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Tariff Negotiations in Agriculture: Seeking a Compromise WTO Public Symposium Geneva, 26 May 2004 Panos Konandreas, FAO Geneva Office.

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Presentation on theme: "Tariff Negotiations in Agriculture: Seeking a Compromise WTO Public Symposium Geneva, 26 May 2004 Panos Konandreas, FAO Geneva Office."— Presentation transcript:

1 Tariff Negotiations in Agriculture: Seeking a Compromise WTO Public Symposium Geneva, 26 May 2004 Panos Konandreas, FAO Geneva Office and

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 difficulties: lack 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 difficulty: focusing 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 Doha: generally understood objectives 1.substantial reduction of the average level of tariffs 2.reduction of tariff peaks (and tariff escalation) 3.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 4.SDT for developing countries, implying less onerous commitments compared to those of developed country members

8 The starting point: initial 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 formula: too much flexibility how does it score in achieving the four objectives? 1.yes 2.marginally - can actually increase relative tariff peaks (spread between low and high tariffs) 3.yes 4.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 formula: harmonizing tariffs

12 Swiss formula: too much ambition how does it score in achieving the four objectives? 1.yes, but highly uneven both within devd and between devd and devg 2.yes, dramatically for both devd and devg 3.not at all; 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 formula: first attempt to compromise

14 Harbinson formula: too ambitious? How does banded formula score? 1.Yes 2.Yes 3.No (possibly Yes for developing countries with the envisaged SP provision) 4.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 formula: second attempt to compromise

16 Blended formula: outcome highly unpredictable difficult to gauge in relation to objectives: 1.yes, but highly uneven within devd and between devd and devg; to some extent if the UR category is very narrow 3.yes, if the UR category is wide enough; 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 compromise: basic 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 compromise: clarity 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 compromise: SDT 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 compromise: flexibility 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 price: key 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 price : calculating non-compliance Overall average final tariff Ceiling tariff Final tariff for product x Initial tariff for product x Partial compliance Residual non-compliance Full compliance

23 Flexibility at a price : how it works

24 Flexibility at a price : what 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 compromise: implications 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!

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