President Bush’s statements recommitting the U.S. to working toward a new WTO trade agreement and a telephone call from President Lula of Brazil to the President to talk about a new agreement necessitate an assessment of the progress made in the agricultural talks. The key issue is whether enough movement has occurred so further progress can be achieved at the WTO ministerial meeting starting on June 29 and prepare for political leaders to act at the G-8 meeting in St. Petersburg, Russia on July 15-17.
The agricultural talks continue to divide along three major points – market access, domestic subsidies and export subsidies. For those people wanting more details and an assessment of key operational issues, a paper for the International Food & Agricultural Trade Policy Council by David Blandford of Pennsylvania State University and Tim Josling of Standard University titled “Options for the WTO Modalities for Agriculture” is a good source.
Market access is one of the key issues for U.S. interests. The USTR proposal made last October called for bound tariffs on agricultural products for developed countries to be divided into four bands of 0-20 percent, 20-40 percent, 40-60 percent and over 60 percent. Tariff reductions would begin at 55 percent for the lowest tariffs and escalate to reductions of 85-90 percent for tariffs beyond 60 percent with no tariffs higher than 75 percent. Blandford and Josling suggested “a reasonable approach could entail cuts of 45, 55, 65 and 75 percent for developed countries and two-thirds of those cuts for developing countries, using band divisions at 20, 50, and 75 percent for existing (bound) tariffs for developed and 30, 80, and 130 percent for developing countries.” Under that approach for developed countries a 20 percent tariff would be cut to 11 percent and a 100 percent tariff to 25 percent compared to 9 percent and 15 percent, respectively, under the U.S. plan. The same tariffs in a developing country would be cut to 14 percent and 57 percent.
The U.S. proposal limited “sensitive products” that would not require the full tariff reductions to no more than 1 percent of the tariff lines of a country. Blandford and Josling put the middle ground at, “A limit on sensitive products of 4 percent of all dutiable tariff lines would provide some market access, but would have to be combined with tariff cuts, substantial TRQ expansion and a relatively low tariff cap to provide significant market openings.” If the 4 percent limit on sensitive products is the best that can be achieved, then expansion of tariff rate quotas (TRQ) and a low tariff cap would have to carry most of the load in meeting the U.S. market access goals. While the tariff cap of 75 percent proposed by the U.S. is not likely to be accepted, the cap probably cannot be above 100 percent to achieve real market access.
For domestic support programs the U.S. proposed to reduce its amber box limit on trade distorting subsidies by 60 percent to $7.6 billion by the end of a five-year transition, with product-specific caps based on the 1999-2001 period. The U.S. is currently limited to a total of $19.1 billion per year. The U.S. proposal reduces the EU limit by 83 percent. The declaration from the Hong Kong meeting in December of last year provided for three bands for reductions in the amber box limit and for reductions in overall trade-distorting domestic support (OTDS), the sum of amber box, blue box and de minimis. The U.S. did not propose an overall cap in supports, but other countries are committed to making an overall cap part of the agreement.
Blandford and Josling see major reductions for OTDS, “values of the order of 70 percent for band 3, 60 percent for band 2 and 50 percent for band 1 would seem to be necessary if the domestic support provisions of a new agreement are to make an effective contribution to reducing future distortions created by domestic support programs.” Band three is the EU; band two is the U.S. and Japan; and band one is the rest of the world. For the amber box, “we suggest that cuts of 75, 65, and 55 percent in the Total AMS for the three bands would provide a balance to the required level of cuts in the OTDS by band.” The U.S. would fit into the 65 percent band for the amber box which is not substantially different from the 60 percent reduction proposed by the U.S. The debate will come down to the shape and limits on the OTDS and any limits on the green box programs.
A press briefing by Deputy Assistant USTR Jason Hafemeister on June 16th provided other indicators of the contour of the debate. He was questioned about working on TRQs with the European Union which would be part of the compromise with the EU on sensitive products. Product specific de minimis spending and its part in an overall cap on spending were raised as issues. De minimis programs are expected to be limited to 2.5 percent of the value of production for a commodity. Other countries continue to be skeptical of U.S. commitment to actually cut spending, either overall or in specific programs.
A peace clause restricting WTO cases as long as countries meet the terms of the agreement was addressed by Deputy Assistant USTR Hafemeister. He said, “We are going to engage in a serious process of domestic reform at home and will lock it in a Farm Bill, something that is a long term endeavor for our Congress and our producers. So having some certainty about what the allowed support measures are in the WTO is quite important. Consequently we’re looking for a type of a peace clause to provide that.” Blandford and Josling see a peace clause as part of the final negotiations, “Reviving the Peace Clause and limiting it to sheltering the Green Box could prove an acceptable price for tighter constraints on trade distorting support.”
The talks on agricultural issues have moved enough that the Administration will likely continue to push ahead. The challenges ahead remain large, but the opportunities seem to be worth the effort.