Bridges Weekly Trade News Digest • Volume 10 • Number 23 • 28th June 2006

Mammoth Task Awaits Ministers As AG Chair Tables Blueprint For Modalities Deal


Ministers meeting this week in Geneva will have to overcome substantial disagreements if they are to cement a WTO deal on tariff and subsidy cuts in agriculture. A new draft text, circulated 22 June by the chair of the agriculture negotiations, points to hundreds of outstanding differences which they must resolve if an accord is to be reached.

The 74-page draft effectively includes almost every proposal that negotiators have put forward, as persistent divergence between Members in all areas of the talks has prevented consensus from emerging. The document places different options within some 760 pairs of square brackets, each of which indicates a segment of text or a numerical figure on which Members disagree.

Although agreeing on any given issue would likely imply the removal of multiple sets of these brackets, their sheer number indicates that ministers and other top officials due in Geneva from 29 June to 3 July will have to thrash out several differences to reach an accord on ‘modalities’ - the formulae and figures for tariff and subsidy cuts, and exceptions to them.

Following the release of the paper, agriculture Chair Ambassador Crawford Falconer (New Zealand) told a press conference that ministers were unlikely to work through the draft text bracket-by-bracket. Instead, he said, they would probably focus their attention on a handful of key political issues that are crucial to unlocking the stalemate. If these issues are resolved, he suggested, it would be possible to reach an agreement quite quickly.

Falconer said that it would be possible for ministers to strike a deal, given the "right political will," but conceded that it was rare for officials to successfully resolve so many issues during such a limited period of time.

Sources report that at a ‘green room’ meeting on 26-27 June, representatives from some 25-30 influential Member delegations came up with a "sequence of discussion" for issues in the upcoming talks on agriculture and non-agricultural market access. With regard to agricultural market access, this would entail the thresholds and cuts for the tiered tariff reduction formula, the number and treatment of the ’sensitive products’ that countries will be able to partially shield from the tariff reduction formula, and exceptions from tariff cuts for developing countries. On domestic support, ministers will focus on the depth of cuts to overall trade-distorting support and ‘amber box’ payments, as well as caps and criteria for ‘blue box’ and ‘de minimis’ spending. They will also address the issue of cotton subsidies. Only after these issues are resolved will they turn to areas such as export competition, tariff caps, tropical products, and preference erosion.

WTO Director-General Pascal Lamy has long identified US farm subsidies and EU agricultural market access, along with developing countries’ industrial tariffs, as forming the ‘triangle’ of issues on which movement is necessary for a breakthrough in the talks. Each of the three camps has been calling for the other two to move first. Several delegates have maintained that an agreement on tariff cuts would be unlikely without a clear idea of the number and treatment of ’sensitive products.’ Some Members want similar clarity with regard to the ’special products’ that developing countries alone will be able to shelter from tariff cuts, in order to feel comfortable signing on to a modalities deal.

Chair says draft contains ‘no surprises’

In a covering letter addressed to Lamy, Falconer noted that the draft contained ‘no surprises’ for negotiators, as it aimed to respect the Membership’s requirement to "reflect consensus, or where this is not possible, different positions on issues." The draft was "not an elegant document," he remarked, since Members had not been able to narrow the significant gaps between their positions. "Dealing with them honestly and fairly can be the only way that has any chance of moving us forward."

Falconer emphasised that he had avoided presenting Members with a fait accompli that tried to second-guess where consensus might lie. His previous ‘reference papers’ on different issues in the negotiations had included some personal observations about the likely contours of a potential agreement.

Members underscore need to reach agreement, hint at flexibility

At a 23 June meeting to discuss the draft modalities text, Members emphasised that an end-June deal was crucial to ensure the success of the Doha round.

Major trading powers continued to urge each other to move beyond their negotiating stances, while the EU and the G-20 group of developing countries also hinted at some flexibility in their own positions. The EU indicated its willingness to make painful cuts to tariff barriers and subsidies — so long as other trading partners reciprocated. Reductions to industrial tariffs would be an essential part of any deal, it reiterated.

Describing the gap between Members’ tariff reduction proposals as "breathtaking," the US argued that some proposed cuts would fall short of the mandate to produce "substantial improvements in market access." As summed up in Falconer’s text, proposed cuts for the highest farm tariffs in developed countries run the gamut from 42 percent to the US’ favoured 90 percent. The EU has argued for a 60 percent reduction. The G-20 would have developing countries cut their highest tariffs by 40 percent.

The G-20 challenged the US to make deeper cuts to its farm subsidies, and urged the EU and G-10 to offer greater access to their highly-protected farm sectors. Members of the developing country group declared that they would be willing to consider new positions "once the major developed countries demonstrate clearly their readiness to negotiate."

Outside the WTO, ministers also hinted at new concessions — conditional, of course, on progress by others. US Trade Representative Susan Schwab told Reuters that deeper subsidy cuts were possible, but that the EU and others would have to put "an awful lot more market access on the table" in order to persuade Washington to offer more. Japanese Agriculture, Forestry and Fisheries Minister Shoichi Nakagawa said that he had "some cards in [his] pocket to contribute" to progress in the negotiations, but that exporting countries should show their cards first.

EU Trade Commissioner Peter Mandelson indicated that the bloc could improve its market access offer if "others show a similar flexibility and willingness to go further." However, his latitude for movement was called into question by officials from France and Finland. Finnish Agriculture Minister Juha Korkeoja bluntly stated that "the EU should not make any more concessions," arguing that it was in fact "for the others to make new proposals" at the Geneva meeting.

Indian Commerce and Industry Minister Kamal Nath, a prominent representative of the G-20, emphasised that domestic political ’sensitivities’ should not be used as an excuse to block progress in the round, in an implicit reference to influential farm lobbies in the US and the EU.

South-South disagreements repeated

Members showed fewer signs of being willing to compromise in the longstanding debate over a range of market access flexibilities for developing countries. Farm exporters (from both developed and developing countries) are at odds with those developing countries that wish to provide a degree of protection to their agricultural sectors.

The G-33 group of developing countries, which are seeking to shield ’special products’ from tariff cuts in order to promote food security, livelihood security and rural development, stressed that they were motivated not by a desire to restrict trade but rather by the need to protect vulnerable farmers. Exporters such as Paraguay, Uruguay and Thailand again argued that too much flexibility could compromise their ability to export products to other developing countries (see BRIDGES Weekly, 3 May 2006).

G-33 member India emphasised the need to clarify the arrangements for both special products and a special safeguard mechanism (SSM) as part of the deal on modalities, rather than leaving them to a later stage in the talks, such as the negotiations on Members’ schedules of commitments.

Developing country farm exporters also warned that ongoing efforts to address preference erosion had the potential to lead ultimately to less extensive market access opportunities for products such as beef, wine and rice — all of which the group of African, Caribbean and Pacific (ACP) countries have included in their list of products currently benefiting from preferential trading schemes.

‘Peace clause’ absent, GI extension barely present

The US complained that the draft text did not include a ‘peace clause’ — a provision exempting most kinds of farm subsidies from legal challenge in the WTO for a limited time period. Following Brazil’s successful 2004 case against its cotton subsidies, the US has been particularly keen to re-establish this kind of immunity for its subsidy programmes, arguing that it is necessary to protect farmers implementing reforms. A number of other countries have strenuously opposed such moves. It is unclear to what extent the US sees a peace clause as a prerequisite for a final deal.

Falconer defended his decision, indicating that he had considered this option but decided that no such clause appeared in the July 2004 Framework (WT/L/579), which set out the terms for the development of ‘full modalities.’ He noted that ministers remained free to decide on whether or not to include it in the agreement. Other Members commended the chair on his decision.

The text included a bracketed heading for ‘geographical indications’ (GI), albeit with no draft provisions below it. The EU, Switzerland and Bulgaria have repeatedly called for Members to extend to all products the higher level of protection currently accorded only to wines and spirits (such as Champagne). Others, such as Argentina, Canada, and the US have fiercely opposed this move, arguing that there is no mandate for ‘GI extension’ in the agriculture negotiations.

TNC to handle negotiations

Through the end of the month, the text will be discussed in the Trade Negotiations Committee (TNC), which is set to start meeting informally every day from 30 June. A formal TNC session has been scheduled to start 1 July. Lamy will also convene ‘green room’ meetings with a group of 30-35 ministers throughout this period, as well as smaller gatherings on particular issues.

Falconer did not rule out making some minor revisions to the draft modalities text, based on Members’ views, before sending it to Lamy, who chairs the TNC.

The draft agriculture modalities paper is available online at: http://www.agtradepolicy.org/output/resource/ag_modalities_22june06.doc.

ICTSD reporting; "Interview - countries should stretch for WTO deal - Schwab", REUTERS, 26 June 2006; "France, Finland say no more European trade concessions", EFE NEWS, 26 June 2006; "Japan’s trade minister seeks US flexibility in WTO talks", KYODO NEWS, 27 June 2006; "Trade talks breakthrough a 50-50 chance: Vaile", AUSTRALIAN ASSOCIATED PRESS, 26 June 2006; "Nakagawa hints at Japanese concessions at upcoming WTO farm talks," KYODO NEWS, 23 June 2006; "Compulsions should not block farm trade talks: Nath," PRESS TRUST OF INDIA, 23 June 2006.