US and EU indulge in blame game as WTO talks fail

Following the collapse of trade talks among the Ministers of the G6 countries late Sunday night, European Union Trade Commissioner Peter Mandelson on Monday blamed the United States for failing to show flexibility on the issue of farm subsidies.

On the other hand, US Agriculture Secretary Mike Johanns argued that while the US was prepared to be flexible, it had still not seen the market access that was necessary for world trade. In this respect, as examples, he pointed to the low TRQ for imports of beef into the EU as well as the developing country proposals on agriculture that he claimed would leave 95-98% of their market still protected.

Both officials were speaking at separate media briefings shortly after Ministers from the G6 (the US, EU, Japan, India, Brazil and Australia) ended their meeting after failing to break the impasse on key issues in the modalities.

At the EU briefing, Mandelson expressed ''profound disappointment and sadness that the world trade talks are having to be suspended today.''

''This is neither desirable nor inevitable. It could so easily have been avoided. What stands between us and the modalities of an agreement are not vast numbers or enormous sums. In fact, our lengthy G6 meeting yesterday (Sunday) - which was to be the first of several continuing to the middle of August - was actually the best of its kind, until it became the worst,'' he said.

''Having been mandated by heads of government at the G8 to come together to indicate further flexibility, I felt that each of us did, except the United States,'' he added.

The US was unwilling to accept, or indeed to acknowledge, the flexibility being shown by others in the room and, as a result, felt unable to show any flexibility on the issue of farm subsidies, Mandelson said.

''In deciding to withhold any indication of future flexibility, the US has judged that it would be better for the process of negotiation to be discontinued at this stage. This is not in keeping with the spirit of the St Petersburg summit. Actions have consequences and this action has led to the Round being suspended,'' Mandelson added.

''The EU deeply regrets this as we have signalled before the meeting and during it that we are able to make a significant improvement in our agricultural market access offer, bringing our average cuts close to the level requested by the G20 group of developing countries, provided others move in parallel,'' he said.

''Our level of ambition may not be what some have demanded but I defy anyone to say that it is meagre: 100% elimination of export subsidies. 75% reduction in trade distorting domestic support. Readiness to go to a 50% average tariff cut. We also indicated that we were ready to talk about the number and treatment of sensitive products. This is more, much more, than anyone would have expected from the EU.''

There is no more time left, Mandelson said, adding that ''we have missed yesterday the last exit on the motorway of negotiations this summer and it would be unwise to conceal this from ourselves.''

''Fundamentally, with what is already on the table, we are close to a package that is greater in value than anything ever achieved in previous trade rounds. To say that there is no new market access on the table is simply wrong,'' Mandelson said.

Failure this weekend means losing from the table the important, tangible gains that have painstakingly been assembled for the developing world, including for the poorest nations, not only new opportunities for trade in agricultural and industrial goods and services, but stronger trade rules that could drive economic growth and development for the most needy in the world, he added.

''We stand to lose Duty Free/Quota Free access to others' markets for the least developed countries. A sizeable Aid for Trade package is now in abeyance, not withstanding that the EU will press ahead with it regardless. A major agreement on Trade Facilitation will not go ahead. And perhaps most important of all, we do not have in place once and for all multilateral programme of fundamental reform of farm subsidies in the rich world that should be the centrepiece of this Round.''

As well as an economic cost, there is a huge political cost of failure, he said, adding that the EU was not giving up on this Round.

Also present at the EU briefing, EU Agriculture Commissioner Mariann Fisher Boel expressed deep regret that the G6 was unable to find consensus on the modalities.

She said that from the beginning the EU wanted a positive outcome. The multilateral system is the only place where trade distorting domestic support can be disciplined. She said that a timeout is now being called in the talks but that does not mean that it is not possible for the talks to pick up in the future. ''But to be honest, I don't see any possibility that this will happen just round the corner. It is a big failure; whether its going to be definitive, only time will tell,'' she said.

Fisher Boel said that the EU came to Geneva prepared to do what it considered was necessary to enter into the negotiations. The main task was to explore each others' flexibilities. ''We were prepared to walk the extra mile if a final deal seemed to be within reach. Unfortunately, the Americans were not willing or able to do their part. They preferred to stand still.''

With respect to some figures mentioned on beef imports into the EU, Fisher Boel clarified that during the discussions held Sunday, the EU had shown willingness to increase the possibility of exports of beef into the EU by 800,000 tons out of which 160,000 will be the Tariff Rate Quota (TRQ).

Asked as to whether the failure in the talks would mean that the current status quo would suit the EU, and also if the Doha Declaration was too ambitious, Mandelson said that he did not think that the Doha Declaration was too ambitious. The original design and plan was good, but there has been this sharp disagreement at this last moment between the bulk of the WTO membership, certainly the G5, with the US about what some of the design features of what is being constructed should be. Until that difference of opinion is resolved, he did not see much hope for the resumption of negotiations. He did not like that nor the status quo.

Mandelson elaborated that in agriculture, the EU has reformed. ''We have a clear philosophy of reform. We know where we are heading in agricultural reform. The US doesn't. It doesn't have that philosophy. It doesn't have that direction. It doesn't know what it wants to do with agriculture reform. They say they want to reform... but they don't know how, or when or on what terms,'' Mandelson said.

''We are there at the altar but we are waiting for somebody else to join us... and that somebody else will not be joining us at the altar of agricultural reform until they really make up their mind that they want to reform...''

In response to another question on the G6 meeting on Sunday, Mandelson said that the informal meeting started with agricultural market access, with the EU making a full statement... then sensitive products were discussed followed by special products where the Indian Minister Kamal Nath indicated that he was now prepared to negotiate over the number and treatment of special products. The meeting then turned to domestic support.

WTO Director-General Pascal Lamy had made clear that the US owed it to the rest of the G6 to indicate flexibility on farm subsidies given that there had been more flexibility and clarity on market access indicated at the meeting throughout the day. Mandelson said that the US had said that they did not recognize any market access on the table, and as there was no market access on the table, they were not prepared to place on the table any flexibility concerning domestic subsidies. After returning from dinner, Mandelson said that the Ministers concluded that there was no alternative in light of this ''stonewalling'' to face the inevitable and agree that the round should be suspended.

Referring to the $22.6 billion figure in the US domestic support offer, Fisher Boel said that she tried to put the question to the US at the meeting ''why you need $22.6 billion when you only use $18.6 billion? I didn't actually get any concise answer.''

In response to another question, Mandelson said that in reflecting on the consequences of what happened, ''the truth is that all of us have to accept that where we can afford to do so, we need to pay into it. Those that can should.''

He cited two reasons: the development objective of this round requires us to do so. Second, if we are not prepared to pay ourselves where we need to, then we cannot expect others to do so in return.

According to Mandelson, the basic reason for the breakdown last night and the refusal of the US to indicate any flexibility at all at the meeting on farm subsidies, is because they believe that they are entitled to compensation dollar-for-dollar in the farm subsidies that they lose, new agricultural market access from developing countries which they think is their due.

A large part of the disagreement therefore is about how much farm tariff liberalization should developing countries undertake in order to compensate the US for making reforms to their farm bill and subsidies, which we are independently mandated to carry out regardless of what developing countries do in return, he added.

''That is the fundamental principle that lies at the root of this breakdown... What the US is obliged to do in any case according to the Doha mandate, it is being asked to be paid for by developing countries in opening up their farm markets to US agricultural goods. I don't accept that... the EU doesn't accept that.''

The idea that the price of reforming farm subsidies - attacking the most illegitimate and distorted aspects of farm trade in the world - should be opening up of developing countries' markets to rich farmers is really not a prinicple that we can accept and indeed is not in the original mandate of the Doha Round.

In response to whether the failure of the G6 to reach agreement means that all negotiations have come to a halt, Mandelson reiterated that the round has been suspended. What Lamy has advised the Ministers today is that negotiations across the Round are suspended without a timetable being put in place for their resumption.

Meanwhile, at an earlier media briefing, USTR Susan Schwab expressed disappointment that the G6 was not able to reach an agreement last night. The US came to Geneva with flexibility to offer more on domestic support and market access. The promises of flexibility and market access coming from St Petersburg did not materialize in Geneva, she said, adding ''Unless we figure out how to move forward from here, we will have missed a unique opportunity to help developing countries and spur economic growth.''

While the US was prepared to do more, yesterday's focus on the layers of loopholes in market access reveal that a number of developed and advanced developing countries were looking for ways to be less ambitious, to avoid making ambitious contributions. But that does not mean that the US is giving up. ''Doha lite has never been an option for the US. There was no package on the table yesterday that we could have recommended to the President or the US Congress,'' she said.

The US remains committed to a successful Doha Development agreement, one that creates real market opening, that brings new economic opportunities and opens markets for all WTO Member countries. We need to avoid the temptation in the coming weeks and months to pulling anything off the table, Schwab stressed.

US Agriculture Secretary Mike Johanns referred to Bush who said months ago that he favoured the complete elimination of trade distorting subsidies. In October, the US had tabled an ambitious and bold offer - proposed cutting Amber Box support by 60%; and cutting the Blue Box, which went well beyond the July Framework and de minimis.

Referring to the level of ambition in the Doha Round, Johanns said that any study that has ever been done relative to the Doha Round or trade in general will say that the real gains will be made in market access.

Over the last couple of days, the US has been saying that it will be flexible. ''If we can see ambition in market access, we can be ambitious, as we have been, with domestic support.''

To illustrate, Johanns gave the example of the EU proposal, specifically on beef, referring to talk of 800,000 tons of beef coming into the EU. He said that it was clear that beef would be a sensitive product and thus would come with a TRQ. The current tariff for high quality beef in the EU is 80%. That blocks the market. There is no more effective trade distortion than that, Johanns said. Under the EU proposal, the new tariff would be 61%, which would still be a remarkable blocking of the market. It makes it impossible to sell beef in that marketplace. The TRQ for the whole world would allow in 160,000 tons of beef or 2% of the market, Johanns added.

With respect to the discussions on the developing countries, he said that advanced developing countries are world class competitors, referring to countries like China, India, Brazil and others. In the proposal that they tabled, it essentially blocks 95-98% of their market. In the end what we were faced is this - we have a very bold proposal already and have announced our willingness to be flexible, but we have still not seen the market access that is necessary for world trade, Johanns said.

The multilateral process is designed to lift people out of poverty, and open up new markets and increase new trade flows. Johanns asked if anyone can seriously argue, for example, that 160,000 tons of beef - 2% of the marketplace - is an increase in trade flow. ''Can anybody seriously argue that advanced developing countries literally arguing for 95-98% of their marketplace being protected in agriculture is going to result in an increase in trade flows? I think not,'' Johanns said.

In response to a question with respect to the ban on US beef in the EU, Johanns said that the US wanted to ship beef to the EU. The EU uses a number of sanitary and phyto-sanitary mechanisms in addition to tariffs that create challenges with respect to the US ability to sell its products in the EU marketplace.

He reiterated that the EU's 160,000 ton TRQ or 2% of the marketplace is really minuscule and is not market access. In terms of the US flexibility, he again recalled President Bush's stand on the elimination of trade distorting domestic support.

The US came to Geneva and expressed its willingness to be flexible on domestic support and market access, but in the end when the market access proposals that were on the table were studied, there was no additional market access that the US could grab hold of and say that we are making progress, Johanns said.

''Doha lite got a lot lighter in the past 30 days. All of a sudden we came to realise that not only was there going to be substantial protection and barriers in developed countries, but in these advanced developing countries that are world class competitors that they were basically arguing that 95-98% of the agriculture market should be protected. They would have the ability to choose when, how and if they would do business.''

''If somebody can make a case to me that that somehow was market access that we can respond to, I am all ears, but I did not see it,'' Johanns said.

He reiterated that at the opening day of the meeting, the US was ready to be flexible. ''We have to see something in market access. Quite honestly, we did not see it. There was nothing there that we could grab onto.''

Schwab said that the US was not only prepared to do more in terms of cutting trade-distorting subsidies along with the commitment to eliminate export subsidies, we also indicated that we understood that other countries had some sensitivities that they would want to protect. We were even prepared to allow the scope of sensitivities to be greater than that which had been in our position in October, but not to the extent of negating the fundamental market access purpose of this round.

In response to a question on the US domestic support proposal, Johanns said that the majority of US farm programmes fit into the Amber Box. The US decided to cut its programmes by 60% in the Amber Box. The bottom line is that it would eliminate those programmes. There is no other way you can pigeon-hole our programmes in any other area.

In the Blue Box, Johanns said the July framework said that the US should be under 5% of production. The world was asking the US for leadership, and we said that we were going beyond the July framework - cutting to 2.5%.

He said that there was a lot of un-easiness that the US might take its counter-cyclical programmes and slide that into the Blue Box. We could have done that had we chosen to keep it to 5%... We literally cut it to the point that we can't fit the counter-cyclical programme into the Blue Box.

By comparison, we said we know we have done something really dramatic... we have eliminated the possibility of our farm programmes continuing in their form in the US. We know that we are flying in the face of 75 year's of history here with our farm programmes... We have to have market access, Johanns said.

We are not asking for the world. Anybody wants to argue with me that trade is moving when 95-98% of the marketplace is protected... anyone wants to argue with me that trade is moving when what you really come down to with beef products is 160,000 tons TRQ for the whole world. Anybody wants to make a case... it's not a case you can make, he added.