Starting Sept. 10, United States agricultural programs in general, and cotton in particular, are on the block in Cancun, Mexico — the international trading block. Ministers from around the world will be meeting to try and push the troubled Doha Round of negotiations forward.
This will be a crucial meeting for U.S. agriculture. The United States has tried to convince the rest of the world to adopt a new set of trading rules for agriculture that would eliminate export subsidies, significantly reduce trade-distorting domestic agricultural support, and significantly increase market access for U.S. agricultural exports.
The U.S. wanted these changes to be on a fair and equitable basis — equally applicable to all countries — with reasonable preferences granted to developing countries. There have not been many takers.
Developing countries of the world countered with proposals that strongly suggested the United States and the European Union should eliminate their agricultural programs and all developed countries should eliminate all trade barriers for developing countries, while receiving little, if any, trade concessions in return.
Several African countries called for an immediate end to the U.S. cotton program and a $3 billion compensation payment for damage the program supposedly caused their economies.
The European Union has traditionally been the main target for the United States and other countries wanting to force a reduction in agricultural subsidies. It is the height of understatement to say that the U.S. and the EU are on opposite sides of the WTO fence when it comes to agricultural trade. However, these two major agricultural economies told the rest of the world recently they had managed to forge a “framework” by which they could reach agreement. Their proposal would significantly cut domestic agricultural subsidies, and it would cut export subsidies and phase them out on some products.
However, it also demands significant increases in market access for all agricultural exports in exchange for these very meaningful reforms.
While the framework agreement does not include specific numbers, it does have enough detail to enable us to speculate on its impact on the U.S.
On export subsidies, the European Union would reduce them all and phase some out. The United States would greatly curtail its export credit guarantee program — a program that has been valuable in assisting U.S. exports of cotton and grains.
With respect to domestic subsidies, the framework calls for significant cuts below the ceilings established under the 1994 Uruguay Round Agreement. For the U.S. the most important ceiling under the 1994 agreement was established at $19 billion per year.
Speculating on what “significant” means is dangerous, but if one assumes cuts in the range of $5 billion to $10 billion, then U.S. domestic commodity programs would probably have to shift back to a more decoupled approach — similar to that under the 1996 farm bill. The United States has come close to its ceiling recently, spending as much as $18 billion in 2001 on programs that count toward its limit. Decoupled programs don't count toward the ceiling.
In exchange, the U.S. and the European Union asked for meaningful increases in worldwide market access. They also suggested that some countries, like Brazil, like India, like China, are not the economic equivalent of, say, a Liberia, and should not be getting excessive breaks under the WTO because they claim to be “developing” countries.
It seems like common sense. The world is asking the U.S. and the EU to reduce programs that make their agricultural products more competitive in world markets. In return, the U.S. and EU ask to face less trade barriers so they will have a better chance to sell their exports without subsidies.
It seems like common sense, but this is not a normal environment. A British organization, Oxfam International, explained the other day that it was the moral duty of the U.S. to reduce agricultural subsidies and expect no increase in market access for its products.
Four African countries renewed their demand for an end to the U.S. cotton program and $3 billion in compensation, and it is their belief that they should be exempt from true market liberalization.
Many more developing countries have banded together to repeat their general position — the developed countries should make trade concessions in order to create a “fair and equitable” trading environment, but developing countries (no matter how developed or how competitive) should continue to be granted preferences and should not be asked to provide meaningful increases in market access.
If this negotiation were just about agriculture, one would think U.S. negotiators could easily determine they were not getting fair value. The negotiation, however, encompasses industrial products, international services, intellectual property rights, government procurement, health and safety regulation, to name a few. These issues are of major interest to other parts of the U.S. economy, and they will pressure agriculture to keep the ball rolling.
The agricultural programs of the United States and the European Union are being blamed for the ills of the world right now, and cotton is getting the most direct focus. There is no exaggeration in stating that the Cancun ministerial is the second most significant trade meeting ever faced by the U.S. cotton industry.
The most significant occurred in December 1994, when the United States agreed with the rest of the world to phase out its textile import quotas. With the U.S. textile and apparel industries losing almost 300,000 textile jobs since 2001 due to textile imports, it is clear these agreements can have long-term ramifications on specific sectors of the U.S. economy.
It seems like it would be easy to just say no — to say no to a bad deal; to say no to the targeting of a specific U.S. commodity for an “early harvest” (an early concession provided before the overall agreement is concluded). But the dynamic of international trade negotiations makes it difficult for negotiators to walk away from unreasonable demands.
It is difficult for them not to view these negotiations as crucial to economic prosperity as a whole and as part of a greater good. Only the best negotiators know how to walk away and how to make that decision pay dividends.
The participants in the Doha Round established a Jan. 1, 2005, deadline for the negotiations to be completed. However, crucial milestones have not been met during 2003. If the Round is to have a chance of meeting its 2005 deadline, the participating countries must leave Cancun with the major areas of negotiation on track.
The pressure to leave Cancun with an “agreement” will be immense. U.S. agriculture can only hope that its negotiators have the right yardstick available to evaluate any possible deal. Dividing up the U.S. agricultural economy in an international forum is without precedent. It would be the kind of deal that could not be good for U.S. agriculture.
William Gillon is an attorney with Butler Snow O'Mara Stevens & Cannada in Memphis, Tenn. He has 20 years of experience in agricultural law and policy.