World Trade Organization: Progress in Agricultural Trade Negotiations May
Be Slow (Testimony, 03/07/2000, GAO/T-NSIAD-00-122).

Pursuant to a congressional request, GAO discussed the negotiations on
agricultural trade being conducted by the World Trade Organization
(WTO), focusing on: (1) U.S. and other countries' objectives in the
agricultural trade negotiations; (2) progress achieved during the 1999
WTO Seattle ministerial conference; and (3) prospects for future
negotiations.

GAO noted that: (1) WTO member countries intended to launch a new round
of multilateral trade negotiations covering agriculture and other issues
at their biennial Ministerial Conference last December in Seattle; (2)
the principal objectives of the United States and several other
agricultural exporting countries for liberalizing agricultural trade
included: (a) elimination of export subsidies; (b) a reduction in
trade-distorting domestic agricultural support programs; and (c) an
increase in market access for agricultural products in member countries;
(3) on the other hand, the European Union and other countries opposed
any attempt to eliminate export subsidies; (4) trade ministers meeting
in Seattle intended to conclude the ministerial conference with a
ministerial declaration that would launch a new round and set the agenda
for negotiations in each subject area, including agriculture; (5) there
is general agreement by conference participants that negotiations on
agriculture made the most progress of any area at the Seattle
conference; (6) countries had moved closer to reaching consensus on many
of the issues to be addressed and on the timeframes for completing
agricultural negotiations in a new round; (7) however, this progress was
essentially lost when countries could not reach consensus on an
agriculture text, and the conference was adjourned without launching a
new round or issuing a ministerial declaration; (8) despite the impasse
in Seattle, agricultural trade negotiations will resume this year in
Geneva as mandated by the Uruguay Round Agreement on Agriculture; (9)
however, it is unlikely that these talks will meet U.S. objectives for
liberalizing agricultural trade any time soon, for several reasons; (10)
the failure to issue a ministerial declaration may make it difficult for
negotiators in Geneva to build on the progress made in Seattle; (11)
there is some concern whether countries will be willing to make
concessions on agriculture without trade-offs in other areas, as would
have been the case in a trade round with a broader negotiating agenda;
(12) not much progress should be expected this year, since groundwork
must be laid before substantive negotiations can begin; and (13) for
example, WTO members have yet to submit proposals as to what should be
on the negotiating agenda for agriculture.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  T-NSIAD-00-122
     TITLE:  World Trade Organization: Progress in Agricultural Trade
	     Negotiations May Be Slow
      DATE:  03/07/2000
   SUBJECT:  Foreign trade agreements
	     International trade regulation
	     International economic relations
	     Foreign trade policies
	     International organizations
	     Agricultural programs
	     Agricultural policies
	     Exporting
IDENTIFIER:  Seattle (WA)
	     European Union
	     Japan

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Before the Subcommittee on International Trade, Committee on Finance, U.S.
Senate

For Release on Delivery

Expected at

10 a.m.

Tuesday,

March 7, 2000

WORLD TRADE ORGANIZATION

Progress in Agricultural Trade Negotiations May Be Slow

Statement of Susan S. Westin, Associate Director, International Relations
and Trade Issues, National Security and International Affairs Division

GAO/T-NSIAD-00-122

Mr. Chairman and Members of the Subcommittee:

I am pleased to be here today to provide observations about the negotiations
on agricultural trade being conducted by the World Trade Organization (WTO).
Specifically, my testimony will address (1) U.S. and other countries'
objectives in the agricultural trade negotiations, (2) progress achieved
during the 1999 WTO Seattle ministerial conference, and (3) prospects for
future negotiations.

My observations are based on our past and ongoing work; our review of WTO
and executive branch documents; related literature; discussions with experts
on the WTO and international trade; and interviews with U.S. government,
WTO, and foreign government officials from 15 countries. In addition, I,
along with members of my staff, attended the Seattle ministerial conference.

Summary

WTO member countries intended to launch a new round of multilateral trade
negotiations covering agriculture and other issues at their biennial
Ministerial Conference last December in Seattle. The principal objectives of
the United States and several other agricultural exporting countries for
liberalizing agricultural trade included (1) elimination of export
subsidies, (2) a reduction in trade-distorting domestic agricultural support
programs, and (3) an increase in market access for agricultural products in
member countries. On the other hand, the European Union and other countries
opposed any attempt to eliminate export subsidies.

Trade ministers meeting in Seattle intended to conclude the ministerial
conference with a ministerial declaration that would launch a new round and
set the agenda for negotiations in each subject area, including agriculture.
There is general agreement by conference participants that negotiations on
agriculture made the most progress of any area at the Seattle conference.
Countries had moved closer to reaching consensus on many of the issues to be
addressed and on the time frames for completing agricultural negotiations in
a new round. However, this progress was essentially lost when countries
could not reach consensus on an agriculture text, and the conference was
adjourned without launching a new round or issuing a ministerial
declaration.

Despite the impasse in Seattle, agricultural trade negotiations will resume
this year in Geneva as mandated by the Uruguay Round Agreement on
Agriculture. However, it is unlikely that these talks will meet U.S.
objectives for liberalizing agricultural trade any time soon, for several
reasons. First, the failure to issue a ministerial declaration may make it
difficult for negotiators in Geneva to build on the progress made in
Seattle. Second, there is some concern whether countries will be willing to
make concessions on agriculture without trade-offs in other areas, as would
have been the case in a trade round with a broader negotiating agenda.
Third, not much progress should be expected this year, since groundwork must
be laid before substantive negotiations can begin. For example, WTO members
have yet to submit proposals as to what should be on the negotiating agenda
for agriculture.

BACKGROUND

The United States is one of the largest importers and exporters of
agricultural products in the world. Although accounting for only about 5
percent of overall U.S. exports, agricultural exports were about $48 billion
in 1999. Furthermore, agricultural trade had nearly an $11 billion surplus
compared with an overall U.S. trade deficit of about $271 billion in 1999.
Also, U.S. markets for agricultural commodities are relatively open, with
average tariffs on most agricultural products very low compared to those of
many other WTO members. Consequently, the United States has pursued trade
liberalization in the agricultural sector and has sought to include
agriculture in previous rounds of multilateral trade negotiations.

The conclusion of the Uruguay Round in 1994 represented the first time that
the multilateral trading system undertook to substantially reform
agricultural trade. The Uruguay Round created the WTO, which provides the
institutional framework for the multilateral trading system. WTO administers
rules for international trade, provides a mechanism for settling disputes,
and provides a forum for conducting trade negotiations. There are two
agreements from the Uruguay Round that specifically address agricultural
issues-the Agreement on Agriculture and the Agreement on the Application of
Sanitary and Phytosanitary Measures (the SPS agreement).

The Agreement on Agriculture covers barriers to market access, such as
tariffs and quotas, subsidies for exporters, and support for domestic
agricultural producers. WTO members agreed to a 36 percent reduction in
average tariffs of agricultural products by developed countries by 2000, and
a 24 percent reduction by developing countries by 2004. In addition, the
Agreement on Agriculture required that WTO members' spending on export
subsidies be cut by 36 percent and that quantities subsidized be cut by 21
percent for developed countries by 2001. The agreement also required cuts in
certain types of domestic farm supports that could include price supports or
subsidies for fertilizer and irrigation. Article 20 of the Agreement on
Agriculture calls for renewed agricultural trade negotiations in the year
2000 to continue the long term objective of agricultural trade reform
through substantial progressive reduction in support and protection. This is
referred to as the "built-in agenda."

The SPS agreement sets out the basic rules for food safety and animal and
plant health standards that affect international trade. It allows countries
to set their own standards, but specifies that regulations must be based on
sufficient scientific evidence, and it restricts the use of unjustified
measures for trade protection.

In December 1999, trade ministers held their third biennial WTO ministerial
conference to launch a new round of multilateral trade negotiations covering
at least agriculture and services but potentially including other areas such
as industrial market access and government procurement. However, the
December ministerial conference failed to achieve its goal. After 4 days of
intensive talks, the conference was suspended on December 3 without agreeing
on a round or issuing a ministerial declaration or any other formal
documentation of its deliberations. As a result of the inconclusive nature
of the Seattle meeting, the status of the ministerial conference and the
prospects for a new round remain unclear. However, WTO members are scheduled
to renew agricultural trade negotiations this year, as mandated by article
20 of the Agreement on Agriculture.

COUNTRIES' OBJECTIVES ON AGRICULTURAL TRADE

In efforts to launch a new round of trade negotiations in Seattle, the
United States and other agricultural exporters sought to include additional
disciplines on export subsidies and domestic farm supports, as well as
market access issues, within the framework of agricultural negotiations. The
European Union (EU) and Japan, on the other hand, had reservations regarding
some of these issues and were more interested in making sure that certain
agriculture-related nontrade concerns, such as food safety and food
security, were addressed in the negotiations. Moreover, the EU and Japan
were not satisfied with negotiations limited to the "built-in agenda" issues
of agriculture and services. Rather, they called for a broad framework for
negotiations to bring many new areas, such as investment and competition
policy, under international disciplines.

The United States insisted that negotiations on agriculture address a number
of tough issues, including the elimination of export subsidies, the
imposition of substantial cuts in trade-distorting farm supports, and a call
for reductions in tariffs. Other major agricultural exporting countries,
known as the "Cairns Group," supported these goals. In addition, the United
States wanted the agriculture negotiations to introduce stronger disciplines
on the activities of state trading enterprises, and guarantees that
decisions on imports of new technologies, such as biotechnology, would be
based on scientific grounds and transparent (open) regulatory processes. At
the same time, the United States sought to limit the introduction of
nontrade issues, which the EU, Japan, and certain other countries wanted to
be considered in the agriculture negotiations. The United States also
opposed efforts to include U.S. export credit guarantee programs in the
negotiations. Finally, the United States wanted to avoid opening the SPS
agreement to renegotiation, because of the possibility that such a move
would undermine the principle that SPS measures must be based on scientific
principles.

The efforts by the United States and the Cairns group to seek to eliminate
agricultural export subsidies were difficult for the EU to accept. In
particular, European officials noted that they simply could not support
language calling for the "elimination" of all export subsidies as the
starting point of negotiations. Although the EU has been reducing subsidies
to agriculture since the Uruguay Round, it remains by far the world's
largest user of agricultural export subsidies. Export subsidies are a key
mechanism in the EU's Common Agricultural Policy, which is intended to
preserve farm incomes and rural economies by supporting high domestic prices
for a wide variety of agricultural commodities and products. EU member
states have taken a very strong position on maintaining the Common
Agricultural Policy, a central element in the EU's institutional system and
regarded as essential to its cohesiveness. Moreover, the EU and Japan
proposed that agriculture negotiations take into account the
"multi-functionality" of the agricultural sector and address issues such as
food security, food safety, environmental protection, animal welfare, and
the economic viability of rural areas.

The EU and Japan also viewed the prospect of launching a new round as an
opportunity to establish international rules in other areas of the global
trading system. In addition to agriculture and services, they proposed
including investment, competition policy, government procurement, and other
issues in a broad framework for negotiations. According to an EU official,
the EU expected that compromises on agriculture would be compensated by
concessions in these other areas. Although U.S. negotiators indicated
support for continued study of investment and competition policy by WTO
working groups, the United States and many other WTO members were unwilling
to include these issues in the negotiating agenda for a new round.

PROGRESS ACHIEVED AT SEATTLE MINISTERIAL CONFERENCE

There is general agreement by participants at the ministerial conference in
Seattle that negotiations on agriculture made the most progress of any area.
Many officials indicated that consensus was close on a draft text setting
forth issues to be addressed and on time frames for completing agricultural
sector negotiations in a new round. However, this progress in the
agricultural area was essentially lost when countries could not reach final
consensus on the text, and the ministerial conference ended without
agreement on a final declaration to set the agenda for a new round of trade
negotiations.

In an effort to give all WTO members an opportunity to take part in the
negotiations at Seattle, five large working groups, open to all member
delegations, were set up to address major issues, including agriculture.
U.S. and foreign officials agreed that the working group on agriculture made
the most progress in Seattle. Although many working groups were hampered by
the late selection of their chairs, the agriculture working group chair was
named 2 days before the conference officially began and was able to begin
work immediately on a draft agriculture text. In addition to two formal
working group meetings, the chair held over a dozen smaller meetings with
key delegations where most of the progress was made on developing a text.
The chair completed a draft text on agriculture on the next to the last day
of the conference, which contained only few areas of disagreement among
interested WTO members.

The negotiations proceeded in a "green room" process on Friday, the last day
of the conference. In the green room, negotiators worked with the draft
agriculture text; the negotiations on agriculture lasted 6 hours. By
mid-afternoon, the parties appeared to be close to reaching consensus, and a
draft text was issued that represented considerable compromise among the
interested countries.

The draft agriculture text included many provisions favored by the United
States. For example, it called for negotiations to cover, "substantial
reductions" in subsidies in the "direction of progressive elimination of all
forms of export subsidization." Similarly, the text called for negotiations
to cover, "substantial progressive reductions" in domestic supports to
agriculture. However, the United States was unable to get any specific
reference to state trading enterprises in the text, as it had sought. Some
non-trade concerns that the EU and Japan had wanted to introduce into the
negotiations were included, but they were to be addressed through WTO
transparent and non-trade distorting measures. Furthermore, these measures
were to be in compliance with WTO principles, in general, and with the
existing SPS agreement, specifically.

However, at the end of the conference, neither an overall agreement nor an
agreement on agriculture was reached, and no ministerial declaration was
issued. Thus, no agenda was set for a new round of negotiations. Several
factors led to the failure to reach consensus, including differences among
key players on certain issues, including agriculture. Although the
participants we interviewed generally agreed that progress had been made in
the agriculture talks, they noted that differences on some controversial
issues remained. For example, the EU still had difficulties with language in
the agriculture text that called for the elimination of export subsidies,
while Japan and Korea opposed wording on market access that might have ruled
out maintaining high tariffs on certain imports, notably rice. Ultimately,
the EU said it would not agree to the draft text on agriculture without
reaching consensus on the other issues in the negotiations, including
investment and competition policy.

It is impossible to determine whether an agreement on agriculture could have
been reached in Seattle because of the number of other factors that led to
the breakdown of the talks, particularly the intense disagreement on the
scope of the new round. According to U.S. government officials, failure to
reach consensus at Seattle was partly due to the unwillingness of the EU and
Japan to compromise on certain key aspects of the agriculture negotiations.
Some European officials told us they probably could have made concessions on
agriculture if the rest of the negotiations had been successful. However,
other European delegations told us they would not have been able to accept
the term "elimination" of subsidies in the text, and they would have pushed
for it to be deleted if the negotiations had continued.

ProGREss IN the Mandated Negotiations may be slow

Despite the failure to launch a trade round in Seattle, agricultural trade
negotiations will resume in late March, under article 20 of the Uruguay
Round Agreement on Agriculture. However, progress in achieving substantive
trade liberalization may have been impeded for several reasons. For example,
the failure to launch a new round may make it difficult for negotiators in
Geneva to continue where they left off in Seattle. Furthermore, negotiating
agriculture in isolation without the possibility of trade-offs in other
areas may be problematic. Finally, much groundwork must be laid before
substantive negotiations can begin.

First, the inconclusive outcome of the ministerial conference will make it
difficult for negotiators in Geneva to start where they left off in Seattle
and thus take advantage of any forward movement on the issues that occurred.
The draft agricultural text from Seattle will not be used as a starting
point for renewed negotiations; rather, article 20 will be the basis for the
negotiations. The draft text was more definitive than article 20 regarding
the specific issues on the negotiating agenda and time frames for the
negotiations. For example, article 20 only calls for the continuation of the
reform process with a stated long-term objective of making substantial and
progressive reductions in agricultural support. In contrast, as previously
noted, the draft Seattle text specifically called for, among other things,
negotiations to cover "substantial reductions" in subsidies in the
"direction of progressive elimination of all forms of export subsidization."
Additionally, the draft Seattle text contains interim benchmarks and a
deadline for the negotiations of December 15, 2002. Article 20, however,
does not set a final deadline or such interim benchmarks. Specifically, it
does not state when members must reach agreement on how the negotiations
will be conducted or when members must submit their negotiating offers.

The U.S. Trade Representative has maintained that the expiration of the
"peace clause" at the end of 2003 may be an incentive to negotiate on
agricultural subsidies by that date; after expiration of the peace clause,
for the first time WTO members will be able to challenge certain
agricultural export subsidies and domestic support measures of other
members. However, one senior European official did not believe that the
expiration date would act as an incentive to complete the negotiations.

Second, there is some concern about whether countries will be willing to
make concessions in agriculture without obtaining trade-offs in other areas,
as would have been the case in a round with a broader negotiating agenda. As
demonstrated in Seattle, trading partners with politically sensitive
agricultural sectors, such as the EU, want to show their constituents that
they have gained concessions in other areas in order to agree to reduce
agricultural protection and support. One EU trade minister recently stated
that, for this very reason, the mandated article 20 negotiations are
unlikely to move forward in the absence of a comprehensive new trade round.

Finally, several U.S. government officials told us that not much progress
should be expected during the first year of the built-in agenda negotiations
because many decisions about how to proceed have yet to be made.
Negotiations under the built-in agenda for agriculture will be conducted
under the auspices of special sessions of the Committee on Agriculture, a
standing committee within the WTO. The first special session of the
Committee on Agriculture will meet the week of March 20th. Although the
committee chair has yet to be named, U.S. and WTO officials told us that
they expect this to occur before the first special session. The first
meeting may cover procedural matters, such as agreeing on a work program for
the remainder of 2000, and setting a deadline for WTO members to submit
proposals on what should be on the negotiating agenda. A WTO official told
us that the deadline for submitting proposals will likely be sometime this
fall, or early next year.

- - - - -

Mr. Chairman and Members of the Subcommittee, this concludes my prepared
remarks. I will be happy to respond to any questions you may have.

Contacts and Acknowledgments

For future contacts regarding this testimony, please call Susan Westin or
Beth Sirois, at (202) 512-4128. Individuals making key contributions to this
testimony included Nina Pfeiffer, Juan Gobel, and Tim Wedding.

(711498)

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