*EPF210 10/26/2004
WTO Agriculture Negotiators Moving to Hard Number-Crunching Job
(Politically sensitive cuts needed in export and domestic support, tariffs) (1100)

By Bruce Odessey
Washington File Staff Writer

Washington -- In July, World Trade Organization (WTO) members at long last agreed on a framework for agricultural negotiations on eliminating export subsidies, reducing domestic support and opening market access.

Now comes the hard part.

Difficult, politically sensitive negotiations remain for most of the 148 WTO member countries, except perhaps for the 31 least-developed countries that are exempt from reducing their tariffs and quotas.

EXPORT COMPETITION

For the United States, the framework agreement's requirement for ending agricultural export subsidies "by a credible end date" was a crucial achievement.

About 88 percent of agricultural export subsidies paid by WTO members are from the European Union (EU) and about 2 percent from the United States, according to U.S. government agencies.

"The United States has wanted for decades to eliminate export subsidies by some point," said Jim Grueff, assistant deputy administrator for international trade in the U.S. Department of Agriculture. "That's huge for us."

At EU insistence, the framework also requires disciplines on export credits and export credit guarantees of the kind the Agriculture Department pays.

"This will have an impact on us for sure," Grueff said.

The framework also requires disciplines on the trade-distorting practices of state trading enterprises such as the Canadian Wheat Board.

The board's monopoly power over sales of wheat and barley from 85,000 western Canadian farmers allows it to sell those commodities below U.S. prices in third markets, U.S. farmers complain.

Disciplines on food aid also are to be negotiated because surplus food in wealthy countries, produced in excess because of domestic supports, often ends up being exported to poorer countries experiencing food shortages, displacing commercial sales, lowering prices and thus discouraging domestic production.

Grueff said any new rules should avoid impairing legitimate food aid.

DOMESTIC SUPPORT

Under existing WTO commitments, the EU is allowed to spend more than three times as much in domestic support to its farmers as the United States, while Japan is allowed to spend 1-1/2 times as much.

Under the framework agreement, countries must commit to "substantive reduction" in what is called their aggregate measure of support (AMS). Developed countries have already agreed to reduce overall trade-distorting domestic support from bound levels -- levels they cannot exceed under the existing WTO agreement -- by 20 percent in the first year of implementing any new WTO agreement.

Bound levels of domestic support are usually higher than actual spending levels. U.S. officials have said that because U.S. spending is already so much lower than its bound level it will not be affected by a 20-percent first-year reduction.

Nonetheless, Grueff said, over the entire implementation period "we will certainly have to make some changes."

The WTO categorizes domestic support in what are called the amber, blue and green boxes.

The amber box comprises most of the kinds of support that distort agricultural production and trade. According to the framework requirement for harmonizing domestic supports at a lower level, WTO members with the highest spending will have to make the deepest cuts, with the size of the cuts and timetable for making them to be negotiated.

Included in the amber box is what is called de minimis support, the minimal level of trade-distorting domestic support allowed by the WTO, 5 percent of the value of production for a specific commodity for developed countries, 10 percent for developing countries. Similarly, total support not specific to any commodity is limited by the same percentages of total production value.

Under the framework, countries are expected to negotiate lower de minimis levels, but it exempts developing countries such as India that spend nearly all their de minimis support for subsistence farmers.

Existing WTO commitments impose no cap on spending in the blue box category, which comprises somewhat less trade-distorting support, because it requires farmers to limit production.

The framework requires capping blue box spending at 5 percent of each WTO member's average value of agricultural production over some historical period to be negotiated.

Although developing countries wanted the blue box eliminated, the framework actually extends blue box coverage to allow U.S. counter-cyclical payments to protect farmers from swings in commodity prices.

Negotiators are supposed to develop new criteria to make sure that blue box support is less distorting than amber box support.

Likewise, negotiators are expected to review criteria for green box support, spending supposed to cause no or minimal distortions to agricultural trade and production. Developing countries had wanted green box spending caps instead. The review must consider the legitimacy of spending for non-trade concerns such as the environment and rural development.

MARKET ACCESS

Since the Uruguay Round agreement that created the WTO, countries have had to eliminate non-tariff barriers to trade or else convert them into tariffs. In cases where the calculated tariff was extraordinarily high, a country had to agree to a tariff-rate quota where imports below the quota are subject a lower rate and those above to the higher rate.

While U.S. agricultural tariffs average 12 percent, those in most other countries are much higher, with the worldwide average at 62 percent: EU, 31 percent; Japan, 51 percent; South Korea, 66 percent; India, 114 percent.

Like domestic supports, higher tariffs are supposed to be reduced more than lower tariffs, both for developed and developing countries under the framework.

Presumably negotiators will attempts to identify bands -- ranges of tariffs subject to percentage cuts phased in over some number of years.

Negotiating battles loom over how many bands they will identify, where each band begins and ends, how deeply each band should be cut and when the cuts should take place.

Under the framework, the cuts will be made from rates bound by the existing WTO agreement, not the usually lower applied rates. The least-developed countries are exempt from making any cuts, and other developing countries are supposed to get different kinds of special and differential treatment that are to be negotiated.

All countries, developed and developing, are allowed to designate some number, that number to be negotiated, of "sensitive products" subject to smaller tariff cuts in combination with larger tariff-rate quotas.

In addition, developing countries only are allowed to designate some number of "special products" -- how many and which ones to be negotiated -- for special and differential treatment, including possibly smaller cuts or no cuts at all. This treatment aims especially at promoting food security and protecting subsistence farmers in poor countries.

(The Washington File is a product of the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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