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The informal negotiations on domestic supports continued in 23^rd September with Harbinson as Chair in spite of his new position as WTO Secretariat Staff. Though some countries have silently raised concerns to the new DG, no country has officially taken up this issue as a violation of existing WTO rules. In his summary at the end of September, Harbinson used the same rhetoric as was heard prior to Doha of the urgency to reach agreement given the current economic climate, "As we all know, agriculture is critical to the negotiations as a whole and so we simply must meet our deadlines. If we do not, the credibility of the round could be undermined."

Harbinson pointed out that there is still time for countries to put forward specific proposal, hinting at the lack of concrete figures put forward by key players such as the EU. This, he said, is "not particularly helpful from the point of view of drafting the 'overview paper' towards the end of the year.” He added, “In the process we must also change our mindset. We need a more creative approach in which participants start looking actively for compromises and for ways to bridge gaps."

Common ground exists, he said, but in critical areas much more flexibility is needed. "I therefore, urge you all to reflect deeply and urgently on what your delegation can contribute in order to bring this exercise to a conclusion acceptable to all by the end of next March."

Much anxiety remains regarding Harbinson’s “overview” paper on the Agriculture modalities and whether all members’ viewpoints will be accurately reflected. Some countries in October have even suggested the possibility of watering down their positions in the November meeting. They felt that doing so would provide them with a better chance that their position would be reflected in Harbinson’s draft paper in December. They fear that taking the positions they would like could lead to these positions simply being ignored.

The main fight in the market access talks which took place in early September boiled down to which formula should be used for tariff cuts, the Uruguay formula or the Swiss Formula. The Uruguay Formula, which is used in the current AoA is less drastic a tariff reduction formula compared to the Swiss Formula.[1] The Swiss Formula was used in the Uruguay Round to cut tariffs on industrial products. It cuts high tariffs by larger amounts than low tariffs and makes use of a coefficient which can be determined by negotiators.[2]

The European Union position is that they can only go along with Uruguay Round tariff cuts. They have also been courting the support of developing countries on this. Their justification is that this would give flexibility also to developing countries’ non-trade concerns such as food security. They have also been more open to a Special Safeguard (SSG) for developing countries in order to gain more support. Mainly developed countries can use the current SSG. Some developing countries have also said that in bilateral negotiations, the EU has promised that they would support a ‘negative list’ Development Box, which allows for certain crops important for food security and livelihoods, identified by national government, to be excluded from tariff reduction commitments.

The US put forward a proposal asking for drastic tariff reductions through a Swiss Formula which would ensure that no individual tariff exceeds 25% after a five-year phase in period. In addition, the US asked for tariffs to be reduced from applied rates.[3] No differentiation was made in their proposal between tariff cuts for developed and developing countries. The US also wants to eliminate the existing safeguard mechanism, and certainly does not favour any new safeguard mechanism for developing countries.

The Cairns Group, following quickly on the heels of the US proposal, suggested that developed countries should bring down tariff rates to a maximum of 25%. For these countries, a coefficient of 25 for the Swiss Formula will apply. (For example, an initial tariff of 50% will be brought down to 17.8%, and an initial tariff of 25% will be brought down to 12.5%).

1) initial tariffs of 0-50% will be reduced using the Swiss Formula, with a coefficient of 50. (Eg. An initial tariff of 50% will be brought down to 25%).

3) Initial tariffs over 250% shall be reduced to a 125% final tariff – that is, the maximum final tariff for developing countries will be 125%.

The Cairns Group was split on this proposal, and their final submission did not include Canada, Malaysia and Indonesia. Malaysia felt that the tariff reduction was not aggressive enough, and wanted initial tariffs between 50% and 250% to be reduced by 70%.[4] Indonesia wanted four staples to be excluded from tariff reductions – rice, sugar, corn, soya - but this was not accommodated by the group.

India’s position was that it could at most go along with the Uruguay Round formula tariff cuts, and even then it will not be able to make further cuts on existing low tariff rates. The Indian cabinet has already given instructions that certain tariffs lines cannot be reduced further.

A group of developing countries, Cuba, Dominican Republic, Honduras, Kenya, Nicaragua, Pakistan, Sri Lanka and Zimbabwe submitted a proposal stating that developed countries’ tariff should be brought down to a maximum of 12 per cent. As a special and differential treatment provision, developing countries should be allowed to indicate the list of agriculture crops that would be subject to reduction commitments. All other crops not listed will not be subject to tariff reductions. (This is the ‘positive list’ approach to the Development Box). There should also be renegotiations for low tariff bindings in relation to food security and staple crops.

Many developing countries also made the point that there should be no tariff reductions until and unless domestic supports are also brought down. The Philippines has put forward a comprehensive proposal in the informal session on 2-3 September that allows developing countries to apply higher tariffs on developed country imports which are sustained through trade-distorting domestic supports. This would be in addition to any Special Safeguard Mechanism (higher tariffs to be applied) when there are import surges, or when prices drop below a certain trigger level.

China has also asked for substantial tariff reductions. Their proposal states that ‘the margin between the applied rates and the bound rates shall be substantially narrowed’. China also asked for the elimination of the safeguard mechanism.

The Chinese proposal does not make a distinction between developed and developing countries, but between newly acceded Members and other Members. As a newly acceded member, China is still in the process of implementing its reduction commitments undertaken during its accession negotiations. It recommends that all newly acceded members, because of the substantial tariff reduction commitments undertaken, will be exempted from further tariff reductions in the current round.

A developing country official privately confided that the Chinese are eager for drastic liberalization by developing countries, so that pressures on them for market access will be lessened as exports are also diverted to other developing countries. This may indicate a growing ‘split’ between China and the other developing countries as it moves towards a more Cairns / US position on tariff reductions.

Domestic Supports: Weak Positions on the Green Box Set to Exacerbate Inequities in the Agreement

The Aggregate Measure of Support (AMS) is an index that measures government support. It includes both direct and indirect supports deemed to be trade distorting. AMS is often referred to as the ‘Amber Box’.

The Blue Box contains provisions that exempts from reduction commitments those program payments received under production limiting programmes. This is widely used by the EU.

The De Minimis clause allows developed countries to maintain a certain level of AMS. For developed countries this level can be up to 5 per cent of the value of production for individual products (product specific support), and 5 per cent of the value of a country’s total agricultural production (non-product specific support). For developing countries, support can be up to 10 per cent for product specific supports and 10 per cent for non-product specific supports.

Green Box or Annex 2 describes domestic support policies that are not subject to reduction commitments under the Agreement on Agriculture. These policies are said to affect trade minimally although this is not the case. Direct payments, widely seen to be trade distorting, fall under the Green Box.

It is quite surprising that no proposal was tabled from a group of developing countries informally called the “Friends of the Development Box” in favor of a drastic reduction in domestic support from developed countries. It was expected that this would be the area that many developing countries would be more offensive, since through domestic support, OECD countries continue to shield their own markets from Southern imports and are simultaneously distorting world market prices. It is alarming that certain capitals are being pressurized to prejudice their positions even before an “overview” paper for Agriculture is out.

The Cairns Group members and the US were disappointed that the EU still did not table any formal proposal regarding the reduction of its domestic support.

Switzerland put forward a proposal asking for the expansion of the Green Box to accommodate non-trade concerns (such as animal welfare). This was also the same position articulated by the EU.

The EU wanted to uphold the same AoA domestic support architecture (ie. retain the Amber, Blue, Green boxes). According to the EU, this was the only politically feasible structure for them and the EU threatened that proposals that are more ambitious could slow down the negotiations towards Cancun. The EU also responded to the Cairns Group proposal by stating that the elimination of the AMS does not reflect the Doha mandate. The Declaration had called for ‘substantial reductions’, not elimination of domestic supports.

Australia was apparently quite forceful in putting forward the Cairns proposal. The Cairns Group (minus Canada which did not join in the Cairns Group domestic supports paper) asked for the following on the Blue Box and the Amber Box

On the Green Box (which has been widely abused by the OECD countries), the Cairns position is to ‘Commit to a mechanism that will cap the amount of expenditure allowed on direct payments in Annex 2 and reduce the expenditure in paras 5,6,7 and 11 in order to prevent any potential distortions.’

The Cairns also provided some comments on various paragraphs in Annex 2. The most surprising change was the call for extending, rather than limiting the Green Box by including in Annex 2 paragraph 8 on payments for relief from natural disaster,

i) payments through government financial participation in crop insurance schemes

ii) payments for the destruction of animals or crops to control or prevent disease.

The Cairns Group position on the Green Box is in fact disappointingly weak. It did not specify how the Green Box should be capped, nor did it call for the removal of paragraphs 5,6, and 7 to be shifted into the AMS (trade distorting category of supports). Given the type of games played in the WTO, merely calling for reductions without a specific formula is not likely to produce results.

It is shocking that the Cairns group, supposedly the biggest champion of reducing barriers to agriculture trade has at best submitted a weak proposal on domestic support reform of the biggest subsiders (EC and US) and at worst actually opened the door to an expansion of the Green Box loopholes by extending paragraph 8.

The Cairns Group was deeply divided internally in coming together to this position – the North-South splits were particularly evident. The two main issues splitting the group were:

The developing Cairns Group countries, particularly those from Southeast Asia – Philippines, Thailand and Indonesia, took the position that the de minimis should be eliminated. This was opposed by Australia, New Zealand, Canada and some of the Latin American countries, such as Brazil. Australia, NZ and Canada are all providing fairly large amounts of trade distorting subsidies under their 5% de minimis. However, the developing countries argued that because the production is so large for some countries such as the US, many trade distorting subsidies are given under their huge de minimis (of US$20 billion) and are unacceptable. Most of these subsidies are not even notified.

Apparently the Cairns Group spent five hours negotiating this one issue on 26 September.

The other issue which split the grouping was whether AMS should be disaggregated for developed countries. In the Uruguay Round, the AMS reductions were aggregated. This allowed countries to reduce supports on less sensitive products, and continue providing supports on sensitive products. Canada had major concerns with the push by developing countries for the disaggregation of the AMS. It felt that it would not be able to compete against the US if AMS reductions were disaggregated.

Despite frantic attempts by certain countries to persuade Canada to join in the Cairns Group Domestic Supports paper, Canada eventually opted out due to disagreements on both issues. Some developing countries such as the Philippines wanted Canada to remain in the grouping in order to strengthen the Cairns Group coalition and the negotiating mileage Australia would have vis a vis the bigger powers.

· Reduction of AMS subsidies to de minimis levels in 5 years (developed countries) and 9 years (developing).

· De minimis levels would be unchanged for all. (Another difference from the Cairns position)

There would be an additional cap on the combined supports of all three boxes, but not for specific items in the Green Box- paragraphs2, 3, and 4 of Annex 2 (i.e., general services, public stockholding for food security purposes and domestic food aid).

The North-South splits so early in the negotiations is a bad sign for developing countries in the Cairns Group. In Doha, Australia was supposed to pull its weight to oppose the introduction of environment in the negotiations. However, easily influenced by the influential players, Australia left the developing country Cairns Members out in the lurch, by not raising objections when pressures were exerted. Given that Australia itself has problems with cutting de minimis to zero, as well as reservations about disaggregating the AMS, the Cairns proposal, when the US flexes its political muscles, could easily collapse, again leaving the developing countries badly affected by OECD subsidies, such as Philippines, Thailand, Indonesia, Columbia etc out in the cold.

China’s domestic supports proposal was similar to that of the Cairns Group. It asked for AMS and the Blue Box to be eliminated within three years, after a 50% reduction in the first year, and 25% annual reduction in the following two years. It also asked for a ‘comprehensive review of the green box’ and the strengthening of disciplines on the use of these measures. It also asked for Paragraph 7 of Annex 2 (government financial participation in income insurance and income safety-net programmes) to be moved to the AMS.

[1] The present AoA uses the Uruguay Round formula, which is ‘linear’. The same percentage reductions are applied, no matter what the starting tariff rate is. The current AoA called for 36% on average reduction in tariff lines for developed countries and 24% reduction for developing countries. However, developed countries aggregated their tariff reduction commitments, meaning they could pick and choose which products would have lower tariffs as long as there was an average reduction of tariffs across products. Tariff lines on sensitive products were cut by a smaller percentage than less sensitive products. Products which already had low tariffs were also cut by a higher percentage. For example, a 100% cut made on a product which had a tariff of 4% resulted in a tariff of 2%. While this formula therefore allows many loopholes and may not provide market access to developing countries, however, the upside is that it also allows developing countries to protect their sensitive crops.

[2] The Swiss formula effectively reduces tariff peaks and escalations. The formula is: Final Tariff = (Initial Tariff x coefficient)/ (Initial Tariff + coefficient). A smaller coefficient would imply a deeper cut than a larger coefficient.

[3] Bound tariff rates are the ‘official’ tariff rates of a country. However, most developing countries, due to IMF and World Bank conditionalities are applying tariffs at much lower than their bound levels. These are the ‘applied tariff rates’. For example Indonesia’s bound tariff on rice is 160% but their applied rate is only 30%.

[4] Malaysia aggressively seeks market access for its palm oil particularly from other developing countries. It is interested for instance in the Indian and Chinese markets.