TWN Info Service on Trade and WTO Issues (July08/12)
15 July 2008
Third World Network

Trade: Imbalances remain in WTO's new agriculture, NAMA texts
Published in SUNS #6516 dated 14 July 2008

Geneva, 11 July (Martin Khor) -- Problems and imbalances remain in the revised texts on modalities for agriculture and non-agricultural market access that were issued late Thursday afternoon (10 July) by the chairs of the respective negotiating groups, Ambassador Crawford Falconer and Ambassador Don Stephenson.

The texts and figures on most of the major parameters remained unchanged from the earlier May texts on both issues. These include key agriculture issues of reduction in overall trade-distorting domestic support (OTDS), the formula for tariff cuts, and the number of sensitive products.

In the NAMA text, the controversial coefficient ranges for developed and developing countries for cutting tariffs through a "Swiss formula" in the May text have also remained, as also the percentages of tariff lines that can have flexibilities from the full tariff cuts, according to a "sliding scale."

Of course, the fact that these key figures remain does not signify agreement has been reached. The figures are in the form of ranges, and negotiations will have to focus on what specific numbers to select from each of the ranges, or even from outside the range.

The ranges themselves are not cast in stone. This point was made even by Falconer at his press briefing after his paper was issued. He noted that his range for OTDS was formulated some time ago and the situation had now changed very significantly, and some Ministers and officials wish the final figure would be outside the range, and it was not technically complicated to argue why this should be so.

However, with the two main sets of figures (OTDS in agriculture and the formula coefficients in NAMA) remaining the same, the critique made by many developing country delegations and many analysts that the "deal" as contained in the two texts is fundamentally imbalanced remains as true today as in the past few years when the main contours of the modalities emerged.

Many other points can be added to why there are basic imbalances as between agriculture and NAMA, and as between developed and developing countries. As senior officials from countries like Brazil, India and South Africa have pointed out, the trend of recent negotiations and the Chairs have centred on accommodating the sensitivities and defensive interests of the developed countries while also helping them to be aggressive in pushing for market access to developing countries' markets.

On the other hand, the sensitivities and development concerns of developing countries have been brushed aside, and the already meagre flexibilities given to them have been offset and eroded further by piling on more and more conditions on the scope and use of the flexibilities.

In the recent week's NAMA negotiations, whether in small groups or in open-ended meetings, the limited flexibilities that developing countries have in being shielded from the full formula cut have been sought by developed countries and the Chair to be eroded further by the anti-concentration clause.

According to this, a developing country using the flexibilities (for example, that 10% of NAMA tariff lines will be subjected to only 50% of the formula's normal tariff cut, and that this is restricted to only 10% of the total value of the country's NAMA imports) will have the additional condition that it must not exclude an entire sector or a certain percentage (50% has been mentioned by Stephenson and also by the EU) of tariff lines or of the value of imports in a sector from the full formula cut through the use of the flexibilities.

The anti-concentration clause was introduced by Stephenson in his May text - at a very late stage of the Doha negotiations, as emphasised by the South African Ambassador, Faizel Ismail - and he has retained it, although with different language, in his 10 July text.

The new Para 7 (d) reads: "The flexibilities provided under paragraph 7 shall not be used to exclude entire HS Chapters. In order to ensure tariff reduction in every Chapter, without substantially limiting the flexibilities provided to developing Members, this provision shall be understood to mean that full formula tariff reductions shall apply to a minimum of either [ ] percent of national tariff lines or [ ] percent of the value of imports of the Member in each HS Chapter."

The fight over whether there should be an elaboration of this issue beyond what is in the first sentence of the paragraph and if so what percentage to agree on (which is what the EU, US and Japan insists), or whether to leave only the first sentence
(which is what developing countries want), will be one of the big issues in the NAMA talks ahead.

Another recent contentious issue was the May text's linking of the participation of a developing country in "sectoral initiatives" (an agreement to have zero or very low tariffs in a particular sector) to its getting "credit" in being able to have a higher coefficient (and thus a lower rate of tariff reduction).

This was also resisted by many developing countries as participation in sectorals is supposed to be voluntary, and such a linkage would relatively punish those that choose not to take part. In the new text, the paragraph making this linkage has been dropped.

The most contentious of the NAMA issues is to choose the numbers for the coefficients of developed and developing countries, and the numbers for the percentage of tariff lines for developing countries to have flexibilities to deviate from the formula.

The new paper retains the coefficient range of 7-9 for developed countries and the middle ranges for developing countries of 21-23 coefficient and flexibility of 10% of lines that are allowed up to 50% leniency from the full cut or 5% of lines that can be exempt from any cut.

This implies that the major developed countries would have to reduce their tariffs by an average of less than 30%, while major developing countries that have to apply the formula would have to cut their tariffs on average by around 60%, before counting the effects of the flexibilities (which are limited).

This North-South imbalance within NAMA itself is coupled with the imbalance between NAMA and agriculture, i. e. that the degree of commitments asked of developing countries in NAMA is higher than the degree of commitment asked of developed countries in agriculture.

In fact, double standards abound in the modalities in agriculture and NAMA. For example, unlike in NAMA, there is no anti-concentration clause for agricultural sensitive products for developed countries (which can deviate from the formula cut) nor are these products restricted in terms of percentage of trade value.

In the new NAMA text, a group of developing countries that is bound to be disappointed are those that have low tariff bindings and exempt from the formula. They are required instead to increase their bindings and also to reduce their bound tariffs to an average of 28.5%, which is supposed to be the average tariff of developing countries.

These countries have argued in recent weeks that the 28.5% rate is inaccurate as it does not include the tariffs of a category of developing countries and that 32.6% is the actual average rate of all developing countries. They have been advocating a change in the text to 32.6%. However, the new draft retains the 28.5% figure, in brackets.

"This is very frustrating for us," said a diplomat from one of the countries with low-bindings.

In the agriculture text, perhaps the most politically important figures are those for the allowable overall trade-distorting domestic support (OTDS) for the US. As expected, this remains at reduction of [66-73] per cent for the category of countries which the US is in, or to a range of $13-16.4 billion.

Where in this range will the US make its offer will be crucial in determining the "level of ambition" in many other parts of the agriculture and NAMA modalities and beyond. Even an offer of $13 billion may not be enough to satisfy some countries. India's Commerce Minister has asked for $7 billion, the estimated current level of actual spending.

There are also no changes to the provisions in the Blue Box (the most important of which is to cater to specific US interests) or the amber box (or AMS) in the domestic support pillar, or in the tiered formula for tariff cuts in market access pillar.

Among the most important new aspects of the agriculture text are in special safeguard mechanism (SSM) and special products (SPs), the two most important items for a large number of developing countries, which are in the G33 and other supporting groupings, and which want to establish and use these two instruments for their food security and farmers' livelihoods concerns.

The most heated negotiations in small groups in recent weeks have been on these two issues, as the US as well as a few developing countries with export interest have been opposing the G33's terms on SP and SSM.

On SSM, the Chair's May text had been very disappointing to the G33 as it had placed a large 30% threshold before the price trigger could be used, and it had placed two major constraints on the remedy (i. e. the SSM-supported duty cannot exceed the pre-Doha or Uruguay Round bound rates, and that the additional duty shall not exceed 50% of the difference between the import price and the trigger price). These three provisions would render the SSM ineffective operationally, and drew strong reactions from the G33.

The new text imposes a 15% threshold instead of 30% for the price trigger, i. e. that the SSM can be used when the import price falls to a trigger price equal to 85% of the average monthly MFN sourced price for that product for the most recent three-year period preceding the year of importation for which data are available. This is in contrast with the G33 position that the trigger price is the average monthly price for the most recent 3-year period preceding the year of importation.

The new text also imposes a limitation that the additional duty shall not exceed 85 per cent of the difference between the import price and the trigger price. This may be more than the 50% of the previous text, but it still does not allow full offset to enable the depressed import price to be raised to the trigger price.

This contrasts with the G33 position that an additional duty can be up to the difference between the import price and the trigger price, so that the new price after the SSM duty can be the trigger price (i. e. the average monthly price for the most recent preceding three-year period). Moreover, what the text gives with one hand, it takes away with another hand with the limitation on not exceeding the pre-Doha tariff rates (see below).

The new text also has volume-based triggers for the use of the SSM. The two options for the volume triggers in the earlier draft are replaced by a single option which is not in brackets. It follows the structure of the G33 proposal but is far less effective than the G33 position in both the trigger and in the remedy.

The most problematic aspect in the new text is its continuation of the limitation that the remedy shall not result in a new duty that exceeds the pre-Doha rates. Para 133 states that "the above provisions on triggers and remedies apply subject to the limitation that the pre-Doha bound tariff is respected as the upper limit and shall prevail as such."

There is a relaxation of this rule for three categories: LDCs, small vulnerable economies (SVEs) and "other developing countries":

(1) LDCs can apply the maximum remedy even if this breaches the pre-Doha bound tariff, provided that the maximum increase over a pre-Doha bound tariff does not exceed 40 percentage points or 40% of the current bound tariff, whichever is higher.

(2) SVEs may apply the maximum remedy even if this breaches a pre-Doha bound tariff, provided that the maximum increase over a pre-Doha bound tariff does not exceed 20 percentage points or 20% of the current bound tariff, whichever is higher, for up to a maximum of (10-15) per cent of tariff lines in any given period.

(3) Other developing countries may apply the maximum remedy even if this breaches a pre-Doha bound tariff provided that (a) the maximum increase over the pre-Doha bound tariffs would be no more than 15 ad valorem percentage points or 15% of the current bound tariff, whichever is the higher; (b) the provision can be invoked for only 2-6 products in any given period; and ( c) this would not be permissible for two consecutive periods.

In the previous text it was not clear if there would be such a "pre-Doha level" limitation on the volume-based trigger; but the present text makes clear that this limitation applies to both the volume and price triggers.

The "exemption" from this pre-Doha limitation is also very narrow, since it is for only 2 to 6 products (to be decided on), and the remedy if this "breach" occurs is very limited as only 15 percentage points or 15% of the pre-Doha bound level can be exceeded. Moreover, it cannot be applied for more than two consecutive periods, even if the situation causing the problem continues beyond these periods.

Finally, the Chair retains his May text that "the calculation of volume or price triggers, and the application of measures... shall be on the basis of MFN trade only."

This is a major turnaround from his February 2008 paper which gives developing countries the option whether or not to include preferential trade (or products affected by bilateral/regional free trade agreements) in the triggers and remedy (and in that paper this paragraph was not even in square brackets, signifying that the Chair was confident it enjoyed wide support, if not agreement).

This turnaround is a setback for SSM proponents as a large part of agricultural import surges may be due to reduced tariffs arising from FTAs. The February text allowed developing countries to use the SSM on FTA-linked products, but this present text categorically denies this option.

Overall, the new text is thus a setback for the SSM proponents. This is also in comparison with the normal safeguard (in the WTO's safeguard agreement, compared to which the SSM is supposed to be easier to use) and with the existing special agricultural safeguard (SSG) which mainly used by developed countries (and compared to which the SSM is also supposed to have more flexibility). Both of these are not limited by any condition that limits the extra duties by the level of the bound rates of the previous Round.

The Chair also did not follow the request of the G33 to place its positions in square brackets in the new text, so that it can more easily defend its positions in the forthcoming negotiations.

On special products, the new text is quite different from the May text, in putting forward simpler choices. It says developing countries shall be entitled to self-designate Special Products guided by indicators based on the criteria of food security, livelihood security and rural development.

There shall be 10-18 per cent of tariff lines available for self-designation as Special Products. A footnote says that below this level developing countries need not resort to guidance by those indicators. This implies that above this number, developing countries can designate more SPs provided these are guided by indicators.

The text also states that "up to 6 per cent of/no lines may have no cut. The overall average cut shall, in any case, be 10-14 percent."

While specifying an overall average cut, the text does not place a condition that there be a minimum cut per line, thus implying that some lines can have zero cut.

Besides SP and SSM, there will doubtless be a lot of scrutiny on the section on sensitive products, especially if the provisions have over-shielded developed countries from the full tariff cuts in terms of the number and treatment of sensitive products, including the expansion of tariff quota expansion.

An important aspect of the new text is that it appears to remove the option (available in the May text in footnote 17) for developing countries to "transfer" unused entitlement on sensitive products to obtain additional special products.

A major problem that has also emerged is the interface between tropical and diversification products (which is mandated to have accelerated fullest liberalisation) and products relating to preferences and preference erosion (which the affected countries would like to have slower liberalisation). Some products face the conflicting objectives.

There is no change in text on the two issues (tropical and preference products) as the groups involved are still negotiating, but if there is a breakthrough, there can still be an amendment before the mini-Ministerial, according to Falconer. If this issue is not resolved, it can be a brake on the progress of the forthcoming negotiations. +