Criticizing the US Proposal

Geneva - The United States yesterday failed during a five hour meeting of the "Five Interested Parties" group to fully convince the European Union, Brazil, India and Australia of the merits of the US plan to end export subsidies and significantly reduce domestic farm spending around the world (WTD, 10/11/05).

The US plan was outlined by US Trade Representative Rob Portman and Agriculture Secretary Mike Johanns in Zurich a day earlier.

A sticking point in the FIPs was US refusal to accept special disciplines on its counter-cyclical farm support programs which will now fall within the minimally distorting "blue box." More work also needs to be done on other domestic support reductions and market access.

During the meeting, the United States made a strong pitch that its "bold" offer on trade-distorting domestic support must be reciprocated with ambitious openings in market access by others.

Without a strong market access component, lawmakers in Washington will not accept a final package, USTR Portman told the meeting.

Brazil and the EU raised several concerns about the US proposal, saying it does not address some central issues in the framework agreement particularly the need for disciplines in counter-cyclical payments.

Addressing the 'Blue Box'

The United States said it addressed the "blue box" payments issue by agreeing to a much lower ceiling of 2.5 percent of total production instead of the 5 percent spelled out in the July 2004 framework. It cannot accept disciplines in the counter-cyclical payments, the group was told.

But Brazil insisted that the 2004 Framework agreement stipulated additional criteria for the "blue box." Trade Minister Celso Amorin said the proposal would not lead to real-term substantial reductions in trade-distorting domestic supports.

The EU suggested it is willing to go half way and accept product-specific disciplines in the "blue box" but that was dismissed by the United States, sources said.

India rejected the reciprocal nature of the US request for increased market access, noting that it has 650 million subsistence farmers who cannot adjust to such market-openings as demanded by the United States.

Brazil stated it favors aggressive market-opening as spelled out by the United States, but it made it clear that the final cuts must be built on Special and Differential treatment to give developing countries enough leeway in reducing their border protection.

The "FIPs" group meets today with six other members China, Malaysia, Japan, Switzerland, Canada and Argentina to further the discussion on market access and domestic supports. But, WTD was told, members are likely to focus on the nature of a deal on "sensitive"
products given the concerns of the defensive Group-of-10 countries.

Earlier in the day, USTR Portman emphasized to World Trade Organization members that the "bold" US proposal on paring down US domestic supports is dependent on equally bold actions by others on market access in both industrial and developing countries.

"What we're asking for from the EU, on the domestic support side, is very small compared to what we're willing to do and still they'll have twice the support we will have," USTR Portman told a press conference.

The US proposal will have a real impact on US farm spending, added Agriculture Secretary Johanns. "Our agriculture groups will accept the reduced support that comes with this, but there has to be real substantial tangible market-access in return," he said.

Washington went beyond what the EU had wanted in trade-distorting domestic support. USTR Portman noted that the US proposal to cut "amber box" spending by 60 percent exceeded the 55 percent that the EU had proposed.

"We said all along that we were willing to be bold. And now that has been delivered with great specificity. But now we have to hear what folks are willing to do on the market access, and we have to see real results for this to be successful," added Mr. Johanns.

USTR Portman said he was looking forward to attending a successful mid-December Hong Kong ministerial conference.

Some key farm exporting countries contested the US claim on overall trade-distorting support. They say that the initial 53-percent reduction in trade-distorting domestic support outlined in the US proposal amounts to little.

But US farm secretary Johanns shot back, saying the United States would reduce its "amberbox" measures from $19.1 billion to $ 7.6 billion due to a 60-percent reduction. With a 50 percent cut in the de minimis exception and a cap on the "blue box", US spending would fall from $ 9.5 billion to just under $5 billion in that category making for an overall reduction of some $12.6 billion.

G-20 Salvo

Trade ministers of the developing country Group-of-20 coalition yesterday took the first salvo against the US proposal, saying it is a "positive step" in the right direction, but largely "insufficient." The coalition challenged the US figures. It said Washington's latest proposal actually leads to an increase in overall trade-distorting program support by at least $1 billion increasing from $21 billion to $23 billion.

The G-20 also eschewed any notion of a "Peace Clause" resurrection as demanded by the United States.

The US proposal tabled at the "Fluella-plus" informal ministerial meeting on Monday "does not lead to substantial reductions in three sub-pillars of the trade-distorting domestic support pillar as it doesn't bring about deeper cuts in its current budgetary levels," Brazil's Amorim told journalists after the coalition's meeting. "Although we see some merit, there are some points that call for improvement in numbers in the 'amber box', 'blue box' and overall support," he said.

The G-20 is continuing to work on the figures. But Mr. Amorin suggested that the numbers floated by the United States do not reveal the true picture.

Indian trade minister Kamal Nath said the US proposal is only a single step. What is needed, he told WTD, "is a leap" to address the structural inequities in the global trade-distorting domestic subsidies. "We are looking for real reductions from the budgetary levels as well as product specific caps," he said.

South African Deputy Trade Minister Rob Davies defended the United States, saying the proposal will accelerate the sluggish negotiations. But, he added, Washington is not correct to demand ambitious market-opening for developing countries in return for offers on domestic support cutting since the Doha round of negotiations is about addressing the development deficit.

The G-20 ministers held a four-hour meeting at the Brazilian mission.