EDITOR'S NOTE — The following article, the second in a series, was written by Gary Adams, vice-president, economics & policy analysis, National Cotton Countil
Last July, when World Trade Organization (WTO) members failed to reach agreement on key agricultural and manufacturing provisions of the Doha Round trade negotiations, most analyses of the outstanding issues focused on a Special Safeguard Mechanism (SSM) that developing countries could use to stop surges in imports.
Developing countries want a SSM to be incorporated in the agreement. The SSM would allow a developing country to raise its tariffs on specific products in the event of a surge in imports or if the price of imports falls below a certain level.
The big disagreement in Geneva in July was whether the developing countries could raise those tariffs above even current levels. The United States argued in July this would actually increase import restraints when the negotiation was supposed to be about reducing import barriers.
Having reviewed the negotiating provisions under discussion this past July, one is left to wonder what surge in imports the developing countries are worried about. Unfortunately for U.S. agriculture, the current Doha Round agricultural text has so many loopholes that most agricultural trade to developing countries will be shielded from any real increase in market access.
At the July 2008 Mini-Ministerial, the Director General of the WTO, Pascal Lamy, proposed a compromise “package” intended to form the basis for further compromises and discussions. The Lamy package contained so-called “Special Product” provisions that would allow developing countries to designate 12-13 percent of their tariff lines as exempt from the overall tariff cuts called for in the negotiating text.
Up to 5 percent of such tariff lines may be exempt from any tariff cuts. Because the bulk of agricultural trade to developing countries is concentrated in a few tariff lines, providing Special Product exemptions on even a small percentage of tariff lines will impact a very large portion of the actual agricultural trade that occurs.
In many cases, a Special Products exemption of 12 percent will exempt about 90 percent of the existing agricultural trade from the formula tariff cuts that are the foundation of the Doha negotiations. A 5 percent exemption from any tariff cuts would cover between 80-85 percent of agricultural imports. As a result, the Special Product exemption may effectively deprive most U.S. agricultural export interests of any material gain in market access to developing country markets.
A further look at the data indicates the outcome may be even worse in some specific developing countries where the bound tariff rate (what they could levy on imports) is substantially higher than the applied tariff rate (what the country does levy on imports). India, for example, would be able to avoid any significant increase in agricultural market access under the current texts. Of its roughly 700 tariff lines, India ultimately would have to decrease its applied tariff rate on only 31 lines.
Without reductions in actual applied tariff rates, there is no real increase in market access. Through a careful designation of Special Products, India could shield 98-99 percent of its agricultural imports from any actual increase in market access, and there are other exceptions India could use to further limit market access concessions.
All the while, the United States is being pressured to give up $34 billion or more in allowable domestic support while getting virtually no real increase in market access in developing countries in return. With no increase in real market access into some of the largest developing countries, export growth in many smaller developing countries also will be hampered. This would subvert the purposes of the Doha Development Agenda and sharpen the divide between advanced developing countries and smaller less developed ones.
Unfortunately, the serious flaws in the existing negotiating text may make it impossible for any agreement that may be reached this December to be balanced for U.S. agriculture.