The agricultural talks have three sets of issues: market access; export competition; trade-distorting domestic support programs. The export competition issues are a positive spot in the talks with agreement to reduce direct export subsidies by 50 percent by 2010 and eliminate them by 2013. Talks on limiting export credits to avoid subsidies are also done. Use of in-kind food aid is limited. Progress has also been made on state trading enterprises related to agriculture and on strengthening provisions on introducing new export restrictions.
The work on trade-distorting domestic supports serves as an indication of what the U.S. has to provide if it wants an agreement now or in the future. The overall trade distorting support (OTDS) for the U.S. would be reduced 70 percent from an estimated maximum of $48.2 billion per year to $14.5 billion when completely implemented in five years. Japan would also face a reduction of 70 percent and the EU 80 percent. Within the OTDS, the Amber Box Aggregate Measure of Support, considered to be the most trade distorting, would be reduced 60 percent from $19.1 billion per year to $7.6 billion. Blue Box payments are to be limited to 2.5 percent of the value of production in the base years of 1995-2000. Total payments to individual commodities are also constrained.
Market access remains the major area of disagreement. For developed countries four tiers of currently bound tariff rates are established: tariffs of less than 20 percent are to be cut by 50 percent; tariffs from 20 percent to 50 percent by 57 percent, tariffs from 50 percent to 75 percent by 64 percent and tariffs 75 percent and higher by 70 percent. The minimum average cut for all tariffs for a developed country is 54 percent, compared to a 36 percent average reduction under the Uruguay Round. Since these cuts affect maximum bound tariffs rather than actual applied tariffs, some products would see little real change in market access. The cuts are real for many products and are to be implemented over five years.
From the start of the talks developing countries were allowed to have higher bands of tariffs for reduction, smaller percentage reductions in tariffs and implementation over ten years. At the upper end of the tariff bands for tariffs beyond 130 percent the reduction is 46.7 percent with an overall average tariff reduction for a country of a maximum of 36 percent. Forty five developing countries designated as “small and vulnerable economies” are allowed lower tariff reductions and least-developed countries need to make no tariff reductions. Since increased trade spurs development rather than harming development, these provisions slow development, not increase it. Countries self designate themselves as developing which has encouraged countries like South Korea and Taiwan to retain the developing label even though their economics are highly developed. Other countries like Brazil are developing in some respects, but have agricultures that rival that of the U.S.
The negotiations were made worse by allowing all countries to designate at least 4 percent of tariff lines as “sensitive” products with smaller tariff reductions in return for tariff rate quotes (TRQ) that guarantee a minimum level of increased imports. This created a feeding frenzy of demands for exemptions that included Canada, Japan, Switzerland and Norway arguing they could not live with the 4 percent limit. Developing countries can further designate up to 12 percent of tariff lines as “special” products with lower tariff reductions, with 5 percent with no tariff cuts, and no requirement to increase access through TRQs.
India has led the charge to further water-down market access by calling for a safeguard mechanism to allow higher tariffs when import increases may harm domestic producers. The sensitive and special products categories were designed to serve that purpose. The safeguards are actually a way to use managed trade to offset the impact of lower tariffs.
One lesson to be learned from this exercise in tariff reductions is that exceptions to broad policy principles will be used by developed and developing countries to prevent increased access to markets through tariff reductions. While India has received much attention on the safeguard issue, that same attention needs to be given to Japan, Canada, Norway, Switzerland and others for making the negotiations infinitely more complicated on sensitive products and derailing the talks entirely.
The biggest question is how to move forward from here. Demands for the U.S. to further reduce domestic support programs will continue. If nothing else, they provide a good way to divert attention away from market access issues. Developed countries can afford to penalize their consumers by taxing them through managed trade to protect local producers. Their markets are growing slowing because of high food consumption and stable or declining populations. Until their consumers demand a change, there is little incentive for trade policy changes. Developing countries are the growth markets for agricultural products, but they have been told for the last seven years that higher tariffs and managed trade are good for them. Reversing that attitude is not likely to happen between now and the next negotiating session.
The agricultural text as constructed by Agriculture Committee Chairman Crawford Falconer is not likely to get meaningfully better in the weeks ahead. It is time to either support what is on the table or go home empty handed.