US unveils its ‘mercantilist’ reform proposals on agriculture

The following article examines the possible motives behind recently mooted proposals by the US to drastically cut farm tariffs and subsidies.

by Chakravarthi Raghavan

GENEVA: The United States has unveiled its agriculture trade reform proposals covering the areas of export subsidies, market access (tariffs) and domestic support. On a preliminary reading, the proposals appear aimed at protecting its own market and its big agricultural traders (like Cargill), while hitting Europe and Japan (and their domestic support and export subsidies) by attacking and eliminating the “blue box” subsidies, and the markets of developing countries (which cannot provide “green box” domestic support) by drastic reductions in their tariff protections.

The terms “green” and “blue box” are used widely in popular (and even WTO) discussions but are nowhere mentioned in the WTO Agreement on Agriculture (AoA). The green box subsidies are those covered by Annex 2 of the AoA (domestic support measures exempt from reduction commitments), and the blue box comprises those (mostly and widely used by the EC) under Article 6.5 of the AoA but again not subject to any reduction commitments.

The US proposals are both a kind of dare to the EC and Japan to call its bluff, and an effort to break into these markets and keep the Cairns Group of agricultural exporter countries (in an effort to repeat the Uruguay Round scenario) on the US side in the WTO agricultural talks. The proposals were announced by US Trade Representative Robert Zoellick on 25 July.

The US plans were unveiled on 26 July at a two-day meeting of some agricultural ministers in Japan, and officially presented at WTO informal consultations the following week. The US had earlier made them available to key delegations here and the media.

At the WTO, the US has repeatedly been assailed by a chorus of protests over its newly approved farm bill which increases domestic support on some key farm products (see TWE #280), and has been accused of failing to discharge its ‘leadership’ role to promote ‘free trade’. This last charge has mainly been levelled by the Cairns Group, particularly Australia, Canada and some of the members of the group from Latin America.

The US proposals (as explained by it in its paper) involve:

   *  elimination of direct export subsidies and export monopolies (such as those held by state trading enterprises), with some marginal “strengthened disciplines” on some (but not those like that of the US under which export credits are mixed with food aid) export credit programmes;

   *  simplifying domestic support by ending the blue box exceptions, reducing the ceiling on permitted “trade-distorting” domestic support to 5% of a country’s total value of agricultural production, and maintaining the de minimis provision (which several large developing countries with subsistence agriculture and large rural unemployment want to raise);

The US however wants to maintain the green box subsidies - those covered by Annex 2, the direct budgetary support not linked to “production.”

*           reducing tariffs, using a formula that would cut high tariffs more than low tariffs, and with tariffs cut to a maximum rate of 25%. All “in-quota” tariffs are to be eliminated, tariff-rate quotas expanded by 20%, disciplines on tariff-quota administration strengthened, the “special safeguards” in agriculture (which have been invoked only by the industrialized countries that had converted all their earlier non-tariff import restrictions into high tariffs under the so-called tariffication process) eliminated, and monopoly import control via state trading enterprises eliminated.

In Japan for the agricultural ministers’ meeting, the EU Agriculture Commissioner Franz Fischler (through a spokesman) dismissed the US proposals as “incoherent”, contrary to what the US is doing, and not telling others how the US would open its own markets.

On the tariff-cut approach of the US, the EU also said in Japan that the method suggested in the US proposals is “totally unacceptable to everyone, even the Americans”, and they are proposing this knowing others would reject it.

While the US and Europe are accusing each other, it is also apparent that they are both moving in the direction of repeating the Uruguay Round scenario, where the other members would ask them to settle their disputes and, seemingly acceding to this, the two at the end of the current round of talks would strike a kind of deal cartelizing their control over export markets and preserving their domestic ones.

Unlike in the Uruguay Round, however, where the US and Cairns Group were on one side, the EC, Japan and other major agricultural protectionist members on the other, and the group of developing countries were not actively involved, a group of major developing countries with large rural unemployment and subsistence farming are now beginning to identify their own interests, but are still to form a cohesive overall approach to the WTO negotiations.

Trade diplomats of several developing countries belonging to this last group of nations said that they needed to study the proposals in greater detail, but would not be in a hurry to react and reject or endorse. The initial comments they normally made, one of them said, merely enabled others to ‘hide’ behind and blame them. (SUNS5170)                     

From Third World Economics No. 285 (16-31 July 2002)