Canada´s mystifying simulations on the US cuts in its trade-distorting domestic supports

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The 22 May 2006, Canada has circulated a report on "Agriculture domestic support simulations" (JOB(06)/151) with this introduction: "Representatives of Australia, Brazil, Canada, China, the European Communities, Egypt, India, Japan, Kenya, Malaysia, Norway and the United States have undertaken a data simulation exercise on various reduction options for the Total AMS and the Base for the Overall Commitments, using information provided by the European Communities, Japan and the United States. This effort was based on assumptions and indicators agreed by these Members for purposes of this statistical exercise alone. It was undertaken without prejudice to the positions of the Members involved. These Members would now like to share the results of this simulation exercise, including the data, assumptions and results, with the WTO Membership as a whole".

From that date on most Members, the medias and NGOs have based their comments and negotiations on these simulations, without taking care of their huge flaws, which are presented here, with a focus on the US case.

1) The main types of flaws in the simulations

• They are using as base period either 1995-00 or 1999-01 but both are wrong since the base period cannot start before the Final Bound Total AMS (FBTA) was reached so that it should begin the 1st January 2001 and extend till 2005 or at least 2004 [1].
• Trying to overcome this contradiction, they have created another one in applying the level of the FBTA reached in 2000 during the 1995-00 period, which contradicts the reality but using the average of decreasing BTA from 1995 to 2000 would have given a higher FBTA ($21.093 instead of $19.103).
• They are confusing the 2 allowed de minimis (dm): the allowed product-specific (PS) dm is only 5% of the production value of products without a PS AMS, not 5% of the whole agricultural production value.
• They forget that the US had a blue box (BB) in 1995 so that the applied average for 1995-00 is not the same as for the NPSdm.
• But, above all, they ignore the EU and US massive cheatings:
• First on the subsidies to grains used as feed (cereals, oilseeds and pulses) inside the EU and US, which should have been put in the amber box as being input subsidies, where they confer PS AMSs to all animal products (meats, eggs and dairy products), thus reducing highly the PSdm.
• They ignore the EU and US massive cheatings in under notifying or not notifying at all irrigation subsidies, subsidies on agricultural loans, crop insurance, tax rebates on agricultural fuel.
• So that the WTO Members and NGO relying on these simulations have wrongly concluded that the EU and US proposals would have a significant margin of increase of their applied domestic trade distorting subsidies even after cutting their allowed level of FBTA by 60% (for the US) and 70% (for the EU) and their overall domestic trade-distorting support (OTDS) by 53% (for the US) and 70% (for the EU). Instead they should have denounced these flawed simulations and the cheatings on which they rest, otherwise they are endorsing the flaws and cheatings.

2) The US cannot make any cut in its FBTA and OTDS

1) The possible US compliance with its offer without taking into account its cheatings

Let us look first at the US margin of man