September 20, 2007 / 11:46 AM / 12 years ago

U.S. offers to lower farm subsidy cap

GENEVA (Reuters) - The United States has agreed to cut its maximum agricultural subsidies in a “significant step” towards advancing negotiations on a new global trade pact, the mediator of the farm talks said on Thursday.

Crawford Falconer, New Zealand’s ambassador to the World Trade Organisation (WTO), said Washington had for the first time agreed to cut its subsidies to levels he proposed in July.

That would mean the United States would cut its farm subsidy ceiling to $13-$16.4 billion a year. Washington had earlier said it would cut the ceiling to $22.5 billion, from above $45 billion now, and signaled it may go as low as $17 billion.

“I don’t claim it’s a breakthrough, but it’s a significant enough event,” Falconer told Reuters.

U.S. willingness to restrain its trade-distorting but politically sensitive subsidies is a key element in efforts to clinch a trade-opening deal known as the Doha Round, and the move was welcomed by Washington’s trade partners.

Other major factors are the level of tariffs on farm goods in the European Union and Japan, and the level of tariffs on industrial goods in developing countries.

Diplomats said the U.S. move on subsidies could prompt reciprocal moves from others in the negotiations.

“This signals that, like the EU, the U.S. is ready to negotiate and bring this round to a successful conclusion,” a spokesman for EU Trade Commissioner Peter Mandelson said.

OTHERS MUST FOLLOW

The U.S. offer was dependent on other countries moving into the ranges Falconer had proposed for tariffs.

“The U.S. will lead, but others must step up to ensure the strongest possible market access outcomes implied by the texts in agriculture, manufacturing and in the services negotiations,” said a spokesman for U.S. Trade Representative Susan Schwab.

The languishing Doha round was launched nearly six years ago to boost confidence in the world economy, increase trade flows and help developing nations export their way out of poverty.

Agriculture talks resumed in Geneva in early September after a month-long break meant to allow diplomats to mull over Falconer’s draft paper, which suggested ranges of tariff and subsidy cuts within which members may reach consensus.

“After three weeks of hard grind it makes it worthwhile,” Falconer said of the renewed talks. “This is a further indication that they’re seriously negotiating.”

The U.S. offer was helped by the strong state of world food markets, which means the level of subsidies actually being paid out is well below even what is proposed in the draft, trade diplomats noted.

But if the move is painless economically, it remains sensitive politically, with a new farm bill setting out support for U.S. farmers for the next five years working its way through Congress.

Falconer said the farm talks need to make further progress on the way sensitive products are treated for both developed and developing nations, and on a safeguards mechanism allowing countries to react to sudden shifts in import volumes or prices.

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