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.