WG Interview: A U.S. Outlook on free trade

by Suzi Fraser Dominy
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Ann M. Veneman, head of the U.S. Department of Agriculture addresses ag support policy, Doha Round trade discussions, food aid and global trade liberalization

Ann M. Veneman was sworn in as the 27th Secretary of the United States Department of Agriculture (USDA) in 2001.

Growing up on a family farm in a small rural community, Veneman understands well the issues important to America’s farmers and ranchers. She has spent much of her career dedicated to food and agriculture issues.

Veneman joined the USDA’s Foreign Agricultural Service in 1986 and served as Associate Administrator until 1989, when she moved to Deputy Undersecretary of Agriculture for International Affairs and Commodity Programs, a position she held until 1991 when she was appointed as Deputy Secretary of USDA. She also served as Secretary of the California Department of Food and Agriculture (CDFA) from 1995 to 1999.

Since taking office she has confronted critical issues such as new farm policy, trade, homeland security, environmental stewardship and food safety.

Secretary Veneman talked to World Grain about U.S. farm support, export policy and the Doha round.

WG: How will each of the principal mechanisms for providing income support to U.S. farmers fare under a Doha agreement on agriculture?

Veneman: At Doha, the U.S. committed to making substantial reductions to trade-distorting domestic support.

Specific reduction commitments are yet to be agreed to, so our analysis must be based on the current status of negotiations. Our aggregate measure of support (AMS) ceiling, currently at $19.1 billion, would be subject to reductions. Programs that the U.S. reports under the AMS category include price support programs, loan deficiency payments, and marketing loan guarantee payments. These support mechanisms would be subject to the new negotiated ceiling.

In mid-August, the U.S. and the European Union proposed a compromise framework, which was an important step in developing momentum on the way to Cancun. The U.S. and the E.U. agreed to proposed modifications to the ‘blue box’ for "less trade-distorting" domestic support measures. The proposed modifications would allow payments that are decoupled from current production to be included in the blue box. The disciplines on the blue box would include a cap on total payments under blue box programs of 5% of the value of agricultural production. In Cancun, some countries proposed reducing the blue box below the 5% level. The counter-cyclical payments that were introduced in the 2002 Farm Act would fit into this new blue box. Since counter-cyclical payments are based on historical production, rather than current production, they are decoupled from current production decisions and, therefore, have a less trade-distorting effect than other programs.

It is important to note that some U.S. direct payment programs fall into the green box category of non-or minimal-trade-distorting. These payments are made according to historical production and yields, and are not affected by current production or prices. Under current WTO rules there is currently no ceiling on the level of green box payments, and the U.S. is opposed to placing any limits on the green box in the Doha negotiations.

A key point here is that our domestic supports, as disciplined by the Uruguay Round already, are small relative to the size of our agriculture and especially when compared to the allowable support levels of the E.U. and Japan. We are prepared to discipline them further but only if we are moving to greater ‘harmonization’ of the levels.

WG: The marketing loan program, loan deficiency payments and the new counter-cyclical payments are linked to a farmer’s production. Will the U.S. be willing and able to reshape or even eliminate these programs in the event of a Doha agreement on agriculture?

Veneman: The U.S. is seeking an ambitious result in the Doha Development Agenda agriculture negotiations that addresses all three pillars: elimination of export subsidies, a substantial reduction in trade-distorting domestic support, and substantial increases in market access through tariff reductions. If the Doha negotiations are successful and Congress approves the agreement under the Trade Promotion Authority legislation, we would be fully prepared to implement the agreement. Yes, we would modify our programs as necessary to gain greater market access and reduce unfair export competition.

It is important to look at the effects that the various programs you mention have on production. The marketing loan program and loan deficiency payments are considered trade-distorting, or amber box, programs. Counter-cyclical payments, however, are much less trade-distorting because producers are not required to plant those crops or any crops to receive a payment. As a result, producers base plantings on market signals rather than on prices set by the government.

WG: Does U.S. government support to producers currently exceed 5% of the value of its agricultural production? How much of an adjustment would U.S. agriculture face under this restriction?

Veneman: Consider the following: from 1999 to 2001, the average value of output of the agricultural sector in the U.S. was $200 billion, while the AMS ceiling allowed by the Uruguay Round Agreements Act (URAA) was $19.1 billion. For the E.U., output was $215 billion with a ceiling of $67 billion (31% of agricultural output) and for Japan output was $85 billion with a ceiling of $32 billion (38% of agricultural output).

These are the amber box supports that are the subject of most attention in the negotiations. I have mentioned the blue box supports above, and the green box supports are not subject to serious proposals for reduction.

‘Significant Reductions’ of the amber box ceilings would likely require some modifications of our programs as currently structured. But, great restructuring would be required of the E.U. if the playing field were to be truly leveled.

The WTO ceiling for amber box support in the U.S. is currently $19.1 billion. This amount represented more than 10% of the value of U.S. agricultural production in 1999. The U.S. used around $17 billion of the ceiling in 1999, equivalent to more than 9% of the value of agricultural production. Levels of support in 2000 were similar. However, the 5% limit, which the U.S. included in its August 2002 proposal is unlikely to be included in the final package of disciplines on domestic support. The U.S. has been working with E.U. and other participants to develop a compromise approach that would meet our goal of further harmonizing levels of support while encouraging countries to shift from amber box support to blue box and green box supports, which are less trade-distorting.

WG: The U.S. has long been a principal supplier of food to needy countries and relief agencies. Other countries, principally the E.U., allege that the U.S. has used food aid to dispose of surpluses with the aim of supporting domestic prices, and of supplanting commercial sales that could be made by competing food exporting nations, thereby providing the U.S. an "unearned" share in foreign markets. Have U.S. food aid programs been "trade distorting," and, if so, to what degree?

Veneman: The U.S. strives to ensure that our food aid programs do not distort commercial trade. We work with other governments, communities, multilateral organizations, and international and local non-governmental organizations (NGOs) to ensure our food aid is targeted to the most needy populations, as well as targeted to countries unable to support commercial imports for all of their needs. The U.S. also adheres to the "Principles of Surplus Disposal and Consultative Obligations" as laid out by the Consultative Subcommittee on Surplus Disposal (CSSD), an intergovernmental body under the auspices of the Food and Agriculture Organization (FAO). The U.S. analyzes market conditions in possible recipient countries to determine whether food aid will displace normal imports or adversely affects domestic production.

WG: What is the future role of the food aid program P.L. 480, Title I, Section 416(b) and P.L. 480, Title II?

Veneman: Direct feeding programs have priority, but support for longer-term food security is also essential. Funding for P.L. 480, Title II was increased to $1.8 billion in fiscal year 2003, from $945 million in fiscal year 2002, both to offset the reduction in food aid under the Section 416(b) program and to respond to unforeseen emergency needs.

This policy to increase P.L. 480, Title II funding and decrease Section 416(b) programming provides for more transparent funding and review of foreign food aid programs by the U.S. Congress. This approach should improve program planning by U.S. agencies, implementing governments, private voluntary agencies, and the World Food Program. Current Section 416(b) policy limits foreign donations to those commodities that have been taken into Commodity Credit Corporation (CCC) inventory as a result of price support operations. At present, only non-fat dry milk is available for Section 416(b) programming. In selecting P.L. 480, Title I agreements, priority is given to those countries demonstrating the greatest need for food, particularly those making efforts to improve food security and demonstrating the potential to become commercial markets.

Again, we would argue that restrictions to limit the availability of food aid at a time when the world is facing a critical level of hunger and malnutrition are highly inappropriate.

WG: Similar objections have been raised with regard to the credit programs provided by the U.S. to importing entities to facilitate the purchase of U.S. commodities. What changes are taking place or could we expect to take place in GSM Export Credit Guarantee Programs under a Doha Round agricultural agreement?

Veneman: The U.S. has been active in WTO negotiations on export credits. Our goal has been to ensure the development of export credit disciplines that increase transparency and effectively discipline the practices of all export credit providers, including state trading enterprises (STEs). The WTO membership has developed a draft set of rules to discipline all aspects of export credit programs and all providers of officially supported export credits. These rules remain under negotiation.

In addition to these rules, the U.S. agreed to disciplines in the U.S./E.U. framework that would reduce the subsidy component of export credits in parallel with export subsidies. This reduction would involve phasing down the repayment period (tenor) of any export credit programs.

WG: How does the world as a whole balance food aid needs with "fair trade?"

Veneman: The U.S. believes that food aid is a humanitarian issue, not a trade issue. It is for this reason that we have argued that rules governing food aid should be left to the appropriate international food aid organizations, such as the World Food Program (WFP), Food and Agriculture Organization of the United Nations (FAO), and Food Aid Committee, rather than developed by a trade organization such as the WTO. Given that other WTO members insist on developing food aid disciplines, we must ensure that such disciplines, as well as disciplines on other aspects of agricultural trade, do not leave behind the hungry people around the world.

WG: What does the U.S. seek with regard to trade of genetically modified crops?

Veneman: The Agreement on Sanitary and Phytosanitary Measures (SPS) is the principal set of WTO rules governing trade in biotech crops. The SPS Agreement does not dictate the level of health and safety protection countries can establish; it simply requires that health and safety protections have a legitimate basis in sound science. The U.S., along with many other countries, believes the SPS rules are effective and do not need to be renegotiated in the Doha Development Agenda (DDA).

The SPS Agreement encourages countries to rely on international standard setting bodies, such as the Codex Alimentarius Commission (CODEX), the International Plant Protection Convention (IPPC), and the Office of International Epizootics (OIE) to develop science-based guidelines on health and safety protections, including those for agricultural products derived from modern biotechnology. Within these and other international organizations, the U.S. will continue to work for the development of science-based standards for agricultural biotechnology.

WG: What trade barriers does the U.S. maintain that would be subject to negotiation under Doha — for Canadian wheat and durum for example?

Veneman: The U.S. was prepared in Cancun to negotiate all programs and all commodities in the WTO. This means we are willing to address all trade-distorting domestic supports, all tariffs, and all export subsidies. Other countries must show ambition and flexibility and come to the table prepared to negotiate on all products, even sensitive products.

We believe this is the only way to ensure global liberalization of agricultural trade. Trade distortions in sensitive sectors, like sugar for the U.S. and the E.U., wheat for Canada, and rice for Japan, can be addressed effectively only in the context of WTO negotiations.

WG: What would U.S. and world agriculture look like in the event of a successfully negotiated Doha Round agricultural agreement?

Veneman: The U.S. has the most competitive agricultural sector in the world. Our country is blessed with tremendous natural resources, but our greatest resource is the people who make a living from agriculture, whether in farming and ranching, researching and engineering, or manufacturing food products. Global trade liberalization for agriculture would reward those who can compete on the basis of efficiency and innovation — two things at which our farmers and ranchers excel.

Successful completion of the Doha Round negotiations would reduce many of the inequities that now plague world agricultural markets. The E.U. provides more than 90% of the world’s agricultural export subsidies. These are the most harmful and indefensible form of support and should be eliminated. Tariffs on agricultural products are wildly out of balance. The average tariff on agricultural products entering the U.S. is 12%, compared to the global average of over 60%. This disparity needs to be addressed by capping and substantially reducing all tariffs. On domestic supports, a handful of countries provide most of the subsidies, but the E.U. is by far the biggest subsidizer. Its allowable subsidy level is more than three times the U.S. allowed level. We have to address these disparities to make serious progress toward continued global agricultural reforms.

A successful Doha Round agriculture agreement would benefit U.S. agriculture not only by expanding markets and reducing market distortions, it would also help by generating economic growth, particularly in developing countries where the greatest future market opportunities lie for U.S. agricultural exports.

WG: Thank you.


A review of P.L. 480

Public Law (P.L.) 480, also called Food for Peace, is the common name for food aid programs established by the Agricultural Trade Development and Assistance Act of 1954, which seeks to expand foreign markets for U.S. agricultural products, combat hunger and encourage economic development in developing countries. Title I makes export credit available on concessional terms, for example, at low interest rates for up to 30 years. Donations for emergency food relief and non-emergency humanitarian assistance are provided under Title II. Title III authorizes a Food for Development program that provides government-to-government grant food assistance to least developed countries.