In the previous post, I discussed the process leading up to the forthcoming Bali Ministerial Conference of the WTO and the prospects for progress on a Doha Round ‘mini-package’. This ‘mini-package’ is planned to consist of three components: trade facilitation, some development/LDC issues and some agricultural elements (with the possibility of including other elements such as the dispute settlement review and the Information Technology Agreement if progress allows). In this post I discuss the issues being negotiated as part of the agricultural strand of this package.
The agricultural consultations have focused around three proposals tabled so far:
• a G-20 non paper which proposes an understanding on tariff rate quota (TRQ) administration provisions. This proposal envisages tighter disciplines for administering tariff-rate quotas, and how to deal with the possibility that the methods used might impede trade.
• a G-33 proposal on some elements of the draft modalities text on agriculture for early agreement to address food security issues. The proposal would enlarge the scope of measures eligible for the Green Box and exclude purchases for government stock-holding and domestic food aid at administered prices from the Amber Box/AMS.
• another G-20 non paper proposing a Ministerial Decision on export competition.
In addition, some elements on cotton are being explored as part of the LDC component of the package.
The G-20 also requested the Secretariat to circulate updated information on both TRQ administration as well as export competition. Based on those requests, the Secretariat has circulated studies on TRQ administration, on export competition and on export restrictions.
For the latest reports to the WTO membership on the state of the agriculture negotiations in the ‘mini-package’, the report of the CoA Chair to the cotton development assistance consultations in June and the report of the Director-General to the Trade Negotiations Committee in July are good starting points. In the rest of this post, we summarise the often rather technical issues involved in each of the three proposals.
Tariff rate quotas
The G-20 has proposed an early agreement on TRQ administration whereby the WTO would address the problems of persistent under-filled TRQs (i.e. when the fill rates are below 65% for 3 consecutive years) and find solutions to resolve them.
The WTO secretariat circulated its paper on tariff quota administration and fill rates in January 2013. During the period 2002-2009, data was available for 61% of scheduled tariff quotas but for the period 2010-2011 the number of TRQs for which a fill rate can be calculated drops to about 30%. During the period 2002-2011, tariff quotas were, on average, 61% filled There was some dispersion of countries around this average: among countries that posted simple average fill rates lower than 65% are China, India, the EU, Norway, Korea and the US whereas countries like Canada, Australia, Brazil and New Zealand have consistently recorded fill rates higher than 65%. Thus, tariff quota underfill appears to be a widespread problem.
The proposal replicates the supposedly stabilised text of the revised draft modalities document which contains two main obligations, on transparency and a mechanism to address persistent underfill. The mechanism spelled out in Annex E of the revised modalities would gradually raise the pressure on the importing member state to take measures to improve the fill rate, up to and including allowing unencumbered access through either a first-come, first-served mechanism or an automatic, unconditional licence on demand system. Developing country members could choose an alternative tariff quota administration method or maintain the current method in place.
Despite the apparently agreed nature of this text in the modalities document, other members are reluctant to support the proposal as it stands, with the special and differential treatment provision for developing countries a particular focus. For other members, their reluctance stems from the usual systemic issues of wanting to see how this proposal is linked to other issues proposed for early decisions, both within and outside the discussions on agriculture.
Addressing food security
Green Box issues
The first element of the G-33 proposal to address food security is to fast-track agreement on the additional paragraph in the revised modalities which would extend the general services exemption in the Green Box to cover domestic support related to rural development, land reform and infrastructure services in developing countries. The Ministerial Conference will not go so far as to formally amend the Agreement on Agriculture, but members have worked on declaration/communique language that would recognize in general terms that these policies and programmes could be considered to fall within the scope of “General Services” of Paragraph 2 of Annex 2 to the AoA, with the proviso that the declaration makes clear that the chapeau contained in Paragraph 1 of Annex 2 would fully apply to such policies and programmes.
Proposal concerning public stockholding for food security and domestic food aid
The second, and more controversial, part of the G-33 proposal seeks to expand the scope under WTO rules for developing countries to subsidise food purchases from low-income, resource-poor producers when building government stockpiles or providing domestic food aid.
The G–33 argues that the way trade-distorting domestic support (Amber Box/ AMS support) is calculated means that several developing countries are in danger of reaching or exceeding their permitted limits — in most cases this is a “de minimis” amount of up to 10% of the value of production. The problem arises because Amber Box support is not calculated by how much a government actually spends. Instead it defines price support by taking external reference prices, usually from 1986–88, and seeing how much higher are the government’s current administered prices. Inflation and rising commodity prices have forced up the administered prices and with them the Amber Box support calculation for some developing countries.
According to the G-33, this has eroded their policy space and a solution is required to help them to ensure the availability of food for their populations in need through a modification to the existing rules on market price support calculation.
Specifically, the G-33 want to fast-track provisions in Annex 2 in the revised draft modalities that would allow developing countries’ governments to buy food from low-income or resource-poor producers at government-set prices (“administered prices”, which would therefore provide price support for producers) with the objective of stocking it for food security purposes or distributing it as food aid — without having to count it as trade-distorting support, which is subject to limits.
If the food were bought at market prices, the programmes would not be considered to distort trade. It is difficult to see that there is an inherent linkage between ensuring the availability of public stocks for distribution to consumers and acquiring these stocks at administered prices which is more in the nature of a market guarantee for farmers.
Members hostile to the G-33 proposal have focused on the systemic impact of changing the current rules to such an extent outside of a wider negotiation. They also highlight the potential trade-distorting consequences of any such change. Developed countries in particular have expressed concern that the move could allow countries to provide unlimited sums of trade-distorting farm support to their farmers – potentially undermining producers in other countries.
Some potential ways to limit the reach of the proposal have been suggested in the discussions, such as i) product specificity (i.e. limiting any new flexibility to certain staple products like wheat and rice), ii) targeting, iii) restricting or disciplining the disposal of stocks, iv) capping the exemption, and v) associating a transparency and surveillance mechanism.
Nonetheless, it became increasingly clear that the original proposal was not likely to obtain consensus in the time before Bali.
More flexible AoA rules
The G-33 have followed up with a further non-paper in which they explore alternative approaches to the problem, such as a potential modification of any of the four variables that enter into the calculation of market price support subject to the de minimis constraint, namely, the “de minimis” level, the external reference price, eligible production and the administered price.
One option could be to raise the maximum permitted ceiling for developing countries’ “de minimis” support – currently set at 10 percent of the value of production for all developing countries apart from China which accepted a lower limit of 8.5 percent when it joined the WTO a decade ago. This might be raised to 15 percent for all developing countries instead, according to the proposal.
Another option could be to review the 1986-88 reference prices that are used as a benchmark for calculating countries’ market price support levels. The G-33 countries say that because this yardstick does not capture increases in food prices over the last few decades, it “grossly exaggerates and overstates the economic subsidy provided.”
A third variable that could be negotiated would be the volume of eligible production – which is multiplied by the difference between the external reference price and the administered price to give the value of farm subsidy provided. Using total production produces a much larger support figure than only the amount bought for stockholding.
A final option is to reduce the fourth variable – the administered prices provided to farmers – but this is precisely what the G-33 wants to avoid by its proposal.
Norway introduced a proposal just before the summer break which would permit some flexibility in the level of administered prices. The proposed solution would involve an adjustment in calculations to take account of markets that do not function properly, enabling at least some developing countries to acquire food at administered prices without breaching limits on trade-distorting domestic support. But there has not been time yet to gauge reactions to this proposal.
This second non-paper has faced similar criticisms from members not disposed to tampering with the existing Agreement on Agriculture rules. These countries argue that the complexity of the issue means it can only be resolved as part of a much broader agricultural negotiation, which is unlikely to happen in the short time left before Bali.
The critics also argue that, given the very different situations of different developing members, with most of them having no immediate risk of breaking their commitments, changing the existing rules would be both hasty and disproportionate to address the concerns raised.
An interim case by case solution?
This has led to discussion of a possible mechanism/process that might provide for some additional flexibility for specific members on the basis that this would be time limited, non-automatic, and create no or minimal trade or production distortions.
Such a mechanism could: (i) cover public stockholding programmes of developing countries related to food security; (ii) be applicable to staple crops, given the food security focus; (iii) that its use could be subject to an on-going provision of information that would allow members to monitor the situation; (iv) that members could look at safeguards or guarantees aimed at avoiding potential spill-over effect on markets; and (v) that the Committee on Agriculture would have oversight of the mechanism in terms of notification and monitoring discussions.
The basis for this mechanism is that any additional flexibility delivered should be time-limited and that the mechanism itself should be an interim one. The intention is that it would provide some additional breathing space for members having trouble respecting their commitments in respect of public stockholding for food security programmes while working to find a more lasting solution..
But key differences still remain, including the question whether the flexibility delivered under such a mechanism should be i) automatic; ii) non-automatic; or iii) a hybrid arrangement that would involve some degree of automaticity as well as case by case elements. A related question is the nature of the flexibility delivered under any self-executing or automatic mechanism. Some members have also highlighted the need for legal certainty to ensure that members were not challenged under the Dispute Settlement mechanism.
The committee has discussed a possible “peace clause” which would commit countries to refrain from challenging food stockholding and domestic food aid programmes in the WTO’s dispute settlement process. There is a precedent in paragraph 2.1 of the Doha Decision on implementation-related issues and concerns that urges Members to “exercise restraint in challenging measures notified under the Green Box by developing countries to promote rural development and adequately address food security concerns”. This provides some reference for further elaboration as part of the political messaging. However, no work had begun on drafting a possible text before the summer, with a number of members wanting to postpone debate until the possible outcomes on the other elements of the G-33 proposal are clearer.
Export competition
At the 2005 Hong Kong Ministerial Conference, members agreed to eliminate export subsidies by 2013. In May, the G-20 group circulated a proposal prescribing a first step towards eliminating export subsidies and disciplining export credit to reduce the chance that the credit is subsidized. This position is presented as in keeping with the 2013 deadline agreed in Hong Kong, which is also incorporated in the revised draft modalities text.
The G-20 has proposed that developed countries halve the maximum amounts they can spend on export subsidies by the end of 2013. The maximum allowed quantities of subsidized exports would also be reduced by the end of 2013 to the average actual quantities in 2003–05. No reduction has been proposed for developing countries. All WTO members would phase in a 540-day limit in the repayment period for export credit (the eventual target is the benchmark for commercial terms, i.e, 180 days).
The proposal has had a cool reception from the traditional users of these subsidies who warned that the proposal had the potential to seriously jeopardize the chances of outcomes in Bali (see ICTSD Bridges reporting here). They argued that the 2013 deadline was only agreed in Hong Kong as part of a complete Doha Round deal, and that export subsidy reductions would not be acceptable without a broader agreement across agriculture and in some cases in other Doha Round subjects. Some were concerned that the draft did not contain proposed reductions for developing countries. Some reminded members that they consider export restrictions to be important and that current practices lack transparency and discipline. The possibility of a compromise on this issue does not appear promising.
Cotton
Cotton is formally part of the development/LDC deliverable rather than agriculture in the Bali package, although the disciplines on domestic support, market access and export subsidies for cotton are part of the agricultural modalities. Progress on cotton was one of the four issues identified by the LDC group as part of an LDC package in Bali. Their proposal on cotton covered both trade and development assistance aspects.
On the trade front, they propose to include the standstill clause from their comprehensive proposal on cotton submitted to the 8th Ministerial Conference. This proposal would freeze domestic support for cotton at current levels as an interim measure.
The development component would create a link between the development aspect of cotton and the Aid-for-Trade initiative to create a framework conducive to the development of subregional or regional multidimensional and integrated programmes or projects for submission for financing by the development partners.
When the cotton issue was first raised as an offensive demand at the Cancún Ministerial Conference in 2003, the target was US domestic support which was a strong contributory factor in depressing global cotton prices. Since then, much has changed in the global cotton market (for a good overview, see John Baffes’ paper Cotton Subsidies, the WTO and ‘Cotton Problem’).
Brazil successfully brought a challenge against the US cotton subsidy programme which was resolved, not through changes to the US programme, but through compensation paid through a fund for technical assistance and capacity building of Brazil’s cotton sector as well as certain other countries. Cotton prices have remained depressed, but more because of the widespread adoption of GM cotton varieties in China and India as well as other producing countries. China is reported to be considering replacing its controversial state reserve policy under which substantial amounts of cotton were purchased at prices well in excess of world market prices by direct subsidies to cotton farmers. Thus opposition to including a standstill on cotton subsidies in a Bali agreement could come from an unusual coalition of countries.
Assessment
In his final speech as Director-General to the Trade Negotiations Committee in July, Lamy warned that “Bali is about delivering results negotiated in Geneva, not about negotiating results.” Indeed, the meeting is scheduled to have only two working days, making clear that this is not a negotiating meeting per se. Any agreement has got to be reached in the preceding weeks.
This outline of the continuing differences with respect to the three issues in the agriculture-related package for Bali (which would be multiplied if account were also taken of the outstanding differences in the trade facilitation and development/LDC strands) documents how much of the road remains to be travelled in the remaining three months.
The question facing the negotiators in trying to construct a ‘mini-package’ is which settled elements can be extracted from the draft modalities texts which both make up a balanced package in themselves while not disturbing the balance of rights and obligations already established within each of the texts. While, in principle, the ‘early harvest’ agreements would be taken into account in any final assessment of the single undertaking, one can imagine that the beneficiaries will be tempted to pocket these gains and to discount their value in continuing negotiations in the knowledge that they are very unlikely to be revoked. Constructing the package is further complicated by the fact that not all members accept that the provisions drawn from the revised draft modalities are in fact settled.
Even if the ‘mini¨package¨curently being negotiated were agreed as a balanced package, the substantive question of the significance of the measures included evaluated against the level of ambition for the Doha Round as a whole remains. The TRQ and food security topics both address housekeeping issues left over from the Uruguay Round; only the increased disciplines on export subsidies and credits would represent some further steps towards liberalisation, and the prospects of agreement on this issue as part of a ‘mini-package’ are, frankly, nil.
The WTO now has a new Director-General, the Brazilian Roberto Azevêdo. Whether a new face at the helm will be able to influence the negotiating dynamic in Geneva within this short space of time is unclear. If indeed there is no agreement on a Bali mini-package, what will he try to do with the Doha Round in a post-Bali world?
Photo credit: Embassy of Indonesia
