The United States is proposing a two-phase process:

• The first phase eliminates export subsidies and reduces worldwide tariffs and trade-distorting domestic support over a five-year period. This would be accomplished by harmonizing tariffs and trade-distorting domestic support at substantially lower levels then what is currently allowed.
  
  
• The second phase is the eventual elimination of all tariffs and trade-distorting domestic support.

EXPORT COMPETITION

Export Subsidies. The United States proposes the elimination of export subsidies, with reductions phased in over a five-year period in equal annual increments.

Current WTO rules cap annual budgetary outlays on export subsidies and the quantity of subsidized exports, on a product-specific basis. Specific caps on the use of export subsidies were derived from export subsidy activity in the 1986-1990 period. Consequently, the European Union (EU) has recourse to extensive use of export subsidies, and spent over $2 billion in 2000. The United States also has the ability to use substantial amounts of export subsidies for certain products. However, the United States only spent $20 million in 2000.

State Trading Enterprises. The United States proposes elimination of export monopolies, thus allowing any producer, distributor, or processor to export agricultural products. The United States proposes ending special financial privileges granted state traders and expanding their WTO transparency obligations.

WTO rules allow for state trading enterprises such as the Canadian Wheat Board to benefit from special rights or privileges in export sales, including special financing privileges. These privileges can create perverse incentives for exporters and producers that result in market distortions, and can hide export subsidy activity.

Export Taxes. The United States proposes prohibiting export taxes on agricultural products. An exception would be made for developing countries for revenue-generating purposes under certain conditions.

Current WTO rules allow countries to impose export taxes on agricultural products with few restrictions. These taxes can contribute to market distortions, particularly when applied during periods of global short supply or when they are used to discourage exports of basic products and encourage exports of semi-processed and processed products. The United States is constitutionally prohibited from levying export taxes.

Export Credits, Credit Guarantees, and Insurance. The United States proposes the establishment of specific rules to govern export credit activity by identifying permissible practices across the range of tools currently employed by WTO members. Practices that are inconsistent with these disciplines would be considered export subsidies and subject to the strict rules prohibiting export subsidies.

Current WTO rules allow for the use of export credit programs, including those with a subsidy element, as long as they are consistent with multilateral disciplines. A number of countries use export credit programs in agriculture, including the United States, employing a broad range of specific practices. In order to guard against circumvention of export subsidy disciplines, WTO members will develop specific disciplines on export credit programs.

Food Aid. The United States proposes to expand reporting requirements in the WTO to increase transparency of food aid activities and to strengthen the market displacement analysis in international organizations charged with reviewing food aid activity.

WTO rules allow for the use of food aid, as long as food aid practices are consistent with guidelines established under the Food Aid Convention and the Food and Agriculture Organization. In order to guard against circumvention of export subsidy disciplines, some WTO members have proposed reviewing food aid disciplines in the negotiations.

MARKET ACCESS

Tariffs: The United States proposes the use of a harmonizing formula (the "Swiss formula") for reducing all agricultural tariffs (out-of-quota duties and tariff-only items) that will cut high tariffs more than low tariffs, ensuring no individual tariff exceeds 25% after a five-year phase-in period. The United States proposes that tariff cuts be implemented from applied rates and that tariff application be simplified to either single ad valorem or specific tariffs. The United States proposes that WTO members agree in the negotiations to a specific date for the eventual elimination of all agricultural tariffs.

Current WTO rules require all countries to cap the maximum tariff that can be applied on any product.

While tariffs have come down in recent years, the level of allowed tariff is often substantial. The world average on agricultural products is 62%, while the U.S. average agricultural tariff is 12%.

Tariff-Rate Quotas (TRQs). The United States proposes expanding all TRQs by 20% and eliminating in-quota duties, phased in over a five-year period. The United States proposes tightening rules on TRQ administration to encourage quota-fill and greater transparency, including by prohibiting certain restrictions on imports and requiring the establishment of TRQ reallocation mechanisms. The United States proposes reserving a share of TRQ increases for non-traditional developing country suppliers.

A number of WTO Members allow a specific quantity of imports access at a low tariff rate, with all other imports subject to a higher tariff -- a TRQ. The United States maintains TRQs for beef, dairy, peanuts, sugar, tobacco, and cotton.

State Trading Enterprises. The United States proposes expanding trading rights to allow any interested entity to import products. The United States proposes, where TRQs exist, that a growing share of import activity under the TRQs be directed to entities other than those affiliated with the government.

Current WTO rules allow countries to channel imports through a single entity, creating opportunities for import restrictions and resulting in unmet demand for import products.

Special Agricultural Safeguard. The United States proposes elimination of this special safeguard.

Current WTO rules allow for the application of additional tariffs when triggered by a surge of imports or a decline in price, for a specific list of products. In the United States this safeguard can be used for beef, dairy, peanuts, sugar, and cotton products but has not been used in any meaningful way. The United States has identified the need for WTO members to improve import relief mechanisms for seasonal and perishable products in the context of the WTO negotiations.

DOMESTIC SUPPORT

Trade-Distorting Domestic Support: The United States proposes using a formula to limit all countries' use of trade-distorting support to 5% of the total value of agricultural production, with reductions made from current caps over a five-year period. The United States proposes simplifying the current system of calculating trade-distorting domestic support by including trade-distorting support linked to production limitations against the WTO cap. The United States proposes that WTO members agree in the negotiations to a specific date for the elimination of all trade-distorting support.

Current WTO rules distinguish between trade-distorting support, and non-trade distorting support. Trade-distorting support that is subject to the cap generally consists of measures that distort producers' incentives, such as price supports and input subsidies, leading to over-production and distorting international markets. Trade-distorting support linked to production limitations is currently not included against the annual cap. The allowed levels of trade-distorting support were derived from subsidy activity in the 1986-1988 period. The EU can provide over $60 billion annually in trade-distorting domestic support, and provides substantial support through so-called production-limiting programs. Japan can provide over $30 billion. The U.S. limit is $19 billion. Most other countries have very minimal allowances for trade-distorting support, although some small European countries provide a substantial level of support relative to the size of their agricultural economy. Current rules for excluding low levels of support would be maintained under the U.S. proposal.

Non-Trade Distorting Support ("Green Box"). The United States proposes maintaining the basic criteria for non-trade distorting support.

Non-trade distorting support generally consists of measures delinked from production incentives, such as food stamps, research, extension, pest and disease control, and delinked direct payments. There are no caps on non-trade distorting support, as long as policies are consistent with specific criteria designed to minimize production distortions.

SECTORAL INITIATIVES

The United States proposes that WTO Members engage in negotiations on a sector-specific basis on further reform commitments that go beyond the basic reductions that will apply to all products. These would include deeper tariff reductions, product-specific limits on trade-distorting domestic support, and other commitments to more effectively address the trade-distorting practices in the affected commodity sectors.

SPECIAL AND DIFFERENTIAL TREATMENT

GATT and WTO negotiations have traditionally recognized that developing countries, and in particular least developed countries, may require special and differential treatment under trade rules to give them more time to adjust to competition and to allow mechanisms to address economic development needs. A number of countries have proposed specific approaches for including special and differential treatment in these WTO negotiations.

The United States and developing countries share many interests in these negotiations, and U.S. proposals will yield many benefits for farmers in developed and developing countries alike. These include: elimination of export subsidies, continuation of export credit and food aid programs, tariff reductions, and reducing trade-distorting domestic support.

Regarding market access, the United States proposes providing to nontraditional developing country suppliers a share of the expansion in the TRQ quantities. Under export competition, the United States proposes that only developing countries would be able to use export taxes. Concerning domestic support, the United States proposes identifying specific support programs oriented toward subsistence, resource-poor, and low-income farmers that would be exempt from subsidy limits. The United States will continue to engage with developing countries to address their transitional and development objectives consistent with the overall objectives of liberalizing world agricultural trade and reducing disparities that exist in protection and trade-distorting support.