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Trade envoys from the US, the European Union (EU), China, India, Brazil, Australia and Japan took part in the meetings held between 6 and 12 May. Photo: AFP
Trade envoys from the US, the European Union (EU), China, India, Brazil, Australia and Japan took part in the meetings held between 6 and 12 May. Photo: AFP

Discuss local subsidies before import tariffs, India tells WTO

WTO director general holds meetings with envoys from 7 major industrialized and developing countries

Geneva: India has conveyed to the World Trade Organization (WTO) director general that commitments to reduce trade-distorting farm subsidies must be discussed before pursuing new ideas for reducing import tariffs on agriculture and industrial products for concluding the Doha Development Agenda (DDA) trade negotiations by year-end.

Over the last 10 days, WTO director general Roberto Azevêdo has convened closed-door meetings with trade envoys from seven major industrialized and developing countries to discuss new ideas for market-access reduction commitments in agriculture and industrial goods to replace the 2008 revised draft modalities.

Trade envoys from the US, the European Union (EU), China, India, Brazil, Australia and Japan took part in the meetings held between 6 and 12 May.

Also present at the meetings were the WTO General Council chair Fernando de Mateo of Mexico and the heads of the negotiating groups for agriculture and industrial goods ambassadors John Adank and Remigi Winzap, respectively.

The meetings were aimed at drawing up the precise modalities based on a “recalibration" approach in the post-Bali programme for concluding the DDA negotiations by the end of this year at the upcoming 10th ministerial conference in Nairobi, Kenya.

A majority of developing and poorest countries, including India and China, repeatedly demanded that all the existing Doha negotiating mandates, such as the 2001 Doha ministerial declaration, the 2004 July framework agreement, the 2005 Hong Kong ministerial declaration, and the 2008 revised draft modalities in agriculture and industrial goods, must remain as the basis for concluding the stalled Doha trade negotiations.

But the US opposed the 2008 draft modalities on the grounds that they fail to address the changed realities in which major emerging economies such as China and India are being exempted from appropriate reduction commitments in agriculture subsidies and tariffs for farm and industrial products.

In the face of the continued standoff between the developing countries on one side and the industrialized countries led by the US on the other, director general Azevêdo has suggested a variation of average tariff cuts for agriculture and industrial goods with substantially truncated flexibilities, said people familiar with the discussions.

“An average low tariff cut will help industrialized countries to shelter their sensitive tariff products, while it might adversely affect a developing country like India to bring down its bound tariff for several products below the current applied rate," said a trade analyst from an industrialized country.

Although Azevêdo did not specify any figures for an average cut for agriculture products or a cut on average for industrial products, the seven participants discussed several aspects such as the impact of average cuts on their respective bound and applied tariffs at this juncture.

Besides, the seven countries discussed whether such a framework would have a measurable impact for cutting down high agriculture tariffs in many industrialized countries as well as tariff escalation, which discourages the development of processing activity in the countries where raw materials originate.

More importantly, they discussed how the figures for average cuts for agricultural products deviated from the so-called tier formula of the 2008 revised draft modalities in which higher tariffs would bear higher cuts as compared to lower tariffs.

Clearly, the average cuts with reduced flexibilities are not beneficial for India and other developing countries, said a trade envoy, requesting anonymity.

As regards tariff reduction commitments for industrial goods, the 2008 revised draft modalities suggested the “Swiss formula" with accompanying flexibilities. The Swiss formula results in deeper cuts on higher tariffs based on coefficients (a higher coefficient means lower reduction in tariffs).

The trade envoys from the industrialized countries—the US, the EU, Australia and Japan—suggested that they are open to considering the so-called average cut framework with extremely reduced or no flexibilities in both agriculture and industrial goods.

The US has made it known that with the proposed “recalibration" to reduce the overall level of ambition in market access for agriculture and industrial goods, there should be no demands for any additional flexibilities.

China and India made it clear that they continue to adhere to the 2008 revised draft modalities to conclude the Doha trade negotiations. The two countries said that while they are willing to discuss new ideas, including the average reduction commitments, their governments will judge the outcomes in relation to the 2008 modalities.

More importantly, China and India maintained that they will not accept any framework that would undermine the flexibilities for special products and the special safeguard mechanism in agriculture and specific flexibilities in industrial goods as proposed in the 2008 modalities, the envoy said.

Azevêdo, however, did not discuss what ought to be the reduction commitments in the trade-distorting domestic subsidies, export subsidies and export credits that are provided by industrialized countries.

WTO’s highest court, the Appellate Body, had established that the domestic subsidies and export-financing schemes for cotton producers in the US had adversely affected the global cotton trade in a dispute launched by Brazil. Also, in another dispute against sugar subsidies, the Appellate Body had passed strictures against the EU.

But, for some inexplicable reason, the trade-distorting domestic subsidies and export subsidies and export credits for farm products were not covered during the meetings, said an African trade envoy familiar with the meetings.

Further, China, India, and Brazil asked the director general to decide the level of ambition for reducing commitments in subsidies in domestic support and export subsidies before the market access consultations to discuss the combination of average and cut on average formula.

A major industrialized country has maintained that there is nothing to discuss in the domestic support pillar, while another major industrialized country is reluctant to discuss the export competition pillar at this point.

The director general’s consultations failed to bring any convergence between the industrialized countries on the one side and developing countries on the other due to sharp differences over several issues concerning market access, particularly over the flexibilities that are accorded to developing countries on special products and the special safeguard mechanism in the 2008 revised draft modalities.

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