EU seeks aggressive opening of South in exchange for agriculture

The European Union in the negotiations of the past few days has reiterated that concessions that it gives in agriculture will have to be linked to real market access openings in developing countries in industrial goods and services.

This was made clear by EC Trade Commissioner, Peter Mandelson, during the mini-Ministerial in Zurich on Monday as well as a press conference in Geneva on Wednesday.

At the Wednesday meeting with media, Mandelson was asked about the EC's "benchmarking" proposal in services, in which developing countries would have to commit to liberalise in a certain number of sectors.

He replied that targets for members as a whole are needed to intensify efforts towards better offers. He wanted the services negotiations to operate on a similar basis as that on agriculture and industrial products.

(See separate article on the press conference).

In his statement at Zurich, Mandelson insisted that modalities for making commitments in the services sectors and industrial tariff negotiations must result in real market access in the developing countries.

However, when it came to the issue of farm tariffs, he was decidedly less forward or ambitious. He tied the rate of tariff cuts the EU could make with the number of sensitive products it would be allowed to designate.

In relation to choosing the sensitive products, "this will be done by the WTO members themselves," he said.

His statement is also noticeably silent on the need to review the Green box subsidies to ensure that they are indeed non-trade distorting, as demanded by the G20 countries and stipulated in the July Framework. The EU is in the process of shifting increasing amounts of its domestic support to the Green Box.

In the area of NAMA (non agricultural market access), Mandelson made clear the EU position that "modalities for tariff reduction must cut into the applied rates of most WTO members, and that the level of binding should be substantially increased where tariffs are not bound."

He said that the EU is willing to offer to cap their industrial tariffs at 10% using a Swiss formula, provided that other developed countries are willing to do the same. For developing countries, they should be given only a maximum tariff level of 15%, after applying the Swiss formula.

On the issue of Special and Differential Treatment (SDT) in the area of NAMA, Mandelson emphasized the EU position that this should be limited as narrowly as possible and tied to the level of tariff reduction that would be made by the developing country members.

As pointed out repeatedly by many developing country members over the last few months of negotiations, a Swiss formula approach without adequately differentiated coefficients for developed and developing countries would entail far deeper cuts for the latter.

This is due to the fact that developed and developing country members have widely different tariff structures. Many developing country members have pointed out in the past that this outcome would contravene the principle of "less than full reciprocity" in tariff reduction commitments contained in paragraph 16 of the Doha Ministerial declaration.

Furthermore, many developing countries had also pointed out that the Doha mandate provides for SDT, and that it should not be linked to the level of tariff cuts they would have to make under the formula.

In the area of services, "the aim of the EU is to agree at Hong Kong to modalities that will impose a clear level of ambition for these negotiations, and for new market access to be delivered", said Mandelson.

In this respect, the modalities to be agreed at HK should include at least four elements, according to the EU.

First, a multilateral formula for commitments based on a mandatory target for the number of services sectors in which each member would be required to make offers.

Second, a plurilateral approach where a critical mass of members would establish benchmarks "to guide the level of commitments in sectors of interest" to them. "These benchmarks could take the form of model schedules," Mandelson noted.

Third, clear and firm dates should be fixed during the first four months of 2006 for the presentation of revised services offers reflecting both multilateral targets set and, where relevant, the sectoral model schedules.

And finally, a discussion to ascertain realistic targets for negotiations for "rules", since it would not be possible to set more concrete objectives for the Hong Kong Ministerial.

Most developing country members at the last session of the Council on Trade in Services a fortnight ago had rejected the setting of obligatory qualitative and quantitative benchmarks in the services negotiations for all members.

The African Group, the LDC group, Brazil, Argentina, the Philippines, Indonesia, Jamaica, Barbados, Trinidad and Tobago and other developing countries have argued that this is contrary to the GATS structure of progressive liberalization and the accepted mandate on how the services negotiations are to be conducted.

The EU statement also covers the issue of "development", which by and large repeats a few of its previous positions, or positions already agreed to, such as offering duty and quota free market access to LDCs exports and exempting LDCs from tariff commitments.

Its summary statement says: "A round for free for LDCs - no obligatory tariff cuts. Some flexibility for other developing countries, but the expectation of ambition from advanced developing countries."

This is a clear attempt to introduce or establish the notion of differentiation among developing countries. According to a senior trade diplomat, the EU hopes that the differentiation it is proposing will enable it to make more aggressive demands in the markets of developing countries it is interested in, without having to face the resistance of other developing countries.

On its better publicized agriculture proposals, the EU is offering or proposing the following:

• In domestic support, a 70% reduction in its AMS (or amber box), and at least a 65% cut in maximum levels of de minimis support, and possible reductions in maximum Blue Box payments.
• In the tariff reduction formula, there should be four bands with higher cuts for higher tariffs and some limited flexibility around a linear cut in some bands. In the highest band with tariffs over 90%, the cut would be at least 50%.
• Developed countries would have a "maximum agricultural tariff", as proposed by the G20. (The G20 has suggested tariff caps of 100% for developed countries and 150% for developing countries. The EU statement says the EU is willing to accept this).
• Minimum recourse to sensitive products, and willingness to provide higher tariff rate quotas for sensitive products whose tariff cuts fall below the average cut for their band.
• On export competition, the EU reiterates an end to all export subsidies with an end date and front-loaded timetable to be agreed at Hong Kong. It does not specify the date.