Proposals for farm trade reforms surface

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.

CountryAMS CommitmentActual AMS (2001)% overhang
USA$19,103 m$14, 413 m32.5
EC€67, 159 m€43, 654 m53.8
Japan¥3, 972.9 bn¥708.5 bn (2000)460.1
Australia$471.9 m$212.8 m121.7
Source: WTO notifications

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?

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