Resolving the conflict leading to the collapse of the Doha round

Robert Baldwin 25 September 2008

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In view of the stop-and-start history of the Doha Round since its beginning in 2001, the collapse of the WTO ministerial meeting at the end of July was not particularly surprising to most economists. However, the specific reason for the breakdown was – disagreement over the extent of an increase in imports that would trigger special increases in import duties on the agricultural products of developing countries and the size of the permitted tariff response.

In this column, I briefly review the changing nature of the negotiations on the special safeguards issue. I then argue that a fundamental reason for the breakdown in the negotiations is the flawed nature of the trigger mechanism for temporarily increasing tariffs that is set forth in the special safeguard measure under negotiation. A simple alternative could solve the problem.

The emergence of special safeguards as a key negotiating issue

There was little indication at the outset of the Doha Round that agricultural safeguards would become a “make or break” issue for the negotiations. The Work Program set forth in the Doha Ministerial Declaration commits WTO members to providing special and differential treatment with regards to agricultural products for developing countries. It does not specifically mention a special agricultural safeguard measure for these countries

From the talk’s outset in 2001, however, a number of developing countries proposed such a measure. India, for example, proposed in January 2001 that a special agricultural safeguards measure be available to developing countries “… in the event of a surge of imports or a decline in prices and to secure the food and livelihood security of their people”.1 These countries argued that because of the unorganised nature of family farming in developing countries, their low level of legal and institutional capability, and the length of time it takes to invoke the provisions of such measures, surges in imports cannot be handled adequately by utilising the standard safeguard provisions of the GATT/WTO (these require proof of injury or threat of injury before tariffs can be imposed).

The US and the EU were among other countries submitting agricultural proposals around this time. The US proposal did not mention the special safeguard issue; the EU only proposed continuing the measure adopted during the Uruguay Round.2 Various reports in subsequent years by the chairperson of the relevant negotiating committee continued to mention proposals for a new agricultural safeguard mechanism for developing countries. It was only with the declaration issued by Ministers after the Hong Kong ministerial conference in December 2005 that members formally agreed that such a special mechanism covering both quantity and price triggers should be part of the final deal. Moreover, not until 2006 was there a draft proposal by the chairperson of the Agricultural Committee that included specific conditions concerning when additional duties could be imposed and by how much they might be raised.

Devil in the detail

At a high level of generality, it is hard to object to idea of a special safeguard mechanism. However, in trade agreements the devil is in the detail. On one hand an overly restrictive mechanism could delay or prevent action when needed. In the chairman’s draft, the quantity trigger for imposing additional import duties is the absolute increase in imports relative to the average volume of imports over the recent past. However, there was disagreement among WTO members over:

  • The amount imports must increase before additional protection would be permitted;
  • The amount tariffs could be increased; and
  • How long they could be maintained.

Unfortunately, neither the compromises embodied in the later proposals from the chairperson nor those subsequently proposed by WTO Director-General Pascal Lamy were sufficient to form the basis of an agreement on the issue at the ministerial meeting held in Geneva in late July.3

All these proposals contained the same quantity trigger mechanism as in the chairperson’s earlier proposal, but there was some progress. Differences over the volume of imports that would trigger the safeguard measure and on the size of the permitted remedy were narrowed considerably.4 One key matter turned on the issue of whether the tariff increases could exceed pre-Doha Round rates. Pascal Lamy, the WTO Director-General, proposed that developing countries be permitted to do so by up to 15% if the increase in imports of an agricultural product over a three-year moving average exceeded 40%. Furthermore, in any period pre-Doha round rates could be exceeded on no more than 2.5% of a country’s tariff lines.

India, China and various other developing countries rejected this proposal as unduly curtailing their ability to protect their poor farmers against import surges. They counter-proposed that: the permitted tariff increase could rise to 30% over pre-Doha Round bound rates on up to 7% of tariff lines.5

In rejecting these figures, the US and some developing-country farm exporters argued that they would not only subvert liberalisation in the current round of negotiations but would actually undermine the liberalisation gains in the last Round, the Uruguay Round deal struck in 1994.6

The flawed nature of the current trigger mechanism

An underlying cause of the disagreement among members is the inability of the current trigger mechanism to distinguish between import surges that do not threaten the livelihood conditions of developing country farmers and those that do. Unlike the trigger levels established in the special agricultural safeguard provisions negotiated in the Uruguay Round, which are “based on market access opportunities defined as imports as a percentage of the corresponding domestic consumption…”7, trigger levels for the special agricultural safeguard mechanism under negotiation in the Doha Round are expressed simply as percentage increases in the volume of imports over the preceding three years or percentage decreases in a product’s import price compared to its monthly average over the preceding three years.

But the effect of a given percentage increase in the volume of imports on the livelihood conditions of domestic farmers varies greatly depending on the level of import penetration. This is a matter of simple arithmetic.

If the initial import penetration ratio is 5%, a 20% increase in imports means the domestic supply of the product doesn’t change much. The supply on the domestic market (production minus exports plus imports) increases by only 1% (0.01 =0.05 *0.2). Even given the famously low elasticity of food demand, it is unlikely that a 1% shift in supply would affect food security, or the livelihood of poor farmers sufficiently to warrant a protectionist response. Yet in this situation, the proposal on the table when talks broke down in July 2008 would have permitted an increase of applied tariffs of up to 25%.

In contrast, if the initial import penetration were 50%, a 20% increase in imports would mean a 10% increase in the product’s supply (0.1=0.5 *0.2) or an increase that is quite likely to threaten the livelihood of poor farmers. Quite simply, the proposed mechanism failed to distinguish between such obviously different cases.

This oversight leads to unnecessary conflict. Ignoring the link between initial openness, import surges and the impact on domestic prices means that there is an ineluctable impasse. Quantitative triggers low enough to ensure protective action in cases of real threat would also let through tariffs increases in many situations where poor farmers’ livelihoods are not a risk. This put the US and India at loggerheads over the extent to which tariffs can be raised. The US is insisting that limits be placed on the extent to which pre-Doha Round protection levels can be exceeded. However, developing countries such as India believe that the limits proposed by the US will prevent some farmers from receiving the protection they deserve.

A proposal for an alternative trigger mechanism

A much better trigger mechanism that distinguishes between when developing countries do and do not need additional import protection to maintain food security and livelihood conditions of their poor farmers is simply the percentage increase in imports divided by the average consumption of the product over a recent period.8

Greater increases in import duties would be permitted with higher levels of this ratio above some minimum cut-off level. Analyses by member countries and the WTO Secretariat of the historical effects of increases in developing country agricultural imports as a percentage of the domestic consumption of a product would guide members in negotiating the minimum cut-off level and the permitted increases in protection.

With a measure that indicates changes in market access opportunities for farmers much more accurately than relative changes in the volume of imports alone, the issue of whether safeguard actions should be permitted to raise import duties above pre-Doha Round levels should no longer be of major concern.

The shame is that all parties now agree on the need for a special safeguard mechanism, and they broadly agree on what it should achieve. The particular formula they have chosen, however, is too blunt to distinguish between safeguarding fragile livelihoods and old-fashioned protectionism.

Footnotes

1 See World Trade Organisation, Document G/AG/NG/W/ 102, January 2001.

2 See World Trade Organisation Document G/AG.NG/W/15, June 2000 and World Trade Organisation, G/AG/NG/W/90, December 2000, respectively. This Uruguay Round measure covers the agricultural imports of both developing and developed countries that agreed in the Uruguay Round to convert quotas on agricultural imports into equivalent tariffs and then cut those tariffs. In temporarily increasing tariffs on these products in response to specified increases in imports or decreases in prices, countries do not have to show injury or threat of injury to an affected industry.

3 See remarks by WTO Director-General Pascal Lamy at conference on “Global Partnership for Development” in New Delhi, India on August 13, 2008.

4 See World Trade Organisation document TN/AG/W/Rev.3.

5 See WTO publication “An unofficial guide to agricultural safeguards”, corrected, 5 August 2008.

6 See July 30, 2008 Press Briefing by U.S. Trade Representative Susan Schwab.

7 Uruguay Round Agreement on Agriculture, Annex A Article 5 paragraph 4.

8 Since the special agricultural safeguards mechanism approved in the Uruguay Round takes account of both the percentage increase in imports and the level of import penetration, another satisfactory alternative to the quantity trigger mechanism embodied in current negotiating proposals would be some variation of the one in the Uruguay Round special agricultural agreement.

 

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Topics:  International trade

Tags:  WTO, Doha Round

Hilldale Professor of Economics, Emeritus, at the University of Wisconsin-Madison

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