WTO Notes - Hong Kong 18 Dec, 2005

The Korean farmers almost crossed the last barricade. The actual sounds of the battle between the farmers sticks and the police shields could be heard inside the convention hall. A grim secretary of the security appeared on TV to ask Hong Kong citizens to stay away from Wanchai, the convention hall area. He promised, what he called ‘robust action’ against the protestors who were taking advantage of the police tolerance. He did follow up on the promise and took a large number of the 1200 or so protestors on the roads leading to the convention centre into custody at three in the morning today when their reactions were at the weakest.

In the meanwhile, the India is more than happy that its concerns on agriculture on special products and sensitive products have been addresses upfront in the final draft. On NAMA too, it has been able to get text by which it can hope to get away from the rigours of the Swiss formula and low coefficients.

Export subsidies to go by 2010?

Notable additions to the 7 December draft presented to ministers at the start of the conference included a bracketed provision that would have countries eliminate all agricultural export subsidies by 2010, and those for cotton in 2006. The draft left open details about exceptions and implementation periods for granting unrestricted market access to exports from least-developed countries (LDCs).

The most important decision expected from ministers – setting a date for reaching a comprehensive agreement with numbers and structures for tariff and subsidy cuts – also remained to be determined, although the text hinted that this would come in March 2006. Ministers handed in their last amendments this morning and a second draft is expected any time.

Export subsidies out by 2013

The 17 December text contains two bracketed alternative deadlines for "the parallel elimination of all forms of export subsidies and disciplines on all export measures with equivalent effect"

either 2010 or five years from the start of the implementation of Doha Round commitments. In Green Room meetings throughout the week, the EU and Switzerland had resisted 2010 as an end-date. A 2013 deadline, however, is likely to be more palatable to the EU as that is when Brussels' recently-approved six-year budget will come to an end. It would also coincide with a Doha Round implementation period starting in 2008. However, others show disciplines on food aid, export credit programmes, and the practices of exporting state trading enterprises by "end-March 2006 as part of the modalities."

Food aid in safe box

On food aid in particular – the EU has argued that a great deal of US in-kind food aid is tantamount to an export subsidy to its farmers – the new text provides for "effective disciplines on in-kind food aid, monetisation and re-exports so that there can be no loop-hole for continuing export subsidisation." It also calls for the creation of a 'safe box' for bona fide food aid to ensure that the new rules do not serve to impede it in emergencies.

Three bands for domestic subsidies, no more box shifting

The revised text confirms the 'working hypothesis' of the 7 December original that developed country domestic subsidies would be classified in three bands. Unlike the earlier version of the text, it places "the Member with the highest level of permitted support" – the EU – in the top band, facing the highest linear tariff reduction. The US and Japan would be in the second tier. All other Members would fall into in the bottom band. Notably, it specifies that the overall cut in trade-distorting domestic support must be "greater than the sum of the reductions" in Amber Box, Blue Box, and de minimis (exempted) support. This means that a Member wishing to make the minimum possible reductions to Amber Box and de minimis spending would have to slash Blue Box spending more heavily in order to bring the total reduction up to the target for overall trade-distorting support. This may make it more difficult for countries to simply re-classify subsidies in order to dodge reduction commitments.

AMA with a human face, self designate special products and sensitive products

On agriculture market access (AMA)  in the draft formalises the 'working hypothesis' on structuring Members tariffs for reduction, while "recognising that we now need to converge on the relevant thresholds" for developed and developing countries. It also refers to different market access flexibilities

for 'sensitive' products, tariff rate quotas (TRQs) will have to increase in accordance with the leniency of the tariff cut relative to what would normally be demanded by the formula. Developing countries would be able to "self-designate an appropriate number of tariff lines as Special Products (SPs) guided by indicators based on the criteria of food security, livelihood security and rural development." They would also "have recourse to a Special Safeguard Mechanism (SSM)" to protect themselves from a surge in imports or a collapse in import prices. The specifics of SP status and the SSM are to be determined, and "shall be an integral part of the [agriculture] modalities."

Cotton disappoints, nothing on domestic subsidies

Paragraph 10 of the 7 December draft contained two options

ministers could either instruct negotiators in Geneva to continue discussions on how to translate into practise the 2004 July Framework mandate to "address cotton ambitiously, expeditiously and specifically within the agriculture negotiations," or they could adopt a schedule for eliminating export subsidies and trade-distorting domestic support on an 'early harvest' basis.

The 17 December draft text states explicitly that developed countries will eliminate export subsidies in 2006. In practice, 'developed countries' refers to the US, as it is the only developed WTO Member to provide such subsidies for cotton. The US Congress is widely expected to pass within weeks a bill that would terminate its WTO non-compliant USD 110-350 million 'Step 2' export subsidy programme on 1 August 2006. It is less clear whether the term 'export subsidies' would extend to its export credit guarantees, estimated at USD 700-800 million annually. The new text is much less specific on domestic subsidies. Paragraph 11 calls for faster, or 'front-loaded', and deeper reductions in trade distorting domestic subsidies for cotton than those that will be achieved through the general agricultural subsidy reduction formula.

This implies, however, that the overall reductions and the implementation schedules for domestic farm subsidies must be agreed before the depth and speed of cotton subsidy cuts can be negotiated. There will thus be no 'early harvest', i.e. reductions in domestic cotton subsidies will not start in advance of the conclusion of the Doha Round.

In a Saturday evening press conference, trade ministers from the four West African cotton producing countries said that the US' lavish domestic subsidies, which make up 80-90 percent of total US support for cotton (estimated around USD 3.8 billion in 2004). They outlined their compromise position on the elimination of trade-distorting domestic support to cotton

60 percent by 2008, with the additional 20 percent each in 2009 and 2010. The group's earlier proposal called for all such support to be eliminated by the end of 2008. The ministers indicated that they had agreed with US officials to discuss the issue after Hong Kong, possibly signalling that they did not intend to block consensus at the summit. The revised text also requires developed countries to give duty- and quota-free market access to least-developed countries' cotton exports as of the conclusion of the Doha Round negotiations. However, African countries are unlikely to benefit from this, since they do not export cotton to the US – and in other markets, particularly in Asia, they have to compete against subsidised US exports.

NAMA- the Number in the  Coefficient is missing

The draft text provides for a 'Swiss formula' for tariff reduction, with an unspecified number of coefficients. Indian Commerce Minister Kamal Nath along with CII and FICCI welcomed this for remaining open to his country's preferred multiple-coefficient approach. His Canadian counterpart Jim Peterson, however, said that in the final version of the text he would prefer to see a 'simple Swiss formula' with two coefficients, one for developing and one for developed countries. Brazil's Celso Amorim said in the Saturday heads-of-delegation meeting that the principle of 'less than full reciprocity' in reduction commitments should be made explicit.

Notably, the draft text contains an unbracketed paragraph that explicitly links the level of ambition for agriculture and NAMA, specifying that this ambition "is to be achieved in a balanced and proportionate manner consistent with the principle of SDT." The CII has taken option to since the burden of agri is far higher than that under NAMA and the two cannot really be equated or put into a proportion.

Services- plurilateral approach diluted

Instead of obliging Members to enter into plurilateral market access negotiations, the new text stipulates that they "shall consider such requests" in line with different rules and guidelines for conducting services negotiations. The EU was also reportedly disappointed at this, pressure form G-90 as well India seems to have worked. There is no mention of universal public access to services in the text.