On July 17th Crawford Falconer, Chairman of the Committee on Agriculture of the Doha Round of WTO trade negotiations, released a draft of possible modalities for agriculture. The Chairman of the Committee on Non Agriculture Market Access (NAMA) also released a draft text of his committee’s work. The U.S. Trade Representative’s (USTR) office noted in a statement that, “the Chairs’ issuance of draft texts at this stage is a single step in a longer term process” to establish the detailed negotiating framework for the final stage of the talks.
The next step will be meetings in Geneva the week of July 23 to exchange reactions to the text and find ways to move forward. Revised drafts will be developed as needed based on comments from WTO members. The agricultural draft is not a complete text in that items like tariff escalation, special products, special safeguard mechanisms and preference erosion have not moved enough toward consensus for Falconer to write specific language. These issues are less important to most U.S. participants, but of major importance to other members, particularly in developing countries. The draft also contains bracketed numbers for percentage reductions in tariffs and domestic supports which mean negotiators have narrowed their differences, but have not reached consensus. The biggest benefit of the draft is that it provides a comprehensive view of the agricultural discussions from someone who is familiar with the positions of the many groups involved in the talks.
Domestic supports and the formulas for tariff reductions are of most interest to U.S. farmers and ranchers and among the more settled issues. A base level of Overall Trade-Distorting Domestic Support for each country will be established by adding together the final bound Aggregate Measure of Support (AMS) from the Uruguay Agreement, 10 percent of the value of production of agricultural products in the 1995-2000 base period and the higher of existing average blue box payments or 5 percent of the average value of production for 1995-2000. The U.S. is in a mid-level country category of $10 billion to $60 billion per year where support would have to be reduced by 66-73 percent. This would provide a hard cap for the amber box and blue box. Reports put the overall cap at $13.0-$16.4 billion per year when fully implemented.
Within the Overall Trade-Distorting Domestic Support, the Final Bound Total AMS of the amber box for the U.S. would be reduced by a proposed 60 percent because the U.S. fits in a mid category of AMS of $15 billion to $40 billion per year. That would reduce the U.S. AMS from $19.1 billion per year to $7.6 billion. The draft text has product-specific AMS caps based on the total AMS for 1995-2000 and the 1995-2004 distribution of AMS among products for the U.S.
The tiered formula for reductions in bound ad valorem equivalent agricultural tariffs for developed countries is a 48-52 percent reduction for tariffs of 0-20 percent, 55-60 percent for tariffs of 20-50 percent, 62-65 percent for tariffs of 50-75 percent and 66-73 percent for tariffs of greater than 75 percent. Developing countries would make two-thirds of the reductions made by developed countries with wider bands that go up to tariffs of 130 percent. These reductions would be less for sensitive products from developed countries and sensitive and special products from developing countries.
As expected, cotton would have more rapid and greater reductions in trade-distorting domestic subsidies and tariffs compared to other commodities. This has been an issue since 2003 and pushed by West African cotton producing countries.
Based on actions to date, from the U.S. point of view the Doha glass will likely never fill up. The Bush Administration set an aggressive agricultural tariff reduction agenda at the start of the talks in 2001 and has held to that position since then. That was the correct economic approach since reducing tariff rates is a fundamental part of opening markets in the multilateral negotiations. The Falconer draft makes clear that tariff reductions will be less than the U.S. goal. That has been true for at least the last two years, and discussions for the next two years are not likely to change the outcome.
The Bush Administration and agricultural interest groups have linked reductions in trade-distorting U.S. domestic supports to major expansion of market access in other countries. Most of the other members of the WTO have not bought into that basic linking, and many members have taken an exactly opposite view. The three boxes or categories of domestic supports established in the Uruguay Agreement and the caps in the amber and blue box programs were to be the first installments of continued reductions in outlays for those programs because they have already been established as trade distorting. Based on the Falconer text, the U.S. appears to have lost ground on that issue as an overall cap on trade-distorting domestic supports and product specific AMS caps have become part of the text.
The U.S. negotiators, leaders of the Bush Administration and members of the House and Senate with an interest in agricultural issues have difficult choices in the weeks ahead. They can hold onto their original arguments and the Doha talks will fail, or they can try to find a new point in the policy options that will make substantive progress in market access while protecting some level of trade-distorting domestic subsidies. These choices are further complicated by the growing belief that comprehensive rounds of WTO trade policy talks are part of the past and not of the future. If this is the last chance to achieve a broad agreement across a wide range of issues that impact all members of the WTO, then the questions are what can be achieved in a broader agreement and what can better be done in whatever format replaces the broad rounds? Is the increased market access in the agriculture agreement enough to produce support for the final agreement?