Nov 12, 1990

EC AGRICULTURE OFFER UNLIKELY TO UNBLOCKED NEGOTIATIONS

GENEVA, NOVEMBER 8 (BY CHAKRAVARTHI RAGHAVAN) The European Community's "offers" on agriculture are unlikely to help unblocked the Uruguay Round negotiations in agriculture or other sectors, participants in the negotiations reported Thursday.

The GATT Director-General, Arthur Dunkel, began Thursday "green room" consultations, taking up agriculture and services, but apparently without making any real progress, participants said.

In other areas, like investment and intellectual property, where negotiating group chairmen have been holding consultations, the effect of the agriculture blockage is being reflected with some of the Latin American members taking a harder stand, they said.

In services, attempts to "dump" the chairman of the Group of Negotiations on Services, Amb. Felipe Jaramillo of Colombia and replace him with a senior Canadian official from the capital did not succeed and Jaramillo is due to resume consultations on sectoral annexes and the framework.

The U.S., EEC and others had wanted Jaramillo to be replaced, blaming him for lack of leadership in pushing an agreement. "It is like medieval days when the messenger with bad news is executed", one observer noted, pointing out that apart from the differences between ICs and Third World countries there are serious substantive differences between the U.S. and EC holding up progress and for which the chairman could not be blamed.

Some participants viewed the current negotiations and green room consultations as essentially one of going through the motions, with some major participants like the U.S. merely trying to make sure that others get the blame for the failure of the round and they themselves are not accused of "walking-out" and "wrecking it".

There are indications that, apart from agriculture, the Bush administration is realising that it would unable to sell to Congress any package that seems likely to emerge in other areas, and in the face of this may be looking for ways to pin the blame on the Europeans, by encouraging some in the Cairns Group to walk-out.

In Washington, the Bush administration is reportedly engaged in its own assessment of the likely outcome.

Next week the U.S. President and EC Presidency, currently held by Italian Prime Minister Andreotti, are due to hold their six-monthly high political level consultations in Washington and the Uruguay Round is bound to figure high on the agenda.

There is a view among Europeans that the President Bush has soon (this weekend) to make some choices: whether he can afford a break with Europe and risk a trade war, at the same time that he is striving hard to keep together the coalition against Iraq for a possible Gulf war, and if he finds he cannot risk a "trade war", whether he could reach some accommodation with the EC.

Complicating factors in this situation might be the personal pique of the U.S. Cabinet officials like Mrs Carla Hills and Clayton Yeutter, who have oversold the Round but are unable to deliver.

The Europeans seem to feel that if the U.S. and EC agree they could not avoid a trade war, they could still reach a compromise and "persuade" others to fall in line.

Such a compromise would in reality be a market-sharing arrangement in some agricultural products, perhaps with a few crumbs for some of the Cairns Group members.

But whether this could be forced-down on others and whether the EC and U.S. could also force down on the Third World countries, as part of a package agreements in areas where they have a common position against the South - on intellectual property, investment, services, and the "rules" (like enabling them to make increased use of anti-dumping and other concepts to hit imports) are unclear.

Though both the G15 and the informal GATT group of Third World countries have said such a deal would not be acceptable to them, the Europeans seem to think that if the U.S. and EC act together, they have enough leverage to force such a compromise on others.

The U.S. and EEC now seem reconciled that the Brussels meeting could not wrap up everything, and that negotiations would have to continue in several areas after that, even to draw up agreements on which Ministers could agree.

But there are question marks about the nature of the Brussels meeting. Options being mentioned range from whether it will be Ministerial or merely of senior officials, a brief Ministerial to provide some political guidance but continue negotiations, or "concluding" with a "modest" package and pushing everything on to a new GATT work programme including the "multilateral trade organisation" idea to encompass the old and new themes in the Round.

In the green room consultations thursday, the U.S. and members of the Cairns Group reportedly reacted coolly but cautiously to be the EC "offers", with participants "probing" the EC both for its "flexibility" in negotiations and seeking clarifications.

The EC negotiators are reported to have noted the considerable difficulties they had faced in clearing even this offer through their Council of Ministers and suggested that the EC negotiators could not be expected to show any flexibility, and if there was any it could be found only at the Brussels Ministerial meeting.

In this situation, there was no attempt to "negotiate", but the issues were sent back to the negotiating group on agriculture in an effort to see whether the technical problems and modalities could be resolved.

The negotiating group was due to resume friday, after a brief meeting on what "technical" issues and "modalities" would be taken up - with the EEC wanting issues like Aggregate Measure of Support (AMS) and "green" measures (those support measures that would be permitted) to be taken up, while Argentina and others wanted to discuss issues relating to market access and export subsidies.

Argentina and others made clear too that they could not go on "discussing" until they reached Brussels, and that the discussion on all the technical issues and modalities (in terms of domestic support, border protection measures and export subsidies) would have to be completed by November 15.

In their Ministerial statement of November 5, the Cairns Group Ministers had said they would review the situation and take a decision on the "format" of the Brussels meet, in the light of the positions of EC, Europeans and others on agriculture.

The EC offer, with the modifications effected by the EE Council of Ministers on the Commission's proposals, and the "lists" of various products and support provided and offers were being studied thursday by the various delegations.

On some interpretations, both the provision for "rebalancing" (the reduction of imports levies on some items like maize, etc., being set off by increased support and levies, through tariff quotas, on others) and the currency factor adjustments could result in increase of border protection.

Brazil has already pointed out that the EC rebalancing with tariff quotas on imports of oilseeds and corn gluten feed would result in a billion dollar annual reduction of Brazilian exports.

While it has reiterated its proposal to cut the AMS by 30 percent, this is in relation to its "lists", and could in fact turn out to be much less in some areas. In the case of wine it would appear to involve actually an increase over 1990, though below 1986.

The Commission's proposals had envisaged that border protection measures should be converted into tariff equivalents, with the 30 percent cut applied to those replacing the variable levies, and 10 percent in other products.

The "offer" omits all these percentages, and now merely says that the reduction of support offered by the EC would provide for reduction of border protection, and to make it more effective, the EC would be prepared to transform border protection measures which are not normal tariff duties into tariff equivalents under conditions, and that reductions would be made once a year by an absolute amount reflecting the incidence of the AMS reduction.

The tariff equivalents are to be on fixed components based on averaging "representative" world market price and community support price increased by 10%, as also a corrective factor for currency fluctuation according to a formula spelt out. The ECU/$ exchange rate is taken as 1.0991 while it is currently about 1.38.

In its rebalancing concept, integral to tariffication, the EC will introduce tariff quotas for imports of a number of products including oil-seeds, non-grain feed ingredients like corn gluten feed, manioca, beet pulp, etc. Some of these now enter the EC at zero tariffs, but would be now subject to tariff quotas.

The Commission's proposal for an annual increase in these quotas has now been dropped.

The EC offer has also nothing specific about export subsidies, and merely talks of its proposed reduction of support and protection leading to a "considerable reduction of export subsidies in global expenditures as well as in unit terms on the assumption that world market prices remain stable".

Apart from this vague hope, the EC "offer" in effect calls for some increased "disciplines", including the question of "equitable" market share in Art. XVI of GATT.

Art XVI: B.3 merely calls on CPs to "avoid" use of subsidies on exports of primary products, and not to use such subsidy in a manner resulting in the concerned CP "having more than an equitable share of world export trade" in that product.

The "discipline" involving agreements on "equitable" share would mean no more than market sharing arrangements, with existing market shares frozen assured against new competitions.