Dairy trade policy

Dairy Field, Aug 2003

WWTO negotiations in Cancun critical to U.S. dairy export growth.

U.S. dairy processors should be watching next month's World Trade Organization (WTO) ministerial in Cancun closely. Outcomes from the Doha Round will determine new global trade rules and even have the potential to shape the next U.S. Farm Bill.

One of the primary goals of the 2001 Doha Round called for reforms in agricultural trade rules by the end of 2004. To date, each country has had an opportunity to present an offer, and WTO agriculture committee chairman Stuart Harbinson has attempted to draft a compromise. Now trade ministers from the WTO's 146 members are scheduled to come together for five days in September to reach an agreement dictating how agricultural trade reform is to be accomplished.

"The agreement that comes out of Cancun will demonstrate how committed the U.S. government is to the food and agricultural sector," says Tom Suber, president of the U.S. Dairy Export Council (USDEC). "World dairy trade remains distorted by wide and inequitable disparities. It's time to harmonize the rules to create balanced trade."

The U.S. dairy industry, united among processors, exporters and dairy producers, has worked with U.S. negotiators for the past four years to provide constructive input throughout the Doha process. The industry's position is clear: eliminate export subsidies while harmonizing market access and domestic support outlays.

"This strategy gives us the best chance to close some of the gaps between the United States and the rest of the world," Suber says. "It reflects a substantial, bold leap of faith for the U.S. dairy industry to trust in the net benefits of more open, balanced trade."

Current trade rules, implemented after the Uruguay Round was signed in 1994, allow the European Union (EU) to provide massive export subsidies and domestic supports, while permitting many other countries to maintain restrictive trade barriers.

The EU doles out in excess of $1 billion annually in dairy export subsidies, more than 100 times what the United States is allowed to spend. These subsidies distort commodity prices and undercut U.S. exporters in key markets around the world.

Meanwhile, Europe, Japan, Canada and other developed and developing countries continue to impose tripledigit tariff rates that effectively bar dairy imports. This keeps U.S. products out of their markets, and at the same time leaves the United States relatively open to imports that might otherwise be sold somewhere else.

In addition, the EU provides significant trade-distorting domestic agricultural support, about triple what the United States spends, even though both agricultural sectors are the same size.

The U.S. negotiating position is based on addressing these three "pillars," Suber says. "The three elements are interrelated. Success requires gains on all three fronts. Our goal is harmony - to get to the point where distortions in world trade are, if not eliminated, then equitable, and everyone's playing by the same set of rules. Unless the negotiations make substantial progress in all three areas, our industry could remain as vulnerable, or even more so, than it is today."

To accomplish this goal, Suber is wary of conceding too much without getting reciprocal gains in return. "It's critical that our negotiators insist on concessions from our trade partners before we agree to open our markets further," he asserts. "To unilaterally disarm is the worst of all possible scenarios."

The U.S. negotiating position wasn't arrived at lightly, Suber adds. "It's easy to criticize the Uruguay Round for where it left us," he says. "But a decade ago, the U.S. dairy industry didn't appreciate the stakes as well as it does now and, in some ways, got left behind. Ignoring the process will guarantee a bad result."

"Though many would like it, we can't turn the clock back and return to a protected U.S. market with 300 percent tariffs on all products. Status quo isn't a desirable option either, because we'll be left with the inequities that we have now. Our best strategy is to use the Doha Round to try to correct as many of the existing inequities as we can."

Agricultural negotiations have already missed several self-imposed deadlines leading up to the Cancun ministerial. That's caused some observers to overstate the stakes of this particular meeting. "Lack of progress does not mean the Doha Round is doomed," Suber says.

The U.S. industry wants the Doha Round to end on schedule so that reform can begin, says Suber, "but we don't want movement towards a deadline to force a bad compromise." df