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Communication from the Chairman of the Committee on Agriculture,
Special Session
Second instalment(1)
25 May 2007
A. Special
Safeguard Mechanism back to top
1 There are, frankly, too many variables on
this issue with positions that are too wide apart for me to be in a
position to even begin to define a centre of gravity on this issue. It
will remain that way unless and until there is at least some material
convergence in positions. Here we are effectively still facing ambit
claims. The most I can offer is a few observations or suggestions.
2 First, I hope we have finally put behind
us various efforts to renegotiate what was clearly agreed in Hong
Kong. There is no question that what was clearly agreed and understood
was that there are two distinct triggers: import volume and price.
3 Second, I take it as axiomatic that if we
retain a current special safeguard, the terms of an SSM will, in broad
terms, give greater flexibility to a developing Member for SSM use
than would be the case for use of the SSG. This I won’t even begin to
argue on any technical or legalistic grounds. Irrespective of any such
considerations, it reflects a political reality in my view. Mind you,
I would not necessarily read overly much into that. As you will be
aware, my sense is that even if the SSG is retained, it will be, at
the very least, very sharply reduced in its coverage.
4 Moreover, there are some important factors
to take into account. The SSG was not just a blanket “let out” for
developed countries as sometimes seems to be perceived these days in
casual conversation. It reflected a certain rationale — or at least it
had a certain restriction for eligibility. The product coverage of the
SSG was only for those products that were tariffied in the Uruguay
Round and not for all products. And, the reason why a number of
developing countries did not have access to it was because they had
the option of going for ceiling bindings instead of tariffying — and a
considerable number certainly availed themselves of that. There may be
some analogies here that will eventually prove useful to us if and
when we get into a more serious effort to converge.
5 Third, the plain language is that this is
to be a “Special” Safeguard Mechanism. If this is a mechanism which
would, when applied, be capable of being triggered literally hundreds
of times in any given year, how is this to be reconciled with
something that is “special”? My simple observation is that, as a pure
negotiating matter, I find it difficult to see that there will ever be
agreement from Members that there will be an unconstrained entitlement
to use of a measure that could impose tariff increases — including
increases above existing Uruguay Round rates — applicable to hundreds
of tariff lines in any given year by each and every developing country
Member. This is simply an observation, but I think it reflects a
certain negotiating reality that we should try to deal with. I would
hope that we could more seriously deal with this in a spirit that aims
to make this instrument workable and responsive to genuine need. I
suspect that the concept to focus on is how to reasonably ensure that
“normal” trade is not disrupted while genuinely “special” situations
are able to be responded to flexibly.
6 Fourth, the object is to provide a special
safeguard that responds to the needs of farmers in developing
countries, that is, rural development, food security and livelihood
security needs. While I have not heard any compelling argument for
arbitrarily restricting the coverage of the SSM (i.e. a priori
numerical constraint), I have not heard any compelling argument why
the Measure should be an entitlement simply to raise tariffs based on
price and volume movements per se (i.e. a pure measure of protection
unrelated to the criteria for special and differential treatment in
paragraph 39 of the framework referred to above). I suggest we work on
narrowing this. I would suggest we look seriously at the concept that
it should be in principle applicable anywhere there is domestic or
substitutable production. Absent that, the rationale for having an SSM
seems less clear.
7 Fifth, I would offer the view that, at
least as Chair, I remain to be persuaded of the view that non —
preferential mfn suppliers should be obliged to bear the “cost” of any
import surges or price declines attributable to preferential sources.
I have yet to hear a convincing explanation of why increased imports
from a preference receiver can get counted “in” when calculating
whether you have a global surge or not but then the measure is not
applied to those sources but only to mfn sources. If preferential
suppliers get counted in for one, they should be counted in for the
other. If they get counted out for the purposes of the initial
calculation, fine; then they can be counted out for application of the
measure also.
8 Sixth, as regards the quantity trigger,
one basic choice delegations face is whether to have a simple single
trigger and single remedy or a number of triggers and an escalating
series of remedies. I cannot help but observe that if the aim is to
have something simple (which I thought it was) then a single
trigger/single remedy approach would seem more appropriate. The
current Article 5 has a default trigger of 125 per cent of imports
compared to the most recent 3 year period for which data are
available.
9 The duration of application of the remedy
under the SSG is for the rest of the year in question. I think there
is a certain logic to this that is of more general application. If it
was for 12 months after initial application, it would have the effect
of reducing the annual average for imports for the following periods.
10 Seventh, as regards the price-based SSM,
the idea that the price-based Special Safeguard Mechanism should
depend on the CIF import price of a consignment compared to some
average price appears to be generally accepted. It also appears to be
generally accepted that the remedy would be based on the difference
between the import price and the trigger price, that is the lower the
import price relative to the trigger the greater the additional duty
that could be imposed. The two main ideas that have been put forward
are for an annual average or a monthly average both based on import
prices for the previous three years for which data are available. I
would feel that an annual average would be more representative than a
monthly average.
11 It also appears to be generally accepted
that the remedy would be based on the difference between the import
price and the trigger price. That is, the lower the import price
relative to the trigger the greater the additional duty that could be
imposed. However, that leads to two further questions: (i) should the
price be allowed to fall by x per cent below the trigger before any
remedy could be applied; and (ii) should the remedy fully or partially
offset the decline in price. The current SSG does require that the
import price be more than 10 per cent below the trigger price and the
remedy does not fully offset the difference between trigger minus 10
per cent and the actual import price.
B. Tropical and
Diversification Products back to top
Coverage
12 In the Reference Paper on tropical
products of 17 May of last year I pointed out that, over the past 50
years or so, there have been many attempts to put together the
definitive list of tropical products. None succeeded. The closest
thing is the indicative list used in the Uruguay Round. And that,
apart from anything else, begs the question of “diversification”
products. But maybe it can at least help us a bit. The Uruguay Round
list was not exhaustive, but it was indicative. At the very least I
think it is entirely reasonable that the Members should not be
stepping too far back on what at least they could largely go along
with in the Uruguay Round. That list of seven product categories was
not then definitive. But tropical products that were suitable for at
least indicative status then should not now be willy-nilly excluded
(apart of course from the fact that non-agricultural tropical products
are not our business here) from such status (with all due respect to
the consequences of global warming). So that list should be as close
as possible to an acquis. Perhaps the way to approach it is to suggest
that, as regards the Uruguay Round indicative list, only a very
limited number of lines (to be fixed) could now be taken out of
consideration as tropical by any Member but, if so, this should not be
costless, as it were. For every tariff line excluded from the list, a
multiple of alternative tariff lines (to be fixed) from the more
extensive list in Job(07)/31 should be added.
13 The more significant operational question
should be what else would be considered to be tropical or
diversification that is not on that list.
14 I see only three options. One is that we
get multilateral agreement on an extended list. As I say, I don’t see
it happening out of nowhere and I would very much urge Members not to
engage on overly wishful thinking on this any more. Two is that we
take the proponent list (net of Uruguay round indicatives) and get a
rejection process: if you object, then it is not on a list for you,
but if you do not object, then it is on for you. There would, however,
have to be an up-front condition reflecting what I would venture is a
reasonable concept: that we are making advances over where we were in
the Uruguay Round on this as well as on all other things. So, in that
spirit, no importing Member can object to everything new on that list
— otherwise they are effectively staying on the same position that
they had in the Uruguay Round. Plus I would suggest that — as a rule
of thumb — there would have to be at least say a one-third or one-half
increase in the number of lines eligible for that status this time
around as compared to the Uruguay Round. There is also a need to
provide a short rationale as to why the Member concerned does not
consider it to be tropical or diversification: this simply so that
none surrender too readily to any temptation to object for the sake of
objecting. I wouldn’t want to over-sell such an idea, but if Members
were to act in good faith and only object where they had a genuine
disagreement on its tropical and diversification status it might at
least mean some tangible improvement over where we are today. Three,
you get no pre-agreement and you just leave it to the bilateral
process. Good luck is all I can say on that.
Treatment
15 Various proposals have been made. The
most recent was for reduction to zero for tariffs of between 0-25% and
reduction by 85% for tariffs greater than 25%. Another was to apply
the maximum reduction applicable under the tiered formula, an
additional effort where there was tariff escalation and elimination of
in-quota duties. Between these two a solution will have to be found.
It would seem to me that there is some logic to the proposal that
tariffs at the lower end of the spectrum should be reduced to zero —
although the lower end of the spectrum may be somewhat lower than 25%.
16 Otherwise, I can only interpret the term
according to its plain meaning and in its context. The term “fullest
liberalization” occurs in the context of the Framework. It cannot have
a subjective meaning according to the whim of each and every Member.
What can possibly be the standard of “fullest” from within the context
of the Framework? It would seem to me to mean that the tariff cuts
applicable could be no less than the largest that occur within the
framework. Otherwise, it would not be the “fullest” liberalisation. At
a minimum, that suggests that the tariff reduction applied to the top
tariff band (which, under a tiered formula, can normally be presumed
to be the “fullest” liberalisation cut) should at least apply to all
tropical and diversification products. If, elsewhere, there turns out
to be treatment that is “fuller” than that, that would presumably be
the prevailing benchmark.
C. Small,
Vulnerable Economies back to top
17 From the mandate it is clear that the
modalities should address the fuller integration of small, vulnerable
economies into the multilateral trading system but without creating a
sub-category of Members. In the proposals made by the group of small,
vulnerable economies, three distinct elements have been raised: the
definition of what is a small, vulnerable economy; how their concerns
relating to improving market access may be addressed; and how their
export interests may be addressed.
18 In order to define what is a small,
vulnerable economy, there is a proposal from the group which states
that they are Members with economies that, in the period 1999 to 2004,
had an average share of world merchandise trade of 0.16 per cent or
less and world trade in non agricultural products of 0.1 per cent or
less and world trade in agricultural products of 0.4 per cent or less.
In the absence of any contrary view I will take that this definition
is acceptable. I would also assume that in submitting their draft
Schedules any Member that claims that its economy meets these criteria
would provide verifiable supporting data.
19 The group of small, vulnerable economies
proposed that their export interests should be addressed by a modality
that would require all Members to provide enhanced improvements in
market access for products of export interest to SVEs. I do not recall
any delegation disagreeing with this proposal.
20 While the proposal made by the SVE group
is independent of proposals on Special Products generally, I would
note that it does follow very closely that of the G-33. However, at
this stage there is no consensus among Members on the designation and
treatment of Special Products. Therefore, I feel that, at this stage,
there is little I can usefully add beyond noting that, as regards my
own comments on special products, I would have envisaged that some
form of additional flexibility — whether in terms of number and/or
treatment — under Special Products — reflecting the potentiality of
disproportionate impact — would appear to have been the most
appropriate means for addressing the specific import concerns of
small, vulnerable economies.
21 There was a considerable amount of time
spent last year in looking at various proposals for amendments to the
Green Box and some degree of convergence emerged. This is not
necessarily reflected as clearly as it warrants in the Draft Possible
Modalities as that document recorded all formal positions and not the
informal progress that had been made. While we may not yet be (quite)
at the point of specific textual amendments, I think we are at the
point where some things can be spelt out more clearly.
Fundamental requirement and basic
criteria.
22 I have noted that there have not been any
proposals that paragraph 1 of Annex 2 should be amended. It won’t be.
Government service programmes: General
Services
23 There does not seem to be any objection
to extending specific coverage of paragraph 2 of Annex 2 to
specifically cover land reform programmes in developing countries and
include associated administration and legal services. But there are
some objections to wording that would extend it to cover other
programmes related to other objectives, such as rural development and
infrastructure provision. I feel we will be able to draft even in such
areas in a way that is not too open-ended and avoids fundamental
inconsistency with paragraph 1. In other words I remain of the view
expressed earlier in my reference papers. I would also note that the
chapeau to paragraph 2 specifically states that General Service
programmes are not restricted to the list in subparagraphs (a) to (g).
Public stockholding for food security
and domestic food aid
24 There is some support for the proposal
that footnote 5 of Annex 2 should be amended so that the acquisition
of stocks for food security should not be accounted for in the AMS or
that such stocks acquired with the objective of supporting low-income
or resource-poor producers would not have to be accounted for in the
AMS. I remain at least of the view expressed in my reference papers on
this as a way to respond. The deletion of the phrase “provided that
the difference between the acquisition price and the external
reference price is accounted for in the AMS” from the end of footnote
5, as proposed by the African Group, might be a more clear-cut way to
achieve this.
25 There is also support for proposal to
amend footnote 5 & 6 to cover the acquisition of food stuffs at
subsidized prices when procured generally from low-income and
resource-poor producers in developing countries with the objective of
fighting hunger and rural poverty. However, there are also concerns
that such amendments could cover programmes that have objectives other
than the acquisition of stocks for food security or the provision of
domestic food aid. This it seems to me is a matter of getting the
right terms of the amendment.
Direct payments to producers
26 I have not detected any major objection
to the proposals that some of the paragraphs 5 to 13 of Annex 2 should
be amended to explicitly cover pilot programmes and new programmes in
developing countries. In addition, there did not seem to be any
objection to amending paragraph 8 to permit compensation for losses of
less than 30 per cent of the average production in cases of
destruction of livestock or crops for disease control purposes.
27 I also detected during consultations last
year that there was real progress emerging on the issue of fixed and
unchanging base periods. I think this is doable. It is a matter of
getting the drafting right so that it would not have the perverse
effect of deterring Members from moving into the Green Box. The
concept is clearly to draft in a way that provide for occasional
changes in base periods provided these were not done in a way that
implied a link to prices or production. There is a certain logic in
taking the view that if it is workable in paragraph 6 it should be
commensurately workable elsewhere (e.g. 11 and 13) but I sense a
greater reticence there than in paragraph 6 that needs to be
addressed.
28 Beyond that, I have the impression that
there is a strong reluctance to entertain much more by way of
amendments to Annex 2. Of course a number of Members would prefer
things otherwise, but I doubt that view will prevail. However, I do
consider that this means, as a practical consequence, that there is an
absolute requirement to have much more precise and effective
provisions on transparency, monitoring and surveillance. This is
something that I feel will need to be done in any case, but it will be
inescapable and it will not be relatively light-handed if indeed there
turns out to be a relatively scaled down level of textual amendments
beyond the areas noted above.
E. Least-Developed
Countries back to top
29 It has been clear for some time that
least-developed countries will not undertake any reduction commitments
and will have full access to all special and differential treatment
provisions. It has also been clear since the Hong Kong Ministerial
Conference that they will get improved market access for their exports
to developed countries and to those developing countries declaring
themselves in a position to do so. Therefore, the modalities will have
to reflect the agreement already reached on these points and translate
them into agriculture specific terms.
30 The Hong Kong Ministerial Conference
states that developed countries shall, and developing countries
declaring themselves in a position to do so should, provide duty and
quota-free market for at least 97 per cent of products originating
from least-developed countries by the start of the implementation
period. Those that do not provide duty and quota-free market access
for all products originating in least-developed countries would be
required to take steps to progressively achieve this objective. Unless
there is any objection, I will assume that this applies specifically
to agriculture tariff lines just as it does to all tariff lines. That
is, duty and quota-free access for at least 97 per cent
least-developed countries’ agriculture exports will be provided from
the start of implementation by developed countries and developing
countries declaring themselves in a position to do so.
31 Furthermore, although it may mean
repetition between agriculture and other areas of negotiations I would
also suggest that the agriculture modalities would also refer to the
other issues relating to market access for least-developed countries
that have been agreed to, in particular, to rules of origin.
32 Finally, I don’t think — at least on
agriculture — that we should rest on our laurels just with the 97%.
Even if that last 3% cannot be achieved by the commencement of the
implementation period, it is something to aim for at least by the end.
F. Cotton — Market
Access back to top
33 The Hong Kong Ministerial Declaration is
quite clear concerning what developed countries must do in terms of
improving market access for imports of cotton from least-developed
countries — they are to provide duty and quota free access for cotton
exports from them from the commencement of the implementation period.
Therefore, the issues before us now are whether to extend duty and
quota-free access into developed countries for cotton from other
developing countries and whether the modalities should include market
access by developing countries for imports of cotton from other
developing countries.
34 One approach that might be considered
would be to repeat in the modalities for cotton the language from the
Hong Kong Ministerial Declaration on least-developed countries. That
would mean wording that would state that developed countries will, and
developing countries declaring themselves in a position to do so
should, provide duty and quota free access for imports of cotton from
least-developed countries. If there is no objection this could be
extended to cover imports from all developing countries as well.
G. Recently
Acceded Members back to top
35 Following the consultations undertaken
last year by the Chairman of the General Council, I understand that we
now have some clarity on the definition of what are the Members that
recently acceded to the WTO for the purpose of modalities that would
address the particular concerns of recently acceded Members. This
would mean that all Members that acceded to the WTO since the
conclusion of the Uruguay Round, except those that have since joined
the European Communities and those that are classed as least-developed
countries, would be able to avail themselves of specific flexibility
provisions.
36 Having defined what are the Members that
will be able to avail themselves of specific flexibility provisions we
now need to consider the substance of these provisions. However,
before doing so, it may be necessary to get some clarity on the status
of some of the Members that recently joined the WTO. I have noted that
some of these Members have stated clearly that they are developing
countries and that they will apply the modalities that apply to
developing countries. I have also noted that those three RAMs that
were unable to accede to the WTO with developing country status would
like to avail themselves of the flexibility provided for under special
and differential treatment. There is also the group of low income,
recently acceded Members with economies in transition that have
proposed that they should be eligible for further flexibility.
37 If I hear no dissenting opinion, I will
assume that consensus applies to the proposal that all RAMs will be
able to apply all provisions relating to developing countries’ special
and differential treatment in the areas of domestic support and market
access. In addition, those RAMs that have acceded with the status of
developing countries will, as other developing countries, be eligible
to whatever flexibility provisions might be agreed for export
competition. Similarly, if I hear no dissenting opinion, the three
Members that have proposed that they, as low income, recently acceded
Members with economies in transition would be exempt from reductions
in support and protection would have this reflected in the draft
modalities.
38 Consensus on these suggestions would
provide more flexibility for some RAMs but it does not provide
additional flexibility for those that acceded to the WTO with the
status of developing countries. But the mandate requires that the
extensive market access commitments undertaken at the time of
accession should be taken into account and, presumably, this applies
to those that joined with the clear understanding that they joined as
developing country Members.
39 You will not be surprised that I do not
see RAMs obtaining everything that is asked for: it will be less, at
least in some respects. Herewith some thoughts in that spirit.
40 It is my sense that Saudi Arabia and
Vietnam as very recently acceded Members should not be subjected to
further new Doha Round undertakings. FYROM is not, strictly speaking,
in quite that same period, but absent any objection from Members, I am
inclined to see them in the same category.
41 There is a proposal that small low income
recently acceded members with economies in transition should not be
required to undertake reductions in final bound total AMS and the de minimis level together with the proposal on investment and input
subsidies in
TN/AG/GEN/24. I do not see this as fundamentally
problematic and something that could be accommodated.
42 On domestic support, there is a specific
proposal on treatment of RAMs as regards de minimis cuts. As you will
have seen from my first paper it is in fact my view that the Framework
can only be interpreted to mean that there should be special and
differential treatment for developing countries generally as regards
the cut in de minimis but that that could not be interpreted so far as
to mean there should be no cut at all — a matter which is expressly
reserved to least-developed countries only under the framework. For
what it is worth, my sense was that a two-thirds commitment was about
right generally i.e. 30% with an additional amount (if necessary) to
ensure overall OTDS commitment arrived at is met. I would apply the
same logic here: if it had been intended to give no cuts whatsoever to
RAMs it would have said so and the only category for which this is
expressly reserved is leastdeveloped countries. But that does not mean
no flexibility whatsoever. I would suggest an additional 5 percentage
points is about right, i.e. a 25% cut rather than a 30%.
43 As far as market access tariff cut phasing is concerned, I am aware that there appear to be only three RAMs Members that would have a situation for some products where their
accession implementation stretches to 2010 or 2011 i.e. beyond the
(now) earliest possible Doha implementation period of 1 Jan 2008. For
those products concerned I think it would be reasonable that accession
implementation not overlap with new commitments so, for those
products, my inclination is that it would be reasonable that Doha
implementation commence 12 months after the date of final
implementation of accession commitments (i.e. delay until full
accession implementation plus a twelve month pause).
44 I am not aware to this point that this is
an issue for domestic support commitments deriving from accession
implementation commitments so it is not evident to me that there is a
practical point at issue here.
45 As far as market access cuts are
concerned, the various proposals that have been received suggest
lesser cuts (50% of the reduction for developing countries under the
tiered formula has been proposed) and exemption from reduction for
bound duties of 10 per cent and below.
46 As I say above, I happen not to believe
that Members — even RAMs — will actually obtain the entirety of what
they seek. In this case, as it happens, I am certain that it will be
less. I could just sit and wait and see where we get to on all the
substantive areas and then just see what actually comes out in the
wash here. But I have — for better or worse - at least given you some
sense (such as I have) as where I think some of the market access
approaches at the more general level might come out. So I will — for
better or worse - share with you some such sense as I have of how such
scenarios could play into a RAMs outcome also.
47 I could just about foresee circumstances
in which Members will eventually accept that, because RAMs commitments
are generally at the relatively low end of the protection scale (some
developing RAMs have tariff profiles on agriculture that would put
developed Members to shame), there should, indeed, be some moderation
of the tariff cutting formula that would otherwise apply. But the
notion that this should be as much as a straight half of the reduction
that would otherwise apply will, I anticipate, be deemed by some to be
too high an amount. My guess is that the degree of flexibility that
might be ultimately sellable could be around an additional 5% per band
(i.e. a cut in each band that is 5% less than generally applicable).
If we ended up with an overall target cut for developing counties, it
would also be clear that the specificity of the outcome derived from
the band-specific commitment would be to the determinant for the RAM
concerned, and if that turned out to be less than the target as a
consequence, that would prevail over the target.
48 It might well be that that is as much as
the traffic will prove to bear, full stop. But I would hazard the
guess that there could even be a preparedness to go also in the
direction of the below 10% threshold exemption. After all, this
element is in fact more directly reflective of the rationale for RAMs
flexibility (namely the comparatively low tariff profile of such
Members). But not in a totally unconditioned way. I would suspect that
if this was also to be an element it would be more along the lines of
a general moderation of the tariff cut otherwise applicable to for
tariffs below 10% or an exemption for some proportion less than the
entirety.
49 There is an (unquantified) proposal from
RAMs for additionality also on SP/SSM. My sense is that there might be
some preparedness to have some more specific provisions for these, but
my sense is that it will have to be an overall balance vis a vis the
above elements on lesser cut and below 10% special provisions. If the
weight of the additional specificity of measures for RAMs is to be
principally in the area of SP/SSM additionality I suspect we would end
up with lighter flexibility in the cut and below 10% elements than
what I am surmising above might prove doable. If on the other hand,
the weight of the additional flexibility was to be principally on
overall cut and below 10%, I suspect we would end up with lesser
additionality on SP/SSM. It might even wash out as something
approaching an optional approach.
50 All of the above is on the scenario that
we end up with the tiered formula. As you know, I am not proselytising
for what was described in my first instalment as a “radical thought”.
I should simply say that the extension of what I had written there was
to have had its sequel here as regards RAMs. That approach would have
a generally more moderating or flexible aspect than the tiered
approach in any case so I would have thought that the specific degree
of flexibility thereby warranted for RAMs would have diminished in
overall significance as a general rule. But it would have been my
intention to suggest that in the case of developing RAMs, there could
have been a somewhat reduced overall cut target from that generally
applicable for developing Members and that, for tariffs below a
certain level — and 10% would have been a plausible candidate — at
least a certain amount of these could have been exempt from any cuts-
i.e. that there would not have been the requirement for the minimum
tariff cut on each and every line for those at least.
51 This issue is scarcely anywhere in
serious negotiating terms. Are you prepared to do anything about it? I
can scarcely myself try to invent something out of nothing. If I was
honest about this — and I will try to be so — I could only conclude
that your revealed preferences to this point are that you would expect
this to drop by the wayside.
52 If that is not the case, it is time to do
a lot and to do it very quickly. To recall: the mandate requires that
the modalities address tariff escalation through a formula which
Members are to agree. Therefore, as a general rule, if, after
application of the tiered formula, the bound tariff on a processed
product is greater than the bound tariff on the commodity product from
which it was derived something must be done about it. Presumably, by
addressing it, we mean either removing the escalation entirely or
reducing the degree of escalation. It is to be noted also that
paragraph 36 of the Agreed Framework that refers to tariff escalation
is a general paragraph and not one that is under the heading of
“Special and Differential Treatment”. Therefore, while this is an
issue that is of particular interest to developing countries, the
modalities that will address escalation should not be limited to
tariff lines of special interest to developing country Members only.
53 We have two fundamental problems. Where
is this “tariff escalation” and where is the formula?
54 As anyone who has had the misfortune to
plod through a tariff schedules knows, it is, in some cases, quite
easy to identify the primary product and the products derived from it.
But in other cases it is very difficult because several primary
products make a pizza. That leads to a first question: how can we
define processed products and their primary parent? Having the answer
to this leads to the test — is the tariff on the processed product
higher than the tariff on the primary parent? If the answer is “yes”
then we reach the last question: what is the formula to address the
escalation?
55 Concerning the list of products, there
are two choices. One is that we leave it to Members to define them as
they prepare their draft Schedules and we leave it to other Members to
check during verification. I would doubt that such an approach would
work. I expect that it would simply never happen in practice and we
would be well advised not to kid ourselves that it would.
56 Alternatively, we could have an a priori
list of primary products and the processed products derived from them.
A number of proposals were received last year which, when combined,
did appear to be quite expansive. But I never had the impression these
were seen by Members (other than those proposing them) as anything
with a status more than ambit claims. Be that as it may, we are
nowhere near agreeing anything on this. Even assuming we do agree to a
list based approach, we also need to consider whether exceptions would
be allowed or not.
57 I have to confess that there has been an
utter paucity of realistic negotiation over this and I cannot make any
other observation than that there is not the slightest thread of an
approach that has come through as a possible way forward on this. When
are you going to do it? I cannot frankly see any realistic chance of
doing it within the time frame you have effectively set yourselves for
modalities unless there is a quantum leap in efforts on this front.
Otherwise the best I can foresee is that this effort would parallel
the preparation of schedules on the understanding that what is agreed
by the time of presentation of schedules will be included in them -
albeit that that is a fraught expectation at best.
58 Although the test (if the post-reduction
tariff on the processed product is higher than the post-reduction
tariff) is simple enough we do need to consider what degree of
escalation is significant enough to require that it be addressed. The
Framework does not mention anything about addressing escalation above
particular levels — indeed it seems to be very clear “tariff
escalation will be addressed through a formula to be agreed”. That
does not give much scope for flexibility. If there is escalation the
formula will be applied. Does it preclude any flexibility e.g.
tailored to Sensitive Products and Special Products? But if you apply
that in its purity, how does it relate to the tiered formula? Does it
override it? But we are still struggling with the tiered formula in
the first place! Is all of this to be potentially capable of trumping
the tiered formula otherwise agreed?
59 So, let us for the moment assume
(fantasise might be the better verb) that we do (eventually) know what
the products are - what should the formula be? Various proposals have
been made, such as the lesser of reducing to the tariff on the primary
product or applying a factor of 1.3 or, if the processed and primary
product were in the same tier, applying the lesser of reducing to the
tariff on the primary product or the reduction of the next tier (or x%
more if they were both in the higher tier).
60 To me, at least as a purely technical
observation, the latter modality does appear to be more oriented
towards the tiered formula and would remove the need to negotiate the
factor to be applied, except for those tariffs in the top tier. For
these one could at least consider such ideas as a reduction for the
processed product of the standard reduction for the top tier plus the
difference between the third and fourth tiers, but I am frankly seized
of a certain unreality in all this given what we have been focussing
on up until now as regards trying to settle the tiered formula itself,
not to mention sensitive products (among others). I am somewhat
doubtful that, politically, there is going to be much appetite for
accepting that application of this element will turn out to materially
transform the outcome that would otherwise apply by dint of
application of the tiered formula per se. Now, one might well say (at
this late stage) well, that’s too bad — that’s what the mandate says.
But if that is in fact so why have we been hearing so little about
this up until now?
I.
Tariff Simplification back to top
61 The Framework says simply that the issue
of tariff simplification remains under negotiation. Thus, there is no
agreement or indication concerning whether and, if so how, the
modalities will address tariff simplification. However, I have not
detected any opposition from those that use some of the more complex
forms of tariffs that they would be opposed to at least some degree of
simplification. Nor have I heard any indication from any delegation
that it intends to bind its tariffs in a form more complex than the
current binding. However, positions remain far apart and the proposals
range from binding in ad valorem only terms to simplifying highly
complex matrix tariffs.
62 If Members do agree to simplify tariffs
we need to consider whether this is something to be left to individual
Members and that we will all see the results in their draft Schedules
and have the opportunity to question the degree of simplification and
the methodology used during verification. On the other hand, if we are
to require that all tariffs be bound in ad valorem only terms or even
simple ad valorem and simple specific duties, then the modalities
would need to specify the methodology that should be used.
63 Whatever the views of some Members, it
seems clear to me that at this late stage of the negotiations we are
most unlikely to get agreement for binding agriculture tariffs as ad valorem only or, in plain English, it is not going to happen. I am
also aware that it took over seven months to agree to the methodology
for converting non ad valorem tariffs into their tariff equivalent
just for the purpose of putting tariffs in the right band for the
tiered formula. And this methodology is not yet complete. That does
not give me much hope that we might agree to a methodology for a
predetermined degree of simplification.
64 Given the absence of guidance from the
Framework, or any subsequent agreement to deal with this (remember the
framework says simply that it is “under negotiation”; it does not even
reach the status of an explicit requirement to “address”
simplification), the differences in position and the time needed to
negotiate and agree to a methodology that would be needed to convert
complex tariffs to more simplified ones, at this stage I do not
currently see any other feasible outcome in the little time remaining
to us than such elements as modalities that specify that no tariff may
be bound in a form more complex than the current binding and that
complex matrix tariffs will be simplified in a transparent and
verifiable way. It is just possible that on the latter point there
could be something more concrete that would be forthcoming but that
would depend on largely unilateral undertakings from Members
concerned, it seems to me, rather than something of overall general
application. But it is up to you to prove me wrong in my prognosis.
J.
Long-Standing Preferences and Preference Erosion back to top
65 I am firmly of the view that the central
question is a practical one: just exactly what is the extent of our
potential problem? I revert to the recent WTO Staff Working Paper(2),
which reports that the risk of preference erosion for agricultural
products is concentrated on a relatively small range of products, with
almost 85 per cent of potential impact (across the most affected
Members) coming from sugar and fruits and vegetables (most of which is
due to bananas). “A small proportion of losses also come from animals
and products thereof (which is mainly beef) and beverages and
spirits."
66 So, the relatively big numbers (as
regards risk — and this it should be emphasised is not necessarily
actual) appear to be in sugar and bananas. And they are key areas for
what would be specifically covered by “long-standing” preferences.
67 Well, as regards bananas my sense is that
there will need to be a specific settlement on this one, of which the
Doha Round per se is not the principal determinant. And everyone knows
that and is acting on it accordingly. Bananas will be settled or it
won’t be. Let’s not kid ourselves: it is not going to sleepwalk to a
solution through whatever generalised approach we have on tariff
formulas in the Round. It will be a banana-specific outcome and it
will only work as a full and final settlement by all involved. I
believe that, as they say, “efforts are being made”. Not much more
that can be usefully said right now. It is there for the time being as
what the Canadians might call “the moose on the table”.
68 Sugar? It is certainly conceivable that
there will be, technically, some reductions in the mfn duty rates for
sugar in the key developed country markets. Strictly speaking one
cannot be sure what the exact impact will be because one does not know
what precisely will be done by way of tariff cuts, one does not yet
know whether or not sugar will be declared sensitive and, if it is
declared sensitive, the treatment is not currently settled either.
69 Even allowing for those uncertainties, it
seems that whatever the numerical reduction in mfn tariffs might end
up being, it is hard to imagine that the consequence of that will be
to either fundamentally open up the markets concerned to
non-preferential suppliers or to drive down internal prices to any
significant degree that would alter the returns to current
preferential exporters selling into the market. By comparison to what
is already affecting the EU internal domestic price (i.e. internal
reform) it seems reasonably safe to say that mfn tariff cuts are a
marginal issue. In other words the real effects on preferential
suppliers are way outside what might conceivably happen pursuant to
the Round.
70 So what does that leave us with? In macro
terms it is difficult at this point to see major areas of concern.
Indeed, none have particularly turned up in the consultations we have
had to this point. This does not, of course, mean that they are not
there. There are certain possibilities — the Malawi tobacco case is
one — that might well crop up. But this highlights the likelihood that
we are not going to end up with a one-size-fits-all approach in
agriculture.
71 It is to be presumed that there will be
tariff cuts that do affect some products where there are either
long-standing or other preferences in the sense that margins of
preference will always drop when mfn duties drop. The real issue is
not the pure technical mathematical fact. The real question is what
makes a material difference such that it warrants a specific response
and what might that response be.
72 At best I can offer some sense of
possible orientation by way of a conceptual “sieve”.
73 First, there is the question of
significance for a particular trade item for the exporting Member in
the particular market. I have reservations about taking some overall
formula and saying this is the definitive numerical threshold for
assessing significance. But it might be at least of some indicative
help. It is our best conceptual safeguard against taking some kind of
abstract and theoretical approach and obliging ourselves to focus on
the real problem. If there is a product that is going to represent a
particularly significant percentage of exports that would suggest at
least something to look for. What is the number? Twenty percent has
been mooted in the past. I am not proposing that number is the magic
one: it might be a bit higher or a bit lower. The key point is that
high product export dependency/intensity in a particular market is a
priori relevant.
74 But that’s only the first level of the
sieve, as it were. The question is then what is the extent of the
liberalisation in respect of that item that is actually going to
occur? There are, it seems to me, two key linked elements: the
magnitude of the tariff cut and the real-world consequences of it.
75 By way of pure magnitude, again, I have a
reticence about a hard and fast rule. There are always exceptions that
are conceivable, but I would have thought that, generally, a
relatively “low” drop in absolute ad valorem terms is unlikely to make
a huge real world difference. Plus, I confess that I don’t know yet
what the phase in period will be, but let’s use a hypothetical just to
orient ourselves. Say the standard was five years. So you would be
looking at say cuts phased in over five years. I would have thought
that any ad valorem tariff in single digits that was going to be
phased down over five years was not going to generally effect a major
and unmanageable adjustment. Even if that was going to entail going to
zero (e.g. as a result of tropicals specificity) that is less than two
ad valorem points per annum, and, in most cases (given the tariff
formulae doing the rounds), it’s going to be no more than three or
four ad valorem percentage points stretched out over up to five years.
Currency fluctuations in a week can be more than that. So I am not
saying a hard and fast rule, but, by and large, I would have thought
that it is unlikely that anything cut from current rates in single
digits would warrant specific attention. Even if you go as high as 15%
you are probably talking a maximum absolute cut that goes as high as
around seven or so ad valorem points.
76 That, in addition, is on the assumption
that mfn trade is in fact a principal source of competition in any
case - which often it is not. As the WTO study makes clear, it can be
often the case that the real competition is in fact occurring in
relation to existing preferential suppliers — whether under FTAs or
under other preferential arrangements.
77 But, be all that as it may, I would have
surmised that the area where there may be some greater likelihood of
material effects is going to be where there is (a) export intensity;
and (b) the cuts are taking place in rates higher than 15% ad valorem
and the gross size of the cuts is going to be higher than 10 ad
valorem points over the life of the implementation period.
78 To the extent that there are such items
that raise questions (and, as I have indicated above, it seems to me
we are not talking about a large potential universe of items), I do
not think it will prove to be the case that we are going to deal with
the situations through a one-size-fits-all approach. The matter is
further complicated by the possibility that there will be items in
play where there are tariff quotas at issue.
79 I would only suggest a couple of
orienting observations that would perhaps make sense in light of the
above. First, if there is a case where, for the product concerned, the
cut in the margin of preference is large, that would suggest to me
that — to the extent there is an issue at stake for the preference
receiver concerned - that the first best approach (if it is an option
depending on what the tariff regime is for the item concerned) would
be to maintain the margin of preference for the preference receiver.
80 Second, if there is a case where, for the
product concerned, the cut in the margin of preference is large and
sudden (and preference margin maintenance is not an option), that
would suggest to me that — to the extent there is an issue at stake
for the preference receiver concerned, the best manner of tailoring a
solution could be to smooth that suddenness i.e. suggesting a somewhat
longer implementation period than the default.
81 Third, tariff quota treatment raises
issues here of a very specific kind, but these remain unclear
generally at this point. I would simply note that here too there is a
more tailored approach that could be adopted.
82 I would only emphasise again that
addressing preference erosion does not necessarily limit the solution
to being trade-based. Indeed non-trade-based solutions, or
combinations of trade-based and non-trade-based solutions, may present
the most appropriate means of addressing preference erosion of any
kind and indeed have value in their own right. There is a need to be
concrete about targeted technical assistance programmes and other
appropriate measures, provided by the preference-granting Member, for
more effective utilisation of existing preference schemes, for
assisting long-standing preference-receiving Members to diversify
their export base and additional financial assistance and capacity
building to address supply constraints more generally.
83 Some or all agricultural commodities will
benefit from modalities related to the tiered formula for tariff
reductions, tariff escalation and the fullest liberalization of trade
in tropical and diversification products. We have a draft in paragraph
15 of the draft modalities that is currently in square brackets. I
have the sense that that is something which is, in fact, a reasonable
expectation and could be agreed. But it is fair to say that if we go
down that route, that is something that would probably only be doable
after the general modality specificity and before the finalisation of
submission of draft schedules. Is there a sense that when we take into
account what the centres of gravity are shaping up to be more
generally and what the reach of tropical and diversification products
might be as part of that, that there is likely to be a large residuum
that would need to be dealt with that would fit this category of
“commodities”?
84 We have had proposals on non-tariff
measures, technical and financial assistance and the relationship of
Article XX (h) to arrangements by commodity producers. I have to say
that I have detected very little way by way of emerging agreement on
these proposals to this point. Despite that, I would have thought
that, at the very least, there was scope for action in the area of
technical and financial assistance as regards diversification and
capacity building. As regards producer agreements, even if it is not
the case that Members prove to be in a position to agree to concrete
proposals in this regard right now would it not at the very least be
possible to agree to this as a matter for expedited study and report?
85 I have nothing at this point to add on
paragraphs 35, 48, 49 or 50.
__________
Footnotes:
1.— Please note that the covering note of the
first instalment of this document applies equally to the second
instalment. back to text
2.—
Non-Reciprocal Preference Erosion Arising
From MFN Liberalization in Agriculture: What Are The Risks? — WTO
Staff Working Paper (Low, Piermartini and Richtering), ERDS-2006-02,
March 2006. back to text
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