1. The Chairman of the General Council and the Director-General are currently conducting consultations on four issues whose resolution is considered crucial to the efforts to get the Doha process back on track following the failure of the Cancun Ministerial Conference. Agriculture is one of these dossiers (along with non-agricultural market access, the Singapore issues and the cotton initiative). This note traces the course of the agriculture negotiations from the tabling of the revised draft of the negotiating modalities (TN/AG/W/1/Rev.1), in March 2003, to the present.

II. First Draft of Modalities for Further Commitments (Rev.1) [Note 1]

2. The contents of the two versions of the “First Draft” were described in earlier notes [Note 2]. These were the only comprehensive drafts tabled to date containing precise target figures and implementation periods for support and tariff reduction commitments, albeit in square brackets. The “framework” documents discussed in August and September had no such precision.

3. The content of Rev.1 was little different to that of the earlier version, tabled by the Chairman of the Agriculture Committee, Mr. Stuart Harbinson, in February. The Chairman reported that delegations had provided no basis for a more substantial revision. The reactions were little different also. For the US and the Cairns Group, Rev.1 was lacking in ambition. For the EU, Japan, Switzerland and others it went too far in certain respects, while leaving out important elements like the notion of “non-trade concerns”. For many developing countries the draft required too much of them in terms of reform, especially on market access liberalisation. They sought better-defined special and differential treatment. A number of participants refused to accept the document as a basis for further negotiations.

III. Loss of the 31 March Deadline

4. There was, therefore, little surprise that the 31 March 2003 deadline, set out in the Doha mandate, for agreeing the detailed modalities for agricultural negotiations was subsequently missed. In April, the Special Session of the Agriculture Committee agreed that its Chairman should pursue consultations on a series of technical issues while also continuing to seek consensus on the core modalities. From April to mid-June there were 11 informal technical and other sessions. While useful clarification was achieved in the technical areas, the lack of agreement on the broader negotiating modalities was unchanged.

IV. The EU’s CAP Reform Package

5. The EU Commission had launched efforts to secure a further package of CAP reform measures in 2002. The initiative formed part of the mid-term review of the six-year “Agenda 2000” reform and spending programme. In the spring of 2003, there emerged a view among many delegations that agreement on the Doha agricultural modalities would be heavily dependent on the outcome of the EU’s internal review of CAP reform. At the same time, the differences among EU member states made the chances of a timely result doubtful.

6. At the heart of the Commission proposals was a substantial change in the nature of domestic support for EU farmers: the de-linking of support payments from production. In essence, farmers would henceforth receive a single direct payment at a level unrelated to how much they produced. Overall, spending would remain substantial, ceilings on CAP expenditure covering the period up to 2013 having already been agreed at the political level. Those ceilings would also serve to accommodate farm support spending for the 10 new members of the European Union from 2004. At the same time, partly by progressively reducing decoupled direct payments to large farms from 2005, the Commission sought to fund other forms of spending. These include strengthening rural development, supporting animal welfare measures and helping farmers meet higher standards of product quality, environmental protection and human, animal and plant health.

7. EU farm ministers reached agreement on a reform package on 26 June 2003. The original proposals were significantly amended with only partial de-linkage and considerable delays in the introduction of single farm payments for some commodities. Member states were left with some discretion on the timing or the extent to which they introduce single farm payments. Four important commodities—sugar, olive oil, tobacco and cotton—were not included in the June package but options for reform have now been tabled by the Commission and are under consideration.

8. At the 1 July meeting of the Agriculture Committee, the chairman described the EU package as “timely and welcome” with the potential “to give some impetus to our negotiations”. The US and the Cairns Group called on Brussels quickly to amend its position on agriculture in the Doha process and to indicate how much further it could now go on specific reform commitments. The EU itself, on the other hand, indicated that it would not make new concessions without others doing the same: in particular, it called on the US to re-think the 2002 Farm Act and also suggested that its demands on geographical indications and issues like animal welfare be taken more seriously. In practice, the question of a revised position from the EU quickly became academic as the ambitions for detailed agreement on modalities at Cancun were abandoned.

V. The July TNC Hears a Troubling Report

9. Reporting to the 14-15 July 2003 meeting of the Trade Negotiations Committee (TNC), the Chairman of the Agriculture Committee noted that while progress had been made on technical, rule-related issues, “achieving the objective of establishing modalities as soon as possible has continued to remain elusive”. He set out a detailed list of issues on which positions differed. These included all the major points of substance relating to reduction commitments proposed in Rev.1 as well remaining technical points concerning the various attachments to that document (on tariff rate quota administration; state trading import enterprises; export credits; food aid, etc).

10. This was to be the final meeting of the Trade Negotiations Committee prior to the Cancun Ministerial Conference. Subsequently, the preparatory process was transferred fully to the General Council with the Chairman of the Council, Ambassador Carlos Perez del Castillo, and the Director-General conducting consultations and reporting regularly to the Heads of Delegations.

VI. New Consultative Process for Cancun

11. The Chairman of the Council had, in fact, already circulated, on 15 July, a draft framework for a Cancun ministerial declaration. This envisaged an annex containing the agriculture negotiating modalities but made no attempt to spell out details. This and other annexes would be “fleshed out” in the ongoing consultations. Informally, however, the US and the EU began signalling, during the 24-25 July General Council meetings, that there was a possibility that the Cancun meeting would not be asked to agree specific target figures or formulae for reduction commitments in agriculture and in non-agricultural market access. Officials spoke rather of agreement on a range of numbers or even simply drafting that narrowed the possibilities. This more limited approach quickly became a generally accepted assumption among WTO members and was recognised by the Chairman of the Council.

12. At the same General Council meeting, Kenya, Uganda and Tanzania introduced a proposal reflecting the need to address the long-term decline in primary commodities prices. The paper (WT/GC/W/508) proposed work programmes in a number of WTO committees in cooperation with other relevant international bodies.

13. At the 18 July meeting of the Committee on Agriculture, the co-called “cotton initiative” was pushed a stage further as Benin, one of four West and Central African states to table the initiative, presented further details on the proposed financial compensation to be paid to least-developed countries (LDCs) while subsidies were phased out worldwide. This initiative had been presented at the highest level by the President of Burkina Faso at the meeting of the TNC of 10 June 2003 as a joint proposal by his country and Benin, Chad and Mali on Poverty Reduction: Sectoral Initiative in Favour of Cotton [Note 3].

VII. Mini-Ministerial in Montreal and the Joint EC-US Proposal

14. On 28-30 July, ministers from some 25 countries met informally in Montreal. The principal result was an undertaking by the United States and European Union to seek a resolution of their differences on agriculture and to table a joint proposal in Geneva. One objective was to find a compromise on market access which officials described as some form of “blended formula”, taking account of the various favoured approaches.

15. Unexpectedly, Washington and Brussels succeeded in finding an accommodation—though, for some observers, it was an accommodation that would be the harbinger of failure in Cancun. The joint text was presented in Geneva on 13 August 200 [Note 4]. It contained almost no specific figures or timeframes and was presented as a “framework” whose detail could be settled after the ministerial session. It proposed significant compromises on each of the “three pillars” of reduction commitments.

16. On market access, the EC-US ideas diverged significantly from Rev.1 in which a banded structure of tariff reductions (dependent on the levels of existing bound duties) was coupled with differing targets for developed and developing countries. Instead, three approaches would be possible. A percentage of tariff lines would be reduced using the Uruguay Round approach of a simple average tariff cut. These would be “import-sensitive tariff lines” where increases in market access would be achieved both through tariff reductions and tariff quotas. Another percentage of tariff lines would see a “Swiss formula” applied, signifying bigger reductions on high tariffs than on low. Third, another percentage of tariff lines would be duty-free. Tariff lines with duties above a certain percentage would have to be reduced to that maximum or additional market access provided. Special and differential treatment was signalled in the form of lower reduction requirements and longer implementation periods, although no mechanism for achieving that objective was put forward. A special safeguard mechanism would be established for use by developing countries with respect to import-sensitive tariff lines.

17. On export subsidies, the joint text envisaged elimination over a specified period for “products of particular interest to developing countries”. For other products there would be merely a commitment to “reduce budgetary and quantity allowances”. This contrasted with the Rev.1 proposals in which all export subsidies would be eliminated over a maximum of nine years. The EC-US paper also introduced the notion of parallelism between reduced export subsidies and proportionate reductions in “trade-distorting elements” in export credit arrangements. Rev.1 had included a detailed series of new disciplines on export credits, but no parallelism with reduced export subsidies.

18. On domestic support, the paper called for reductions in “the most trade-distorting” support measures within a percentage range. It proposed that all developed members “achieve reductions in trade distorting support significantly larger than in the Uruguay Round” with those having the higher trade distorting subsidies “making the greater effort”. This was seen as a reflection of political concern in the US that the EU be seen to bring its allowable amber/blue box support down closer to the Uruguay Round ceiling applying to the US. However, given the large potential transfer of domestic support into the green box under the CAP reform package, it may be a comfortable objective to meet.

19. In its more detailed provisions, the proposal left in place the blue box of “less trade distorting domestic support” but capped it with a limit of 5% of domestic production at the end of the implementation period. Rev.1 envisaged capping blue box payments at the most recent notified levels and then reducing them by 50% over five years. However, the EC-US plan proposed reducing the sum of amber box, blue box and de minimis payments (reduced by an agreed percentage) to a level “significantly less” that the sum of de minimis and blue box payments and final bound Uruguay Round AMS commitments, in 2004. No special and differential treatment terms were included. No adjustments were signalled for the green box.

20. The paper failed to resolve other key issues like the future of the “peace clause”, non-trade concerns, sectoral initiatives and geographical indications, which it left indicated at the end as “issues of interest but not agreed”. In addition, it stated that the rules and disciplines for special and differential treatment “will need to be adjusted for significant net food exporting countries”.

VIII. Reactions to the EC-US Paper and the G-20 Proposal

21. The EC-US text was discussed at a series of informal heads of delegation meetings on 13 and 14 August 2003 and again in a series of sessions between 18 and 21 August 2003. Some participants saw the proposal as lacking ambition. Indeed, a common criticism informally was that the plan appeared to be designed to provide cover for the status quo in farm support policies in the US and EU. Other participants saw the market access proposals, in particular, as too demanding. Many developing countries criticised the lack of detailed provisions on special and differential treatment and leaving issues of interest to them, such as the elimination of peace clause, non-trade concerns and sectoral initiatives to the academic “issues of interest” status.

22. Nevertheless, the Chairman said that the joint text had had a “galvanizing effect” on the negotiations. Certainly, it inspired several other proposals tabled in the mid-August period, all of which followed the EC-US framework. And the Rev.1 of the Draft Ministerial Text closely mirrored much of the language of the EC-US paper.

23. The comprehensive alternative proposal tabled by a group of developing Cairns Group members and other developing countries—that became known later as the “G-20”—created particular attention.

24. On market access, the G-20 plan spelled out substantially different reduction commitments for developed and developing countries. For the former, the same blended set of reduction vehicles was included but an obligation to reduce tariff escalation was added to the Uruguay Round tariff cut approach. A tariff ceiling was introduced for developed members who were also to be required to expand tariff rate quotas and reduce in-quota tariffs to zero. Developing countries would only have to reduce tariffs under the Uruguay Round approach; there would be no Swiss formula reduction requirement or any commitment to improve access through tariff quotas.  Longer implementation periods would be applied to developing countries, which would also be able to nominate Special Products (as in Rev.1). A special safeguard mechanism would be negotiated for developing countries.

25. The G-20 approach on domestic support effectively applied only to developed countries. It required trade-distorting domestic support to be reduced on a product-specific basis. Higher levels of reductions would be required on products currently subject to above-average support and an initial minimum cut would be required within the first twelve months of implementation. The blue box would be eliminated under the G-20 proposal and the sum of de minimis and amber box (AMS) support reduced by a minimum percentage. Green box payments would be capped and/or reduced.

26. Commitments on export subsidies, in the G-20 paper, were close to those in Rev.1; envisaging elimination in two stages, the first of which would cover products of particular export interest to developing countries. Disciplines on export credit guarantee and insurance programmes were envisaged as were rules on food aid operations. Additionally, the proposal called for preference erosion to be addressed as well as the concerns of newly acceded members and least-developed countries.

IX. Other Proposals Follow Quickly

27. The G-20 was the sole comprehensive alternative tabled to the EC-US joint text, but many delegations came forward with more limited proposals, largely taking the Washington-Brussels ideas as their starting point.

28. For instance, the Dominican Republic, Honduras, Nicaragua and Panama tabled a paper dealing only with special and differential treatment and market access. While taking the blended approach to tariff reductions, the group focused particularly on tariff escalation; suggesting a precise formula be adopted that would impose a greater duty reduction on a processed product if the existing duty is higher than that for the unprocessed product. The proposal also drew from Rev.1 in providing for the expansion of Article 6.2 of the Agreement on Agriculture, which exempts from reduction commitments subsidies for rural development and diversification from illicit drug crops in developing countries. Kenya tabled a proposal setting out principles for special and differential treatment in some respects reflecting those in the G-20 paper.

29. Industrial countries that tend to be defensive in the agricultural negotiations also tabled alternatives to the EC-US joint text. Japan stressed non-trade concerns but suggested it would be flexible with respect to domestic support depending on the outcome on market access. It could live with the blended approach to tariff reductions on condition that it ensured an “equivalent” outcome to the Uruguay Round result. It also called for the strengthening of rules on export restrictions and taxes.

30. Bulgaria, Chinese Taipei, Iceland, Korea, Liechtenstein and Switzerland [Note 5] could accept the blended approach so long as the Uruguay Round approach was the rule and harmonization the exception. The group wanted no tariff quota expansion commitment, no capping of tariffs and the continuation of a special safeguard mechanism. It asserted that its domestic support programmes had little impact on world markets and, therefore, that the blue box should be maintained and the green box criteria left unchanged.

31. Norway [Note 6] came up with a simple formula for reducing domestic support. It proposed that the sum of amber and blue box support be cut in an agreed percentage range but with export oriented products taking a higher level of reduction than products for domestic consumption. Norway supported the proposals of the G-20 for special and differential treatment in this area. It also agreed with the G-20 that developing countries should be allowed to use the Uruguay Round approach to tariff reduction commitments: Norway could accept the blended approach for developed countries so long it allowed for sufficient flexibility to deal with sensitive products and the special safeguard mechanism was retained.

32. The newly acceded countries on their part also presented proposals on agriculture to take account of their special circumstances. Albania, Croatia, Georgia, Jordan, Moldova and Oman [Note 7] proposed exempting low duties from reduction commitments, providing for lower tariff reductions and longer implementation periods for new commitments. China [Note 8] also presented ideas aimed at ensuring newly-acceded countries would have additional flexibility in offering further market access commitments, over and above those conceded in joining the WTO.

X. Council Chairman Tries His Hand at a New Draft for Cancun

33. On 24 August, the Chairman of the Council presented a consolidated Draft Cancun Ministerial Text [Note 9] which contained a fully worked framework for establishing modalities in agriculture.

34. With respect to domestic support commitments, the Chairman stayed relatively close to the EC-US joint paper. He did not include “product-specific” reductions as proposed by the G-20. He also rejected the G-20 proposal to cap or reduce green box direct payments. While the blue box provisions were also close to the ideas of Washington and Brussels, the Chairman added a requirement for a continuing annual percentage reduction in blue box limits. He excluded developing countries from reducing their de minimis limits and envisaged additional special and differential treatment in the form of lower reductions on trade distorting support.  He envisaged additional benefits in the context of Article 6.2 of the Agreement on Agriculture and through the Green box.

35. On market access, the Chairman retained the EC-US blended approach for tariff reductions by developed countries. He called for tariff escalation to be “effectively addressed” without putting forward any modality. The use and duration of the special agricultural safeguard, as it affects developed members, was left subject to negotiations.

36. Developing countries would enjoy special and differential treatment on market access, in part through lower tariff reductions and longer implementations periods. Two alternative approaches were put forward. The first would consist only of average tariff cuts (and minimum reductions) applied to three different groups of tariff lines. The first group would be “import-sensitive” products and might include the designation of Special Products (SP) to be subject to minimal cuts and no new tariff quota commitment. The alternative approach would subject the second and third groups of tariff lines to Swiss formula reductions rather than linear cuts. A special agricultural safeguard would be established for developing countries. The Chairman’s paper retained the EC-US formulation of a commitment by developed countries to provide duty-free access for a percentage of imports from developing countries. He called for participants to “take account” of the importance of preferential access; again the approach taken in the EC-US joint proposal.

37. On export competition, the Chairman retained the two categories used in both the EC-US and G-20 papers. Thus, export subsidies on “products of particular interest” to developing countries would be eliminated over an agreed period. For the remaining products, the Chairman’s paper reverted to Doha Declaration language: envisaging reductions in budgetary and quantity allowances “with a view to phasing out”. An end date for phasing out all forms of export subsidies was to remain under negotiation. Parallelism was retained between export subsidy reductions and the elimination or reduction of the trade-distorting elements of export credits. The same approach would apply to the activities of export state trading enterprises. The paper also called for negotiations on strengthening rules on export prohibitions and restrictions.

38. Among elements of special and differential treatment for export competition, the Chairman noted that in the context of new disciplines on export credits appropriate provisions should be made for least-developed countries and net food-importing developing countries.

39. In general, least-developed countries were exempt from all reduction commitments. The Chairman noted a list of additional issues, including the future of the “peace clause”, would need to be addressed in the ongoing work on modalities.

XI. Cancun: Agriculture Never Gets to the Negotiating Table

40. The Council Chairman’s text was inevitably attacked on all sides during meetings of the heads of delegations and General Council on 25 and 26 August. For G-20 and developed Cairns Group members, the text did not go far enough in assuring the elimination of export subsidies. The EU and US were unhappy that the text sought annual linear reductions in the blue box limits: others thought the blue box terms did not go far enough. Some delegations thought developing countries got off too lightly on market access commitments. Despite the criticism, the Chairman refused to make further amendments and the text was duly transmitted to ministers.

41. In the event, the treatment of agriculture at the Cancun Ministerial Meeting was very limited. Early on, George Yeo, Hong Kong’s Minister for Trade and Industry, was appointed one of five facilitators to assist Conference Chairman Luis Ernesto Derbez, Foreign Minister of Mexico. Yeo was given responsibility for leading initial consultations on agriculture. The talks were conducted on several different levels but never reached the point of hard bargaining between the main players. In part this was because the Conference failed prematurely on the issue of the Singapore issues before agriculture was taken up seriously in the “Green Room” process.

XII. Conference Chairman Produces a New Draft

42. The ministerial session did, however, produce a new draft framework for establishing agricultural modalities. This came in a comprehensive revision of the Draft Cancun Ministerial Text issued on 13 September by Chairman Derbez [Note 10] (DMT Rev.2), also referred to as Derbez Text.

43. Terms for reductions in domestic support by developed countries were refined in the DMT Rev.2 to include a provision to cap product-specific AMS. Conditions for blue box payments were unchanged from the 24 August text. Reductions based on the sum of AMS, blue box and de minimis payments were subject, additionally, to an initial minimum cut in the first year of implementation. Green box criteria were to be reviewed to ensure measures included had no, “or at most minimal” trade distorting effects or effects on production.

44. While maintaining the same blended approach to market access commitments for developed countries, the DMT Rev.2 introduced the concept of a minimum simple average tariff reduction for all agricultural products. It also introduced, in square brackets, additional flexibility for “a very limited number of products to be designated on the basis of non-trade concerns”. These high-tariff products would not be subject to the commitment to bring duties down to a specified maximum or to provide additional market access—they would, however, be subject to the blended formula.

45. Chairman Derbez adopted the G-20 formula for dealing with tariff escalation as well as the group’s proposal for a minimum in-quota tariff cut. Special and differential treatment on market access was provided in a blended approach closer in structure to that for developed countries, with explicit recognition of the importance of tariffs as a source of revenue, and with a clearer allowance for a longer implementation period. Consideration of the treatment of preferences was to be based on provisions proposed in paragraph 16 of Rev.1.

46. The text on export competition was unchanged in substance. However, rather than seek to list the export products of particular interest to developing countries (those subject to export subsidy elimination) in the current framework, a list was to be developed later for the tabling of schedules.

47. Perhaps the most significant change in the new text was the inclusion of a provision to extend the peace clause by an agreed period of months.

48. Outside the agricultural framework, after intensive consultations by the Director-General in Cancun, a text was inserted into the Ministerial Declaration covering the cotton initiative. The text, which many developing countries saw as USTR-drafted, recognised the urgent need for action to address not only the effects of subsidies but also the trade distortions in the cotton markets for the whole sector. It required various Doha negotiating groups to consider man-made fibres and textiles and clothing. Further, it called on the Director-General to consult with relevant international organisations to direct resources towards diversification in economies where cotton accounts for a major share of GDP.

XIII. Back to Geneva

49. The agricultural text in DMT Rev.2 or Derbez Text was never tested in Cancun although the G-20 was floating its own amended proposal in the corridors shortly after the Chairman’s text was released. There are many views as to what might have happened if real negotiations had been engaged. Some suggest compromise was close; others that the fundamental divisions that divide the Cairns Group and the G-20 from the joint text of the US and EU, as well as from the developing and other members taking a defensive position on agriculture, were as deep as ever.

50. In any event, the focus is now in Geneva as the Chairman of the Council continues his consultations during the lead-up to a General Council session of senior officials by 15 December. A considerable number of participants have suggested that the DMT Rev.2 should be the basis of continuing work: ministers at the recent Asia–Pacific Economic Cooperation Summit (APEC Summit) did so, as did a group of African ministers meeting in Cairo. India among others has taken a different view, as has the European Union while it continues an internal review of its negotiating position across the board.

51. Several elements seem key to resolving the current impasse. One will be the extent to which the US, in particular, can accept commitments that require substantial change to its domestic farm support programmes. A second will be whether the European Union can buy in to provisions that set out a clear commitment to the eventual phasing out of all export subsidies. Finally, it is evident that to accept any such commitments both Washington and Brussels will expect developing countries—at least, the more advanced among them—to take on meaningful commitments on market access. Additionally, some adequate response will have to be found—whether within or outside the agricultural negotiations—to the cotton initiative. However, the EU has stated that no result on cotton would be possible outside the general negotiations on agriculture. These were very much the issues identified by the Council Chairman in his report to the informal heads of delegation meeting on 18 November 2003.

52. At the beginning of the Chairman’s second round of consultations, on November 20, the G-20 tabled its compromise agricultural draft that had been informally floated, but never discussed by ministers collectively, in Cancun. The proposal sought a lower cap on blue box payments (2.5 per cent instead of the 5 per cent proposed in the DMT Rev.2) and tougher disciplines on green box coverage. It also sought to keep product-specific AMS reductions on the table. With respect to market access, the G-20 favours modifying the “blended approach” for tariff cuts of the DMT Rev. 2 and instead proposes to move back to the Uruguay Round-only approach for developing countries, as used by the Chairman of the Council in his August 24 draft declaration. On export subsidies, the G-20 wants a commitment to negotiate a clear end date for complete elimination.

53. However, it should be kept in mind that even if the framework text can be completed in the coming months, it is just that, a framework. The modalities for agricultural negotiations will only be truly complete when precise figures for the reduction commitments and clear implementation dates are added in. That will be no quick or easy undertaking. Even then, the tabling of draft schedules and the negotiations to follow will take many months. This does not augur well for the reiterated hope that negotiations will be finished by 1 January 2005, the deadline agreed on at Doha.