EU agriculture proposal shifts burden to Developing Countries in NAMA and Services

The European Union on Friday 28 October afternoon presented a new proposal on agriculture which also contains its demands on other areas, especially services and non agricultural market access.

It makes offers to reduce its agricultural tariffs by much less than what has been demanded of it by the United States and the G20 developing countries. In exchange for its agriculture offers, the EU has placed extremely heavy demands on developing countries to open up their markets in services and industrial products.

The EU "conditions" on services, which involve a change of the GATS architecture and compulsory commitments in 57% of sub-sectors, have already been strongly rejected by most developing countries. It appears again in the new paper.

The EU's demands on NAMA involve extremely steep cuts by developing countries in their industrial tariffs, since they have to adopt a coefficient of 10 in the Swiss formula, and have a maximum of only 15% in their tariffs after the tariff reduction exercise. It also proposed a harsh treatment for unbound tariffs: to mark up the applied rates by 10 percentage points and then reduce them by the formula.

The EU's paper, entitled "Making Hong Kong a Success: Europe's Contribution", was to be the subject of a teleconference of the "five interested parties" (EU, US, Brazil, India and Australia) late Friday evening. Ministers of the FIPS are scheduled to meet in London on 7-8 November for their next round of discussion.

The EU paper, entailing a "package", in which other partners have to accept its extreme demands in other areas (especially services and NAMA), is clearly designed to enable the EU to attempt to shift the blame to others if its agriculture offers are rejected for being inadequate.

The scene is thus set for an intense period of negotiations on agriculture, especially on its market access aspect, and simultaneously for continuing the "blame game" in which each party uses public relations to try to shift responsibility to the other parties in the event the Hong Kong Ministerial meeting does not succeed in adopting modalities in agriculture or other areas.

The EU's proposal in market access is that in the tariff reduction formula, there be four bands for developed countries, i. e. 0-30, 30-60, 60-90 and over 90 percent. There would be linear cuts within each band.

For the lowest band of 0-30%, the cut would be an average 35%, but flexibility for the cuts within that band to vary between 20 to 45 percent for the tariff lines. For the other three bands, the cuts would be 45, 50 and 60 percent respectively.

These EU-proposed reductions are much below the proposals of the US and the G20. The US had proposed four bands for developed countries: 0-20, 20-40, 40-60 and above 60 percent. The tariff cuts would be 55-65, 65-75, 75-85 and 85-90 percent in the bands respectively.

The G20 had also proposed four bands for developed countries, i. e. 0-21, 20-50, 50-75 and above 75 percent. The linear cuts would be 45, 55, 65 and
75 percent respectively.

The EU also proposed tariff reductions for developing countries that are similar to the G20 proposal. There would be four bands (0-30, 30-80, 80-130 and above 130 percent) and the cuts would be 25% for the lowest band on average (and a range of 10-40% for tariff lines in that band); and 30, 35 and 40 percent for the other bands.

The EU repeated its offer to have tariff caps of 100% for developed countries and 150% for developing countries, similar to the G20 proposal.

On sensitive products, the EU proposed it be allowed to have a maximum 8% of its 2200 tariff lines designated as sensitive products. The treatment of sensitive products should result in substantial market access that will nonetheless still be lower than that granted by the result of the full tariff cut.

Members will have the choice of selecting the desired deviation from the tariff cuts for a sensitive tariff line based on a sliding scale that respects a minimum deviation of one third and a maximum deviation of two thirds of the tariff cut in the band within which the line falls, said the EU.

The increase in TRQ, expressed as a percentage of current imports of the tariff lines in question, would result from the division of the tariff cut deviation, expressed in percentage points, by the effective border protection. This is done to reflect the relationship between the deviation to be applied and the effective border protection of the tariff line in question.

To take into account the fact that sensitive products should result in substantial market access that will nonetheless still be lower than that granted by the result of the full tariff cut, the above percentage would be adjusted by a coefficient of 0.8, added the EU.

On TRQ creation, the EU said it would like to have little or no recourse to this possibility, but this will depend on other aspects of the negotiations, including in particular the SSG.

It proposed that the Special Safeguard Measure should be kept for the following products: beef, poultry, butter, fruits and vegetables and sugar.

On other pillars of agriculture (export competition and domestic support), the EU paper said the movement by other major developed countries, including the US, fall short of meaningful reform. This is not only a political question of ensuring a comparability of effort. "How can we justify the opening of our markets while the nature of the subsidies maintained elsewhere alters market access opportunities?" it asked.

On domestic support, the EU said that AMS reductions should be based on three bands, with the EU at the top tier, US in the second tier and Japan in the top or second tier with an additional contribution. The EU would cut by 70% (a similar figure it gave at the Zurich mini-Ministerial a fortnight
ago) with the US cutting by 60%, with third-tier countries cutting by 50%.

On Product-specific AMS caps, the basis for the calculation of the ceilings should be the whole implementation period.

De minimis support should be reduced for all developed countries by 80%, in both product-specific and non-product-specific support, against the present 5% level allowed for developed countries.

On Blue Box support, the EU said it is essential to develop disciplines to govern the new Blue Box to avoid that highly trade-distorting payments are moved into this new box without significant changes. These cannot be achieved by introducing product specific ceilings nor by lowering the 5% overall ceiling. It has to be done by freezing the existing price difference between linked support prices and by limiting the price gap to a percentage of the base price difference.

It added that the overall reduction in trade-distorting support subsidies should be based on three bands, with cuts of 70% for the EU in the top band, and cuts of 60% and 50% in the second and third bands respectively.

On the Green Box, it is prepared to review and clarify green box criteria to ensure that there is no, or at most minimal, trade distorting effect.

On Export Competition, the EU paper said that despite the EU's offer to phase out export subsidies, negotiations have shown little progress on full parallelism in the elimination of all forms of export subsidies.

On Export Credits, it said that it should now be agreed to establish the "short-term self-financing" principle as a core rule. At the end date, officially "supported" agricultural export credit agencies should be able to demonstrate on an annual basis that they charged adequate premia to ensure such self-financing. Moreover, the scope of officially "supported" export financing should be narrowed down with only guarantees for pure risk cover being permitted.

Also, Members should end the use of all exporting state trading enterprises'
statutory privileges and regulatory benefits that have trade-distorting effects (illustrative non-exhaustive list: price-pooling, anti-trust immunity, direct and indirect preferential (re)financing conditions, preferential transport services, use of monopoly powers including single-desk selling and exclusive utilization of preferential market access quotas).

On food aid, the EU proposed gradually to move towards "untied" and "in-cash" food aid. "In-kind" food aid should be subject to strict disciplines during the implementation period and remain permitted only in exceptional, genuine emergency situations under criteria to be agreed.

The EU said the FIPS had to come to a deal on agriculture by 8 November. On the same date, there should be agreement on other areas.

The other major parts of the EU paper deal with non-agriculture issues. "In order to demonstrate to our increasingly sceptical Member States and civil society that this is not going to become an agriculture-only Round, we need to agree to move speedily and substantively forward on the other issues." It highlighted that a deal should be made by 8 November on the following improvements in market access:

• in NAMA, through a simple Swiss formula that cuts into applied tariffs;
• in services, through complementing the request/offer approach with ambitious individual, mandatory numerical targets;
• in anti-dumping, by agreeing to negotiate between now and Hong Kong a list of issues to be resolved including all major impediments to international trade created by abusive recourse to antidumping;
• in development, by agreeing that in Hong Kong there will be a package of agreement-specific proposals, a Trade Related Assistance package, and a duty-free/quota free access for LDCs by a date certain and in no case later than the overall conclusion of the DDA.

"Hong Kong must then formalise comparable progress towards and adopt full modalities in areas other than agriculture, and in particular NAMA, Services, Rules and Development," said the EU.

"In other words, if we agree on agriculture, this can only be definitively confirmed by the EU in Hong Kong if by then we have achieved comparable agreement in these other areas of the negotiation. This is, after all, the essence of the 'Single Undertaking' and we would expect other participants in the DDA to hold the same position."

In an annex, the EU paper gives details of its "requirements" for progress in non agriculture issues. This annex thus contains the demands it makes, especially of developing countries, as the price which it wants for making its agriculture offers.

On NAMA, the EU says it seeks agreement on a simple Swiss tariff cutting formula, applied line-by-line, leading to substantial improvement in real market access through cuts in the applied duties of developed and more competitive developing countries, on the understanding that developing countries should do less.

Developed countries would apply a simple Swiss formula with a coefficient 10, with no flexibilities/exclusions for any product. The highest duty will be 10 %.

"Advanced Developing countries" would apply the same Swiss formula with a coefficient 10 and flexibilities of paragraph 8. Developing countries, through the flexibilities in paragraph 8, will cut their applied tariffs less than developed countries overall. However, the figures in the brackets in paragraph 8 remain to be agreed and the highest tariff should not be higher than 15%.

Poorer developing countries including least developed countries: Remain covered by paragraphs 6 and 9 of the Framework Agreement.

Unbound duties would be marked up by 10 percentage points before reduction.

On Non-tariff barriers, the EU wants agreement on the elimination of export duties or their binding at low levels.

On Services, the EU wants Hong Kong to "achieve modalities and targets in the services sector that will result in new or substantially improved market access". This will require agreement on:

• A quantitative target applicable to the offers of all WTO Members, except LDCs and other small and vulnerable developing countries in a similar situation. A target for new or improved commitments of developed members would be 139 of the 163 services sub-sectors; for developing countries a lower target would apply that is equivalent to two thirds of the target for developed members, i. e. 93 sub-sectors.
• Specific qualitative parameters for the services offers that will strike a balance in terms of ambition between the 4 modes of supply.
• The launch of sectoral negotiations in key sectors to achieve quality offers for critical masses of WTO Members, in particular construction, computer and related services, distribution services, environmental services, financial, telecommunications, maritime transport plus certain sub-sectors of professional and business services.
• Participation of developed WTO Members in these sectoral negotiations for at least 12 of the 16 sectors identified by the Chair of services negotiations; and of developing WTO Members in at least 8 sectoral negotiations out of the 16 sectors. LDCs and other small and vulnerable developing countries would have no obligation to participate.
• Revised services offers, to be submitted by [xx/yy] 2006, reflecting the qualitative and quantitative parameters and the outcome of sectoral negotiations.

On anti-dumping, the EU wants agreement at Hong Kong that Members negotiate tighter disciplines in at least the following areas:

• Prevention of abusive use of the anti-dumping instrument: reduce the risk of abusive initiation of investigations and devise stricter rules on substance and process of AD proceedings (in particular for reviews) in order to avoid or terminate measures which are proven to be unnecessary.
• Avoidance of excessive measures: Introduce ( a) the mandatory application of a Lesser Duty Rule in order to limit measures to what is needed to remove injury to domestic industry; ( b) an Economic Balancing Analysis or public interest test to give those affected by measures (that is, not only exporters/importers and domestic producers, but also industrial users, consumers, etc.) the opportunity to have their views taken into account in the decision on whether measures should be applied or not.
• Increase of Transparency: Establishment of procedures to enable interested parties to defend their rights and make authorities more accountable.
• Substantial reduction of costs of AD proceedings.
• Enforcement: More uniform and predictable enforcement of AD duties.

On Development issues, the EU proposed:

• Agreement in Hong Kong, by all developed countries, to grant full duty/quota free access for all products from least developed countries, together with an undertaking by more competitive developing countries to take steps in this direction.
• Agreement that least developed countries should not be asked to open their markets in the current negotiations and that market opening commitments of other developing countries will reflect their level of development (though without creating new country "categories").
• Agreement on the 28 SDT proposals prepared for Cancun and on the 5 LDC proposals, and a commitment by all members to address all implementation issues in the remainder of the DDA negotiations.
• Commitment by all members to address the issue of preference erosion, including in the context of the negotiations on NAMA and agriculture, through a combination of trade-related and supply-side related responses in Hong Kong.
• Agreement by developed Members on an aid-for-trade package in Hong Kong along the lines of the Gleneagles G8 summit, subsequently jointly proposed by the IMF/World Bank.
• On cotton, we must have definition and agreement on specific action to overcome the distortions to trade on cotton created by developed countries, including dates and modalities for early implementation.