WTO debate leaves food industry guessing

By Chris Mercer

- Last updated on GMT

Related tags: Eu, International trade

Both the US and the EU have made moves to slash agricultural
subsidies amid tough negotiations, but the two trading blocs have
stayed pretty quiet on the main details the food industry is
looking for in the run-up to December's WTO ministerial.

US proposals to chop import tariffs by between 55 and 90 per cent and cut agricultural subsidies by 60 per cent failed to produce a deal at last week's World Trade Organisation 'warm-up' meeting in Geneva.

The EU said it would halve its highest import tariffs and cut subsidies by 70 per cent, but the US said the offer was insufficient, mainly because it believes EU subsidies to be higher in the first place.

EU foreign ministers will hold emergency talks on Tuesday amid fears from France that the bloc is offering up far too much. The US also has potential trouble brewing in Congress.

Yet, as the grand gestures subside into horse-trading and mutual suspicion, there are still too few details on the most important factors for the food industry, according to Carmen Suarez, chief economist at the UK's National Farmers' Union (NFU).

Sensitive Products

Both the US and EU seem prepared to allow some "sensitive products"​ that are not subject to the most stringent tariff cuts. But, "the EU proposal is a little fluffy around the edges. They don't actually give any number,"​ said Suarez.

She said the US were pushing for only one per cent of tariff lines to be classified as sensitive, yet again there is no mention of which ones. Suarez added that it was misleading to classify all tariff lines as equal because, for example, a tariff line for butter will be more lucrative than one for whey.

Some aid agency reports have claimed that if two per cent of product tariff lines were classified as 'sensitive', that would reduce gains from trade liberalisation by up to 70 per cent.

EU trade commissioner Peter Mandelson said he wanted some flexibility on tariff line cuts and that "the Framework makes clear that sensitive products will be selected by WTO members themselves. But we accept that the number of them is for negotiation"​.

Export Subsidies

On ending export subsidies, a crucial issue for food firms exporting commodity goods, Suarez said "there was implicit acceptance [in the industry] that this would be implemented"​.

But, while the US has talked about 2010, the EU has been quieter on the issue, saying only that it was committed to making heavier cuts at the start of any timeframe in a 'front-loaded' approach.

Cuts to milk powder and butter commodities have already begun as part if the EU's 2003 CAP reform.

Suarez believes greater investment in value-added products will be crucial in dealing with export subsidy cuts. "We've got to be realistic. It's going to be difficult to compete,"​ she said, adding that "we cannot produce the cheapest cheese in the world but we can produce some of the best cheese in the world"​.

Arguments are likely to occur over a timeframe for cuts and over the definition of export subsidies. The EU says all forms of export aid should be eliminated, not just straight subsidies.

Domestic Subsidies

A major problem in comparing the EU and US proposals is that both are keen on different areas depending upon where their advantage lies.

The US prefers tariff cuts because it is keen on market access, while the EU feels more secure with domestic subsidies because it believes it has made more progress.

EU says it has already moved on this by breaking the link between aid and production in favour of 'single payments' based on a producer's environmental and safety standards. The bloc says this policy means many of its domestic subsidies will no longer be trade-distorting in the WTO's eyes.

It claims the US has lagged behind by continuing its market-linked policy of subsidising producers more when prices go down.

Arguments are expected on how to classify payments.

Flexibility

Suarez said another problem was that EU trade commissioner Mandelson had not specified whether subsidy cuts were to be exact or allow member states some flexibility either way, similar to the single payments scheme.

This could be significant as allowing a leeway of even 15 per cent could produce varied aid cuts from 55 per cent to 85 per cent, potentially skewing the market and the reforms.

Still, Suarez said "we are definitely closer to a deal than we were three months ago"​. WTO director-general Pascal Lamy said he thought so too, though everyone knows there is much work to be done.

And, a deal may still be hampered by another issue entirely, such as the EU-US row over geographic indicators for certain foods. The WTO principle of single undertaking means there must be agreement on everything in the agenda, otherwise there will be no agreement at all.

Related topics: Markets

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