Philippine contributions in the ongoing agri trade negotiations

(Part II) Parable of the iceberg and the styrofoam box

The current detailed and comprehensive Philippine position as embodied in the "pillar inter-linkage proposal" slowly but surely evolved from the original Special and Differential (SND) treatment proposal submitted in 2000 and co-sponsored by ASEAN. It addresses and expresses in detailed modalities or rules the issues on the current agreement – gross imbalances in commitments favoring the developed and centered on market access, equity, and the elimination of persisting trade distortions that prejudice the interests of developing countries.

We defined the real reform and trade liberalization objectives in agriculture as the dismantling of production- and trade-distorting subsidies by developed countries, together with the harmonization or disciplining of the high tariff walls (referred to as tariff peaks or megatariffs) mostly by developed country members of the WTO.

While it is true that developing countries, on the average, have higher tariffs than the developed, the incidence of tariff peaks of 200 percent or more, thanks to the Uruguay formula, is prevalent among the latter – mostly on their so-called sensitive products that are also of export interest to developing countries.

The developed countries’ view of trade liberalization centers only on market access, specifically the bringing down of tariffs. Developed country proposals want deeper cuts in tariffs, reasoning that the creation of vast market access opportunities leads to equally vast welfare improvements for all. This is a definition that, sad to say, is also current among many of the country’s trade economists.

This skewed philosophy would bring tariffs in every economy, developed and developing, further down to minimal levels. This would have been optimally fair if the support structures of countries are the same.

The protection and support structure of developed countries is of the "iceberg" type. Tariffs, that portion that can be seen above the waterline, are but the tip of the iceberg. Subsidies for production and exports, mostly trade-distorting, account for the greater mass of the iceberg that is below the waterline. Recent trends on the OECD group of developed countries show that subsidies in terms of Producer Subsidy Equivalent (PSE) have approached 70 percent of the value of agricultural production.

In the case of developing countries like the Philippines, average tariffs in agriculture may be higher but there is virtually nothing below the waterline – much similar to a styrofoam box floating on the water. Over the recent years, domestic support for agriculture in the Philippines averaged less than four percent of the value of agricultural production. Ampao.

Contrary to what the developing countries would like us to believe, their icebergs are the true perils to the international trade, not the developing country styrofoam boxes that have no choice but to follow the tide and the waves wherever they lead.

Forcing these countries to further drop their only means of protection, tariffs, without corresponding reforms in the subsidies structure of the developed literally means elimination from the face of the sea of trade. Sacrificed in the infernal altar of free trade, we revert to being trade neo-colonies and markets of the developed. The Empires Strike Back!

Key elements of the Philippine proposal

Clearly, if developing countries like the Philippines are to get their rightful share of benefits from trade and fully express their natural competitiveness, reform com-mitments in this so-called Doha Development Round cannot be focused on tariffs alone. Developing countries have already done their share in this area, albeit unknowingly and in many instances naively, with their oftentimes fatal commitments in the Uruguay Round. There should be no further market access commitments or lowering of tariffs until and unless the developed unambiguously commit to the elimination of their patently trade-distorting subsidies.

In market access, we have proposed a two-stage tariff harmonization process based on the final UR bound rates:

• In the initial Stage 1 harmonization, all tariffs above 150 percent for developing and 75 percent for developed shall be phased down to these harmonized tariff peaks within a three-year period, with all others at a standstill;

• In Stage 2, there will be further reductions over the next six years based on a formula with faster reduction for developed countries, with the additional provision that further reduction in developing country tariffs shall commence only after certain reduction milestones in developed country domestic and export subsidies have been attained;

• As a further Special and Differential Treatment measure, the retention and expansion of special safeguards for developing countries only.

In the domestic support pillar, we proposed the simplification of the so-called traffic color boxes into two: green box for non-trade distorting measures and amber box for production- and trade-distorting measures. We also proposed that all ‘decoupled’ sup-port, such as income payments, be subject to reduction and eventual elimination within the implementation of the next agreement.

In the case of the trade-distorting amber box measures, we called for a Day one 50 percent downpayment and further reduction towards elimination in six years. The de minimis provision, or allowable and non-counteravailable trade-distorting support, is proposed to be retained only for developing countries at 10 percent of value of agricultural production.

In order to prevent the common tricks of developed countries of "rollover"and "hide and seek", we insisted that all domestic support commitments be product-specific.

In export competition, we sought the elimination and thereafter prohibition of all export subsidies over three years for developed countries, six years for developing countries. We also proposed a similar Day one 50 percent downpayment for developed countries, with regular reductions in equal annual installments over the respective implementation periods.

Since other export competition measures such as export credits and food aid can be channels for trade distorting subsidies, we have recommended measures to define and determine these so that they can also be subject to reduction, eventual elimination and prohibition. We have further held that exporting state trading enterprises, a common source of market power and distortions in developed countries be eliminated and prohibited.

As a further Special and Differential Treatment measure, we asked that developing countries retain the flexibility to apply specific types of export subsidies.

Integration and interlinkage of commitments: Core elements of the Philippine proposal

The Philippines is one of the few coun-tries in the ongoing negotiations that con-tributed relatively detailed and unambi-guous proposals on what we envision to be fairer rules in this round for agriculture. TF WAR, in emphasizing the importance of precise language architecture in its technical work, noted that in the UR Agreement, only the language on market access is precise and therefore implementable.

Commitments in the other pillars of domestic support and export competition, and special and differential treatment for deve-loping countries were ambiguous. In the case of special and differential treatment, the UR legal texts and even the GATT before them were so profligate in mentioning the need to address developing country concerns. But the language was sufficiently ambiguous and therefore unimplementable.

The special and differential treatment measures being claimed by the developed countries, such as technical assistance (they stimulate demand for their products and consultants) and special preferences or GSP (discriminatory and limited to countries where they have other substantial interests), food aid (nothing but surplus disposal), among others, are important but being best effort measures out of charity, do not address the central issue of binding commitments to fairness and equity.

We also realized that the current agreement is onerous and grossly imbalanced because of the traditional GATT approach of treating the three pillars of market access, domestic support and export competition separately. The Philippine approach and framework effectively integrates and interlinks commitments in all the areas of negotiation. The result is an automatic balancing mechanism that provides for the proper incentives for comprehensive reform while at the same time providing full flexibility to all countries.

The core principle is that further market access openings in developing countries be fully and continuously dependent on reforms by the developed countries in domestic and export subsidies. Operationally, developing countries are proposed to have the option to levy additional duties, on top of regular and negotiated tariffs, on imports from developed countries determined and acknowledged to receive trade-distorting subsidies.

A detailed formula is contained in the proposal that expresses such subsidies into their tariff equivalent. This way, developed country subsidizers’ increased access to developing country markets depend on their decided or politically optimal pace of reform in reducing and/or removing their subsidies. If, as most claim, reducing and removing subsidies will be politically difficult domestically for them, they will have to face the possibility of higher tariffs and limited access. If their subsidies are so high, including domestic producers. If developed countries insists in polluting markets with distortions from their subsidies, they can now only do so at the steep price of limited or no market access to our markets or keeping their distortions in their own markets by not exporting them.

This is fairness. This is balance and equity in commitments. This is what we refer to as "the level playing field" where we are ready to play not only to survive but to win and prevail. This is fair trade, the only true launching pad for a just and free international trading system. Anything else is another hoodwinking and exploitation of developing countries and their peoples.