Bridges Weekly Trade News Digest • Volume 12 • Number 35 • 23rd October 2008

WTO Farm Talks Sputter into Action

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Senior officials met with the chair of the WTO’s agriculture committee this week to informally exchange ideas on how to reach a compromise on liberalising trade in the agriculture sector, one of the pillars of the WTO’s Doha Round. The chair, Ambassador Crawford Falconer (New Zealand), has recently put a wide variety of issues on the table in an attempt to revive the negotiations, which have been stalemated since the failure of ministerial-level talks at the end of July.

Falconer will return to Wellington at the end of the year, a fact that has heightened many Members’ expectations of what the outgoing chair might be able to accomplish in the next two months.

This week’s talks are a continuation of the “walks in the woods” that Falconer has taken with Members since the beginning of the month. Under that format, Falconer has met informally with groups of countries on issues sensitive to allow them to air their ideas and concerns. So far, Falconer has held such informal meetings on tariff rate quota creation, tariff simplification, sensitive products, cotton, green box subsidies and tropical products.

To date, the most concrete proposals have come from discussions on tariff rate quota creation and tariff simplification. Talks on other issues have largely focused on clarifying the interpretation of the language in the draft text on agriculture that was released in the run-up to the ministerial-level talks in July.

No new TRQs?

The creation of new tariff rate quotas (TRQs), first proposed during the Uruguay Round of trade talks, has long been a controversial subject for major exporters.

TRQs were created as a means to allow import-sensitive countries to end their quota regimes and transition to more transparent ad valorem tariffs. But as the Doha Round has been explicitly devoted to development since its launch in 2001, the talks have treated products of export interest to developing countries with particular sensitivity. The number of TRQs for a given Member has largely been frozen since the end of the Uruguay Round. Exporters, developing countries in particular, fear that additional TRQs will make it that much harder for their goods to gain the level market access that they were expecting to win at the Doha Round’s conclusion. At the heart of the debate is a question of whether new TRQs are compatible with the aims of the Round.

Positions on both sides have been stiff, even during the current informal talks. Major agriculture exporters such as Brazil refuse to concede to the creation of TRQs, even as an analytical exercise, saying that importers have yet to make a “convincing explanation” for the need for new TRQs. Exporters fear that by discussing the issue of payments, or the trade-offs needed for the creation on new TRQs, they will be legitimising TRQ creation.

Nonetheless, the talks have outlined four possible categories for which TRQs could be created:

** Dynamic trade: products that were not originally covered by TRQs but for which trade has grown lately, e.g., ethanol.

** Substitute products: products that can be substitutes for goods currently facing TRQs, e.g., isoglucose, a substitute for sugar.

** Product categories with TRQs: cases in which TRQs exist in broader classifications but do not exist for specific goods, e.g., a TRQ exists for beef, in general, but not for beef liver.

** Completely new TRQ: a product with no history or other association with TRQs.

Importers agree that TRQ creation would occur within the allotment for sensitive products, which currently stands at 4 percent. Delegates also discussed whether substitute products might be dealt with via a “partial designation,” which would allow importers to select detailed tariff lines rather than broad categories to count towards their allotment.

Sensitive products

Many of the details of an outline on sensitive products — goods that will face reduced formulaic tariff cuts in exchange for an increase in quotas — have largely been agreed. But some members of the G-10 group of import-sensitive developed countries, such as Japan, are seeking an additional two-percent increase to their sensitive product entitlement. Others, such as Canada, have also demonstrated an interest in acquiring an additional two percent

Such an increase in tariff lines eligible for sensitive product designation is premised on language in Paragraph 71 of the most recent agricultural draft modalities. That clause allows countries with exceptionally high tariffs to increase their number of sensitive product in exchange for a “payment.” But while some Members, such as Japan, believe they qualify for such exceptional treatment, others disagree.

Tariff simplification

Tariff simplification is the conversion of specific tariffs, which are set at a precise level, to ad valorem tariffs, which are expressed as a percentage of the value of the good in question. Tariff simplification has been considered an important part of making trade rules more transparent and easier to implement.

Delegates have long been deadlocked on the issue. Importers such as the EU have argued that 85 percent of tariff lines should be converted to ad valorem, while exporters, led by the G-20 and the Cairns Group, want all tariffs to be converted.

But Falconer has said that his recent consultations have yielded a “sea change” in Members’ moods on the issue.

According to sources close to the talks, a Canadian study showed that complete tariff simplification may not be in the interest of exporters. Since the base period for specific tariffs and their conversion to ad valorem tariffs was set during a time of low prices, their conversion to percentage figures under current conditions may result in higher tariffs for products that have been buoyed by this year’s spike in commodity prices. But some of the premises of the study may no longer be valid, as prices for many key agricultural commodities have dropped precipitously in recent weeks.

It is unclear what figure Members will agree to, sources said, but it now appears unlikely that they will settle on a complete conversion of all specific tariffs.

An ‘operational’ SSM

The special safeguard mechanism (SSM), a tool that would allow Members to protect domestic producers from price drops or import surges, has also been addressed in Falconer’s consultations. Until recently, the SSM, which has been blamed for the collapse of the July mini-ministerial, was at the centre of efforts to revive the talks, including a series of meetings of the G-7 group of economic powers. According to Ambassador Falconer, many ideas from the present text “have been rejected” in the walk in the woods discussions.

The idea of an SSM holiday, remedial tariffs in excess of pre-Doha Bound rates, and trigger levels suggested by developed country members for use of the SSM are some of the ideas that have been rejected.

Indonesia, speaking on behalf of the G-33 group of import-sensitive developing countries, made an intervention at an informal open-ended “transparency” meeting held on 15 October, laying out the need for an ‘operational’ SSM. Indonesia rejected outright the notion of an SSM ‘holiday,’ a provision that would make the SSM periodically inaccessible. They also rejected the idea of a mandatory price-based crosscheck and a two-tiered trigger to ensure that exporters were not being unduly penalised. However, they were open to proposals that, “in good faith,” tried to account for “normal” trade growth, but limited these proposals to the three-year moving averages proposed earlier.

Cotton, tropical products, the green box

A proposal presented by the Cotton Four countries — Benin, Burkina Faso, Chad and Mali — went unanswered by major subsidisers of cotton, such as the US. Talks on the green box focussed on clarifying footnote 5 and 6 in Annex 2 so that poor farmers in developing countries could continue to receive assistance from their governments in a WTO-compliant manner. On tropical products, India has signaled its desire to play a more active role in talks on the subject since it is a “tropical country that exports tropical products.” A delegate said that any settlement reached between the tropical products group and others must address Indian concerns.

A new text?

In private, delegates spoke almost longingly of a need to preserve the progress made during Falconer’s tenure as chair of the farm talks. A final text could “put things in perspective” and to capture “what has been agreed so far,” trade officials said.

But Falconer has downplayed the likelihood of a new modalities text unless Members make significant progress this week.

The work that awaits the next agriculture chair will most likely face significantly different circumstances. In light of the credit crisis and falling commodity prices, some countries might tend toward protectionism, while others might not. But given the changing financial climate, coupled with upcoming elections in the US, India and the EU, the negotiating positions many countries in many key areas of the negotiations may be significantly different next year.

World leaders continue to push for a deal

But despite the number of issues left to be resolved at WTO headquarters in Geneva, world leaders have continued to call for a prompt conclusion to the round.

Brazilian President Luiz Inacio Lula Silva said in a radio address on Monday that he was confident that a deal to liberalise world trade could still be reached.

“During this moment of international crisis it’s important to conclude the Doha accord so we can show the world something positive, something to restore optimism in humanity,” Lula said, according to Reuters.

US President George W. Bush echoed that call at a White House summit on international development two days later.

“The recent impasse in the Doha Round of trade talks is disappointing, but that doesn’t have to be the final word. And so before I leave office I’m going to press hard to make sure we have a successful Doha Round,” Bush said.

“In the midst of this crisis, I believe the world ought to send a clear signal that we remain committed to open markets by reducing barriers to trade across the globe,” he said.

ICTSD reporting; “Bush vows big push for Doha before leaving,” REUTERS, 22 October 2008.

One response to “WTO Farm Talks Sputter into Action”

ICTSD • WTO Members to Pause for Thought on Ag Talks 6th November 2008 at 09:15
[...] tariff quota creation and the special safeguard mechanism (see BRIDGES Weekly, 23 October 2008, http://ictsd.net/i/news/bridgesweekly/31623/). While Members have expressed willingness to engage, “no tangible movement” has taken [...]