While WTO trade negotiators are taking a summer break, shapers of public opinion are actively defining what the talks are about. U.S. Secretary of Agriculture Mike Johanns recently told his counterparts from Australia, Japan, Canada and the EU that trade policy reforms may be delayed until 2012 if negotiations fail to open market access for U.S. farm products. A New York Times editorial blasted the U.S., EU and Japan for not following up on a November 2001 commitment in Doha, Qatar to cut agricultural subsidies. The EU is complaining that they have been proposing compromises for the past year, but no one else is following up with other commitments.
The good news is that many of the groups jockeying for positions are at least partially correct, but it is far too late in the process to be throwing out broad generalizations to defend positions on the front lines of public opinion. The rhetoric should be cooling so there are fewer public words to eat when a deal is struck. Progress has been made since the stalemate in Cancun, Mexico in 2003. What is needed now is a catalyst proposal in September to create some optimism that would encourage others to put forth new proposals.
Last week Secretary Johanns reiterated the U.S. position for the last four years that can be explained by two numbers. The average bound U.S. tariff on agricultural imports is 12 percent while the average bound agricultural tariff for the rest of the world is 62 percent. Those percentages are averages of a wide range of tariff rates, but they capture the fundamental point that U.S. agricultural markets are far more open than most markets in the world. According to a recent report from the Congressional Budget Office (CBO), the trade-weighted average applied agricultural tariff for the U.S. in 2001 was only 2.4 percent.
Progress has been made on tariffs. In May the EU, Switzerland, Japan, South Korea and other major importers signed off on a method to calculate existing agricultural tariffs so that reductions are equitable across countries. The Group of 20 developing countries in July proposed putting countries in five bands for tariff cuts based on average existing tariffs with those in the highest bands making the largest cuts in tariffs. The U.S. and the EU support other tiered approaches. Analysts estimate that average bound EU tariff cuts may be as high as 70 percent under some of the proposals.
The EU has grounds for believing they have been on the giving end for the last year with little recognition of their efforts. The Single Farm Payment system that began on January 1, 2005 when fully implemented is expected to result in about 60 percent of the EU payments being decoupled from production. The Organization for Economic Cooperation and Development (OECD) estimate of total EU support will likely continue to be over $100 billion per year, but the program is far less trade distorting than previous ones. In November the EU Commission will vote on a plan that could reduce sugar production by as much as 40 percent. The EU has also committed to phasing out export subsidies under a new agreement.
The EU, U.S. and other developed countries are criticized for the value of domestic supports, roughly $280 billion per year. The issue for the WTO negotiations is the amount of trade distorting domestic subsidies, not the total level of supports. Analysts can argue that the level of agricultural supports in developed countries is unnecessary or economically destructive, but as long as the subsidies do not distort trade they are not part of the WTO negotiations. The EU is clearly moving toward less trade distorting subsidies. Studies have estimated that current farm programs in the U.S. account for 20-25 percent of the value of land. Payments that increase the price of land in the U.S. are not a trade policy issue.
Some new policy proposals from developing countries could result in developed counties making additional offers for domestic policy reforms. Under last year’s framework agreement self-designated developing countries are allowed “special and differential treatment” on making tariff adjustments and changing domestic farm policies. Countries like Brazil, Argentina, Thailand and China may be considered developing countries, but they have agricultural industries that compete directly in export markets with developed countries. If these agricultural competitors want greater access to developed country markets, they should be willing to abide by the same trade policy rules. The International Food and Agricultural Trade Policy Council (IPC) has suggested that developing countries be classified based on their per capita income. Other approaches could be designed based on a country’s history of competing in world markets.
Another opportunity is for major food importers like South Korea and Taiwan and potential major importers like India and China to assume leadership in working out market access issues. The CBO report identified these four countries and all of East Asia as having the highest averaged applied tariffs in food and agricultural products in 2001. The report also noted that, “Most developing countries had higher average rates than did most industrialized countries.” The fear in U.S. agriculture is that domestic subsidies will be cut, but greater access to major markets will not be provided.
If major developing country exporters and importers made proposals to meet the concerns of developed countries, the developed countries would then need to respond with details for their proposed domestic policy reforms. Negotiations are a two-way street. Decisions by a dozen major developing countries can be the catalysts to move the talks to the next critical stage.