Bridges Weekly Trade News Digest • Volume 11 • Number 20 • 6th June 2007
AG: Hints Of Rapprochement Amidst Differences, As Draft ‘Modalities’ Text Looms
Trade diplomats report signs of movement and an improved atmosphere in the troubled Doha Round agriculture talks, saying that long-awaited concessions on market access and subsidy reform may finally be emerging as the chair of the negotiating group puts together a new draft ‘modalities’ text to release later this month.
Chair Ambassador Crawford Falconer (New Zealand) is expected to issue the new text, which will describe the controversial formulae and numbers for farm tariff and subsidy cuts as well as exceptions to them, during the week of 25 June. However, some suggest that he might issue it even before a 19-22 June meeting of the ‘G-4′ group of major trading partners - Brazil, the EU, India and the US - during which they have promised to try to bridge their differences. Falconer has acknowledged that a joint contribution from the G-4 would help him put together a text. However, he will do so regardless of whether they manage to converge.
Farm trade negotiators described a new sense of urgency in the deliberations as the chair conducted a series of informal consultations with Members, beginning 28 May, to gauge their reactions to his ‘challenges’ papers describing where he thought consensus might lie on many issues in the talks. One delegate reported a renewed atmosphere of active engagement amongst Members, describing the mood as "really positive, really constructive". Another spoke of the "best moment I remember in terms of Members’ engagement" on the entire range of issues in four years of working on the talks.
While noting some rapprochement amongst the major players, negotiators nonetheless sounded a note of caution about the gaps that need to be overcome, warning that "fundamental differences remain."
Market access
According to delegates, the G-20 group of developing countries, the Cairns Group of agricultural exporters and the US appeared to be coalescing on "something around 75 percent" for the reduction to the steepest farm tariffs. Members had already agreed that the tiered formula would slash the highest tariffs in the top ‘band’ most sharply. However, the magnitude of tariff cuts remained divisive. The US in particular had been insisting that unless its demands on market access were met, including an 85 percent cut for the highest tariffs, it would not even contemplate the deeper subsidy cuts many WTO Members say that Washington must accept as part of a deal.
However, sources said that the EU remained reluctant to cut high tariffs by more than 60 percent. The G-10 countries with highly-protected agricultural sectors (such as Japan, Norway and Switzerland) were opposed to anything more than 40 percent. Falconer has suggested that agreement would eventually be found somewhere between the EU and US positions.
The thresholds for the tariff bands would most likely be those proposed by the G-20, sources said, which would mean the highest band would include all tariffs above 75 percent. Members also seemed to be reaching consensus on a 5 percent difference between the cuts applicable to adjacent bands.
There was less clarity in the discussions of the tariff reduction formula for developing countries, sources suggested.
Flexibilities to shelter products from tariff reduction have deeply divided farm exporters from more import-sensitive countries. One delegate said that Members "don’t really have a common language" on ’sensitive products’, on which both developed and developing countries will be able to make lower tariff cuts in exchange for creating new import quotas. The EU had reportedly indicated that it might be able to designate a smaller number of tariff lines than the 8 percent originally proposed, discussing options for 4 to 5 percent instead.
Some signs of change were also evident in the debate on the ’special products’ that developing countries will be able to shield from tariff cuts on the basis of food security, livelihood security and rural development criteria. The number and tariff treatment of such products remains undecided. The US in particular appeared to soften its stance, indicating willingness to discuss ‘indicators’ that would demonstrate the importance of a potential special product to the agreed criteria - so long as a cap on the total number of special products is also debated. Indicators would have to be based on "internationally verifiable data", the US has argued. The US had long taken a very restrictive stance on the issue, insisting that developing countries be allowed to designate no more than five tariff lines as special - scarcely enough to cover powdered and fresh milk, for instance, and fewer than 1 percent of agricultural tariff lines for many countries.
Falconer has suggested that a plausible Doha Round accord could allow 1 to 5 percent of tariff lines to be designated as sensitive, and 5 to 8 percent as special. The G-33 group of developing countries, at the opposite end of the spectrum from the US, wants at least 20 percent to be eligible for special product status. It has tabled a list of indicators for guiding the selection of special products, but also noted that a single set might be insufficient to account for circumstances in different countries.
The ’special agricultural safeguard’ (SSG), which mainly developed countries have been able to use since the Uruguay Round to raise tariffs sharply in the event of import surges, remained the subject of disagreement. Cairns Group members, who want the SSG to be phased out under the Doha Round, rejected the chair’s attempt at compromise. They argued that even the substantial limitations he recommended would be useless, since in practice the safeguard is only applied to a limited number of products such as sugar, dairy and beef.
More progress was made in the debate on the ’special safeguard mechanism’, which developing countries alone will be able to use to defend themselves from import surges and price depressions. Delegates described the exchange on the issue as constructive. Members appeared to have agreed that the mechanism was specifically intended to address products that were produced domestically, or their close substitutes. However, it was less clear that consensus had been reached on Falconer’s suggestion to limit the mechanism to products important to food security, livelihood security and rural development.
Agreeing on how to liberalise trade in tropical products while addressing the erosion of long-standing trade preferences proved more intractable. Banana exporting countries that do not benefit from trade preferences vehemently rejected Falconer’s assessment that the issue could realistically be solved only by an accord outside a main Doha agreement.
Domestic support
In his ‘challenges’ paper, Falconer said that he expected a deal to require the US to reduce its overall trade-distorting domestic support to less than USD 19 billion, but more than USD 10 billion. In a hint at flexibility, the US was reported to have indicated that this range appeared reasonable - even though it is below the USD 22 billion ceiling that it has proposed thus far. Although other countries have complained that Washington is seeking a spending limit well above the USD 19 billion it is now spending, the US had thus far insisted that it could not envisage further subsidy cuts without assurances of substantially expanded market access.
A number of Members continued to insist that only the ‘lower end’ of Falconer’s range would be acceptable. The EU warned that the limit would have to be no higher than USD 15 billion if any deal was to be reached. The G-20 has asked the US to cap trade-distorting agricultural spending at around USD 12 billion.
More controversial still were the arrangements for product-specific disciplines on subsidy spending, intended to prevent Members from concentrating all of their payments on a small number of commodities (as the US does, resulting in greater distortions). Washington in particular has resisted moves to establish strict disciplines in this area. Also unresolved is the discussion of appropriate ‘base periods’ that will help determine future spending entitlements: most Members favour the 1995-2000 period, but the US prefers the 1999-2001 period instead because its spending levels were much higher.
Some progress was also reported in the negotiations on cotton, with preliminary indications that the US may be willing to enter into discussions on this issue with African cotton-producing countries. To date, the US has emphasised that the outcome of negotiations on cotton would have to depend on the overall agreement for farm subsidy and tariff cuts.
To conclude discussion of his challenges paper, Falconer has scheduled consultations on ‘green box’ subsidies for the morning of 7 June, followed by an informal meeting open to all Members that afternoon.
Falconer is then expected to await the outcome of the G-4 meeting before issuing his draft. Sources suggest, however, that the draft modalities document would likely be revised based on Members’ comments. The ‘door would not be shut’ once the first draft was produced, one delegate said.
ICTSD reporting.