Implications for Brazil of the July 2008 draft agricultural modalities

André Meloni Nassar, Cinthia Cabral da Costa, Luciane Chiodi

"This paper discussed the market access and domestic support pillars in the Doha Round negotiations. It analysed both the implications for Brazil of reducing its own tariffs and reforming domestic support for agriculture; and the likely benefits Brazilian exporters can be expected to gain. The analysis demonstrates that Brazil will not have to make major changes to its tariffs and subsidies. This is not only because the country has an adequate amount of overhang between bound and applied tariffs, and sufficient water in its de minimis support, but also because tariffs have not been used as income policy in Brazil, and trade-distorting domestic subsidies are few in comparison to the size of Brazilian agriculture. The gains for Brazil, therefore, will come from the contribution of this round to the growth of Brazilian agricultural exports and to the reduction of the trade-distorting effects of domestic support. An undeniable achievement of the Doha Round will be the creation of productspecific caps for Amber and Blue Box subsidies. Product-specific disciplines are necessary to avoid the negative impacts of domestic support in the world market, as was the case with US subsidies for grain and oilseeds between 1999 and 2002. Product caps will serve to reduce world price suppression, especially if prices go back to 1999-2002 levels. Product caps only make sense if they are capable of preventing the adverse effects of domestic subsidies on world prices. The effectiveness, therefore, depends on the level of the cap and the implied adverse effects on prices. This study has shown that the proposed caps, with the exception of cotton, can constrain price suppression in situations of very low world prices. However, caps will not be effective if prices are at more normal levels. Brazil’s market access gains in developed countries are most likely to be constrained by the continuation of the SSG and the extent to which disciplines will achieve effective TRQ expansion. The continuation of the SSG will be an escape clause for countries seeking to maintain protection for specific sectors. The SSG will thus provide an additional layer of protection over and above the TRQ system, which itself is already a protectionist measure. Taking as an example the cases of beef, chicken and sugar in the EU, the compensation to be provided for selecting these products as sensitive will not be enough to create new trade. TRQ expansion will, at most, internalize over-quota trade: because there will not be any meaningful results in terms of import price reduction, imports will not increase. A reduction in over-quota tariffs would be the most effective way to create new trade. In the case of developing countries, the SSM is the central concern. There is a potential risk of increasing levels of protection beyond the tariff levels that were bound in the Uruguay Round leading to deterioration in current market access opportunities. Two topics now appear as “deal-breakers” for Brazil: the creation of new tariff rate quotas that will not be effective in creating new market access opportunities and an SSM that will lead to an increase in the level of protection consolidated before the Doha Round.