In the Chairman’s cover letter he noted that real “hot spots” have bracketed language indicating substantial areas of disagreement. Some of these have been “pretty stable over the past several months.” Falconer believes some will be left for trade ministers to hammer out if other issues can be dealt with next week. This would create the momentum necessary for governments to signal to WTO Director General Pascal Lamy that it is time for a ministerial meeting to reach the final compromises and complete the talks.
Trade talks are about lowering trade barriers to allow more beneficial trade flows for producers and consumers. Since the Doha Round began in 2001, the agricultural talks have centered on three issues: reducing trade distorting domestic supports, eliminating export subsidies and increasing market access. Research by the Economic Research Service of USDA released in 2001 before the talks began estimated that 52 percent of world price distortions in agriculture were caused by tariffs, 31 percent by domestic supports and 13 percent by export subsidies. Without substantial increases in market access the talks will be a failure regardless of other achievements.
The average bound agricultural tariff for the world is 62 percent, with the average applied tariff at 19 percent. The U.S. has average bound and applied tariffs of 12 percent. The U.S. has 3 percent of its tariffs above 50 percent, compared to 9 percent in the EU and 19 percent in Japan. The highest bound tariffs are generally in South Asia, Sub-Saharan Africa and the Caribbean Islands with averages of about 100 percent. The highest applied tariffs averaging 20-30 percent are in South Asia, Sub-Saharan Africa, the Caribbean Islands, non-EU Western Europe, North Africa and the Middle East. The WTO negotiations deal only with bound tariffs which have be reduced substantially for some products to have any impact on actual market access.
The progress to date on tariff reductions is mixed. The basic framework on agricultural tariff reductions has been in place for a year with one bracket left unresolved. For developed countries, bound tariff on an equivalent ad valorem basis of 0 to 20 percent are to be reduced by 50 percent; tariffs from 20 per cent to 50 percent would be reduced by 57 percent; tariffs from 50 percent to 75 percent would be reduced by 64 percent; and tariffs greater than 75 percent, would be reduced by [(66) (73)] percent. The minimum average reduction for developed countries including sensitive products would be 54 percent. This compares to a 36 percent average reduction for developed countries in the Uruguay Round. Developing countries would have wider tariff bands up to 130 percent, would make only two-thirds of the reductions of developed countries and have average tariff reductions of 36 percent, compared to 24 percent in the Uruguay Round.
The big challenge for the negotiators is that all countries are allowed to have sensitive products that will require smaller tariff reductions and developing countries also will have additional special products with smaller reductions. The sensitive products text for developed countries has a bracket around 4-6 percent as the number of tariff lines that could have smaller reductions than the four tier framework, and those percentages have not changed from the draft text three months ago. The U.S. had originally proposed 1 percent. Plus, developed countries with 30 percent of their tariff lines in the top bracket (above 75 percent) would be allowed another 2 percentage points of sensitive products. Most countries have about 2000 agricultural tariff lines; that means at least 80 tariff lines and maybe as many as 160 tariff lines would be exempt from the four-tier framework. Sensitive products would be required to provide more market access through tariff rate quotas.
The situation is much worse for developing countries. They get to designate one-third more tariff lines as sensitive; that would be 5-8 percent of tariff lines. The language for special products has a bracket around “a maximum entitlement of 20 percent and a minimum entitlement of” 8 percent of tariff lines for self-designation as special products. That means that 8 percent is the best that can be hoped for and it may be a high as 20 percent. Another set of brackets appears around “forty per cent of those-no” tariff lines designated as special having no tariff reductions. The remaining special products tariff lines would have an average reduction of 15 percent with a minimum of 12 percent and a maximum of 20 percent. There is no requirement for tariff rate quotas for market access for special products.
Every country has a few political commodities to address, and developing countries have a need to designate some commodities as special to cover subsistence agriculture and food security issues. These exemptions from full tariff cuts remain at the heart of the debate over market access because of the potential to designate so many sensitive and special products that the tariff reduction framework becomes meaningless for some countries.
As the negotiators gather next week there will be plenty of talk about domestic supports and export subsidies. If the talks are to get to the ministerial level for political decision making, political leaders will need to recognize that market access is the key and send that signal to negotiators. The good news is that in this era of escalating food prices countries are increasingly recognizing that lower applied tariffs are in their own self interest and are acting without a new WTO accord.