A new calendar year has begun with another call to complete negotiations on the Doha Round of WTO trade policy talks this year or wait until 2013 after the U.S. Presidential elections in November of 2012. The G20 political leaders of the major economies meeting in Seoul, South Korea last November recommitted to completing the talks by the end of 2011. WTO Director-General Pascal Lamy outlined to the General Council of the WTO in mid-December the program he and the Chairs of the Negotiating Groups had prepared for 2011.

 

Mr. Lamy clearly laid out to the General Council what must be done when he said, “At this stage it is not enough to have answering machines around the table. We are at the point where we must have negotiators, and all negotiators have to be prepared to move out of their comfort zones towards agreement.” The talks have drug on for nine years and few negotiations have occurred in the last five years.

The chairperson of the agricultural negotiations, David Walker, New Zealand’s Ambassador to the WTO, has laid out an aggressive agenda of work to begin January 17 with a goal of a near-final revised draft of modalities by the end of March. In WTO-speak modalities set broad outlines — such as formulas or approaches for tariff and subsidy reductions — for final commitments. The chairperson said, “The eventual revised text should be based on consensus, and where consensus is not possible, provide clear choices for decision-makers to pick.”

All of this preparation and meeting will mean nothing if there isn’t any negotiating, just answering machines. To no great surprise, some have called upon the U.S. to make a move in the agricultural talks by offering a further cut in subsidies. Under the current draft, the U.S. would reduce allowable overall trade distorting subsidies (OTDS) by 70 percent from an estimated starting point of $48.2 billion per year to $14.5 billion when completely implemented in five years. Japan is also committed to a 70 percent reduction in OTDS and the EU to 80 percent. OTDS includes Amber Box subsidies (payments and programs tied to current market prices), de minimis payments (Amber Box type payments, but less than 5 percent of commodity value, 2-2.5 percent in the draft agreement) and Blue Box payments (not now used by the U.S., but would include counter-cyclical payments under the draft agreement.) The U.S. has also agreed to reduce Amber Box limits by 60 percent from a current limit of $19.1 billion per year to $7.6 billion over five years. The EU and Japan would each make 70 percent reductions in Amber Box limits. The U.S., EU and Japan would make first year reductions in OTDS of 33.3 percent.

The suggested changes would cut OTDS for the U.S. by 80 percent to $9.6 billion per year and the Amber Box limit by 70 percent to $5.7 billion. The assumption is that the EU, Japan and other developed countries would make similar moves on both OTDS and Amber Box programs. These cuts would be contingent on developed and developing countries providing greater access to markets by reducing bound tariff rates beyond the levels in the draft agreement and further limiting the number of products designated as sensitive by all countries and special for developing countries that would have smaller tariff reductions. The U.S. would also expect greater market access for industrial products.

The U.S. position is further complicated by discussions on a 2012 farm bill during a period of federal government budget restraint to reduce annual deficits of over $1 trillion. Among the tradeoffs being considered is to shift direct payments not tied to current production or price that are now reported as Green Box (non trade distorting) to crop insurance or the Average Crop Revenue Election (ACRE) program which are tied to current market prices and yield per acre, both of which are Amber Box and subject to limits. Crop insurance has been in the de minimis category, but with the increased cost of crop insurance and the reduction in the de minimis category under the draft agreement, it will likely become amber box.

During discussions of the 2008 farm bill, which began in 2007 when Doha talks were also ongoing, the question arose about finishing a Doha agreement first or writing the farm bill first. That ended up as a moot point when Doha ground to a halt, but the opposite outcome may be true this time if Doha does get new life. Cotton policy adds more complexity. Under the current Doha agricultural draft agreement, cotton support would be reduced more rapidly than for other commodities. This is part of the commitments made at the Hong Kong Ministerial Conference in December 2005 in response to African producers’ concerns about the impact of U.S. farm program policies on world market prices for cotton. Also, under a framework for discussions related to a WTO case won by Brazil on trade-distorting U.S. export credit and cotton programs, U.S. and Brazilian officials are meeting quarterly on possible programs in new legislation.

Further reductions in the limits on OTDS and Amber Box programs would require Congress to reconsider existing farm programs and the trade off in programs current being discussed. Getting that settled at the WTO in 2011 would give farm bill writers a better understanding of what is needed to remain WTO compliant.

Whatever challenges the U.S. would face with further reductions in OTDS and Amber Box limits in agriculture, other developed countries like Japan would have equal or larger problems accepting further reductions in limits. Reductions in the number of special and sensitive agricultural products that could be claimed to avoid tariff reductions would test the seriousness of developing countries like India to accept market opening measures.

Moving forward on the Doha Round of negotiations would be good news if major WTO developed and developing countries are serious about achieving an agreement. Many issues have been left unresolved as political leaders have not had the will to negotiate an agreement as pointed out by Mr. Lamy. If this exercise is simply used as another chance to criticize U.S. agricultural programs, those countries should just connect their answering machines and save everyone the time, money and frustrations of going to Geneva.