Groser's 'Semantic Skills' May Decide July Package Fate

By Chakravarthi Raghavan, Chief Editor, SUNS, Geneva 13 July Published in South-North Development Monitor (SUNS), 14 July 2004

Geneva, 13 July (Chakravarthi Raghavan) -- The prospects for adopting a July framework package to revive the stalled Doha negotiations seem to hinge on the Chairman of the Agriculture Special Session, Amb. Tim Groser of New Zealand, to formulate an agricultural framework package, that would effectively put off to the next stage, language and specifics on key issues on domestic support, export subsidy and market access, trade diplomats said Monday.

Some trade diplomats said that the issues are complex, and time so limited, that it is difficult to see how an overall framework package could be agreed to on 27 July at the General Council.

The meetings in Paris over the weekend among the Ministers of Australia, Brazil, India, the European Communities and the United States, and which Tim Groser attended, while enabling all parties to know at that level each other's positions, and perhaps achieved some convergence on some issues, did not produce or result in any agreements or breakthroughs, trade diplomats said basing themselves on the briefings to negotiators and ambassadors on Monday by Australia to the Cairns Group, and subsequently Brazil and India to the Group of 20.

The discussions in the agriculture negotiations have focussed on the continuance of the reform process on three pillars of domestic support, export competition (export subsidies and what the EC calls its 'equivalence' in export credits) and market access.

Two very difficult and outstanding major issues that have emerged on domestic support and the other on market access, is how to treat the 'blue box' support measures covered by subparas ( a) and ( b) of Art 6. 5 of the Agreement on Agriculture (AoA), and how to treat 'sensitive products' of the industrialized countries in the framework and/or modalities on market access and tariff reductions.

The talks among the five, and in the informal agriculture sessions on market access, have shown that the 'blended formula' approach (in effect aharmonization of the tariffs) pushed by the US and supported by the EC in the original pre-Cancun framework package of the two, and then reflected in the Derbez text, is not viable and is opposed by everyone else.

There is general acceptance too that the contribution of developing countries cannot be the same as that of the industrialized countries, and the two have to be treated differently.

In the further talks at Sao Paulo, and since then among agriculture negotiators here, where the US tried variations that did not jell, a key question remains, that of market access by developing countries. And the key question is of problems of developing countries with huge marginalised farms and masses of people depending on agriculture for livelihood, and who cannot be provided budget support and countries use tariffs as the only instrument of protection.

How to meet this is a key issue, and one that cannot be fudged. At Paris, the Indian trade minister, Kamal Nath made clear at a press briefing that India could not compromise on this.

And many trade observers later commented that if anything, the position of the new Indian coalition government headed by Prime Minister Manmohan Singh, is tougher than its predecessor - given that the government and its coalition was returned to power by rural voters and the poor in urban centres, who felt that the earlier 'reform' programs had been against their interests.

The impression among G20 sources and others after the Paris meeting is that there is general understanding that since in any event no numbers or range of numbers on percentage cuts can be put into the framework, and this has to be dealt with in the modalities accord, this aspect can best be tackled in the further stages of negotiations for the modalities paper, without specificities in the framework package.

On domestic support, a key issue relates to the socalled 'blue box' support measures - covered by Art. 5.2 sub-paras ( a) and ( b) of the Agriculture Agreement.

In domestic support, unlike the US, the European Community has been providing a large amount of support which it has classified under the 'blue box'. This support, according to estimates of some trade diplomats, is about an annual $22 billion. In the discussions among the five, the EC would appear to have indicated it was willing to cut this support to five percent of the value of its agricultural production. This would amount to provision of $10 billions of blue-box support.

The US so far has not provided any 'blue box' support, but had put a large extent of its domestic support into the socalled 'green box' measures. This had included some of the socalled 'counter-cyclical payments' to farmers that were enhanced and added on after Doha.

In the cotton dispute between Brazil and the United States, the panel (whose ruling has been widely publicised, but is yet to be formally circulated to all delegations and published) has found that some if not most of the support provided by the US is trade-distorting and has been affecting the exports of Brazil (and other cotton producers).

The United States would like to shift some of this support to the blue box, and reduce and eliminate it over time, in tandem with similar action by the EC.

The US in effect would like to create a 'special blue box' for itself, to accommodate the mandatory counter-cyclical payments provided by its post-Doha Farm legislation of 2002.

In his oral report to the TNC, Groser had mentioned the blue box as the key issue in the reform of the domestic support pillar, and a potential 'deal breaker'. He had said that there was general acknowledgement that the blue box could have a role in agriculture policy reform - as a halfway house in the movement from the most distorting categories of 'amber box' support and the de minimis to eventually the green box.

He also acknowledged the general opposition, and his own discouragement of the 'box shifting' in agricultural support, and hence need for criteria inthe blue box that would clearly distinguish blue box payments from those in the amber box. Groser also said that to play this role, the blue box could not be available 'for use without limit' (without clearly indicating whatkind of limit he had in mind), and a framework package should stipulate the 'precise limits' (but without numbers). Groser did not indicate what kind of a 'limit' he envisaged - production or spending limits.

And given the lack of uniformity in the way individual developed countries structured their trade-distorting domestic support at the end of the Uruguay Round, 'some flexibility' may be required in 'exceptional circumstances' where implementation would involve 'savage cuts'.

This appeared to be really posing the points made in private talks by the US, which has been trying to find a way to deal with its counter-cyclical payments, which have been written well into future years by the Congress.

Such payments or a new blue box for this, if allowed would really mean that Brazil which has won a pane ruling, would be asked to throw it away to enable the US to adopt such a blue box measure. To those at Paris, and the talks here, there was little scope to think that Brazil could agree to this.Nor could Brazil be expected to agree that this issue can be negotiated as part of the modalities text.

Whether Groser could formulate language to push this issue for talks in the future, is a big question. And a bigger question would be whether, when he presents a framework text to take care of this, all members, including Brazil, will acquiesce or someone will say 'NO'.

For, it would also hit the African cotton producers, who raised the cotton issue in the runup to Cancun, and these countries with support of the ACP countries are insisting on a solution, and have received the support and endorsement of the ACP Ministerial Declaration in Mauritius.

The Minnesota-based Institute for Agriculture and Trade Policy (IATP) in a press release on Monday had said that as a result of the ruling on the cotton dispute, the US was facing real cuts in the support it was providing to its cotton producers, and to avoid making such cuts, the US was aggressively pushing a proposal in the WTO negotiations that would shift its counter-cyclical payments into the so-called 'Blue Box' (the idea of a special 'blue box' that would appear to have been aired in the talks among the five). The counter-cyclical payments, IATP points out, cover losses to farmers during short-term price falls, and enable US farmers to sell at below cost of production prices, and thus result in export dumping as the only fair exchange for opening their markets to increased agricultural imports. Yet New Zealand Ambassador Tim Groser, who is chairing the WTO agriculture talks, has called opposition to the expansion of the Blue Box a 'deal breaker.'

IATP's July 9 letter is in response to Ambassador Groser's June 30 formal presentation to WTO delegates on the status of agriculture talks. IATP's letter warned that 'an expansion of the Blue Box to include US counter cyclical payments will prolong the existence of farm programs that are universally acknowledged to distort world markets by contributing to export dumping the sale of agricultural commodities at less than cost of production prices. Such an expansion would also undermine the legitimate use of the Blue Box to prescribe viable production limits, another policy tool to help end dumping.'

The 'sensitive products' in relation to tariff cutting is an issue raised by the EC, and the G10 countries - the other European countries, Korea, Japan and Mauritius.

This is different from the 'Special Products' category or issue raised by several of the developing countries, and on which there is very wide convergence and no real challenge.

The 'sensitive products' of industrialized countries - like sugar and beef for the EC, rice for Japan, sugar, cotton and dairy products for US etc - were covered by the 'blended formula' approach in the Derbez text, which in effect allowed these countries to have a selected list of 'sensitive products' where the tariff cuts would be much less or none at all.

The blended formula approach has now fallen by the way side.

The EC and the G10 are trying to create a separate box for themselves (the developed countries) under market access/tariff cuts to put some 'sensitive products'.

There is considerable opposition to it among the developing countries, but also among the leading Cairns Group exporting countries, and on some products from the US itself.

How Groser would provide language to deal with this, and push this into the future negotiations would also be very crucial.

On the issue of export subsidies, where the EC has indicated it could agree to language about its reduction with a view to eventual elimination, it is insisting on equivalent action on export credits and food aid by the US. It has asked for all US export credit programmes with a budget line in the US budget to be eliminated.

The US is claiming that some of its export credits are commercial, and carry no subsidy.

The EC is examining this, but the issue relates not merely to the interest terms of the export credit, but other factors like the period for repayment, and penalties for default etc.

Some trade observers believe that if all these are factored in, the socalled non-subsidised US export credits and terms cannot be obtained in normal commercial channels, and hence must be disciplined.

At the Paris talks, the EC agriculture spokesman called the issue one of pregnancy - one is either pregnant or not. There is no middle ground. In terms of the overall July framework package to get the Doha talks back on track, there are a number of other issues too that need to be resolved, and on which little attention has so far been focussed, several trade diplomats note. The few remarks that Supachai has been making suggest a kind of belittling of the Implementation issues and the Special and Differential Treatment issue.

Theories of economics or political theories of negotiations cannot be applied here.

The framework package text to be outlined by the General Council Chair, Shotaro Oshima of Japan and the WTO Director-General Supachai Panitchpakdi is expected to be made available this week. The Groser contribution to this, as an annex, is also expected to be included in this. Groser has said that he would have an one-day meeting of the agriculture special session next week, to explain his proposals, so that capitals could consider it and come back later for discussions.

All this seem to leave so little time for discussions, clarifications or even negotiating the text. And anyone seeking some change would be told they would be responsible for failure.

In Michael Moore's box-office record-breaking film now running in the US, in Western Europe and in Switzerland, 'Fahrenheit 9/11' there are many gripping and moving scenes on the Iraq war.

But there is also one incident or scene that has some applicability to the WTO.

Moore points to the fact that within one month of 9/11 attacks on the World Trade Centre, the administration had presented to Congress a long bill running into hundreds of pages, the Patriots Act, that was adopted byCongress without debate. Moore asks one Congressman, about this and whether he had read the legislation, when the Congressman asks Moore whether he really thinks Congressman and Senators have the time to read the legislation that they adopt.

The way the WTO does its business (and accusing those outside raising such questions as wanting to wreck the WTO), with compromises presented at the last minute and asked to be adopted, WTO ambassadors and negotiators, and their capitals appear to be performing a similar feat like the US Congressmen and Senators who dealt with the Patriot Act (and the reams of pages of all legislation they enact), but which they expect their own citizens and others to read and observe!

Gustavo Capdevila of IPS Geneva adds:

The ministers of Australia, Brazil, India, the United States and European Union - the 'Five Interested Parties' (FIPs) representing the central interests at stake in the talks on agriculture - agreed over the weekend in Paris that the ball is now in Groser's hands.

The discussions among the FIPs in the French capital, which basically revolved around the issue of agriculture, ended with neither signs of progress nor a rupture, according to the participants.

At least there was no setback, although the participants recognised that difficulties persist, said Argentine negotiator Alfredo Chiaradia, who spoke after hearing the separate reports of Australia, in the name of the Cairns Group of 18 agricultural exporting nations opposed to farm subsidies, and Brazil and India representing the Group of 20 (G20) developing nations, who are also opposed to subsidies as well as other trade-distorting mechanisms that hurt the developing South.

The Doha process, which is scheduled to conclude by December 31, is still alive, although it continues to depend on a critical end July deadline for reaching agreement on a broad outline for the final stretch of the multilateral trade talks. Groser's document could determine the future of the Doha Round, because the last points of the negotiations - such as services, industrial products, and intellectual property - are subordinated in practice to what happens in the talks on agriculture.

WTO Director-General Supachai Panitchpakdi and the chair of the WTO General Council Shotaro Oshima are waiting for Groser's summary, to incorporate it into the proposal for a framework document on the Doha Round, which the 147 WTO member states are to discuss in the last two weeks of July.

Supachai announced Monday that he had cancelled a trip to Mauritius (meetings of the ACP and the G90) because only a few days are left before the draft framework agreement must be issued, and the touchy section on agriculture has yet to be drafted. The head of the WTO had planned to attend the ministerial conference of the Group of 90 (G90) developing nations, made up of the 79-member Africa, Caribbean and Pacific (ACP) bloc, the African Union, and the world's least developed countries (LDCs), which opened Tuesday.

The G90 gained visibility when it defended the positions of the poorest countries during last September's failed WTO ministerial conference in Cancun, Mexico.

Supachai said that he understood the frustration of many of the G90 ministers with regards to the slow progress of the Doha talks, although he stated that the negotiations had made considerable progress since they were launched. The former deputy prime minister of Thailand said that many key industrialised nations have shown considerable flexibility in important aspects of the talks, and added that all WTO members should avoid taking intransigent positions.

By contrast, the US-based Institute for Agriculture and Trade Policy (IATP) warned developing countries of the risks that Groser's proposal could pose, if it permits the United States to re-classify its domestic support payments to farmers, to allow them to remain in place.

After losing a recent dispute with Brazil over support for US cotton growers, Washington 'is facing real cuts to existing support programmes' that the WTO dispute panel ruled as illegal, said the IATP.

To avoid making such reductions, it added, the US 'is aggressively pushing' a proposal in the WTO that would place those subsidies in the 'blue box', making them exempt from the negotiated cuts in domestic supports.

Many countries that cannot compete with subsidised US farm exports have reacted angrily to the modification proposed by Washington, the Minneapolis-based IATP reported. Nevertheless, said the IATP, Groser accuses those who are opposed to the expansion of the blue box as being 'deal breakers'.

Under the WTO domestic supports regime, subsidies qualifying for the 'green box', which do not face demands for reduction, must not distort trade, or at most cause minimal distortion. Policies that are seen as trade-distorting are placed in the 'amber box', and are subject to reduction, such as the US supports for cotton farmers.

However, if the payments to farmers are accompanied by programmes aimed at limiting production, they can be re-classified in the blue box.

Incorporating trade-distorting subsidies into the blue box could frustrate Groser's document and the Doha negotiations, said a source close to the G20, the group led by Brazil, India and South Africa. #