Comparing What Might Have Been
with the Likely Outcome of the Doha
Round Agriculture Negotiation
The Williams Text v The Falconer Text
Brett Williams
Faculty of Law
University of Sydney
1
Agriculture is a Microcosm of the
GATT
• Allowing Member States to achieve their
Objectives
• Encouraging Members States to Achieve
Objectives by Choosing the Most Efficient Policy
Instrument to Do So (instead of choosing trade
measures
• Politicians won’t do this unilaterally – they will
choose trade measures more often than is
efficient
• So we have designed a system to help.
• The Design of the System Does Matter
2
Two Theories on How What Trade Agreements Do
and How They Work
• On the terms of trade theory of trade agreements
(Bagwell & Staiger): nations exchange commitments not
to impose terms of trade losses on each other SO the
trade agreement is a way to avoid the PD outcome
which would arise from single nations attempting to
maximize their own national welfare by imposing optimal
tariffs but which leads to retaliation so that in fact they
end up diminishing their welfare rather than enhancing it;
• On the political support theory of trade agreements
(eg Ethier 2002):politicians exchange market access to
supply each other with political support SO the trade
agreement is a way to avoid the PD outcome which
would arise from politicians in individual nations
attempting to maximize their own political welfare which
in fact leads to higher protection (etc) and lower welfare
for the people within the nation
3
Protecting People from Politicians
• Both: treaty provides an additional layer of quasi
constitutional constraint to protect people from
their politicians
• To Guide Politicians to an outcome different from
what they would otherwise choose
• Eg. low protection instead of high protection
• (eg comparisons with similar functions of EC
law: Tumlir (1986) or of US constitution Farber &
Hudec (1994).
4
For objective of Wealth Transfer which Choice of
Policy Instrument Would Rank 1st in terms of:
Maximizing
Politicians’ Political
Welfare
Maximizing
Citizens’
Economic Welfare
VER
1st
6th
Import Quota
2nd
5th
Import Tariff
3rd
4th
Export Subsidy
4th
3rd
Production
Subsidy
5th
2nd
Input Subsidy
6th
1st
5
Politicians Choosing To Maximize Their Own
Political Welfare But Minimize Their Citizens’
Welfare
• Politician Can Enhance
Own Political welfare by
choosing:
• 1 High level of
protection
• 2 High cost (most
indirect) policy instrument
• 3 High dispersion
between rates of
protection
• 4 discriminatory
preferences
• Economic Welfare of
Citizens Enhanced by
choosing:
• 1 low level of protection
• 2 low cost (most direct)
policy instrument
• 3 low dispersion
between rates of
protection
• 4 non-discrimination
6
Change Politicians Decision
• + Import
Competing
Producers
• + Import
Competing
Producers
• - Consumer
• - Taxpayers
•
•
•
• - Exporting
Producers
- Exporting Producers
+ Sympathy for Losers (SWF)
• - Taxpayers
•
• = nth Best Decision
- Consumers
•
•
•
- NPV of Support from Long Term
Prosperity
- Support of Rule of Law
+ Sympathy for Losers (SWF)
= 1st Best Decision
7
What Makes the System Work
• 1
• 2
• 3
Reciprocity
Non-Discrimination
Gradualism
• What does Reciprocity Entail?
• Rules that Prevent Reciprocity from Being
Undermined
• Ranking of Instruments: stricter rules on
measures which undermine reciprocity the most
(QRs) , less strict on Measures which only
undermine Reciprocity a little
• (corresponds to economic ranking of
8
instruments for achievement of wealth
transfers set out above (See Bhagwati (1971))
What is our Starting Point with Agricultural Trade?
•
•
•
•
Discrimination = preferential margins
Quantitative Restrictions – Annex 5(K, P), Safeguards – AS, AoA Art 5, QRs
by Import Monopolies, TQs
Tariffs – Average Agricultural % > Average Industrial %; high dispersion and
high disparity
6 digit lines, 8 digit lines – Eg (source WTO Tariff profile 2006)
– Cereals: > 500% (Egypt, Japan, Switzerland, Norway, Sth Africa. Korea) >150
(US, Canada, Turkey, Mexico) >100% (EC, India)
– Dairy: >400% (Japan, Switzerland, Norway) >200% (EC, Indonesia), >100%
(US, India)
– Animal Products: >400% ( Japan, Canada, Switzerland, Norway), >200 (EC,
Turkey, Mexico) , >100% (India, Sth Africa)
– Fats and oils: >400% (Japan, Korea), >200% (Canada, Switzerland, Norway,
Mexico, India) >100% (US),
– Sugar: >400% (Switzerland), >200% (Norway, Korea, Mexico), >100% (US, EC,
Japan, Turkey, India, Sth Africa)
Cf: Nothing over 80% (Philippines) 65% (China), 55% (Brazil), 35% (Argentina)
•
•
•
Export Subsidies – Bindings a significant levels;
Also export credits, consumer funded ES (export monopolist controls Q of
domestic supply)
High Per Unit Subsidies linked to Production – for OECD countries unevenly
spread over particular products – very high DS on particular products
9
Priorities for Agricultural Negotiation
• Reduce Discrimination (Diminish Diversion from existing
Discrimination)
• Eliminate all tolerance of Quantitative Restrictions
• Reduce Tariff as Much as possible (Force support onto
the government budget instead of import tariffs as far as
possible)
• But Tariff Cuts not too high (Gradualism)
• Aim for Reciprocity as far as possible at least in the long
term (and as far as reductions are welfare enhancing)
• Leave sovereignty to achieve objectives with freedom to
choose least inefficient policy instrument ( Means leaving
all Members free to impose some subsidies and leaving
some Developing Members free to retain some tariffs)
• As far as possible squeeze government funded support
away from links to production – encourage box shifting to
10
more efficient policy instruments
Compare with Negotiating Priorities
in the Doha Round
•
•
•
•
•
•
•
•
•
US & Cairns proposal beyond feasible gradualism
EC proposal of minimum 15% cuts & G10 proposal for sensitive products
inadequate to provide economic gains
Cairns Group accedes to the concept of excepting products from reductions
& seeks massive reductions in AMS
G20 & G33 seek even broader exemptions from reductions & even more
massive reductions in AMS
EC and G10 dig in on sensitive products – others focus on TQs;
US & G10 dig in on AMS – others focus on preventing box shifting
Leads to
On market access where > 90% of gains are available: Massive
Exceptions losing out on the biggest gains
On Domestic Support where < 10% of gains are available: application of
pressure that makes it harder to capture the 90% of gains from reducing
import barriers and creation of complex rules still leaving scope for high per
unit product specific subsidies on particular products which will only be able
to be adjudicated upon after the event.
11
One set of rules or Two
• The Williams Text: Move as far as possible
toward having No separate Agreement on
Agriculture
• The Falconer Text: entrenches many
separate rules for agricultural trade
12
Eliminate Quantitative Restrictions: Williams
•
•
•
•
Terminate the AoA exception in Annex 5
AS Art 5.1 – prohibit QRs as safeguards
AoA art 5 – eliminate QR aspects
Stop limits on TQ Volumes: Turkey Rice helps
but better to Mandate Auctioning of TQ volumes
– (Art II:1(b),2nd sentence does not apply: Korea Beef 1989
saying II:4 did not apply to price gap caused by quota
volume)
• Stop QRs by Import Monopolies: helped by
Korea Beef 1999 & insistence on private trader
TQ entitlements but better to Prohibit Monopoly
or exclusive import rights
13
Eliminate Quantitative Restrictions: Falconer
•
•
•
•
Terminate the AoA exception in Annex 5 - NO
AS Art 5.1 – prohibit QRs as safeguards - NO
AoA art 5 – eliminate QR aspects - Almost
Stop limits on TQ Volumes: Turkey Rice helps
but better to Mandate Auctioning of TQ volumes
NO
– (Art II:1(b),2nd sentence does not apply: Korea Beef 1989
saying II:4 did not apply to price gap caused by quota
volume)
• Stop QRs by Import Monopolies: helped by
Korea Beef 1999 & insistence on private trader
TQ entitlements but better to Prohibit Monopoly
or exclusive import rights NO
14
Reduce Import Tariffs: Williams
• Finish Tariffication – convert all duties to ad
valorem duties on day 1
• What size tariff reductions?
• Dispersion
• – so harmonization necessary
• - need to avoid averages and use line by line
• Apply harmonization formula to all (NAMA and
Agriculture) products and all countries
• Must apply to all countries and all products
15
Rates of Tariff Cuts: Williams
That part of the Bound rate
in the range
To be Cut by
0%-50%
30%
50% - 100%
38%
100% - 150%
46%
150% - 200%
52%
200% - 250%
60%
250% - 300%
68%
300% - 350%
76%
350% - 400%
84%
>400%
92%
.
16
Exceptions to Tariff Reductions: Williams
• In theory: Members in situation in which:
• 1 +ve production externalities & -ve consumption
externalities Exceed -ve production externalities & +ve
consumption externalities
• 2 transaction costs of alternative non-trade policy are
so large as to make trade policy the least cost instrument
for addressing the externalities.
• In practice: use per capita income as proxy
• Group 1 – 50% longer implementation periods
• Group 2 – sliding scale to 100% longer implementation
period
• Group 3 – sliding scale to 150% longer implementation
period
• Group 4 – 150% longer implementation period + 2/3 rate
of reduction
• Additional delay to start of period for those without export
subsidies
17
Allowance for Tariff Increases
• Article XXVIII
• -in exchange for reducing tariffs on other
products
• Clarify that adjustments to Schedules must
conform to Art XI: i.e no TQs (adopt a
specific waiver for existing TQs)
18
Tariff Reductions: Falconer
Tariff Conversion on Day 1: NO
Bound
Rate
0-20%
Dev’ed
Member
Cut
[48-52]%
0-30%
Developing
Member
cut
[32-37]%
20-50%
[55-60]%
30-80%
[36-40]%
50-75%
[62-65]%
80-130%
[41-42]%
>75%
[66-73]%
>130
[42-48]%
Bound
Rate
19
Summary of Market Access & Exceptions: Falconer
Developed member
Developing member
Approx 50% to 70%
But minimum 54% (including rate of cut
on Sensitive Products)
Tropical P: Up to 85%
Escalat’d Processed: 50+? to 70+?
Approx 33% to 47%
But maximum 36% (including …..?)
Implementation Period
5 years
8 years
Except % of tariff lines
designated as Sensitive (8 digit)
4% - 6% Sensitive Lines
5.3-8% Sensitive Lines
With 2/3 of ordinary cut
Expand TQ volume by 3-5% of
consumption
Expand TQ volume by 2-3.3% of traded
consumption
With ½ of ordinary cut
Expand TQ volume by 3.5-5.5% of
consumption
Expand TQ volume by 2.3-36% of trade
consumption
With 1/3 of ordinary cut
Expand TQ volume by 4-6% of
consumption
Expand TQ volume by 2.6 -4% of trade
consumption
Except % of lines designates as
special
Zero special lines
Between 8% and 20% designated as
special
With tariff reductions on special
Products of:
…… (N/A)
1st 6% lines: [8][15]% cut
2nd 6% lines [12][25]% cut
Rest of lines: not close to agreement on
size of cut
Volume Triggered Safeguard
SSG: if 125% of benchmark (prev 3
years
Existing SSG + SSM: if: [110][130]% of
benchmark (prev 3-5 years)
Price Triggered Safeguard
SSG – half existing % of gap b/w price
and benchmark
SSM – 50% of gap b/w price and
20
benchmark of [70]% of 3 yr Avg imp price
Rate of Tariff Cut
Tropical P: N/A
Excalat’d Processed: N/A
Safeguard Tariff Increases: Williams
• Available to All Countries – A on S – but outlaw QRs, and
apply 5.1 so that justification required for using tariff instead of
subsidy (transition for Groups II, II, IV)
• Modify Art 5 so that:
• Art 5 – version 2: for volume trigger (add ratchet mechanism
on benchmark) 120% of trigger level with Max SSG 75% of
Doha reduction; for price triggered: also require 110%
increase in volume & halve the size of the price triggered
safeguards
• Art 5 – version 3 as for version 2 but set Max volume trigger
to 50% of Doha reduction; for price triggered: halve size again
• Available to Developed Countries – Art 5 version 2 until end of
implementation period plus 5 years; then apply Art 5 version 3
• Available to Developing Countries – old Art 5 for 10 years,
then Art 5 version 2 until end of implementation period plus 5
years; then apply Art 5 version 3
21
Safeguard Tariff Increases: Falconer
• Amendments to AoS: NO
• Adjust AoA Art 5 – Quantity trigger lifted to 124%; Price
trigger – half the SSG
• New Developing Member SSM: not agreed [no time limit
agreed]
• Volume trigger: [105 - 130]% of 3yr avg etc:
• Max Volume-triggered SSM of % of Bound rate or X
percentage points [up to UR rate?]
• Price trigger: [70 – 100]% of 3yr Avg.
• Max Price triggered SSM of [50 -100]% of price gap or
[50-100]% of Doha reduction
22
Export Subsidies: Williams
• Final Rules:
• SCM Art 3.1(a) already applies or Set date for applying SCM Art
3.1(a) and letting AoA provisions on export subsidies lapse
• This catches export credits
• What about Export monopolies?
• What about consumer financed export subsidies (like Canada Dairy
& EC – Sugar) (i.e where there is a QR on domestic sales in
presence of prohibitive tariff)
• Solution is: prohibit QRs on domestic supply or reduce tariffs and
prohibit import monopolies.
•
•
•
•
•
The transition during the interim period:
Reduce total outlay bindings
Add per unit subsidy bindings
Reduce per unit bindings
No more bindings on volumes (minimize the impact of the crosssubsidization decision in EC–Sugar)
23
Export Subsidies: Falconer
• Final Rules:
• Not clear on whether AoA fades away and Art3.1
operates or if AoA continues to operate on zero
bindings
• Adds separate rules on export credits
• Export monopolies – either prohibited or prohibit
exercise of power that circumvents elimination of
ES (but no limit on import monopolies – and too
many exceptions from tariff reductions to remove
prohibitive tariffs which facilitate consumer
financed ES)
24
Domestic Support: guiding
principles
• 90% of welfare gains come from reducing
tariffs & only <10% from reducing ES / DS.
• So Forget about balancing the 3 pillars.
• Focus on Reducing the per unit subsidies
that are the biggest proportion of market
price
• Box Shifting is GOOD: Encourage it.
25
Domestic Support: Williams
•
•
•
US Cotton applies serious prejudice to price gap subsidy on fixed Q – do
not give insulation from SCM Art 5 & 6 claims to the extent that they relate
to the effects of subsidies in other markets
EC Oilseeds applies NonVN&I to price gap subsidy on fixed Q – do give
insulation from SCM Art 5 & 6 claims to the extent that a subsidy within a
bound limit would be exposed to a Non-V N&I claim re effect in own market.
Adjust definition AMS
– count price gap for actual intervention purchasing not for unimplemented
intervention purchasing) (annex 3, art 8,10)
– count all AMS not just the margin of support above a reference price (annex 3,
arts 8-11)
•
•
Set product specific AMS caps on a per unit basis
Apply harmonizing reductions to per unit product specific AMS caps – with
these rule we can challenge a law without having to wait for the data
•
Adjust definition de minimis – that part of what falls within definition of AMS
that is within the % limits
Blue Box – set caps on a product specific basis
Maintain Green Box rules: no price support, no transfers from consumers, 26
no Inks to current production or current price
•
•
Allow Article XXVIII flexibilities
To Increase a
Can give Compensation in
Tariff
Reducing Tariffs
Production
Linked Subsidy
Reducing tariffs, or
Reducing production linked
subsidies
Blue Box
Subsidy
Reducing Tariffs, or
Reducing Production subsidies,
or
Reducing Blue Box Subsidies 27
Domestic Support: Falconer text
•
•
•
•
•
•
•
Tiered formula for reductions in OTDS
Tiered formula for reductions in Total AMS
Product Specific AMS caps
Reductions in De Minimis
Blue Box definition and Cap
Amendment of Definition of Green Box
Special reductions for AMS on cotton
28
Caps on Product Specific AMS –
But NO Reductions– Table 3
Product
Product Specific Cap
Products for Developed Members
The average AMS for the product during 19952000
Products for the USA
The average proportion of total AMS for that
product during 1995-2004 as a proportion of total
AMS during the period 1995-2000
Products for which a Developed
Member has introduced AMS above
de minimis since 2000
The average AMS for the product during the ‘most
recent two notified post base period years’
Products for which a Developed
Member’s AMS during 1995-2000
was below the de minimis level
The [current] [new] de minimis level
Products for Developing Members
Choice of:
(a) Average applied levels during either 19952000 or 1995-2004; or
(b) Two times the Member’s product specific de
minimis level; or
(c) 20% of the Annual Bound Total AMS in any 29
year.
Table 4 Rates of Reduction in Total AMS
The Member’s
Final Bound
Total AMS in
US$ billion
Reduction
rate for
Developed
Country
>40
[70%]
25% then
5 equal
annual
15<FBTAMS<
40
[60%]
[60%] + [7060]%
FBT AMS <
15
[45%]
6 steps
over 5
years
[45%] + 0.5
[60]-[45]%
Reduction rate
for Developed
Country with
AMS>40% of
production
Reduction rate
for Developing
Country (over a
longer
implementation
period)
Reduction
rate for SLIRAMS or
NFIDCs
Zero
Zero
2/3 x [45%]
9 steps over 8
years
Zero
30
Table 5 Rates of Reduction of De Minimis Support
Member
Rate of reduction of
de minimis support
By equal instalments
over
Developed Members
Higher of [50][60]% and
rate of cuts to OTDS
Implementation period
[1st day][5 steps]
Developing Members
Higher of 2/3 of [50][60]
% and rate of cuts to
OTDS
As above + 3 years
Recently Acceded
Members
1/3 of [50][60]%
As for Dev’d
Members + 5 Years
•
No reduction for REALIM, D’ing M with no AMS commitments, D’ing M with AMS
commitments but that allocate almost all that support for subsistence and resource
poor farmers, Listed NFIDMs
31
Blue Box under Article 6.5
• Adjust 6.5 so that exclusion would be lost if the
production or asset limit does not continue to be based
on the base year
• The exclusion can apply if no production is required at all
• Limit 6.5 exemption to amount bound in Schedule total payments not exceeding 2.5% or 5% (Dg M)
• Limit 6.5 exemption to product specific ceilings bound in
Schedule which can be increased if product specific
AMS caps are reduced by a corresponding amount (but
without exceeding total Blue Box binding)
32
Green Box amendments include:
• Para 2(h) rural employment programmes
(presumably not specific to employment in
agricultural sector?)
• Para 3 on whether losses made on selling
stocks from public food security stocks count in
the AMS (for Dg M permits some price support)
• Para 6(a) for income payments not linked to
production or prices after the base year - that a
programme would lose green box status if the
base year is changed
33
Overall Trade-Distorting Support (OTDS) - Table 6
The Member’s
Base Overall
Trade
Distorting
Support in
US$ billion
Reduction rate
for Developed
Member
>60
[75][80]%
10<OTDS<60
[66][73]%
OTDS<10
[50][60]%
33% then 5
annual steps
Reduction rate
for Developed
Member with
OTDS>40% of
production
Reduction rate
for Developing
member with
AMS
commitments
(20% then 8
annual steps)
[66][73]
+
0.5(difference
between
[75][80] –
[66][73]%)
2/3 x [50][60]%
Reduction rate
for Developing
Member
without any
AMS
commitments
Reduction
rate for SLIRAMs or
NFIDCs
Zero
Zero
Zero
Zero
Zero
Zero
34
Net Result of Williams text
•
•
Removes all QRs
- from AoA, Annex 5
•
•
•
- from AoS, Article 5.1
- from under-allocation of TQ volumes by requiring auctioning
- prohibits import monopolies so no QRs imposed by import monopolies
•
Achieve tariff reductions on all high tariffs
•
•
•
•
•
•
– including on tropical products, and on escalated processed products
- does not create any more TQs and diminishes the rent from existing TQs
- Gives Developing Members more time to adjust
- Gives LDCs more time to adjust and lower reductions
- Reduces Discrimination (and trade diversion) arising from bilaterals and other preferences
( Leaves US and EU free to pay aid in cash to compensate for reductions in preferences)
•
Leaves limited scope for Members (more for Developing Members) to use tariffs to help Members
adjust to tariff reductions – AoA Article 5 versions 1, 2 & 3
•
Eliminates Export Subsidies (tariff reductions make consumer financed Ex Subsidies impossible)
•
Leaves Members free to use subsidies to help producers adjust to tariff reductions
•
•
- production linked subsidies up to bound product specific per unit bindings (not counting de minimis)
- plus blue box up to product specific per unit bindings which can be increased under XXVIII by reducing product
specific AMS bindings
- unlimited income support payments
•
•
•
•
Achieves reductions in high per unit product specific subsidies (including on cotton)
Any subsidy exceeding product specific per unit bindings can be challenged as soon as the law is
published or as soon as payment made without needing to wait for data on the effects actual
payment on markets and prices
Any non-Green subsidy having effects in other markets would be subject to remedies under SCM
35
art 5 (even if within bindings)
Net Result of Falconer text
• QRs remain –
–
–
–
–
Annex 5 invocations remains
Import monopolies remain undisciplined
TQ volumes – private trader rules will help
New TQs some where effective constraints is the volume
• High Tariffs
– Agricultural tariffs will remain higher than industrials
– EU, G10 will retain high tariffs on several product areas (mostly sugar,
dairy, meat, some tropical products); US high tariffs in less areas –
sugar, dairy, peanuts; Canada in some areas too
– Many important Developing Members will retain high tariffs across
several product areas, possibly with effective constraints being the
volume of TQ (eg India)
– Safeguard (AAM) may make tariff barriers worse not better (eg China,
India)
• High Subsidies on particular products: High subsidizing countries
will continue to pay high subsidies focussed on particular products
• Need to wait for the data before a complaint can be brought
36
Williams text v Falconer text
•
•
Which achieved the promise of a Development Round?
Which confers more economic welfare gains? (Model it!
•
Which imposes more discipline on the most welfare diminishing policy
instruments
Which leaves the most sovereignty to achieve objectives by applying the
most efficient policy instruments?
•
•
•
Which helps the system to help the powerful countries to become and stay
open?
Which helps the system help the less powerful countries to over come
political forces for protection?
•
Which makes the next round easier?
•
Why is it better?
37
Achieving a Better Result comes from paying
attention to What Makes the System Work
• 1
• 2
• 3
Non-Discrimination
Gradualism
Reciprocity
• Ensuring the Rules Protect Reciprocity against Being
Undermined by:
– Ranking of Instruments: stricter rules on measures which
undermine reciprocity the most (QRs), less strict on Measures
which only undermine Reciprocity a little
– Prohibit Undermining Measures eg No Quantitative Restrictions
• Achieves the objective of changing political decisions toward:
–
–
–
–
Lower protection
Better choice of instrument for achieving domestic objectives
Less dispersion between rates of protection
Less discrimination
38
How much can we deviate from:
•
•
•
•
•
Reciprocity
Gradualism
Non-Discrimination
Ranking of Instruments
Low Dispersion
• Before the System will No Longer Work?
39
The Choice
• Everyone comes to
negotiations to strengthen the
principles of reciprocity,
ranking of instruments, low
dispersion, non-discrimination
• Everyone comes to
negotiations to negotiate an
exception for themselves and
leaves it to others to protect
the system.
• Outcome – world in which
price signals flow around the
world and everyone is
constantly adjusting to
changes occurring all over the
world
• Outcome – no multilateral
system; parts of the world
insulate themselves from
changes occurring in other
parts until sudden and painful
changes are necessary; small
countries need to negotiate
one on one with big countries
40