Washington Insider -- Wednesday

By DTN's Washington Insider

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

EU-Japan Trade Talks Resume

The European Union and Japan this week resumed bilateral free trade talks in Tokyo after the European Commission and EU member states agreed that Japan has eliminated most non-tariff barriers targeted at the outset of the talks. This week's negotiations represent the sixth round of the EU-Japan negotiations.

As with the bilateral U.S.-Japan trade discussions on the sideline of the larger Trans-Pacific Partnership (TPP) agreement, the EU and Japan still have a number of sticking points to be worked out. Commission spokesman John Clancy told Bloomberg BNA that "Only an agreement with a high level of ambition across the board but especially in areas such as market access in goods –– including agriculture, non-tariff measures, public procurement or geographical indications — will be acceptable."

Many trade observers remain skeptical that Japan, in the end, will agree to lower its protectionist tariffs on agricultural products that it considers sensitive. Still, the fact that both the EU-Japan and U.S.-Japan talks are continuing gives hope to the possibility that Japan will open its market –– however slowly –– to additional agricultural imports.

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Deadline for Funding Highway Construction Rapidly Approaching

The inability of Congress to come together on even a temporary funding patch for the Highway Trust Fund threatens to slow or even stop big constriction projects across the country this summer. Absent a new source of money, Transportation Secretary Anthony Foxx warned that he might have to start curbing transportation payments to states as soon as Aug. 1 if Congress does not act.

In a letter to states, Foxx said unless the fund is replenished, the federal government beginning Aug. 1 would send money to states only every two weeks as funds come in. "We will stop reimbursing states for each bill coming in and instead implement a new process of cash management to help us more forward in this unfortunate period of time," Foxx said. He added that as a consequence, some projects might continue with state funding, others might be delayed and still others might stall.

Both the House and Senate are working on ways to find the $8.1 billion needed to keep the trust fund afloat through the end of this calendar year. However, after the new Congress is sworn in next January, there is little reason to believe that the next group will succeed in securing long-term funding of needed transportation projects where this one has failed.

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Washington Insider: EU Offers New Doha Proposal

European press reports indicate that the European Union has proposed a change in the agreement about how proposed tariff cuts are to be calculated in the World Trade Organization's long-delayed Doha Round. At a WTO Agriculture Committee meeting last week, the bloc proposed that the December 2008 draft modalities document should be "simplified" by using average tariff cuts instead of the currently proposed formulas.

The EU proposal would appear also to move far away from the previous understanding (officially part of the 2004 framework agreement on the Doha Round) that the biggest cuts would be applied to those commodities which currently have the highest tariffs. Because the present draft prescribes specific reduction rates, negotiators seeking to deal with politically sensitive products have devised a number of methods they believe will allow them to deviate from the formulas. This, the EU said, means the draft is so complicated that it has been a major cause of the deadlock in the negotiations.

For example, the current draft document has over 100 pages of formulae for reducing import tariffs, domestic support and export subsidies that cater to individual member countries' various sensitivities. It was seen as the last attempt to pull together a comprehensive settlement on agriculture before the talks went into a deep freeze. That freeze lasted from 2009 until the recent agreement on a limited trade deal was reached in Bali this past December. Analysts had been hopeful that the Bali deal might breathe new life into the hitherto stalled Doha process.

The initiative is the EU's first significant move towards finessing the existing draft modalities package since it was tabled in 2008.

It is understood that the new EU proposal is still at an early stage, and does not include any indication of what the final average tariff reduction should be, whether different categories of member countries should have differential reduction targets, or whether a minimum tariff cut should apply for any given product. The 2008 draft, by contrast, included a suggested commitment to a 54% average tariff reduction for developed countries over six years.

Average reduction targets allow countries to decide which products have steep cuts and which have small cuts, so long as the average is met. This would be similar to the reductions made in the 1986-94 Uruguay Round, which led to the present tariff ceilings in members' commitments.

In general, the reaction from several delegations following the July 3 meeting was that they would like to see the proposal presented formally in more detail. A committee meeting this past March revealed that many were in favor of using the 2008 draft text as a basis for ongoing talks in spite of reservations expressed by the EU and United States. However, there was agreement that the text needed to be simplified, or updated to take into account the current situation in agricultural trade.

Observers note that major exporters are likely to be wary of the latest EU proposals because a simple average formula could allow importing states to impose the lowest possible tariff cut on their most sensitive products, balancing this out with bigger cuts for less sensitive goods. This may be harmful for the market growth aspirations of exporters of commodities like rice, sugar, meat or dairy products.

The EU also took the recent opportunity to repeat its call for its "quality" protection scheme of Geographical Indications — names used to identify the origin and characteristics of products However, many members are opposed to including GIs in talks, insisting that they are not part of the negotiating mandate.

At the same meeting, a number of members warned that progress on the issue of trade facilitation had been so limited that it was jeopardizing the wider Doha Round negotiations. An agreement on facilitation was reached at Bali, but members had committed to revise the text that they agreed in Bali so that it was legally sound — but without altering the content — by the end of this month, so details are not yet available. Generally, "facilitation" means harmonizing individual countries' quarantine and plant and animal safety regulations in a way that facilitates trade.

A key factor in how the EU proposal is being received is the charge that the current makeup of the bloc makes it much more interested in protections than in opening markets. To the extent that the new proposal reflects that attitude it likely will receive very skeptical examination by trading partners.

Thus, while there is some interest remaining in completing the Doha Round, the key to unlocking those talks is highly unlikely to be one now being pushed by the EU, Washington Insider believes.

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