China Programme • Volume  • Number  • 16th July 2008

Negotiators Divided Over Whether New Ag Text Could Spark Doha Deal

Trade delegates awaiting the arrival of ministers in Geneva next week expressed both optimism and pessimism about whether a deal could be struck on the basis of a 10 July text circulated by the chair of the WTO agriculture negotiations. While some reported that it should be possible to reach an accord, others warned of numerous areas of continued disagreement that threatened to derail the high-level talks.

“I think a deal can be done easily” said one negotiator, while admitting that there were areas in which further convergence was still needed.

But that optimism was not shared by all. “There are still so many brackets, I don’t think that a deal will be struck” another negotiator said, in a reference to the many issues that remain unresolved in the most recent text.

Around 30 trade ministers invited to Geneva by WTO Director-General Pascal Lamy will meet from 21 July onwards in a last-ditch attempt to conclude the troubled Doha Round of trade talks by the end of this year. The round, first launched in the Qatari capital in 2001, has been haunted by repeated failure and missed deadlines, not least due to controversy over cuts to farm subsidies and tariffs.

The revised text circulated by the chair of the agriculture negotiations, Ambassador Crawford Falconer (New Zealand), is the latest attempt to bridge Members’ differences and come up with a compromise agreement. But some informed sources said that a deal risked being blocked by continued controversy over how products such as bananas and sugar should be treated as well as other issues on which agreement remained elusive.

The text also makes no attempt to further narrow differences over the hotly contested ‘headline numbers’ for the cuts to top-level tariffs and overall trade-distorting subsidies. Members have long assumed that only political guidance from ministers can resolve these questions.

Market access: numerous challenges remain

Relatively few issues remain to be resolved in the negotiations on countries’ domestic subsidies and on export competition - covering export subsidies and other measures seen as providing equivalent support, such as rules on export credit financing. However, there are a number of market access questions on which Members still remain far apart.

The chair set out new proposals aimed at facilitating consensus in a handful of areas, such as tariff caps, in-quota tariffs, and rules on the ‘special products’ and ‘special safeguard mechanism’ that developing countries will be able to use to protect poor farmers and rural communities. As he had indicated in a meeting on 7 July, in many cases these changes primarily sought to simplify and clarify the choices that Ministers would have to make (see BRIDGES Weekly, 9 July 2008, http://www.ictsd.org/weekly/08-07-09/story1.htm).

Tariff caps, in-quota tariffs: new detail on flexibilities and restrictions

New language on countries’ ‘sensitive’ products could now grant additional flexibility to countries with a large number of high tariffs, despite the traditional insistence of agricultural exporters in the Cairns Group and G-20 on the need for a tariff ‘cap’ applicable to all products. The chair’s text would continue to allow countries to maintain some sensitive product tariff lines at above 100 percent, provided import quotas were expanded as compensation; however, the text could now also grant additional flexibility to Iceland, Japan, Norway and Switzerland, by allowing them to maintain no more than 1 or 2 percent of their non-sensitive product tariff lines at above 100 percent, so long as expanded quota access or faster or deeper cuts were also provided.

New language on in-quota tariffs proposes reducing these levels by 50 to 70 percent, or, if lower, to a zero-to-15-percent ceiling. The precise numbers are still to be negotiated by ministers. The text also proposes that tariffs already at five percent shall be reduced to zero. Greater flexibility is accorded to developing countries, and to ‘recently acceded Members’ that have only joined the WTO in the last few years.

Special products: Falconer sets out new approach

Falconer also set out a new structure for the gentler tariff cuts that developing countries would have to make to their ‘special products’, which they would be allowed to select on the basis of food security, livelihood security and rural development concerns. While countries would be allowed to designate somewhere between 10 and 18 percent of their tariff lines as ‘special’, ministers would have to decide whether to allow six percent of tariff lines to be exempt from any tariff cut, or to require all lines to undertake at least a minimal cut. The chair’s text would require all special products together to reduce tariffs by at least 10 to 14 percent on average.

The G-33 had previously called for three distinct categories of products, one of which would be exempt from cuts and two other categories which would undertake progressively steeper reductions (though still less than those required under the general formula). Although recently the group had indicated willingness to consider a two-tier approach, with one group of products exempt from cuts, one G-33 source said that the new text had gone further towards meeting exporters’ demands by requiring all special products as a group to undertake an average cut.

Special safeguard mechanism: tough rules for breaching pre-Doha bound rates

The draft sets out a revised structure for the special safeguard mechanism, which developing countries would be able to use to raise tariffs temporarily to protect domestic producers from an import surge or price depression. Broadly, it would now limit countries’ ability to take tariff levels above the maximum ‘bound’ levels that prevailed before the conclusion of the Doha Round through the application of additional safeguard duties. It nonetheless provides relatively greater flexibility for safeguards when they do not take overall tariff levels above this ceiling.

In particular, a clause limiting the range of products on which safeguards could be imposed has been removed so long as pre-Doha bound rates are not exceeded. It would still apply to developing countries imposing safeguards that did exceed these levels, but not to countries classified as small, vulnerable economies or recently acceded Members (RAMs). The latter two groups would also not be constrained by restrictions on the size of the tariff increase and the duration of the imposition period that would apply to other developing countries when pre-Doha bindings were surpassed.

Falconer’s new text would allow safeguards to be ‘triggered’ by relatively low average import volume levels, as favoured by the G-33, whilst incorporating relatively tight restrictions on the additional safeguard duties or ‘remedies’, as preferred by exporting countries.

In the case of price depressions, safeguards could now bridge 85 percent of the difference between domestic and international prices – more than the 50 percent proposed in Falconer’s last draft, but still short of the 100 percent coverage sought by G-33 countries.

Tropical products and preference erosion: still no deal

Ongoing talks continued between the EU and Latin American exporters on the ‘tropical products’ that are slated for enhanced liberalisation, as well as between the EU and African, Caribbean and Pacific (ACP) countries eager to establish more gradual tariff cuts for products affected by the erosion of preferential access. For a few key products, such as bananas and sugar, the two groups are at loggerheads over the treatment that should be provided.

The lack of any final outcome to the detailed tariff-line-level discussions prevented Falconer from including new text on this issue in his revised draft. However, one delegate warned that the potentially explosive issue “risked blocking” the ministerial deliberations if no agreement was reached beforehand.

Sources reported that Lamy had personally presented a draft compromise proposal on bananas. However, negotiators familiar with the talks indicated that it had not found favour either with exporting countries or with those that currently benefit from trade preferences.

RAMs given more breathing room again

Recently acceded Members have argued that the onerous tariff commitments they undertook during negotiations to join the WTO should mean that they now get more flexible treatment in the Doha Round. Falconer’s new draft would allow these countries to cut all tariffs by eight ad valorem points less than would otherwise be required, although the May text had proposed allowing more flexibility than this for high tariffs classified in the top two tiers of the general tariff cut formula, and less than this for low tariffs in the bottom two tiers. China in particular has bound most tariff lines at very low levels, and could thus benefit from more flexibility for these products.

In another sign of the chair’s willingness to adapt the text to individual countries’ situations, the new draft also would also “exceptionally” allow Bolivia not to reduce bound tariff levels – a concession hitherto granted only to least-developed countries (LDCs).

Domestic support: incremental progress?

The revised draft contains new language that would restrict the circumstances under which countries could make exceptional updates to the base periods used to determine how much they provide to producers in decoupled income support payments – classified in the WTO’s ‘green box’, for subsidies that ostensibly cause not more than minimal trade distortion. It also proposes a 50-percent cut in the permitted amount of ‘de minimis’ trade-distorting support that developed countries will be able to provide, effective on the first day of the implementation period. The most controversial questions on subsidy spending remain to be tackled next week by ministers, however.

Members to provide reactions to text

Falconer has convened an informal ‘transparency’ meeting, open to all WTO Members, for negotiators to report on any progress in their own bilateral and small-group discussions and provide initial reactions to the new draft text. The meeting, which is scheduled for 17 July, is expected to be the last such gathering before ministerial meetings begin.

One developing country negotiator pointed to the political context in both the US and EU as a bad omen for the success of the talks.

“One member will be holding elections soon” said the official, in an oblique reference to US presidential elections. Another barrier is the lack of ‘trade promotion authority’ accorded to the US Trade Representative – necessary if the executive branch is to be able to submit a deal to Congress for a yes-or-no vote. On the other side of the Atlantic, public expression of the internal tensions among EU member states was another bad sign, the delegate said.

Despite challenging circumstances, some delegates hoped for a successful outcome to next week’s meeting. “We’ve invested so much time and resources” said one negotiator, who expressed optimism that a deal could still be done.

ICTSD reporting.