TWN Info Service on WTO and Trade Issues (Nov15/14)
20 November 2015
Third World Network

Brazil joins EU to help US on export pillar, ditching G-20
Published in SUNS #8136 dated 17 November 2015

Geneva, 16 Nov (D. Ravi Kanth) - In what appears to be a cloak-and-dagger strategy, Brazil and the European Union have joined hands at the World Trade Organization (WTO) and tabled a joint negotiating proposal for clinching an outcome in the export competition pillar at the Nairobi ministerial next month, several trade envoys told the SUNS.

The 14-page proposal is specially carved out to help the United States to overcome the difficulties it is facing in the export competition pillar because of its farm bill that was passed last year.

Brazil and the EU suggested major "adjustments" in the revised draft modalities of 2008 on export subsidies, export credits, and food aid so as to ensure that Washington does not have to undertake fresh commitments, according to the trade envoys familiar with the proposal.

Despite being arch rivals in the Doha agriculture negotiations since 2001, the coming together of Brazil and the EU has raised serious issues of "credibility," particularly for Brasilia which created the G-20 developing country coalition in 2003, said a trade envoy, who asked not to be quoted.

"With what face can Brazil convene a G-20 ministerial meeting on December 14 in Nairobi after having buried the goals for which it was established and now having collaborated with the EU on export competition," the envoy asked.

[In August 2003, on the eve of Cancun, when the US and EU joined hands to present a so-called "framework" paper on agriculture, protecting their mutual interests at the expense of developing countries, Brazil, China and India joined hands and presented their own proposal, which was joined by a number of developing country agriculture exporters, and this G-17 proposal soon became a G-20 proposal and the formation of the G-20 group with Brazil as coordinator. This move infuriated the EU, whose chief negotiator Peter Carl denounced the new formation. See SUNS #5401 dated 21 August 2003 and #5402 dated 22 August 2003.]

"While the changes in the Brazil-EU proposal on export subsidies amount to Rev 4-plus, those in export credits and food aid which are the major areas of concern for the US seem to be Rev 4-minus," said a South American trade diplomat.

The joint proposal includes the following changes from the Rev.4:

* Developed country Members shall eliminate their remaining scheduled export subsidy entitlements by the end of 2018 i.e., in three years from the date of implementation which begins on January 1, 2016. The Rev 4 had suggested five years.

* Developing countries will eliminate their subsidies five years after the complete elimination by the developed countries. "In accordance with the Hong Kong Ministerial Declaration, developing country Members shall, furthermore, continue to benefit from the provisions of Article 9.4 of the Agreement on Agriculture until the end of 2026 i.e. five years after the end-date for elimination of all forms of export subsidies."

* As regards export credits, developed countries will have a minimum repayment period for export credits, export credit guarantees and insurance programs for 15 months instead of six months in the Rev 4. [Brazil and the EU have proposed 9 months or 270 days while the US demanded 18 months. The current US farm bill allows 24 months.] The repayment period will remain a subject of further discussion.

* The terms for interest rates to be charged on export credits are largely based on the understanding reached between Brazil and the US in the cotton dispute. The minimum rates to be charged for the private operators will be 90% of the OECD benchmark credit risk associated with that country.

Accordingly, the US exporter supplying to Turkey will have to pay 90% of the OECD benchmark credit risk for Turkey, a trade envoy told the SUNS.

* On food aid, another major contentious area, the in-kind monetization in the footnote will suggest X% which would be 15% for accommodating the current US' norm in the farm bill. There will be a standstill provision on the in-kind monetization so as to ensure that the US will not increase beyond 15% after the current farm bill.

* As regards state-trading enterprises, the joint proposal contains no changes as compared to Rev 4.

In an exercise akin to partitioning of Africa among the colonial powers in early 19th century, Brazil and the EU decided all the norms after securing the green signal from the US, said an African trade envoy.

Effectively, the US can live without any need for a safe harbour provision which it had demanded early this month, the envoy said.

The joint proposal will come up for discussion on Tuesday at an informal meeting convened by the chair for the Doha agriculture negotiations Ambassador Vangelis Vitalis of New Zealand.

Paradoxically, on last Friday (November 13) when Brazil and the EU shared their proposal on export competition with several countries, they also vehemently rejected the demand of the G-33 group of developing countries for an outcome on the special safeguard mechanism (SSM) at the Nairobi meeting, trade envoys told the SUNS.

At the meeting convened by the chair for agriculture negotiations Ambassador Vitalis on SSM, Indonesia, which is the coordinator for the G-33 group, provided detailed answers on all technical issues concerning the implementation of the SSM.

Indonesia said categorically that the SSM would apply for small and vulnerable economies and least-developed countries. Indonesia said the SSM would cover all imports, including those coming from countries of the free trade agreements.

Indonesia maintained that multilateral rules will prevail over FTA provisions, according to the trade envoys present at the meeting.

The Philippines said it would not accept anything more stringent than the existing SSG. The Rev. 4 has clearly provided the markers for a simple and effective SSM, the Philippines maintained.

China said members must address the SSM carefully like other delicate issues for the Nairobi meeting. SSM is not the only issue where the divergences exist, even in export competition divergences remain among members, China said.

The issues which are sensitive to members should be put on a strong footing as one area might affect progress in others, China argued.

China said it would be difficult to convince its domestic constituencies why SSM is not discussed while export competition is included, according to trade envoys present at the meeting.

Some members said the existing safeguards agreement is sufficient and if it is the case, why had ministers mandated SSM, China asked.

"If SSG can be allowed to breach Uruguay Round commitments why not SSM," China maintained.

On behalf of the small and vulnerable economies (SVEs), the Dominican Republic said SSM is important in a market full of distortions. SVEs, said Dominican Republic, want a solution before the Nairobi meeting.

Bangladesh, on behalf of the LDCs, supported the G-33 proposal. Bangladesh said SSM should not be used against the exports of LDCs.

Barbados, on behalf of the Africa, Caribbean, and Pacific (ACP) group, said members must expedite the work on SSM and find a solution before the Nairobi meeting.

Turkey said the linkage being drawn between market access and SSM is aimed at blocking the discussion. SSM is a standalone element, and the mandate on SSM is clear, Turkey said.

Norway said it is willing to discuss SSM but a solution before the Nairobi meeting is difficult.

Brazil said in the absence of market access negotiations in Nairobi, it was not in a position to consider SSM.

The EU said linking SSM to export competition is a concern and it may jeopardize a major developmental outcome at Nairobi.

Australia said it cannot accept a new safeguard that would affect FTAs. Australia said that it doesn't take FTA provisions lightly and sought to know why an outcome in export competition is unbalanced for some developing countries.

The US said the G-33 didn't address the core concern of market access. It is difficult for us to take the SSM back home, the US said, according to trade envoys present at the meeting.

The US also said there is no consensus on SSM but a split, according to trade envoys who took part in the meeting.

India issued a hard-hitting statement challenging the chair on his conclusions at the last meeting. India asked the chair, "if there is no convergence on this issue [SSM] as yet, then the question is whether there is any convergence on any other elements of the proposed package either."

"The supposed convergence on export competition has also been challenged and we have heard the requirement of virtual rewriting of parts of the Rev.4 text on the part of one member," India maintained.

India said issues in the export competition pillar are "in exactly the same space as other elements, if not worse as there are still no proposals on the table".

"If the question of time is raised to oppose a discussion on SSM, where do we have the time to discuss export competition without any proposals?," India asked.

India told the chair that it was wrong to suggest that there cannot be an outcome on SSM in the absence of market access.

"Is it not equally fundamental to pull out one of the pillars of the agriculture negotiations thereby disturbing the balance of give and take that existed in Rev. 4, as Rev. 4 is being taken as the basis for the export competition discussions?," India asked.

"How politically possible will it be for us to present a package, which involves payments in all areas and gains in none?," India maintained.

India said an FTA is a derogation of the multilateral trading system and allowed by the rules on the basis of certain criteria.

"A derogation cannot override the whole," India maintained. "We are not aware of any rule or body of law under the GATT/WTO which says that rule making under the multilateral trading system will sub-serve the needs of derogations like FTAs," India argued.

In short, India told the chair "that we take the G-33 issues forward symmetrically with other issues in the proposed package. We do not need sympathy Chair but constructive engagement."

After India's strong statement, Brazil and the EU privately circulated their proposal on export competition to clinch an outcome at the Nairobi meeting while ensuring that there is no outcome on SSM, trade envoys said.