Tariff Negotiations in Agriculture: Seeking a Compromise

1
Tariff Negotiations in Agriculture Seeking a
Compromise

• WTO Public Symposium
• Geneva, 26 May 2004
• Panos Konandreas, FAO Geneva Office
• www.fao.org and www.faologe.ch

2
Outline Seeking a Compromise

• the pivotal importance of market access
• why difficulties on market access
• operational objectives on market access
• how different formulae score vs these objectives
• basic principles on how to achieve objectives
• balancing ambition and flexibility bring in
  economics
• implications for the Framework text

3
Market access make or break issue

• market access most controversial issue from the
  very beginning
• probably 75 of negotiating time spent on it
• make or break issue and not only in agriculture
• Chair of SSCoA no convergence on blended formula
  or any other approach
• 2/3 framework by July? unlikely
• compromise in market access is imperative for
  meaningful framework text

4
One of the difficultieslack of clarity

• proposed formulae did not spell out what would be
  achieved and how different members affected
• much left to interpretation
• e.g. blended formula thought to be compromise
• but, infinite number of possible outcomes
  depending on parameter choice
• same formula interpreted as overly ambitious or
  too flexible, depending on the assumptions made
• blend thought to be the main advantage, but
  also became the main drawback
• uncertainty not conducive to compromise

5
Another difficultyfocusing on the tool

• proposed approaches placed too much emphasis on
  the formula (tool) to be used
• this led to outright likes and dislikes of
  certain tools (UR vs Swiss is typical)
• inflexible positions on including or avoiding a
  particular tool w/o regard to possible effects
• too little emphasis on defining in concrete terms
  the basic principles of what is to be achieved
  the shape of the final outcome

6
Fundamental difficulty ambition vs flexibility

• Para 13 of the Doha Declaration
• long-term objective market-oriented trading
  system through fundamental reform
• substantial improvements in market access
• SDT for developing countries
• NTCs will be taken into account
• contradiction embedded into the Doha language
• balancing ambition and flexibility main issue
  during the long negotiating process
• extremely difficult to arrive at operational set
  of objectives that accommodate both

7
Operationalizing Dohagenerally understood
objectives

• substantial reduction of the average level of
  tariffs
• reduction of tariff peaks (and tariff escalation)
  
• accommodation of country-specific concerns on
  particular products
• for developing countries expressed as SPs on the
  basis of food security and rural development
  considerations
• for developed countries expressed as sensitive
  products, inter alia on NTC grounds
• SDT for developing countries, implying less
  onerous commitments compared to those of
  developed country members

8
The starting pointinitial tariff profiles
9
Initial tariff profiles main patterns

• average bound tariffs of devd generally less
  than devg
• spread of bound and applied for devd
  several-fold that of devg
• max applied tariffs for devd high equal to
  bound
• opposite for devg significant gap between bound
  and applied (water in tariffs)
• tariff profiles of devd highly skewed with many
  tariff lines at zero or single-digit levels and
  another set at very high levels
• these differences have implications on the
  relative impact of different tariff cut formulae

10
UR formulatoo much flexibility

• how does it score in achieving the four
  objectives?
• yes
• marginally - can actually increase relative
  tariff peaks (spread between low and high
  tariffs)
• yes
• yes
• fails to achieve effective market access, which
  essentially would come from reducing tariff peaks
• Opposed by those members that expected
  substantial market access and had preference for
  a Swiss-type formula

11
Swiss formulaharmonizing tariffs
12
Swiss formulatoo much ambition

• how does it score in achieving the four
  objectives?
• yes, but highly uneven both within devd and
  between devd and devg
• yes, dramatically for both devd and devg
• not at all
• no in fact the opposite, with average cuts for
  devg much greater than for devd
• Swiss fails in two key objectives
• concerns with sensitive and special products
• SDT for developing countries
• it accomplishes what the UR did not and vice
  versa
• hence, need for middle ground

13
Harbinson formulafirst attempt to compromise
14
Harbinson formulatoo ambitious?

• How does banded formula score?
• Yes
• Yes
• No (possibly Yes for developing countries with
  the envisaged SP provision)
• Yes
• tougher than pure UR and less ambitious than pure
  Swiss
• rejected by both sides of the spectrum but more
  from those favouring UR
• 70 broadly-based alliance against it
• major dividing issue in March 2003 modalities
  deadline

15
Blended formulasecond attempt to compromise
16
Blended formulaoutcome highly unpredictable

• difficult to gauge in relation to objectives
• yes, but highly uneven within devd and between
  devd and devg
• no to some extent if the UR category is very
  narrow
• yes, if the UR category is wide enough
• no because of initial tariff profile, devg
  would make higher cuts of bound tariffs
• everything depends on parameters assumed
• proponents hoped that ambiguity could foster a
  compromise with much to be negotiated later
• sceptics felt that the uncertainty would
  prejudice a negotiated outcome against their
  interests
• essentially what proponents thought as the main
  advantage of blended formula (flexibility it
  offered in its application by individual members)
  also became its major drawback

17
Seeking a compromisebasic principles

• unrealistic to expect a complete specification of
  the tariff reduction formula at this stage, but
• some degree of certainty/clarity essential for an
  approach to receive general acceptance
• what clarity? Focus not on the tool but on the
  shape of the final outcome
• clarity on reduction commitments
• clarity on SDT provisions
• clarity on flexibility vs ambition

18
Seeking a compromiseclarity on reduction
commitments

• Rejection of some formulae because of substantial
  differences in the resulting overall average
  reduction between members
• clarity is needed on what would amount to
  substantial improvements in market access, in
  terms of the overall average tariff reduction
  level
• would that be comparable to that attained during
  the UR or higher average cut?
• would it be the same for all members (aside from
  SDT differences, see below)?

19
Seeking a compromiseSDT provisions

• UR SDT concerned levels of reduction commitments
  and implementation periods
• need to clarify how differentiation of additional
  provisions envisaged would apply in practice
• general principle could be a differentiated
  symmetry whereby all commitments by devg are
  by, say 1/3, less onerous
• the case for different formula is weak
• but, application of same formula with different
  parameters would be essential in order for a
  formula to yield desired differentiated outcomes

20
Seeking a compromiseflexibility at a price

• remove the uncertainty on how flexibility would
  play in practice
• introduce some economics into the specification
  of flexibility
• supply side a price is placed to what is being
  offered
• demand side allow the demandeurs to get the
  flexibility they wish by paying a fair price for
  it

21
Flexibility at a pricekey specification elements

• first element is notion of a member-specific
  flexible maximum or ceiling tariff based on
  the tariff profile of each member this level is
  relative and flexible in the sense that could be
  exceeded at a cost
• second element is to introduce a measure of the
  effort made (or not made) in complying with that
  maximum and institute a reward (and penalty)
  proportional to that effort

22
Flexibility at a pricecalculating non-compliance
Initial tariff for product x
Partial compliance
Full compliance
Final tariff for product x
Residual non-compliance
Ceiling tariff
Overall average final tariff
23
Flexibility at a pricehow it works
24
Flexibility at a pricewhat it achieves

• takes into account diff. in tariff profiles and
  relative effort made to reduce tariffs of
  sensitive products
• designation of sensitive products not necessary
  avoids contentious self-declaratory option
• automaticity in the penalty (additional TRQ) to
  be applied in cases of non-compliance
• build-in incentive to reduce tariffs of sensitive
  products as penalty is proportionally reduced
• build-in phasing-out mechanism (product by
  product basis) provision does not become a
  permanent feature

25
Seeking a compromiseimplications for Framework

• while ambiguity is desirable at this stage of the
  negotiations, some minimum certainty is also
  necessary
• but certainty not by focussing on a formula
  subject to interpretation and counterproductive
  at this stage
• Framework text should focus on better defining
  the general shape of the final outcome in terms
  of
• clarity in reduction commitments
• clarity on SDT provisions
• clarity on flexibility allowed and associated
  penalties
• these principles can be translated into legal
  language in Framework text by using the approach
  suggested
• have some ideas on this, but better leave it to
  the negotiators!