TWN Info Service on WTO and Trade Issues (Aug08/12)
13 August 2008
Third World Network

Agriculture: Falconer report says WTO talks failed on political factor
Published in SUNS #6537 dated 13 August 2008

Penang, 12 Aug (Martin Khor) -- The collapse of the July negotiations at the WTO was due to an enduring "political divide" among the WTO members and it was not a purely technical breakdown that can now be resolved through essentially technical means.

This is perhaps the most important conclusion in a report on the agriculture negotiations during the WTO's failed mini-Ministerial, that was issued on 11 August by the Chair of the agriculture negotiations of the Doha programme, Ambassador Crawford Falconer of New Zealand. He had been asked to prepare this report by the WTO's Trade Negotiations Committee.

A report on the NAMA negotiations, to be prepared by Canadian Ambassador Don Stephenson, was expected to be issued last week, but has not yet appeared.

Falconer's five-page report takes on a sober and cautious tone. It provides concise information on the progress or lack of it on several issues which were discussed during the nine days of talks surrounding the mini-Ministerial that started on 21 July and eventually ended without overall results on 29 July.

During that period, most of the important negotiations took place within a group of seven WTO members with Pascal Lamy, the WTO's Director-General in his capacity as Chair of the WTO's Trade Negotiations Committee (TNC).

There were also meetings of the "Green Room" of 30-plus Ministers, and informal sessions of the TNC. And Falconer also convened his own meetings with selected delegations on various outstanding agriculture issues that had not been settled by the time he issued his last draft text on 10 July.

Some delegates and observers expected Falconer to present the concrete outcome of his consultations on the various issues on which there was progress, wherever possible backed up (perhaps in annexes) by new texts or "near-texts" that might have been agreed to or almost agreed to by various parties on some of the outstanding issues.

Indeed, it was announced that Falconer and Stephenson were going to issue new revised texts on 28 July for the consideration of the Green Room and eventually, the TNC. Many delegations from developing countries were even anxious and concerned that they would be given very little time to study these revised texts before these texts would be tabled for approval at the TNC.

Due to the deadlock and then the collapse of the talks within the G7 (comprising the United States, European Union, Brazil, India, China, Japan and Australia), the revised drafts were never issued. But copies of these drafts presumably exist, at least in the keeping of the two Chairs of the negotiating groups on agriculture and NAMA.

In his 11 August report, Falconer has resisted the temptation of including what he could consider as new texts or near-texts arising from his consultations during the period, or that had been tabled informally at the G7 and Green Room meetings.

Several diplomats and trade officials had expected him to include these in his report, as a method of "capturing" the results of the nine days of agriculture negotiations on paper, so that they could be used as a basis for negotiations when or if they re-start.

However, such a move would have also been politically and technically problematic. The meetings and consultations during the nine days in July were informal and involved only limited numbers of people, and they were not "tested" in the small-group format of "Room E negotiations" (held for months before the mini- Ministerial) nor through the "transparency meetings" in which all members were invited to discuss the outcome of small-group meetings.

If Falconer had placed the texts or near-texts in his report, they would probably have been subjected to disputes and criticisms. Moreover, as he points out, the near-agreements he may have brokered on several issues were all in the context of the possibility of there being an overall agreement on all issues.

Minus this overall deal, each separate near-agreement may not mean anything, as the parties are likely to withdraw their support for the provisional agreements, these being contingent on an overall deal that was never achieved.

Falconer thus says in his report that while the concrete near-outcomes or possible new texts exist in the computer hard drives, it is best to leave them there. This is presumably to prevent controversy, and to enable them to be used if the negotiations were to resume later on.

It is in this cautious mood that he also approaches the topic -- special safeguard mechanism (SSM) -- that is widely regarded as the problematic issue that caused the failure of the entire Mini-Ministerial.

This is, he says, not a technical problem that can be resolved through technical solutions. There will be no success, he says, if the problem is approached in "some kind of sunny pollyannaish belief that we had an unexpected minor technical hitch but, with a bit of sleep and rest, normal service will be resumed as soon as possible."

The SSM issue is a manifestation of a political divide that has existed for a long time -- at least since the 2005 Hong Kong Ministerial.

In this, Falconer is right. Several leading players in the G7-Plus-Lamy group had said that it was unbelievable that such a minor issue (the SSM) could derail the whole Ministerial when more complicated issues could be solved.

In reality, the SSM was at the heart of the fight between two conflicting paradigms -- the development paradigm subscribed to by most developing countries whose main fear of the Doha negotiations was that they were leading to more market opening of their economies which are already damaged by the inflow of cheaper imports, and the market-access paradigm (that in the end aimed at opening up of developing countries' markets) so aggressively championed by the developed countries, and supported in part by some developing countries with major export interests.

For the G33 and their supporting groups, an effective SSM was essential to defend their farmers and national food security from excessive import liberalization. For the US in particular, and most of the Cairns Group members, a strong SSM would deny them the market access gains that were for them the objective of the Round.

This was at the heart of the political divide. It is unlikely that this could be bridged by technically moving a few percentage points in the trigger for the use of the SSM above the pre-Doha bound rates, and another few percentage points in the remedy (or how much above these pre-Doha rates a developing country can move its tariffs, using the SSM).

And that is also true for the cotton issue, where the African cotton-growing countries in particular are seeking significant effective cuts in US domestic subsidies, and the US negotiators find it difficult or impossible to provide a satisfactory response.

Falconer envisages the continuation of technical work on the various issues in Geneva, saying that he as Chair is willing to start again when members want to. But his report also recognizes the political sensitivities. He also cautions that if the Doha Round is to have a hope of being completed within three years, the modalities have to be completed as soon as possible, as the chances of their slipping away will grow with each passing day.

Altogether, a sober assessment from the agriculture Chair of what happened, and what can happen.

In the Conclusion part of his report, Falconer said that "we need to revisit the SSM... But in doing so we must recognize that it was not, for any of the participants involved (and those participants include Members that were not in the G7, it should be added), a purely technical breakdown.

"It was a political divide. In fact there was progress made on it politically, and technically, during that week. But it was simply not sufficient to bridge a political divide that had been enduring since at least Hong Kong.

"So illusion number one to guard against is that it can be resolved essentially technically. The technicalities will need to be addressed but will only work with the same level of political investment that was evident in many other issues where technical and political are inseparable."

Falconer further stated that the SSM is not the only problematic area. "Our task does not begin and end with SSM. I need only mention Cotton - one of the other three or four potential deal-breakers, which was not at all seriously addressed before things broke down with SSM. There is tariff quota creation. There is tariff simplification.

"Yes, one might well take the view that these can fall into place. But we also have to actually make that happen. And, while one might well rightly have held the view that key elements elsewhere were essentially on the brink of resolution, not all of those affected were in the room, and that would have needed further effort to ensure finalisation."

On the technique to address these matters, Falconer pointed to two clear elements. First, if this is to be fixed in less than a three year time horizon, "it has to be done in the very near term. Each day that passes takes us further and further away from the preparedness to compromise that was certainly evident in that last week of July..."

Second, the only way to fix seemingly intractable problems in the WTO has been through intensive work at senior officials' level: "hard grind and no waiting for divine interventions from Olympus."

Concluded Falconer: "If you feel the same way, your Chair will be ready to continue that effort with you over coming weeks."

In his Introduction, Falconer said that in the agriculture work on 21-29 July, there was a credible basis for conclusion on very many issues. But there was decisive disagreement on certain matters while other very significant issues were not even dealt with.

Had the "outstanding" matters been resolved, he thinks the rest could have "fallen into place". But he also recognizes that such a judgment is a function of a very particular situation, where Members were conscious that there was a genuine end-game scenario. They were thus prepared to accept compromises that were not generally their preferred options. "That was a mind-set that applied as of yesterday. As of today that remains at best moot."

Says Falconer: "We were also in a position to have tabled precise texts as a basis upon which we could have finalised the negotiations over agriculture modalities. But the inescapable fact is that, with the impasse that occurred, we are manifestly not now, or at least we are no longer, in circumstances where such precise texts could in and of themselves secure such an outcome.

"That is dictated by the fact that there are issues where substantive disagreement remains and there are others where we did not get to substance at all. For the rest, it is not to say that all Members concerned have retreated from the substance of their positions. On the contrary, it is precisely because Members might yet be prepared to live with those positions that it would be counter-productive to oblige them now to react to precise text which alleges their agreement.

"Such precise texts are, of course, still on the hard drive. But that is where they do and must remain, at least for the time being. That is because, as is clear from the above, those texts only had a rationale for their existence in circumstances where Members were in genuine final decision-making mode, as they were at that time. Regrettably, time has moved on."

Falconer said if a genuine decision making moment recurs very soon, those texts may still serve their purpose. Unless and until that moment arrives, the existing texts remain, as do the particular negotiating moves made by Members, which, of course, did not solidify into actual agreement.

His report then gives a brief summary of what he sees as the position on the main issues in the three pillars of agriculture negotiations: Market Access, Domestic Support and Export Competition.

MARKET ACCESS

On Tariff Cuts, as regards the tariff cut in the top band of the tiered formula, the output from the G7 and the Green Room discussion have been reported regarding a 70% cut.

On Sensitive Products for developed countries, the output from the G7 and the Green Room discussion based on the concept of "4 +2" for the number (i. e. 4% of tariff lines to be designated as sensitive products plus another 2% of tariff lines for certain developed countries) has been well reported. Some Members outside the G7 process would require at least further discussion on such an approach.

On Sensitive Product treatment for developing countries, a revised tripartite structure could have been a basis for an agreement, said Falconer. Under this, a developing country can select a limited number of its Sensitive Products (between one-third and two-thirds of its Sensitive Product tariff lines) to take lesser reductions than required by the tiered formula. The greater the deviation from the formula the fewer products and the shorter the implementation period. They can also opt for the full tariff cut with a longer implementation period and/or the deviation and tariff quota creation option for any remaining tariff lines.

There was no new basis for resolution of the disagreement on whether there could be new Tariff Quota Creation. Certain bilateral discussions may have taken place, but nothing that came to a multilateral forum, even informally.

On Tariff Simplification, there was no new basis for resolution.

On In-Quota Tariffs, Falconer reported that there was a sound basis for concluding, based on going to the lower of a threshold or a formula cut with a single tariff rate for all the tariff lines covered by a quota. The more detailed elements on starting point and phasing were also developed so that an agreement on all features was in the offing. There was also an equivalent basis for elements relating to developing countries.

On Tariff Quota Administration, as regards the tariff quota under fill mechanism, there was a basis for agreement on the outstanding issue of application to developing country Members, said Falconer.

On the Special Agricultural Safeguard (SSG), Falconer said the output from the G7 and the Green Room discussion has been reported regarding reducing the maximum number of products eligible for the SSG and eliminating it after seven years. Had that been finalised, it was likely that the SSG would have been retained at a very low percentage of tariff lines for developing countries generally and at a somewhat higher percentage for SVEs, he added.

On Special Products, the output from the G7 and the Green Room discussion has been well reported regarding the percentage of tariff lines that could be declared Sensitive Products, the percentage that would not take a tariff cut and the overall average cut for them, said Falconer.

On the Special Safeguard Mechanism (SSM), Falconer also said that the output from the G7 and the Green Room discussion has been well reported. He added: "Within the G7 itself there simply proved to be unbridgeable differences regarding the triggers for breaching the pre-Doha bound rate. The other key questions of how far you could go above that rate and how often you could do it could not be a source of any convergence in the absence of any common ground on the fundamental issue of what conditions would need to be met for you to even breach it in the first place.

"It is perhaps worth underlining that such differences were not some purely "technical" matter. Of course, like all fundamental political differences, there are consequent technical differences, but the impasse was not technical. It was political.

"The fundamental issues were, on the one hand, whether you can breach pre-Doha bound rates and, if so, on what terms and conditions and, on the other hand, how you can make a SSM mechanism genuinely operational for developing country Members if there is an a priori ceiling constraint of such a kind. These issues remained - as they have throughout the negotiations - substantive, and essentially political, divisions. SSM was always going to be one of the three or four potential deal-breaker items and so, alas, it proved to be."

On Tropical and Diversification Products, Falconer said the list had been essentially stabilised. There could have been consensus around a formulation on treatment that had support among the key participants. The particularly sensitive matter of so-called "overlap" between tropical products and preference erosion product lists would have been resolved on the basis of specific understandings developed over those few days.

On Preference Erosion, the same understanding as for tropical and diversification products would have been reflected in preference erosion modalities, said Falconer. Beyond the so-called "overlap" issue, there would have been a basis to have concluded on the treatment of other nominated preference erosion products.

On the Treatment of LDCs, this would have been resolved (as sought by LDC's themselves) on an essentially equivalent basis to NAMA as and when NAMA was resolved.

DOMESTIC SUPPORT

Falconer says that the output from the G7 and the Green Room discussion has been reported regarding developed countries' domestic support commitments, in particular as relates to overall trade-distorting domestic support (OTDS) and, in the case of the United States, the base period for AMS. These were essentially the mid-point and, where necessary, rounding-up to the nearest whole percentage the bracketed numbers for OTDS cuts and removing the brackets for the base period.

Questions still remained as regards the "head room" for Blue Box product-specific commitments and the starting point for product-specific AMS commitments. Falconer believes those latter matters would, however, have been resolved also in terms of an overall agreement.

As regards developing countries' and recently acceded members' (RAMs) OTDS scheduling and Blue Box entitlements, a basis for agreement had also developed, says Falconer.

EXPORT COMPETITION

On export competition, Falconer believes that in the context of a total overall package, there was a specific and balanced outcome on the outstanding elements on food aid, export credits, STE's and phase out of export subsidies that was "ripe and ready to go."

On temporary Export Restrictions, he also believes that there was a fine-tuned text that would have been acceptable to Members.

COTTON

There was no new basis for an outcome on cotton, reports Falconer. "Although there was a renewed commitment to seriously engage in negotiations by all the Ministers that represent those countries that have been most heavily involved in this issue, it was, regrettably, not addressed in a substantive way by the time that negotiations had broken down overall." +