The seventh year of trade policy negotiations under the Doha Round of the WTO has begun. A first session in Geneva will last two weeks and draw on progress made since last September. The Doha round began in November 2001 and was originally scheduled to end on Jan 1, 2005. While the talks have been much too slow, keep in mind that the Uruguay Round began in 1986 and the agreement creating the WTO from the General Agreement on Tariffs and Trade did not take effect until January 1995.

The chairman of the agricultural negotiations, Crawford Falconer of New Zealand, had seen enough progress in informal talks over the past four months that on December 21 he issued four short working documents to clarify the emerging consensus on domestic support programs. There is still bracketed language for disagreements, but differences are narrowing. With the current expectation of continued high commodity prices for the next several years, domestic programs are less critical than earlier in the talks. If an agreement can be worked out on domestic supports, it may lead to more efforts on market access which is at the heart of the agricultural talks.

Falconer proposed a formula for reduction of overall trade-distorting domestic support (OTDS), the broadest measure of domestic support. The formula for developed countries would be the current maximum Aggregate Measure of Support (AMS), plus 5 percent of the average value of production for the base years of 1995-2000 for product-specific AMS and 5 percent for non-product-specific AMS, plus the higher of existing Blue Box payments or 5 percent of average 1995-2000 value of production. Countries with OTDS of greater than $60 billion per year would reduce by 75-85 percent; those with $10-60 billion by 66-73 percent; and countries with less than $10 billion by 50-60 percent. The beginning U.S. OTDS would be $48.4 billion. A reduction of 66 percent would reduce it to $16.0 billion, and a 73 percent reduction to $13.1 billion. These numbers were agreed to by the U.S. in October of 2007. One-third of the reduction would occur at the beginning of the implementation period and the remaining amount in equal steps over five years.

The final bound limit on the AMS amber box proposed by Falconer would require the U.S. to reduce the current $19.1 billion per year limit by 60 percent to $7.6 billion as proposed by the U.S. in 2005. Thirty percent of the reduction would occur at implementation with the remaining amount spread equally over four years. Product-specific AMS limits for the U.S. would be created based on total AMS outlays for 1995-2000 and the proportional distribution of total AMS for 1995-2004. These product-specific limits are a way to keep countries from shifting outlays from one commodity to another. The limits would be imposed immediately or over three years. The proposal would also reduce the 5 percent of production value for the product-specific de minimis and the non-product-specific de minimis by 50 percent or 60 percent at the beginning of implementation or in five equal installments.

The Blue Box would continue to include payments for production limiting programs and include direct payments if no production is required and payments are made based on fixed bases and yields. A consensus has not been reached on if member states have to choose in advance which category to use. Total support could not exceed 2.5 percent of total average value of production in a suggested 1995-2000 base period. Product-specific payments would be limited. Payment could exceed those limits in the blue box with a corresponding permanent reduction in the product-specific AMS.

The mind numbing details of changes proposed by Chairman Falconer are part of the normal process of working out specific language of a trade agreement. While these changes, and more that will come in the months ahead, are important, they are not the leap forward necessary to avoid another year of frustration. Those changes have to come from the negotiating positions of the major countries.

Some participants in the U.S. agricultural policy debate have not completely grasped the fundamental agricultural trade policy shift within the WTO. In a Dow Jones Newswire interview at the end of 2007 outgoing USDA Chief Economist Keith Collins referenced U.S. lawmakers who have tied their policy thinking to the 1994 Uruguay Round agreement rather than the spirit of the Doha Round. That is a key point. U.S. policy makers are too wedded to the Uruguay Round policy framework that was designed as a transition to start the process of reducing trade distorting domestic supports by focusing on the most trade distorting programs at the beginning of the transition. That was only a beginning, not an end in itself. Countries are now demanding continued reforms while the U.S. is defending tinkering with the status quo.

The other “spirit of Doha” challenge for the U.S. is the supposed link between reducing domestic supports and gaining expanded access to markets in other countries. That link does not exist in the game plans of other negotiators. Domestic programs were to be further reduced with or without increased market access because the programs are trade distorting. Increased market access is at the core of WTO trade negotiations and is a benefit for exporting and importing countries without considering any tradeoff for domestic support programs.

Trade policies under the WTO were never meant to be static; they will continue to change as the members move toward freer trade. Chairman Falconer and the negotiators should be congratulated from pushing the agricultural trade policy agenda forward under difficult circumstances. Now decision makers in key governments like the U.S., EU, India and Brazil need to make sure their thinking aligns with the “spirit of Doha.” Without that, it will be another frustrating year in the agricultural trade policy trenches.