Agriculture talks at boiling point over Special Products

WTO negotiations in agriculture have reached a near-crisis over the issues of Special Products (SP) and Special Safeguard Mechanism (SSM), with developing countries that have championed these concepts being in a state of fury at what they see as attempts by the United States and some other exporting countries to undermine agreement on and use of these two instruments.

A small-room meeting on Friday morning to discuss special products was quite stormy, with members of the Group of 33 (comprising more than 40 developing countries with defensive agriculture interests) strongly objecting to the proposals by the US and other exporting nations to severely restrict the definition and use of special products.

The G33 are also upset by a reference paper on SP issued by the Chair of the agriculture negotiations, Ambassador Crawford Falconer of New Zealand. The group made a statement during an open-ended meeting on agriculture on Friday afternoon, criticising several aspects of the Chair's reference paper.

The Ambassador of a large G33 country told the small-room morning meeting that the negotiations will be in very serious trouble overall, if the opponents of the use of SP and SSM persist in blocking progress in this area, according to a trade diplomat present at the session.

At the Friday meeting, the G33 stated its major concerns in a stark way. "Let us be categorical," said Ambassador Gusmardi Bustami of Indonesia, on behalf of the G33. "The ambition envisaged in some highly extreme and ambitious proposals on market access would decimate the entire rural populations of the poor developing countries.

"Accordingly, you cannot expect the G33 and other vulnerable developing countries who are demandeurs of SPs to come down significantly from 20%, regardless of the (level of) ambition."

Earlier in the week, the US had issued a paper on special products that infuriated the G33 members as it proposed that only 5 tariff lines be allowed to be designated as special products. As many developing countries have close to or over a thousand agriculture tariff lines, this means that less than 1% and in many cases less than 0.5% of agriculture tariff lines can be selected as special products.

The US also wanted other restrictions on selection of SP (for example, that they be limited to products produced domestically, and that net exported products cannot be made SPs).

Moreover, the US proposal for treatment of SPs is also very restrictive, as all SPs will still have to undergo tariff reduction (though less than the general cut), and all SPs are subject to expanded access through tariff rate quotas, and there will be no in-quota duties for any tariff rate quotas. This means that market access at zero tariff will have to be offered for a specified minimum quantity of the special products.

At the meeting, a few developing countries, led by Thailand and supported by Malaysia and Costa Rica, also spoke in favour of a highly limited and restrictive approach to the number and utilisation of special products, according to diplomatic sources.

A week before, Thailand had circulated a paper advocating restrictive conditions to be attached to the use 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 county's total import of such products shall not be designated as SPs; and the number of SP tariff lines shall be limited and specified.

In addition, a product to be designated as an SP should meet other criteria: more than a certain percentage of domestic consumption of the product must be met through domestic production; it should be more than a percentage of agricultural GDP; and the product contributes at least a certain percentage of total nutritional value of the population.

In terms of treatment, the Thai paper says that SPs must not be exempted from tariff reduction and TRQ expansion and TRQ products designated as special products shall be subject to quota expansion. Also, SPs are only transitional, with their status ending at the end of the Doha implementation period.

The US and Thai papers are in serious conflict with the G33 position that developing countries can self-designate up to 20% of tariff lines as special products, and that products that meet the agreed criteria of being relevant to food security, livelihood security and rural development are eligible for the SP status. The G33 also has a paper providing indicators for these three principles.

The G33 has also proposed that half of a country's designated SPs be exempt from tariff reduction (and the remainder be subjected to 5 or 10% reduction). SPs should also be exempt from commitments on tariff rate quota, and have guaranteed access to SSM.

The G33 countries have argued that they must have adequate recourse to the SP instrument in order to protect their small farmers from further displacement as import liberalisation in recent years has already caused import surges and disrupted the incomes and livelihoods of their farmers.

The G33 members have also been extremely upset by another recent US paper on SSM which allows for only a very limited use by developing countries of what they consider to be a crucial mechanism to safeguard against adverse effects of liberalization.

The two US papers and a similar position from a number of other members, including some developing countries, have given rise to an undercurrent of indignance and anger among many leading G33 countries.

They found no comfort from a Chairman's reference paper on SP put out by the Chair of the agriculture negotiations, Crawford Falconer, on 4 May, and which was discussed at the agriculture meeting on Friday.

"The Chairman's reference paper looks at SP from a commercial and market access viewpoint, and not the perspective of the agreed principles of development," said a leading G33 negotiator outside the meeting hall, referring to the concerns of food and livelihood security and rural development, which had driven the group to champion the SP and SSM concepts.

In a statement, the G33 made clear its deep disappointment with the Chair's paper, as the G33 diplomats had hoped that it would be more balanced.

The paper says that reliable and universal indicators to match a product to the three criteria are not easy to find and three approaches have been taken in the negotiations: (1) selection guided by an "illustrative, non-exhaustive and non-prescriptive list of indicators" that take account of the diverse nature of national and regional agricultural systems in developing country Members, and the actual number of products that could be selected would not be limited to any percentage of tariff lines; (2) A finite and common set of indicators is needed and these would "screen" products that are SP candidates. A limit is put to the number of SP; (3) To limit self-designation to a specific number or proportion of tariff lines, possibly combined with indicators for the criteria.

Though he does not mention which delegations are attached to which of the options, it is apparent that option 1 is the G33 position (though the G33 has now agreed to place a limit of 20% of tariff lines on the number of SPs), while the Thai and US papers seems to fit into option 3.

The Chair says that focus should be on the third option, and thus he does not dwell on the two other approaches.

His paper says there is a serious mismatch between the proposals and the stated intentions. As an example, he says that there has been intensive discussion on what the overall tariff cuts and bands should be, together with the appropriate commitments for developing countries.

"Yet the issue of Special Products has the potential to effectively trump anything that might be considered to be at the negotiating 'heart' of the modalities when Members discuss cuts and bands."

The Chair's paper says, for example, that the G33 proposal speaks of at least 20% tariff lines as a possible number for SP. In para 8 of his paper, the Chair said that he asked the Secretariat to assess what this (i.e. the designation of 20% as SP) might mean for a couple of developing countries. The paper says that the Secretariat data show that 20% of tariff lines could cover 98.4% of a certain member's import value and 94% of another member's. This "highlights how much trade could be covered by 20% of tariff lines," said the paper.

It added that if this is a typical profile, it would effectively render the whole discussion on flexibilities for developing countries (in relation to market access tariff cuts and thresholds) completely redundant. "It would trump anything envisaged under that part of the Framework," said the Chair.

The paper puts out three options for moving ahead. First, if we are going to consider percentages, one option is to look at a lower overall percentage. "In order to lower the potential size of trade coverage to something closer to an ordinary meaning of 'special', the percentage at issue would have to come down significantly from 20%."

Second, "treatment" can be incorporated in an approach that might diminish concerns regarding a relatively high absolute percentage of tariff lines number. If SP status means no liberalisation, there is a mismatch identified above at its most extreme. These effects are lessened to the extent that treatment is relatively more permissive of trade.

Third, Members can indicate in advance what their actual intentions are, irrespective of what the actual formal numerical entitlement might be. But there has been to this point no interest in engaging in an exercise of this sort. However, one variant can be explored: particular Members could be prepared not to resort to Special Products, or to resort to Special Products to a lesser extent than what might be generally agreed.

The paper says that "in the absence of any readiness to negotiate seriously along one or other, or some combination of, the above lines, it is difficult to avoid concluding that efforts to work towards a number will simply not succeed."

The paper also raises two issues arising from the July Framework and Hong Kong Declaration texts.

First, there is the matter of the indicators. There is movement towards wanting to work on the hypothesis of numbers, but a way must then be found to deal with the unintended consequences identified. There is no point continuing to advocate numbers at widely opposite extremes, with no real attempt to find a zone of engagement. Then there would be need to return to the indicators exercise.

Second, is the option of a review at the schedules stage without any prior numerical guidance - with or without agreed indicators. The Chair detected widespread unease with the idea that everything becomes subject to a tug of war at that stage of the process, and a review at the schedules stage would put huge time-pressure on the later stages of the negotiations.

It is not a preferred way to proceed, concludes the Chair, but absent any decision upfront, the process will drift that way regardless of whether Members are comfortable with that outcome.

At an open-ended meeting on Friday afternoon, the G33 presented a statement commenting on the Chair's reference paper on SP as well as on positions taken by some members that "clearly run counter to the mandate on SPs."

The G33 statement, presented by Indonesian Ambassador Gusmardi Bustami, said the Chair in para 2 of his paper made explicit that the designation of SPs is linked to the three criteria (food and livelihood security and rural development needs). But in para 8 he says that use of these criteria will lead to unbridled exercise of flexibility by developing countries which could blank out virtually all trade and thus the criteria of import values should somehow be used to filter the selection and number of SPs.

"This amounts to a re-negotiation of the mandate and suggests gross contradictions where none exist," said the G33. "The mandate is explicit. The further specification of the criteria and treatment of SPs during the negotiating phase must recognise the fundamental importance of SPs to the designating developing countries. This cannot be held hostage to the export interests of a few."

The G33 also said that the presentation of Secretariat statistics (in the Chair's paper) on "some selected parameters, with the view of guiding the resolution of the critical issues of SPs, has naturally surprised us all. We were not aware of a request being placed or indeed the assumptions that have been used by the Secretariat in order to direct the Members' attention to the implications of the G33 proposal on 20% of tariff lines being designated as SPs."

"There was no agreement among Members that import values are indeed a criteria to be captured in our work," said the G33 statement. "Moreover the absence of simulations by the Secretariat on the three criteria where Ministers have agreed on introduces an unwarranted bias in the negotiations."

The G33 also criticised the Chair for establishing a link (in paras 6 and 7 of his paper) between the tariff reduction formula and the number of SPs and for suggesting that SPs were outside the core modalities and, "worse, could in fact be used to circumvent or as you have put it to effectively trump anything that might be considered to be at the negotiating heart of the modalities."

"However, we emphasise that for the G33, SPs are integral to the tariff reduction formula. The open-ended nature of the G33 demand for at least 20% tariff lines as SPs is rooted in the ambition in the tariff reduction formula that will be negotiated.

"Let me be categorical on behalf of the G33. The ambition envisaged in some highly extreme and ambitious proposals on market access (but which have accommodations on their own domestic support sensitivities) would decimate the entire rural populations of the poor developing countries.

"Accordingly, you cannot expect the G33 and other vulnerable developing countries who are demandeurs of SPs to come down significantly from 20%, regardless of the ambition and balance across the agriculture sector."

The G33 also conveyed its concern that the Chair's paper "discounts the graded treatment proposed by the G33 in respect of SPs. Para 8 to 10 convey the impression that all SPs are being demanded with zero tariff reduction commitment and thereby giving legitimacy to the fears of some exporters that the SPs will have unintended consequences by denying all access."

The G33 said its proposal contains a balance for dealing with the three issues of appropriate number of SPs, their selection guided by indicators and more flexible treatment. "These are linked but these linkages cannot be negotiated through conditionalities on each of these issues, which in our view will undermine the mandate on SPs and completely disregard the legitimate expectations of the developing countries from the SP instrument.

"We believe that the structural aspects of the treatment of SPs, which must consider a graded treatment, without any linkages to TRQ based market access commitments, should be advanced.

"In parallel, the transparency through the indicators sought to be provided by the G33 should be recognised and the discussions on the indicators directed to addressing specific concerns on any indicators as well as their usage.

"In conclusion, we urge you to expeditiously amend the reference paper so that the direction of further negotiations on SPs can be steered to convergence fully consistent with the mandate we have before us."