TWN Info Service on WTO and Trade Issues (Apr07/11)

27 April 2007

Pakistan's SP paper comes under heavy fire at WTO

A paper by Pakistan on Special Products (SPs) drew strong opposition from an overwhelming number of developing countries at an agriculture meetng at the WTO on Wednesday 25 April.

The Group of 33 (G33) - supported by the African Group, the ACP Group, the Small and Vulnerable Economies and several other individual countries strongly criticized the Pakistan paper. India said the paper did not narrow gaps between WTO members but provide a basis for more contentiousness. Pakistan's paper was supported by a handful of developing countries and also a few developed countries.

Below is an article on the meeting. It was published in the South North Development Monitor (SUNS) on 27 April.

With best wishes
Martin Khor
TWN

--------------------------

Pakistan's SP paper comes under heavy fire at WTO

By Kanaga Raja (SUNS), Geneva, 26 April 2007

A paper by Pakistan on modalities for the selection and treatment of Special Products (SPs) by developing countries drew strong opposition from an overwhelming number of developing countries at an informal meeting of the Special Session of the WTO Committee on Agriculture Wednesday.

The Group of 33 (G33) - supported by the African Group, the African, Caribbean and Pacific (ACP) Group, the Small and Vulnerable Economies and several other individual countries - strongly criticized the Pakistan paper, arguing amongst others that it violated the mandate as spelled out in the July 2004 Framework Agreement and the 2005 Hong Kong Ministerial Declaration.

India, which supported the G33 statement, argued that the proposals by Pakistan do not achieve their stated objective of narrowing the gaps between the negotiating positions. On the contrary, by moving away from the mandate on a number of issues, they provide a basis for more contentiousness.

Only a handful of countries (in some cases with a few reservations or questions) came out in support of the Pakistani paper. According to trade officials, these included Thailand, Argentina, Brazil, Costa Rica, Uruguay, Australia, New Zealand and Paraguay.

While trade officials attempted to portray the discussions as a South-South debate, several trade diplomats said that, at the meeting itself, it appeared to be more of Pakistan against most of the developing world.

(Civil society groups in Pakistan have also been critical of the government for allegedly playing along with the major developed countries. During the recent Cairns Group meeting in Lahore on 16-18 April, a civil society declaration issued by some 100 Pakistani groups said that "while developing countries seem united, there is a lot of internal and external pressure to divide them." The declaration by the civil society groups cited the Pakistan paper, saying that "the paper has been seen as an attempt to divide G33 opinion and dilute the pressure maintained by the Group.")

The Chair of the agriculture negotiations, Ambassador Crawford Falconer of New Zealand, praised the discussion for its level of "engagement" and told members that he hoped that Pakistan's paper would serve as an ice-breaker that would encourage more ideas to be submitted.

However, he said that what he will propose (presumably in his 'challenges' paper to be issued either late Friday or on Monday) will be considerably different to what he heard in this meeting.

Speaking to journalists after the meeting, Falconer elaborated that while there had been engaged discussions over an issue of substance that mattered to members, what he had heard in the meeting in response to Pakistan's ideas, from whatever side of the debate, is not going to work.

''Nothing that I heard in there will work. We are going to have to try harder,'' the Chair told journalists.

Although the paper by Pakistan (JOB 07/46) was first circulated at the last agriculture meeting on 13 April, this was the first time that the paper was discussed in detail.

According to Pakistan, which is a member of the G33 (and was at Jakarta and party to the G33 paper and indicators agreed at that meeting), its paper is an attempt to compromise on Special Products between the G33 and countries such as Thailand.

Pakistan told the informal meeting that the paper is also an attempt to help the Chair conduct the negotiations multilaterally by providing new input. Without new input, negotiations cannot take place, said Pakistan.

Trade officials said that the Pakistan paper uses tighter indicators than the G33's proposal, and proposes ranked scores for these. It also proposes "exclusion" indicators (for excluding products so that they cannot be special products) reflecting what it views as the development interests of farmers producing for export.

The paper also envisages a trade-off between the amount of flexibility and the number of special products (more products mean less of a deviation from the cuts in the formula). (See SUNS #6238 dated 25 April 2007.)

Speaking on behalf of the G33, Indonesia (the group's coordinator), in a critique of the Pakistan paper, said that Special Products play a crucial role in achieving the objectives of food security, livelihood security, and rural development, which are extremely important political, social and economic development imperatives, not only for the G33 but also for most developing countries.

Indonesia recalled the G33 Ministerial meeting in Jakarta on 20-21 March, where the Ministers displayed their commitment to the Doha Development Round and their constructive engagement in these resumed negotiations by approving a streamlined list of indicators for the selection of Special Products in a manner that is faithful to the development mandate while assuring the trading partners transparency and fairness.

The Indonesia statement on behalf of the G33 acknowledged the submission by Pakistan on SPs and took note of Pakistan's stated intention that this is a work in progress and for purposes of narrowing the gap between the negotiating positions and to operationalize the G33 revised indicators.

However, said the G33 statement, the Pakistan paper fails to achieve either of the two objectives, for the following reasons: firstly, it is not consistent with the mandates as spelled out in the Framework Agreement and the Hong Kong Declaration; secondly, it is not practicable, considering the realities of many developing countries; and thirdly, it is unlikely to strike a balance among the different negotiating positions on this very important issue.

Indonesia pointed out that the Pakistan paper also does not explicitly mention any new criterion. However, in introducing negative indicators, the so-called "exclusion indicators", it, in effect, adds a new criterion, based on trade considerations, which responds primarily to the commercial concerns of a few exporting countries. "Furthermore, the new criterion eventually overrides the three agreed criteria of food security, livelihood security and rural development, and thus, the inconsistency with the mandate."

Through Pakistan's proposed methodology of assigning a score to a product on each indicator, it becomes implicit that all or more than one indicator must be met simultaneously by a product in order to be designated as SPs. The complicated scoring system in the Pakistan proposal, Indonesia said, removes the simplicity of the G33 approach in which countries can designate a product as SP as long as it complies with any one indicator.

In fact, said Indonesia, if there will be a complex set of negative indicators, then for balance, perhaps, it may mean that Members must also devise negative indicators for the use of domestic support.

"It appears that the (Pakistan) paper has arbitrarily chosen some indicators from the G33 indicators. This subset of indicators does not reflect the reality of the diverse situations in developing countries and to that extent it is impracticable. The designation of SPs cannot be reduced to a mere mathematical exercise, as the result will not guarantee that the developmental objective will be met," stressed Indonesia.

"The Pakistan paper also suggests a non-linear graph indicating the number of SPs designated by a country in terms of deviation from the tariff formula. The more the SPs, the lesser the deviation from the formula cut and vice versa. Implicit in the proposal is a provision for a penalty for designating larger number of SPs."

In effect, said Indonesia, this may amount to penalizing a country which has a large number of poor farmers producing diverse agriculture products at a subsistence level and thus may need a larger number of SPs. In other words, the proposal could lead to promoting higher poverty in a country.

Also, the treatment proposal mentioned in the Pakistan paper is diametrically contrary to the position held and periodically reiterated by the G33. As already stated above, there should be no linkage of SPs with the formula for tariff reduction as SPs have a stand-alone mandate. The G33 proposal of graded approach should serve as a basis for the discussions, said Indonesia.

Indonesia also said that the concept of tariff capping has no place in discussing SPs, explaining that a product is special because of food security, livelihood security and rural development and not because of the tariff level.

"There is also no economic justification for the proposed ineligibility of SPs for Special Safeguard Mechanism (SSM) treatment," said Indonesia. SSM is basically a temporary measure for emergency situations, such as import surge and price fluctuation. SPs may also face such a situation to require the imposition of SSM.

Indonesia said that the G33 would present specific comments on the Pakistan paper prior to the issuance of the Chair's paper.

According to trade officials, among the countries that shared the G33's views are the Small and Vulnerable Economies Group (Dominican Republic speaking), the ACP Group (Kenya speaking), the African Group (Uganda speaking), and countries such as Honduras, Venezuela, Nicaragua, Cuba, India, Nigeria, Korea, Panama, Guatemala, El Salvador, Turkey, Bolivia, the Philippines, and Jamaica.

India associated itself with the G33 statement and said that "to the extent that Special Products enable developing countries to address the problems of food security, livelihood security and rural development needs, they constitute a concrete expression of the right of developing countries to development. It is essential that this flexibility is not circumscribed in a manner that negates its basic objectives."

India believed that the impact of Pakistan's proposals, however well-intentioned, would be to severely restrict the ability of developing countries to use Special Products to address their basic development concerns in agriculture.

India highlighted five broad areas of concern with respect to the Pakistan paper.

The first issue is the choice of indicators. Pakistan has selected a few indicators from the G33 list, ignored others which are equally significant for various G33 members and added another which the G33 had considered but rejected, as it was thought to be superfluous.

The revised indicators of the G33 which were ''strenuously negotiated within the Group, and to which negotiations Pakistan was party,'' reflect the particularities and circumstances of all G33 Members, India said.

In the absence of any explanation in the paper for editing the G33 indicators, India said that it can only conclude that the indicators included in Pakistan's proposals reflect Pakistan's own situation and not of other countries.

The second issue concerns the proposal for the cumulation of scores on all the indicators to determine the selection of Special Products. The mandate speaks of three criteria - food security, livelihood security and rural development. Obviously, the three criteria stand alone and individually in the determination of Special Products and are not required to operate cumulatively, said India. There may be some products which are required to be designated for food security reasons, others for livelihood security and so on, it added.

"To give an example from the indicators proposed by Pakistan, a product may score very highly in 'share in crop income of the poor', but may not reach the benchmark figure to determine selection because it does not score so highly in other indicators." It would be little consolation for a poor farmer to have his product excluded "in the name of some pretty arbitrary mathematics," said India.

India also said that the other problem with assigning scores for indicators is that it implicitly assigns the same value to the numbers in each indicator. So, a number reflecting 'share in crop income of the poor' would have the same weightage as, say, a number indicating 'share of imports from developed countries'. This would expose members to complex issues of welfare economics.

The third issue relates to the so-called exclusion indicators in Pakistan's proposal. In effect, the exclusion indicators which are based on trade criteria, would have veto powers over the selection of products based on indicators which are based on the mandated criteria. Thus, a non-mandated set of parameters will override the self-selection based on the mandated criteria. This, in India's view, would constitute a serious subversion of the mandate for SPs.

Trade criteria, however, have a role to play in acting as a filter where products are sought to be protected on the ground of trade sensitivities. India expressed interest to know whether the exclusion criteria proposed by Pakistan could be used in the selection of sensitive products (a criteria applicable to the developed countries with high domestic subsidies, and intended to exclude from tariff cuts or subject to lower tariff cuts).

The fourth issue relates to Pakistan's proposal to link deviation from the tariff reduction formula for SPs with the number of SPs selected. The mandated criteria and the indicators provide an objective basis for selection of Special Products.

Pakistan's proposal to link the number with the treatment would amount to penalizing some countries for having more poor farmers. In India's view, this would again constitute a subversion of the mandate.

Lastly, said India, the proposals in the Pakistan paper for treatment of SPs reflect a market access perspective rather than a development perspective.

India recalled that in the July 2004 Framework, the principle of substantial improvement is reiterated in the portion on sensitive products and does not find place in the portion on special and differential treatment. By prescribing a one-size-fits-all solution, the Pakistan proposal fails to take into account the different circumstances of various developing countries.

India also said that the proposal to exclude products designated as Special Products from the provisions of the Special Safeguard Mechanism, compares apples with oranges.

"The SSM is designed to enable developing countries to cope with emergency situations arising from import surges and price volatility. By its nature, it is a temporary measure meant for short term situations. On the other hand, SPs are designed to address structural situations in developing country agriculture. Thus, there cannot be any justification for excluding products designated as SPs from the SSM."

For these reasons, said India, it believed that the proposals by Pakistan in its paper do not achieve their stated objective of narrowing the gaps between the negotiating positions. On the contrary, by moving away from the mandate on a number of issues, they provide a basis for more contentiousness. While India welcomed the opportunity to engage in a constructive debate on this vital issue, it said that the debate can only progress if it remains firmly anchored to the mandate.

As far as the Pakistan proposal is concerned, in its present formulation, it strays significantly from the mandate in a number of ways, and cannot constitute a good basis for such a constructive discussion, India concluded.

According to the African Group, agriculture is a way of life and thus attention needs to be paid to livelihood, rural development and the food security concerns of the African countries. The Special Safeguard Mechanism should be operationally effective to deal with the circumstances of the African countries. The Group also supported the G33 proposal on Special Products and its revised indicators.

Kenya, on behalf of the ACP Group, said that it fully endorsed the statement made by Indonesia on behalf of the G33 with respect to the proposal by Pakistan.

The ACP Group raised concerns over some areas of the Pakistan proposal. "We are at a critical stage of the negotiations during which it is of paramount importance that members strictly adhere to the mandates in the Doha Declaration, the July Framework and Hong Kong Ministerial Declaration in order to enable us to realize progress in the negotiations."

In this regard, said the ACP, it will be recalled that the Hong Kong Ministerial Declaration clearly states that developing countries will self designate Special Products guided by indicators that are based on food security, livelihood security and rural development. The ACP underscored that the principle of self-designation as agreed upon by the Ministers in Hong Kong must be fully respected.

The Group pointed out that the mandate does not include any criteria for the exclusion of Special Products. "The exclusion indicators proposed by Pakistan therefore are not within our mandate and are contradictory to the agreed upon principle of self-designation."

Regarding the treatment of Special Products, the ACP Group said that the Pakistan paper draws a direct link between treatment of Special Products and the tariff reduction formula. The ACP Group emphasized that "there is no link drawn in the mandate between Special Products and the tariff reduction formula or the other market access provisions such as sensitive products, tariff rate quota (TRQ) expansion and tariff capping."

The ACP Group believed that the graded approach proposed by the G33 should be the basis for further discussions on the treatment of Special Products.

Meanwhile, trade officials said that support for Pakistan (but in some cases with a few reservations or questions) came from Thailand, Argentina, Brazil, Costa Rica, Uruguay, Australia, New Zealand and Paraguay.

According to trade officials, while Brazil welcomed the initiatives from both the G33 and Pakistan, it argued that the mandate justifies Pakistan's efforts. It said that the mandate refers to "appropriate" numbers of products, and the fact that "criteria and treatment" are to be determined by negotiation, which justifies discussion of these issues.

According to Brazil, having exclusion criteria also makes sense because by using the G33's indicators, Brazil would be able to select all the products it produces as special products. This includes poultry, because of its high contribution to nutrition in Brazil, even though Brazil is the world's largest exporter of poultry.

Costa Rica also said that the G33 proposal would allow it to select all its products as "special".

According to trade officials, Australia broadly supported the approach of the Pakistan paper.

Thailand thanked Pakistan for reflecting its concerns, and reiterated its argument that the Doha mandate requires substantial improvements in market access. Thailand said: "There exist poor farmers in exporting countries whose livelihood security depends on the exportation of their farm produce." Uruguay expressed support.

Mexico and Chinese Taipei said that they agreed with some of Pakistan's points, but disagreed with others. The EU meanwhile sought clarification on some points in the Pakistan paper.

According to trade officials, the United States did not comment on the issue.

Meanwhile, Chairperson Falconer provided members with more details of his upcoming plans. He said that he will produce his ''challenges'' paper on Friday or possibly on Monday, with a second instalment a week later. Members would be able to provide their reactions to the first installment at the next informal meeting scheduled for 4 May. These reactions would eventually be used to revise the draft modalities that he circulated in June 2006.

Falconer told members that his forthcoming paper will not consist of questions, but will be based on his judgement of where agreement might be possible and where it might not.

Speaking to journalists after the meeting, Falconer explained that he would indicate possible "centres of gravity" (approximate areas of possible agreement) in some areas; suggest "splitting the difference" between outstanding positions in other areas; and in a third group of areas, he will say that he will need more movement from members because it is unclear how to bridge the gaps.

He also indicated that he might mention some numbers with respect to the possible ''centres of gravity''. Falconer told journalists that about two or three weeks will be needed for discussions or reflections over what he has put on the table before he comes up with his draft modalities text.