Bridges Weekly Trade News Digest • Volume 10 • Number 12 • 5th April 2006
Malaysian Informal Paper On Special Products Draws Objections From G-33
A Malaysian informal paper on how developing countries might designate ’special products’ (SPs) for less stringent liberalisation requirements has raised the ire of Members including the G-33, the group of developing countries that have long lobbied for such flexibilities. Circulated to a 23 March meeting of 25-30 delegations during the recent agriculture week, the paper sets out a series of quantitative criteria for the designation of SPs — criteria that the G-33 described as too limited, report sources.
According to the December 2005 Hong Kong Declaration, developing countries "will have the flexibility to self-designate an appropriate number of tariff lines as SPs guided by indicators based on the criteria of food security, livelihood security and rural development." Earlier, the July 2004 Framework provided for allowing developing countries to designate SPs on the basis of the same three concerns. However, the number and treatment of SPs remains to be determined. Members must also agree on exactly what ‘guided by indicators’ entails — whether it means that all SPs will have to fulfill a set of universally applicable indicators, or whether countries will have more latitude in choosing their SPs.
Malaysia proposes numerical indicators for SPs
In its paper, Malaysia emphasised the Doha mandate for "substantial improvement in market access," and warned that SPs "have the potential to undermine the development agenda of exporting developing countries" since the income of many poor farmers in such countries depends on the production and export of one or two crops. Malaysia is the world’s biggest producer and exporter of palm oil, and a member of the Cairns Group of agricultural exporters.
Malaysia outlined a set of quantitative criteria that it said could serve as the indicators for the designation of SPs. It suggested that products in which developing countries account for the bulk of world trade should not be eligible for SP status — proposing a provisional (bracketed) threshold figure of 75 percent. This means that if a handful of developing countries together accounted for 75 percent of world trade in a particular product, then other developing countries would not be able to designate it as an SP, irrespective of their food security, livelihood security and rural development concerns.
The paper called for the establishment of percentage thresholds for each of four other indicators, above which products would be eligible for SP status. These indicators are the proportion of domestic consumption of a product accounted for by domestic production, the product’s share in the country’s agricultural GDP, its share in farm sector employment, and its contribution to the total nutritional value (dietary and calorific requirement) of the population.
Furthermore, the paper specifies that SPs should be "staples produced domestically." This means that while a country would be able to designate its native-grown staple products as SPs, it would not be able to make smaller SP tariff cuts on imports of other products that could potentially substitute for these staples, leaving vulnerable farmers susceptible to displacement by foreign substitutes.
With regard to the treatment of SPs, the paper suggests that tariff cuts on them should be a to-be-negotiated percentage lower than those on other products, and that SPs with bound tariffs below 20 percent should be exempt from reduction commitments altogether. Additionally, SPs which already have tariff rate quota (TRQ) commitments would face lower expansion requirements than other products. Malaysia also proposed that the maximum tariff that developing countries could apply on SPs should be higher than the tariff cap for other products.
G-33 objects to paper
At the so-called ‘Room F’ meeting, agricultural exporters including the US, Australia, Canada, New Zealand, Costa Rica, and Thailand welcomed Malaysia’s contribution, saying that it was a good starting point for further work towards indicators for identifying SPs.
G-33 members criticised the informal paper, arguing that Malaysia’s limitation of indicators to staple crops with substantial shares in national diet, income, and employment failed to adequately reflect the three objectives of food security, livelihood security and rural development. They contended that SPs were meant to address developmental objectives that go "beyond the scope of commercial consideration and requirements to improve market access." Malaysia’s paper stressed that market access was essential to the very same concerns of poor farmers whose incomes depend on exports of a small number of products.
The G-33 also argued that Malaysia’s criteria were impractical, since a single set of thresholds would not be able to capture the diverse conditions that prevail in different developing countries. Mauritius said that under Malaysia’s approach, African countries would be unable to designate any SPs, since their crops would fail to qualify.
The group insisted that its own favoured approach — which would have Members use a non-exhaustive list of indicators to help guide their designation of a specific number of SPs (the group has proposed 20 percent of tariff lines) — was the only practical way for a wide range of countries to be able to respond to their unique concerns. The G-33 first tabled a list of indicators in October 2005, and refined it at the Hong Kong Ministerial Conference (see BRIDGES Weekly, 26 October 2005).
Although the five indicators Malaysia used were among the many on the G-33’s list, it differed sharply by adding specific numerical thresholds for excluding products from SP eligibility, as well as in its assertion that these criteria could be applicable to all Members.
The meeting saw a debate among the Members present about the purpose of the concept of SPs — and how the pursuit of the three objectives affected the interests of exporters. The discussions reflected a disagreement among developing countries about the nature and purpose of agricultural market access flexibilities, which was apparent during talks about the ’special safeguard mechanism’ the following day as well (see BRIDGES Weekly, 29 March 2006). The Philippines said that exporters stood to make gains from the overall tariff cuts, and argued that exporting farmers cannot be fairly compared to subsistence ones. Switzerland, too, was critical of the Malaysian approach.
One delegate told Bridges that fears about negative effects to South-South trade resulting from SPs are probably overblown, pointing to a recent study by the Carnegie Endowment for International Peace that found that the so-called welfare impact of implementing even wide-ranging flexibilities for SPs is likely to be minimal, since subsistence products make up only a small share of trade between developing countries. The study also found that SP flexibilities would help mitigate the negative effects of liberalisation on farmers in many developing countries.
ICTSD reporting.