The EU's position in the Doha Round agricultural negotiations

1
The EU's position in the Doha Round agricultural
negotiations

• Alan Matthews
• Jean Monnet Professor of European Agricultural
  University
• Trinity College Dublin, Ireland
• Presentation at the Slovak University of
  Agriculture in Nitra, 15 May 2006

2
Lecture outline

• The legacy of the Uruguay Round Agreement on
  Agriculture
• Background to the Doha Round negotiations on
  agriculture
• Negotiating positions in the Doha Round
• Doha Round success or failure?

3
Section 1. The legacy of the Uruguay Round
Agreement on Agriculture

• Three pillars
• Market access
• Domestic support
• Export subsidies

4
Market access

• Tariffication
• Tariff reduction
• Market access provisions
• Special treatment and special safeguard provisions

5
Tariffication

• Tariffication required countries to convert their
  existing non-tariff barriers (NTBs) into tariff
  equivalents. These tariff equivalents are
  established for the base period (1986-1988) and
  are entered in the Country Schedules as the base
  rate of tariff.

6
Tariff reduction

• For developed countries, an unweighted average of
  36 percent, subject to a minimum reduction of 15
  percent in each tariff line over a six year
  implementation period.
• For developing countries the commitments are 24
  percent and 10 percent respectively, and the
  implementation period extends to ten years.
• For least-developed countries there are no
  reduction commitments.
• Special Safeguards provisions, that enable a
  country which has used tariffication to apply
  additional tariffs to certain specified
  commodities, where import prices are particularly
  low, or where there is a sudden surge in imports.

7
Market access commitments

• Countries are required to maintain current levels
  of access, for each individual product, where the
  current level is based upon the volume of imports
  during the base period (1986-88).
• For commodities subject to tariffication, a
  minimum access should be established at not less
  than 3 percent of domestic consumption during the
  base period. This minimum level is to rise to 5
  percent by the year 2000 in the case of developed
  countries, and by 2004 in the case of developing
  countries.

8
Market access how much liberalisation?

• Effectiveness of the agriculture agreement in
  cutting protection was less impressive than the
  nominal cuts suggest, because
• tariff cuts took place from base levels that were
  frequently inflated through the choice of base
  year,
• through the methods used to measure protection
  existing prior to the round (dirty
  tariffication),
• Through use of unweighted average of 36
• through the use of ceiling bindings in
  developing countries
• Uneven tariff reduction many sensitive products
  can protected by high tariffs

9
Domestic support commitments

• Divided domestic support policies into three
  types
• Policies deemed to have a substantial impact on
  the patterns and flow of trade are classified in
  what is called the 'amber box and are subject to
  reduction commitments
• policies that are not deemed to have a major
  effect on production and trade are placed in the
  'green box'
• policies that fall into neither of these
  categories, but are, perhaps, somewhere in
  between, are known as 'blue box' policies.

10
Disciplining amber box policies

• All domestic support deemed to have a
  distortionary effect on trade is summed and
  included in a measure called the Aggregate
  Measure of Support (AMS)
• Progressive reduction in AMS levels by 20 over 6
  years.
• AMS includes
• Market price support where support provided by
  administrative support prices e.g. intervention
  (but not if provided by tariff protection alone)
• Calculated on the basis of world reference prices
  in 1986-88
• Coupled direct payments
• De minimis exemptions 5 for product specific
  and 5 for non-product specific support

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The green box

• Must meet the broad criterion of being minimally
  trade-distorting and, in addition, fit into one
  of the categories set out in the URAA
• Decoupled direct payment schemes
• producer retirement programmes
• resource (e.g. land) retirement programmes
• environmental protection programmes
• regional assistance programmes
• certain types of investment aid
• general services that provide for example
• research, training and extension
• marketing information
• certain types of rural infrastructure.

12
The blue box

• Direct payments under production-limiting
  programmes are exempted from AMS reduction if
• such payments are based on fixed area and yields
  or
• such payments are made on 85 percent or less of
  the base level of production or
• livestock payments are made on a fixed number of
  head.

13
Reductions in Domestic Support to Agricultural
Producers (Millions of US dollars)
                                                  
                                     ltgt
14
Export subsidy commitments

• No new export subsidies can be introduced
• Developed countries committed to reducing the
  volume of subsidised exports by 21 percent and
  the expenditure on subsidies by 36 percent, both
  over a six-year implementation period
  (1995-2000).
• For export subsidies the base period is generally
  taken to be the period 1986-1990.

15
Export subsidy reduction commitments by country
(Millions of US)
                                                  
                                     ltgt
16
Adjusting CAP to the URAA

• What changes were necessary to the CAP
  mechanisms?
• the implementation of tariffication
• other market access provisions
• no real effect of AMS provision
• more active management of export refund system to
  stay within subsidised export targets

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Section 2.

• Background to the Doha negotiations

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Chronology

• Third WTO Ministerial Meeting in Seattle in
  November 1999 failed to launch comprehensive
  negotiations
• Article 20 negotiations
• Analysis and Exchange
• the EUs Comprehensive Negotiating Proposal,
  December 2000
• Doha Mandate, November 2001
• EUs Specific Drafting Input, January 2003
• Harbinson Modalities, Feb/March 2003
• Adoption of the Fischler Reforms, June 2003
• EU/US Joint Initiative, August 2003
• Cancún Ministerial, September 2003 Derbez draft

19
Chronology

• EUs offer to eliminate export subsidies, May
  2004
• Framework Agreement, July 2004
• Paris May 2005 agreement on AVEs
• Dalien July 2005 G20 proposal on market access
• Zurich Oct 2005 proposals on market access
• Hong Kong Ministerial, December 2005
• April 2006 deadline for modalities also missed

20
Negotiation issues in agriculture

• Market access
• Export subsidies
• Domestic support
• Special and differential treatment (SDT) for
  developing countries
• Non-trade concerns
• Peace clause

21
Tariff reduction issues

• High bound tariffs remained in agriculture after
  URAA 62 on average
• Tariff-cutting approaches
• Request and offer vs formula approach
• Linear vs harmonising formulae
• Cocktail formulae
• Principles suggested by G-20
• Progressivity, flexibility, neutrality and
  proportionality

22
Example of Swiss formula

• T1 aT0/(aT0)
• With parameter a of 140, a tariff of 350 is
  reduced to 100
• With parameter a of 60, tariff reduced to 51.2
• With parameter a of 16, tariff reduced to 15.3

23
Blended and banded formulae

• Blended formula, where tariffs are reduced
  according to a mix of three approaches the
  Uruguay Round approach, the Swiss formula, and
  cutting tariffs to zero.
• Banded (or tiered) formula, where higher bands
  would be subject to a higher average reduction
• Harbison proposed using UR formula within each
  band
• Options for flexibility UR formula, sensitive
  products

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(No Transcript)
25
Domestic support

• AMS trade-distorting support how much reduction?
  Reduction method should support be reduced by
  a given amount or to a particular level? Limit
  product-specific support/
• De minimis what to do about it?
• Blue Box eliminate it or discipline it?
• Green Box should criteria be tightened? Should
  additional measures be allowed, e.g. non-trade
  concerns

26
Export competition

• Export subsidies various roads possible to full
  elimination (by commodity, by tightening value
  and volume constraints)
• Export credits discipline by rules, or by
  constraining government outlays?
• Food aid is food aid a form of subsidised
  export?
• Exporting State Trading Enterprises issues over
  government guarantees, monopolistic and
  monopsonistic powers, ability to price
  discriminate, price pooling

27
Section 3.

• Negotiating positions in the Doha Round

28
Initial US position

• Two phase process, leading to complete
  liberalisation
• Elimination of export subsidies within 5 years
• Use of harmonising tariff reduction formula to
  ensure maximum tariff is 25
• Expansion of TRQs
• Limit AMS to 5 of value of agricultural
  production and eliminate Blue Box
• Limited SDT for developing countries

29
Initial EU position

• Continuation of UR formula for tariff reductions
  (36 on average with 15 minimum)
• 55 cut in AMS subsidies over 6 years
• Reduction in export subsidy expenditure by 45
  and elimination for specific products
• SDT for developing countries, including free
  access for the least developed countries
• Emphasises non-trade concerns such as food
  labelling, animal welfare, geographical
  indications and precautionary principle in the
  agricultural negotiations

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The July 2004 Framework Agreement

• Followed the failure at Cancun and the
  Lamy/Fischler letter offering to conditionally
  eliminate export subsidies
• Pre-modalities document set out principles to
  guide the negotiations but contains no figures
  and little structure

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July 04 Framework Agreement market access
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July 04 Framework Agreement - market access
33
July 04 Framework Agreement domestic support
34
July 04 Framework Agreement domestic support
35
July 04 Framework Agreement - export competition
36
July 04 Framework Agreement export competition
37
Market access what needs to be decided?

• The tiers (how many? Which thresholds?)
• G20 proposal at Dalien accepted as basis for
  discussion
• The tariff reduction formula within each tier
• Linear cut, progressive linear cut, Swiss
  formula, Uruguay Round approach (allows for
  flexibility)
• Sensitive products
• How many, and what treatment?
• Crucial the overall level of ambition

38
The AVE (ad valorem equivalent) issue

• Specific and mixed tariffs have to converted into
  AVEs to know into which tier they fall
• AVE conversion is straightforward for some tariff
  lines Members use the 'unit value' method in
  these cases, basing the conversion on notified
  import values in the WTO Integrated Database
  (IDB) and import volumes.
• Complications arise where preferences or tariff
  quotas are involved. In such cases, import prices
  often differ significantly from the world prices
  compiled in the UN commodity trade statistics
  (ComTrade) database.
• Agricultural exporters would like to see the
  conversion based on the lower world prices, which
  would lead to higher AVEs, and eventually,
  steeper tariff cuts.

39
G-20 market access proposalJuly 2005
40
US market access proposalJuly 2005
41
EU market access proposalJuly 2005
42
Zurich 10 Oct 2005 proposals

• US, EU and the G20 all made proposals
• The US proposal was for two stage process
• Initial stage of significant reductions in
  tariffs and trade-distorting domestic support,
  and elimination of export subsidies, over five
  years
• Five year reductions pause to review effects
• Further 5 years to eliminate remaining tariffs
  and trade-distorting support

43
US market access proposal

• The US proposed four identical bands for
  developing and developed countries -- below 20
  percent, 20-40 percent, 40-60 percent, and above
  60 percent.
• Tariff cuts to rise progressively through each
  band, with developed countries making reductions
  of 55-65, 65-75, 75-85, and 85-90 percent
  respectively within the four bands.
• The US did not specify the depth of tariff cuts
  it would seek from developing countries, but said
  that they would only be "slightly" lower than
  those undertaken by developed countries.
• It also suggested capping developed country
  tariffs at 75 percent and limiting the number of
  'sensitive products' that Members can designate
  for relatively low tariff reductions to one
  percent of dutiable tariff lines.

44
US market access proposal Oct 2005
45
G20 market access proposal

• Average minimum tariff reduction of 54 percent in
  developed countries and an average maximum tariff
  cut of 36 percent in developing countries.
• To accomplish this, the G-20 proposes
  establishing different sets of tiers for
  developing and developed countries, coupled with
  higher tariff cuts for the latter.
• The G-20 proposal says that the different
  thresholds and tariff reductions are necessary to
  ensure that developing countries do not end up
  with a disproportionate burden of commitments.

46
G-20 market access proposal Oct 2005
47
EU market access proposal

• Now proposed four tariff bands. Cut tariffs on
  products in the lowest band by 20 percent, rising
  to 50 percent for tariffs above 90 percent (60
  if there is flexibility).
• Linear cuts (giving up UR approach). Some limited
  flexibility around a linear cut in some bands
  (pivoting).
• Signalled that it was willing to lower its number
  of sensitive products from ten to eight percent
  of tariff lines, but the 160 products that this
  would cover remained far higher than the one
  percent figure put forward by the US.
• Accepted the G-20's proposed farm tariff caps of
  100 percent for developed countries and 150
  percent for developing ones.

48
EU market access proposal 10 Oct 2005
49
EU market access proposal 28 Oct 2005
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EU market access offer28 Oct 2005

• Mandelson claims EU offer will lead to 46
  reduction in its average agricultural tariff
  (cutting from average 23.0 to 12.0), US claims
  39
• Offer is subject to conditionalities
• NAMA Swiss formula with ceiling of 10 for
  developed countries(15 for developing)
• Services complementing the request/offer
  approach with ambitious individual, mandatory
  numerical targets
• Progress on the development agenda package of
  agreement-specific proposals, Trade Related
  Assistance package, duty-free and quota-free
  access for LDCs

51
EU proposal treatment of sensitive products

• Sensitive products should result in substantial
  market access that is still lower than would be
  implied by full tariff cut through TRQ increases
• Increase in TRQ is
• Tariff cut deviation
• market access coefficient
• /(1 AVE)

• Example I
• AVE tariff 25
• Normal tariff cut 35
• Applied cut for sensitive product 15
• Tariff cut deviation 20
• Market access coefficient 0.8
• TRQ increase
• 12.8

52
EU proposal treatment of sensitive products

• Example II
• AVE tariff 100
• Normal tariff cut 60
• Applied cut for sensitive product 35
• Tariff cut deviation 75
• Market access coefficient 0.8
• TRQ increase
• 30.0

• Minimum deviation of one-third and maximum
  deviation of two-thirds of the tariff cut in the
  band within which the line falls
• TRQ increase expressed as a percentage of current
  imports of the tariff line in question
• Special Safeguard Clause kept for beef, poultry,
  butter, fruits and vegetables, sugar

53
Market access proposals - summary

• EU proposal is less ambitious (60 cut on tariffs
  over 90) than either G-20 or US proposal, both
  of which have higher percentage reductions kick
  in earlier because the tiers are set at lower
  levels.
• The G-20 would have developed countries impose a
  75 percent cut on tariffs above 75 percent.
• The US, for its part, prefers an even deeper cut
  of about 90 percent for tariffs above 60 percent.
  
• EU proposal to shelter 8 of products as
  sensitive products with minimum 33 cut of
  required tariff band contrasts with G-20 and US
  proposal for 1 sensitive products and minimum
  70 cut of required tariff band.
• US and G-20 also object to the pivot proposal
  now confined to one band

54
Domestic support proposals

• EU-US Joint proposal August 2003
• Substantial reductions in Amber Box
• Reduction in de minimis support
• Blue Box support capped at 5 of total value of
  agricultural production
• No capping or reduction of Green Box support

55
Framework Agreement July 2004 Domestic support
proposals

• Strong element of harmonisation higher levels of
  trade-distorting support will be subject to
  deeper cuts
• Substantial reduction in Overall Distorting
  Support from bound levels ( AMS Blue Box de
  minimis) according to a tiered formula
• 20 cut (downpayment) in bound ODS level in first
  year
• Bound AMS to be reduced substantially using
  tiered approach
• Product-specific AMS will be capped at their
  respective levels and there will be reductions in
  some product-specific support
• De minimis to be reduced
• Blue Box criteria expanded to allow payments
  linked to price but not to production (US counter
  cyclical payments) but capped at 5 of total
  value of production
• Green Box criteria to be reviewed and clarified,
  ensuring its basic effectiveness is maintained
  and that non-trade concerns are taken into account

56
EU domestic support offerZurich 10 October 2005

• 70 reduction in AMS
• Acceptance that EU will be in the top tier of AMS
  cuts with smaller cuts for other countries (note
  that tiers are determined by absolute
  expenditures, not percentage importance)
• 65 and possible more reduction in de minimis
• Willingness to cap Blue Box at less than 5
• Commitment to negotiate on product-specific caps

57
EU domestic support offer28 October 2005

• Proposes three tiers with cuts of 70, 60 and
  50. Accepts EU will be in top tier and US in
  second tier, provided it makes sufficient efforts
  in other aspects
• Proposes three tiers for ODS with cuts of 70,
  60 and 50 with EU in the top tier
• De minimis support reduced by 80
• Blue Box commitment as before (5 cap) but need
  to develop tighter disciplines on the new
  price-related supports
• Only clarification of Green Box criteria accepted

58
G20 domestic support proposal

• Three tiers for both ODS and AMS cut by 80, 70
  and 60 respectively.

59
US domestic support proposal

• Three tiers for AMS, with cuts of 83, 60 and
  37 (justified as reducing the dispartiy in
  allowed AMS between the US and the EU from 41 to
  21)
• Blue Box cap at 2.5
• De minimis cut by 50
• Agree to product-specific AMS caps
• Three ODS tiers to be cut by 75, 53 and 31
  respectively.

60
Framework Agreement export competition

• Export subsidies to be eliminated
• Export credits longer than 180 days eliminated
  and specific disciplines on short term credits
• Trade distorting practices of export STEs
  including government financing eliminated. Future
  use of monopoly power to be subject to
  negotiation.
• Food aid to be disciplined. Providing food aid
  only in grant form to be addressed.

61
EU export competition offer28 October 2005

• Reiterates commitment to phase out export
  subsidies, by an end date to be agreed
• Calls for short-term export credits to be
  disciplined by preventing government financing
• Eliminate export STE privileges including
  monopoly powers, single desk selling, price
  pooling etc.
• Food aid to be given only as cash and not
  in-kind.

62
US export competition proposal

• Export subsidies to be eliminated by 2010 with
  accelerated elmination for specific products
• Elimination of monopoly rights and financial
  privileges for export STEs
• Accepts tighter disciplines on non-emergency food
  aid, but rejects cash only
• Bring export credit programmes in line with
  commercial terms
• End differential export taxes

63
Non-trade concerns (raised by EU)

• Food safety, and Article 5(7) of the SPS
  Agreement on precautionary principle
• Mandatory labelling (presumably with respect to
  GMOs and animal welfare) and Geographical
  Indications
• Food security for developing countries
  (Development Box)
• Protecting the environment (but no specific
  demands multifunctionality yesterdays game)
• Rural development but no specific demands
• Animal welfare specific demand for inclusion of
  support payments in the Green Box

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Section 4.

• Doha Round success or failure

65
Hong Kong outcome

• Progress in the Ministerial Declaration
• End date for export subsidies (with parallel
  disciplines to be agreed by 30 April 06)
• Some clarity on the modalities for domestic
  support reductions
• Minimal progress on market access
• Duty free and quota free access for least
  developed countries
• Compromise on the cotton initiative
• Aid for trade package

66
Prospects for the Doha Round

• US commitment to successful outcome doubtful
  despite Bush rhetoric
• Farm lobby and Congress deeply suspicious (e.g.
  CAFTA vote)
• Trade Promotion Authority runs out mid 2007
• Developing countries (G20) may feel no deal is
  better than a bad deal
• Concerns of weakest developing countries must be
  addressed (e.g. cotton)
• EU the champion of a Development Round
• But agriculture ministers (i.e. France) keeping
  tight rein on the negotiators

67
Prospects post-Doha

• Failure of Doha
• URAA lives on, without the protection of the
  Peace Clause
• Regional integration agreements
• e.g. Mercosur
• Litigation rather than negotiation?
• US upland cotton
• EU sugar
• EU bananas
• GMOs?

68
Prospects post-Hong Kong December 2005

• Doha successfully concluded 2006
• Implementation into early 2010s, when export
  subsidies finally eliminated
• Further CAP reform before end of the decade?