On April 30 the Chairman of the agricultural negotiations in the Doha Round of WTO trade talks Crawford Falconer of New Zealand released a 28 page paper that challenged the negotiators by giving his “honest talk” of “the objective facts staring us in the face.” For some issues he tried to identify the “basic centre of gravity”; on others he “made some suggestions in an effort to try to prepare us to get closer.” Feedback from this text will be used to help the Chairman create a draft text of an agreement.
The primary benefit of the paper is that it gives an overall picture of varies pieces of the negotiations. The basic centre of gravity for trade distorting domestic supports can be compared to tariff reductions and treatment of special and sensitive products.
Falconer started with domestic support programs and the three bands of aggregate measures of support (AMS) for the amber box in the Hong Kong declaration of $0-10 billion per year for all developing countries and some developed countries, $10-60 billion (the U.S. and Japan) and over $60 billion (the EU). Support would be reduced by 31-70 percent in the lowest band, 53-75 percent in the second one and 70-85 percent in the third. Falconer’s centre of gravity suggests a reduction in U.S. maximum support from $22 billion per year to somewhere in the low to upper teens. Cuts in the amber box de minimis AMS for developed countries are already committed at 50 percent with hope of as much as an 80% across the board reduction. Developing countries with no AMS commitments where most de minimis support is for subsistence farmers would not be required to reduce support.
Commodity-specific AMS caps are an issue with most countries supporting 1995-2000 as the base years with the U.S. arguing for 1999-2001. The middle ground is to use 1995-2000 to establish the ultimate caps but allow some transition between the first year and final implementation. The caps are to limit shifting of support from crop to crop within the total bound AMS.
Chairman Falconer assumes that the blue box ceiling for support will be reduced from 5 percent of market value of agricultural output to 2.5 percent. Some countries support combining amber box and blue box commodity specific caps to ensure that support is not concentrated in a few products. This would allow support to shift from amber to blue, but not the other direction, because blue box is less trade distorting than amber box. He said the Hong Kong declaration called for trade distorting cotton subsidies to “be reduced ‘more ambitiously’ than under ‘whatever general formula’ is agreed, and it should be implemented over a shorter period of time than generally.” Cotton decisions will have to wait until the general formulas are completed.
The negotiations on export competition are further along than the other areas. Export subsidies would be eliminated over five years from 2009 through 2013 with half the reductions in the first two years. Some food aid would remain in-kind rather than cash-based. State trading enterprises (STEs) in developed countries would be further disciplined, but STEs in developing countries designed to provide food security would be given special consideration.
The market access section begins with two points that have been obvious for over a year: the G20 proposal for four bands of tariffs for developed countries (0-20%, 20-50%, 50-75% and above 75%) and developing countries (0-30%, 30-80%, 80- 130% and above 130%) will be used and the final tariffs in each band will be somewhere between the U.S. proposal and the EU proposal. The U.S. proposed tariff reductions for developed countries begin at 55 percent for the lowest tariffs and escalate to reductions of 85-90 percent for tariffs beyond 60 percent, with no tariffs higher than 75 percent. The EU proposal has cuts of 35%, 45%, 50% and 60 percent for the four bands with no tariff above 100%. The final decision on the maximum cut in the top tariff band will be partly determined by decisions on sensitive and special products.
On sensitive products not required to make the full tariff reductions Falconer believes that the general centre of gravity is for less than 5% of products compared to the previous range of 1-15%. Tariff cuts would be one-third to two-thirds of the normal reductions. Those smaller tariff cuts would be partially offset by tariff rate quotas (TRQ) to ensure a significant increase in market access. There is no centre of gravity on the base for calculating the TRQs or for adjusting TRQs based on the amount of existing market access.
For special products for developing countries that would receive different treatment the Chairman said, “We are, in my view, a long way apart on existing positions and there is no point in pretending otherwise.” His political sense tells him that if 1-5% of the products are labelled “sensitive”, then 5-8% will be labelled “special.” He stressed that the key issue is that these products will get “more flexible treatment,” not that they would somehow be exempt from providing increased market access. The minimal cut in tariffs would likely be at least 10-20% of the otherwise required cut.
There should be enough numbers for analysts with complex models of tariff rates and trade flows to plug in midpoints of the Falconers “centres of gravity” and arrive at tentative conclusions of the possible outcomes. These can then be compared to changes in domestic supports and export subsidies to judge trade-offs.
Even with the additional information provided by the Falconer paper it takes a real optimist to believe the remaining differences could be resolved over the next two months. The paper does allow all participants to see the areas that are the biggest challenges and how they could possibly be overcome.