International Trade Daily | July 27, 2001 | By Daniel Pruzin
GENEVA - Reducing domestic support programs for farmers is likely to be the toughest issue for negotiators to tackle in the World Trade Organization's talks on the further liberalization of agriculture trade, particularly in light of recent U.S. increases in domestic farm spending, a European Union official warned July 24. David Roberts, deputy director-general for international affairs with the EU's agriculture directorate, said there was a "concern that internal support could turn out to be the most difficult issue in the negotiations, like export subsidies were the most difficult issue in the Uruguay Round." Roberts was speaking to reporters in Geneva during a break in a week-long WTO negotiating session on farm trade.
The EU official also warned Japan and South Korea might have serious problems making concessions in the farm talks if some members such as the United States and the Cairns Group of agricultural exporting nations continue to insist on tighter disciplines governing the use of "green box" and "blue box" subsidies. Those two countries "will find it impossible to reduce tariffs" if the flexibility provided by the two boxes to provide domestic support is taken away, he added.
Although WTO members failed to launch a new trade round at their 1999 Seattle ministerial meeting, the farm talks are going ahead under Article 20 of the WTO's Agriculture Agreement, which mandated members to start new negotiations on agricultural trade reform by 2000.
However, the talks to date have only focused on procedural issues and discussions of initial negotiating proposals, with the real negotiations only expected to take place within the context of the round which members hope to launch at the next ministerial in Doha, Qatar in November.
The current session of the agriculture negotiations has examined position papers from WTO members such as the EU, United States, Australia, Japan, and a number of developing countries on the issues of export subsidies, export credits, state trading enterprises, export taxes and restrictions, food security and food safety. The U.S. House of Representatives has approved a $5.5 billion farm aid package for the upcoming year, but Democrats in the Senate want to increase that figure to $7.5 billion. Over the past two years, Congress has given U.S. farmers $25 billion in special aid on top of regular farm subsidy programs.
Brazil to Seek Consultations With U.S.
Several trading partners have suggested that the United States is dangerously close to exceeding or has already exceeded its farm subsidy caps fixes under the WTO's Agriculture Agreement. On July 25 a Brazilian agriculture official confirmed that Brazil would request consultations with the United States to discuss what it claims is the U.S. failure to respect its WTO subsidy cap for the soybean sector.
The consultations are the first step in the WTO's dispute settlement process and may lead to a WTO panel ruling on the Brazilian claim if the two sides fail to settle their differences.
According to a report issued by the Organization for Economic Cooperation and Development last April, domestic support provided by OECD governments to their farmers totals $360 billion per year, of which 90 percent is provided by the European Union, Japan, and the United States. Of that amount, more than 60 percent of the support qualifies as "green box" or "blue box" subsidies which fall outside of the Agreement on Agriculture's disciplines on subsidy use.
Examples of green box subsidies include spending on agricultural research, pest control, marketing, and promotional services; income insurance and income "safety-net" programs; payments for natural disasters; structural adjustment assistance; and payments for environmental and regional assistance programs.
Blue box subsidies cover direct payments to farmers by governments under production-limiting programs. Such payments, which are based on fixed areas or yields, or (for livestock) on fixed numbers of heads, are also exempt from subsidy-reduction commitments.
The OECD report noted that the use of green box subsidies has been increasing, particularly by the EU, the United States and Japan. Domestic food aid was the biggest category of green box measures, most of it accorded by the United States in the form of the government's food stamp program, child nutrition program, special milk program for schools, and special supplemental nutrition aid for low-income mothers, children and the elderly.
U.S. Agriculture Secretary Ann Veneman announced June 22 that $10.4 billion in Market Loss Assistance payments provided to U.S. farmers in 1998 would be notified to the WTO as "amber box" subsidies. Amber box subsidies are considered trade distorting and are subject to WTO reduction commitments.
Roberts Welcomes Payment Classifications
By classifying the subsidies as trade-distorting rather than seeking to exempt them under the green box, "we set the right precedent for other nations in the way they classify their own trade-distorting subsidies, and we set an open and above-the-board tone as we move toward a challenging new round of trade negotiations in the WTO," Veneman declared. Roberts welcomed the move to classify the payments, which were given to compensate farmers for low commodity prices, saying it did not serve U.S. interests to "pretend that payments given for price reductions (qualify for the) green box. It's a victory for the (Bush) administration over the U.S. Congress."
However, the United States "hasn't lost" from this notification because the notified supports were non-product specific and thus did not bump upon the product-specific domestic support ceiling caps under the Agriculture Agreement, Roberts added.
Roberts also admitted that a recent WTO ruling affirming that Canada was still providing illegal export subsidies to its dairy farmers could have implications for the EU, but he added that the United States also operates programs similar to the Canadian one condemned by the WTO.
A WTO panel earlier this month found that provincial arrangements set up in Canada for the export of milk used in processed dairy products continue to provide export subsidies to Canadian dairy producers that are subject to WTO disciplines. The programs replaced Canada's Special Milk Classes Scheme which was struck down in an earlier WTO ruling.
The panel also found that continued subsidization under the provincial schemes had resulted in Canada exceeding its export subsidy cap for cheese during the 2000/2001 marketing year.
The case against Canada was brought by the United States and New Zealand. The Office of the United States Trade Representative welcomed the ruling, saying it "sets an important precedent which will help prevent other countries from adopting similar export subsidy programs harmful to America's dairy industry."
Panel 'Went Rather Far,' Roberts Says
The ruling "has an influence on the EU" because it clarifies that WTO rules do impose disciplines on state dual-run pricing systems, Roberts said. However, "the United States may end up have mixed feelings, because California operates similar systems caught by the same ruling." Roberts added however that he expected the panel's ruling "would be reined back in on appeal ... I suspect the panel went rather far" in its findings.
Canadian dairy industry representatives have warned that if the ruling went against them, they would urge their government to initiate WTO proceedings against dual-pricing system in the United States and New Zealand which they say allows dairy, peanut and butter products to be sold for lower prices on world markers.
Copyright c 2001 by The Bureau of National Affairs, Inc., Washington D.C.International Trade Daily:
