WTO Agriculture Negotiations on Market Access Issues 30 May-3 June 2005

By Kanaga Raja (SUNS),
Geneva, 3 June 2005

The Special Session of the WTO Committee on Agriculture, at a week-long meeting (30 May to 3 June), discussed market access issues under the agriculture framework of the 'July package' including the tariff reduction formula, sensitive products, special products, and various types of safeguards.

The meetings were conducted in informal mode under the socalled 'Room D' process(held in a smaller room at the WTO but open to all interested members). Membersalso briefly took up the domestic support issue of Green Box subsidies, a subject thatwas left over from the April meetings of the Special Session.

A formal meeting of the Special Session of the Committee on Agriculture was heldon 3 June.

At the end of the formal session, the Chair of the Special Session of the Committeeon Agriculture, Tim Groser, who is continuing to chair the talks until the end of July,said that he remained 'deadly serious' about producing a 'first approximation' by theend of July even though a number of difficulties remain.

Groser said the 'first approximation' that he intends to produce at the end of July willnot be full 'modalities', but a further step towards it. He described it as the August2004 framework plus what he would identify as further convergence on all threepillars (market access, domestic support and export subsidies). He said there wouldbe other issues that members have raised (he did not mention any) that would haveto wait. This would not mean that these issues are ignored - simply that there is noconvergence.

Acknowledging the large task ahead, Groser reminded delegations that in early June2004 many were sceptical about members' ability to agree on the framework, and yetthe framework was agreed. 'It's amazing what can be done with people of good will,'he said.

He noted that some developed and developing country members had privatelyexpressed their concern that some issues seemed to be going backwards because ofsome 'very strong proposals' from some developing countries, a pessimism whichhe said, he did not share. He however did not mention which proposals were causingconcern to some countries.

But Groser said that these proposals are a voice of the developing world that has tobe heard. He urged members not to be too concerned about the difficulty.'Negotiations are about adjusting expectations,' and the result of a negotiation hasnever been the same as a proposal submitted at the beginning of the process, headded. Some people believe that a good negotiator is a tough negotiator, he said. 'I'venever seen a tough negotiator who is any use at all because all they can say is 'no'.'Therefore, members should listen to each other, and not just at the technical level, hesaid.

At the informal meetings, members held their first detailed discussions on the tariffreduction formula. The discussions were made possible when an agreement wasreached earlier in May on the methodology for the conversion of non-ad valoremduties to ad valorem equivalents. (See SUNS #5798.)

During these discussions, differences emerged among members with respect to thekind of approach to be adopted for making tariff reductions, with some countriesfavouring the Swiss non-linear formula while others supported the Uruguay Roundliner-cut approach.

The Uruguay Round approach involves average percentage cuts in tariffs withminimum percentage cuts in each tier, while the Swiss formula is a non-linearformula where a single coefficient determines both the size of the tariff reduction andthe maximum possible final tariff - a coefficient of 25 would mean a maximum finaltariff of 25%.

Groser, in responding to the diverging comments from members on the twoapproaches, said: 'Don't lock yourselves into strong in-principle statements.' Hewelcomed efforts by some delegations such as Brazil, China and Canada to look atpossible and realistic alternatives.

Groser urged members to keep an open mind on the best way to resolve the differenceand cautioned against being fixated on certain concepts or labels. 'We will neverhave a Uruguay Round approach,' he said, 'because we've decided on a tieredapproach.' (The Uruguay Round approach only had one tier.) The Chair also toldmembers that he will not produce a formula at the end of July, 'because you'll rejectit.'

All the key countries with non-ad valorem duties have submitted their calculations ofad valorem equivalents, except for sugar, while work continued on verification of thecalculations made, and on a suitable world price for sugar.

On the discussions on the type of approach to be used in the tariff reduction formula,countries in favour of the Uruguay Round approach included the G-10 (Switzerlandspeaking), the EU, the ACP group (Mauritius speaking), India and Indonesia (bothG-20 members). These countries regarded the Swiss formula as 'unacceptable' andthey also opposed caps (setting a maximum tariff rate for any product), including viathe Swiss formula (the coefficient of the Swiss formula is also the tariff cap). According to trade officials, several argued that over 70 WTO members signed adocument in 2003 supporting the Uruguay Round approach.

The US however said that it was in favour of the Swiss formula. Others who hadpreviously advocated the Swiss formula (some members of the Cairns Group andG-20, including some Latin American countries and Malaysia) said that they werewilling to accept an alternative method that harmonizes tariffs, the trade officials said.

These countries and the US rejected the Uruguay Round approach arguing that it hadbeen shown to fail to produce genuine improvements in market access in all products(a requirement of the July framework). Argentina, supported by several others, alsosaid that the framework's inclusion of 'sensitive products' moves the flexibility of the Uruguay Round to more specifically listed products.

A handful of countries such as Canada proposed an alternative harmonizing-type offormula. Instead of the Swiss formula, Canada proposed an approach where eachtariff rate would be broken into components corresponding to the tiers, and thereduction in each tier would apply to the corresponding component. Members did notreact immediately to this, preferring rather to study it.

China said members needed to consider a way to find a middle ground. As anexample, a compromise between the two poles could be to have some products ineach tier cut by a Swiss formula and some cut by the Uruguay Round approach, Chinasaid.

Brazil supported China's search for a middle ground between the Uruguay Roundapproach and the Swiss formula. It said that this part of the negotiation is a balancingact that is 'on a knife edge'. The objective, Brazil said, is to try to ensure genuineimprovements in market access, and at the same time to avoid pushing so hard thatcountries that are defensive on the import side force a large number of products to'migrate' into the 'sensitive products' category.

Costa Rica (for El Salvador, Guatemala, Honduras, Panama, Peru) said tropicalproducts and crops grown as substitutes for narcotics should be taken out of theformula and be given maximum liberalization.

When discussions focussed on the number of tiers or bands and the threshold in thetariff reduction formula, many countries spoke of three or four tiers, in some caseswith a possible additional tier for developing countries, according to trade officials.Some countries argued that more bands might be needed to ensure 'harmonization'(making steeper cuts on higher tariffs). Brazil described this as a 'chicken and egg'question that should be handled carefully to avoid going round in circles: the numberof tiers could be related to the formulae that go into each tier.

The G-10 (Switzerland speaking) called for no more than three tiers and stressed thatthe tiers and thresholds would have to take account of countries' different tariffstructures. The G-10 argued that the burden of adjusting because of tariff cuts shouldbe shared among all WTO members and should not fall disproportionately on thosewith higher tariffs. Israel (a G-10 member) argued that a high tariff does notnecessarily mean no market access. It said that it imports about half its garlicconsumption despite a bound and applied tariff of 300%. In different circumstances,a tariff of only 15% could be enough to block trade, Israel added.

Kenya, supported by some developing countries, said that a number of developingcountries have a single bound rate for all agricultural products because in the UruguayRound they chose a 'special and differential treatment' (SDT) option that allowedthem to bind tariffs at a single ceiling instead of tariffying (converting non-tariffbarriers into tariff equivalents). Countries with these ceiling tariffs would have allproducts in a single tier, and probably a high one, which would normally require asteeper cut. That would amount to a penalty for having used SDT in the UruguayRound, Kenya said.

Countries also differed in their interpretation of a 'single approach'(a phrase used inpara 28 of Annex A of the July framework). Some (including the G-10 and Peru) saidthis meant the tiers (and the type of formula used in each tier) should be the same fordeveloped and developing countries (the difference being in the coefficients in theformulas). Others said the phrase should be interpreted more broadly.

Canada and the G-10 said the thresholds between the bands should be determined asmechanically as possible, for example, by listing all tariffs (for the entire membershipor for key countries) and splitting these appropriately without looking too closely atthe products concerned. Israel suggested as an option doing that for each member(meaning the tiers would vary from country to country). China said that would be fartoo complicated. The US said it had looked at the three tiers proposed by the March2003 draft modalities (the 'Harbinson text') and concluded that the middle tier wastoo broad and the top threshold should be lowered in order to produce a result that issufficiently harmonizing.

Members also held detailed discussions on sensitive products (available to allmembers and allowing some exceptions from what is generally agreed for improvingmarket access) and special products (available to developing countries, allowingexemptions for food and livelihood security and rural development).

With respect to sensitive products, the July framework says that these products mustnot undermine the objectives of tariff reductions, which includes 'substantialimprovements in market access ... for all products' and 'substantial trade expansion'.

The G-10 and the EU said that sensitive products are to be negotiated in parallel withthe tariff reduction forumula, and not to be treated as an exception. The G-10 wantedthe number to be negotiated by country, and then for each country to be free to selectthe products. The EU said that the negotiated number could depend on the formula.These countries propose a standard combination of tariff reductions (which would beless than the reduction from the formula) and tariff quota expansion, allowing someflexibility and trade off between the two.

They also oppose restricting sensitive products to those that already have tariff quotasand argue for the possibility of creating new tariff quotas. They want to see quotasexpanded in proportion to the current quotas, not in relation to domestic consumption.According to trade officials, India while sharing some of these views, rejected theidea of restricting sensitive products only to those that currently have tariff quotas.The G-10 included in its proposed trade-off, increased market access opportunitiesas a result of better tariff quota administration and cuts in in-quota tariffs.

On the other hand, the Cairns Group, several G-20 members and the US said thatsensitive products are exceptions; that there could be a trade off between the deviationfrom the tariff formula and the number of sensitive products; and that there should bea trade off between the deviation from the formula and tariff quota expansion.

They said that genuine improvements in trade are needed, and argued in favour ofexpanding quotas by a percentage of domestic consumption They also said thatproducts that currently do not have tariff quotas cannot be designated as sensitive.Some added that a country's export products cannot also be its sensitive products, thattropical products and products enjoying domestic supports cannot be sensitiveproducts. Several argued that improved tariff quota administration cannot be part ofthe market access trade-off since this is already an obligation.

The ACP Group (Mauritius speaking, supported by Kenya) argued that sensitiveproducts are critical to preserve the interests of countries enjoying long-standingpreferences, and to conform with the 'development' agenda of the Doha Round.

Debate at previous meetings of the Special Session on the question of preferencesbetween the ACP and some Latin American countries resurfaced in the discussions,according to trade officials. Costa Rica, supported by several others, said the'development round' should not be defined to serve the development of somedeveloping countries and no one else. The guiding principles of the Doha mandatemust prevail, Costa Rica added, namely, opening markets in order to servedevelopment. The problem of preference erosion will be tackled, but not at theexpense of other developing countries, particularly in tropical products, Costa Ricasaid.

With respect to special products, the July framework (para 41) envisages criteria forselecting these products and their treatment to emerge from negotiations.

The G-33 (Kenya speaking) outlined some key principles in its paper. It said havinga single set of criteria would not be possible because of the differences in situationsamong developing countries. Therefore, when countries designate products as 'specialproducts', they could broadly take into account a list of issues such as the importanceof a product for subsistence or livelihood in a region or country, its significance inconsumption or for import substitution, its contribution to national income or itswider developmental role, the G-33 said. As for treatment, the G-33 proposed thatspecial products would not require tariff cuts and tariff quota expansion, and wouldbe eligible for the new special safeguard mechanism. Some countries such as ElSalvador and Guatemala supported the G-33.

According to trade officials, several members within the group expressed somediffering views. For example, China (supported by Nicaragua and Cuba) proposedlimiting the number of special products to a percentage of products ('tariff lines').India and Mauritius opposed any set limits, although India said it was not planningto designate unlimited numbers of products. Peru said that tropical products shouldnot be eligible. Barbados recognized that exporting countries also have an interest andthat their concerns will have to be addressed.

Other countries such as Malaysia, Thailand, Chile and Colombia, said that exports,including to other developing countries, are also an important part of achievingdevelopmental objectives. Malaysia supported China on limiting the numbers andwith Peru on preventing tropical products from being eligible. Thailand said poor,subsistence farmers also produce for export, including exports to other developingcountries, and the range of products they can produce is limited. Therefore, thesefarmers' interests in South-South trade also need to be taken into account.

The US, the EU, Australia and New Zealand said they recognize the need to deal withthe vulnerability of poor farmers through special products. The US said the best wayto deal with these 'compelling and important concerns' is to recognize the problemand isolate it so that the bigger picture of liberalization is not watered down. For thecriteria, the US proposed looking at a similar list to the one suggested by the G-33 butincluding such questions as whether the country is a net exporter or importer of aproduct. However, to meet the overall objective of improved market access in allproducts, the US said that it opposed total exemption from tariff reductions or quotaexpansion.

In summing up, Groser said that members need to see the G-33 paper, adding that hewill hold smaller group consultations in order to work on his July text.

On the special safeguard mechanism, the G-33 introduced its views (Turkey speaking)including: this special safeguard should be open to all developing countries and forall products covered by the Agriculture Agreement; it should be applied to importsfrom all sources (non-discrimination); it should be triggered either by import surgesor price falls; it should take the form of additional tariff and, in some cases if thatfails, by quantitative restrictions; it would have a one-year renewable period; and itwould have to be notified.

With respect to the Green Box, a number of detailed amendments to Annex 2 of theAgriculture Agreement were discussed.

The G-20 (Brazil speaking) introduced a new paper with a number of proposalsdealing with that question as well as modifications designed to make the Green Boxeasier for developing countries to implement without distorting trade. This paper wasdistributed after the main discussion, and hence was not debated.

In its paper, the G20 recalled para 16 of the July framework saying that the mainobjective of review and clarification of Green Box criteria is to ensure that domesticsupport measures notified conform to the fundamental requirement that they have no,or at most minimal, trade distorting effects or effects on production (annex 2, para 1).

A major flaw of the Agreement on Agriculture, it said, derives from the fact that thereare no effective controls on the benchmarks of Annex 2, thus generating the incentivefor members to notify distorting support in this category not subject to reductioncommitments, a type of 'box shifting' which does not change the distorting nature ofthe support. As a consequence of this, the result of the review and clarificationprocess should, as a general principle, ensure that the value of domestic supportcommitments to be undertaken, will not be undermined.

The G20 suggested that a review and clarification of the provisions of the Green Boxto ensure that direct payments , for which exemption from reduction commitments isclaimed, conform to Annex 2, para 1, should include:

• eligibility conditions for receiving these direct payments should be such that thewealth effects of payments are minimised;
• support should continue to be provided through publicly-funded governmentprogrammes, not involving transfers from consumers and should not requireproduction, i.e. land, labour or any other input shall not be required to be put toagricultural use;
• credible and time consistent policies with no changes in the eligibility rules, baseperiods or eligible products or farmers;
• depending on the impact of the programmes, coupled programmes providing support to products receiving direct payments; and
• review of benchmarks and conditions for other direct payments.