A plan by trade ministers to push ahead with negotiations on the Free Trade Area of the Americas glosses over major divisions on two of the most contentious issues, both of them focused on sensitive policies the U.S. has sought to leave out of the talks.

The first is the question of when and to what extent agriculture policies such as domestic support, export credits and food aid would be addressed in the hemispheric trade talks. The second dispute covers whether negotiators should develop rules on antidumping and countervailing laws, or whether they should apply World Trade Organization rules.

On agriculture, the U.S. beat back an effort by Mercosur countries to make a direct link between the start of negotiations to reduce agriculture and industrial tariffs and future negotiations for reducing domestic support and other trade-distorting practices. Mercosur wanted to ensure that tariff negotiations and negotiations on these other agriculture practices would begin at the same time. But this issue is not finally settled, and is likely to erupt into a new fight before the spring of next year, when market access talks are scheduled to begin.

On the trade remedy fight, the U.S. wants to block any consideration of FTAA-specific rules, and proposed as an alternative a commitment in principle that countries will apply WTO rules. But Mercosur and Chile succeeded in including language in the ministerial declaration that holds open the possibility that FTAA-specific rules would be negotiated in this area.

Going into negotiations last week, the U.S. took the position that disciplines on export subsidies and domestic support for agriculture should be carved out of the FTAA talks, and negotiated solely in the context of the World Trade Organization.

Mercosur sought to have these issues negotiated "in parallel" with talks to reduce tariffs. It also sought specific instructions to agriculture negotiators to prepare text addressing the individual areas of domestic support, export credits, and food aid, informed sources said. They also floated a proposal to have text prepared on sanitary and phytosanitary measures. The U.S. opposed this, and favored sticking to the SPS rules negotiated in the WTO. Some countries, including Brazil and Argentina, have been critical of U.S. SPS practices, which can involve lengthy risk assessments before some products are approved for importation into the U.S.

In the end, these specific references were omitted in favor of language instructing the agriculture negotiating group to make recommendations by April 2002 on a process for negotiations to scale back "non-tariff measures" and "all the other practices that distort trade in agricultural products, including those which have an equivalent effect to agricultural export subsidies," according to the document ministers agreed to April 7. This is the same date by which negotiators are to have decided on modalities for negotiating tariff reductions in agriculture and industrial goods, along with modalities for services, investment and government procurement negotiations.

Mercosur countries and Chile called the agriculture language a victory because it preserves the concept of "parallelism" or "equilibrium" under which negotiations to curb agriculture subsidies proceed at the same time as tariff reduction negotiations.

But unlike the sections dealing with negotiations to reduce tariffs, there is no deadline for countries to begin negotiating disciplines on these non-tariff barriers and other trade-distorting practices in agriculture. Instead, the Trade Negotiating Committee will evaluate the recommendations at its first meeting after April 2002 and decide then how to proceed.

In effect, the language only postpones until next year a decision on the explosive issue of how domestic support for agriculture will be addressed in the hemispheric trade negotiations, informed sources said. Mercosur countries will not be likely to proceed with negotiations to reduce tariffs unless a process is in place to negotiate reductions to agriculture subsidies.

Mercosur and other Latin American countries want the U.S. to reduce financial support to its farmers, which they believe makes it difficult for their own farmers to compete with U.S. agricultural products in home and third-country markets. In addition, they want curbs on U.S. export credit programs that allow buyers to borrow on more favorable terms than would be available from commercial banks.

The U.S. has not taken the position that these practices are non-negotiable, but has emphasized that they should be discussed only at the WTO, where the U.S. is facing off with its largest competitor in terms of agriculture exports, the European Union. If the U.S. were to concede to disciplines on its agriculture policies in the FTAA talks, it would spend the only negotiating capital it has to pressure the EU for reductions in its export subsidies, U.S. industry and government sources said.

The agreement by FTAA ministers to begin tariff negotiations in May 2002 adds urgency to the WTO negotiations on agriculture, ongoing since early in 2000. If those negotiations do not show progress over the coming year that could lead to reductions in export subsidies and trade-distorting domestic support, it will become even more difficult to persuade trading partners in the hemisphere that these areas should be left off the table in the context of the FTAA, according to industry and government sources.

"The process in Geneva now becomes more crucial," one U.S. official said. "If those talks break down, there could be negative consequences in the FTAA negotiations. It would make it harder to find a way out." Agriculture talks in the WTO are not expected to see major progress unless they become part of a larger trade package.

On trade remedy, ministers agreed to include language in instructions to negotiators that allowed them to accept a controversial U.S. proposal for how the agreement would deal with trade remedy.

The U.S. proposal, tabled in the negotiating group on subsidies, antidumping and countervailing duties, is an alternative approach to negotiating further disciplines to trade remedy laws. It states that countries in the hemisphere may continue to apply their antidumping and countervailing duty laws according to current practice, consistent with the WTO rules.

The proposal, known as Alternative B, was put forward not as part of the bracketed text in the negotiating group, but as a separate proposal that would be in lieu of considering any of the proposals included in the bracketed text.

Mercosur countries and Chile in the Trade Negotiating Committee meetings last week vigorously opposed the U.S. proposal, arguing that the negotiating mandate from ministers had been to all the negotiating groups, and that there should be no exclusions for any particular area. Likewise, no country may "opt out" of any specific commitments negotiated within the context of the entire FTAA, they said. The U.S. proposal had the effect of excluding trade remedy from negotiations, they felt.

In the end, ministers agreed April 7 to include text in the instructions to negotiating groups that "proposed texts already submitted and future texts should not render ineffective the obligations to be assumed by countries in relation to those substantive issues or areas on the FTAA negotiations agenda." This language is being interpreted differently by U.S. and its trading partners. It gives Mercosur countries a basis to claim that the U.S. trade remedy proposal must be considered on the same footing as all other bracketed text in the negotiating group, while allowing the U.S. to claim that the proposal in question is not an exclusion or derogation from the overall agreement.

Ministers also instructed the negotiating group on subsidies, antidumping and countervailing duties to recommend to the TNC by April 1, 2002 a process to negotiate further disciplines, "where appropriate," on subsidies, and a process for "improving, where possible, the rules and procedures for the operation and enforcement of trade remedy laws." A U.S. source pointed out that this does not exclude the possibility of an agreement by the group that further disciplines are not desirable or appropriate.

In addition, the group on competition policy was instructed to make recommendations to the TNC based on its evaluation of a study on Antidumping and Regional Trade Agreements. This study includes country-specific statistics on the use of AD and CVD laws in the hemisphere, and an inventory of how various regional trade agreements have addressed the issue of trade remedy laws. The negotiating group was tasked with identifying areas that may merit further consideration by the TNC.

FTAA Ministers April 7 approved a declaration that reaffirms the principle of a single undertaking by leaving all these issues on the table. The ministerial declaration will be approved by heads of state during the April 20-22 Summit of the Americas in Quebec City. Trade negotiators at that time are not expected to tackle anew the issues discussed in Buenos Aires the week of April 1, but the Summit will likely produce little more in the area of trade than an endorsement by heads of state of the ministerial declaration.

U.S. Trade Representative Robert Zoellick said in an April 7 press conference after the ministerial that there had not been extensive discussion on the issues of dumping law or U.S. agriculture subsidies at the ministers' meeting. "That doesn't understate the importance of those issues," he said. These issues did not need to be discussed by the ministers because the views of the various countries would be reflected in the bracketed negotiating text, he said.

This approach is reflected in the instructions to the negotiating groups which state that any delegation has the right to present the proposals it deems relevant for effective progress of the negotiations, but that such proposals may eventually be placed in brackets.

Under this approach, the U.S. is able to present a proposal in the investment group that countries should not lower their labor and environmental standards to attract investment, and other countries can press to modify for the FTAA the antidumping and subsidies disciplines in the World Trade Organization.

Central American, Caribbean and South American countries had sought to exclude the U.S. proposal to the investment group, arguing it was not in the scope of what the ministers had authorized negotiators to discuss (see related story).

In Buenos Aires, Argentina also formally handed over chairmanship of the Trade Negotiating Committee to Ecuador, which now begins its 18-month tenure. The next FTAA ministerial will take place in Ecuador in October 2002.

Before that time, the TNC is to meet three times, once each in Nicaragua, Venezuela and the Dominican Republic. By Martin Vaughan

_source: Inside US Trade
_date: April 13, 2001
_issue: Vol. 19, No. 15
_title: FTAA AGREEMENT HIDES DIVISIONS ON AGRICULTURE, TRADE REMEDIES
© Inside Washington Publishers

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