For Doha to continue, the U.S. must make changes.

Kimberly A. Elliott, is a senior fellow at the Center for Global Development and the Peterson Institute for International Economics. This CGD Note was reprinted with permission from CGD. Access this Note and related publications on the The Center for Global Development website.

Although many countries must share responsibility for the negotiating stalemate in the Doha Round of trade negotiations, the proximate cause of the talks' collapse last summer was the U.S. refusal to offer additional reductions in agricultural subsidies. Specifically, American negotiators were criticized for proposing a ceiling for trade-distorting domestic support that is above levels actually provided to U.S. farmers in recent years.

Overcoming the impasse is crucial for developing countries: failure would deny them opportunities for job creation and growth that increased trade would provide, and would contribute to erosion of the multilateral, rules-based system that protects small, weak countries from discrimination by the powerful. Saving Doha will require additional concessions from U.S. negotiators:

For the Doha Round to succeed, the U.S. must offer additional reductions in agriculture subsidies. To complete the bargain, the E.U., Japan and other countries, including developing countries, must also open their markets.

•To revive the talks, offer to lower the overall ceiling for U.S. support by another $5 billion to $17 billion, below actual levels in most years since 2001.

•To close the deal, accept additional cuts of roughly $5 billion in order to ensure that real spending is reduced and that subsidies are not simply shifted among categories that will remain trade-distorting.

Of course, this will only happen if other World Trade Organization (WTO) countries also agree to further open their markets to imports of agricultural and manufactured goods and services.

The U.S. Proposal

The proposal for reducing trade-distorting support to agriculture, introduced in October 2005, would result in the following changes for the United States (see the box for category definitions):

•Reduce the ceiling for "overall trade-distorting support" (OTDS) by 53 percent, from $48 billion to just over $22 billion.

•Reduce the ceiling for the most trade-distorting forms of support (aggregate measurement of support, AMS) by 60 percent, to just under $8 billion.

•Reduce the cap for product-specific de minimis from 5 percent of the value of production to 2.5 percent (roughly $5 billion, depending on the base year chosen).

•Reduce the cap for non-product-specific de minimis (for example, irrigation subsidies) to 2.5 percent (roughly $5 billion).

•Limit the currently uncapped category of blue box subsidies to 5 percent of the total value of production and then reduce it to 2.5 percent ($5 billion).






US Proposal for Cutting Domestic Support in the United States



While these cuts sound large, the chart shows that they are not all they are advertised to be. The proposed ceilings for each category are shown as bold straight lines in the chart, with the actual levels of spending since 2001 provided for reference. Only the proposed AMS ceiling falls below where actual levels of support have been in most years since 2001. The proposed ceilings for the de minimis and blue box categories are above actual levels of spending in every year but one.

The proximate cause of the talks' collapse last summer was the U.S. refusal to offer additional reductions in agricultural subsidies.

This indicates that the most trade-distorting forms of support (the AMS) would have to be reduced, a point that is often ignored in the debate. But other parties to the negotiation are concerned that American policymakers might mitigate the impact of those reductions by increasing the level of blue box and de minimis subsidies. The level of overall tradedistorting support would not be affected.

To address this concern, US negotiators should agree to further reductions in those categories. This could include eliminating the $5 billion permitted for product-specific de minimis, which the United States does not and cannot use to any significant degree.1 It also means agreeing to reduce the non-productspecific de minimis and blue box ceilings from the currently proposed $5 billion each to roughly half that.

But the Doha Round will only succeed if all parties to the negotiation are willing to accept some sacrifice. The European Union, Japan, and other rich countries will have to significantly lower their barriers to imports of agricultural goods, and the big emerging markets will have to improve access for non-agricultural goods and services.

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Footnotes

¹ The United States has not notified its spending levels to the World Trade Organization since 2001, but from 1995-2001, productspecific de minimis never reached $250 million. Because it is so




Contributed by Kimberly A. Elliott, a senior fellow at the Center for Global Development and the Peterson Institute for International Economics. Reprinted with permission from The Center for Global Development.

To read another Global Envision article about the state of the Doha round, see The Death of Doha.



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