1. On 17 February, the Chairman of the Special Session of the Committee on Agriculture, Stuart Harbinson, tabled a first draft of possible “Modalities for the Further Commitments”. [Note 1] Agreement on such modalities is necessary to provide numeric targets and precise negotiating directives for the ongoing agricultural negotiations under the Doha Ministerial Declaration. In principle, agreement must be secured by 31 March 2003. On this basis, WTO members would be required to present detailed draft lists of specific commitments (schedules) by the time of the Cancún Ministerial Conference, from 10-14 September 2003.

2. The Chairman’s First Draft (hereafter simply Chairman’s draft), follows an “overview” paper, issued in December 2002, [Note 2] in which most of the negotiating proposals that have emerged during the formal and informal Special Sessions of the Committee on Agriculture were assembled with some indications of areas of commonality and difference. The Chairman is expected to redraft the current paper before the negotiating sessions at the end of March.

3. The Chairman’s draft takes up many specific proposals by WTO members, while maintaining an overall structure similar to that adopted in the Uruguay Round: principally, reform under the three pillars of market access, domestic support and export competition. All the target figures for new reduction commitments are termed “indicative” only and are clearly intended as a basis for negotiation. This paper outlines the mainstream proposals, the special and differential treatment provisions envisaged for developing countries and, where appropriate, makes comparisons with commitments made in the Uruguay Round. It also includes some limited initial commentary.

II. Market Access

A. Tariffs

4. National proposals were sharply divided between those advocating a formula approach, forcing much larger cuts on very high existing tariffs than on more moderate ones (often referred to as the “Swiss Formula” [Note 3]) and those insisting on the Uruguay Round route in which essentially all tariffs were reduced by the same percentage. The Chairman’s draft takes the bound tariffs (as opposed to the applied) as the basis for reduction and uses a hybrid approach, setting different levels of commitments for different bands of current tariffs, each to be implemented over a period of five years:

i. All tariffs now higher than 90 per cent to be cut by a simple average of 60 per cent. The minimum cut on any single tariff line would be 45 per cent.

ii. All tariffs now between 15 and 90 per cent to be cut by a simple average of 50 per cent. A minimum cut of 35 per cent on any single tariff line.

iii. All tariffs now below 15 per cent to be cut by 40 per cent with a minimum of 25 per cent on any single tariff line.

5. The Chairman’s draft sets out a significant number of special terms for developing countries. In general, tariff reduction commitments would be implemented in equal instalments over ten rather than five years. The commitments themselves would be less stringent:

i. Current tariffs above 120 per cent to be cut by a simple average of 40 per cent with a minimum tariff line cut of 30 per cent.

ii. Tariffs now between 20 and 120 per cent to be cut by a simple average on 33 per cent with a minimum tariff line cut of 23 per cent.

iii. Tariffs below 20 per cent to be cut by 27 per cent on average with a tariff line minimum of 17 per cent.

6. However, the concept of Strategic Products (“SP products”) is introduced for developing countries. Any such member could name SP products tied to “food security, rural development and/or livelihood security”. Current tariffs on SP products would be subject to a simple average cut of ten per cent with a tariff line minimum of 5 per cent.

7. Least-developed countries would not be required to make any reduction commitments¾though they may be encouraged to do so voluntarily.

8. In terms of market access concessions in favour of developing countries, three points stand out. First, the Chairman’s draft calls on developed country members to provide for greater market access opportunities for products of particular interest to developing countries, notably tropical products and products that will encourage diversification away from illicit narcotic crops or other products harmful to human health. Developed countries are called upon to offer duty¾and quota-free access for all imports from least-developed countries.

9. Second, the paper recognises the problem of “tariff escalation” by calling for higher tariff reductions on processed products than on the corresponding primary products where the former is currently higher than the latter.

10. Third, the Chairman’s draft makes some concessions with respect to the potential loss of preferential margins currently enjoyed by many developing countries, including the ACP Group. In making commitments, participants are urged to “maintain, to the extent possible, the nominal margins” and other conditions of tariff preferences they currently accord developing countries. In this context, an exception to the targets (in para.4 above) is to be available for products that, over the three most recent years, have accounted for at least 25 per cent of the total merchandise exports of the preference beneficiary. For these products the reduction commitment by the preference-granting country would be implemented over eight rather than five years.

11. In general, in the Uruguay Round, all customs duties on agricultural products were reduced on a simple average basis by 36 per cent in equal annual installments over six years. Developing countries received proportionately similar advantages to those proposed by the Chairman’s draft; notably, a 24 per cent average reduction in customs duties implemented over ten years. Least-developed countries were exempt from reduction commitments.

B. Tariff quotas

12. Tariff quotas were used, following the Uruguay Round, to ensure the maintenance of “current access opportunities” or to impose “minimum access opportunities” where the “tariffication” of pre-existing non-tariff barriers generated prohibitive market protection. Tariffs within the quotas were low, those outside remained prohibitive. The Chairman’s draft proposes that all such quotas currently below ten per cent of domestic consumption (normally the average for 1999-2001) should be expanded to at least that level. Some flexibility is envisaged: namely that one quarter of the tariff quotas currently maintained by each member may be expanded by only eight per cent on condition that an equivalent number be expanded by 12 per cent. Expansion would be implemented in equal instalment over five years.

13. Attachment 1 to the Chairman’s draft sets out a series of new disciplines on the administration of tariff quotas, an issue that drew much concern among members in the earlier stages of the negotiations.

14. Developing countries would not be required to expand their tariff quotas for SP products. Other quotas would need to be expanded to at least 6.6 per cent of current domestic consumption. Up to one-quarter of such quotas could be expanded to five per cent only, provided an equivalent number is increased to eight per cent. Implementation would be over ten years.

15. The Chairman’s draft does not require reductions of in-tariff quotas, except that tropical products, in primary or processed form, or products of importance to diversify from illicit or noxious crops, would benefit from in-quota duty free access.

16. As of March 2002, 43 WTO members administered 1425 tariff quotas. Some 505 of these were scheduled by 22 developing countries (including China). The market impact of expanding tariff quotas will depend in part on the extent to which existing quotas have been filled. Secretariat figures show that, between 1995 and 2000, the simple average fill rate for all quotas ranged between 60 and 66 per cent. The proportion of tariff quotas whose fill rates were between 80 and 100 per cent was consistently a little over 50 per cent.

17. These very broad averages will include fully used quotas of particular interest to developing country exporters. Equally, some quotas maintained by developing countries may be consistently filled and, therefore, expansion of those commitments could be expected to have some commercial impact on their domestic markets.

C. Special safeguard

18. The special safeguard mechanism (Article 5 of the Uruguay Round Agreement on Agriculture), which has allowed members to respond to sudden surges in agricultural imports, will lapse for developed countries at the end of the implementation period for new tariff reductions (i.e. after five years) or, under a second option, two years later.

19.  Developing countries would continue to have the right to use the special safeguard mechanism, but only on SP products and those products previously notified as being subject to the special safeguard. The Chairman’s draft also envisages a review of Article 5 to ensure that it is operationally effective in taking account of developing country concerns.

D. Non-trade concerns

20. The Chairman’s draft does not attempt to spell out provisions on non-trade concerns raised by developed countries in the area of market access but calls for their further consideration by participants.

III. Export Competition


A. Subsidies

21. Starting from the final bound levels of budgetary outlays and volumes committed to in the Uruguay Round, the Chairman’s draft proposes that outlays and volumes be reduced to zero over five or nine years for developed countries. The five- year timeframe would apply to products accounting for at least 50 per cent of the total final (Uruguay Round) bound level of budgetary outlays. An elimination schedule is generated for both timeframes through the use of a formula.

22. The formula is adjusted in the case of developing countries with export subsidy commitments in their national schedules. Elimination would be achieved-on the same basis as at para.21 above-over ten or twelve years. Exemptions for developing countries in the Agreement on Agriculture for transport and marketing subsidies would be maintained.

23. Budgetary outlays and volumes of subsidised exports were required, under the Uruguay Round settlement, to be reduced by 36 per cent and 21 per cent respectively over a six year period. Corresponding reduction targets for developing countries were 24 per cent and 14 per cent, with implementation over ten years.

24. As of April 2002, some 25 WTO members had a total of 428 export subsidy reduction commitments in their schedules; eight of these were developing countries. [Note 4] However, there has been a major difference between the scheduled export subsidy commitment levels and the actual notified use of export subsidies. For most product categories usage, in terms of volume, has consistently been below commitment ceilings, often dramatically so. In 2000, for instance, notified exports of subsidised wheat and wheat flour were less than two-thirds the overall commitment level for the category. For coarse grains the use was less than ten per cent, for sugar well under one-half. Indeed, in many cases, members with reduction commitments have filed “zero-use” notifications for specific products. Certain dairy products, poultry meat and eggs are the products for which actual subsidised exports have most closely reached overall commitment ceilings (around 80 per cent in each case in 2000).

25. These usage figures are important in assessing the potential impact of the Chairman’s draft reduction proposals which use as their base point the final bound Uruguay Round budgetary outlay and quantity commitments in members’ schedules. It should also be remembered that commitments are often made on product groups, permitting re-allocation of volume and outlay limits between individual product lines. In other words, it will be possible for many members to accept significant cuts for many products without there being a significant impact on the international market and prices. At the same time, certain specific cuts may be of fundamental importance to some developing countries whether as exporters or importers. It is also important to remember that binding new, lower limits also ensures against a reversion to high levels of export subsidies when, for instance, international market prices deteriorate.

B. Export credits

26. An attachment to the Chairman’s draft proposes new disciplines on the use of export credits; export credit guarantees and insurance programmes for agricultural trade. The provisions include minimum initial cash payments, minimum interest rates, requirements on the payment of interest and principal, the calculation of premiums on export credit insurance etc., and exchange rate risk hedging. Non-conforming export financing support would constitute export subsidies and be subject to reduction commitments.

27. Longer repayment terms and less frequent repayment instalments on principal and interest are envisaged as special and differential treatment for developing countries importing agricultural products. Net food importing developing countries and least-developed countries would benefit from additional longer maximum repayment terms as well as more favourable interest rates and/or premiums.

28. The Uruguay Round Agreement required the WTO to work towards internationally agreed disciplines on export credits. To date, this work, particularly that undertaken in the OECD, has been unsuccessful.

C. Food aid

29. Attachment 5 to the Chairman’s draft seeks to toughen up the existing disciplines on food aid in the Agreement on Agriculture (Article 10.4). Proposed new provisions would require that food aid be exclusively in fully grant form and not tied to commercial exports to recipient countries. Aid should be granted to relieve emergency or critical food needs in response to appeals from United Nations food aid agencies, NGOs, private charitable bodies or as a result of bilateral government-to-government requests. Food aid for other purposes should be provided exclusively in the form of untied financial grants for purchases for or by the recipient country.

30. Food aid transactions should be made in accordance with the FAO “Principles of Surplus Disposal and Consultative Obligations”. Recipient countries would undertake not to re-export food aid other than through a transaction initiated by a UN food agency. Food aid transactions should be reported to the WTO Committee on Agriculture.

31. Non-conforming food aid transactions, which cannot be accommodated within a member’s export subsidy reduction commitments, would be deemed to be a circumvention of those commitments.

D. State trading enterprises

32. In Attachment 6 the Chairman’s draft proposes new provisions to be added to the Agreement on Agriculture (as Article 10.5) to discipline the activities of state trading enterprises (STEs) with respect to agricultural exports. The provisions would stipulate that STEs should not be operated in a manner either to circumvent export subsidy commitments or to undermine competition in world markets.

33. In particular, STEs should not export at prices below those paid to domestic producers; the right of any interested entity to export, or purchase for export, should not be restricted; and, generally, STEs should not enjoy special financing privileges. The second and third of these undertakings would not apply to developing countries.

E. Export restrictions and taxes

34. Generally, the institution of new export prohibitions, restrictions or taxes on foodstuffs would be prohibited. Exceptions remain, however, in GATT 1994 (Articles XI, XX and XXI). Article 12 of the Agreement on Agriculture imposed disciplines on new export prohibitions and restrictions on foodstuffs. However, its provisions did not apply to developing countries unless they were net-exporters of the product concerned. The Chairman’s draft proposes that the disciplines and exceptions of Article 12 continue to apply to developing countries.

IV. Domestic Support


A. Amber box

35. Domestic support subject to reduction commitments (the “Amber box”) should be reduced by 60 per cent¾based on the final bound Aggregate Measurement of Support (AMS) commitment in members’ schedules¾over a period of five years. The corresponding reduction for developing countries would be 40 per cent implemented over a period of ten years. Least-developed countries would not be required to make reductions.

36. As of March 2002, some 34 WTO members had AMS reduction commitments in their schedules, 13 of them were developing countries. [Note 5] Although notifications after 1999 are patchy, it is clear that a majority of members with commitments have kept their use of covered support well below the bound total AMS ceilings. Again, this is relevant to an assessment of the Chairman’s draft, which proposes that new reduction commitments be based on the final bound total AMS levels in current schedules. It should also be recalled that while product-specific calculations of AMS must be made and notified, reduction commitments are based on a total for all covered products. Thus very substantial reduction commitments could be offered by some members while avoiding significant changes in support directed at specific sensitive products. The Chairman’s draft seeks to reduce this danger through an amendment (to Article 6.3) designed to ensure that AMS for individual products should not exceed the support actually provided on average in the years 1999-2001.

B.  Green box

37. Attachments 7 and 8 to the Chairman’s draft contain proposed amendments to Annex 2 of the Agreement on Agriculture which sets out the non-trade distorting policy measures which are not subject to any reduction commitments (“Green box”). The first attachment covers generally applicable amendments; the second outlines changes providing special and differential treatment for developing countries. The former is largely technical, introducing few, if any, new obligations of consequence.

38. Attachment 8 and amendments to Article 6.2 in Attachment 9 (see below) envisage substantive new provisions that, while falling short of the “Development Box” demanded by some developing countries, nevertheless reflect a number of the concerns expressed during the negotiations by developing country participants.

39. A new paragraph (6 bis) is proposed for Annex 2 dealing with “payments to maintain domestic production capacity of staple crops for food security purposes”. The new provision sets out eligibility criteria for such payments. A second additional paragraph to Annex 2 (6 ter) lists eligibility criteria for a further category of payments: “to small scale family farms for the purpose of maintaining rural viability and cultural heritage”.

40. Minor changes are made in the provisions of Annex 2 dealing with government financial participation in income insurance and income safety-net programmes (para.7); payments for relief from natural disasters (para.8); structural adjustment assistance provided through resource retirement programmes (para.10) and payments under regional assistance programmes (para.13).

C. Agricultural and rural development

41. Article 6.2 of the Agreement on Agriculture excluded from reduction commitments certain measures of government assistance aimed at encouraging rural and agricultural development in developing countries. Such measures included generally available investment subsidies, agricultural input subsidies for low-income and resource-poor producers, and domestic support to encourage diversification from illicit narcotic crops. The Chairman’s draft proposes to enhance these provisions.

42. A list of additional measures to be covered by Article 6.2 includes: subsidies for concessional loans and the establishment of credit cooperatives; transportation subsidies for agricultural products and farm inputs in remote areas; on-farm employment subsidies for families of low-income and resource-poor producers; government assistance for conservation measures; marketing support and quality, health and safety compliance programmes; competitiveness-enhancing capacity building measures; government assistance to agricultural cooperatives; and government assistance for agricultural income risk management.

D. Blue box

43. The Chairman’s draft proposes that payments in the “Blue box”-direct payments under production-limiting programmes that may be trade distorting, but which were excluded from reduction commitments in the Uruguay Round-be cut by 50 per cent over five years. Those developing countries using such payments would cut by 33 per cent over ten years.

44. In fact there are currently only six users of the Blue box, none of them developing countries. [Note 6]

E. De minimis limits

45. Article 6.4 of the Agreement on Agriculture excluded from reduction commitments domestic support at “de minimis” levels. “Product-specific” support was excluded where that support did not exceed five per cent of the member’s total production of the product during the relevant year. “Non-product-specific” support was excluded where such support does not exceed five per cent of the value of the member’s total agricultural production. The de minimis level for developing countries was set at ten per cent in each case.

46. The Chairman’s draft proposes that the five per cent de minimis levels in Article 6.4 be reduced annually by 0.5 per cent over five years bringing it to 2.5 per cent. The ten per cent level for developing countries would be maintained.

V. Recently Acceded Members

47. The Chairman’s draft suggests that recently acceded members be given the flexibility to begin implementing the new commitments on tariffs, tariff quotas, export subsidies and domestic support after-perhaps two years after-they have fully implemented their accession commitments.

VI. Other Groups

48. Participants should give further consideration to proposals calling for additional flexibility for small-island developing states, vulnerable developing countries and transition economies.

VII. Reactions to the Chairman’s Draft

49. An advance copy of the Chairman’s draft was issued on 12 February 2003, just before the “mini-ministerial” meeting held in Tokyo 14-16 February. This meeting gave the first occasion for members to pronounce themselves on the draft. The WTO Director General urged members to consider it as an appropriate basis for negotiations. However, the marked divisions between members became evident as the Chairman’s draft was harshly criticised from all sides and was not accepted as the starting point for negotiations. Instead, it was agreed that the Chairman’s draft was a “catalyst” for further discussions, meaning it would not be the reference point for the negotiations. While the agriculture liberalisers claimed it was not ambitious enough, being bland in improving market access and being too slow in phasing out export subsidies, other members, such as EU, Japan, Korea and Switzerland, considered it unbalanced, with the EU in particular voicing the draft’s failure to address non-trade concerns. Some members, like Canada, could not go along with disciplines imposed on state trading enterprises. As differences are as sharp as ever, and are unlikely to be resolved by end-March, some are suggesting “technical issues” (such as reduction commitments and time periods) in the Chairman’s draft could be left to be resolved at Cancún, without compromising the Doha mandate.