Inside US Trade | August 3, 2001 | Vol. 19, No. 31
The Cairns group of agricultural exporters last week proposed the elimination of all industrialized nations' agricultural export subsidies four years after the implementation of a new agriculture agreement, but left unsaid how long after the conclusion of negotiations the implementation date will be.
The Cairns non-paper, reprinted below, gives developing countries' seven years from the implementation date to eliminate these subsidies, at which point they would also lose the right to provide marketing and internal transport subsidies.
The Cairns proposal contrasts with one from five developing countries which sets a date certain for elimination of agriculture export subsidies, but proposes broadening exemptions for developing countries beyond those currently allowed for marketing and internal transport.
Both non-papers were presented at an informal negotiating session of the WTO agricultural committee July 23-25, which also featured proposals from Switzerland and Japan that would reduce but not eliminate export subsidies.
While eliminating export subsidies has long been a top priority for the Cairns group, this is the first time Cairns has proposed specific timetables for their elimination. In the first year of implementation, countries would cut their export subsidies by fifty percent by dollar value and volume. In subsequent years-- three for industrialized countries, six for developing ones -- countries would make equal cuts in the remaining subsidies. The Cairns non-paper, reprinted below, presents these cuts in terms of the percentage of export subsidies remaining after Uruguay Round commitments have reduced them to 64 percent of base-year subsidies and the initial downpayment have cut them in half. Thus, for developed countries, the cuts are 10.7 percent per year in the three year period, for a total reduction of 32 percent.
In a separate proposal, a group of five developing countries proposed the elimination of export subsidies on agriculture by 2006 or within three years of the end of negotiations -- whichever comes sooner. The non-paper is sponsored by Nicaragua, Panama, Peru, Venezuela and Zimbabwe.
The developing countries' proposal would reduce export subsidies at the same pace, 36 percent per year, as under Uruguay Round commitments while negotiations continue, with complete elimination of export subsidies within three years of the negotiations' end or 2006. It also would expand and extend Article 9.4 exemptions on marketing and internal transport subsidies for developing countries.
The U.S. expressed its "strong support" for eliminating export subsidies, trade sources said, while the EU, which opposes the elimination of export subsidies, insisted that export credits should be included as a part of discussions on reducing export subsidies. Switzerland and Japan also expressed their continued opposition to the elimination of export subsidies.
The developing country proposal includes broad language on the expansion of exemptions because the countries wanted to "leave a window open" for defining future exemptions. The proposal is designed to increase interest among developing countries for eliminating export subsidies, a trade source said.
"I think we're trying to bring all [developing] countries on board toward eliminating export subsidies while leaving the door open to some limited exemptions," a developing country trade source said. "The most important thing is they agree on the timeframe and elimination of subsidies."
Despite their differences on exemptions, the Cairns group and the group of developing countries were generally receptive to each other's ideas and said they were in agreement on the importance of eliminating export subsidies quickly, Cairns group and developing country sources said.
The EU was receptive to a proposal from Switzerland to "rebalance" reductions of export subsidies. Switzerland's "rebalancing" proposal included a formula that would moderate reductions on some products in exchange for steeper reductions on other products, with the possibility of raised ceilings. Though the Swiss, who oppose eliminating subsidies, previously have floated similar ideas, the proposal offered last week is much more clear, sources said. The Swiss proposal did not specify on which products subsidies would be moderately and which would be steeply reduced.
The EU, Hungary, Poland and the Czech Republic expressed support for the Swiss rebalancing formula, while the U.S., Japan and Brazil voiced opposition, trade sources said. The U.S. disliked the Swiss rebalancing because it could lead to increased ceilings, a result counter to the idea of reducing distortions, a trade sources said. Brazil also opposed the Swiss formula because, Brazil said, it would lead to minor cuts on products of interest to many exporters, and steep cuts where there was little competition. Brazil argued the most sensitive products would see the least reductions in subsidies, a trade source said.
Japan also introduced an export subsidies proposal that included gradual subsidy reductions but did not support the elimination of subsidies, trade sources said. The U.S. said Japan's paper was broadly reform-oriented but that it needed more reflection.
During the discussion on export credits, the EU emphasized that any discussion of reducing export subsidies should be negotiated as part of a package that also includes disciplines and reductions in subsidized credit, trade sources said. Subsidized export credit, insurance and trading by state enterprises can be used to circumvent commitments to reduce export subsidies, the EU said.
Though it said it favored disciplines on export credits along the lines of the Organization for Economic Cooperation and Development (OECD) draft guidelines, the U.S. said export credits do not contain large amounts of subsidies. Both the U.S. and the Cairns group argued that export subsidies remain the more serious trade-distorting problem.
The U.S. agreed to negotiate disciplines for farm export credits, the primary form of U.S. farm export assistance, as part of the World Trade Organization agreement on agriculture concluded in 1993. Industrialized countries failed to reach an OECD agreement on new disciplines for agriculture export credits by a mid-May ministerial meeting because the U.S. and Canada could not settle their differences on the maximum term for loan repayments and on whether the agreement should cover state trading enterprises, such as the Canadian Wheat Board (Inside U.S. Trade, April 20, p 3).
Cairns group sources said "it is fairly clear" that export credits will be discussed in the context of WTO agriculture negotiations. "There are a lot of non-OECD members in the WTO who have views on export credits and want to discuss those views," one Cairns group source said.
Division continued on the subject of state trading enterprises, with the U.S. and Japan calling for disciplines and other members arguing that state enterprises should not be singled out, trade sources said.
Indonesia, Canada, Australia and New Zealand argued that multinationals could also have monopoly power, and that it is the measure that should be discussed, and not the nature of the enterprises. Canada, Australia and New Zealand argued that their state enterprises operated on a commercial basis, while Indonesia called for disciplines on multinationals as well.
The EU said one difference between state marketing boards and multinationals is that the boards have a monopoly when buying commodities for export and also enjoy government guarantees, a trade source said. Australia responded by pointing out that private companies are sometimes bailed out by governments.
Japan said the present system is unfair because it imposes stricter disciplines on importing state enterprises than on exporting state enterprises. Some Cairns Group members disagreed, arguing that importing enterprises have a serious impact on market access through tariff quota administration.
Cairns group members have shown division on state trade enterprises. In January, a one-page proposal targeting state trading enterprises for new trade disciplines was signed by the Cairns members Argentina, Brazil, Chile, Columbia, Paraguay and Uruguay, with Canada and Australia defending their use of single desk sellers for their wheat exports (Inside U.S. Trade, Feb. 2, p. 19).
On export taxes and restrictions, Paraguay, Brazil and several other developing countries argued that taxes or restrictions on raw materials exports are needed in order to promote domestic processing industries, particularly where tariff escalation exists in developed countries. The U.S. argued that eliminating tariff escalation would be a better solution.
The U.S. split with Canada and Australia on the subject of countries prohibiting the trade of products to other nations for national security reasons, with Canada and Australia arguing against food export prohibitions. Canada and Australia suggested that the U.S. uses a double standard by opposing the state trading enterprises in other nations while supporting food embargoes. The two countries said that this indicates it is the measure that is more important to the U.S. than the nature of the enterprise, a trade source said.
On food security, Japan proposed creating an international stockpile of food, while a group of 12 developing countries proposed the creation of a fund that could be used by countries short of food supplies to borrow from in order to purchase food, a trade source said. The developing country paper was signed by Sri Lanka, Cuba, El Salvador, Kenya, Honduras, Nicaragua, Nigeria, Peru, Pakistan, Venezuela, Zimbabwe and the Dominican Republic.
Some Cairns group nations said continued trade liberalization remained the best long-term solution to the problem, while the EU said it was willing to discuss the developing countries' paper, though it was not sure there is a need for a new fund when the World Bank and International Monetary Fund already exist.
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