Agriculture framework, an asymmetric Doha-minus

Geneva, 19 July (Chakravarthi Raghavan) - The draft framework text, Job(04)/96, issued on 16 July by General Council chair Shotaro Oshima and WTO Director-General Supachai Panitchpakdi, aimed at restarting the stalled WTO negotiations, is a “Doha-minus”, both overall and in the agriculture annex.

The framework on agriculture in Annex A provides for what (when implemented) would perhaps come to be called ‘dirty greening and blueing’ of the domestic supports of the developed countries, and enable these countries to shield their markets in ‘sensitive’ products from import competition from developing countries.

The annex gives full recognition to the continuance of blue box and green box subsidies which are generally adopted by the major developed countries, but there is no guidance in the text about any possible elimination of these subsidies in future.

On green box subsidies, para 16 of the annex wants to ensure continuance of the basic concepts, principles and effectiveness of these subsidies, thus entrenching these subsidies deeper in the WTO system.

This is purported to be balanced approach.

Groser in his text also is opening the way for future mischief, by using the term ‘The Single Undertaking’ as a specific accepted legal norm, while the Doha Declaration merely uses the term ‘a single undertaking’.

Some ambiguous language of principles is used to accommodate the concerns of developing countries (with offensive or defensive interests) - but with many details even of the concept left to be negotiated.

After Doha (November 2001), the US adopted its Farm legislation, and this law mandated (well into the future) increase in domestic supports under various heads, including some socalled ‘counter-cyclical payments’ of about $10 billion a year.

Depending on final agreements - on percentages and the ‘historical periods’ to calculate average total farm output (para 8 and second tier of paragraph 13 of Annex A) - one expert estimated that in theory the US could increase this support to an annual 12-20 billion dollars, and show this in the new blue box for the US. It could show against this new blue box several of the payments claimed to be in the ‘green box’ but should rightfully have been in its ‘amber box’.

In further talks for settling a ‘historical period’ for calculating the total agricultural output (calculated as the value as close as possible to the point of first sale and included in the member’s schedule) a total value is to be set, and from this an ‘agreed percentage’ to be negotiated for cuts.

It would thus be painless for the US to cut over time, and in harmonisation with EC, the subsidies to be put into a new blue box, from a notional 12-20 billion dollar ceiling down to the current $10 billion counter-cyclical payments - without any pain to their farmers or congressmen and senators who are backing the farm lobby.

And if there be any pain, paragraph 14 of Annex A can be invoked!

The framework for General Council decision has up-front the ‘reaffirmation’ of the sectoral initiative on cotton, and says that it would be pursued in the agriculture negotiations within the parameters set.

However, in the agriculture annex, though there are some references, in substance there is in fact nothing tangible to benefit the west African cotton producers, excepting as part of the overall agricultural modalities package.  There is no question of the=20phasing out of the heavy subsidisation by the US and Europe over a 3-year period or for compensating the West African producers (all LDCs) for their losses hitherto and till phase-out.

The Groser drafted, ‘Doha-minus’ mandate for drawing up modalities in agriculture, shows that it would not only give full recognition to and legitimise the ‘blue box’ and ‘green box’ subsidies of the developed countries to their agriculture sector, but everything the major developed countries are now doing, and many contrary to Marrakesh promises, may be continued and legitimised, albeit under claims of capping and tighter rules etc.

In effect it means that whenever the US and EC for their treasury reasons cut anything, this can be put it into the WTO as the norm, so that others will also be forced to do the same - an extension of the 1992 Blair House approach to agriculture in the Uruguay Round.

And if the unpublished Brazil cotton ruling, and the one yet to come out on sugar against the EC show anything, it is the difficulty to ‘prove’ that something contrary to rules is being done under green, blue etc. Those subsidising illegally can just delay producing data in their possession, or plead commercial secrecy, and since the onus of proof rests first on the complainant, nothing can be done. Whether any adverse inference can be drawn or not, has been ruled to be a question of fact, and hence not amenable to reversal by the appellate body.

There are some positive elements in the agriculture annex over export subsidies and export credits, and how to discipline these through future negotiations.

But the question of how these export subsidies will be eliminated and the reduction commitments effected by ‘progressive annual instalments’ is left open.  Would the majority of export subsidies be reduced in a final instalment (and backloaded into the distant future) or would it be cut in an initial installment. This is not clear either, but left to negotiations.

And without cuts in domestic support in developed countries, and with the shielding of the domestic markets of developed countries on ‘sensitive’ products, the competitive exporters of developing countries would still be at a disadvantage in these markets, or in matching the reduced subsidies or credits in third markets.

Developing countries with a defensive interest - whether in G20 or G33 - have been for the moment left alone to fight the market access battle later - but still under a tiered ‘single formula’.

There is no empirical evidence to support the view that developing countries need only longer time span and lesser cuts to adjust. This non-economic, but ideological view of the AoA and Marrakesh treaty, is now carried into the framework.

So developing countries with defensive interests need not think they have been spared. It is just a new attempt to split the G-20 and the G-33.

Those developing countries with ‘aggressive’ or export interest also get nothing: unless the domestic support in developed countries is drastically reduced, no amount of ‘substantial improvement’ in tariff lines for market access will create a level playing ground.

After Doha, the US enacted its Farm Bill (2002), and this aid is mandated well into the future as counter-cyclical payments to farmers: when prices fall support will increase, in effect insulating the farmers from the market and market-based reforms.

Some of these payments were found (after very costly evidence gathering and research by Brazil) in the Brazil vs US cotton dispute to be in violation of the US commitments under agriculture.

On this basis, the panel went on to judge the effect of the US subsidy on third markets for Brazilian cotton exports and judged it had been hurt. All these may now be reversed and payments accommodated in the ‘new US Blue Box’ (second tiret of paragraph 13 of Annex A for amending Art. 6.5 of AoA) and then gradually reduced (but not eliminated).

The second tiret of para 13 of the agriculture annex, for changes to Art. 6.5 of the AoA, is tailored to meet the US needs. The framework ensures it. Only some details are left for the next stage of negotiations.

No wonder at Mauritius, USTR Robert Zoellick was purring like a cat that swallowed the canary.

The Marrakesh Agreement and the AoA was supposed to have laid out a reversal of course in agriculture and set in motion a process of reform over a period on agricultural support in all three pillars (domestic support, export subsidy and market access) to bring that trade into line with market-forces.

The AMS was set on a particular time period calculation, and cuts were to be effected on that. But the de minimis, and the lack of product specificity, plus the leeway for the supposedly non-trade distorting ‘green box’ support was misused to the point that the support levels now are much higher than in 1995.

Instead of cuts from the point at the end of that implementation period (end 2003), the ceilings and caps are to be set at the Final Bound AMS (UR commitments) plus allowed de minimis plus a level to be determined of blue box payments - and then cut by developed countries on a harmonised basis.

The green box itself was framed to enable the developed world to put all its subsidies from the treasury into the ‘green box’, knowing developing countries can’t afford such payments

Though there is some reference to reviewing the green box criteria, it is to be in terms of its “basic concepts, principles and effectiveness” and to take “due account of non-trade concerns.”

There will be no particular new disciplines nor reductions, only a promise of the ‘particular’ importance of the improved obligations for monitoring and surveillance.

The blue box level is now to be set at an agreed percentage of average total value of agricultural production during a historical period. Both the percentage and the historical period are to be agreed in negotiations.

The original AMS excluded product-specific domestic support upto 5% of total value of the agricultural product during the agriculture year. Also excluded was non-product specific domestic support upto 5% of total value of agricultural production. This is already a substantial exemption.

Read together, the new proposals will mean that the AMS plus the allowed de minimis, will be increased further by the new ‘blue box’ level to be negotiated.

This is apart from the green box availability.

To avoid or prevent circumvention of agreement and box- or product-shifting of support, product-specific AMS is to be capped at their respective average levels during a historical basis to be agreed.

The term ‘historical basis’ occurs too often; but it is not clear when ‘history’ begins or ‘ends’ for the AoA. Is it pre- or post-Uruguay Round? pre-Doha or post-Doha?

The Groser text envisages that “some” (but not all!) of these product specific caps are then to be reduced.

And de minimis is to be reduced by an agreed percentage, not cut either.

The United States and Europe and Japan could drive a coach and four through these gaps.

All in all, the failure of developed countries to reverse course after Marrakesh, and the current estimated support now of $350 billion will be legitimised and then perhaps cut over a period.

In return, at the moment the US and EC are getting a Trade Facilitation agreement - which in fact will be an agreement where all the ideas that they had been pushing, but failed to get agreements (in the Tokyo Round and the Uruguay Round) will be resurrected to expand the space in developing country markets for TNCs of Europe, US and Japan., with developing undertaking shipping and transport infrastructure improvement to facilitate these.

However, in the US and Europe, the exports of the developing world can easily be blocked or their trade “unfacilitated” by the various defensive measures already in their armoury (anti-dumping etc) plus the new ‘security’ related restrictions under the plea of fighting ‘terror’.

At some not too distant medium-term, the various subsidies can be increased under some other count, and legitimised promised to be cut in future negotiations - in return for negotiating agreements in one, two or the three dormant Singapore issues.

When this happens, those who pushed for ‘flexibility’ at Mauritius can take the credit.

In market access, the provision for protection of sensitive products of developed countries is assured - with a purported maximum number as “close approximation” to the number of tariff lines with out-of-quota tariff rates.

By one calculation, some trade experts said that as many as 25% of the EU’s tariff lines could be brought under ‘sensitive products’ and shielded, and more than 30% of the tariff lines of Japan and a few others. While this may hurt the US and its exports, and thus the US could be expected to oppose it, the provision also would enable the US to use the approach to prevent imports on its own ‘sensitive products’ - cotton, dairy products and sugar.

The Groser text also talks that no sensitive product category could be completely shielded.

However, the demand of Brazil and others that there should by a limit on high tariffs (resisted by Japan and others who wish to vary, and even increase tariffs for example on rice etc) is left for future negotiations - to be dealt with in terms of a ‘role of tariff caps under a tiered formula’.

In contrast, there is only a promise of negotiating Special Products (‘sensitive products’ for developing countries) and a Special Safeguard Mechanism (SSM) - and both to be made coherent with each other. The basis for selection and treatment of these sensitive products for developing countries is to be established in the negotiations. The question of SSM itself (para 38) remains under negotiations.

In the paragraph 43 on Special Safeguard Mechanism for the developing countries, there is a mention at the end of “under conditions to be agreed”. This gives the impression that the SSM will not be applicable to all products by the developing countries, but only to some selected products. This is asymmetric and iniquitous.

Added to the yet to be achieved fullest liberalization of tropical products (from Heberler report time in the late 1950s and early 60s at the old GATT), a promise recommitted at Montreal mid-term and the Marrakesh agreement) are now to be added products to diversify from illicit narcotic crops, and the question of long-standing preferences and addressing preference-erosion.

May be all developing countries should diversify into narcotic crops for exports only, and then trade it off with promises to control and diversify, so that they could also get the benefits!

Everyone except LDCs are to make a contribution in agriculture.

The tariff reductions from ‘bound rates’ perhaps may help developing countries, but also would be of greater help to the developed where there has been dirty tariffication.

In NAMA, this issue is still dangling, and the Derbez text is still pushing a harmonised approach, with the tariff reductions from the bound rates or twice the applied MFN rates for non-bound tariffs, and 2001 as the base year.

In contrast, in the Groser text for agriculture, the ‘historical periods’ are left to be negotiated. And if the past be any guide to the future, it will be post-Doha, rather than 2001 or pre-Doha.

Overall, the entire Oshima-Supachai text is completely biassed against developing countries. Concluding such a bad framework package at the 27 July General Council, and foreclosing developing country positions in the talks ahead, does not seem to serve any interest of any developing country or groups of countries.

The WTO and its leaders, and its governments are in the business of promoting the interests of corporations and enterprises - behind the rhetoric of growth, employment and poverty reduction, the WTO is a mercantilism organization.

Any chief executive officer (CEO) of a corporation, at some point or other, will assess the pros and cons of continuing a loss-making unit of the enterprise with no foreseeable prospect of turning into a profit-making one. At that point, the CEO would cut the losses and close down the unit or discontinue the line of production.

There is nothing in the framework to benefit developing countries, or even enable them to ‘freeze’ some of concessions made between Doha and Cancun. It will set the WTO on a course of potential danger to the institution itself, and it may be time for a pause and rethink.

The WTO leadership, and even many trade ambassadors, have become too involved to sit back and think again. But it is perhaps time for governments to think and act like a CEO, and see how useful it is to continue this kind of negotiating process with undigestible and unrelated agendas.

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