A Balanced Development Round in Agriculture still a distant dream

By Linu Mathew Philip , Research Officer, Centad

Seventeen papers have come out since the negotiation started after the suspension of the Doha Round in July 2006. The draft modalities paper was circulated in July, 2007, followed by a final corrected version in the month of August. Talks further intensified with Mini-Ministerial meeting taking place between the five interested parties but sharp differences suspended the talks. From November to December 2007, intense negotiations had continued with final draft modalities circulated in February 2008. The urgency with which negotiation are proceeding seems to suggest that the Doha Round will be concluded by 2008. There are even rumors that a ministerial meeting is expected in the month of March. However, the possibility of a deal looks fairly remote without a TPA approval by the US Congress, which is very unlikely in light of the uncertainties of the Presidential elections. Even election in India is due in 2009 and expected convergence on all issues, including Agriculture, NAMA and Services, will be extremely difficult.

Notwithstanding these uncertainties, the Agriculture text has been very comprehensive trying to touch all the controversial issues, whether it is the domestic support distortion arising from the new farm bill or the cap reforms, special products, sensitive products, SSM, loss of preferential access, SVE's (small and vulnerable economies) or RAM (recently acceded members) dilemma, tropical products etc. The bold effort to stitch all the issues into a single woven entity of draft modalities text is highly commendable. If we look back on how negotiation proceeded since the Doha Round started with the review through Article 20 of the AoA (Agreement on Agriculture), much water has flowed under the bridge. Many deadlines have been missed in trying to cut the finer edges of the different pillars of negotiation. Some important forward movements worth mentioning are the complete elimination of export subsidies, self-designation of special products (SP) based on development indicators, Cotton initiative and last but not least the exclusion of peace clause. The progress in negotiation can be assessed from the increased diversification from the three pillars to wider issues in the various sub-pillars. The acceptance to include duty-free quota, free access to LDC and special effort on cotton is yet another positive development and the deliberate attempt on part of world leader to correct the anomalies in unfair trade rules and their willingness to accommodate development friendly position.

In spite of all these developments, there is reluctance on the part of some members to break free from trade distorting subsidies. The reduction format in the domestic support has always remained controversial since the Uruguay Round; the present draft commitment envisages reduction to the level of 70% for the US, in the second tier, which would mean pulling the OTDS to the level of over US $14 billion. For the US, the applied levels of OTDS as notified at the WTO are still in the range of $11 billion. This will still leave sufficient room of over $2 billion plus the reclassified blue and green box instruments. For the EU too, it would mean reduction of support in the range 16-27 billion Euro, which is higher than the actual support they had provided i.e. $13 billion according to the average 1998-2001 WTO notification. The text even pleads members to make an additional reduction if their AMS exceeds 40% of value of production. All three major subsidisers -- EU, US and Japan -- have their notified distortions lower than the threshold value (34, 36 and 38 respectively). This raises serious doubts how this provision will help in reduction of domestic support? Additional reduction will mean around 7.5% more than the existing reduction numbers for the second tier making the reduction percentage more or less equal for the first two tiers. This obviously will not be agreed in the final round of negotiation if countries are serious to reduce domestic support distortions. The idea of providing cap to product specific AMS appears to be a novel, but it must be kept in mind that the proportionate ceiling percentage leaves ample room for maneuvering as already many products are getting the required support and may not serve any purpose. On the contrary, the draft modalities text talks of curtailing the freedom of developing countries not having reduction commitments on domestic support to provide only de minimis support which is fairly discriminatory. The much talked about ‘review of Green box' has been carried out with primary focus on developing countries and distortionary impact of this box has been jettisoned. In the broad framework of reduction even to the bound level is welcome even if distortion will remain as gross violation and misuse will be curtailed to considerable extent. It would have been better if the box shifting provision too had been addressed combined with shorter and stricter Monitoring and Surveillance.

The modalities on the market access pillars have been fairly satisfactory in terms of the Hong Kong Ministerial Declaration wherein initially there was a lack of understanding on the flexibilities, which were even referred to as ‘black box'. The forward movement on Special products, SSM, tropical products, cotton initiative, including duty free quota free access is a welcome gesture. The paper does not hint at how the flexibility can be utilised with overriding average reduction of 36%. On sensitive products, developed countries can protect up to 8% of tariff lines while developing countries can protect up to 11% of agricultural lines. The percentage for developed countries will suffice as they have very few select products to protect and they have other options like subsidies, SPS and NTM measures which can supplement their sensitivities. Even the experience with quota filling has been poor and countries with advanced capacities can surely camouflage their domestic consumption and tariff fill. On the contrary, developing countries with limited capacities will be coerced to accede to minimum access. Even the dispute settlement has proven futile in the case of cotton dispute and developing countries will have lesser option with huge agrarian population and low scale of production will make farmers of the developing countries vulnerable to surge in imports. Small farmers with increased import substitution will lose out on niche urban markets with build up brand equity. On special and differential treatment the developing countries will be entitled to 8-20% (yet to emerge) of ‘products as special' linked to the development indicators which will be exempt from general tariff reduction. The endorsement of development indicator based flexibility is definitely a forward movement when compared to the July paper which was critical of the whole process as mere blocking of trade. This comes even without compulsion to provide TRQs but how it will work out still need to be assessed with the overall reduction commitment will force other non-special products to decline at a faster rate. Countries, already having a low water over their applied duties, will face difficult task protecting their food and livelihood security with indicators limited to 12 in number and there is a possibility that disputes might emerge in the course of time on the special status of some products. Even on the issue of SSM, there has been some forward movement in terms of mere endorsing the provision but the current format limits the use of SSM in both the treatment and the products that one can use, which might make the use of these measure ineffective. One glaring unbalanced aspect of the draft is that developed countries will still be able to use the unfair SSG mechanism (e.g. the EU has close to 40% as SSG and the US has close to 10% under safeguards) while SSM will be fairly difficult to use.

One of the serious distortions that arose in market access was from the complicated tariff schedules, including mixed and compound tariffs and countries like the US and the EU have close to 40% in NAV making market access restrictive. The drive to simplify the tariff schedule is perceived as an important step in reducing the distortion in international trade. Even the provision of duty-free quota free access to LDC is another important step in providing the needed gains. Even though the percentage exclusion might cover almost all products coming from these countries, the effort in the direction is a bold attempt. The flexibility provision to SVE's and RAM's is yet another important forward movement as many countries do not have the flexibility to adjust to the new commitments and the additional 10% may not be adequate but is an important movement accommodating the development issues and can be further negotiated.

On the export competition, the effort to eliminate all forms of export subsidies by 2013 is another important step in trying to remove distortion arising in international trade. The text also talks of curtailing the freedom of state trading enterprise in trying to use their exclusive marketing power to gain markets. In the current framework, it does not affect the STEs in developing countries, which play an important development role in food security and livelihood security of poor farmers. Even then the export subsidies form a small percentage of the distortion arising in trade of agricultural commodities.

On the whole, the present text has tried to intelligently tackle the open ends of the development round. In terms of the Doha Round, the draft tries to cover almost all development issues for all developing countries but how all the different numbers will combine is another challenge as negotiations are going to proceed. The Doha Round promised substantial reduction of domestic support (70% reduction), but in actual terms the decline in support has not taken place and exists only on papers. The support is shifting to boxes in a concealed format which has not been effectively addressed. Providing a lot of conditionalities on the use of SSM will make it difficult for developing countries to safeguard themselves from surge in imports and the whole purpose will be defeated. For many countries, applied tariffs are already very low and with reduction commitments pushing many tariff lines even lower, it will again bring to the fore the problem of displacement and non-trade concerns which can make the process unsustainable. At one end, you have market access witnessing a definite decline in terms of bound duties whether it is through reduction commitments, tariff escalation, tropical products, and conversion of NAV to tariffs. On the other hand, the domestic distortion which constitutes the major distortionary element will not witness any change with countries increasingly shifting and concealing their distortions in the best possible means. The text and the rule knitted in a very complicated format, it would be very difficult for poor developing countries to utilise these provision to their advantage making the present modalities not actually combating the critical development aspects. With all the elements combining together in an unbalanced and complicated manner to dream a world free from distortions and ushering in a new era of prosperity answer looks fairly distant and remote.

February 14, 2008