Proposal may open door to progress in WTO talks
Jerry Hagstrom
Washington, D.C., Correspondent
WASHINGTON, D.C. – The Bush administration this week
offered to cut some U.S. farm subsidies 60 percent over the next five years if
the European Union and Japan agree to reduce their subsidies, too.
The U.S. is also asking developed and developing countries to cut their trade
tariffs.
U.S. Trade Representative Rob Portman made the offer in Zurich, Switzerland,
at a meeting of trade ministers he hosted. Agriculture Secretary Mike Johanns
accompanied him to lend support to the offer, which was in line with a speech
Johanns gave late last week.
“This is not a unilateral offer – bold reforms from all countries
participating in the (World Trade Organization) process are needed to reach an
agreement,” a fact sheet from Portman’s office stated.
The proposal on agriculture in the Doha Round would force Congress to cut the
most trade-distorting U.S. subsidies from $19.1 billion to $7.6 billion but
would still allow the European Union to spend $15 billion on the same
subsidies, according to numbers released by a U.S. trade official.
The U.S. offer calls for the United States to cut its trade-distorting
subsidies 60 percent and the European Union to cut its trade-distorting
subsidies 83 percent. But because the European Union is now allowed to spend
$80 billion on trade-distorting subsidies, an 83 percent cut would still allow
subsidies of $15 billion, the official said.
But the U.S. trade official told a DTN reporter that if the U.S. proposal is
accepted it would be “better” than the current situation because the
European Union would be allowed to subsidize at only twice the U.S. rate
rather than four times the U.S. rate, as is currently allowed.
The official said the U.S. programs affected most would be the marketing loan
and loan deficiency payment program, which pays about $8 billion to $9 billion
to farmers, and the dairy program, which pays $4.5 billion.
The official said it is less clear how the proposal would affect the direct
Freedom to Farm payments, worth $3 billion to $5 billion. The United States
has classified that program as non-trade-distorting, but a World Trade
Organization dispute panel disagreed because the U.S. farm program forbids
farmers from growing fruits and vegetables on land that receives the payments.
It’s also unclear how the proposal would affect the countercyclical program,
which is authorized at up to $7.6 billion in the 2002 farm bill and has paid
out between $1 billion and $6 billion, because the United States wants to
change that program’s classification from the amber box of the most
distorting subsidies to the blue box of less distorting subsidies.
The U.S offer includes language to limit blue box subsidies to 2.5 percent of
agricultural production, which would probably mean a U.S. limit of $5 billion
to $6 billion per year.
The United States also reports to the WTO that the U.S. sugar growers get $1
billion per year in value from their program. The sugar program would be
affected by a provision in the offer calling on countries with tariffs over 60
percent to be cut by up to 90 percent, the official said.
Another trade official noted that the offer says no tariff should be over 75
percent, but that the United States could also try to get U.S. sugar
classified as one of the American “sensitive products,” which could
possibly mean the tariff could stay even higher.
Portman’s statement Oct. 10 is the most substantial offer that the United
States has made in the World Trade Organization Doha Round of negotiations to
increase trade that started in 2001 but has been plagued by disagreements and
indecision.
In the Financial Times, Portman urged WTO members “to adopt an ambitious
tariff reduction consistent with the framework and using the formula developed
by Brazil, India and others in the Group of 20 developing countries. This
should involve steep tariff cuts over the next five years, starting from 55
percent up to 90 percent in the highest tariffs in rich countries. In a second
stage, tariffs should be brought down to zero.”
Portman also said the products countries want to protect such as sugar would
have to be limited.
He added, “Developing countries must also offer contributions commensurate
with their role in agricultural trade.”
On domestic farm subsidies, Portman wrote, “To jump-start our stalled
negotiations, the U.S. is prepared to move, and move aggressively, by
supporting a 60 percent cut in ‘amber box’ support – the most distorting
type of subsidies – over the next five years. This will require significant
reforms to U.S. farm programs.”
Portman was slightly softer on the eventual elimination of all
trade-distorting supports, saying that they “could” be eliminated rather
than “should” – the word he used in relationship to the elimination of
tariffs.
Portman wrote, “In the second stage, all trade-distorting support could be
eliminated. The U.S. will do its part and more, but consistent with the
framework’s harmonization commitment, greater cuts must be required by the
European Union and Japan, which have much larger subsidies.”
Portman did not emphasize the American farm community’s position that
developing countries must reduce tariffs so that U.S. companies can sell
products to the growing middle classes in those countries. Portman wrote,
“All countries must also simultaneously deliver real market access.”
The USTR fact sheet said that developed countries would be expected to cut
their tariffs by 55 to 90 percent, with the highest tariffs (such as those on
sugar in the United States) to be cut by 90 percent while the lowest tariffs
would be cut by 55 percent.
Under Portman’s plan no tariff could be higher than 75 percent. The number
of agricultural products that a country could list as “sensitive” because
imports would put farmers out of work would be limited to 1 percent of
products on which that country has tariffs. Developing countries would get
“special and differential treatment” on some products but only if they
“deliver real improvements in access.”
Portman also wants to eliminate all agriculture export subsidies such as the
ones the Europeans use to export sugar and dairy products and the U.S. export
enhancement programs, which are rarely used.
Portman offered to establish a maximum repayment period of 180 days for the
U.S. export credit guarantee programs, which is largely the way the program
works now. State trading enterprises such as the Canadian and Australian wheat
boards and the New Zealand Dairy Board would be subject to new disciplines
that would end monopoly export privileges, prohibit export subsidies, and
expand transparency obligations – but still allow the boards to exist.
Portman would also end discriminatory tax provisions that encourage export of
processed products in some countries.
Food aid to poor countries has been a particularly contentious issue in the
negotiations so far, with the United States the biggest donor of commodities.
The European Union has been pushing for a switch to a cash-only system of food
aid and says the food aid should be purchased in whatever country is the
cheapest and most convenient for transportation.
to the country that needs food. The Europeans and others also say that U.S.
food aid sometimes interferes with commercial sales to middle income
countries.
But the United States and the recipient countries have said they fear that the
U.S. taxpayers will not provide the same amount of money as the Agriculture
Department currently gives in commodities. Portman has proposed establishing
an objective test to identify commercial displacement in other circumstances.
The Doha Round is the first one to involve many developing countries and the
developed and the developing countries have found it difficult to make
decisions on cutting subsidies and reducing tariffs that benefit both groups.
Trade ministers are supposed to meet in Hong Kong in December and they want to
make commitments to numerical goals in reductions in farm subsidies and
tariffs.
The Bush administration’s trade promotion authority, also known as fast
track negotiating authority, which allows the administration to negotiate
without fear of intrusion from Congress, expires in early 2007 and there is
great pressure to finish the round before that date. Agriculture is only one
of three areas in which the ministers are trying to reduce barriers to trade.
The others are manufacturing and services such as insurance, banking and
travel.