US and EU move on trade rules

By Paul Mooney

After months of foot-dragging, the USA and EU finally got down to serious bargaining this week on the next WTO deal which is aimed to be wrapped up in just nine weeks time at a high profile Ministerial meeting in Hong Kong.

The first move came from the US on Monday when Trade Representative Rob Portman outlined a series of moves the US was willing to make in order to progress the negotiations. These included 60% cuts in domestic supports, a 75% cap on tariffs and, dramatically, ending of all tariffs and trade distorting subsidies by 2020. However, there was no sign that the US was willing to radically reform use of Food Aid as an export subsidy.

The EU Commission responded immediately to the USA proposals with new offers announced by Trade Commissioner Peter Mandelson in the presence of Agriculture Commissioner Mariann Fischer Boel. These included cuts of 70% in domestic supports - less than the 83% demanded by the US. First estimates were that 70% cuts could be accommodated within the most recent CAP reforms of Luxembourg 2003 but that the 83% cuts demanded by the US would require further CAP reforms.

The US proposals

The trade reform proposals put forward by US Trade Representative Rob Portman included:

• the US would support cuts in amber box domestic supports by 60%

• commitment for cuts in trade distorting supports would fall into three categories with cut of 31%, 53% and 75%.

• the above support cuts would be phased in over five years.

• he proposed a cap on blue box payments to farmers equal to 2.5% of the total value of agricultural production - a 5% cap had been agreed by all sides in the July 2004 framework agreement. The cap for the product specific supports would be based on the years 1999 to 2001.

• on the key issue of market access, he proposed a cap of 75% on tariffs and that no more than 1% of tariff lines could be defined as "sensitive''.

Portman also called for export subsidies including export refunds to be eliminated by 2010 and for all remaining import tariffs and trade distorting subsidies to be phased out in the five years from 2015. As well as export refunds, this would cover state backed monopoly export bodies and export credits. He accepted tighter restrictions on Food Aid - heavily used by the USA - but rejected any move to cash-only donations. Differential export taxes would also be curtailed.

He backed EU proposals for no financial cap on green box payments and no major change in their definition. He proposed an extension of the peace clause which has now expired. To emphasise the radical aspect of his proposals, Portman claimed that they would require "definite reforms'' to the next US Farm Bill.

However, there is no clarity yet on whether the US would agree to its counter cyclical payments (higher support payments to farmers in times of low product price) would come under the cut on domestic supports.

EU counter offer:

On domestic supports the EU Commissioners offered to make cuts of 70%, accepting that EU supports operated at a higher level.

They warned that the US, Japan, Canada and Switzerland would have to go further on cuts.

• on de minimis they offered a 65% reduction in the cap, to 1.75% of the value of agricultural production and possibly more if other trade blocks did the same.

• the blue box ceiling would remain at 5% with definitions to be made more clear.

• on market access they are proposing four bands with thresholds at 30%, 60% and 90% and a tariff cap of 100%.

• the tariff reduction for the highest band of tariffs would be either a flat 50% or 60% with flexibility among different product lines.

• the EU would also accept some limit on the number of sensitive products.

• higher tariff rate quotas would be offered where there were lower tariff rate cuts.

• on export competition they stressed the need for parallelism in eliminating all the various forms of subsidy including Food Aid.