Post on 17-Dec-2015
Building on the July Framework Agreement:
Advice and Cautions
International Food & Agricultural Trade Policy Council
www.agritrade.org
International Agricultural Trade Research Consortium www.iatrcweb.org
About the Project
• Funders: – William and Flora Hewlett Foundation– German Marshall Fund
• Collaborators: – International Agricultural Trade Research Consortium
• David Blandford, University of Pennsylvania (Domestic Support)• Linda Young, University of Montana (Export Competition)• Tim Josling, Stanford University (Market Access)• Mario Jales and Andre Nassar, ICONE (Market Access) • Ann Tutwiler, IPC (Market Access, Export Competition)
Domestic Support: July Framework
• Positive – Discipline overall trade distorting support– Cap commodity specific and moderately trade distorting
support (Amber and Blue)– Refine non-trade distorting criteria (Green)– Harmonize level of support
• Negative – Relax criteria for moderately trade distorting support (Blue)
Domestic Support: IPC Caution
• July Framework increases permitted support by 15% to 25% plus bound trade distorting support – New US base, 250% of current spending; – New EU base, 170% of current spending
• Reduction in permitted overall trade-distorting support must exceed 60% to be effective
• Reduction of components should equal or exceed overall reduction – To reduce “box shifting” from Amber to Blue or de minimis– Blue Box, de minimis will become important for many countries
Green Box: Advice
• Revise criteria to prevent “updating” base acres/animals– Comply with cotton case
• Retain criteria to allow planting of all crops – Comply with cotton case
• Clarify role of environmental/social payments– Some may “increase” production
• Enhance monitoring with formal Ag Committee review • Do not cap Green Box payments
Composition of Overall Trade-Distorting Support
Overall Trade Distorting Support
Amber Box Blue Box De Minimis
Permitted Spending Under July Agreement Much Higher Than Current Spending Under
URAA
0
20000
40000
60000
80000
100000
120000
EuropeanUnion
Norway UnitedStates
Actual OTDS (URAA)
Permitted OTDS(DDR-Initial)
URAA Actual versus DDA Permitted(60% reduction Amber; 50% reduction de minimis)
01000020000300004000050000
United States EuropeanUnion
Norway
Actual Amber Permitted Amber
Actual de minimis Permitted de minimis
Blue Box: URAA Actual versus DDA Permitted
(5% Cap)
05000
10000
15000
20000
25000
United States EuropeanUnion
Norway
Actual Blue (URAA) Permitted Blue (DDR)
July Framework Agreement Does “Harmonize” Support Levels
0
20
40
60
80
100
120
Percent OTDS/Production
Canada E.U. Japan Korea Norway U.S.
Actual OTDS/production Across the Board Tiered
A “Cut” is not Necessarily a Cut
0
10000
20000
30000
40000
50000
60000
70000
Canada EuropeanUnion
Japan Korea Norway United States
Current OTDS Across the Board Tiered
Big Cuts in Overall Support Needed to Require Policy Changes
Figure 9. Binding Percentage Reduction in OTDS
84%
76% 75%
51%
42%
13%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Japan Korea Canada US EU Norway
Export Competition: July Framework
• Economic gains “modest” but political gains large• Gains for some countries, commodities large• Positive innovations
– Disciplines cover all forms of export competition– Eliminates subsidized export competition
Export Competition: IPC Advice
• Export Subsidies– Implement down payment (20% to 50%) – Allow, but don’t require rapid phase-down for some commodities
• Food Aid: Do Not Convert to Cash Only – Count market development spending against export subsidy limits
• PL480, Title 1– Phase-out loans for food aid
• PL480, Title 1 – Prohibit monetization and phase out programme food aid
• PL480, Section 416B, Food for Progress– Channel food aid donations from stocks thru WFP
• 416 B
Programme Food Aid Dwarfs Project, Emergency Food Aid
Emergency
Project
Programme
Programme Food Aid Variable, Large Share Monetized
0
5
10
15
20
1990 1993 1997 1999 2002
Global Food Aid
Global ProgrammeMonetized Aid
State Trading Entities
• Elimination of government financing, export subsidies, underwriting losses should remove distortions
• If monopoly power distorts markets, mandate co-existence– Allow private sector share of market to expand over time
Export Credits
US
EU
Canada
• Reduce value of transactions covered over implementation period
• Create international credit program to address liquidity constraints – (LDCs, NFIDCs, financial
crises, emergencies)
Market Access: July Framework
• Most important, least defined pillar– Approximately 92% of economic gains from lower tariffs in
industrialized and developing countries
• Positive Innovations– Tiered (harmonizing) reductions– Possible cap on tariff peaks– Addresses tariff escalation
• Negative Innovations– Special, sensitive products– Expansion of TRQs not mandated
Market Access: IPC Caution
• Large cuts in bound tariffs needed to affect trade• Formula should be simple, linear reduction
– not URAA formula of average/minimum cuts
• Three to four bands sufficient for tariff cuts• Tariff cap needs to be 100%
– Or impose harmonizing (Swiss) cut on peak tariffs
• Sensitive should be limited to a (small) share of consumption or production
Tariff Overhang in Developing Countries
Product Market Applied Rate Bound RateTariff
OverhangEquivalent
Cut
India 100% 150% 50% 33%Nigeria 10% 150% 140% 93%Brazil 16% 35% 19% 54%India 100% 150% 50% 33%Nigeria 10% 150% 140% 93%Brazil 16% 35% 19% 54%India 30% 100% 70% 70%Australia 5% 20% 15% 75%Brazil 20% 35% 15% 43%India 30% 100% 70% 70%Brazil 10% 35% 25% 71%Chile 6% 25% 19% 76%Mexico 20% 45% 25% 56%Philippines 10% 35% 25% 71%Brazil 12% 55% 43% 78%South Africa 5% 82% 77% 94%Indonesia 6% 25% 19% 76%Egypt 32% 60% 28% 47%Brazil 10% 35% 25% 71%South Africa 15% 37% 22% 59%Mexico 20% 45% 25% 56%Romania 20% 115% 95% 83%Brazil 10% 55% 45% 82%Mexico 20% 45% 25% 56%Nigeria 10% 150% 140% 93%India 70% 100% 30% 30%Brazil 12% 55% 43% 78%Egypt 12% 20% 8% 40%Brazil 27% 55% 28% 51%
Raw Sugar
White Sugar
Ethanol
Soybean Meal
Bovine Meat(chilled boneless
cuts)
Powder Milk
Poultry Meat(frozen boneless cuts)
Swine Meat(frozen boneless cuts)
Rice (milled)
Elaboration: ICONE
Bound Tariff Structures: Developed Countries
3 bands and 100% cap
0153045607590
105120135150165180195210225240255270285300315330345360375390405420435450
0
10
0
20
0
30
0
40
0
50
0
60
0
70
0
80
0
90
0
10
00
11
00
12
00
13
00
14
00
15
00
16
00
17
00
18
00
19
00
20
00
21
00
# of tariff lines
Tar
iff
Rat
es
Japan
USA
EU
Switzerland
Norway
Canada
40%
50%
60%100% cap
Elaboration: ICONE
Bound Tariff Structures: Developing Countries 3 bands and 150% cap
0
30
60
90
120
150
180
210
240
270
300
330
360
390
0 40 80 120
160
200
240
280
320
360
400
440
480
520
560
600
640
680
720
760
800
840
880
920
960
1000
1040
# of tariff lines
Tar
iff
Rat
es
India
Brazil
Mexico
Kenya
Cameroon
Indonesia
China
46%
26%
33%
150% cap
Elaboration: ICONE
Tariff Peaks
CountryTotal # of tariff lines
# of tariff lines >=50%
# of tariff lines >=100%
# of tariff lines >=150%
European Union 2,200 259 69 16
Japan 1,806 395 307 272
Switzerland 2,111 752 450 285
United States 1,769 84 27 14
Brazil 959 148 - -
Cameroon 831 831 - -
India 690 633 584 243
Kenya 665 665 665 -
Mexico 1,080 84 67 48
Developing Countries
Developed Countries
Elaboration: ICONE
Selection of Sensitive Products
Elaboration: ICONE
# of Over-Quota Tariff Lines
Sensitive Products as a % of Total # of Tariff Lines
European Union 271 12%
United States 196 11%
Japan 111 8%
Switzerland 432 20%
Norway 381 30%
Mexico 90 8%
Applied Rate >= Bound Rate
Sensitive Products as a % of Total # of Tariff Lines
India 35 5%
Mexico 119 10%
Indonesia 26 2%
Brazil 5 1%
Tariff Rate Quotas
• TRQs prevalent, less than ideal measure– Used by 43 of 144 WTO members
– In OECD, 43% of trade covered by TRQs
– In some developing countries, 99% of trade covered by TRQs
– Average fill rate, 60% (improve TRQ administration)
• Expand or Establish TRQs – If large reductions in tariffs not possible
– On Sensitive, Special Products
• Reduce in-quota tariffs alongside other tariff cuts
Developing Country Issues
• Impose same tariff cuts over longer timeframe – or shallower cuts over same timeframe
• Base Special Products on concrete criteria– Impose half of required tariff cut – Limit to small share of consumption, production
• Special Safeguard Measure– Base volume trigger on moving average of import levels– Allow on products with bound tariffs below specified percent
• Industrial and high income developing countries should provide duty and quota free access to LDCs
Other Issues
• Geographic indications: discussion should be launched under TRIPS regarding whether, how to protect intellectual property (patents, GIs) in foods
• Sectoral initiatives: higher than average cuts in tariffs, domestic support, export competition should be encouraged
• Differential Export Taxes: Discipline alongside export subsidies– Distort export markets,
– Distort domestic markets
– Penalize producers
Conclusions
• Framework incorporates more than adequate flexibility • Challenge will be to make real progress in opening
markets and reducing trade distorting subsidies• Progress needs to be made on each pillar to ensure
real reforms• Negotiators have 6 months to deliver 2 years work—
– Momentum of last July must be regained – Deadline for Schedules: Hong Kong plus 4 months