Implications For Mauritius Of The July 2008 Draft Agricultural Modalities

September 2008

ICTSD Programme on Agricultural Trade and Sustainable Development

Implications for Mauritius of the July 2008 Draft Agricultural Modalities

By Gowreeshankursing Rajpati Mauritius Sugar Authority

September 2008 l ICTSD Programme on Agricultural Trade and Sustainable Development

Implications for Mauritius of the July 2008 Draft Agricultural Modalities

By Gowreeshankursing Rajpati Executive Director, Mauritius Sugar Authority

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

Published by International Centre for Trade and Sustainable Development (ICTSD) International Environment House 2 7 chemin de Balexert, 1219 Geneva, Switzerland Tel: +41 22 917 8492 Fax: +41 22 917 8093 E-mail: [email protected] Internet: www.ictsd.org Chief Executive: Programmes Director: Programme Team:

Ricardo Meléndez-Ortiz Christophe Bellmann Jonathan Hepburn, Marie Chamay and Ammad Bahalim

Acknowledgements: This paper has been produced by the International Centre for Trade and Sustainable Development (ICTSD). ICTSD wishes to gratefully acknowledge the author of the paper, Gowreeshankursing Rajpati.

Disclaimer: This paper has been prepared on the basis of facts and figures available in the public domain and is under the sole responsibility of the author and in no manner whatsoever binds his employer.

For more information about ICTSD’s programme on agricultural trade and sustainable development, visit our website at www.ictsd.org ICTSD welcomes feedback and comments on this document. These can be forwarded to: [email protected] Citation: Gowreeshankursing, R (2008). Implications for Mauritius of the July 2008 Draft Agricultural Modalities. International Centre on Trade and Sustainable Development, Geneva, Switzerland. Copyright ICTSD 2008. Readers are encouraged to quote and reproduce this material for educational, nonprofit purposes, provided the source is acknowledged. This work is licensed under the Creative Commons Attribution-Noncommercial-No-Derivative Works 3.0 License. To view a copy of this license, visit http://creativecommons.org/licenses/by-nc-nd/3.0/us/ or send a letter to Creative Commons, 171 Second Street, Suite 300, San Francisco, California, 94105, USA. The views expressed in this publication are those of the author(s) and do not necessarily reflect the views of ICTSD, the Mauritius Sugar Authority or the funding institutions.

ISSN 1887-3551

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ICTSD Programme on Agricultural Trade and Sustainable Development

Contents Executive Summary

iv

Introduction

1

I. The Mauritian context

2

A. Agriculture in Mauritius

2

1 Why cane

2

2 Biomass as a source of clean energy

2

3 The Environment

4

4 Food Procurement

5

B. The Challenges

5

1 Changes in respect of preferential agreements

5

2 Reform

6

3 Policy Responses

7

C. Strategy at the WTO

8

B.The Falconer paper and the specific case of Mauritius

8

B.1 Domestic support.

8



1.1 Trade distorting support.

9



1.2 The Green Box

9



1.3 Summary of support

10



1.4 Domestic support from the export perspective.

11

B.2 Market Access

12



2.1. Sugar

12



2.1.1 Sugar in the Uruguay Round.

12



2.1.2 Tariff reduction and determination of Ad Valorem equivalents (AVEs)

13



2.1.3 Sensitive products and Tariff Quota expansion

13



2.1.4 Tariff simplification

15



2.1.5 Tariff escalation

16



2.1.6 Tariff quotas

16



2.1.7 Special safeguard clause.

17



2.1.8 Tropical products.

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities



2.1.9 Longstanding preferences.

20



2.1.10 Choices to be made by the ACP

20

2.2 Off-season exports and cut flowers

21

2.3 Food security products (e.g. poultry and potatoes)

22

2.4 Local fruits and vegetables

24

2.5 Imports

24

3

Export competition

24



3.1 Export subsidies

24



3.2 Article 9.4 of the AoA

25



3.3 Export Credits, Export Credit Guarantees or



Insurance Programmes

3.4 Agricultural exporting State Trading Enterprises

25 26

4 Export prohibitions and restrictions and export taxes

26

5 Geographical Indications

27

C. Concluding remarks

27

endnotes

33

Annex

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Custom duties on products originating in ESA States.

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Executive Summary The importance of sugar cane Sugar cane, the crop which has over time proven to be the crop most suited to the agro climatic context, is much more than a cash crop in Mauritius. In fact its multifunctional role is such that the country has no other alternative but to continue the cultivation of this crop. This role spans the economic, social, energy, food procurement and environmental domains. In this context, a comprehensive and descriptive analysis has been included in the paper. This part also explains the impact of the EU sugar reform on Mauritius where it took a heavy toll on planters and employees and underscores the fact that Mauritius and indeed, the other ACP countries will not be able to bear further price decreases stemming from the Doha negotiations. In this regard, the ACP Council of Ministers meeting in Addis Ababa in June 2008 has adopted a resolution on sugar where the preferred options of the ACP are spelt out as well as the limits of what the ACP could accept, failing which the ACP would not be able to join the consensus.

The Falconer text Overall assessment The Falconer text in its language on the three pillars appears to comply with the mandate given in para 13 of the Doha Declaration. Regarding special and differential treatment, the text spells out a vast array of measures and does provide for flexibility. In comparison to the the Uruguay Round, the Doha Round,Net Food Importing Developing Countries (NFIDCs), Small, Vulnerable Economies (SVEs), Recently Acceded Members (RAMs) and the beneficiaries of longstanding preferences are fully recognised and appropriate language has been proposed. The overall level of ambition in the market access pillar is on the high side and very exporter friendly and would, if no corrective measures are taken, lead to results which the world has never experienced in the sixty year history of the GATT/WTO and would be confronted with major upheavals. Especially in the food and energy sectors, where the spectre of de facto embargoes under the guise of export restrictions, prohibitions and export taxes has resurfaced. The proposals to exempt from reduction commitments developing countries having a total bound AMS not exceeding US$ 100M, the statement to the effect that the modalities do not in any manner whatsoever diminish the acquis of the NFIDCs and the LDCs pursuant to the 1994 Marrakesh Decision and the 2001 Decision on Implementation Related issues and Concerns. These are all clear signs that the July text is adapting itself to better address the food security issue. Domestic Support While there are many provisions in favour of Developing Countries (DCs) under this pillar, the real issue is the capability to grant support. For NFIDCs and SVEs generally constrained by the conditionalities imposed by donors/lenders and the dearth of financial resources, the Special and Differential treatment (S&D) provisions may unfortunately turn out to be more of an academic nature. This reasoning is valid for the Export Competition pillar. It is therefore no surprise that the most meaningful pillar for NFIDCs and SVEs is the market access one where no fund outlays are required and in fact fund receipts are involved. The Falconer text makes proposals for deep cuts of trade distorting support of developed countries and makes allowance for Special and Differential Treatment (S&D) for developing countries (DCs).

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

In addition, significant measures are provided for the NFIDCs which are exempted from reduction commitments. Mauritius, an NFIDC, did not make any commitments in the UR in respect of Domestic Support. However, most of the measures used to support agriculture, sugar and non sugar, correspond to the schemes defined in Article 6.2 of the Agreement on Agriculture (AoA) or fall within the de minimis tolerance. The Falconer text does not impact on applied domestic support in the case of Mauritius as such support fell under the purview of Article 6.2, de minimis and Annex 2. In fact, the text provides a fair amount of policy space, in Article 6 and in Annex 2, which however, requires some fine tuning to enable the country to implement its ambitious food security strategy as enunciated in the 2008/09 budget speech. The amendment to exempt from reduction commitments DCs having a total bound AMS not exceeding US$ 100 M would ensure that DCs such as Mauritius would have all the necessary space, including Article 6 and Annex 2, to operate. The EU Sugar Régime reform has abolished the intervention mechanism and the intervention price and has introduced a reference price which depends on the market and acts as a guide for prices. If on the one hand, it is assumed that the reference price is not an “applied administered price”, then there is no longer any domestic support granted to sugar. If on the other hand, it is assumed that the reference price is an administered one, the analysis of the text shows that the risks of the product specific AMS for sugar being exceeded are non-existent. Market Access Market access in the case of Mauritius concerns five categories of products. Firstly, sugar exported to the EU; secondly, off season fruits and vegetables and cut flowers exported mainly to the EU; thirdly, products which are essential for the provision of proteins and carbohydrates and fourthly, fruits and vegetables. The first four categories relate to local production. The last and fifth one comprises imports, the main ones being rice, wheat/flour, pulses, potatoes, onions, spices, unrefined edible oil, maize, soybean meal, meat, milk and dairy products and fruits such as citrus fruits, apples and grapes. Sugar ACP/LDC exports and EU production were insulated against third country sugar even after the reduction commitments of the Uruguay Round (UR) were implemented. The relation between the level of the final tariff and the intervention price, the type of binding of the tariff, the adequacy of the SSG and the limitations to third country competition represent the effective “preference margin”. The proposals of the Falconer text in respect of sugar exports to the EU have therefore been examined from this perspective. The approach in the Falconer text in what matters for Mauritian sugar exports to the EU is quite different from the one adopted in the UR. Firstly, tariffs have to be converted into ad valorem equivalents (AVE) for purposes of applying a tiered formula which incorporates very high reduction rates for all tiers. Secondly, deviations are permitted from the tariff cuts of the tiered formula in respect of a very limited number of products termed sensitive products, however, compensatory measures in the form of tariff rate quotas equivalent to specified percentages of domestic consumption and allocated upfront have to provide for. Thirdly, little weightage is given to current access. Fourthly, the binding of all tariffs is in ad valorem terms. Fifthly, the limitations on the use of the special safeguard clause (SSG). Sixthly, the fullest liberalisation of tropical products without any definitive list and this allows the debate on sugar to be more bitter than sweet. Seventhly, attempts to reconcile the issues of tropical products and longstanding preferences.

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The 36 percent cut has taken a very heavy toll on planters, employees and the economy and further cuts would be unbearable. Accordingly, Mauritius has to negotiate for the most appropriate package in the WTO negotiations. In this regard, the challenge for Mauritius is twofold: first, should it try to limit ambition or should it negotiate for a carve out for sugar as a product that has received a longstanding preference. In fact, ever since 1919, Mauritius and a good many of the ACP countries have been continuously benefiting from preferences. Second, determine what is the best combination of measures to attain the carve out for sugar. Should there be a peg in several issues or should the focus be only on one measure? The replies to the various questions stem from a two fold analysis of the Falconer text in the context of the EU which will absorb the totality of Mauritian sugar exports. The first exercise has been carried out to assess the effectiveness of the various measures of the market access pillar to cope with difficult world market situations. Pour mémoire the system that evolved from the EU commitments in the UR was robust enough to cope with extreme situations such as those of 1999 when raw sugar prices went as low as 5 US cents /pound and white sugar prices were equally at low levels. The currency fluctuation aspect has also been factored in and a dollar/euro/rate of 2.00 has been taken. The AVE for sugar notwithstanding the fact that there is no agreement on the methodology to calculate the AVE for sugar on account of the opposition of Mauritius and some sugar exporting ACP has been computed by comparing the pre 2005 ( pre reform of the EU Sugar Regime ) administered price to the world price. The highest figure in the fourth tier, 70 percent, has been taken and the one third and the two thirds deviations assessed. Simulations have been effected in respect of the Trigger price Thus it has been reduced by 36 percent (sugar price reduction), 23.1 percent (tariff reduction at two thirds deviation) and 46.9 percent (tariff reduction at one third deviation). The SSG has been tariffied on the basis of an average SSG of 113 €/t and then reduced by the rates at one third and two third deviations and the result added to the normal tariff. A yardstick has been chosen to assess the effectiveness of a measure. It is termed the “cover of the reference price” i.e the ratio expressed as a percentage of the sum of the tariff, the world price and the SSG, if applicable, for white sugar to the reference price for white sugar. A cover of 105 percent or more is considered as effective. White sugar has been used given the shift of Mauritian exports from raw sugar to white as from 2009. The analysis shows that tariff simplification would further erode the preference margin when prices are low on the world market i.e at the time when protection is most needed. There is therefore no substitute for the binding of tariffs in specific terms. Recourse to the SSG is essential. However, for the various values of the trigger price of the SSG used, only the tariff obtained from the two thirds deviation when added to the SSG and the world price ensures a cover of the reference price in excess of the 105 percent threshold cover. It is also a fact that no amendment to the current trigger price, i.e. 531 €/t ensures protection for both one third and two thirds deviations. In this regard, ACP Ministers have called for the for the maintenance of the current Special Safeguard Clause (SSG) for sugar and products with a high sugar content. The application of the proposals relating to tropical products would mean the demise of this industry in all ACP countries and it is no surprise that the ACP at the highest political level have forcefully expressed their opposition to the inclusion of sugar, not a tropical product by virtue of its worldwide coverage, in the list of tropical products.

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

The second analysis exercise concerned the quotas stemming from the compensation payable for deviations from the tiered formula for sensitive products. In this regard, it has been found out that quota expansion at a fast rate would not be in the interest of the ACP. Firstly, the amounts of sugar resulting from GATT Article XXIV: 6 negotiations together with additional quotas arising from the Doha negotiations (in higher amounts for the two thirds deviation) representing around one million tonnes (which would be essentially supplied by the highly competitive large exporters) have the potential to disrupt markets and depress prices. Secondly, the additional sugars would crowd out EU sugar with a negative impact on markets. Thirdly, these quantities in a situation where additional sugar would come in incorporated products or in a situation where the WHO drives down consumption would once again disturb markets. Last but not least, the unintended effects of rapid tariff quota expansion would impact negatively on the non-LDC ACP who are constrained by quantitative limitations and who have paid for their access through reciprocal, albeit asymmetrical, trade accords. There may be then the need to revisit the sugar part of the Interim Agreements of the EPAs. Off-season exports and cut flowers A tariff analysis taking into account the tiered formula and the proposals for tropical products in the EU market, by far the most important one for such products shows that for cut flowers, mangoes, pineapples, papayas, lychees and pithaya the preference margin procured by duty free access will disappear. In such circumstances, exports would have to be based on compliance with phytosanitary norms, product quality, off season and just in time delivery elements. The issue of environment footprints will also arise in the near future. More and more in the developed world and even in many emerging developing economies, market access opportunities will be governed by commercial deals which are shaped primarily by what the hypermarkets and price discounters consider as being the preferred choice of consumers and subsidiarily by what is agreed in the WTO. This is particularly applicable to fruits, vegetables and flowers and much less on sugar although fair trade considerations are slowly invading sugar trade. SP and SSM The SVEs would enjoy substantial flexibility in respect of the SP in that they can designate as many tariff lines as they choose as Special Products. The tariff lines so chosen need not be subject to any minimum tariff cut and need not be guided by the indicators. Poultry, eggs and potatoes are the most likely products to be chosen as SPs in the case of Mauritius on account of their importance in ensuring a fair level of food security. The G33 has undertaken an assessment of the SSM and considers that several areas have to be reviewed to address the concerns of the group. Moreover, some of the proposals are considered by this group as constraints to the use of the SSM. The G33 had called for the reintroduction of flexibilities in respect of the SVEs which existed in the February 2008 draft modalities text and the July text incorporates such flexibilities. Domestic market The flexibilities offered by para 121 in terms of tariff reduction afford the space for action. However, the real challenges facing the fruit and vegetables sectors are more in terms of quality and timely supply in a country that is aspiring to receive 2 million tourists in the medium term and to become a reliable player in upmarket real estate development to fuel its economic growth.

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Mauritius has three final rates which were finalised in 1993/4 and submitted to the WTO and incorporated. 37 percent for bovine meat, milk and dairy products, potatoes, onions, peas, coconuts, almonds, bananas, oranges, grapes and apples. 82 percent for green and black tea, wheat, maize, semi-milled or milled rice, shelled groundnuts, preserved tomatoes and frozen orange juice. All other items are at 122 percent. At all times in a basically net food importing country which imports most of its requirements, zero tariffs were applied on basic food items. As time went by, Mauritius became a more and more open economy and rates of applied duties fell accordingly. Thus there is a wide difference between bound and applied rates and this has the potential of enhancing the bargaining power of Mauritian negotiators in the final stages of the Doha negotiations. Moreover, pursuant to para 121 of the Falconer text, Mauritius has the possibility to exclude SPs from reduction commitments and to apply an overall rate of 24 percent. Given the small number of SPs, although the two products identified could mean a higher number of tariff lines, it is expected that the overall rate for non SP products would be fairly close to 24 percent. The situation in an NFIDC that is worried by export restriction and prohibition measures and has to combat inflation is quite complex. It has to resolve an apparent paradox where it has on the one hand, to encourage local production and protect it and on the other hand, to ensure that imports are as cheap as possible. Mauritius is in this situation. It is endeavouring to obtain adequate policy space at the WTO and creating conditions to maintain affordability of food. In this regard, the recent budget has abolished custom duties on a number of products such as canned tomatoes and other vegetables; chicken and eggs, yogurt, peanut butter, salted nuts and ground nuts i.e products which are being produced locally. Export competition, export restrictions and prohibitions and export taxes The provision of para 151 which refer to the protection of the legal acquis of the NFIDCs and the LDCs would enable these two categories of countries to negotiate for greater flexibility in respect of the measures in the export competition pillar. Mauritius had canvassed actively for additional flexibility in respect of Article 9.4 of the Agreement on Agriculture and the Falconer text is satisfactory. It is unfortunate that at a time when food prices are rising and that so many countries are becoming food insecure that the tight rules are being implemented on export credits, export credit guarantees and insurance programmes. The flexibility given on timeframes to repay export credits to NFIDCs and LDCs is insufficient and there should be flexibility/incentives given in respect of risk cover, the extent of risks taken by exporting countries and foreign exchange risk hedging. In this regard, the provisions of para 151 would be useful negotiating tools. Para 6 of Annex K addresses the concerns of Mauritius, considered as a small, vulnerable economy. This provision would enable the single desk seller, the Mauritius Sugar Syndicate a non profit making association regrouping all sugar producers, to continue its activities and ensure that producers enjoy the benefits of economies of scale which such an organisation can bring about. Meaningfully balancing the rights and obligations of exporting and importing countries necessarily means that export restrictions and prohibitions and export taxes be adequately disciplined. Just as for export taxes , there are no proposals on geographical indications. So far only wines and spirits are covered but not the vast array of products of great import to a large number of DCs. The question of balance has been raised in respect of developed and DCs and regarding the rights and obligations of exporting and importing countries. Balance is also pertinent in the case of GIs when the numerous norms, described above in the case of the powers of hypermarkets and discounters, which the DCs have to comply with when exporting their products are taken into consideration.

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

Concluding remarks The Falconer text to a very large extent meets the requirements of Mauritius in the Domestic Support pillar. In the Export Competition one, the only improvement relates to the scope of S&D for NFIDCs and LDCs. Regarding the domestic market, the proposals in respect of the Market Access pillar go a long way to meet the concerns of Mauritius except for the issue of greater flexibility in the use of the SSM. However, for issues of major concern to Mauritius there is either uncertainty or the inadequacy/ absence of proposals. Regarding sugar, the level of ambition for reduction of border protection viewed against the backdrop of fluctuations in world market prices and dollar/euro exchange rates and the unresolved issues of tropical products and longstanding preferences create a climate of uncertainty at this stage of the negotiations that would have to be addressed. The inadequacy of the proposals on export restrictions and prohibitions and the absence of proposals on export taxes in a situation of food crisis and the application of these measures by some countries early this year is matter for serious concern to Mauritius an NFIDC which has to import nearly all the food it consumes.

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Introduction The paper is made up of two parts. The first one explains the particular Mauritian context and shows why sugar is so vital for Mauritius. The second one examines the Falconer text TN/AG/W/4/Rev.3 (hereinafter referred to as the Falconer text or the July 2008 Modalities document) in respect of the three pillars and the part on export restrictions and prohibitions. The analysis given here refers to the Falconer text but it is recognised that the text is no more than a reflection and a fair assessment made by Ambassador Crawford Falconer. It highlights the state of play in the negotiations where

every Member or Group is expected to canvass its positions continuously and work towards compromises wherever possible. Of the nine countries selected for the series of country studies, Mauritius is not only the smallest one but also possesses very specific characteristics that may apply to a range of developing countries. It is therefore considered appropriate to have an elaborate presentation of the situation of agriculture in Mauritius and the challenges facing it so as to better understand the impact of the Falconer Text on Mauritius.

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

I. The Mauritian context A. Agriculture in Mauritius 1. Why sugar cane? Mauritius is a country which has no hydro, mineral or fossil fuel resources, but it is endowed with a fair extent of land which can permit food and energy production and with pristine lagoons which are the key to the development of tourism in islands. Mauritius is known all over the world to be a sugar island. Human settlement and the country’s development over the last two centuries are intimately associated with sugar cane. Sugar occupies more than 90 percent of arable land and the production of some 60 percent of vegetables and the near totality of potatoes is undertaken in cane interlines or in rotational land i.e. land available in between two seven year cane crop cycles. Sugar cane has emerged in Mauritius and indeed in many islands having a similar agro climatic environment, on account of its considerable resistance and resilience to adverse climatic conditions, drought and more particularly to cyclones, are recurrent features in the South West of the Indian Ocean. Ever since the early nineteenth century, numerous crops have been tried through specific and often costly research and field testing programmes, but none has been able to adapt, on a commercial scale, to Mauritian conditions in particular to cyclones. Cyclones do impose constraints to islands. In this regard, it is worth pointing out that the 1990 UN Disaster Relief Organization Review on the economic impact of disasters since the 1970s reports that of the 25 most disaster prone countries, 13 are Small Island Developing States. 2.

The existence of preferential sugar agreements for export of sugar to the UK and then the European Communities (or EU) on a continuous basis ever since 1919 has enabled the harmonious commercial development of this appropriate crop. While Mauritius has a long history in sugar, it is a fact that it will never be able to compete with the sugar majors which have less physical constraints and are able to enjoy massive economies of scale. Therefore a margin of preference has been, is, and will always be needed for countries such as Mauritius. The consequence of the inadaptability of crops and activities other than sugar cane on account of agro climatic reasons coupled with the limited size of Mauritius, 1860 square kilometres and at most 85000 hectares of cultivable land, have led to a situation where Mauritius has to import nearly all that it consumes. Thus, the totality of rice, wheat/flour, meat, milk and dairy products, edible oil, pulses, spices, maize and oil cake (for poultry production) consumption is imported. However, the country is nearly self -sufficient in fresh vegetables, poultry and eggs and produces a fair proportion of the potato, onion and fruits on demand. Sugar cane is much more than a cash crop in Mauritius. In fact its multifunctional role in Mauritius is such that the country has no other alternative but to continue the cultivation of this crop. This role spans the economic, social, energy and environmental domains. The presence of this activity is critical for tourism, electricity generation and, in the near future, for the transport sector through the use of ethanol. It is also a key element in respect of the food procurement strategy and in terms of the foreign earnings that are obtained.

Biomass as a source of clean energy

The International Energy Agency has recently warned that the world is moving to a “slowing

supply and minimal spare capacity” situation and in that sense confirms the predictions of

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the proponents of the “Peak oil” theory. In such circumstances, any country engaged in agriculture had to make every endeavour to optimise food and energy production. The cane plant in Mauritius provides a commodity for export as well as a significant amount of electricity in an island totally devoid of fossil fuels and without any possibility of grid interconnection. As pointed out in the FAO sponsored Special Ministerial Conference on Agriculture, Environment and Natural Resources in Small Island Developing States held in 1999 in Rome: “Fossil fuels typically constitute the largest import item in many SIDS. This makes them vulnerable to increased petroleum prices and places a heavy burden on their balance of payments (e.g. Kiribati). SIDS diseconomy of scale in transport, storage facilities and distribution requires more energy for transportation and power generation than any other country and is a major impediment to economic development and environment protection.” These points made some nine years back are even more topical today. The viable and sustainable production of sugar cane provides a fitting response in the case of Mauritius to address the energy issue. Sugar manufacture in Mauritius and in most sugar producing countries, is self sufficient in terms of energy through the burning of bagasse (the fibrous part of sugar cane) and the generation of energy. Once the energy needs of the sugar factory have been satisfied, electricity generated through the combustion of bagasse can be sold to the grid. The generation of electricity from bagasse and its sale to the grid started in 1957 in Mauritius, some 50 years back. Sales of electricity were of the order of some 50 million KWh in 1986 at the time the Uruguay Round was launched. They came to 80 million KWh in 1995 when this Round was concluded.

In 2008, some 450 million kWh obtained from bagasse would be exported to the grid i.e. nearly 20 percent of total demand. By 2015, some 600 million KWh would be dispatched to the grid. The use of higher fibre and higher cane biomass varieties and the use of a fair proportion of cane field residues will increase the contribution of cane biomass energy to nearly 1100 million kWh. The generation of the same amount of energy would have required the import of nearly 650 000 tonnes of coal implying the additional emission of nearly 2 million tonnes of carbon dioxide. Savings on imports at a coal price of some 200 US$/tonne 1 would amount to nearly 130 million US$ yearly. The efficiency in converting bagasse into electricity is already high in Mauritius (90 KWh per tonne of cane milled), second only to Reunion Island where 110 KWh are exported for every tonne of cane milled. Further developments would put Mauritius in the pole position In fact, what is being done in Mauritius in terms of the use of bagasse and cane biomass can be compared to what Brazil has done in ethanol from cane. Cane biomass electricity is much cheaper than electricity from solar or wind. In this regard, biomass electricity can through cross subsidisation facilitate the purchase by utility concerns of more expensive forms of renewable energy. The use of molasses to produce ethanol was so far constrained by a host of economic factors, the most important being the price of oil. Now that circumstances have changed, some 30 million litres i.e. 20 percent of current demand can be produced from 120 000t of molasses. Currently, the totality of transport fuel (gasoline and diesel) is imported. Recourse to ethanol from molasses could increase the self sufficiency level in transport to some 10 percent.

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

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The Environment

This is a critical aspect for a small island, for its citizens and its tourist industry. Accordingly, environment protection and preservation are imperative. The assessment of the environment footprint is expected to play a major role in the years to come and in particular with regard to the tourism and leisure industries. The most adequate vehicle to uphold the environment and minimise environment footprints is the agricultural sector viewed from the broad perspective. Mauritius, an island state of some 1860 km2 has a very fragile ecosystem. The critical factors are firstly, that the island is surrounded by a fragile coral reef barrier that protects its lagoon, its marine life and its sandy beaches and secondly, that the lands of Mauritius have a thin top soil layer. Any disruption of the existing equilibrium through the absence of cane or large scale abandonment of cane would cause irreversible damage to the whole ecosystem, with far reaching implications on the environment, the fishing sector, the tourism industry and the economy at large. Sugar cane covers more than 40 per cent of the island’s surface area to which it provides protection against the vagaries of the weather. After more than three and half centuries of cultivation, it constitutes a homogeneous and stable stratum within which equilibrium has been achieved. Sugar cane cultivation enables the establishment of a permanent cover throughout the year protecting against soil erosion while maintaining moisture and increasing organic matter content. Sugarcane cultivation and processing has a relatively low negative impact on the environment and indeed several beneficial impacts, in comparison to other land-uses and can therefore contribute to environmental protection. For instance, it uses relatively low doses of agro-chemicals, through inter-alia recourse to biological control, breeding and adoption of cane varieties resistant to pests and diseases, in comparison to other tropical crops such as fruit and vegetables. It is wind resistant

and its strong root system that binds the soil. Being a perennial crop, it maintains the soil structure untouched for several successive years and is thus a very effective in controlling soil erosion. Modern processing methods have been adopted resulting in a very clean and efficient industry in comparison to other industries, with a range of cost-effective options for recycling and re-using waste streams. If sugarcane was to be replaced with a less stable crop in the steeply sloped marginal areas, then soil erosion and subsequent sedimentation and/or eutrophication problems may occur in downstream reservoirs or lagoons, as nutrients are washed off in top-soils. The same conditions would occur if more agro-chemically intensive crops are grown. The environmental life-cycle benefits of sugar cane are significant, in that almost all of the by-products and waste streams are utilised in some way or other in an environment friendly manner, e.g. bagasse/ cane trash for power generation, filter cake/combustion ash as a soil conditioner, molasses as livestock feed ingredient or for the production of bio-fuel, vinasse for fertigation, composted or concentrated vinasse as an organic fertiliser etc. Sugarcane is also associated with aesthetic benefits, for example in the greening of islands such as Mauritius for tourism. It has to be pointed out that cane cultivation is maintained in certain areas of Hawaii for the specific purpose of ensuring greenery for the tourism industry. Thus the sugar industry provides two key assets to tourism: a green landscape and avoidance of pollution of lagoons through soil erosion. The following is relevant regarding sugar cane: (i)

of all cultivated plants, sugar cane is the most efficient converter of solar energy and in this sense is firstly, a major sequestrator of Carbon Dioxide and secondly, a major source of energy;

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(ii)

optimisation, using existing state of the art technologies, of the biomass potential of the cane plant without affecting sugar production would for a cane yield of 100 tonnes/ha result in the export of 12 000 kWh of electricity (avoiding the use of some 7 tonnes of coal) and the production of some 750 litres of ethanol from molasses for blending in a 20/80 mix with gasoline, avoiding the use of an equivalent amount of gasoline2;

(iv)

it is vital for soil conservation;

(v)

its minimal use of pesticides and its positive impact on soil structure avoid sedimentation and eutrophication in the pristine lagoons of Mauritius;

(vi) its substantial environmental benefits would considerably mitigate the higher environment footprint resulting from the long distances tourists have to travel when coming to Mauritius.

(iii) appropriate varieties, biological control of insects have resulted in only herbicides being used in cane cultivation; 4.

Food procurement

The import component in the case of sugar, excluding foreign exchange savings through the optimal use of its by products, is very low and represents less than 10 percent of the value of exports. Consequently, the net export earnings from the export of sugar have for decades enabled the country to have the means to procure its food needs.

Until 2004, i.e the year preceding the reform of the EU Sugar Regime, net sales under the Sugar Protocol were most of the time covering the food bill. Since then there has been a reversal, sugar prices are going down and food prices are ever rising. But net earnings from sugar are still important.

B. The challenges 1.

Changes in respect of preferential agreements

The development of Mauritius has for decades been dependent on preferential arrangements. Sugar benefited from a tariff preference as from 1919 and the concept of a guaranteed price based on efficient costs of production was introduced in the Commonwealth Sugar Agreement of 1951. This Agreement was improved in 1975 and appended as the Sugar Protocol to the various Lomé Conventions and then the Cotonou Agreement. Industrial goods including textiles and garments have been benefiting from tariff protection ever since the First Lomé Convention in 1975. Quota restrictions on third countries also afforded protection from 1975 to 2004 when the Multifibre Agreement came to an end. In addition, Mauritius benefited from preferential arrangements for its sugar and textile exports to the US.

In fact, no other country in the world has been so much dependent on preferential trade and the substantial economic growth over the last three decades was essentially driven by preferential accords. More than 95 percent of Mauritian exports are shipped to the EU and in this sense the Mauritian sugar industry is critically dependent on the EU’s Sugar Regime. The reform of the Common Agricultural Policy of the EU, the anticipated outcome of the Doha negotiations and the adverse finding of the WTO Panel on the direct and indirect export subsidies granted by the EU on sugar have prompted a major reform of the EU Sugar Regime. The main aspects of the reform relate to a price reduction of 36 percent, the elimination of the intervention/guaranteed price mechanism and the reduction of production in the EU by some 6 million tonnes. One major consequence of the

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

reform is that the EU will no longer export sugar to the world market and will be a net importer of essentially ACP and LDC sugar and GATT 1994 Article XXIV:6 quotas. Producers in the EU have been granted support amounting to some 64 percent of the loss incurred. Provision has also been made for support, termed Accompanying Measures, to the ACP, with conditionalities and economic and social performance indicators, which amounts to around 64 percent of the loss incurred. However, the actual percentage of the loss incurred that is being made good varies from country to country. In the case of Mauritius, which will lose some 570 M€ from 2006 to 2013 Accompanying Measures are estimated at some 250 M€ i.e some 44 percent of losses incurred. The findings of the WTO Banana Panel had a major impact on the Cotonou Agreement which was concluded in 2000. Reference was made therein that the EU and the ACP, in particular, the non LDCs, would have by 31 December 2007 to conclude WTO compatible trade arrangements in the context of Regional Economic Partnership Agreements (EPA). Regarding sugar, the EPA have created a new situation. Firstly, the Sugar Protocol, which concerned some 18 ACP countries, will be phased out as from 1 October 2009 and sugar preferences i.e no custom tariffs and no quotas will be extended to all ACP countries which are in a position to export sugar. Secondly, priority of access which since 1975 was afforded to the ACP signatories of the Sugar Protocol has been modified in favour of the LDCs. Thirdly, from 1 October 2009 to 30 September 2015, in order to prevent market disturbances, volume safeguard measures will be used whereby the mfn duty would be applied whenever quantities of imports are in excess of specified quantities. Fourthly, a special surveillance 2.

mechanism would be in place from 1 January 2008 to 30 September 2015 to ensure that the volumes specified for the ACP are not circumvented through access under tariff heading 1704.90.90(sugar confectionery), 1806 10.30 (Cocoa powder containing 65 percent or more sugar), 2106 90.59 (food preparations) and 2106 90.98 (food preparations). Two volume safeguard thresholds have been incorporated in Regional EPAs. For the 2009/2015 period, quantities of non LDC ACP exports will be limited to 1.38M tonnes in 2009/10, to 1.45 Mt in 2010/11 and 1.6 Mt from 2011/12 to 2014/15. The overall imports from all ACP States, non LDC and LDC, would be limited to 3.5 Mt. The details of the regional EPA applicable to Mauritius are at Annex 1. As of 1 October 2015, there would be no limitations on quantities; however, safeguard measures would come into force for tariff heading 1701 when the market price of white sugar falls during two consecutive months below 80 per cent of the European Community price prevailing during the previous market year. The current Sugar Régime lapses on 30 September 2015, the provisions applicable as of 1 October 2015, referred to above, could be signs that the EU market would tend towards complete liberalisation and that tariffs and other border measures resulting from the Doha negotiations would be the only forms of preferential treatment for the ACP. In such circumstances, EU prices would be directly linked to the level of border protection. In the new sugar environment, conditions of fierce competition would prevail. In a country such as Mauritius, limited by physical and economic constraints which impact adversely on yields and costs of production, reform has been bold, deep and comprehensive.

Reform

Major reform started ever since 2001, shortly after the EBA initiative, leading to duty and quota free access for sugar by the LDCs as from 2008, was approved by the EU member

states. From 2001 to 2008, two thirds of the employees of the sugar industry, who enjoy permanent employment, have accepted voluntary retirement packages. The number of

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sugar factories has been reduced from 11 to 6 and this number will come down to 4 in two years time. In addition, the practice of exporting raw sugar since 1929, which resulted from a UK Government policy decision discouraging the import of white sugar, will stop in 2009. Thereafter, Mauritius will export white sugar to the EU. Reform has taken a heavy toll on employment and on the revenue of small and medium producers in a country where in year 2000 one family out of every three in the rural areas depended directly or indirectly on sugar revenues. For decades, sugar provided meaningful revenue to the planters and gainful employment to employees who enjoyed permanent employment. Proceeds from sugar were instrumental in ensuring the social upliftment of vulnerable segments of the nation. Similar upliftments have been witnessed in the Caribbean islands relying on sugar and bananas. 3.

The 36 percent reduction in spite of the receipt of Accompanying Measures is to all intents and purposes a drastic one. Further reductions would be unbearable and render the sugar cane activity non-viable with consequences on export revenue and energy production from biomass. To complicate matters, Mauritius has since a few years been facing a string of unusual climatic events, in the form of cyclones, sudden downpours and prolonged drought. These events have impacted adversely on sugar and agricultural production. The dismantling of the Multifibre Agreement impacted negatively on the textile and garment sector. From 2003 to 2005, the sector was overhauled with a view to enhance vertical integration. 25 percent of the employees of this sector were laid off and output fell and it is only in 2007 that positive growth has been encountered in the sector.

Policy responses

The country has to cope with three major shocks: the substantial erosion of preferences in respect of sugar and textiles with erosion looming ahead for the fisheries sector; the steep increase in the price of oil and its attendant consequences on the prices of fertilisers; and the major rise of the price of food. The petroleum import bill has risen from Rs 6.5 billion in 2000 to Rs 22.3 billion in 2007 and is expected to be even higher in 2008. The share of petroleum in the total import bill has gone up from 12 percent in 2000 to 18 percent in 2007 and would exceed 20 percent in 2008. To sustain growth and to adapt to the erosion of preferences, Mauritius moved to the services sector namely financial services, ICT, real estate development in particular the Integrated Resort Schemes and the stepping up of the tourism sector to cater for some 2 million tourists as compared to slightly less than a million now. Apart from financial services all the other sectors are emerging ones and in that sense still fragile. Tourism and real estate development appeal to consumer segments that are very environment

conscious and for whom the issue of environment footprint is going to be critical. In this regard, it has to be noted that Mauritius compared to many islands is a distant and therefore may in a superficial analysis be construed as a high environment footprint generating destination. The role of sugar cane in minimising the overall footprint of the country has been described above. From the 1980s, Mauritius adopted an export led economic strategy on the premise that there would be a balance of obligations between exporters and importers in particular regarding trade flows in food. This premise is no longer valid. Indeed, 2008 witnessed a situation where some major exporters from the developing world adopted either export taxes or export restrictions/prohibitions against a backdrop of unprecedented increases of food prices and oil. The 2008/09 Budget Speech spells out the policy measures in respect of food security and renewable energy so as to meet the formidable challenges ahead.

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

Regarding food security the focus is upon attaining the highest level of self sufficiency through local and regional (Madagascar, Mozambique and Tanzania all three being LDCs) production and on reshaping demand for healthier foods. In this regard, rice and potatoes are targeted in terms of carbohydrates, maize and soya as inputs for poultry and egg production, soya as a raw material for the production of edible oil, and soya beans and pulses as vegetable proteins. As concerns energy, the emphasis is on energy saving and maximal recourse to renewable energy. It is planned to double the share of renewable

sources in terms of electricity production to around 40 percent of demand within the next decade. Cane biomass already contributes to some 18 percent of electricity production and the projects relating to enhanced quantities of cane biomass could bring this figure to nearly 33 percent i.e more than 80 percent of the effort to be made on renewables would be realised from cane biomass. Cane also holds the potential of contributing to self sufficiency in respect of transport fuels. Last but not least, cheaper energy from cane biomass can facilitate the purchase and thereby the smooth development of the more expensive renewables namely solar and wind energy.

C. Strategy at the WTO The strategy of Mauritius in respect of agriculture ever since 1997, when the Analysis and Information Exercise started, has been shaped by the characteristics of its agriculture and its regional alliances. Paper AIE 51 presented in 1999 marks the start of the Mauritian initiatives at the WTO. It is at Annex 2 to this report for ease of reference. The cornerstones of the Mauritian strategy have been firstly, the adequate protection of the preferences for sugar exports, secondly, the full and operationalised recognition of the constraints of Net Food Importing Developing Countries (NFIDC) and those of small and vulnerable economies (SVE), and thirdly, the provision of adequate policy space to allow agricultural development in a Small Island Developing State (SIDS).

To better defend its interests, Mauritius has in terms of alliances gone beyond its natural geographical and economic reaches namely the ACP and the African group. In this context, Mauritius has been an active member of the then Multifunctional Group, had in 2001 organised a 50 WTO member attended conference on Non Trade Concerns, and was a very active proponent along with 78 other WTO members of the Uruguay Round formula. In terms of organised groups, Mauritius is in addition to the ACP and the African group is a member of the G33, the G10, the group of NFIDCs and the SVE group. As a member of the COMESA and the SADC, Mauritius also participates in coordinating meetings whenever they are held.

B. The Falconer paper and the specific case of Mauritius 1. Domestic support

While there are many provisions in favour of Developing Countries (DCs) under this pillar including the one added in the July text to para 163, the real issue is the capability to grant support. For NFIDCs and SVEs generally constrained by the conditionalities imposed by donors/lenders and the dearth of financial resources, the Special and Differential

treatment (S&D) provisions may unfortunately turn out to be more of an academic nature. This reasoning is valid for the Export Competition pillar. And it is no surprise that the most meaningful pillar for NFIDCs and SVEs is the market access one where no fund outlays are required and in fact fund receipts are involved.

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1.1 Trade distorting support Mauritius did not make any commitments in the Uruguay Round in respect of Domestic Support. However, most of the measures used to support agriculture, sugar and non sugar, correspond to the schemes defined in Article 6.2 of the Agreement on Agriculture (AoA) 4 or fall within the de minimis 5 tolerance. In both cases, no reduction commitments are required.

Para 141 of the Falconer text refers to the provision by longstanding preference granting Members of “targeted technical assistance, including additional financial and capacity building assistance to help address supply-side constraints and to promote the diversification of existing production in the territories of preference receiving Members”. A fair part of such resources could be construed as domestic support.

The analysis in respect of Domestic Support and the other pillars takes into account G/AG/5/Rev.8 which gives the list of the NFIDCs and Annex I of the Falconer text which lists out the small, vulnerable economies. Mauritius falls into the two categories in Agriculture.

To address the problem of food security in food insecure countries, most of which are either LDCs or NFIDCs, the World Bank and the EU have been forthcoming and have indicated that additional resources would be made available.

For the NFIDCs, paragraphs of particular relevance are para 7 which exempts NFIDCs from making reduction commitments in respect of Overall Trade Distorting Support; para 17 which exempts NFIDCs from making reduction commitments in respect of Final Bound AMS; para 32 which allows the NFIDCs to continue having recourse to the provisions of Article 6.4(b) of the AoA 6. As indicated above, Accompanying Measures have been secured by Mauritius from the EU as a result of the reform of the EU Sugar Regime. A certain amount will, over a time span of seven years which started in 2006, be used to restructure and modernise the production set ups of and small and medium planters. The restructuring programme is in line with what is referred to in Article 6.2.

Such resources would in many countries accrue in the form of General Budget Support and Governments would then use these funds for agricultural development and production. The way forward could either be to specify that Article 6.2 is applicable or to clearly specify that funds used for food security purposes are exempt from AMS commitments through the use of language similar to the one used in the proposed new subparagraph (h) to be added to para 2 of Annex 2 of the AoA. In addition, the amendment to para 16 made in the July text whereby DCs with a total bound AMS of US$ 100 M or less would not be subjected to reduction commitments provides the policy space for all DCs who have a total AMS not exceeding US $ 100M, whether bound or otherwise, to have recourse to domestic support measures.

1.2 The Green box The various amendments proposed in the Green Box provide further policy space for the developing countries. Regarding food security, the amendments to footnotes 5 and 6 represent positive steps. However, there is need for some fine tuning having regard to the very acute food crisis, which will unfortunately not be short-lived. In this connection, the following is relevant:

(i)

food security goes beyond just nutritional food security and this element would have to be factored in;

(ii) food need not only be acquired for the poor but also for many segments of the population and this would have to be accounted for; in case it is difficult to

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

extend the coverage to all DCs, it could be made available for LDCs and NFIDCs; (iii)

in many countries, single desk buying (STEs) do not exist and food procurement is undertaken by non governmental entities, (Some may consider the language of footnote 6 to be sufficiently broad to cover all situations others may consider it to mean only food procured by Government).

Given the fact that NFIDCs and LDCs have a dearth of financial resources and are constrained by limitations to the budgetary deficits, it is assumed that the key concept in para 3 and 4 and footnotes 5 and 6 of Annex 2 is in respect of who procures and not about the sourcing of funds as many countries are expected to be receiving grants (World Bank and EU funds mentioned above) to reduce food insecurity. There are two types of crop insurance in Mauritius, the most important one caters for the whole of the sugar industry and is producer funded. Sugar insurance by producers is unique to Mauritius. It is considered that this insurance scheme falls outside the purview of AoA. Much smaller

schemes exist for other crops and are directly or indirectly Government funded. The major thrust to be given to food crop production would be essentially based from funds coming from Government’s budget. The proposals for the DCs in para 8 in particular the lower loss thresholds that would apply for losses, the flexibility for baseline data and the possibility, in the new footnote 8, to aggregate losses for sectors and regions are positive developments in the sense that they would facilitate the establishment and use of crop insurance schemes. The Falconer text does not impact on applied domestic support in the case of Mauritius as such support fell under the purview of Article 6.2 and Annex 2. In fact, the text provides a fair amount of policy space, in Article 6 and in Annex 2, which however, requires some fine tuning, to enable the country to implement its ambitions food security strategy as enunciated in the 2008/09 budget speech. In addition, the Falconer text, with some modifications, would have to ensure the exemption from domestic support reduction commitments of funds accruing under the EU Accompanying Measures and from the World Bank or other lenders and the EU.

1.3 Summary of support Table 1 indicates the forms of support granted to Mauritian agriculture and their categorisation in terms of the provisions of the AoA. Table 1: Ventilation of forms of domestic support Item

Article 6.2

De Minimis

Green Box

Government Service Programmes: general services

-

-

Yes

Yes

-

-

Yes

-

-

Restructuring Yes cane plantations through the use of EU Accompanying Measures

Direct and indirect Yes support to food crop growers from Government and other sources of funds

Outside the AoA and the WTO

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Table 1 continued Item

Article 6.2

De Minimis

Green Box

Support to agriculture in environmentally sensitive areas

Yes

-

Yes

-

-

-

-

Yes

-

-

Yes

-

-

-

-

Should be considered as a negative AMS

Crop insurance sugar

Crop insurance other crops

Sale of sugar below cost of production or below world market price to the domestic market

Outside the AoA and the WTO

1.3 Domestic support from the export perspective Agricultural exports of Mauritius are in respect of sugar and molasses, off-season fruits and vegetables and cut flowers. In value terms more than 95 percent of these exports are destined to the EU market, sugar and molasses accounting for nearly 99 percent of the exports to the EU. The same order of magnitude applies to the US. Contraction of sugar production over the past years and the removal of quantity limitations on sugar exports to the EU have resulted in the phasing out of Mauritian sugar exports to the US. Sugar, till the reform of the EU Sugar Régime was, in terms of the provisions of the AoA, benefiting from domestic support measures essentially in the form of market price support. Para 8 of Annex 3 of the AoA explains the methodology used to calculate the market price support of a product. The support is the product of the quantity of production eligible to receive support times the difference between an applied administered price and an external reference price being the average f.o.b. unit value in a net exporting country or the average cif unit value in a net importing country over

a specified based period. In the case of sugar, the intervention price was deemed to be an “applied administered price”. The EU Sugar Régime reform has abolished the intervention mechanism and the intervention price and has introduced a reference price which depends on the market and acts as a guide for prices. If on the one hand, it is assumed that the reference price is not an “applied administered price”, then there is no longer any domestic support granted to sugar. Accordingly, there is no need to proceed further with the analysis of the Falconer Text. If on the other hand, it is assumed that the reference price is an administered one, then the provisions of para 21 and 22 of the Falconer text have to be examined. These para state: 21. Product-specific AMS limits shall be set out in terms of monetary value commitments in Part IV of the Schedule of the Member concerned in accordance with terms and conditions specified in the paragraphs below. 22. The product-specific AMS limits specified in the Schedules of all developed country Members

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other than the United States shall be the average of the product-specific AMS during the Uruguay Round implementation period (1995-2000) as notified to the Committee on Agriculture…. The AMS for sugar was computed in the UR as the product of the quantity of sugar times the difference between the then administered price

and the then world price. This figure would be the maximum which cannot be exceeded. The “applied administered price” which prevailed at the time of the UR is being reduced by 36 percent as from 1 October 2009. In this regard, the proposals at para 21 and 22 ensure that the risks of the product specific AMS for sugar being exceeded are non-existent.

2. Market Access Market access in the case of Mauritius concerns five categories of products. Firstly, sugar exported to the EU; secondly, off season fruits and vegetables and cut flowers exported mainly to the EU; thirdly, products which are essential for the provision of proteins and carbohydrates and fourthly, fruits and

vegetables. The first four categories relate to local production. The last and fifth one comprises imports, the main ones being rice, wheat/flour, pulses, potatoes, onions, spices, unrefined edible oil, maize, soybean meal, meat, milk and dairy products and fruits such as citrus fruits, apples and grapes.

2.1. Sugar 2.1.1 Sugar in the Uruguay Round ACP/LDC exports and EU production were insulated against third country sugar even after the reduction commitments of the Uruguay Round were implemented, on account of the following elements : (i)

the initial and final bound tariffs expressed in specific terms were significant in comparison to the intervention price. The initial tariff for raw sugar was equivalent to 101 percent of the intervention price. The figure for the final bound tariff was 65 percent;

(ii) the Special Safeguard Clause (SSG) afforded adequate additional protection and even in years such as 1999 when world sugar prices went as low as 5 US cents / lb of raw sugar, third country sugar could not enter the EU market; (iii) the quantities imported by the EU from the ACP were duly reckoned in the determination of whether there would be additional access in the form of tariff quotas. The application of para 7 of the document “Modalities for the establishment of specific

binding commitments under the reform programme (MTN.GNG/MA/W/24 of 20 December 1993)” which indicated that “current access opportunities, which during the base period are in excess of minimum access opportunities as defined in para 5 above, shall be maintained and increased over the implementation period” resulted in no TRQ for third country sugar; there was therefore no internal competition to ACP sugar; (iv) sugar did not feature in the indicative list of tropical products used in the Uruguay Round (this indicative list is included in Annex G of the Falconer text); the preambular part of the AoA refers to “the fullest liberalization of trade in tropical agricultural products”. The relation between the level of the final tariff and the intervention price, the type of binding of the tariff, the adequacy of the SSG and the limitations to third country competition represent the effective “preference margin”. The proposals of the Falconer text in respect of sugar exports to the EU will therefore be examined from this perspective.

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Given the shift to be made by Mauritius in its exports to the EU from raw to white sugar as from 2.1.2

2009, the analysis of the Falconer’s text will refer to this type of sugar bearing HS code 1701.99.

Tariff reduction and determination of Ad Valorem equivalents (AVEs)

There are three steps involved. First, the conversion for purposes of implementing the tiered formula of the specific duties and other complex duties into ad valorem equivalents (AVE); second, the selection of a band and third, the rate of cut to be applied to the final bound tariff7. Mauritius and a certain number of ACP countries have ever since May 2005 challenged the methodology proposed to determine the AVE for sugar lines in chapter 17. As at date there is no consensus on the methodology to be applied. To this end , it is noted that footnote 7 of “Report by the Chairman of the Committee on Agriculture to the TNC” incorporated as Annex A to the Hong Kong Ministerial Declaration. (WT/ MIN(05)DEC)8 indicates that “The method for calculating the AVEs for the sugar lines is still to be established”. Moreover, TN/AG/W/3 of 12 July 2006 distinguishes sugar from other products and in para 26 of Annex A (“Draft guidelines for the conversion of final bound non ad valorem duties into ad valorem equivalents “), it is indicated that “For all tariff lines for raw and refined sugar, [world prices] [or other prices] will apply” The brackets in this para highlight the absence of agreement on sugar tariff lines. For purposes of the analysis of the Falconer text, the AVE for sugar would be determined by the

ratio of the UR final bound tariff to the world price (NY No 11 contract for raw, London LIFFE for white sugar) as adjusted for freight for a base period with both prices expressed in the same currency i.e the euro. There are two ways of choosing the base period, any combination before 2005 i.e prior to the sugar price reductions pursuant to the reform of the EU Sugar Regime or after 2005 i.e when price reductions became effective. Regarding base periods, it is noted that there are several ones. 1995 to 2000 or 1995 to 2004 in the Domestic Support pillar; 1999 to 2001 in Annex A of TN/AG/W/3 and 2003-2005 in Annex C (Basis for calculation of tariff quota expansion) of the Falconer text. All of the periods are pre 2005 ones and the likelihood is that the base period for sugar would be a 2002-05 or a 2003-05 one. Taking the world market price referred to above for the 2003-05 period the AVE for white sugar is in excess of 75 percent, implying that sugar would be in the last tier (where AVE have to be greater than 75 percent) where the Falconer text is proposing cuts between 66 to 73 percent, these two figures being however in brackets. An “other price” ( the term used in TN/AG/W/3) which is more reflective of the ACP situation in the current currency context is not very likely to result in an AVE which is less than 75 percent.

2.1.3. Sensitive products and Tariff Quota expansion The Falconer text allows the designation of sensitive products but requires that compensatory measures in the form of Tariff Quota (TRQ) expansion be taken. Para 74 spells out the relationship between the deviations vis a vis the tiered formula and the TRQ expressed in terms of domestic consumption. The greater the deviation, the higher the TRQ. Para 77 applies a reduction factor in situations where the existing bound tariff quota volume exceeds 10 percent or more of domestic consumption.

In 1993, ACP and India imports amounting to 1 304 700 t were in excess of 10 percent of the domestic consumption of the EU 15. These quantities were bound as a TRQ in the UR schedules under a 4 digit HS code 1701 in line with the provisions of the Sugar Protocol and the EC/India agreement which allowed the import into the EU of both raw and white sugar from India and the ACP. If the 2003-05 period is chosen i.e prior to the EU becoming a 25 member Union, then market

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access has to be viewed from the broader perspective which includes not only the UR negotiations but also the GATT Article XXIV:6 quotas and the Everything but Arms initiative. Subsequent to the conclusion of the UR, the EU granted further TRQ in the context of GATT 1994 Article XXIV: 6 negotiations relating to the access of Finland. Negotiations regarding the accession of Rumania and Bulgaria into the EU from the perspective of this Article would lead to additional quotas of some 530 000 t raw value. All such negotiated quantities are bound at the WTO. In 2001 the EU came up with the Everything but Arms (EBA) initiative for the LDCs which provided a phased entry from 2001 to 2007 with duty and quota free access becoming possible as from 2008. The importance given to existing market access opportunities in the Falconer text is minimal and is in line with the very high ambition aimed by the text. Indeed, those countries having provided meaningful access opportunities and those which have facilitated access of LDC originating products are being given meagre credits, much lower than was applicable in the UR. Moreover, the text ignores the provisions of para 47 of the Hong Kong Ministerial Declaration, namely “developed country members….. agree to implement duty free and quota free market access for products originating from LDCs” and Annex F thereof , namely “provide duty free and quota free market access on a lasting basis , for all products originating from all LDCs by 2008 or no later that the start of the implementation period in a manner that ensures stability, security and predictability”. The EBA initiative of the EU fully implements the provisions of both para 47 and Annex F. In a new provision, as compared to the May text, which is at para 76, the July text indicates that “If, after application of all its tariff reduction commitments (i.e. including its sensitive product deviation entitlements),” a developed country Member would still have some of its tariff lines in excess of 100 percent ad valorem, that Member shall be entitled

to retain these values provided that it applies a higher expansion of 0.5 percent of domestic consumption for those tariff lines concerned. There is a more limitative proposal which is bracketed. Does this provision impact on white sugar, HS code 1701.99. At an AVE of 186 percent a deviation of one third leaves a final tariff of 99 percent. For purposes of para 76 it is yet to be ascertained whether for sugar the 0.5 percent would apply on an individual tariff line at 6 digits or for a cluster of products at 4 digits. The deviations imply a price to be paid and the one third one is the less costly in terms of TRQ expansion. Indeed, this expansion has to be viewed against a background where quantity limitations are being imposed on the non LDC ACP and the LDCs to avoid market disturbances. On the basis of the figures of para 74, 76 and para 77, and assuming that the EU stays within the limits spelt out in para 719, one third deviation could lead a TRQ equivalent 3 to 5 percent10 of domestic consumption i.e 480 000 to 800 000 t11. The two thirds deviation could lead to TRQs of 640 000 to 960 000 t12. The entry of these additional quantities calls for some questions: (i)

Would these quantities as are the Article XXIV:6 ones be over and above the 3.5Mt threshold for the ACP (LDC and non LDC) in which case EU producers would have to further reduce quotas and it is probable that further price cuts be needed; such additional cuts being to the detriment of the ACP;

(ii) Price reductions would of course depend on the timeframe in which quotas would be expanded, a shorter timeframe is bound to result in market disturbances whilst a longer one is less of a market depressor. Para 79 refers to four instalments, a first one at the start of the implementation period and 3 instalments at the expiry of each twelve month period which means that the additional access will take place

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over an effective, and short, timeframe of three years.

quotas in spite of what was on the table in TN/AG/W/313 of 12 July 2006.

(iii) Would the TRQ be within the ACP EPA threshold in which case low cost competitive exporters would crowd out the ACP countries which have secured, and paid for, their quantities in the context of reciprocal trade accords?

(vi) Would there be a revisiting of the sugar provisions of the Interim Agreements of the EPAs;

(iv) What would be the overall impact of the entry of mfn, and possibly non ACP sugar? Depending on the level of the in quota tariff , the additional quantities coming from cost competitive suppliers have the potential to depress prices; (v)

Mfn sugar may also mean ACP sugar, how would the new quotas be reconciled with the provisions of the Interim Agreements of the EPAs which have not reckoned with the possibility of the existence of new

(vii) Would the deviations in respect of the rates in the tiered formula be sufficient to protect ACP and EU sugar, this issue is addressed later. Tariff expansion in respect of sensitive products. The 1993 Modalities document proposed that tariffs be expanded in equal instalments. Para 79 proposes a more ambitious time table through front loading although there has been movement between the May and the July texts in that the timeframe has been extended by a year. In the light of the preceding para, such a mode of implementation would be to the disadvantage of the ACP/LDC exporting sugar to the EU.

2.1.4 Tariff simplification In para 101, wholly bracketed, the Falconer text proposes that all bound tariffs be expressed in ad valorem terms. This proposal is analysed for a one third deviation situation from a 70 percent fourth tier rate. The figure of 70 percent is the mid-point between 66 to 73 percent being negotiated for the fourth tier. For purposes of the analysis, the following is relevant: (i)

the AVE for sugar for purposes of applying the tiered formula would be 186 percent;

(ii)

with a one third deviation from 70 percent i.e a reduction rate of 46.9 percent, the AVE would come to 99 percent and the final specific duty to 222 euros;

(iii) with a two thirds deviation i.e a reduction rate of 23.1 percent, the AVE would come to 143 percent and the final specific duty to 322 euros. The real impact of tariff simplification has to be assessed at times of low sugar prices. To

this end the prices of 1999 when the raw price came down to 5 US cents /lb (110 US $/t fob) will be used. The conversion to cif prices for white sugar, taking into account recent trends in freight rates, yields a white sugar price of 200 $/t. Another key element in the analysis is the dollar/exchange rate. In 2001, the euro was worth 0.82 $, it is now worth 1.6 US$ and there are no signs that the appreciation of the euro vis a vis the dollar will stop. To test the system at its limits, a rate of one € equal to 2.0 dollars is taken. In these circumstances, the world price is 100 €/t. Table 2 shows the difference in protection between a specific duty and an ad valorem one in the future when the white sugar reference price would have come to 404€/t. Protection, also termed the cover of the reference price, is determined by the ratio of the sum of the tariff and the world price to the reference price (404€/t) expressed as a percentage. For this exercise, it is assumed that there is no SSG.

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

It is assumed that at a cover of 105 percent or more , sugar is adequately protected from sugar coming from the third world

and that the internal price is sustainable. Otherwise, the price has to be adjusted to restore protection.

Table 2: Protective effect of a specific duty and an ad valorem one in times of low sugar prices i.e 100 €/t Situation

Additional duty (specific duty ) €/t

One third deviation

222

99

80

49

322

143

104

60

Two thirds deviation

Additional duty (ad valorem duty) €/t

In the best of cases (a two thirds tariff deviation) the exercise of tariff simplification would require a price cut of 63 percent, as opposed to the current 36 percent, to attain a reference price cover of 105 percent. Such a cut would be unbearable for theACP , the LDCs and the EU producers. It is clear that the process of tariff simplification would further erode the preference margin when prices are low on the world market i.e at the time when protection is most needed. In fact this process would negate whatever

Cover afforded by specific duty percent

Cover afforded by ad valorem duty percent

additional protection, albeit limited, would have been obtained by the costly designation of sensitive products on account of the payment of compensation by way of a TRQ. There is therefore no substitute for the binding of tariffs in specific terms. The combination of the tariff reductions proposed in para 61 and the process of tariff simplification would lead to a very high level of ambition which means that the term “substantial” in para 13 of the Doha declaration is interpreted from a maximalist perspective.

2.1.5 Tariff escalation The reduction of tariff escalation is an ongoing process in Multilateral Trade Negotiations (MTN) and has to be reckoned with. As mentioned later on tariff escalation measures could result in a relaxation of export taxes. The issue is not so much the additional reduction proposed to address tariff escalation but rather the depth of the cut brought about by the tiered formula and the binding of tariffs in AVE terms. Product wise, cocoa powder containing added sugar or other sweetening matter HS code 1806.10 has

to be watched. In addition, the ACP would have to ensure that the products for which the ACP countries would be under surveillance in the EPA do not find their way in the list of products at Annex D on tariff escalation. It is noted at para 86 that tariff escalation treatment would not apply to “any product that is declared as Sensitive”. The only question is whether 1806.10 is more linked to Chapter 17 or to Chapter 18.

2.1.6. Tariff quotas The phasing in and the in quota tariffs of the sensitive product compensatory quotas is of import to the ACP/LDC exporting to the EU. The issue of competition has already been addressed above. Para 79 of the Falconer text provides that: “The first instalment shall occur on the first day of implementation and be a minimum of one quarter of the total additional domestic consumption.

The remaining three-quarters of the total shall be added in three steps at the expiry of each subsequent twelve-month period”. The ACP have been seriously beset by the 36 percent cut and need at least seven years from 2009, the year in which the 36 percent reduction will take place, to restructure their sugar industries and a price depressing expansion of TRQs would be harmful to them.

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The in-quota tariff issue has to be viewed from two perspectives as there would be two distinct types of quotas. Firstly, the GATT Article XXIV: 6 quotas destined for refining operations and secondly, the new quotas arising from the Doha negotiations which are fairly likely to accrue to port refining operations. The UR bound tariff quota was in respect of the 4 digit HS code 1701, it is assumed that the EU given the nature of its Sugar Regime and its contractual trade obligations would once again have a tariff quota in terms of a 4 digit HS code .This would enable it to address the possible needs of its refiners (raw sugar) and industrial users (white sugar) and the agro industry (sugar containing goods). For Mauritius in its new marketing strategy, the amount of white sugar in the additional TRQs would be the most pertinent figure. In this context, it has to be recalled that the ACP would, pursuant to the Regional EPA, be subjected by the EU to a special surveillance mechanism from 1 January 2008 to 30 September 2015 to ensure that the volumes specified for the ACP are not circumvented through access under tariff heading 1704.9099, 1806 1030, 2106 9059 and 2106 9098. Para 105 refers to the reduction of in quota tariffs and provides special conditions for developing countries, SVEs and RAMs. It is proposed that “all in-quota tariffs shall be reduced either

by (50-70) percent or to (zero-15 percent14), whichever results in the lower tariff. This shall be implemented on the same time-frame as for final bound tariff reductions under the tiered formula except that any mfn in-quota tariff rate already bound at or below 5 percent per cent ad valorem shall be reduced to zero at the end of the first year of the implementation period.” On the basis of the above, the in quota tariff could in the case of raw sugar destined for refining, on the basis of a 70 percent reduction, 28 euros/t for existing (Finland) and new (Rumania and Bulgaria) GATT Article XXIV: 6 quotas. It is possible that the same tariff applies for new quotas or that a tariff 15 percent of the current world price15 is applicable i.e. 38 euros /t16. The existence of substantial GATT Article XXIV: 6 quotas (when the Rumania and Bulgaria negotiations are concluded) could mean that mfn sugar comes in with an average tariff of 33 euros/t. At such tariffs, sugar coming from the very competitive major exporters would be in a good position to compete with ACP/LDC sugar. The EU market would be supplied by the EPA countries, the non EPA LDCs , the non ACP LDCs, the Article XXIV:6 quotas and the new quotas if sugar is designated a sensitive product. Some of the sugars would be covered by existing EU rules which may or may not incorporate the provisions of the forthcoming Annex E . Then there would be the need to harmonise the appropriate rules.

2.1.7. Special safeguard clause This clause has been very effective to protect ACP and LDC sugar from 1995 to date. Its efficacy for sugar is based on three elements: (i)

the operating mechanism;

(ii) the methodology to derive the trigger price; and (iii) the ratio between the trigger price and the “applied administered price” (so far the intervention price for sugar).

The Falconer text in para 117 stipulates that “Developed country Members shall reduce to 1.5 per cent of scheduled tariff lines the number of lines eligible for the SSG” or “Eliminate the SSG” . The EU and the ACP have time and again underscored the need for the maintenance of the SSG with the same terms and conditions. It is assumed that the mechanism governing the SSG as defined in para 5 of the AoA will remain, however, its final form would be decided in the course of the negotiations.

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

In para 116, the text when referring to DCs indicates that “the terms and conditions of the SSG shall remain unchanged from the URAA terms and conditions except that the tariff rates concerned shall be updated to reflect the outcome of the Doha Round negotiations.” The text is silent as to what would happen to the SSG for developed countries. Would the trigger price remain the same or would there be modifications? In this regard, the following is relevant: (i)

changing the value of the trigger price to reflect either the changes in the internal price of sugar or the rate of reduction of tariffs;

(ii) changing the value of the trigger price

to maintain the current ratio of trigger price to the administered price; this figure turns out to be the same as the one for a 36 percent price reduction; (iii) tariffication of the SSG on the basis of applied SSG over a base period and then reducing it by the relevant tariff reduction rate. On the basis of deviations of one third and two thirds from 70 percent; worldwide prices of 100 € /t as indicated above and future tariff bindings in specific terms, the impact of a modified SSG has been assessed in terms of the cover of the reference price. The results are given in table 3.

Table 3: Impact of possible modifications of the SSG Type of modification of the SSG Trigger price17 reduced by 36 percent

Trigger price reduced by tariff reduction rate stemming from one third deviation18 or two thirds deviation19

SSG Tariffied20 and then reduced21 by 46.9 percent and 23.1 percent

Cover of reference price for a one third deviation ( percent)

Cover of reference price for a two thirds deviation € ( percent)

102

127

95

135

95

126

From table 3 it can be inferred that the one third deviation does not afford adequate cover whilst the two thirds deviation is effective in all cases. A two third deviation without the SSG provides a cover of 104 percent as

indicated in table 2 above. If there is, no change to the trigger price i.e. it stays at 531€/t this yields reference price covers of 126 percent and 151 percent for one third and two thirds deviations respectively.

2.1.8. Tropical products Two proposals are made in respect of tariff reduction at para 138 of the text. In the first one, tariffs would be reduced by 85 percent and no country would be able to designate any product deemed a tropical one as a sensitive product. In the second one, the reduction referred to in para 61(d) i.e between 66 and 73 percent subject to certain adjustments would apply. It is also assumed that the opponents of the SSG would object to the use of the SSG for sugar. If sugar were to be included in the list of tropical products, a reference price cover of 105 percent

for white sugar would only be attained if the world price is above 361 €/t. 22This price is well above prices prevailing most of the time on the world market. Accordingly, the proposal on tropical products would represent a death blow for the ACP and will compel the ACP to withhold consensus. In the case of Mauritius, it would spell disaster for an industry which is already vital and will remain so in the future. Regarding the consensus issue, the major difficulties encountered and the very arduous negotiations that took place in Doha in respect of the Cotonou and banana waivers have to be borne in mind.

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The text in annex G contains two lists of tropical products, a first one incorporating the contentions of the proponents of the fullest liberalisation in tropical products which contains tariff lines 1701 11 (raw sugar) and 1701 99 (refined or white sugar) and a second one which was an indicative list used in the Uruguay Round and which does not contain any tariff line from chapter 17 of the HS code. The issue of fullest liberalisation is not a new one in MTN and several attempts were made in the past to arrive at a decision. Progress was made in the UR and as indicated above reference is made in the preamble of the AoA. In this context, an indicative list at 4 digit level was used in the UR. The list comprising those goods which are essentially produced in tropical and sub tropical regions referred to raw material, unprocessed goods, semi processed goods and processed goods. Substantial reductions were made on many products and quite a few are at rates which are lower than 10 percent. Texts on the issues of tropical products and longstanding preferences were negotiated in the July 2004 Framework Agreement (adopted by all WTO Members) and para 43 and 44 thereof are relevant, namely: 43. “Full implementation of the longstanding commitment to achieve the fullest liberalisation of trade in tropical agricultural products and for products of particular importance to the diversification of production from the growing of illicit narcotic crops is overdue and will be addressed effectively in the market access negotiations. 44. The importance of long-standing preferences is fully recognised. The issue of preference erosion will be addressed. For the further consideration in this regard, paragraph 16 and other relevant provisions of TN/AG/W/1/Rev.1 will be used as a reference.” The two adopted texts refer to the need to address both issues and do not in any manner

whatsoever assign any hierarchy between them. The first list in Annex G aims at covering a larger spectrum of products and in so doing has included products of chapter 17 of the HS code which are produced all over the world and therefore arguably do not fall within the definition of tropical products. This point has been time and again stated by the EU and the US who have unequivocally indicated that sugar will never be considered as a tropical product by them. Winners and losers. The “friends” of tropical products are winners on many counts: substantial reductions of tariffs, limitation of the designation of sensitive products, reduction of tariff escalation and in all likelihood major reductions in tariffs of genuine tropical products. Last but not least, in the EU, and other GSP schemes, actual tariffs are for a large number of products lower that the WTO mfn bound rates. The “recipients” of preferences, given their limited territories and resource base, will face substantial preference erosion. Taking into account the provisions of agreed texts, the winner/loser context, the proposed hierarchy in the Falconer text (last indent of para 14023) whereby tariff escalation and tropical products have precedence over preferences is difficult to understand. It must be noted that the Falconer text does leave a window where the interests of the two groups could be reconciled in particular the mention of Annex “X”. A comparison of the first list in Annex G with the list in Annex H, it is found that only 20 tariff lines appear on both lists out of 94 lines in Annex G and 54 lines in Annex H. In quite a number of cases, the tiered formula, the GSP schemes would resolve matters. In actual fact, areas where reconciliation would be arduous are husked or brown rice (1006 20), bananas (0803 00) where the ACP and the friends of tropical products have been fighting via panels ever since the 1990s, cut flowers

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

(0603 10) where duties are low and would be closer to 5.0 percent at the end of the Doha Round and sugar (1701 10 and 1701 99).

(ii)

Just as sugar, rice is not a tropical product and Japan will never agree that rice becomes such a product. Regarding the history behind Annex 5 of the AoA and Japan. Regarding sugar, the following has to be noted: (i)

only very few of the friends of tropical products are involved in sugar exports; at least two of them are already exporting more than the total ACP exports to the EU under the Sugar Protocol;

the EU as a result of the WTO Panel on export subsidies has removed some 6 Mt from the world market creating opportunities for others and in particular the cost competitive suppliers some of which are advocating fullest liberalisation of tropical products;

(iii) the ACP will enjoy preferential access on the EU market in the context of regional EPAs which have a reciprocal dimension, in other words the ACP have paid for the access of their sugar as from 2009 whilst they enjoyed non reciprocal trade accords from 1975 to 2007.

2.1.9. Longstanding preferences The first part of para 140 deals with the issue of tariff reductions. The two proposals go in the same direction, notwithstanding their contents, namely that they purport to give breathing space to the ACP. The first one gives a ten year moratorium followed by a five year implementation period and the second an implementation period of 10 years i.e “two years longer than the implementation period for developing country Members for tariff cuts under the tiered formula.” Paragraph 16 of TN/AG/W/1/Rev.1 (Harbinson text of 2003) referred to in para 44 of the Framework Agreement provided for a 2 year moratorium and a slightly longer implementation

period than the one applicable to developed countries but the level of ambition in the Market Access pillar was significantly lower in the Harbinson text when compared to the Falconer text. As indicated earlier and as shown in the preceding analysis on tariff reduction, tariff simplification, deviations and compensation for designation of sensitive products and the recourse to the SSG, the level of ambition in the text poses a serious threat to the ACP and indeed the LDC sugar exporters, who are already affected by the 36 percent cut. The high ambition would lead to further price cuts which are going to be unbearable and therefore unacceptable.

2.1.10. Choices to be made by the ACP Certain instruments in the market access pillar can provide relief to the ACP. However, it is clear that not all of them will be used at the same time. In this regard, the ACP will have to make choices: either para 140 or Sensitive products. The above mentioned ACP Ministerial resolution on sugar has clearly indicated a preference for para 44 of the Framework Agreement and the maintenance of the current SSG. In the event sugar is designated as a sensitive product, which appears clearly as a second choice, the ACP Ministers call for the lowest TRQ expansion and spread over as long a time as possible preceded by a grace period. Moreover, the determination

of the quantities of the TRQs would have to reckon with current access. The analysis above has shown at a fourth tier tariff reduction of 70 percent that firstly, the SSG, as is, is a very effective protective instrument and secondly, the two thirds deviation is more effective in protecting the ACP at very low sugar prices However, the two third deviation is not for free, it is accompanied by additional TRQ for some 640 000 to 960 000 t. Additionally the following is relevant: (i)

the additional TRQs and the GATT Article

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XXIV:6 quotas would mean that there would be more than one million tonnes of mfn sugar in the EU in comparison to non LDC ACP sugar limited to 1.6 M tonnes; (ii)

additional mfn sugar entering at a very fast rate would crowd out EU production with serious risks of market disturbances;

(iii) mfn sugar would come from very competitive major sugar suppliers; (iv) sugar coming in incorporated products would be over and above the above mentioned TRQs; (v)

there is always a risk of the EU introducing

2.2

direct sugar limiting regulations and thereby reducing sugar consumption; the recent recommendations to this effect by experts commissioned by the FAO/WHO have to be borne in mind. On the basis of the above, the choice made by the ACP Ministers as evidenced in the above mentioned Addis Ababa Resolution is logical. The last step is the determination of the moratorium period and this is linked to the start of the implementation period of the outcome of the Doha negotiations and the end of the current Sugar Regime which will be followed by a nearly liberalised market with possibly lower sugar prices. However, internal prices will depend on the level of border protection which implies that the ACP has to be very careful on this issue.

Off-season exports and cut flowers

The exports of these products are essentially destined for the EU market and an analysis of the EU tariff schedule has been carried out. The level of tariff reductions, the fact that some of the products (cut flowers 0603 10) fall within the purview of tropical products imply that these exports would minimally or no longer depend on tariff preferences.

Table 4 indicates some of the products of interest for Mauritius and the fate of the mfn tariffs thereon in the EU. The figures in the table highlight the need to have recourse to measures other than tariffs to maintain exports.

Table 4: Products of interest to Mauritius Product

Tariff line

UR final bound tariff percent

Cut flowers

0603.10.20: from 1.6 to 31.10

12.0

6.0

0603.10.60: from 1.11 to 31.5

0.0 to 6.0 depending on which option of para 135 is used.

8.5

4.3

0.0

0603.90.00

10.0

5.0

O804.50.00

0.0

0.0

0.0 to 5.0 depending on which option of para 135 is used.

Mangoes

Pineapples Papayas

0804.30.00

0807.20.00

Other Fruits i.e 0810.90.91 and Fresh tamarinds, 0810.90.92 lychees, carambola, pithaya

Tariff after application of tiered formula percent

5.8

2.9

0.0 to 8.8

0.0 to 4.4

0.0

25

0.0

Tariff after fullest liberalisation of tropical products percent

0.0

0.0

0.0

0.0

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

The most important exportable product is cut flowers and in the US, for products under HS code 0603.10, the UR final bound tariffs are lower than 10 percent and would as per the proposals of the Falconer text be reduced to 0 percent. In the case of Japan, these final bound rates for 0603.10 are already at 0 percent. In such circumstances, exports would have to be based on compliance with phytosanitary norms, product quality, off season and just in time delivery elements. The issue of environment footprints will also arise in

the near future. More and more in the developed world and even in many emerging developing economies, market access opportunities will be governed by commercial deals which are shaped primarily by what the hypermarkets and price discounters consider as being the preferred choice of consumers and subsidiarily by what is agreed in the WTO. This is particularly applicable to fruits, vegetables and flowers and much less to sugar although fair trade considerations are slowly invading sugar trade.

2.3 Food security products (e.g poultry and potatoes) This part is devoted to the Special Products (SP) and the Special safeguard Mechanism (SSM) i.e para 120 to 137 of the Falconer text. Three aspects are of interest to Mauritius; firstly, the depth and breadth of the provisions on SP and SSM; secondly, the additional space provided for small, vulnerable economies, and thirdly, the products to be designated as special products. The SP and the SSM part of the Falconer May text have been analysed by the G33 in JOB (08)/ 47 of 3 June 2008. This paper raises a certain number of issues which if unaddressed would constrain the DCs in the use of the SP and the SSM. While Mauritius as an SVE can enjoy the additional flexibility provided for in para 121 in respect of the SPs, the proposals of the G33 on the SSM are very pertinent for Mauritius.

The following paragraphs indicate how matters stand and have evolved from May to July. Special Products : (i)

There are fewer brackets in the July text on the flexibility that would be available for the SPs but the figures are lower than certain figures in the February text;

(ii) The footnote that limited the transfer of sensitive products not used to SPs in the May text no longer appears in the July text; (iii) there is more flexibility for the RAMs in the July text.

SSM: (i)

The provisions of para 121 and para 122 of the May text have been merged into what is now para 123 of the July text with the exception that the part which limited the recourse to the SSM to a certain number of products in any given twelve month period has been deleted and this is to the advantage of the G33;

(ii)

Para 123 and para 124 of the May text have been merged.The new text, para 124, still proposes the use of the “preceding three year period” as opposed to the G33 which advocates the “most recent three year period for which data is available” for the volume based SSM; the G33 proposal is more adapted to the specific situation of most DCs.

(iii) In para 124, the brackets on the trigger levels have been removed. However, the concept of “applied tariff” which is unacceptable to the G33 has been retained. This would mean that additional duties would be minimal as in many cases the applied tariff is low or zero and much lower than the bound tariff and this is well below what the G33 is expecting; (iv) The flexibility on volume or price based remedies to exceed pre Doha bound levels under certain conditions extended to LDCs is in para 135 now extended to the SVEs as was the case in the February text;

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(v) Para 125: the G33 did not agree with the inclusion of the bracketed part i.e “except where a volume increase is entirely attributable to a scheduled tariff rate quota increase under Doha implementation phasing” in the May text, this provision still exists; (vi) Para 126 and 127: the applicability of the remedy starts whenever the import price falls below 85 percent of the trigger price as opposed to 70 percent in the May text; there is more flexibility for the additional duty which should not exceed 85 percent of the difference between the import price and the trigger price as opposed to 50 percent in the May text; (vii) regarding the disclosure of the trigger price the G33 points out that this can only be done after the “initial use” of the instrument; (viii) Para 128: the G33 understands the term “normally” as meaning each Member is free to self-determine a suitable policy space and exemptions to the normal application of the cross-check mechanism; (ix) Para 129: the exclusion of the provisions of para 134 of the February text, which allowed the inclusion of preferential trade in the calculation of volume and price triggers provided that the remedies are also applied on preferential trade, is regretted by the G33 and the inclusion of provisions on such trade called for; (x)

Para 131: the G33 considers that this para seriously limits the scope of application of the SSM;

(xi) Para 132: the G33 calls for a longer timeframe to notify its implementation of the SSM to the Committee on agriculture;

(xii) Para 134 to 136 : provision is made for the sum of duties to exceed UR bound rates; (xiii) Para 137: the G33 wants Article 4.2 of the AoA also to be amended in the light of the provisions of the SSM. (xiv) The SVEs would enjoy substantial flexibility in respect of the SP and para 121 indicates that: a. “In the case of small vulnerable economies, including those among them which are ceiling binding and homogenously low binding countries, they may, if they choose to do so, apply the moderated tariff tiered formula for SVEs provided for in paragraph 65 plus the Special Product entitlement outlined above. Alternatively, they may chose not to apply the tiered formula but simply meet an overall average cut of 24 per cent through having in effect opted to designate as many tariff lines as they choose as Special Products. The tariff lines so chosen need not be subject to any minimum tariff cut and need not be guided by the indicators.” (xv) Poultry, eggs and potatoes are the most likely products to be chosen as SPs in the case of Mauritius on account of their importance in ensuring a fair level of food security. (xvi) The ambit of food security is much wider than SP and SSM or even tariff reductions, indeed, the market access provisions have to read alongside the relevant measures explicited in the part on domestic support and the forthcoming analysis of food security issues from the Export Competition and export restriction and prohibition perspectives.

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

2.4. Local fruits and vegetables The flexibilities offered by para 121 in terms of tariff reduction afford the space for action. However, the real challenges facing these sectors are more in terms of quality and timely

supply in a country that is aspiring to receive 2 million tourists in the medium term and to become a reliable player in upmarket real estate development to fuel its economic growth.

2.5 Imports Mauritius has three final rates which were finalised in 1993/4 and submitted to the WTO and incorporated. 37 percent for bovine meat, milk and dairy products, potatoes, onions, peas, coconuts, almonds, bananas, oranges, grapes and apples. 82 percent for green and black tea, wheat, maize, semi milled or milled rice, shelled groundnuts, preserved tomatoes and frozen orange juice. All other items are at 122 percent. At all times in a basically net food importing country which imports most of its requirements, zero tariffs were applied on basic food items. As time went by, Mauritius became a more and more open economy and rates of applied duties fell accordingly. Thus there is a wide difference between bound and applied rates and this has the potential of enhancing the bargaining power of Mauritian negotiators in the final stages of the Doha negotiations. Moreover, pursuant to para 121 of the Falconer text, Mauritius has the possibility to exclude SPs from reduction commitments and to apply an overall

rate of 24 percent. Given the small number of SPs, although the two products identified could mean a higher number of tariff lines, it is expected that the overall rate for non SP products would be fairly close to 24 percent. The situation in an NFIDC that is worried by export restriction and prohibition measures and has to combat inflation is quite complex. It has to resolve an apparent paradox where it has on the one hand, to encourage local production and protect it and on the other hand, to ensure that imports are as cheap as possible. Mauritius is in this situation. It is endeavouring to obtain adequate policy space at the WTO and creating conditions to maintain affordability of food. In this regard , the recent budget has abolished custom duties on a number of products such as canned tomatoes and other vegetables ; chicken and eggs ;yogurt ;peanut butter, salted nuts and ground nuts i.e. products which are being produced locally.

3. Export competition The July text introduces under the heading “General” new provisions, in para 151, on the acquis of the NFIDCs and the LDCs, namely that nothing in the modalities can be construed to diminish in any way “the existing commitments contained in the 1994 Marrakesh Decision on NFIDCs and LDCs and in the 2001…..Decision26 on inter alia, commitment levels of food aid, provision of food aid by donors, technical and financial assistance in the context of aid programmes to improve agricultural

productivity and infrastructure, and financing normal levels of commercial imports of basic foodstuffs.” Para 151 enables the NFIDCs and the LDCs to firstly, seek for more flexibility in respect of the financing of normal levels of commercial imports, on say export credits and secondly, on technical and financial support to improve agricultural productivity and infrastructure.

3.1. Export subsidies Access of ACP sugar was facilitated in the EU by the fact that export subsidies were available on a volume of EU sugar equivalent to the amount of ACP sugar, SOME 1.6 M tonnes expressed in

white sugar equivalent, entering the EU. This arrangement which dated back to 1975 at the time of the inception of the Sugar Protocol was incorporated in the EU schedule in the UR.

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This incorporation was instrumental in enabling many ACP sugar exporting countries to agree to the conclusion of the UR. However, the WTO Panel on export subsidies did not accept the arguments of the ACP and found that the EU was contravening its WTO commitments. The reform of the Sugar Regime, inter alia on account of the findings of the WTO Panel, has completely overhauled the trade flows of the EU which will become a net importer moving from the status of major net exporter it had since the 1970s. In this context, Mauritius which will face the 36 percent price cut, can only take note of the proposals at para 152 and 153 which are

in fact reflecting what has already taken place in the EU. The lesson to be drawn on the export subsidy issue is that the Dispute Resolution System of the WTO considers context and Agreements and schedules from the legal perspective and avoids examining political choices of countries, however difficult they might have been. Thus in the export subsidy Panel, the choices of the ACP and the motivations thereof were not taken on board. The ACP and indeed any Member should keep this aspect in mind. The more as all modalities documents, those of 1993 and those of 2006 to 2008, clearly point out that these documents cannot be used in dispute resolution.

3.2. Article 9.4 of the AoA Mauritius had canvassed actively for additional flexibility in respect of Article 9.4 and the Falconer text is satisfactory. Paragraph 4 refers to subparagraphs (d) and (e) of para 1 of Article 9. These two subparagraphs are for ease of reference given below: (d) “the provision of subsidies to reduce the costs of marketing exports of agricultural products (other than

widely available export promotion and advisory services) including handling, upgrading and other processing costs, and the costs of international transport and freight; (e) internal transport and freight charges on export shipments, provided or mandated by governments, on terms more favourable than for domestic shipments”.

3.3. Export Credits, Export Credit Guarantees or Insurance Programmes It is unfortunate that at in a time of food security rules are being implemented on export credits, export credit guarantees and insurance programmes. NFIDC are being, in para 5 of Annex J, afforded longer timeframe to repay credits given. This

measure however welcome is not sufficient for the NFIDCs. Indeed, there should be flexibility/ incentives given in respect of risk cover, the extent of risks taken by exporting countries and foreign exchange risk hedging. These items are being slated for phasing out as indicated in subparagraphs (b), (c) and (d) of para 1 of Annex J.

3.4. Agricultural exporting State Trading Enterprises Para 6 of Annex K addresses the concerns of Mauritius, considered as a small, vulnerable economy in this annex namely: “In any case, agricultural exporting state trading enterprises in least-developed country Members and Members, small, vulnerable economies, whether or not they enjoy such special privileges to preserve domestic consumer price stability and to ensure food security, shall be permitted to maintain or use monopoly powers

for agricultural exports to the extent that they would not be otherwise inconsistent with other provisions of this Agreement and other WTO Agreements.” This provision would enable the single desk seller, the Mauritius Sugar Syndicate a non profit making association regrouping all sugar producers, to continue its activities and ensure that producers enjoy the benefits of economies of scale which such an organisation can bring about.

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

4. Export restrictions and prohibitions and export taxes These are very important issues for Mauritius. Early this year, Mauritius had to face the full brunt of export taxes and export prohibitions which were imposed without any prior notice. Similarly, the Philippines and some Asian countries had the same predicament as Mauritius. Such decisions represent a tall order for a small island which as an NFIDC has to import most food items.

GATT 1994 be limited to the necessary minimum to prevent or relieve critical shortages of foodstuff, taking into consideration the exporting Member’s demand and supply for the relevant foodstuff as well as food security situation of the importing Members. No export prohibitions or restrictions for protective, promotional or other commercial purposes shall be instituted or maintained.

The text introduces proposals to reinforce the language of Article 12 of the AoA. However, the language is mild in regard to what took place early this year.

It is noted that there are no disciplines proposed for export taxes28. In the past many of those implementing export taxes pointed out that it was an instrument to counter tariff escalation. Now that tariff escalation is being meaningfully reduced, the quid pro quo could be the introduction of disciplines on export taxes.

The language will have to be amended27 as follows: (i)

(ii)

prior notice should be given instead of notification after the coming into force of a measure as indicated in para 155; provision of relevant information, including the reasons, the duration of measures and the list of major destinations of the product or products to be affected by the measures;

(iii) the institution of a consultation process with members whose food security would be impaired; (iv) the possibility to have an independent assessment, if needed, to assess the advisability of introducing export restrictions or prohibitions report; It should also be ensured that any new export prohibitions or restrictions under Article XI.2(a) of

5.

Meaningfully balancing the rights and obligations of exporting and importing countries necessarily means that export restrictions and prohibitions and export taxes be adequately disciplined. From an S&D perspective, flexibility should be introduced in favour of LDCs and small, vulnerable economies for all measures relating to export restrictions and prohibitions and export taxes. In para 11 of Job(02)/182 (Annex 4) a paper presented by Mauritius on 19 November 2002 entitled “Specific input by Mauritius :Food Security “ it was pointed out that (i)

“there should be no export taxes on food destined for LDCs and NFIDCs; and there should be no export restrictions in respect of food destined to LDCs and NFIDCs”.

Geographical Indications (GIs)

Just as for export taxes29, there are no proposals on geographical indications. So far only wines and spirits are covered but not the vast array of products of great import to a large number of DCs. The question of balance has been raised in respect of developed and DCs and regarding

the rights and obligations of exporting and importing countries. Balance is also pertinent in the case of GIs when the numerous norms, described above in the case of the powers of hypermarkets and discounters, which the DCs have to comply with when exporting their products are taken into consideration.

ICTSD Programme on Agricultural Trade and Sustainable Development

C. Concluding remarks Tables 5, 6, 7 and 8 summarise the evaluation of the Falconer text in the basis of the analysis conducted above. The tables also refer to what could be the Mauritian perspective. However, the comments in the table are those of the author of this paper and in no manner whatsoever represent the official view of Mauritius. Each table refers to a particular pillar .However, the

market access one includes GIs whilst the export competition one includes export restrictions and prohibitions and export taxes. The requirements of Mauritius are based on the numerous papers presented by Mauritius alone or as member of a group ever since the Doha Round and include Job (02)/161 (Annex 3) and Job (02)/182.

(i) Table 5: Evaluation of the Falconer Paper: Domestic support Requirement of Falconer text

Mauritius

Comments from the Mauritian perspective.

Maintenance or broadening of scope of Article 6.2

No change to Article 6.2

Recognition of status of NFIDCs

Exemption from reduction Interesting notwithstanding the commitments in respect of base fact that Mauritius did not make OTDS and final bound AMS. any commitment on domestic support in the UR.

Acceptable

Maintenance of the percentages in Article 6.4 on the de minimis

No change to de minimis figures of Article 6.4

Acceptable

Maintenance of product specific AMS for sugar in the EU

Para 21 and 22 allow the specific AMS of sugar to remain unchanged.

The 36 percent cut in sugar prices ensures that the product specific AMS as would be scheduled at the end of the Doha negotiations would not be exceeded

Protection for the use funds accruing under EU Accompanying Measures and received in respect of food security Adequate policy space in Green Box

Sources: by Gowreeshankursing Rajpati

Not very clear language. For instance proposal in para 137 regarding financial assistance to beneficiaries of longstanding preferences has no counterpart in the Domestic Support pillar Subject to the point made above, amendments to the Green Box provide adequate policy space.

Provisions of Article 6.2 or the Green Box, or both, have to be fine tuned.

Acceptable

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

(ii) Table 6: Evaluation of the Falconer Paper: Market Access sugar Requirement of Mauritius

Falconer text

Moderate level of ambition

High level of ambition evidenced by inter alia very high tariff cuts, high compensation for designation of sensitive products, tariff simplification for all lines, restrictions on the SSG.

Conversion to ad valorem for sugar taking into account specificities of the ACP countries.

No reference or change is made to the provision of TN/AG/W/3 of July 2006 where it was indicated that the issue of AVEs for sugar was not settled.

Designation of sensitive products to fully reckon current access of ACP and the LDCs

•

•

•

High compensation and limitation of importance of current access to a much lesser extent than what was obtained in the UR.

The proposal that a further payment be made to cater for a final AVE >100 percent nullifies whatever credit could be obtained for current access.

Comments from the Mauritian perspective.

Mauritius has two choices: limit ambition or negotiate an appropriate carve out for sugar or do both. Maintain the stance of may 2005 in respect of the conversion of specific duties of sugar into AVEs until such time as there is no certainty on longstanding preferences. •

Greater recognition of current access and recognition of the EBA initiative.

•

Long implementation period for TRQ expansion and out of quota tariff reduction.

Frontloaded implementation of tariff quota expansion

AVE solely used for tiered formula and no tariff simplification

Tariff simplification proposed.

This proposal would be very damaging to Mauritius. Negotiations on the fate of the SSG and the trigger price have to be closely monitored

Sugar excluded from the list of tropical products.

Restricts recourse of the SSG to a limited number of tariff lines and is silent on the fate of the trigger price i.e its level and its possible tariffication and subsequent reduction as a tariff. •

Maintain the current SSG for sugar.

•

Moratorium and longer implementation period for tariff reduction along with other measures, the SSG in particular. Sources: by Gowreeshankursing Rajpati

Does not give a definitive view as to whether sugar is included in the list of tropical products or not. Gives precedence to tropical products and tariff escalation over products benefiting from longstanding preferences in para 140, although the possibility of having a special list is mentioned.

The first part of para 140 caters for the requirements of Mauritius but there is no definitive proposal in this para and the door is still open for negotiations

•

Sugar should not be in the list of tropical products.

•

There is no text which assigns precedence of tropical products and tariff escalation over longstanding preferences.

Moratorium and longer implementation period for tariff reduction along with other measures, the SSG in particular.

ICTSD Programme on Agricultural Trade and Sustainable Development

(iii) Table 8: Evaluation of the Falconer Paper: Market Access non sugar Requirement of Mauritius

Falconer text

Take note that low tariffs on off season products and flowers will be significantly reduce and even disappear.

The combination of the tiered formula and the reductions applicable to products in the list of tropical products will reduce most tariffs of relevance to Mauritius to zero and thereby the preference margin on these products.

Moderate tariff reduction for tariffs used by Mauritius. Maximum flexibility on SPs

Maximum flexibility on SSM

Reconcile food production and affordable food Extend GI protection to products other than wine and spirits

Comments from the Mauritian perspective.

Compliance with phytosanitary norms, product quality, off season and just in time delivery elements and reckon with the requirements of hypermarkets and price discounters.

Substantial flexibility afforded to SVEs in para 119

Acceptable.

Attempts to reconcile the widely diverging positions of exporters in particular from the developing world and the DCs who have serious food security and rural development concerns.

Align on the G33 position.

Substantial flexibility afforded to SVEs in para 119

Acceptable.

Substantial flexibility afforded to SVEs in para 119.

•

Use flexibility given in para 119.

Silent

•

Apply low tariffs or no tariffs.

Extend GI protection to products other than wine and spirits

Sources: by Gowreeshankursing Rajpati

(iv) Table 7: Evaluation of the Falconer Paper: Export competition Requirement of Mauritius

Falconer text

Maintenance of Article 9(4).

Article maintained.

Effective measures in favour of NFIDCs and LDCs in respect of export credits

Maintenance and use of monopoly powers for agricultural exporting STEs

•

Para 151 provides the negotiating space to seek further flexibilities for NFIDCs and LDCs.

•

NFIDCs and LDCs benefit from only longer timeframes.

Maintenance and use of monopoly powers for agricultural exporting STEs in the case of LDCs and SVEs.

No export restrictions and prohibitions on food destined to LDCs and NFIDCs.

Mild proposals on this issue.

No export taxes on food destined to LDCs and NFIDCs.

Silent on export taxes

Sources: by Gowreeshankursing Rajpati

Comments from the Mauritian perspective. Acceptable.

Use para 151 to obtain greater lexibility for NFIDCs and LDCs required in respect of risk cover, the extent of risks taken by exporting countries and foreign exchange risk hedging Acceptable.

Inter alia use para 151 to canvass for joint Swiss/Japanese proposal and ensure flexibility for NFIDCs and LDCs Inter alia use para 151 to canvass for no export taxes on food destined to LDCs and NFIDCs.

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

From these tables, it appears that the Falconer text to a very large extent meets the requirements of Mauritius in the Domestic Support pillar. In the Export Competition one, the only improvement relates to the scope of S&D for NFIDCs and LDCs. Regarding the domestic market, the proposals in respect of the Market Access pillar go a long way to meet the concerns of Mauritius except for the issue of greater flexibility in the use of the SSM. However, for issues of major concern to Mauritius there is either uncertainty or the inadequacy/ absence of proposals. Regarding sugar, the level of ambition for reduction of border protection

viewed against the backdrop of fluctuations in world market prices and dollar/euro exchange rates along with the unresolved issues of tropical products and longstanding preferences; create a climate of uncertainty at this stage of the negotiations that would have to be addressed. The inadequacy of the proposals on export restrictions and prohibitions and the absence of proposals on export taxes in a situation of food crisis and the application of these measures by some countries, early this year, is matter for serious concern to Mauritius and NFIDC which has to import nearly all the food it consumes.

ICTSD Programme on Agricultural Trade and Sustainable Development

Annexe CUSTOMS DUTIES ON PRODUCTS ORIGINATING IN ESA STATES 1. Without prejudice to paragraphs 2, 4, 5, 6 and 7 customs duties of the EC Party (hereinafter “EC customs duties”) shall be entirely eliminated on all products of Chapters 1 to 97 of the Harmonized System, except those of Chapter 93 thereof, originating in a ESA State upon the entry into force of this Agreement. For products of Chapter 93 the EC Party shall continue to impose the applied MFN duties. For indicative purposes the schedule of EC customs duties applicable to products originating in a ESA State is appended to this Annex. 2. EC customs duties on the products of tariff heading 1006 originating in the ESA States shall be eliminated as from 1 January 2010, with the exception of EC customs duties on the products of subheading 1006 10 10 which shall be eliminated as from the entry into force of this Agreement. 3. The EC Party and the Signatory ESA States agree that the provisions of Protocol 3 of the Cotonou Agreement (hereinafter the “Sugar Protocol”) shall remain applicable until 30 September 2009, and that thereafter the Sugar Protocol shall no longer be in force between them. For the purposes of Article 4(1) of the Sugar Protocol, the delivery period 2008/9 will last from 1 July 2008 to 30 September 2009. The guaranteed price for 1 July-30 September 2009 shall be decided following the negotiation provided for in Article 5(4). 4. EC Customs duties on products of tariff heading 1701 originating in an ESA State shall be eliminated as from 1 October 2009. Until EC customs duties are entirely eliminated, and in addition to the allocations of tariff rate quotas at zero duty set out in the Sugar Protocol, a tariff rate quota at zero duty of 75000 tonnes shall be opened for marketing year30 2008/2009 for products of tariff heading 1701, white sugar equivalent, originating in the ESA States. No import license shall be granted with regard to products to be imported under this additional tariff rate quota, unless the importer undertakes to purchase such products at a price at least equal to the guaranteed prices fixed for sugar imported into the EC Party under Sugar Protocol. 5. (a) The EC Party may, during the period between 1 October 2009 and 30 September 2015 impose the applied Most Favoured Nation duty on the products originating in ESA States of tariff heading 1701 [sugar] imported in excess of the following levels expressed in white sugar equivalent, which are deemed to cause a disturbance in the EC Party sugar market: (i) 3.5 million tonnes in a marketing year of such products originating in States members of the African, Caribbean and Pacific Group of States (ACP States) signatory to the Cotonou Agreement, and (ii) 1.38 million tonnes in marketing year 2009/2010 of such products originating in ACP States that are not recognised by the United Nations as least developed countries. The figure of 1.38 million tonnes shall increase to1.45 million tonnes in marketing year 2010/2011, and 1.6 million tonnes in the following four marketing years. (b) The importation of products of tariff heading 1701 originating in any ESA State that is recognised by the United Nations as a least developed country shall not be subject to the provisions of sub-paragraph 5(a). However, such imports shall remain subject to the provisions of Article 21 (safeguard clause)31. (c) The imposition of the applied Most Favoured Nation duty shall cease at the end of the marketing year during which it was introduced.

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

(d)

Any measure taken pursuant to this paragraph shall be notified immediately to the Joint ESA-EC Implementation Committee and shall be the subject of periodic consultations within that body.

6. As of 1 October 2015, for the purpose of the application of the provisions of Article 21 (safeguard clause), disturbances in the markets of products of tariff heading 1701 may be deemed to arise in situations where the European Community market price of white sugar falls during two consecutive months below 80 percent of the European Community market price for white sugar prevailing during the previous marketing year. 7. From 1 January 2008 until 30 September 2015 products of tariff heading 1704 90 99, 1806 10 30, 1806 10 90, 2106 90 59 and 2106 90 98 shall be subject to a special surveillance mechanism in order to ensure the arrangements provided for in paragraph 4 and 5 are not circumvented. In the event of a cumulative increase of imports of such products originating in ESA States by more than 20 percent in volume during a period of 12 consecutive months compared to the average of the yearly imports over the three previous12 month periods, the EC Party shall analyse the pattern of trade, the economic justification and the sugar content of such imports and, if it considers that such imports are used to circumvent the arrangements provided for in paragraphs 4 and 5, it may suspend the preferential treatment and introduce the specific MFN duty applied to imports pursuant to the European Community Common Customs Tariff for products of tariff heading 1704 90 99, 1806 10 30, 1806 10 90, 2106 90 59 and 2106 90 98 originating in ESA States. Sub-paragraphs 5(b), (c) and (d) shall apply mutatis mutandis to action under this paragraph. 8. Between 1 October 2009 and 30 September 2012 with regard to the products of tariff heading 1701, no preferential import license shall be granted unless the importer undertakes to purchase such products at a price not lower than 90 percent of the reference price set by the EC Party for the relevant marketing year. The Parties take note that at the time of initialling of the Agreement the reference price is contained in Regulation (EC) 318/2006. 9. Paragraph 1, 3 and 4 shall not apply to products of tariff heading 1701 originating in ESA States and released for free circulation in the French overseas departments. This provision shall be applicable for a period of 10 years. This period shall be extended for a further period of 10 years unless the Parties agree otherwise.

ICTSD Programme on Agricultural Trade and Sustainable Development

ENDNOTES 1.

Current landed price of coal, this price is expected to continue to rise in relation to the increase in the price of oil.

2.

When ethanol is used at these levels, its lower calorific value compared to that of gasoline is compensated by its octane enhancing effect. Thus one litre of gasoline can be replaced by one litre of ethanol.

3.

The addition has been referred to in the previous part.

4.

government measures of assistance, whether direct or indirect, to encourage agricultural and rural development are an integral part of the development programmes of developing countries, investment subsidies which are generally available to agriculture in developing country Members and agricultural input subsidies generally available to low-income or resource-poor producers in developing country Members.

5.

10 percent for product specific support and 10 percent for non product specific support.

6.

10 percent de minimis.

7.

Para 61 of the Falconer text specifies “Developed country Members shall reduce their final bound tariffs in equal annual instalments over five years in accordance with the following tiered formula.” (highlighting ours).

8.

Para 4 of the Hong Kong Declaration points out that “We take note of the report by the Chairman of the Special Session on his own responsibility (TN/AG/21, contained in Annex A).”

9.

Extract of para 71 of the Falconer text “Each developed country Member shall have the right to designate up to [(4) (6)] per cent of tariff lines as “Sensitive Products”.

10.

The figures are arrived by deducting the 1 percent referred to in para 74 for deviations which are less than two thirds and 0.5 percent for bound current access in excess of 10 percent of domestic consumption.

11.

Consumption assumed to be 16 M tonnes white sugar equivalent.

12.

Equivalent to 4 to 6 percent of domestic consumption.

13.

Revised draft modalities for Agriculture.

14.

It is assumed that the figure of 15 percent is an ad valorem one.

15.

US $ 380/t or 253 €/t

16.

15 percent of 253 €

17.

Trigger price = 340€, SSG =90 €

18.

Trigger price =282€, SSG= 63 €

19.

Trigger price =408€ , SSG= 123€

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Gowreeshankursing Rajpati — Implications for Mauritius of the July 2008 Draft Agricultural Modalities

20.

Applied SSG = 113 € for an average price of195€/t

21.

Additional tariff after tariff reduction.=58 € for one third deviation and 86 € for two thirds deviation.

22.

In today’s terms this means a world fob price of 520 US $/T, current prices are at 390 $/t, most of the time sugar prices are below 520 $/t.

23.

“Where, however, there is an overlap between products subject to this provision and those covered by the tariff escalation and/or tropical products provisions, the latter provisions shall prevail, except for the specific list of products identified in Annex X on which tariff reduction commitments shall proceed as is specifically determined in that Annex.”

24.

It was the combined efforts of the sugar producing countries, led by Brazil , Mauritius and the US, at the FAO and the WHO that led to the rejection of the report of the experts.

25.

50 percent reduction for tariffs in the first tier, re para 61 of the Falconer text.

26.

Decision on the Implementation-related Issues and Concerns of 14 November 2001.

27.

These proposals are similar to those made by the joint Swiss/Japanese paper of April 2008.

28.

The correct terminology would be “differential export taxes”.

29.

Pour mémoire, para 49 of Annex A of the Framework Agreement states “Issues of interest but not agreed: sectoral initiatives, differential export taxes, GIs.”

30.

For the purpose of paragraphs 4, 5, 6 and 7 “marketing year” means the period between 1 October and 30 September.

31.

For this purpose and by derogation to article 21, individual State recognised by the United Nations as a least developed country may be subject to safeguard measures.

www.ictsd.org

ICTSD’s Programme on Agricultural Trade and Sustainable Development aims to promote food security, equity and environmental sustainability in agricultural trade. Publications include: •

Value Chains and Tropical Products in a Changing Global Trade Regime. Issue Paper N0.13 by Charles Mather, 2008

•

Trade Effects of SPS and TBT Measures on Tropical and Diversification Products. Issue Paper No. 12 by Anne-Célia Disdier, Belay Fekadu, Carlos Murillo and Sara A. Wong

•

Tropical and Diversification Products Strategic Options for Developing Countries. Issue Paper No. 11 by Santiago Perry, 2008.

•

Implications of Proposed Modalities for the Special Safeguard Mechanism: A Simulation Exercise. Issue Paper No. 10 by Raul Montemayor, 2007.

•

Trade and Sustainable Land Management in Drylands. Selected Issue Brief, 2007.

•

A Comparison of the Barriers Faced by Latin American and ACP Countries’ Exports of Tropical Products. Issue Paper No. 9 by Jean-Christophe Bureau, Anne-Celia Disdier and Priscila Ramos, 2007.

•

South-South Trade in Special Products. Issue Paper No.8 by Christopher Stevens, Jane Kennan and Mareike Meyn, 2007.

•

The ACP Experience of Preference Erosion in the Banana and Sugar Sectors: Possible Policy Responses to Assist in Adjusting to Trade Changes. Issue Paper No.7 by Paul Goodison, 2007.

•

Special Products and the Special Safeguard Mechanism: Strategic Options for Developing Countries. Issue Paper No. 6 by ICTSD, 2005.

•

Lessons from the Experience with Special Products and Safeguard Mechanisms in Bilateral Trade Agreements. Issue Paper No. 5 by Carlos Pomareda, forthcoming.

•

Methodology for the Identification of Special Products (SP) and Products for Eligibility Under Special Safeguard Mechanism (SSM) by Developing Countries. Issue Paper No. 4 by Luisa Bernal, 2005.

•

Special Products: Options for Negotiating Modalities. Issue Paper No. 3 by Anwarul Hoda, 2005.

•

Tariff Reduction, Special Products and Special Safeguards: An Analysis of the Agricultural Tariff Structures of G-33 Countries. Issue Paper No. 2 by Mario Jales, 2005.

•

The New SSM: A Price Floor Mechanism for Developing Countries. Issue Paper No. 1 by Alberto Valdés and William Foster, 2005.

For further information, visit www.agtradepolicy.org. ABOUT ICTSD Founded in 1996, the International Centre for Trade and Sustainable Development (ICTSD) is an independent non-profit and non-governmental organization based in Geneva. By empowering stakeholders in trade policy through information, networking, dialogue, well-targeted research and capacity building, the centre aims to influence the international trade system such that it advances the goal of sustainable development.