WTO Ministerial Section • Volume 9 • Number 37 • 2nd November 2005

EU’s Price For Farm Tariff Cuts Too Steep, Say Developing Countries

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The price that the EU has placed on its offer of deeper Doha Round farm tariff cuts — far-reaching demands on industrial tariffs, services, and systemic issues — has raised the ire of many WTO Members (see related story, this issue).

The EU’s 28 October proposal to open its markets wider to farm products from other countries was explicitly conditional upon other Members’ acceptance of a series of specific "requirements for progress in non-agricultural issues" that run the gamut from intellectual property rights to tariff- and quota-free market access for exports from least-developed countries (LDCs).

Differentiation among non-LDC developing countries

The EU offer appears to assume differentiated treatment for as many as four different classes of non-LDC developing countries: "advanced developing countries," "developing countries," "poorer developing countries," and "small and vulnerable economies." This is a striking deviation from the concept of differentiation as it currently exists in the WTO, under which Members fall broadly into three categories: ‘developed,’ ‘developing,’ or ‘least-developed’ countries. Though a handful of special provisions exist for groups of non-LDC developing countries, such as those which are net importers of food,Members face largely the same obligations as the other countries in their group.

Though it specifies that developing countries’ market opening commitments "will reflect their level of development (though without creating new country ‘categories’)," the EU proposes no methodology for how any classification of Members’ developmental levels could be accomplished. As a result, said a trade diplomat, it was not clear what each of the EU’s categories meant.

EU wants deep NAMA tariff cuts

On non-agricultural market access (NAMA), the EU has maintained its position that developed countries and "advanced developing countries" should use a simple "Swiss" tariff reduction formula with a coefficient of 10. Rich country tariffs would be capped at 10 percent. "Developing countries" would be allowed some flexibilities in the use of the formula, but would have no tariffs higher than 15 percent.

According to the EU’s proposal, "poorer developing countries" and LDCs would not be required to reduce their industrial tariffs as part of the round, as per Paragraphs 6 and 9 of the NAMA mandate in Annex B of the 2004 July Package (WT/L/579). However, as one delegate pointed out, Paragraph 6 only exempts developing countries with a very low proportion of bound tariffs from having to make tariff reductions through the formula — would the definition of "poorer developing countries" be limited to them?

The EU would have Members deal with unbound tariff lines by marking them up by ten percentage points before applying the formula.

It is unclear how the EU paper’s demands on NAMA would sit with its own stipulation that "developing countries in a position to do so… should contribute two-thirds of the effort of developed countries" in a manner that is "broadly proportionate across the negotiation." A 15 percent cap on industrial tariffs would require developing countries to nearly halve their average ‘bound’ ceiling level, currently at 29.12 percent according to calculations by Pakistan (TN/MA/W/60). These figures, based on a November 2002 WTO Secretariat document (TN/MA/S/4/Rev.1/Corr.1) indicated that the corresponding figure for average bound tariffs in developed countries is 5.48 percent. A 10 percent cap for developed countries, therefore, would be well above their average bound level, though it would substantially reduce ‘tariff peaks’ — exceptionally high tariffs on certain goods, often those of export interest to developing countries.

Senior Indian trade officials have described the EU’s terms on NAMA as "completely unacceptable," and "in violation of the July [Package] Framework," which provides for less-than-full reciprocity in developing countries’ tariff reduction commitments. Sources quote Brazilian officials as suggesting that Brazil would have to slash its average bound industrial tariff by about 75 percent to meet the EU’s terms.

Services: mandatory, quantitative, and qualitative targets

On services, the EU wants mandatory, quantitative, and qualitative targets for Members to make new or improved liberalisation commitments. Developed countries would be expected to do so in 139 of the 163 subsectors covered by WTO services rules; developing countries, in 93. This would be coupled with mandatory participation in a minimum number of sectoral liberalisation initiatives. Members would submit revised offers based on these parameters in 2006. "Small and vulnerable developing countries" and LDCs would be exempt from these commitments.

Sources said that the EU’s continued insistence on mandatory, quantitative targets at this stage may be counterproductive to the services talks. They suggested that several developing country Members are adamant that numerical ‘benchmarks’ of this sort erode their flexibility under WTO services rules to determine the extent to which they may open their services markets to foreign competition, in line with their individual development situations. Others added that members of the recently-formed ‘core group’ of countries seeking to advance the services talks, notably the US and India, were surprised with the EU’s conditional proposal, since it had apparently not been presented or discussed in the group prior to publication.

GIs: EU demands extension to all products

Another EU demand is its longstanding goal of extending geographical indication (GI) protections, currently available only to wine and spirits like Champagne, to all products. It wants a multilateral register to be established for the notification and registration of these GIs, which would be binding on all Members. Countries would thus be required to prevent GIs from being misused, and to deny applications for trademarks containing GIs. Although the EU said that it would not require other Members to invalidate all of their existing trademarks that contain GIs, it would have them to do so for "a limited number of well known GIs which are being used in third countries." This issue has long been deadlocked, with Members firmly entrenched on opposite sides of the debate (see related story, this issue).

EU goals on rules, development

The EU also wants Members to agree at the Hong Kong Ministerial Conference on stricter rules for the use of anti-dumping measures, particularly to ensure that they are of appropriate value and duration (see related article, this issue).

In addition to quota- and duty-free market access to developed country markets for LDC exports, the EU is seeking a commitment from Members in Hong Kong to address preference erosion "through a combination of trade-related and supply-side related responses" that would be part of the Doha Round package. It also wants Members to come to an agreement on the 28 proposals on special and differential treatment (S&D) that were originally prepared for the 2003 WTO Ministerial Conference in Cancun as well as the five LDC proposals that have been the focus of recent negotiations on development in Geneva. In addition, the EU is calling on Members to commit to an expanded aid-for-trade package in Hong Kong in order for it to be in place by 1 January 2007.

Market access demands too imbalanced, say negotiators

A number of negotiators described the proposal as "not very serious" and "completely imbalanced," saying that the EU’s level of ambition was so much higher on NAMA and services than on agriculture that it was difficult to even consider seriously. Several developing countries expressed similar sentiments at a 31 October informal meeting of the WTO Committee on Agriculture, criticising the conditionalities that the EU had attached to relatively weak farm tariff cuts.

Trade news sources suggest that the proposed farm tariff cuts are so low that they put no pressure on major developing countries such as Brazil to seriously bargain on the EU’s demands on NAMA and services.

Ministers and senior officials from the US, the EU, Australia, Brazil, and India are scheduled to meet in London on 7 November in an effort to give a push to the faltering talks.

ICTSD reporting; "WTO chief praises EU-U.S. trade efforts," ASSOCIATED PRESS, 30 October 2005; "EU offer to admit more farm imports helps to keep Doha talks alive," FINANCIAL TIMES, 1 November 2005; "EU’s new proposal at WTO, NAMA offer unacceptable to India," PRESS TRUST OF INDIA, 28 October 2005; "Europe’s final offer," INTERNATIONAL HERALD TRIBUNE, 30 October 2005; "Latest EU farm tariff offer fails to break deadlock, WTO official says," ASSOCIATED PRESS, 31 October 2005; "EU Offer to Cut Farm Support Falls Short, U.S. Says," BLOOMBERG, 28 October 2005; "U.S. trade official sees upcoming meetings in Europe as crucial to progress," WASHINGTON FILE, 2 November 2005.