Bridges • Volume 12 • Number 5 • November 2008

Members Focus on Technical Issues in Farm Negotiations

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Despite some indications of increased flexibility, the first cycle of informal farm talks since July did not produce any tangible results.

The chair of the agriculture negotiations, New Zealand’s Ambassador Crawford Falconer, reported to the WTO membership in mid-October on the ‘walks in the woods’ consultations he had held with various countries in recent weeks on six specific topics: tariff quota creation, tariff simplification, the special safeguard mechanism (SSM), sensitive products, Green Box domestic support and cotton.

Tariff Quota Creation
Positions remain polarised on whether Members should be allowed to create new tariff rate quotas (TRQs). Such quotas offer market access for a limited quantity of imports of a given good at a lower duty rate than the most-favoured-nation tariff bound in a Member’s schedule of concessions. TRQs typically apply to the most import-sensitive products, and the difference between in-quota and out-of-quota tariffs is often substantial.

In the Doha Round farm talks, tariff quota creation is linked to market access for sensitive products. Tariffs on such products will be cut less than the general formula would require, but new market access must be provided through the expansion of import quotas. If no new quotas can be established, only products currently subject to TRQs would be eligible to sensitive product designation. This is what strong exporters, such as Brazil, believe should be the case.

At the other end of the spectrum are importing countries, which would like more latitude in the selection sensitive products. Among cases where new quotas could be envisaged, they have cited products that have experienced strong recent trade growth, such as ethanol, and products that can be substitutes for goods currently subject to TRQs. There is no consensus on any of the proposals related to quota creation.

Members have, however, hypothetically explored criteria for new TRQs, such as limiting quota creation to only a small number of products, providing larger-than-standard tariff quotas, and having very low or zero in-quota duties.

Tariff Simplification
Exporters, led by the G-20 developing country coalition and the Cairns Group, are seeking to simplify tariff structures through the uniform application of only ad valorem duties (expressed as a percentage of a good’s value). Other types of tariffs currently used include ‘specific’ duties (–100 per tonne, say) and complex tariffs, where a product is subject to both ad valorem and specific duties.

Importers, such as the EU, have argued that 85 percent of tariff lines should be converted to ad valorem duties. In what Ambassador Falconer described a ‘sea-change’, some exporting countries now appear willing to give up their insistence on a total conversion of all tariffs to ad valorem duties. This shift is partly due to current high prices and the difficulty of recalculating the conversion method, which took WTO Members months to negotiate.

According to sources close to the talks, a Canadian study showed that complete tariff simplification may not be in the interest of exporters. Since the base period for specific tariffs and their conversion to ad valorem tariffs was set during a time of low prices, their conversion to percentage figures under current conditions may result in higher tariffs for products that have been buoyed by this year’s spike in commodity prices. But some of the premises of the study may no longer be valid, as prices for many key agricultural commodities have dropped precipitously in recent weeks.

Countries now need some time to carry out new calculations and consider their best options before moving on with the negotiations, Ambassador Falconer said.

The Special Safeguard Mechanism
The collapse of the July ‘mini-ministerial’ has been widely blamed on an impasse on the special safeguard mechanism (SSM) that would allow developing countries to raise tariffs to protect domestic producers from price drops or import surges. The main bone of contention was, and remains, under what circumstances (if at all) tariffs could be raised above their pre-Doha levels.

Recent discussions have not brought Members any closer to agreement. Ambassador Falconer admitted that the paragraphs dealing with this issue in the July draft modalities text had been rejected in the walk in the woods discussions.

Speaking on behalf of the G-33 developing country group, Indonesia discarded outright the notion of an SSM ‘holiday,’ a provision that would make the mechanism periodically inaccessible. The G-33 also rejected the idea of a mandatory price-based crosscheck and a two-tiered trigger to ensure that exporters were not being unduly penalised. Costa Rica, Paraguay and Uruguay said that an SSM along the lines proposed by the G-33 would prevent poor developing country farmers from exporting to other developing countries.

Green Box and Cotton Subsidies
Developing countries are seeking to ensure that future disciplines on the Green Box (non-trade-distorting subsidies) will not affect governments’ right to purchase food from poor farmers for stock holding and food aid purposes. Chair Falconer said a solution could probably to found. In contrast, discussions on the faster and deeper reduction of cotton subsidies have not produced any results.

A number of trade officials hope that Ambassador Falconer will release a new modalities draft that would capture ‘what has been agreed so far’ before he returns to Wellington at the end of the year. Mr Falconer has not ruled out the possibility, but insists that significant progress would need to be made before issuing a new text. More ‘walks in the woods’ will take place over the next few weeks, followed by either a meeting of a representative group of some 36 delegations or a meeting of the full membership.