Bridges Weekly Trade News Digest • Volume 14 • Number 1 • 13th January 2010

Preference Erosion List Marks ‘New Era’ in WTO Farm Talks

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Alongside December’s landmark deal on banana tariffs, a new proposal put forward in the WTO’s agriculture talks offers a potential resolution of long-standing differences among exporters of tropical farm products.

African, Caribbean and Pacific countries (ACP) have long sought to maintain the preferential market access that they enjoy for their exports of ‘tropical products’ like bananas and sugar to consumers in the US and the EU. Meanwhile, Latin American producers, joined by some others, have argued that their exports of similar products deserve more favourable treatment.

The new proposal, which was submitted by the ACP, EU and Latin American countries on 15 December, lists the goods that the members of the group have agreed should benefit from gentler and slower tariff cuts under the proposed ‘preference erosion’ treatment, as well as which goods should be slated for faster and deeper liberalisation as ‘tropical products’. The proposal would take effect under a WTO Doha Round agreement.

The proposal, which was laid out in a letter to the chair of the WTO agriculture negotiations, Ambassador David Walker of New Zealand, suggests new legal language for the relevant sections of the most recent version of the WTO’s draft negotiating text on agriculture, which was issued in December 2008.

A delegate said that the development of the list of ‘preference erosion’ products marked the “start of a new era” in the relationship between Latin American exporters of tropical products, and the ACP countries - former colonies that have long received preferential treatment for their farm goods in developed country markets.

Preference Erosion

The proposal comes on the heels of the December banana deal, officially known as the Geneva Agreement on Trade in Bananas (GATB). Bananas are of critical export interest to many ACP countries, and tensions over banana tariffs have long clouded discussions on tropical products and preference erosion.

Promises of development assistance provided through the adjustment measures in the GATB — to the tune of €200 million for the ACP, and a gradual reduction of tariffs in the EU market — have given ACP producers an incentive to come to an agreement on preference erosion with the EU and efficient Latin American exporters of tropical products.

Products such as flowers, sugar, fruits and their juices, arrowroot, peanut oil and tobacco appear on the list of products that the parties to the deal have agreed should receive preferential treatment in the EU and US. The tariffs for these goods would be cut in a manner similar to other developed country imports but would be phased in over a period of ten years rather than five.

Products that meet two criteria — they are ’sensitive’ and they accounted for more than ten percent of domestic consumption on a given tariff line between 2003 and 2005 — would qualify for preference erosion treatment. Quotas for such products would be expanded in equal annual instalments over a period of seven years.

Trade sources told Bridges that this provision is meant to refer specifically to sugar; however, the language leaves open the possibility that other products, such as beef, could qualify as well. Specifically, if members use a complex methodology called ‘partial designation’ to select very specific products, then it is possible that those goods, which would not otherwise receive preference erosion treatment, might also qualify.

Countries such as Brazil, India, Australia and China did not voice objections to the proposal when it seemed that only sugar would be covered by the sensitive product treatment, according to a delegate. However, those countries are expected to raise objections if additional products of export interest might also be affected by the new language.

Unlike previous versions of the draft text, the new language describes the US and the EU as “preference granting country Members.” This could pose a problem for ACP exporters, sources said, which would thus be left with preferential access to only the EU and US markets. The possibility that some products, such as sugar and beef, could be declared ‘tropical’ in non-EU and US markets would liberalize trade elsewhere and leave ACP producers with only two markets.

Given the sensitivity of the list of preference erosion products, sources close to the talks do not expect any major changes to it when the proposal is reviewed by the broader WTO membership.

A delegate told Bridges that negotiators wanted to put a “ring fence” around the preference erosion compromise, even if it left some members disappointed, so that momentum could be built for a conclusion to the WTO’s Doha Round trade talks, already in their eighth year.

But one key player — the United States — has yet formally to endorse the new proposal. And according to one delegate, “nothing would move without the US.”

Tropical Products

The treatment and selection of tropical products in the proposal has irritated some members, such as India and Pakistan, due to the significant divergence from the December 2008 WTO agriculture modalities.

According to the proposal, tropical products would be selected from lists in the agriculture modalities. A minimum of 65 percent of the products on the lists would be selected and products that were already at a zero bound tariff would count towards reaching this minimum figure. Over a period of five years, the goods with tariffs at or below 20 percent would see their duties cut to zero. Tariffs on other goods would be slated for an 80 percent cut.

The proposal has been blasted by some as ‘diluted liberalisation’ - a watered-down result after years of hard-fought negotiations, largely among developing countries. The new paragraphs would remove a clause in the previous text that gave tropical product treatment precedence over sensitive products: if a good was declared tropical it could not then be designated as sensitive.

Exporters fear that if members individually pick and choose tropical products, they could simply select tariff lines that receive a minimal amount of trade, and thus avoid opening their markets much at all. On this note, an official from a country with export interests declared that the “tropical list is no longer preserved” since it would be left “with products where there is no trade.”

A delegate also took issue with the absence of non-tariff barriers (NTBs) from the proposal. NTBs have frequently been criticised for preventing developing country products from reaching their intended markets overseas.

Trade officials reflecting on the significance of the proposal told Bridges that the compromises are “a way forward” even if they leave some unhappy, since the proposal “represents a balance for both parts.” Another official, questioning the process used in reaching the compromise, said that the proposal presented a plurilateral agreement that needed “to be multilateralised.”

ICTSD reporting.

One response to “Preference Erosion List Marks ‘New Era’ in WTO Farm Talks”

Ammad Bahalim 14th January 2010 at 11:21
ICTSD’s work on Tropical Products and Preference Erosion can be found at the link below.

http://ictsd.org/programmes/agriculture/overcoming-barriers-to-developing-country-exports-tropical-products-and-preference-erosion/
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