“”The no surprises included the same tariff reduction schedules as included in earlier drafts. Developed countries would reduce current low tariffs by 50 percent and tariffs above 75 percent by 66-73 percent. Developing countries would make two-thirds of the reductions of developed countries. Domestic support reductions are also the same as in working papers from late December. This includes U.S. overall trade distorting support reduced from the current maximum of $48 billion per year to $13-16 billion per year.
Negotiations on sensitive products that will not be required to have the full tariff reductions remain stalled at 4-6 percent of tariff lines for developed countries with 6-8 percent for those countries with over 30 percent of their tariffs at 75 percent or higher. Developing countries would have one-third more sensitive items. All sensitive products would have tariff rate quotas to guarantee increased market access. Also, the number of special products for developing countries not required to have the full tariff reduction has been reduced. They would be entitled to a minimum of 8 percent of tariff lines as special with a maximum of 12-20 percent of tariff lines. Debate continues over whether some tariff lines should be exempt from any reductions.
The draft includes language on export competition. The EU had previously agreed to eliminate export subsidies by 2013, and the U.S. had agreed to limit CCC export credits to 180 days and to make them self financing. State trading enterprises that export agricultural commodities are required to have no hidden subsidies. Food aid is to be needs driven, in grant form and not tied to donor country market development efforts.
Cotton continues to be singled out for deeper and faster cuts as decided in the 2004 framework agreement. This includes faster reductions in domestic supports, immediate duty free access to develop country markets for least developed countries and immediate prohibition of export subsidies. Some cotton growing African countries continue to talk of scuttling the agreement if enough is not done to reduce cotton programs in the U.S. and the EU.
Given that this draft has few surprises, a logical question is what is left to negotiate? Some countries demand that the U.S. further reduce the cap on domestic support to $11-12 billion per year and the EU further reduce tariffs. On the reverse side developing countries are called upon to do more to lower tariffs. Developing countries generally have higher tariffs than developed countries, but are required to make only two-thirds of the tariff rate reductions of developed countries, are allowed more sensitive products and have 8-20 percent of tariff lines as special and some with no reductions.
The agricultural talks are again stalling out as developing countries want to protect their agriculture and industries while having more access in developed countries. As USTR Susan Schwab said recently, Òit is crucial that developing countries continue to be fully represented at the negotiating table. With that place at the table, however, comes a degree of responsibility and accountability that several advanced developing countries, who have become major players in the global economy, have not yet been willing to undertake.Ó She also noted that a lowest-common-denominator outcome would fail to generate economic growth which is a key issue for the round.
The one factor that may move the process along is the economic realities of the marketplace. Peter Mandelson, EU Trade Commissioner, noted in a press release in late January, ÒMarket conditions have changed since the beginning of the trade talks. Prices for all the main agricultural commodities such as cereals, meat, and dairy have been higher than expected in recent yearsÉarguments in favor of border protection and market price support are not what they were when we started out on the long Doha journey.Ó
Mandelson can see that in the EU where import tariffs on cereal grains and a requirement to idle 10 percent of cropland have been temporarily suspended. Some believe the changes may be made permanent. India, one of the countries most opposed to tariff reductions, has decreased the tariff on palm oil from 88 percent to 45 percent to make cooking oil more affordable for consumers. Brazil recently eliminated its import tariff on wheat. The U.S. could not have accepted the lower limits on domestic supports if grain and oilseed prices had not increased in recent years.
The immediate challenge is to turn these market forces into pressure for actions in the Doha talks. It is natural for government negotiators to worry about conditions in the past rather than anticipate the future. That is doubly true for countries that have spent decades managing markets to support farmers yet not hurt urban consumers.
The long-run opportunity is for politicians in all countries to learn that markets are better for producers and consumers that government controls. That will make trade negotiations more doable, but also less necessary. The best tariff rate reductions are those that occur because governments recognize the self interest of producers and consumers in reducing taxes on trade. That does not require negotiations at the WTO or any place else.