US, EU, Canada team up at WTO (Socialists One world… one system…“harmonize” trade rules

http://www.theaustralian.news.com. ^ | August 13, 2003 | From correspondents in Geneva

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US, EU, Canada team up at WTO From correspondents in Geneva August 13, 2003 THE EU, Canada and the US said today they had teamed up in crafting a proposal aimed at reviving deadlocked WTO talks on opening up markets for industrial goods' trade.

But reactions from other countries at talks at WTO headquarters earlier today were quite cool, with Pakistan and other developing countries accusing the proposal of being a step backwards, trade sources said.

With just over four weeks to go before a pivotal World Trade Organisation meeting in Mexico, the negotiations, like those in areas such as agriculture, have been stalled for months.

"This is an effort by the US, the EU and Canada to incorporate what we have been hearing from other countries in a way that gets this balance between ambitious trade liberalisation on the one hand, but sensitivity to the situations of the developing countries on the other," Deputy US Trade Representative Peter Allgeier told reporters at a telephone conference.

Although no timeframe or figures are given, the joint paper calls for "a simple, ambitious, harmonising formula" for reducing tariffs along the lines of the so-called Swiss Formula.

This is a formula which would lead to steeper cuts on high tariffs, so the paper also includes flexibilities to help developing countries cope with the resulting loss.

Mexican ambassador Eduardo Perez Motta described the formula as "aggressive" and said he hoped the EU as a co-sponsor would also follow through with ambitious proposals for agriculture.

"We think that in order to talk about ambition in industrials, you have to understand what is going to be the level of ambition in agriculture, that's very clear, especially in subsidies," he told reporters.

"If we don't see what's going to happen there, we cannot talk about ambition in non-agricultural market access," he added.

Washington and Brussels have announced they plan to present to other WTO members a joint position on probably the most controversial WTO issue, agriculture, by tomorrow at the earliest.

EU Ambassador to the WTO, Carlo Trojan told reporters it was quite normal that some countries would rather wait to see "where the road is going on agriculture" before speaking out on the other proposal.

And he insisted the proposal on industrial goods responded to the various needs of developing countries.

Non-agricultural market access "should not be merely a North-North exercise, but it should meet the increasingly important component of South-South trade as well," he added.

Sergio Marchi, Canada's ambassador to the WTO, said non-agricultural products accounted for 91 per cent of the flow of trade in goods worldwide, with the US and Canada accounting for 15 per cent.

"If we soft pedal NAMA (non-agricultural market access) I think you run the risk of soft pedalling the entire round" of trade negotiations, he added, stressing the need for a high level of ambition.

Members failed to keep an end of May deadline for agreeing on targets for cuts in non-agricultural tariffs amid wide divergences over how far the reductions should go.

Developed countries' high ambitions over the pace and extent of opening up markets in industrial goods are resisted by poorer WTO members for whom the tariffs are an important source of revenue.

Tariffs, or customs duties on merchandise imports, also give a price advantage to similar locally-produced goods.

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UN aims to scrutinise multinationals

International companies could find their activities subject to investigation and censure by United Nations human rights officials under principles expected to be adopted on Wednesday in Geneva.

The UN's draft Norms on the Responsibilities of Transnational Corporations asserts that companies should be subject to the kind of enforcement procedures at the UN Commission for Human Rights previously applied only to nation states.

UN ethics guidelines may alarm multinationals Click here

The move to adopt the norms marks a first step by the UN towards the regulation of multinationals. It is likely to spark a long battle by international businesses to prevent the move to enforcement being backed by the full 53-nation UN human rights commission.

The draft norms bring together a range of legal obligations for companies drawn from existing human rights, labour and environmental standards.

But following sections that include workers rights, consumer protection, corruption and environmental obligations, the norms state that "transnational corporations . . . shall be subject to periodic monitoring and verification by United Nations, other international and national mechanisms".

An accompanying commentary suggests that: "The UN Commission on Human Rights should consider establishing a group of experts, special rapporteur or working group . . . to receive information and take action when businesses fail to comply."

The element of compulsion and enforcement contrasts with the voluntarist approach of other international initiatives aimed at promoting global corporate social responsibility and has been opposed by the Paris-based International Chamber of Commerce.

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The proposal from the 15-nation EU and the United States -- the biggest players in global trade in farm goods -- was concluded on Tuesday night by negotiators who have been locked in closed-door talks for the past two weeks.

The plan, a copy of which was obtained by Reuters, covered the three key areas of agricultural trade -- domestic support, export subsidies and market access -- but avoided putting figures on its call for reforms.

Although billed by EU Farm Commissioner Franz Fischler as offering a good deal to developing countries and other agricultural powers like Australia and New Zealand, it seemed to have failed to impress.

India's envoy K.M.Chandrasekhar said it was "not feasible," adding: "It does not take account of our farmers' interests...and seems to be an attempt to prize open developing country markets without commitment by rich countries to open theirs."

FALLS SHORT

Brazil's Luiz Felipe de Seixas Correa said the 18-nation Cairns Group of farm produce-exporters -- which includes emerging economies and some richer nations -- felt the plan "falls short" of targets set for the Round.

The group, which had been demanding early and radical moves to end all types of farm support in the EU and the United States, said the proposals were "not enough" and were too vague to be a basis for real negotiation, according to the envoy.

The plan, from a text obtained by Reuters, skated around some contentious issues, like a demand by the EU and some others, including India, for more trademark protection for special products -- such as champagne and Basmati rice -- whose names are taken as a sign of quality.

The United States and the EU are the biggest providers of subsidies to domestic farmers, one of the most controversial issues in the negotiations.

Developing countries say rich state farm subsidies -- running to over $300 billion a year -- prevent them competing on equal terms in international markets.

Diplomats said an agreement between the two farm giants was a crucial first step to an overall farm accord but the blueprint must still win the backing of the full 146-member WTO.

"We have always acknowledged that the United States and the European Union had to find common ground," said Australian ambassador David Spencer. "But whether it is a basis for a decision at Cancun remains to be seen."

On tariffs, the EU-U.S. deal contained a hybrid formula marrying the gentle across-the-board cuts used in previous international farm agreements with a call for a more aggressive capping of duties in some areas.

As a sweetener for poorer states, richer WTO members would allow duty free access to an unspecified portion of their markets from developing countries.

A similarly mixed approach would apply to export subsidies and to export credits, while U.S. food aid programs -- which critics say are often disguised export subsidies -- would also be subject to greater scrutiny.

On domestic support, the two powers urged further reductions in those farmer assistance schemes with the greatest impact on trade and for tighter controls over other forms of help where the trade effect was less direct.

The Doha Round, launched amid great fanfare two years ago, has missed a series of deadlines, including in agriculture, and the ministerial meeting in Cancun must decide whether the end-2004 target for concluding the negotiations can be met.

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Is free trade really free?
Indian farmers will gain only if Green Box subsidies are removed, says Bharat Jhunjhunwala

Published : August 14, 2003

Prime Minister Vajpayee and his team are seeking greater access to the food markets of developed countries like the US in the forthcoming Cancun ministerial summit of the World Trade Organisation (WTO).
The underlying belief is that free trade will open up new markets for the farmers of developing countries, lead to an increase in the prices of their produce and bring prosperity.

The hard reality, on the other hand, is that global prices of major agricultural produce — coffee, sugar, edible oils and so on — have been declining and the farmers of developing countries are coming under increasing pressure.

The belief of our negotiators is that the situation will change for the better once these problems have been sorted out. But will it?

It is interesting that the US is leading the effort to further liberalise global agricultural trade. The US WTO Agriculture Proposal includes elimination of export subsidies and export monopolies, regulation of export credit activity, reduction of all agricultural tariffs to less than 25 per cent and limiting the use of trade-distorting domestic support to 5 per cent of the total value of agricultural production.

The US target is the European countries who are allowed much greater levels of trade-distorting domestic support under WTO rules because of the higher baseline in the late eighties.

A US government document laments, “Specific caps on the use of export subsidies were derived from export subsidy activity between 1986 and 1990.

Consequently, the European Union has recourse to extensive use of export subsidies, and spent over $ 2 billion in 2000. The US also has the ability to use substantial amounts of export subsidies for certain products.

However, the US only spent $ 20 million in 2000.” The US proposal would be music to ears of Indian negotiators.

Yet it seems that much of the benefit from the opening of the world food markets till now has accrued to the US. Sophia Murphy of Institute of Agriculture and Trade Policy points out that US company “Cargill is one of the top two exporters of soybeans from the US, Argentina and Brazil, who between them dominate world supply.

Cargill supplies to about 30 per cent of the world market. Cargill is a major corn exporter and importer around the world, buying, shipping and milling grain in more countries than there are WTO members (160 or so).”

Despite leading in the opening of its agricultural markets, the US continues to be a major beneficiary while many developing countries continue to find themselves in dire straits. Where is the catch, then?

It seems that the basic idea of what constitutes “trade-distorting” support is the culprit. The problem lies in the impact of “Green Box” subsidies on which there is no limit in the current agreements and none is contemplated in the coming negotiations.

The agricultural subsidies are divided in Green, Blue and Amber Boxes. The US is willing to remove all Amber Box subsidies. However, it says that no limits should be imposed on the Blue and Green Box subsidies which are not trade distorting.

The logic is that payments and infrastructure to farmers to keep their lands idle and uncultivated; do not directly affect the price of production. Here lies the catch.

The cost of production includes variable and fixed costs. The farmer continues to incur fixed costs such as those relating to the maintenance of tractors, land taxes, prevention of land erosion and so on, even if he keeps his fields idle because his entitlement to Blue and Green Box subsidies is contingent on this.

His decision to produce or not is dependent only on the level of variable costs. Let us say the fixed cost of cultivating a kilo of wheat is Rs 10 and the variable cost is Rs 5.

If the world price is Rs 8 per kilo then, logically speaking, the farmer should not cultivate wheat. But the farmer is provided with Green Box subsidies for keeping his fields idle.

Thus, it is profitable for him to produce wheat if he can get a little more than the variable costs. It becomes profitable for the US farmer to produce wheat even if the world price is lower than the total cost of production.

This is the reason that the US continues to dominate the world agricultural markets despite having made a cut in the Amber box subsidies.

The US proposals say that Green Box subsidies should be maintained: “Non-trade distorting support generally consists of measures delinked from production incentives, such as food stamps, research, extension, pest and disease control, and delinked direct payments. There are no caps on non-trade distorting support.”

Thus, Murphy says, “American farmers have not responded to the collapse of world commodity prices by reducing supply. If anything, acreage under production has increased.

It is hardly ever worth leaving land idle, since even idle land incurs maintenance costs for the landowner. In the short to medium term, the pressure on farmers is to sow, however low prices go. It makes economic sense to increase production to spread the cost of working the land over more acres.”

The farmers of developing countries cannot compete with those of the US because their governments do not have the capacity to provide subsidies to nullify the incidence of fixed costs.

Free trade is unfree because US farmers have to bear only the variable costs while those of developing countries have to bear both variable and fixed costs.

The US strategy is to agree to phase out Amber Box subsidies. But by continuing to provide huge Blue and Green Box subsidies it can still dominate the world food markets and make the developing countries dependent for their food requirement on the US.

Vajpayee and his team are barking up the wrong tree in asking for greater access to the food markets of the developed countries. This demand will be met as evinced by the US proposals. The gains from free trade, however, will accrue only when Green Box subsidies are also removed.

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