Arguably, the Falconer draft text on agriculture is a step forward in agricultural negotiations. Burkina, as the largest exporter of cotton in Africa, will gain from this text insofar as cotton is treated in a specific manner in accordance with the positions which Burkina has taken as a member of the C4. Cotton is a national issue in Burkina, unleashing energy and also strong emotions. The rise in prices that can be expected from the reduction of American subsidies as presented in the draft text will probably be slight, especially as the reduction concerns only a small part of American subsidies.

Le projet de texte proposé apporte des changements qui pourront avoir des répercutions sur l’Accord sur l’agriculture. Cela aura certainement un impact sur le Burkina en tant que Pays moins avancé (PMA).

Le Burkina est un pays essentiellement agricole avec plus de 80 pourcent de sa population impliquée dans le secteur agricole. La part du PIB agricole dans le PIB global est d’environ 

40 pourcent.

Le secteur agricole est dominé par la production de céréales (mil, sorgho, maïs, riz et fonio) qui représente environ deux tiers (63 pourcent) de la valeur ajoutée du secteur. Ce sont des productions qui sont faites dans un système d’agriculture paysanne d’autosubsistance. Environ 15 pourcent seulement de la production fait l’objet de commerce. Et une petite partie de cette production (1.5 pourcent) est exportée dans les pays voisins, soit 10 pourcent des volumes commercialisés. La production de céréales a connu une moindre croissance, à l’exception du maïs dont la production a doublé depuis dix ans en partie du fait que la culture du maïs alterne avec celle du coton lors du cycle annuel de production.

Le coton est la principale culture de rente. Elle occupe une superficie représentant 17 pourcent seulement de celle allouée aux céréales, mais sa contribution en termes de valeur ajoutée agricole est relativement plus importante (21 pourcent). Le poids économique du coton est également important en termes de génération de revenus. Les exportations de coton représentent plus de 60 pourcent des recettes d’exportation. Ces ressources sont l’unique source de revenu pour près de 250 milles petites exploitations familiales qui détiennent 35 pourcent des revenus agricoles totaux des ménages. 

L’élevage est pratiqué à des degrés variés par presque tous les paysans, dans un système d’élevage extensif. La taille du cheptel est assez importante (7,3 millions de bovins ; 6,7 millions d’ovins et 10 millions de caprins). Il convient d’ajouter à cela environ 37 millions de volaille. Le poids de l’élevage dans le PIB est estimé à 11 pourcent. Les produits de l’élevage font l’objet d’exportation dans les pays voisins. Ils concernent uniquement les animaux vivants et sont estimés à 36 milliards de FCFA (72 millions $US) en 2005. L’élevage est la première source de revenus monétaires des ménages ruraux. Il fournit 27 pourcent de leur revenu monétaire total contre seulement 16 pourcent pour l’agriculture.

Le projet de texte proposé apporte des modalités au niveau des compartiments essentiels de l’Accord sur l’agriculture. Il s’agit des soutiens internes, de l’accès au marché et de la concurrence au niveau des exportations.

La présente étude a pour objectif d’examiner l’impact que ces mesures pourront éventuellement avoir sur le secteur agricole du Burkina ainsi que sur les politiques agricoles. 

D’une manière spécifique, elle se focalisera sur les questions suivantes :

i. Au niveau des soutiens internes

• Le projet de texte implique-t-il des changements dans les soutiens internes au Burkina et quelles sont les contraintes probables aux soutiens internes?

• Quelles sont les répercutions de la modification des soutiens globaux américains et européens sur le Burkina en ce qui concerne certains produits spécifiques et notamment le coton?

• Le Burkina peut-il profiter des nouvelles flexibilités accordées aux pays en développement par rapport au soutien de la catégorie verte? Cela va-t-il influencer la politique du Burkina dans le futur?

• Les subventions aux exportations modifieront-elles la structure des exportations du Burkina? 

• Cela aura-t-il plus d’impact sur le coton que les autres cultures? Dans quel sens?

ii. L’accès au marché

• Quelles pourraient être les implications commerciales des différentes options de la libéralisation des produits tropicaux et de l’érosion des préférences? Quels sont les produits qui seront affectés, dans quelle ampleur et sur quels marchés?

• Etant donné que d’autres membres de l’UEMOA et de la CEDEAO ne sont pas des PMA et doivent réduire leurs tarifs à l’OMC, le Burkina sera-t-il obligé de réduire ses tarifs pour satisfaire les conditions du Tarif extérieur commun (TEC)? Quels sont les produits qui seront les plus touchés? Comment certaines flexibilités de ces pays comme les produits spéciaux et les produits sensibles affecteront-elles le Burkina?

• Comment la superposition entre les produits sensibles et les produits tropicaux sera-t-elle affectée par l’érosion des préférences?

• Comment les différents éléments proposés dans le projet de texte vont-ils affecter les principales exportations du Burkina?

• Quelles pourraient être les conséquences des mesures de sauvegarde spéciale pour l’agriculture (SGS), du mécanisme spécial de sauvegarde (SSM) et des produits sensibles sur le Burkina? Concrètement que signifieront ces flexibilités et ces restrictions? 

• Quelles seront les implications des dispositions du mécanisme de sauvegarde spécial? Comment les obligations de l’OMC interagiront-elles avec les engagements des APE et les flexibilités des produits sensibles?

• Comment les engagements sur les franchises douanières et l’accès au marché sans quota affecteront-ils les exportations du Burkina? 

• Comment l’aggravation des dotations, l’administration de quotas tarifaires et la simplification des exportations vont-elles affecter les tarifs du Burkina?

iii. Concurrence au niveau des exportations

Comment le Burkina sera-t-il affecté par les propositions de nouvelles restrictions sur la concurrence au niveau des exportations? Plus précisément, quelles sont les conséquences sur l’aide alimentaire, le financement des exportations, les subventions aux exportations sur les entreprises étatiques d’exportations?

The paper is part of a series that includes the EU, US, Japan, China, India, Brazil, Mauritius and Burkina Faso (in English, in French).

Brazil is recognized today as one of the most important countries in the Doha Development Round (DDR) negotiations. Not merely is it one of the leaders of the G-20, one of the most influential negotiating coalitions, it has also been taking part in all spheres of the Doha Round negotiations, both formal and informal. Although this paper will also examine the likely impact of the Doha Round on Brazilian domestic support levels and tariffs, Brazil’s position in all three pillars of the Doha Round agricultural negotiations - domestic support, market access and export competition - is offensive1. Brazil is one of the world’s largest agricultural producers and exporters and aims to reduce protection levels in order to be able to expand its agricultural export potential.

With the end of the bottom-up approach, in which the WTO (World Trade Organization) Members defined the parameters for agricultural modalities, the top-down approach, based on documents prepared by the chair of the Special Session of the Committee on Agriculture, has prevailed in negotiations. Based on the last version of the agricultural modalities document of July 10th 2008 (referred to in this document as the Draft Modalities), this paper seeks to:

(i)    Evaluate the implications of commitments set forth in the modalities on domestic support and market access for Brazil’s agricultural sector: in other words, how do the proposed disciplines affect applied levels of domestic support and tariffs?

(ii)    Discuss whether Brazil’s offensive interests will be satisfied. Are the disciplines proposed for export competition, domestic support and market access for Brazil’s agriculture sector likely to create trade opportunities for Brazilian agribusiness exporters? As most of the parameters for the three pillars are already well defined in the last Draft Modalities, this paper provides a critical analysis of the level of ambition within the document.

In contrast to the EU, which took a defensive position in the Uruguay Round but has been playing a more active role in the current Doha Round, Japan has maintained the defensive position it has taken in previous Rounds.

In 1992, at the end of the Uruguay Round negotiations, the EU instituted reforms, significantly lowering support prices for grain and beef and compensating farmers by paying them directly. Lowering prices enabled the EU to allow the volume of subsidized exports to be reduced through reductions in surpluses.

The EU has subsequently continued its reform process. In the 2000 reform, it reduced the support price of cereals by 15 percent, and in the 2003 reform reduced the support prices on dairy products, with the price of skimmed milk powder being lowered by 15 percent and that for butter by 25 percent.

In the 2005 reform, the EU finally reduced the support price for sugar (previously unchanged for 40 years) by 36 percent, and switched to direct payments corresponding to 64 percent of the price reduction. For these reasons, the EU could make a commitment to eliminate export subsidies for sugar, dairy products, cereals and beef, and could tolerate 100 percent tariff caps in the current Doha Round of negotiations.

Since the 1960s, price support has dominated Japan’s agricultural policy, supporting farmers’ incomes but placing a huge burden on consumers. In order to maintain high prices, Japan has had to rely on tariffs and non-tariff measures so as to isolate its domestic market from the international market.

In the Uruguay Round, the country resisted tariffication and resorted to special treatment stipulated in Annex 5 of the Uruguay Round Agreement on Agriculture (URAA), compensating for not tariffying rice by providing more minimum access than would have otherwise been required. Japan, however, finally recognized that it could no longer bear the excessive minimum access burden and applied tariffication in 1999.

The Japanese position in this Round has not changed much from the Uruguay Round, since the country has not changed many of its domestic policies. In 2000, Japan introduced direct payments for farmers in disadvantaged regions. In 2007, it changed the 70 percent of deficiency payments for wheat, barley, sugar and some other dry farming products into green box payments. These policy reforms, however, did not change the domestic prices of agricultural products. Japan therefore has to continue to rely on high tariffs in order to maintain those prices and protect its agricultural sector.

To what extent would a successful conclusion of this Round along the lines of the Revised Draft Modalities paper issued by the chair of the agriculture negotiations, Ambassador Falconer, require changes in Japanese agricultural policies?

How much increased market access is likely to be generated as a result of tariff cuts and tariff rate quota expansion? Could Japan play a more aggressive role in the world market, taking advantage of the expansion of market access generated in other countries?

This paper makes attempts to address these issues by exploring the implications of the Revised Draft Modalities paper.

In addition to quantitative analysis of the extent to which tariffs would be reduced, this paper attempts to analyze the probable and possible effects of the paper on Japanese agriculture and agricultural policies, taking into accounts recent developments in the world market.

The first section of the paper gives an overview of the current state of Japanese agriculture and agricultural policies, insofar as these relate to the disciplines introduced in the Uruguay Round Agreement on Agriculture (URAA). The second section reviews briefly the Japanese positions in this Round. The next three sections discuss in more detail the implications of the domestic support, market access and export competition modalities.

The following section tries to point out several legal drawbacks to the proposed commitments on subsidies, the lack of disciplines on export tax, and the overly lenient disciplines on export quantity restrictions. It also refers to some environmental concerns which are just as important as trade concerns. The final section makes an overall assessment of the impacts of the suggested modalities on Japan.

This paper provides an overview assessment of the implications of the revised modalities text in terms of its ambition and balance as viewed from the perspective of both developed and developing countries, and identifies the key issues which will likely require ministerial decisions. It goes on to examine what additional issues could be added as part of a final deal once there is agreement on modalities and there is an assessment of the ensuing draft schedules.

It concludes by venturing some views on the likely trade-offs between agriculture and other parts of the Doha negotiations, particularly the non-agricultural market access (NAMA) negotiations. This assessment draws from and builds on the complementary detailed analysis which has been undertaken on the implications of the new draft modalities text for four major Doha participants - the US, EU, Brazil and India.

Cover photo by vsz.

In the case of market access, most of India’s agricultural tariffs are of the ad valorem kind, where the simple average of bound tariffs is 115 percent in 2004. Trade weighting increases the average bound tariff to 159 percent. However, the applied tariffs average 59 percent and hence, the binding overhang (the gap between bound and applied tariffs) is high. The analysis focuses on the tiered tariff reduction formula and on the special and differential treatment afforded to developing countries. The authors assume that India will designate 7.5 percent of its HS6 tariff lines as sensitive products, and two categories of special products: about 6.5 percent of the HS6 lines face a tariff cut of 18.5 percent, and an additional 6.5 percent of the HS6 lines with a tariff cut of 11.5 percent. A selection approach based on the estimated cost of agricultural tariffs is used to identify potential special and sensitive products. The tariff-rate quotas to accompany sensitive products may be less attractive to India and hence, it may fully rely on special products.

Applying the formula by bands will result in an overall cut of 38 percent in the average tradeweighted bound tariffs from 159 percent to 99 percent. However, flexibilities increase the bound rates to 126 percent, resulting in a net reduction of 21 percent, well below the maximum cut of 36 percent proposed for developing countries. Although the formula reduces tariff heterogeneity, measured by the standard deviation, flexibilities restore heterogeneity to initial levels in key products sustaining potential distortions in Indian agriculture. The average applied rate would fall to 54 percent from an initial 59 percent after the formula cut, but flexibilities completely eliminate the reduction. In terms of preferences, only duty-free, quota-free access to least developed countries, if granted, would result in significant changes in India’s applied protection. In general, the formula cut with flexibilities does not appear to open India’s market and may not lead to less heterogeneity in the protection structure. India is a net agricultural exporter, but the modalities offer significant liberalization on only 30 percent of Indian exports; the ones targeting developed economies. India’s strong support of special and differential treatment opens few new market opportunities in developing countries.

In the Uruguay Round, India did not have a total AMS commitment, and so, the de minimis exemptions served as limits to two types of domestic support: administered prices under product-specific AMS and input subsidies under non-product-specific AMS. Official notifications, available for 1995-1997, show negative product-specific AMS because support prices are lower than external reference prices. Moreover, a reallocation of input subsidies from non-product-specific AMS to special and differential treatment reduces the former to about 1 percent of the value of production. A recent set of shadow notifications shows that India’s product-specific AMS remained negative through 2005. Non-product-specific AMS, computed similar to that in the official notifications, accounts for about 1 percent of the value of agricultural production. With India’s general elections expected in early 2009, the immediate future includes popular policies such as credit subsidies and significant MSP growth. Nevertheless, non-product-specific AMS is not likely to exceed the limits proposed in the Doha Round, i.e., 10 percent of value of production, even with popular policies. However, product-specific AMS is on the verge of becoming positive given high growth in support prices and the appreciation of Rupee in recent years. Projections for 2015 suggest that de minimis exemptions would be about $16 billion each for product-specific and non-product-specific AMS, giving India ample flexibility in domestic support policies.

The EU has been playing a more active role in setting the agenda for the agricultural component of the Doha Round than it did in the Uruguay Round and in earlier GATT rounds. The Commission, negotiating on behalf of Member States, has tried to avoid the defensive position that gave it little room to suggest changes in the rules that it would favour. In particular it wanted to avoid being isolated as the main defender of protectionist agricultural programs, and risk being blamed for resisting further progress in bringing agricultural trade rules closer to those in the non-agricultural sector.

This new position has indeed had a major impact on the conduct of the negotiations. Although transatlantic tensions still exist, often over issues such as regulations regarding biotech food and the use of place names for trademarks, the past five years has seen a noticeable convergence of EU and US positions on agricultural trade rules. The conflicts that are prolonging the Doha Round agricultural talks are more often between the US and the EU on the one hand and developing countries on the other. Both the US and the EU have agreed that there will be significant cuts in tariffs, subject to partial exclusions for sensitive products, and major reductions in the allowable level of trade-distorting domestic support. The elimination of export subsidies is no longer a significant point of contention, although there are still differences in the area of food aid.

The main reason why the EU can be so much less defensive in its approach to trade talks is in the progress it has made with domestic reform of agricultural policy. The MacSharry reforms of 1992 allowed the EU to agree to disciplines on domestic and export subsidies in the Uruguay Round Agreement on Agriculture (URAA), as well as resolving the oilseed controversy. Cereal prices were cut to bring them closer to world prices and oilseed hectarage was restrained. Payments that were made in compensation for price cuts were placed in the Blue Box, and thus avoided mandated reductions. Support given through administered prices also declined, in part as a result of the use of the difference between these prices and fixed reference prices for the calculation of the subsidy element. So the partially-reformed CAP had no difficulty staying within the bounds of the EU’s schedule of subsidy reductions in the first few years.

Further reforms have had a similar impact, lowering the level of trade-distorting subsidies and making it easier for the EU to contemplate and accept further restrictions on agricultural policies in the WTO. In this connection, the changes in 1999 (the Agenda 2000 reforms) and the subsequent significant changes in 2003 and 2004 under the leadership of Commissioner Fischler have continued and developed the approach taken by MacSharry. Price support has been removed or weakened for many commodities, and payments are now made to farmers on the basis of historical production of a wide range of products with no obligation to produce any particular product to claim payment. This “Single Farm Payment” has made the CAP significantly more consistent with the “tariffs and decoupled payments” model that underlies the URAA.

To what extent would a successful conclusion of the Doha Development Agenda (DDA), along the lines of the modalities in the Revised Draft Modalities paper of May 19, 2008, require further changes in the Common Agricultural Policy? Will those changes be made easier by corresponding disciplines on the domestic programs of other countries? How much increased market access is likely to be generated as a result of cuts in tariffs that would be required of the EU? Can the EU expect to expand its own exports of agricultural products as a result of the tariff cuts of others? Will the termination of the EU’s use of export subsidies to balance its internal market have any significant impact on price levels and on world market conditions? And to what extent will the modification of the export policies of competitors help the EU to move away from export subsidies? What other issues will the EU insist on as it moves towards a package that is acceptable to Member States?

This paper attempts to address these issues, as a way of exploring the domestic and international implications of a Modalities agreement. The first section of the paper gives some background information on the nature of the CAP as it relates to the disciplines introduced in the URAA. This section is useful to give some perspective on the potential impact of the DDA as it relates to the recent development of the CAP. A second section reviews briefly the main “offensive” and “defensive” positions of the EU, so as to be able to evaluate the extent to which the modalities draft addresses these issues. This perspective is relevant to the political reactions that will determine the acceptability of the Modalities. The next three sections discuss in more detail the implications of the domestic support, market access and export competition modalities, and give an interpretation of the WTO disciplines as a constraint on future policy developments. A final section attempts an overall assessment of the impacts of the suggested modalities on the EU and on its negotiating interests.

The May 2008 draft agricultural modalities (WTO 2008) are the result of seven years of hard negotiations. Their structure, if not every detail, seems likely to be the basis for final proposals that must either be ratified or rejected by governments. The modalities cover the three pillars of domestic support, market access, and export competition. In this paper we examine their implications for the United States.

The imposition of additional WTO disciplines on domestic support is a major issue for the United States. Higher world prices for major export commodities have reduced the amount of support provided to U.S. farmers in recent years but the long drawn-out process of concluding a new Farm Bill reflects the continued political importance of farm programs. Analysis of the most ambitious provisions of the draft modalities suggests that if a relatively high price environment continues the United States will be able to adapt to the new WTO domestic support commitments by making modest adjustments in its domestic policies. There are issues with a limited number of commodities. Cotton poses problems for meeting product specific bindings on AMS and blue box support and sugar pose problems for meeting product specific AMS commitments. These could be addressed by changing support programs in order to reduce notified support. Changes in the definition of the dairy support program in the 2008 Farm Act, which do not imply any fundamental change in the way the program actually operates, will reduce notified support for dairy. It is possible that other procedural changes could be made to reduce notified support for other commodities, for example, sugar.

The strengthened disciplines on domestic support would have the effect of squeezing out a lot of the “water” in the amount of support that the United States can provide to U.S. farmers and stay within its WTO commitments. The United States would still have the option of changing the composition of support – expanding the use of the green box and making use of non product-specific support up to the limit imposed by de minimis and the overall OTDS binding. Nevertheless, significant reductions in the OTDS and the total AMS severely constrain the room for manoeuvre for support that is most closely linked to prices. However, if the optimistic price environment assumed by the U.S. Department of Agriculture does not materialize, limits on the total AMS and some product-specific AMS limits could well be exceeded unless alternatives to current support policies were found With respect to market access, while U.S. agricultural tariffs are relatively low on average there are some high tariffs on products such as sugar, meats, dairy products and beverages and tobacco. The relatively low tariff average means that around 90 percent of the tariff lines fall in the first band of the proposed tariff-cutting formula in the draft modalities, and hence are subject to the lowest proposed reductions. Despite this, the cuts in agricultural tariffs resulting from application of the formula are relatively substantial, with the trade weighted average MFN applied rate falling from 8 percent to 3.5 percent. Application of the proposed tariff escalation formula has virtually no impact on the average tariff, while application of the tropical products formula would reduce the post-round tariff from 3.5 percent to 3.2 percent with the largest impact on sugar, dairy products and tobacco. The sensitive product option is likely to have a relatively small impact on U.S. tariffs.

With respect to market access for the United States, we find that the proposed tariff formulas in the modalities would sharply reduce average tariffs facing U.S. exports – from 14 percent to 8.7 percent. Most of this reduction comes from a sharp fall in the tariffs applied by other industrial countries. The provisions of the tariff formula for developing countries; the higher binding overhang; and lower initial rates of applied protection imply a much smaller reduction in the tariffs facing U.S. exports in developing countries. The sensitive product provisions reduce by half the reduction in the average tariff facing US exporters in other developed markets and, combined with special products, mean that applied tariffs faced by US exporters in developing countries decline very little.

The elimination of export subsidies used by other countries (particularly, the European Union) has been a major U.S. objective in the current round of WTO negotiations. This would require the elimination of the one remaining export subsidy program for dairy products (DEIP) that has not been active in recent years. The draft modalities would also require changes in U.S. export credit programs, but these have already been modified to bring interest rates in line with those charged by commercial lenders.In addition, the intermediate export credit program (GSM 103) was eliminated in the 2008 Farm Act.

Some additional modifications in financing terms for the remaining program (GSM 102) would probably be required to ensure full cost recovery Activity under U.S. food aid programs has been declining in recent years. The draft modalities foresee reduced emphasis on the provision of in-kind aid. The 2008 Farm Act contains some limited provisions for sourcing aid through local purchases of food in developing countries. However, a more general move in that direction can be expected to result in less support for food aid programs among farm groups and increasing difficulties in obtaining Congressional appropriations for food aid programs.

This paper provides an overview assessment of the implications of the revised modalities text in terms of its ambition and balance as viewed from the perspective of both developed and developing countries, and identifies the key issues that will likely require ministerial decisions. It goes on to examine what additional issues could be added as part of a final deal once there is agreement on modalities and there is an assessment of the ensuing draft schedules. It concludes by venturing some views on the likely trade-offs between agriculture and other parts of the Doha negotiations, particularly the non-agricultural market access (NAMA) negotiations.

This assessment draws from and builds on the complementary detailed analysis which has been undertaken on the implications of the new draft modalities text for four major Doha participants - the US, EU, Brazil and India.