The Doha Round

1. The Doha Round Lecture 21 The Economics of Food Markets Alan Matthews

2. Lecture objectives • To ensure you have sufficient understanding of the issues in the Doha Round agricultural negotiations to be able to follow the debate and explain its implications for the EU and the CAP • This lecture takes the story up until the July 2004 Framework Agreement

3. Reading • WTO agricultural backgrounder • ICTSD www.ictsd.org and www.agtradepolicy.org • World Bank Trade Notes • FAO briefs • EU DG Trade and USTR websites • Anania et al. Agricultural Policy Reform and the WTO • Matthews TEP paper plus Framework Agreement commentaries

4. 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

5. 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

6. Chronology • New deadline of April 2006 to reach agreement on modalities • Chairman Falconer’s reference papers April-June 2006 • July 2006 Suspension of Doha Round • January/Feb 2007 Revival of the Round?

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

8. 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 • Progressivity, flexibility, proportionality, and effective market access • Latter raises the question of ‘binding or tariff overhang’

9. Illustration of tariff overhang • Tariff overhang is where a cut in bound tariffs would have no effect in cutting current applied tariff rates – no increase in effective market access Bound tariff pre-Doha 50% cut Bound tariff post-Doha Bound tariff Applied tariff

10. 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%

11. Blended and banded formulae • Banded (or tiered) formula, where higher bands would be subject to a higher average reduction • 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. • Harbinson proposed using UR formula within each band • Options for flexibility – UR formula, sensitive products

13. Formula: Pd = P0 ( 1 + 0.64 t ) or Pd = P0 ( 1 + 0.76 t )

14. Measuring the level of ambition • “Cuts in the average tariff” vs. “Average of the tariff cuts” • Former is the comparison of the average tariff level pre- and post- negotiations • Latter is measured as the average of all individual percentage cuts • Was the method used in the Uruguay Round, and also by US in criticism of the EU proposal • Latter method has no economic meaning because a high average cut can by obtained by cutting low tariffs by a large amoung

15. Illustration of average tariff cuts

16. Level of ambition in Oct 2005 proposals

17. Sensitive products July 2004 Framework Agreement • “Without undermining the overall objective of the tiered approach, Members may designate an appropriate number, to be negotiated, of tariff lines to be treated as sensitive, taking account of existing commitments for these products. • The principle of ‘substantial improvement’ will apply to each product. • ‘Substantial improvement’ will be achieved through combinations of tariff quota commitments and tariff reductions applying to each product. However, balance in this negotiation will be found only if the final negotiated result also reflects the sensitivity of the product concerned.

18. Sensitive product issues • How many tariff lines allowed sensitive? • What should be allowed deviation from the tariff cutting formula (20%? 50%? Sliding scale 40-60%?) • How should the corresponding TRQ increase be calculated • As percentage of domestic consumption • Expansion based on existing TRQs • Expansion based on current imports

23. Other tariff issues • Should there be a tariff cap? • Tariff escalation • Should specific tariffs be forbidden? • Future of Special Safeguard mechanism (SSG) • Administration of TRQs • Tropical products • Preferences and preference erosion

24. Recall that a TRQ has three elements – quota, in-quota tariff, out-of-quota tariff Increase minimum access or reduce in-quota tariff Effect depends on whether TRQ is binding TRQ administration judged on quota fill and bias in the distribution of trade (auctions, first come first served, historic shares, applied quotas) TRQs

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. 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

28. 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

29. The Harbinson draft • Cutting high tariffs more than low tariffs using a banded approach • Introduced formula to tackle tariff escalation • Proposed doubling TRQs • Elimination of export subsidies over 10 years with parallelism on export credits, food aid and export STEs • 60% reduction in AMS over 5 years • Either moving Blue Box into AMS or capping Blue Box and reducing by half over 5 years • Revisiting Green Box but making environmental and animal welfare payments eligible

30. Market access – level of ambition?Harbinson proposal 2003

31. 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

32. July 04 Framework Agreement – market access

33. July 04 Framework Agreement - market access

34. July 04 Framework Agreement – domestic support

35. July 04 Framework Agreement – domestic support

36. July 04 Framework Agreement - export competition

37. July 04 Framework Agreement – export competition