U.S. Trade Representative (USTR) Michael Froman recently acknowledged to the Senate Finance Committee that the U.S. could challenge Chinese cotton subsidies at the WTO, but said he has been looking at it in the context of multilateral subsidies disciplines. WTO Director-General Roberto Azevedo is trying to develop a work program aimed at advancing the stalled Doha Round of WTO trade policy negotiation begun in 2001 and agricultural subsidies will be part of that plan.
The U.S. position is that the tentative agreement on agricultural subsidies reached in 2008 based on programs earlier in the decade are no longer reflective of trade realities. Emerging markets countries like China, India and Brazil make few efforts to limit domestic support programs and do not provide enough market access. According to the Foreign Agricultural Service of USDA, Brazil will export 3.4 million bales this year compared to less than a million bales per year in all years but one in the 1980s and1990s. India was not a consistent, significant cotton exporter before yields started increasing in 2003/04 due to hybrid and biotech seeds. Now India is consistently the second largest cotton exporter after the U.S.
According to a report from Inside US Trade, Froman responding to a question said, “We’re looking at all our options [on China cotton subsidies]. We have not yet determined whether there is a case to be brought in this area.” Earlier in his prepared testimony, Froman told the Committee one of his priorities for 2015 was to, “ensure that our trading partners honor their commitments, including in the WTO and under our trade agreements.” Last October at a USTR public hearing the National Cotton Council said China committed when acceding to the WTO to subsidies not exceeding 8.5 percent of the value of cotton production, but it had reached almost 31 percent in 2012 and 2013.
While the question at the Senate Agriculture Committee concerned cotton, the issues for the WTO Doha talks include all of agriculture and non-agriculture also. The December 2013 WTO Ministerial in Bali, Indonesia had set a December 2014 date for a planned restart of the Doha talks, but that was reset last November by the WTO General Council to July of this year. The WTO had been unable to meet its Trade Facilitation Agreement implementation deadline of July 31, 2014 and spent five months on that issue.
U.S. agriculture groups have had plenty of time to consider how domestic agricultural policies in developing have been reshaping trade in the last 15 years. They watched as India delayed the Trade Facilitation Agreement to get dispensation for its domestic support policies that results in excess production being sold in world markets for less than domestic support prices. In recent months they have heard how Brazil’s sugar industry will be revitalized with low interest government loans at a time of continued low world sugar market prices.
USTR Froman has undoubtedly heard about the behind the scene research being done on support policies of developing countries that have supported prices at far higher prices that in the U.S. Those had limited impacts when world market prices were at historical highs and farming operations were profitable. As world market prices have declined, the U.S. has implementing new domestic farm policy that more closely aligns with market forces. The USTR’s office will feel more pressure from the countryside to consider the market realities.
Froman made his views clear in writing for the USTR-Geneva Mission website on restarting the Doha talks. He made four points related to the agricultural negotiations, “In 2008, the proposed solution was that developed countries would cut their agricultural subsidies while developing countries would not…Just last year, a group representing agriculture-exporting countries, developed and developing alike, published a report listing the top four users of trade-distorting agricultural subsidies in today’s world, with India first, followed by China, the European Union, and the United States…In reality, trade distorting subsidies from emerging economies have the same impact on global commodity prices as trade-distorting subsidies from developed countries. The United States is willing to wade back into the complex thicket of agricultural trade negotiations, but only if the discussion reflects today’s reality.”
Based on one analysis discussed at the WTO, the U.S. under the 2008 farm bill would not be able to meet its commitments under the draft 2008 Doha texts. It would have been over the limit by $3.6 billion in 2012. An analysis had not been done with the changes in the 2014 farm bill. It is not clear whether the U.S. will classify crop insurance as trade-distorting in its next subsidy notification.
Trade officials are also discussing linkages between progress on agriculture and non-agricultural market access (NAMA). Some countries want to see changes in agriculture issues before committing to NAMA access, while others have the exact opposite concerns. The linkages will likely remain and both groups of issue will have to move in tandem.
The comments from the USTR should not be interpreted as indicating that the U.S. government or U.S. farmers are pulling back on subsidy reduction or market access issues. As Froman said, it does not matter where subsidies come from; they have the same impact on the market. The real problem goes back to 2001 when the middle-income developing countries were told they did not have to give-up any of their existing trade-distorting domestic policies to pursue more open trade. That is why the Doha talks have not progressed since 2005. The talks became about excuses why trade cannot be more open for middle-income developing countries rather than why more open trade was essential for faster economic growth.
The end result was that developed and developing countries have spent the last ten years sitting on their hands and a decade of multilateral trade reforms was lost. All sides in the talks have to go back to square one and consider what could be growth markets for them with trade reforms and what current policies would they give-up to gain access to those markets. The age of looking for something for nothing is over.
Ross Korves is a Trade and Economic Policy Analyst with Truth About Trade & Technology (www.truthabouttrade.org).