A couple more inches in the agriculture negotiations

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)

Tariff Band 0-20 20-40 40-60 Over 60

(% AVE)

Range of 55-65 65-75 75-85 80-90

reduction %

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%.

Tariff Band 0-30 30-60 60-90 Over 90

(% AVE)

Proposed reduction 30 40 50 60

% (at mid-point)

‘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.

No Comments

Leave a Reply

Your email is never shared.Required fields are marked *