When the heads of the earth's most powerful countries met at the Group of Eight (G8) summit in Gleneagles, Scotland earlier this month, there was no shortage of prose to underscore the importance of trade for development.
Less than a week later, when trade ministers from 30 World Trade Organisation member countries, including those from the G8, met at Galian, China to accelerate the pace of negotiations under the Doha Round, progress was agonisingly slow.
If trade is to help make poverty history, then agriculture is the area where progress needs to be made urgently, as more than two-thirds of the people living below poverty work on farms in the developing world.
The meeting disappointed, although a fresh proposal from the Group of 20 (G20) countries to provide "the basis for further talks on methodology to cut tariffs in agriculture", provides a ray of hope.
The G20 has proposed that the tariff rates of developed countries be divided in five bands and that of developing countries into four bands and then tariffs within each band be subjected to linear cuts. (More bands for developed countries, simply because they have a higher variance between maximum and minimum tariff rates for different products.)
Higher tariff bands will then be subject to greater linear cuts in order to meet the target of high tariff reduction, as warranted by the Doha mandate and the July package. Further, the proposal states that the tariff reduction by developing countries would be less than two-third of the reduction undertaken by developed countries.
This proposal of the G20 is significant as it is the first attempt to operationalise the tiered approach for reducing agricultural tariffs. Initial reports emanating from Dalian suggested that the European Community (EC) and the US favour this proposal although the Cairns group countries such as Australia and Switzerland were against it.
In protecting the interests of the developing countries that the G20 represents, two premises are important. First, developing countries have a defensive interest in protecting their vulnerable farm economies.
Second, the tariff-cutting exercise should lead to substantial improvement in market access for developing countries by steeply cutting the tariff rates in developed countries.
The G20 proposal meets the defensive interests of developing countries well. By proposing a linear approach for developing countries, the proposal ensures that the tariff cutting exercise would be soft on developing countries.
For instance, for a country such as India that has an average bound tariff rate of 116 per cent in agriculture and maintains a bound tariff rate of 100 per cent or more on 536 products out of 671 products (HS 6 digit level), a linear approach for tariff reduction is an appropriate way forward in the tariff-cutting exercise.
However, the G20 proposal falters on the latter issue of substantially improving market access for developing countries. Developing countries face formidable tariff barriers in developed countries in the form of tariff escalation.
For instance, in Japan, the bound tariff rate on raw sugar is 224 per cent and this climbs to as high as 328 per cent for refined sugar. Canada levies 9 per cent on raw sugar and 107 per cent on refined sugar. The respective bound tariff rates for raw and refined sugar in the European Union (EU) are 135 per cent and 161 per cent respectively.
The story is the same if one looks at the tariff rates on cocoa beans vis-à-vis chocolate or fresh orange vis-à-vis orange juice. The net effect of these differential tariffs on raw and processed commodities is that it is difficult for developing countries to move up the chain of value addition.
The G20 proposal that advocates a linear approach would lead to less reduction in tariffs as compared to the non-linear Swiss formula. It should instead have called for developed countries to undertake steep reduction in their tariff structures by adopting a non-linear approach embodied in the Swiss formula within the five bands.
The G20 submission also proposes the maximum tariff limit to be capped at 100 per cent for any individual product in developed countries. This high tariff cap is rather generous of the G20, considering the fact that developed countries such as Japan, the EU and the US have 579, 85 and 45 products respectively, that have bound tariff rates equal to or more than 100 per cent.
One must not ignore the importance of the G20 proposal in breaking the impasse on the tariff-reduction formula. Nevertheless, it is pertinent to ponder the cost that such an agreement imposes on developing countries.
In the negotiations ahead, the US, the EU and other developed nations will no doubt demand, and perhaps secure milder cuts and higher tariff caps. It could be interpreted that the G20 proposal is closer to the "fallback position" rather than the "negotiating position" for developing countries.
No doubt, the present round of negotiations is an opportunity for developing countries to negotiate and bargain for greater and deeper cuts in the tariff rates in developed countries. Missing this opportunity will only postpone the reforms in agricultural trade much to the detriment of the farmers in the South.
As Celine Charveriat of Oxfam puts it candidly, at the current rate, countries would not even have agreed on the seating plan, let alone a framework for agricultural reform by the time the WTO ministerial meeting happens in December 2005!
However, the G20 should not press for an agreement at any cost, as having no agreement is always better than a bad agreement. At Cancun in 2003, the G20 had demonstrated its resolve in wrecking the talks rather than accepting a negative agreement.
Developing countries have to be vigilant to ensure that unlike in the Uruguay Round, the Doha Round leads to a balanced outcome. Better an agreement about the seating plan on the deck of a sinking ship than on a ship sailing into the past.
The authors are with the Centre for Trade and Development (Centad) an Oxfam GB Initiative, New Delhi. Views are personal.
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