5.
The Zoellick letter is credited with launching a major effort at the
political level to secure agreement across the board on issues left
unresolved in Cancun. The EU responded positively, as did many other
WTO member governments. Zoellick and EU Trade Commissioner Lamy travelled
widely to garner support for the initiative, meeting the G-20 [Note 2], the G-90 [Note
3] and other regional groupings in the process. The G-20 met to
reconcile differences with the Cairns Group. While important signals
were sent and received in these high-level political contacts, the intention
was more to restore some political momentum than to reach precise agreements.
In that, they were successful. However, as Ambassador Groser pointed
out at the end of his first round of agricultural meetings and consultations
last week, "this paper will be written in Geneva or it will not be written
at all!"
6. The
basis for a "grand bargain" on agriculture-in the form of a negotiating
framework-is relatively clear. In the broadest terms, the EU must move
on export subsidies, the US on other forms of unfair export competition
and on domestic support and the advanced developing countries, together
with some highly-protected, developed economies, on market access. However,
to write the political equation is easier than producing consensus on
a precise WTO text. The following paragraphs look at these propositions
in more detail.
III. Export subsidy elimination
is a must
7. It
has been assumed until very recently that within the agricultural dossier
it is the elimination of export subsidies that will make or break a
deal. It is certainly the case that such an outcome would represent
an enormous achievement for the Doha negotiations. Although export subsidies
are used far less than was the case at the end of the Uruguay Round,
they still distort many commodity markets and represent a continuing
source of unpredictability for competitive producers. The US, the Cairns
Group and the G-20 group of developing countries all want export subsidies
eliminated by an agreed date. In reality, they can live with a decision
to eliminate, in principle, with the precise schedule for elimination
agreed later on in the negotiations on modalities.
8. This is really an
issue for the EU alone. Few other WTO members resort to export subsidies-as
distinct from other forms of export support-on an appreciable scale
and most have signalled they could relinquish such subsidies. Even for
the EU the need for export subsidies as the consequence of large-scale
surpluses is no longer overwhelming. In fact, according to the most
recent WTO notification, the cost of EU export subsidies is currently
only about $2 billion-less than one-tenth of its total CAP subsidy costs.
Most goes to dairy products, beef and sugar. Spending on cereals and
course grains exports is very low (less than one-tenth of that allowed
by the EU's Uruguay Round commitments), though it may grow again if
the Euro stays strong against the US dollar. Other products that are,
or have been, traded with export subsidies include wheat and wheat flour,
pigmeat (recently restarted), poultry, eggs, wine, fruit and vegetables,
alcohol and rice.
9. It
is becoming ever clearer that the EU could commit to eventual elimination
of export subsidies-albeit over a long period for some products. Left
to itself, the Commission would like to make the commitment. It has
many reasons for doing so, not least the impact of EU enlargement and
budgetary pressures. The longer-term impact of the 2003 CAP reform package-notably
the progressive de-linking of domestic support from production-should
mean a gradually reduced need for export subsidies if excess production
is curtailed, as intended. In any event, the member states in favour
of further CAP reform know that abandoning the possibility of recourse
to export subsidies will ultimately add to pressures for further change.
10. Thus,
it was no great surprise that the EU began signalling more clearly at
the recent March agriculture negotiations' week that it could go further
than merely eliminating export subsidies on products of particular interest
to developing countries. This approach has always been a negotiating
ploy, since all EU products benefiting from export subsidies are of
interest to developing countries. However, the gambit will continue
to be played out while the EU assures itself that other players will
come forward with concessions of their own.
IV. Other forms of unfair
export competition should be tackled too
11. In particular,
that means the US makes little use of direct export subsidies but, instead,
offers export credits and guarantees on non-market terms and tends to
dispose of some surplus stocks through food aid programmes. The EU and
other players have always said that these forms of unfair export competition
must be treated in tandem with direct export subsidies. The US concedes
the point with respect to export credits. In any event, the mandate
to develop disciplines on export credits in agriculture is, in effect,
a hangover from the Uruguay Round. Ideas for rules on repayment terms
and other provisions were put forward in the "Harbinson paper" (TN/AG/W/1/Rev.1,
Attachment 5) a year ago.
12. The
Zoellick letter made no mention of food aid, the availability and timing
of which, according to the EU, tends to correlate with over-production
generated by US domestic support programmes rather than the specific
needs of recipient countries. However, US officials-as well as the EU-US
joint paper in August 2003-have recognised the need for disciplines
that meet the needs of aid recipients while not allowing the instrument
of food aid to operate as an export support. The rules proposed in the
Harbinson paper, Attachment 6, seem likely to be the basis for further
discussion.
13. A
final condition, in the area of export competition, for EU acquiescence
on a commitment to eliminate all export subsidies-and one which is supported
enthusiastically by the US-is the disciplining of the possible trade
distorting activities of state trading enterprises (STEs). The particular
targets are Canada (wheat), Australia (wheat) and New Zealand (dairy),
all of whom operate centralised purchasing and trading organisations
(marketing boards). The STEs operated by developing countries are likely
to be recognised as subject to special and differential treatment (see
Attachment 3 of the Harbinson paper).
V. Market access: now the
biggest stumbling block
14. There
is one further area of concessions that the EU will pursue, outside
the group of export competition dossiers, as its quid pro quo for export subsidy elimination. That is market access and, particularly,
enhanced access to the markets of advanced developing countries. That
is, again, an aim supported by the US and also by the Cairns Group.
However, the interests of the developing countries are very divergent
on this pillar of the agriculture negotiations, which could well be
the most problematic in the coming months.
15. Discussion
still focuses around the use of the "blended formula" first outlined
in the EU-US joint paper and then adopted and amended in the various
chair papers before and during Cancun. The challenge is now how to allocate
these three approaches and how to allow for special and differential
treatment.
16. Current
positions on the allocation issue are predictable. The G-10 (Bulgaria,
Chinese Taipei, Iceland, Israel, Japan, Korea, Liechtenstein, Norway
and Switzerland, etc.), all of whom seek to continue the protection
of a variety of domestically produced agricultural products, want to
maximise the use of the Uruguay Round formula. The G-20 is divided.
That is understandable since two key members, India and China, initially
supported the ambitious objectives of the group on export subsidies
and domestic support on condition that they were provided shelter against
pressure for significant tariff reductions. Recent signals from Beijing
and New Delhi suggest their positions on this may be softening. However,
when they met some weeks ago, it was clear that while the Cairns Group
and the G-20 had an identity of interests on export competition and
domestic support, there was little accommodation on market access. At
end-March 2004, India (where parliamentary elections take place in April-May
2004) re-emphasised its fear that developing countries would end up
taking a much larger share of the market access burden than developed
nations.
17. Looking
for meaningful new market access opportunities, the Cairns Group and
the US want to limit use of the Uruguay Round formula to a minimum-the
US says 2-3% for developed countries and 10% for developing participants.
The US also wants a "cap" on tariffs-although with different maximum
duties for developing and developed countries. The Cairns Group is still
expressing disquiet with the entire "blended" approach, seeing it as
unlikely to generate "substantial improvements in market access" as
the Doha Declaration requires.
18. Clearly,
the positions are polarised. However, since actual numbers are unlikely
to be inserted into any framework text this year, much of the argument
about the allocation of different tariff-cutting formulae is academic.
At this point, it seems unlikely that a solution other than the "blended
approach" can be concocted for the framework agreement.
19. For developing
countries other than LDCs (which are likely to be exempt from any reduction
commitments), the "Alliance for Strategic Products and Special Safeguard
Mechanism", created at the Cancun Ministerial by 22 WTO members [Note
4] (and which later became the Indonesia-led G-33), was successful
in having a general acceptance of the concept of "special products"
(SP), which will probably survive to allow them some comfort. Similarly,
it is assumed, a special safeguard mechanism (SSM) will also be negotiated.
There is a split between the G-20 and the G-33 on whether all products
from all destinations would be covered by the SSM. The ACP group shares
the G-33 interests regarding SP and SSM.
VI. Request and offer and
regional trade initiatives
20. It
should also be recalled that at a much later stage in the Doha negotiations
process, a request-offer procedure will allow participants to pursue
precise market access objectives with trading partners. This is especially
relevant with respect to the use of expanded tariff rate quotas (TRQs)
to generate real market opportunities.
21. It
is worth noting, further, that for a significant and growing number
of WTO members, the Doha agenda is not their sole means of securing
new market access in agriculture. Many are currently engaged in regional
and bilateral negotiations whose results will be partially dependent
on the outcome of the Doha negotiations. One example is the EU-Mercosur
negotiation where the thorniest issue is the market access for Mercosur
agricultural products to the EU market. The Mercosur countries have
already made an ambitious and almost comprehensive offer. Both sides
will come back in mid-April with new offers-the EU is believed likely
to table additional agricultural market access based on new TRQs, partially
deliverable now, partially at the conclusion of the Doha negotiations.
However, the EU-Mercosur and the WTO negotiations are taking place at
the same time and this has put a question mark on how far each side
can go without more certainty on the contents of the WTO package. Although
progress is being made on the sanitary and phytosanitary front (equivalence,
transparency, certification, audits, inspection fees, etc.), as far
as market access is concerned, both the EU trade commissioner and the
Brazilian Foreign Minister have stated that neither side is willing
to pay twice. Hence a link has been established for several G-20 countries
between a successful outcome of the Doha negotiations and some valuable
new access to the EU market. The now rather shaky structure of the FTAA
may provide a cover for the US to do something similar. ACP countries,
of course, are engaged in the negotiation of Economic Partnership Agreements
(EPAs) with the EU to replace the Cotonou arrangements, but progress
of the different regional ACP groupings has been uneven. However, though
the EPA negotiations are also taking place in parallel with the WTO
negotiations, there seems to be a weaker relation between the two. It
is unlikely that results in the latter will affect the former and vice
versa. The ACP countries are focussing more on the overall erosion of
preferences that would result from meaningful liberalisation under the
Doha agenda.
22. In
any event, within the Doha Work Programme, the play-off between elimination
of export subsidies and the disciplining of other forms of export support
and the acceptance of meaningful market access commitments by advanced
developing countries is relatively clear. However, it is only two-thirds
of the picture: the potential for domestic support commitments must
be factored in.
VII. US domestic support
outlook uncertain
23. On
domestic support, the culprit for a change seems to be the US and not
the EU-which, on the basis of its 2003 CAP reform package can, in theory
at least, offer very large amber box reduction commitments. Instead,
the G-20 countries being asked to serve up significant market access
improvements are turning to Washington to establish what the US can
provide in winding back its domestic support programmes. For the exporters
among these countries, the US market is crucial. If domestic subsidies
were not impacted through the Doha negotiations then there would be
little point in countries like Brazil and Argentina offering the Washington
additional market access for US goods.
24. The
2002 Farm Bill put in place new programmes and more spending on domestic
farm support. Notwithstanding the ambitious proposals tabled previously
by the US-which envisaged swingeing cuts and the eventual elimination
of such support-the US-EU joint paper of August 2003 suggested strongly
that the two big players had decided on a formula that would essentially
accommodate the new US programmes and the EU's CAP reform. It was hinted
strongly that, in a presidential election year, there was no likelihood
of Congress dismantling its own programmes that support politically
influential farm groups. However, the argument was put forward at a
time when there was still some credibility in the deadline for concluding
the Doha negotiations-the end of 2004. It is now largely accepted that
the frameworks that should be decided this year will guide negotiations
that will take place in 2005 and 2006. That changes the picture dramatically.
25. By
2006, there will be negotiations between the US Administration and Congress
on a replacement for the 2002 Bill (which expires in 2008). Further,
many observers believe that the size of the US budget deficit by that
time will likely make a continuation of the present generous levels
of spending in the farm sector less and less justifiable. Thus, a negotiation
in Geneva on disciplining domestic support in a manner that will have
a material impact on US programmes may end up more politically palatable
than is the case now. In addition, the US may soon have before it an
unfavourable result in the dispute settlement case brought by Brazil
and others on US cotton support programmes. Such a result would likely
have ramifications across a broad sweep of programmes as they affect
products other than cotton; another reason why the US may ultimately
have to give ground.
26. That,
at least, must be the hope of the Cairns Group and the G-20. The question
is how to tie down the framework of the future negotiation in a way
that the US can accept it politically this year, but which signals the
potential for meaningful negotiations with the US next year, after the
presidential elections.
27. The
answer will naturally lie in the detail of the framework text. Can the
US accept product specific limits on AMS spending? Officials say they
are willing to discuss this option. The US says it can live with a cap
on the blue box but is unclear whether it can accept a subsequent programme
of reduction. These provisions were included in the Chairman's text
in Cancun. They are also issues on which the EU is very sensitive, as
it is on the proposal that green box criteria be reviewed. This latter
issue will inevitably be a point of dispute at a later stage of the
Doha negotiations since, in the wake of the CAP reform package, the
EU expects to transfer a very large proportion of its farm spending
from the amber box into the green box. It will do so on the assumption
that such de-linked support will no longer be trade distorting, a view
not shared by many other WTO members.
28. It
will be clear from the foregoing presentation that if the nature of
a deal is relatively clear, getting all the key participants to move
in unison will require some skill. The chairman has not indicated that
he, himself, will table a text. In some respects it would be better
if, initially at least, the major players could reach an accommodation.
However, at the moment, apart from a few weak signals, including some
from the EU on export subsidies, nobody is likely to step out of line
and volunteer substantial movement. Four negotiating sessions of the
Agriculture Committee are scheduled up to mid-July-two of them in June,
which is probably as good a signal as any as to when the chairman expects
things to start moving seriously.
VIII. Limited prospects for
the cotton initiative in the Doha negotiations
29. Where does all
this leave the cotton initiative by West and Central African countries?
It is well known that the EU has proposed reforms in the cotton sector
independently of the Doha negotiations. [Note 5] However, it is US domestic support programmes that are the
true target of the initiative. If these are to change, it will be as
a result of the dispute settlement case on cotton or through pressure
exerted within the Doha agricultural negotiations, or a combination
of both. The US-and a good many other participants-will not accept meaningful
negotiations on the trade aspects of cotton outside the main agriculture
dossier of the Doha agenda, even if a particular emphasis on this commodity
may be possible in a final outcome.
30. One technical
aspect of the Doha negotiations will be crucial to the final package
having some meaningful impact on cotton. This is the issue of product-specific
trade-distorting domestic support reductions. The "Derbez" framework
text on agriculture (Annex 1 of Rev 2 of the Cancun Draft Ministerial
text) [Note 6], in Para 1.1 refers only to
product-specific AMS being capped at levels during a reference
period to be negotiated. Otherwise, the range of AMS reductions would
be based on a "Final Bound Total AMS". Such an approach would
mean that the US (and the EU) would retain the right to target new Doha
negotiations domestic reduction cuts on products where reduced support
would be most politically comfortable. In other words, in the absence
of product-specific AMS cuts (at least some minimum reduction) cotton
support could be virtually untouched by Doha negotiations' commitments.
31. However, it was
clear from the WTO-organised workshop on cotton that took place last
in March 2004, in Cotonou, Benin, that the major trading nations, including
China, as well as the international economic institutions have scope
and some political will to begin to tackle the cotton problem in the
context of development assistance. The EU and US have both announced
initiatives, while additional financial and technical assistance from
donors seems likely to be available. Thus, the "solution" provided by
this workshop was closer to that envisaged under the rejected paragraph
27 of the Draft Ministerial ("Derbez") Text than the trade-related alternative
proposed at Cancun by the four countries behind the cotton initiative
[Note 7] which aimed at the complete elimination of export subsidies
over a period of three years, and the elimination of domestic support,
over a period of four years as of the beginning of 2005. In consequence,
although the development side of the cotton problem has moved forward,
it would seem that the trade solution is still tied to progress on the
mired Doha negotiations.
