Just in time for the informal Ministerial meeting in Dalien, China, the G-20 group including the biggest developing countries has produced a proposal on the most contentious issue in the Doha round negotiations: improvements in market access for agricultural products. It comes on top of a new Australian proposal that also shows movement towards a middle-ground on the infamous ‘tiered’ tariff cuts. Neither proposal has yet been widely distributed. I’ve created a .zip file that you can “download here“:http://www.inquit.com/file_download/2 with a copy of the G-20 proposal and a paper that theAustralians circulated to the Cairns Group outlining the proposal they revealed in the 4-6 July Agriculture Negotiating group. The main components of the G-20 approach: # Five tariff bands for developed countries, four for developing countries
# A tariff ‘cap’ of 100% for developed and 150% for developing countries
# Linear tariff cuts in each band. A linear cut is a simple proportional reduction to each tariff in the band: so, for example, the final rate will be 80% of the initial rate if the linear cut is 20% in that band.
# Higher thresholds for each band and smaller cuts for developing countries
# ‘A very limited, standard number’ (integer?) of tariff lines (but at what level of the HS classification?) may be designated as sensitive products. Number may be different in each market
# The special agricultural safeguard (SSG) that was available to developed countries to be eliminated but a new safeguard mechanism should be created for developing countries
# Non ad-valorem tariffs should be bound at their ad-valorem equivalents: this means no more obscure protection by use of specific duties (e.g. cents per kg). The main component of the new Australian approach to market access cuts is a step away from the ‘Swiss-type’ harmonizing formula that is still, for example, the official positions of the Cairns Group and the USA (in different forms). The Australians have floated an idea for handling the tiers that removes the emphasis on the ‘thresholds’—where a small difference in a tariff across the threshold between ‘bands’ could see a big change in the rate of tariff cut. They have proposed using a formula that smoothes out the rate of cut as tariffs rise through the thresholds with the rate rising only slightly across each threshold but increasing steadily across the whole tariff band. Their paper for the Cairns group includes an illustration and a formula for achieving this. The Australian proposal, like the G-20 proposal, is a form of linear cut but the ‘line’ describes a more-or-less smooth slope, while the G-20 has a series of five or six steps. The most disappointing aspect of the last round of discussions in Geneva—and “apparently still”:http://news.ft.com/cms/s/d4cd1782-f2eb-11d9-8094-00000e2511c8,i_rssPage=9d5b9ebe-c8bc-11d7-81c6-0820abe49a01.html in Dalien—is the refusal of the European Communities to move away from an insistence on the discredited ‘Uruguay Round’ approach to tariff cuts in each ‘band’. The Uruguay Round approach is an _average cut across all tariffs in the band with a stated minimum cut to each tariff. So, for example, if there were three tariffs in a band (there’ll be dozens, in reality) of 60%, 90%, and 110% and the average cut target for that band were 40%, then the average (86.6% initially) would have to be cut to 51.9% (60 percent of the initial average). But this could be achieved by making actual cuts of 30, 0, and 74 percentage points in the current tariffs. That is, the most “sensitive” product with a current 90% rate of protection might not be cut at all. The safeguard is the ‘minimum cut’; each rate under the ‘Uruguay Round’ approach has to be cut by some minimum amount. But in the Uruguay Round the overall average was 36% and the minimum 15% for developed economies. The resulting tariff cuts were widely criticized as miniscule and decorative rather than substantial.
At first glance
The G-20 approach could be trade liberalizing depending on the selection of thresholds and the size of the linear cuts. The problem is, as ever, that thecurrent tariff rates in the EC and Japan especially (but also in the USA) are so high for some products that the rate of any linear cut would have to be set at scary levels in order to bring the protection down to levels where imports could occasionally compete. The conversion of specific duties to ad-valorem equivalents has illustrated how high the levels of protection really are. For example, in the dairy sector we find specific rates for certain product categories translate into astronomical levels of protection: |Economy|Product|AVE^#^ (%)|
|Japan|Whey powder|660| ^#^ _Ad-valorem Equivalent_ To bring these tariffs down to even moderate levels the linear cuts will have to be of the order of 90 percent. The G-20 propose a ‘tariff cap’ of 100% for developed countries, but this will still leave markets for these humble powders, yogurts and butters as tightly guarded as the Mona Lisa. One of the most valuable suggestions in the G-20 paper is that the ad-valorem equivalent duties should be bound in their ad-valorem format. That is, not re-converted to specific rates after the application of the tariff formulas. This would remove the absurd trickery that the specific rates implement. They allow even bound duties to vary inversely as prices change on world markets. But the betting among negotiators in Geneva is that to many powerful forces are addicted to this dirty game that the specific duties will survive, albeit at lower levels. The .zip file mentioned above also includes the latest G-20 paper on export subsidies. More on this later …