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TWN Info Service on WTO and Trade Issues (July07/12)

26 July 2007


WTO members give critical response to Agriculture draft text
at WTO meeting on 24 July

On 24 July, WTO members gave their first reactions to the agriculture modalities paper of Ambassador Crawford Falconer at a meeting at the WTO.

Developing countries and their groupings pointed out many imbalances and shortcomings of the paper. The main criticisms they pointed out were that:

-- The draft text contains only partial modalities and many issues of concern to developing countries have not been developed.

-- Agriculture is supposed to be the main engine of the Doha Round. However, the ambition level in agriculture in relation to commitments by developed countries is slow while developing countries are asked to "pay more" in NAMA, which turns the Round on its head.

-- There is a North-South imbalance within agriculture itself. In the tiered tariff-reduction formula, developed countries are asked to do less than what the G20 demanded, but developing countries are asked to undertake more cuts than what the G20 or the ACP Group proposed.

-- On domestic support, the draft text is easy on the United States, European Union and Japan as the range of figures proposed in the text on overall trade distorting support (OTDS) would allow them to retain "water" and thus to increase their subsidies beyond the present level or the planned future level.

-- On special products (SP) and special safeguard mechanism (SSM), the text has disappointed the G33 members for having onerous demands on selection of SPs, inadequate treatment on SPs and being not in line with the G33 proposal on SSM.

-- The draft is inadequate in meeting developing countries' demands to tighten the disciplines on developed countries' use of Green Box subsidies, thus enabling continuing shifting of boxes and of continued high domestic subsidies by them.

Despite these criticisms, many developing countries and their groupings acknowledged that Falconer made a good endeavour in writing his draft, and that they could make use of it when negotiations resume in early September.

Major developed countries also indicated their willingness to use the paper as a basis for negotiations. The US faulted the paper for not having enough clarity on market access, while the EU was not satisfied with the treatment of sensitive products. 

Please see the report below which was published in the SUNS of 25 July.

Best wishes
Martin Khor
TWN

WTO members respond critically to agriculture draft at WTO meeting

By Martin Khor (TWN), Geneva 24 July 2007

WTO members on 24 July presented their first reactions to the agriculture modalities paper of Ambassador Crawford Falconer at a meeting of the special session of the Committee on Agriculture held at the WTO. Ambassador Falconer of New Zealand, who is Chair of the agriculture negotiations, chaired the meeting.

Developing countries and their groupings pointed out many imbalances and shortcomings of the paper. The main criticisms they pointed out were that:

-- The draft text contains only partial modalities and many issues of concern to developing countries have not been developed.

-- Agriculture is supposed to be the main engine of the Doha Round. However, the ambition level in agriculture in relation to commitments by developed countries is slow while developing countries are asked to "pay more" in NAMA, which turns the Round on its head.

-- There is a North-South imbalance within agriculture itself. In the tiered tariff-reduction formula, developed countries are asked to do less than what the G20 demanded, but developing countries are asked to undertake more cuts than what the G20 or the ACP Group proposed.

-- On domestic support, the draft text is easy on the United States, European Union and Japan as the range of figures proposed in the text on overall trade distorting support (OTDS) would allow them to retain "water" and thus to increase their subsidies beyond the present level or the planned future level.

-- On special products (SP) and special safeguard mechanism (SSM), the text has disappointed the G33 members for having onerous demands on selection of SPs, inadequate treatment on SPs and being not in line with the G33 proposal on SSM.

-- The draft is inadequate in meeting developing countries' demands to tighten the disciplines on developed countries' use of Green Box subsidies, thus enabling continuing shifting of boxes and of continued high domestic subsidies by them.

Despite these criticisms, many developing countries and their groupings acknowledged that Falconer made a good endeavour in writing his draft, and that they could make use of it when negotiations resume in early September.

Major developed countries also indicated their willingness to use the paper as a basis for negotiations. The US faulted the paper for not having enough clarity on market access, while the EU was not satisfied with the treatment of sensitive products.

Among the developing country groupings, the G33 was disappointed that the paper did not provide modalities for special products (SPs). It was opposed to the draft for proposing that indicators in selecting SPS should be open to verification, and that the indicators should have thresholds which should be quantified. It wanted qualitative and not quantitative guidelines for selecting SPs. It added that the draft's comments on SSM are not in harmony with the G33 proposal.

The G20, represented by Ambassador Clodoaldo Hugueney of Brazil, welcomed the draft text which it said was a good starting point for further work in September. But to move to a text-based negotiation, only full modalities, covering all areas of the Mandate, with clarity on contents, can provide a sound basis, it said.

The G20 said that some issues are not addressed at this stage. There are many gaps to fill. Different levels of precision render difficult the assessment of the overall balance in the text and in relation to the NAMA text.

The text must be improved by correcting the imbalances and by filling in the gaps in areas that are not covered or not fully developed.

Amb. Hugueney quoted the historian Eric Hobsbawm as saying that the task of History is to remember what others want desperately to forget. The G-20 will keep recalling the centrality of Agriculture in this Development Round. The ambition in agriculture must determine the negotiations in other areas - and not the other way around. This is fundamental to redress historical imbalances and to avoid future imbalances.

The G20 said that the central linkage in Agriculture is between Domestic Support and Market Access. Whereas central elements in the Domestic Support pillar are now clearer, there is not much clarity on important areas of Market Access. The text captures some progress in the negotiations, but the central linkage in agriculture is yet to be assessed.

On Domestic Support, the central linkage is between cuts and disciplines. The overall trade distorting support (OTDS) constitutes the key benchmark of the level of ambition for the Round - geared towards restricting and controlling all forms of distorting support in all boxes.

Effective cuts in OTDS are essential to make viable a higher level of ambition in agricultural market access. According to the G20, the draft has narrowed the OTDS range, but the G-20 reiterated the need for the outcome to be "very low teens". Narrowing ranges is not an arithmetic exercise of dividing ranges by half, but of fairness in international trade.

The G20 added that the EU and Japan retain considerable amounts of "water" and this is not adequately addressed in the draft text. The Round started with the EC committed to bind the CAP reform; now cuts fall short even of that modest original commitment.

The G20 said that domestic support must also incorporate effective disciplines at the product-specific level. On product-specific disciplines for the AMS and the Blue Box, the drafted parameters and end-result numbers must be closely examined. But in order to assess that, the US must provide the necessary, long overdue, information about its expenditures.

The group said that additional amendments will be required in the Green Box. Though there are some improvements for programs of interest of developing countries in relation to the previous draft, this is not enough. Other important provisions for developing countries are missing.

On the other hand, for developed countries, the draft does not deliver on a green box that must be non- or minimally trade-distorting.

The G20 said that on Market Access, the central linkage is between formula and flexibilities for developed and developing countries. The G-20 welcomed the adoption of its formula tiers for developed and developing countries. However, the impact both on developed and developing countries remains to be assessed, and lack of clarity on flexibilities could hinder outcomes derived from the formula.

This is particularly so in the case of developed countries. In the draft text, cuts are South of (i. e. below) the G-20's proposal for developed countries while for developing countries they are North (i. e. above) of the G-20 proposal. The G20 insisted that its proposal for cuts are already middle-ground cuts.

The capping for tariffs as an integral part of the formula is absent, said the G20. Caps must apply for both sensitive and non-sensitive products. Otherwise, we will be reinforcing disparities between agriculture and non-agriculture market access, said the G20, adding that "we should not lose focus of the benchmarks for average cuts in developed and developing countries."

In terms of flexibilities, there is no clarity in terms of results for sensitive products, added the G20. The draft text seems to take the direction of correlating deviation and TRQ expansion based on domestic consumption. This is a positive step. However, results are to be clarified.

Extending its critique of the paper's treatment on sensitive products, the G20 said that the number of sensitive products is too high; the two-thirds deviation is excessive and the incentives not to apply it, are not sufficient; and the levels of ambition too elusive at this stage.

Furthermore, no new Tariff Rate Quota should be created in the process and TRQ expansion must be MFN, said the G20. This principle must also be implemented in TRQ administration. The draft text also contemplates a number of exceptions to TRQ expansion that could further hinder market access, unduly penalizing more competitive suppliers.

The G-20 reiterated its position on the elimination of the special safeguard (SSG) from the beginning of the implementation period and the binding in ad-valorem terms of all tariffs.

As for developing countries, the G20 said that the results of applying the formula from the G-20 tiers and the two-third cuts with average adjustments will be technically assessed. Flexibilities will also be assessed taking into consideration different realities of tariff structures between developed and developing countries and following the overall proportionality of commitments.

On Export Competition, the G20 recognized some positive elements in the disciplines. The elimination of export subsidies by 2013 is correctly preserved, but ambition on volume commitments remains to be addressed.

The G20 added that the draft constituted an initial basis for negotiations on STEs and Food Aid. In the latter, it welcomed the provision requiring fully grant form and emphasized the importance of the multilateral institutions in triggering access to the Safe Box and of disciplines outside the Safe Box, particularly monetization.

On Export Credits, the Draft excluded most provisions on market consistency ("benefit") which should be in parallel with "self-financing" provisions.

The G20 said that Monitoring & Surveillance is an essential element to ensure that there will be added transparency in all three pillars. It will imply enhanced follow-up of commitments, that notification periods will be respected and that a system of peer pressure and peer review will be in place. The G-20 proposal on monitoring and surveillance should provide a good basis for a text on this issue.

The G20 said that as a development Round, its results should be development-oriented and should correct the imbalances present in the multilateral trading system.

The G33, represented by Indonesian Ambassador Gusmardi Bustami, commended the Chair for his endeavour and noted he tried to encompass many specific interests of the WTO members. The G33 believed the multilateral process is the only way to ensure an inclusive bottom-up approach and legitimacy. The draft is an impetus for a genuine multilateral process in Geneva.

The group agreed with the Chair that the future negotiations would take as long as it takes, and called for no imposition of any new artificial deadlines and let the multilateral process continue and be given a chance.

The G33 said the draft had some positive improvements from the Chair's previous Challenge papers, but stressed that it still is greatly imbalanced both in precision and substance. This is especially so for issues of major concern to developing countries.

The G33 will not agree to putting development aspects as an afterthought or an ornament to be added after the main issues are settled. These development aspects include traditional SDT of lesser commitment and longer implementation, tariff escalation, tropical products, SP, special safeguard mechanism (SSM) and cotton.

The G33 said the market access pillar is the most imbalanced. On the tariff formula, the G33 was concerned that the Chair's proposed numbers lean towards the interests of certain developed countries by lowering their ambition level, while on the other hand increasing the ambition level in developing countries.

On the G33's paramount issue of SPs, the group was disappointed the paper did not provide modalities. It was encouraged that the draft acknowledged a one-size-fits-all approach will not work for developing countries on SP.

Referring to the draft's proposal that the SP indicators should be open for verification, the G33 said it did not recall any discussion on this. It questioned why such an onerous process should be taken for SP selection but not for selecting sensitive products. There should not be any compromise on the countries' right to self-designation of SPs.

The G33 also noted the Chair's proposal to quantify operationally the concepts in the indicators. In the group's view, this is not an easy task, if not impossible. A specific threshold for each indicator for diverse countries would be extremely difficult to be determined.

The G33 pointed out that in some WTO agreements, relevant factors have been listed out in qualitative terms and have not been quantified. If certain qualitative guidelines can serve the purpose for certain WTO agreements, we would then view the same for SP indicators, said the G33.

The G33 added it was very disappointed with the Chair's persistent views on the treatment of SPs which has not changed from his earlier papers. It reiterated that an appropriate percentage of SPs shall be exempted from any tariff reduction, which is vital because of undeniable situations where developing countries need this exemption. The group's own proposed treatment of SPs is the most feasible.

On SSM, the G33 agreed the mechanism should not disrupt trade and the group had no intention to make the SSM a permanent protectionist measure by invoking it a hundred times a year; it is simply needed to cushion farmers from import surges.

The G33 stressed the SSM should be available for all agricultural products. It must be more favourable than the existing Article 5 of the agriculture agreement. The G33 in general also felt that the draft's comments on SSM are not in harmony with the G33 proposal.

The ACP Group, represented by Jamaican Ambassador, Ms Gail Mathurin, said engagement at the multilateral level is paramount and hoped the text which is a work in progress will help advance deliberations in a multilateral framework.

The ACP stressed the vital importance of the principles of transparency, inclusiveness and a bottom-up approach. Further, as the Chair himself stated, this process should take as long as it takes. A cautious approach should be maintained in setting any new deadlines.

This is particularly important as the negotiations should be balanced and equitable leading to full modalities. The Group will not agree or accept "partial modalities" and believes that until complete modalities containing all the elements of a decision are fully developed, all proposals remain on the table.

The ACP said the document does not contain the same level of specificity within pillars and across pillars. The Domestic Support and Export Competition pillars are more developed than that on Market Access. For the ACP, Market Access is by far the most important and this needs to be addressed fully.

On Market Access, the ACP Group noted that modalities language is missing on issues that, from an ACP perspective, are vital to giving effect to the development dimension. This is particularly the case in respect of long-standing preferences, tariff escalation, commodities, Special Products and the Special Safeguard Mechanism.

On the other hand, the ACP is encouraged by the proposals on the treatment of Small and Vulnerable Economies and countries with ceiling bindings. However, the numbers in paragraphs 51 and 52 remain within brackets. They should be agreed, and brackets be removed.

The Group supported the G33 statement on SPs and SSM. On SPs, the Group was encouraged by the reaffirmation of the right of developing countries to self designate an appropriate level of tariff lines as Special Products, and the suggestion to use the G33 Revised list of Indicators as the basis for further discussions.

Nevertheless, the ACP Group expressed concern about the draft's proposal to quantify concepts such as "significant proportion" and that indicators should be open to verification. With respect to the treatment of SPs, the ACP Group maintains that an appropriate percentage of our SPs should be exempt from tariff reduction and in that regard the Chair's continuing views are of concern to the Group.

On Commodities, the ACP acknowledged progress on this issue but wanted all elements of the African Group proposal to be reflected in final modalities.

On Longstanding Preferences and Preference Erosion, the ACP said its expectations have not been met. The group reminded Falconer that in its recent Submission to him, it had re-emphasized that it would be difficult for the ACP Group to agree to any consensus on a modalities text which does not effectively address its concerns on preference erosion. This continues to be the case since there has been no concrete proposal made on this issue in the text.

The Group maintained that on this issue trade-related solutions, alongside non-trade related ones, at the multilateral level are the only acceptable solutions. These would effectively address the implications and adjustments as a result of the erosion of preferences, thereby ensuring the success of the major economic reforms in which our countries are engaged.

Therefore, the ACP Group took careful note of the draft's observations that there will be trade-based measures involved in addressing this issue (and that these will not be restricted to sugar and bananas). Proposals made under Paragraph 36 of the Draft Modalities on Agriculture of 12 July 2006 (TN/AG/W/3) are important benchmarks for devising such trade-based measures.

For the ACP Group, the proposals in the 2006 draft modalities text remain on the table and should form an integral part of full modalities.

On the Domestic Support Pillar, the ACP Group maintained its high expectation for effective reductions in the level of overall trade distorting support in developed countries, significantly below current levels. The ACP Group also has concerns with certain elements of the proposed modalities on the Blue Box and the Green Box.

On the Export Competition Pillar, the Group referred to Food Aid and the Special and Differential Treatment elements. It had concern regarding some of the specific proposals on the role of recipient countries and the role of NGOs. It also had concerns on the approach suggested with regard to State Trading Enterprises (STEs).

On cotton, the ACP Group welcomed the proposals under the three pillars which could help in delivering effective and appropriate results for Cotton.

India, represented by Ambassador Ujal Singh Bhatia, said the draft reflects the negotiating realities. It was a working document which can be the basis of serious multilateral negotiation.

Citing the draft's statement that some areas of the negotiations are more developed than others, India said that several of the issues which are less developed relate to critical interests of developing countries, including the issues of SPs and SSMs. We cannot envisage an outcome which does not have final determinations on all aspects of the negotiations, said India.

India noted that the proposals on the tariff formula for developing countries, while accepting the G-20 thresholds, the Chair proposed that developing countries should take two thirds of the cuts of developed countries with a maximum average reduction of 36 to 40%.

The proposals made by the G-20 in this regard fully reflected the differences in the tariff structures of developing countries as compared to developed countries and were designed to deliver on overall proportionality, said India. It is the yardstick of overall proportionality which will determine for us whether we have arrived at an outcome which is equitable.

Secondly, said India, it is disappointed with the paper's treatment of tariff capping and tariff simplification. While tariff capping is barely mentioned, there is very little ambition on tariff simplification, which is of vital interest to many developing countries. Developing countries have been demanding high ambition on these issues in the interest of systemic equity. They will have to be addressed resolutely as they have a direct bearing on the balance in ambition between agriculture and NAMA.

Thirdly, on the Green Box, the draft incorporated a number of proposals of the G20 and others. However, some developing country concerns like public stock holding for food security purposes, and domestic food aid remain unaddressed or partially addressed.

On developed country programmes, India had expected more ambition in areas like direct payments to producers and decoupled income support. It is very important that the negotiations on the Green Box conclude with clear rules and disciplines to ensure that Green Box programmes remain non-distorting or minimally distorting, said India.

On SPs and SSMs, India stressed the need to address issues such as thresholds and data in the context of indicators in a pragmatic manner. Similarly, the issue of treatment of special products would also benefit from a pragmatic and needs-based approach.

On SSM, India said it has to be designed as an effective instrument to enable developing countries to deal with import surges. It cannot be defanged so much that it is not able to play that role.

On OTDS cuts, the ambition is clearly defined by the mandate for effective cuts. The range suggested by the Chair, prima facie, would make it difficult to achieve this mandate. India reminded that the ambition on OTDS cuts will have a very significant bearing on the overall ambition of the Round.

On the issue of the mandate, India noted that some members had spoken in the meeting about red lines. For India, the big red line is the sanctity of the mandate. "We are in a very delicate phase of the negotiations and what we need is constructive engagement within the boundaries of the mandate. Any attempts to go beyond the mandate and to introduce new ideas, including on the revival of Article 13 provisions in any form, would deal a serious blow to the prospects of early conclusion of the negotiations," said India.

India said it was convinced that a serious multilateral negotiation without the pressure of artificial time-lines is the only way we can achieve an outcome which is fair, equitable and sustainable. Such an outcome, in the context of this development Round, would have to address with equal intensity, the issues of distortions in developed countries and the need for appropriate accommodation of the development concerns of developing countries.

(The meeting on agriculture was still going on as the SUNS went to press. A report on other statements will appear in the next issue of SUNS.)

 


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