GSP wrongly in the shade of EPAs?

In recent months public discussion has focused on negotiation of Economic Partnership Agreements (EPAs) between African, Caribbean and Pacific countries (ACP) and the EU, leaving other preferential trade options as notes in the margin. This is somewhat surprising, given that since the summer of 2007 it appeared obvious that the conclusion of these full agreements with all ACP regions was very unlikely to happen by the end of that year. Yet EPAs were deemed necessary after the specific preferential treatment to ACP countries provided under the Cotonou Agreement had been ruled as non WTO-compliant. But article 37 of the Cotonou Agreement, explicitly stipulates that the EU will examine all alternative possibilities in order to provide non-least developed countries (LDCs), that are not in the position to enter into EPAs, with a new framework for trade that is equivalent to their existing situation and conforms to
WTO rules.

One could presume that the European Commission, the single negotiator on behalf of EU member states, actually did not want to consider alternatives. Europe already has instruments that can provide a basis for such options: more than 35 years ago the Generalised System of Preferences (GSP) for developing countries was implemented and has regularly been advanced and adjusted since. Today, the EU’s non-reciprocal preferential access scheme is the most used of all such developed country systems and grants a number of products imported from beneficiary countries either duty-free access or tariff reductions, depending on which of the GSP arrangements a country enjoys.2 

For 2006-2008, there are three types of general preferential trade regimes in force:

a) The standard preferential regime (GSP) benefits all recipient countries and grants duty-free market access (for non-sensitive products) or tariff reductions on the most favoured nation rate (for sensitive products).

b) The special incentive arrangement for sustainable development and good governance (GSP+) provides additional benefits for countries implementing certain international standards in human and labour rights, environmental protection, the fight against drugs and good governance.3 It also allows duty-free market access for products classified as ‘sensitive’ imported into the EU.

c) The special arrangement for the countries included in the United Nation’s list of least developed countries, which is known as the ‘Everything but Arms’ initiative (EBA), provides the most favourable treatment of all. It grants LDCs duty-free and quota-free access to the EU markets 
for products excluding arms and ammunition with transition periods until 2008 and 2009 for rice and sugar.

Mini-reform of GSP

It is expected that the new European Commission regulation for GSP envisaged for the period 2009-2011 will maintain this structure. The revision proposed by the Commission includes: removal of certain products for specific countries based on the value of the imports from these countries; a three-month postponement of the tariff reduction scheme for sugar under EBA; required completion of the ratification and implementation of international conventions before the application for GSP+ (the 2005 regulation included a three year transitional period); and prolongation of the time that the Council will have - from one month to two - for the assessment of a preference withdrawal proposal by the Commission.

While the Commission saw the revision as a basic technical adjustment, the European Parliament added some substance that it had already proposed for the GSP guidelines for 2006-2015 that was not taken into consideration by the Council at the time. These proposals aimed at incorporating greater transparency, clarity and legal certainty.

Above all, the Parliament stressed that the GSP scheme is designed with the aim of supporting the Millennium Development Goals and particularly the reduction of poverty in developing countries. It therefore needs comprehensive impact analysis that includes opinions from civil society; broader distribution of information to the public; the prevention of preference erosion by transferring products currently classified as sensitive to the non-sensitive category; and a possibility for countries to apply for GSP+ on a yearly basis (instead of only every three years). The latter might be a compromise solution since, as of 2008, there is no longer any transition period that allows a country that has almost, but not fully, completed implementation of all 27 international conventions mentioned in the annex of the specific incentive arrangement to be included into the GSP+ system.  

One of the Parliament’s most pressing requests was the reform of overly complex rules of origin which were hampering the uptake and use of preferential trade schemes such as GSP. Some argue that rules of origin should take into account inter-regional and global ‘cumulation’  when calculating the possibility of a country benefiting from preferential treatment. Such an approach would facilitate regional integration, especially among small countries that have fewer real opportunities to diversify their export economies.

A low level of diversification of exports to the EU is itself an eligibility criterion for the GSP+ scheme. Currently, the threshold is that the share of the five top GSP imports into the EU by one country must be below 75% of all the EU’s GSP imports from that country. This criterion is used to indicate the ‘vulnerability’ of a country’s economy. Yet, while the diversification of exports might be an indicator for the industrial development level, there are certainly other criteria, such as gross domestic product (GDP) at purchasing power parity (PPP) per capita or the human development index (HDI), that would display a broader idea of the level of development of an economy.

GSP a possible alternative to EPAs?

It is sometimes argued that the GSP system, especially GSP+, could be developed as an alternative to the proposed Economic Partnership Agreements. As the few points highlighted here already suggest, a careful reform would first be necessary. And since there is little in-depth quantitative and qualitative information on the functioning of the GSP it is rather difficult to give detailed proposals.   Still, there is reason not to dismiss such an option.

On the one hand, GSP is generally accepted as being compliant with WTO rules that explicitly allow for derogations from Most Favoured Nation (non-discriminatory) treatment for developing countries. On the other hand, the fundamental difference in comparison to the EPAs is that it follows a
non-reciprocal approach instead of facilitating mutual market opening.

As previously stated, least developed countries would enjoy almost unlimited market access under the EBA initiative even without a new trade agreement. But an ACP country not listed as an LDC would most certainly lose a good part of its preferential access to EU markets, although to different degrees. In this case, only something like GSP+ would be an option. The Commission itself has prepared an overview of which eligibility criteria the 37 countries concerned currently fulfil: none would reach more than 0.3% of GSP imports into the EU, and 24 do not reach more than 0.1% (the maximum threshold being 1%). The Dominican Republic with ‘only’ 81.87% share of its five top GSP exports holds the highest level of diversification and only two more countries  (Antigua and Barbuda and the Bahamas) reach less than 90% (threshold is 75%). Only Antigua and Barbuda and the Bahamas are considered high income countries.

Looking at the implementation of the relevant international conventions, the situation becomes more complicated: not one of the 37 non-LDC countries have ratified all conventions. Therefore, after the expiry of the transition period in 2008, they do not fulfil the criterion that is actually at the heart of GSP+. Still, 12 have ratified at least 24 conventions so theoretically there would be the possibility of granting them preferential treatment under GSP+ if another transition period was accepted for new applicant countries. In the case of Africa, the relevant countries are Seychelles, Mauritius, Kenya, Namibia, Ghana, Cameroon and Nigeria.

While this looks encouraging for at least some countries, the serious questions highlighted above remain. For example, the coverage of products by GSP in general, especially products listed as sensitive, as well as the rules of origin.

Another argument that has been used against GSP+ as an alternative to the EPAs is that ACP countries would face direct and equal competition with those countries that already or will soon benefit from it (see endnote 2).

The European Parliament has been eager to be involved in the reform of the GSP. But it must be noted that under the current European Commission treaty, the Council is not bound by the European Parliament’s recommendations to date, even if the so-called consultation procedure is used. This would change fundamentally if the new terms of decision-making as proposed in the [draft] Lisbon Treaty would enter into force. If this happens, the Parliament will have full co-decision power on internal legislation in the field of trade policy, including the GSP framework.

Overcome the errors in the system

GSP in its current state neither seems to be a perfect system for serving the needs of developing countries in general, nor is it appropriately designed for the specific situation of ACP countries. But in comparison to the European Commission’s attempts to promote reciprocal market access it is at least an alternative that should be used as a model. Reciprocity in trade agreements only makes sense among partners with at least similar economic power.

Moreover, the fact that EPAs - or the interim agreements that have been concluded so far - foresee transition periods is a false argument: who could claim that the countries concerned will be able to equal the EU’s economic capacity even in the next 50 years?

One could say that ‘the error is in the system’. Trade policy could be designed in a way that promotes fair trade relations and sustainable development, but so far the EU appears to be advancing a foreign trade support and market access programme for its own companies. It is understandable that more and more countries are not willing to accept such treatment and claim a right to self-determination as regards the pace and organisation of economic development. Indeed, it is no surprise that so far only one ACP region is ready to sign a comprehensive EPA and negotiations on other free trade agreements have halted, notwithstanding the years of stagnant WTO negotiations. If Europe wants to be recognised as a trustworthy partner in development, it would be well advised to reconsider its trade agenda.

1  Helmuth Markov is a German politician and member of the European Parliament with the Party of the Democratic Socialism, Treasurer of the European United Left - Nordic Green Left and sits on the European Parliament’s Committee on International Trade. 

2  There are 177 beneficiaries of the EU’s GSP. Other preference giving countries are Australia, Belarus, Canada, Japan, New Zealand, Norway, the Russian Federation, Switzerland, Turkey and the United States.

3  Current beneficiaries are Bolivia, Ecuador, Columbia, Peru and Venezuela (Andean),  Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama (Central America), Moldova, Georgia, Mongolia and Sri Lanka.

The WTO Committee on Sanitary and Phytosanitary Measures (SPS) met from 24-25 June, with Members raising specific export-related concerns with regard to health and safety standards set by other Members. The meeting was preceded by informal consultations on 23 June.

Discussion on private sector standards to continue, divisions remain on form

A number of developing countries are highly critical of the use of private sector standards, saying they reduce the efficacy of the SPS regime by creating higher standards outside of government control. These countries stress that the standards are arbitrary and end up penalising developing countries and small farmers exporting to the North since they lack capacity and funding. Many developing countries argue that governments should to take responsibility for standards set by private-sector actors within their boundaries. Others, especially developed countries, say that private sector standards fall outside the remit of the WTO and its SPS Agreement. This debate has been going on since 2005 (see Bridges Weekly, 6 July 2005, http://www.ictsd.org/weekly/05-07-06/story3.htm).

Uruguay, one of the proponents of further discussions on how to rectify problems posed by private sector standards, made a submission outlining the terms of reference for a Working Group on Private Standards (G/SPS/W/225, available at http://docsonline.wto.org) just prior to the latest session of the SPS Committee. According to the submission, the Working Group would be charged with coming up with concrete recommendations to the SPS Committee within a defined timeframe. It would be chaired by a developing country representative. The scope of its work would be limited to SPS aspects of private sector standards, although a joint workshop could be held with the Committee on Technical Barriers to Trade (TBT). The Working Group would: undertake a study of the differences between standards set by the private sector and the official standards in the same area; address government responsibilities with regard to private sector standards; communicate and coordinate with the SPS reference organisations (Codex Alimentarius, the International Animal Health Organisation and the International Plant Protection Convention); and undertake a legal analysis of the consistency between private standards and the SPS Agreement.

Members discussed how to move the work forward during an informal meeting on 23 June. While several countries supported the proposal by Uruguay, others felt that it prejudged any work by taking a negative approach to private standards. During the discussions, disagreements surfaced around the areas of work suggested by Uruguay, and also over practical issues, such as the size and chairmanship of the group.

Following the meeting, the Secretariat will send Members a questionnaire about the organisation of further work on private standards. Based on the replies, countries will continue informal discussions on the way forward in conjunction with the next SPS Committee meeting.

Using the “good offices” of the Chair

During the formal meeting of the SPS Committee from 24-25 June, Members continued considering ways to facilitate their own work. Members have the option of using the Chair’s “good offices,” or mediation, to help resolve differences and conflicts that occur between trade partners with regard to health and safety standards. This option provides a middle way between an airing of concerns within the SPS Committee and a full-fledged dispute. However, mediation is seldom used, so the group discussed the development of concrete guidance on the practicalities of using the Chair’s assistance when needed.

Both the US and Argentina had put forth proposals in this regard since the last meeting of the SPS Committee (G/SPS/W/227 and G/SPS/W/219). Both papers set out concrete timelines and steps to be taken in case the Chair’s mediation was needed. Both also emphasised the technical and scientific nature of the consultations, and suggested inviting expert input from the Codex Alimentarius, International Animal Health Organisation or International Plant Protection Convention as needed. The Geneva-based consultations would be voluntary and confidential in nature, although the Chair would provide a general report to the SPS Committee at the end of the consultations.

The US and Argentina said they would work on consolidating their two drafts in advance of the next meeting of the SPS Committee. This meeting is scheduled to take place from 8-9 October 2008.

ICTSD reporting.

During the negotiations from 4-13 June, over 2000 participants are convening in multiple groups, both formal and informal, focusing on the technical and political issues that have to be resolved with regard to mitigation and adaptation, targets and timetables, technology transfer and financing.

One of the topics participants have sparred over is bunker fuels, with disagreements emerging on how the issue should be treated.

The rapid rise in fuel costs is having a tangible impact on international trade, affecting trade in products for which freight makes up a substantial part of the final price (see related story, this issue of the BioRes). Yet, this is an area that remains largely unregulated, meaning that carbon costs are by no means incorporated into the prices.

After being reintroduced onto the agenda within the UNFCCC context in March this year (see Bridges Trade BioRes, 4 April 2008, http://www.ictsd.org/biores/08-04-04/story1.htm), bunker fuels remain controversial in Bonn. Overall, countries differ on whether bunker fuels should be addressed under the UNFCCC, or rather tackled by the International Maritime Organisation (IMO) and International Civil Aviation Organisation (ICAO). A number of developing countries, such as India, expressed concerns that scoping work by the IMO and ICAO has not sufficiently recognised the principle of common but differentiated responsibilities, which is well established within the UNFCCC process.

Several side events organised in Bonn also touched on the bunker fuels issue, with ideas such as using a trading scheme or an international levy on bunker fuels, with part of the proceeds going to fund adaptation. Small and remote countries highlighted their vulnerability with regard to rising bunker fuels costs.

An update on the conclusions of these discussions, as well as other negotiating tracks, will be included in the next issue of the BioRes.

For daily updates and a summary of the climate change negotiations in Bonn, see IISD’s Earth Negotiations Bulletin at http://www.iisd.ca/climate/sb28/

ICTSD reporting.

By making it substantially more expensive to ship cargo over long distances, higher freight costs are likely to change global trade and production patterns, said the Canadian investment bank. They may also make it easier for domestic manufacturers to withstand competition from lower-wage countries. For instance, US steelmakers have already become competitive against Chinese imports for the first time in more than a decade.

”In a world of triple-digit oil prices, soaring transport costs, not tariff barriers, pose the greatest challenge to trade,” argue the study’s authors, Jeff Rubin and Benjamin Tal.

They reckon that in 2000, when oil cost US$20 per barrel, transport costs were equivalent to a 3-percent tariff rate in the US. At US$100 per barrel, a threshold crossed at the beginning of this year, “transport costs outweigh the impact of tariffs for all of America’s trading partners.” Current transport costs (with oil above US$130 per barrel) are equivalent to an average tariff rate of over 9 percent. If oil prices hit US$150 per barrel, say Rubin and Tal, the ‘tariff-equivalent’ rate in the US would be 11 percent - comparable to import duties in the 1970s. At US$200 a barrel - a rate which some analysts think likely over the next few years - “we are back at ‘tariff’ rates not seen since prior to the Kennedy Round GATT negotiations of the mid-1960s.”

”Globalisation is reversible,” they posit. “While trade liberalisation and technology may have flattened the world, rising transport prices will once again make it rounder.”

Massive reductions in cargo transportation time and costs have played a major role in enabling the expansion of global trade. A particularly dramatic drop came with the advent of container shipping in 1956, as Nayan Chanda wrote in ‘Bound Together’, his recent account of the history of globalisation. The first rapidly loadable container ship cut port times and charges dramatically, slashing the cost of freight by more than 97 percent. With subsequent improvements, transport-related cost savings between 1950 and 1998 have been estimated to be equivalent to cutting average US manufacturing duties from 32 percent to 9 percent.

However, as Rubin and Tal point out, the fact that container ships spend so little time in ports means that changing fuel costs factor more heavily into shipping rates. It also increases the significance of ship speed. Faster speed invariably needs more energy; they figure that rising ship speed over the past 15 years has doubled fuel consumption per unit of freight.

”At today’s oil prices,” they write, “every 10 percent increase in trip distance translated into a 4.5 percent increase in transport costs.” While shipping a standard 40-foot container from Shanghai to the east coast of the US cost US$3,000 when oil was at US$20 per barrel, it now costs US$8,000. If oil goes up to US$200, the cost would rise to US$15,000.

In terms of shifts in trade and production patterns, products for which freight costs make up only a small proportion of final sale prices stand to be less affected if shipping becomes more expensive - additional freight charges would be dwarfed by everything else. However, where freight-to-value ratios are high, transportation expenses can be very significant.

A “surprisingly high percentage” of Chinese exports to the US fall into the latter category, according to the report. These include furniture, footwear, metal manufacturing, and industrial machinery. And while export growth to the US has in general slowed, the slowdown has been most pronounced for goods that carry relatively high freight costs, it says.

The study’s authors suggest that manufacturers’ worldwide search for low wage expenses “will increasingly take place within the constraints imposed by soaring transport costs. Instead of finding cheap labour halfway around the world, the key will be to find the cheapest labour force within reasonable shipping distance to your market.”

Some low-cost manufacturing to supply the North American market is likely to move from China to Mexico, they forecast. Current oil prices mean that extra shipping costs from East Asia are equivalent to a 9-percent tariff in the US; this margin would rise to 15 percent if the cost of oil per barrel rose to US$200. These differences could potentially more than offset any cost advantages enjoyed by East Asia-based industries.

Precedent suggests that high oil prices could divert trade based on geographical proximity, says the report. From the first OPEC oil shock in 1973 through the early 1980s, when trans-oceanic freight costs were high, the share of products from Europe and Asia in the US’ non-petroleum imports fell by 6 percent, while those from Latin America and the Caribbean rose by a similar margin.

Meanwhile, from 1974 to 1986, world exports’ share in global GDP stagnated, despite fairly robust recoveries from two economic recessions. Indeed, although worldwide GDP growth over that period was comparable to that from 1987 to 2002, the latter interval saw exports’ share in global GDP expand by 60 percent, supported by tariff cuts and far lower energy prices.

Global trade still growing faster than GDP

WTO economists estimate that growth in global merchandise trade is slowing, as “sharp economic deceleration in key developed countries is only partly offset by continuing strong growth in emerging economies.” The growth in world trade in goods dropped from 8.5 percent in 2006 to 5.5 percent in 2007; a 4.5 percent expansion is predicted for this year. However, this growth remains ahead of global GDP expansion, which is forecast to be 2.6 percent in 2008. Over the past ten years, growth in world merchandise trade fell behind output growth only once, in 2001.

A crucial part of economic globalisation, cargo shipping is also a major source of greenhouse gas emissions. The International Maritime Organisation (IMO) recently demonstrated that shipping produces more carbon dioxide than previously thought. Intertanko, the global association of independent tanker owners, puts the annual emissions from the world’s merchant fleet at nearly 4.5 percent of the global total. Shipping emissions are projected to rise by a further 30 percent by 2020, although it is not clear how these estimates will be affected by energy prices.

Dudley Curtis, a spokesperson for Transport and Environment, a Brussels-based campaign group, said that there was very little international regulation of maritime pollution, whether in terms of carbon dioxide emissions and fuel efficiency, or fuel quality.

While it is natural for oil prices to have some impact on demand, and thus on shipping-related pollution, “we don’t think that an oil price spike is a substitute for regulation,” he said.

The CIBC World Markets analysis is available at http://research.cibcwm.com/economic_public/download/feature1.pdf.

The WTO trade statistics for 2008 are available at http://www.wto.org/english/news_e/pres08_e/pr520_e.htm.

ICTSD reporting.

The much-heralded draft has been seen as a vital stepping stone towards the launch of a ‘horizontal process’ in which senior officials begin making tradeoffs between agriculture, industrial tariffs, and possible other negotiating areas. This in turn has been seen as crucial if Members are to narrow down the number of outstanding decisions that trade ministers must take at an eventual high-level meeting - needed soon, say negotiators, for a Doha deal to be finalised by the year’s end. The draft text dramatically reduces the number of pairs of square brackets (negotiating short-hand for issues that do not yet command consensus), from 235 to 32 - something long considered necessary if ministers are to be presented with a manageable sub-set of questions. However, delegates cautioned that the text in fact still contains numerous unresolved issues: in most cases, the chair had simply redrafted the text to express the divergence in new ways, such as by expressing options in ‘either/or’ format.

In some areas of the talks in which progress has been made recently, such as liberalisation for tropical products, the chair indicated that he had largely retained the language of his previous draft, as agreement on those issues had not yet been reached (see BRIDGES Weekly, 13 February 2008, http://www.ictsd.org/weekly/08-02-13/story1.htm). However, the options in these areas no longer reflected current reality, he warned.

In other controversial areas - such as the hotly contested ’special products’ that developing countries will be able to slate for gentler tariff reductions on food security, livelihood security and rural development grounds - the text reflected only minor changes from the last version. Sources suggested that this was not entirely surprising, given that negotiators’ attention for the last two months has been devoted almost entirely to the consultations on sensitive products.

Several delegates said that the draft contained no big surprises. The chair, Ambassador Crawford Falconer (New Zealand), has consistently emphasised that he prefers to let Members lead the process, reflecting convergence only where it really exists.

Falconer emphasised the urgency of concluding a deal soon, and suggested that negotiators were nearing the end. Speaking to the press immediately following release of the text, he said that Members were “getting pretty close to the last Russian doll” - a reference to the successive drafts that have been required to narrow down negotiating options and capture emerging consensus.

Market access: still the thorniest area

Of the three areas of the agriculture talks, market access continued to be the most problematic, said delegates. Domestic subsidies and export competition were ’stable’, many indicated, with just a few very political decisions remaining.

While Members have long agreed that tariffs will be classified into a series of bands, with the highest tariffs undertaking the largest cuts, there is still no agreement on the percentage by which tariffs in each band will be reduced. Falconer’s latest draft provides figures for the percentage cuts in the lower bands, taking the mid-point of the indicative ranges he had given in previous versions of the text. Cuts for the highest band, which are the most controversial, are still expressed as a range, and - unlike the lower bands - are still in square brackets.

Also controversial has been the inclusion of a minimum 54-percent average cut for developed countries, which in the latest draft is no longer in square brackets. One source suggested that Members would now be unlikely to have difficulty achieving this, as the new text allows them to take into consideration, when calculating this average, the enhanced liberalisation relating to tropical products and the tariff ‘escalation’ on processed products.

Sensitive products: text incorporates new compromise

Falconer’s revised text includes, as one of two options, the complex methodology that a group of six countries has agreed on as the basis for designating ’sensitive products’ - goods that developed and developing countries will be able to slate for smaller tariff cuts in exchange for expanded market access through quotas. The methodology was first put forward on 4 April by Australia, Brazil, Canada, Japan, the EU and the US - informally dubbed the G-6 (see BRIDGES Weekly, 11 April 2008, http://www.ictsd.org/weekly/08-04-11/story1.htm). It provides countries with a means to allocate, at the more detailed 8-digit tariff level under the harmonised system, product-specific domestic consumption data which is often available only at the broader 6-digit level. Members had earlier agreed that domestic consumption figures would be used as the basis for quota expansion.

While some countries, such as Argentina, oppose this approach, others have agreed that it could serve as a basis for further negotiations. Developed country Members which still have more than four percent of their tariffs above 100 percent after the tariff cut formula has been applied will have to offer additional quota expansion, which the new draft stipulates should be 0.5 percent of domestic consumption. The draft also includes some additional options for developing countries that have to expand import quotas for their sensitive products.

Tropical products and preference erosion

The group of Latin American countries that favour enhanced liberalisation for tropical products has continued to negotiate informally with the EU, as indeed has the African, Caribbean and Pacific (ACP) group of countries that are concerned about the erosion of preferential access to developed country markets. For a number of particularly controversial products, and in particular bananas and sugar, the two developing country groups have diametrically opposed objectives. Tropical liberalisation proponents were reported to be continuing detailed negotiations on individual tariff lines with various developed country importers, in the hope of establishing either one common list of products for enhanced liberalisation or a set of country-specific liberalisation commitments.

Special products text revised

On special products, the text includes bracketed clauses that could allow developing countries to designate a minimum of 8 percent and a maximum of 20 percent of their tariff lines as special, broadly retaining these from previous iterations of the draft. Either 40 percent or none of these lines would be exempt from undertaking tariff cuts: remaining tariff lines would undertake an average 15-percent cut, with a minimum 12-percent and maximum 20-percent cut per line. The previous draft had included up to three categories of tariff lines, one of which would be exempt from cuts and two of which would be subject to different degrees of gentler reductions.

Special safeguard mechanism: two options

The revised text on the special safeguard mechanism (SSM) reorganises the options that the chair had set out before, setting them out as two broad options for negotiators to decide on. Members are invited to choose between two approaches. Under one option, easier-to-trigger safeguard remedies are not constrained by the maximum permitted ‘bound’ tariff levels that applied after the conclusion of the Uruguay Round. Under the second option, safeguard remedies would be harder to trigger and Members would be limited to Uruguay Round bound levels for large surges, and Doha Round bound tariff levels for smaller ones.

One delegate from the G-33 group of SSM proponents suggested that the either/or approach would not be suitable for facilitating ministerial-level decisions. Another argued that the chair had been relatively happy to include flexibilities for sensitive products at the behest of developed countries, but less keen to accord comparable flexibility to developing countries for special products.

Additional safeguard duties would normally apply for 12 months, the text says, unless seasonal products are involved, in which case a 6-month period would be used. One delegate pointed out that most agricultural products are however seasonal.

Previous references to preferential trade agreements have been replaced by a new provision that stipulates that the safeguard would be triggered only by multilateral trade flows.

A separate safeguard mechanism, the ’special agricultural safeguard’ (SSG), has also proved controversial, with efficient agricultural exporters in the Cairns Group calling for its immediate elimination, and importing Members such as the EU, Japan and Switzerland favouring its continuation. Developing country Members, while technically allowed to use the safeguard, have complained that they have in practice been unable to do so - a major factor in leading the G-33 to press for the creation of the new SSM. The latest draft would either eliminate the SSG for developed countries, or reduce it to 1.5 percent of scheduled tariff lines. For developing countries, it proposes a new figure of 3 percent of lines.

Tariff simplification and escalation

Coverage of the new text on tariff simplification has been expanded to include bracketed language that would cover all bound tariffs; it has also been simplified and shortened to include fewer exceptions.

On tariff escalation, the chair’s revised draft provides greater specificity to the cut undertaken by processed products with high tariffs, which would fall in the top band of the general tariff cut formula. These tariffs will be reduced by 6 percentage points more than the cut that would normally have been required.

New WTO Members given more leeway for high tariffs

The text provides some new flexibility for ‘recently acceded Members’ (RAMs) - a group of countries, including China, that have argued that they have already undertaken onerous accession commitments recently, and thus should be treated more leniently. Whereas the previous draft proposed allowing these countries to moderate by 7.5 percent the tariffs cuts they make in all bands, the new one would allow cuts to tariffs in the top two bands to be moderated by up to 10 percentage points, and those in the bottom two bands to be moderated by five percentage points.

Domestic subsidies and export competition

The draft retains the bracketed 66- or 73-percent proposed cut for overall trade-distorting subsidies for the US and Japan, as well as the 75- or 85-percent cut for the EU. All other Members would have to undertake a 50- or 60-percent cut. The US in particular has been under pressure from other Members to reduce its maximum permitted subsidy level as part of the negotiations.

The new draft now contains an annex giving a detailed breakdown of US subsidies that could be subject to requirements under the less trade-distorting ‘blue box’ - a development that one delegate described as helpful.

Outstanding issues in the export competition part of the negotiations, such as rules on export credits and food aid, were described by the chair as being not formally agreed but “pretty much ready.”

Towards an end-June ministerial meeting?

Falconer has announced that an informal meeting open to all Members will be held on the afternoon of 26 May for negotiators to provide initial reactions to the draft. Some developing countries nonetheless told Bridges that any reactions at that stage would necessarily be preliminary responses only, and that adequate time would have to be allowed for capitals to thoroughly analyse the new draft.

The chair has indicated that, if Members then show willingness to narrow their differences, he could hold further small-group consultations with the approximately three dozen delegations he has been convening since September. These are intended to represent a cross-section of negotiating interests. Another informal meeting of the full membership would then be held on the afternoon of 30 May, to report on progress.

Delegates speculated that trade ministers could be brought to Geneva around the end of June if sufficient advances can be achieved in the talks in the days and weeks ahead. However, they also warned that, on many highly technical parts of the draft text, such as the SSM, positions remained so far apart that it might be counterproductive to bring ministers together beforehand.

The countries actively engaged in consultations on sensitive products, tropical products, and preference erosion have repeatedly requested more time to prepare proposals so that “substance,” and not an arbitrary deadline, “guides the process.” As a result, New Zealand Ambassador Crawford Falconer’s draft text, once expected in early May, might now be released the week of 19 May or possibly at the end of the preceding week, officials say.

All Members will be allowed to slate some ’sensitive’ farm products for gentler tariff cuts, in exchange for expanding market access through import quotas. Although countries have agreed that future quota size should be based on total domestic consumption of a given product, determining consumption levels has been complicated, especially for processed foods and very specific products for which data is not available. A group of six major importers and exporters have over the past month tried to reach a compromise ‘partial designation’ methodology for determining domestic consumption for very specific products. Australia, Brazil, Canada, Japan, the EU and the US have circulated their potential compromises to other Members, to see whether they can gain wide enough currency to become the basis for a broader agreement. Reactions to the proposals have been mixed so far. Developing countries in particular have requested time to assess how they might be affected, expressing concern about the minimal expansion of fruit and vegetable import quotas.

At a recent limited-attendance meeting convened by the group of six importers and exporters to explain partial designation, the US suggested that developing countries draft their list of sensitive products by the end of the week. Developing countries have not moved aggressively to propose a list, citing the tight time frame.

Proponents of expedited liberalisation for tropical products succeeded in removing bananas from a potential list of sensitive products issued last week. Preference-receiving countries had hoped that major markets be allowed to designate bananas as sensitive, which would preserve more of their margin of preferential access.

Delegates say that though they are eager to come to an agreement, they are taking a “wait and see” approach to the glacial progress on key issues.

ICTSD reporting.

The delay - the text was initially expected by the end of April - calls into question whether governments will be in a position to reach a framework accord on agriculture and industrial goods trade by the end of May.

At a 30 April meeting of the agriculture negotiations committee, Chair Ambassador Crawford Falconer (New Zealand) said that he would not issue an updated text outlining elements of a potential Doha deal before the week of 12 May. This followed requests for a postponement from several delegations seeking more time to bridge gaps between their positions.

One of the thorniest issues countries are dealing with is how to deal with ’sensitive’ farm products, which all Members will be allowed to subject to gentler tariff cuts in exchange for expanding access through import quotas. Also problematic is the tension between separate mandates for speedy trade liberalisation for tropical products and addressing the erosion of longstanding trade preferences for some of the same crops, notably sugar and bananas.

At the heart of recent disagreements over sensitive products has been the inability of farm exporters and importers to agree on how to measure domestic consumption for different foods.

Domestic consumption will be the basis for calculating the size of tariff rate quota expansion, with future quotas to account for at least a certain percentage of consumption. However, calculating consumption for different foods has not proved simple. Part of the reason for this is that consumption data often does not exist at the high degree of specificity (say, particular cuts of beef instead of frozen boneless beef in general) at which import-wary countries wanted to designate products as sensitive, so as to pinpoint protection across a wider range of commodities. This absence of data necessitates the use of various estimates and proxies. Also controversial has been how to account for processed products in domestic consumption: efficient exporters do not want highly-processed products like sugary drinks and pasta to end up reducing the consumption figures for the primary commodities (such as sugar and wheat) for which they are most eager to secure greater market access.

Though confusingly technical, the domestic consumption data issue is crucial: some farm exporters insist that any market access gains they achieve in the agriculture talks will hinge on how the matter is resolved. Without specific figures on consumption, the efficient exporters argue, they cannot know how they stand to be affected by a Doha deal, since their main exports are likely to be designated sensitive in key target markets.

Early in April, six major importers and exporters — Australia, Brazil, Canada, Japan, the EU and the US — reached an outline compromise on calculating domestic consumption levels (see BRIDGES Weekly, 11 April 2008, http://www.ictsd.org/weekly/08-04-11/story1.htm).

When the details of the complicated mathematical approaches for different products were circulated to other WTO Members, many asked for further explanation. The six countries did not manage to circulate explanatory notes on the compromise until an 18 April meeting of the agriculture negotiating committee. At the time, other Members asked for more time to analyse the data, as well as for an opportunity to ask questions about the potential compromise.

Broadly speaking, the compromise divides likely sensitive products into different product categories such as barley, beef and veal, and butter. Then, it requires the vast majority of domestic consumption of sensitive products - at least 90 percent - to be counted as relatively unprocessed ‘core’ commodities. However, which specific products qualify as ‘core’, and the share of domestic consumption assigned to them, has been the subject of continuing horse-trading, sources say. For sensitive products ‘partially’ designated at both the 6-digit and more specific 8-digit level of the harmonised system of customs classification, the 18 April explanatory note describes a ‘two-step’ process. In the first step, domestic consumption of a given product is determined at the 6-digit level. The second step utilises a proxy to determine consumption at the 8-digit level (for which actual data is rarely available).

Asked about the complexity of the potential compromise, one negotiator described it as the “predictable outcome” of an attempt to accommodate each country’s objectives and “reverse-engineer” them into an overall deal.

Furthermore, the terms of the compromise are far from set in stone - even its six sponsors have been haggling about how to treat different products, both amongst each other and in a larger group of a dozen Members (known as the ‘friends of the chair’) that have been meeting to discuss sensitive products since last year. Indeed, sources report that some changes have been made to the outline deal.

Two of the most contentious aspects in the debate on sensitive products have been the ’sub-categorisation’ of product categories, and tariff quota ’sub-allocation’.

The former would allow a Member to divide a product category into two - cheese, for instance, could be divided into ‘industrial’ and ‘other’ cheese. The ‘two-step’ process for calculating domestic consumption would then be applied to each of the sub-categories. The 18 April explanatory paper acknowledges that this could yield a lower domestic consumption figure than what would have been obtained for cheese as a single category. Therefore, it called for some conditions to be placed on sub-categorisation, such as a minimum quota expansion requirement.

While the initial compromise proposal made by the six exporters and importers would have allowed Members to divide up to two product categories in two, sources report that the revised version they circulated on 30 April did not contain any provisions permitting sub-categorisation.

However, sub-allocation - allowing more than one tariff quota to be established for a given product category - remains controversial. The earlier proposal would have allowed Members to maintain two separate tariff quotas for up to three different product categories. Although this would be restricted to product categories with ten or more lines at the 6-digit level, the explanatory note pointed out that grains, meats, sugar, and several dairy products would meet this criterion.

Splitting a tariff quota for apples into allocations for red and green apples, to take a hypothetical example, could make some would-be exporters anxious, since it would potentially mean guaranteed commercial opportunities for green apples that would otherwise have been unlikely to displace red ones in a given market.

Sources say that Canada has been recalcitrant in the discussions, pushing for an outcome that would allow it to provide greater protection to some products, such as cheese.

In general, importing countries are arguing for sub-allocation on the grounds that they cannot accept a minimum, or floor, tariff rate quota expansion, without some flexibility for their particular interests. The EU said the flexibilities entailed by the proposal were an essential means of achieving an ambitious overall result on market access.

One complaint voiced by a number of countries is that the potential compromise is designed only to deal with specific concerns among the six Members that authored it. Argentina and some others criticised it for failing to adequately accommodate concerns from the rest of the WTO Membership.

Some developing countries dislike the relatively narrowly defined product categories for fruits and vegetables. China and India argued that if modalities for sensitive products were tailored to the needs of individual countries, the same should be done for the ’special’ products that developing countries alone will be allowed to fully or partially shield from tariff cuts for food and livelihood security reasons.

The group of countries seeking liberalised trade in tropical products, and the preference-receiving members of the African, Caribbean, and Pacific (ACP) group, have both been meeting their respective industrialised country markets. Costa Rica, on behalf of the tropical products group, has said that it was working with importing countries to agree on a list of products that would be designated as tropical. Sources suggest that bananas may have been removed from a list of products eligible for designation as sensitive. ACP countries wanted some of their key exports designated as sensitive elsewhere, in order to preserve relatively higher tariffs and thus the ACP’s margin of preferential market access.

Looking forward

Sources suggest that Falconer largely knows what the next version of his draft text will look like, and is waiting to put in provisions to capture any progress that delegates make on issues such as sensitive and tropical products.

The potential compromise on sensitive products is set to be examined by a group of about three dozen countries representing the spectrum of negotiating interests (the so-called ‘Room E’ consultations). The negotiating committee may meet again on 8-9 May to discuss how to proceed.

One trade diplomat suggested that a ‘horizontal process’ of cross-sectoral negotiations among senior officials could start as early as the week of 12 May, which is when Falconer suggested that he might release the text. Another speculated that in the interest of time, Members could conceivably proceed straight to these horizontal talks without an examination of the forthcoming agriculture and industrial goods texts in the respective issue-specific negotiating committees.

In the horizontal talks, officials would be expected to make the cross-sectoral trade-offs necessary to put ministers in a position to finalise a framework deal on agriculture and industrial goods trade. Although delegates are not ruling out the possibility that this might happen by the end of May, they are now conceding that a ‘mini-ministerial’ meeting might be more likely in July.

ICTSD reporting.

The reform of the global agriculture trading system currently being negotiated in the context of the Doha Round - with the objective of establishing a “fair and market-oriented trading system” - will play a major role in this process. Over the last fifteen years, world agriculture trade has grown almost twice as fast as production. However, highly subsidised agricultural production and exports from Organisation for Economic Cooperation and Development (OECD) countries as well as the anti-competitive behaviour of trading firms are depressing world prices, thereby affecting development prospects in the South. Exports from developing countries, of tropical products in particular, continue to face a variety of specific challenges, ranging from non-tariff barriers, and technical barriers to trade (such as sanitary and phytosanitary requirements), tariff escalation, preference erosion, and price volatility.

The importance of tropical products for developing countries is undeniable. Their significance has been recognised in an array of studies, fora and organisations. As indicated in a document by the Common Fund for Commodities (2004): “The livelihoods of hundreds of millions of the world’s poorest people in developing countries, and in particularly in the least developed countries, are heavily dependent on commodities. Commodities form the backbone of the economies and account for the bulk of the export earnings of these countries. The development of commodities is thus vitally important in the global struggle to alleviate poverty.” However, there are no studies estimating the importance of tropical and other commodities using economic, social and foreign trade indicators. Nonetheless, the participation of such products in exports from developing countries is significant: the fifteen main tropical products account for 37 percent of developing countries’ incoming foreign currency from agricultural exports. This proportion reaches 62 percent for low income developing countries.

Many of these products are grown primarily by small farmers in developing countries - as in the case of coffee, cocoa, tobacco and cotton. Others are vital in the generation of rural employment (i.e. sugar, rubber and rice). Therefore, besides their considerable contribution to foreign currency generation, they also play an important role from a social point of view.

There is still no agreed definition as to which agricultural commodities should be considered as tropical and diversification products in the agricultural negotiations at the World Trade Organization (WTO). In addition, WTO Members still have to agree on the way in which the long-standing commitment to achieve the fullest liberalisation of trade in tropical agricultural products contained in the July 31, 2004 Framework Agreement will be worked out.

There have been persistent differences between WTO Members, more specifically a group of Latin American (LA) countries and the African, Caribbean and Pacific (ACP) countries, on how to liberalise trade in tropical products while also addressing the effects of trade preference erosion. The two mandates have neatly placed them in opposing camps: while some want developed countries to remove all tariffs and quotas on ‘tropical products’ such as sugar and bananas, others have long benefited from trade preferences for these very commodities, and thus stand to lose from across-the-board liberalisation. While the preference beneficiaries would like rich countries to be able to separate these products for lower tariff cuts, thus preserving more of their margin of preference, the others would like to prohibit the same products from being designated as ’sensitive.’

In this context, the objective of the dialogue was to determine a better sense of how the WTO agricultural negotiations on tropical products can increase benefits for developing country exporters of these products and identify elements of a pro-poor, pro-sustainable development agenda for tropical commodities. It addressed issues of interest to all developing country exporters of tropical products, in Latin America, Asia and Africa.

More particularly, the dialogue addressed challenges ranging from tariffs, tariff escalation, preference erosion and possible trade adjustments, non-tariff barriers, sanitary and phytosanitary requirements, sensitive products and domestic support. The dialogue will also address other imperatives of a global strategy for sustainable development in agricultural trade. This included supply chain, value chain, bio-fuels and the environment.