Agriculture Negotiations 7-11 February Focus on Preferences, Conversion to Ad Valorem Tariffs, Reduction of Domestic Support Levels

Negotiations on agriculture took place at the WTO in the week of 7-11 February.

The main issues discussed included how to (or whether) treat the erosion of preferences, how to convert specific tariffs to their ad valorem equivalents, the reduction of domestic supports, and the Green Box, and export credits.

There was considerable differences of views and positions on these topics.

The WTO members are targeting to have modalities for the agriculture negotiations ready by the time of the Hong Kong ministerial in December 2005. For this, the New Zealand Ambassador, Tim Groser, chairperson of the agriculture “special sessions”, has been aiming to produce a 'first approximation' of the modalities by the end of July.

Below is a TWN report by Tetteh Hormeku on the special session on agriculture held on 7-11 February.

Martin KhorTWN

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AGRICULTURE NEGOTIATIONS 7-11 FEBRUARY FOCUS ON PREFERENCES, CONVERSION TO AD VALOREM TARIFFS, REDUCTION OF DOMESTIC SUPPORT LEVELS

TWN Report by Tetteh Hormeku, Geneva, 15 February 2005

Agriculture negotiations: differences emerge on several issues

A week of WTO agriculture negotiations on 7-11 February 2005 saw differences of positions and views among the WTO members on various issues. The issues discussed included how to (or whether) treat the erosion of preferences, how to convert specific tariffs to their ad valorem equivalents, the reduction of domestic supports, and the Green Box, and export credits. With these differences, it looks as if there will be an uphill battle to make enough progress in time for the Hong-Kong Ministerial Conference.

WTO delegates are targeting (the 'unofficial aim') to have modalities for the agriculture negotiations ready by the time of the Hong Kong ministerial and for this the New Zealand Ambbassador, Tim Groser, chairperson of the agriculture “special sessions”, has been aiming to produce a 'first approximation' of the modalities by the end of July.

Issues raised at formal meeting of 11 February

However, at the formal meeting on Friday (11 February) which wrapped up the week of negotiations, it became clear that progress on even technical issues was mired in differences among members, while on some other ('non-technical') issues, members were keen to have the statements they had made in informal consultations earlier in the week reflecting their differences put on record. Members were also divided on suggestions for some items to be included in the agenda for the next round of consultations in March.

One of the stickiest 'technical' issues related to the question of calculating tariff equivalents for the purposes of working out the formula for tariff cuts. Referring to this, Amb. Groser warned 'that an issue that appeared to be almost purely technical has unexpectedly turned into a major hurdle threatening to seriously delay the agricultural negotiations'. He said that this issue had to be resolved within weeks so that members could start working on the formula for cutting tariffs.

The question at stake concerns the calculation of the 'ad valorem equivalents' of specific tariffs. This refers to how to convert specific tariffs, that is those that are denoted in relation product quantity (e.g. dollars per ton, euros per litre and their complex variations) into tariffs expressed as percentages of the price of the product.

This question, which was one of the technical issues forming the subject of consultations in the days immediately prior to the 11 February formal meeting, divided developing countries against mainly the EU and the G10. The EU and G10 want the flexibility to make their own calculations without these being subject to what in their view would amount to 'excessive' challenge and verification, arguing that their tariffs are a highly sensitive political issue .

On the other hand, the developing countries, including China, Brazil, the Philippines, Indonesia, Peru, Uruguay, Argentina, India, New Zealand, Thailand, Costa Rica, Chile, Nicaragua, are concerned a loosely defined method of calculation would allow the developed countries which apply specific tariffs, to manipulate the figures for the subsequent formula for tariff reduction to the disadvantage of the developing countries. A loose method of calculation could enable the developed countries to systematically under-estimate the ad valorem equivalent of their existing specific tariffs, producing a lower tariff base from which they would then make only modest tariff cuts. By contrast developing countries tariffs, which are largely ad valorem, would figure directly in the formula.

A similar division among developing and developed countries emerged with regard to the agenda items for the next agriculture consultations in March. This related to the proposal by Amb. Groser to include in those discussions, the items referred to in the July framework 'issues of interest but not agreed', covering such issues as sectoral initiatives, differential export taxes, and geographical indications.

On this item, Brazil, speaking for the G-20, supported by non- G20 members such as Malaysia, Australia, Cuba and Uruguay objected to these issues being put on the agenda as if they had equal status to agreed discussions on the three pillars of the agricultural negotiations (domestic support, export subsidies and market access). These countries did not want the priority status of the issues relating to the three pillars to be diluted by the inclusion at this stage of the other issues.

Switzerland and the EU argued that the framework had been agreed as a whole and that it would be dangerous if negotiators were allowed to pick and choose only the subjects that concerned them.

Another feature of the discussions at the formal meeting was that several members asked for statements they made in informal meetings during the week to be put on the record. This was particularly the case for statements on preference erosion by groups such as the African Group, and the African-Caribbean-Pacific (ACP) Group, (which are recipients of EU preferences) and least-developed countries. On the other side were some Latin American countries who had indicated their difficulties with this position. At the formal meeting, South Africa endorsed the African Group's position, saying that the main purpose is to obtain firm commitments to help recipients adapt as the preferences are eroded. A similar position, in essence, was taken by the G20 during the informal session earlier in the week when the issue was discussed.

Process of agriculture negotiations over the week

The formal meeting of 11 February was preceded by four days of informal consultations organised according to the three-stage procedure so far adopted for the agriculture negotiations. The first stage of this procedure, the so-called 'First Reading', involves members stating their positions on issues selected from the July framework. The idea is to enable members hear each other's positions on a given issue in the framework, gauge reactions and determine how to pursue a subject. These informal open-ended special sessions, are normally held in a big room whioch can accommodate all the delegates that want to attend, and are open to all members.

In the second stage, described as 'Room D process' (because they take place in a smaller room D, but still open to all interested delegations), some of the issues rising from the First Readings are discussed in greater technical detail. Although all countries can be accommodated in the room, there is not enough room for all delegates to be present, and some countries with larger delegations have suggested the need for a bigger room to enable their all their delegates to participate. Chairperson Grosser had been reluctant to find a larger room because he felt that would make the discussion more formal and less frank. So for this week a compromise was adopted whereby some members of larger delegations (who couldnot enter the room) were able to listen to the discussion in the room next door.

The third stage, 'specialist consultations', are held in a yet smaller room (Room F). The Room F meetings involve only a small group, representing the interested members, meeting to scrutinise what is described as 'certain highly complex issues'. The Green Box was the 'complex' issue taken up in this process during the week.

Not all meetings took place within the WTO. A trade diplomat expressed concern with the holding of a meeting involving a smaller group of countries at the EC mission on Friday (11th Feb) over the contentious issue of ad valorem equivalents. The meeting was chaired by Amb. Groser.

“First Reading” on formula for reducing Domestic Support, Preferences and Export Restrictions

The stage one discussions during the week, which took place on 7 and 8 February, dealt with three main issues: the formulae for reduction in trade-distorting domestic support; preferences and export restrictions.

On the formula for reducing trade-distorting support, the issue predictably pitted the large providers of domestic support against the non-providers. A presentation by the Philippines for the G20 (a grouping of developing countries) stressed that meeting the mandate of the Doha declaration as reconfirmed in the July framework required both that there are substantial cuts in the levels of domestic support, but also that larger domestic supports have to be cut more sharply. The G20 also stressed that the sum of cuts in all three relevant components of domestic support - AMS, Blue Box and de minimis -- should be 'such that it will contribute to the attainment of substantial overall reduction in trade distorting domestic support.”

One issue that emerged in the discussions related to the gap between the bound ceilings and actual levels of supports provided by the countries in question. On this issue, Brazil stated that while the 20% down payment agreed in the July framework deals with the gap, more needs to done by the providers of domestic support to eliminate the gap (and thus to have effect on the actual supports).

Switzerland, speaking for the G10, argued that the reason for the gap was partly due to the fact that the providers of support had undertaken unilateral liberalisation, and therefore should not penalised by others insisting that the gap be reduced.

In the view of New Zealand, however, the gap has less to do with unilateral liberalisation than with the fact that the base levels from which the ceilings were made were inflated during the Uruguay Round negotiations.

In relation to the question of preferences, Nigeria (speaking for the Africa Group), Senegal (for the LDCs), Benin (for the ACP) and Jamaica (for Caricom) spoke of the difficulties facing the preference recipient countries from the erosion of preferences that would take place as a result of tariff reductions. All the groups in various ways drew attention to the need to adopt practical measures in the market access negotiations to address this problem.

The Africa Group proposed the establishment of an adequate time frame and support mechanism for preference receiving countries to adjust to the situation to be created by the erosion of preferences. In addition the criteria for establishing the relative importance of specific long-standing preferences should not 'be so restricted as to undermine the very concept and purpose of the preferences, including allowing developing countries to expand their export portfolio and diversify.” The Group also stated that it would be equally important to guarantee that the capacity of these countries to benefit from these preferences is improved.

The African, ACP and LDC concerns about preference erosion were countered by several Latin American countries, including Costa Rica, Columbia, Ecuador, Bolivia, Peru and Panama. They argued that the continuance of preferences would undermine the key WTO principle of non-discrimination.

The EU and the G10 were sympathetic to the concerns of preference-receiving countries and promised to look at the issue carefully. On its part, the US understood the problems of these countries, but said preference erosion being inevitable, the key to an appropriate solution was in a transitional mechanism.

The G20, with Pakistan speaking on its behalf, pledged to address the adverse effects of preference erosion, given that preferences have been important for the development of some countries. In view of the structural roots of the problem, the group spoke for a comprehensive approach to resolving the problem, with Brazil indicating that appropriate transition periods, perhaps including more time for reduction in some regular tariffs, could help in this regard.

Room D: Export Credit, TRQs and Ad Valorem Equivalents

On 9-10 February, the discussions took the form of technical 'Room D' consultations on export credit; tariff quota administration; and the 'ad valorem equivalents'.

On the question of export credit, a number of developing countries called for special treatment allowing them to receive government-supported credit on their purchases that would normally be outlawed under proposed new export credit rules. Mauritius, Barbados, Egypt, Senegal (for least-developed countries) and Kenya proposed a number of flexibilities in order help developing countries, including net food-importers. Measures could include a longer repayment period than the 180 days agreed in the 2004 framework, lower interest rates, etc.

A number of developed and developing countries said they were uncomfortable with this because loopholes might be created. The EU, Australia, Argentina, Colombia, New Zealand, and Brazil cautioned that any flexibility should not undermine the agreement to eliminate export subsidies and should not create loopholes, although several said they understood the concerns and wanted to respond 'thoughtfully and carefully' (as Australia put it). The EU said its agreement to eliminate export subsidies was on condition that all forms of export subsidies are eliminated ('full parallelism'). New Zealand stressed that all forms of export subsidies should be eliminated by all members. These countries advocated giving special treatment in clearly defined special circumstances.

As stated earlier, the question relating to 'ad valorem equivalents' turned out as more controversial that the negotiators may have initially bargained for. The original schedule for concluding discussions on this issue on 10 February was not possible due to time constraints, and was thus postponed to the following day. When they resumed, the informal consultations brought together 20 countries in the premises of the European Commission Mission, and chaired by Amb. Groser.

During the discussions the EU and the G10 insisted on there being a flexible formula that would allow them to make the conversion while addressing political sensitivities.

At the meeting, the G10 was reported to have gone further and demanded that in exchange they should be given credit in terms that their demands and position on their sensitive products (i.e. products that would be treated more leniently in tariff reductions) be regarded favourably. Predictably, this was a non-starter with the G20, who stated that the issue at stake was the rectification of an error and asking for concessions in exchange for addressing this situation was simply not on.

The fundamental tension was between developing countries (which were concerned to prevent cheating) and the G10 and EU which wanted flexibility, and this tension was reflected in discussions on the details, in particular the estimate of a representative price of an imported product, needed in order to convert the tariff to a percentage. Many delegations favour a 'unit value' calculated using the total value of an import related to its quantity, as the basic calculation method. Problems arise when the data might not be available or when the structure of imports is complex such as when tariff quotas are applied. The resulting calculation would be different depending on whether all imports are counted, or only those entering outside the quota, or whether imports under preferences are included.

Brazil, supported by a number of others, advocated adopting three principles: the method should be reasonably accurate to reflect the degree of protection, some flexibility so as not to hold up the negotiations, and verification with the burden of proof shared between importers and exporters. China, supported by several, said that while members could make the calculations themselves, the method should be open, credible, transparent and multilaterally verifiable.

Room F: Green Box

The main subject of the Room F process was the green box (i.e. domestic support that is not subject to reduction commitments). Indications suggest that the discussion on this subject are stuck on the nature of the review of the Green Box as stipulated in Annex A of the July Package. The EC insists that this is confined only to what they have referred to in the previous session of agriculture negotiations (Dec 2004) as a “health check-up”. On the other hand, the G20 reminded the EC that the fundamental objective of the review is to ensure that the Green box is indeed not or minimally trade distorting, requiring that the review of the Green Box is rigorous rather than perfunctory.

The next agriculture week is slated for 14-18 March. Before then, a meeting of the Cotton Sub-Committee takes place on 16 February.