STOCK-TAKE OF THE WTO AGRICULTURE NEGOTIATIONS IMPLICATIONS FOR DEVELOPING COUNTRIES

Transcription

1 STOCK-TAKE OF THE WTO AGRICULTURE NEGOTIATIONS IMPLICATIONS FOR DEVELOPING COUNTRIES TIM RUFFER OXFORD POLICY MANAGEMENT & ALAN SWINBANK THE UNIVERSITY OF READING March 2003 Oxford Policy Management 6 St Aldates Courtyard, 38 St Aldates, Oxford OX1 1 BN, UK Tel: +44 (0) Fax: +44 (0) OPM web-site: The UK Department for International Development (DFID) supports policies, programmes and projects to promote international development. DFID provided funds for this study as part of that objective but the views and opinions expressed are those of the authors alone.

2 TABLE OF CONTENTS ABBREVIATIONS 2 OVERVIEW AND RECOMMENDATIONS 3 1. INTRODUCTION 7 2. FUTURE PROGRESS OF THE NEGOTIATIONS 8 3. CONTEXT THE NEW AGREEMENT: SOME BASIC CONSIDERATIONS DEVELOPING THE MODALITIES: ISSUES FOR DEVELOPING COUNTRIES AN EXAMINATION OF HARBINSON S DRAFT MODALITIES CONCLUDING REMARKS 31 REFERENCES 32 ANNEX 1: WTO MEMBERSHIP, LDCS AND NFIDCS 34 ANNEX 2: A SUMMARY OF MODALITIES TO BE DETERMINED 36 1

3 ABBREVIATIONS ACP African, Caribbean and Pacific States AMS Aggregate Measurement of Support CAP Common Agricultural Policy dc Developing Country EPA Economic Partnership Agreement EU European Union FAO Food and Agriculture Organisation of the United Nations GATT General Agreement on Tariffs and Trade HT1, 2 and 3 The three Harbinson Texts LDC Least Developed Country, UN Classification MFN Most Favoured Nation NFIDC Net Food Importing Developing Country S&DT Special and Differential Treatment SPS Sanitary and Phytosanitary Standards SSG Special Safeguard TBT Technical Barriers to Trade TRIPS Trade-Related Aspects of Intellectual Property Rights TRQ Tariff Rate Quota WTO World Trade Organisation 2

4 Overview and Recommendations The agricultural negotiations in the Doha Development Agenda have reached a critical stage. Just before Christmas 2002, the Chairman of the Special Session of the Committee on Agriculture, Stuart Harbinson, produced a paper summarising the state of the negotiations to date (the first Harbinson Text: HT1). It indicated few areas of potential agreement, and many instances of a wide divergence of views. Unfortunately, neither the European Union (EU) nor Japan had been able to table definitive proposals by this date (nor by the date of the next meeting of the Special Session in January 2003), despite the fact that negotiations began in March Stuart Harbinson had been charged with the preparation of a first draft of the modalities for consideration by the Special Session at its meeting on February 2003, and this was officially released on 17 February 2003 (HT2). However, the text had been widely circulated the previous week, in advance of a mini-ministerial hosted by the Japanese Government on the weekend of February Both in Tokyo, and in the Special Session in Geneva, HT2 attracted criticism from three camps: those who claimed it was too ambitious, those who claimed it lacked ambition, and those who claimed it did not sufficiently address the mandate of providing special and differential treatment for developing countries. The Chairman then had the task of preparing a second draft for consideration by the Special Session of the Committee on Agriculture convened for March This text (HT3), an initial, limited revision of certain elements of the first draft of modalities, was released on 18 March 2003, and its draft provisions are examined in Section 6 of this document. The official stance remains that the modalities should be agreed by 31 March 2003, but this seems unlikely. WTO Members will then develop their detailed draft Schedules of commitments in time for the Fifth WTO Ministerial in Cancún, Mexico, in September 2003, and the whole Doha Agenda will be concluded by 31 December As this is a single undertaking, as was the Uruguay Round, nothing is agreed until everything is agreed. However, the so-called Peace Clause expires at the end of 2003, and so it is likely that at Cancún, requests will be tabled for an extension of its duration. This can only be done with the consent of all WTO Members, and so this gives developing (and other) countries considerable leverage to secure their negotiating demands on agriculture. The purpose of this report is to clarify the issues and concerns that the Harbinson Texts have revealed, bearing in mind the perceptions, and the likely negotiating positions, of developing countries. It is laid out as follows. The main body of our report provides an outline of the future progress of the negotiations, followed by some basic considerations for a new agreement. A summary of the most important issues for developing countries in the negotiations is then provided. This is followed by an examination of the draft modalities document prepared for the March 2003 meeting of the Special Session of the Committee on Agriculture (HT3), and then some concluding remarks. There are two annexes. Annex 1 provides a list of the WTO members, LDCs and NFIDCs and Annex 2 provides a detailed appraisal of virtually all of the issues identified in the first Harbinson Text (HT1). One problem that mitigates against the achievement of meaningful special and differential treatment for developing countries is that this is a large and heterogeneous grouping with diverse needs, interests and aspirations. Countries themselves declare 3

5 whether they are developed or developing, and there are no clear criteria for differentiating between the two. About three-quarters of WTO Members are deemed to be developing countries. Within the developing countries group, the WTO does recognise two sub-groups: the least developed countries (LDCs), as defined by UNCTAD, and the net food-importing developing countries (NFIDCs), as determined by the WTO. There are 49 of the former (not all WTO Members), and 23 WTO Members are recognised to be the latter (as detailed in Annex 1). For developed countries it would be much easier to allow special and differential treatment for the LDCs and the NFIDCs, than for the broader group of developing countries. But this is problematic, as the boundary between the very poor developing countries, which are not quite poor enough to qualify as LDCs, and the LDCs is rather dodgy. Furthermore, the appropriateness of the NFIDC grouping has been widely questioned (see Ruffer et al. 2002). We cluster our recommendations under five headings: i) Market Access The most important part of the package of modalities, and probably the most difficult to achieve, is that of significant opening-up of markets to competitive imports. Other policies become very expensive to maintain when competitively priced imports are available. Most developing countries will gain from market access liberalisation, even though it will reduce the preference margins that some developing countries currently enjoy. Market access liberalisation should involve: a) Deep cuts in peak tariffs, preferably we would have suggested by using a variant of the Swiss Formula (with the coefficient possibly varied by product, and by development status). HT3 cuts peak tariffs through a tariff band formulation. b) Tariff simplification, eliminating seasonal tariffs and converting specific to ad valorem tariffs. HT3 does not address this issue. c) A reduction in tariff escalation, by harmonising ad valorem rates through the product chain, even if this means conceding some increase in tariffs on raw materials. HT3 has a powerful formula to reduce tariff escalation. d) A big increase in tariff rate quotas (TRQs), but whilst TRQs are a binding constraint, limiting imports, there is little to be gained from further generalised reductions of in-quota tariffs. HT3 follows this formulation. e) Extension of Special Safeguard mechanisms for key food commodities for developing countries (which is endorsed by HT3), and a sharp reduction in the existing trigger prices applied by developed countries (which is not addressed by HT3, although H3 does propose the elimination of the Special Safeguard for developed countries sometime after the end of the implementation period). If Special Safeguard measures for key food commodities of developing countries cannot be agreed, those that fixed low ceiling bindings on these products in the Uruguay Round need to consider invoking GATT Article XXVIII, notifying their intent to increase these tariffs. 4

6 ii) Domestic Support The three key points for developing countries, all endorsed by HT3, are: a) That the de minimis clause is retained for developing countries; b) That Article 6(2) exemptions are maintained; c) That deep cuts in the AMS are negotiated. In addition, if the Blue Box cannot be eliminated, developing countries should seek to impose reduction commitments on Blue Box expenditure, as proposed in HT3. The Green Box is highly problematic. It is not clear that developing countries have much to gain by widening its provisions to suit their interests (i.e. an element of the Development Box debate); and it would not be in their interests if developed countries enlarged its provisions to embrace the EU s concept of multifunctionality. The Green Box is best left untouched. iii) Export Subsidies Developing countries have no reason to support the continuation of export subsidies, and they should press for their elimination as proposed in HT3. iv) The Peace Clause Most of the existing Agreement on Agriculture will remain in place unless repealed. The Peace Clause is different. It can only be extended with the consent of all WTO Members. The duration of the Peace Clause covering the Green Box, Article 6(2) and the de minimis provisions needs to be extended. But developing countries should only give their consent to its extension to cover Blue and Amber Box measures, and export subsidies, when they are convinced that their own negotiating demands have been met. v) Support for Developing Countries Developing countries need help in the following areas: a) In identifying specific instances of tariff escalation that harm their interests, so that they can ask for amelioration if this is not addressed by the proposals in HT3. Countries need to negotiate in concord (e.g. cocoa exporters), and to agree on how important the issue is to them. For example, would they big willing to accept an increase in tariffs on raw materials if this led to a reduction in tariff escalation? b) Advice from international experts if they are considering invoking GATT Article XXVIII. c) In scrutinising the draft Schedules of commitments when they are tabled, to ensure that mistakes and inconsistencies have not crept in that penalise their interests. 5

7 d) More detailed consideration of the implications of different approaches to tariff reduction for developing countries. 6

8 1. Introduction The negotiations on agriculture are a key component of the multilateral negotiations that form the Doha Development Agenda launched in November The WTO s Committee on Agriculture, meeting in Special Session, has been charged with conducting the agriculture negotiations, and with ensuring that the mandate of the Doha Ministerial Declaration is met. In particular the Doha Declaration specifies that Modalities for the further commitments, including provisions for special and differential treatment, shall be established no later than 31 March 2003 (WTO, 2001, paragraph 13). The modalities are the basic framework of the new agreement which will eventually succeed the existing Agreement on Agriculture established by the Uruguay Round. The Chairman of the Special Session of the Agriculture Committee, Stuart Harbinson, had been charged with preparing an overview paper of the negotiations, for circulation by 18 December 2002, based on discussions to date, in preparation for a comprehensive review of the agriculture negotiations at the meeting of the Special Session of the Committee on Agriculture to be held on January 2003 (WTO, 2002b). This first Harbinson Text (HT1) was released on 18 December 2002 (WTO, 2002c). Annex 2 of this report comments on most of the modalities listed in that text, and some others, from a developing country perspective. In February 2003 Stuart Harbinson released his First Draft of Modalities for Further Consideration (HT2) (WTO, 2003a), which was discussed at an informal meeting of some WTO trade and agriculture ministers in Japan before being considered by WTO Members at the Special Session of Committee on Agriculture on February His second draft (HT3) (WTO, 2003b), was released on 18 March 2003, and will be the agenda item for the Special Session of the Committee on Agriculture on March At this meeting, if the Doha timetable is to be respected, the modalities are to be agreed. Section 6 of this report outlines, and comments on, the contents of HT3. This report reviews the negotiations from a policy-maker s perspective. We have premised our comments on the idea that policy-making, at both national and international level, is based on a give-and-take basis; with for example market access gains traded against concessions. We have not queried the appropriateness of individual countries domestic policy objectives or programmes, but instead focussed upon the WTO constraints (enshrined primarily in the Agreement on Agriculture) which condition the ability of policy-makers in developing countries to pursue their own domestic policy agendas. 7

9 2. Future Progress of the Negotiations HT1 (paragraph 9) noted that whilst a number of WTO Members had put forward quantified proposals for tariff, domestic support and export subsidy, reductions, opponents of these proposals have not yet specified their counter-proposals at a corresponding level of quantitative detail. This threatened to hold-up the negotiations. Thus HT1 stressed that as matters stand, a major negotiating effort and flexibility on all sides will be of the essence in order to be able to establish modalities within the mandated time-frame (paragraph 50). HT2 was first discussed at an informal meeting of trade and agriculture ministers from 22 WTO Members, and the WTO Secretariat, in Tokyo over the weekend of February Agra Europe (21 February 2003, p. EP/2) described it as a bruising weekend of negotiations. The developed world was split between those who felt that the draft modalities, particularly on market access, were too radical (e.g. Japan and the EU), and those who felt that Mr. Harbinson s proposals lacked ambition (the Cairns Group, and the US). Much developing country comment, both following the Tokyo meeting which most developing countries did not attend, and in the Special Session of the Committee on Agriculture on February 2003, also focussed on market access issues. Two themes were discernible. First, that the Harbinson proposals on special and differential treatment did not offer adequate differentiation for developing countries. Thus the suggestion was that developing countries should not be expected to reduce their tariff barriers until such time as developed countries had eliminated their export, and trade-distorting domestic, subsidies. Second, the concern was expressed that if developed countries that offered trade preferences to developing countries (e.g. under the Cotonou Agreement) reduced their trade barriers too quickly, then those tariff preferences would be seriously eroded to the detriment of the present beneficiaries. Thus Mauritius is reported to have claimed that 59 WTO Members, in addition to the EU, supported the EU s proposals for tariff reductions (a repeat of the Uruguay Round formula), and asked that this should be reflected in Mr. Harbinson s revised text (Agra Europe, 7 March 2003, p. EP/5). Some critics went further. Das (2003) suggested that the text was grossly inadequate in that it perpetuated the imbalances of the existing Agreement on Agriculture, and that developing countries should table an alternative text that should have an entirely new structure and new priorities. Following the February meeting, Stuart Harbinson, reportedly, pleaded for flexibility among the participants, and stressed the limitations of his own role, stating that the chair could not negotiate, merely facilitate negotiations (Agra Europe, 7 March 2003, p. EP/5). Despite these self-depreciating comments, the Chairman s text is important. It is, potentially, the catalyst for an agreement. It can be amended as a result of the negotiations, or rejected, but it is not easily replaced by a text emerging from an alternative quarter. Hence there was much speculation as to the extent, if at all, the third Harbinson text would differ from the second. 1 The Japanese Ministry of Foreign Affairs reports that some agriculture ministers attended, meaning that 32 Ministers in total participated ( accessed 12 March 2003). 8

10 HT3, made public on 18 March 2003, does not differ from HT2 in structure indeed it is a revised version of HT2 nor, substantially, in substance. It notes, in paragraph 2, that at the meeting of February 2003: participants engaged in intense and focused debate. A number of participants indicated that the draft did not correspond in various ways with their vision of the modalities to be established. Others found the paper useful or expressed interest in various ideas presented. Overall, while a number of useful suggestions emerged, positions in key areas remained far apart. In the circumstances, there was insufficient collective guidance to enable the Chairman, at this juncture and in those areas, significantly to modify the first draft as submitted on 17 February The present paper must therefore be considered as an initial, limited revision of certain elements of the first draft of modalities. The few differences between HT2 and HT3 are outlined in Section 6. Although it seems unlikely that the modalities document can be agreed by 31 March 2003, there is another critical date in It is the next WTO Ministerial Conference which is to be held in Mexico (Cancún) in September According to the timetable established by the Doha Declaration WTO Members are to submit their comprehensive draft Schedules based on these modalities no later than the date of the Fifth Session of the Ministerial Conference (WTO, 2001, paragraph 14). A crucial factor to bear in mind is that the Peace Clause (Article 13 of the existing Agreement on Agriculture) expires at the end of While the provisions of the Peace Clause are to some extent unclear (and untested) it does provide WTO Members with some protection for Amber, Blue and Green Box support, and export subsidies, that might otherwise be deemed incompatible with other GATT provisions. It seems likely that a number of countries will wish to secure a roll-over of the Peace Clause at the Cancún meeting. This will require the agreement of all WTO Members. References to the Peace Clause were scattered throughout HT1, but it is not mentioned in HT2 or HT3, and so the centrality of this issue could be missed. Failure to secure a roll-over of the Peace Clause could result in aspects of various agricultural policies being challenged in the WTO from 2004 onwards. This gives an important lever to countries that wish to see further liberalisation of trade in agricultural goods: they are unlikely to agree an extension of the Peace Clause unless they have substantially achieved their negotiating objectives. In a speech in Canberra on 4 March 2003, the Australian Trade Minister apparently suggested that the entire Doha Round might falter if progress could not be made on agriculture, and that Australia would be prepared to let the Peace Clause lapse (Agra Europe, 7 March 2003, p. EP/3). Thus, one possible scenario is that the agriculture talks could be all but concluded in September 2003, notwithstanding the fact that the Doha Agenda is billed as a single undertaking, due to be concluded by 31 December 2004, and that nothing is agreed until everything is agreed. If the outcome of the agriculture negotiations is still unclear in September 2003, it is difficult to predict what future course the Doha Agenda might take. 9

11 3. Context Although the agriculture negotiations are mandated by Article 20 of the existing Agreement on Agriculture, it is unrealistic to expect that the agriculture negotiations can now be detached from the wider Doha Agenda. Thus progress in other areas, and the basic political framework within which the negotiations take place, is important. It is not just the agriculture negotiations that have been running late. Those on the TRIPS Agreement on access to cheap generic drugs by developing countries, for example, have not progressed well (Financial Times, 17 February 2003, p. 8). International support for the US, following the appalling events of 11 September 2001, which was an important factor driving agreement in Doha in November 2001, has waivered as a result, inter alia, of the passing of the Farm Security and Rural Investment Act in May 2002, and war with Iraq. The EU, a central player in the agriculture negotiations, has its own concerns. Until December 2002 its main focus was completion of the accession negotiations with eight states from Central and Eastern Europe, and Cyprus and Malta. Within the WTO this now means that the enlarged EU will enter into GATT Article XXIV.6 negotiations with its WTO partners to discuss compensation for any increase in previously bound tariffs (if, for example, adoption of the CAP by a new Member State results in an increase in the import tariff another WTO Member faces). In September 2002 the EU and its ACP partners began the difficult task of negotiating GATT-compatible Economic Partnership Agreements (EPAs) to succeed the existing Cotonou Agreement in Thus ACP States will concurrently be engaged in the Doha Agenda, negotiations with the EU over the overall structure of the successor agreement, and negotiations with neighbouring countries over the specifics of any ERP they might enter. The extent of any tariff reductions agreed in the Doha Agenda, as well as the existing provisions of the EU s Everything but Arms initiative, will impact on the attractiveness of an ERP to any particular ACP state. But in addition, the Doha Agenda is itself addressing the content and meaning of GATT Article XXIV. Paragraph 29 of the Doha Declaration reads: We also agree to negotiations aimed at clarifying and improving disciplines and procedures under the existing WTO provisions applying to regional trade agreements. The negotiations shall take into account the developmental aspects of regional trade agreements. One important issue is the extent to which agriculture (or particular commodity groupings) can be excluded from a regional trade agreement, and what the phrase substantially all the trade between the constituent territories in products originating in such territories (GATT Article XXIV:8) actually means (see also Bilal, 2002). In addition the EU (or at least the European Commission) has embarked upon a new reform of the CAP (Swinbank, 2003). Launched in July 2002, with detailed proposals tabled on 21 January 2003, the process will not be completed before the summer at the earliest. Although the EU would claim that internal discussions on a possible CAP reform, and international discussions in the WTO on agriculture, are separate exercises, many of the EU s critics are contemptuous of the notion that a Doha settlement can be achieved without substantial changes to the CAP. 10

12 4. The New Agreement: Some Basic Considerations The working assumption of HT1 was that there would be an Agreement on Agriculture following the conclusion of the Round. There was no suggestion that the existing Agreement be repealed, removing from the WTO legal system most (but not necessarily all) special provisions for agriculture. Repeal would in any case involve the common consent of WTO Members. Nor was there any suggestion that the existing Agreement be scrapped, to be replaced by a brand new Agreement. Instead, the consensus seemed to be that the existing Agreement would be retained, but it might of course be modified. Indeed HT2, and HT3, both operate within the existing structure of the Agreement, attracting the wrath of critics such as Das (2003). Thus the premise of the Harbinson Texts is that decisions are required at three levels: 1. What modifications to the Agreement need to be negotiated, and how can they be achieved? This would include, for example, modifications to Annex 2 to the Agreement setting out the so-called Green Box provisions. A number of countries have claimed that these provisions are drawn too narrowly (restricting the EU s wish to give specific support to livestock producers who pursue animal welfare friendly practices, for example), and those who think the provisions are already too lax. Suggestions for a special Development Box, to benefit developing countries, also fall into this category. Any modification to the existing Agreement requires the agreement all WTO Members. 2. What reduction commitments will WTO Members undertake? It will be recalled that the text of the existing Agreement on Agriculture does not include specific numerical targets. Those numerical commitments (e.g. for a 20% reduction in the Aggregate Measurement of Support (AMS) by developed countries) were included in the so-called modalities text (GATT, 1993), which in itself was not legally binding, but was then reflected in the individual Members Schedules, which are binding. This is where talk of the Swiss Formula, for example, becomes relevant. If the timetable is to be respected, these detailed draft Schedules are to be prepared for September 2003 (although there will be further opportunity to offer further concessions in the Schedules prior to the planned conclusion of the Round in December 2004). If the same approach is followed on this occasion there is some scope for fudge as individual countries develop their Schedules (e.g. allegations of dirty tariffication in the Uruguay Round), and accordingly developing countries may need some technical assistance to help them scrutinise, and if necessary challenge, the draft Schedules of commitments deposited by their main trading partners. 3. There are some provisions in the existing Agreement on Agriculture which will lapse, unless renewed. The most important is the so-called Peace Clause (Article 13), already referred to above. For developing countries a potentially important provision is to be found in Article 9(4), according to which, during the implementation period, certain expenses involved in the marketing of agricultural exports do not need to be accounted for in the export subsidy reduction commitments. In addition, the wording of Article 5(9) needs clarification. This specifies that the Special Safeguard Provisions provided for in Article 5 remain in force for the duration of the reform process as determined under Article 20. This is ambiguous language. One can well envisage that some will argue that the 11

13 provisions automatically continue as before, while those opposed to the continued use of the Special Safeguard Provisions will try to use this to force change. On product coverage, the HT1 suggested that there is near consensus to retain the existing coverage as specified in Annex 1. This of course excludes fish. But India has pointed out that rubber, jute, coir and forestry products are excluded from the ambit of the Agreement despite the fact that they are primary agricultural products and are a source of livelihood for a sizeable rural population in developing countries, and has suggested this should be reviewed (G/AG/NG/W/102, paragraph 11). Finally in this overview of issues, the question of country definition needs to be raised. The WTO s web site reports that over three quarters of its 144 Members are developing countries or LDCs. 2 No one has seriously challenged the notion that Doha is a Development Round; that: special and differential treatment for developing countries shall be an integral part of all elements of the negotiations and shall be embodied in the Schedules of concessions and commitments and as appropriate in the rules and disciplines to be negotiated, so as to be operationally effective and to enable developing countries to effectively take account of their development needs, including food security and rural development. (from paragraph 13 of the Doha Declaration). Nor would they dispute that if this objective is not met, a successful outcome is unlikely. What is unclear is how special and differential these measures need to be. It could be hypothesised that there is a trade-off between the depth of the preference and the number (and circumstances) of the countries involved. To take two extreme (and unreal) situations. If only one or two WTO Members (the EU and the US say) admitted to being developed, whilst all others declared themselves to be developing, it is unlikely the developed countries would be willing to concede generous concessions to all developing countries. However, if special and differential treatment were to be offered only to the 49 LDCs, then concessions might be more generous. 3 There are two problematic boundaries: the very poor developing countries who are not quite poor enough to qualify as LDCs, and the fairly rich countries who have declared themselves to be developed. 4 The EU has hinted at this problem in its suggestion that both developed and advanced developing countries allow duty-free and quota-free access for all countries from LDCs (European Commission, 2003). In general, it seems unlikely that the WTO will lay down criteria defining developing countries. Our expectation is that this will continue to be dependent upon selfdeclaration, whilst other members can challenge the decision of a member to make use of provisions available to developing countries. 5 Nevertheless, it might be appropriate for specific special and differential measures to be provided to a subset of 2 (accessed 16 January 2003). 3 The reform programme initiated by the Agreement on Agriculture was expected to result in an increase in world market prices. Recognising this, the WTO Ministers in Marrakesh adopted a Decision on Measures Concerning the possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries. The 49 LDCs, and 22 NFIDCs, are listed in Annex 1. 4 These remarks apply particularly to founder Members of the WTO. For countries that acceded later, for example China, an in-between status has been determined. It is not yet clear how countries like China will be treated when it comes to new reduction commitments, although HT3 (paragraph 56) suggests that their implementation periods could be deferred for up to 2 years. 5 (accessed 16 January 2003). 12

14 developing countries considered as vulnerable or food insecure. In the context of the agriculture negotiations, other such country classifications for sub-groups of developing countries have been proposed by various members. 6 If such subgroupings are used for specific provisions, it will be extremely challenging for the negotiators to come up with a definition that is satisfactory to the entire WTO membership. Despite the rhetoric of special and differential treatment for developing countries, developed countries will be reluctant to extend generous concessions to what they consider to be their trading competitors. And any developing country excluded from a group provided with special concessions is likely to try to negotiate itself into that group. This could become a real stumbling block to a successful outcome to the negotiations. 6 See Ruffer et al.(2002) for further discussion of some of the possible country classifications relevant to the agriculture negotiations. 13

15 5. Developing the Modalities: Issues for Developing Countries It is a trite, but important, observation that all developing countries are different. It follows that generalisations about the impact of WTO agreements on developing countries are often so bland as to be devoid of policy relevance, and that within the group dubbed developing countries there can often be conflicting interests. The position of a large South American grain exporter, for example, is different from that of a small African state exporting a tree crop such as cocoa or coffee, but importing cereals to feed its population. Nonetheless, the nature of this assignment is that some generalisations, or typology, be developed. Table 1 attempts a first schematic presentation of the issues, from the policy-maker s perspective (that is we eschew the neo-classical economist s prescription that unilateral trade liberalisation is unambiguously advantageous for the importing state). One simplistic, but apt, description of special and differential treatment is that tighter WTO constraints would apply to developed countries, forcing them to change their agricultural policies, whilst allowing developing countries more latitude to pursue their own development goals. Thus, special and differential treatment implies that different WTO rules apply in rows 2 and 3 compared to those that apply in row 1. 14

16 Table 1: A Schematic View of the Potential Impact of a New Agreement on Agriculture on Developing Countries Rules that constrain the policies of developed countries Rules that constrain the policies of developing countries: smaller reduction commitments and longer implementation periods, as in Uruguay Round; and other special and differential treatment? Rules that constrain the policies of LDCs: binding commitments, but not reduction commitments, as in the Uruguay Round? Impact on Developing Countries A direct effect, in terms of market access to developed country markets, but loss of preferential margin, etc. An indirect effect on the level and stability of world market prices Flexibility to pursue domestic policies A direct effect, in terms of market access to other developing country markets, loss of preferential margin within regional trade agreements, etc. An indirect effect on the level and stability of world market prices Impact on LDCs A direct effect, in terms of market access to developed country markets, but loss of preferential margin, etc. An indirect effect on the level and stability of world market prices A direct effect, in terms of market access to developing country markets, loss of preferential margin, etc. An indirect effect on the level and stability of world market prices Flexibility to pursue domestic policies If stringent rules apply to developed countries, then market access is improved. Some developing countries those with an export potential in the appropriate crops, but no preferential access to protected markets gain from this, but for those who see a dilution of their preferential margins, the outcome is more ambiguous. A reduction in the support of agriculture in developed countries will tend to increase world market prices, and by linking domestic prices with international prices result in more stable world prices. Many countries will see this as a benefit: exporters because of higher export revenues, and some potential importers because the dumping of subsidised exports that disrupt their own markets will be reduced. However, for net food-importing countries the outcome is more problematic. The policies of some developing countries can also affect market access, and the level and stability of world market prices. In Annex 2 we systematically assess the issues raised in the first Harbinson Text (and some not specifically alluded to there), and in Table 2, the main issues for developing countries are summarised. 15

17 Table 2: Summary of the Main Issues Involved in Establishing the Modalities, and Implications for Developing Countries (referred to as dcs in the Table) Issue/Action Comment MARKET ACCESS Tariff Reductions from bound or Bound rates would be a less stringent commitments for dcs applied rates? Swiss Formula, or a repeat of the Most dcs are likely to favour the Swiss Formula for developed countries, to significantly reduce tariff Uruguay Round format? peaks; but this will reduce preference margins enjoyed by some dcs. For developing countries, the Swiss Formula would mean more stringent reduction commitments for sensitive crops. An alternative reduction coefficient for sensitive crops in developing countries could address this. Application of the Swiss Formula implies conversion of specific to ad valorem tariffs, which could be problematic. Article 5, Special Safeguard The existing Article 5 should be repealed. If this is not possible, trigger prices should be subject to a Provisions Tariff Escalation Tariff Rate Quotas (TRQs) reduction commitment. Examples need to be identified and brought to the attention of importers. 7 Easy to identify, and remedy, when ad valorem tariffs apply (to eradicate tariff escalation the same percentage tariff needs to apply for each tariff line). This is not so for specific tariffs, which would need to be converted to ad valorem tariffs before tariff escalation could be systematically dealt with. However, with tariff bindings in place, harmonisation can only occur at the lowest bound rate. Would dcs be willing to accept an increase in some bound rates, if offset by reductions in higher tariffs; and if so, for which products? It is unlikely that TRQs can be abolished. The overwhelming interest of dcs is that TRQ volumes be increased significantly so that, ultimately, all trade takes place at with-in quota tariffs. There is little to be gained by requesting that the in-quota tariff be reduced to zero: this will increase the quota rents captured by traders located in the importing state with little benefit to the exporting country. 7 We understand the Common Fund for Commodities has commissioned a study on tariff peaks and tariff escalation. 16

18 Issue/Action Tariff Simplification State Trading Special and Differential (S&D) Treatment Geographical Indications of Origin, Comment Improvements (i.e. simplification) of TRQ administration would help. Dcs should support a demand to change specific to ad valorem tariffs. Dcs should press for an elimination of seasonal tariff structures (e.g. on fruit and vegetables), and question the use of minimum import prices not provided for in Article 5 (e.g. by the EU for certain fruit and vegetables). Dcs should support the principle of improved disciplines to stop State Trading Enterprises misusing their position to thwart trade liberalisation Dcs should press for reduced reduction commitments and increased implementation periods for dcs, with no reduction commitments for LDCs. Dcs should press for Article 5-like (Special Safeguard) provisions for key food crops 8, and they might credibly ask for exemptions, or more gradual reduction commitments, for staple crops. LDCs, and other vulnerable dcs, with low ceiling bindings on staple crops, might consider invoking GATT XXVIII, and announce their presumption they will be able to increase their tariffs without the need for compensation of other WTO Members. Article XXVIII (Modification of Schedules) sets out the circumstances under which a country can negotiate a modification or withdrawal of a previous tariff binding, with the expectation this would involve compensatory adjustment being offered to countries adversely affected. Dcs should welcome the EU s suggestion that 50% of imports from dcs into developed countries should enter at a zero duty; but demand that the 50% should not include raw materials on which there is subsequent tariff escalation, and that it is the MFN tariff that should be set at zero. Dcs should argue for S&D Treatment for Single Desk Buyers in only limited cases: the LDCs, other vulnerable states, and subject to objective criteria dc importers of significant quantities of staple foods. The suggestion that developed countries should grant duty- and quota-free access for all products from LDCs should be accepted without question by dcs. These should be binding commitments. Dcs should press for these issues to be addressed elsewhere in the negotiations/wto: in the context of 8 See Ruffer and Vergano (2002) for further discussion of the design of a safeguard mechanism for developing countries. 17

19 Issue/Action Food Safety, Mandatory Labelling Green Box Blue Box Article 6(2) de minimis clause Reduction commitments Peace Clause Reduction commitments Export credits Single Desk Sellers Article 9(4) Peace Clause Food Aid Export restrictions and taxes Comment the TRIPS (geographical indicators), SPS (food safety) and TBT (mandatory labelling) Agreements for example. DOMESTIC SUPPORT Dcs should be wary about revisiting Green Box provisions. The negotiations could more quickly be concluded if a truce between those who want to enlarge, and those who want to reduce, its provisions can be agreed. Dcs should press for its abolition, or failing that for reduction commitments on blue box expenditure. Dcs should press for its retention. Dcs should support the retention of the de minimis clause for dcs Dcs should support a significant reduction commitment from existing bound rates, with a lower reduction commitment and a longer implementation period for dcs, and no reduction commitment for LDCs Dcs should support an extension of the Peace Clause for Green Box, Article 6(2) and de minimis provisions; but should only do so for Amber Box and Blue Box provisions when their own negotiating demands have been met. EXPORT MEASURES Dcs should demand the elimination of export subsidies over a five or six-year period. Dcs should support increased disciplines on the use of export credits, with the subsidy element included in the export subsidy total. This is mainly a debate between the US and some members of the Cairns Group. Let them fight it out. Dcs should ask for an extension for the duration of the next agreement, but not for an expansion of its provisions. Should not be extended unless the dcs negotiating demands are met. Dcs should avoid being too closely involved in the debate. Export prohibitions by developed countries, and by developing countries for products for which the country is a net exporter, should be banned; reduction commitments on export taxes should imposed. 18

20 6. An Examination of Harbinson s Draft Modalities Stuart Harbinson s draft modalities (WTO, 2003b: HT3) are in large part set out as amendments to the existing Agreement on Agriculture. Thus it appears to be his expectation that the structure of the current agreement will be retained, with sections redrafted and new Articles inserted. As in the Uruguay Round there will presumably be a modalities document setting out the formula to determine the reduction commitments, which will not in itself be legally binding, but will be reflected in the individual Members Schedules of commitments (cf. GATT 1993). This may disappoint some critics of existing arrangements, who argued for more fundamental change, but probably reflects what is feasible. HT3 provides for special and differential treatment of developing countries: i) developing countries would be offered longer implementation periods, and lower reduction commitments, as in the Uruguay Round (with no reduction commitments for the LDCs); ii) the retention, and enhancement, of differential provisions for domestic support (particularly with respect to Articles 6.2 and 6.4, and Annex 2, of the Agreement on Agriculture); iii) the introduction of a new product category SP, or Special Products related to food security, rural development and/or livelihood security concerns, and special treatment thereof; and iv) some new, if limited, additional commitments on developed countries with respect to market access. Thus, special and differential treatment permeates HT3. Furthermore, HT3 does marginally increase the element of special and differential treatment compared to HT2. Whether this will meet the aspirations of both developing countries (which have asked for meaningful differentiation between developed and developing countries), and developed countries (which are concerned about competition from advanced developing countries) remains to be seen. SP Products Under this proposal, developing countries would be able to list an unspecified (but presumably low) number of special products (designated SP products) that related to food security, rural development and/or livelihood security concerns. In HT2 it was suggested that SP products would be defined at the 6-digit HS level (e.g. Durum or common wheat, rather than all wheat at the 4-digit level). Critics said this was too detailed a specification, particularly if there were to be tight limits on the number of SP products a country could designate. HT3 addressed this criticism, and suggests either the 6- or 4-digit level as alternative drafts. Three concessions are envisaged for SP products. First, the tariff reductions on SP products would be smaller than on non-sp products, as outlined below under the rubric Tariffs. Second, developing countries would not be required to increase tariff rate quota volumes for SP products, whereas they would for other products, as outlined below under the rubric Tariff Rate Quotas. Third, HT2 suggested that For SP products, developing countries shall have the flexibility to apply a special safeguard mechanism to be based on the provisions of Article 5 of the Agreement on Agriculture (paragraph 24). This specific reference to SP products has been dropped 19

21 from HT3, which simply reports that: An outline of a possible new special safeguard mechanism to enable developing countries to effectively take account of their development needs, including food security, rural development and livelihood security concerns, is currently subject to technical work (paragraph 26). Market Access HT3 has suggested a further round of tariff reductions, a reduction of tariff escalation, mechanisms to protect preference margins, retention of Article 5 (the Special Safeguard Provisions) and an expansion of its coverage for developing countries, an expansion of tariff rate quotas (TRQs), and new disciplines on the administration of TRQs and State Trading Import Enterprises. Some countries have expressed their concern that HT3 has not endorsed their proposals on the market access aspects of their non-trade concerns. HT3 (paragraph 28) notes that further consideration needs to be given to non-trade concerns and other market access issues noted in HT1 (geographical indications of origin, food safety and labelling) and the extent to which these issues should be taken into account in the modalities and/or subsequent work. Tariff Reductions (paragraphs 8-15 of HT3) HT3 adopts neither the Swiss Formula for tariff reductions, which would bring tariff peaks down sharply, nor a simple repeat of the Uruguay Round formula, but instead proposes a tiered approach under which bigger reductions would apply to the higher tariffs. The proposal is outlined in Table 3. Clearly the numbers in the table are open for negotiation, but they are taken from the square brackets in HT3. These are the reductions that would apply to the final bound tariffs in Members schedules; not to applied rates or to in-quota tariffs. Table 3: HT3 s Proposals for Tariff Reductions Tariff Band Reduction Commitment Tariff bands SP items Implementation Period Developed Developing Developed Developing Developed Developing > 90 % > 120 % 60/45 % 40/30 % 5 years 10 years > 15 - > 60-50/35 % 35/25 % 5 years 10 years 90 % 120% 15% > % 40/25 % 30/20 % 5 years 10 years 20 % 25/15 % 10 years 10/5 % 10 years Within each tariff band a Uruguay Round-like formula would apply, with deeper cuts for higher tariff bands. Some flexibility on the level of reduction is provided for individual products (this is shown in the Reduction Commitment columns the first 20

22 percentage indicates the average rate of reduction and the second figure indicates the minimum reduction rate). Thus a developed country would have to reduce all tariffs of above 90 percent ad valorem by a simple arithmetical average of 60 percent, with no tariff line being reduced by less than 45 percent. Where specific duties apply, ad valorem equivalents would first be determined in a transparent manner, using three-year average external reference prices or data, based on a recent representative five-year period, excluding the highest and the lowest entry. Although these details would have to be included in the supporting documentation, and would be subject to multilateral review, the language does appear rather vague, allowing countries some discretion to choose average external reference prices that minimised the tariff cuts they then applied. Note also that it is not the intention of this proposal that specific tariffs be converted into their ad valorem equivalents: the purpose of the exercise is simply that of determining the appropriate tariff band (as detailed in Table 3) for the purpose of calculating the reduction commitment. Special and differential treatment for developing countries is reflected in four dimensions: i) higher thresholds in the tariff bands, ii) lower reduction commitments, iii) a longer implementation period, and iv) the facility to designate certain goods as SP products with an even lower reduction commitment (a simple arithmetical average of 10 percent, with a minimum of 5 percent per tariff line). HT2 had proposed three bands for developing countries, mirroring the proposal for developed countries, with the middle band covering the range from 20 to 120 percent. HT3 expanded the bands to four, by splitting the middle band in two, and reduced slightly the reduction commitment on all tariffs below 60 percent. LDCs would not be required to make any reductions. Table 4: Sample Tariffs after Application of Competing Formula Initial Tariff Swiss 25 HT3* Uruguay Round* Developed Developing Developed Developing * average, rather than minimum, reduction recorded Table 4 sets out the impact of various reduction formulae on tariff rates. The Swiss 25 formula, for example, as proposed by the US, would reduce an initial tariff of 150 percent to 21.4%; whereas the Uruguay Round formula (as proposed by the EU) would reduce the tariff to 96 percent for developed, and 114 percent for developing, countries respectively (i.e. reductions of 36 and 24 percent). At these high initial tariffs, the Swiss 25 formula would produce much more sweeping tariff cuts than the Uruguay Round formula. Because of the tariff bands, the proposal in HT3 is pitched between the two; and the more bands applied, and the steeper the tariff cuts in the higher bands, the more HT3 would match Swiss 25. At the moment, at these higher initial tariffs, HT3 produces outcomes closer to the Uruguay Round formula than does 21