Globalization and Agriculture

1
Globalization and Agriculture

• National Cotton Council
• Fresno, California, November 4, 2004

2
Outline of Presentation

• Brazil U.S. WTO Dispute
• China Trade Issues
• Doha Framework Agreement for Agriculture
  Negotiations
• New Trade Paradigms

3
Brazil WTO Dispute

• Brazil allegations
• U.S. not adhering to its WTO commitments
• U.S. subsidies not in compliance with applicable
  agreements
• Applicable Agreements (1993/94)
• Uruguay Round Agricultural Agreement
• Subsidies and Countervailing Measures

4
Brazil WTO Dispute

• Challenge covers all aspects of domestic cotton
  program (1996 and 2002 farm bills)
• Challenge covers step 2 program and export credit
  guarantee program (for all commodities)

5
Timeline

• Submissions began last June
• Three hearings August, October and December
• Three member Panel
• Most US submissions are available at-
• www.ustr.gov/enforcement/briefs.shtml
• 38 documents of almost 1,000 pages
• Just a fraction of the pages given to the Panel

6
Status of the Dispute

• Panel decision public Sept. 8, 2004
• U.S. filed appeal Oct. 28, 2004
• Brazil filed cross-appeal Nov. 2, 2004
• U.S. Brazil file counter comments by Nov. 18,
  2004
• Appellate body hears oral arguments Dec. 13-15,
  2004
• Appellate body issues findings Feb-Mar 05

7
Status of Discussion

• Most submissions are public -
• I will be discussing those submissions
• I will be speculating on final decision
• Based on the submissions
• Based on press reports

8
Legal Structure
9
Legal Structure
Set out AMS ceiling commitment
Establishes definitions categories of support
Set out export subsidy commitments schedules
10
Legal Structure
Sets out Cause of Action
11
Legal Structure
Peace Clause
Exempt if they conform with URAA
12
Domestic Challenge

• Challenge covers all aspects of domestic cotton
  program
• Marketing Loan
• Direct Payments
• Counter-cyclical payments
• 1996 and 2002 farm bills
• Interim disaster bills
• Federal Crop Insurance

13
Actionable Subsidies

• Is the program a subsidy?
• Is the program protected by the Peace Clause?
• Does the program cause serious prejudice to
  Brazil?
• Significant price suppression in the same market
• Increase in world market share

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Peace Clause

• Level of support may not exceed that provided in
  1992 marketing year
• What is meant by level of support?
• Is it spending or is it a policy parameter?
• Definition of green box support critical here

15
Is green really green?

• As part of the peace clause debate, Brazil argued
  that PFC and direct payments are not really green
  box
• Main argument based on restrictions on planting
  fruits and vegetables
• Green box definitions stated precisely in Annex
  2 of URAA

16
Prohibited Subsidies

• Step 2 Challenge
• Export Credit Guarantee Program
• Challenged as an export subsidy

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Export/Prohibited Subsidies

• Is the program a prohibited subsidy?
• Does the program conform with URAA?
• If not per se inconsistent

18
Panels Findings

• U.S. lost on most substantive issues.
• U.S. violated the Peace Clause
• Direct payments do not qualify as green box
• Step 2 and GSM programs are prohibited subsidies
• The U.S. cotton program has caused serious
  prejudice to Brazils industry

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Enforcement

• WTO has no enforcement power
• Each member expected to make appropriate changes
  in policy
• Once Appellate Body report is adopted, the party
  concerned will notify its intentions to implement
  the recommendations.
• If impracticable to comply immediately, party is
  given a reasonable period of time to comply
• Determined either by mutual agreement or through
  arbitration

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Analysis offered by Brazil

• Brazil cited studies showing price impacts from
  presence of US programs
• Brazil offered its own economic analysis of price
  impacts the Sumner model
• Brazil also offered an elaborate allocation
  methodology for allocating decoupled payments to
  specific commodities
• Impacts on world price ranged from 2 to 26

21
Analysis and Strategy of Brazil

• Used NCC testimony, press releases, and white
  papers whenever possible
• When NCC members said they needed cotton program
  to make ends meet, Brazil had it quoted
• Used NCC estimates of value of GSM
• Comparisons of cost of production
• Value of crop compared to program expenditures

22
One of Brazils Arguments
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Whats Wrong with this Picture?
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Whats Wrong with this Picture?
1. 1998 2001 is a misleading comparison.
25
Whats Wrong with this Picture?
2. Production is not the primary economic
decision.
26
Whats Wrong with this Picture?
3. Ignores the impact of other crop prices.
27
Whats Wrong with this Picture?
4. Ignores that US acreage response similar to
others.
28
Whats Wrong with this Picture?
5. Fails to explain real reasons for export
increase.
Increase in world market share is one of 4
grounds for serious prejudice, not increases in
exports.
29
World Cotton Production U.S. Share
30
What About Price Suppression?
Cents per Pound
31
What Drives cotton prices?
Prepared by EU Commission Delegation June 2004
32
Increased Costs
World Price
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U.S. Arguments

• The cotton program 1992 to 1995
• fully coupled to production and planting with
  higher loan rates and target prices
• From 1996 to 2002
• moved to decoupled support, reduced loan rates,
  lower target prices
• Impact of decoupled support
• Price at planting is the economic decision

34
U.S. Arguments

• Direct payments and CCP decoupled from planting
  decision
• Shouldnt be factored in
• Economic impact
• Dr. Sumner altered FAPRI model to show
  significant impacts from decoupled programs
• Brazil never fully allocated all alleged
  subsidies to cotton
• Step 2 available for entire crop
• Article 10 exemption for export credit
  guarantees

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Keep in mind

• Members of US Agricultural Policy Advisory
  Committee were directly told in Geneva in 1993
  that Step 2 was not classified an export subsidy.
• Congress was told in the statement of
  administrative action accompanying WTO
  legislation that the GSM program was exempt from
  reduction commitments.
• EU concept of green box programs very similar to
  U.S. concept

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Possible Implications

• GSM decision covers all commodities
• But some have export subsidy schedules
• URAA not interpreted as anticipated by developed
  members
• Green box GSM impact of decoupled support
• U.S. was wrong about URAA provisions?
• Will U.S. have more difficult time convincing US
  agriculture about new language?

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Official Responses

• "While this is a disappointing development, it
  does not change the provisions of current
  law."Sen. Thad Cochran
• "We will be defending U.S. agricultural interests
  in every forum we need to, and have no intention
  of unilaterally taking steps to disarm when it
  comes to this."White House Press Secretary Scott
  McClellan
• "The United States abides by the WTO rules and
  is, and has been, in accord with its rules on
  agriculture."Reps. Bob Goodlatte and Charlie
  Stenholm
• "You can be 100 percent sure we're going to
  appeal this ruling and press this all the
  way."U.S. Trade Representative Robert Zoellick

38
Marathon Not a Sprint

• Appeal will be pursued aggressively
• There are no immediate changes to the cotton
  program
• If final ruling is unfavorable, U.S. will be
  given reasonable time to comply

39
Lessons Learned

• Innocuous statements by NCC and membership used
  against program
• Know the economics
• NCC has some of best economics around
• Comparison value of product and amount of
  support

40
Lessons Learned

• Rest of the world will not meekly follow US
  interpretations
• Work to make trade negotiators demonstrate that
  language means what they think

41
China Trade Issues

• Raw Cotton TRQ
• Contract Issues
• Arbitration, Quality Determination
• Textile Safeguard Petitions

42
Raw Cotton TRQ

• 4 Million Bales
• 33 Allocated to STE
• Remainder to Receive National Treatment

43
Contract Issues

• Arbitration body set by China
• Defaults have occurred
• Acceptance of US quality measurements

44
Textile Safeguard Petitions

• Established in Chinese WTO Accession Agreement
• Applied to Address Disruption in Orderly Market
  Development
• Product Specific, China Specific
• Limited Duration

45
Chinese Mill Use of CottonMillion Bales
46
Doha Framework Agreement
47

• Green Box
• Non-trade distorting
• Decoupled

• De Minimis
• Product specific
• Non-product specific

• Blue Box
• Acreage reductions
• Payments based on fixed yields

Amber Box Production - linked payments Subject to
discipline Disfavored
48
EU Programs Heavily into Blue and Green Boxes
About 54 billion US in 2000
49
U.S. Expenditures Toward Amber, Green and De
Minimis No Blue
50
Framework Moves CCP to Blue Box
51
?
Product Specific Caps
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Revised Blue Box

• Re-defined to include US CCP program
• Includes ceiling for the first time
• 5 of value of total agricultural production
• EU will have to reduce to get to ceiling
• Ceiling about 10 billion for US

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Export Subsidies

• Export subsidies to be eliminated
• Export subsidy component of export credit
  guarantees to be eliminated
• No longer than 180 days in the end
• Disciplines and transparency for state trading
  enterprises to be negotiated

54
Market Access

• Substantial improvements in market access to be
  obtained for all products
• Tiered formula to reduce tariffs from bound
  levels
• TRQ access to be increased using lower tariffs
  and increased quota
• Sensitive Products
• Developing get more time, less cuts
• Special product exemption
• LDCs exempt

55
Market Access

• Tariff reductions
• Higher tariffs to be reduced more
• A banded or tiered approach
• Bound vs. Applied
• U.S. virtually only country where bound and
  applied are equivalent
• Most other countries have significant difference
  in the two

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Bound vs. Applied Tariffs
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Cotton Specific WTO Issues

• African countries proposal to eliminate all
  cotton subsidies pay compensation
• Was put on General Council agenda in Cancun
• Framework moves cotton back to agriculture
• Specific references establish different standards

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Cotton in the Framework

• Cotton to be be addressed "ambitiously,
  expeditiously, and specifically
• Special Session of the Committee on Agriculture
  shall ensure appropriate prioritization of the
  cotton issue . A subcommittee on cotton is to
  meet periodically. Work to encompass all three
  pillars.
• Work on cotton under all three pillars will
  reflect the vital importance of this sector to
  certain LDC Members and we will work to achieve
  ambitious results expeditiously.

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Cotton Specific WTO Issues

• NCC working with African countries through USDA
  and US AID
• Exchanges technology efforts
• Bumpers amendment could hinder increased
  agricultural assistance
• Despite cooperation, representatives from some
  countries show no significant softening of their
  posision

60
Legal Structure
Peace Clause
Exempt if they conform with URAA
61
Legal Structure
Exempt if they conform with URAA
62
Framework Agreement
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Globilization and Agriculture

• National Cotton Council
• Fresno, California, November 4, 2004