Positive talk by key members of the WTO as preparations continue for the ministerial meeting in Hong Kong in mid-December and the release of the Draft Ministerial Text by the WTO Director General Pascal Lamy are hopeful signs that progress can be made in the negotiations in the weeks ahead.

After talks in late November EU Trade Commissioner Peter Mandelson released a statement saying, “We want Hong Kong to be more than treading water. It should lock in the progress made here and put in place, as far as possible, a spring board for advance in 2006.” Brazilian Foreign Minister Celso Amorim said, “We are heading in the right direction.” Indian Commerce Minister reported, “We have agreed to try and bridge our differences in the course of the next weeks to Hong Kong and thereafter.”

The Draft Ministerial Text includes a report on the agricultural negotiations prepared by Crawford Falconer, a New Zealand diplomat and Chairman of the Special Session of the Committee on Agriculture. He noted, “We have made – particularly since August of this year – genuine and material progress.” He also said, “As I see it, the reality is we have yet to find that last bridge to agreement that we need to secure modalities.” Modalities are the actual mechanisms for tariff reductions and support changes.

The greatest progress has probably been made on overall domestic support. There is “a strongly convergent working hypothesis” for putting developed countries into three bands of total domestic support of $0-10 billion per year, $10-60 billion per year and above $60 billion per year. The EU would be in the highest band and the U.S. and Japan in the middle band. A consensus has not developed on the percentage cuts for each of the bands. The proposals range from 31%-70% for the lowest band, 53%-75% for the middle band and 70%-80% in the highest spending band.

The debate over the AMS (Aggregate Measurement of Support) under the amber box has followed a similar path as that on the overall level of domestic support. There is agreement on three bands with the top band starting at $25 billion. The break between the lowest band and the middle band has been suggested to be somewhere between $12 billion and $15 billion. That does not impact the U.S. with an AMS of $19.1 billion. The proposed cuts range from 37%-60% for the lowest band, 60%-70% for the middle band and 70%-83% for the top band. Proposals have been made for the base years for commodity specific AMS caps, but no action has been taken.

The Chairman reported that the green box discussion “has not resulted in any discernible convergence on operational outcomes.” The U.S. and EU have generally supported making no changes in the basic disciplines for the green box, while other countries are concerned that too much spending is being shifted into those programs. Developing countries are exploring ways to make green box programs “development friendly.”

Convergence has been reached on the elimination of export subsidies, but no agreement has been reached on accelerated elimination for specific products, including cotton. Progress has also been made on export credit programs, but issues remain. Talks on state trading enterprises have been stymied over the future use of monopoly powers. On food aid they have agreed that the WTO rules should not prevent genuine food aid and that commercial displacement is the key issue. The definition of genuine food aid and the movement toward in-cash food aid continue to be major discussion points.

On market access through reductions in tariffs a “working hypothesis” has developed for putting tariffs in four bands and for linear cuts within each band. Differences on the starting and ending points of the four bands for developed countries are so wide that numbers where put in a footnote as an “illustrative table.” The ending point for the lowest tariff band ranges from 20%-50% with the starting point for the top band at 60%-150%. The U.S. proposal was to have the highest band start at a 60% tariff to force as much reduction in tariffs as possible. The illustrative range of cuts for the four bands is from 15%-25% in the lowest band and 30%-40% in the highest band. These cuts are much lower than the tariff reductions proposed by the U.S. The U.S. has also proposed that no tariff be higher than 75%. Some countries have suggested no cap on tariffs. Under that approach, a 40% cut in a tariff of 300%, would still leave a tariff of 180%. The U.S. also proposed that only 1% of products be classified as sensitive products and exempt from the proposed tariff reductions. Access would be provided through increased tariff rate quotas. Other countries have proposed that up to 15% of a country’s products could be exempt from the tariff cuts.

Cotton has its own paragraph in the Chairman’s report. As noted earlier, the speed of removal of export subsidies is a key issue. Similar demands have been raised for domestic support program changes for cotton to occur at a faster rate than for other agricultural commodities. The report notes, “There is a view that the extent to which this can occur, and its timing, can only be determined in the context of the overall agreement.”

Even though the negotiations on domestic supports and export subsidies will continue to be difficult, the greatest hurtles appear to be in market access. That was expected from the beginning and is a fundamental issue for U.S. agriculture. Too many developed countries want to use high tariffs to continue to protect their agricultural producers. That will not be fully resolved in the agricultural talks. Progress on trade reforms for industrial goods and services will be needed so those governments have too much to lose on non-agricultural issues to allow protectionist pressure in agriculture in those countries to dictate overall trade policy.