Tariff Negotiations i n Agriculture: Seeking a Compromise

1. Tariff Negotiations in Agriculture: Seeking a Compromise WTO Public Symposium Geneva, 26 May 2004 Panos Konandreas, FAO Geneva Office www.fao.org and www.faologe.ch pkonandreas@unog.ch

2. Outline: Seeking a Compromise • the pivotal importance of market access • why difficulties on market access • operational objectives on market access • how different formulae score vs these objectives • basic principles on how to achieve objectives • balancing ambition and flexibility: bring in “economics” • implications for the Framework text pkonandreas@unog.ch

3. Market access: make or break issue • market access most controversial issue from the very beginning • probably 75% of negotiating time spent on it • make or break issue and not only in agriculture • Chair of SSCoA: no convergence on blended formulaor any other approach • “2/3” framework by July? unlikely • compromise in market accessis imperative for meaningful framework text pkonandreas@unog.ch

4. One of the difficulties:lack of clarity • proposed formulaedid not spell out what would be achieved and how different members affected • much left to interpretation • e.g. blended formula thought to be compromise • but, infinite number of possible outcomes depending on parameter choice • same formula interpreted as overly ambitious or too flexible, depending on the assumptions made • “blend” thought to be the main advantage, but also became the main drawback • uncertainty not conducive to compromise pkonandreas@unog.ch

5. Another difficulty:focusing on the “tool” • proposed approaches placed too much emphasis on the formula (“tool”) to be used • this led to outright likes and dislikes of certain “tools” (UR vs Swiss is typical) • inflexible positions on including or avoiding a particular “tool” w/o regard to possible effects • too little emphasis on defining in concrete terms the basic principles of what is to be achieved – the shape of the final outcome pkonandreas@unog.ch

6. Fundamental difficulty: ambition vs flexibility • Para 13 of the Doha Declaration • long-term objective market-oriented trading system through fundamental reform • “substantial improvements in market access” • SDT for developing countries • NTCs will be taken into account • contradiction embedded into the Doha language • balancing ambition and flexibilitymain issue during the long negotiating process • extremely difficult to arrive at operational set of objectives that accommodate both pkonandreas@unog.ch

7. Operationalizing Doha:generally understood objectives • substantial reduction of the average level of tariffs • reduction of tariff peaks (and tariff escalation) • accommodation of country-specific concerns on particular products: • for developing countries expressed as SPs on the basis of food security and rural development considerations • for developed countries expressed as “sensitive” products, inter alia on NTC grounds • SDT for developing countries, implying less onerous commitments compared to those of developed country members pkonandreas@unog.ch

8. The starting point:initial tariff profiles pkonandreas@unog.ch

9. Initial tariff profiles :main patterns • average bound tariffs of dev’d generally less than dev’g • spread of bound and applied for dev’d several-fold that of dev’g • max applied tariffs for dev’d high; equal to bound • opposite for dev’g; significant gap between bound and applied (“water in tariffs”) • tariff profiles of dev’d highly skewed with many tariff lines at zero or single-digit levels and another set at very high levels • these differences have implications on the relative impact of different tariff cut formulae pkonandreas@unog.ch

10. UR formula:too much flexibility • how does it score in achieving the four objectives? • yes • marginally - can actually increase relative tariff peaks (spread between low and high tariffs) • yes • yes • fails to achieve effective market access, which essentially would come from reducing tariff peaks • Opposed by those members that expected substantial market access and had preference for a Swiss-type formula pkonandreas@unog.ch

11. Swiss formula:harmonizing tariffs pkonandreas@unog.ch

12. Swiss formula:too much ambition • how does it score in achieving the four objectives? • yes, but highly uneven both within dev’d and between dev’d and dev’g • yes, dramatically for both dev’d and dev’g • not at all • no; in fact the opposite, with average cuts for dev’g much greater than for dev’d • Swiss fails in two key objectives: • concerns with sensitive and special products • SDT for developing countries • it accomplishes what the UR did not and vice versa • hence, need for middle ground pkonandreas@unog.ch

13. Harbinson formula:first attempt to compromise pkonandreas@unog.ch

14. Harbinson formula:too ambitious? • How does “banded” formula score? • Yes • Yes • No (possibly Yes for developing countries with the envisaged SP provision) • Yes • tougher than pure UR and less ambitious than pure Swiss • rejected by both sides of the spectrum but more from those favouring UR • 70+ broadly-based alliance against it • major dividing issue in March 2003 modalities deadline pkonandreas@unog.ch

15. Blended formula:second attempt to compromise pkonandreas@unog.ch

16. Blended formula:outcome highly unpredictable • difficult to gauge in relation to objectives: • yes, but highly uneven within dev’d and between dev’d and dev’g • no; to some extent if the UR category is very narrow • yes, if the UR category is wide enough • no; because of initial tariff profile, dev’g would make higher cuts of bound tariffs • everything depends on parameters assumed • proponents hoped that ambiguity could foster a compromise with much to be negotiated later • sceptics felt that the uncertainty would prejudice a negotiated outcome against their interests • essentially what proponents thought as the main advantage of blended formula (flexibility it offered in its application by individual members) also became its major drawback pkonandreas@unog.ch

17. Seeking a compromise:basic principles • unrealistic to expect a complete specification of the tariff reduction formula at this stage, but • some degree of certainty/clarity essential for an approach to receive general acceptance • what clarity? Focus not on the ‘tool’ but on the shape of the final outcome: • clarity on reduction commitments • clarity on SDT provisions • clarity on flexibility vs ambition pkonandreas@unog.ch

18. Seeking a compromise:clarity on reduction commitments • Rejection of some formulae because of substantial differences in the resulting overall average reduction between members • clarity is needed on what would amount to “substantial improvements in market access”, in terms of the overall average tariff reduction level • would that be comparable to that attained during the UR or higher average cut? • would it be the same for all members (aside from SDT differences, see below)? pkonandreas@unog.ch

19. Seeking a compromise:SDT provisions • UR: SDT concerned levels of reduction commitments and implementation periods • need to clarify how differentiation of additional provisions envisaged would apply in practice • general principle could be a “differentiated symmetry” whereby all commitments by dev’g are by, say 1/3, less onerous • the case for different formula is weak • but, application of same formula with different parameters would be essential in order for a formula to yield desired differentiated outcomes pkonandreas@unog.ch

20. Seeking a compromise:flexibility at a price • remove the uncertainty on how flexibility would play in practice • introduce some “economics” into the specification of flexibility • supply side: a price is placed to what is being offered • demand side: allow the demandeurs to get the flexibility they wish by paying a fair price for it pkonandreas@unog.ch

21. Flexibility at a price:key specification elements • first element is notion of a member-specific “flexible maximum” or “ceiling” tariff based on the tariff profile of each member; this level is relative and flexible in the sense that could be exceeded at a cost • second element is to introduce a measure of the effort made (or not made) in complying with that maximum and institute a reward (and penalty) proportional to that effort pkonandreas@unog.ch

22. Flexibility at a price:calculating non-compliance Initial tariff for product x Full compliance Partial compliance Final tariff for product x Residual non-compliance “Ceiling” tariff Overall average final tariff pkonandreas@unog.ch

23. Flexibility at a price:how it works pkonandreas@unog.ch

24. Flexibility at a price:what it achieves • takes into account diff. in tariff profiles and relative effort made to reduce tariffs of sensitive products • designation of sensitive products not necessary; avoids contentious “self-declaratory” option • automaticity in the penalty (additional TRQ) to be applied in cases of non-compliance • build-in incentive to reduce tariffs of sensitive products as penalty is proportionally reduced • build-in phasing-out mechanism (product by product basis); provision does not become a permanent feature pkonandreas@unog.ch

25. Seeking a compromise:implications for Framework • while ambiguity is desirable at this stage of the negotiations, some minimum certainty is also necessary • but certainty not by focussing on a formula: subject to interpretation and counterproductive at this stage • Framework text should focus on better defining the general shape of the final outcome in terms of: • clarity in reduction commitments • clarity on SDT provisions • clarity on flexibility allowed and associated penalties • these principles can be translated into legal language in Framework text by using the approach suggested • have some ideas on this, but better leave it to the negotiators! pkonandreas@unog.ch