Agriculture Subsidies and Trade. US$ Billion

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2 Agriculture Subsidies and Trade US$ Billion Total subsidies Total exports Developed countries Developing countries 2

3 % Average Tariffs MFN Bound Agriculture MFN Applied Industrial 3

4 Why the Agreement on Agriculture? Agriculture in GATT but... exemptions for agricultural products (import restrictions, domestic support, export subsidies allowed) market access difficult Research - inefficiency of policies Trade tensions and disputes Punta del Este Declaration (1986) Uruguay Round Negotiations (7.5 years) Agreement on Agriculture 4

5 Legal Framework Modalities + Supporting Tables Legally Binding Commitments Agreement on Agriculture Schedules of Commitments Other WTO Agreements Protocol of Accession ACC/4 5

6 Structure of the Agreement Market access Domestic support Export competition Tariffs Tariff Quotas Special Safeguard Green Box Blue Box Article 6.2 Development Programmes Amber Box Export subsidies Anti-circumvention Export prohibitions and restrictions Other rules: S&D, Peace Clause, commitment to reform, NFIDC Decision Agreement on the Application of Sanitary and Phytosanitary Measures 6

7 Uruguay Round Reduction Commitments Developed Developing Time period 6 years 10 years Market access Tariff reduction 36% average, 15% minimum 24% average, 10% minimum Domestic support Total AMS reduction De minimis S&D exemption 20% 5% 13.3% 10% Article 6.2 (investment, input and diversification subsidies) Export competition Export subsidy reduction S&D exemption 36% value, 21% volume 24% value, 14% volume Article 9.4 (transport and marketing subsidies) No reduction commitments for least-developed countries 7

8 Long-term Objective... establish a fair and market-oriented agricultural trading system... Uruguay Round reform programme Major achievements but also some unfinished business Mandate for further reform - Article 20 Committee on Agriculture role to monitor implementation of UR commitments - matters raised under Article review of notifications preparatory work analysis/exchange of information mandated negotiations - Special Sessions (since 2000) 8

9 The Doha Ministerial Declaration Comprehensive negotiations aimed at: substantial improvements in market access reductions of, with a view to phasing out, all forms of export subsidies substantial reductions in trade-distorting domestic support S&D - integral to negotiations and outcome Non-trade concerns to be taken into account Deadlines March 2003 modalities 5th Ministerial Conference - draft Schedules 1 January conclusion Framework modalities - July

10 Market Access 10

11 Tariff Reduction Proposal: Chairman Crawford TN/AG/W/4/Rev.4; 6 December 2008 Bands Developed cuts in 5 instalments (Average cut - 54%) Developing cuts in 8 instalments (Average cut 36%) Levels cuts Levels cuts % % % % % % % % 11

12 Developed Country Tariff Cuts & Flexibility Threshold/Tier/Band (tariffs) TIERED FORMULA Cuts 0-20% 50% 20-50% 57% 50-75% 64% >75% 70% Overall minimum average cut of 54% Sensitive Products In general, [4]% of tariff lines (Japan & Canada argue for more, plus some additional flexibility) Lower tariff reductions but quid pro quo tariff quota expansion Tariff Cap 100% on non-sensitive Products (with possibility for limited exceptions) 12

13 Developing Country Tiered Formula Cuts Threshold/Tier/Band (tariffs) Cuts (2/3rds DdC cuts) SVEs Cuts RAMs* Cuts 0-30% 33.3% 23.3% 25.3%* 30-80% 38% 28% 30% % 42.7% 32.7% 34.7% >130% 46.9% 36.9% 38.9% Overall maximum average cut of 36% Tariff Cap 150% but doesn t apply to Sensitive or Special Products *No cuts if tariff less than or equal to 10% & very recent RAMs and small low-income RAMs with economies in transition exempt from reduction commitments 13

14 Sensitive Products Other Market Access Issues Chair s Draft Modalities Number: 4 per cent of [dutiable] tariff lines or 6 per cent where over 30 per cent of the developed-country tariff lines are in the top band or where tariff concessions have been scheduled at the 6 digit level Canada and Japan reservations Developing countries can designate one-third more of tariff lines as sensitive Treatment: ⅓, ½ or ⅔ deviation from envisaged normal cuts. Thus if developed countries have to reduce their tariffs by 66%, the resulting cuts would be 44%, 33% and 22%, respectively. 14

15 Tariff Quota Expansion Other Market Access Issues Chair s Draft Modalities Where ⅔ deviation is used, the TQ shall result in new access opportunities equivalent to no less than 4 per cent of domestic consumption Where ½ or ⅓ deviation is used, the TQ shall result in new access opportunities equivalent to no less than 3.5 and 3 per cent of domestic consumption, respectively Members can choose to designate more sensitive products (by 2 percentage points 6%). In that event, additional access of 0.5% of domestic consumption has to be granted If after the application of the formula, a Member has some its tariff lines in excess of 100%, it can retain these provided its overall limit is not breached and if it applies a further expansion of [0.5%] of domestic consumption for these sensitive products New Tariff Quotas? 15

16 Other Market Access Issues Chair s Draft Modalities TRQ Expansion: SDT for developing countries: two-thirds of the volume for developed countries. Consumption of subsistence production excluded Tariff Simplification No tariff should be bound in a form more complex than the current binding Simplified bound tariffs should not result in an increase of their current levels All bound tariffs to be expressed as simple ad valorem tariffs. In any event, highly complex form of tariffs such as complex matrix tariffs shall be converted into ad valorem tariffs or specific tariffs EC: can keep 15% of its tariff lines in non-ad valorem form SDT for developing countries 2 additional years for developing countries to effect such changes. LDCs exempted from this obligation Bound in-quota tariffs: To be reduced by either 50% or to 10% whichever results in a lower tariff. Where the in-quota tariff is 55 ad valorem, then should be eliminated at the end of the 1 st year of implementation: SDT for DCs (15%) and SVEs (7.5%) Tariff quota expansion: applied on MFN basis. Administration of TQs to e subjected to the Agreement on Import Licensing. Enhanced transparency 16

17 Other Market Access Issues Chair s Draft Modalities Special Products Developing countries entitled to self-designate 12% of their tariff lines as special on the basis of the agreed indicators food security, livelihood security and rural development Up to 5% of the tariff lines not be subjected to any cuts. The overall average cut shall be 11 per cent SVEs and RAMs Flexible treatment : RAMs will be able to designate 13% of their tariff lines as SPs and make an overall cut of 10% 17

18 Other Market Access Issues Chair s Draft Modalities Special Agricultural Safeguard (SSG) Reduction to 1 percent scheduled tariff lines the number of tariff lines eligible for SSG. To be phased out within 7 years. Remedy not to exceed UR bound rates Developing countries - eligible tariff lines to be reduced to no more than 2.5 per cent on the 1 st day of implementation Terms and conditions of the SSG to remain unchanged from the URAA terms and conditions. However, tariff rates to be updated to reflect Doha outcome 18

19 Other Market Access Issues Chair s Draft Modalities Special Safeguard Mechanism(SSM): To be available for all products in principle. However, not to be invoked for more than 2.5% of all and only if surge in imports is accompanied by declining prices TRIGGERS: Both price and volume-based SSM will be available. The two may not be imposed at the same time. Neither can any one of them be imposed in respect of a product which is the subject of a safeguard measure, including under Art 5 of the AoA, an antidumping or countervailing measure Detailed rules on volume and price triggers and their remedies As regards remedies, the maximum increase over the UR BR could not be more than 15% or 15% of the current BR, whichever is higher Cannot be used for more than 2-6 products in a given period nor in two consecutive periods 19

20 Special Safeguard Mechanism For volume-based SSM, developing countries can increase tariffs by 25% if imports exceed 110% of base imports; by 40% if imports exceed 115% of base imports; and 50% if imports exceed 135% of base imports. (G-33: 105%, 110% and 130% of base imports with accompanying remedies of 40, 50 and 60%) Base imports to be calculated as a rolling average of imports in the preceding 3-year period and the remedy could not exceed UR levels unless specified conditions met. Volume-based SSM could be maintained for a maximum period of 12 months from the initial invocation of measure, unless a seasonal product is involved, in which case the period will be 6 months No product to be subject to volume-based SSM consecutively for more than 2 periods and where this has occurred, this measure may not be resorted to again before the lapse of a further two consecutive periods 20

21 Special Safeguard Mechanism Flexibility for least-developed countries and SVEs With respect to LDCs, the maximum increase over the UR bound rate could be no more than 40% or 40% of the current bound tariff, whichever is higher With respect to SVEs, the maximum increase over the UR bound rate could be no more than 20% or 20% of the current bound tariff, whichever is higher, for up to a maximum of 10-15% of tariff lines in any given period 21

22 [1] Thresholds (para 134) SSM Volume-based Basis of rolling average of imports over 3 preceding years Remedies[1] 110%-115% 25% current bnd tariff OR 25 percentage points 115%-135% 40% current bnd tariff OR 40 percentage points >135% 50% current bnd tariff OR 50 percentage points Exceeding pre-doha bindings - LDCs, SVEs and DgC TN/AG/W/7 suggests 2 triggers & remedies for exceeding pre- Doha bindings (i) 120% - 140% - 1/3rd of current bound or 8 percentage pts whichever is the higher (ii) >140% - ½ of current bound or 12 percentage pts whichever is the higher Other Issues Length of remedy 4/8 months; may be re-imposed after the lapse of 4/8 months (equal period of time must lapse) Cross-check (not normally applicable if domestic price falling) Limitation on scope (2.5% TLs?) 22

23 SSM Price-based Trigger 85% of three year monthly average Remedy 85% of difference between trigger price and import price max duty current bound duty Applied on a shipment-by-shipment basis Not normally take recourse if import volumes manifestly declining (cross-check) 23

24 TROPICAL PRODUCTS Annex G Deeper tariff cuts Where the scheduled tariff is less or equal to 25% ad valorem, it shall be reduced to zero Where the scheduled tariff is greater than 25% ad valorem, the applicable tariff cut shall be 85% Where the scheduled tariff is greater than or equal to 10%, the applicable tariff cut shall be 70%, except for tariffs in the top band, which shall be reduced by the tariff escalation tariff cut for that band increased by 2% [Where the scheduled tariff is less than 10%, it shall be reduced to zero] [Tropical products shall not be designated as sensitive] [Implementation by developed-country members in 4 equal instalments] Developing countries in a position to do encouraged to do more Considerable progress made in July 08 mini-ministerial A lot depends on the outcome of the banana agreement Chairman wanted to record progress in latest draft modalities text but due to certain material changes which occurred post July, the Chairman was unable to modify the draft modalities text 24

25 PREFERENCE EROSION Annex H No tariff cuts on the items listed in Annex for 10 years Tariff cuts to be implemented thereafter over 5 years in equal instalments Where a product is listed in the Annex and the ff conditions are met, the implementation period will be 10 years (8+2) the pre-doha MFN tariff is greater than 10% ad valorem the total value of trade over a 3 year representative period is greater than $50,000 or constitutes [3]% of the long standing preferencereceiving country s total agricultural trade to the market concerned there is unlimited long-standing preference eligibility in the market concerned Provisions to prevail where there is overlap with provisions on tariff escalation / tropical products Targeted technical assistance 25

26 TARIFF ESCALATION [Tariffs on processed products to be reduced more steeply. Instead of taking the cut that would otherwise apply to final bound tariffs in the band to which the processed product belongs (with the exception of the top band), the processed product shall take the cut applicable to tariffs that fall in the next highest band [Products falling in the top band to be reduced by a cut that would otherwise have been applicable according to the tiered formula increased by 6 ad valorem points] Supplementary cuts to be moderated in two situations: First, where the absolute difference between the processed and primary product after the application of the normal tariff formula would be 5 ad valorem percentage points or less in any given tier except the bottom tier no additional tariff escalation adjustment to be required Second, the application of adjustment formula should not lead to a higher tariff on the primary product than the processed product 26

27 COMMODITIES Where problems persist after the application of the formula, including the tariff escalation adjustment formula, Members are to engage with commodity-dependent producing countries to ensure satisfactory solutions Identification of products for the purpose of applying the tariff escalation formula specific targets; non-ad valorem duties to be converted and bound Elimination of NTBs Joint action intergovernmental commodity agreements etc 27

28 LDCS LDCs: No reduction commitments DFQF 100% : By 2008 or the start of the implementation period; where there are difficulties, 97% at the beginning to be increased gradually to 100% Developing countries in a position to do so encouraged to grant DFQF phase in of commitments Cotton Market Access: DFQF for LDCs 28

29 SVEs The term SVEs to apply to Members with economies that, in the period 1999 to 2004, had an average share of: World merchandise trade of no more than 0.16% or less World trade in non-agricultural products of no more than 0.1% World trade in agricultural products of no more than 0.4% SVEs could moderate the two-thirds cut by developing countries by a further 10 ad-valorem points in each band Flexibility in the designation of special products SVEs can deviate from the tiered formula cut for as many tariff lines as they choose to designate as SPs provided they meet the overall average cut of 24% Products designated as SPs need not be subject to a minimum tariff cut nor designation be guided by the indicators 29

30 RAMs Entitled to moderate tariff cuts in the top 2 bands by 10 ad-valorem percentage points and by 5 ad valorem percentage points in the bottom two bands Saudi Arabia, Macedonia, Vietnam and Tonga exempted from undertaking cuts For other RAMs, where there is an overlap between accession commitments and commitments associated with modalities, the start of the IP shall be one year after the end of the accession commitment Implementation period shall be 10 years (8+2) Flexibility in the designation of special products one tenth greater than the amount to be designated by developing countries. Relevant cuts for the designated tariff lines may be further reduced by 2 ad-valorem points 30

31 Domestic Support 31

32 The Boxes Green Box Annex 2 Blue Box Article 6.5 No more than minimally trade or production distorting Production-limiting programmes Article 6.2 Measures Amber Box Development programmes: investment, input, diversification Subject to reduction commitments De minimis allowance 32

33 % cut in aggregate terms AMS Reduction Commitment Implementation period DEVELOPED 6 years DEVELOPING 10 years Cut in Total AMS -20% -13.3% De minimis allowance 5% 10% No reduction commitments for LDCs 33

34 Negotiations Objective substantial reductions in trade-distorting domestic support Technical elaboration of modalities for further commitments The Boxes S&D elements 34

35 Chairman s Draft Modalities- TN/AG/W/4/Rev.4 Base overall trade-distorting domestic support (OTDS) shall be the sum of: (i) final bound total AMS; (ii) 10% of value of production in the base period representing 5% for product-specific support and 5% for non-product specific support; for developing countries 10% each: base period either or (iii) the higher of average Blue Box payments or 5% of the average total value of production ( ) Thus for some developed countries, the base level would be Amber box commitment plus 15% of production 35

36 Chair s Proposed Draft Modalities - OTDS Bands Range Proposed Cuts 1 - EC $60 billion 80% 2 US and Japan $10 billion and 60 billion 70% US 75% Japan 3 Others Developed and Developing $10 billion 55 % 36

37 DOMESTIC SUPPORT Chair s Draft Modalities Under the Chairman s proposal, US OTDS will be reduced from $48.2 billion to between $13 and $16.4 billion. Under its own proposal, it will be reduced to $22.5 billion. Offered in July 2008, to reduce to $14.5 billion According to the recent notification by the US, its payments on OTDS amounted to $ 16.3 billion in 2002, $10.2 billion in 2003, $18.1 billion in 2004 and $18.9 billion in 2005 Estimated that because of high commodity prices in 2007, the US payments on OTDS amounted to no more than $9 billion. Figure not confirmed by the US 37

38 DOMESTIC SUPPORT Chair s Draft Modalities The current ceiling of the EC (15 Members) is estimated at billion ($152 billion). Cut will bring the ceiling down to 27.6 billion or 16.5 billion. Cut of 80 per cent will bring it down to billion (around $35 billion). Japan expected to do more, as its overall support is more than 40 per cent of the total value of its agricultural production a cut halfway between the cuts of the top and the second tiers 38

39 Implementation period and staging: DOMESTIC SUPPORT Chair s Draft Modalities Developed countries: six steps over 5 years. For the EC, US and Japan, the base OTDS will be reduced by one-third (33%) on the first day of implementation and the remainder to be reduced in five equal instalments For developed Members in the third tier, the base OTDS will be reduced by 25 per cent on the first day of implementation and the remainder to be reduced in five equal instalments Developing countries with no Final Bound Total AMS commitments exempted from undertaking reduction commitments with respect to their base OTDS. Those with AMS commitments will undertake two-thirds of the cut made by developed countries in the lowest tier (37%) Reductions by developing countries shall be implemented in nine steps over 8 years. The base OTDS shall be reduced by 20 per cent on the first day of implementation and the remainder in eight equal instalments RAMs which recently acceded exempted, so also are small low-income RAMs with economies-in-transition. For other RAMs, treatment comparable to that of other developing countries two-thirds cut and a transitional period of 8 years 39

40 Chair s Proposed Draft Modalities -AMS Bands Range Proposed Cuts 1 $40 billion [70] % 2 $15 billion and 40 billion [60] % 3 $15 billion [45] % 40

41 Domestic Support Chairman s proposals Under the Chairman s proposal, the amber box limit of the EC will be reduced from 67.1 billion ($92.5 billion) to 20.1 billion The amber box limit of the US will be reduced from $19.1 billion to $7.6 billion Developed countries whose Amber Box support is more than 40% of the value of their agricultural production to make a bigger cut, i.e. a cut halfway between the cut of their tier and the tier above According to figures provided by the US, AMS payments for 2002, 2003, 2004 and 2005 were $9.6 billion, $6.9 billion, $11.6 billion and 12.9 billion, respectively. Brazil and Canada are alleging in the dispute settlement proceedings that the US exceeded its WTO limits for most of these years, a claim the US denies. 41

42 Domestic Support Chairman s Proposals Implementation period and staging: The EC, US and Japan to cut 25% from the start. All other cuts to be made over 5 years in 5 equal instalments For other developed countries, reductions to be implemented in six equal instalments over 5 years, commencing on the 1 st day of implementation Developing countries expected to reduce their support by two-thirds of the cut made by developed countries in the bottom tier (30%). Implementation in nine equal instalments over 8 years, commencing on the 1 st day of implementation RAMs which recently acceded exempted from cuts, so also are small low-income RAMs with economies-in-transition. Some allowed to exclude investment subsidies from Amber Box calculations. Other RAMs to make two-thirds of the normal cut 42

43 Domestic Support PRODUCT-SPECIFIC AMS CAPS average applied during the UR implementation period ( ) For the US average between and S&D for developing countries base period ( or ) DE MINIMIS: to be reduced by 50 per cent by developed countries i.e. cap at 2.5 per cent of the value of production S&D for developing countries: some exempted, others to make two-thirds of the cuts of developed countries BLUE BOX: maximum permitted value not to exceed 2.5 per cent of the average total value of agricultural production Lesser cut if over 40% of Member s support placed in the blue box Deeper cut in AMS support for cotton Tightened disciplines for the Green Box 43

44 Export Competition 44

45 Export Subsidies Implementation period DEVELOPED 6 years DEVELOPING 10 years Cut in budgetary outlays Cut in subsidized quantities -36% -24% -21% -14% No reduction commitments for LDCs 45

46 Members with Scheduled Reduction Commitments Australia (5) Number of products EC (20) Poland (17) Bolivarian Republic of Venezuela (72) Brazil (16) Bulgaria (44) Canada (11) Colombia (18) Cyprus (9) Czech Rep. (16) Hungary (16) Iceland (2) Indonesia (1) Israel (6) Mexico (5) New Zealand (1) Norway (11) Panama (1) Romania (13) Slovak Rep. (17) South Africa (62) Switzerl-Liecht. (5) Turkey (44) United States (13) Uruguay (3) 46

47 Negotiations Objective reductions of, with a view to phasing out, all forms of export subsidies Technical elaboration of modalities for further commitments Export subsidies Export credits, insurance and guarantees Food aid Exporting STEs Export restrictions and taxes 47

48 Export Competition Chair s Draft ModalitiesTN/AG/W/4/rev1 Elimination of all forms of export subsidies by Budgetary outlays- 50% reduction by 2010 and the rest in equal instalments Reduction commitments also on quantity of exported products S&D for developing countries Developing countries to benefit from the provisions of Article 9.4 until 5 yrs after the end of the implementation period Proposed strengthened disciplines on agricultural exporting STEs and international food aid Elimination of all forms of export subsidies for cotton... 48