The
framework agreement for the Doha Round of trade negotiations
crafted by the General Council of the WTO has been
described as a breakthrough that would eliminate billions
of dollars in farm subsidies. According to Celso Amorim,
Foreign Minister of Brazil, "Obviously, developing
nations did not get everything they asked for in Geneva.
But the overall direction is clear: This is the beginning
of the end to export subsidies; the stage is set for
a substantial reduction in all types of trade-distorting
domestic support; market access negotiations will
open up new opportunities for trade, without prejudice
to the needs of developing countries." This viewpoint
has been echoed by the Indian delegation to the talks
as well, which has returned home with claims of a
"victory" that helps protect the interests of the
developing countries.
The upbeat official assessments from Brazil and India
are expected since they were part of the group of
five countries that extracted an agreement out of
a situation in which none was in sight. What is interesting,
however, is the nature of the remaining membership
of what has come to be identified as FIPs, the group
of "five interested parties". It includes the US and
the EU (representing the developed countries) and
Australia (representing the Cairns group of agricultural
exporters). If Cancun had seen the birth of the G-20
group of developing countries, which was a potentially
potent developing country forum formed to scupper
the efforts of the US and the EU to push through a
blatantly unjust launch framework, Geneva witnessed
the emergence of FIPs. India and Brazil broke ranks
with the G-20 to join "by invitation" the FIPs group.
The role of the FIPs group in generating a consensus,
through discussions on the changes to be incorporated
in the original July 16 draft framework, is now widely
accepted. On 29 July 2004, WTO Director-General Supachai
Panitchpakdi welcomed an agreement on the agriculture
text reached overnight by ministers from the FIPs
group as a key first step towards a consensus. Crucial
to the consensus, however was the ability of the FIPs,
especially Brazil and India, to win the support of
other developing countries, despite their criticism
of the process which largely involved discussions
among the five FIPs members. This they were able to
do, despite the fact that the annexure on non-agricultural
market access (NAMA) does not take the framework agreement
any further than the much criticised Derbez draft.
It must be said, however, that compared with what
was sought to be pushed through at Cancun the Geneva
framework agreement does reflect a substantial advance.
The two major advances are in the areas of agriculture
and the so-called Singapore issues. With regard to
the latter, three of four contentious new issues that
the developed countries wanted included in the Doha
Round, namely, investment, competition policy and
government procurement, have been dropped from the
agenda.
In agriculture, the framework binds the developed
countries into doing away with direct and indirect
subsidies provided to their exports. It also obtains
a promise of substantial reduction of domestic support
provided to their farmers. This primarily comes in
the form of an agreement to substantially reduce,
based on negotiations, the sum total of Final Bound
levels of the Aggregate Measure of Support (AMS),
de minimis (or minimal acceptable) support and Blue
Box measures. Such reduction is to occur through a
tiered-formula involving larger reductions by those
currently providing higher levels of support, leading
to some "harmonisation" of support levels. In particular,
the framework requires that there would be a minimal
reduction in such support to 80 per cent of pre-existing
levels in the very first year and throughout the period
of implementation. Finally, while a major compromise
in the form of the continuation of the Blue Box has
been made, a promise to cap Blue Box support at 5
per cent of the value of production has been extracted.
In its proposal for improving market access, the new
WTO draft framework retains the concept of a tiered
tariff reduction formula originally introduced in
the Harbinson's text. This formula calls for deeper
tariff cuts for products with higher levels of protection.
This formula aims to harmonize the tariff structure
and address the issue of tariff escalation. However,
there are some exemptions allowed in the new text.
It has a provision for lower tariff cuts for an "appropriate
number" of 'sensitive products' for all countries.
There is an apprehension that the clause on "sensitive
products" will be used by developed countries to protect
their uncompetitive sectors. Early indications suggest
that USA is likely to designate sugar as a sensitive
product. However, in this sphere, there are some important
gains in terms of special treatment for developing
countries. The agreement explicitly recognises the
need for Special and Differential Treatment for developing
countries – in terms of the quantum of tariff reduction,
tariff rate quota expansion, number and treatment
of sensitive products and the length of the implementation
period. In particular, in parallel with the right
of developed countries to designate certain products
as "sensitive", developing countries have the right
to identify an appropriate number of "Special Products",
based on criteria of food security, livelihood security
and rural development needs, which would be eligible
for more flexible treatment. Finally, the framework
provides for a Special Safeguard Mechanism against
disruptive imports, the details of which are to be
worked out.
It must be noted that all of these gains are not really
commodity specific, but apply to agricultural products
in general. In an area like cotton, where some developing
countries, especially from the ACP bloc, had a special
interest and where their demands were specific, the
framework agreement recognises the vital importance
of this sector to certain LDC members and promises
to work to achieve ambitious results expeditiously,
but within the parameters set out in the Annex on
agriculture. The less-developed among the developing
are therefore not as upbeat regarding the framework
agreement.
Despite the positive features of the framework agreement
outside of NAMA and its advance relative to Cancun,
doubts are now being cast on whether much has been
achieved by way of substantial reductions in support.
One area where this is indeed true is export subsidies,
which are to be eliminated even if in a phased manner.
But this was in many senses inevitable. Recent WTO
rulings had made clear that many of these were unsustainable
even under current rules, making their phase-out a
prerequisite for any agreement whatsoever. This was
an area where the need for revised rules had been
conceded. What the EU, that offers such support, managed
to extract in return for a phase-out was the promise
of parallel concessions in the form of reductions
of implicit subsidies on export credits, for example,
from the US. The area of contention was of course
domestic support, which accounted for the bulk of
the more-than-$300 billion support that the OECD countries
provide to their farmers allowing them to dominate
the $600 billion global market for agricultural commodities.
It is here that the developed countries have managed
to retain much of their leverage, unless subsequent
negotiations force them to offer much more than provided
for in the framework agreement.
Early in the negotiations, there were two major gains
in the agriculture area which the US and the EU managed
to obtain, which are taken for granted now. The first
was the "preserve-as-is" attitude to permitted Green
Box support measures. The second was the continuation
of the Blue Box, which was to be phased out at the
end of the Uruguay Round implementation period.
These gains have only been strengthened in the final
framework agreement. The agreement clearly states
that the "basic concepts, principles and effectiveness"
of the Green Box remain untouched, subject to a review
to ensure that its trade-distorting effects are 'minimal'.
Further, not only can members take recourse to existing
forms of Blue Box support, but new measures can be
negotiated subject to the condition that such payments
will be less trade-distorting than AMS measures. Clearly
then, the idea is to maximise support which is provided
to agriculture by offering an appropriate combination
of Green Box and Blue Box support, rather than through
measures conventionally defined as trade-distorting.
The real concession provided by the OECD countries,
if any, is the promise to reduce aggregate support
in the form of the sum total of current levels of
bound AMS rates, de minimis support and Blue Box support.
How much of a concession does this involve in the
case of the EU? Chart 1 provides details of the officially
recognised forms of support provided by EU governments
to their farmers. The first feature to note is that
Green Box support in 2000/01 already accounted for
more than one-fifths of total support provided in
the EU. This is an area into which other forms of
support can be moved to bypass any conditions that
the new framework may set.
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But that is not all. In 2000/01, at the end of the Uruguay Round implementation period, the bound AMS support that the EU was eligible to provide was Euro 67.2 billion. However, as a result of the reform of its Common Agricultural Policy, the actual support provided in the form of recognised AMS measures amounted to only Euro 43.7 billion (Chart 3). Permitted de minimis support, at 5 per cent of the value of production, amounted to Euro 12.2 billion. And total Blue Box support in that year amounted to Euro 22.2 billion or 9.13 per cent of the value of agricultural production.
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Thus the total value of support subject to the
minimal 20 per cent reduction commitment agreed on so
far, which equals the total of bound AMS, plus de
minimis support, plus Blue Box support, stood at Euro
101.6 billion. The framework agreement requires that at
the minimum this is brought down to 80 per cent of that
level or down to Euro 81.2 billion. However, since the
actual AMS is less than the bound, commitment level, the
level of actual as opposed to bound-AMS based total
support plus de minimis support, plus Blue Box support
stood at only 78.0 billion in 200/01. Thus in terms of
the aggregate commitment provided for in the framework
agreement the EU does not have to make any change.
Change would be required only if negotiations are able
to extract more than a 20 per cent reduction commitment
or ensures that commitments in individual areas add up
to a reduction that is larger.
However, there is a 5 per cent of value of
production cap on Blue Box support, which implies that
such support in the EU would have to be brought down by
Euro 10 billion from Euro 22.2 billion (Chart 2). This
reduction is not guaranteed, since the framework
agreement provides for the possibility of some
flexibility in cases where "a Member has placed an
exceptionally large percentage of its trade-distorting
support in the Blue Box". Further, if Blue Box support
can be restructured and rendered in the form of Green
Box measures, the required reduction could be shifted
and added to the Euro 21.8 billion of Green Box support
that the EU provided in 2000/01. In sum it can get away
with no reduction whatsoever to meet its proposed new
minimal commitments. In a worst case scenario, it would
have to make a less-than-10 per cent reduction in total
support to meet the requirement set thus far by the
framework agreement.
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It appears that domestic subsidy reduction
commitments are not going be high for USA also. If one
looks at the reduction commitments of USA, its total AMS
commitment level for 2000 was $ 19,103.3 million and
maximum de minimis level of support for that year was $
9476 million[1]. So,
calculations show that according to the current formula,
USA will have to reduce its subsidies to $ 22863.45
million (80 percent of AMS plus de minimis) from their
current level of AMS plus used de minimis support of $
24143.26 million. This amounts to only about 5.3 percent
reduction from their current (trade distorting) support
level[2].
However, AMS accounts for only about a quarter of
total domestic support given to the farm sector in the
USA. Green Box subsidies are the most dominant form of
domestic support for the agriculture sector in that
country. For example, in 2000, total Green Box subsidies
given to the farm sector was more than $ 50,000 million,
while the AMS provided in the same year by USA is around
$ 16,000 million. As there is no reduction commitment on
Green Box subsidies, USA will be allowed be continue and
increase its massive Green Box support programmes.
Additionally, the WTO draft has incorporated provisions
for countries to introduce Blue Box subsidies. This will
provide USA the option to introduce Blue Box support up
to 5 percent of the value of its agricultural
production. The Bridges Weekly Newsletter suggests that
this clause will allow the US to notify its
counter-cyclical payments under the 2002 US Farm Act as
Blue Box measures.
The commitment to reduce and eventually abolish all
forms of export subsidies including "export credit
guarantees or insurance programmes with repayment
periods beyond 180 days" is considered to be one of the
highlights of the new draft. A look at USA's export
credit schemes show that there are four export credit
programmes (Table 1) and apart from the Supplier Credit
Guarantee Programme, other schemes are targeted towards
longer term export credits. It also appears that the WTO
ruling is likely to affect the GM-102 scheme, which is
the largest of the four programmes. However, it must be
kept in mind that the end date for the reduction of
export support schemes is yet to be decided and the
effectiveness of the new draft will depend, to a large
extent, on the negotiated deadline. Also past experience
with implementation of WTO rules show that there is a
strong possibility that longer term export credit
schemes will be tweaked to adjust to the WTO ruling.
Therefore, at this point it is difficult to judge how
effective these new WTO rulings will be to discipline
huge US export credit outlays which amounted to about $
3.34 billion in 2003.
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Thus, even though in the agricultural trade area the
framework agreement does appear to both extract large
concessions from the developed countries and accommodate
the interests of the developing countries, it leaves
more or less untouched both the framework of domestic
support in the developed countries involving Green,
Amber and Blue Boxes as well as the magnitude of
domestic support that is being provided. Any change here
would involve more "give-and-take" in the negotiations
that are to follow, and considering the structure of
power in the world economy it is likely to involve more
take than give by the developed countries.
It is in this light that the formation of the FIPs
needs to be assessed. History suggests that two
different factors influence the extent of liberalisation
that the evolution of the trade regime implies: first,
multilaterally agreed, monitored and implemented
measures, which define the minimal level of
institutionalised trade reform; second, the regionally,
bilaterally or unilaterally implemented measures of
liberalisation, shaped by domestic and international
compulsions. It hardly bears stating that, in developing
countries, in most areas the liberalisation implied by
the latter go far beyond those mandated by the former.
Multilateral rules most often institutionalise the
levels beyond which countries cannot retreat from
existing degrees of liberalisation, rather than
requiring them to undertake further liberalisation.
In most less developed countries markets are hardly
protected and already dominated by transnational
industrial and agri-business firms. The result is that
for most of the less-developed developing countries, the
principal issues in trade talks are the degree to which
they can legitimately seek out markets for their primary
products in the developed or other developing countries
and the extent of special treatment they obtain to do
this given their underdeveloped status. However, since
the role of these countries in world markets are
limited, except in the case of particular primary
commodities, such as cotton for example, they ability to
get themselves heard is also limited. The implications
of these features are that they have little to defend,
and more to gain from others. Their need for a
multilaterally agreed set of possibilities is far
greater. They must finally go along with what is on
offer.
As compared with this, the more developed of the
developing countries like Brazil and India have far more
to defend, in both agricultural and non-agricultural
markets, and they are or can be important players in
global export markets for agricultural, manufacturing
and service sector exports. This makes their endorsement
of any process of trade liberalisation, which is crucial
if a consensus has to be forged, more uncertain. On the
other hand, if their endorsement is obtained, bringing
in other developing countries is easier. This includes
major powers like China whose dependence on world
markets and the huge concessions they have already
given, makes any agreement better than none. It also
includes countries like Thailand and the Philippines,
whose dependence on the US and/or EU is too strong to
permit dissent. Thus, FIPs was clearly created to obtain
an endorsement from India and Brazil, and other
similarly placed developing countries, and to use that
endorsement to bring all else in line. The
developed-country camp's climb down on the irrationally
hard positions it took on agriculture in Cancun,
including the promise of special and differential
treatment especially in the form of Special Products and
new possibilities in areas like services for India
helped clinch that endorsement outside the formal
negotiations.
But this does not imply that any major victory has
been won, not merely in the NAMA area but also in
respect of domestic support for agriculture. If
concessions have to be won in this area a high degree of
solidarity in future negotiations within the
developing-country camp is needed. It is that solidarity
that the formation of FIPs undermines. However, the
overall gains are seen by India as justifying its claims
of a victory for developing countries and itself and of
the correctness of its participating in the FIPs
discussions. In the official view of the Indian
delegation, India's participation also helped protect
India's (short-term) interests. According to this view,
the grouping helped present to the US and EU the minimal
requirements of the more developed of the developing
countries, by providing a negotiating channel between
the dominant powers and the G 20. It helped ensure that
the basis for a minimal set of concessions in the
agricultural area was formally accepted by the developed
countries. It helped prevent the developed-country bloc
from offering damaging special concessions to the G-90,
the group of less-developed developing countries in
order to win their support for a framework agreement
that works against the interests of countries like India
and Brazil. For example, the developed country
suggestion that all countries should provide duty free
access to global, non-agricultural export markets to the
G-90 countries, could have paved the way for them to be
used as locations from which developed country
transanationals could access markets in the more
developed among the developing countries. And, as Indian
officials informally argue, the formation of FIPs helped
prevent Brazil – ostensibly the "weak link" in the
developing-country camp – from breaking ranks and
striking a separate deal with the developed countries.
These claims of success notwithstanding, the
creation of FIPs, the inclusion of India, along with
Brazil, in the grouping and the nature of the framework
agreement that FIPs was instrumental in forging, has
weakened the developing country camp, which G 20 was
expected to strengthen. Even at the framework stage, in
return for minimal concessions, the US and the EU have
managed to obtain significant agricultural and non
agricultural market access commitments in the form of
to-be-negotiated, non-linear tariff reductions from the
developing countries. India and Brazil have ignored the
implications of these likely reductions, because they
have unilaterally been reducing their tariffs. But when
bound rates are reduced from there current relatively
high levels, protection to prevent market disruption
would depend on the yet-to-be-elaborated Special
Products provision.
When the full implications of these reciprocal
market access concessions are fully analysed, the losses
that developing countries have suffered may prove
substantial relative to the gains assessed relative to
the hard positions adopted by the developed countries in
Cancun. This would show that even till now the
negotiations have not been a cake-walk for the
self-designated and much-resented leadership of the
developing world. And the process has just begun.
Developing countries may have moved one step forward
from Cancun, but it is not yet time to celebrate.