Doha Round of trade talks: background
At a World Trade Organization meeting aimed at reviewing new proposals for the Doha Round of trade talks, New Zealand’s WTO ambassador Crawford Falconer reported that a number of countries had expressed unhappiness over the new US Farm Bill, just passed last week over President George Bush’s veto.
Under WTO rules, the US would have to amend the Farm Bill to bring it into compliance with the Doha Round trade agreement, if WTO negotiators can produce a breakthrough for the stalled trade talks. Agricultural protection by rich nations is the stumbling block to progress on a new world trade agreement.
The WTO has commenced an investigation into US farm subsidies following protests from Canada and Brazil. The Canadians and Brazilians allege that the US has exceeded its $19.1 billion cap on farm subsidies in six of the past eight years, including subsidies for biofuel feedstocks such as corn and soya.
It will be the first time the World Trade Organization has ruled on energy subsidies.
The convergence of energy and agriculture in the biofuels industry is expected to pose thorny questions for the WTO. While neither sector has enjoyed free trade conditions, the subsidy mechanism which has supported national agriculture interests has attracted negative attention far more than the cartel approach employed in the oil industry.
The issue is a key point of contention imperiling the Doha round of global trade talks. The United States and European Union have blocked a Brazilian proposal to include biofuels among “environmental goods” scheduled for tariff reduction or elimination in the next world trade treaty. The US and European position is that the environmental designation rules are for industrial products, not agriculture.
The Brazilian Sugarcane Industry Association (Unica) said in a statement:
“What we expect now is full integration for ethanol into global trade. Ethanol should not be
treated any differently because curently it is not considered a sensitive product in Europe or the
United States”, according to UNICA president and CEO, Marcos Sawaya Jank. He adds that
World Trade Organization rules are developed for all products, including ethanol, so the idea
that a specific product is somehow “outside the list” doesn’t exist.
“As is the case with all agricultural products, European and American tariffs imposed on
imported ethanol will have to be reduced once the formula is applied. According to the WTO,
tariffs between 20% and 50% (the range covering EU tariffs on ethanol) must be reduced 57%
while tariffs between 50% and 75% (the range covering ethanol tariffs charged in the United
States) should be cut by 64%. Five years after these cuts are implemented, the EU tariff should
come down from 19.2 euros per hectolitre to 8.25 euros per hectolitre, while the American tariff
should end up at 0.9% + 19.5 cents per gallon, down from 2.5% + 54 cents per gallon.
Jank considers tariff reductions the ideal option, but if negotiators in Geneva choose to classify
ethanol as a sensitive product and conclude there is room to create new quotas, compensation
will be necessary. “If the ministers decide to accept new sensitive products, we want
compensation to be significant, far higher than the 1.75 billion litres per year that could be
exported to Europe under a proposal mentioned by EU trade chief Peter Mandelson”.
Specifically in the case of the United States, Jank repeated that full integration of ethanol as a
product is expected, along with cuts to both tariffs that currently exist – an “ad valorem” tax and
a secondary tax.”
