Major differences over special products, special safeguard

Major differences on the issues of Special Products (SPs) and the Special Safeguard Mechanism (SSM) were evident at the negotiations on agriculture at the WTO on 26-28 April.

'It was the most difficult session of talks we have had on these issues,' said a delegate from a member of the Group of 33, which has been the leading advocate of the use of these two concepts.

While the G33 argued its case strongly for the use of these two flexibilities, some other countries took positions that would severely restrict the use of the SP and SSM as instruments that can be used by developing countries to prevent or to deal with import surges that can result from further tariff reductions resulting from the Doha talks.

The Chair of the agriculture negotiations, Ambassador Crawford Falconer of New Zealand, issued a Chair's reference paper on SSM, but has yet to come up with one on special products.

In a session on special products, the US proposed that only five tariff lines can be designated by a country as 'special products', according to trade diplomats. This is a minuscule number, as developing countries have more than a thousand agricultural tariff lines, and the number proposed would constitute less than 1% of these tariff lines.

The Indonesian Ambassador, who coordinates the G33, told the US that its proposal was 'not helpful.'

The G33 has proposed that developing countries can self-designate up to 20% of tariff lines as special products.

A new paper was also distributed by Thailand, which argued for restrictive conditions to be attached to the use of SPs. It argued that rural development and farmers' livelihoods in exporting developing countries should also be considered (not just importing countries).

The paper proposed three general indicators in the selection of SPs: products exported by developing countries that constitute more than 50% of world exports of that product shall not be designated as SPs; products imported from developing countries that constitute more than 50% of the importing country's total import of such products shall not be designated as SPs; and the number of SP tariff lines shall be limited and specified at least at HS 8-digit level.

In addition, a product to be designated as an SP should meet three other criteria: (a) more than a certain percentage of domestic consumption of the product is met through domestic production; (b) it should be more than a percentage of agricultural GDP; and ( c) the product contributes at least a certain percentage of total nutritional value of the population. The percentages are to be negotiated.

In terms of treatment, the Thai paper says that SPs must not be totally exempted from tariff reduction and TRQ expansion, and flexibility can be in the form of lesser cuts than required by the formula and a minimum tariff percentage cut shall apply. TRQ products designated as special products shall be subject to quota expansion.

The paper also states that SPs should be subject to a cap on maximum tariffs; however, the tariff caps can be a percentage higher than the caps for normal products.

Also, the paper views SPs as only transitional, and their status will end at the end of the Doha implementation period.

Members that broadly supported Thailand's approach included Argentina, Australia, Chile, New Zealand, the US, Uruguay, Malaysia, Canada and South Africa. Some of them however had reservations on parts of the Thai paper, for example, on whether there should be quotas.

Some members also suggested a trade-off, that countries that have fewer special products would be allowed more flexibility in cutting tariffs.

According to the EU, Thailand's criteria for selecting special products might go beyond the mandated 'self-selection' but broadly agreed that there should be some tariff reduction. The EU raised the issue whether products could be both 'sensitive products' and 'special products'.

Responding, many of the G-33 members said that the Thai approach is far too restricting. Replying to arguments that the G33 proposal would hinder trade, some G33 members said that trade would expand because of economic and population growth.

The G-33 proposal is that developing countries can self-designate products as 'special products' if they are in line with an open-ended list of indicators, and that up to 20% of products can be so designated. Also, half of the special products would be exempted from tariff reduction.

During the meeting, some G33 members rejected Thailand's argument that special products have to be subjected to substantial market access improvements. 'We cannot accept any re-negotiation of this central characteristic of special products,' India said.

Broadly sharing these views were Indonesia, Turkey, India, China, Republic of Korea, Venezuela, Cuba, Sri Lanka, the Philippines, the Dominican Republic, El Salvador, Honduras, Chinese Taipei and Nigeria.

Falconer proposed that the debate shift from indicators to other means of ensuring that special products are 'special' and not the norm. He advocated working on limiting eligible products to certain numbers. In his view, members would not be able to agree on indicators within the short amount of time remaining, as it was technically difficult to define appropriate indicators. On the other hand, having an open-ended 'indicative' list would not give comfort to countries with export interest.

On the issue of the special safeguard mechanism, the discussions showed the continuance of basic differences in many areas.

The G-33 members took the position that the SSM is needed for development purposes which requires protection from imports, on grounds of food security, rural development and livelihood of small farmers. Those who spoke included Indonesia, India, Venezuela, Sri Lanka, Turkey, Republic of Korea, Nicaragua, Kenya, China, Mauritius, Zambia and Nigeria.

During the discussion, some other developing countries took the position that their development needs include being able to export to other developing countries. These included Uruguay, Paraguay, Chile, Thailand,Costa Rica, Malaysia, and Argentina.

The US, Australia, New Zealand and Canada also took a restrictive approach towards the SSM. The US issued a paper proposing that the SSM be used under very restrictive conditions, and with remedial action that was very limited.

The following are some of the differences in the discussions on the SSM.

On eligibility of products for use of the SSM, the G-33 said all products should be eligible. The other side argued that only products that are liberalized should be eligible, and particularly excluded should be those whose tariffs are reduced by less than prescribed by the formula, such as 'special products'.

On the 'triggers' to enable the use of the SSM, the G-33 is proposing that the safeguard could be used if the volume of inputs rises more than 5% above an average level or if the price falls below a level which is the average of the most recent three years. The US and some others said the 5% volume trigger is far too low. There are also differences over the appropriate period or periods to use to work out the relevant averages.

Some non-G33 countries also raised the question of how to distinguish between regular fluctuations, or increases in imports caused by rising domestic demand, and genuine surges or abnormal price falls. Some of them proposed some form of crosscheck so that a rise in imports would have to be accompanied by at least some form of price fall in order to be considered a genuine import surge. G-33 countries are resisting combining the price and the volume triggers.

Some countries (including Australia, Canada and New Zealand) want to see additional disciplines to prevent safeguards being used when there is little or no trade (which can happen when the only trigger is the price). They argue that this has been a defect of the present special safeguard (SSG).

On the issue of the remedy (i. e. the additional tariff allowed), the G33 position is that tariff increases should be allowed according to a scale, so that, for example, the higher the volume increase in imports, the higher is the allowed additional tariff. However, some other countries say there should be a cap placed on the maximum increase allowed, for example, that the tariff should not exceed the present (Uruguay Round) bound level.

On the duration of a particular use of the SSM, the G-33 view is that the additional tariff can be allowed for 12 months. But according to some others, the period should be within a calendar year or a notification year.

Another issue is whether the use of the SSM (and the calculation of its triggers) should cover all imports of a product, or whether these should exclude preferential imports, for example, imports arising from regional trade agreements (such that only 'MFN' products are covered).

The G33 would like the triggers to be based on all imports, arguing that it is the impact that counts and also it is difficult to separate the two. Some other countries argue otherwise, saying that their exports traded under normal (MFN) tariffs would be penalized even if the surge or price fall is only attributable to preferential trade.

Another issue is whether the SSM should replace the present special safeguard (SSG). Most G-33 members say it should and the Cairns Group and the US agree. The EU and G-10 do not want the SSG to be eliminated yet.

As to how long the SSM should be available, the G33 proposes that it can be in place indefinitely. Some of the others say there should be a limit, for example, only during the period of implementing the Doha results.