EU Blocks Decision on End Date For Export Subsidies at WTO Ministerial

Original Publication Date: 
15 December, 2005

HONG KONG--The European Union stood firm Dec. 16 in resisting demands from key trading partners for an agreement at the World Trade Organization's Hong Kong ministerial conference on an end date for the elimination of export subsidies.

Officials attending a late-night "green room" meeting attended by 26 trade ministers said Brussels refused to budge in its opposition to fixing a date until its demands on full parallelism in the treatment of other forms of export support are met.

The ministers also discussed nonagricultural market access, officials added, again with little progress to report (see related report in this section).

In contrast, ministers received a draft text from the Hong Kong "facilitator" on development issues that could serve as the basis for a decision on duty-free and quota-free treatment for least developed country (LDC) exports at the Dec. 13-18 conference (see related report in this section).

The ministers spent three and a half hours discussing export subsidies, with the focus almost exclusively on fixing the date for elimination.

With WTO members already having abandoned their goal of finalizing a formula and figures for reducing farm tariffs and cutting agricultural subsidies, an export subsidy elimination date is increasingly viewed by some members as one of the few substantive outcomes WTO members could deliver on agriculture from Hong Kong.

But the EU insisted that WTO members must first agree on how to eliminate the subsidy element of other export support programs, including export credits, credit guarantees, and insurance; food aid; and the exporting activities of state-trading enterprises, before the date for eliminating these subsidies can be negotiated.

The EU's views on what constitutes a subsidy are viewed as extreme by the main targets of its demands, the United States (for export credits and food aid), Australia, Canada, and New Zealand (state trading enterprises). On food aid, for example, the EU insists that such aid be given exclusively in the form of cash grants rather than in-kind food shipments, something the United States warns would have the effect of discouraging such assistance in a time of food aid shortages.

Agreement was reached in August 2004 on the need to eliminate export subsidies, with the date to be decided later in the farm trade negotiations. The United States has called for a 2010 end date to phase out export subsidies.

Hope for Help From Lamy

U.S. Trade Representative Rob Portman described the Dec. 15 green room talks as "constructive." He said there was "no surprise" at the resistance shown to the idea of setting a date for export subsidy elimination.

"There's nothing yet, but we're hoping for the [WTO] director-general to come up with something tomorrow [Dec. 16] to help us," Portman added.

One senior official speaking on background said the hope was that WTO Director-General Pascal Lamy would produce a draft text on export subsidies that could serve as the basis for a compromise on a date. But other officials, including John Tsang, the Hong Kong commerce secretary chairing the ministerial conference, stressed that the solution would have to come from members rather than the WTO chief.

Australia's trade minister Mark Vaile downplayed talk of a setback in the negotiations.

"This is the process that takes place in the WTO," declared Vaile. "It takes a long time to work through the system and find consensus. That's not unusual."

EU Criticized

But one African delegate who declined to be named said the EU's excessive demands on parallelism were a clear tactical move to avoid any decision on the elimination date in Hong Kong.

Brussels's strategy demonstrated "hypocrisy" with its professed desire to raise the development profile of the Doha Round talks, the official added. The EU's 3 billion-plus euros in annual export refund payments have been blamed for driving out developing country farm exports in third-country markets.

On the duty-free and quota-free initiative, the facilitator, Guyana's trade minister Clement Rohee, circulated a draft text that would fall just short of demands from the EU and developing countries for comprehensive product and country coverage.

U.S., Japanese Positions

The United States and Japan want to exclude certain products from the initiative, with Washington particularly keen to shield its textile industry from increased imports from more competitive LDC garment producers, in particular Bangladesh and Cambodia. Canada also wants to maintain its duty-free quota restrictions on LDC farm imports subject to supply management restrictions, i.e. dairy, poultry, and eggs.

The text provides some flexibility to these three countries. WTO members would agree to grant duty-free/quota-free treatment to imports from all LDC countries but would have the right to fix the percentage of products to be covered by the initiative. The text would then commit the three countries to "progressively" lift these percentages over a fixed time period, with the ultimate aim of achieving comprehensive coverage.

The draft text does not say when the LDC duty/quota initiative should be implemented; the United States has said that it would do so at the end of the Doha Round of trade talks rather than providing the benefits immediately. In addition, the text says the benefits should be provided on a "lasting basis," dodging the question of whether duty/quota free treatment should be permanent or, as the United States argues, provided on a temporary basis until the beneficiary country is no longer classified as least developing.

Officials said no discussion took place in the green room meeting on the text but that ministers were expected to give their reaction in further discussions on the issue scheduled for Dec. 16.

Countries taking part in the green room discussions are Argentina, Australia, Brazil, Canada, China, Costa Rica, Egypt, the European Union, Ghana, Hong Kong, India, Indonesia, Jamaica, Japan, Malaysia, Mauritius, Mexico, New Zealand, Nigeria, Senegal, Singapore, South Africa, Switzerland, Thailand, the United States, and Zambia.

U.S.-EU Far Apart

The U.S. officials voiced some frustration Dec. 15 with the EU's negotiating position, arguing that Brussels was setting conditions that suggested that it was not prepared to accept a deal on parallelism in Hong Kong.

Commenting on the talks that have taken place so far in Hong Kong on agriculture, a senior U.S. official speaking on condition of anonymity expressed disappointment with the lack of progress made to date, not only on export subsidy issues but also on the treatment of sensitive products under the formula for tariff cuts.

"We're working hard and trying to find ways of making real tangible progress," said the official. "The disappointing part has been the substantive engagement. We've seen quite entrenched positions, lack of flexibility, and no real progress."

EU Trade Commissioner Peter Mandelson insisted that progress on an elimination date depended on other countries--the United States on export credit and food aid, for instance, or Australia, Canada, and New Zealand on state trading enterprises--rather than Europe.

"We await for others to come around to what they need to do so that we can proceed in parallel or not at all," Mandelson said.

More Interest in Export Subsidy Issue

Top trade officials from the United States, the EU, Australia, Brazil, India, and Japan agreed at a Dec. 2-3 meeting in Geneva to set a March 1, 2006, deadline for settling their differences on the parallel treatment of export subsidies. EU officials said at the time that this meant no decision on an end date would be made in Hong Kong.

But with WTO members already having abandoned their goal of finalizing the formula and figures for reducing farm tariffs and cutting agricultural subsidies at Hong Kong, farm producing nations have turned back to the export subsidy date as one of the few substantive outcomes they could deliver to their domestic constituencies from the ministerial gathering.

The EU is by far the largest provider of direct export subsidies among WTO members, with spending estimated at over 3 billion euros ($3.6
billion) in 2004. WTO members agreed back in August 2004 to the elimination of export subsidies at a date to be determined.

Food Aid Issues

On food aid, U.S. officials said that the EU was taking a harder position regarding the form of such assistance, despite earlier suggestions of flexibility. Brussels is now reverting back to its earlier stand that food aid should only be provided in the form of cash grants rather than in-kind aid and only for clearly-defined emergency situations. U.S. officials also complain that the EU has refused to define "emergency situations."

Sources close to Brussels said the EU was continuing to insist on full cash payments as an opening bid in the talks but that EU officials were expected to compromise. "There has to be flexibility on the issue," the source said.

In Washington, D.C., Sen. Charles Grassley (R-Iowa), chairman of the Senate Finance Committee, accused the EU of "creating sideshows" over issues such as food aid.

"The reason for these sideshows is obvious," Grassley said in a written statement. "The EU is scared that we'll get to the biggest issue in these talks. And that's agricultural reform. They know they're vulnerable on agriculture. So they're setting little fires all over the place, like with food aid and duty-free, quota-free access. That way, negotiators will spend the week trying to put out these little fires that the EU is stoking. Negotiators will wake up on Sunday with these little fires smoldering around them and say, 'oops, we didn't have time to get to ag reform.' To some, this would be a successful outcome from Hong Kong."

Grassley said that WTO members should focus on agricultural market access instead.

"There's no separate development agenda, as the EU would like everyone to believe," he continued. "Market access is the development agenda ....
It's time for our trading partners to get serious, step up to the plate, and show some leadership. Otherwise, the Doha Round will remain stalled."

Export Credit Positions

On export credits, U.S. officials said the last major outstanding issue for new disciplines concerns the period for determining whether an export credit agency is self-financing. The United States has accepted the EU's demand that such agencies should charge fees for credit that cover the cost of extending such financing; the question is over what period the agency's lending practices should be examined to determine whether it is self-financing.

The United States has proposed a 15-year determination period. In contrast, the EU wants the determination period fixed at one year.

An EU official said Brussels was expected to put forward a paper to a meeting of trade ministers from 26 key WTO member countries late Dec. 15 that would elaborate its position on a number of issues, including its views on what parallelism in the treatment of export subsidies means.