FACTBOX: Sensitive products in the WTO's Doha round

July 22 - The treatment of politically sensitive food products is one of the trickiest issues in the agriculture talks in the World Trade Organization's (WTO) Doha round to open up world trade.

This technical issue is extremely complex but its outcome will determine potentially the biggest gains from the round in market access for food exporters such as Australia and Uruguay.

Ministers are meeting from July 21 to agree the outlines of a deal in agriculture and industrial goods. The farms talks are taking place on the basis of a draft text revised on July 10 by the chairman of the agriculture talks, New Zealand's WTO ambassador Crawford Falconer.

TARIFFS

The draft negotiating text for agriculture, revised by the chairman of the talks, New Zealand's WTO ambassador Crawford Falconer, on February 8, envisages cuts in tariffs on agricultural products according to a formula.

If a country reduces its tariffs, it makes it easier for exporters in other countries to sell in its market, but increases competition for its own producers. So lower tariffs can foster trade but with a political cost at home.

The formula prescribes steeper cuts on higher tariff bands. Developed countries make bigger cuts than developing countries.

FLEXIBILITIES

One of the main waivers of this type is for "sensitive products". Both developed and developing countries can declare a product sensitive, for political reasons, and get a smaller cut in tariffs.

Developed countries would be able to designate 4-6 percent of their products as sensitive, or 6-8 percent if more than 30 percent of their products are in the top band of the tariff formula. The tariff on these products would be cut by one third, one half or two thirds of the formula cut.

Developing countries would be able to designate one third more of their products as sensitive, i.e. 5.3-8 percent. The reduced tariff cut would be the same as for developed countries.

THE PAYMENT

In return for this smaller tariff cut, countries must let in a quota of the product at a lower tariff, the lower of 0-15 percent or a 50-70 percent cut for developed countries, and half that for developing, with no or smaller cuts for new members.

How this quota is calculated is one of the trickiest questions in the talks, and of vital interest to food exporters.

For developed countries this quota would be 4-6 percent of domestic consumption of the product if the full two-thirds deviation is applied, and 3-5 percent if one third is used.

For developing countries, the quota expansion would be two thirds of the volume for developed countries.

DOMESTIC CONSUMPTION

The quotas are based on domestic consumption. But often data for consumption of different products in different countries is not available. The key issue has been to agree how to estimate.

A major question is whether the quota would apply to a broad category, such as wheat, or a narrower "sub-category", often processed from the raw material, such as wheat flour, or a narrower category still, such as pasta or biscuits.

Exporters prefer a broader categorization, as it would put a wider range of products into the quota. Importers prefer the more detailed categorization which allows them to pinpoint protection across a range of commodities.

Most food trade is in raw materials rather than processed products. Exporters keen to sell unprocessed commodities such as sugar and wheat are worried the inclusion of processed goods like sweet drinks and biscuits would reduce consumption figures, and hence quotas, for the raw materials.

Countries keen to minimize sugar imports, say, have an interest in allocating as much of the quota as possible to processed products.

THE PROPOSAL

The proposal includes a list of about 450 products to be used by all WTO members that could be declared sensitive. (These products are at the 6-digit level of the internationally used Harmonized System of customs nomenclature (HS6). Further calculations are needed for more detailed levels of products.)

These categories include both "core" products and processed products. For instance in the wheat category, there are 28 HS6 products, including two core products -- durum wheat, and wheat other than durum, moderately processed products like wheat flour and highly processed products like pasta or biscuits. (Processed products can appear in more than one category, so biscuits also feature under sugar.)

For each product category, domestic consumption is calculated by taking production data, usually readily available, and adjusting it for exports, imports and stocks.

The consumption of the broad category is then subdivided using a set of weights to calculate consumption of processed products. This gives a major share, usually 90 percent or more, to core products and little or no weight to processed ones, so that the greatest weight goes to the most traded core products.

Separate calculations are proposed for fruit and vegetables and certain dairy products. This is a big concern for developing countries that have specialized in fruit and vegetable exports.

And a quota based on these calculations is open to all products in the category. So if wheat flour is sensitive, the quota would be based on consumption of wheat flour but products imported in the quota could be any wheat product.

Major importers are providing consumption data to give exporters an idea what the proposal would mean in practice.

(Reporting by Jonathan Lynn)