2. RICE AND SENSITIVE PRODUCTS

The July Package leaves the market access provisions on SPPs and the SSM largely for subsequent negotiation. It is somewhat more explicit on the broad lines that will guide the selection (para. 31) and treatment (Para. 32 to 34) of the SSPs.

2.1 Selecting rice as a sensitive product

Surprisingly, the text fails to state the criteria regarding the nature or characteristics of the products that should guide their selection as sensitive. The lack of such criteria could mean that countries will be free to designate the commodities based on their own set of priorities and without further justification. As a result, the ability of governments to resort to the SSP exception will be constrained by the imposition of a ceiling on the number rather than by the nature of the commodities that can be included in the sensitive list.

The bulk of trade in rice is conducted in the form of products listed under the 1006 chapter heading of the Harmonized System Code of Commodity Classification, with a few other rice products classified under other chapters:

1006 Rice
100610 Rice in the husk (paddy or rough)
100620 Husked (brown) rice
100630 Semi-milled or wholly milled rice, whether or not polished or glazed: Parboiled:
100640 Broken rice

110230 Rice Flour
110314 Groats and Meal of Rice

230220 Bran, Sharps, Other Residues of Rice

In certain countries, rice also appears as a component of preparations classified under 190190 (preparations of cereals, flour, starch or milk).

Thus, a country wishing to exempt all forms of rice^[18] from the agreed tariff cut formula would have to designate not only those listed under the 1006 heading, but also those classified in the 110230, 110314, 190190 and 230220 tariff lines.

The July package gives an indication on how "a sensitive product" would be selected, by stipulating that a country "may designate an appropriate number, to be negotiated, of tariff lines to be treated as sensitive". It does not specify whether the tariff lines would be defined at the six-digit code (the highest level of product specification common to all countries in the HS international commodity classification developed under the auspices of the Customs Cooperation Council), or would correspond to the individual country tariff lines. The second interpretation would arguably place countries in unequal positions, as their tariff structures may contain tariff lines with 10 or more digit codes. For illustration, the number of tariff lines falling under the 1006 heading, for example, varies from just four in the case of Egypt, to 39 in the European Union.^[19] For reference, during the Uruguay Round Negotiations, countries that had carried out tariffication were allowed to identify products that would be subject to the Special Safeguard at the six-digit tariff line level. On the other hand, the calculation of tariff equivalents was made at the four-digit level of the HS, or at the six-digit level, if necessary.

2.2 Treatment of rice as a sensitive product

The July package provides some broad guidelines on the treatment of SSPs, stipulating, in particular, that the designation of a commodity as sensitive would not exempt a country from the obligation to improve "substantially" the market access for that particular commodity. Improvement ought to be through a combination of reduced tariffs and expansion of tariff rates quotas.

Indications are given on how the size of the compensatory MFN based tariff quota expansion will be determined, which should take into consideration the market access forfeited from the non-application of tariff cutting formulae. This could be a non-trivial exercise, especially if the product is defined at the six-digit code level or more, as quotas have to be established for all such products. At the same time, paragraph 33 also states that "balance will be found only if the final negotiated result also reflects the sensitivity of the product", meaning that market access requirements should eventually be less stringent for SSPs than for normal products. As a result, it is likely that countries would not be asked to increase their MFN tariff rate quota so as to fully compensate partners for not applying the general provisions on market access.

The SSP approach resembles the Special Treatment Clause (ST) of Annex 5 of the Uruguay Round Agreement on Agriculture (URAA), which enabled countries to maintain non-tariff barriers on specific products subject to well defined conditions. One requirement was to open and progressively increase minimum import quotas to an equivalent 8 percent and 4 percent, respectively for developed and developing countries, of base-period consumption by the end of the implementation period. The clause was mostly used to exempt rice from the general market access provisions, as five countries opted for "ST Annex 5" in their rice tariff schedules, namely Japan, the Republic of Korea, the Philippines and Taiwan Province of China. Only one, Israel, resorted to the Clause for other products, i.e. whole milk powder, cheese and sheepmeat. Before the end of the implementation, however, Japan and Israel ceased to apply the Clause and tariffied. In doing so, Japan replaced the "minimum access quota" associated with the Special Treatment Clause with an ordinary "tariff rate quota" in April 1999.^[20] Japan’s decision to forego the ST Clause on rice can be possibly explained by the high level of tariffs on rice that resulted from applying the Uruguay Round Agreement on Agriculture (URAA) "tariffication" procedures and on retention by the Food Agency of its exclusive rights over rice imported through the tariff rate quota. Thus, as of 2004, only the Republic of Korea, the Philippines and Taiwan Province of China^[21] still resorted to the ST Clause and only with respect to rice.

As the grace period for keeping the ST under the URAA expired in 2004, both the Republic of Korea and the Philippines have engaged in negotiations to extend its application. In 2004, the Republic of Korea reached an agreement with other WTO countries allowing it to maintain the rice exemption for another 10 years, till 2014. The Agreement commits the Republic of Korea to a progressive increase^[22] in the minimum import quota to an equivalent of 7.9 percent of domestic consumption by 2014, or 409 000 tonnes in milled rice equivalent. This would imply an almost doubling of the minimum access volume of 205 228 tonnes in 2004.^[23] Likewise, the Philippines has engaged in negotiations to extend its ST on rice beyond 2004. Under the URAA, the country had agreed to a quota of 240 000 tonnes by 2004, subject to an in-quota tariff of 50 percent.^[24] As of October 2005, no agreement had yet been achieved that would enable the Philippines to keep rice under the ST exception.

2.3 What would happen to the Special Treatment Clause under the Doha Round Negotiations?

Annex 5 of the URAA allows countries to negotiate an extension of the ST Clause on expiration. According to paragraph 31 of the July Package, the selection of tariff lines to be treated as sensitive should "take account of existing commitments for these products". Thus, it could be expected that the agreement reached by the Republic of Korea for a ten-year extension would become an integral part of the Doha Round. If the terms of the agreement with the Republic of Korea are rolled into the Sensitive Products exception, they could even serve as the basis for the future treatment of Sensitive Products in the current negotiations. This could imply an expansion of SSP tariff rate quota to close to 8 percent of base consumption over the implementation period, for developing countries.

For the purpose of this analysis, it could be assumed that the number of SSPs allowed will be large enough to let countries wishing to exempt all forms of rice from the market access provisions to do so. Regarding the future treatment that will be given to the SSPs, the expansion of the minimum access quota to an equivalent of 8 percent of consumption that has been elicited from the Republic of Korea for the continuation of the Special Treatment on Rice could provide a plausible scenario. According to paragraphs 39 and 40 of the July Package, Special and Differential Treatment (SDT) will also be an integral part of the SSPs, implying that developing countries would be eligible to designate a larger number of SSPs and to make fewer concessions on their treatment. Taking this into consideration and using the same approach as in the URAA,^[25] it could be taken that developed countries would be required to open a tariff quota equivalent to 12 percent of base domestic consumption.

3. RICE AS A SPECIAL PRODUCT

Alongside sensitive products, the July Package introduces the concept of "Special Product" (SPP) as a supplementary element of flexibility offered to developing countries (and only to them) in the implementation of the modalities on market access. Unlike for SSPs, the text provides some indication on the considerations that should guide the selection of products as "Special", but virtually none on the treatment they will receive.

Regarding the criteria, their selection should be based on "food security, livelihood security and rural developments needs", which will be "further specified during the negotiation phase". Although countries would have the possibility to choose an "appropriate" number of SPPs, unlike for sensitive products, it is not stated that this number will be a matter for negotiation. This could mean that a developing country could designate as many SPPs as it wishes as long as they meet the selection criteria. Limits to the use of the SPP exception would therefore spring from the stringency of the criteria that will be imposed on their selection. So far, however, little is known on how the importance of products for food security, livelihood security and rural development will be assessed.

The contribution by a commodity to total calorie intake could be taken as one of the possible indicators of its importance for food security. According to FAO’s estimates, about 20 percent of apparent calorie intake, on average, was contributed by rice in 2000-2002. Rice contribution was higher than average in 33 countries and, in 27 of them, rice contributed more than one fourth, or 25 percent, of total calorie intake, with peaks of over 70 percent for Bangladesh, Cambodia and Myanmar (Table 1). The importance of the crop for food security is evidenced by the development status of the countries listed, as 15 of them are classified as least developed (LDC) and 17 as developing countries.^[26]

Rice is also an important source of cash for farmers, contributing to rural livelihoods. This role can be assessed by calculating the contribution of rice to total agricultural output value, which was estimated to exceed 10 percent in 29 countries. This indicator tends to overestimate the role of rice in generating cash income, as a large part of output is for self-consumption. On the other hand, it underestimates the importance of rice in the overall economy, as it ignores activities related to rice milling and marketing and other multiplier effects.

TABLE 1
Apparent calorie intake and contribution from rice, 2000-2002 average

Source: FAO

It is also relatively easy to assess the importance of rice as a source of export earnings for individual countries. On average, rice is responsible for only a very low share of agricultural export value - less than two percent - mainly because of the small volume of rice exchanged internationally compared with trade in other agricultural products and relative to rice production itself. For a number of countries, however, rice is a major source of foreign exchange (Table 3).

Many other nutritional or economic indicators can be used to assess the eligibility of commodities for their designation as a special product. The ones presented illustrate the strategic role rice plays in many countries. However, it is noteworthy that a number of those identified are LDCs, which will not be required to make tariff reduction commitments.

But the importance governments attribute to a particular commodity and their readiness to benefit from flexibility on market access can also be gauged from the WTO commitments they made with respect to tariffs in the URAA. In particular, products that have been earmarked for Special Treatment (ST) or the Special Safeguard (SSG) in the tariff schedules could be considered of special concern to a country. Based on the WTO schedules, 29 countries used the ST or the SSG provisions on rice (Table 4). It is remarkable, however, that many of those that did so hardly produce any rice, a possible indication they view rice imports as a possible, indirect, source of market disruption for substitutable locally-grown cereals or starchy crops. However, because only countries that had tariffied their trade barriers could mark tariff lines with SSG, the latter cannot be taken as the sole indicator of the importance of a product for a particular country. It was therefore taken that products assigned levels of bound tariffs above 50 percent could also be tagged as SPPs or SSPs. Based on the ST or SSG indication and/or the high tariff rate criteria, where "high" is defined as exceeding 50 percent, 76 countries resulted as likely contenders for choosing rice as either sensitive or special.

TABLE 2
Value of agricultural output and contribution from rice, 2000-2002 average¹

¹ Valued at 1999-2001 constant prices.
Source: FAO

TABLE 3
Export earnings and contribution from rice, 2000-2002 average

Source: FAO

TABLE 4
Countries with URAA tariff schedules designating rice as subject to the ST or SSG and/or with rice tariff bound of at least 50 percent

The above discussion brings to the fore another issue of relevance to the SSP and SPP that developing countries will have to confront if they wish to exempt a product from the general provision on market access. Indeed, as it appears unlikely that they would be allowed to label a commodity both as special and sensitive, they may have to choose which of the two designations to give. The choice will depend on the relative treatment each set of products will have to comply with and on the maximum number of SSPs or SPPs countries will be allowed to designate. For the purpose of this paper, SSPs and SPPs were assumed to face similar treatment, but developed countries were granted smaller concessions than developing countries on the opening of SSPs markets.