Bridges • Volume 12 • Number 5 • November 2008

How Useful Is the Proposed Cap for Agricultural Tariffs?

by María Marta Rebizo

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On 25 July, WTO Director-General Pascal Lamy suggested compromise figures for the key stumbling blocks that threatened to derail the Geneva mini-ministerial. The document raises a number of questions with regard to market access for sensitive agricultural products.

Specifically, the third ‘paragraph’ of the Lamy proposal provided that “developed country tariff lines above 100 percent only for sensitive products + 1 percent allowance with payments as per text.” In other words, developed countries should cap their ‘non-sensitive’ product tariffs at 100 percent, but could maintain tariffs above this limit for products designated as ‘sensitive’. In addition, certain developed countries could keep import duties above 100 percent for 1 percent of their ‘non-sensitive’ tariff lines. In all cases where developed country farm tariffs exceed 100 percent, increased market access must be offered, as provided in the draft agricultural modalities released by chair Crawford Falconer on 10 July.

According to that document, sensitive product tariffs above 100 percent must be compensated through a 0.5-percent quota expansion for the products in question (this is additional to the requirement that new market access opportunities, equivalent to 4 percent of domestic consumption, must provided for all products designated as sensitive ). Moreover, developed country Members entitled to maintain duties above 100 percent for some of their non-sensitive tariff lines (Iceland, Japan, Norway and Switzerland) must either:
a) expand quotas for all sensitive products (instead of just those that exceed the tariff cap) by an extra 0.5 percent of domestic consumption, or
b) reduce pre-Doha tariffs for the non-sensitive products concerned within three instead of five years, or
c) cut pre-Doha tariffs for those products by five additional percentage points, i.e. by 75 instead of 70 percent.

It is safe to bet that the countries entitled to the 1-percent non-sensitive product exception will choose either option b) or c) rather than a), which would require a quota expansion for all sensitive products.

An analysis of the tariff structures of Canada, the European Union, Japan and the United States1 leads us to conclude that the great majority products with post-Doha import duties above 100 percent will be designated as ‘sensitive’, and thus subject to the requirement of an additional 0.5 percent quota enlargement.

Who Needs the Non-sensitive Exception?
If Canada applied the smallest possible tariff cut to its agricultural tariff lines (one-third of what would be required by the general formula), around 87 products would be left with tariffs above 100 percent. Some 90 percent of these would probably be designated as sensitive. None of the remaining 10 percent of ‘non-sensitive’ tariff lines would exceed 100 percent after the application of the 70-percent general formula cut required for pre-Doha tariffs in excess of 75 percent. Among the sensitive products with post-Doha tariffs above 100 percent would be: bovine meat, pork meat, poultry meat, buttermilk, cheeses, condensed and liquid milk, milk powder, ice cream, yoghurt, other dairy products, and whole and processed eggs. While the table overleaf shows additional quota expansion for some of these products, in most cases this would be small since the ‘partial designation’ calculation methodology for domestic consumption is narrow, and the 0.5 percent additional quota could turn out to be irrelevant.

For the United States, only 18 tariff lines would surpass 100 percent after the application of the smallest possible cut for sensitive products. All of these could be designated as sensitive, and pertain to the categories of peanut products, buttermilk and tobacco. Although the US has not presented its domestic consumption data for peanuts or tobacco (which could mean it does not consider these as sensitive), it is most likely that they will be so designated based on the high levels of protection these products have enjoyed historically. Should that not be the case, the 12 tobacco tariffs lines would be subject to the 70-percent general formula reduction and the 100-percent tariff cap would apply. The five peanut tariff lines, however, would be brought to below 100 percent after the 70-percent general formula cut. At six thousand metric tonnes, a 0.5 percent quota expansion for buttermilk would not present a significant advantage.

Forty-three EU tariff lines would remain above 100 percent after application of the greatest possible deviation from the general formula. Twenty-seven of these are likely to be designated as sensitive, and would belong to the following categories: beef, meat offal, lard, yoghurt, other milk products, preserved or conserved agaricus (‘button’) mushrooms, glucose and sugar. Only one ‘non-sensitive’ tariff line – in the meat offal category – would exceed 100 percent after the mandatory 70-percent general formula cut, and in this case the 100-percent tariff cap would apply. For sensitive products, such as beef and sugar, increasing the import quota by 0.5 percent of domestic consumption could prove of interest. For butter, however, it might be irrelevant.

Out of the four countries examined, Japan seems to be the most in need of the 1-percent exception. Applying the greatest possible deviation from the general tariff cut formula would leave 120 products with tariffs above 100 percent. Some 73 of these would very probably be designated as sensitive.

Seven of the remaining products would still have tariffs above 100 percent after the application of the general formula. These would be entirely covered by the 1-percent ‘non-sensitive’ exception, which for Japan amounts to 13 tariff lines. More than 100 percent post-Doha tariffs would be maintained on several types of dried beans, lard, buttermilk, condensed and liquid milk and milk powder, ice cream, yoghurt, other dairy products, peanuts, meat offal, pork, wheat, rice, starch and silk.

Conclusion
It is highly likely that the immense majority of all products with post-Doha tariffs above 100 percent will be designated as sensitive, and most of those that are not will be covered by the 1-percent exception for non-sensitive tariff lines in major export destinations. The proposed tariff cap would thus result in little new market access in the four economies examined in our survey.

Nevertheless, further product-by-product analysis will be necessary to determine whether Latin American and other strong farm goods exporting countries should give up on their insistence on a tariff cap. At first glance it seems that a cap could be of interest for a limited number of products, but effective market access gains would be slight – to say the least – for most tariff lines of export interest.

María Marta Rebizo is Chief Economist at the INAI Foundation in Argentina.