Bridges Weekly Trade News Digest • Volume 10 • Number 19 • 31st May 2006
AG Chair To Produce Draft Text Around 19 June, As Members Remain Divided On Subsidy Cuts
Doha Round agriculture Chair Ambassador Crawford Falconer (New Zealand) told an informal meeting on 30 May that he would circulate an initial draft ‘modalities’ text the week of 19 June, as per the timeline set out by WTO Director-General Pascal Lamy earlier that day (see related story, this issue). Falconer will do so in spite of persistent divisions on both tariff and subsidy cuts — he cut short the scheduled discussion on overall trade-distorting support (OTDS) and its constituent ‘amber box’ payments after concluding that Members were saying nothing new that might enable them to bridge differences.
Lamy set the end of June as a target date for modalities. He asked Falconer and the chair of the non-agricultural market access (NAMA) negotiations to produce draft texts based on the ongoing negotiations by around 19 June in order to allow ministers to meet during the last week of the month to make necessary political tradeoffs. A modalities deal in agriculture would require agreement on figures for tariff and subsidy cuts, as well as on the number and treatment of ’sensitive’ and ’special’ products that will be shielded from the full force of tariff reduction.
Trade diplomats reported that the situation on domestic support remained hazy, as negotiators waited to see whether the US would respond positively to the EU’s recent hints that it may be able to go somewhat beyond their existing offer on agricultural market access. Several Members have long believed that the EU needed to agree to deeper tariff cuts, and the US to more substantial subsidy reductions. However, US officials have publicly dismissed suggestions that the EU had significantly shifted its position.
Falconer: "difficult political decisions needed"
On 24 May, Falconer issued new ‘reference papers’ — one on OTDS, the other on amber box and de minimis payments — outlining areas of convergence and disagreement in the negotiations, as part of the week’s focus on domestic support.
The July 2004 Framework (WT/L/579) defines OTDS as the sum of Members’ permissible levels of ‘amber box’ (highly trade-distorting), ‘blue box’ (relatively less trade-distorting) and ‘de minimis’ support.
Members have proposed different specific percentage cuts for OTDS and amber box spending, as well as various options for cutting blue box and de minimis support.
At the Hong Kong Ministerial Conference, governments agreed to classify Members into three tiers for the purposes of calculating reductions to OTDS and amber box support: the first containing the EU, which would have to make the biggest percentage cuts; the second containing the US and Japan; and the third containing all other countries. However, the major subsidisers, principally the US and the EU, remain divided — and have been largely unwilling to budge — on the precise numbers for the reductions. "Difficult political decisions are needed," Falconer said in his paper on the amber box, urging Members to narrow their differences. Also undetermined is the extent of extra cuts that will be asked of smaller countries that heavily subsidise agricultural production.
Convergence on base periods
The Hong Kong Declaration also stipulates that the agreed cut to OTDS "will still need to be made even if the sum of the reductions in [amber box], de minimis and blue box payments would otherwise be less than that overall reduction." This was an attempt to make it harder for Members to reclassify subsidies under different categories in order to minimise actual reductions.
The basis for calculating amber box (final bound total aggregate measurement of support, or AMS) reduction commitments is straightforward, as it is the number listed in each Member’s ’schedule of commitments’ from the end of the Uruguay Round.
In contrast, non-product-specific and product-specific ‘de minimis’ spending by developed countries is capped at 5 percent of the total value of agricultural production over a certain period. The July Framework limits blue box spending at the same level. However, Members have yet to agree on which years will constitute the ‘base period’ over which these production values will be calculated.
Falconer’s reference paper on OTDS noted that there seemed to be a broad consensus around using 1995-2000 — the implementation period for Uruguay Round commitments — as the base period for calculating blue box reductions by developed countries. It also said that Members were yet to agree on whether developing countries should use the same period or whether they should use 1995-2004 instead, although some sources suggest that they were starting to converge on the latter.
Similar periods have been discussed for capping de minimis support - although the US has proposed using production values from 1999-2001 instead. Sources suggest that the US prefers this period because it would take into account significant increases in production levels for particular products, and thus lead to higher product-specific de minimis caps. The reference paper noted that this debate risked "go[ing] on endlessly," and that one practical proposal would be "to use the period 1995-2000 except in cases where support was introduced after the year 2000."
Members still need to agree on how much to cut blue box and de minimis spending. Some delegations have proposed halving the cap for blue box payments to 2.5 percent of production value, although the G-20 would eventually like to see it reduced even further. Falconer identified a "zone of engagement" between proposals that would limit each kind of de minimis support to 1 percent of production value and those that would only cap it 2.5 percent.
Other issues remain unresolved
A number of issues remain unresolved in addition to the depth of the cuts which Members will have to make to OTDS. For instance, the G-20 group of developing countries want the cuts front-loaded, so as to cross quickly the ‘water’ between Members’ bound ceiling levels and the subsidies they actually grant. Members already agreed in Hong Kong to front-load the implementation of export subsidy reduction commitments. The US has countered that if domestic support reductions are to be front-loaded, then market access cuts should be too. This in turn has been resisted by the EU.
Negotiators also need to finalise ’special and differential treatment’ measures for developing countries. Proposals have generally called for lower reduction rates and longer implementation periods.
Members must further decide how cotton subsidies might be reduced "more ambitiously" and quickly than grants to other products. Benin, Burkina Faso, Chad, and Mali have called for a supplemental percentage cut for amber box cotton subsidies, as well as for an implementation period one-third as long as the standard (see BRIDGES Weekly, 8 March 2006). Falconer recalled that their proposal pointed out that the mandate for greater ambition extended to all kinds of OTDS. He suggested that resolution of the cotton issue would be "intimately related" to the eventual agreement on the general reduction formula.
Also unresolved is the issue of how to ensure that all countries respect their commitments. Some Members want a new "Sub-Committee on Monitoring and Surveillance"; others have argued for penalising countries whose subsidy notifications are overdue (as is currently the case for the US). Other proposals include in-depth examinations of Members’ notifications, with annual reviews for the EU, the US and Japan.
Schedule outlined towards 19 June
Falconer intends to hold informal meetings on domestic support for the rest of the week, followed by discussions on market access from 6 June. He plans to issue a ‘compendium’ paper on all market access issues before a 9 June meeting, which, he has warned, could continue into the weekend. The week beginning 12 June will cover export competition.
Falconer emphasised that if ministers and top officials meet at the end of the month as planned, it is vital that the draft text placed before them contains a manageable number of decisions to make. He therefore urged negotiators to use the time remaining before 19 June to narrow their differences.
ICTSD reporting.