The Doha Round

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The Doha Round

• Lecture 21
• The Economics of Food Markets
• Alan Matthews

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Lecture objectives

• To ensure you have sufficient understanding of
  the issues in the Doha Round agricultural
  negotiations to be able to follow the debate and
  explain its implications for the EU and the CAP
• This lecture takes the story up until the July
  2004 Framework Agreement

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Reading

• WTO agricultural backgrounder
• ICTSD www.ictsd.org and www.agtradepolicy.org
• World Bank Trade Notes
• FAO briefs
• EU DG Trade and USTR websites
• Anania et al. Agricultural Policy Reform and the
  WTO
• Matthews TEP paper plus Framework Agreement
  commentaries

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Chronology

• Third WTO Ministerial Meeting in Seattle in
  November 1999 failed to launch comprehensive
  negotiations
• Article 20 negotiations
• Analysis and Exchange
• the EUs Comprehensive Negotiating Proposal,
  December 2000
• Doha Mandate, November 2001
• EUs Specific Drafting Input, January 2003
• Harbinson Modalities, Feb/March 2003
• Adoption of the Fischler Reforms, June 2003
• EU/US Joint Initiative, August 2003
• Cancún Ministerial, September 2003 Derbez draft

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Chronology

• EUs offer to eliminate export subsidies, May
  2004
• Framework Agreement, July 2004
• Paris May 2005 agreement on AVEs
• Dalien July 2005 G20 proposal on market access
• Zurich Oct 2005 proposals on market access
• Hong Kong Ministerial, December 2005

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Chronology

• New deadline of April 2006 to reach agreement on
  modalities
• Chairman Falconers reference papers April-June
  2006
• July 2006 Suspension of Doha Round
• January/Feb 2007 Revival of the Round?

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Negotiation issues in agriculture

• Market access
• Export subsidies
• Domestic support
• Special and differential treatment (SDT) for
  developing countries
• Non-trade concerns
• Peace clause

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Tariff reduction issues

• High bound tariffs remained in agriculture after
  URAA 62 on average
• Tariff-cutting approaches
• Request and offer vs formula approach
• Linear vs harmonising formulae
• Cocktail formulae
• Principles suggested
• Progressivity, flexibility, proportionality, and
  effective market access
• Latter raises the question of binding or tariff
  overhang

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Illustration of tariff overhang

• Tariff overhang is where a cut in bound tariffs
  would have no effect in cutting current applied
  tariff rates no increase in effective market
  access

Bound tariff pre-Doha
50 cut
Bound tariff post-Doha
Applied tariff
Bound tariff
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Example of Swiss formula

• T1 aT0/(aT0)
• With parameter a of 140, a tariff of 350 is
  reduced to 100
• With parameter a of 60, tariff reduced to 51.2
• With parameter a of 16, tariff reduced to 15.3

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Blended and banded formulae

• Banded (or tiered) formula, where higher bands
  would be subject to a higher average reduction
• Blended formula, where tariffs are reduced
  according to a mix of three approaches the
  Uruguay Round approach, the Swiss formula, and
  cutting tariffs to zero.
• Harbinson proposed using UR formula within each
  band
• Options for flexibility UR formula, sensitive
  products

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Formula Pd P0 ( 1 0.64 t ) or Pd P0 ( 1
0.76 t )
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Measuring the level of ambition

• Cuts in the average tariff vs. Average of the
  tariff cuts
• Former is the comparison of the average tariff
  level pre- and post- negotiations
• Latter is measured as the average of all
  individual percentage cuts
• Was the method used in the Uruguay Round, and
  also by US in criticism of the EU proposal
• Latter method has no economic meaning because a
  high average cut can by obtained by cutting low
  tariffs by a large amoung

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Illustration of average tariff cuts
Product Initial tariff Cut Final tariff Cut in average tariff
A 100 60 40
B 10 20 8
C 10 20 8
Average 40 33.3 18.7 53.3
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Level of ambition in Oct 2005 proposals
Average tariff before cuts Average tariff after cuts Cut in the average tariff Average of tariff cuts
EU 28 15 47 39
US 15 8 48 37
Canada 21 10 52 38
Japan 61 20 66 40
Brazil 37 26 301 30
India 116 72 38 36
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Sensitive products

• July 2004 Framework Agreement
• Without undermining the overall objective of the
  tiered approach, Members may designate an
  appropriate number, to be negotiated, of tariff
  lines to be treated as sensitive, taking account
  of existing commitments for these products.
• The principle of substantial improvement will
  apply to each product.
• Substantial improvement will be achieved
  through combinations of tariff quota commitments
  and tariff reductions applying to each product.
  However, balance in this negotiation will be
  found only if the final negotiated result also
  reflects the sensitivity of the product concerned.

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Sensitive product issues

• How many tariff lines allowed sensitive?
• What should be allowed deviation from the tariff
  cutting formula (20? 50? Sliding scale 40-60?)
• How should the corresponding TRQ increase be
  calculated
• As percentage of domestic consumption
• Expansion based on existing TRQs
• Expansion based on current imports

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Other tariff issues

• Should there be a tariff cap?
• Tariff escalation
• Should specific tariffs be forbidden?
• Future of Special Safeguard mechanism (SSG)
• Administration of TRQs
• Tropical products
• Preferences and preference erosion

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TRQs

• Recall that a TRQ has three elements quota,
  in-quota tariff, out-of-quota tariff

• Increase minimum access or reduce in-quota tariff
• Effect depends on whether TRQ is binding
• TRQ administration judged on quota fill and bias
  in the distribution of trade
• (auctions, first come first served, historic
  shares, applied quotas)

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Domestic support

• AMS trade-distorting support how much reduction?
  Reduction method should support be reduced by
  a given amount or to a particular level? Limit
  product-specific support/
• De minimis what to do about it?
• Blue Box eliminate it or discipline it?
• Green Box should criteria be tightened? Should
  additional measures be allowed, e.g. non-trade
  concerns

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Export competition

• Export subsidies various roads possible to full
  elimination (by commodity, by tightening value
  and volume constraints)
• Export credits discipline by rules, or by
  constraining government outlays?
• Food aid is food aid a form of subsidised
  export?
• Exporting State Trading Enterprises issues over
  government guarantees, monopolistic and
  monopsonistic powers, ability to price
  discriminate, price pooling

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Initial US position

• Two phase process, leading to complete
  liberalisation
• Elimination of export subsidies within 5 years
• Use of harmonising tariff reduction formula to
  ensure maximum tariff is 25
• Expansion of TRQs
• Limit AMS to 5 of value of agricultural
  production and eliminate Blue Box
• Limited SDT for developing countries

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Initial EU position

• Continuation of UR formula for tariff reductions
  (36 on average with 15 minimum)
• 55 cut in AMS subsidies over 6 years
• Reduction in export subsidy expenditure by 45
  and elimination for specific products
• SDT for developing countries, including free
  access for the least developed countries
• Emphasises non-trade concerns such as food
  labelling, animal welfare, geographical
  indications and precautionary principle in the
  agricultural negotiations

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The Harbinson draft

• Cutting high tariffs more than low tariffs using
  a banded approach
• Introduced formula to tackle tariff escalation
• Proposed doubling TRQs
• Elimination of export subsidies over 10 years
  with parallelism on export credits, food aid and
  export STEs
• 60 reduction in AMS over 5 years
• Either moving Blue Box into AMS or capping Blue
  Box and reducing by half over 5 years
• Revisiting Green Box but making environmental and
  animal welfare payments eligible

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Market access level of ambition?Harbinson
proposal 2003
Current tariff level Average cut Minimum cut
lt 15 40 25
15 - 90 50 35
gt90 60 45
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The July 2004 Framework Agreement

• Followed the failure at Cancun and the
  Lamy/Fischler letter offering to conditionally
  eliminate export subsidies
• Pre-modalities document set out principles to
  guide the negotiations but contains no figures
  and little structure

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July 04 Framework Agreement market access
Tariff cuts Substantial improvement in market access through tariff reductions from bound rates.
Single approach for all countries tiered formula to ensure progressivity. Types of reduction commitments within bands and number of bands to be negotiated.
Role of a tariff cap to be evaluated.
Designation of an appropriate number of sensitive products, which would be subject to a mix of tariff cuts and TRQ expansion.
Tariff rate quotas Reduce in-quota tariffs and improve administration (as part of balance of concessions).
Some TRQ expansion for all sensitive products.
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July 04 Framework Agreement - market access
Safeguards Future of special agricultural safeguard (SSG) under negotiation.
Establish new special safeguard mechanism (SSM) for developing countries.
Special and differential treatment for developing countries Proportionately less tariff reductions for developing countries, with longer implementation period.
Developing countries may designate special products on criteria of food and livelihood security, which would be subject to more flexible treatment.
Fullest possible liberalization of trade in tropical products and alternatives to illicit narcotic crops by developed countries.
Other Tariff escalation reduced by formula to be agreed upon.
Erosion of preferences to be addressed using Harbinson Para 16 as reference.
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July 04 Framework Agreement domestic support
Amber Box Reduce total aggregate measures of support (AMS) substantially by use of tiered formula greater efforts to reduce support by countries with higher Amber Box payments.
Cap product-specific AMS levels at historical averages.
Reductions in total AMS should lead to product-specific reductions.
Blue Box Redefine to include payments with production limiting requirement and those with no production required include payments based on fixed areas and yields and headage as well as payments based on less than 85 of base production.
Cap payments to 5 of agricultural production from start of implementation period.
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July 04 Framework Agreement domestic support
Green Box Review Green Box criteria and improve surveillance and monitoring.
De minimis level Negotiate the reduction of the level of de minimis support.
Special and differential treatment for developing countries Developing countries have longer implementation periods.
Developing countries have lower reduction coefficients and higher de minimis levels.
Developing countries retain the use of Article 6.2, allowing extra scope for domestic program.
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July 04 Framework Agreement - export competition
Export subsidies Eliminate export subsidies by a credible end date.
Export subsidies Schedule and modalities of reductions to be agreed.
Export credits Eliminate export credits, guarantees, and insurance programs with repayment period of more than 180 days.
Food aid Eliminate food aid that is not in conformity with disciplines to be agreed. Disciplines will be aimed at preventing commercial displacement.
Other food aid issues (role of international organizations, humanitarian and development issues, and provision of aid in grant form) will be discussed in negotiations.
State trading enterprises Eliminate trade-distorting practices of state trading enterprises.
Further negotiation on issue of use of monopoly powers.
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July 04 Framework Agreement export competition
Special and differential treatment for developing countries Longer implementation periods for reductions and elimination.
Special and differential treatment for developing countries Developing countries to continue to benefit from Article 9.4 exceptions.
Special and differential treatment for developing countries Appropriate provisions for export credits in line with Decision on Least Developed and Net Food-Importing Countries.
Special and differential treatment for developing countries Developing countries to receive special consideration in negotiation of disciplines on STEs.
Special and differential treatment for developing countries Ad hoc temporary financing arrangements relating to exports to developing countries may be agreed in exceptional circumstances.
Export restrictions Strengthen disciplines on export prohibitions and restrictions.