Schwab on trade: in an exclusive interview, America's chief trade negotiator assesses the world.

• Author: Schwab, Susan C.
• Position: Dialogue with Susan C. Schwab - Interview

TIE: Let's begin with the "big kahuna" of trade issues: farm support systems. It looks as if the United States and European Union could find some common ground, but that would require changes in agricultural subsidies. President Bush seems paralyzed, so Congress has been acting independently on agriculture issues. Can this Administration have any influence at this point? How will the upcoming U.S. presidential election affect the picture?

Schwab: The United States does a farm bill every five years, and we've made clear to our trade partners that the 2007 farm bill is not our Doha Round offer. The Administration has taken a very firm position in favor of more reform in our farm programs, and Agriculture Secretary Mike Johanns obviously has had the lead on the farm bill. We would like to see our program moved, in the long term, more in the direction of what we call "green box" in World Trade Organization parlance. "Green box" programs are less trade-distorting, with less direct impact on price and quantity.

If and when there is a Doha Round agreement, the cuts and disciplines imposed on trade-distorting agricultural subsidies would then be overlaid on the farm bill. That is one of the reasons trade promotion authority is so necessary--we would be implementing the Doha Round agreement by changing domestic and international laws to phase ourselves into compliance.

The U.S. agriculture community understands this and we've been working very closely with them. Their objectives in this negotiation are pretty straightforward. They have indicated they are prepared to accept cuts in trade-distorting domestic support. The United States put a big proposal on the table in October of 2005 including 60 percent cuts in what we call "amber box" programs, meaning programs that are the most trade-distorting. That proposal was put forward under the expectation that the United States would take these actions in the context of a broader Doha Round agreement that opened new markets.

Now, the focus of the Doha Round is supposed to be economic development. The first and foremost action that will generate economic development and alleviate poverty both in developing and developed countries is opening markets enough to create new trade flows. A number of World Bank studies show that the single biggest impact on economic growth a trade agreement can have is in the area of reduction or elimination of trade barriers to agriculture. Market access has the biggest impact by far. Secondarily, the elimination or reduction of subsidies has a big impact.

So from the farm community's perspective, they are willing to give up a guaranteed check in the mail in exchange for potential new export sales. In terms of Doha negotiations, our allowable ceiling for aggregate trade-distorting domestic support is $48 billion. The offer we put on the table in 2005 was to drop that to $22.5 billion. In the last ten years we've spent anywhere from $11 billion up to $28 billion, and because of the nature of these programs, in some years the $22.5 billion ceiling will be a real cut. Plus, we have signaled we're prepared to do significantly more than that, but not unilaterally and only in the context of an ambitious and balanced package including manufacturing and services.

TIE: Where do the Europeans stand on trade negotiations?

Schwab: Agricultural trade negotiations have three pillars: market opening, export subsidies and agriculture, and domestic subsidies. In December 2005 in Hong Kong, there was an agreement to eliminate agricultural export subsidies by 2013. The United States was willing to do it by 2010, but the European Union wanted to put it off. Ultimately we reached an agreement to do it in 2013. The way the Doha Round negotiation works though is as a "single undertaking," meaning nothing is done until everything is done. So the agricultural export subsidy portion of the deal is agreed upon, but set aside for now. The European Union has an allowable ceiling for trade-distorting domestic support that is four times as great as ours and an actual use of trade-distorting subsidies three times as great as ours. They have signaled their willingness in the context of these negotiations to move closer to a two-to-one ratio. The real sticking point for the European Union, though, is market access, because they have a relatively closed market. Our average agricultural tariff is 12 percent, theirs is closer to 23 or 24 percent. For comparison, the global average agricultural tariff is 62 percent, and India's average is 114 percent.

TIE: How are the negotiations going? In a recent speech, you mentioned Brazil, India, and several other nations are now blocking a final deal.

Schwab: You already referred to agriculture as the "big kahuna." It's the big kahuna in terms of the politics of these negotiations. It is not necessarily the big kahuna in terms of growth in global trade flows. The other areas of the negotiations, industrial goods--Non-Agricultural Market Access or NAMA in WTO parlance--and services are also incredibly important. The future is services trade flows, followed by manufacturing trade flows, which both far exceed agricultural trade flows.

But back to the development...