WTO´s Doha talks face another "week of decision"

Starting Sunday (23 July) itself, this will be another decisive week for the WTO's Doha negotiations, as it will become much clearer whether the G6 members will be able to implement the "new flexibilities" that their political leaders reportedly pledged to provide for their countries' positions.

Ministers of the G6 (US, EU, Brazil, India, Japan, and Australia) meet on 23-24 July, and they are supposed to inform one another about the new flexibilities they are able to offer, if any.

Especially anticipated is the position of US Trade Representative Susan Schwab, as she is expected to indicate if the US can improve on its present offer to cap its bound level of overall trade-distorting domestic support (OTDS) at $23 billion.

Schwab had three days (18-20 July) of meetings with Congress and Senate committees (Ways and Means, Finance and Agriculture) which she said gave her a sense of where Congress' comfort level "is or is not" in relation to the flexibility that the US can show in the WTO's agriculture talks.

Before leaving for Geneva, she said if other countries put significantly more market access on the table, she had the go-ahead from President George W. Bush to show new flexibility.

While the G6 Ministers projected a mood of cautious optimism after their 17 July meeting at the WTO, which discussed mainly procedure, expectations were raised somewhat by a 20 July report in The Guardian (London) that at the St Petersburg meeting of leaders of the G8 and five developing countries, some of them had indicated willingness to compromise, with some concrete figures mentioned.

According to the article, Bush said the US would accept a ceiling of $15 billion annually on domestic subsidies, against its previous $22.5 billion proposal. The report added that the EU and G20 would like the US to go a bit further but would accept a ceiling of $13-14 billion.

The article, by the Guardian's economics editor Larry Elliott, said that the European Commission President Jose Manuel Barroso told Bush that if the US cuts its subsidies, the EU was willing to make deeper cuts in agricultural tariffs, but it also wanted an assurance from Brazil and India that they will cut their industrial tariffs.

The article also mentions that "India and Brazil said they would be prepared to reduce tariffs on manufactured goods from 30% to 20%", that EU Trade Commissioner Peter Mandelson would like them to go a bit further than this but the distance between the two sides is relatively small.

Asked for their response to this article, several WTO diplomats on Friday said they would be astounded if the political leaders at the G8-plus meeting would have traded numbers of modalities at such a specific or technical level of detail, and if they did, then some errors (such as 20% and 30% in NAMA modalities) could possibly creep into the discussion.

A diplomat from one of the developing countries mentioned expressed surprise about the article, and was sceptical about the alleged offer of flexibility that his country's political leader was supposed to have made.

There has also been a denial by a USTR spokesperson, who on Thursday denied as "false" the Guardian report that Bush had made an offer to reduce the US domestic support to $15 billion.

However, there is also a feeling among some that the phrase "there is no smoke without fire" may apply here, at least partially, and that what the article said about the US offer could be what the US might have confessed privately, even if Bush may not have voiced it at St. Petersburg.

There have already been a number of reports, before and after the end-June Ministerial-level meetings at the WTO, that the US administration was preparing to improve its offer for reducing the bound level of its overall trade distorting domestic subsidy by an additional $5 billion or so from its present offer of $22.7 billion.

A prominent American Senator was also quoted as stating, a week ago, that the US could go down to $15 billion, if the conditions were right. However, this statement (like another one previously) was withdrawn a day later.

Several diplomats and analysts believe that the US has room to significantly reduce its bound overall trade distorting domestic support (OTDS) to well below $22.7 billion, especially since its actual OTDS was estimated at slightly below $20 billion in 2005.

Just as importantly, the US, EU and other developed WTO members will be able to have recourse to increase their Green Box subsidies which are excluded from the OTDS category. The proposals tabled so far on the Green Box subsidies do not include placing a cap on this category of subsidies, or even in reducing the present levels.

Thus, even if the bound trade distorting support of the US, EU or other countries is reduced to below their present actual levels, the total domestic support can be maintained or increased, even significantly, as the WTO members would be allowed to increase their Green Box subsidies, without a maximum limit placed.

"With the flexibility available to the US to increase its domestic subsidies in the Green Box, it can agree to reduce its trade distorting subsidies even to the level of $12 billion that the G20 is requesting, or lower than that," commented Bhagirath Lal Das, an international trade expert who was formerly Director of Trade Programmes at UNCTAD.

"The US could enhance its Green Box spending, and the farms can get back from the increased Green Box spending what they may lose if other subsidies are reduced."

According to Das, there are some elements in the Green Box support of the US and the EU that have trade distorting effects, and that contribute to the viability of their farms.

From this perspective, it is no surprise that the US has considerable ground to reduce its bound overall trade-distorting support to $15 billion or even lower.

Many diplomats interviewed today expressed doubt that the US would make this offer now, as it would want to first extract as much concessions as possible from the EU and even more from the developing countries.

The US has already given ample notice that it wants "real new trade flows" (i. e. increased US exports) into developing countries in both agriculture and industrial goods, and the statements and briefings of its officials have made clear that the developing countries are its priority targets. They have given examples of specific countries and the increased market access it would or would not gain under different numbers of tariff cuts or coefficients.

At the end-June WTO meetings, Schwab and US Agriculture Secretary Mike Johanns defended their country's lack of movement on agricultural domestic support by going on an aggressive offensive against sensitive products, special products and special safeguard mechanism.

They claimed that these "loopholes" constituted a "black box" which removed market access in agriculture.

At the talks this Sunday and Monday, the US can be expected to continue to be aggressively on the offensive, including reiterating its demands that there be only a small number of special products, that their treatment also be very limited in scope, as also the treatment for special safeguard mechanism.

The US can also be expected to demand deep tariff cuts in agriculture for both the EU and developing countries, above the 36% that the G20 has proposed as the average for developing countries. And in NAMA, the US will insist on a coefficient of 15 for developing countries, and in this it will be joined by the EU and Japan.

In other words, the developing countries will come under high pressure.

This coming week is also likely to see a Ministerial meeting of the G10 (comprised mainly of defensive developed countries in agriculture, including Japan, Switzerland and Norway), reportedly on Wednesday.

The General Council will meet on 27-28 July, but it is anticipated to be more of a regular session. The Trade Negotiations Committee was to have met on 25 July but this has been postponed, and there is expectation that an informal heads of delegation meeting may be held sometime next week.

The G6 Ministers are then scheduled to meet again, on 28-29 July. By then it will be clearer whether the new flexibilities promised by the top leaders at St. Petersburg is materializing in the negotiating room.