WTO Doha Round: Implications for U.S. Agriculture

WTO Doha Round:
Implications for U.S. Agriculture
Randy Schnepf and Charles Hanrahan
Specialist and Senior Specialist in Agricultural Policy
Resources, Science, and Industry Division
Summary
The World Trade Organization (WTO) Ministerial conference, held in Geneva
from July 21 to July 29, 2008, failed in its attempt to resolve the remaining outstanding
issues in the Doha Round negotiations. Prior to the collapse of talks, negotiators had
neared agreement on a “modalities framework” — specific formulas and timetables for
reducing trade-distorting farm support, tariffs, and export subsidies — that would
significantly lower allowable spending limits for certain types of U.S. domestic support,
eliminate export subsidies, and allow U.S. agricultural products wider access in foreign
markets. According to the latest draft of modalities and the current market outlook, U.S.
domestic farm program outlays would appear to fit within proposed tighter limits
without substantial modification. However, U.S. trade officials had expressed concern
that proposed modalities included too many exceptions for foreign importers to ensure
an adequate balance between U.S. domestic policy concessions and potential export
gains. The issue on which the Ministerial eventually foundered was a proposed Special
Safeguard Mechanism (SSM) that would allow developing countries like India and
China to impose tariffs higher than negotiated tariff rates (bound rates) if imports
surged. Absent an agreement on the SSM, the trade negotiations collapsed. Whether
or when Doha Round negotiations would continue is uncertain.
This report reviews the current status of agricultural negotiations for domestic
support, market access, and export subsidies, and their potential implications for U.S.
agriculture. It will be updated if events warrant.
Introduction
WTO multilateral trade negotiations have been ongoing since November 2001.¹ The
negotiations — referred to as the Doha Development Agenda (DDA) or simply the Doha
Round — encompass four broad areas of trade reform: agriculture, non-agriculture market
access (NAMA), rules, and services. This report focuses exclusively on agriculture,

¹ For more information, see CRS Report RL32060, World Trade Organization Negotiations: The
Doha Development Agenda, by Ian Fergusson.

where new disciplines are being negotiated in three broad areas — domestic agricultural
support programs, export competition, and market access — often referred to as the three
pillars of the Agreement on Agriculture. Doha Round negotiations have attempted to
maintain a balance across the three pillars by simultaneously achieving concessions from
exporters and importers alike in the form of tighter spending limits on trade-distorting
domestic support; elimination of export subsidies and new disciplines on other forms of
export competition; and expansion of market access by lowering tariffs, increasing quota
commitments, and limiting the use of import safeguards and other trade barriers.²
Domestic Support
The WTO categorizes domestic support programs by the degree to which they distort
price formation in agricultural markets. WTO member countries have agreed to specific
spending limits on the most highly market-distorting domestic programs — amber box
programs — while allowing member countries the ability to intervene in national
agricultural policy by shifting their support to AMS-exempt categories such as the green
box.³ In addition, certain market-distorting programs are exempted from spending
disciplines under special circumstances — the blue box contains market-distorting but
production-limiting programs, while the de minimis exclusions (one at the individual
product level, the other at the aggregate level) comprise market-distorting policies that are
deemed benign because spending outlays are small relative to a country’s overall
agricultural sector. In general, WTO trade negotiations have emphasized tightening
spending limits on the most highly market-distorting domestic programs, while capping
and reducing spending under the blue box and de minimis exclusions.
Tighter Spending Limits in Aggregate, and for Specific Products. The
current draft modalities propose cutting trade distorting domestic support simultaneously
across three levels (see Table 1 for details).
^!First, spending limits for each category — amber box, blue box, and the
two de minimis exclusions — would be reduced substantially.
^!Second, within each of these categories additional constraints would
apply to support for any individual product (i.e., product-specific limits).
^!Third, a global spending limit — referred to as the overall trade-
distorting domestic support (OTDS) — encompassing the four categories
of amber box, blue box, and the two de minimis exclusions would be
established at a level substantially smaller than the sum of their limits.
^!In addition, the qualifications needed for exemption status in the green
box have been tightened.
Additional Changes to Domestic Support. Two other potential changes could
have implications for U.S. farm policy. First, blue box criteria would be expanded to

² For current negotiating modalities, see “Revised Draft Modalities for Agriculture,”
TN/AG/W/3/Rev.3, Committee on Agriculture, WTO, July 10, 2008. For a lay overview of the
modalities, see “Unofficial Guide to the Revised Draft Modalities — Agriculture,” Information
and Media Relations Division, WTO, corrected July 17, 2008.
³ For more information, see CRS Report RL32916, Agriculture in the WTO: Policy Commitments
Made Under the Agreement on Agriculture, by Randy Schnepf.

include U.S. counter-cyclical payments (CCP) previously categorized as amber box.
Second, trade-distorting domestic support for cotton would be subject to greater cuts
(82%) than for the rest of the agricultural sector, and the product-specific blue box cap for
cotton would be one-third of the normal limit.
Table 1. U.S. Domestic Support: Average Outlays Compared with
WTO Commitments — Current and Proposed
^Av^e.^D^o^h^a^M^o^d^a^lⁱ^tⁱ^e^s^Prop^os^al^a
^C^a^tegory^1995-2005^Cu^rren^{t WT}^{O L}ⁱ^mⁱ^ts^{Specific to United States}
^$U^S^$U^S^$U^S
^B^illioⁿ^S^tatu^s^B^illioⁿ^S^tatu^s^B^illioⁿ
^Uⁿ^b^o^und^b^B^o^uⁿ^d^{, w}^ith^tier^e^d^cu^ts^{$13 or}
^O^T^D^S^$16.1^(du^e^t^o^bl^u^e^box⁾^$48.2 ^t^o^t^a^lⁱⁿ^g^66%^{or 73%}^$16.4
^A^m^{ber box}^Se^p^a^r^a^t^e^B^o^und
^(Bouⁿ^d^A^M^S⁾^$10.7^f^o^{r each}^couⁿ^t^ry^$19.1^T^{iered cu}^ts^totalin^g^60%^$7.6
^A^m^{ber box}^(per^c^N^o^{per produ}^ct^C^a^{pped at av}^erag^e^c
^produ^ct^bouⁿ^d⁾^v^ari^e^s^lim^it^—^s^u^pport^of^1995-²⁰⁰⁰^v^a^ri^es
^Bl^u^e^box^$0.6^Uⁿ^bouⁿ^d^—^Bouⁿ^d^at^2.5%^of^T^V^P^b^$4.9
^Bl^u^e^box^Bouⁿ^d^at^110%^{or 120%}
^(produ^{ct s}^p^ecifⁱ^c)^—^Non^e^—^of^2002-^{07 av}^e.^—
^{De Min}ⁱ^mis^:^Bouⁿ^d^at^5.0%^of^b^b
ⁿ^oⁿ^-^produ^ct^s^p^eci^fⁱ^c^$4.8^TV^P^$9.7^B^ouⁿ^d^at^2.5%^of^T^V^P^$4.9
^{De Min}ⁱ^mis^:^Bouⁿ^d^at^5.0%^of^b^b
^com^m^odity^s^p^ecifⁱ^c^$0.3^SCVP^$9.7^B^ouⁿ^d^at^2.5%^of^T^V^P^$4.9
^Uⁿ^b^o^und^b^u^t^tⁱ^ght^e^r
^G^r^een^Box^$55.6^Uⁿ^bouⁿ^d^—^q^u^alif^yⁱⁿ^g^cr^iterⁱ^a^—
^So^urce^{: “}^R^ev^is^{ed Draf}^{t Modalities}^f^o^{r A}^g^ricu^ltu^{re, T}^N^/A^G/W^/^4/R^e^v^.^{3, W}^T^{O, J}^u^ly^{10, 2008.}
^Defiⁿⁱ^ti^on^s^:
^A^M^S^—^A^g^g^r^eg^at^{e Meas}^u^r^{e of}^(t^rade-^dⁱ^s^t^o^rtⁱⁿ^g^dom^es^tⁱ^c^{) S}^u^pport^defⁱⁿ^e^{d i}ⁿ^A^g^reem^en^t^on^A^g^ri^cu^l^t^u^re.
^O^T^D^S^—^O^v^eral^l^T^r^ade-^Dⁱ^s^t^ortⁱⁿ^g^D^o^m^e^s^tⁱ^c^S^u^pport^{= A}^m^{ber box}^{+ Bl}^u^e^box⁺^{de m}ⁱⁿⁱ^mⁱ^s^ex^clu^s^ion^s^.
^SCVP^{— T}^o^{tal Valu}^{e o}^f^A^g^rⁱ^cu^ltu^r^a^{l P}^r^o^d^u^ctioⁿ^f^o^r^{a Sp}^ecifⁱ^{c Co}^m^m^o^d^ity^.
^{a. T}^h^{e l}^e^v^e^l^an^{d t}ⁱ^mⁱⁿ^g^of^propos^ed^redu^ctⁱ^oⁿ^sⁱⁿ^dom^es^tⁱ^c^s^u^pport^com^mⁱ^t^m^en^t^s^v^a^ry^acros^s^bot^h^cat^eg^ory
^aⁿ^d^W^T^O^M^e^m^b^e^r^st^a^t^us,^e^.^g.^,^d^e^ve^l^o^p^e^d^ve^r^s^{us d}^e^ve^l^o^pⁱ^{ng c}^o^unt^r^y^.^Se^e^so^ur^c^e^fo^r^m^o^r^eⁱⁿ^fo^r^m^a^tⁱ^o^n.
^b^.^B^a^se^d^oⁿ^t^h^e^a^v^e^r^a^g^e^a^nnua^l^t^o^t^a^l^va^l^u^e^o^f^a^g^rⁱ^c^u^l^t^u^r^a^l^p^r^o^d^u^c^tⁱ^o^{n (}^T^V^P⁾^fo^r^t^h^e^1995-^{2000 peri}^od.
^c.^Per-^produ^ct^ou^t^l^a^y^s^an^d^bouⁿ^d^s^v^a^ry^by^produ^ct^{, bu}^t^s^u^m^t^o^T^V^{P. U}^.^S^.^cal^cu^l^a^tⁱ^oⁿ^s^appl^y^t^h^{e proport}ⁱ^oⁿ^a^t^e
^av^erag^{e produ}^ct^-^s^peci^fⁱ^{c A}^M^S^f^r^om^t^h^{e 1995-}^{2004 peri}^{od t}^o^t^h^{e t}^o^t^a^l^A^M^S^f^o^{r 1995-}^2000.
U.S. Offers Tighter OTDS Bound. To motivate the Ministerial negotiations,
U.S. Trade Representative Susan Schwab announced on July 22, 2008, that the U.S.
would commit to an OTDS bound of $15 billion — compared with the modalities
proposed range of $13 to $16.4 billion (Table 1) and the current bound of $48.2 billion
— conditional upon other countries expanding their offers of markets access for U.S.
farm exports. On July 25, the United States accepted a further proposed reduction in its
OTDS to $14.5 billion as part of its conditional acceptance of a negotiating proposal put
forward by WTO Director General Pascal Lamy in an attempt to break a negotiating
deadlock.
What the Draft Modalities Might Mean for U.S. Agriculture. Under a
successful Doha Round Agreement, the United States would have to address any

inconsistencies between its WTO commitments and current U.S. farm policy authorized
by the 2008 farm bill (P.L. 110-246). The degree of changes to U.S. farm policy needed
to comply would likely hinge on market conditions. If a relatively high price environment
continues (as projected by USDA and most market analysts), then U.S. amber box outlays
could easily fall within the new limits with only modest changes. However, if market
prices were to return to levels substantially below support levels, then amber and blue box
outlays could escalate rapidly and threaten to exceed spending limits.⁴ Many market
analysts have also expressed concern that high revenue guarantees set by formula under
a new revenue support program — Average Crop Revenue Option (ACRE) — could lead
to larger-than-expected outlays if market prices were to weaken substantially in the future,
but such an outcome would depend on the participation rate in ACRE, which is still
unknown.
Revisions to the U.S. dairy program under the 2008 farm bill appear likely to
dramatically reduce annual dairy price support as notified to the WTO. Dairy program
changes coupled with a reclassification of the CCP as blue box could provide additional
flexibility in accommodating the tighter amber box limits. However, two commodities
— sugar and cotton — could pose problems in meeting product-specific AMS bounds.
Sugar was given higher loan rates in the 2008 farm bill, while for cotton the draft
modalities would impose larger, more immediate cuts to allowable domestic support. In
addition, cotton would confront a much tighter blue box support limit.
Market Access
Formula Tariff Cuts. The main approach to cutting tariffs in the modalities
agreement is a tiered approach based on the principle that higher tariffs have higher cuts.
Developed country tariff cuts would range from 50% to 66% or 73%, but subject to an
overall 54% minimum average cut. The cuts are made from legally bound rates which
could be substantially higher than rates actually applied. The range for developing
countries would be two-thirds of the equivalent tier for developed countries, subject to a
maximum average cut of 36%. Least-developed countries and so-called small and
vulnerable economies would be exempt from any tariff cuts. Very recent new members
of the WTO also would be exempt from new market access commitments.
Table 2. Tiered Formula Tariff Cuts
^Dev^e^lo^{ped Co}^unt^ries^Dev^e^lo^ping^Co^unt^ries
^Tⁱ^er^{Current tariff}^Reducti^on^{Current tariff}^Reduction
^Bottom^{0% to}#^20%^50%^0%^t^o^{< 30%}^33.3%
^L^o^w^e^{r Mi}^ddl^e^>^20%^t^o#^50%^57%^{> 30%}^t^o^{< 80%}^38%
^U^{pper Mi}^ddl^e^>^50%^t^o#^75%^64%^{> 80%}^t^o^{< 130%}^42.7%
^T^o^p^>^75%^66%^{or 73%}^a^{> 130%}^44%^{or 48.7%}^a
^{Average cut}^Miⁿⁱ^m^u^m^54%^Maxⁱ^m^u^m^36%
^{a. T}^o^{be determ}ⁱⁿ^{ed (T}^BD).

⁴ For more information, see Implications for the United States of the May 2008 Draft Agricultural
Modalities, by David Blandford, David Laborde, and Will Martin, International Center for Trade
and Sustainable Development (ICTSD), June 2008.

Deviations from Formula Cuts. Some products would have smaller tariff cuts
because of flexibilities that are provided for in the draft text. Foremost of these is the
designation (available to all countries) of sensitive for a limited number of products.
Developed countries could designate 4% or 6% (to be negotiated) of products as sensitive
and would apply tariff cuts that are one-third, one-half, or two-thirds of the modalities-
proposed formula tariff cut. Developing countries could designate 5.3% or 8% of
products with the same deviations from formula cuts. Countries that choose to designate
products as sensitive would have to “pay” for the designation with expanded market
access under a tariff quota (where quantities inside the quota are charged a lower or no
duty and the above quota tariff is determined according to the reduction formula.) The
larger the deviation from the modalities-proposed formula cut, the greater would be the
amount of in-quota market access (e.g., the maximum amount of in-quota access would
be 4% or 6% of domestic consumption if the full two-thirds deviation is applied).
Developing countries could also exempt some products from full formula tariff cuts by
designating some products as special (i.e., products deemed essential for food or
livelihood security, or rural development).
Safeguards. The draft modalities identify two options for the Special Agricultural
Safeguard (SSG) whereby countries can reimpose tariffs if, because of an import surge,
certain price or quantity triggers are met. For developed countries the SSG would either
be eliminated or the number of products eligible would be reduced. Developing countries
could continue to use the SSG. In addition, the text provides for a new Special Safeguard
Mechanism (SSM) that developing countries could apply to protect producers of special
products when imports surged.
Implications for the United States. In general, U.S. agricultural exports would
gain greater market access primarily in other developed countries. A recent study
suggests that application of the tiered formula would reduce the average applied
agricultural tariff faced by U.S. agricultural exporters from 18.7% to 9.1% in the absence
of sensitive and special product flexibilities, and from 18.7% to 13.2% when such
flexibilities are in effect.⁵ Although the sensitive product designation would limit the
market access opportunities somewhat, the number of such products would be limited.
Also, the higher tariff protection afforded by sensitive product status is partially offset by
new or expanded quotas access.
Talks Gridlock on SSM Proposals. In contrast to potential market access gains
under proposed tariff cut modalities, India and China proposed a modality for the SSM
that would allow developing countries to impose tariffs 15% above bound rates if imports
surged 10% above average trade levels. The U.S. counterproposal was for a higher SSM
trigger of 40% above average trade levels, and tariff increases that would not exceed
existing bound rates. According to USTR, the modality proposed by India and China
would reduce existing market access — for example, USTR estimated that a 10% trigger
would have enabled China to invoke the SSM in eight of the last ten years for soybeans,
and India to restrict trade in six of the last nine years for palm oil.

⁵ Ibid.

Export Competition
Export Subsidies. The draft modalities on export competition would require
developed countries to eliminate export subsidies by 2013; developing countries would
have until 2016. All existing WTO commitments concerning food aid, technical and
financial assistance in aid programs to improve agricultural productivity and
infrastructure, and financing of commercial imports of basic foods would be unaffected
by the elimination of export subsidies.
Export Financing. Government-supported export financing would be limited by
a maximum repayment period of 180 days and would have to be self-financing — that is,
returns must cover all costs. Export financing includes direct financing support (direct
credits, refinancing, or interest rate support); export credit insurance or reinsurance and
export credit guarantees; government-to-government credit agreements; and other forms
of government support such as deferred invoicing and foreign exchange risk hedging.
International Food Aid. All food aid transactions would be needs-driven; fully
in grant form; not tied directly or indirectly to commercial exports of agricultural or other
products; and not linked to market development objectives. Countries would refrain from
providing in-kind food aid which could have an adverse impact on local production or
could potentially displace commercial sales. Food aid (cash or in-kind) provided during
an emergency would be put in a Safe Box and be subject to more lenient disciplines.
Monetization (sale for cash) of in-kind food aid would be subject to stricter disciplines..
Implications for the United States. Elimination of agricultural export subsidies
has been a long-standing objective of U.S. trade policy. The 2008 farm bill repealed
legislative authority for the Export Enhancement Program (EEP), historically the largest
U.S. agricultural export subsidy program. The draft modalities would require the
elimination of the Dairy Export Incentive Program (DEIP), a much smaller export subsidy
program that was re-authorized in the 2008 farm bill. The United States has already made
changes in its export credit guarantee programs in response to an adverse decision in a
WTO cotton case. The intermediate guarantee program (GSM-103) has been eliminated;
risk-based interest rate determination has been established; and the 1% cap on origination
fees has been lifted. To meet requirements laid out in the draft modalities, the term for
GSM-102 short-term guarantees (six months to two years) would have to be limited to six
months. To meet the self-financing criterion, in the draft modalities additional interest
charges or fees could be required. Conforming to Doha Round modalities for food aid
could entail some changes in U.S. programs.
The Future of Doha Round Negotiations
Following the collapse of the Ministerial, WTO member countries reiterated their
commitment to completing the round for agriculture as well as for non-agricultural market
access (NAMA) and services. The NAMA and agriculture negotiating chairpersons will
issue status reports of the progress made in the July 21-29, 2008, Ministerial. These
reports would not have the standing of modalities, but would only reflect the state of play
including differences on issues that emerged during the Ministerial. No consensus has
yet emerged as to a resumption of Doha Round negotiations.