Peter Gallagher

The U.S. Trade Rep­re­sen­ta­tive has pub­licly revealed parts of the U.S. pro­pos­als on agri­cul­ture nego­ti­a­tions ahead of the Zurich Min­is­te­r­ial Meet­ing this week­end and the WTO Gen­eral Coun­cil­next week. The EU, too, has been brief­ing the press on its less ambi­tious approach. The rev­e­la­tions are in line with the details I offered last week. It’s good to have some advances but impor­tant to remem­ber that these are still nego­ti­at­ing pro­pos­als—pos­si­bly an emul­sion of snake oil and water—rather than hard cash. The cuts in domes­tic sup­port are espe­cially soft

As I indi­cated last week, the EC is offer­ing to upstage the USA on cuts in domes­tic sup­port, with the Finan­cial Times now sug­gest­ing that the EU will offer cuts of up to 70 per­cent in the Aggre­gate Mea­sure of Sup­port (AMS—the ‘amber-box’, trade dis­tort­ing sup­ports). The USA is offer­ing 60 per­cent cuts in amber-box pro­duc­tion sub­si­dies and a 50 per­cent cut in the ‘blue-box’ (less trade-distorting subsidies).

But a big caveat emp­tor sign should hang over this hag­gling: these num­bers are much slip­perier than they seem. Take, for exam­ple, the EC offer to cut AMS by 70 per­cent. The ‘base­line’ from which they’ll cut—the num­ber that they’ll hack to only 30 per­cent of its cur­rent size—is the bound level of amber box sup­port that they agreed in 1995 (the end of the Uruguay Round) they would reach by 2001.

As you can see from the table, when they last reported their actual AMS lev­els (for 2001 in March 2004!), they were con­sid­er­ably below the final bound rate in the Uruguay Round tar­gets. They had already cut to about 50 per­cent of those lev­els and were headed lower under the CAP reform pro­gram which com­prises both a reduc­tion and a reclas­si­fi­ca­tion of sup­port to Euro­pean farm­ers in the new ‘sin­gle farm payment’.

Europe, like the USA, is try­ing to turn it’s amber-box to blue by a device that is at least partly pure alchemy.

Of course, any cuts in dis­tort­ing farm pay­ments are likely to be good. But they are not as dra­matic as they seem.

To be even handed here, the USA is up to the same trick. The U.S. Trade Rep­re­sen­ta­tive talks of cut­ting the U.S. ‘blue-box’ in half. But half of what? The USA has never reported any use of the ‘blue-box’ because, until the adop­tion of the August 2004 ‘Frame­work Text’, it could not squeeze it’s ‘counter-cyclical’ pro­grams under a blue-box def­i­n­i­tion. As I said last week, the base­line for the blue box cuts is what­ever the ‘blue-box’ was at the time the agree­ment is reached. Although ‘capped’ at 5 per­cent of an his­tor­i­cal value of agri­cul­tural pro­duc­tion for the pur­poses of the ‘down­pay­ment’ envis­aged by the Frame­work, the base­line is effec­tively as high as you like for the pur­poses of the cuts.

This point has been missed by many com­men­ta­tors. Para­graph 8 of the Frame­work Text deal­ing with the for­mula for cut­ting sup­port says:

The base for mea­sur­ing the Blue Box com­po­nent will be *the higher of* exist­ing Blue Box pay­ments dur­ing a recent rep­re­sen­ta­tive period to be agreed and the cap …  [at 5% of his­tor­i­cal pro­duc­tion]
empha­sis added

As far as I’m aware, there is no agree­ment on the ‘recent rep­re­sen­ta­tive period’. So the U.S. offer to cut it’s ‘blue-box’ in half is a bit like say­ing: “I’ll think of some num­ber or other and then I’ll agree to cut it in half”. Some offer!. You’d never buy a used car like that, would you?