While the Hong Kong Declaration allows self-designation of Special Products (SPs), this paper discusses how SPs should be designated and categorised.

By Linu Mathew Philip
Research officer, Centad
Ashutosh Kumar Tripathi
PhD scholar, Centre for Economic Studies and Planning, JNU, New Delhi

One of the key issues in negotiations at the WTO talks that were recently suspended is flexibilities in market access. Developing countries, led by the G33, have articulated their position on Special Products (SPs) and the Special Safeguard Mechanism (SSM).

This paper attempts to designate and categorise agricultural tariff lines being earmarked as SPs in India, based on development criteria, and suggests future options in a scenario of possible tariff reductions (click here to read the full paper).

What the rules say
Special and Differential (S&D) treatment was an important and integral element of Article 20 of the Agreement on Agriculture, recognising the domestic compulsions of countries. This offered special freedom and flexibility to countries in future negotiations.

The provision of S&D treatment was extended after a marathon negotiation in July 2004, and WTO members agreed to a framework agreement incorporating concerns like sensitive Special Products (SPs) and a Special Safeguard Mechanism (SSM). The WTO Ministerial meet in Hong Kong, in December 2005, endorsed these provisions.

Developing countries were granted the privilege of self-designating an appropriate percentage of agricultural products with flexibility to avoid strict reduction commitments based on the criteria of food security, livelihood security and rural development needs.

Segregation of products
This paper attempts to segregate products on the basis of food security, livelihood security and rural development needs. In terms of products, there is a high tariff convergence to product, which indirectly displaces domestic production via substitution in high-demand pockets. This has huge consequences and tremendous implications on the value chain of processing of the agricultural product. As India is standing on the threshold of an agribusiness/Brown Revolution, the provision of SPs would give it time and policy space in product diversification. The present selection exercise combines different products, keeping diversity in mind, maintaining regional and product equity and minimising the risk of product exclusion.

The draft agenda in Hong Kong has given some flexibility in terms of the appropriate number of tariff lines based on the above criteria. But countries with a huge agrarian interest in terms of poverty and dependence should have the flexibility to assign a high percentage of lines commensurate with their domestic concerns.

The present analysis shows that there are close to 57% of products that can be designated ‘special’. From the way the negotiations are proceeding, however, even 20% is prescribed as high and as circumventing trade.

This argument is baseless as, for many lines, trade does not even take place for a number of non-tariff reasons, and the special provision endorsed cannot be abolished on the pretext of trade. Developing countries should be cautious, as any limiting criteria or exclusion of products as proposed by Thailand and Malaysia could dilute this privilege, while many countries may not be able to designate even a single product. Export interests cannot be the basis of designation, as most small farmers in developing countries have a high level of subsistence and livelihood concerns that cannot be sacrificed at the behest of some vested export interest.

Designating tariff lines
The calculation exercise in the paper reveals that at least 21% of lines are ‘special’, based on development indicators. Developed countries have been pitching for 1 or 2% of sensitive tariff lines and oppose any reduction or tariff quota expansion. Developed countries have only around 4% of their population dependent on agriculture, and these percentages match well with their pattern of agriculture.

In the Indian context, however, if each chapter at HS-2 (harmonised level) has at least 1% of lines as ‘special' then it invariably adds up to 33%. Thus, the proposal of limiting SPs to a few lines was not in any way endorsed in Hong Kong ; rather it was a percentage.

It is important to mention that average applied duties in India are lower than bound duties, and there is no cause for apprehension in terms of allowing a high percentage as flexibility on the total tariff lines. A high level of SPs would be essential if cuts in the modalities are steep in the banded formula. Subsequently, it can reduce the percentage of tariff line categorised under SPs.

Another option is to assess the impact of trade flows and, in cases where short-term import surges cause serious instability in prices, developing countries should have the flexibility to shift the lines categorised as SPs. The provision endorsed through the SSM can take care of a surge in imports, but in view of their short-term nature and taking into account farming decisions and difficulties in operations, an additional flexibility should be granted allowing developing countries to switch lines during the period of implementation.

Tariff Rate Quotas (TRQs) can also serve as alternative, viable and concessional options in the framework, if developing countries feel the provisions are misused or there is a threat of circumventing fair trade.

The paper concludes that the real quest of isolating or demarcating tariff lines is a difficult task, given the wide inequities in terms of income and broad development indicators across India. If a pre-conceived percentage is set, there is the obvious risk of misinterpretation and the development effort initiated through the Doha Development Round will be in vain.

The designation of SPs is one of the crucial development instruments in trade for developing countries and for Indian farmers. It is the basic trade safety net that will go a long way in providing a country legitimate time and policy space to adjust to the multilateral trading framework.

August 2006