US agriculture proposal criticized as inadequate and ignoring SDT for developing countries

The US proposals on agriculture unveiled on Monday 10 October in Zurich by US Trade Representative Robert Portman has come under criticism from several developing countries and NGOs for not doing enough to cut its domestic support.

The US proposal on market access has also been criticised as being insensitive to the needs of developing countries and totally lacking in consideration of special and differential treatment, as developing countries are being asked to make deeper cuts in their agricultural tariffs than what they can do.

Some of the strongest criticisms came at a press conference of G20 Ministers held Tuesday (see separate article in SUNS). They welcomed the US proposals for making a positive step towards movement in the talks, but called them insufficient.

In general comments, Brazilian Foreign Minister Celso Amorim said that the cuts in domestic subsidies proposed by the US were not sufficient. But at the same time the US was asking of developing countries what cannot be asked of them (the developing countries) in relation to tariff cuts. He described the proposals as totally lacking in its consideration of the principle of special and differential treatment for developing countries.

Referring to the explicit linking contained in the US proposal of cuts in domestic subsidies with cuts in tariffs, Indian Commerce and Industry Minister Kamal Nath stated that "artificial prices (caused by continued subsidies) cannot seek real market access". He said the US proposal does not lead to real cuts, and without real cuts there can be no market access, adding: "We need not a step but a leap which removes structural inequities in agriculture."

In a pointed rejection of the linkage, South Africa's Deputy Trade Minister, Rob Davies said that subsidies must be cut separately, and market access issues must be dealt with in the context of such other issues as NTBs, tariff peaks and others of interest to developing countries. Market access with unrealistic demands made on developing countries cannot be allowed, he said, adding: "Doha is a development round, not a market access round."

Argentina's senior official, Ambassador Alfredo Chiaradia, estimated that under the US proposal, it would in fact be allowed to increase its current total trade-distorting domestic support from $21 billion to $23 billion.

The following is a summary of details of the US proposal, and some of the specific comments made by the G20 Ministers on aspects. The US proposal has two main aspects: ( a) a two stage process and a time frame for elimination of what it calls "trade-distorting policies in agriculture", and ( b) specific proposals for cuts in domestic subsidies, linked with cuts in tariffs, and the elimination of export subsidies.

In relation to timing, the US proposes a first stage, comprising five years (2008-2013) of significant reductions in tariffs and trade distorting domestic support, and elimination of export subsidies, followed by an "interregnum", a five year (2013- 2018) pause in carrying out any reductions in order to review the effects of the first stage of the reforms.

This is followed by the second stage, characterised as follows: "Unless members agree to change course, further tariff and trade distorting domestic support reductions would begin after the interregnum, culminating in the total elimination of remaining measures after a 5 year phase-in period, which include safeguard mechanisms to assist transitional adjustment". (The period is 2018-23).

Commenting on the two-stage process, Ambassador Chiaradia of Argentina said that the second stage was crafted in vague terms, pointing to the phrase "unless members agreed to change course". He also said that the excessive ambitions in relation to market access could have a polarising effect on members.

Amorim said that while the idea of zero subsidies may be attractive, this may be a pie in the sky, adding that it was best to concentrate on the figures being put forward for cuts in subsidies now.

The second aspect of the US proposal relates to suggestions for cuts in areas of domestic support, tariffs, and export competition.

The domestic support proposal has several elements. On aggregate measurement of support or AMS (amber box), based on the harmonisation principle (deeper cuts by the larger subsidisers), there would be three bands with different percentage cuts.

The top band (covering the EU and Japan) with bound AMS levels of US$25 billion or more, would be cut by 83%. The second band (covering the US) with AMS levels of $12-25 billion will be cut by 60%. The third band (covering other countries like Switzerland and Norway) with AMS levels of $0-12 billion, will be cut by 37%.

According to the US, this would reduce the disparity in the allowed AMS between the US and EU from a ratio of 4:1 to a ratio of 2:1.

On the blue box, the US proposes a cap of 2.5% of the total value of agricultural production, instead of the 5% as set in the July framework. The proposal is however silent on whether there would be additional disciplines on the new blue box, adopted in the July framework to accommodate US counter-cyclical payments.

At Geneva informal consultations last week, the US reportedly said it could no longer accept additional disciplines for the new blue box. A US background paper circulated at the Zurich mini-ministerial insists that the new blue box is less trade distorting than the traditional blue box because, unlike the latter, they are payments made that do not require production.

The proposal also includes a 50% cut on de minimis, and product-specific caps on the AMS on the 1999-2001 base.

For the overall trade-distorting domestic support, (total support allowed in amber and blue boxes and de minimis support), cuts would also be made according to three bands of subsidisers.

The highest band, covering support of US$60 billion or more (occupied by the EU) would reduce by 75%. The second band, covering $10-60 billion (occupied by the US), would reduce 53%. The final band, covering $0-10 billion (occupied by other developed countries) would cut by 31%.

On the "green box", the proposal envisages no "material changes specifically no expenditure caps". It agrees to a review of green box criteria to include "non-trade distorting development policies". But more controversially, it also proposes a 'peace clause', that is protection against litigation for "subsidy programs that stay under the new limits or conform to 'green box'
criteria.

The proposal has a special and differential treatment component for domestic support, which is defined as "slightly lesser reduction commitments and longer phase-in periods for developing countries to be determined when the base parameters for developed country commitments [are] established".

In their comments on the domestic support component, the G20 ministers in their press conference were unanimous that the proposal was inadequate. Amorim said the suggested cuts were not sufficient, and Chiaradia said the US overall trade distorting support would be allowed to rise from $21 billion to $23 billion.

Amorim also pointed out that there are no clear disciplines in the blue box. He added that while there may be some discipline on box shifting, there is no constraint on product-shifting, since the US counter-cyclical payments allow a shift from less distressed products to other ones. He also indicated that the G20 could not accept any kind of peace clause in the green box.

On market access, the US proposes aggressive reductions in tariffs, and links this as a condition to its domestic support component. It states: "Balancing the new proposals on domestic support, substantial reductions will be made in tariffs, yielding deeper cuts on higher tariffs as established in the July 2004 framework".

The US proposes a four-tier approach to tariff cuts, for both developed and developing countries, with higher cuts to be made in the higher tiers. The tiers start from bound tariffs of 0-20% in the first tier; 20-40% in the second tier; 40-60% in the third tier; and 60% and above in final tier. For the developed countries the percentage reduction of tariff are, for the first tier, cuts in the range of 55% (at the beginning part of the tier) to 65% (at the end of the tier); the cuts for the second tier are 65-75%; 75-85% in the third tier; and 85-90% in the final tier.

In addition to the cuts, there is a proposed cap on the tariff, specified for developed countries at 75%.

The proposal does not specify the tariff cap for developing countries.

Neither does it specify the percentages for cuts in tariff by developing countries, but simply says that developing countries will be subject to "slightly lesser reductions commitments and longer phase-in periods to be determined when the base parameters for developed country commitments are established". It adds that "developing countries must make meaningful commitments which reflect their importance as emerging markets".

By contrast, the G20 proposals have indicated a clear distinction in market access commitments for developing countries, specifying that developing country cuts shall be no more than two-thirds of the cuts undertaken by developed countries.

The US proposal also states that less than 1% of tariff lines could be classified as "sensitive products", subject to lesser tariff reductions, but with full compensation via TRQ expansion.

It also calls for "meaningful market access provided for priority products in key markets by means of the agreed formula, sectoral initiatives and bilateral negotiations." Trade diplomats report that some of key products mentioned in this regard include beef, pork and diary.

The proposal mentions the establishment of special safeguard mechanism (SSM) and special products (SP) for developing countries, but qualifies that these are "to provide transitional protection from import surges, while still providing meaningful improvements in market access."

Judging from the remarks of the G20 Ministers, the US market access proposals are even less acceptable than those on domestic support. Kamal Nath said that the US has to give full recognition to the requirements of para 28 of July framework to take into consideration the different tariff structures of different countries, in line with the spirit not only of the July framework but also of the Doha Declaration.

He stated that this was a development round and thus negotiations need to address the structural imbalances in agriculture. Market access on artificial prices is not the bed rock of the WTO. He added: "I don't think this can fly in any way".

Amorim stated that while the G20 wanted real market access, this is balanced by another equally important element of S&D, as integral to its approach.

Rob Davies of South Africa stated that unrealistic demands in market access and other areas cannot be a trade off for cuts in domestic support. The latter has been the greatest cause for imbalance in the agriculture where a correction has to be made.

He added that the Doha round was a development round, and not a market access round, and that while market access was important, it had to be linked to questions like tariff escalation and NTBs. It must also be based on proportionality between developed and developing countries, with asymmetry in favour of developing countries.

On export competition, the US proposal called for the rapid elimination of export subsidies no later than 2010 for all products, and accelerated elimination for "specific products" (without specifying which). On state trading enterprises, it called for the elimination of monopoly export rights, termination of special privileges, and greater transparency.

On food aid, the proposal is for a broad discretion for donors to meet needs in emergency situations and low-income countries tighter disciplines to deal with other situations, but no requirement for 'cash-only'.

On export credit, the proposal is for bringing government programs in line with commercial terms to prevent export subsidy. Finally there is a proposal, in relation to differential export taxes, to end discriminatory tax levels across export products.

Meanwhile, Oxfam has also criticised the US proposal, saying the US would have to make only negligible cuts to the subsidies it pays to farmers. It estimated that the US would have to cut its spending on agriculture by only 2%, from $74.7bn to $73.1bn at the end of the Doha round implementation period. This estimate relates to total domestic support, i. e. trade distorting as well as Green Box support.

Although the US said it would reduce the ceiling on trade distorting support to its farmers by 60%, this would leave overall spending almost untouched and poor farmers in developing countries would not benefit, said Oxfam.

It criticized the US for also demanding that developing countries cut their tariffs more than rich countries, in direct violation of the principle of special and differential treatment.

"It's a case of smoke and mirrors. If this offer goes ahead, trade distorting domestic subsidies will remain almost completely unchanged and dumping will continue. Meanwhile harsh concessions on market access will be wrung from developing country members in exchange for illusory progress,"
said Celine Charveriat, Head of Oxfam International's Make Trade Fair Campaign.

There would hardly be any difference for the millions of poor farmers suffering from unfair US competition in sectors such as corn, rice or cotton, she added.

On export subsidies, the US is essentially shooting with somebody else's bullet: committing to eliminate payments it doesn't have and failing to make meaningful commitments on the instruments it does use: export credits and food aid, added Oxfam.

"What looks on the surface like a genuine attempt to move the talks forward is in fact a very clever piece of manoeuvring by the US. This proposal would allow them to get away with doing next to nothing in return for some very painful concessions from developing countries."