TWN Info Service on WTO and Trade Issues (Sept07/13)

26 September 2007

Cautious reactions to US move on domestic support

Analysts and trade diplomats have been reflecting on an apparently new offer by the United States delegation at the WTO on the its maximum OTDS (overall trade distorting domestic support in agriculture).

On 19 September afternoon, the US stated that it could negotiate within the ranges of figures proposed in the modalities paper of Ambassador Crawford Falconer.

The US clarified this was conditional on other WTO members accepting the ranges of figures proposed in the Chair's paper in other areas such as tariff reduction.

Reactions were guarded and cautious to this US move.  The US itself later clarified that its offer was really not new, as the USTR Susan Schwab had also said something similar at the APEC Summit in Sydney.

The report below was published in the SUNS (South North Development Monitor) on 21 Sept 2007 and is reproduced here with permission of the SUNS.  Any reproduction or recirculation requires the prior permission of the SUNS (sunstwn@bluewin.ch).

With best wishes
Martin Khor
TWN

Cautious reactions to US move on domestic support

Published in SUNS #6328 dated 21 September 2007

By Martin Khor (TWN), Geneva, 20 Sept 2007

Analysts and trade diplomats have been reflecting on an apparently new offer by the United States delegation at the WTO on the maximum level of an important indicator of its agricultural domestic subsidies.

On 19 September afternoon, at a Room E agriculture meeting at the WTO, involving 36 delegations, the US stated that it could negotiate within the ranges of figures on domestic support put forward in a 17 July modalities paper by the Chair of the agriculture negotiations, Ambassador Crawford Falconer of New Zealand.

The chief US agriculture negotiator Joseph Glauber clarified however that this US position was conditional on other WTO members accepting the ranges of figures proposed in the Chair's paper in other areas such as tariff reduction.

Speaking to journalists after the meeting, Falconer confirmed that the US had stated that it could work within the parameters of his draft text for reduction in domestic support, but that the US had also clarified that this was provided that the parameters of the Chair's text on other issues were also acceptable (to other members).

The OTDS is the total of various types of "trade-distorting" domestic support - the amber box (aggregate measure of support), the blue box and the de minimis support, that is provided by a country.

In the calculations for recent years, the counter-cyclical payments of the US have also been added to its current OTDS levels.

The actual figures in dollars in the US offer were not mentioned at the WTO's Room E meeting. However, Falconer indicated that he took the range agreed to by the US to be $13 to $16.4 billion. This was also the range understood by diplomats of many WTO delegations.

The range is below the $23 billion that the US officially proposed (in October 2005) as its own maximum limit for OTDS. However, at the G4 Ministerial meeting in Potsdam in June, the US had put forward $17 billion as its new figure for OTDS.

At a press conference in Potsdam, after the meeting ended abruptly in failure, the Commerce Minister of India (one of the G4 members), Kamal Nath, had said that the US figure was not enough, since its actual level of OTDS in 2006 was below $11 billion. Nath indicated that the maximum OTDS for the US should be such that it effectively reduces the actual or applied level.

The G20 in its formal proposals had asked that the OTDS for the US be capped at $12 billion, while the African Group in July proposed a figure in the range of $10-12 billion.

Falconer's 17 July modalities paper does not actually spell out the numbers in terms of dollars, but uses reductions in percentage terms.

It states that the base level of the OTDS shall be reduced in accordance with a tiered formula involving three categories of countries. Category (b) relates to the US (i. e. where the base level of OTDS is $10-60 billion) and the reduction (from the base level) for this category is in the range of 66 to 73 per cent.

At a press briefing in July, Falconer elaborated that this reduction range meant that the US would bring down its maximum OTDS to between $13 billion to $16.4 billion.

This is why the diplomats at the WTO, as well as Falconer, take the US statement at the Room E meeting to mean that the US is now offering $13-16.4 billion as its bound OTDS level.

The Falconer paper also proposed that WTO members in Category (a) such as the European Union (with a base level of OTDS greater than $60 billion) commit to reduce its OTDS cap by 75 to 85 per cent.

This is taken to mean that the OTDS cap for the EU as proposed (by the Chair) to be in the range of Euro 16.5-27.6 billion.

The EU had earlier said that it could undertake a reduction rate ten percentage points higher than the US.

At the Room E meeting, after the US said it could work within the Falconer range for it (of 66-73 per cent cut), the EU was reportedly asked if it could still stick to its "ten percentage points higher than the US" position.

The EU reportedly said that was still its view, but it expressed skepticism that the US would be able to undertake an upper-limit cut of 73%, and the EU thus did not expect to do a cut itself that was above 80%.

Falconer told journalists that the US move was "something", which he said justified the three weeks of work of the agriculture negotiations so far. "I haven't heard (that offer) before," he said, adding that in the present atmosphere, "I'll clutch at any straw."

When reminded that the US had already offered $17 billion in Potsdam, Falconer said that whatever was said in Potsdam, this was never said here (at the WTO) before, implying that it was significant.

Delegates from developing countries had cautious and mixed immediate reactions to the US move. Almost of those interviewed said they were seeking further clarification on what the US actually meant in terms of actual figures.

Most of them also wanted clarification as to whether the US could stick to what it offered, and if the US is asked to do more, whether it actually could do so. They referred to the expiry of the US President's fast track authority in June, and to the fact that the 2007 US Farm Bill had not yet been finalized.

Brazil's Ambassador Clodoaldo Hugueney described what the US said in Room E as positive but wanted more details from the US as well as the EU and Japan on how much they were willing to commit to subsidy reduction.

India's Ambassador Ujal Singh Bhatia's immediate response on 19 September was that the figures given by the US were still above the level of its actual trade-distorting support. On 20 September, Bhatia was more positive, saying that the US offer in Room E was a step beyond what it offered in Potsdam.

The Ambassador of an African country played down the significance of the US move, saying it was not yet concrete, and especially that it was not clear whether the US was talking about committing at the upper end ($16.4 billion) or lower end ($13 billion) of the range.

"But even more, when it says that this is conditional on others making concessions elsewhere, what does it mean?" he asked. "Do the other countries have to give in to its demands, some of them extreme, such as on special products or special safeguard mechanism (in agriculture) or in NAMA?"

A senior agriculture official of an Asian country said it was not clear what was the basis of the US statement, in concrete terms, and expressed skepticism that the US could offer anything meaningful or concrete, given its domestic political situation.

Chakravarthi Raghavan, veteran analyst of WTO issues and negotiations, said that it was significant that the US had said that what it was offering was conditional on other countries making concessions. This seemed like a prelude to its strengthening the demands it would make on the developing countries, in agriculture market access, as well as NAMA and services.

"This shows the folly of 'negotiating' with the US administration, when it has no trade authority," said Raghavan. "Even in private contract negotiations, no one will negotiate unless the other party has the power to negotiate and sign."

Raghavan added that in substance the US offer on the OTDS cap did not really amount to anything.

"Substantially, so long as the green box category of subsidies is not disciplined and capped, it would not matter what the US offers on capping its "trade-distorting support", since it can then operate more of its subsidies through the Green Box which has no limit and hardly any discipline at present.

"And more so when at the end, the US will tell the other WTO members that any deal will also be conditional on having a new peace clause."

[The "peace clause" in the Agreement on Agriculture exempted WTO members from being taken to a dispute settlement panel if they were in violation of certain aspects of disciplines relating to agricultural subsidies. The peace clause has expired, thus opening members to dispute procedures.

[However, it is believed that the US is asking for the restoration of a peace clause (or some version of it) as part of the outcome of the Doha negotiations.]

Other analysts also downplayed the significance of the Room E move of the US. A 20 September report of Bloomberg agency quoted Brian Gardner, head of the UK-based Food Policy International, as saying that "It's a step in the right direction, but it won't break the impasse. They have a long way to go."

Gardner mentioned basic problems that will continue to dog the WTO talks and make it unlikely that the US position will lead to a quick agreement, including the EU's position on sensitive products.

Bloomberg also quoted Philip Whyte, senior research fellow at the Centre for European Reform: "The US position doesn't change the underlying politics. Bubbling under the surface, there is a sense among key negotiators that progress is being made. But despite that progress, the politics is still going to get in the way of a deal before 2009."