After two days of talks in Washington, DC between USTR Rob Portman and EU Trade Minister Peter Mandelson, Portman acknowledged that the key issue for the U.S. in the WTO negotiations on agriculture continues to be market access (lower tariffs) for agricultural products in global markets. That has been obvious since the start of the talks over four years ago. Restating it now may mean that the talks are about ready to move forward.
With U.S. agricultural tariffs averaging 12 percent compared to 62 percent for the world average, it is easy to see why the U.S. took that position. A World Bank analysis released last summer highlighted the importance of lower agricultural tariffs for the rest of the world. If the Doha Round resulted in a transition to free trade over the period 2005-2010, the World Bank estimated that by 2015 total world economic gains would be $287 billion per year. Two-thirds of the gains would go to developed countries, but as a share of national income developing countries would have an average increase of 1.2 percent compared to 0.6 percent for developed countries.
Two-thirds of the $287 billion of gains would be produced by liberalization of trade in agriculture and food, and elimination of market access barriers would account for over 90 percent of the gains for agriculture and food. While beating up on the U.S., the EU and Japan over domestic subsidies has provided amusing political theater, the greatest economic opportunities of the negotiations are in tariff reductions. That has been true for all markets over the 60 years of modern trade liberalization efforts.
The process of moving toward lower tariffs on agricultural products will likely begin by the more advanced developing countries making a new offer on market access for industrial goods and services. This is a requirement for the U.S. and EU to move forward on agricultural issues. A new proposal on tariff reductions in agriculture would then be put forward by the EU. The final step in the process would be for the U.S. to commit to more specifics on reductions in domestic supports for agriculture. With all of these issues “in play,” the midnight oil would then be burnt over the next two months to get the agricultural framework ironed out by April 30. The next scheduled “agriculture week” at the WTO headquarters in Geneva, Switzerland is March 20-24. New proposals would be needed well before then so that the meetings could focus on specific solutions to issues.
Keeping the process moving will be a huge task. The chairman of the agricultural negotiations, Crawford Falconer, released a set of questions in early February for consideration by countries with an interest in agricultural issues. The questions were meant to move the talks toward issues that need to be resolved. The chairman noted that in Hong Kong there was agreement for tariffs to be put into four bands, but the thresholds for the bands had not been set. The U.S. proposal from October 2005 put the four bands for developed countries at 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. No tariff could be higher than 75 percent, except for “sensitive products.” These products could account for no more than 1 percent of the tariff lines of a country and expanded tariff rate quotas (TRQ) would be required.
Before the Hong Kong meeting Chairman Falconer released a document that included an “illustrative table” for the four bands of tariffs. The ending point for the lowest tariff band ranged from 20%-50% with the starting point for the top band at 60%-150%. The illustrative range of cuts for the four bands was from 15%-25% in the lowest band and 30%-40% in the highest band. These cuts are much lower than the tariff reductions proposed by the U.S. Some countries have suggested no cap on tariffs compared to the 75 percent cap proposed by the U.S. Under the no cap approach, a 40% cut in a tariff of 300%, would still leave a tariff of 180%. Some countries have proposed that up to 15% of a country’s products could be exempt from the tariff cuts.
In Chairman Falconer’s early February list of questions for the negotiators he addressed four points about tariff reductions: the thresholds for the four bands of tariffs, the percentage reductions in tariffs in each band, the thresholds and reductions for developing countries, and the tariff cap. The chairman had a separate set of questions for sensitive products.
While the EU, with help from Japan and other high tariff developed countries, will need to put forth a creditable proposal as it relates to developed countries, leaders of the developing countries will need to make proposals for the tariffs for developing countries. USTR Portman made clear in his remarks after the U.S.-EU meeting that market access for U.S. agricultural products had to be achieved globally, not just with the EU or just developed countries.
The importance of developing countries is highlighted by trade estimates from the International Monetary Fund showing that developing countries` share of total global imports, agricultural and non-agricultural, were a record 40.2% in August of 2005 and averaged 38.3% in the first eight months of the year. That is a sharp increase from an average of 32% in the 1990s and 29% in the 1980s. Developing countries have become too important in trade to continue to follow a high tariff policy for agricultural products.
Moving the talks forward in this framework continues to be a long shot with many stumbling blocks along the way. If the talks do move forward, it will then be up to the U.S. to address specifics on reforms on domestic support programs. In WTO negotiations nothing is final until all the issues have been addressed. Any new market access agreements will be conditional until domestic support issues have been resolved.