Bridges Weekly Trade News Digest • Volume 7 • Number 31 • 25th September 2003

WTO Agriculture Negotiations: Perplexity On All Sides

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Still recovering from the collapse of the recent WTO Ministerial Conference held at Cancun, many Members are visibly anxious over how the agriculture talks could be continued in Geneva without loosing momentum. According to sources, most delegations appear perplexed in the face of the uncertainty regarding the future of the negotiations, and are in a "waiting mode" until capitals provide them with guidance on how to proceed. The future of the process is seen to depend on factors both within and outside the WTO system. As the main internal issues, Members list the questions of which of the many texts tabled in the negotiations would serve as the basis for further discussion, and of what the impact of the ‘peace clause’ set to expire by the end of the year would be. Several Members further view EC implementation of a compromise agreement on EC common agricultural policy (CAP) reform as an external factor impacting the post-Cancun process.

Which text to work from?

According to sources close to the agriculture negotiations, Members are particularly concerned about whether delegates will be able to agree on a text to base their work on in the Cancun follow-up. Notably, the framework text on agriculture contained in Annex A of the revised 13 September Draft Ministerial Text (JOB(03)/150/Rev.2) tabled by the Chair of the Cancun Conference, Mexican Foreign Minister Luis Ernesto Derbez, was not discussed — let alone been adopted — at Cancun. The ministerial talks collapsed over the Singapore issues before Members had the chance to turn to the agenda item ‘agriculture’ on the final day in Cancun (BRIDGES Daily Update, 15 September 2003, http://www.ictsd.org/ministerial/cancun/wto_daily/ben030915.htm). As a result, there is currently no official working document on which Members could base further efforts. It remains unclear whether the Derbez text, the 24 August text sent to Cancun by General Council Chair Carlos Perez del Castillo (JOB(03)/150/Rev.1), the Harbinson modalities, or even the overview paper of 18 December 2002 — containing all proposals tabled since the re-launch of the agriculture negotiations in 2000 — would form the basis for further discussions.

Referring to a provision in the 14 September Ministerial Statement (see http://www.ictsd.org/ministerial/cancun/docs/WT-MIN(03)-W-24.doc) calling on Members to maintain convergence in areas where they had reached "a high level of convergence," a G-22 South-East Asian Member made clear that in his view such convergence had not been reached in agriculture, especially as the last Derbez text had never been discussed in detail. A Latin American G-22 Member added that in the group’s view the Derbez text had shown no significant improvement as compared to the earlier Perez del Castillo version. The G-22 had circulated an alternative text on agriculture that partly proposed drastic changes to the text tabled by Derbez (see http://www.ictsd.org/ministerial/cancun/docs/G21_ag_text.pdf). Because of the many prevailing differences in positions of the main groupings — i.e. the EC-US duet and the G-22 — chances were extremely low that a new agricultural text could emerge within the next months, a trade source indicated. Nevertheless, a delegate stressed that in his opinion, Members would have to refer to the Derbez text in the follow- up talks. Otherwise, they would risk loosing all recent efforts to consolidate positions. Many delegates felt that it was premature to speculate over how the talks would continue in Geneva. First of all, Members would have to discuss all relevant issues in capitals, especially in Brussels and Washington. Only after this would they be in a position to articulate their views on the post-Cancun procedure in Geneva. Some also questioned whether the next Committee on Agriculture (CoA) special session planned for 6 October would need to be shortened or even rescheduled. "I don’t see how we could deal with purely procedural issues over a whole week," a developed country source said.

The expiry of the ‘peace clause’

Article 13 of the Agriculture Agreement (AoA) that sets out the so called ‘peace clause,’ under which WTO Members agree not to challenge certain agricultural subsidies, will expire at the end of 2003. Members of the G-22 regard the expiration of the ‘peace clause’ a non-issue completely decoupled from the ongoing agriculture negotiations. Others, such as the EC (which has benefited from the ‘peace clause’) consider its renewal a precondition for continuing negotiations.

Most delegates, both from South and the North, have indicated that the chances of extending the ‘peace clause’ beyond the end of 2003 are slim. G-22 delegates clearly stated that their group would not agree on an extension without being clear on what they would receive in return. Some members of the group, such as Brazil and Thailand, have already initiated dispute settlement cases against the EC and US on cotton and sugar. A G-22 delegate said that the alliance would be more willing to address the issue of the ‘peace clause’ only if a wider agricultural package that met key G-22 demands was agreed. As most delegates do not expect agreement on a new agricultural text within the next months, the issue of the ‘peace clause’ may inevitably by up in the air after 31 December. One source did, however, indicate that in order not further complicate the post-Cancun situation some sort of "tacit agreement could be thinkable" in order to prevent a hailstorm of dispute settlement panel requests targeting the EC’s export and other subsidies. However, the source ruled out the option of Members agreeing on a formal waiver or moratorium.

EC CAP reform

Meanwhile, EC agriculture ministers are scheduled to meet on 29 September to discuss how to translate the reform agreement on the EC’s Common Agricultural Policy (CAP) reached on 26 June in Luxemburg (see BRIDGES Weekly, 3 July 2003) into detailed regulations. In addition, the European Commission presented a new proposal on 23 September for decoupling subsidies for products such as sugar, cotton, tobacco and olive oil. These products — some of which are of major export interest for developing countries — had so far not been covered by the CAP reform deal. Under the new proposal, 60 percent of the subsidies for cotton and olive oil would be decoupled from production. All production subsidies for tobacco would be phased out over a period of three years. Instead, payments to farmers would be linked to compliance with environmental and food safety standards (cross compliance).

The Commission proposed three possible reform scenarios for sugar aiming to make the sector more market-oriented and "more sustainable economically, environmentally and socially," according to EC Agriculture Commissioner Franz Fischler. The first option calls for the progressive elimination of production quotas and the alignment of internal EC prices with those of imported sugar. Under the second scenario the current regime would be kept until 2006 while reducing quotas, tariffs and prices. The third option calls for the complete opening of the EC sugar market to foreign competition.

"Discussions are likely to be heated," an EC source commented. "We will surely see the formation of French and German interest groups," he added. France and Germany are the leading sugar producers in the EC. Italy, Greece, Spain and France also voiced their concerns with regard to the proposed changes with respect to tobacco, cotton and olive oil.

Given this context, Geneva sources cautioned that the failure of ministers to agree on a framework for agricultural reform in Cancun could lead to the more conservative voices in the EC gaining ground and pushing for smaller reforms. This would make it even more difficult for EC Agriculture Commissioner Franz Fischler to push trough a ‘Luxemburg plus’ package tackling the highly contentious issues of sugar and cotton, a trade source said. Prior to Cancun, Fischler had been able to use the argument that changes in EC farm policy were necessary to move the WTO negotiations forward.

ICTSD reporting; "EU arm mins back to drawing board on world trade talks," AP, 22 September 2003; "European Commission proposes additional agricultural reforms," AFP, 23 September 2003.