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Update on WTO Negotitations |
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November 2005 |
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IFAP Briefing Note |
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By David King, Secretary General of IFAP |
INTRODUCTION
Agriculture was brought under the rules and disciplines of WTO in 1995. A new Round of trade negotiations, including agriculture, was launched in Doha in November 2001.
This Round is proving to be a very difficult exercise, with a history of missed deadlines and modest outcomes. It took three years from the launch of the Round for the WTO General Council to agree on a framework for negotiating the ‘modalities’ for making commitments – the so-called “July 2004 framework package”.
Over the last year, negotiators have been working to try to put some content into that framework. However, they missed the deadline of 29 July 2005, when the WTO General Council was supposed to receive a ‘first approximation’ (draft) of the modalities on which to conclude the negotiations. It is no longer possible that the Round can be concluded as planned in December this year at the WTO Ministerial Conference in Hong Kong. The new WTO Director General Pascal Lamy is hoping that two-thirds of the issues can be agreed in Hong Kong, and there has been a great flurry of activity in October 2005 of new negotiating proposals from the main players, especially on agriculture. However, negotiators are still too far apart to achieve an “ambitious outcome” in Hong Kong.
The first half of 2006 will therefore be a critical time. Negotiators are up against the expiration of the US trade negotiating authority in July 2007, which means that country schedules should be submitted by April 2006 in order to give time for their approval in national legislatures.
In this situation, where agreements are likely to be struck at the last minute, farmers’ organisations need to be particularly vigilant. Even though progress seems slow, the issues are becoming much clearer as a result of the monthly technical discussions being held in the WTO Committee on Agriculture.
OVERVIEW OF HOW THE ROUND IS PROGRESSING
A summary can be made in five points on how the Doha Round is progressing, as follows.
1.The negotiating process is intense. The Agricultural Negotiations Committee has been meeting every month since October 2004. In addition, there have been several Mini-Ministerial Conferences and many meetings of different negotiating groups. However, reaching consensus among 148 countries is not easy..
2. Negotiations are technical in nature. The focus of the work in the Agricultural Negotiations Committee is to develop agreed formulas and rules to address each of the issues in the negotiations. Such issues include: State Trading Enterprises, Food Aid, Amber Box, Green Box, General reduction formula, Sensitive products, Special Products and the Special Safeguard Mechanism for Developing Countries, Blue Box, Export credits, Tropical products and trade preferences.
3.Agriculture is the key to the success for the whole Round. There are five main parts to the Doha trade round. Negotiations over all areas are inter-related, and “nothing is agreed until everything is agreed”. For most of the WTO member countries progress in agriculture is the key to the success for the whole Round. However, as a deal in agriculture moves into a critical phase, negotiators are concerned about the singular lack of progress in the other areas of the negotiations, notably in services. The main areas of negotiation are: Agriculture, Non-Agricultural Market Assess (NAMA), Services, Special and Differential Treatment for Developing Countries, and Rules (including for Trade Facilitation).
4.Balance is a constant consideration. At each stage in the negotiations, a balance is being sought: balance between the commitments in the three pillars of the agricultural negotiations; balance between ‘export interests’ and ‘import sensitivities’; balance between development needs and trade ambitions; balance between agriculture and the other sectors of the negotiations.
5.Other trade issues are causing distractions. As well as negotiating the Doha agenda, trade ministers were also involved in: replacing the WTO Director General (Pascal Lamy took over from Supachai Panitchpakdi on 1st September 2005); the resignation of Tim Groser as New Zealand Ambassador to WTO on 23 May to run as an opposition candidate in the next general election in New Zealand, and his replacement as Chair of the Agricultural Negotiations Committee by the new New Zealand Ambassador, Crawford Falconer; a panel dispute brought by Brazil against US cotton subsidies (which Brazil won on 3 March when the WTO Appellate Body upheld the panel decision against the USA); a panel dispute brought by Australia, Brazil and Thailand against EU sugar subsidies (which Australia, Brazil and Thailand won on 28 April when the WTO Appellate Body upheld the panel decision against the EU(1) ); a panel dispute brought by nine Latin American countries against EU banana import rules (which the Latin Americans won on 27 October when the WTO Appellate Body upheld the panel decision against the EU; bilateral trade negotiations e.g. CAFTA-DR(2) in the USA which had a very difficult passage.
(1) The EU has been given a deadline of 22 May 2006 to conform to this ruling and reduce subsidised exports of sugar from 5 million tonnesto 1.273 million tonnes, and to reduce export subsidies from 2 billion euros to 499.1 million euros.
(2) CAFTA-DR: Central American and Dominican Republic Free Trade Agreement
MARKET ACCESS NEGOTIATIONS
– Doha mandate: “Substantial improvements in market access”
Market access is the key part of the agricultural negotiations, and the most difficult. The World Bank estimates that 93 per cent of the benefits of the Doha Round are to be captured in market the access negotiations, compared with only 5 per cent in the domestic support negotiations and 2 per cent in export competition.
This is the most difficult area of the agricultural negotiations.
Three key issues are under discussion on market access. These are:
- Agreeing on the tiered formula for tariff reductions
- Agreeing on how to handle sensitive products
- Agreeing on measures for Special and Differential Treatment for Developing Countries, since the Doha Round is a “development round”.
There are also other market access issues on the table, such as erosion of preferences for certain developing countries like the ACP countries, liberalisation of trade in tropical products and tariff escalation, maintaining the special safeguards for developed countries, and special treatment for least-developed countries, but realistically these cannot be progressed until a basic market access formula is in place. Cotton issues remain high in the minds of negotiators, but again these will be progressed when the basic structure for modalities is agreed.
Market access negotiations are being conducted on a product-by-product basis. Improvements in market access are to be achieved by a combination of tariff reductions and tariff quota expansion.
Tariff reduction formula
The guidelines in the July package say that a ‘harmonising approach’ is to be adopted with higher tariffs receiving the largest cuts. In order to achieve this, there seems to be convergence around a formula proposed by the G-20 Group of developing countries led by Brazil - the G-20 has positioned itself somewhere in the middle ground between the USA and EU negotiating positions. According to the G-20 proposal, tariffs would be divided into four bands or tiers, with different bands for developed countries and developing countries. Each tariff line would be placed in a certain band depending on how large it is. This proposal is shown below:
Table 1: G-20 proposal for the tariff reduction formula
Developed countries |
Developing countries |
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Tariff threshold (%) |
Linear cut (%) |
Tariff threshold (%) |
Linear cut (%) |
0-20 |
45 |
0-30 |
25 |
20-50 |
55 |
30-80 |
30 |
50-75 |
65 |
80-130 |
35 |
Over 75 |
75 |
Over 130 |
40 |
Once the tariff bands have been agreed, members have to agree on a system for reducing tariffs in each band, with higher cuts to the higher bands. Under the G-20 proposal, the average tariff cut would be 54 per cent; developing countries would have their tariffs cuts by 36 per cent, which is two-thirds of the level of cuts of developed countries, as part of special and differential treatment. Cuts to the highest tariffs would be 75 per cent.
There seems to be agreement that there should be four bands and also that tariff reductions for developing countries should be about two-thirds of those for developed countries. However, there are still significant differences on both the tariff bands and the size of the reductions in each band. The US is a proposing an average tariff cut of 75%, the G-20 54%, the EU 46%, and the 79 ACP countries 36% (24% for developing countries). Divergence in the level of cuts to the highest tariffs, i.e. to the products that countries wish to protect is also very large. The G-10 proposes a maximum tariff cut of 45%, the EU 60% (3) , the G-20 75% and the US 85-90%. The proposals in on the tariff reduction formula from the G-10 (Switzerland, Japan, Korea and other large importers), the EU and the USA are shown below for developed country commitments.
(3) This is the EU’s second offer; the original offer was a maximum tariff cut of 50%.
Table 2: G-10, EU and US proposals for the tariff reduction formula for developed countries
G-10 |
EU |
USA |
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Tariff threshold (%) |
Linear cut (%) |
Tariff threshold (%) |
Linear cut (%) |
Tariff threshold (%) |
Linear cut (%) |
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0-20 |
27 |
0-30 |
0-20 |
55-65 |
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20-50 |
31 |
30-60 |
45 |
20-40 |
65-75 |
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50-70 |
37 |
60-90 |
50 |
40-60 |
75-85 |
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Over 70 |
45 |
Over 90 |
60 |
Over 60 |
85-90 |
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There is another important aspect to this discussion of tariff reductions, namely whether or not to impose a tariff cap, or maximum allowed tariff. This is obviously irrelevant if a “Swiss formula” would have been applied, since the coefficient is in effect a maximum final tariff rate. However, since discussions are now focused on a linear type of formula many countries are proposing a tariff cap. The G-10 countries are strongly opposed to this. The tariff cap under the G-20 proposal is 100% for developed countries and 150% for developing countries. This is supported by the EU, except for “sensitive products” where the EU says there should be no cap. The USA proposes a tariff cap of 75% for developed countries and a ‘higher level’ for developing countries.
It should be noted that the tariffs that are actually applied in agriculture are in fact lower than those that countries have negotiated in the WTO. This is show below:
Table 3: Bound tariff levels in WTO compared with actual tariffs applied
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Bound tariff level in WTO (%) |
Actual tariff applied (%) |
Developed Countries |
27 |
14 |
Developing Countries |
48 |
21 |
Least Developed Countries |
78 |
13 |
All countries average |
37 |
17 |
Countries can therefore agree to reduce their bound tariff levels in WTO significantly without affecting the actual level of the tariff that they currently apply.
Tariff quota expansion - Sensitive Products
Sensitive products are the products that countries are protecting behind relatively high tariff walls for their own national interests. They include rice, dairy products and sugar to name but three. Imports of these products are mainly regulated through tariff quotas
Under the July Framework, substantial improvements in market access are to be achieved, even for sensitive products, but this is proving be a difficult negotiation.
There seems to be a consensus that sensitive products should be treated as exceptions, or negotiated deviations from the tariff formula, rather than being the subject of separate negotiations. Thus countries would have the choice of selecting the desired deviation from the tariff cut for each “sensitive” tariff line (5) , but lesser tariff cuts for sensitive products would be compensated through increases in their tariff quotas. The EU proposal in this regard is shown below:
(5) The EU proposal says that there should be a minimum deviation of one third and a maximum deviation of two-thirds of the tariff cut in the band within which the tariff line falls. The G-20 proposal says that the maximum deviation for the tariff cut for sensitive products would be 30%.
Table 4: EU proposal for increases in tariff quotas related to the deviation of tariff cuts from the regular formula
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Tariff cut
Deviation Band I (0-30) Band II (30-60) Band III (60-90) Band IV (> 90)
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20 % points 12% - 16% 10% - 12% 8% - 10% 5% - 8%
30 % points 18% - 24% 15% - 18% 13% - 15% 7% - 12%
40 % points 25% - 32% 20% - 24% 17% - 19% 9% - 16%
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In terms of the number of sensitive products that can be designated, the US and G-20 proposals would limit sensitive products to 1 per cent of tariff lines for developed countries (1.5% for developing countries). The EU proposal would limit sensitive products to 8 per cent of tariff lines while the G-10 proposal would limit sensitive products to 10-15 per cent of tariff lines. The G-10 is also asking for flexibility so that if large cuts are made to the tariff of one sensitive product, then there would be a credit to make a lesser cut in the tariff of another sensitive product.
Tariff quota administration is also the subject of keen discussion. The main concern here seems to be to ensure that that import quotas are actually filled.
As a part of their Special and Differential Treatment (SDT), developing countries will be able to designate a certain number of “Special Products” that are essential for their food security, livelihood security and rural development needs, in addition to designating Sensitive Products. Criteria (indicators) need to be agreed for designating Special Products. The G-33 Group of developing countries says that products whose markets are distorted by developed countries subsidies should be automatically designated as Special Products for developing countries. In addition, each developing country would have flexibility to designate other Special Products according to its unique situation, provided they are linked to the three objectives of food security, livelihood security and rural development.
A Special Safeguard Mechanism (SSM) will also be brought in to protect the economies of developing countries from temporary surges in agricultural imports. The G-33 proposes that SSM would be used when imports of a product increase in volume above the previous three-year average, or decrease in price below the previous three-year average. Tariffs on these products could be raised above the bound rates to compensate for the difference for a maximum of a one-year period(6) . Allowance would also be made for the effect of exchange rate changes in the importing country.
(6) Advance notice of 30 days would be required before imposing the SSM.
From the point of view of farmers in developing countries, another key market issue for many is the erosion of preferential access in protected markets, like the ACP countries in the EU banana and sugar markets. The Least Developed Countries are pushing for total duty-free and quota free access for their exports, similar to the action of the EU under the “Anything but Arms Agreement”. Producers of tropical products expect full liberalisation of trade in tropical products in this Round.
One issue that has come out clearly in the market access negotiations is the importance of South-South trade. Trade among developing countries represents 40 per cent of total world agricultural trade and the most advanced developing countries like Brazil, India, China and South Africa want to keep this open. These are the countries that are driving negotiations in the Doha Round.
DOMESTIC SUPPORT NEGOTIATIONS
- Doha mandate: “Substantial reductions in trade-distorting domestic support.
The July Framework requires cuts to be made in trade-distorting domestic support in four areas: Amber Box, Blue Box, de minimis, and an overall cut in the sum of these three. It has been agreed that in the first year of the implementation period, the overall cut would be a “minimum down payment” of 20 per cent.
Amber box
As for market access, negotiators are looking at a tiered formula approach to cut trade-distorting domestic support so as to deliver some ‘harmonisation’ in support levels, i.e. larger cuts to higher levels of support. A decision needs to be made on the number of bands in which to divide up different levels of domestic support, and the base period to use for the cuts.
There is convergence around the idea of reducing the absolute size of domestic support in total money terms rather than in terms of support relative to the size of the agricultural sector. This is to address the scale of the distortions caused support to world markets by domestic support.
Concerning the structure of the reduction commitments, countries are converging around a G-20 proposal, as follows. There would be three bands. The user with the biggest amount of domestic support, in total money terms – the EU with 41% of the global total- would go into Band 1; the next two largest users – Japan (19%) and USA (18%) - would go into Band 2. There would be a third band for the other developed countries that declared domestic support (AMS (7) ) in their WTO schedules. Developing countries that use AMS (there are 17) would have a separate tiered formula.
Table 5: Proposals for cuts in AMS (trade-distorting support)
Band (US $ billion of AMS) |
Cut (%) |
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|
G-20 |
USA |
EU |
Over 25 |
80 |
83 |
70 |
15-25 |
70 |
60 |
60 |
0-15 |
60 |
37 |
50 |
Once the structure for making the reduction commitments in domestic support is fixed, negotiators will have to decide on a cap or ceiling on the trade-distorting domestic support (AMS) of each product. This is to make sure that there are no transfers of domestic support between different products, as required by the July Framework.
It should not be difficult for most developed countries to negotiate a substantial cut in Amber Box support. Most of this “trade-distorting support has already been converted into Blue Box or Green Box support which is less trade distorting and subject to lesser or no cuts. For example, under the new Common Agricultural Policy the EU could reduce amber box support by as much as 70 per cent without requiring further policy reform.
Blue box
Certain types of domestic support are deemed to be less trade-distorting than support in the Amber Box (AMS measures), and these go into the Blue Box, where they are subject to lesser reductions. The heart of this discussion is therefore to strengthen rules and disciplines on the Blue Box to ensure that it does in fact distort less than the Amber Box. The G-20 and some Cairns Group countries are therefore proposing that there be limits on payments for each product and that the Blue Box does not entirely shield farmers from price fluctuations. The G-10 and EU will not accept caps on payments per product in the Blue Box, nor will they accept links between the Amber Box and the Blue Box.
In the past, Blue Box support was reserved for direct payments linked to production-limiting programs. In this Round, a new Blue Box is being negotiated that is enlarged to include the counter-cyclical payments of the USA, which are not linked to production but which are linked to price. The EU wants to make sure that there are sufficient disciplines on the use of US counter-cyclical payments in the Blue Box.
Total Blue Box support is to be capped at 5 per cent of the total value of agricultural production of a country. This would be done in one step at the start of the implementation period(8) . The US is prepared to negotiate a 50 per cent cut in Blue Box, to 2.5 per cent of the total value of agricultural production of a country by the end of the Implementation period.
The new Blue Box would be open to any country to use since it is a rules-based commitment not a schedule commitment.
(8) There is a provision for flexibility for countries that have a large proportion of their support in the Blue Box, like Norway, so that no country is called upon to make a “wholly disproportionate cut”.
De minimis
All countries are presently exempted from cutting trade-distorting support on any product if that support is less than 5 percent of the total value of that product, or 10 per cent in the case of developing countries. This is called de minimis. The July Framework says that the de minimis is to be cut, except for developing countries that allocate almost all de minimis support for subsistence and resource-poor farmers. Negotiators have to decide on a figure for cutting de minimis. The USA is proposing an 50 per cent cut in de minimis on a product-by-product and overall basis; the EU is proposing an 80 per cent cut in de minimis. Developing countries want only token cuts to their de minimis allowance, since this is usually the only form of support they use.
Green box
Green-Box support covers support to farmers that is paid in ways that do not distort production or trade (or is minimally trade-distorting). It is not subject to reduction commitments in the WTO. This includes measures like direct income payments that are not linked to production or price. As more and more of the support paid to farmers is being converted to green-box support, negotiators are reviewing and clarifying the criteria for green-box payments to make sure that they really do not distort production or trade. At the same time, there is a discussion about introducing into the Green Box new, development-friendly support measures that are more suited to the situation of the developing countries.
Total domestic support
Table 6: Proposals for cuts in total support (AMS+Blue box+de minimis combined)
Band (US $ billion of AMS) |
Cut (%) |
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G-20 |
USA |
EU |
Over 60 |
80 |
75 |
70 |
10-60 |
75 |
53 |
60 |
0-10 |
70 |
31 |
50 |
EXPORT COMPETITION NEGOTIATIONS
- Doha mandate: “Reductions of, with a view to phasing out, all forms of export subsidies”
The July Package already included a decision to phase out all forms of export support in a parallel and equivalent manner by a certain end date. For measures such as export subsidies, the modalities are straightforward; a credible end date has simply to be decided. The G-20 has proposed a 5-year timeframe for the phasing out of export support.
For other export support measures, negotiators are working on sets of rules to try to eliminate their subsidy component. This include rules for the use of Export Credits, rules for the operation of State-Trading Enterprises (STEs), and rules to ensure that Food Aid does not displace commercial sales. Negotiating the texts of these sets of rules is very technical and not yet completed.
Negotiations on Export Credits are the most advanced of the three parallel areas, based on an attachment to the 2003 Harbinson draft modalities paper. Rules on Export Credits cover credits with repayment terms of 180 days or less. The July Framework already says that Export Credits for more than 180 days are to be phased out. Much of the remaining discussion in this area relates to special flexibilities for developing countries, e.g. repayment periods longer than 180 days, lower interest rates, etc.
Negotiations on STEs seem to be converging around a three-point US proposal that: i) would phase out export support going to STEs at the same time as other export subsidies, ii) would also phase out government financing or refinancing that gives enterprises preferential access to capital, and iii) would phase out underwriting of losses of STEs by government. Rules on STEs will also include ideas for improving transparency such as increased notification requirements, and special flexibilities for STEs from developing countries that serve social objectives such as combining the outputs of small-holder farmers. The more political question on “monopoly power” will be left for trade ministers to decide.
Negotiations on Food Aid have not progressed very far since July. There are lively discussions as to whether Food Aid should only be provided in grant form (not on credit) and given ‘in cash’ rather than ‘in kind’ (as commodities). In order to avoid food aid from being used as a channel for disposing of surpluses, several countries want food for aid to be purchased in the region where the aid is to be given. Another issue is whether Food Aid should be able to be sold by the receiver (monetized). The only clear areas of agreement so far are: that new WTO rules Food Aid should not in any way interfere with the provision of food aid for genuinely humanitarian purposes such as emergencies, and that re-export of food aid should be prohibited, as should tied aid which requires recipient countries to buy the food from a supplier in the donor country.
COTTON
West African cotton producers have ensured that a Sectoral Initiative on Cotton has been include as an integral part of the WTO Doha Round, including measures for diversification. A subcommittee on cotton has been set up. This sub-committee has a big responsibility to propose meaningful outcomes if the Hong Kong Ministerial Conference is to be successful. West African cotton producers are already benefiting from supplementary measures proposed by other international institutions under this initiative; other countries also wish to benefit from these measures.
CONCLUSION
WTO negotiators are now focused on the next WTO Ministerial Conference that will take place in Hong Kong 13-18 December 2005 for coming up with a structure for making reduction commitments (modalities). Progress is hard to measure since the negotiations are taking place on the basis of open-ended discussions at the technical level. Nevertheless, the pieces seem to be falling into place slowly but surely. The panel decisions against US cotton subsidies and EU sugar subsidies have added pressure to achieve a result, since these subsidies now have to be removed rapidly.
The Committee on Agriculture is meeting almost continuously in the run up to Hong Kong. High-level talks are expected 7-8 November 2005, and after that the WTO Director General will try to make a first draft of the Hong Kong Ministerial deal. There is not a lot of time therefore to do this.
IFAP needs to be particularly vigilant at this stage of the negotiations, for even though there are many political differences to bridge, the issues are becoming much clearer for a deal to be struck early in 2006. In the rush for a result in Hong Kong, negotiators could make some hasty decisions that may not be the best for farmers into the future. Farm leaders need to be watchful to avoid this.