Chairman produces report on the state of WTO agriculture talks

By Martin Khor, Geneva,
28 June 2005

The Chair of the Special Session of the Committee on Agriculture of the WTO, Tim Groser, has issued a 10-page status report on his assessment of key issues to be addressed in the agriculture negotiations by 31 July 2005, which is apparently the date by which the General Council session to discuss 'first approximations' has to conclude.

The paper, dated 27 June, contains an overview, sections on key issues on each of thethree pillars of the agriculture agreement and negotiations (domestic support, exportcompetition and market access) and a brief section on cotton.

In the overview, Groser says that the aim of the 'first approximation' is to prepare anadequate structure in all three pillars for the more political September-Decembernegotiating phase. He said progress can only be made incrementally from a 'bottomup' approach. A 'top down' approach, imposing 'elegant' technical solutions to deeplyunresolved political questions, does not work.

The paper says that by 31 July 2005 the following needs to be in place:

• In the domestic support pillar, the structure of the reduction commitments (not thesize of the reductions) relating to Trade-Distorting Domestic Support as well as someelements of the rules (i.e. criteria); in particular it may be possible to developconvergence on aspects of the Green Box by 31 July.
• In the export competition pillar, where there are already both structure and theagreed end point (i.e. 'elimination'), further elaboration of parallel commitments, inparticular in the areas of State Trading Enterprises (STEs) and Food Aid, since thereare at least some 'building blocks' for parallel commitments in export credits.
• In the market access pillar, the structure of at least some central elements of the coremarket access formula, and further elaboration of a number of 'flexibilities'(particularly aspects of Special and Differential Treatment such as SP, but also'sensitive products');

If these issues are not settled, 'we are simply transferring all these matters to theSeptember to December period with the distinct likelihood that, once more, Ministerswill be put in an acutely difficult position,' said Groser, adding that he had the 'AVElesson' very much in mind.

Groser said that agriculture is critical to ensuring a 'development return' from theRound for two reasons. First, many developing countries have substantial economicinterests in world agriculture and can build on this; or they can see a future forthemselves, once the massive trade distortions are eliminated or substantially reduced.

Second, many developing countries have deeply vulnerable people dependent onagriculture. Integrating their agriculture sectors into any reform framework is deeplysensitive. Such sensitivities have to be accommodated as the reform process takesshape, added Groser. They have a different character to other countries' sensitivities,politically crucial though they are in steering this reform through successfully,domestically and internationally.

According to Groser, to advance the first aspect ('offensive' or 'export' interests), 'wemust address initially the structure of commitments in all three pillars aimed at thesource of the problem.'

In practice, 'we cannot address in the next few weeks all features of the instrumentsforeshadowed in the Framework to address the second aspect of developing countryinterests - i.e. instruments to take account of the realities of much developing countryagriculture, such as SSM.' This can only be done when some basic structures are inplace in the domestic support and market access pillars (the basic structure is alreadyin place in export competition pillar).

Groser said he was not suggesting that all these 'instruments' are to be left aside forthe post-July phase. 'But the logic of this negotiation is that we need structure on thematters that are primarily responsible for the large distortions in world agriculturemarkets.'

On cotton, Groser said to maintain confidence that the Agriculture Negotiations candeliver concrete results, 'we have to have something credible to show for our efforts'of the past 12 months.

He added that not all issues can be progressed simultaneously. Some issues cannotbe addressed until certain prior matters become somewhat clearer and some'sequencing' of issues is unavoidable. By the end of July, he hoped to have a papercapturing the level of convergence on key issues in each of the three pillars.

On Domestic Support, Groser said there are two broad matters that need to be settled:the disciplines and commitments on Trade-Distorting Domestic Support (TDS) andthe review and clarification of the disciplines (rules) to ensure that Green Boxmeasures have no or at most minimal effects on trade and production.

'By 31 July we need the structure of a tiered formula for the cuts in Final Bound TotalAMS and the structure of a tiered formula for cutting overall TDS. Without settlingbroad parameters on these structures, it would be difficult to take far more difficultdecisions in the September-December phase.'

Groser added that there seems to be general convergence on developing these twotiered formulae on the basis of absolute, not relative, levels of TDS.

There is an expectation that certain developed countries with very high relative levelsof TDS, but which (because of their limited size of their agriculture sectors in worldterms) do not constitute large shares on an absolute basis make a serious contributionto the reform effort. There is a 'trade-off' here: members are prepared to be'reasonable' to them, provided they in turn are 'reasonable' to the Members in thisnegotiation.

On the Formula for Final Bound Total AMS, Groser said that given that 'we aretargeting absolute levels of distortion, it is clear that any formula to be agreed on willbe driven by the absolute scheduled levels in three Members: the EC (US$59.8billion), the US (US$19.1 billion) and Japan (US$35.9 billion) This accounts for 82%of the sum of all scheduled AMS support for all WTO Members.'

With respect to the numbers of tiers, most Members are reflecting on either 3 or 4tiers. The fundamental question is where the three largest users of TDS fit into thetiers, whether the tiers number 3 or 4.

Another question is how to treat the 17 developing country Members with scheduledFinal Bound Total AMS commitments. All of them, given their absolute levels ofFinal Bound Total AMS, would seem to fall into any lowest tier. Is it thereforetechnically difficult in this context to ensure that the over-arching principle of lessercuts over longer time frames is met?

On Overall Reduction in TDS, Groser said that similarly the structure of this formulawill be driven by the data. There is high convergence that, with this particularformula, there would be three bands, with the largest single user in the top band andthe next two highest users in the middle band. This already provides the foundationelement of the structure of the overall TDS formula and paves the way for decisionsin the post-July phase on the level of harmonised cuts.

The treatment of developing countries in this formula raises complex issues whichmay need to be resolved in the September-December phase.

On Product-Specific AMS Caps, Groser said that the July Framework agreed todevelop product-specific AMS caps. A few countries would face acute difficultieswith almost any common base that might be negotiated for the purpose of setting thecaps, which have to be addressed.

The general matter of product-specific AMS caps is better addressed in depth whenthere is greater precision on the structure of the TDS formulae and some insight intothe depth of cuts.

On De Minimis support, Groser said for developed countries, this is simply a matterof the size of the cut. The logic of this paper is to put all such matters concerning thesize of reductions (i.e. level of ambition) in the domestic support pillar in thenegotiations after the Summer Break.

For developing countries, there are particular sensitivities in the light of the fact thatfor most developing countries, de minimis and the 5% cap on Blue Box entitlementsare the only 'allowances' for providing TDS.

On the review of the criteria of the Blue Box support, Groser said the objective is toensure that Blue Box payments are less trade-distorting than AMS measures. Therewas 'strictly limited' convergence at this stage.

Behind this are complex negotiating linkages. A key linkage for many relates to thesize of cuts in the formulae governing Trade-Distorting Domestic Support. The moremodest the final decision on cutting AMS and de minimis, the more pressure BlueBox users, current or potential, can expect to see on additional criteria - even giventhe provision in the Framework to cap the Blue Box at 5%.

Further work is needed in July but the size of the cuts will be an issue for thepost-Summer Break.

On the Green Box, Groser said there are two broad directions, or 'strands' in thinking,involved in this review and clarification:

• Those developed and developing country Members which are at most light users ofany form of subsidisation, are seeking reassurance that the complex specificprovisions of the Green Box are indeed consistent with the overarching criterion of'no or at most minimal trade-distorting effects or effects on production'.
• The wish of developing countries to introduce new provisions or language that takeaccount of the types of programmes suited to the realities of developing countryagriculture and which could meet the fundamental test of at most minimaltrade-distorting support. They argue that some Green Box provisions are difficult toapply in a developing country context or there is no suitable explicit provision forthem.

Groser said there is a danger here of members talking past each other. With respectto the first direction, developed countries embarked on deep reform of coupledsupport policies are deeply concerned that any change to the existing language mighthave the perverse effect of undermining their reforms.

With respect to the second 'strand', existing large users of the Green Box and someother Members are worried that introducing 'development friendly' language into theGreen Box may open a 'Pandora's Box' for large-scale subsidisation by developingcountries in the future. Both sides need to accept that there are legitimate concerns onboth sides.

Groser said that ultimately, with respect to introducing some 'development friendly'provisions suited to the specific realities of developing country agriculture, lies apotential 'win-win' outcome. It is in everyone's interests to encourage developingcountries to avoid repeating the chequered history of developed countries'subsidisation.

That is, in order to achieve their social and other non-trade concerns, it is desirablethat developing countries look to the Green Box as the appropriate avenue rather thanutilising trade-distorting support.

On export competition, Groser said there is already both structure and the agreed endpoint ('elimination') in this pillar. The remaining issues are to: (I) flesh out theparallel commitments in export credits, state trading enterprises (STEs) and Food Aid(and further progress here is essential by 31 July); (ii) and defining the 'credible enddate' and the implementation path (there is, says Groser, a strong view amongmembers that this should be left to the post-Summer Break phase).

Groser said the members in practice have focussed on identifying which policies,within the scope of export credits with repayment terms of 180 days or below, certaintypes of Food Aid, and certain practices of exporting STEs, might be consideredunder either of the headings: 'all forms of export subsidies' and 'export measureswith equivalent effect.'

On Export Credits, Groser said the July 2004 Framework agreed on the key issue thatexport credits exceeding 180 days are to be eliminated. Nevertheless, additionaldisciplines need to be developed on export credits of 180 days or less. There is someprogress on this deeply technical issue but it is unlikely to be completed by 31 July.

On Exporting State Trade Entities, Groser said the 'issue of the future use ofmonopoly powers' remains under negotiation and should be considered in theSeptember-December phase.

On Subsidies, Government Financing and Underwriting of Losses (relating to STEs),there is some convergence and thus he recommended that language foreshadowingnew disciplines should be developed by 31 July.

On Other Issues relating to STEs, there is little or no progress for two reasons. SomeMembers are concerned that proposed definitions of entities to be covered by the newprovisions could have unintended effects for all manner of entities. There is also aconcern that some proposals for new disciplines could have unforeseeable legalconsequences for what many Members consider legitimate practices.

On Developing Country STEs, there is a provision in the Framework that STEs indeveloping countries which enjoy special provisions to preserve domestic pricestability, and to ensure food security will receive 'special consideration formaintaining monopoly status'. The special position of such STEs should be takenfully into account in the post-July negotiations.

On developing country STE specific practice, Groser said it is difficult to take thisfurther, given the lack of convergence on 'other issues'. It may be necessary to takeinto account the actual impact of such developing country STEs on world trade, sincethe trade flows concerned are, in many cases, very small.

On Food Aid, Groser said there has been little or no convergence on Food Aid sinceJuly 2004, and it is essential that some building blocks are put in place by 31 July2005.

There are proposals on the table that aim to change fundamentally the existing foodaid system via WTO disciplines. These proposals have generated some concerns, thatnew disciplines might have negative implications for meeting humanitarian anddevelopment needs.

Groser said all Members believe any WTO rules aimed at preventing 'commercialdisplacement' must not compromise efforts to help the most vulnerable people indeveloping countries. Thus, discussions up to the end of July should developlanguage to ensure that food aid in emergency situations is not compromised. BeyondJuly, other issues need to be addressed, such as aid in fully grant form, in-kind aid andmonetization.

On market access, Groser said this is the most complex and least advanced pillar. 'Conditional, sequential progress' is the only way to move forward, given theinter-relationship of so many elements.

Regarding Tiers and Formula, he said a 'single approach' is needed to achieve'substantial improvements in market access for all products' with two additionalobjectives (a) 'progressivity' - i.e. deeper cuts in higher tariffs; and (b) providing formore flexibility to deal with a range of sensitivities.

On a tiered formula, the discussion has focussed on two schools of thought: proposals to achieve 'progressivity' solely through the number of tiers and proposalsthat rely both on the number of tiers and on the nature of the formula(e) within thetiers to achieve 'progressivity'.

'It is unlikely therefore that we can settle by 31 July the number of tiers withoutagreeing at least on a description of the type of formula(e) to be used within the tiers.'

There is a parallel discussion on how to deal with sensitivities. The Frameworkidentifies certain 'tools' to address those sensitivities - such as 'sensitive products' and'Special Products'. Additionally, some argue that the formula itself should provide ameans to address at least some of those sensitivities.

Groser said there should be some agreed structure for the market access formula by31 July. This would require convergence on: the number of tiers; their thresholds;at the minimum, a description of the nature of the formula(e) within the tiers; and atthe minimum, some further elaboration of how sensitivities might be handled.

This, he believed, can be done without defining with greater precision the level ofambition, which will be determined in the subsequent phase.

On the 'sensitivities', it is necessary to take into account Members' tariff structures andthe very sensitive needs related to the Special Products category. It may be possibleto formulate a straight choice between different combinations of these variables.

Groser recognised that there are many other issues of vital importance such as SSMor preference erosion but it is impossible to develop convergence on these withoutsome structure of a market access formula in place.

Regarding cotton, Groser said progress in both the development and trade tracks isvital. Within the West and Central African 'proponent countries', intense pressure isbuilding up on their producers with the recent fall in prices. This calls for immediateaction on the development front.

With respect to the trade track, there is need to advance the agriculture negotiationswith cotton in mind. Members agreed to a mandate for an 'ambitious, expeditious andspecific treatment' of cotton within the agriculture negotiations. In this respect, thereis an ambitious proposal from the Proponent Countries to this effect.

If some structure emerges on the three pillars, then a parallel evaluation of theirpossible implications for the cotton sector can play a powerful role.

Equally, if there is no convergence on key points in each pillar by 31 July within theagriculture negotiations generally, it will become increasingly difficult to fulfil thespecific mandate for the work of the Cotton Sub-Committee.