EU Offer to Cut Farm Support Falls Short, U.S. Says

Oct. 28 (Bloomberg) -- The European Union's offer today to cut its farm tariffs by as much as 60 percent falls short of expectations because the proposal allows exemptions that would block key exports, U.S. officials and industry groups said.

``It is a modest step in the right direction, but I just think it is inadequate,'' U.S. Trade Representative Rob Portman said in a conference call. ``We are disappointed in the level of the tariff cuts and with the exclusions from those cuts.''

U.S. lawmakers and industry groups said those exemptions could effectively block the goods most likely to be exported by American farmers to Europe. They didn't specify which products.

In the face of fierce opposition from France, the 25-nation European Union offered to trim agriculture tariffs by 35 percent to 60 percent, and implement a cap that would limit remaining duties to no more than 100 percent of the value of an import.

The EU also said it would lower by 70 percent its trade- distorting farm subsidies, locking in reductions it has already made, and would phase out export subsidies.

The offer today attempted to compliment a proposal the U.S. made earlier this month to cut its farm subsidies, as negotiators try to bridge what has been the main impediment to the so-called Doha Round of World Trade Organization talks.

Leaders of the U.S. Senate Finance Committee, which oversees trade and tariff matters, called the proposal inadequate and said it may endanger prospects for a December WTO summit in Hong Kong.

``If this is the best offer the European Union can make, then it looks like the Doha Round might remain stalled,'' Senate Finance Committee Chairman Charles Grassley said in a statement.

Geneva Meeting

The EU said its proposal is contingent on an agreement for cuts in industrial tariffs and for rules to allow more investment by banks, telephone companies and insurance providers.

Portman, EU Trade Commissioner Peter Mandelson, and the top trade officials from India, Australia and Brazil held a video conference today to discuss the EU's plan. Those ministers are scheduled to travel to Geneva within two weeks to work out an outline of an accord that would form the basis of discussions at the Hong Kong summit. The ministers said today's pitch by the EU won't be enough to keep the talks from collapsing.

``The proposal is a step forward, but it is insufficient,'' Brazil's Foreign Minister Celso Amorim said.

Tepid Offer

The EU's offer contained what U.S. industry groups described as three poison pills: A measure that exempts 8 percent of the imports now subject to tariffs from having those duties slashed; new rules to safeguard geographic place names for food products such as Parma ham and Feta cheese; and the phasing out of food donations to poor nations. The EU wants the U.S. to follow its lead and convert those donations to cash.

``This is a very tepid offer and it will be met with at best a lukewarm response,'' said Audrae Erickson, president of the Corn Refiners Association and chairwoman of AgTrade, a coalition of more than 100 U.S.-based associations that lobbies on behalf of further farm trade liberalization.

By exempting 8 percent of the products from the steep tariff cuts, the EU will be able to keep out the ``primary export interests of the United States,'' Erickson said. With 2,200 agriculture tariff lines, an 8 percent exemption means 176 products could keep their highest tariffs.
The EU proposed minimal cuts in the protection for those products.

The World Bank estimates that excluding just 2 percent of products from the WTO tariff-cutting formula could erase all of the economic benefits of the trade round for developing nations.

``With just a very small percent excluded the benefits would just disappear,'' said Will Martin, a World Bank economist.

Food Companies

The U.S. exported $7 billion of farm goods to the European Union in the 12 months through September, according to the U.S. Department of Agriculture. The top U.S. exports are animal feed, poultry, fruits, nuts, hides and tobacco, according to EU data.

For representatives of U.S. food companies such as Kraft Foods Inc., the provision requiring WTO members to recognize Europe's regional food protections is a red light. Expanding those rights, known as geographical indications, is unacceptable because most names such as Parmesan cheese and Feta cheese have become generic descriptions that are no longer tied to specific geographic areas, they say.

``There is no way to engage on this proposal,'' said Sarah Thorn, the trade director at the Grocery Manufacturers of America, which represents Kraft and other food makers. ``It is still an unacceptable proposal.''

Aid Programs

U.S. lawmakers, Portman and domestic farm groups also say the U.S. won't end its food donation program. The EU has shifted its food aid to cash donations and says it wants the U.S. to make the same transition. Current U.S. rules allow growers of grain to get rid of excess harvests by selling the goods to U.S. food aid programs, which then donate the grain to foreign nations in need.

Many poor nations say that practice often leads to an oversupply in their markets, which drives down the prices domestic farmers can charge for the crops they grow on their own.

``Food aid is really a political problem for the U.S.,'' said M. Ann Tutwiler, chief executive of the International Policy Center, a Washington-based agriculture research group.

French Opposition

Still, Tutwiler and others said that the EU offer is surprising given the opposition of the French.

French President Jacques Chirac yesterday said it's ``totally out of the question for us to go a single step further'' in concessions on farm tariffs. France would have a veto over any accord, he added.

``Of course France has sensitivities,'' Mandelson said today. ``That doesn't negate France's wider commitment, and I certainly look forward to being able to demonstrate convincingly to France that what we're doing is negotiating in Europe's, and that includes France's, best interests.''

The gaps between the EU and U.S. were so large that they couldn't even agree upon what the European offer today was. The EU said it proposed an average tariff cut of 46 percent; the U.S. said the offer really amounts to an average cut of 39 percent.

``I appreciate that Commissioner Mandelson has been through a tough week because of the French reaction, but at the end of the day we all need to confront'' protectionist sentiment at home, Portman said.