US offer of big farm-subsidy cuts wins warm welcome from Europe

An offer by the Americans yesterday to eliminate agriculture export subsidies by 2010 and reduce trade-distorting payments by 60 per cent was welcomed by European negotiators, although officials were yesterday studying the details. Agricultural subsidies have been a crucial obstacle in the negotiations, with developing countries and non-government organisations demanding reductions in subsidies, which are worth $180bn (£102bn) to US and European farmers.

European negotiators know that only if they dismantle export subsidies and reduce domestic payments will developing countries open more of their markets to industrial goods and services.

Crucially, yesterday's offer by the US put a series of figures on the table for discussion. It also appeared to vindicate the EU's strategy, which made an earlier offer to get rid of export subsidies if other sides do the same.

Speaking in Zurich, the US trade representative, Rob Portman, said the US "is willing to take some pain" to revive the talks, which began in December 2001. The EU trade commissioner, Peter Mandelson, said the US offer was the step "we asked them to take". He argued: "The time has come for all of us to put cards on the table; to stop bidding and to start to play the hand." Negotiators are up against a tight deadline, with a deal sought at a meeting in Hong Kong in mid-December.

A spokesman for Mr Mandelson said the US proposals were still being studied but could prove a "shot in the arm" to the talks. He added: "They have encouraged people here, and there is a greater sense of optimism that Hong Kong can produce a meaningful agreement, though there is a lot of work to do."

The European Commission yesterday issued a paper on its position, repeating the offer made to cut trade-distorting subsidies by 70 per cent, and adding details of further proposals. The EU is in a position to do so because of Common Agricultural Policy reforms already agreed.

But Oxfam described the US initiative as a "case of smoke and mirrors", adding: "If this offer goes ahead, trade-distorting domestic subsidies will remain almost completely unchanged and dumping will continue. Meanwhile, harsh concessions on market access will be wrung from developing country members in exchange for illusory progress."

The US proposals build on President George Bush's offer last month at the United Nations to eliminate all trade barriers and subsidies, but this was widely seen as a ploy, aimed at burnishing Washington's free trade credentials while embarrassing Europe.

Pressure to break the deadlock on farm subsidies has become intense, because the conflict is stalling progress on the entire Doha round of trade liberalisation.

The domestic climate in the US for major change is more favourable than for some time. With the budget deficit soaring, the Bush administration is looking desperately for cuts in federal spending. The 2002 farm support bill, which offers $180bn of subsidies over 10 years and comes up for renewal in 2007, is a prime candidate. The question mark is Congress, which would have to approve any changes. The last time the administration called for major reform, it backed off after fierce opposition on Capitol Hill. The 2002 bill, enacted before that year's mid term elections, helped Mr Bush and the Republicans make gains in the Mid-West and the cotton- producing South.

Both the party and the White House would be loath to make major concessions now, unless they could claim the EU had made even larger adjustments. Analysts say hard bargaining lies ahead.

The issues

* WHAT THE US WANTS The US knows its current trade rules are indefensible and is under pressure to make changes. The government has lost several rulings on international trade issues and needs to reduce a federal budget ballooning in the wake of the Iraq war and Hurricane Katrina relief effort. Washington's pretensions to stand up for the interests of Third World countries are at stake.

* WHAT EUROPE WANTS With reforms to the Common Agricultural Policy agreed, the EU strategy is to challenge other countries to match changes being implemented in Europe. It has offered to eliminate all export subsidies if others do the same. If the big First World nations cut farm subsidies, it is hoped emerging nations will open their markets to European industrial products.

* WHAT THE OTHERS WANT Brazil, India and China have grown in influence and their priority is better market access to Western countries and a reduction in those countries' agricultural subsidies. The wider grouping of 90 poorer nations has disparate objectives. This is because the poorest often already enjoy tariff-free deals with the EU on which sections of their economies rely.