U.S. cautious on WTO, but hopes for progress

By Doug Palmer and Missy Ryan

WASHINGTON (Reuters) - The United States reacted cautiously on Tuesday to compromise proposals in world trade talks that would push it to reduce its farm subsidies, but said it hoped the texts could eventually set the stage for a deal.

"We look forward to next week's work in Geneva, when we will exchange with our trading partners initial reactions to the texts and discuss how to take the negotiations forward into the fall," said Gretchen Hamel, a spokeswoman for the U.S. Trade Representative's office.

The plan from New Zealand's Crawford Falconer, who chairs the agricultural negotiations, would reduce the ceiling for overall trade-distorting subsidies for U.S. farmers by 66 to 73 percent, to between $13 billion and $16.4 billion a year.

The deeper cut is well above the 53 percent reduction the Bush administration has on the table, and would put the United States close to the $13.2 billion it is expected to spend on all subsidies, including conservation, in fiscal 2008.

"Both of the texts will demand close analysis as we develop a comprehensive U.S. reaction," Hamel said, noting that a final deal would also have to include trade in services.

Players in U.S. business and agriculture reacted gingerly as they digested more than 60 dense pages released on Tuesday laying out formulas for reducing import duties, reining in subsidies, and regulating other aspects of global commerce.

But Gary Blumenthal, an analyst at World Perspectives in Washington, warned that a "rather cavernous philosophical divide ... remains."

With the Doha round of world trade talks on the brink of collapse, the draft leaves some wiggle room on difficult issues in agriculture, including a primary cut of between 4 and 6 percent of tariff lines for "sensitive" products that developed countries can protect from full tariff cuts. Some developed countries could protect more.

It does not set down a figure for how many goods developing countries can deem "special" products, an issue that has divided Washington and New Delhi.

In the manufacturing negotiations, Chairman Don Stephenson said his proposal would reduce bound tariffs for developed countries below 3 percent on average and below 10 percent for their most sensitive products. Bound tariffs would be below 12 percent on average for developing countries.

The differential between developed and developing country tariff cuts has been a hotly contested part of the manufacturing talks.

U.S. manufacturers said they needed time to digest the texts, but welcomed the proposals as a positive development.

"Without saying whether we like any of it, for the first time in six years of Doha negotiations we at last have something to look at," said Frank Vargo, vice president of the National Association of Manufacturers.