Global Policy Forum

US Offers a Subsidy Concession at Trade Talks

Associated Press
July 23, 2008

The United States took the first bold step in a week of crucial trade talks Tuesday, slicing $1.4 billion from a previous offer to limit contentious, trade-distorting subsidies to American farmers. The United States Trade Representative, Susan C. Schwab, told a news conference that Washington was prepared to rewrite elements of its recently passed farm bill to ensure that American subsidies deemed to unfairly enhance the competitiveness of American farmers were limited to $15 billion annually. While Congress may view the move skeptically, the Bush administration's top negotiator shifted pressure on Brazil, India and other emerging economies to open up their markets for industrial goods — a crucial demand of rich countries in the World Trade Organization's seven-year-old trade round.

Emerging countries have demanded a cap closer to $12 billion for the United States, noting that actual American subsidies have fallen to around $9 billion a year amid higher prices for basic commodities. The poorer countries say the payments are providing farmers in developed economies an unfair advantage that hinders Third World development. But the Bush administration and Congress have sought flexibility in case crop prices fall and American farmers need greater support. Washington is currently allowed to distribute more than $48 billion in subsidies linked to price, production and other trade-distorting criteria. It agreed last year to come to at least below $16.4 billion in a move that generated criticism for American farm groups. The European Union and Japan are also offering steep cuts in subsidy limits. "Anyone who understands farm programs will understand how significant the reduction is implied by this number," Ms. Schwab said, noting that United States subsidies have exceeded her proposed limit in 7 of the last 10 years.

Without a global trade deal, they may exceed $15 billion again as part of the United States' new five-year farm bill worth nearly $300 billion that Congress passed over President Bush's veto. Ms. Schwab described the concession as a "major move, taken in good faith, with the expectation that others will reciprocate and step forward with improved market access" for farm and industrial exports. Rich and poor countries have clashed repeatedly in the W.T.O. talks started in Qatar's capital in 2001, and now known as the Doha round. Developing nations want to reduce agricultural tariffs and subsidies in rich countries so they can sell more of their produce, while the United States, European Union and others seek better conditions in emerging economies for their manufacturers, banks, insurers and telecommunications companies.

Negotiators are hoping for agreement this week on a deal that would liberalize world agriculture and manufacturing, setting the stage for an overall trade accord by the end of the year. But there is widespread skepticism. Ms. Schwab said her move showed leadership."Here's the catch: We are making this offer without actually knowing what others will do," she said in Geneva. "For this round to succeed as a developing round, all of the main developed and emerging market players will be faced with hard decisions." Brazil and India, as co-leaders of a broad coalition of developing countries, have resisted cuts in manufacturing tariffs that would create new opportunities for automakers, machinery and electronics from the United States, Europe and Japan.Brazil's foreign minister declined to say how it would respond, and instead criticized the United States offer as not going far enough. "I hope this is not the last offer," the minister, Celso Amorim, said. "It's a very low level of ambition."

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