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WTO agricultural negotiations on agriculture and sugar: where to after Doha? Address to 12th informal consultation between the World Association of Beet and Cane Growers and the ISO Council, 26 November 2001



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WTO Agricultural Negotiations on Agriculture and sugar: where to after Doha?

Presentation to 12th Informal Consultation Between the World Association of Beet and Cane Growers And the ISO Council

Monday 26th November 2001

By Lindsay Jolly* Senior Economist International Sugar Organization

New global trade round launched in Doha

The WTO’s 4th Ministerial Conference held in Doha, Qatar, mid-November, successfully launched a new round of multilateral trade negotiations. Agreement came after the meeting was extended by one day and after a final night of haggling over the text concerning agriculture.

The successful meeting was a great relief to WTO trade ministers after the fiasco of Seattle in December in 1999 which saw acrimony between delegates and massive anti-globalisation protests on the streets. Indeed some saw Doha’s success in a much broader context: Doha will be remembered as the day the free world backed multilateralism by opposing isolationism; when the world opted for trade instead of terrorism.

Leading up to the Ministerial meeting most commentators noted that there was widespread agreement that a new trade round should be launched, but that still a lot of hard bargaining had to be done. Indeed as recently as early September, success at Doha seemed a faint hope. There were still apparently deep divisions between poor

* This paper presents a synthesis of published commentary concerning the outcome of the WTO’s fourth Ministerial Meeting, but in particular I acknowledge my use of an IFAP News Release of 15 November, 2001, entitled “The Doha Agenda for a New Round of Multilateral Trade Negotiations”.

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and rich countries and even amongst the rich countries about the desirability and scope of a new trade round. With only three weeks to go, and despite intensive efforts which produced a draft Ministerial declaration, trade diplomats recognised that one of their biggest differences was over agriculture. Even so, many observers remained cautiously optimistic that with skilful drafting a compromise should be possible.

Perhaps in the end it was the fear of failure that prompted a successful conclusion to Doha. Another “Seattle” in the context of the global political and economic uncertainty created by the terrorist’s attacks in New York, the subsequent military strikes in Afghanistan, and looming global recession would have been too diabolical to contemplate for WTO Ministers. Failure could trigger an outbreak of protectionism, and discriminatory bilateral deals that could severely weaken the global rules-based trade system, a system at the very heart of the WTO.

What Does Doha commit members to?

The main Doha Ministerial declaration includes elaboration of objectives and timetables for the current negotiations on agriculture and services, as well as areas for new negotiations. In fact, Doha has set an ambitious program of negotiations over the next three years - starting on 31 January 2002 and ending 1st January 2005. Recall that the previous round of multilateral trade talks - the Uruguay round - took seven years to negotiate!

How was agreement reached on agriculture?

Much of the work was done during the months running-up to the meeting. Ministers worked from a single draft text hammered out over months of discussion among member countries. These texts were released by Hong Kong Chairman of the WTO’s General Council, Stuart Harbinson, and Mr Moore, WTO DG, 27th October, and had been dubbed the Harbinson text in some quarters.

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In fact, after 6 days of intense negotiation, the final agreement on agriculture was identical to the Harbinson text, except for the addition of one small clause: “without prejudging the outcome of the negotiations”. It was only the EU - most emphatically France - that had called the wording regarding “phasing out” farm export subsidies as unacceptable.

So how was agreement on a work program reached at Doha?: especially as we’re all aware of the often-times opposing, diverse and seemingly entrenched views expressed by the 5 main groupings which have emerged since March 2000 when the mandated negotiations on agriculture began.

Recall that the five major stances or groupings include that of: ! the United States;

! the group known as “friends of multifunctionality” (including

the European Union, Japan, Republic of Korea, Norway, Switzerland and others); ! the Cairns Group (18 exporting countries 1

);

! developing countries; and

! transition economies.

Agreement at Doha was reached because ultimately the slightly modified Harbinson text allowed each country the necessary negotiating flexibility to cover their concerns.

In effect then the stances of the 5 key groups concerning agricultural reform and liberalisation as already expressed in the mandated WTO negotiations on agriculture were not radically revised at Doha. The hard work remains.

In fact, each group appears to have interpreted the Doha outcome in light of their ongoing goals. Let me illustrate this. • Australia, key member of the Cairns Group: According to the Australian Minister for Trade, Mark Vaile, when commenting

on the outcome of Doha, “Australian farmers insisted the

1 Argentina, Australia, Bolivia, Brazil, Canada, Chile, Colombia, Costa Rica, Fiji, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, Philippines, South Africa, Thailand and Uruguay.

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terms of launching a new round of negotiations include phasing out export subsidies. The Australian delegation would not come home until we achieved that… This is the beginning of the end of export subsidies…the Cairns group worked effectively together to resist EU attempts to remove the language on phasing out export subsidies from the declaration….we also have the results we wanted in terms of commitment to substantial improvements in market access and substantial reductions in trade-distorting domestic support”2.

• European Union: EU Agriculture Commission Franz Fischler declared “The European Union has delivered. We have shown the necessary flexibility. Today we have kicked off a party where everyone gets a prize….we were not happy with the text on export subsidies because it seemed to pre-determine the outcome of the negotiations…phasing- out is simply an indication of direction, of hope, of ambition..”3.

• United States: USTR’s Zoellick: “this declaration is a landmark achievement for US agriculture. Our team really delivered for America’s farmers and ranchers. We’ve settled on a program that lays out ambitious objectives for future negotiations on the liberalization of the agriculture market”4.

But why all the excitement? Agricultural negotiations were already underway in any case. Why was agriculture discussed in Doha at all?

The key reason is that Agriculture needed to be part of the Doha Ministerial meeting so as it could become part of the single undertaking. Importantly, because the interests of the 142 member countries are so diverse, the agenda for a new round trade negotiations had to be broad enough to provide something for everyone. Therefore, the final negotiating package that comes out of

2 Media Release, Australian Minister for Trade, Thursday 15th November, 2001 / MVT153/2001 3 Press Release, Doha, 14 November 2001, “New Trade round slap in the face for isolationism” says EU Farm Commissioner Fischler. 4 USTR Zoellick says world has chosen path of hope, openness, development and growth, USTR Press Release, 14 November 2001.

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the Doha work program will be a “single undertaking”. That is, nothing is agreed in any one area or commodity until everything is agreed in all areas. In practical terms, it means there is room for concession and trade off against gains in other areas.

Also, bringing agriculture into Doha allowed discussion of issues that went beyond the scope of the talks set by Article 20 of the Uruguay Round Agreement on Agriculture. Article 20 states that the long-term objective is “substantial progressive reductions in support and protection in agriculture.”

There were 4 key issues discussed at Doha that attempted to move agriculture beyond the scope agreed under Article 20.

1. Elimination of export subsidies • Almost all countries sought the elimination of all forms of export subsidies as an objective of a new round on agriculture. Notably, but hardly surprising given the views

expressed in the on-going negotiations on agriculture, the EU was not prepared to accept the goal of total elimination, but was prepared to reduce export subsidies further.

2. Greater priority for non trade concerns • This was a demand made by a significant group of countries led by the EU - sometimes dubbed the “friends of multifunctionality” group. Predictably, based on the

agricultural negotiations since March 2000, other countries remained concerned that non-trade concerns would open the door to an increase in support for agriculture in a new or different form.

3. Creation of a “development box” for developing countries • The fact that developing countries were seeking a new “box” to add to the existing green, blue and amber

classifications is no surprise. Looking at the proposals submitted to the mandated negotiations on agriculture since March 2000, developing countries are seeking two

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chief outcomes. First, they want radical reforms from developed countries, including the eventual elimination of export subsidies and other forms of export subsidisation; significant and even drastic cuts in domestic support, as well as substantial improvements in market access for commodities of current and potential interest to them. The second area relates to meaningful implementation of special and differential treatment. Several developing countries, especially the non-Cairns group want to give developing countries significantly more flexibility than under existing provisions, especially in domestic support and market access with respect to staple foods and in the context of food security concerns. These countries want to support and protect their agricultural and rural development and ensure the livelihoods of their large agrarian populations whose farming is quite different from the scale and methods in developed countries. A development Box would be explicit recognition of these goals. Even so, the idea was opposed by the United States and some Cairns Group countries adopted a cautious approach. • Developing countries, whilst not achieving all their

ambitions at Doha, did successfully achieve an agreement that negotiations on outstanding implementation issues shall be an integral part of the Doha work program. Furthermore, in general the Doha Declaration gives a boost to developing countries and commits ministers to address “ the particular vulnerability of least developed countries and the special structural difficulties they face in the global economy”. Futhermore, as discussed later when examining the possible consequences of Doha for sugar trade policy reform, Ministers also agreed to grant a waiver to allow the ACP-EU Cotonou Agreement to go ahead.

4. Elimination of tariff peaks and tariff escalation. • Tariff peaks and tariff escalation remain issues even after implementation of the Uruguay Round Agreement on

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Agriculture. Again, developing countries in particular were demanding their elimination.

The Doha Compromise on agriculture

The Agreed Doha text on Agriculture is one of seven subject areas for which a new ‘work program’ will be launched. Consequently the new work program will supersede the agreed work program in phase II of the negotiations on agriculture underway since March 2000 and mandated under Article 20 of the UR AOA.

The key passage in the text of the Doha Ministerial Declaration on Agriculture is probably this: “building on the work carried out to date and without prejudging the outcome of the negotiations we commit ourselves to comprehensive negotiations aimed at: substantial improvements in market access, reductions of, with a view of phasing out, all forms of export subsidies; and substantial reduction in trade-distorting domestic support”. The text also incorporates explicit recognition that S&DT will be an integral part of all elements of the negotiations. The text also confirms that non-trade concerns will be taken account in the negotiations.

So how will the Doha Declaration and work program impact the present negotiations on agriculture?

Let’s take stock of where the mandated talks on agriculture had got to by the time of Doha. By the time an informal General Council meeting was held at the end of July to assess progress in preparation for Doha - the so-called “reality check” - the mandated negotiations on agriculture was already implementing phase II of its work program.

Negotiators agreed the scope of the work programme to be in-depth work on all issues and options for policy reform set out in member’s proposals. The basis of that work would continue to be Article 20, explicitly recognising that special and differential treatment is an integral part of all elements of the negotiations. Furthermore, without prejudice to Article 20, a list of trade and non-

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trade concerns were identified from member’s proposals for the first two or three meetings as: tariff quota administration; tariffs; amber boxes; export subsidies; export credits; state trading enterprises; export restrictions; food security; food safety and rural development.

Taking the work program for Phase 2 at face value, it appeared that for the remainder of this year, the negotiations wouldl be in a “clarification” phase - clarifying the practical details of the negotiating proposals. It seemed that the Committee would not move onto the modalities of the negotiations until early next year - that is, agreeing what formula or system should be applied to make the agreed reductions in trade distorting agricultural policy.

Of the WTO Members, the Cairns group has probably taken the most active role under phase II. Australia submitted papers on practical options for implementing Cairns Group negotiating proposals on TRQ administration, tariff reductions, “amber” box support measure, and also steps to achieve elimination of export subsides.

Considering the state of play under Phase II of the mandated negotiations on agriculture, there are probably three key impacts arising from the Doha Declaration.

• There will likely be greater progress to advancing what became known as the three key pillars of the UR AOA: improved market access, reductions in trade distorting domestic support and reduction of export subsidies. Greater progress can be achieved because trade negotiators know that any concessions made here can be potentially compensated by gains in the negotiations in the other sectors.

• A greater focus on concerns of developing countries. Although the proposed “development” box was not explicitly mentioned in the Doha Declaration, it’s clear that special and differential treatment will be significantly strengthened in these negotiations.

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• The schedule for the negotiations is now brought into line with the timetable for the single undertaking - i.e. 1st January 2005. Furthermore, modalities for reducing support and protection must be agreed by 31 March 2003. This undertaking causes few problems because the present negotiating schedule under Phase III, foresaw negotiations on modalities commencing March 2002 and ending March 2003.

What does a new broad round of trade negotiations mean for sugar trade reform and liberalisation?

Because of Doha, Agriculture is now part of the “single undertaking”, working to the agreed closing date of 1st January 2005. That’s important because there’s general agreement that an optimal outcome for agriculture is almost impossible unless the negotiations on agriculture are related to the wider negotiating agenda that comes from a wide WTO Round. Put simply, the scope for benefits and trade offs is far greater.

Perhaps then the potential for sugar policy reform has been enhanced by the Doha launch of a new WTO trade round? There is probably general agreement that sugar will be under much more pressure this time than during the Uruguay Round. Obviously, it’s too early to be certain about what those changes might be, but there is sure to be further progress made on improving market access, and lowering domestic support and export subsidies.

Why? Because of three key reasons: tariff levels for sugar stand out as much higher than the average for agricultural commodities; mounting internal pressures on sugar policy in the United States and The European Union - the two key countries critical to the success of any multilateral round of trade negotiations; and for come commentators the activities of a new group - the Global Alliance for Sugar Trade Reform and Liberalisation.

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The United States and EU remain key to profound sugar trade liberalisation

The Uruguay Round commitments did have implications for sugar policy in the United States and the European Union: the United States was constrained to minimum import volumes of sugar; and the European Union agreed to constraints on both the value and volume of subsidised sugar exports. Even so, the reforms did not alter the fact that both these countries continue to provide relatively high levels of domestic support with high internal sugar prices. So the key to more profound sugar trade liberalisation remains whether the United States and the European Union will liberalise their current policies. In that context then, a key question is whether presently mounting internal pressures for fundamental sugar policy reform in those two countries will ultimately move the world closer toward free trade in sugar, albeit that reform is undertaken unilaterally or as part of the WTO multilateral trade negotiations.

Pressure on US sugar policy is arising from domestic oversupply and the increasing access of Mexico under NAFTA - a scenario that over the longer term will result in steadily increasing forfeitures of sugar stocks to the government unless the loan rate is reduced. These pressures on US sugar policy will need to be addressed in the New Farm Bill presently being framed by Congress, and also, will likely impact the country’s negotiating stance on sugar in the WTO negotiations. In the European Union, even though the new sugar policy starting July this year leaves the 30 year old regime of production quotas, fixed prices and export refunds largely untouched for another five years, there are several elements of reform. These include a permanent cut in the annual production quota of 115,000 tonnes, abolition of the storage costs equalisation scheme and there was also a commitment to further review the sugar sector in 2003. Looking ahead, looming on the horizon is EU enlargement which holds its own challenges for EU sugar policy. The recently adopted “Everything But Arms” (EBA) trade initiative with least developed countries (LDCs) adds yet more pressure for an overhaul of EU sugar policy to coincide with phased unlimited duty free access of LDC sugar beginning 2006. Furthermore,

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Global Alliance for Sugar Trade Reform and Liberalisation

The Global Alliance for Sugar Trade Reform and Liberalisation was formed in 1999 just prior to the Seattle Ministerial Meeting. It’s not an intergovernmental grouping, but an alliance of sugar producing and exporting institutions from 12 developing countries and 2 developed countries 5. The Alliance represents about half of world sugar production and more than 85 percent of world raw sugar exports. Its goal (according to their Call for Action statement, released in Banff, Canada, 9 October) is to achieve positive, progressive and meaningful reform of sugar trade policies. Its vision is a world in which trade in sugar flows freely. It is seeking to achieve this through:

• Elimination of all export subsidies; • Elimination of all trade distorting domestic support; • Substantial increases in market access; and • A world trade agreement which applies negotiated disciplines

on a commodity-by-commodity basis to eliminate trade-distorting domestic supply.

Members of the Alliance seem convinced that their activities will for the first time put a sharp focus on sugar policies in WTO agricultural negotiations. But to be realistic the ultimate success of the Alliance is impossible to predict at this stage.

EU-ACP Preferential Sugar Trade - what future under the WTO negotiations?

Reform of EU sugar policy of course holds implications for those ACP sugar producers who benefit from preferential trade arrangements with the European Union. ACP countries viewed the outcome of the Uruguay Round AOA for sugar favourably because the changes to EU sugar policy did not fundamentally impact the provisions regarding preferential trade.

5 Australia, Brazil, Canada, Chile, Colombia, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, Panama, India, South Africa, Thailand

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The successor to the Lomé Convention was signed in Cotonou, Benin on 23 June 2000, and provides for the continuation of non-reciprocal ACP trade preferences in the EU market for a transition period of 8 years. After that time however, new arrangements are to be negotiated in line with WTO rules. The Sugar Protocol will also be examined during the transition period. Critically, the Ministers at the Doha Meeting agreed to grant a waiver to allow the ACP-EU Cotonou Agreement to go ahead.

For ACP sugar producers the Cotonou agreement offered the assurance of the continuation of the Sugar Protocol during the 8-year transition period, and confirmed the special legal status of special preferential sugar. However, the EBA treaty stands to undermine the benefits of the Cotonou agreement because ACP sugar producers face the severe contraction of SPS sugar as the interim LDC EBA quota is increased. The real pressure on EU-ACP preferential trade will emerge sometime between 2006 and 2009, as this is the time of the phased introduction of full liberalisation for LDC sugar. Those traditional ACP producers who are not one of the 48 LDCs face quota cuts to allow increased tonnages from LDCs - amounting to a transfer of benefits of preferential sugar trade from ACP states to least developed countries.

Conclusions

The successful launch of a new round of multilateral trade negotiations in Doha mid-November is generally heralded as the WTO taking a decisive stop towards promoting global economic growth and development by agreeing to negotiate further trade liberalisation.

The present negotiations on agriculture are now part of the new trade round, working to finishing negotiations by 1st January 2005, as part of a single undertaking. That’s a significant outcome because an optimal outcome for agriculture is almost impossible unless the negotiations on agriculture are related to the wider negotiating agenda that comes from a wide WTO Round. Put simply, the scope for benefits and trade offs is far greater.

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Because agriculture is now part of a broader round, greater progress is likely to be made in phasing out export subsidies, improving market access, and lowering trade-distorting domestic support than might otherwise be achieved had the present negotiations continued in a vacuum where trade-offs with other sectors could not be made. The concerns of developing countries will be given far greater priority and potentially heralds inclusion of a development box to the existing amber, green and blue categories of domestic support.

After Doha, there is an increased likelihood of sugar becoming a key focus for the agricultural negotiations, and in consequence there could be changes to sugar policy relating to the three key pillars of the UR AOA - improving market access, lowering domestic support and removing export subsidies. The key to profound liberalisation of sugar trade is the European Union and the United States; where already there are significant internal pressures building for reform of their respective sugar policies in the longer term. The negotiations on sugar will also need to address the particular interests of developing countries - key players in the world sugar economy. That’s a further reason to anticipate a difficult and perhaps complex debate once true negotiations commence. All stakeholders will need to engage constructively to find some common ground and to ensure benefits from WTO-induced sugar trade reform are widely shared.