Peter Gallagher

There has been some bet­ter def­i­n­i­tion of proposals—perhaps the start of some con­ver­gence on an agreement—in the cru­cial talks on Agri­cul­ture in the Doha Round of WTO nego­ti­a­tions over the past two weeks. Some of my read­ers will know this very well, oth­ers may how­ever be inter­ested in a brief sum­mary

Agree­ment between the USA and the EC is not suf­fi­cient for an agree­ment on agri­cul­tural trade reform; but it is nec­es­sary. We’re a long way from see­ing such agree­ment, but there are some signs that the two are get­ting closer.

There is much less con­ver­gence between devel­oped and devel­op­ing coun­try posi­tions, because there is less def­i­n­i­tion yet from either devel­oped or devel­op­ing coun­tries of the pro­vi­sions apply­ing to devel­op­ing countries.

Of course, this is a short-sighted and backward-looking way to reach agree­ment since what mat­ters most to devel­op­ing coun­tries is lib­er­al­iza­tion in other devel­op­ing coun­tries. Also, the mar­kets in which even the USA and EC are most likely to com­pete for export sales in the future are the rapidly grow­ing devel­op­ing coun­try mar­kets (rather than the higher-priced but slower-growing and more-competitive trans-Atlantic market).

But agree­ment is at a pre­mium right now in the Doha Round talks, and fore­sight gets short shrift.

Cuts to bound agri­cul­tural tariffs

Since the G-20 made some pro­pos­als that I reported as ‘progress’ back in mid-July, the USA and EU have pro­duced their own ver­sions of a ‘tiered’ lin­ear tar­iff cut, but using 4 tiers rather than the 5 pro­posed by the G-20 for devel­oped coun­tries. The USA wants to use the same struc­ture of tar­iff tiers for devel­oped and devel­op­ing coun­tries: some­thing that the G-20 rejects for the present, say­ing that this is con­trary to the guar­an­tee of ‘spe­cial and dif­fer­en­tial’ treat­ment for devel­op­ing coun­tries. The EU is pre­pared to have higher tiers for devel­op­ing coun­tries and cuts of about 2/3 the size of the cuts by devel­oped countries.

The USA has pro­posed ‘pro­gres­sive’ lin­ear cuts in each tar­iff band (some­what like the Aus­tralian pro­posal)

The US is propos­ing a cap on the final bound tar­iff rate of 75%. 

The EC has also pro­posed four tar­iff bands but has been reluc­tant to spell out the level of cuts in each band. The fol­low­ing is my guess at what they have in mind. The EC is propos­ing a ‘piv­ot­ing’ alter­na­tive to the ‘pro­gres­sive’ lin­ear cut in each band. It wants the facil­ity to reduce the cut by 10 per­cent­age points on tar­iffs below the mid-point of each band com­pen­sated by a 10 per­cent­age point increase in the cut above the mid-point of the band. So in a band with a 40% cut, tar­iffs below the mid-point would be cut by 30% and tar­iffs above the mid –point by 50%.

‘Sen­si­tive’ products

The USA has made a pro­posal on the man­age­ment of ‘sen­si­tive’ prod­ucts that, as far as I can tell, the EC has not rejected. Read­ers will recall that the August 2004 ‘Frame­work’ agree­ment referred to Mem­bers inten­tions to make spe­cial pro­vi­sions in the mar­ket access agree­ment for ‘sen­si­tive’ prod­ucts, with­out say­ing what these were (or how many there might be) or what pre­cisely the spe­cial arrange­ments would be, except to indi­cate that they could include the use of tar­iff quotas.

The USA now pro­poses that for up to 1% of tar­iff lines (their pro­posed limit on ‘sen­si­tive’), tar­iff quo­tas would be expanded by 7.5% of domes­tic agri­cul­tural pro­duc­tion, with the out-of-quota tar­iffs halved and the in-quota tar­iffs at zero. No new TQs would be cre­ated for sen­si­tive prod­ucts that do not cur­rently have TQs. Instead, the US pro­posed either a* safe­guard mech­a­nism* for “surges” in import vol­umes that would be phased out over the imple­men­ta­tion period; a longer time period for the tar­iff reduc­tion cal­cu­lated from the for­mula; or “back­load­ing” the tar­iff cut over the imple­men­ta­tion period.

Domes­tic sup­ports: cuts in ‘amber box’

This is a com­plex issue but, as I have pre­vi­ously indi­cated, I’m con­vinced that agree­ment across the Atlantic on the ‘blue box’ and domes­tic sup­port holds the key to the out­come between the USA and EC.

Europe, believ­ing that it has made sig­nif­i­cant con­ces­sions on export sub­si­dies (and hav­ing partly ‘cleaned up its act’ on farmer sup­ports) wants to see the USA rec­i­p­ro­cate with cuts in its own sen­si­tive farm pro­grams, espe­cially given that the next US Farm Bill will fol­low the Doha Round out­come by less than 12 months.

The EU has pro­posed 3 tiers of indus­tri­al­ized coun­try cuts to the ‘core’ domes­tic sup­port programs—the ‘amber box’ pro­grams mea­sured by the Aggre­gate Mea­sure of Sup­port (AMS). It pro­poses that the top tier of cuts (apply­ing to them­selves) should be 65% and the sec­ond tier (includ­ing the USA) should be 55%. Other indus­tial­ized would be in the third tier with cuts of 45%.

This appar­ent con­ces­sion by the EC is not as dra­matic as it seems. As usual, the devil is in the detail. The cuts in AMS are to be made from a cal­cu­lated ‘base’ level of AMS. At last report (2002) the EU was already below 60% of it’s base lev­els of AMS. So a 65% cut in AMS by the EC from its’ cur­rent base lev­els would mean an actual cut in sup­port of at most 10% … and the Com­mu­nity is already on track to achieve, in effect, a zero AMS as part of CAP reforms by push­ing all its old-style direct mar­ket and price sup­ports into a sin­gle (mostly) blue box farm pay­ment, and onto consumers.

The August 2004 Frame­work agree­ment calls, in addi­tion to the AMS cuts, for an ‘over­all’ reduc­tion in sup­port that would group the AMS cuts and cuts to the ‘blue box’ and de min­imis sup­ports. The EU has agreed to make a ‘big­ger than 65%’ cut in the ‘over­all reduc­tion’ but did not spec­ify how much, say­ing that would depend on the con­tri­bu­tions of others.

Domes­tic sup­ports: cuts in ‘blue box’

The USA wants to re-define the ‘blue box’
to clas­sify more of its farm sup­port pro­grams from the 2002 Farm Bill under this head­ing. ‘Blue box’ sup­ports are defined as less trade-distorting than ‘amber box’ sup­ports but not entirely clean like the ‘green box’ supports.

In a con­ces­sion to the EC, these sup­ports were exempted from the AMS cal­cu­la­tion, and there­fore from any cuts, in the 1994 the Uruguay Round agree­ment on Agri­cul­ture. They were defied as those trade-distorting sup­ports that lim­ited pay­ments to 85% of the pro­duc­tion area or live­stock head-counts in a pre­vi­ous period as a means of encour­ag­ing cuts in over­all farm out­put. They will be cut, how­ever, in the Doha agree­ment as part of the ‘over­all reduc­tion’ in sup­port pay­ments to farmers.

The USA suc­ceeded in August 2004 in secur­ing agree­ment that the blue-box could include sup­port that did not include a require­ment to pro­duce any­thing at all. What this meant, in effect, was that the blue box would now cover the ‘countercyclical pay­ments’ intro­duced by the 2002 Farm Bill that com­pen­sated farm­ers for price falls even if the farmer pro­duced none of that crop.

The pur­pose of redefin­ing the ‘blue box’ in this way is that it allows the USA to ensure that new sup­port pro­grams adopted as part of the 2002 Farm Bill that it can’t squeeze under its already-fixed ceil­ing on amber-box pro­grams (about $19 bil­lion of which it already used $14.4 bil­lion) can be made part of it’s ‘base’ lev­els of sup­port as blue box. It’s a good thing to have high ‘base lev­els’ of sup­port because the higher the base level, the higher the final level of sup­port allowed when all the cuts have been implemented.

Although the blue box will be sub­ject to the ‘overall cuts’ in this round—unlike the last where it was fully exempt — it is effec­tively unlim­ited in size before the cuts begin. So the USA can boost it’s base lev­els, and give itself lots of ‘elbow room’ to throw money at farm­ers in future farm bills, by stack­ing every­thing it can into a big (re-defined) blue box.

On this cru­cial (for the USA) ques­tion of the def­i­n­i­tion of ‘blue box’ it appears that the EU has agreed that ‘price-based’ sup­ports were effec­tively per­mit­ted by the August 2004 ‘frame­work’ agree­ment (i.e. sup­ports based on com­pen­sat­ing farm­ers for price falls where no actual pro­duc­tion is required to be part of the program—this is the essence of the US ‘coun­ter­cycli­cal’ sup­ports). But the EU now argues that these pro­grams should be ‘blue’ only if lim­ited to par­tial com­pen­sa­tion of price falls.