The EU's position in the Doha Round agricultural negotiations

1. The EU's position in the Doha Round agricultural negotiations Alan Matthews Jean Monnet Professor of European Agricultural University Trinity College Dublin, Ireland Presentation at the Slovak University of Agriculture in Nitra, 15 May 2006

2. Lecture outline • The legacy of the Uruguay Round Agreement on Agriculture • Background to the Doha Round negotiations on agriculture • Negotiating positions in the Doha Round • Doha Round – success or failure?

3. Section 1. The legacy of the Uruguay Round Agreement on Agriculture Three pillars: Market access Domestic support Export subsidies

4. Market access • Tariffication • Tariff reduction • Market access provisions • Special treatment and special safeguard provisions

5. Tariffication • Tariffication required countries to convert their existing non-tariff barriers (NTBs) into tariff equivalents. These tariff equivalents are established for the base period (1986-1988) and are entered in the Country Schedules as the base rate of tariff.

6. Tariff reduction • For developed countries, an unweighted average of 36 percent, subject to a minimum reduction of 15 percent in each tariff line over a six year implementation period. • For developing countries the commitments are 24 percent and 10 percent respectively, and the implementation period extends to ten years. • For least-developed countries there are no reduction commitments. • Special Safeguards provisions, that enable a country which has used tariffication to apply additional tariffs to certain specified commodities, where import prices are particularly low, or where there is a sudden surge in imports.

7. Market access commitments • Countries are required to maintain current levels of access, for each individual product, where the current level is based upon the volume of imports during the base period (1986-88). • For commodities subject to tariffication, a minimum access should be established at not less than 3 percent of domestic consumption during the base period. This minimum level is to rise to 5 percent by the year 2000 in the case of developed countries, and by 2004 in the case of developing countries.

8. Market access – how much liberalisation? • Effectiveness of the agriculture agreement in cutting protection was less impressive than the nominal cuts suggest, because : • tariff cuts took place from base levels that were frequently inflated through the choice of base year, • through the methods used to measure protection existing prior to the round (‘dirty tariffication’), • Through use of unweighted average of 36% • through the use of ‘ceiling’ bindings in developing countries • Uneven tariff reduction – many sensitive products can protected by high tariffs

9. Domestic support commitments • Divided domestic support policies into three types: • Policies deemed to have a substantial impact on the patterns and flow of trade are classified in what is called the 'amber box‘ and are subject to reduction commitments; • policies that are not deemed to have a major effect on production and trade are placed in the 'green box'; • policies that fall into neither of these categories, but are, perhaps, somewhere in between, are known as 'blue box' policies.

10. Disciplining amber box policies • All domestic support deemed to have a distortionary effect on trade is summed and included in a measure called the Aggregate Measure of Support (AMS); • Progressive reduction in AMS levels by 20% over 6 years. • AMS includes • Market price support where support provided by administrative support prices e.g. intervention (but not if provided by tariff protection alone) • Calculated on the basis of world reference prices in 1986-88 • Coupled direct payments • De minimis exemptions – 5% for product specific and 5% for non-product specific support

11. The green box • Must meet the broad criterion of being minimally trade-distorting and, in addition, fit into one of the categories set out in the URAA • Decoupled direct payment schemes • producer retirement programmes; • resource (e.g. land) retirement programmes; • environmental protection programmes; • regional assistance programmes; • certain types of investment aid; • general services that provide for example: • research, training and extension; • marketing information; • certain types of rural infrastructure.

12. The blue box • Direct payments under production-limiting programmes are exempted from AMS reduction if: • such payments are based on fixed area and yields; or • such payments are made on 85 percent or less of the base level of production; or • livestock payments are made on a fixed number of head.

13. Reductions in Domestic Support to Agricultural Producers (Millions of US dollars)                                                                                       <>

14. Export subsidy commitments • No new export subsidies can be introduced • Developed countries committed to reducing the volume of subsidised exports by 21 percent and the expenditure on subsidies by 36 percent, both over a six-year implementation period (1995-2000). • For export subsidies the base period is generally taken to be the period 1986-1990.

15. Export subsidy reduction commitments by country (Millions of US$)                                                                                       <>

16. Adjusting CAP to the URAA What changes were necessary to the CAP mechanisms? • the implementation of tariffication • other market access provisions • no real effect of AMS provision • more active management of export refund system to stay within subsidised export targets

17. Section 2. • Background to the Doha negotiations

18. Chronology • Third WTO Ministerial Meeting in Seattle in November 1999 failed to launch comprehensive negotiations • Article 20 negotiations: • Analysis and Exchange • the EU’s Comprehensive Negotiating Proposal, December 2000 • Doha Mandate, November 2001 • EU’s Specific Drafting Input, January 2003 • Harbinson Modalities, Feb/March 2003 • Adoption of the Fischler Reforms, June 2003 • EU/US Joint Initiative, August 2003 • Cancún Ministerial, September 2003 Derbez draft

19. Chronology • EU’s offer to eliminate export subsidies, May 2004 • Framework Agreement, July 2004 • Paris May 2005 agreement on AVEs • Dalien July 2005 G20 proposal on market access • Zurich Oct 2005 proposals on market access • Hong Kong Ministerial, December 2005 • April 2006 deadline for modalities also missed

20. Negotiation issues in agriculture • Market access • Export subsidies • Domestic support • Special and differential treatment (S&DT) for developing countries • Non-trade concerns • Peace clause

21. Tariff reduction issues • High bound tariffs remained in agriculture after URAA – 62% on average • Tariff-cutting approaches • Request and offer vs formula approach • Linear vs harmonising formulae • Cocktail formulae • Principles suggested by G-20 • Progressivity, flexibility, neutrality and proportionality

22. Example of Swiss formula • T1 = aT0/(a+T0) • With parameter a of 140, a tariff of 350% is reduced to 100% • With parameter a of 60, tariff reduced to 51.2% • With parameter a of 16, tariff reduced to 15.3%

23. Blended and banded formulae • Blended formula, where tariffs are reduced according to a mix of three approaches: the Uruguay Round approach, the Swiss formula, and cutting tariffs to zero. • Banded (or tiered) formula, where higher bands would be subject to a higher average reduction • Harbison proposed using UR formula within each band • Options for flexibility – UR formula, sensitive products

25. Domestic support • AMS trade-distorting support: how much reduction? Reduction method – should support be reduced by a given amount or to a particular level? Limit product-specific support/ • De minimis – what to do about it? • Blue Box – eliminate it or discipline it? • Green Box – should criteria be tightened? Should additional measures be allowed, e.g. non-trade concerns

26. Export competition • Export subsidies – various roads possible to full elimination (by commodity, by tightening value and volume constraints) • Export credits – discipline by rules, or by constraining government outlays? • Food aid – is food aid a form of subsidised export? • Exporting State Trading Enterprises – issues over government guarantees, monopolistic and monopsonistic powers, ability to price discriminate, price pooling

27. Section 3. • Negotiating positions in the Doha Round

28. Initial US position • Two phase process, leading to complete liberalisation • Elimination of export subsidies within 5 years • Use of harmonising tariff reduction formula to ensure maximum tariff is 25% • Expansion of TRQs • Limit AMS to 5% of value of agricultural production and eliminate Blue Box • Limited SDT for developing countries

29. Initial EU position • Continuation of UR formula for tariff reductions (36% on average with 15% minimum) • 55% cut in AMS subsidies over 6 years • Reduction in export subsidy expenditure by 45% and elimination for specific products • SDT for developing countries, including free access for the least developed countries • Emphasises non-trade concerns such as food labelling, animal welfare, geographical indications and precautionary principle in the agricultural negotiations

30. The July 2004 Framework Agreement • Followed the failure at Cancun and the Lamy/Fischler letter offering to conditionally eliminate export subsidies • Pre-modalities document – set out principles to guide the negotiations but contains no figures and little structure

31. July 04 Framework Agreement – market access

32. July 04 Framework Agreement - market access

33. July 04 Framework Agreement – domestic support

34. July 04 Framework Agreement – domestic support

35. July 04 Framework Agreement - export competition

36. July 04 Framework Agreement – export competition

37. 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

38. 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.

39. G-20 market access proposalJuly 2005

40. US market access proposalJuly 2005

41. EU market access proposalJuly 2005

42. 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

43. US market access proposal • The US proposed four identical bands for developing and developed countries -- below 20 percent, 20-40 percent, 40-60 percent, and above 60 percent. • Tariff cuts to rise progressively through each band, with developed countries making reductions of 55-65, 65-75, 75-85, and 85-90 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.

44. US market access proposal Oct 2005

45. 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.

46. G-20 market access proposal Oct 2005

47. 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.

48. EU market access proposal 10 Oct 2005

49. EU market access proposal 28 Oct 2005

50. EU market access offer28 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