WTO Negotiations: Drivers for Change in Canada’s Grain Industry: WTO Negotiations: Drivers for Change in Canada’s Grain Industry Canada Grains Council Annual Meeting April 12, 2005 Winnipeg, Manitoba, Canada James Rude


Slide2: Setting the Context Doha Developmental Agenda (DDA) is the 9th Round of multilateral trade negotiations through the WTO/GATT Over the course of these negotiations a number of deadlines have been missed July 2004 Framework Agreement sets out the general outline that will be used to complete the negotiations Currently negotiators are attempting to reach a consensus on a draft text of modalities by the December 2005 Hong Kong Ministerial meeting Probably the final effective date for an agreement is in 2007 when the US President’s trade negotiating authority expires


Basic Elements of July Framework Agreement: Basic Elements of July Framework Agreement Elimination of export subsidies by an end date yet to be negotiated Direct and some indirect subsidies (credit, food aid, STEs) Most detailed of the disciplines Harmonization formulas to be used to reduce domestic support and tariffs Depths of cuts are yet to be determined, but higher levels of protection are to be reduced by more than lower levels Domestic support will be subject to some new disciplines The objective for negotiating market access is substantial improvement, but negotiators are more concerned with maintaining protection than creating opportunities for healthy competition


Export Competition: Export Competition Direct export subsidies to be eliminated by an unspecified date Elimination may not occur until 2015-2017 EU has 91% of remaining direct export subsidies What is the probability that EU cereals intervention price is less than US Gulf price of SRW wheat? 15-30% Empirical estimates show small impacts for cereals Disciplines on export credit programs Elimination of credit programs over 6 months Minimum benchmarks for interest rates, insurance premiums, cash payments  premiums biggest problem for CWB US accounts for 46% government supported credit and it accounts for 88% of subsidy element of these programs (OECD 2001) …modest improvement in traded prices


Export Competition - STEs: Export Competition - STEs Disciplines for exporting STEs eliminate government guaranteed borrowing and underwriting of losses Government guarantees for CWB: 1) initial payments; 2)borrowing; and 3) credit sales What is the impact for single desk selling, price pooling, and initial payments? Since the CWB has few assets loss of government guarantee will increase borrowing costs In 2003 CWB borrowing $6.4 billion, but only $558 million was for operating expenses and new credit Is it possible to establish a contingency fund to backstop initial payment? Move old re-scheduled debt to Federal books Provide capital infusion to CWB Adopt AWB model


Slide6: Export Competition: STE Monopoly Status Future right to single desk selling is to be negotiated Banning single desks for exporting STEs creates an anomaly in the WTO’s disciplines on STEs Should exporter STEs be disciplined differently form importer STEs? Should agricultural STEs be disciplined differently than non-agricultural STEs? There are no strictures on monopoly status: Developing country agricultural exporting STEs All agricultural importing STEs All non-ag STEs More likely that this issue will be used as a negotiating chip to seek concessions elsewhere


Framework Agreement on Domestic Support: Framework Agreement on Domestic Support Addresses total support (amber box plus blue box plus de minimis) 20%cut in first year Harmonization formula (bigger cuts for higher levels of domestic support relative to total production) Blue box redefined and capped at 5% total production Total AMS subject to cuts with a tiered formula bigger cuts for countries with higher levels of domestic support relative to total production Caps on product specific support; no commitment for product specific reductions Green box is to be reviewed and clarified Bottom line is that domestic support in US and EU is unlikely to face effective binding reduction commitments


Market Access: Market Access Agreement calls for substantial improvement in market access reduce average tariff level reduce tariff dispersion and escalation (harmonization) Framework Agreement introduces three new types of agricultural products Normal products: cut highest tariffs more than lower tariffs Sensitive Products: less aggressive tariff cuts but a combination of tariff cuts and quota expansion (the smaller the tariff cut the bigger the quota expansion Special products: developing countries nominate product lines than are offered even greater flexibility in terms of tariff liberalization Again the impact on Canada’s grain sector will likely be limited