U.S. farm groups have been touting successful Doha Round of World Trade Organization negotiations as the key to “leveling the playing field” or providing much greater market access for U.S. farm products overseas.
But those groups need to begin asking questions about how much access and at what price, according to Bill Gillon, a Memphis, Tenn.-based attorney who has been closely following the negotiations for the National Cotton Council since their inception in Doha, Qatar, in 2001.
“The stated position of the United States and of U.S. agricultural interests in general is that this round must conclude with significant gains in market access,” says Gillon. “Only market access gains can justify the United States agreeing to reductions in trade-distorting agricultural support.”
But the Doha framework agreement reached by WTO members in July could force the United States to make draconian cuts in its farm programs in exchange for scant increases in foreign market access.
Gillon gave Cotton Council board members his assessment of the current state of the Doha negotiations at their mid-year board meeting in San Diego. The prognosis was not good.
“The new framework agreement contained many of the right words regarding market access,” he said. “It called for higher tariffs to be reduced more than lower tariffs, and it called for significant increases in market access for all products.
“But it also contains exemptions for yet-to-be-designated special products and a new category of sensitive products. Developing countries are also insisting on a special agricultural safeguard mechanism available only to them. Importantly, the framework contained no numbers indicating exactly how much tariffs would be reduced.”
Then, there's the decision made in last year's negotiations to make reductions from bound tariff rates rather than applied rates. U.S. bound tariff rates are nearly equivalent to applied tariff rates, meaning lowering tariffs in the United States translates to a real reduction, according to Gillon.
“However the disparity in most of the developing world between bound and applied tariffs creates the situation where a celebrated 50 percent cut in tariffs does not result in any actual increase in market access, as it does not even approach a reduction in the actual applied tariff.”
Brazil and the Group of 20 developing countries that caused the collapse of the Doha ministerial negotiations in Cancun, Mexico, two years ago tabled a market access proposal in July that contained some positive provisions.
“It has gained a fair amount of support, but it also ingrains, I think permanently, the disparities between the treatment of developing country tariffs and developed country tariffs,” he said. “In fact, the proposal ensures that the highest tariffs are not reduced the most.
“It would also ensure that the United States, one of the most open markets in the world, will not achieve reciprocity in market access.”
What will be asked of the United States in return for these market access “gains?” Gillon says the trade-offs may be greater than U.S. cotton producers expect.
Most farmers have become aware that the WTO divides agricultural subsidies into three categories or boxes — amber, which are considered to be trade distorting; blue, programs that are exempt because they limit production; and green, programs exempt because they are deemed not to distort trade.
Most growers also know the ceiling for the U.S. amber box programs is $19.1 billion, a figure U.S. farm payments have not exceeded in any one year even though a new counter-cyclical payment program was added in the 2002 farm bill.
The framework agreement would require significant reductions in the amber category, with the largest subsidizers being required to reduce the most. It also includes a 20 percent down payment to help start the reduction process.
“It called for new product-specific caps and contained a redefinition of the blue category that would allow the U.S. counter-cyclical program to qualify,” Gillon noted. “It also introduced limits, for the first time, on the blue category of support. The G-20 members do not like this new blue box and will work to whittle it back as much as possible over the next few months.”
He listed the following among possible outcomes of the Doha Round based on his monitoring of the negotiating positions of the United States and other WTO members through the end of August:
- Export subsidies are to be eliminated by a date certain. “The effectiveness of U.S. export assistance programs will be dramatically affected.”
- Amber box, trade-distorting subsidies could be reduced by 50 percent for the United States.
- The United States should be able to get most of what it is seeking in the re-defined blue box and that decoupled payments continue to be exempt.
“I also have to expect that the demands of developing countries for special and differential treatment and the large discrepancy between bound and applied tariff rates seriously compromise any hope of actual, significant increases in market access for U.S. products around the world.”
If the Doha Round negotiators reduce the amber box category of support for the United States by 50 percent, the allowed level for marketing loan gains in U.S. policy drops from about $11 billion per year to a little more than $2 billion a year, said Gillon.
“In the previous (Uruguay) round, we might have speculated that the European Union would never agree to such a reduction. But times have changed. Even though the EU may be asked to make an even greater cut in its trade-distorting agricultural support — say, 60 percent — the changes it has made to its Common Agricultural Policy over the last several years enable the EU to meet such a target.”
Such a development, given the U.S. agricultural expenditures in recent years, would not bode well for U.S. producers of cotton or any other crops.
“While U.S. expenditures have been under our current amber box ceilings, we would have exceeded this new level in all but one of the past six years,” Gillon notes. “So this kind of reduction is not like the corresponding reductions promised in bound tariff rates — this kind of reduction will have real impact.”
Based on “some fairly pessimistic” price projections, NCC economists believe that a 7 percent reduction in loan rates — the amount that might be needed to get U.S. subsidies below a new amber box limit — would take the cotton loan rate to about 48 cents per pound from the current level of 52 cents.
“This single digit percentage reduction can, and probably would, have a very significant impact on marketing loan costs.”
The United States could regain some of that support if negotiators are able to redefine the blue box to their satisfaction — but not all of it, he said. “Decoupled direct payments could also be increased. It seems, however, that in low price years, it would take a significant jump in direct payment rates to partially offset the reduction in actual support that arises from a loan rate reduction.”
Congress could also legislate new approaches to environmental or conservation programs and maybe buyouts for some commodities such as the recent tobacco buyout. The latter was discussed in at least one paper presented at the USDA Agricultural Outlook Conference last February.
“We should only consider these shifts with the understanding that they could create new payment limit problems, have different budget impacts and would affect some commodities differently than others,” he noted. “Under any scenario, the United States will have less effective export assistance, making it more difficult to export U.S. agricultural products and making it even more critical that a market access agreement truly increase access.”
Gillon says it's imperative that U.S. agriculture “unerringly evaluates” the market access component of the Doha negotiations. “It would seem that such a potential reduction in U.S. programs could not be justified by a limited agreement on market access.”