US FARM SUBSIDY HINT NOT ENOUGH TO JOLT SLUGGISH DOHA NEGOTIATIONS

A breakthrough in the Doha Round negotiations does not yet appear within reach, despite modest (though rare) progress in the agriculture talks over the past three weeks.

Hopes for an accord received a boost last week when US agriculture negotiator Joe Glauber suggested that Washington could accept capping its trade-distorting farm payments at between $13 and 16.4 billion dollars, the range for a potential deal outlined in July by the chair of the WTO agriculture talks. Several countries have long insisted that US subsidy concessions were necessary for a Doha agreement to become possible.

US officials have subsequently downplayed the significance of the statement, suggesting that it was implicit in their acceptance of the draft deal as a basis for further discussion. Nevertheless, the comments, made in a meeting of the agriculture negotiating committee on 19 September, marked Washington's clearest signal yet that it might be willing to accept a spending limit below $17 billion, let alone the $22.5 in its formal standing offer at the WTO.

"I had never heard them say that before. It's not a small thing," said agriculture chair Ambassador Crawford Falconer (New Zealand) after the gathering.

Representatives from other countries, including the EU and Brazil cautiously welcomed the US' possible shift in position. Some developing country delegates noted that the range of subsidy figures in Falconer's draft was quite wide, and that much would hinge on where on that spectrum Washington was willing to go.

Also crucial are the concessions the US would settle for in return, and whether its trading partners think the "exchange rate" is worth it. Furthermore, even if WTO negotiators can agree on a Doha deal, it remains far from clear that the unpopular President George W. Bush administration would be able to sell it to Congress.

Sean Spicer, a spokesperson for the US trade representative's office, said that subsidy moves would require others to "step up to ensure the strongest possible market access outcomes implied by the texts in agriculture [and] manufacturing" trade, according to Agence France Presse.

Several major developing countries protested that the industrial tariff cuts laid out in the draft agreement by chair Ambassador Don Stephenson (Canada) were too onerous - at least compared to the farm reform on offer in the agriculture text, or even the demands made on rich country manufacturing tariffs.

One industrial goods negotiator said that Glauber's remarks were significant in that they appeared to recognise that the US had to go where "many thought they had to go anyway." However, they had not "jolted the talks" into action, the official said. Following the draft text's chilly reception, discussions on non-agricultural market access have avoided the central issues of the tariff reduction formula and associated exceptions for developing countries, pending movement in the farm trade talks.

Falconer: ag delegates "negotiating seriously"

Falconer saw increased hope for rapprochement on farm subsidy and tariff cuts, telling reporters on 21 September that delegates were "negotiating seriously," and had finally ceased "posturing for the sake of posturing."

Delegates now have two weeks off to meet with each other, consult their capitals, and explore ways forward. Falconer will resume consultations on 8 October for two weeks.

Though shying away from discussing headline percentage figures for farm tariff cuts, Members have been discussing a different piece of the market access puzzle: the range of exceptions to standard tariff treatment, from the 'sensitive' and 'special' products set to be shielded from the full force of tariff reduction, to the 'tropical products' slated to receive an additional level of liberalisation. Compromise will require balancing exporters' interests against other countries' import sensitivities.

Falconer's July draft text did not include detailed provisions on several of these exceptions. He has indicated that he wants to provide Members with some sort of focus for further discussions, possibly through issue-specific working papers. He is expected to release a revised text fleshing out the skeletal provisions in the existing draft in the second half of October.

The chair's so-called 'Room E' consultations with 36 delegations representing a cross-section of coalitions and negotiating interests have been at the centre of recent discussions.

Also prominent has been a group of senior officials from eight major trading powers that has been meeting to discuss various issues in the talks. This latter group has expanded, reportedly at India's behest, to include China, Indonesia, South Africa, and Jamaica. With the addition of the four developing countries, the 'group of 8' comprising Argentina, Australia, Brazil, Canada, the EU, India, Japan, and the US has now been dubbed the 'G-12' by some officials. The group is believed to be steering clear of major political decisions, but identifying issues for further clarification and technical work, in parallel to the Room E meetings. Sources familiar with their deliberations suggest that participants are operating under a 'code of conduct' whereby they will not present issues to Falconer unless everyone has agreed on them.

The emergence of yet another small, exclusive, and influential group of Members has left some delegates concerned about transparency and inclusiveness, although concerns were somewhat assuaged by the group's expansion. Others suggested that the G-12 has been willing to bring in other countries as needed.

Last week's talks on the 'special safeguard mechanism'(SSM), which will enable developing countries to raise tariffs temporarily above bound ceiling levels as a defence against import surges, served to highlight Members' differences.

Agricultural exporters from both the developed and developing world, including the US, Canada, Australia, Argentina, Thailand, and Malaysia want the mechanism's scope to be limited, fearing blocked-off export opportunities. The G-33 group of developing countries, which includes India, China, and Indonesia, wants the precise opposite: a mechanism that is relatively easy to invoke when import volumes rise or import prices drop. Notably, Brazil, a leading developing country and major farm exporter that has generally preferred to stay above the fray in South-South disagreements, also expressed misgivings about the G-33's demands.

Particularly contentious was the issue of whether safeguard duties should be permitted to exceed developing countries' current binding tariff caps, agreed to during the Uruguay Round. Exporters argue that this is necessary to prevent backtracking on previous liberalisation, and that the SSM should only be available to offset the negative consequences of Doha-related tariff cuts. Others counter that this would risk robbing the new mechanism of its effectiveness. Least-developed countries point out that such a restriction would render the new safeguard useless to them, since they are not required to lower bound tariff levels under the Doha Round. Recently acceded Members, which have low tariff levels already, warned that strong limits on remedial duties could hit them especially hard.

'Exchange rate' remains crucial - and controversial

"The leviathan is beginning to move," Falconer told negotiators about the talks last week. "That's my impression. We'll see if it remains that way."

For the leviathan to keep moving, say the EU and the US, developing countries like Brazil and India need to slash their industrial tariff caps deeply enough to reduce applied duty rates on a substantial proportion of goods.

These demands have been controversial thus far, not least because bound ceiling limits for tariffs and subsidies have been the traditional currency of WTO negotiations. Years of autonomous tariff liberalisation have left India and Brazil with applied tariffs on many products low enough that they would only be 'bitten into' by deep percentage cuts to their bound ceiling rates. However, neither Brussels nor Washington has offered to cap trade-distorting farm subsidies at levels that go substantially beyond already-planned reforms (and the bulk of their farm payments, deemed not to distort trade, are exempt from cuts under the Doha Round anyway).

This has complicated the political optics with regard to the 'exchange rate' between concessions in the negotiations, even though it is natural for governments to want their trading partners to change existing practice rather than theoretical limits.

For instance, according to calculations carried out by the WTO Secretariat earlier this month based on data from 2005, even the gentlest tariff cuts provided for in Stephenson's NAMA text would cut Brazil's average bound industrial tariffs by about half, and its average applied duties by 6.3 to 7 percent. Capping most of Brazil's tariffs at 23 or 26 percent would force down applied rates on over 40 percent of tariff lines, affecting 38.6 to 48.7 percent of imports by value, depending on the flexibilities used to shield some products from the full force of tariff reduction. For India, similar caps would reduce current average bound rates by close to 60 percent, and applied rates by 6.6 to 8.6 percent. New Delhi would see applied rates reduced on over half of all tariff lines, although it could keep this to a quarter by foregoing the use of flexibilities to cushion the most vulnerable manufacturing sectors. Between 9.5 and 46 percent of imports would be affected by the cuts.

The most demanding figures in the NAMA text - a tariff cap of 19 percent - would cut India's applied tariffs by an average of over 13 percent, biting into duties on close to four-fifths of tariff lines. For Brazil, the corresponding figures would be 11 to 12 percent, and over 50 percent of tariff lines. In both cases, roughly half of import value would be affected.

By comparison, Washington's actual spending on 'overall trade-distorting farm support' (OTDS) last year was estimated to be $11 billion, with payment levels low due to high global prices. In other words, below the $12 billion-odd cap sought by the G-20 developing countries, not to mention the $13 billion lower figure in Falconer's text - even though practical restrictions on how subsidy schemes can be classified within the different components of OTDS mean that these caps would nonetheless likely entail at least some restructuring of US farm programmes.

In the calculus of this negotiation, the US is seeking to preserve its freedom to increase subsidies to farmers, while Brazil and India push to retain the ability to raise tariffs on some industrial products.

Although the G-20 has insisted that the US' subsidy cap should be no more than $12 billion, one source suggested that some members of the group might eventually accept a ceiling close to $14 billion.

The significance of the precise figures in both draft texts is hard to pinpoint, because governments appear to have meant different things when they called them a basis for further negotiation. For example, the EU suggests that an agreement should be found within the ranges of figures identified. Japan, though it also accepted the texts as a basis from which to proceed, has steadfastly maintained that the figures for farm tariff cuts were unacceptable.

US political climate unfriendly

Two former senior diplomats from the US and the EU earlier this week called upon WTO Director-General Pascal Lamy to present Members with a comprehensive compromise agreement of his own, saying that "the major players will not do what they know needs to be done unless everyone moves together." In an op-ed in the Washington post, Stuart Eizenstat, a former US ambassador to the EU, and Hugo Paemen, a former EU envoy to Washington, wrote that Lamy "is the only one who can force the recalcitrant countries to bridge the remaining gaps. He must make them recognize that the future of the institution, barely a decade old, is at stake." A similar move by then-GATT Director-General Arthur Dunkel in December 1991 infuriated many countries but ultimately formed the basis of the Uruguay Round agreements.

Reuters reports that Lamy told journalists in Stockholm that the current situation did not justify such an exceptional initiative, since "the [Geneva-based negotiating] process is moving in the right direction."

Other optimistic views came from New York, where world leaders are currently gathered for the UN's annual summit. President Bush, Brazilian President Lula Inacio Lula da Silva, and Indian Commerce Minister Kamal Nath reiterated their commitment to the WTO talks, promising to demonstrate flexibility. Of course, similar expressions of support have been made for the better part of the six years since the Doha Round was launched.

An even more formidable obstacle than finding consensus on a Doha tariff and subsidy package might be getting it through the US Congress in the foreseeable future.

House agriculture committee chair Collin Peterson (Democrat-Minnesota) has vowed to oppose deeper farm subsidy cuts barring dramatically expanded market access elsewhere, despite the soaring value of US agricultural exports. The Democratic leadership is loath to risk fragile support in newly-won rural districts by pushing farm reform. Extra cuts to cotton subsidies appear to be an especially hard sell.

The Financial Times suggests that the current view on much of Capitol Hill is that between the Bush administration's diminished political capital and Democrats' scepticism about economic globalisation, the Doha Round will have to wait until a new administration takes control of the White House in 2009.

That would be just in time for Indian elections due later that year.

ICTSD reporting; "The short, unhappy life of Doha… (or D.O.A.)," THE PRAIRIE STAR, 16 September 2007; "A Trade Deal on the Ropes," WASHINGTON POST, 24 September 2007; "Doha set for backburner as trade talks near a halt," FINANCIAL TIMES, 25 September 2007; "US prepared to negotiate based on WTO farm proposal," AGENCE FRANCE PRESSE, 19 September 2007; "US Signals Ready to Limit Farm Subsidies," 19 September 2007; "US farm talks offer get guarded response at WTO," REUTERS, 21 September 2007; "US, EU hope WTO farm talks progress will spur Brazil, India to make concessions," ASSOCIATED PRESS, 21 September 2007; "World leaders express new optimism on Doha deal," REUTERS, 25 September 2007.