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    Revised Draft Modalities on Agriculture



    WTO Agriculture Negotiating Group Chairman Crawford Falconer released revised negotiating texts in agriculture in February 20081. The new draft replaced the previously released July 2007 text. In the July 2007 (supplement 1-30) issue of the World Trade Net Business Briefing the earlier version of the draft modalities on agriculture was briefly reviewed. This paper provides a short brief of the major features of the new text in comparison to the previous text.

    Refinement of modalities

    The modalities are now much more detailed and presented in the form of a legal text. The new document's structure traditionally covers three main pillars: Domestic Support2 , Market Access3 and Export Competition4. It contains provisions for recently acceded WTO members (RAMs), for low-income RAMs with economies in transition, and for very recently acceded members. These categories were particularized in the new text. Thus, for example, RAMs and small low-income RAMs are particularly named in the new text and the list remains closed5.

    Domestic support

    Similar to July 2007text, February 2008 version of the modalities includes the so-called "Base OTDS" which is defined as the sum of its Final Bound Total Aggregate Measure of Support (AMS)6 commitments, eligible "Blue Box"7 entitlements and "de minimis"8 support entitlements. As a novelty different needs of developed and developing countries are now to be considered in calculations of the "Base OTDS". It is recognised that for the developing countries the base level for reduction in Overall Trade-Distorting Domestic Support shall be the sum of the Final Bound Total AMS, 20 per cent of the average total value of agricultural production in the 1995-2000 or 1995-2004 base periods (compared to 10 per cent in the 1995-2000 base period for developed countries) and the higher of average Blue Box payments or 5 per cent of the average total value of agricultural production in the alternative base periods 1995-2000 or 1995-2000 (compared to only one option-1995-2004- for developed countries).

    Similar to the previous version of the draft a so-called tiered reduction formula for the reduction of the "Base OTDS" is being proposed.

    The tiered reduction formula has, as before, three tiers: the first applies cuts of between 75% and 85% to countries with an OTDS higher than US$ 60 billion; the second, with cuts of between 66% and 73%, applies to countries with OTDS between US$ 10 billion and 60 billion; and the third, with cuts of between 50% and 60%, to countries with OTDS lower than US$ 10 billion. As can be seen the reduction figures are left undecided (between 75-85%, 66%-73%, 50%-60%) compared to July text and as before are suggested in square brackets (a drafting convention indicating lack of consensus)9. In reality it is the EU that would have to cut its spending on overall by 75 to 85 percent. The US would have to do so by 66 to 73 percent, which would bring its spending entitlement to between $13 and $16.4 billion - both above current US expenditures, but below the caps the US has proposed thus far10.

    There is, however, a major move forward: AMS reduction (Final Bound Total AMS- Aggregate Measure of Support, commonly known as the "Amber Box") for the most trade-distorting domestic support has now been proposed at 70% (fully corresponds the EU's proposal), 60% (for the US and Japan) and 45% (for all other countries) respectively. This represents a firming up of these percentages which were in square brackets in the July 2007 text.

    Provisions on Implementation periods of the obligations and staging are now more thorough and detailed. Compared to the July 2007 draft, a larger down payment for both reductions is now expected. The Base ODTS will be reduced by 33% on the first day of implementation as compared to 20% previously, followed by five equal reductions in subsequent years. For the AMS reduction, a down payment of 25% (in square brackets) is now proposed on the first day of implementation, followed by five equal reductions in subsequent years11. No AMS down payment was included in the July 2007 draft.

    The new document establishes cuts in the "de minimis" and the "Blue Box". The cuts in "de minimis" support (proposed at either 50 % or 60%) remain in square brackets as in the July 2007 draft, and it also remains unclear whether these will be effective from the first day of implementation or phased in through five equal instalments12.

    "Blue Box" support will as before be limited to 2.5% of the average total value of agricultural production in the 1995-2000 base period and product-specific ceilings will apply. There is a possibility of exceeding these product specific limits if there is a corresponding and irreversible one- for -one reduction in the product specific AMS limits for the products concerned (except fro cotton, where that rate would be two- for -one.

    Further, the new draft includes revisions of the disciplines for non-trade distorting domestic support covered by the so-called "Green Box"13. Much of the Green Box debate revolves around the requirement for minimal production impact or decoupling.

    Usually decoupled income support may be used by governments to pursue farm income objectives and should meet the classic decoupling requirements:1) not be determined by current prices, by current or future levels of production or by levels of input use; 2) may still have production effects due to liquidity, wealth, risk and expectations mechanisms and impacts on entry and exit of farmers; 3) establish eligibility criteria to meet the fundamental requirement of no more than minimal trade-distorting effect.

    Proposed language of the new text allowing occasional updates to the base periods used to calculate support that is 'decoupled' from production has proved controversial: some countries say that these updates would ultimately give farmers an incentive to increase production, by affecting producer expectations. The text proposes two options for this. The more restrictive option would allow updates only for base periods far enough in the past not to affect producer expectations or decisions. A less restrictive formulation would allow updates if producer expectations and production decisions remain unaffected. Additionally, the chair proposes allowing developing countries greater flexibility to account for some food stockholding payments under the green box14.

    Market access

    There has been no advance on the formulation included in the July 2007 text. Although the thresholds are set (at 20%, 50% and 75%), the reduction commitments within each band continue to be in square brackets. For the highest band of tariffs above 75%, for example, the bracketed cuts range from 66-73%.

    What is new, however, is a commitment to a minimum average cut on final bound tariffs which is suggested (in square brackets) as 54% including and taking account of the more limited tariff cuts for Sensitive Products. This could imply a further discipline on the selection of Sensitive Products15 , as any lower tariff cut on these products must be offset not only by expanded tariff rate quota16 access, but also by additional tariff reductions on other products.

    The revised text included a new requirement for developed countries to make a minimum average tariff cut of 54 percent, even if the distribution of their tariffs in the tiered reduction formula would have otherwise resulted in a lower average reduction. The comparable figure for developing countries is 36 percent, in line with what had been proposed by the G-20 group of developing countries (a 40 percent option, present in the July text, was dropped). The EU's market access offer would have led to an average cut in EU tariffs of 39%. The G20 proposal would have led to an average cut in EU tariffs of 52%, so the 54% minimum requirement (after allowing for Sensitive Products) really pushes the EU to make an additional effort.

    The debate on the permissible number of Sensitive Product tariff lines goes on. While the 4-6% range mentioned in the July 2007 modalities text remains in square brackets, a potentially significant change is that in the denominator for this percentage now appears in square brackets. For some commodities, such as beef, rice, sugar and bananas, specific developing country concerns come into play.

    The draft suggests that developing countries may be allowed to designate a minimum of 8 percent of agricultural tariff lines as "special", without any reference to food and livelihood security "indicators". It proposes a maximum, to be agreed, of either 12 or 20 percent, with the additional commodities guided by indicators that would demonstrate that a product satisfies the criteria for selection.

    In the new text, there is a try to set out a legal structure for the Special Safeguard Mechanism17. The text envisages different responses to low, medium and high import volume surges. Least-developed countries, which are not required to cut tariffs in the current round, would be permitted to impose safeguard duties exceeding pre-Doha bound rates by some 20 percentage points, according to a bracketed provision. So would small and vulnerable economies, albeit in limited circumstances. The new text furthermore provides for safeguard duties to be levied over and above applied rates, rather than from the bound ceiling level. The draft also provides an option for the Special Safeguard Mechanism to expire at the end of the Doha Round implementation period.

    Export Competition

    While the deadline for eliminating developed country export subsidies has long been established as 2013, the new draft now also proposes that developing countries eliminate such support by the end of 2016.

    Conclusion

    The latest draft is complex and releases kicks off yet another intensive series of meetings. After a period of further discussion in the agriculture negotiating groups, members intend to move to a new phase where agriculture, non-agricultural market access and some other areas of the Doha Round can be negotiated in comparison with each other with the hope that agreement can be reached in the next few weeks or months.

    The draft is still not the final word. It puts the possible areas of agreement on paper so that members can react and further revise the text.

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    1See http://www.wto.org/english/tratop_e/agric_e/chair_texts08_e.htm for the details.
    2Synonym to assistance or subsidy.
    3Market access describes the extent to which a good or a service can compete with locally-made products in another market. In the WTO framework it as a legalistic term outlining the government-imposed conditions under which a product may enter a country under non-discriminatory conditions. Market access in the WTO sense is expressed through border measures, i.e. tariffs and non-tariff measures, in the case of goods, and regulations inside the market in the case of services.
    4Export competition: the practice of competing internationally in markets for agricultural commodities through export subsidies, subsidized export credits, state-trading enterprises, abuse of food aid and non-transparent market support systems.
    5RAMs (Saudi Arabia, the Former Yugoslav Republic of Macedonia and Viet Nam); Small low-income RAMs (Albania, Armenia, Georgia, Kyrgyz Republic and Moldova). See, WTO document TN/AG/W/4/Rev.1, 8 February 2008, pages 3, 7, 13, etc.
    6Total aggregate measure of support (AMS) is the sum of all domestic support provided to agricultural producers. It is the total of all aggregate measurements of support for basic agricultural products, all aggregate measurements of support not aimed at a specific product and all equivalent measurements of support for agricultural products. Formulas like these do a lot to explain why agricultural negotiations consume so much time.
    7"Blue Box" policies represent the set of provisions in the WTO Agreement on Agriculture that exempts from reduction commitments, those program payments received under production-limiting programs-if they are based on fixed area and yields, a fixed number of head of livestock, or if they are made on certain base level of production.
    8"De minimis" support is a minimal amounts of domestic support that are excluded from each country's total Aggregate Measure of Support (AMS) ceilings. These include specific commodity support and nonspecific commodity support.
    9WTO document TN/AG/W/4/Rev.1, 8 February 2008, page 2.
    10See http://www.ictsd.org/weekly/08-02-13/story1.htm

    11WTO document TN/AG/W/4/Rev.1, 8 February 2008, pages 3-4.
    12Ibid, page 6.
    13Green box: domestic support policies for agricultural products exempt from the Uruguay Round reduction commitments and permitted without limits. Green box policies include genuine relief to farmers through a wide range of assistance measures which have a minimal impact on trade, such as disaster relief, research, disease control, infrastructure, environmental protection and food security.
    14See http://www.ictsd.org/weekly/08-02-13/story1.htm

    15Sensitive products: these are products more likely than others to encounter import restrictions. Typical examples are many agricultural products, textiles, clothing and footwear, passenger motor vehicles, chemicals and, sometimes, steel.
    16Tariff quota: the application of a reduced tariff rate for a specified quantity of imported goods. Imports above this specified quantity face a higher tariff rate.
    17Special safeguards: a mechanism available under the WTO Agreement on Agriculture to members who have converted non-tariff measures to tariff protection. It allows members to impose additional tariffs on agricultural products if import volumes exceed defined trigger levels or import prices fall below defined trigger prices. Special safeguards therefore provide a safety net for importing countries that are also producers in the event of a surge in imports. They are meant to be introduced in a transparent manner.