A few weeks ago the U.S. formally committed to negotiating an agreement in the agricultural trade portion of the Doha WTO trade talks based on the mid-July text released by the Chairman of the Committee on Agriculture Crawford Falconer. The central focus of the reactions from other countries was on the allowed level of domestic supports for the U.S. Other countries have tried to shape the debate and studies have been released that provide additional information on the impact of an agreement based on the Falconer text. This discussion will come to a head the week of October 8 as agricultural negotiators gather again in Geneva for two weeks of talks.

The U.S. announcement was not a surprise. The Falconer text has bracketed ranges for most of the key numbers needed for an agreement and is the only available discussion framework. The U.S. could either accept the text as a framework or just sit around complaining. The significance of the U.S. position is that the Falconer text would put a hard cap in a range of $13.0-16.4 billion per year on total annual Overall Trade Distorting Support (OTDS), a 66-73 percent reduction when fully implemented. This includes the total Aggregate Measure of Support (AMS), known as the amber box, deminimis and blue box. The current U.S. limit is $48 billion per year, and the U.S. had previously proposed a $22.5 billion cap with unofficial talk of a $17 billion limit. The U.S. would obviously push for the top end of the range at $16.4 billion while other countries push for the low end. Media reports indicate that some countries have suggested that the U.S. have an $11 billion cap. The EU would have a 75-85 percent reduction in its OTDS.

When U.S. chief agricultural negotiator Joe Glauber accepted the domestic support limit it was contingent on other nations agreeing to the Falconer plan for cutting tariffs on agricultural products. That has been the U.S. position for the entire six years of negotiations and causes heartburn for the EU and other countries with high tariffs. The Falconer text has agricultural tariffs reductions for developed countries at 48-52 percent for tariffs of 0-20 percent, 55-60 percent for tariffs of 20-50 percent, 62-65 percent for tariffs of 50-75 percent and 66-73 percent for tariffs of greater than 75 percent. Developing countries would make two-thirds of the reductions made by developed countries with wider bands that go up to tariffs of 130 percent. If the U.S. is required to reduce OTDS to $13 billion per year, the U.S. will demand maximum tariff reductions and sharp limits on tariffs for sensitive and special products. The U.S. is encouraging Brazil, India and South Africa to lead by committing to the tariff reductions in the Falconer text.

The impact of the U.S. acceptance of the OTDS reductions will be partly determined by assessments of the restraints placed on the U.S. and the EU. An analysis by David Blandford of Pennsylvania State University and Tim Josling of Stanford University titled “Meeting Future WTO Commitments on Domestic Support” for the German Marshall Fund and released in September indicates that much of the “water” in support limits would be squeezed out if the final agreement was at the low end of the ranges in the Falconer text. They assumed that the new caps would be fully implemented in 2013, the last year of the current EU reforms for the Common Agricultural Policy (CAP) and the year after the 2007 U.S. farm bill ends, and used market projections previously released by USDA and the EU Commission. The analysis shows that U.S. support in 2013 would be right at the $13 billion cap and the EU would be within 0.5 billion Euros ($650 million) of its cap.

Blandford and Josling make a key conclusion in their analysis, “A “glass half empty” view of this situation would lead to the conclusion that little would be achieved as a result of the conclusion of the Doha Round. But that ignores the significance of WTO rules in preventing reversions in policy toward more trade-distorting measures. So, a “glass half full” view would be that the imposition of the lower ceilings on domestic support would exert pressure on both the European Union and the United States to continue to reduce trade-distorting support.”

The low end of the Falconer range appears to achieve the demands by some countries for a hard cap on U.S. domestic support. Those same countries do not appear to be as willing to accept the tariff rate reductions outlined by Falconer. The U.S. will not accept the hard cap on OTDS without the Falconer agricultural tariff reductions and similar tariff reductions in the non-agricultural market access talks that are ongoing in parallel to the agriculture talks. The U.S. will need to weigh the increased market access against the permanent reduction in potential subsidies in low income years under what Blandford and Josling refer to as “WTO rules in preventing reversions in policy toward more trade-distorting measures.”

Among other issues that need to be resolved in the negotiations is a mandate that reductions in cotton supports be larger than overall support reductions. The Falconer text suggests an 82.2 percent reduction in the AMS for U.S. cotton compared to a total AMS reduction of 60 percent. The U.S. cotton industry has protested being singled out for larger cuts. The final agreement has to have a larger reduction for cotton because that is called for in the negotiations mandate, but the gap will need to be narrowed substantially.

Domestic supports and market access continue to be key issues as they were when the talks began six years. The biggest change in those years is the insistence by other countries that the U.S. control domestic supports in a meaningful way to lay the ground work for further reductions in the next negotiations. In the Uruguay Round everyone agreed that some domestic supports were trade distorting and should first be capped as they were in 1993 and then reduced in succeeding talks. If a similar commitment can be made in this round on major tariff reductions on agricultural products, then the six years of talks will have been worth the effort.