WTO failure on trade facilitation agreement puts question mark over Doha timeline

On Thursday this week, the WTO Director-General Robert Azevêdo admitted to failure in concluding the negotiations to adopt the Protocol of Amendment on the Trade Facilitation Agreement (TFA) by 31 July as had been agreed by Ministers at the WTO Ministerial Conference in Bali last December. The Protocol of Amendment was intended to start the process to formally insert the trade facilitation deal into the overall WTO Agreement.
The TFA was part of a carefully-balanced package at Bali designed to get substantive negotiations on the Doha Round again underway. In addition to a series of decisions and declarations on trade facilitation, agriculture, cotton, development and least developed country (LDC) issues, the Ministerial Conference had set a deadline of the end of 2014 for the Trade Negotiations Committee to develop a clearly-defined work programme on the remaining Doha Round issues. Work in Geneva had begun to focus on developing this work programme, but as Director-General Azevêdo admitted to the meeting of the WTO General Council on 25 July last, the talks were still at an early stage. Some countries were probably holding back until they saw what transpired with respect to the TFA.
The failure to approve the TFA Protocol of Amendment was due to India’s insistence, at a late stage, in linking its approval to an acceptance to bring forward the date to reach a permanent solution to the treatment of farm price support programmes in the context of public stock-holding programmes for food security. A Bali Ministerial Decision had set a date of December 2017 to reach a permanent solution to this issue, and had created an interim mechanism under which WTO members agreed to refrain from challenging the compliance of other members with pre-existing support programmes for staple food crops related to public stock-holding schemes with their domestic support obligations, provided that member complied with the conditions set out in the Decision.
India wanted to fast-track the negotiations on farm price support linked to public stock-holding schemes with the intention to try to reach agreement on a permanent solution instead by December of this year, and in the meantime to delay ratification of the TFA Protocol of Amendment until that was achieved. Most WTO members wanted to maintain the original deadlines to which all countries had agreed at Bali, but India refused to back down from its position. Thus, the July 31st deadline to approve the TFA Protocol of Amendment has passed and the Bali timetable has not been met.
According to Director-General Azevêdo, “My sense, in the light of the things I hear from you, is that this is not just another delay which can simply be ignored or accommodated into a new timetable — this will have consequences. And it seems to me, from what I hear in my conversations with you, that the consequences are likely to be significant.“ He has asked members to use the August break to consult and reflect and to wait until September before giving their views on the implications for the rest of the post-Bali agenda.
India’s arguments on domestic support

While India is seen as the country that has thrown the spanner in the works and derailed the TFA implementation process, with as yet unforeseen consequences for the rest of the Bali timetable, it must be emphasised that, along with the G-33 group of developing countries, it has raised an important issue with respect to the measurement of domestic support in the current Agreement on Agriculture rules.
The purpose of WTO agricultural rules is to encourage countries to support their farmers, if that is what they want to do, in ways that do not damage farmers in other countries. Under the Agreement on Agriculture, there is a wide range of options available to developing countries to support their domestic agriculture which are not restricted or disciplined in any way. However, all WTO members face limits on the amount of trade-distorting domestic support that they can provide.
The fundamental difficulty is that the legal rules for disciplining domestic support in the Agreement on Agriculture do not make a lot of economic sense. A country’s domestic support policies are disciplined through commitments based on the Aggregate Measurement of Support (AMS). Individual AMS’s are calculated for each basic agricultural product as the sum of market price support (MPS) and non-exempt direct payments or other subsidies not exempt from reduction commitments. In turn, market price support (MPS) is calculated using the gap between a fixed external reference price and the applied administered price multiplied by the quantity of production eligible to receive the applied administered price. The fixed external reference price is based on the years 1986 to 1988 (or as defined in the accession agreement of a member).
Economists have pointed out two principal flaws. One is that the inclusion of market price support (MPS) as part of domestic support is double-counting because the tariff disciplines in the market access pillar are sufficient to discipline market price support. It is also open to abuse in that countries can reduce the MPS element of domestic support by simply eliminating or lowering the administrative price without affecting the overall level of support to producers provided tariff protection remains in place.
The other criticism is that market price support is calculated relative to a fixed external reference price. Particularly given the sharp rise in world food prices since 1986-88, comparing current administered support prices to these fixed external reference prices can give a very misleading impression of the economic level of support provided by a government to its farmers. In principle, a government could report positive domestic support to the WTO even if its administered support prices and domestic market prices were below current world market levels and it was taxing its farmers in economic terms.
India, in particular, is likely to have problems in meeting its legal obligations under the Agreement on Agriculture. Its latest domestic support notifications to the WTO only go to the year 2003. Lars Brink has simulated what India’s notifications might be in the years to 2013 depending on the different methodologies it might choose to use when making its notifications. If India were to strictly follow the methodology foreseen in the Agreement on Agriculture, its domestic support to the major crops wheat, rice, cotton and sugar would greatly exceed its WTO commitments. It could demonstrate a greater level of compliance by using methodologies that deviate from that provided for in the Agreement on Agriculture, but this could leave it open to challenge under dispute settlement procedures from other members. And this could occur even though India’s support prices for crops such as wheat, rice and cotton have not been divorced from international prices, indicating limited if any economic support to producers of these crops.
The G-33 raised this issue in a round-about way prior to Bali by focusing on the implications of purchasing supplies at administered prices for public stock-holding programmes for food security purposes. I have discussed the G-33 proposals in more detail on this blog here and here.
In a recent ICTSD paper I reviewed the options that have been suggested to date for a permanent solution to the farm price support/public stock-holding issue, including those made by the G-33. Among the options I considered:
1. Making the interim mechanism the permanent solution
2. Adjusting the fixed external reference price for inflation
3. Increasing the de minimis limits for developing countries’ domestic support
4. Changing the basis for the fixed external reference price
5. Changing the definition of eligible production
6. Disregarding administered prices set below market prices at safety net levels when calculating trade-distorting support
7. Removing market price support from the WTO definition of domestic support
Some of these options would be more easily implemented in the context of changing the rules around public food stock-holding schemes while others are more far-reaching and challenge the current basis for the calculation of all domestic support. All of the proposals have the objective to allow some developing countries to provide more trade-distorting domestic support than would be permitted under current WTO rules. India and the G-33 may find it easier to persuade other countries to agree to changes which are more consistent with the economic concept of domestic support than to changes which simply raise the limit on how much trade-distorting support they can provide.
India’s tactics in linking its domestic support demands to TFA approval

In my view, India displayed very poor negotiating tactics in linking its pursuit of a solution to its domestic support concerns to its approval of the TFA procedural amendment. By alienating a wide swathe of the WTO membership, it has been counter-productive in terms of trying to win support for its position that the rules on how to calculate domestic support should be changed. By adopting a spoiling strategy it has exposed a very defensive position in which no one really knows what it is looking for in terms of domestic support. And by putting the work programme on the remaining Doha Round issues in doubt, it has undermined its ability to achieve real gains in limiting the most distorting elements of developed countries’ agricultural trade and support policies by concluding a successful Doha Round agreement.
Although there is the view that India now has immunity from challenge for its domestic support policies linked to its public food stockholding programme, this is not the case. Any country wishing to make use of the protection offered by the Bali interim mechanism on public stock-holding must fulfil a number of conditions set out in the Bali Ministerial Decision on this topic. Specifically, the country must notify the Committee on Agriculture that it is exceeding or is at risk of exceeding either or both of its Aggregate Measurement of Support (AMS) limits (the Member’s Bound Total AMS or the de minimis level) as result of its public stock-holding programmes and it must provide up-to-date notifications on its domestic support programmes.
Despite being the main demandeur of this mechanism in the Bali negotiations, there is no sign that India is eager to make use of it. The fact that its price support programmes remain open to challenge could have been a factor in persuading it to seek an acceleration in the process of trying to reach a permanent solution.
But, to my knowledge, the Indian government has not so far put forward any proposals on which WTO members could negotiate. As the main demandeur in this area, it can hardly complain that other WTO members are not taking its demand for a permanent solution to the public stock-holding issue seriously if it has not made the effort itself to put a set of proposals on the table.
It was only at the Special Session of the Agriculture Committee on 23 July last that the G-33 introduced a proposal on public stockholding for food security in developing countries to explore the elements of a permanent solution. This proposal for a permanent solution on public stockholding is apparently almost the same as its original November 2012 proposal in the run-up to Bali, suggesting that the group has done no real thinking on how to address the opposition to that proposal expressed prior to Bali.
From this perspective, India’s knocking down the trade facilitation agreement risks being seen as a lazy and petulant act that is no substitute for a serious set of proposals on how the calculation of domestic support might be revised to address the real and appropriate concerns that India and others have raised.
In India’s defence, the outgoing government was facing into an election campaign in the early months of this year in which it was fighting for its survival, and presumably had little energy to devote to the intricacies of WTO negotiations. When the new government took office at the end of May, again it had many other issues to address in its early days, and one assumes its WTO position in Geneva was not an immediate priority. But the fact remains that its negotiating strategy will likely prove a disaster in terms of delivering on its agenda.
What can India offer?

Arvind Subramanian from the Peterson Institute for International Economics has argued that India needs to put something on the table to provide an incentive to other countries to negotiate on its demands. He points out that the rise in global food prices has created a gap between the structure of India’s agricultural policies and its WTO commitments. Essentially, India has huge leeway to raise tariffs but does not wish to do because, given the rise in global food prices, this would make consumer food prices even more expensive. But it has only limited capacity to provide support to farmers by raising administrative support prices because of the restrictive nature of its domestic support obligations. Subramanian’s suggestion is that India should offer to restrict its ability to impose tariffs in return for greater freedom to grant, less trade-distorting, domestic subsidies.
One objection to Subramanian’s proposal is that it sees the issue as an Indian problem, rather than a problem on how to calculate domestic support that potentially can affect a wider range of developing countries in the G-33 group. From that perspective, the question it raises is whether developing countries, in general, might be prepared to offer something on tariffs in return for gaining greater flexibilities on providing domestic support.
However, the corollary of this suggestion is that this rebalancing issue would be negotiated prior to, and separate from, any concessions on tariff levels that more advanced developing countries might be willing to make in the broader Doha Round context as a quid pro quo for more substantial cuts in tariffs by developed countries. This seems rather a far-fetched hypothesis and expectation.
However, carried to its logical conclusion, Subramanian’s suggestion implies that the permanent solution to the price support/stock-holding issue might best be arrived at in the context of a broader Doha Round agreement rather than as a stand-alone element as conceived by the Bali Ministerial Decision. Given that the issues at stake potentially go to the heart of how domestic support is calculated, this is not such a far-fetched idea and is certainly worth further exploration by the G-33.
Why completing the Doha Round remains important

Let us be clear why investing energy in trying to complete the Doha Round should remain the top priority in trade negotiations, and particularly from the perspective of developing the governance rules to underpin a trading system which can support and enhance countries’ prospects for food security. I make this case in my Presidential Address to the European Association of Agricultural Economists at the end of this month.
There are those who argue that the Doha Agenda is outdated because it does not address the growing number of new trade issues that have emerged since its mandate was agreed in 2001. Others argue that the Doha Round is hamstrung by its requirement that it should be negotiated as a single undertaking. Others impatient with the slow progress of multilateral negotiations prefer to advocate plurilateral agreements, or instead to try to achieve their trade policy objectives through negotiating bilateral or regional trade agreements.
While all of these alternatives have their superficial attractions, the problem is that none of them is going to deliver a robust framework of rules to govern agricultural trade and support. This can only be achieved in multilateral negotiations with all the major players around the table, and these negotiations will necessarily have to grapple with the issues that have been at the heart of the Doha Round discussions – market access rules, rules on export competition, and rules on domestic support.
Let us hope, when WTO members gather again in Geneva after the summer break in September, that a way around the current impasse can be found. A bold move by India will have to be part of this solution.
This post is written by Alan Matthews

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