AG SUBSIDIES ON NEGOTIATING TABLE; HAGGLING UNDERWAY

Back-and-forth number-based negotiations are well and truly underway in the WTO agriculture talks, with the US and the EU making offers and counter-offers for cuts to subsidies and tariffs, first at a 10 October 'mini-ministerial' meting in Zurich and then in a series of meetings in Geneva.

Ministers from the 'five interested parties' (FIPS: the EU, the US, Brazil, India, and Australia) met for discussions on 12 October. Later that day, the Group of 20 developing countries (G-20) announced that they had agreed on a proposal of their own for subsidy and tariff reduction.

While the EU and the US appear to be inching towards each other in their proposals on domestic subsidies, they remain sharply divided on the depth of tariff cuts that they are willing to accept (see related article, this issue). Although the meetings did not lead to any real agreement, ministers said they would reconvene in Geneva next week.

US, EU, G-20 put forward plans for subsidy reduction

In Zurich, the US tabled a new negotiating proposal covering all three pillars of the agriculture negotiations (domestic support, market access and export competition), calling for the complete elimination of trade-distorting agricultural policies over a fifteen-year period. The initial period of five years would see significant reductions in domestic support and tariffs. Export subsidies would be eliminated by 2010. After the first five years, Members would have another five years to review the effects of the reductions undertaken. They would then completely phase out remaining tariffs and trade-distorting domestic support during the final five-year phase.

The key feature of the offer was the US' newfound willingness to reduce the bulk of its trade-distorting domestic support -- the total 'aggregate measure of support' (AMS), or the Amber Box -- by 60 percent over the first five-year period, so long as the EU and Japan reduce theirs by 83 percent.

The proposal would also require reductions to the two other smaller categories of trade-distorting subsidies that are not banned under WTO rules: it would halve 'de minimis' support -- the maximum level of exempted trade-distorting subsidisation -- to 2.5 percent of the value of total farm production in developed countries, and set an identical cap for Blue Box (partially decoupled) support.

Taken together, these cuts would slash the US' allowed level of overall trade-distorting domestic support by 53 percent. The US says that it is prepared to implement this -- if the EU agrees to a 75 percent cut in its own overall ceiling for trade-distorting subsidies.

In response to the US' demand in Zurich that it reduce Amber Box subsidies by 80 percent, the EU offered to do so by 70 percent, up from an earlier offer of 65 percent, contingent on "proportionate reductions" by the US and Japan. It also proposed a 65 percent cut to developed countries' allowance for de minimis support. The EU demanded clearer limits and definitions for Blue Box support, in order to curtail the US' controversial counter-cyclical payments, which cushion farmers from downward turns in world market prices.

Other major subsidiser Japan found the US proposal excessive. Japanese Minister of Agriculture, Forestry and Fisheries Mineichi Iwanaga said that the US' demands of the EU and Japan were "out of balance with the level of reduction the US itself is ready to make." Canada and Australia, however, welcomed the US initiative.

The G-20, contrary to Japan, felt that the US offer did not go far enough. Brazilian Foreign Minister Celso Amorim and Indian Commerce Minister Kamal Nath suggested that it did not do enough to cut actual payments, as opposed to merely lowering ceiling levels. Amorim also rejected the proposal's suggestion that Members in compliance with their subsidy reduction commitments should be protected by a renewed 'peace clause' that would bar countries from taking each others' farm subsidies to WTO dispute settlement.

The G-20's 12 October proposal would classify ceilings for overall trade-distorting domestic support by developed countries into three bands of under USD 10 billion, USD 10-60 billion, and over USD 60 billion, slating them for cuts of 70, 75, and 80 percent respectively. This would have the EU lower its ceiling for the sum of Amber Box, Blue Box, and de minimis support by 80 percent, while the US would do so by 75 percent. It is not clear into which of the top two bands Japan would fall.

Notably, the G-20's new proposal on market access suggests that developing countries should have recourse to remedial action (which could potentially take the shape of anti-dumping or countervailing measures) against subsidised imports from developed countries. It does not, however, provide specifics for how such a mechanism might work.

Deep percentage cuts necessary to reduce actual spending

WTO negotiations deal with cuts to the ceiling level for subsidisation rather than the actual amounts governments pay out. The large gap between the two, 'water' in WTO parlance, means that even deep percentage cuts to domestic support might lead to very little in the way of reduced subsidy expenditures, perhaps none at all.

Indeed, World Bank economists Kym Anderson and Will Martin project that, based on 2001 subsidy levels, a 75 percent reduction in Amber Box support levels would require the US to cut actual subsidies by 28 percent, and the EU to do so by 18 percent. They suggest that the EU's post-2001 subsidy reform might even allow them to meet that target without further changes (see BRIDGES Monthly, June/July 2005). Civil society groups including Oxfam made similar points when slamming the US proposal for requiring negligible reductions in the sums paid out through its farm support programmes.

US Trade Representative Robert Portman rejected the charge that the US proposal would do no more than cut 'water,' telling the press in Geneva on 12 October that a 60 percent cut in Amber Box spending limits would bring the US' ceiling down from USD 19.1 billion to USD 7.6 billion. This, he continued, would represent a "46 percent cut in muscle and bone" from the USD 14 billion in the US' most recent notification to the WTO, and an even steeper reduction from the USD 17 billion that he said the country was actually spending on such support. "We are cutting from applied rates here, we are cutting into our programs."

However, Argentine Secretary of Trade and International Economic Relations Alfredo Chiaradia had earlier suggested that the US proposal would allow Washington to spend USD 23 billion on overall trade-distorting domestic support (Blue Box and de minimis support in addition to the Amber Box) -- USD 2 billion higher than the total levels it notified to the WTO in 2001.

The seemingly conflicting projections for the magnitude of actual subsidy cuts stems in part from a lack of reliable data on Members' subsidies. The US has not notified its expenditures to the WTO since 2001 -- a year before the passage of the 2002 Farm Bill, which instituted the counter-cyclical payments. The other large subsidisers are also lagging behind with their notifications.

Some fear that the US and the EU will be able to simply reclassify their subsidies in order to shield them from steep reduction commitments, thus avoiding substantial cuts to current expenditures.

US, EU face domestic resistance to subsidy reform

EU efforts to cut subsidies are facing increasingly vocal opposition from member states. Agriculture ministers from thirteen EU member states sent a letter of protest to Agriculture Commissioner Mariann Boel Fischer on 7 October, saying that while the EU already had made substantial reforms to its domestic support and offered to phase out export subsidies, other countries had done little to match these efforts.

The US, too, is facing domestic resistance to its proposed subsidy reduction package. Senate Agriculture Committee Chair Saxby Chambliss and House Agriculture Committee Chair Bob Goodlatte criticised the proposal, insisting that any reforms should be homegrown rather than driven by WTO policy, should keep farmers' safety-net intact, and should be contingent on the expansion of market access in the round.

The next official 'agriculture week' is set to begin on 17 October, and ministerial-level talks are expected to take place in Geneva. The General Council is scheduled to meet on 19-20 October.

ICTSD reporting; "U.S. Proposal for Bold Reform in Global Agriculture Trade," US TRADE REPRESENTATIVE FACT SHEET, 10 October 2005; "Key trade ministers end farm meet, no breakthrough," REUTERS, 12 October 2005; "Developing countries say they will ask U.S., EU to make deeper cuts in farm aid," ASSOCIATED PRESS, 11 October 2005; "WTO Talks Might Flop, Says Minister," EAST AFRICAN STANDARD, 12 October 2005; "Press Release," US MISSION TO THE WTO, 12 October 2005; "G-20 Urges More U.S. Farm Subsidy Cuts; U.S. Wants Better Market Access Proposals," WTO REPORTER, 12 October 2005; "France says EU has already done its part to cut farm subsidies," FORBES, 10 October 2005; "Oxfam: US farm subsidies offer 'smoke and mirrors'," PRESS RELEASE, 10 October 2005.