Inside US Trade | Vol. 19, No. 20
The European Commission plans to propose next week that the World Trade Organization impose the same reduction commitments on U.S. farm supports like the $8.1 billion U.S. marketing loan and deficiency payment program that trading partners' agriculture negotiators want to place on the European Union's export subsidies, informed sources said.
The EU proposal, which is expected to be approved by EU member states today (May 18), targets farm payments that vary in relation to market prices. Where such programs support production of products that largely go to export markets, they should be subject to the same reduction commitments as export subsidies, according to the EU proposal. The proposal is scheduled to be tabled at an informal WTO agriculture negotiating session May 21-23, officials said.
The proposal to target programs that compensate farmers for low market prices comes as the EU Agriculture Commissioner Franz Fischler arrives in Washington to meet with Agriculture Secretary Ann Veneman and agriculture state lawmakers beginning on May 17. Fischler is putting forward the argument that the EU is reforming and limiting its farm supports, while the U.S. agriculture support is growing. The EU has made some changes to programs and has agreed to some limits on financial supports.
"Our agriculture budget is fixed, consequently our farmers are receiving the market signals, unlike U.S. farmers who increasingly benefit from counter-cyclical deficiency payments," Fischler said in an EU announcement.
This proposal adds another U.S. program, in addition to export credits and food aid, that the EU has targeted in an effort to counterbalance U.S. efforts to eliminate EU export subsidies.
The EU is expected to argue in its proposal that because there are no specific limitations on these programs they are particularly distorting of the world market, boosting production and depressing prices by allowing producers to ignore market signals.
The EU proposal is meant to target the U.S. Nonrecourse Marketing Assistance Loans and Loan Deficiency Payment programs. The loan program gives farmers of such key commodities as oilseeds, wheat, corn and other grains post-harvest loans not less that 85 percent of the market price average over the previous five years for their crops. But if commodity prices fall below that level, farmers are required only to repay the loans based on the Agriculture Department's estimate of current competitive prices, and for rice and cotton, world prices.
Farmers who were eligible to receive the loans but did not, are eligible to receive loan deficiency payments equal to the difference in current commodity prices and the loan values set according to the formula. Yearly payments are capped at $150,000 per individual.
The EU proposal also calls for tighter rules on what is considered non-product specific domestic support. Subsidies that are not product-specific cannot be based on the type or volume of production, international or domestic prices or the factors of production are used.
It also calls for lower levels of trade-distorting domestic support to be considered exempt from reduction commitments under de minimis provisions. Developed countries are currently allowed up to five percent of the value of production to be exempt. Developing countries are allowed a ten percent de minimis cap.
Finally, the proposal addresses various WTO-consistent ways that countries can allocate tariff-rate quotas, including on a first-come, first-served basis, as well as historical allocation and license auctions.
Among the members of Congress Fischler is expected to meet are Finance Committee Chairman Charles Grassley (R-IA), Senate Agriculture Committee Chairman Richard Lugar (R-IN) and Ranking Member Tom Harkin (D-IA), as well as House Agriculture Committee Chairman Larry Combest (R-TX) and Ranking Member Charles Stenholm (D-TX).
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