Bridges Weekly Trade News Digest • Volume 10 • Number 17 • 17th May 2006
Falconer Urges Members To Narrow Differences On Sensitive Products
WTO agriculture negotiations Chair Ambassador Crawford Falconer (New Zealand) is urging Members to try to narrow their differences to a "more manageable level" on both the number of ’sensitive’ farm products and the extent to which they will be shielded from the full force of tariff cuts.
In an 11 May ‘reference paper,’ as well as in consultations the following day, he said that Geneva-based negotiators needed to do so in order to give ministers a realistic chance of agreeing on final figures. A deal on sensitive products will be a necessary part of any modalities for tariff and subsidy cuts.
Specifically, Falconer encouraged Members to step away from the most extreme positions on the total number of sensitive products, and to agree on limits for permitted deviations from the overall tariff reduction formula. For example, he proposed constraining tariff cuts on sensitive products to between 25 and 75 percent of the ‘normal’ reduction. He also noted that delegates could experiment with different approaches to expanding tariff rate quotas (TRQs), so as to see where their effects might be comparable and thus point the way to potential compromises.
According to the July 2004 Framework, both developed and developing countries will be able to designate sensitive products for relatively lower rates of tariff reduction, so long as there are ’substantial improvements’ in market access. These improvements are to be achieved through a combination of the modest cuts and TRQ expansion — the lower the tariff cut, the higher the TRQ expansion. The number and treatment of sensitive products are both crucial to the overall negotiations: many governments estimate that as few as 20-50 tariff lines could account for the bulk of their agricultural exports to major markets.
Falconer calls for convergence on numbers, focus on treatment
In his reference paper, Falconer pointed Members to the substantial differences among existing proposals for the proportion of tariff lines eligible for sensitive product status. The G-10, a group of mostly developed countries with heavily protected farm sectors, is seeking to designate as many as 15 percent of dutiable tariff lines (those not bound at zero) as sensitive. In contrast, the US, the G-20, and the Cairns Group of farm exporters would like to restrict the number to no more than 1 percent. The EU, for its part, has proposed 8 percent.
The chair exhorted Members to narrow the "chasm" between the figures at each end of the spectrum, although he confessed that he had "detected no willingness to do so despite the lateness of the stage we are at."
Falconer’s paper contended that the "negotiating credibility" of the two numbers was "starting to wear just a bit thin." He noted that for two unnamed major developed countries, 15 percent of dutiable tariff lines could affect most farm trade, accounting for as much as 88.1 and 84.3 percent of the value of their agricultural imports.
"This is not to presume that Members would actually choose their sensitive products based on value of trade," he added, comparing it to the selection of ’special products’ (SPs) which developing countries will be able to slate for lenient tariff treatment on the basis of food security, livelihood security, and rural development concerns. Sources report that Japan, for example, has pointed out that rice — virtually guaranteed to be classified as ’sensitive’ — actually accounts for a very low proportion of its trade.
Nevertheless, unlike SPs, no criteria are attached to countries’ designation of sensitive products. Indeed, their level of ’sensitivity’ may well depend in part on the extent of market displacement - and thus political difficulty - that would likely result from making standard liberalisation commitments. However, Falconer has already indicated that countries generally agree that SPs will receive more flexible tariff treatment than sensitive products.
The chair said that 1 percent was also unlikely to garner consensus, observing that sugar alone accounted for 44 tariff lines at the 8-digit HS level for one Member - or 2.5 percent of its total. He noted that 1 percent would amount to fewer than 20 tariff lines for several countries.
Falconer asked Members to "focus their immediate efforts" on the treatment of sensitive tariff lines, implying that knowing how much increased market access was likely for such products would help them agree on how many to permit. He noted that while most Members agree that all sensitive products would have to be subject to some level of both tariff reduction and TRQ expansion, one country wanted to be able to select entirely one or the other for some products.
With regard to tariff cuts, the chair suggested that delegates "could start to make practical progress" by deciding to "top and tail" the upper and lower limits for how much sensitive products are allowed to deviate from the standard reduction formula. As a potential "outer range," he proposed allowing cuts ranging from as high as 75 percent to as low as 25 percent of the reduction demanded by the formula.
Many Members believe that that most of the new export opportunities for the heavily-protected products which are likely to be designated as sensitive will arise not from tariff cuts, but from additional TRQ commitments increasing the quota of imports eligible for the lowest tariff rates.
Members have focused on three broad approaches on which to base TRQ expansion for sensitive products: current levels of domestic consumption; existing TRQ commitments; and current import volumes.
At the meeting, delegations largely repeated their past positions. The US and the G-20 developing countries would like to see future TRQ levels to rise from a certain base share of domestic consumption. Critics claim that this would lead to expansions so large that they would be disproportionate to any savings on tariff reduction granted to sensitive products.
The G-10 and the EU emphasised that the purpose of the mandate for ’sensitive products’ meant that TRQ expansion had to lead to future import levels lower than those that would have resulted from the full application of the standard reduction formula. The G-10 supports a ‘hybrid’ approach under which TRQs would be calculated on the basis of existing commitments, but with larger relative increases for products whose in-quota thresholds are equivalent to small proportions of domestic consumption. The EU argues that TRQ expansion should be based on existing import volumes and the degree to which imports are likely to increase following tariff cuts (the so-called ‘elasticity of import demand’), but has recently indicated that it would be willing to consider some sort of limited link to domestic consumption (see BRIDGES Weekly, 12 April 2006). Opponents of these approaches point out that existing TRQ commitments and import levels are often quite low.
Falconer’s reference paper said that Members had accepted, "albeit at a general level," the notion that TRQ expansion should be relatively high in cases where current imports are relatively low, and vice versa. Identifying a ratio of about ten to one in terms of the range of ambition of the different proposals — that is, "where one proposal would result in additional quotas amounting to 10,000 tonnes for a particular [sensitive] product, another would result in additional quotas amounting to 100,000 tonnes" — he urged negotiators to explore possibilities for narrowing the gap. He recommended that they experiment with calculating TRQ expansion based on different hypothetical figures for variables such the strength of the link to domestic consumption or the elasticity of import demand, suggesting that the resulting comparisons might even help bridge some of their differences.
Sources report that delegates largely agreed with the chair’s suggestion, with the EU and the G-10 emphasising that no single approach should be privileged.
S&D, quota-less products remain undetermined
The question of what to do for sensitive products with no existing TRQ commitments remains unanswered. The chair’s paper noted that many Members oppose the creation of new TRQs as part of the Doha Round, since they feel that it would represent a step backward in the liberalisation process. Proposals for such products include requiring Members to implement the lower tariff reduction in a smaller period of time, or granting them a longer period to implement the full tariff cut required by the standard formula. This issue is of particular interest to the many developing countries that do not have TRQs for a large number of products, since it will affect their use of the ’sensitive product’ designation.
Falconer said that progress was unlikely on special and differential treatment (S&D), including the number of products that developing countries will be allowed to designate as sensitive, until the ‘core disciplines’ had been determined. Some have suggested allowing them one-and-a-half times as many as those accorded to developed countries.
Sources expect Falconer to release new or revised reference papers this week on issues including trade preference erosion, tropical products, and some aspects of domestic support. He is also reportedly planning to hold small-group meetings on some of these issues. Senior officials from some dozen key Members are also set to meet before the end of the week to discuss the agriculture negotiations.
All of the chair’s reference papers are available online at http://www.wto.org/english/tratop_e/agric_e/refpapers_apr06_e.htm.
ICTSD reporting.