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U.S. & EU Express Concern About Doha Talks

Associated Press writer Bradley S. Klapper reported yesterday that, “The United States slammed Brazil, India and South Africa on Tuesday for refusing to open up their manufacturing markets in World Trade Organization talks, despite recent concessions by Washington on the sensitive topic of farm subsidies…The European Union also criticized prominent developing countries for avoiding a ‘reasonable’ compromise on slashing industrial tariffs at an important juncture in the six-year WTO round to liberalize world commerce.”

I. Doha / Development/ Trade Issues
II. Farm Bill

I. Doha / Development / Trade Issues

Financial Times writer Alan Beattie reported today that, “A coalition of developing countries has rejected big cuts in industrial goods tariffs in the troubled Doha round of trade talks, a move the US said could spell the end of the round.

“In a paper submitted during the negotiations in Geneva, a grouping including Brazil, India, South Africa and Argentina, as well as all the African members of the World Trade Organisation, said they should not be asked to make bigger tariff reductions than rich countries.

“The US and European Union said the proposal was a direct challenge to a draft text published in July by Don Stephenson, the Canadian WTO ambassador who chairs the industrial goods negotiations.”

Mr. Beattie indicated that, “Sean Spicer, spokesman for Susan Schwab, the US trade representative, said: ‘This proposal could signal the end of the Doha round. While the US and others have shown a clear commitment to moving towards a successful outcome, this text marks a significant move in the wrong direction.’”

The FT article stated that, “While Brussels has also argued that Washington needs to do more to cut farm support, it has concurred that the big emerging market countries need to open their goods markets.

“Peter Power, spokesman for EU trade commissioner Peter Mandelson, said: ‘A text has already been tabled by the chair . . . Alternative papers are not needed, and we await others at the table to undertake the necessary negotiations.’”

Associated Press writer Bradley S. Klapper reported yesterday that, “The United States slammed Brazil, India and South Africa on Tuesday for refusing to open up their manufacturing markets in World Trade Organization talks, despite recent concessions by Washington on the sensitive topic of farm subsidies.

“The European Union also criticized prominent developing countries for avoiding a ‘reasonable’ compromise on slashing industrial tariffs at an important juncture in the six-year WTO round to liberalize world commerce.

“‘This could be the beginning of the end of the round,’ said Sean Spicer, spokesman for U.S. Trade Representative Susan Schwab. ‘This is a gigantic step backward. Are they trying to find a successful outcome or are they trying to light a fuse to blow up this round?’”

Mr. Klapper stated that, “Spicer said the statement from developing countries was ‘extremely disappointing.’ The United States last month indicated its acceptance of a WTO proposal to limit its trade-distorting farm subsidies to a range between US$13 billion and US$16.4 billion and has since been exerting pressure on Brazil, India and South Africa to lead poorer nations toward a similar pledge to free up trade in manufacturing goods.

“‘You can continue to see an attempt to wiggle out of serious commitment,’ Spicer said, referring to the unwillingness of the three regional powers to accept Stephenson’s [Don Stephenson of Canada, the WTO’s lead industrial negotiator] proposal to cut tariffs on their most protected manufactured goods to a level between 19 and 23 percent. ‘They talk a good game but continue to put little on the table.’”

The AP article also explained that, “The United States has been under considerable pressure to limit payments to American farmers of major crops such as corn, cotton, rice, soybean and wheat. Critics of the subsidies say they drive down prices, making it impossible for small farms to compete in international markets and more difficult for poorer countries to develop their economies by selling agricultural produce abroad.

“But Washington’s move last month has shifted some of the pressure to the countries that have resisted calls to make industrial concessions.”

Reuters writer Jonathan Lynn added yesterday that, “The United States said on Tuesday that the long-running Doha round of global trade talks was at risk after a group of developing countries insisted they get favorable treatment in the negotiations.

“Washington has been expressing frustration for several weeks at the progress of the talks, launched six years ago to boost the world economy by opening up trade.

“‘We are very concerned about this proposal that came out today,’ Sean Spicer, a spokesman for U.S. Trade Representative Susan Schwab, said in a statement. ‘In fact, this proposal could signal the end of the Doha Round.’

“The U.S. statement amounts to a challenge to India, Brazil and South Africa to affirm their support for the talks when they hold a summit in Pretoria on Oct. 17.”

Mr. Lynn noted that, “U.S. Secretary of State Condoleezza Rice said on Tuesday the United States had repeatedly shown its willingness to cut farm subsidies as part of a world trade deal but it could not ‘unilaterally disarm.’

“‘This is a matter of will…. The major developing countries need to come together to find a way to offer a realistic prospect of market access’ to U.S. farmers and other exporters, Rice told reporters after a speech on U.S. trade relations with Latin America.”

In addition, here is an exchange that took place yesterday between Sec. Rice and a questioner: “QUESTION: Thank you. I’m Steven Colecchi with United States Conference of Catholic Bishops. And, Madame Secretary, you spoke very eloquently about fair — fair and free trade. And I wanted to ask a question around U.S. agricultural policy in particular. Right now, the farm bill in the U.S. Congress, of course, is focusing attention there and, in the view of many, the current U.S. agriculture system does not do well by small and moderate size farmers here in the United States and can be devastating to farmers in other countries with whom we trade.

“How would you reflect on, you know, fair farm policy in terms of trade policy?

“SECRETARY RICE: Well, the President, now I think almost two years ago, made very clear that the United States was prepared to deal with agricultural subsidies within the context of the WTO and that Doha is the place to deal with this, because he was very clear that the United States was willing to effectively get rid of them if, in fact, we could get a deal; that his view is that we can’t unilaterally disarm, of course, but that we ought to have a Doha deal that deals with the problem of agricultural subsidies. And the President has recently through his trade negotiator even signaled greater flexibility concerning agricultural subsidies.

“But we need — and frankly, here the large developing states have a role to play. We need market access so that American farmers and American economic interests understand that there is going to be a benefit to us from Doha. The President has had extended meetings with a number of leaders. Particular, he and President [Brazilian President] Lula have had very extensive discussions about how to put together a deal that would allow agricultural subsidies to be dealt with, that would allow market access for countries like our own, that would deal, for instance, with services and the like.

“And so I think this is really going to be a very crucial time for Doha and a question like agricultural subsidies reminds us that if the world trading system as represented by the Doha round gets into trouble, there are any number of issues that we’re not going to be able to deal with. And so the President has been very focused on Doha and we hope that we can still have a successful round.”

Also yesterday, in a Roundtable discussion with Trade and Economic Journalists, Sec. Rice stated that, “I wouldn’t bury Doha just yet, by the way. I still think that there is an opportunity there for leadership in the world to decide that it’s not going to allow the failure of this round and that some progress is going to be made. So I wouldn’t bury it just yet.”

In a broader look at the administration’s perspective on trade, Neil Irwin reported in today’s Washington Post that, “The political tide has shifted against trade deals, and the Bush administration signaled yesterday that it is changing in response.”

The Post article stated that, “Secretary of State Condoleezza Rice tacitly acknowledged those realities yesterday, delivering a speech to the Council on Foreign Relations in Washington and following it up with a meeting with reporters. She indicated that the administration is ready to work the halls of Congress and find common ground to pass trade agreements with Peru, Panama, and Colombia — and, a bit further down the road, South Korea.

“It’s retail politics, Rice said: ‘One person at a time . . . working with congresspeople and addressing their concerns.’

“The conciliatory tone contrasts with the take-it-or-leave it approach to seeking congressional approval of trade agreements that typified the first seven years of the Bush administration. It generally worked with a Republican-run Congress. This summer, the Democratic-led Congress refused to renew the president’s ‘fast-track’ authority, which limited Congress’s role in shaping the terms of trade deals.”

In a separate issue regarding development, which is one of the chief aims of the Doha round of WTO trade talks, Celia W. Dugger reported in today’s New York Times that, “The seeds are a marvel, producing bountiful, aromatic rice crops resistant to drought, pests and disease. But a decade after their introduction, they have spread to only a tiny fraction of the land here in West Africa where they could help millions of farming families escape poverty.

“At a time when philanthropists like Bill Gates have become entranced by the possibility of a Green Revolution for Africa, the New Rices for Africa, as scientists call the wonder seeds, offer a clear warning. Even the most promising new crop varieties will not by themselves bring the plentiful harvests that can end poverty. New ways to get seeds into the hands of farmers are needed, as well as broader investment in the basic ingredients of a farm economy: roads, credit and farmer education, among others.

“Developed with financing from wealthy countries and private foundations, the New Rices for Africa, or Nericas, are unpatented and may be grown by anyone. Yet there is a severe shortage of them in a region where both the private and the agricultural sectors are woefully undeveloped.”

The Times added that, “Here in West Africa, where rice is a staple crop, the African Development Bank is financing a $34 million program in seven countries to spur wider use of the new rice seeds. But the obstacles are daunting.

“Farmers typically lack credit to buy seed and fertilizer. And the agricultural economy itself suffers from a lack of investment. Foreign aid for agriculture has plunged over the past two decades. And African governments — some, like Guinea, endowed with natural resources and cursed with corruption — have too often spent less of that wealth than they might have on rural development.

“Decent roads to move crops to market are scarce. So are storage facilities to preserve harvests and crop insurance to protect farmers from drought, flood or bumper yields that perversely cause prices to collapse. All can wipe out the income farmers need to provide reliable demand to seed companies, making sale and distribution of the improved seeds a high-risk venture.”

Meanwhile, another issue impacting trade, as well as commodity prices, is the value of the dollar.

Edmund L. Andrews reported in today’s New York Times that, “The dollar is near record lows against the euro and has weakened considerably against several other major currencies, but officials in Washington are reacting with almost contented silence.”

Mr. Andrews stated that, “Democratic lawmakers, who have been quick to attack the Bush administration about most other economic policies, have said almost nothing about the currency’s decline.

“To at least some European officials, worried that the soaring value of the euro will hurt European exports, the American silence has been thunderous.

“‘I would like very much to hear U.S. Treasury Secretary Henry Paulson repeat loud and clear that a strong dollar is good for the American economy,’ said Christine Lagarde, France’s finance minister, in an interview last week with a business newspaper, Les Echos.”

Associated Press writer Lauren Villagran noted yesterday that, “Metals and energy prices rose sharply Tuesday as the U.S. dollar fell and made commodities more attractive to buyers abroad…Movements in the U.S. dollar –the currency in which commodities are bought and sold –have been key to the direction of prices recently. A stronger dollar can make commodities more expensive for foreign buyers, while a weak greenback acts like a discount on the price of oil, soybeans, copper and other raw materials.”

Ms. Villagran added that, “Elsewhere, soybean and corn futures rose on the Chicago Board of Trade, while wheat prices fell. Traders are looking ahead to Friday’s crop report from the U.S. Department of Agriculture, which will update estimates of the nation’s corn and soybean harvests.

“November soybeans surged 24.75 cents to $9.5025 a bushel, while December corn rose 2.75 cents to close at $3.425 a bushel. Wheat could not hold onto early gains, however, and the December contract lost 14.5 cents to settle at $8.455 a bushel.”

With respect to wheat prices, Bloomberg writer Tony C. Dreibus reported yesterday that, “Wheat resumed its decline in Chicago on speculation that farmers will increase global planting to capitalize on the highest prices ever, boosting supplies faster than the increases in demand.

“India, the world’s second-largest wheat consumer behind China, said today it will boost payments to domestic farmers to encourage wheat planting. Prices have jumped 69 percent this year in Chicago and set record highs 23 times in the three months ended Sept. 28.

“‘Wheat acreage is going to be up significantly,’ said Jerod Leman, a broker at Wellington Commodities in Carmel, Indiana. ‘They’ll be up significantly in Europe.’”

II. Farm Bill

The “Washington Insider” section of DTN stated yesterday (link requires subscription) that, “Sen. Kent Conrad, D-N.D., keeps working with other Ag Committee members in order to come up with enough votes to get a plan he has forged with ranking member Sen. Saxby Chambliss, R-Ga., approved by the panel when they consider the farm bill the week of Oct. 22. Sources said Conrad has already wooed Sen. Patrick Leahy, D-Vt., by offering more funding for the Milk Income Loss Contract (MILC) program, and is working on other members.”

The DTN update also reported that, “Democratic leaders in Congress, along with Ag Committee chairmen, have made it known that they do not want a one — or two-year extension of the 2002 Farm Bill — even with some minor tweaks. The reasons include a likely lower farm bill budget baseline in 2008 when a new budget resolution comes, and the need for Democrats to check off the farm bill as a major completed legislative task this calendar year or early in 2008.”

An article published in yesterday’s Financial Times stated that, “Not the least of the problems with reforming the farm bill is the lack of subsidy envy. Many of the excluded farmers do not actually want what the included farmers have got.

“Just $1.6bn (£784m, €1.1bn) fresh money over five years in the House version of the farm bill was enough to satisfy, at least for now, the so-called ‘specialty crop’ producers, including fruit, vegetable and nut growers. In many cases, this involved no more than getting a foot in the door: the House version dedicates just $70m each fiscal year to buying fresh fruit and vegetables for schools, covering only 35 schools per state. Robert Guenther of United Fresh, which represents fruit and vegetable growers, says: ‘Some people say we got bought off cheaply . . . but it provides a good platform to build on in five years.’”

The FT article added that, “Thanks to the lack of government support, growing fruit and vegetables is riskier than cotton. With the exception of a few products – cherries and tomatoes for processing – nor is there any private indemnity available against crop failure. Extreme heat or an attack of pests or viruses can mean a ruined harvest and no income.

“But Mr Smith [Steve Smith from Turlock Fruit, which farms 3,000 acres in California] does not want his fruit and vegetables to get the same support that cotton does. The specialty crop growers want money to go into research and development, particularly to combating pests, and into marketing, including a programme to fund electronic payment systems at farmers’ markets, but not to simple support for output.

“‘Our biggest problem is still the potential for overproduction,’ he says. ‘If the government takes the risk out of fruit and vegetables crops you might see a spike in production and prices collapsing. We are risk-takers on the fruit and vegetable side. We are not looking for a hand-out, or even a hand.’”

However, recall that the current restriction on planting fruit and vegetables on base acres has significant connotations with respect to WTO covered agreements.

As FarmPolicy noted on Monday, the rule that limits planting flexibility has had an impact on the classification of direct payments and has caused some to conclude that, due to the restriction, direct payments are not decoupled and not green-box. The potential ramifications of this conclusion could be significant as other countries ponder WTO litigation against the U.S. and commitments to limit the level of trade distorting domestic support.

Keith Good