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Doha & Domestic Support

Reuters writers Walter Brandimarte and Missy Ryan reported earlier this week that, “World leaders signaled on Tuesday that a long-awaited global trade deal could soon be within reach, reviving some hopes that the Doha trade talks may finally move beyond years of deadlock and discord.”

“Strong words of support from [Brazilian President Luiz Inacio Lula da Silva], U.S. President George W. Bush and Indian Trade Minister Kamal Nath — some of the leading players in the World Trade Organization talks — came as negotiators report slow, steady progress in efforts to reach a real breakthrough,” the article said.

Brandimarte and Ryan indicated that, “But India and Brazil show few signs of backing down on demands to bring U.S farm subsidy limits far lower than its official offer of $22.5 billion a year.

“The mood has brightened recently after reports Washington would be willing to discuss capping subsidies as low as $13 billion, provided other countries make their own concessions.

“Another top Indian official, Commerce Secretary Gopal Pillai, pressed the United States to go even farther and lower its subsidy cap below $11 billion — where spending has been in the past year or so. He also said the talks needed to devote more attention to other trade issues, like services.

“But a reduction of that order could threaten to torpedo a deal in the U.S. Congress, where agriculture holds wide sway,” the authors noted.”

For additional context on U.S. agricultural payment levels, click here; see also this graphical depiction of government payments from 1997 through a 2007 estimate.

Reuters writer Daniel Bases provided more detail with respect to India’s perspective on the Doha talks in an article from yesterday; where he reported that, “Commerce and Industry Minister is optimistic there will be a successful conclusion to the Doha Round of world trade talks, after meetings in New York this week as part of the U.S.-India Trade Policy Forum.

“‘There will be a conclusion, I am optimistic,’ Commerce and Industry Minister, Kamal Nath, told reporters in New York.”

The article noted that, “Washington has signaled willingness to move further on farm subsidies, but says that action depends on advanced developing countries like India and Brazil opening their markets to more foreign farm and manufactured goods.”

With respect to the EU, Dow Jones News writer Carolyn Henson reported on Tuesday that, “Failure to reach a new global trade deal would put the World Trade Organization’s multilateral trading system at risk, a top European Union official said Tuesday.

“‘One of the risks if we don’t get a deal is that a proliferation of (trade dispute) cases will put the World Trade Organization’s dispute settlement mechanism under considerable strain,’ said David O’Sullivan, the European Commission’s Director-General for Trade.

“‘This is the jewel in the crown of the WTO system. We cannot expect the dispute settlement mechanism to solve all the problems that Doha wasn’t able to. The systemic risk of failing to agree is the single greatest fear we have at the moment.’”

Meanwhile, Dow Jones News writer Laurence Norman reported earlier this week that, [Canadian Prime Minister Stephen Harper speaking on Tuesday at the Council on Foreign Relations in New York] also sounded less than optimistic on the prospects of the Doha round of World Trade Organization talks. He said ‘Canada wants to see a successful and ambitious outcome’ to the talks. He said many other world leaders are guardedly optimistic about negotiations. ‘I may be a little less (optimistic) than that,’ Harper said.

“He said the best solution for the WTO is for everyone to be “more ambitious,” that way the winners in the process will be more plainly in view and raise support for the process.

“‘Clearly it’s struggling,’ he said, referring to the Doha round.”

An item posted yesterday at the DTN Ag Policy Blog provided a look at how some of these recent trade developments in agriculture could potentially impact U.S. farm policy.

The item reminded readers that political pressure from other segments of the economy, such as manufacturing, could potentially play a role in the outcome.

Before making that point, the DTN item began with this background, “A number of trade observers have expressed at least mild surprise that trade developments have not generated more attention in the farm bill debate, for several reasons. For one thing, the World Trade Organization cotton case decision is working its way through the bureaucracy, but it is already well known that the panel findings are adverse to the U.S. program, and could lead to the imposition of very substantial countervailing duties on U.S. exports.

“In addition, a number of new cases are being prepared by Brazil, Canada and others against U.S. farm programs alleging far-reaching violations of the Uruguay Round agreement [related link]. While these are many months from completion, legal experts suggest that they will be extremely difficult to defend, especially since they build in part on findings already made by the WTO cotton panel. Still, there has been almost no mention of these trade obligations and problems in the farm bill debate so far, and until last week, none seemed to be on the horizon.

“However, that has changed now, a shift that could have far-reaching implications. The setting was a draft on agriculture developed by WTO Agriculture Negotiating Chairman Crawford Falconer last July. Among many other proposals, the draft included a U.S. agreement to cap its trade-distorting subsidies between $12.6 billion and $16.8 billion — down from the current $23 billion proposal. In addition, it included a U.S. agreement that cotton be treated separately from other commodities and subject to deeper subsidy cuts because of its importance to impoverished West African farmers.”

The DTN item concluded by noting that, “However, there are soon likely to be new players in that debate — including producers and manufacturers who find themselves in the cross-hairs of the soon-to-come countervailing duties aimed at cotton. Dealing with those interests is likely to be a serious problem for agricultural advocates interested in continuing traditional commodity supports and protections, and that debate appears likely to begin sooner than earlier expected, Washington Insider believes.”

With respect to these other players in the debate, recall that back on July 16, the Grocery Manufacturers of America issued a press release stating that, “In a letter to Senate and House leaders, Cal Dooley, president and CEO of the Grocery Manufacturers Association (GMA), today joined leading business groups in calling on Congress to reform federal farm policy.

“‘It is time for Congress to reform our outdated farm policy to better serve the needs of rural America and the entire U.S. economy,’ said Dooley. ‘That is why GMA and this broad coalition of business leaders, who represent tens of millions of U.S. workers, are calling on Congress to approve a farm bill that reduces subsidies and fosters an environment more conducive to eliminating trade barriers to U.S. products.’”

The news release added that, “The letter was signed by GMA, the U.S. Chamber of Commerce, the Business Roundtable, the National Association of Manufacturers, the National Retail Federation, the Information Technology Industry Council and the Retail Industry Leaders Association. It outlined three major farm-reform policy goals:

“A reduction in excessive subsidies, the elimination of substantial domestic and international agricultural market distortions, the protection of basic U.S. farm policies from unwarranted World Trade Organization (WTO) attacks.”

Along these lines, an article posted yesterday at The Financial Express Online stated that, “In an important development, business leaders of India and the US have agreed to formulate a common position on the Doha Round issues and urge their governments to conclude the round at the earliest.”

A more comprehensive look at the implications of WTO issues on domestic agricultural policy was made available earlier this month in a paper authored by David Blandford (Department of Agricultural Economics and Rural Sociology, The Pennsylvania State University) and Tim Josling (Freeman Spogli Institute for International Studies, Stanford University), entitled, “Meeting Future WTO Commitments on Domestic Support: The Implications of Ambassador Falconer’s July 2007 Proposals for the European Union and the United States.”

Specifically, the paper indicated that, “The nature of future commitments on domestic support for agriculture continues to be a major sticking point in the negotiations on a new international trade agreement under the Doha Development Round of the World Trade Organization (WTO). On July 17, 2007, Ambassador Crawford Falconer, the chair of the WTO’s Committee on Agriculture, released a set of draft modalities for agriculture that included detailed proposals for future disciplines on domestic support (WTO, 2007) [related link]. This short paper examines the likely implications of these proposals for the level of domestic support in the European Union (EU) and the United States.”

After a detailed discussion, the authors noted on page nine of the paper that, “The latest proposals for disciplines on domestic support released by Ambassador Falconer on July 17, 2007 could largely be satisfied by the European Union and the United States without major additional changes in domestic agricultural policies.

“A ‘glass half empty’ view of this situation would lead to the conclusion that little would be achieved as a result of the conclusion of the Doha Round. But that ignores the significance of WTO rules in preventing reversions in policy toward more trade-distorting measures. So, a ‘glass half full’ view would be that the imposition of the lower ceilings on domestic support would exert pressure on both the European Union and the United States to continue to reduce trade-distorting support. The Falconer proposals would go a long way to eliminating the ‘water’ in domestic support commitments in both countries. Even Falconer’s more modest parameters would constrain domestic support in the EU and the U.S. by the year 2013. This seems to be a prize for which countries that are most concerned about domestic support should be willing to make negotiating concessions to win.”


In more specific U.S. Farm Bill developments, Philip Brasher indicated on Tuesday at the Cash Crops Blog (The Des Moines Register) that, “The money search continues. The Senate Agriculture Committee was going to vote on a farm bill before Columbus Day, but today chairman Tom Harkin was hedging on that.

“‘With the budget as tight as it is this is difficult work to try to get everyone together on this and on board. Hopefully, we’ll have something soon,’ he said.”

Mr. Brasher added that, “Harkin also talked in his weekly conference call about his plan to tie direct payments to commodity prices. The payments would be reduced when commodity prices are relatively high and the savings put into other programs. Tying direct payments to commodity prices goes against the original purpose of the payments, which was to decouple subsidies from prices. But then again, the payments were supposed to be phased out.”

DTN writer Chris Clayton flushed out a bit more detail on the direct payment issue in an article from Tuesday (link requires subscription); where he reported that, “Another proposal still in the mix would, Harkin said, make some changes in the direct payment program. The program would be restructured to trigger based on price of commodities. Corn, soybeans and wheat farmers would get more counter-cyclical payments under lower commodity prices, but they would give up more direct payments under higher commodity prices, he said.

“‘Quite frankly, I don’t know if we are going to be able to do that or not,’ Harkin said. ‘Again, it’s the art of the possible.’

“Pegging direct payments to a price trigger would officially redefine the payments under World Trade Organization rules as a trade-distorting program. Harkin pointed out the current WTO agreement allows $19.1 billion in trade-distorting subsidies, and direct payments add up to about $5.1 billion a year. Under the higher commodity prices, the U.S. would likely not top that amount.”

With respect to reaction on the direct payment issue, Reuters writer Charles Abbott reported yesterday that, “Senators will weaken the U.S. farm safety net if they trim so-called direct payments totaling $5.2 billion a year to pay for land stewardship or a stand-by disaster relief program, the largest U.S. farm group said on Wednesday.

“‘We are extremely concerned about ongoing discussions to reduce direct payments to producers,’ said the 6 million-member American Farm Bureau Federation [AFBF]. It said it opposed ‘a reduction in fixed payments to pay for other programs.’”

Mr. Abbott went on to explain that; “Direct payments are made annually based on a farm’s record of growing grains, cotton or soybeans in the past. They are one element of the three-part crop subsidy system. The others are price supports that effectively set a minimum prices and counter-cyclical payments made when returns are below targets set by law.

“AFBF advised against shifting direct-payment money to the other programs or making the payments contingent on market prices. Either idea could put direct payments in peril under world trade rules, it said.”

Also yesterday, an item posted at the CattleNetwork.com stated that, “U.S. Senators Pat Roberts (R-KS), Chuck Grassley (R-IA), John Thune (R-SD), Mike Crapo (R-ID), and Thad Cochran (R-MS) sent the following letter to Senate Agriculture Chairman Tom Harkin (D-IA) and Ranking Member Saxby Chambliss (R-GA):

“‘We write to express our concerns with Farm Bill proposals that would weaken the safety-net for producers with significant crop losses, or no crop to harvest, during an individual crop year.

“‘During the five years since the 2002 Farm Bill was enacted, many producers have suffered complete crop losses, often in multiple years, due to a host of weather calamities. This year, many areas of the south, west, plains states and upper Midwest have suffered significant crop losses due to drought, flooding, or freezes. Producers without crops to harvest will likely receive no benefits from the loan or counter-cyclical programs due to high prices. However, they will receive benefits from direct payments. Under these circumstances, why would we want to cut direct payments?

“‘Although we have seen no draft proposals from the Committee, we are concerned with news reports indicating that direct payments could be cut or placed on a triggered, sliding scale in order to pay for other programs in the bill. Cuts to direct payments, while raising target prices and loan rates, makes absolutely no sense for those producers without crops to harvest. If target prices and loan rates are increased in proposals brought before the Committee, we believe that direct payments should undergo a similar increase.

“‘In addition, direct payments are currently the most World Trade Organization (WTO) compliant section of the Farm Bill. We are especially concerned that any effort to couple direct payments to current year prices from this point forward will ensure a violation of our WTO obligations and increase the risk of further international challenges to our farm program. This will not benefit any United States producers.’”

In a separate issue regarding agriculture and funding, Dow Jones News writer Siobhan Hughes reported yesterday that, “The U.S. Senate has enough votes to eliminate some tax breaks currently enjoyed by oil companies and apply the money to the development of wind, solar, and other renewable sources of energy, a Democratic senator said on Wednesday.

“Republican senators in June blocked an amendment that would have provided $32.1 billion in tax incentives over 10 years to producers of alternative energy, with the impact blunted by removing tax breaks and raising revenue collected from oil and gas companies. Supporters fell two votes short of the 60 needed to stave off a parliamentary maneuver known as a filibuster.”

The article stated that, “Klobuchar [Sen. Amy Klobuchar, a Minnesota Democrat who sits on the Senate Environment and Public Works Committee] said she is hoping that some of the financing provisions will be included in a bill to encourage farmers and ranchers to grow crops used to make ethanol, biodiesel, and cellulosic biofuels. Senate Finance Committee Chairman Max Baucus, a Montana Democrat, earlier this month said he would revisit the tax incentives in his agriculture tax package.

“‘We’re hopeful that maybe some of that will get on the agriculture bill and then we will vote hopefully to get other pieces of this financing package on other things,’ Klobuchar said.”

Keith Good