28th July 2008

WTO Members Move Forward on Bananas, Tropical Products, but Major Differences Loom.

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From bananas and cotton to trade preference erosion and liberalisation for tropical products, officials at the WTO on 27 July addressed a range of issues in the Doha Round talks that will need to be resolved alongside higher-profile differences on tariff and subsidy cuts if governments are to strike framework deals on agricultural and manufacturing trade this week.

Ministers from about 30 countries discussed the issues — which were not among those addressed by WTO Director-General Pascal Lamy in a package of potential compromise parameters he put to Members on 25 July — at a ‘green room’ meeting Sunday evening. Several participants described the meeting as constructive, hailing progress on tropical products and banana trade.

But part of the reason for the relative harmony might have been that ministers simply held off discussing some issues that divide them sharply, such as protections for developing country farmers under a ’special safeguard mechanism’ (SSM).

“In the last 24 hours we have resolved or very nearly resolved issues that have been on the table for a very long time,” said Keith Rockwell , the WTO’s lead spokesperson. He said that the three key issues left to be resolved are the SSM, special treatment for cotton, and sector-specific liberalisation initiatives for manufactured goods.

Updated draft deals on agricultural and industrial goods are expected from the chairs of the two negotiating committees at some point on Monday. Rockwell said that these would contain “no surprises,” suggesting that they would only reflect widely accepted convergence. An informal session of the Trade Negotiations Committee (TNC), the WTO body that oversees the Doha Round negotiations, has been scheduled for 9am Monday. This will be followed by a noon meeting of ministers from seven leading trade powers, the so-called G-7, with whom Lamy has been consulting intensively since Wednesday. A larger ‘green room’ meeting may be called later in the afternoon.

Lamy has stressed that he wants to ensure that delegations have sufficient time to consult before calling on them to deliver official opinions on the proposals on the table. Thus, assuming that the talks do not break down, a formal gathering of the TNC — necessary for any modalities package to be presented to the full Membership — would probably not be held before Wednesday.

EU, Latins agree on bananas — ACP next?

In a significant development, eleven Latin American banana exporters and the US on Saturday reached an agreement with the EU on the latter’s import regime for bananas. As per the compromise, based on a proposal by Lamy, the EU would cut its MFN tariffs on bananas to 114 euros per tonne by the beginning of 2016, with a 28 euro per tonne ‘down payment’ reduction in the first year. The pact would exempt the EU from having to cut banana tariffs under a Doha deal.

Brussels has long maintained a complicated banana import regime involving quotas and tariffs, allowing it to provide preferential access to bananas from former colonies in the African, Caribbean, and Pacific (ACP) group. Despite various reforms, its import rules - including the current tariff, equivalent to 176 euros/tonne - have been repeatedly ruled to violate WTO rules, in cases dating back to the early 1990s. Under the agreement signed Saturday, the Latin Americans and the US effectively committed to not resuming their dispute against EU banana import policies until the new tariff is fully phased in.

In theory, the agreement between the EU and the Latin American exporters is a bilateral issue, springing from their long legal fight. In practice, there is a third party whose acquiescence must also be secured: the ACP group, which wants to minimise the erosion of its access to the EU market.

ACP officials have expressed discomfort with the EU-Latin American deal.

Clifford Paul Marica, Suriname’s minister for trade and industry, told Bridges that the terms of the agreement “would put our banana industry in serious difficulty.” He said that the ACP had put a new counter-proposal to Brussels, under which the EU’s MFN banana tariffs would actually end up lower than 114 euros per tonne, albeit with duty reductions spread over a greater number of years, including a grace period. He stopped short of threatening not to accept a modalities agreement if unhappy with the outcome on bananas, but suggested that “if there are no eyes and ears for our proposal, it would be difficult for us.”

Marica and other ACP delegates suggested that EU adjustment assistance to promote economic diversification and compensate for lost income might help make the banana deal more palatable.

Last-minute horse-trading over banana trade has marked WTO decision-making from the start, from the Marrakesh agreement establishing the global trade body to the launch of the Doha Round in 2001. True to form, bananas were called a potential deal-breaker for the current mini-ministerial as recently as last week.

WTO spokesperson Rockwell told journalists Saturday that the banana negotiations were “close to an overall agreement.”

“Emerging consensus” on tropical products

An issue closely linked to banana trade — the Doha mandate for the “fullest liberalisation” of trade in tropical products and those that might be grown in the place of narcotic crops — has also pitted the interests of Latin American exporters against the ACP group, which fears preference erosion. But following years of inconclusive negotiations on the two groups’ conflicting demands, New Zealand Ambassador Crawford Falconer, who chairs the agriculture talks, told the Sunday evening green room meeting that there was an “emerging consensus” on the treatment of tropical products.

Under this, tropical products with tariffs less than 20 percent would be reduced to zero. Those with tariffs over 20 percent would be cut by 80 percent over five years. The hotly debated question of what constitutes a tropical product would be rendered moot by providing Members with an ‘indicative list’ of potential tropical products, with the stipulation that developed countries apply tropical product tariff treatment to a certain percentage of commodities on the list.

All countries will treat bananas as a tropical product, apart from the EU (which otherwise would have been obliged to cut banana tariffs to about 35 euros per tonne). Sugar, another crucially important product to both groups, is likely to be designated as ’sensitive’ and slated for gentler-than-normal tariff cuts in many major markets, thus softening the blow of preference erosion.

In an attempt to win the ACP group’s support for banana tariff cuts and the agreement with the EU, the Latin Americans have agreed to allow most of the products where the two groups’ interests overlap to receive the longer implementation period assigned to products subject to preference erosion. Compromises on two remaining products — rum and arrowroot — are still under negotiation.

Potential tradeoff on GI extension, TRIPS-CBD?

As resolutely as the EU has pursued the extension of geographical indication (GI) protections already available to spirits and wines like Champagne to regional food names such as Parma ham and Roquefort cheese, the US has opposed it. During the ongoing mini-ministerial meeting, Lamy entrusted the long-stalemated debate on ‘GI extension’ to Norwegian Foreign Minister Jonas Gahr Støre for mediation, along with two other intellectual property issues: a proposed amendment of WTO intellectual property rules to require patent applicants to disclose biodiversity or traditional knowledge used in inventions, and the functioning of a ‘register’ of GIs for wines and spirits that Members have already agreed to negotiate.

With countries’ positions on the issues remaining diametrically opposed, one delegate said that Støre has been exploring a possible compromise under which Members would agree as part of a modalities deal to intensify discussions on the three issues, with the aim of identifying common objectives. These talks would be set to coincide with the scheduling of product-specific liberalisation commitments on agriculture and NAMA in October. Discussions on GI extension and a disclosure amendment would not take place in the Special Session of the TRIPS Council, the committee established for the negotiations on the GI registry, but could be chaired by the same person, thus establishing a link with the Doha ’single undertaking’.

Such a ‘process agreement’ may not be enough to satisfy some EU member states, which have insisted that their farmers need the price premiums that would result from GI extension to make up for subsidy and tariff cuts under the Doha Round.

Sources close to the discussions have suggested that a potential tradeoff might be in the offing, under which Brussels would agree to the US demand for a ‘peace clause’ insulating its farm subsidies from many types of legal challenge at the WTO, and Washington would drop its opposition to GI extension. Meanwhile, developing countries like Brazil, India, Cuba, and Peru, among many others, would tolerate a US peace clause in return for getting the disclosure amendment they claim is necessary to prevent ‘biopiracy’.

Cotton talks still at an impasse

Negotiations on the mandate for “expeditious and ambitious” cotton-specific subsidy and tariff cuts have also been stuck in a stalemate. Like a meeting among senior officials the day before, a Sunday gathering of US and several African ministers yielded no movement. Sources report that US Trade Representative Susan Schwab maintained that Washington could not put forward a specific offer on cotton subsidy reduction until it knows what it stands to gain in broader agreements on agriculture and NAMA, particularly with regard to market access.

Abdoulaye Sanoko, a Malian trade official familiar with the discussions, said that Schwab suggested that the depth of cotton subsidy cuts would be linked to market access for cotton that the US gains elsewhere, particularly in China. This was an argument that US officials had not made in prior talks on the issue. “It seems suspect to us,” he said.

Along with Benin, Burkina, and Chad — making up the so-called C-4 — Mali has long called for cuts to developed country cotton subsidies, which they say undermine otherwise competitive small-scale producers in Africa. Sanoko said that for the C-4, the main problem is “subsidies that hurt prices,” far more than access to other markets.

A C-4 country delegate told Bridges Sunday evening that, without an agreement on cotton, his country would be unable to accept a Doha deal.

Substantial differences on SSM

Lamy’s compromise parameters for the ’special safeguard mechanism’ (SSM), a device intended to help developing countries protect farmers from import surges and price collapses by temporarily raising tariffs on affected products beyond bound ceiling rates, would allow remedies to exceed current bound tariff levels by 15 percent (or 15 percentage points), but only when import volumes surge by 40 percent or more. SSM duties would be allowed to breach current tariff ceilings for 2.5 percent of tariff lines in a given year.

Import-sensitive developing countries have complained that the threshold is too high, the remedies too low, and the number of tariff lines too limited. India, which sees the SSM as an essential tool to protect vulnerable farmers, warned that the issue was a potential “deal-breaker.” A delegate from a different G-33 country said that Lamy’s parameters should be subject to negotiation, not “take it or leave it.”

The G-33 met with Falconer on Sunday to explore alternatives. Later that day, developing countries and LDCs accounting for about half of the WTO’s membership — the G-33, the African Group, the ACP Group, and the group of Small and Vulnerable Economies — tabled an alternative set of SSM parameters, saying it reflected “the limits of the flexibility” they could show on those issues. For 7 percent of tariff lines, they would allow larger developing countries to raise tariffs as high as 30 percent (or 30 percentage points) above current bound levels under the SSM, triggered by volume increases starting at 10 percent. For the remaining 93 percent of tariff lines, remedies would be added to post-Doha bound rather than applied rates, and would not breach pre-Doha tariff ceilings. SVEs and LDCs would receive higher remedies, for more tariff lines.

Meanwhile, farm exporters in the developed and developing world fear that the SSM already on the table could close off market opportunities. Developing country agriculture exporters stress that selling farm products abroad is central to their growth and development. Uruguay’s WTO ambassador, Guillermo Valles Galmes, said that a 10 percent trigger would mean that some 82 percent of China’s food imports, and 64 percent of India’s, could be slapped with safeguard duties. Uruguay is “gravely concerned about the way the SSM is crafted,” he said.

Ministers did not focus on the issue in Sunday’s green room session. But it will have to be addressed this week.

ICTSD reporting.