EU-U.S. ag subsidy dispute could threaten WTO trade talks

Posted August 15, 2005, Scott Miller for the Wall Street Journal via Cropchoice: In global trade talks that have largely centered on the conflicting interests of rich and poor nations, a dispute between the U.S. and Europe over farming is throwing negotiations dangerously off course.

The showdown, being played out in Geneva this week and likely into the autumn, could help determine whether the so-called Doha Round talks will make a leap toward their scheduled conclusion next year, or risk collapsing.

On the surface, Europe and the U.S. would seem to have little about which to fight. Political leaders in Europe and the U.S. agree that farm trade must be made fairer for developing countries and that barriers must be reduced. But the two are unable to agree on how to get there, each unwilling to make concessions on issues such as tariffs and subsidies until the other moves first.

Washington's chief agriculture negotiator, Allen Johnson, said in an interview that without more European Union action such as cutting tariffs and subsidies, "It's hard to see how others, including the U.S., can push their own reform."

EU officials use similar language, saying that they believe their own proposals take them "off the hook" and that the ball is now in the U.S.'s court.

Agriculture long has been the linchpin of the current round of talks, which also includes many thorny issues on opening trade in services and manufactured goods. According to a World Bank study last month, almost two-thirds of the economic gains that would come from dismantling all merchandise trade barriers would come from agriculture. Poor nations, many of which rely on farming, are reluctant to make concessions in areas important to the U.S. and the EU until they are convinced the richer players are making farm concessions first.

"The only people who can really break the standstill are the U.S. and the EU," said Amy Barry, trade specialist at aid group Oxfam International.

Talks this week were supposed to produce an initial blueprint of a final Doha package. Ministers from the 148 member nations of the World Trade Organization were then to fill in the details at a meeting in Hong Kong in December. The risk is that much of the preparatory work for the Hong Kong meeting will be left undone, raising the prospect that the meeting could go nowhere and cutting the chances of completing trade talks by late next year.

One reason negotiators want to finish Doha is that in 2007, the U.S. president's power to put trade deals on a fast track is set to expire. Negotiators worry that Congress then will have vastly increased powers to block U.S. approval.

Europe maintains it has taken steps toward compromise that the U.S. hasn't matched, agreeing in China earlier this month to begin work on a new tariff-cutting formula that appears to make the most reductions in tariffs on products with the highest levies, but about which it has provided few details. "We are now off the hook and I hope that there will be a similar contribution from the U.S.," said Europe's agriculture commissioner, Mariann Fischer Boel.

The EU would like the U.S. to further limit domestic subsidies, focusing especially on countercyclical payments made to farmers when prices fall. Such payments swing widely but can be large. In 2003, they amounted to $655 million. But they jumped to $5.65 billion in 2004. The U.S. has offered to limit such subsidies but only if the EU promises to follow suit.

Europe also is eager to see the U.S. overhaul its food-aid program, which, in EU eyes, amounts to a production subsidy. Under the U.S. program, the government buys food such as corn from its farmers and donates it to poor countries. Europe wants the U.S. to consider policies such as providing poor nations with money to buy food closer to home, helping regional trade. The U.S. says that as it provides 60% of the world's food aid, it would be foolish to end the program.

The U.S. wants Europe to cut tariffs on farm products. Europe charges major trading partners average agriculture tariffs of 25%. The U.S. figure is 15%. The EU says it is willing to negotiate such reductions. [ July 27, 2005 ]