Doha Negotiations – current state of play Lecture 22 Economics of Food Markets Alan Matthews

Reading Hong Kong Declaration Annex A Agricultural chair Falkoner’s subsequent reference papers and draft modalities Gifford paper for IPC

Lecture objective To outline the most recent negotiating offers following the July 2004 Framework Agreement To assess the outcome of the Hong Kong Ministerial meeting for December. To identify the key issues as negotiations resume in February 2007

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

The AVE (ad valorem equivalent) issue Specific and mixed tariffs have to converted into AVE’s 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.

The AVE (ad valorem equivalent) issue Members agreed on the use of a "filter" that would compare IDB prices with global prices in the United Nations' Comtrade database. In cases where the differences between the IDB and Comtrade figure for a given product is less than 40 percent, the IDB figure will be used. For products where the difference is greater than 40 percent, AVE calculations will be made using both the IDB and Comtrade figures; if the calculations result in AVE tariffs where the difference is less than 20 percent, the IDB calculation will be accepted. The problem concerns products where the price differences are so great that they "pass through" the filter. Initial agreement to split the difference between the IDB and Comtrade prices for these goods based on a weighted average of 75/25, with the higher weight given to the Comtrade data. The deal reflected a compromise between the EU's original insistence on an even 50/50 weighting and the Cairns Group's insistence on and 80/20 weighting favoring the Comtrade data. Special provisions made for a small number of products such as bovine and sheep meats, sugar, and processed products such as cocoa powder, wines and spirits, and certain cheeses. For the processed goods, the weighting would be fixed at an even 50/50, while for meats the weighting would be fixed 90/10 in favor of the Comtrade data. Import prices for sugar would be fixed entirely in reference to international prices in the London and New York markets.

The Dalien offers Around July 2005

G-20 market access proposal July 2005 Developed countriesDeveloping countries No. of bands54 Thresholds Linear CutsThresholdsLinear Cuts 0 ≤ 20v% 0 ≤ 30< v > 20 ≤ 40w%> 30 ≤ 80< w > 40 ≤ 60x%> 80 ≤ 130< x > 60 ≤ 80y% > 130< y > 80z% Where v < w < x < y < z FormulaLinear cuts in each tier High tariffsCap: 100%Cap: 150%

US market access proposal July 2005 Developed countriesDeveloping countries No. of bands44 Thresholds Linear CutsThresholdsLinear Cuts 0 ≤ 20v% 0 ≤ 20? v 21 ≤ 40w%21 ≤ 40? w 41 ≤ 60x%41 ≤ 60? x > 60y%> 60? x Where v < w < x < y FormulaProgressive linear cuts in each tier, with adjustments for discontinuities, OR Swiss formula in top tier, progressive cuts in two middle bands, and Uruguay Round approach in lowest band

EU market access proposal July 2005 Developed countriesDeveloping countries No. of bands33 Thresholds Linear CutsThresholdsLinear Cuts 0 ≤ 20v% 0 ≤ v > 20 ≤ 100w%> 30 ≤ w > 100x%> x Where v < w < x FormulaLinear cuts in each tier, plus further flexibilities (Uruguay Round approach) High tariffsNo cap

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

US market access proposal The US filled out the extent of the cuts it proposed for the four identical bands for developing and developed countries -- below 20 percent, percent, percent, and above 60 percent. It would have tariff cuts rise progressively through each band, with developed countries making reductions of , 65-75, 75-85, and 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.

US market access proposal Oct 2005 Developed countriesDeveloping countries No. of bands44 Thresholds Linear CutsThresholdsLinear Cuts 0 ≤ % 0 ≤ 20Slightly lower 21 ≤ %21 ≤ 40Slightly lower 41 ≤ %41 ≤ 60Slightly lower > %> 60Slightly lower FormulaProgressive linear cuts in each tier Number of sensitive products limited to 1%, with full compensation via TRQ expansion. Tariff cap75%

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.

G-20 market access proposal Oct 2005 Developed countriesDeveloping countries Thresholds Linear CutsThresholdsLinear Cuts 0 ≤ 2045% 0 ≤ 3025% > 20 ≤ 5055%> 30 ≤ 8030% > 50 ≤ 7565%> 80 ≤ 13035% > 7575% > 13040% Sensitive products limited to 1% of total, with maximum deviation of 30% from regular tariff cut FormulaLinear cuts in each tier No new TRQs (in effect limiting sensitive product status to products currently with TRQs) High tariffsCap: 100%Cap: 150%

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.

EU market access proposal 10 Oct 2005 Developed countriesDeveloping countries Thresholds Linear CutsThresholdsLinear Cuts 0 ≤ 3020% 0 ≤ % > 30 ≤ 6030%> 40 ≤ 8020% > 60 ≤ 9040%> 80 ≤ % > 9050% (60% with some flexibility) > % Possibility of new TRQs, giving flexibility in defining sensitive products FormulaLinear cuts in each tier, except for highest tier High tariffs100%150%

EU market access proposal 28 Oct 2005 Developed countriesDeveloping countries Thresholds Linear CutsThresholdsLinear Cuts 0 ≤ 3035% (20-45%) 0 ≤ 4025 (10-40%)% > 30 ≤ 6045%> 40 ≤ 8030% > 60 ≤ 9050%> 80 ≤ 12035% > 9060%> 12040% Possibility of new TRQs, giving flexibility in defining sensitive products FormulaLinear cuts in each tier, except for lowest tier High tariffs100%150%

EU market access offer 28 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

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%

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

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

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

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

EU domestic support offer Zurich 10 October % 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

EU domestic support offer 28 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

G20 domestic support proposal Three tiers for both ODS and AMS cut by 80%, 70% and 60% respectively.

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 4:1 to 2:1) 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.

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.

EU export competition offer 28 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.

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

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 yesterday’s game) Rural development – but no specific demands Animal welfare : specific demand for inclusion of support payments in the Green Box

Prospects post-Hong Kong December 2005 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

Prospects post-Hong Kong December 2005 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?

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?

Update after Hong Kong 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