Finance News

Duty exceptions a Doha linchpin for U.S. agriculture

By Missy Ryan

WASHINGTON (Reuters) - As global trade talks inch closer to a make-or-break moment, support from the influential U.S. agriculture sector may hinge on highly technical rules for protecting their goods from tariff cuts.

Cutting tariffs is a priority in the World Trade Organization's Doha round, but a proposal on the table would allow developed countries to shelter between 4 and 6 percent initially of their tariff lines as "sensitive" products.

Sugar, dairy, and possibly meat may wind up on the United States' list of protected sensitive products, although trade officials are mum for now about which of the roughly 700 agricultural tariff lines at stake they will seek to include.

The issue emerges as pivotal in the round, which began in 2001, as negotiators try to hash out tariff rules and reach a breakthrough in coming months.

If the impasse persists much longer, even Doha's biggest supporters believe a new world trade deal will be delayed for years by political turnover in the United States and Europe.

Shawna Morris, a trade expert at the National Milk Producers Federation, said the sensitive product exceptions are part of a careful calculus that will determine if the U.S. dairy industry will support a newly brokered trade deal.

"At the end of the day, we'll be looking at the net gain" in exports abroad compared to increased competition at home, Morris said, along with reforms in government supports. The stance is echoed across U.S. agribusiness.

Products designated as sensitive receive smaller tariff cuts than other goods, but countries are required to compensate by expanding quotas for imports at a lower tariff.

On the flip side, U.S. industries will track how much such exemptions -- and similar exemptions for developing countries, called "special" products -- will reduce the new sales potential they are hoping for in foreign markets.

IMPACT ON US TARIFFS

According to a recent study by top agricultural economists, sensitive product protections would have a relatively small impact on overall reductions in U.S . tariffs.

The paper, by David Blandford of Penn State University, Will Martin of the World Bank, and David Laborde of the International Food Policy Research Institute, examined the most recent WTO draft for agriculture, released in February.

It concluded that products likely to be named sensitive by the United States, which are among the most highly protected now, would in a new trade deal get a smaller, but still comfortable, tariff cushion.

The study found that sugar tariffs would drop by 22 percentage points -- a big change, but still less than the 30 percentage points it would fall without sensitive status.

One source in the U.S. sugar industry said new Doha imports might amount to as much as 500,000 tonnes a year. "Our interests really are in trying to keep the domestic market operating," he said.

The paper also finds that the United States also stands to gain significant market access, even with other countries' sensitive and special product exemption.

Without special and sensitive product exception, average applied tariffs facing U.S. farm exports would go from 15.7 percent before a deal to 9.6 percent. With those exceptions, the tariffs would settle at 12.5 percent.

"Major market opportunities will be created in meat, oilseeds, cereals" and other goods, the authors wrote, but some of the proposed access would be neutralized by exceptions, especially for goods like cereals, oilseeds and dairy.

U.S. dairy producers expect some other major markets, like Japan, Canada,and South Korea may protect dairy products.

MEANINGFUL ACCESS?

Gregg Doug, an economist with the National Cattlemen's Beef Association, expects some kind of improvement in access to important markets like the European Union, even if meat shows up on the sensitive products list there.

"But will it be meaningful? Don't know yet," he said.

Crawford Falconer, who chairs the Doha agriculture talks, may provide additional details on special and sensitive product rules when he releases a revised negotiating draft next week.

When approaching the Doha round, Blandford, one of the study's authors, said that U.S. industries shouldn't fear an onslaught of new imports, or markets closed by developing country exemptions. "It is a pretty good deal," he said.

Not everyone in Washington shares that view.

Such exceptions, in addition to the possibility that trade partners will use health or safety concerns to block U.S. exports, "dampen the optimism over the Doha round as a market opening mechanism," said Gary Blumenthal, an agriculture expert at World Perspectives consultancy.