Geneva Update

FORMULA ONE RACING: WHO'S GOING TO WIN THE GRAND PRIX?

By Alexandra Strickner and Carin Smaller, TIP/IATP

CONTENTS
I. THE JULY SCRAMBLE
II. THE FORMULA DEBATE
III. AGRICULTURE: a game of tactics
IV. COMMODITIES: addressing the crisis
V. NAMA: the dangerous dynamics
VI. SERVICES: developed countries push for change?
VII. PROCESS: will it ever change?
VIII. THE FORMULA GLOSSARY
IX. IMPORTANT DATES TO REMEMBER
X. DOCUMENTS

THE JULY SCRAMBLE

Delegations in Geneva are concerned about the lack of progress in the negotiations. As the membership approaches the July General Council, there is a scramble to draft language for the so-called 'July Approximations.' The Chairs of the different negotiating committees will write detailed first texts outlining the rules for making commitments. The most contentious issues will be left blank. Filling in figures and numbers will also be left to a later date.

The stage is set for another U.S.-E.C. onslaught. In the services negotiations, the E.C. will push hard to establish benchmarks for minimum offers that countries must make. In non-agricultural market access (NAMA), the Chair, Ambassador Johannesson, along with the developed country membership, have decided that there is consensus on the U.S. simple Swiss formula and intend to submit a formula of this type in July. In agriculture, the U.S. and E.C. are showing strong resistance. This is the area of the negotiations where they have to make concessions and they are simply unwilling. The E.C. and the U.S. refuse to address domestic support, in particular the U.S. proposed expansion of the blue box to accommodate its subsidy payments. The U.S. is maintaining a hard line on food aid and the E.C. is becoming more defensive in market access. The Chair of the agriculture negotiations, Tim Groser, has already lowered the ambition of agriculture compared to NAMA and services. He has said he will not submit a 'July Approximation' on the formula for market access and it is unclear whether he will be able to submit anything on domestic support. If all this goes according to plan, the U.S. and E.C. will get key commitments in the areas most important to them, services and NAMA, and they will be able to postpone making any key commitments in agriculture until later in the year, the area of key importance for much of the rest of the membership. This course is not yet locked in but there are strong indications that things are heading this way. Of course, developing countries could decide to insist that, as a Single Undertaking, they cannot make commitments in NAMA and services without some indication of how far the U.S. and E.U. are willing to go in agriculture. But it will be a fight.

THE FORMULA DEBATE

In both agriculture and NAMA negotiations, the discussions are focused on how much each country will reduce barriers to trade at the border, particularly tariffs. Tariffs are trade measures that allow countries to control the price, speed and volume with which imports enter their domestic markets. Tariffs are often used to generate government revenue, and sometimes to protect local production from foreign competition. Well-designed tariffs are cheap, transparent and easy to apply, which makes them very useful for developing countries with relatively weak administrative capacity and little if any money to support their domestic producers with direct subsidies.

Both the NAMA and agriculture negotiations committees are working to develop a formula to apply to each country's tariff structure to reduce their tariffs. The negotiators want to find a formula that will cut higher tariffs more than lower ones, but of course, countries are also manoeuvring to try and avoid cutting their own tariffs as much as possible. There are several types of formulas being proposed. (Please see below for a detailed glossary on the different formulas.)

The outstanding feature of the formula debate is its utter lack of consideration for how such a simplified approach will play out in practice, particularly on livelihoods in developing countries. In many cases, a single formula is proposed for all countries to apply. This is ludicrous. First, this approach ignores the diversity of tariff structures across different countries and the importance of that diversity as a way for countries to regulate the flow of goods into their country to help develop local production and industries. Second, it ignores the very different economic capacities among different countries. Most developed countries have already reduced their industrial tariffs to relatively low levels, although many still rely on high tariffs for many of their agricultural products. Developed countries also have access to other forms of protection for their producers because they have much larger budgets than developing countries. On the other hand, tariff measures are vital tools for developing countries both now or for the future, as the demands to best serve their domestic development needs evolve. To reduce tariffs now, and to lock in those reductions, not only restricts existing opportunities for economic development but ruins future prospects to use tariffs for development.

AGRICULTURE: a game of tactics

In July 2004 members agreed to reduce agricultural tariffs through a tiered formula with high tariffs to be cut more than low tariffs. The debate is now about how many tiers to create, the threshold for deciding which tariffs go into which tier and the type of tariff reduction formula to be applied to each tier. At the heart of this negotiation is how ambitious countries are willing to be in their tariff reduction. Agriculture exporting countries including the U.S. and the Cairns Group, particularly Australia and New Zealand, support an ambitious formula that will cut tariffs steeply, known as the Swiss formula. Countries that want to continue to protect their agriculture with tariffs, including the E.C., the G10 and India, would prefer to use a formula that reduces tariffs more gently using average percentages, known as the Uruguay Round formula. The Chair of the Committee on Agriculture, Tim Groser (currently working in his personal capacity as he retired as Ambassador in May to run for office in the New Zealand elections), urged members not to be wedded to particular formulas and to look for alternative ways to reduce tariffs. Canada presented an alternative formula proposal and China suggested a mix of the two approaches. (see links below to the Canadian proposal and the WTO Secretariat Background notes.)

The debate is well under way and once again it seems like developing countries will be coughing up the concessions. The key aspects are the tariff reduction formula, sensitive products, special products (SPs) and a special safeguard mechanism (SSM) (see Geneva Update 13th May, 2005 for further details). The E.C. is moving towards a position where it can put most of its products in the tariff reduction formula, apply a Uruguay Round formula (which will have a gentle tariff cut) and leave only very few products for the sensitive products category. The E.C is confident that the internal Common Agriculture Policy (CAP) reforms undertaken in 2003, where they lowered the internal prices paid to agricultural producers and introduced decoupled income support payments, will mean that any tariff reduction commitments under the WTO will not increase actual imports. Australia, New Zealand and Canada are aware of this. They are proposing formulas with steep tariff cuts because they want to see the E.C. forced to use the sensitive products category, which will make the protection in use more obvious and which will come with tariff rate quotas that will be lower than the regular applied tariffs under the formula cuts. Australia and New Zealand know the only way to get market access into the E.C. is though increased tariff quotas under the sensitive products category. Canada plans to protect its supply management system by using the sensitive products category and wants the E.C. as an ally in the fight.

So far there has been only limited discussion on domestic support, including how to reduce the amber box, the possible expansion of the blue box and the review and clarification of the green box.

Instead of putting development and the needs of developing countries at the centre of the debates, the negotiations are focused on how much market access countries are willing to provide, with very little concession to special and differential treatment. Far from creating trade rules that effectively address dumping, the agriculture negotiations seem set to further open the markets of developing countries and so make them more susceptible to dumping.

While the market access games continues, the only issue that is linked to development - the special products category based on criteria of food and livelihood security and rural development - is seen as a nuisance issue that must be limited in scope and given very strict parameters. The G33 alliance of developing countries on SP and SSM are fighting hard for greater recognition of these issues. They submitted a proposal to the Committee on Agriculture (see link below) and issued a Ministerial Communiqu