The Doha Round
Lecture 21
The Economics of Food Markets
Alan Matthews
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
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
Chronology
• Third WTO Ministerial Meeting in Seattle in November
1999 failed to launch comprehensive negotiations
• Article 20 negotiations:
– Analysis and Exchange
– the EU’s Comprehensive Negotiating Proposal, December 2000
•
•
•
•
•
•
Doha Mandate, November 2001
EU’s 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
Chronology
• EU’s 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
Chronology
• New deadline of April 2006 to reach
agreement on modalities
• Chairman Falconer’s reference papers
April-June 2006
• July 2006 Suspension of Doha Round
• January/Feb 2007 Revival of the Round?
Negotiation issues in agriculture
•
•
•
•
Market access
Export subsidies
Domestic support
Special and differential treatment (S&DT) for
developing countries
• Non-trade concerns
• Peace clause
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’
Illustration of tariff overhang
Bound tariff pre-Doha
50%
cut
Bound tariff post-Doha
Bound
tariff
Applied
tariff
• 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
Example of Swiss formula
• T1 = aT0/(a+T0)
• 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%
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
final tariff rates
Figure 1: Comparison of UR formula1), Swiss formula2) and Harbinson proposal3)
180
160
140
120
100
80
60
40
20
0
0
50
100
150
200
250
initial tariff rates
UR Formula
Swiss Formula
Harbinson proposal
1) A uniform cut of 36% is assumed for the UR formula. 2) A value of 25 is assumed for the coefficient of the Swiss
formula 3) The highest possible values for developed countries are assumed within each band of the Harbinson-Proposal.
Source: Own calculations, FAL.
Formula: Pd = P0 ( 1 + 0.64 t ) or Pd = P0 ( 1 + 0.76 t )
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
Illustration of average tariff cuts
Product
Initial
tariff
Cut
Final
tariff
A
100
60
40
B
10
20
8
C
10
20
8
Average
40
33.3
18.7
Cut in
average
tariff
53.3
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
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.
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
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
TRQs
• Recall that a TRQ has
three elements – quota,
in-quota tariff, out-ofquota 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)
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
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
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
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
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
Market access – level of ambition?
Harbinson proposal 2003
Current tariff
level
Average cut
Minimum cut
< 15%
40%
25%
15% - 90%
50%
35%
>90%
60%
45%
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
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.
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 Proportionately less tariff reductions for developing
treatment for developing countries, with longer implementation period.
countries
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.
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.
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
Developing countries have longer implementation
differential treatment periods.
for developing
countries
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.
July 04 Framework Agreement export competition
Export subsidies
Eliminate export subsidies by a credible end date.
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.
July 04 Framework Agreement –
export competition
Special and
differential
treatment for
developing
countries
Longer implementation periods for reductions and
elimination.
Developing countries to continue to benefit from Article
9.4 exceptions.
Appropriate provisions for export credits in line with
Decision on Least Developed and Net Food-Importing
Countries.
Developing countries to receive special consideration in
negotiation of disciplines on STEs.
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.