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Building on the July Framework Agreement: Advice and Cautions

Building on the July Framework Agreement: Advice and Cautions. International Food & Agricultural Trade Policy Council www.agritrade.org International Agricultural Trade Research Consortium www.iatrcweb.org. About the Project. Funders: William and Flora Hewlett Foundation

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Building on the July Framework Agreement: Advice and Cautions

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  1. Building on the July Framework Agreement: Advice and Cautions International Food & Agricultural Trade Policy Council www.agritrade.org International Agricultural Trade Research Consortium www.iatrcweb.org

  2. About the Project • Funders: • William and Flora Hewlett Foundation • German Marshall Fund • Collaborators: • International Agricultural Trade Research Consortium • David Blandford, University of Pennsylvania (Domestic Support) • Linda Young, University of Montana (Export Competition) • Tim Josling, Stanford University (Market Access) • Mario Jales and Andre Nassar, ICONE (Market Access) • Ann Tutwiler, IPC (Market Access, Export Competition)

  3. Domestic Support: July Framework • Positive • Discipline overall trade distorting support • Cap commodity specific and moderately trade distorting support (Amber and Blue) • Refine non-trade distorting criteria (Green) • Harmonize level of support • Negative • Relax criteria for moderately trade distorting support (Blue)

  4. Domestic Support: IPC Caution • July Framework increases permitted support by 15% to 25% plus bound trade distorting support • New US base, 250% of current spending; • New EU base, 170% of current spending • Reduction in permitted overall trade-distorting support must exceed 60% to be effective • Reduction of components should equal or exceed overall reduction • To reduce “box shifting” from Amber to Blue or de minimis • Blue Box, de minimis will become important for many countries

  5. Green Box: Advice • Revise criteria to prevent “updating” base acres/animals • Comply with cotton case • Retain criteria to allow planting of all crops • Comply with cotton case • Clarify role of environmental/social payments • Some may “increase” production • Enhance monitoring with formal Ag Committee review • Do not cap Green Box payments

  6. Composition of Overall Trade-Distorting Support

  7. Permitted Spending Under July Agreement Much Higher Than Current Spending Under URAA

  8. URAA Actual versus DDA Permitted(60% reduction Amber; 50% reduction de minimis)

  9. Blue Box: URAA Actual versus DDA Permitted (5% Cap)

  10. July Framework Agreement Does “Harmonize” Support Levels

  11. A “Cut” is not Necessarily a Cut

  12. Big Cuts in Overall Support Needed to Require Policy Changes

  13. Export Competition: July Framework • Economic gains “modest” but political gains large • Gains for some countries, commodities large • Positive innovations • Disciplines cover all forms of export competition • Eliminates subsidized export competition

  14. Export Competition: IPC Advice • Export Subsidies • Implement down payment (20% to 50%) • Allow, but don’t require rapid phase-down for some commodities • Food Aid: Do Not Convert to Cash Only • Count market development spending against export subsidy limits • PL480, Title 1 • Phase-out loans for food aid • PL480, Title 1 • Prohibit monetization and phase out programme food aid • PL480, Section 416B, Food for Progress • Channel food aid donations from stocks thru WFP • 416 B

  15. Programme Food Aid Dwarfs Project, Emergency Food Aid

  16. Programme Food Aid Variable, Large Share Monetized

  17. State Trading Entities • Elimination of government financing, export subsidies, underwriting losses should remove distortions • If monopoly power distorts markets, mandate co-existence • Allow private sector share of market to expand over time

  18. Export Credits • Reduce value of transactions covered over implementation period • Create international credit program to address liquidity constraints • (LDCs, NFIDCs, financial crises, emergencies)

  19. Market Access: July Framework • Most important, least defined pillar • Approximately 92% of economic gains from lower tariffs in industrialized and developing countries • Positive Innovations • Tiered (harmonizing) reductions • Possible cap on tariff peaks • Addresses tariff escalation • Negative Innovations • Special, sensitive products • Expansion of TRQs not mandated

  20. Market Access: IPC Caution • Large cuts in bound tariffs needed to affect trade • Formula should be simple, linear reduction • not URAA formula of average/minimum cuts • Three to four bands sufficient for tariff cuts • Tariff cap needs to be 100% • Or impose harmonizing (Swiss) cut on peak tariffs • Sensitive should be limited to a (small) share of consumption or production

  21. Tariff Overhang in Developing Countries Elaboration: ICONE

  22. Bound Tariff Structures: Developed Countries3 bands and 100% cap 100% cap 60% 50% 40% Elaboration: ICONE

  23. Bound Tariff Structures: Developing Countries 3 bands and 150% cap 150% cap 46% 33% 26% Elaboration: ICONE

  24. Tariff Peaks Elaboration: ICONE

  25. Selection of Sensitive Products Elaboration: ICONE

  26. Tariff Rate Quotas • TRQs prevalent, less than ideal measure • Used by 43 of 144 WTO members • In OECD, 43% of trade covered by TRQs • In some developing countries, 99% of trade covered by TRQs • Average fill rate, 60% (improve TRQ administration) • Expand or Establish TRQs • If large reductions in tariffs not possible • On Sensitive, Special Products • Reduce in-quota tariffs alongside other tariff cuts

  27. Developing Country Issues • Impose same tariff cuts over longer timeframe • or shallower cuts over same timeframe • Base Special Products on concrete criteria • Impose half of required tariff cut • Limit to small share of consumption, production • Special Safeguard Measure • Base volume trigger on moving average of import levels • Allow on products with bound tariffs below specified percent • Industrial and high income developing countries should provide duty and quota free access to LDCs

  28. Other Issues • Geographic indications: discussion should be launched under TRIPS regarding whether, how to protect intellectual property (patents, GIs) in foods • Sectoral initiatives: higher than average cuts in tariffs, domestic support, export competition should be encouraged • Differential Export Taxes: Discipline alongside export subsidies • Distort export markets, • Distort domestic markets • Penalize producers

  29. Conclusions • Framework incorporates more than adequate flexibility • Challenge will be to make real progress in opening markets and reducing trade distorting subsidies • Progress needs to be made on each pillar to ensure real reforms • Negotiators have 6 months to deliver 2 years work— • Momentum of last July must be regained • Deadline for Schedules: Hong Kong plus 4 months

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