The Doha Round of WTO Negotiations:The U.S. Perspective

Robert L. ThompsonChairman

International Food & Agricultural Trade Policy Counciland

Gardner Professor of Agricultural PolicyUniversity of Illinois at Urbana-Champaign

31 October 2005

There Is No ONE U.S. Perspective• U.S. agriculture is large and heterogeneous across

many agro-ecosystems• In general U.S. agriculture is export-oriented since it

produces one-third more than the U.S. consumes.– Increasing market access and expanding the total size of

the world market are important priorities• There are also highly subsidized products produced

behind protectionist barriers to imports.– They oppose liberalization and cuts in their subsidies

• Exports of processed and high value agricultural exports growing faster than raw bulk commodities

U.S. Producer Support Estimates, 2001-2003(Percent of producers’ gross revenue)

Sugar 58

Milk 44

Rice 44

Sorghum 37

Wheat 34

Barley 30

Corn 20

Soybean 19

Wool and lamb 17

Pork, beef and broilers 4

Overall 19

Source: OECD PSE database

World Agriculture in Disarray• Import protection and producer supports

– Distort what gets produced where and, in turn, agricultural trade flows

– Depress world market prices below long-term trend

– Reduce price and/or income risk to one country’s farmers while increasing price volatility in world market

– Largest producers and farm land owners get most of the benefits

OECD Producer Support Estimates, 2004, Percent of Gross ReceiptsSwitzerland 68

Japan 56

European Union 33

Canada 21

United States 18

Mexico 17

Australia 4

New Zealand 3

30 Countries Overall 30

Source: OECD Agriculture Directorate

Average Producer Support, OECD Countries, 2004, Percent of Gross Revenue

Rice 75Sugar 58Milk 36Beef & Veal 34Wheat 33Corn 31Oilseeds 27Pork 21Eggs 9Overall 30

“A successful Doha Round will reduce and eliminate tariffs and other barriers on farm and industrial goods. It will end unfair agricultural subsidies…. We must work together in the Doha negotiations to eliminate agricultural subsidies that distort trade and stunt development, and to eliminate tariffs and other barriers to open markets for farmers around the world…. The United States is ready to eliminate all tariffs, subsidies and other barriers to free flow of goods and service as other nations do the same.”

George W. BushUnited Nations14 September 2005

Overall Domestic Support• Present: Categorizes all support policies in one of three boxes, with

only amber box total (“aggregate measure of support (AMS)”) capped.

• U.S. proposes: – Cap blue box, trade-distorting de minimis, and non-trade distorting de

minimis each at 2.5% of agricultural GDP– Cap sum of amber box + blue box + trade-distorting de minimis + non-

trade distorting de minimis policies, and reduce this total 75% (less for countries with lower total subsidies).

• This would significantly increase maximum allowed support in US and EU! Very large cuts would be required to cause any reduction in actual support. U.S. proposes 75% for highest subsidizers, with declining percentages for lower subsidizers)

Amber Box• Framework Agreement said “Substantial reduction in

the overall level of its trade-distorting support from bound levels”

• U.S. proposes – Full phase out over 15 years: 60% in first 5 years; rest in

last 5 years, with higher/lower % reductions in countries where higher/lower AMS.

– Product-specific caps at 1999-2001 levels• Open issue

– Highest levels of support reduced the most? • E.g., rice, cotton, sugar; dairy in the U.S.

Blue Box

• Present: Trade-distorting policies that have measures that offset their production-inducing effect, e.g. set-aside or quota on production or sales. No cap at present.

• Tentatively agreed in Framework Agreement: – Broaden to include “direct payments that do not require production,” e.g.

counter-cyclical payments [no link to current production, but per unit payment is based on current market price; therefore, not green box].

• U.S. proposal: Redefine blue box and cap at 2.5% of total value of all national ag production (including non-program crops).

Green Box

• Present: No cap.• Doha Round likely to encourage shifting as much money as

possible from amber to green box payments. – Essential not to cause a land price collapse

• Brazil cotton case affirmed that direct payments are “green” only if there are no constraints whatsoever on what can be grown on land receiving payments.– U.S. must either delete fruit & vegetable exclusion or include

direct payments in amber box• Open issue: Tighten definition of “minimally trade-distorting”

Market Access• The most difficult pillar on which the least has been agreed to date• Framework Agreement says:

– Substantial increase in market access though tariff cuts or tariff rate quota (TRQ) expansion

– Categorize all tariffs into “bands,” each with a different reduction formula, with the highest tariffs to be reduced the most.

– Allow each country to designate an “appropriate number” of (politically) “sensitive products” on which smaller cuts can be made.

– Increase tariff-rate quotas (TRQs) on “sensitive products” on which tariffs are cut less than formula would otherwise require.

– Make cuts from bound rates.– Allow developing countries to use “special safeguard”– Developing countries can make smaller cuts over longer period

Market Access (cont’d.)

• U.S. proposal would– Reduce tariffs by 55-90% (highest tariffs cut the most)– Cap tariffs at 75% in high income countries (a little higher cap

elsewhere)– Limit “sensitive products” to less than 1% of tariff lines “with full

compensation” via TRQ expansion– Allow “developing countries” Special Safeguard and Special

Products– Internationally competitive developing countries must provide

meaningful increase in access to their markets• FYI: U.S. has TRQs on sugar, dairy, cotton, peanuts, and beef.

Export Subsidies• Present: Cap on volume and value of export subsidies on

agricultural policies.• The E.U. has agreed to eliminate all direct agricultural export

subsidies by a (yet to be agreed) date certain• WTO Cotton Case mandated that the U.S. must eliminate subsidy

component in export credits and export credit guarantees (marketing loans?)

• Conditions yet to be agreed: – Date: U.S. proposes 2010.– Eliminate subsidy element in U.S. food aid– Mode of operation of state-trading enterprises (STEs), e.g. Canadian

Wheat Board, must preclude possibility to subsidize exports.

Special & Differential Treatmentof Developing Countries

• Allow smaller cuts phased in over a longer period• Allow each developing country to designate a (yet to be defined)

number of “special products” that can be protected• Exempt LDCs completely from adjustment ????• There remains politically divisive issue of definition of “developing

country” (as opposed to a least developed country (LDC)).

Conclusions • Writing the next U.S. Farm Bill and completing the Doha Round

negotiations are on the same time table – mid-2007.• Changes in U.S. farm policy are generally evolutionary, not revolutionary• BUT, there are a number of forces that could bring bigger changes in

2007:– Federal budget deficit– WTO trade negotiations– Public perception that farm programs are not achieving their

objectives• The most-discussed alternatives involve moving dollars from the amber

box to the green box, e.g.– Some form of subsidized gross income insurance– Payments for conservation or environmental services– Rural infrastructure investments

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