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Corn+Soybean Digest

Understanding WTO

After marathon sessions, the World Trade Organization (WTO) reached a consensus for ongoing global trade negotiations in August. While this doesn't result in widespread trade liberalization or alter subsidy levels, it does serve as a framework for future negotiations.

Although the negotiations are not likely to conclude until 2006 or later, the outcome will impact farming worldwide for decades. That's why it's important to understand WTO talks.

One aim of the ongoing ag negotiations is to significantly discipline trade distorting subsidies. Under the framework, export subsidies often used by the European Union (EU) will be eliminated and export credit programs limited — such as those of the Commodity Credit Corporation — by a date to be determined. Food aid will also be more closely controlled.

While the details on how trade-distorting domestic subsidies will be disciplined are yet to be worked out, the formula will be “tiered,” meaning countries with larger subsidies will make deeper cuts.

During the last round of trade talks, nations agreed to cap and limit certain types of domestic subsidies (meaning they agreed to a base level and to extend reductions to those amounts).

Under the new framework, however, domestic support programs to be reduced by members will expand and include categories so far not subject to reductions, for example “blue box” support. The framework requires at least a 20% reduction in the total amount of support provided in the first year of any new agreement.

The framework doesn't limit “green box” support levels. But it does require the qualifying criteria for a green box subsidy be closely re-examined to ensure that programs are not trade distorting.

Although negotiations are still ongoing, any modifications could result in the U.S. and other members reconsidering the types of programs used to provide a safety net for farmers.

Developing countries will receive “special and differential treatment” through lower reduction requirements, and longer transition periods. Countries that provide domestic subsidies for subsistence farmers will likely have no or a reduced obligation.

One WTO issue is how nations are designated as “developing.” Currently it's a matter of self selection, meaning a country can simply declare its own status. For some countries, particularly Brazil, there has been a U.S. call to treat them as developed countries for ag negotiation purposes. This treatment would ensure that Brazil faces the same levels of liberalization as the U.S. and the EU. It's unclear if the U.S. comment will be acted on within the negotiations.

Producers across the country will be affected very differently by these changes. For those who don't receive export subsidies or significant domestic supports (for example, livestock producers), the changes promise significant improvements since the level of subsidized competition here in the U.S. or overseas will decline.

For farmers who receive export subsidies or domestic support that are subject to reductions, the story is more complicated.

As other major subsidizers (such as the EU and Japan) also make significant reductions, it's possible U.S. farmers could compete more effectively against these countries. That's especially true if vigorous tariff reductions result in the U.S. being able to gain export markets in those countries.

On the other hand, U.S. farmers may feel more competition for markets — both here and abroad — from countries where there are smaller or no support reductions being made.

Regardless of final details, the U.S. government will continue to provide a range of subsidies to farmers. Those subsidies will likely evolve as direct payments are reduced once an agreement is completed.

The framework should also increase market access by reducing tariffs (import taxes). The framework uses a tiered formula to reduce tariffs. That helps much of U.S. agriculture since foreign ag tariffs are higher than tariffs here in the U.S. For example, average global tariffs on soybeans are 58%, while the U.S. tariff is zero. U.S. corn tariffs are less than 1%, while average global tariffs are 67%.

Some foreign tariffs are so high, however, that even a tiered approach may leave some markets effectively closed to U.S. exports. Korea, for example, has corn tariffs of more than 300%.

Developing countries will again receive “special and differential treatment,” seeing lower reduction commitments. They'll likely have some flexibility on sensitive products, too, by being able to use special safeguard provisions that address import surges.

So far, it hasn't been decided whether developed countries have access to use similar import surge safeguard provisions on a limited list of products as currently permitted.

Finally, the world's poorest nations will have even more limited obligations to open their markets.

While the framework is in place, there's still plenty of negotiating ahead. So communicate your needs and interests with elected representatives and with administrative offices such as the U.S. trade representative and USDA.

Terence P. Stewart is the managing partner of Stewart and Stewart, a Washington D.C. law firm that represents agricultural, manufacturing and service sector interests on international trade matters before the U.S. Administration and Congress.

Dennis Nuxoll, an associate in the firm, focuses on agricultural issues and government affairs.

Detailed information on trade talks may be found in the “publications” portion of

Trade Definitions

World Trade Organization (WTO).

The WTO is a member driven international organization that establishes the level of liberalization and the rules of trade among members. While the WTO began in 1995, its predecessor, GATT, was formed in 1947. There are presently 147 members of the WTO with 26 other nations in the process of seeking accession.

Amber Box Subsidy.

Agricultural support programs that have a direct effect on the amount of production produced are categorized as “amber box.” These include all direct payment programs made to producers based on their production and all commodity price support programs.

Blue Box Subsidy.

Blue box programs are viewed as being minimally trade distorting and include direct payments to farmers where farmers are required to limit their production.

Green Box Subsidy.

Green box subsidies are currently considered by WTO to have minimal to no distortion on trade. This agricultural subsidy category includes conservation programs, disease control or government-funded research and development among others.

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