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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