U.S., EU Possibly Near Trade Deal

Kansas State ag economist says a deal to reduce U.S. trade distorting subsidies and increase EU market access could be around the corner.

With the formal relaunch of negotiations in Geneva, the European Union and the United States are within striking distance of an agreement that will see the U.S. reduce trade distorting subsidies and the EU provide more market access. The deal, if finalized, will also address the concerns of developing countries.

"We are this close to a breakthrough in the Doha round," predicts Barry Flinchbaugh, Kansas State Ag Economist and farm policy expert. Flinchbaugh told an audience of farm managers last week that there is furious negotiating going on behind the scenes to try to pull together a deal before the President's TPA (Trade Promotion Authority) expires in July.

The talks have focused on three pillars. The first is export subsidies, and the European Union has already agreed to phase them out by 2013. The second pillar is market access: The U.S. wants a 66% reduction in tariffs going into the EU; the EU agreed to 54%. "That's not a wide gap," Flinchbaugh points out.

The third pillar is domestic farm programs. Last summer President Bush agreed to cut the trade-distorting aspects of U.S. farm programs 60% if the U.S. got the increased market access it wanted in return. "All Hell broke lose," observes Flinchbaugh. "That's where the debate is now, focused on market distortion. The administration said it would reduce countercyclical payments and marketing loans, the two most market-distorting programs, by 60% if the EU opened its markets, but the major media headlines missed it.

"The trade negotiaitons are not about how much we spend – we could spend $100 billion and the Europeans could spend $200 billion," Flinchbaugh explains. "It's how you spend it, not how much. In our case we could just take 60% out of marketing loans and counter cyclicals and put that money into decoupled fixed payments, and we're fine, provided the fruits and vegetable exemption on the decoupled fixed payment is eliminated.

"We're miraculously close on this one," he says. "This can happen if we use cool heads and not political posturing. When you send 27% of all your production out of the country, there's nothing more important than these trade talks."

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