Comparing What Might Have Been with the Likely Outcome of the Doha Round Agriculture Negotiation The Williams Text v The Falconer Text

1
Comparing What Might Have Been with the Likely
Outcome of the Doha Round Agriculture
NegotiationThe Williams Text v The Falconer Text

• Brett Williams
• Faculty of Law
• University of Sydney

2
Agriculture is a Microcosm of the GATT

• Allowing Member States to achieve their
  Objectives
• Encouraging Members States to Achieve Objectives
  by Choosing the Most Efficient Policy Instrument
  to Do So (instead of choosing trade measures
• Politicians wont do this unilaterally they
  will choose trade measures more often than is
  efficient
• So we have designed a system to help.
• The Design of the System Does Matter

3
Two Theories on How What Trade Agreements Do and
How They Work

• On the terms of trade theory of trade agreements
  (Bagwell Staiger) nations exchange commitments
  not to impose terms of trade losses on each other
  SO the trade agreement is a way to avoid the PD
  outcome which would arise from single nations
  attempting to maximize their own national welfare
  by imposing optimal tariffs but which leads to
  retaliation so that in fact they end up
  diminishing their welfare rather than enhancing
  it
• On the political support theory of trade
  agreements (eg Ethier 2002)politicians exchange
  market access to supply each other with political
  support SO the trade agreement is a way to avoid
  the PD outcome which would arise from politicians
  in individual nations attempting to maximize
  their own political welfare which in fact leads
  to higher protection (etc) and lower welfare for
  the people within the nation

4
Protecting People from Politicians

• Both treaty provides an additional layer of
  quasi constitutional constraint to protect people
  from their politicians
• To Guide Politicians to an outcome different from
  what they would otherwise choose
• Eg. low protection instead of high protection
• (eg comparisons with similar functions of EC law
  Tumlir (1986) or of US constitution Farber
  Hudec (1994).

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For objective of Wealth Transfer which Choice of
Policy Instrument Would Rank 1st in terms of
Maximizing Politicians Political Welfare Maximizing Citizens Economic Welfare
VER 1st 6th
Import Quota 2nd 5th
Import Tariff 3rd 4th
Export Subsidy 4th 3rd
Production Subsidy 5th 2nd
Input Subsidy 6th 1st
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Politicians Choosing To Maximize Their Own
Political Welfare But Minimize Their Citizens
Welfare

• Politician Can Enhance Own Political welfare by
  choosing
• 1 High level of protection
• 2 High cost (most indirect) policy instrument
• 3 High dispersion between rates of protection
• 4 discriminatory preferences

• Economic Welfare of Citizens Enhanced by
  choosing
• 1 low level of protection
• 2 low cost (most direct) policy instrument
• 3 low dispersion between rates of protection
• 4 non-discrimination

7
Change Politicians Decision

• Import Competing Producers
• - Consumer
• - Taxpayers
• - Exporting Producers
• Sympathy for Losers (SWF)
• nth Best Decision

• Import Competing Producers
• - Consumers
• - Taxpayers
• - Exporting Producers
• - NPV of Support from Long Term Prosperity
• - Support of Rule of Law
• Sympathy for Losers (SWF)
• 1st Best Decision

8
What Makes the System Work

• 1 Reciprocity
• 2 Non-Discrimination
• 3 Gradualism
• What does Reciprocity Entail?
• Rules that Prevent Reciprocity from Being
  Undermined
• Ranking of Instruments stricter rules on
  measures which undermine reciprocity the most
  (QRs) , less strict on Measures which only
  undermine Reciprocity a little
• (corresponds to economic ranking of instruments
  for achievement of wealth transfers set out above
  (See Bhagwati (1971))

9
What is our Starting Point with Agricultural
Trade?

• Discrimination preferential margins
• Quantitative Restrictions Annex 5(K, P),
  Safeguards AS, AoA Art 5, QRs by Import
  Monopolies, TQs
• Tariffs Average Agricultural gt Average
  Industrial high dispersion and high disparity
• 6 digit lines, 8 digit lines Eg (source WTO
  Tariff profile 2006)
• Cereals gt 500 (Egypt, Japan, Switzerland,
  Norway, Sth Africa. Korea) gt150 (US, Canada,
  Turkey, Mexico) gt100 (EC, India)
• Dairy gt400 (Japan, Switzerland, Norway) gt200
  (EC, Indonesia), gt100 (US, India)
• Animal Products gt400 ( Japan, Canada,
  Switzerland, Norway), gt200 (EC, Turkey, Mexico) ,
  gt100 (India, Sth Africa)
• Fats and oils gt400 (Japan, Korea), gt200
  (Canada, Switzerland, Norway, Mexico, India)
  gt100 (US),
• Sugar gt400 (Switzerland), gt200 (Norway, Korea,
  Mexico), gt100 (US, EC, Japan, Turkey, India, Sth
  Africa)
• Cf Nothing over 80 (Philippines) 65 (China),
  55 (Brazil), 35 (Argentina)
• Export Subsidies Bindings a significant levels
• Also export credits, consumer funded ES (export
  monopolist controls Q of domestic supply)
• High Per Unit Subsidies linked to Production
  for OECD countries unevenly spread over
  particular products very high DS on particular
  products

10
Priorities for Agricultural Negotiation

• Reduce Discrimination (Diminish Diversion from
  existing Discrimination)
• Eliminate all tolerance of Quantitative
  Restrictions
• Reduce Tariff as Much as possible (Force support
  onto the government budget instead of import
  tariffs as far as possible)
• But Tariff Cuts not too high (Gradualism)
• Aim for Reciprocity as far as possible at least
  in the long term (and as far as reductions are
  welfare enhancing)
• Leave sovereignty to achieve objectives with
  freedom to choose least inefficient policy
  instrument ( Means leaving all Members free to
  impose some subsidies and leaving some Developing
  Members free to retain some tariffs)
• As far as possible squeeze government funded
  support away from links to production encourage
  box shifting to more efficient policy instruments

11
Compare with Negotiating Priorities in the Doha
Round

• US Cairns proposal beyond feasible gradualism
• EC proposal of minimum 15 cuts G10 proposal
  for sensitive products inadequate to provide
  economic gains
• Cairns Group accedes to the concept of excepting
  products from reductions seeks massive
  reductions in AMS
• G20 G33 seek even broader exemptions from
  reductions even more massive reductions in AMS
• EC and G10 dig in on sensitive products others
  focus on TQs
• US G10 dig in on AMS others focus on
  preventing box shifting
• Leads to
• On market access where gt 90 of gains are
  available Massive Exceptions losing out on the
  biggest gains
• On Domestic Support where lt 10 of gains are
  available application of pressure that makes it
  harder to capture the 90 of gains from reducing
  import barriers and creation of complex rules
  still leaving scope for high per unit product
  specific subsidies on particular products which
  will only be able to be adjudicated upon after
  the event.

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One set of rules or Two

• The Williams Text Move as far as possible toward
  having No separate Agreement on Agriculture
• The Falconer Text entrenches many separate rules
  for agricultural trade

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Eliminate Quantitative Restrictions Williams

• Terminate the AoA exception in Annex 5
• AS Art 5.1 prohibit QRs as safeguards
• AoA art 5 eliminate QR aspects
• Stop limits on TQ Volumes Turkey Rice helps but
  better to Mandate Auctioning of TQ volumes
• (Art II1(b),2nd sentence does not apply Korea
  Beef 1989 saying II4 did not apply to price gap
  caused by quota volume)
• Stop QRs by Import Monopolies helped by Korea
  Beef 1999 insistence on private trader TQ
  entitlements but better to Prohibit Monopoly or
  exclusive import rights

14
Eliminate Quantitative Restrictions Falconer

• Terminate the AoA exception in Annex 5 - NO
• AS Art 5.1 prohibit QRs as safeguards - NO
• AoA art 5 eliminate QR aspects - Almost
• Stop limits on TQ Volumes Turkey Rice helps but
  better to Mandate Auctioning of TQ volumes NO
• (Art II1(b),2nd sentence does not apply Korea
  Beef 1989 saying II4 did not apply to price gap
  caused by quota volume)
• Stop QRs by Import Monopolies helped by Korea
  Beef 1999 insistence on private trader TQ
  entitlements but better to Prohibit Monopoly or
  exclusive import rights NO

15
Reduce Import Tariffs Williams

• Finish Tariffication convert all duties to ad
  valorem duties on day 1
• What size tariff reductions?
• Dispersion
• so harmonization necessary
• - need to avoid averages and use line by line
• Apply harmonization formula to all (NAMA and
  Agriculture) products and all countries
• Must apply to all countries and all products

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Rates of Tariff Cuts Williams
That part of the Bound rate in the range To be Cut by
0-50 30
50 - 100 38
100 - 150 46
150 - 200 52
200 - 250 60
250 - 300 68
300 - 350 76
350 - 400 84
gt400 92
.



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Exceptions to Tariff Reductions Williams

• In theory Members in situation in which
• 1 ve production externalities -ve consumption
  externalities Exceed -ve production externalities
  ve consumption externalities
• 2 transaction costs of alternative non-trade
  policy are so large as to make trade policy the
  least cost instrument for addressing the
  externalities.
• In practice use per capita income as proxy
• Group 1 50 longer implementation periods
• Group 2 sliding scale to 100 longer
  implementation period
• Group 3 sliding scale to 150 longer
  implementation period
• Group 4 150 longer implementation period 2/3
  rate of reduction
• Additional delay to start of period for those
  without export subsidies

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Allowance for Tariff Increases

• Article XXVIII
• -in exchange for reducing tariffs on other
  products
• Clarify that adjustments to Schedules must
  conform to Art XI i.e no TQs (adopt a specific
  waiver for existing TQs)

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Tariff Reductions Falconer Tariff Conversion on
Day 1 NO
Bound Rate Deved Member Cut Bound Rate Developing Member cut
0-20 48-52 0-30 32-37
20-50 55-60 30-80 36-40
50-75 62-65 80-130 41-42
gt75 66-73 gt130 42-48
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Summary of Market Access Exceptions Falconer
Developed member Developing member
Rate of Tariff Cut Approx 50 to 70 But minimum 54 (including rate of cut on Sensitive Products) Tropical P Up to 85 Escalatd Processed 50? to 70? Approx 33 to 47 But maximum 36 (including ..?) Tropical P N/A Excalatd Processed N/A
Implementation Period 5 years 8 years
Except of tariff lines designated as Sensitive (8 digit) 4 - 6 Sensitive Lines 5.3-8 Sensitive Lines
With 2/3 of ordinary cut Expand TQ volume by 3-5 of consumption Expand TQ volume by 2-3.3 of traded consumption
With ½ of ordinary cut Expand TQ volume by 3.5-5.5 of consumption Expand TQ volume by 2.3-36 of trade consumption
With 1/3 of ordinary cut Expand TQ volume by 4-6 of consumption Expand TQ volume by 2.6 -4 of trade consumption
Except of lines designates as special Zero special lines Between 8 and 20 designated as special
With tariff reductions on special Products of (N/A) 1st 6 lines 815 cut 2nd 6 lines 1225 cut Rest of lines not close to agreement on size of cut
Volume Triggered Safeguard SSG if 125 of benchmark (prev 3 years Existing SSG SSM if 110130 of benchmark (prev 3-5 years)
Price Triggered Safeguard SSG half existing of gap b/w price and benchmark SSM 50 of gap b/w price and benchmark of 70 of 3 yr Avg imp price
21
Safeguard Tariff Increases Williams

• Available to All Countries A on S but outlaw
  QRs, and apply 5.1 so that justification required
  for using tariff instead of subsidy (transition
  for Groups II, II, IV)
• Modify Art 5 so that
• Art 5 version 2 for volume trigger (add
  ratchet mechanism on benchmark) 120 of trigger
  level with Max SSG 75 of Doha reduction for
  price triggered also require 110 increase in
  volume halve the size of the price triggered
  safeguards
• Art 5 version 3 as for version 2 but set Max
  volume trigger to 50 of Doha reduction for
  price triggered halve size again
• Available to Developed Countries Art 5 version
  2 until end of implementation period plus 5
  years then apply Art 5 version 3
• Available to Developing Countries old Art 5 for
  10 years, then Art 5 version 2 until end of
  implementation period plus 5 years then apply
  Art 5 version 3

22
Safeguard Tariff Increases Falconer

• Amendments to AoS NO
• Adjust AoA Art 5 Quantity trigger lifted to
  124 Price trigger half the SSG
• New Developing Member SSM not agreed no time
  limit agreed
• Volume trigger 105 - 130 of 3yr avg etc
• Max Volume-triggered SSM of of Bound rate or X
  percentage points up to UR rate?
• Price trigger 70 100 of 3yr Avg.
• Max Price triggered SSM of 50 -100 of price
  gap or 50-100 of Doha reduction

23
Export Subsidies Williams

• Final Rules
• SCM Art 3.1(a) already applies or Set date for
  applying SCM Art 3.1(a) and letting AoA
  provisions on export subsidies lapse
• This catches export credits
• What about Export monopolies?
• What about consumer financed export subsidies
  (like Canada Dairy EC Sugar) (i.e where there
  is a QR on domestic sales in presence of
  prohibitive tariff)
• Solution is prohibit QRs on domestic supply or
  reduce tariffs and prohibit import monopolies.
• The transition during the interim period
• Reduce total outlay bindings
• Add per unit subsidy bindings
• Reduce per unit bindings
• No more bindings on volumes (minimize the impact
  of the cross-subsidization decision in ECSugar)

24
Export Subsidies Falconer

• Final Rules
• Not clear on whether AoA fades away and Art3.1
  operates or if AoA continues to operate on zero
  bindings
• Adds separate rules on export credits
• Export monopolies either prohibited or prohibit
  exercise of power that circumvents elimination of
  ES (but no limit on import monopolies and too
  many exceptions from tariff reductions to remove
  prohibitive tariffs which facilitate consumer
  financed ES)

25
Domestic Support guiding principles

• 90 of welfare gains come from reducing tariffs
  only lt10 from reducing ES / DS.
• So Forget about balancing the 3 pillars.
• Focus on Reducing the per unit subsidies that are
  the biggest proportion of market price
• Box Shifting is GOOD Encourage it.

26
Domestic Support Williams

• US Cotton applies serious prejudice to price gap
  subsidy on fixed Q do not give insulation from
  SCM Art 5 6 claims to the extent that they
  relate to the effects of subsidies in other
  markets
• EC Oilseeds applies NonVNI to price gap subsidy
  on fixed Q do give insulation from SCM Art 5
  6 claims to the extent that a subsidy within a
  bound limit would be exposed to a Non-V NI claim
  re effect in own market.
• Adjust definition AMS
• count price gap for actual intervention
  purchasing not for unimplemented intervention
  purchasing) (annex 3, art 8,10)
• count all AMS not just the margin of support
  above a reference price (annex 3, arts 8-11)
• Set product specific AMS caps on a per unit basis
• Apply harmonizing reductions to per unit product
  specific AMS caps with these rule we can
  challenge a law without having to wait for the
  data
• Adjust definition de minimis that part of what
  falls within definition of AMS that is within the
  limits
• Blue Box set caps on a product specific basis
• Maintain Green Box rules no price support, no
  transfers from consumers, no Inks to current
  production or current price

27
Allow Article XXVIII flexibilities
To Increase a Can give Compensation in
Tariff Reducing Tariffs
Production Linked Subsidy Reducing tariffs, or Reducing production linked subsidies
Blue Box Subsidy Reducing Tariffs, or Reducing Production subsidies, or Reducing Blue Box Subsidies
28
Domestic Support Falconer text

• Tiered formula for reductions in OTDS
• Tiered formula for reductions in Total AMS
• Product Specific AMS caps
• Reductions in De Minimis
• Blue Box definition and Cap
• Amendment of Definition of Green Box
• Special reductions for AMS on cotton

29
Caps on Product Specific AMS But NO
Reductions Table 3
Product Product Specific Cap
Products for Developed Members The average AMS for the product during 1995-2000
Products for the USA The average proportion of total AMS for that product during 1995-2004 as a proportion of total AMS during the period 1995-2000
Products for which a Developed Member has introduced AMS above de minimis since 2000 The average AMS for the product during the most recent two notified post base period years
Products for which a Developed Members AMS during 1995-2000 was below the de minimis level The current new de minimis level
Products for Developing Members Choice of (a) Average applied levels during either 1995-2000 or 1995-2004 or (b) Two times the Members product specific de minimis level or (c) 20 of the Annual Bound Total AMS in any year.
30
Table 4 Rates of Reduction in Total AMS
The Members Final Bound Total AMS in US billion Reduction rate for Developed Country Reduction rate for Developed Country with AMSgt40 of production Reduction rate for Developing Country (over a longer implementation period) Reduction rate for SLI-RAMS or NFIDCs
gt40 70 25 then 5 equal annual Zero
15ltFBTAMSlt40 60 60 70-60 Zero
FBT AMS lt 15 45 6 steps over 5 years 45 0.5 60-45 2/3 x 45 9 steps over 8 years Zero
31
Table 5 Rates of Reduction of De Minimis Support
Member Rate of reduction of de minimis support By equal instalments over
Developed Members Higher of 5060 and rate of cuts to OTDS Implementation period 1st day5 steps
Developing Members Higher of 2/3 of 5060 and rate of cuts to OTDS As above 3 years
Recently Acceded Members 1/3 of 5060 As for Devd Members 5 Years

• No reduction for REALIM, Ding M with no AMS
  commitments, Ding M with AMS commitments but
  that allocate almost all that support for
  subsistence and resource poor farmers, Listed
  NFIDMs

32
Blue Box under Article 6.5

• Adjust 6.5 so that exclusion would be lost if the
  production or asset limit does not continue to be
  based on the base year
• The exclusion can apply if no production is
  required at all
• Limit 6.5 exemption to amount bound in Schedule -
  total payments not exceeding 2.5 or 5 (Dg M)
• Limit 6.5 exemption to product specific ceilings
  bound in Schedule which can be increased if
  product specific AMS caps are reduced by a
  corresponding amount (but without exceeding total
  Blue Box binding)

33
Green Box amendments include

• Para 2(h) rural employment programmes (presumably
  not specific to employment in agricultural
  sector?)
• Para 3 on whether losses made on selling stocks
  from public food security stocks count in the AMS
  (for Dg M permits some price support)
• Para 6(a) for income payments not linked to
  production or prices after the base year - that a
  programme would lose green box status if the base
  year is changed

34
Overall Trade-Distorting Support (OTDS) - Table 6
The Members Base Overall Trade Distorting Support in US billion Reduction rate for Developed Member 33 then 5 annual steps Reduction rate for Developed Member with OTDSgt40 of production Reduction rate for Developing member with AMS commitments (20 then 8 annual steps) Reduction rate for Developing Member without any AMS commitments Reduction rate for SLI-RAMs or NFIDCs
gt60 7580 Zero Zero
10ltOTDSlt60 6673 6673 0.5(difference between 7580 6673) Zero Zero
OTDSlt10 5060 2/3 x 5060 Zero Zero
35
Net Result of Williams text

• Removes all QRs
• - from AoA, Annex 5
• - from AoS, Article 5.1
• - from under-allocation of TQ volumes by
  requiring auctioning
• - prohibits import monopolies so no QRs imposed
  by import monopolies
• Achieve tariff reductions on all high tariffs
• including on tropical products, and on
  escalated processed products
• - does not create any more TQs and diminishes the
  rent from existing TQs
• - Gives Developing Members more time to adjust
• - Gives LDCs more time to adjust and lower
  reductions
• - Reduces Discrimination (and trade diversion)
  arising from bilaterals and other preferences
• ( Leaves US and EU free to pay aid in cash to
  compensate for reductions in preferences)
• Leaves limited scope for Members (more for
  Developing Members) to use tariffs to help
  Members adjust to tariff reductions AoA Article
  5 versions 1, 2 3
• Eliminates Export Subsidies (tariff reductions
  make consumer financed Ex Subsidies impossible)
• Leaves Members free to use subsidies to help
  producers adjust to tariff reductions

36
Net Result of Falconer text

• QRs remain
• Annex 5 invocations remains
• Import monopolies remain undisciplined
• TQ volumes private trader rules will help
• New TQs some where effective constraints is the
  volume
• High Tariffs
• Agricultural tariffs will remain higher than
  industrials
• EU, G10 will retain high tariffs on several
  product areas (mostly sugar, dairy, meat, some
  tropical products) US high tariffs in less areas
  sugar, dairy, peanuts Canada in some areas too
• Many important Developing Members will retain
  high tariffs across several product areas,
  possibly with effective constraints being the
  volume of TQ (eg India)
• Safeguard (AAM) may make tariff barriers worse
  not better (eg China, India)
• High Subsidies on particular products High
  subsidizing countries will continue to pay high
  subsidies focussed on particular products
• Need to wait for the data before a complaint can
  be brought

37
Williams text v Falconer text

• Which achieved the promise of a Development
  Round?
• Which confers more economic welfare gains? (Model
  it!
• Which imposes more discipline on the most welfare
  diminishing policy instruments
• Which leaves the most sovereignty to achieve
  objectives by applying the most efficient policy
  instruments?
• Which helps the system to help the powerful
  countries to become and stay open?
• Which helps the system help the less powerful
  countries to over come political forces for
  protection?
• Which makes the next round easier?
• Why is it better?

38
Achieving a Better Result comes from paying
attention to What Makes the System Work

• 1 Non-Discrimination
• 2 Gradualism
• 3 Reciprocity
• Ensuring the Rules Protect Reciprocity against
  Being Undermined by
• Ranking of Instruments stricter rules on
  measures which undermine reciprocity the most
  (QRs), less strict on Measures which only
  undermine Reciprocity a little
• Prohibit Undermining Measures eg No Quantitative
  Restrictions
• Achieves the objective of changing political
  decisions toward
• Lower protection
• Better choice of instrument for achieving
  domestic objectives
• Less dispersion between rates of protection
• Less discrimination

39
How much can we deviate from

• Reciprocity
• Gradualism
• Non-Discrimination
• Ranking of Instruments
• Low Dispersion
• Before the System will No Longer Work?

40
The Choice

• Everyone comes to negotiations to strengthen the
  principles of reciprocity, ranking of
  instruments, low dispersion, non-discrimination
• Outcome world in which price signals flow
  around the world and everyone is constantly
  adjusting to changes occurring all over the world

• Everyone comes to negotiations to negotiate an
  exception for themselves and leaves it to others
  to protect the system.
• Outcome no multilateral system parts of the
  world insulate themselves from changes occurring
  in other parts until sudden and painful changes
  are necessary small countries need to negotiate
  one on one with big countries