WTO Finalizes Negotiating Framework that Includes Export Subsidy Elimination

"This framework is a major achievement," said Clay Hough, IDFA senior vice president and general counsel. "U.S. negotiators and WTO members have made a tremendous effort to further liberalize trade and reduce market distortions that will greatly benefit U.S. dairy exporters."

Although the document is often general in its terms and pushes the more difficult decisions to a later date, WTO members did commit to language to establish a more market-oriented international trading system. The finalization of this framework is an important milestone for the WTO, which had failed to get a framework agreement on its first attempt last September in Cancun, Mexico.

U.S. Trade Representative (USTR) Robert Zoellick noted that "after the detour in Cancun, we have put the WTO negotiations back on track. We have laid out a map for the road ahead. Next, we will negotiate the speed limits for how far and how fast we will lower trade barriers."

In addition to the elimination of export subsidies, the WTO framework includes provisions to increase market access and reduce domestic subsidies. If the framework language remains intact during the Doha negotiations, several U.S. dairy policies might have to be changed or ended, including the federal Dairy Price Support Program, the Milk Income Loss Contract (MILC) payments (both of which are considered "amber box" domestic subsidies) and the Dairy Export Incentive Program (DEIP) (which is an export subsidy). However, the U.S. dairy industry would simultaneously benefit from increased opportunities in other markets.

The language on the elimination of export subsidies is among the many provisions that do not include a timeline. In the coming months, the WTO negotiators will have to hammer out a deal for an actual date of implementation.

On market access, WTO members agreed that "substantial improvements in market access will be achieved for all products." In addition, a minimum cut in the above-quota tariffs will be established, and some tariff-rate quotas will be required to increase. However, this part of the document includes considerable room for members to protect "sensitive" products, in terms of allowing imports into their domestic markets. The text notes that members "may designate an appropriate number, to be negotiated, of tariff lines to be treated as sensitive."

With respect to domestic subsidies, the framework text states that in the first year of implementation of the WTO Doha agreement, there will be a 20% reduction in the overall level of trade-distorting domestic support. This includes reductions in the domestic subsidy programs known as "amber box", "blue box" and the permitted de minimis levels.

Most domestic support measures that distort production and trade fall into the amber box, which includes measures to support prices or subsidies directly related to production quantities but not linked to limiting production. Amber box domestic supports are expressed in terms of a "total aggregate measurement of support" (total AMS). In the framework, WTO members have agreed to create a formula that will be used to substantially reduce members' total AMS. Members that now have a higher total AMS will have to make greater reductions. In addition, product-specific supports will be capped and some may be reduced. Exact details will have to be negotiated in the future.

One of the most contentious issues for the Doha Round has surrounded the blue box domestic subsidies. Prior to the Doha Round, only payments to farmers that limit production could be classified in the blue box. In this round, the United States was determined to redefine the blue box criteria so that it would include its counter-cyclical payments to farmers. On July 31, WTO members agreed that certain payments to farmers that are not tied to production could also be included in the blue box. However, the actual criteria for the redefined blue box still remains to be negotiated.

For the first time in WTO negotiations, members have also agreed to cap blue box supports, but the actual date has not yet been determined. The text states that supports will not exceed 5% of a member's average total value of agricultural production during a historical period, a period of time that has not yet been defined.

Under previous WTO commitments, de minimis spending was capped but not subject to reduction commitments; the new framework says such spending will be cut. De minimis spending is the level that a nation is allowed to spend on subsidies and does not apply to amber box limits. If a country's farm payments for a particular commodity fall below 5% of the value of the total production of that commodity, the spending is considered de minimis. In addition, if a country's total farm payments for non-product-specific supports fall below 5% of the value of total production of its agricultural output, the spending does not apply to the amber box.

Once again, the specifics still need to be negotiated regarding how additional cuts will be made in amber box supports and de minimis programs.

Finally, the framework also includes a single notation about geographic indication (GI) protections of food names based on a regional link, such as parmesan cheese. The WTO document simply notes that the issue is "of interest but not agreed" upon. The extension of GIs that include food products are strongly supported by the European Union (EU). IDFA and the U.S. government strongly oppose additional GI protections in the Doha Round agreement. GIs will remain a contentious issue within the future negotiations.

The WTO has acknowledged that it will not meet its original January 1, 2005, deadline for a final agreement, but has not issued a revised timeline for the Doha Round conclusion. IDFA will continue to be engaged in the WTO Doha Round and will work with U.S. negotiators to obtain the best possible outcome to ensure a substantial increase in market access for U.S. dairy exports and a real reduction in trade distorting domestic support subsidies.

For more information, click here to read the full framework text (.pdf) or contact Helen Medina, IDFA manager of international affairs, at hmedina@idfa.org, 202/220-3507.

Posted August 2, 2004