US receives major setback on its domestic support non-paper

A US proposal on dealing with “certain forms” of domestic farm support has met with a less-than-receptive response from other WTO member states, reports D. Ravi Kanth.

GENEVA: The United States received a major setback over its proposals to avoid any cuts to its own domestic support programmes and get all WTO members to undertake voluntary commitments to reduce their market price support programmes and input subsidies, several trade envoys told the South-North Development Monitor (SUNS).

The setback to the US came on 23 September at a meeting of select trade envoys from over two dozen countries convened by the new chair of the Doha agriculture negotiations, Ambassador Vangelis Vitalis of New Zealand, to discuss the state of play in the domestic support negotiations and the way forward for the Nairobi Ministerial Conference, which starts on 15 December.

At the meeting, China is reported to have rejected the proposal from the US that calls on all members at the WTO to undertake voluntary commitments to reduce their market price support programmes and input subsidies. India described the US proposal on domestic support as an attempt to “kill” many birds with one shot, particularly the food security public stockholding pro- grammes in developing countries.

Many developed countries such as Canada, the European Union, Norway, Australia and New Zealand, along with several developing countries such as Mexico, Colombia, Brazil, Argentina, Paraguay, Pakistan and the Philippines, raised serious questions as well as voiced doubts whether the US paper on domestic support addresses all trade-distorting domestic subsidies, according to envoys present at the meeting.

“Standstill” commitments

The US deputy trade envoy Christopher Wilson spoke about the salient features of its proposal which intends to tackle “certain forms of trade-distorting domestic subsidies.”

The US “non-paper” on domestic support targets the market price support programmes and the input subsidies that developing countries are allowed to provide to their resource-poor farmers under the special and differential treatment provisions in the WTO Agreement on Agriculture (AoA).

A non-paper is a discussion paper that does not necessarily represent a country’s official position.

The US non-paper has called for “standstill” commitments on market price support programmes and input subsidies despite Article 6.2 of the AoA which says: “In accordance with the Mid-Term Review Agreement that government measures of assistance, whether direct or indirect, to encourage agricultural and rural development are an integral part of the development programmes of developing countries, investment subsidies which are generally available to agriculture in developing country Members and agricultural input subsidies generally available to low-income or resource-poor producers in developing country Members shall be exempt from domestic support reduction commitments that would otherwise be applicable to such measures, as shall domestic support to producers in developing country Members to encourage diversification from growing illicit narcotic crops. Domestic support meeting the criteria of this paragraph shall not be required to be included in a Member’s calculation of its Current Total AMS [Aggregate Measurement of Support].”

Despite this provision in the AoA, the US non-paper explicitly says: “Without prejudice to the rights and obligations of Members under the WTO Agreement on Agriculture, including Article 6.2, each Member should avoid using market price support and input subsidies for agricultural products.”

The US said that “each member undertakes the commitments in Annex A [of the non-paper].” Annex A, as proposed by the US, says categorically: “Each Member shall, with respect to agricultural products, undertake each commitment set forth in its schedule to this Annex, which shall include: a) not increasing either the applied administered price for any agricultural product receiving market price support or the number of agricultural products to which the Member provides market price support; or b) not increasing its budgetary outlays for, or the scope of, product-specific input subsidies for agricultural products above the level in effect as on the date of this Ministerial decision.”

Washington specifically provided examples in its paper as to what each member is required to do. They include:

“[Member X – Member X shall not provide support for any agricultural product for which market price support is not authorized under its domestic law as of the date of this Ministerial Decision.]

“[Member X – For any agricultural product for which market price support is authorized under the domestic law of Member X as of the date of this Ministerial Decision, Member X shall not maintain an applied administered price higher than the applied administered price as of the date of this Ministerial Decision.]

“[Member X – Member shall not provide any product-specific input subsidy for any agricultural product not eligible under its domestic law to receive a product-specific input subsidy as of the date of this Ministerial Decision.]

“[Member X – Member X shall not increase, above levels for the last full year preceding the date of this Ministerial Decision, budgetary outlays for the subsidization of any agricultural product effectuated by means of product-specific input subsidies on the following inputs: fertilizer, seeds, electricity, or diesel fuel.]”

In his intervention at the special meeting of the Doha negotiating body on agriculture, the deputy US trade envoy argued that an outcome of some sort on domestic support is necessary. “We know the red lines of the members and in fact, the red lines have become more bright now and they will not change,” he said.

The US maintained that certain forms of domestic support are more distorting than others. Washington’s idea will lead to less distortion in agriculture, he claimed.

Without naming the country, the US admitted that “one member” rejected the proposal, suggesting that it is not sure of next steps.

Reform path

In response, the European Union called for substantial reductions in trade-distorting domestic support and farm subsidies. The EU maintained that it has reformed its subsidy programmes, saying that “all members should follow the path of the reform.”

The EU supported a joint paper by Australia and Canada for commitments to reduce domestic subsidies by major players. The EU said “standstill” in existing farm subsidies is not an option and all members must adhere to reducing their trade-distorting domestic support.

Mexico said reduction commitments in domestic support can be dealt with only at the WTO, arguing that “we have a good deal in Rev. 4 or the revised draft modalities of 2008,” according to a participant familiar with the meeting.

“In the US approach, there is cherry-picking and we must look at all distorting subsidies and OTDS [overall trade-distorting domestic support] is the best way forward,” Mexico argued.

Canada said its joint paper with Australia has provided an approach and the way forward has to cover all forms of subsidies. “If there is no political appetite then it makes sense to lock the reforms achieved so far,” Canada said, implying that if there is no political appetite, then the US paper should be looked at to agree on standstill commitments.

Argentina maintained that members are far from convergence on domestic support. It called for ensuring that domestic support remains in the post-Nairobi work programme, a suggestion shared by Colombia.

The Philippines said members must move on all  three  pillars – domestic support, market access and export competition – for which the Rev. 4 revised draft modalities remain the basis. “The US paper is not in line with the Bali mandate and it has suggested that developing countries must contribute without any assurance from the big developed countries on how other issues will be tackled,” the Philippines said, according to a participant present at the meeting.

Norway said it has offered credible outcomes in all three pillars of agriculture. Australia said it would prefer an approach that tackles all forms of domestic support.

Japan said there is a need for recalibration in domestic support along with market access. New Zealand said domestic support is important for all members, emphasizing the need for an outcome. Brazil said reforms in domestic support are essential for a credible outcome at Nairobi.

In sharp criticism of the US proposal, India said there is no consensus yet on the elements – export subsidies, export credits, food aid and state trading enterprises – in the export competition pillar. India said members must appreciate the US efforts because the US proposal “kills many birds with one shot and among the birds one big bird is the public stockholding programmes.” India argued that the American proposal is targeted at specific programmes, particularly the de minimis commitments. India also asked who would evaluate the voluntary commitments as proposed in the US paper.

China rejected the US proposal, saying it is not based on the Rev. 4 text. Supporting India’s position, China said the US proposal is “politically and economically not acceptable.” The American proposal not only goes against the Doha mandate but would also undermine the special and differential treatment provisions in the GATT architecture.

The chair Ambassador Vitalis concluded that the US proposal has raised sharp questions and doubts and was even rejected by some members. He said it raised questions about the architecture of commitments, suggesting that it is difficult for members to accept as part of the way forward, according to participants.

In a nutshell, the US’ proposal has suffered a major setback and it has to be seen what Washington would do next. (SUNS8099)                       

Third World Economics, Issue No. 600, 1-15 September 2015, pp7-9