards to least developed countries (LDCs), one of the issues discussed was rules of origin, said Falconer. This would determine whether products are eligible for duty-free, quota-free treatment.

Members showed some willingness to do something about market access for cotton, observed Falconer.

With respect to Recently Acceded Members (RAMs), he did not detect any opposition to some flexibility for countries that recently joined the WTO. The RAMs themselves felt that his challenges paper did not go far enough, and others felt that it went too far. But at least, members were trying concrete ideas.

On tariff escalation, Falconer said that Canada proposed a list of raw and processed materials a year ago and members started to look more concretely at this, although there was still a "diplomatic reluctance" to say what the "limits of tolerance" are. He welcomed the discussion, which he said was needed, but remained sceptical about expectations that some products will get deeper cuts through "escalation" than through the tiered formula.

According to trade officials, later, Chinese Taipei said that it disagrees with some products on the Canadian list, for example, the identification of live animals as raw materials and raw meat as "processed". Some live animals are imported for breeding and for racing, Chinese Taipei said.

On long-standing preferences, although some delegations stuck to their position that countries suffering from erosion of preferences should only be helped through aid and other non-trade measures, Falconer said that he felt that the "centre of gravity" is gathering around a mixture, with a longer period for cutting tariffs to slow down the erosion as the preferred trade solution.

He welcomed the ACP Group's announcement that it is revising its list of preference products. He urged them to focus on products where erosion will have a significant impact and not on those where the erosion is slight or the adjustment is not difficult.

On commodities, Falconer said that he remains sceptical that the Commodities Group and its African Group allies will succeed in obtaining agreement to amend the GATT to state clearly that setting up producer cartels is allowed.

With respect to the issue of tariff quota administration and in-quota tariff rates, the Chair reported that members remain divided both on whether the tariffs on quantities within quotas should be eliminated and on whether a mechanism should be created to deal with unfilled quotas.

According to Falconer, the discussion on Green Box domestic support was reasonably good and the subject is ready for a draft text. Members generally agree that the Green Box should include additional provisions to help developing countries use it, the Chair said, adding that they also agree on the need to improve transparency, monitoring and surveillance to make sure that programmes meet the criteria.

Opinions however differ more on disciplines to prevent Green Box supports from distorting trade. There is broad agreement that income supports that are separated ("decoupled") from production should be based broadly on "fixed and unchanging" base periods, said Falconer. However, more work is needed on this, including the question of whether the principle should also apply to structural adjustment programmes involving investment aid and regional assistance programmes where bigger differences remain.

As to other issues, the Chair reported that the discussion on differential export duties and geographical indications was "predictable", while comments on export prohibition were simply a reminder of the mandate.

Uganda, speaking on behalf of the African Group, reiterated its support of the Doha Work Programme that puts development issues at the forefront of the negotiations and stressed that development must be an integral part of the overall outcome of this process.

The Group highlighted the importance that it attached to five issues outlined in the Chair's second installment - commodities, preference erosion, cotton, tariff escalation and least developed countries.

The Group said that these issues are of utmost concern to it, but in its view are not getting the attention it deserves and which, to the Group, will determine whether there is a Doha Development Agenda Round or not.

On commodities, the Group referred to its proposal in document TN/AG/GEN/18, where the Group had emphasized the urgent need to adopt modalities that would ensure that tariff cuts following the application of the formula result in satisfactory reduction in the level of tariff escalation. In their proposal, the Group stated that such modalities would include a mechanism under which commodity exporting countries could negotiate with members maintaining such tariff escalation with the aim of finding appropriate solutions. The Group noted that its proposal enjoys wide support.

Referring to Falconer's paper that pointed out that a tiered formula or any other complementary formula that may be adopted, would not result in elimination of tariff escalation wherever they exist, the Group said that it is well known that commodity dependent countries have been facing declining and fluctuating prices for their commodity exports.

This means that the ultimate solution for these countries is to add value to their products. This is where tariff escalation becomes a real problem to these countries. Hence, the need to end this problem of tariff escalation, once and for all, during this development Round, said Uganda.

The Group interpreted the provision of the Hong Kong mandate on this issue to be that the first step in securing effective reduction in tariff escalations would be the application of the relevant formula. Both at Hong Kong and in later discussions, the African Group said that it pointed out that the formula alone, however ingeniously designed, may not result in the elimination of tariff escalation.

Therefore, in its proposal, the African Group has suggested that where the application of the formula would not be effective in the removal of tariff escalation, there should be bilateral or plurilateral negotiations among the concerned countries, in order to effect the elimination of tariff escalation.

The Group also referred to other aspects of its proposal that relate to the request that provisions of Article XX (h) should be clarified to permit commodity producing countries to enter into commodity agreements for the management of supplies and for stabilization of prices, without having to invite commodity consuming countries to become parties to these agreements.

Uganda said that the African countries are at present consulting among themselves on the submission of ''legal text'' for clarification of the provision of Article XX (h), and that they expect to make a formal submission in a few weeks.

On tariff escalation, the Group agreed with the Chair when he noted that in case an agreement on the problematic issues can be achieved in the indicated deadline, then tariff escalation in developing countries should also be reduced.

The Group welcomed two positive aspects in the Chair's paper from the perspective of LDCs.

The Group noted that the Chair is suggesting that 100% of products originating from LDCs should receive duty-free and quota-free treatment (DFQF) in developed country markets, by the end of the implementation period of commitments derived from the Doha Round. The Group supported the Chair's proposition for a specific deadline for extending DFQF treatment to the remaining 3% of tariff lines, which as the Chair noted, the Hong Kong Ministerial Declaration made no specific modality or time frame on how to achieve this. This approach could enable LDCs to receive this treatment for all their agricultural lines, said Uganda.

The Group also welcomed Falconer's suggestions to include specific modalities to address other elements of Annex F of the Hong Kong Ministerial Declaration on LDC-specific agreement proposals, such as rules of origin.

The Group reaffirmed the importance of cotton to the African countries. It supported the proposal submitted by the Cotton-4 (Benin, Burkina Faso, Chad and Mali - C4) in June 2006 regarding the reduction in the specific measure of support applicable to cotton.

The Group fully shared the C4 objective that product-specific AMS cap applicable for cotton shall amount to one-third of the final capping resulting from the historical average for that product for developed countries.

Also, the Group believed that the proposal by the C4 that the Blue Box cap applicable for cotton shall represent one-third of what shall be agreed as specific Blue Box ceiling in agriculture. The Group also believed that developed countries, will, and developing countries in a position to do so, should provide DFQF access for imports of cotton from LDCs. This could cover imports from all developing countries as well.

On preference erosion, the Group noted that the Chair's range of products under this thematic area is very small. It only mentions sugar and bananas. What happens to other products, asked Uganda. The Group also noted that the Chair is suggesting that both trade and non-trade based solutions are needed.

In addition, the Group cautioned that the use of Aid for Trade as a panacea for preference erosion might not be helpful. The Group was of the view that members focus on the trade solution since the non-trade solutions should be discussed under Aid for Trade and other fora.

Uganda also referred to Falconer's paper that proposed that the solutions in the area of preference erosion should be sought on a case-by-case scenario. For example, that if the cut in the margin of preference is large and sudden, the trade solution proposed could be maintaining preference margin. If this is not an option, longer implementation period and non-trade solutions (such as capacity building and improvements to rules of origin regimes) could be envisaged.

The Group believed that this option will be discussed at length to see how a solution could be arrived at. For the African Group, this round cannot end without the issue of preferences, Uganda stressed.

Switzerland, on behalf of the G10, welcomed Falconer's second installment, saying that it is quite successful in finding reasonable ''centres of gravity''.

In the first installment, the G10 said, the indicated ''centre of gravity'' for the reduction commitments in the upper band was by no means a true reflection of the proposals made by major stakeholders in this negotiation.

The G10 said that it would like to renew its readiness to show flexibility and to undertake substantial commitments in all three pillars of the agriculture negotiations provided that it sees signs of flexibilities from other Members with regard to its key priorities which are the rejection of tariff capping, a reasonable rate in the upper band and appropriate treatment and number of sensitive products.

''Movement from established positions is made difficult with the constant threat of a tariff cap hanging over our heads,'' said Switzerland, adding, ''remove the threat of a tariff cap and we will have the ability to increase our flexibility.''

Referring to the small group consultations (Room E) over the last weeks, the G10 said that the discussions have been useful. In some areas, like the Green Box, the G10 had the feeling that a compromise solution is close to a solution.

Nevertheless, said Switzerland, there are other issues such as tariff escalation or tropical products where the solution is tightly linked to the overall package and cannot be set in isolation.

According to trade officials, Brazil wanted members to be able to provide the Chair with more input before he writes his draft modalities text.

The EU said that Falconer's second installment was more balanced. There is a great deal of work ahead. They also wanted the Chair to write 'three paragraphs' on the issue of Geographical Indications.

Falconer told journalists that progress has been made in the three weeks of discussions. The discussions have been pretty engaged and constructive, with some flexibilities on a range of issues.

It is positive, said Falconer, but "is it enough to say that we've got beyond the point of no return to getting a deal?" No, said Falconer. ''We still have an awful lot to do, and it is still a huge challenge to get where we got to go... but at least we are at last moving in the right direction.''

When asked to elaborate on the progress made, Falconer said that he felt that progress had been made on a number of issues in both installments of his Challenges Paper.

Examples included a narrowing of differences on the main tariff reduction formula, some aspects of sensitive products, the special safeguard mechanism (to be used by developing countries) and the Green Box.

On the Green Box, Falconer thought that he would be able to draft something. It would not be perfect, but could be a basis for members to negotiate.

In areas like tropical products and preferences, while there has been huge theological divides and some quite passionate discussions, at least we are getting down to levels of lists and products, Falconer told journalists. But, there is still a long way to go on that.

On the developing country issues, Falconer said that there seems to be more openness to accept that the ACP countries, for instance, might have more difficulty in dealing with the one-size-fits-all solution. But on the other hand, the ACP solution is not going to work for all developing countries.

On the process for full modalities, Falconer stressed that it will have to be done multilaterally in Geneva. ''You can't step outside this process. Whatever is done in smaller groups outside will have to feed in here.''

While a political impetus from the G4 (Brazil, EU, India, and US) is a necessary - but not a sufficient - condition, it will still have to feed into this process.

He said that his revised draft would have to be more specific about possible areas of agreement but he has not decided whether he will simply narrow down the ranges or propose single numbers. Nor has he decided whether to circulate the paper before or after the G4 meet outside the WTO.

On domestic support, Falconer revealed that privately, he has already got his range. He said that he would have to be more precise than he was in his challenge paper.

The Chair is expected to circulate a revision of his 2006 draft modalities in the second half of June. After that, according to trade officials, more meetings are expected to take place to discuss and amend the revised draft. +