Europe Entertains an American Offer to Cut Farm Aid

Original Publication Date: 
10 October, 2005

CHICAGO, Oct. 10 - The United States upped the ante Monday in the delicate negotiations between America and Europe over aid to farmers, a central sticking point in stalled global trade talks.

The United States is seeking to swap cuts in subsidies for more access to global markets for its farmers. The European Union, while making some concessions, has so far declined to lower tariffs much further.

Europe's top trade negotiator cautiously welcomed the proposal by the United States to slash some agricultural subsidies by 60 percent over the next five years in exchange for tariff reductions of 55 percent to 90 percent.

Peter Mandelson, the European Union's trade commissioner, called the United States' move a 'constructive step,' adding that Europe was willing to go 'substantially beyond' the proposed American cuts. But he declined to comment on whether Europe could meet American demands on tariff reductions.

With time running out before a major meeting of the World Trade Organization in December in Hong Kong, Rob Portman, the United States trade representative, outlined his proposal on Monday in Zurich.

Mr. Portman said it was up to 'those that subsidize more than the U.S.,' meaning Europe and Japan, to move on the talks, especially on opening their highly protected farm markets to American agricultural products. 'We are offering real cuts to U.S. farmers in exchange for market access,' he said. 'And if we are not able to achieve the market access, they cannot be supportive.'

For American farmers, the pledged cuts would cause some economic pain, farm groups said Monday, particularly for crops like corn and soybeans, which rely on subsidies and were badly hit this summer in some parts of the Midwest from the worst drought since 1988. But critics of Mr. Portman's plan said the cuts would not address the main long-term issues of declining commodity prices and unchecked tendencies by farmers to overproduce.

Developing countries like Brazil have been battling through the trade organization to eliminate global agricultural subsidies because they are hurting their ability to compete by depressing global commodity prices through the dumping of cheap agricultural products on the world market.

The trade talks, which began in Doha, Qatar, in 2001 under the World Trade Organization, were termed a 'development round' meant to help lift the world's poor nations out of poverty by giving their farmers better access to developed world markets. But rich countries have not met these promises, advocacy groups like Oxfam International say.

Oxfam called Mr. Portman's offer 'smoke and mirrors.' The group said that under the proposal, the United States would have to shave agricultural spending by only 2 percent, to $73.1 billion, while wringing harsh concessions on market access from developing countries.

'This proposal doesn't ask much of the United States while asking a lot of other countries,' said Gawain Kripke, a policy adviser with Oxfam.

But Bob Stallman, president of the American Farm Bureau Federation, disagreed, calling the Portman plan 'an aggressive proposal' that would reduce the amount the United States government could spend under World Trade Organization agreements in one subsidy category to $14.4 billion from $19.1 billion. Mr. Stallman also praised the proposal's call to reduce European Union spending on agriculture from a maximum of four times what the United States spends to only twice as much.

Mr. Portman's proposal also asks the European Union to lower that category of trade-distorting subsidies by 83 percent, from $80 billion to $15 billion. Europe has agreed to end export subsidies but the bloc's members still have high tariffs on farm imports and domestic subsidies worth about $60 billion each year.

United States trade negotiators have been under pressure for months to detail President Bush's pledge to severely cut agricultural subsidies, which officially total $19 billion but are much higher when import restrictions for sugar producers and other indirect aid are counted.

The Bush administration is rushing to avoid another failure in the deadlocked Doha trade talks, which are scheduled to conclude in a framework agreement at a December meeting of trade ministers in Hong Kong. A much-anticipated round of talks in Cancún, Mexico, in 2003 collapsed over disagreement on agricultural subsidies.

'Negotiators need to make a tremendous amount of progress in the next month or we are entering Hong Kong with the smell of failure all around - again,' said Ken Cook, president of Environmental Working Group, a nonprofit research policy group in Washington opposed to some farm subsidies.

The agriculture programs of the United States have come under fire in recent years, notably its cotton program, parts of which were ruled illegal by the World Trade Organization after Brazil filed a complaint. Brazil has also been mulling a challenge on soybeans and Uruguay has discussed filing a complaint on rice.

'We must use the W.T.O. to force open markets for U.S. products,' Agriculture Secretary Mike Johanns said in a speech last Thursday. 'If we timidly take our seat at the world trade table with a farm program structure that is wed to the past, we can expect a future of playing defense to protect our share of trade and wondering which U.S. farm program will be challenged next.'

But securing further commitments from the European Union's executive arm - which has already angered some European governments for promising last year to phase out export subsidies completely - could be much tougher, trade experts said. By moving now, the United States has 'upped the ante,' said Jean-Pierre Lehmann, a professor of international economics at the Swiss business school I.M.D. 'But Mandelson is not in a position to match that ante.'

Mr. Mandelson acknowledged that some European governments in the 25-member union were 'concerned about imbalances' but said that the new American proposals could help assuage those fears by showing that Washington is also making concessions.

In a sign of the resistance he faces within his own bloc, a letter signed by 13 European trade ministers was sent last week to the European Union agriculture commissioner, Mariann Fischer Boel, outlining concerns that concessions by Brussels have not been matched by the United States.

Some farm groups, such as the American Corn Growers Association, which does not receive money from multinational grain or meat producers that stand to benefit from increased market access, said that the proposal still did not address structural issues with the subsidy programs that lead farmers to overproduce.

'We need to rethink U.S. agricultural policy and move back to a price-support system rather than cash subsidies,' said Larry Mitchell, the corn association's chief executive. Last year, he noted, farmers produced 11.8 billion bushels of corn, a record, but still exported only 2 billion bushels, a number that has remained steady since about the mid-1970's. The excess corn helped depress prices, which dropped to $1.80 a bushel this April from almost $3 a bushel in April 2004.

Even if Mr. Portman can wring more support from Europe for his proposal, Congress will ultimately decide the scope of agriculture spending through the 2007 farm bill. Lawmakers are concerned about the impact of Hurricanes Katrina and Rita on farmers, who have been hard hit by soaring fuel costs and higher barge rates for moving their crops through the Mississippi River.

'U.S. agriculture will not disarm unilaterally,' said Senator Saxby Chambliss of Georgia, the Republican chairman of the Senate Agriculture Committee, in a statement Monday. 'If other countries do not harmonize their levels of domestic support and provide meaningful and tangible market access, then the Senate and House will find it very difficult to support the final agreement.'

Alexei Barrionuevo reported from Chicago for this article and Tom Wright from Zurich.