Agriculture in the WTO Doha Round: The Framework Agreement and Next Steps
CRS Report for Congress
Agriculture in the WTO Doha Round:
The Framework Agreement and Next Steps
Charles E. Hanrahan
Senior Specialist in Agricultural Policy
Resources, Science, and Industry Division
Summary
Member countries of the World Trade Organization (WTO) reached agreement on
July 31, 2004 on a framework for negotiating agricultural trade liberalization in the
multilateral trade round known as the Doha Development Agenda (DDA). The
framework, part of a work program for all negotiating issues in the DDA (non-
agricultural market access, services, trade facilitation, etc.), sets the stage for
negotiations, now underway, to determine specific targets or formulas (“modalities”) for
curbing trade-distorting domestic support, reducing trade barriers and eliminating export
subsidies. A draft report on agriculture modalities is expected by July 2005, but
disagreement over a reduction formula for agricultural tariffs has slowed preparation of
the report. If agreed to, the agriculture modalities report would be on the agenda of the
WTO’s Sixth Ministerial Conference in December 2005, and negotiations could be
completed during 2006. In the meantime, the President has requested a two-year
extension of trade promotion authority procedures (TPA, also known as fast-track) for
considering legislation to implement trade agreements. DDA negotiations, which could
affect farm programs and spending levels authorized in the 2002 farm bill, could be
wrapping up as Congress begins considering the next farm bill. This report will be
updated as events warrant.
Introduction
The WTO’s July 31 work program for completing multilateral trade negotiations in
the Doha Development Agenda (DDA) includes an overall decision to complete the
negotiations launched in Doha, Qatar, in November 2001 with annexes that lay out
negotiating frameworks for agriculture and other DDA issues.1 WTO member countries
failed to reach such an agreement at their Fifth Ministerial Conference in Cancun,
Mexico, in September 2003. Agreement now means that negotiations will continue into
1 The framework agreement known as the Doha Work Programme: Decision Adopted by the
General Council on August 1, 2004 can be viewed at [http://www.wto.org/english/tratop_e/
dda_e/ddadraft_31j ul04_e.pdf].
Congressional Research Service ˜ The Library of Congress
the next phase to determine negotiating modalities. Failure to agree on a framework,
conversely, would have created uncertainty about prospects for concluding the DDA and
about the viability of the WTO as a global forum for negotiating further trade
liberalization. According to several economic analyses, failure to further liberalize world
trade would mean foregone opportunities for economic gains for developing and
developed countries alike.2 Other analysis suggests, however, that trade liberalization also
would impose adjustment burdens on many agricultural sectors, including some
commodity sectors in developed countries.3
The Agriculture Framework
The agriculture framework (Annex A of the July 31 Decision) addresses the three
“pillars” of agricultural trade liberalization identified in the 2001 Doha Ministerial
Declaration: substantial reductions in trade-distorting domestic support; the phase-out,
with a view to total elimination, of all export subsidies; and substantial improvements in4
market access. The framework now becomes the basis for establishing specific formulas,
schedules, end dates and other parameters (modalities) for achieving those objectives
during the next phase of negotiations now underway.
Domestic Support
The framework agreement provides that reductions in overall trade-distorting support
will be accomplished using a “tiered” or “banded” approach. The tiered formula will be
applied to achieve “harmonization” in the levels of support, i.e., the WTO member
countries having higher levels of trade-distorting domestic support will make greater
overall reductions. As a “down payment” on the overall cut, the framework calls for a
20% reduction from bound (maximum permitted) levels of support in the first year after
negotiations are completed.
Not only will member countries make an overall reduction in support, but separate
reduction commitments will be made for the components of trade-distorting support, i.e.,
amber box (most trade-distorting), de minimis (a category of spending now exempted
from cuts if it accounts for less than 5% of the value of production), and blue box
2 World Bank, Global Economic Prospects: Realizing the Development Promise of the Doha
Agenda, 2004. This World Bank study estimates that “a deal to lower global trade barriers could
add more than $500 billion a year to global incomes by 2015”; it can be viewed at
[http://www.worldbank.org/prospects/gep2004/full.pdf.]; University of Michigan, School of
Public Policy, CGE Modeling and Analysis of Multilateral and Regional Negotiating Options,
January 23, 2001. This study estimates that world welfare would increase by $613 billion with
reductions in world agricultural, industrial and service barriers (available at [http://www.
spp.umich.edu/rsie/workingpapers/wp.html]. Such analyses illustrate the potential impacts of
trade liberalization; real outcomes may not match the studies’ results if their assumptions are not
matched by the reductions in barriers in the negotiated agreements.
3 Daryll E. Ray, “World Bank Study: Trade liberalization would shut down two-thirds of EU’s
grain and oilseed production,” AgDM Newsletter, January 2004, viewed at [http://www.
extension.iastate.edu/agdm/articles/others/RayJ ano4.htm] .
4 The Ministerial Declaration launching the DDA negotiations can be viewed at [http://www.
wto.org/ english/tratop_e/dda_e /dda_e.htm#dohadeclaration].
(payments based on fixed areas and yields; a fixed level of production or a fixed number
of livestock). Member countries may make greater than negotiated reductions in each
component of support in order to achieve the overall required cut in trade distorting-
support.
Amber box support will be reduced using a harmonizing “tiered” or “banded”
approach, and product-specific amber box support will be capped at average levels
according to a methodology to be negotiated. The definition of the blue box will be
modified to include direct payments that do not require production (e.g., U.S. counter-
cyclical support), and capped at 5% of a member country’s average total value of
agricultural production during an historical period. Additional blue box disciplines will
be negotiated. De minimis spending also will be reduced according to a formula to be
negotiated. Non-trade distorting measures (green box) will be reviewed to ensure that
they have no, or at most minimal, trade distorting effects or effects on production.
Developing countries will receive special and differential treatment for all types of trade-
distorting support in the form of longer implementation periods and lower reduction
commitments.
The harmonizing approach in the agriculture framework suggests that others, notably
the European Union (EU), would have to cut trade-distorting support more than would
the United States. In the EU case, its bound level of amber box support is currently
(depending on exchange rates) around $80 billion while the U.S. bound level is $19
billion. According to U.S. trade negotiators, the United States should have no difficulty
in meeting the aim of cutting the sum of trade-distorting support levels by 20% in the first
year as reductions would be made from “bound”, or permitted, rather than “applied”, or
actual, levels.5 The U.S. Dept. of Agriculture (USDA) estimates that the U.S. bound level
of domestic support could be as high as $49 billion (the current U.S. bound level of
support for amber box spending plus estimates of the future bound levels of de minimis
and blue box spending), while actual spending could be considerably less, rendering the
20% cut in the first year meaningless for the United States. However, depending on the
outcome of the negotiations, future cuts could be higher. Some in the 108th Congress
expressed opposition to cuts in “safety-net programs” put in place by the 2002 farm bill,
as would be required by the agriculture framework agreement.6
Export Competition
The agriculture framework stipulates that by “the end date” to be negotiated, WTO
member countries will eliminate: export subsidies; export credits, credit guarantees or
insurance programs with repayment periods beyond 180 days; terms and conditions for
export credits ... not in accordance with disciplines to be agreed including, inter alia,
interest payments, minimum interest rates, and minimum premium requirements; trade
distorting practices of exporting State Trading Enterprises (STEs); and provision of food
5 See for example “Draft Ag Trade Framework Provides Solid Opportunity for Ambitious
Reform”, Press release, International Food and Agricultural Trade Policy Council, July 30, 2004;
and “Differing Views on Domestic Support Cuts in WTO Framework Deal,” by Jim Weisemeyer,
viewed at [http://www.agweb.com].
6 See for example, “Bush Administration’s Trade Negotiations Hurt Family Farms,” press release
dated August 3, 2004, Sen. Tom Daschle.
aid not in conformity with disciplines to be agreed, including disciplines to prevent
commercial displacement. Developing country WTO members will benefit from longer
implementation periods for phasing out export subsidies, with differential treatment for
export credit programs provided in favor of least-developed and net food-importing
countries. STEs in developing countries which enjoy special privileges to preserve
domestic price stability and ensure food security will receive special consideration for
maintaining monopoly status.
The elimination of EU export subsidies has been a longstanding objective of U.S.
agricultural trade policy as has requiring greater transparency in STEs such as the
Canadian Wheat Board. In exchange for agreeing to the elimination of its export
subsidies, however, the EU demanded and got agreement that disciplines would be
negotiated for all forms of export subsidies, including U.S. export credit guarantees and
food aid. USDA’s export credit guarantee programs, which have provided guarantees for
about $4 billion of agricultural exports annually in recent years, would be substantially
altered by the agreement. As presently constituted, these programs can provide credit
guarantees from 180 days to 10 years.7
U.S. food aid for humanitarian relief and development projects (e.g., P.L. 480 Title
II donations) which meet the criterion of not displacing commercial sales appear to be
unaffected by the framework agreement. Earlier versions of the framework implied that
commodity food aid would be eliminated in favor of cash grants. However, the
framework does indicate that “...(t)he question of providing food aid exclusively in fully
grant form” will be addressed in the negotiations. The role of international organizations
vis-a-vis WTO member countries’ food aid programs will also be addressed in the
negotiations.
Market Access
The agriculture framework calls for all WTO member countries (except the least
developed countries — LDCs) to reduce import tariffs using a tiered formula.
Harmonization of tariff levels will be achieved through deeper cuts in higher tariffs.
Tariff reductions will be made from bound, not applied, rates; higher tariffs will be
subject to deeper cuts with some flexibility for “import-sensitive” products. The number
of tiers (bands) and the tariff reduction for each band remain to be negotiated. A
prerequisite of modalities for reducing tariffs is agreement on a formula for converting
specific tariffs (e.g., cents per kilogram) into ad valorem equivalents (tariffs expressed in
percentages). WTO countries may designate a number (to be negotiated) of sensitive
products for which “substantial improvement” in market access must be achieved through
a combination of tariff quota increases and tariff reductions applied to each product.
Developing countries will be able to designate a number of products as “special
products,” based on criteria of “food security, livelihood security, and rural development
needs.” These special products will be eligible for more flexible treatment as regards
market access. A Special Safeguard Mechanism (SSM) will be established for developing
countries, while a Special Agricultural Safeguard ( SSG) for developed countries (as
currently provided for in the Uruguay Round Agreement) remains under negotiation.
(Safeguards permit reversion to previous tariff levels if imports surge.)
7 Details on USDA’s export credit guarantee programs are at [http://www.fas.usda.gov/excredits].
Other market access issues to be negotiated include tariff escalation (where value-
added products from developing countries receive higher tariffs than unprocessed
products) and the erosion of trade preferences for developing countries. The framework
declares that developed countries, and developing countries in a position to do so, should
provide duty-free and quota free market access for products of the LDCs.
Although the agreement is less specific on market access than on the two other
pillars, the United States succeeded in getting a number of important principles into the
agriculture framework. These include harmonization of tariffs (deeper cuts in higher
tariffs), a single approach to improving market access for both developed and developing
countries alike, and applying the principle of “substantial improvement” to all, including
sensitive, products. However, the United States yielded greater flexibility to the EU and
a group of developed/industrialized countries (e.g., Japan, Switzerland, Norway, South
Korea) in their selection of import-sensitive products. Market access conditions for
special products from developing countries also remain under negotiation. Some
maintain that the market access provisions are not as ambitious as proposed by the United
States in its comprehensive negotiating proposal,8 but others maintain that the
framework’s approach to tariff cuts and market opening is stronger than the proposal that
was under consideration during the Cancun Ministerial Conference.9
Cotton
Although cotton was not mentioned in the Doha Ministerial Declaration, a number
of African cotton producing and exporting countries succeeded in getting into the
framework their proposal for eliminating all trade-distorting cotton subsidies and
providing compensation for economic losses of African cotton producers while subsidies
were phased out.10 The United States, while not agreeing with the African proposal,
worked with the African countries on a formulation in the framework to address the
cotton initiative.11 The framework stresses the importance of the cotton initiative,
provides that work on cotton will be carried out under all three pillars, and provides that
the DDA will work to achieve “ambitious results expeditiously.”
Cotton is the only commodity specifically mentioned in the framework. Singling out
cotton is an indication of the crucial role developing countries played in the framework
negotiations. As the WTO operates on the basis of consensus, each of its 147 member
countries had to agree to the framework before it could be adopted. Disagreement over
cotton could have jeopardized agreement on the entire framework. Ultimately, the
Africans agreed to keep negotiations on cotton within the agriculture negotiations, while
8 The 2000 U.S. comprehensive negotiating proposal for WTO agriculture negotiations can be
viewed at [http://www.wto.org/english/tratop_e/agric_e/ngw15_e.doc].
9 Draft Cancun Ministerial Declaration is at [http://www.wto.org/english/thewto_e/minist_e/
mi n03_e/draft_decl_rev2_e.htm] .
10 See Poverty Reduction: Sectoral Initiative in favour of Cotton: Joint Proposal of Benin,
Burkina Faso, Chad, and Mali (TN/AG/GEN/4, May 16, 2003) at [http://docsonline.wto.org/
DDFDocuments/t/tn/ag/ GEN4.doc].
11 For background, see CRS Report RS21712, The African Cotton Initiative and WTO Agriculture
Negotiations.
the United States committed “to achieve ambitious results expeditiously.” And both
endorsed the framework with these provisions. Frustrated by the pace of negotiations on
cotton, the African producing countries have proposed accelerating the elimination of
cotton subsides and the provision of compensation for adverse market effects. The United
States maintains its position that changes in cotton subsidies should be part of an overall
DDA agriculture agreement.12 U.S. cotton subsidies are also threatened by Brazil’s
successful challenge to them in WTO dispute settlement.13
Next Steps
The work program does not establish a new deadline for completing the DDA,
originally January 1, 2005, but does fix December 2005 as the date for the Sixth WTO
Ministerial Conference, to be held in Hong Kong. Agriculture negotiations in the
modalities phase are proving no less difficult than the ones just completed on the
framework. If modalities are agreed to by July 2005, they would be on the agenda of the
Hong Kong Ministerial. With agreement on agriculture modalities, DDA negotiations
could be completed during 2006, assuming agreements in other negotiating areas.
If DDA negotiations do result in a trade agreement, then Congress could presumably
take up legislation to implement it under trade promotion authority (TPA), or fast-track,
procedures (Title XXI of P.L. 107-210). Under fast-track, if the President meets the trade
negotiating objectives and satisfies consultation and notification requirements in P.L. 107-
210, then Congress would consider legislation to implement a trade agreement with
limited debate, no amendments, and with an up or down vote. TPA, however, covers
trade agreements signed by June 1, 2005. A two-year extension is possible if the President14
requests it, which he has done, and Congress does not disapprove. If the extension is
granted, then the effective deadline for U.S. participation in the DDA round and for
congressional consideration of implementing legislation becomes June 2007. That time
frame also coincides with the expiration of the 2002 farm bill in 2007 (P.L. 107-171).
Farm bill changes may be needed to meet U.S. commitments in a final DDA agreement
on agriculture.
12 “The U.S. and Cotton” in Washington Trade Daily, Vol. 14, no. 86, May 2, 2005.
13 See CRS Report RL32571, U.S.-Brazil WTO Cotton Subsidy Dispute.
14 2005 Report to the Congress on the Extension of Trade Promotion Authority, available at
[http://www.ustr.gov/Document_Library/Reports_Publications/2005/2005_T PA_Report/
Section_Index.html?ht=]. An extension disapproval resolution (S.Res. 100) was introduced in
the Senate on April 6, 2005.