As Trade Ministers from 30 countries prepare for a July 21 WTO meeting in Geneva on the Doha agriculture talks, three recent analyses provide an assessment of the agriculture proposal released in May. The papers produced jointly by the International Centre for Trade and Sustainable Development, the International Food and Agriculture Trade Policy Council and the International Food Policy Research Institute analyze the impacts on the U.S., EU and India and provide a good overview of the likely trade flows.

The proposal would sharply reduce the Overall Trade Distorting Support (OTDS) limits for the U.S. from $32.3 billion per year at the beginning of implementation to $13.0 billion or $16.4 billion by 2013/14 depending on a reduction of 73 percent or 66 percent. If market prices remain at levels of the last two years, meeting those reductions would be achievable, but little margin for lower prices would remain. The Aggregate Measure of Support (AMS) under the Amber Box would be reduced by a total of 60 percent to $7.6 billion with 25 percent of the reduction immediate and the remainder in installments over five years. Product specific AMS and Blue Box limits provide policy flexibility, but will limit outlays for some product. Cotton faces larger reductions at a faster rate and will result in loss of payments.

About 90 percent of current bound U.S. agricultural tariffs are in the lowest tariff tier of 0-20 percent that requires cuts of 50 percent. The average U.S. bound tariff is 8.0 percent and the average applied tariff is 7.9 percent, giving a tariff overhang of only 0.1 percent. Reductions in bound tariffs will result in reductions in applied tariffs. Two-thirds of the protection provided by tariffs occurs in six categories: sugar, meat and offal, tobacco, vegetables, vegetable preparations and dairy products. The tiered tariff formula and other required reductions would reduce the average bound tariff from 8 percent to 3.5 percent. Factoring in sensitive products with lower reductions, the average tariff would be 4.5 percent.

Markets for U.S. agricultural products in developed countries now have average applied tariffs of 18.7 percent. The formula tariff reductions and other required reductions would reduce the average tariff to 9.1 percent. Sensitive products with lower reductions in tariff would increase the average tariff to 13.2 percent. Developing countries that use the tiered reductions, excluding Korea that has very high tariffs that skew the averages, have current tariffs of 7.3 percent that would decline to 6.8 percent after sensitive and special products are included.

The EU faces a similar situation as the U.S. with the OTDS; the EU can meet the reductions, but will require some changes in programs. The beginning point for OTDS is $171 billion per year. Reductions of 75 percent or 85 percent would push that down to $42.8 billion or $25.6 billion by 2013/14. The current estimate for the OTDS in 2013/14 is $37.2 billion. The AMS base is $104.2 billion and would be reduced to $31.2 billion in 2013/14 compared to the current estimate of $37.2 billion in 2013/14.

The average bound agricultural tariff for the EU is 22.9 percent with 70 percent of the tariffs at 20 percent or less. The most protected products include sugar, cereals, milling products, meat and offal and dairy products. The tiered formula for tariff reductions would reduce the average tariff to 8.4 percent. After making other adjustments and allowing for sensitive products, the final average tariff is estimated to be 10.9 percent. The EU would gain some in export markets with tariffs on EU products reduced from an average of 16.9 percent to 13.9 percent.

The estimates for India show how little progress has been made in opening markets in developing countries. The average bound agricultural tariff in India in 2004 was 115 percent with the average applied tariff at 59 percent, resulting in a tariff overhang of 56 percent. The trade-weighted average bound tariff is 159 percent. An assumption was made that 7.5 percent of their tariff lines would be declared sensitive, but India may not use that category because it requires market access via tariff rate quotas (TRQ). The special products category for developing countries may be used because TRQ are not required. The tiered formula for tariff reductions would reduce the average trade-weighted bound tariff by 38 percent to 99 percent. The average applied tariff would decline from 59 percent to 54 percent. The flexibilities allowed under sensitive and special products would eliminate the decline in the average applied tariff. India is a net agricultural exporter, but only the 30 percent of exports going to developed countries would have lower tariffs. The rules championed by India prevent reductions in tariffs for India’s agricultural exports to developing countries.

These three studies confirm what many analysts without complex analysis systems suspected. The U.S. has made some progress in opening markets in developed countries, but will still face relatively high tariffs. Both the U.S. and the EU have pushed reductions in domestic supports about as far as they can politically based on current farm programs and assumptions for future ones. The developing countries have so many exceptions to the tiered tariff formula that increased access from lower applied tariffs will be little or none.

These outcomes raise the critical issue of how to negotiate a managed trade agreement with countries that won’t reduce trade barriers and allow their citizens to achieve the economic benefits of increased trade. The Doha agricultural proposal may be in the best interest of the U.S. depending on outcomes in non-agricultural market access, services and other areas, but shows the limits of the current process to generate wide support for expanded trade.