Last month’s collapse of the world trade talks could jeopardize so-called `carve outs’ that would allow Caribbean countries to impose higher tariffs to protect their domestic markets.
Dr. Henry Jeffrey, Minister of Foreign Trade and International Co-operation on Monday updated the media on the recent World Trade Organisation (WTO) talks held in Geneva during the period July 21-30, 2008.
Negotiations to complete the Doha Development Agenda (DDA) had broken down and the Round put on hold for the time being.
Jeffrey noted that the talks were said to have foundered over the Special Safeguard Mechanism (SSM). The central argument for SSM is that developing countries should have a mechanism that would be operationally effective in responding to import surges and/or price depressions.
Several developing countries depend on a few commodities which have a very high price and volume volatility thereby supporting the need for an effective safeguard mechanism to ensure domestic food production and capacity.
It was recounted that for years, the major issues surrounding the SSM have been concerns, essentially by developed countries and competitive country exporters, about the extent to which it could restrict trade into several large developing countries’ markets e.g. India, Brazil, Indonesia etc. For that reason, efforts have been made to restrict the scope of the SSM in at least three ways: 1. By agreeing upon conditions which must be met (triggers) before the safeguard could be invoked. 2. By limiting the number/percentage of tariff lines that could be eligible for SSM treatment in any period. 3. By limiting the level of the remedies (additional tariffs) that could be imposed based on some base level of imports (volumes or prices).
Jeffrey said that from his understanding, the negotiations broke down essentially over the level of the trigger. It was noted that simply put, according to article 124 of the latest negotiating text, additional duties can be applied, depending on how much imports grew compared to the preceding three- year period. If imports increased by 10-15%, then an additional duty of up to 25% could be applied. An import increase of 15-35 percent could trigger a duty increase of up to 40% and even higher import surges would allow for up to 50% higher duties. However, the existing –pre Doha round bound rates would set the maximum limit for any tariff increase –with very limited exceptions. This, it was asserted, was one of the most controversial issues in the negotiation.
Jeffrey pointed out that accompanying Articles 134-136 state that LDCs would be allowed to increase pre Doha bound rates by up to 40%. Small and Vulnerable Economies (SVEs) – which include the Caribbean – could exceed pre-Doha rates by up to 20% but only for 10-15% of tariff lines at the same time. Other developing countries, such as India or China, would have a limited right to exceed pre-Doha rates- only by up to 15%, and only for 2-6 products at the same time.
Jeffrey continued that developed countries have always been suspicious that this mechanism could be used to restrict trade. “Now they generally contend that going beyond pre-Doha bound rates will be retrograde and should only occur in the most serious situation. They therefore contended that to go beyond bound rates, volume must increase 140% of base imports.
Developing countries (India and China in particular) have contended that by the time these volumes are reached, poor farmers will be out of business, starving or dead.”
Jeffrey said that the posture of Caricom in the negotiations was essentially defensive. “We are interested in SSM but I suspect that there would have been a carve out for SVEs that would have allowed them to go beyond pre Doha rates along the lines suggested in the text.” He warned that one of the issues that may well be put in jeopardy by the breakdown of the current negotiations are the many carve outs for SVEs which is a not a legally recognized group in the current framework.
“The Caribbean, and others, has been arguing for the recognition of SVEs for some time and our countries are prominent members of this group. Just as we are prominent members of the ACP group which deals with the problem of preference erosion that is a major concern of ours.”
While the negotiations are still to be stabilized, Jeffrey gave the latest positions in relation to the products of importance to the Caribbean: sugar, rice, bananas and rum.
Sugar
The proposal by the African, Caribbean and Pacific (ACP) group was for the use of a tiered formula implemented over 8 to 10 years plus 2 years with a grace period of four years. This formula will require a cut in European Commission tariffs of around 70%. Jeffrey said the latest information was that the EU had declared sugar to be a sensitive product thereby allowing it to depart from the tiered formula by two-thirds i.e. cutting the tariff only by one third.
In addition there appears to be an agreement that developed countries would be allowed to retain the Special Agricultural Safeguard for a further seven years thereby allowing the EU to defend its domestic prices and this could benefit Caricom sugar exporters.
Rice
Recalling that husked rice was placed on the tropical products list and Guyana and Suriname began a campaign to have it removed and placed on the preference list, Jeffrey said “We have been told that the EC will declare 2 rice lines as sensitive and if this is applied to husked rice, then a greater protection of our preferential margin will result”. He added that the formula cut would result in a tariff cut of 50% (from 65 Euros per tonne to 32.5 Euros per tonne) over a period of eight years with a grace period of two years.
Rum
After much quarrelling between the ACP and the Latins, Jeffrey said that two options were floated a tariff reduction of 65-70% over eight years with two years grace or an 80% reduction but over twelve years with four years grace. The ACP opted for the longer transition period to become more competitive but the Latins disagreed with both options and wanted the 80% cut over a shorter period. The ACP has declined this and that is where the matter rests.
Bananas
A deal between the EU and the Latins which did not have the support of the ACP collapsed with the derailing of the trade talks. The Latins may now seek a stand-alone agreement with the EU which could then have repercussions for ACP producers.
Jeffrey posited “it must be obvious…that unless the entire philosophy of world trade changes radically, the movement towards continuous liberalization, of which the current negotiations is but a stage, cannot simply end. The current world is set on a liberalizing path that may ‘pause’ but will certainly continue again, even if with a different emphasis.”
