I find Ambassador Barbosa’s paper very good
and quite accurate. I think it reflects the reality of agricultural negotiations
in the WTO pretty well so it is difficult for me to criticise it in any
significant way. I basically find myself in agreement with most of its
points. So let me comment on four issues:
• The reasons for the creation of the G-20
• The major dilemma for the G-20 countries between reciprocity and S&D treatment
for their own agriculture
• The role of the G-20 in Cancun
• The future.
I. The reasons for the creation of the G-20
Ambassador Barbosa mentions two main reasons for the formation of the G-20, one
is a long term reason, the other more short term or immediate:
• The long-term reason is the disappointment or frustration of
developing countries with the results of the UR AoA.
• The immediate reason is the fact that the Doha mandate in agriculture was
interpreted by developing countries as ambitious while the main drafts for
modalities were not ambitious enough.
I fully agree with these two explanations. However, I would
go a little further in the long term or structural explanation. The
disappointment of developing countries with the UR Grand Bargain ran very deep
and it was not just in agriculture. I think that the failure at Cancun and the
new proactive stance of many developing countries is anchored in these
perceptions of unbalance from the Grand Bargain of the UR.
One way of describing this Grand Bargain is that developing countries would
take on obligations in the “new areas” of “behind-the-border” disciplines such
as intellectual property, sanitary and industrial standards, and services, and
in exchange developed countries would provide better access to developing
country products, particularly agricultural products and industrial products
including textiles and clothing.
Recent research, by independent experts and the World Bank, confirms with
fairly precise numbers the developing country perceptions about the unbalance of
costs and benefits from the UR. In agriculture it is clear that the progress
under the UR Agreement on Agriculture was more formal than real. Beyond the
recent debates on TRIPS and public health there are reliable estimates that put
the increase in net payments by IP users to IP owners in the range of between
US$ 20 and 40 billion per year. Other perceptions of unbalance center around the
back-loaded nature of commitments for phasing out quotas in textiles and
apparel, and around the costs and burdens of implementation of commitments while
promises for technical assistance are voluntary or best endeavor in nature.
The point is that many developing countries see the main challenge of the Doha
Round precisely as rebalancing some of the problems of the Uruguay Round, and
consider that this can only be done if developed countries are willing to
address in an economically meaningful way the core market access issues of
interest to the developing world. This also explains the reluctance of many
developing countries to expand the agenda with many behind the border issues,
such as the Singapore Issues.
Of course, there is an enormous diversity in the size, level of development and
commercial interests of developing countries. And this means that some of the
most important differences in negotiation positions are found among developing
countries themselves. They are far from a monolithic group.
The second reason for the formation of the G-20 discussed by Ambassador Barbosa
is the immediate one of frustration with the different modalities drafts
(Harbinson, Joint US-EU, Perez del Castillo) which were found to be not
ambitious enough and added to the long term frustration with the lack of
progress in agriculture. And this was exacerbated by the fear of a repeat of the
UR Blair House Agreement.
I think that in this respect there has also been an important learning curve.
Experience and serious research has allowed developing countries to run the
numbers of different liberalization scenarios. And I know Brazil, for one, had
good quality empirical research that showed how developed countries have played
around with the different domestic support boxes in order to accommodate their
trade distorting policies. So even though these issues are not very transparent
for the public debate, they are today much better measured by experts and much
better understood by developing country negotiators than ten years ago.
II. Reciprocity or S&D treatment in agriculture
My second comment is on the key issue of developing country attitudes toward
reciprocity versus S&D treatment in agriculture. Amb. Barbosa suggests in his
points (a) and (b) that agricultural reform should proceed through developed
countries reducing export and domestic subsidies, which is a perfectly
legitimate and rational request and offensive interest, but by allowing
developing countries to maintain their high levels of tariff protection. A lot
of the argument in Cancun between the US and Europe on the one hand, and the
G-20, on the other, focused precisely on the developed parties asking the
developing ones for reciprocity and the G-20 resisting it.
And I guess the main reason why Canada, Australia, New Zealand and other Cairns
Group countries were not invited to join the G-20 is precisely because at least
some of the G-20 countries had a pretty hard line against significant
reciprocity. And I would invite Amb. Barbosa to comment more on the relationship
between the G-20 and the Cairns Group.
During the week in Cancun the differences within the G-20 countries as regards
their own agricultural liberalization commitments were one of the main reasons
why many thought the G-20 coalition would be unstable and would not resist the
pressure. After the fact, clearly the group survived this kind of pressure
pretty well. Post Cancun some countries left the group for a variety of
different reasons, but not this one. However, for those countries still in the
group the extent to which they will be prepared to open their own agricultural
markets will be a major source of internal tension within the group as the Doha
Round proceeds. We know the positions of countries in this respect are very
diverse: what is the common denominator between Mexico, Chile and India, for
instance? The Group includes a few countries that sometimes give the impression
of being interested in playing against the system, or that they win when the
system fails. While others, including Brazil, are business-like and want a deal.
So I think the issue of S&D versus reciprocity is a major source of fragility
for the G-20.
Ambassador Barbosa provides three main reasons for the defensive position of
the G-20:
• One, that the worst distortions are caused by the developed
countries that at the same time have very small farm populations. So it is up to
them to have the largest burden of adjustment.
• Two, that the developing countries have no means of subsidizing agriculture.
• Three, “that developing countries have huge farm populations – 300 million in
India, 800 million in China—that would be immediately and heavily penalized
should agricultural tariffs come down abruptly, particularly for staple crops:
the domestic markets would be immediately invaded by cheap subsidized imports,
and millions of family farmers would be unable to sell their production, being
thrown in misery. This is socially and politically unacceptable. Thus S&D for
market access seems a rather logic and ethical option.”
I think that a defensive position that argues that tariff
protection for agriculture should be allowed to remain high in developing
countries when this protection should come down in developed countries is
questionable and, at least in a strict sense, unsustainable:
• First, tariff reductions would not happen abruptly, but over
extended transition periods, and I am sure developed countries will accept
longer transition periods for developing countries.
• Second, it is important to look into the heterogeneity of products and
conditions within countries. Many of the farmers in developing countries produce
subsistence agricultural crops and are not in the export sector, so the output
of this group is not highly impacted by imports. Many other farmers that do
produce for the market in developing countries will also be well positioned to
be winners if there is significant reduction of distortions in global
agricultural production and trade.
• Third, keeping agricultural protection high in developing countries would
involve a decision to keep relative prices of food high, which will act as a tax
on the poorest sectors of the population. So, while one can see the rationality
of a policy option that tries to maintain agricultural protection in developing
countries, it is important to be clear that it also implies a cost, particularly
for poor urban and rural families that spend a relatively higher percentage of
their income on food.
This is not to say that S&D treatment has no validity. The
agricultural transition has always been a major economic and social
transformation for all countries, and has to be very carefully managed,
including the need for major investments in rural infrastructure, agricultural
extension and modernization. So there is some basis for recognizing S&D
treatment.
Let me conclude with two main points in this respect:
The first one is that the dilemma between accepting reciprocity or insisting on
S&D treatment will be a major source of tension, and potentially a major source
of instability, for the G-20 during the Doha Round. I would argue that the
effectiveness and cohesion of the group will depend to a large extent on its
capacity to arrive at common defensive positions which do not completely rule
out some measure of reciprocity vis-à-vis developed countries and among
themselves.
Second, I am more concerned about agricultural negotiations in bilateral
settings, such as the US agreements with Chile, Central America, the Andean
Community, and eventually the FTAA. Here the US position seems to be to expect
free trade in agriculture almost without exceptions from the developing country
partners, allowing for a special agricultural safeguard, but without accepting a
mechanism contingent on the removal of its own subsidies. Now, this is a
separate discussion, but I float it here as a little provocation for the
discussion.
III. The role of the G-20 in Cancun
The third issue I wanted to comment on is the role of the G-20 in Cancun. I
agree with the view that the formation of the G-20 signals a turning point and
is potentially a very positive development for the world trading system.
The stylized facts about agricultural protection provide a very strong economic
--and also moral-- case for removing the restrictions and distortions to
agricultural trade. This is why I really did not fully understand why the US
trade negotiators had so much discomfort with the pressure, which was mostly on
the EU, put by the G-20 in Cancun.
Perhaps there was a bit more rhetoric and posturing than necessary, at least by
some countries in Cancun, and, as I just discussed, it is true that the initial
G-20 position targeted mostly developed country policies and did not involve
much reciprocity on the part of the Group. However, by most accounts the G-20
was, as Ambassador Barbosa argues, very business-like in its approach, clearly
pushing the envelope in one of the most distorted sectors of world trade. In
fact a comparison of the original Carlos Perez del Castillo text on agriculture
before the meeting and the Derbez text suggests that the G-20 had a real impact
in moving the center of gravity to a more ambitious outcome, which given the
very ambitious US agricultural proposal of June, 2002 is arguably where the US
wanted to be in the first place.
So it is difficult to disagree with the view that the discomfort and
exasperation was not so much a reaction to the substance of the positions, but
to the political and power challenge the G-20 represented to the traditional
US-EU domination of the world trading system and to the domestic policies of
these two large subsidizers.
And I think this is the main systemic lesson from Cancun. It is true that all
countries lost an opportunity and this is regrettable and no cause for
celebration of any sort. But it is also true that the catharsis of Cancun can be
seen as a healthy development to the extent that it helps policy makers to think
about the nature of the system again, and in particular to understand two main
points:
• One, that with the new majority membership by developing
countries the WTO is today a different organization, one where there has to be a
different approach not just to decision-making and management of the
negotiations but to the substantive response by the major players to developing
country commercial interests.
• Two, that trade negotiations need to identify a more balanced negotiating set
that is relevant to all members, where they all perceive significant benefits.
IV. The future, agriculture in the Doha Round.
And this leads me to conclude with two general points and a question to Amb
Barbosa.
First point: I think the major lesson of Cancun is that the Doha Round will not
be successful unless developed countries are willing to address in an
economically meaningful way the core issues of interest to the developing world.
The strategy of expanding the agenda or linking with behind the border issues
was ill advised and failed in Cancun. In other words, the Doha Grand Bargain,
unlike the UR one, will probably not be market access in exchange for rules, but
will probably gravitate much more around reciprocal market access
liberalization.
Second point: this means that only real and painful reciprocity, from both
North and South, will move the Doha Development Agenda (DDA) forward. There is
just too much research around and increased understanding of the impact of
market access on development and poverty reduction to have a new unbalanced
Grand Bargain from Doha. But this also means that, since reciprocity is the
engine of negotiations, the G-20 coalition cannot simply navigate with the S&D
treatment flag, and it faces a hard internal negotiation about the extent of
reciprocity it will be prepared to negotiate as a group. I think this will be
the main challenge for the cohesion of the G-20 in the future.
The question to Ambassador Barbosa is this: In Miami last week clearly a new
understanding between the US and Brazil emerged about the scope of the FTAA,
whereby Brazil seems to be accepting now that domestic agricultural support and
AD issues will be negotiated in the Doha Round, and in exchange the US seems to
be accepting to pay a certain price in the level of ambition of the FTAA for
these two exclusions. The question is: Could the US and Brazil build on this new
constructive spirit and personal chemistry they showed in Miami to form the
alliance for multilateral negotiations in agriculture that proved elusive before
Cancun? Or, in other words, is there a positive impact of the spirit of Miami
last week for the December WTO meeting?
Annex. Evidence of Unbalance from the Uruguay Round Grand
Bargain
Agriculture
In agriculture, the progress in the UR was more formal than real:
• The tariffication process was progress, but post-tariffication
levels remained very high.
• TRQs allowed only limited additional market access. According to OECD data,
by the end of the 1990s, almost 28% of domestic agricultural production is
protected by TRQs. The EU has 38 percent of its production protected by TRQs and
the US 26%.
• As regards domestic support according to most evaluations the results were at
best very modest. According to the OECD in some countries the reforms undertaken
before the negotiations were sufficient to fulfill the new rules on reducing
domestic support. (OECD 2001, WB:118). The support granted to OECD country
producers was $248 billion in 1999-2001. (WB, 2003: 120).
• The World Bank also estimates that in 2005, even after meeting its Uruguay
Round commitments to the Agreement on Agriculture, Western Europe’s average
tariff on agriculture and food processing will still be around 30 per cent.
• Average agricultural tariffs in most industrial and developing countries
remain much higher than tariffs for non-agricultural products. However, compared
with the slow reform in OECD countries, the changes in protection in developing
countries were significant in the 1990s. According to the World Bank, the
average agricultural tariff declined from almost 30% in 1990 to 18% in 2000, a
decline of 35%. And these reductions were complemented by the elimination of
most export taxes as well as import licensing and many other quantitative
restrictions.
• Another distortion in agricultural trade is that the proportion of
agricultural tariff lines that carry non-ad valorem tariffs, that is, specific,
compound, and mixed duties, is much higher in rich countries than in developing
countries, an aspect that contributes to lack of transparency and much disguised
protection.
• The World Bank characterizes the strong incidence of tariff escalation (the
application of higher tariffs to semi-processed and fully processed raw
materials and food) as “strikingly antidevelopment” and as one of the main
impediments to export diversification for developing countries. It is important
to note, however, that developing countries also apply systematic tariff
escalation and high tariffs to the final stage of processing, suggesting
potentially large gains if escalation is removed not only by developed but also
by developing countries.
This list could continue, but the point is that the
expectation that the UR Grand Bargain would allow significant additional market
access to developed country markets in agriculture was not fulfilled. This
perception, now confirmed by abundant research, has been a crucial element in
the hardening of the position of some developing countries in agriculture, and
is the fundamental reason why new coalitions, such as the G-20 were formed
previous to Cancun.
NAMA – textiles and apparel
In non-agricultural goods some realities also led to perceptions of unbalance,
particularly the back-loaded nature of commitments for phasing out quotas in
textiles and apparel.
Intellectual Property
Even before the recent high profile debates on TRIPS and public health, the
TRIPS agreement had been criticized as contributing to the unbalance of the UR
results, particularly in that it has meant an increase in net payments by IP
users to IP owners of around $ 40 billion per year.
A World Bank study compares the net gains from changed patent obligations with
the gains from the UR liberalization on industrial goods by all WTO members. The
comparison shows that TRIPs patents are worth 13 times more to the US than is
the UR tariff package on industrial goods, and nearly four times as much to
Germany, France and the UK. Conversely, for China, Mexico and the Republic of
Korea, TRIPS-patents bring increased claims against them several times larger
than what they gained from the UR tariff liberalization on industrial goods.
Implementation issues
Other perceptions of unbalance are found around the implementation issues and
in the voluntary or best endeavor nature of the promises for technical
assistance.
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SEDI
