EUROPEAN LIVESTOCK AND MEAT TRADING UNION / EUROPÄISCHE VIEH- UND FLEISCHHANDELSUNION 1 Let me recall that before Europa became a continent, in Greek legend she was of course a woman. The god Zeus, impressed by her beauty, disguised himself as a bull and carried her off to Crete on his back. Mariann Fischer Boel Member of the European Commission responsible for Agriculture and Rural Development Brussels, 26 th July 2007 O/REF: note N-099-2007-EN RE: WTO Agriculture: Revised Blueprint of Final Deal This document is intended to take everyone out of their comfort zones, That has to happen if we are ever to get an agreement. Crawford Falconer, WTO ambassador who chairs the farm negotiations. About this note This note presents a summary of the main elements of the paper that M. Falconer presented on the proposed draft modalities in the current WTO agricultural negotiations. In the document it presented on 17 th July 2007, the WTO Agriculture Negotiations Chairman focuses on the three key areas, notably market access, domestic support and export competition. This note excludes the special provisions and the differentiated treatment. It can therefore only give a global indication of the text. Where suitable, the offer that the European Union had made on 25 th 0ctober 2005 is recalled in order to facilitate comparison. Also the Council Mandate to the European Commission is recalled. Despite being entitled, Final Deal Blueprint, the text is still only a negotiation basis and changes will surely be made. The text builds on previous knowledge and assumes familiarity with WTO terms.
2 Background Agriculture negotiations chairperson Ambassador Crawford Falconer circulated his revised draft modalities on 17 th July 2007. In the document, the range of points under discussion for the various commitments excluding the more extreme figures- has been reduced. For example, Mr. Falconer talks of setting US domestic support limits at US$ 13.0-16.4bn relative to the demands of US$ 10-11bn (Brazil/India) and US$ 17-18bn (USA). The paper follows the breakdown of the meeting of the Group of Four core negotiating partners (Brazil, European Union, India, USA) in Postdam on 21 st June.
3 DRAFT POSSIBLE MODALITIES ON AGRICULTURE I. MARKET ACCESS Falconer s paper narrows the gaps in the tariff bands and their reductions for developed countries. On these reductions, he seeks a slightly greater cut than the G20 paper for the low tariff bands but a more limited cut that the G20 paper for the high tariff bands. For developing countries, the cuts would be 2/3 of these rates and the band would be wider (0-30%, 30%-80%, 80%-130%, >130%). There would be no average cut for developed countries, but a ceiling of 36% - 40% would apply for developing countries. The new proposals can be compared with the previous proposals and the offers from the EU, the G20 and the USA. NEW Falconer Previous Falconer EU EU Import Duty Cut Import Duty Cut Duty Cut 0%-20% 48%-52% 0%-20/30% 20% -56% 0%-30% 35% 20%-50% 55%-60% 20/30% - 50%/60% 30% - 75% 30%-60% 30-75% 50%-75% 62%-65% 50/60% - 60%/90% 35%-85% 60%-90% 50% > 75% 66%-73% > 60/90% 42%-90% > 90% 60% NEW Falconer Previous Falconer G20 G20 USA USA Import Duty Cut Import Duty Cut Duty Cut Duty Cut 0%-20% 48%-52% 0%-20/30% 20% -56% 0%-20% 45% 0%-20% 55%-65% 20%-50% 55%-60% 20/30% - 50%/60% 30% - 75% 20%-50% 55% 20%-40% 65%-75% 50%-75% 62%-65% 50/60% - 60%/90% 35%-85% 50%-75% 65% 40%-60% 75%-85% > 75% 66%-73% > 60/90% 42%-90% >75% 75% > 60% 85%-90% The average tariff reduction would be comprised between 58% and 64% depending on the retained reduction rate. Depending on the sector, the average reduction would be as follows: Beef 73% Sheep meat 68% Pig meat 62% Poultry meat 59% Dairy products 64% Cereals 62%
4 Sensitive Products On the crucial element of sensitive products, Mr. Falconer proposes that between 4-6 per cent of dutiable tariff lines (in the case of the EU 1,781 tariff lines are dutiable; in October 2005 the EU suggested 8% of 2,200 tariff lines) may be classified as sensitive products. Members might depart fro the tariff reduction provided that there is compensation in terms of quotas equal to 4-6% or 3-5% of domestic consumption depending on the gap in the tariff reduction (this gap varies from 1/3 to 2/3). As a compromise, Mr. Falconer proposes that, where Members such as the EU have more than 30% of their tariff lines in the top band, there is an option to have the number of sensitive products increased to between 6-8 % but the tariff quota expansion would be between 4.5-6.5% 1. By way of illustration, in the assumption that the whole sector is classified as sensitive and that the maximum deviation is applied (if the tariff reduction is 60%, a deviation by 2/3 gives an actual reduction of 20%), the quota expansion would be as follows: Beef sector 500,000 t. Pig meat sector 1,000,000 t. Poultry meat sector 630,000 t. Developing countries should have the right to designate up to one third more of tariff lines as sensitive Products. Several special cases are included in the paper, to which different deals would apply. For example, for MFN (most favored nation) imports to the EU (top two bands) the TRQ expansion obligation might, under conditions, be reduced by one quarter. Mr. Falconer concedes that there needs to be more work on tariff escalation, tropical products, long-standing preferences, and the special safeguard mechanism. For the Special Safeguard Mechanism two options remain. One is to let it go to the end of the agreement implementation period; to this end, Members would reduce the number of tariff lines eligible for the special safeguard mechanism. The other option is to retain the special safeguard mechanism for tariff lines equivalent in number to the sensitive products provision with potential further conditions. 1 In addition, if after application of its tariff reduction, would still retain more than 5% of its dutiable tariff lines in excess of 100 % ad valorem, an additional reduction by a further percentage points yet to be decided upon needs to be undertaken according to the Falconer draft.
5 II. DOMESTIC SUPPORT The draft states that the reduction in total Aggregate Measures of Support (AMS 2 ) should be 75% or 85% for the EU [i.e. 16.5-27.5bn], 66%-73% for the US and Japan, and 50% or 60% for other developed countries with all facing a 20% cut from Day 1 of the implementation period. The tiered reduction formula proposed for the overall reduction of Trade-Distorting Domestic Support for developed countries now looks like this: Where the base level 3 of Overall Trade-Distorting Domestic Support is greater than and less than or equal to. US$60 billion - 75 85 % US$10 billion US$60 billion 66-73 % - US$10 billion 50-60 % the reduction shall be between. Amber Box Amber Box limits should be at 70%, 60% and 45% respectively i.e. 20.1 bn for the EU and US$ 7.6.bn for the USA with a cap at the 1995-2000 average. De Minimis 4 payments should be limited to 2% or 2.5% of production. Because there have not previously been Blue Box commitments, the base level for calculating the overall reductions will be no more than the Amber Box limit plus 15% of production. In WTO speech this looks like this: Where the Final Bound Total AMS 5 is greater than and less than or equal to. the reduction shall be. US$40 billion - 70 % US$15 billion US$40 billion 60 % - US$15 billion 45 % 2 Aggregate measurement of support = The measurement which includes all supports for specified products together with supports that are not for specific products, in one single figure as the basis for commitments to reduce the subsidization of agricultural products. It includes the value of price supports and direct subsidies to specific products, as well as payments that are not product specific. 3 The sum of the Final Bound Total AMS plus 10% of value of production in the 1995-2000 plus the higher of existing average Blue Box payments, or 5 per cent of the average total value of agricultural production, in the 1995-2000 base period 4 De minimis is a Latin expression meaning about minimal things. At WTO level it means that these minimal levels of support are exempted from reduction and are allowed (currently 5% of agricultural production for developed countries, 10% for developing countries); 5 Total AMS commitment = commonly known as the Amber Box
6 Developed Members with relatively high levels of Final Bound Total AMS (at least 40 per cent of the total value of agricultural production) shall undertake an additional effort. Comparison with the EU offer of 25 th October 2005: 70 % cut for EU, 60 % cut for US in AMS and total support. 80 % cut in de minimis. New Blue Box disciplines to come from disciplines in support price gap. 5% ceiling part of the framework agreement as recognition of reform. Blue Box For the Blue Box 6 the value of direct payments under certain production-limiting programmes and direct payments that do not require production can be excluded from a Member's calculation of its current Total AMS if: payments are based on fixed and unchanging areas and yields; or payments are made on 85 per cent or less of a fixed and unchanging base level of production; or livestock payments are made on a fixed and unchanging number of head. The maximum permitted value of support shall not exceed 2.5 per cent of the average total value of agricultural production. If Members place more than 40% of their tradedistorting support into the Blue Box, the reduction must be equal to the reduction of the Final Bound Total AMS. Green Box Also the criteria for the Green Box 7 are tightened, with more transparency required. There will be amendments to the current text, relating to policies and services like farmer settlement, land reform programmes, rural development and rural livelihood security in developing countries such as provision of infrastructural services, land rehabilitation, soil conservation and resource management, drought management and flood control, rural employment programmes, nutritional security, issuance of property titles and settlement programmes, to promote rural development and poverty alleviation. There are provisions that relate to the destruction of animals or crops to control or prevent pests, where certain payments due to the loss of revenue will be authorised amongst other elements. 6 This is the amber box with conditions conditions designed to reduce distortion. Any support that would normally be in the amber box, is placed in the blue box if the support also requires farmers to limit production. At present there are no limits on spending on blue box subsidies. 7 In order to qualify for the green box subsidies must not distort trade, or at most cause minimal distortion.
7 III. EXPORT COMPETITION On export competition, the text confirms the intended elimination of all subsidies by the end of 2013, with Members committing themselves to reduce them by 50 percent (in budgetary terms) by the end of 2010. The commitment with regard to the other forms of export subsidy is reconfirmed, including disciplines for State Trading Enterprises and a safe box for emergency food aid. Export bans and restrictions should face tighter disciplines. Agricultural Exporting State Trading Enterprises, Export Credits, Export Credit Guarantees or Insurance Programmes Members shall not, directly or indirectly, provide support or enable support to be provided for, or in connection with, the financing of exports of agricultural products, including the credit. The term "export financing support" includes any of the following forms of support for, or in connection with, the financing of exports of agricultural products: direct financing support, comprising direct credits/financing, refinancing, and interest rate support; risk cover, comprising export credit insurance or reinsurance and export credit guarantees; government-to-government credit agreements covering the imports of agricultural products exclusively from the creditor country under which some or all of the risk is undertaken by the government of the exporting country; and any other form of governmental export credit support, direct or indirect, including deferred invoicing and foreign exchange risk hedging. This relates to: - government departments, agencies, or statutory bodies; - any financial institution or entity engaged in export financing; - agricultural export state trading enterprises; and - any bank or other private financial, credit insurance or guarantee institution which acts on behalf of or at the direction of governments or their agencies. There are terms and conditions specified in the paper.
8 International Food Aid Members reaffirm their commitment to maintain an adequate level of international food aid 8 to deal with emergency situations, which does not lead to commercial displacement caused by food aid. All food aid transactions, whether in the Safe Box or outside, have to be needs-driven and provided in fully grant form. They are not tied directly or indirectly to commercial exports of agricultural products or of other goods and services nor linked to the market development objectives of donor Members. Most importantly, agricultural products provided as food aid cannot be commercially re-exported, except where, for logistical reasons and in an emergency situation, this occurs as part of a food aid transaction initiated by a relevant United Nations agency, relevant regional or international intergovernmental agency or organization. Safe Box for Emergency Food Aid To ensure that there is no unintended barrier to the provision of food aid during an emergency situation, food aid provided (whether cash or in-kind) shall be placed in the Safe Box and, therefore, not actionable in case of emergency or real need assessed by recognized international agencies. During the period (suggested to be three months) during which the results of the needs assessment are possibly not available, will remain in the Safe Box. Food Aid in non-emergency situations is considered outside the Safe Box and can lead to sanctions if it leads to commercial displacement. It must be based on an assessment of needs by an identified multilateral third party organization. The monetization of in-kind food aid shall be either prohibited or permissible, under conditions. Details remain to be decided. Geographical Indications As in last year s paper, the question of Geographical Indications is only mentioned as a subject to be covered under other issues. This will no doubt be a major problem for the EU. 8 Unless otherwise specified, the term food aid is used to refer to both in-kind and cash-based food aid donations.
9 Preliminary reactions EU Commission/Member States The paper was examined by the Council, firstly within the 133 Committee (on Friday, 20 th July), secondly during the Trade Council meeting (on Sunday 22 nd July) and finally during the General Affairs Council meeting (on Monday 23 rd July). At this stage, no final answer to the question to know whether the two documents (agriculture & industry/services) are balanced. The estimation of the loss for European agriculture is rather precise (about 17bn). But on the other hand, the possible profits to be made in the industry and services sectors are still being assessed. Several Member States take the stand that, when it comes to their effects, both documents remain unbalanced. Concerning Falconer s paper, the first impression was negative. Further examination revealed, however, positive aspects particularly in relation to domestic support and export competition. With regard to market access, the greatest deception is the formula used to calculate the quota compensation if a product is classified as sensitive. The formula that Mr. Falconer has retained is not, as it stands, acceptable for the EU. The thresholds for triggering the special safeguard mechanism need to be revised. Otherwise it would not be efficient. The tariff reductions are more severe than the thresholds proposed by the EU, and go beyond those desired by the G20. All in all, and as a preliminary reaction, Falconer s paper is deemed to be a good basis for negotiation. COPA-COGECA EU farmer body COPA-COGECA said that the paper has been specifically designed to fit the new US Farm Bill and that the EU will face a huge cut back in home production to make way for cheap imports from countries where much lower food safety, environmental and animal welfare standards prevail. According to COPA-COGECA, the text contains a number of provisions and exceptions specific to the US. There are for example derogations designed to accommodate its trade-distorting counter-cyclical payments as well as high levels of support for specific products. Meanwhile the EU is being pressed to go well beyond its limit on market access: the new proposals might mean an annual increase in imports of as much as 500,000 tonnes for beef and over 1 million tonnes for pig meat, while poultry imports could more than double. In return, nothing positive will have been gained for EU farming or indeed European industry or services. According to COPA-COGECA, Commissioner Mandelson has brought EU Trade Ministers into a situation where their only choice is how much loss they can accept, not how much the EU can benefit from a deal. It is difficult to imagine an agreement that could be worse for the EU or indeed for poor developing countries. This proposal clearly goes well beyond the Council s 2005 mandate. 2005 Mandate from the European Council for the European Commission to negotiate at the World Trade Organisation The CAP reform is Europe s important contribution to the DDA and constitutes the limits for the Commission s negotiation brief in the WTO Round. Its substance and timing are aimed at avoiding that reform will be designed and imposed in Cancun and/or Geneva which could happen if we went there empty handed. The Council stresses that the margin of manoeuvre provided by this reform in the DDA can only be used on condition of equivalent agricultural concessions from our WTO partners.
10 Calendar The two documents (agriculture & industry/services) will be examined by the WTO Negotiations Committee (on 26 th July) and then by the WTO General Council (on 27 th July). They will make the most of August to study the documents thoroughly and to reflect on them. In September work within the technical groups will be resumed before a ministerial conference designed to assess the remaining convergences and divergences possibly takes place. This first ministerial conference would be followed by a final draft from the WTO Director- General. There would be a second ministerial conference to note either agreement or disagreement. One of the keys to success or failure remains in the US hands, in particular in whether or not the US Congress will agree to renew the quick negotiation procedure for international agreements. There are doubts among several observers about the US Congress accepting, as the presidential elections draw near.