Mar 13, 1989

SHADOW-BOXING IN TRADE CONSULTATIONS.

GENEVA MAR 9 (IFDA/CHAKRAVARTHI RAGHAVAN)ó Informal GATT consultations this week on the Uruguay round agriculture trade issues did not indicate any movement on part of the major protagonists, according to GATT sources.

The talks on agriculture the second in the post-Montreal series, are part of the consultations that GATT Director-General Arthur Dunkel, in his capacity as chairman of the official-level meetings of the Trade Negotiating Committee, has been conducting to resolve the deadlocks in the Uruguay round process.

The four subjects on which he had been mandated to hold consultations are textiles and clothing, safeguards, agriculture and Trade-Related Intellectual Property Rights (TRIPS).

One of the participants in this week's discussions said that the consultations did not result in any movement but was just repetition of past positions and "shadow-boxing".

Everyone is only marking time, and the discussions lack any sense of direction or urgency, one participant said.

He noted that the U.S. and EEC are holding bilateral talks on agriculture trade issues, and the Cairns Group is due to meet next week at Waipanangi in New Zealand, preceded by a meeting of the Latin American members of the Cairns Group at Buenos Aires.

Another participant said that at Montreal every one was treated, mostly via media and little in the green room consultations, to the U.S.-EEC differences as to whether the long-term commitment should be for "elimination" of all government support to agriculture or only to their "substantial reduction".

That media debate has now been eschewed by both sides, with the U.S. talking of "ratcheted-reductions" and not "elimination".

But the consultations were getting bagged down on whether there should be separate discussions and solutions to the problems of market access, domestic support and export subsidies, viewing each separately, or only together.

Arthur Dunkel is expected to travel to Buenos Aires next week to meet with the Latin American Cairns members and consult with them on his own ideas to resolve the deadlock in the Uruguay round.

He has had consultations in Brussels and Washington, and in Tokyo (when he went there last month for funeral of Emperor Hirohito) and on way backs also with Asian representatives at Bangkok and with India in New Delhi.

The "green room" consultations this week on agriculture reportedly discussed both long-term and short-term commitments based on the paper of the chairman of the negotiating group, Aart de Zheew of Netherlands. De Zheew's paper had been before the Montreal meeting of Ministers, who mandated the Geneva consultations on the basis of this text.

After the consultations, which ended Wednesday, very few participants were ready to discuss the details. But the unwillingness to discuss seemed more to do with lack of any progress than to some possible progress which no one wants to spoil through premature disclosure.

On long term issues and guidelines for reform, the U.S. and the Cairns Group appeared to favour discussion of what they see are three inter-connected issues: market access, domestic support, and export subsidies.

The European Community has been willing to discuss all the three issues together, but not separately.

The EEC position is that in respect of agricultural support it is committed to "significant, concerted reduction, which should be balanced".

Any long-term reform and commitments would also have to tackle the question of credits, (for reforms already undertaken), and deal with problems of net food importing countries whose food import bill would go up in a free market.

The EEC is opposed to the idea of "tarification" - converting all non-tariff barriers to tariffs - both to secure transparency and to enable liberalisation.

The EEC has also been opposed to an end to its dual price system (one for domestic market and the other for external) or gives up export restitution measures needed to maintain the dual price system. The EEC is also unwilling to elimination of export subsidies.

In the EEC view, tarification is also not technically feasible, since non-tariff measures like minimum import prices, export subsidies, voluntary export restraints, and standards, could not be transformed into tariffs. The U.S. contests this.

Also, in the U.S. view, export subsidies are not necessary to maintain the dual price system.

This type of U.S.-EEC shadow boxing appears to have left other participants, particularly the Cairns Group members, frustrated.

The EEC also talks of "disciplines" on export subsidies but not end to export subsidies - a distinction that others claim they are unable to comprehend.

Apart from these discussions among the exporters of Temperate Zone agricultural products or their substitutes, some of the major net-food importing countries have also presented their concerns.

In this view, any reform of agriculture and end to export subsidies would raise food prices, and would create short-term problems to food-importing third world countries, particularly by raising their import bill.

This would have to be addressed - by enabling them to earn more through removal of barriers to their exports, help from international financial institutions and the like - as part of the process of reform of agriculture trade.

Third world countries have also underscored the development dimension of agriculture.

The de Zheew paper has noted the concept of special and differential treatment to third world countries, which under the Punta del Este mandate is an integral element of the negotiations, and has recognised that government measures in these countries to encourage agricultural and rural development are an integral part of development programmes, and that such measures might involve direct or indirect government support.

While there is general recognition of this, solutions suggested vary, with the U.S. merely willing to provide a longer time-span for third world countries to comply, the Cairns Group coupling this with an exemption to general governmental support for agricultural infrastructure but not product specific.

Third world countries have generally supported in the negotiating groups the position and argument of India that in the third world, characteristics of agriculture are completely different. Governments have to play a leadership role in increasing production and productivity of agriculture.

Also, due to shortcomings of product and factor markets, governments have to intervene and provide support and these do not distort trade but only offsets the deficiencies of the market.

In this view, the third world countries have contended that reduction of tariffs and quantitative restrictions should be a voluntary process, and some differential treatment to the third world in respect of export competition, perhaps on the line of the subsidies code, would have to be envisaged.

On short-term elements of reform, where the concept of "freeze" has been talked about, the differences among major protagonists continue to be the same both on how to express the short-term commitments as well as the starting point.

In the past discussions, the EEC has called for freeze and reduction of commitments in terms of "aggregate measure of support". This position does not appear to have changed, but the EEC is willing that others could undertake "policy commitments".

Most other participants have said any commitments should be in terms of "policy", since these are specific, transparent, and more easily maintainable.

The EEC has said the starting point for reduction of AMS support should be base year 1984, but in other remarks appears to be willing to take 1986 (when the Uruguay round was launched) as the base year.

The Americans have rejected this, arguing that if 1984 is the base year, the EEC could in fact increase its current level of support by ten percent, and if 1986 be the base year by five percent.

The EEC for its part wants all support to be frozen or reduced in terms of budgetary outlays. It is not clear whether the EEC is meaning this term in terms of total budget outlays of direct assistance or in terms of per unit of output.

If former, it would provide the EEC considerable flexibility, within the total outlay, to shift support from one crop to another, depending on the world market prices.

The EEC idea of total budget outlay freeze is not favoured by the U.S., since the U.S. domestic support is based on the so-called loan scheme.

Under this, farmers put their harvests in storage and take loan at favourable rates related to a particular price. If the market goes up, they could sell the crop and get the difference between market and loan value. If the market price goes down, they forfeit their stocks for the loan, and the U.S. ends up with foodgrains, which it stores or sells for export.

Dunkel in his consultations appears to have suggested the idea of freeze in terms of status quo - not to reduce the terms of access (by worsening tariff or non-tariff barriers) or increase the support measures with reference to an agreed date. The Dunkel concept would also appear to mean that quantities imported in 1987 or 1988 should not be reduced.

While others, particularly the cairns group, appear to favour the Dunkel concept, the EEC does not agree with the status quo concept of freeze.

The EEC is also unwilling to commitments about increased import access or disciplines on export subsidies, as part of short-term reform or commitments. It favours actions only in terms of budgetary support. Other measures like import access and export subsidies, in the EEC view are covered by the Punta del Este standstill.

However, since the Punta mandate and standstill cover not only GATT rules, but also instruments negotiated in or under auspices of GATT. This would mean that all existing practices, including the EECís variable levy system or U.S. and others' restrictions under waivers, would be exempt.