PREFACE

The Industry Trade and Technology Review (ITTR) is a quarterly staff publication of the

Office of Industries, U.S. International Trade Commission. The opinions and conclusions

contained in this report are those of the authors and are not the views of the Commission as

a whole or of any individual Commissioner. The report is intended to provide analysis of

important issues and insights into the global position of U.S. industries, the technological

competitiveness of the United States, and implications of trade and policy developments.

The information and analysis in this series are for the purpose of this report only. Nothing

in this report should be construed to indicate how the Commission would find in an

investigation conducted under any statutory authority.

Inquiries or comments on items in this report may be made directly to the author, or to:

Director of Industries

Industry Trade and Technology Review

U. S. International Trade Commission

500 E Street, SW

Washington, DC 20436

Fax: 202-205-3161

Requests for copies of the ITTR, or to be added to the mailing list, should be addressed to

the Office of the Secretary, U.S. International Trade Commission, 500 E Street SW,

Washington, DC 20436, or by fax: 202-205-2104

Quarterly Review Staff

Larry Brookhart

Karl Tsuji

assisted by

Zema Tucker

Sharon Greenfield

Contributing Authors

Laura Rodriguez

Kim Freund

Joanna L. Bonarriva

Jonathan R. Coleman

Vincent DeSapio

Robert A. Rogowsky

Director of Operations

Vern Simpson

Director of Industries
OMB No.: 3117--0188

03/02

ITC READER SATISFACTION SURVEY

Industry Trade and Technology Review

The U.S. International Trade Commission (ITC) is interested in your voluntary comments

(burden < 15 minutes) to help us assess the value and quality of our reports, and to assist us in

improving future products. Please return survey by fax (202-205-3161) or by mail to the ITC.

Your name and title (please print; responses below not for attribution):

Please specify information in this report most useful to you/your organization:

Was any information missing that you consider important? Yes (specify below) No

If yes, please identify missing information and why it would be important or helpful to you:

Please assess the value of this ITC report (answer below by circling all that apply): SA—Strongly

Agree; A—Agree; N—No Opinion/Not Applicable; D—Disagree; SD—Strongly Disagree

" Report presents new facts, information, and/or data SA A N D SD

" Staff analysis adds value to facts, information, and/or data SA A N D SD

" Analysis is unique or ground breaking SA A N D SD

" Statistical data are useful to me/my organization SA A N D SD

" Subject matter and analysis are timely SA A N D SD

" ITC is the only or the preferred source of this information SA A N D SD

If not, please identify from what other source the information is available

Please evaluate the quality of this report (answer below by circling all that apply): SA—Strongly

Agree; A—Agree; N—No Opinion/Not Applicable; D—Disagree; SD—Strongly Disagree

" Written in clear and understandable manner SA A N D SD

" Report findings or executive summary address key issues SA A N D SD

" Figures, charts, graphs are helpful to understanding issue SA A N D SD

" Analysis throughout report answers key questions SA A N D SD

" Report references variety of primary and secondary sources SA A N D SD

" Sources are fully documented in text or footnotes SA A N D SD

Please provide further comment on any of the above performance measures, as appropriate:

Suggestions for improving this report and/or future reports:

Other topics/issues of interest or concern:

Please provide your Internet address and update your mailing address below, if applicable:
UNITED STATES

INTERNATIONAL TRADE COMMISSION

WASHINGTON, DC 20436

OFFICIAL BUSINESS

PENALTY FOR PRIVATE, USE $300

FOLD

NO POSTAGE

NECESSARY

IF MAILED

IN THE

UNITED STATES

BUSINESS REPLY MAIL

FIRST CLASS PERMIT NO. 12840 WASHINGTON, DC

POSTAGE WILL BE PAID BY ADDRESSEE

U.S INTERNATIONAL TRADE COMMISSION

500 E STREET, SW.

WASHINGTON, DC 20277--2840

ATTN:

OFFICE OF INDUSTRY

INDUSTRY TRADE AND

TECHNOLOGY REVIEW (ITTR)
MARCH 2002

Industry Trade and Technology Review Index of Articles

i

Listing of Published Articles

(September 1998 - March 2002)

September 1998

Internet advertising

Progress in recognizing and regulating global professional service providers

Deregulation fosters globalization of the electric power industry

December 1998

Impediments to competitiveness in Russia’s minerals and metals sector

Nonstore retailing: Alternative retailers attracting customers

Apparel sourcing strategies for competing in the U.S. market

March 1999

Korea’s foreign exchange crisis and its implications for U.S.-Korean trade

Advanced structural ceramics: Vast potential has yet to be realized

June 1999

Energy services: Recent trends and future prospects

Market trends affecting the U.S. environmental services sector

Health care services: Strong fundamentals and innovations foreshadow growth 

in U.S. exports and foreign direct investment

October 1999

Outsourcing by the pharmaceutical industry provides opportunities for fine

chemical producers worldwide 

Thailand’s financial crisis and progress towards recovery—Implications for

U.S. trade

December 1999

Air transport services: International regulation and future prospects for

liberalization

Renewed services trade negotiations in the WTO

March 2000

Machine vision: Vital technology for manufacturing industries

Agriculture in the WTO: The Seattle Ministerial and beyond

July 2000

Express services: Issues for negotiation in the World Trade Organization

Production-sharing update: Developments in 1999

Apparel market: New U.S. legislation places CBERA countries on a more equal

competitive basis with Mexico

October 2000

WTO agricultural trade negotiations: An update

Steel sector explores E-Commerce although wary of quick transition

Mexico’s emergence as a global automotive production center drives 

trade and investment
MARCH 2002

Index of Articles Industry Trade and Technology Review

ii

Listing of Published Articles—Continued

January 2001

U.S. metal mining: Recent trends and uncertainty discourage domestic

exploration and investment

Factors affecting the competitive position of the Indian software industry

Manufacturing strategies of the North American major household

appliance industry

March 2001

Apparel: Andean countries seek parity with Caribbean Basin countries

to remain competitive in the U.S. market

Chemical trade by the Central European countries: Difficulties of sector

 transition

Commercialization of hybrid automobiles: Prospective demand for light metals

July 2001

Trends in China’s steel consumption

Production-sharing update: Developments in 2000

October 2001

E-commerce and nonferrous metals: Despite potential, adoption

has been slow

Foreign direct investment in infrastructure services in OECD countries

December 2001

Evidence of trade, income, and employment effects of NAFTA

U.S. primary aluminum: Power costs and market conditions could

cause long-term restructuring

March 2002

Dyeing and finishing of apparel fabrics

WTO agricultural trade negotiations: A second update

Aluminum metal matrix composites gaining greater market acceptance 
MARCH 2002

Industry Trade and Technology Review Contents

iii

CONTENTS

Page

Dyeing and Finishing of Apparel Fabrics .................... 1

Legislation affecting dyeing and finishing of apparel fabrics in Caribbean Basin . . . . . . . 1

U.S. textile industry concerns ............................................ 2

Dyeing and finishing: An overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Dyeing and finishing industry in the United States .............................. 3

Relative importance of dyeing and finishing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Dyeing and finishing in CBERA countries ..................................... 5

WTO Agricultural Trade Negotiations:

A Second Update ..................................................... 7

Current negotiating positions of major participants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Cairns Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

European Union . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Japan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Developing countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

The Doha Ministerial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

The run-up to Doha . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

The outcome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Looking ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

The agricultural negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Impact of domestic policy reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Aluminum Metal Matrix Composites Gaining Greater

Market Acceptance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Current uses for aluminum MMCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Automotive applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Aerospace applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Barriers to further material use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

High costs of production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Concern about material availability and depth of the supply chain . . . . . . . . . . . . . . . 43

Material property databases unavailable to design engineers . . . . . . . . . . . . . . . . . . . . 46

High costs of finishing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Major private-sector and government initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Cast aluminum MMCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Aluminum MMC powder . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

DARPA structural amorphous aluminum for aerospace applications program . . . . . . 48

Future uses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
MARCH 2002

Contents Industry Trade and Technology Review

iv

Appendix A

Key performance indicators of selected industries

and regions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

Steel:

Figure A-1 Minimills remain profitable while integrated and specialty

producers feel effects of declining sales during fourth quarter 2001 . . . . . . . . . . . A-2

Table A-1 Finished and semifinished imports decreased significantly in 

2001 compared with the previous year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-2

Table A-2 Fourth quarter 2001 service center shipments decreased by

nearly 17 percent from third quarter 2001, and by 14 percent from

fourth quarter 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-3

Figure A-2 Steel mill products, all grades: Capacity utilization fell more than

expected during fourth quarter 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-3

Automobiles:

Table A-3 U.S. sales of new automobiles, domestic and imported, and

share of U.S. market accounted for by sales of total imports and Japanese

imports, by specified periods, January 2000-December 2001 . . . . . . . . . . . . . . . . . A-4

Figure A-3 U.S. sales of new passenger automobiles fell in fourth quarter

2001; in a year of decreased U.S. sales, imported autos gained market

share at the expense of domestic models . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-4

Unwrought aluminum:

Figure A-4 Import penetration reached over 35 percent in the fourth quarter

as imports replaced scaled back U.S. production . . . . . . . . . . . . . . . . . . . . . . . . . . A-5

Table A-4 Prices reached their lowest in 2.5 years while surpluses in LME 

warehouses continued to accumulate, reflecting weakness of the market . . . . . . . . A-5

Flat glass:

Figure A-5 Japanese imports decline in 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-6

Services:

Figure A-6 Balance on U.S. service trade accounts, by selected quarters,

2000-01 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7

Figure A-7 Surpluses on cross-border U.S. services transactions with

selected trading partners, by quarter, 1999-2001 . . . . . . . . . . . . . . . . . . . . . . . . . . A-7

North American trade:

North American trade highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8

Table A-5 North American trade, 1996-2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
MARCH 2002

Industry Trade and Technology Review Apparel Fabrics

 1 The views expressed in this article are those of the authors, and are not the views of the U.S.

International Trade Commission as a whole or of any individual Commissioner.

 2

 This article draws on information compiled by Commission staff from a review of the

available literature on the issue, and in-person and telephone interviews with U.S. and CBERA

textile and apparel industry representatives.

 3

 The CBTPA provides for duty-free and quota-free treatment for imports of qualifying textile

and apparel articles from CBERA beneficiary countries during a transition period beginning on

October 1, 2000, and ending on the earlier of September 30, 2008, or on the date on which the

Free Trade Area of the Americas or a comparable free-trade agreement between the United States

and CBERA countries enters into force.

 4

 If the fabrics are cut to shape in CBERA countries, the garments must be sewn with U.S.

thread.

 5

 In the interim regulations (published in the Federal Register of October 5, 2000 (65 F.R.

59650)), which went into effect on October 1, 2000, Customs defined “wholly formed,” when

used with reference to fabrics, as “all of the production processes, starting with polymers, fibers,

filaments, textile strips, yarns, twine, cordage, rope, or strips of fabric and ending with a fabric by

a weaving, knitting, needling, tufting, felting, entangling or other process, [that] took place in a

single country.” 

1

Dyeing and Finishing of Apparel Fabrics

Laura Rodriguez1 Kim Freund1

(202) 205-3499 (202) 708-5402

lrodriquez@usitc.gov kfreund@usitc.gov

In connection with legislation affecting the dyeing and finishing of apparel

fabrics in the Caribbean Basin, this article presents a brief overview of

dyeing and finishing as these processes relate to apparel fabrics. It

highlights the major dyeing and finishing processes, recent developments

in the dyeing and finishing segment of the U.S. textile industry, the relative

importance of dyeing and finishing costs in fabric and apparel production,

and dyeing and finishing capabilities in CBERA countries.2

Legislation Affecting Dyeing and Finishing of Apparel

Fabrics in Caribbean Basin

The United States-Caribbean Basin Trade Partnership Act (CBTPA), enacted as Title II of

the Trade and Development Act of 2000, amended the Caribbean Basin Economic Recovery

Act (CBERA) to authorize the President to extend additional trade benefits to eligible

CBERA beneficiary countries.3

 In part, the legislation grants duty-free and quota-free

treatment to imports of qualifying apparel articles assembled in CBERA countries from

“fabrics wholly formed in the United States” of U.S. yarns, whether the fabrics were cut to

shape in the United States or CBERA countries.4

 

The legislation does not define “fabrics wholly formed in the United States,” raising the

question of whether the fabrics must be dyed and finished in the United States or whether

they can also be dyed and finished in CBERA countries. The interim regulations issued by

the U.S. Customs Service to implement the trade benefit provisions of the CBTPA do not

specifically address the dyeing and finishing issue.5

 In the absence of a specific statutory
MARCH 2002

Apparel Fabrics Industry Trade and Technology Review

 6 Carlos Moore, Executive Vice President, American Textile Manufacturers Institute, letter to

the U.S. Customs Service dated December 4, 2000, providing comment on Customs’ interim

regulations.

 7

 Some fabrics are made of colored yarns (e.g., yarn-dyed fabrics) and require few finishing

treatments.

 8

 Among the treatments that can be applied to fabrics are bleaching, dyeing, printing,

stonewashing, and other mechanical finishing, such as preshrinking, shrinking, sponging,

calendering, mercerizing, and napping.

 9

 Some dyeing and finishing processes occur after apparel assembly, but such processes differ

from those under consideration. Following assembly, a garment may be subject to such

operations as garment dyeing, printing of designs or logos, or stonewashing. 

2

requirement or regulation, preferential treatment currently is being granted to imports of

qualifying apparel articles assembled in CBERA countries from U.S.-formed fabrics,

regardless of whether the fabrics were dyed or finished in the United States or CBERA

countries.

U.S. Textile Industry Concerns

The U.S. textile industry has expressed concern that these interim regulations effectively

grant preferential treatment to apparel assembled in CBERA countries from fabrics made in

the United States, but dyed and finished in CBERA countries. According to the domestic

industry, the apparel trade benefits for CBERA countries are for the assembly of apparel

only, and the legislation does not “state or imply that the beneficiary countries will be

permitted to engage in textile manufacturing or finishing operations,” other than for a limited

exception for fabric knitted in the Caribbean.6

Dyeing and Finishing: An Overview

Dyeing and finishing are critical and integral parts of the fabric production process, because

a large part of the selling power of an apparel fabric depends on the attributes imparted by

dyeing and finishing. Fabrics made for apparel generally come off the weaving loom or

knitting machine in a “grey” or unfinished state.7

 As such, the fabrics generally must

undergo treatments collectively referred to as “dyeing and finishing” before the fabrics can

be cut into garment parts for assembly.8

 For practical and aesthetic reasons, dyeing and

finishing generally cannot be done after the fabric is cut into garment parts.9

The aesthetic value of apparel fabrics depends mainly on the colors, patterns, and feel of the

fabric, characteristics that are largely imparted by the dyeing and finishing of the grey

fabrics. These fabrics may undergo bleaching, dyeing, and/or printing to impart the desired

color or design. The fabrics may undergo other finishing treatments that change the

character of the fabric, such as to add water-repellent or washable properties or to achieve

desired fabric shrinkage and stiffness levels, fabric surface effects, and fabric widths. In

some cases, the grey fabric may undergo as many as 50 different finishing operations before

it is ready for use in apparel.
MARCH 2002

Industry Trade and Technology Review Apparel Fabrics

3

Dyeing and Finishing Industry in the United States

U.S. producers of apparel fabrics dye and finish their fabrics to differentiate their goods in

the marketplace from those of their competitors, whether domestic or foreign. Entry costs

in the dyeing and finishing segment of the textile industry can be high, given the significant

capital requirements and the fact that dyeing and finishing are highly knowledge-intensive

operations. An official of the American Textile Manufacturers Institute estimates that a new

dyeing and finishing plant in the United States would require a minimum investment of $50

million. Because of the high fixed capital costs and the large scale of many dyeing and

finishing operations, integrated mills need to continuously feed large volumes of fabric from

a number of different mills through their dyeing and finishing facilities to maintain

economies of scale and, in turn, cost-efficient production. 

Firms that dye and finish apparel fabrics include the “vertically integrated mills” and the

“fabric finishing mills.” The integrated firms tend to be large in size, make a wide range of

goods, use multiple plants, and are vertically integrated from yarn spinning through fabric

production, dyeing and finishing, and, in some cases, even production of end-use goods. The

smaller integrated firms usually are vertically integrated from fabric production through

dyeing and finishing. The integrated firms typically finish their own fabrics, although they

may have them finished on contract by others, for example, during busy periods or for

specialized applications. Some integrated firms also dye and finish fabrics on contract for

others as a regular activity or during lulls in their own operations. 

The fabric finishing mills are smaller in size but larger in number than the integrated firms.

They include mills that specialize in dyeing and finishing purchased fabrics (domestic or

imported) and “commission finishers” that dye and finish fabrics on contract for others. Also

included are the “converters,” which usually do not own plants and equipment, but instead

buy grey fabrics from domestic and foreign sources, have them finished on contract, and sell

the fabrics at wholesale. 

Industry sources have indicated that the integrated firms generally focus more on “basic”

fabrics, while the independent finishers tend to dye and finish “semi-basic” and fashion

fabrics and novelties. The converters usually have greater flexibility than the integrated

firms in the types of fabrics they market, owing to their more limited fixed capital costs.

Industry sources indicated that converters tend to respond more quickly to fashion trends and

are able to provide apparel companies with smaller runs of fabrics for the latest fashions. 

The integrated firms reportedly account for as much as 70 percent of all the fabric dyed and

finished domestically. However, these firms usually dye and finish the fabrics in plants that

are separate from those in which they make the fabrics. According to the U.S. Census

Bureau’s Annual Survey of Manufactures for 1999, about 75 percent of U.S. producers’

shipments of finished broadwoven fabrics by value were finished in such separate plants.

Because of the high fixed costs of a dyeing and finishing facility, the integrated firms often

send grey fabrics from their weaving plants to one central dyeing and finishing facility. For

knit fabrics, by contrast, more than half the U.S. shipments of finished fabrics were made and

finished in the same plant.
MARCH 2002

Apparel Fabrics Industry Trade and Technology Review

4

The domestic dyeing and finishing segment, like the textile industry overall, has been

declining in size in recent years. The value of shipments of all finished knit and woven

fabrics fell 14 percent during 1997-99 (table 1), with the largest decline occurring in

shipments of fabrics that were finished in weaving mills. According to the Census Bureau’s

County Business Patterns for 1999, the number of finishing mills (excluding finishing that

occurs in weaving or knitting mills) fell 5 percent from the 1998 level, to 6,044

establishments, while employment fell 14 percent to about 70,000 employees (also includes

some workers involved in the dyeing and finishing of non-fabric textiles, such as yarn). The

dyeing and finishing segment likely has continued to decline since then. For example,

according to U.S. Bureau of Labor Statistics data, seasonally adjusted employment for textile

finishing fell 6 percent in 2000 and by an estimated 11 percent in 2001.

Table 1

Finished fabrics: Value of shipments, 1997-99

(Million dollars)

Item 1997 1998 1999

Broadwoven fabrics finished in weaving mills . . . . . . . . . . . . . . . 3,155 2,927 2,631

Broadwoven fabrics finished other than in weaving mills . . . . . . 9,107 8,484 7,817

Knit fabrics finished in knitting mills . . . . . . . . . . . . . . . . . . . . . . 3,072 2,841 2,684

Knit fabrics finished other than in knitting mills1 . . . . . . . . . . . . . 2,510 2,235 2,232

 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,844 16,488 15,363

 1

 Estimated, based on data from the U.S. Census Bureau 1997 Economic Census.

Source: U.S. Census Bureau, Annual Survey of Manufactures.

Relative Importance of Dyeing and Finishing

Dyeing and finishing of fabrics can be quite complex, and can represent a significant portion

of the total cost of producing the finished fabric, depending on the type of finishing

treatment; the type, weight, and color of the fabric; and apparel application. For example,

industry sources noted that printing a design on a fabric generally adds more value to the

fabric than dyeing it in a single color. One mill noted that the printing of designs on grey

fabrics can add as much as $3 of value for every $1 worth of grey fabric being processed.

In terms of the cost of manufacturing an apparel fabric, industry sources stated that dyeing

and finishing generally account for at least 35 percent of the total cost and can reach as much

as 70 to 75 percent of the total. One firm estimated that dyeing and finishing account for

about 50 to 54 percent of the total value of woven apparel fabrics and as much as 71 to 78

percent for some knit fabrics, such as dyed knit fabrics for T-shirts and polo shirts. 

In terms of the cost of making a garment, the relative importance of dyeing and finishing the

grey fabric varies widely, depending on the type of fabric, finishing, and garment. For a

garment made from a printed woven fabric, data from one firm show that, on average, the

cost of printing and finishing the fabric accounts for 29 percent of the total cost of making

the garment. The data also show that the cost of garment assembly accounts for 63 percent

of the total garment cost, while the cost of making (weaving) the grey fabric accounts for

8 percent.
MARCH 2002

Industry Trade and Technology Review Apparel Fabrics

 10 This section summarizes the limited amount of information that was available to

Commission staff on dyeing and finishing operations in CBERA countries. Commission staff was

unable to verify the accuracy of the information presented here.

 11 Officials of two Dominican apparel producers, interviews by Commission staff, Santo

Domingo, June 6, 2001.

 12 The United States shipped 3.1 billion SMEs of cut garment parts to CBERA countries for

assembly in 2000, based on imports of apparel from CBERA countries that entered under U.S.

production-sharing provision 9802 (formerly the “807” provision).

5

For many knitwear articles such as knit tops, dyeing and finishing reportedly account for 8

to 10 percent of the total cost of making the garment. In general, designs are printed on knit

tops after the garment has been assembled, rather than before the garment-manufacturing

stage. As such, the printing of knit tops is less affected by the dyeing and finishing issue

than, for example, shirts and blouses made from woven fabrics, in which the designs are

generally printed on the fabrics before the garment-manufacturing stage. 

Dyeing and Finishing in CBERA Countries10

Several U.S. textile and apparel industry sources have indicated that only small amounts of

U.S. fabrics being exported to CBERA countries for cutting and sewing into garments are

actually being dyed and finished there. Although U.S. industry sources have noted that

many of the Asian-based firms currently producing apparel in CBERA countries for export

to the United States have access to financial resources that would enable them to invest in

dyeing and finishing facilities in CBERA countries, Asian firms have yet to make such

investments.

The production of textiles from yarns to fabrics, including fabric dyeing and finishing,

occurs in the major apparel-exporting CBERA countries, including Costa Rica, the

Dominican Republic, El Salvador, Guatemala, and Honduras, according to a textile

association official in El Salvador. Reportedly, the textile manufacturing facilities in most

of these countries date back to the 1960s; however, many of them have been upgraded and

modernized over the years. The CBTPA reportedly has prompted new investment in cutting,

stonewashing, and dyeing equipment in several countries, particularly the Dominican

Republic and Guatemala.11

CBERA textile mills reportedly import cotton or manmade fibers primarily from the United

States, spin the fibers into yarns, and process the yarns into woven or knitted fabrics. The

fabrics are dyed and finished locally, and are sold primarily for local consumption and also

for export. According to the textile association official in El Salvador, the average annual

installed capacity in El Salvador is estimated at 300 million square meter equivalents (SMEs)

of finished knit fabric and 200 million SMEs of finished woven fabric.12 The El Salvador

official estimated that Guatemala’s installed capacity is about 20 percent larger than that in

El Salvador. Among the textile mills in the CBERA region having dyeing and finishing

capabilities are Listex, a large mill in Guatemala; IUSA, a Japanese firm with plants in El

Salvador and Costa Rica; and Grupo M in Honduras.#

MARCH 2002

Industry Trade and Technology Review WTO Negotiations on Agriculture

 1 The views expressed in this article are those of the authors, and are not the views of the U.S.

International Trade Commission (USITC) as a whole or of any individual Commissioner.

 2

 See “Agriculture in the WTO: The Seattle Ministerial and Beyond,” Industry Trade and

Technology Review, USITC publication 3293, Mar. 2000, pp. 21-45; and, “WTO Agricultural

Trade Negotiations: An Update,” Industry Trade and Technology Review, USITC publication

3363, Oct. 2000, pp. 1-6. Both articles can be found on the USITC website at

http://www.usitc.gov.

 3

 WTO Agriculture Committee (AC), “Agricultural negotiations: Backgrounder. Introduction,”

found at http://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd05_intro_e.htm, retrieved,

Jan. 22, 2002.

7

WTO Agricultural Trade Negotiations: 

A Second Update

Joanna L. Bonarriva1 Jonathan R. Coleman1

jbonarriva@usitc.gov jcoleman@usitc.gov

(202) 205-3312 (202) 205-3465

Two recent ITTR articles about multilateral trade negotiations for

agriculture2

 discussed (1) the major differences about policy among World

Trade Organization (WTO) members, (2) the issues associated especially

with the Seattle Ministerial in December 1999, and (3) the status of

negotiations during the first 9 months of the new Round. Despite the

unsuccessful effort to launch a new comprehensive round of WTO trade

negotiations in Seattle, WTO agricultural negotiations began in January

2000, as mandated by Article 20 of the Uruguay Round Agreement on

Agriculture (URAA). This article reviews the current status of these

agriculture negotiations; the outcome of the Fourth Ministerial in Doha,

Qatar, in November 2001; and the prospects for agriculture negotiations

in the coming year. A glossary of referenced agriculture and trade terms

appears at the end of the article. 

Article 20 of the Uruguay Round Agreement on Agriculture (URAA) required World Trade

Organization (WTO) members to continue negotiations toward further reducing agriculture

support and protection at least 1 year prior to the end of the URAA implementation period.

In early February 2000, the WTO General Council decided that agricultural negotiations

should be held in special sessions of the WTO Agriculture Committee. It also decided that

the initial agricultural negotiations should proceed in phases.

The first phase of the talks (January 2000-March 2001) consisted of six special sessions of

the agriculture committee, held in March, June, September, and November 2000; February

2001; and a final “stock-taking” meeting in March 2001. In phase 1, countries submitted

proposals based on their initial negotiating positions which covered the major elements of

the URAA negotiations and specific new topics (table 1).3

 In all, 45 initial proposals and

3 technical documents were submitted by 126 member governments (89 percent of the then
MARCH 2002

WTO Negotiations on Agriculture Industry Trade and Technology Review

 4 WTO AC, “Agricultural negotiations: Backgrounder. In a nutshell,” found at http://www.

wto.org/english/tratop_e/agric_e/negs_bkgrnd01_nutshell_e.htm, retrieved Jan. 22, 2002.

 5

 Chairperson’s statement on the ‘first phase’: Committee on Agriculture Special Session, Mar.

26–28, 2001, found at http://www.wto.org/english/tratop_e/agric_e/agneg6_e.htm, retrieved

Jan. 22. 2002.

 6

 WTO AC, “Agricultural negotiations: Backgrounder. In a nutshell,” found at http://www.

wto.org/english/tratop_e/agric_e/negs_bkgrnd01_nutshell_e.htm, retrieved Jan. 22, 2002.

8

Table 1

Proposals submitted in phase 1 of agricultural negotiations1

Scope/topic Countries/country groups (see glossary)

Comprehensive United States, European Union, Japan, Switzerland, Mauritius, Smallisland developing states, Republic of Korea, Mali, Norway, India,

Poland, Morocco, Turkey, Egypt, Nigeria, Democratic Republic of the

Congo, Kenya, Senegal, Mexico, Jordan, group of African countries,

Namibia, Burkina Faso, Croatia

Export competition Cairns Group, European Union, Mercosur

 Export restrictions, taxes Cairns Group

 Export credits Mercosur, Bolivia, Chile, Costa Rica, Guatemala, India, and Malaysia

 State trading enterprises Mercosur

Domestic (internal) support Cairns Group, United States, Canada

 Blue box policies European Union

 Green box policies Group of developing countries

 Transition issues Transition economies

Market access Canada, Cairns Group, group of developing countries, transition

economies, Caricom

 Food quality European Union

 Tariff-rate quota United States

Special and differential treatment for

small developing countries

Group of developing countries

Nontrade concerns (2

)

 Animal welfare European Union

 1

 As noted, countries or country groups may have submitted proposals that were comprehensive, covering all areas of

negotiations, and/or proposals that may have addressed specific topics or certain issues.

 2

 Countries or country groups generally addressed nontrade concerns as part of comprehensive proposals rather than

as separate topics.

Source: WTO AC, “Agricultural negotiations: Backgrounder. In a nutshell,” found at http://www.wto.org/english/

tratop_e/agric_e/negs_bkgrnd01_nutshell_e.htm, retrieved Jan. 22, 2002.

142 WTO members).4 The proposals and other documents expressed wide-ranging views on

all major negotiating objectives.5

 Many proposals, such as those submitted by the United

States, the European Union (EU), Japan, and India, were “comprehensive,” covering all areas

of negotiation. Other countries addressed specific topics, such as the Cairns Group proposal

on export restrictions and the EU proposal on food quality.6

A work program for phase 2 of the agricultural negotiations was agreed upon at the March

2001 meeting of the Agriculture Committee. Six sessions were scheduled for May, July,

September, and December 2001; February 2002; and a final session in March 2002 to
MARCH 2002

Industry Trade and Technology Review WTO Negotiations on Agriculture

 7 WTO AC, “Agricultural negotiations: Backgrounder. Introduction,” found at http://www.

wto.org/english/tratop_e/agric_e/negs_bkgrnd05_intro_e.htm, retrieved Jan. 22, 2002.

9

review progress. Although meetings in the first phase primarily focused on submitted

proposals, the second phase of discussions involved technical details of specific topics

(table 2). The stated purpose of phase 2 meetings was to allow members to address specific

issues and to reach consensus on changes to the modalities (see glossary) for a new

agreement on agriculture. The work program also explicitly provides for special and

differential treatment for developing countries, which are considered “an integral part of all

elements of the negotiations.”7

Table 2

Elaborated proposals and other informal papers submitted to Special Sessions of the

Agriculture Committee in phase 2 of agricultural negotiations

Topic Countries/country groups

Tariff rate quota administration Australia, European Union, Japan, Switzerland, Cuba, Dominican

Republic, El Salvador, Honduras, Kenya, Nicaragua, Nigeria,

Pakistan, Sri Lanka, Tanzania, Zimbabwe

Tariffs Australia, Japan, Mercosur

Amber box policies Australia, European Union, Japan

Green box policies Argentina, Cyprus, European Union, Japan, Namibia, Cuba,

Dominican Republic, El Salvador, Honduras, Kenya, Nicaragua,

Pakistan, Sri Lanka, Zimbabwe 

Blue box policies Cairns Group, Japan

Special and differential treatment Cuba, Dominican Republic, El Salvador, Honduras, Indonesia,

Kenya, Nicaragua, Nigeria, Pakistan, the Philippines, Sri Lanka,

Tanzania, Venezuela, Zimbabwe

Export subsidies Cairns Group, Israel, Japan, Switzerland, Antigua and Barbuda,

Barbados, Belize, the Commonwealth of Dominica, Grenada,

Guyana, Jamaica, St. Kitts and Nevis, St. Vincent and the

Grenadines, Republic of Trinidad and Tobago, Suriname,

Nicaragua, Pakistan, Panama, Peru, Venezuela, Zimbabwe

Export credits Australia, European Union, Japan, United States

State trading enterprises (STEs) Japan, United States

Export restrictions Japan, United States

Food security Japan, United States, Cuba, Dominican Republic, El Salvador,

Honduras, Kenya, Nicaragua, Nigeria, Pakistan, Peru, Sri Lanka,

Venezuela, Zimbabwe

Food safety European Union, Japan

Rural development Japan, Norway, Cuba, Dominican Republic, El Salvador, Honduras,

Kenya, Nicaragua, Pakistan, Sri Lanka, Zimbabwe

Geographical indications European Union, Japan, Switzerland, United States

Special safeguards United States, Argentina, Bolivia, Paraguay, the Philippines,

Thailand, Cuba, Dominican Republic, El Salvador, Honduras,

Kenya, Nicaragua, Pakistan, Senegal, Sri Lanka, Zimbabwe, Japan,

Namibia, Switzerland

Source: WTO, 28 September 2001: Chairman’s Report to General Council, found at http://www.wto.org/english/

tratop_e/agric_e/agneg8ch_e.htm, retrieved Jan. 22, 2002.
MARCH 2002

WTO Negotiations on Agriculture Industry Trade and Technology Review

 8 “WTO talks running out of steam,” Agra Europe Weekly, July 27, 2001.

10

Current Negotiating Positions of Major Participants

By midpoint of phase 2 negotiations, wide gaps reportedly existed between various country

positions on agriculture. Faced with the increasing intransigence of members, trade officials

called for the launch of a comprehensive round of talks at the Ministerial scheduled in Doha.

They hoped for countries in time to shift their positions, especially regarding cuts in farm

subsidies.8

 As reported by various sources, the negotiating positions on key issues affecting

agriculture, by country/country group, are summarized in table 3.

Table 3

Overview of key negotiating objectives of major participants in WTO agricultural negotiations,

January 2002

Issue United States Cairns Group European Union Japan

Developing

countries1

Export competition:

 Classic export

 subsidies

Completely

eliminate

Completely

eliminate

Reductions Reductions Eliminate with special

treatment for LDCs

 Export credits

 and guarantees

Introduce limited

disciplines

within OECD

Introduce WTO

disciplines

Introduce WTO

disciplines

Introduce WTO

disciplines

Position unstated

 Food aid Exempt from

disciplines

recognizing its

importance to

food security

Introduce WTO

disciplines

Introduce WTO

disciplines

Exempt from

disciplines

Introduce WTO

disciplines

 Export

 restrictions

Introduce WTO

disciplines

Introduce WTO

disciplines

Introduce WTO

disciplines

Introduce WTO

disciplines

Introduce WTO 

disciplines

Market access:

 Tariffs Bind and lower

tariffs;

substantially

reduce/eliminate tariff

disparities, tariff

escalation

Deeper cuts,

curtail tariff

peaks and tariff

escalation

More modest

and balanced

reductions

More modest

and balanced

reductions

considering

nontrade

concerns and

food security 

Lower tariffs on

agricultural products

of interest to LDCs

 TRQs Increase TRQ

quantities;

reduce overquota tariffs;

eliminate inquota duties

Increase TRQ

quantities;

reduce overquota tariffs

Limit major TRQ

quantity

increases

Limit major TRQ

quantity

increases

Increase TRQ

quantities Reduce

over-quota tariffs

 TRQ

 administration

Reform and

simplify

Reform and

simplify

Reform and

simplify

Reform and

simplify

Reform and simplify

 Special

 safeguards

Eliminate Eliminate;

preservation only

for use by

developing

countries

Continue Continue; 

introduce new

safe guard for

seasonal and

perishable agriculture products

Eliminate on agricultural products of

interest to LDCs;

preservation only for

use by developing

countries

See footnotes at end of table.
MARCH 2002

Industry Trade and Technology Review WTO Negotiations on Agriculture

11

Table 3—Continued

Overview of negotiating objectives of major participants in WTO agricultural negotiations,

January 2002

Issue United States Cairns Group European Union Japan

Developing

countries1

Internal supports:

 Amber box Change to

‘nonexempt’

category;

substantially

reduce tradedistorting

supports starting

from final bound

AMS level

Phase in

elimination

More modest

reductions in

trade-distorting

supports

More modest

reductions in

trade-distorting

supports

More substantial

reductions with

special treatment for

LDCs

 Green box Continue as

‘exempt’

category;

special

consideration for

LDCs

Review

definition of

non-trade

distorting

policies;

enhance

provisions for

LDCs

Re-open to

account for

nontrade

concerns

Re-open to

account for

nontrade

concerns

Reduce; create

‘development box’

within green box only

for LDCs

 Blue box Eliminate; shift

to ‘nonexempt’

category

Phase in

elimination

Continue Continue More substantial

reductions

 Peace clause Position

unstated

Eliminate Continue Continue Continue only for

LDCs

SPS Agreement Do not re-open Do not re-open Re-open to

account for

precautionary

principle

Re-open to

account for

precautionary

principle

Provide technical

assistance to LDCs in

meeting requirements

Biotechnology Make rules

transparent and

predictable

Make rules

transparent and

predictable

Allow restrictions

on GMOs based

on precautionary principle

Allow restrictions

on GMOs based

on precautionary principle

Make rules

transparent and

predictable

State trading

enterprises

Introduce

disciplines on

monopoly STEs;

increase

transparency

Disciplines, if

introduced,

should also

apply to private

firms

Introduce

disciplines on

monopoly STEs;

increase

transparency

Introduce

disciplines on

monopoly STEs;

increase

transparency

Introduce disciplines

on monopoly STEs;

increase

transparency

Preferential

treatment for

developing countries

Continue and

strengthen

Continue and

strengthen

Continue and

strengthen

Continue and

strengthen

Continue and

strengthen

Nontrade

concerns

Should not be

addressed in

future

agreement

Should not

be addressed in

future

agreement

Should be

addressed in

future agreement

Should be

addressed in

future agreement

Should be addressed

in future

agreement

 1

 This represents the broad concensus of developing country objectives and may not necessarily reflect the objectives of

every developing country on every issue.

Source: Compiled from various government, industry, and trade sources.
MARCH 2002

WTO Negotiations on Agriculture Industry Trade and Technology Review

 9 WTO Committee on Agriculture Special Session (CASS), Proposal for Comprehensive

Long-Term Agricultural Trade Reform, Submission from the United States, G/AG/NG/W/15,

June 23, 2000, found at http://www.wto.org/english/tratop_e/agric_e/ngw15_e.doc.

 10 WTO CASS, Note on Domestic Support Reform, Submission from the United States,

G/AG/NG/ W/16, June 23, 2000, found at http://www.wto.org/english/tratop_e/agric_e/

ngw16_e.doc.

 11 WTO CASS, Proposal for Tariff Rate Quota Reform, Submission from the United States,

G/AG/NG/ W/58, Nov. 14, 2000, found at http://www.wto.org/english/tratop_e/agric_e/

ngw58_e.doc.

 12 Under the URAA, domestic supports were put into categories (often called “boxes”) using a

traffic light analogy of “red” for stop, “green” for go, and “amber” for proceed cautiously. From

this analogy negotiators have, on occasion, created additional “color” boxes to indicate other

policy categories. See glossary at end of article for explanation of the various support categories.

 13 AMS provides an estimate of the expenditure on trade-distorting programs that must be

reduced under provisions of the URAA.

 14 “U.S. declares war on CAP direct aids,” Agra Europe Weekly, June 30, 2000.

 15 For example, take the case of two countries each with a production value of $200 billion in

a base period (1997-99, for example)—one with a final URAA AMS of $80 billion and the other

with only $20 billion. Assuming it was agreed in the new round that the AMS of each country

had to be reduced to 10 percent of the production value by the end of the implementation period,

both countries would have to reduce supports to $20 billion (10 percent of $200 billion); however,

one country would have to cut supports by $60 billion, while the other would have to make no

cuts at all.

12

United States

The United States submitted its comprehensive proposal in June 2000.9 Additional

submissions have been presented on domestic (internal) support reform10 and tariff-rate quota

(TRQ) reform.11 Regarding market access, the United States proposal (June 2000) calls for

substantial reductions of all tariffs (including in-quota duties) and tariff peaks, with no

product exemptions. The proposal also calls for eliminating special safeguards, increasing

TRQ amounts, and introducing new disciplines on TRQ administration such as trigger

mechanisms for quota underfills. In addition, the United States proposes the development

of disciplines covering trade in products developed through new technologies (such as trade

in genetically modified agricultural products), and supports sectoral negotiations such as

“zero-for-zero” initiatives (see glossary). 

The U.S. proposal details a simplification of rules for domestic support that would establish

two categories of subsidies: one for exempt measures, which would be targeted, transparent,

and minimally trade distorting; and another for nonexempt measures, which would be subject

to reduction commitments. This would effectively eliminate blue box policies12 and establish

a ceiling on all support considered to be trade distorting. In addition, the U.S. proposal

contends that the Aggregate Measure of Support (AMS)13 should be reduced from the final

bound URAA AMS level to a final bound level equal to a fixed percentage (for example, 10

percent) of the value of agricultural production in a base period.14 The fixed percentage

would be the same for all countries, thus requiring greater cuts by those countries with higher

levels of domestic support.15
MARCH 2002

Industry Trade and Technology Review WTO Negotiations on Agriculture

 16 The United States reportedly would prefer establishing disciplines that would add

transparency to the operation of export-oriented STEs by requiring them to notify the WTO on

sales information, acquisition costs, and export pricing; and that would eliminate government

financial support of such monopoly exporters. 

 17 In negotiations at the OECD, the United States has agreed to reduce this time period to 18

months (24 months for breeding cattle, grains, and oilseeds). (Currently, U.S. rules allow 3 years

for repayment of state-guaranteed loans used to purchase U.S. agriculture products.) This falls

short of the 12 months that Canada and Australia are advocating. Countries also disagree on

whether STEs (such as the Canadian Wheat Board) should be required to report export credit

terms. Because of the impasse on these issues, negotiations at the OECD have stalled. For more

detail, see “OECD export credit talks stalled,” Feedstuffs, Jan. 29, 2001.

 18 WTO CASS, Proposal for Comprehensive Long-Term Agricultural Trade Reform,

Submission from the United States, G/AG/NG/W/15, June 23, 2000, found at

http://www.wto.org/english/tratop_e/agric_e/ngw15_e.doc.

 19 WTO CASS, Cairns Group Negotiating Proposal. Export Competition, G/AG/NG/W/11,

June 26, 2000, found at http://www.wto.org/english/tratop_e/agric_e/ngw11_e.doc.

 20 WTO CASS, Cairns Group Negotiating Proposal. Domestic Support, G/AG/NG/W/35,

Sept. 22, 2000, found at http://www.wto.org/english/tratop_e/agric_e/ngw35_e.doc.

 21 WTO CASS, Cairns Group Negotiating Proposal. Market Access, G/AG/NG/W/54, 

Nov. 10, 2000, found at http://www.wto.org/english/tratop_e/agric_e/ngw54_e.doc.

 22 WTO CASS, Cairns Group Negotiating Proposal. Export Restrictions and Taxes,

G/AG/NG/W/93, Dec. 21, 2000, found at http://www.wto.org/english/tratop_e/agric_e/

ngw93_e.doc.

 23 WTO CASS, State Trading Enterprises, Proposal by Argentina, Brazil, Paraguay, Uruguay,

Chile, and Colombia, G/AG/NG/W/104, Jan. 23, 2001, found at http://www.wto.org/english/

tratop_e/agric_e/ngw104_e.doc.

13

Regarding export competition, the U.S. proposal supports the elimination of export subsidies

over a fixed period of time and also proposes restrictions on state trading enterprises

(STEs).16 The United States proposes that discussions that took place in the Organization for

Economic Cooperation and Development (OECD) on disciplines for export credits and

guarantees17 provide guidance to potential WTO negotiations on export credits. The United

States views the most trade-distorting measures overall to be export subsidies, domestic

support payments, high tariffs, and unjustified restrictions on products of new technologies.18

Cairns Group

The Cairns Group (see glossary) has not submitted a comprehensive proposal but has offered

proposals on export competition,19 domestic support,20 market access,21 and export

restrictions and taxes.22 The Cairns Group is committed to aggressive reforms in each of

these areas. However, several subgroups of developing-country members of the Cairns

Group have submitted their own, separate proposals on particular topics, which express

views at odds with some of the developed-country members of the group. For example,

several Latin American countries have called for disciplines on STEs despite the heavy

reliance on STEs by other major Cairns Group members, Canada and Australia.23

In their proposals, Cairns Group countries call for the elimination of export subsidies,

beginning with a 50-percent reduction in the first year of implementation, followed by a

complete phaseout over 3 years for developed countries and 6 years for developing

countries. The group also seeks improved disciplines on export restrictions and export taxes
MARCH 2002

WTO Negotiations on Agriculture Industry Trade and Technology Review

 24 WTO CASS, WTO Negotiations on Agriculture: Market Access, a negotiating proposal by

Canada, G/AG/NG/W/12, June 19, 2000, found at http://www.wto.org/english/tratop_e/agric_e/

ngw12_e.doc.

 25 WTO CASS, WTO Negotiations on Agriculture: Domestic Support, proposal by Canada,

G/AG/NG/W/92, Dec. 21, 2000, found at http://www.wto.org/english/tratop_e/agric_e/

ngw92_e.doc.

 26 WTO CASS, EC Comprehensive Negotiating Proposal, G/AG/NG/W/90, Dec. 14, 2000,

found at http://www.wto.org/english/tratop_e/agric_e/ngw90_e.doc.

14

to provide increased certainty of supply for food-importing countries, and that tariff

escalation (see glossary) be eliminated. The group’s proposal advocates major reductions in

domestic support, including support categorized as amber and blue box policies, and

introduces the concept of a formula approach for the reduction of trade-distorting domestic

supports, such as EU transfer payments and U.S. market loan deficiency payments. Cairns

Group countries would also review green box policies to ensure that they are, at most,

minimally trade distorting. Focusing attention on the special needs of developing countries,

the group proposes longer implementation periods for tariff reduction and elimination of

export subsidies for these countries. Developing countries would also benefit under the

Cairns Group proposal from special green box provisions and enhanced technical assistance.

Canada opted out of the Cairns Group submission on market access in deference to its own

market access proposal submitted earlier.24 The Canadian proposal provides options for a

targeted approach to tariff reduction for single-stage tariffs, two-stage tariffs, and tariff

quotas. Single-stage tariffs would be reduced using a formula approach, and any tariffs that

remained over a certain threshold would be reduced by converting them to TRQs with dutyfree access within the quota. For existing TRQs, the in-quota rates would be eliminated and

quota amounts increased. The proposal also endorses zero-for-zero sectoral initiatives not

only for tariff elimination and export subsidies, but also for such measures as export taxes

and trade-distorting domestic support. Canada also submitted a proposal on domestic support

in December 2000,25 that calls for an overall limit on support of all types, including that

which currently falls in the green, blue, and amber box policies, and for a provision that

green box policies be recognized as not countervailable.

European Union

The European Union (EU) comprehensive proposal was submitted in December 2000.26 In

addition, the EU submitted separate proposals in July 2001 on the precautionary principle,

export credits, and food safety. Following the Doha Ministerial, the EU submitted three

additional proposals in December 2001, on mandatory labeling for agriculture products,

food aid, and tariff preferences for developing countries.

On export competition, the EU proposes that officially supported export credits be reduced

in the same way as other forms of export subsidization. These proposals are aimed at the

United States, which is the primary user of export credits and guarantees for agricultural

products. The EU also targets the United States in the area of food aid, viewing much of this

aid as disguised subsidized exports, and therefore necessary to be reined in by disciplines.

The EU proposal calls for food aid to be provided to lower-income countries in the form of

cash payments for purchases in local markets, and for actual food consignments to be

provided only during humanitarian crises.
MARCH 2002

Industry Trade and Technology Review WTO Negotiations on Agriculture

 27 In the EU view, WTO rules do allow for taking precaution into account in trade policy

formation, but they suggest that a clearer framework for the use of precaution would promote

open trade and reduce risk of trade disputes. They maintain that the use of precaution should be

based on available pertinent information from qualified and respected sources but not necessarily

that of the majority of the scientific community.

 28 WTO CASS, Negotiating Proposal By Japan On WTO Agricultural Negotiations,

G/AG/NG/W/91, Dec. 21, 2000, found at http://www.wto.org/english/tratop_e/agric_e/

ngw91_e.doc.

15

On market access, the EU negotiating proposals call for lower trade barriers through modest

and balanced tariff reductions, and for increased transparency in TRQ administration. The

EU supports an overall average reduction of bound tariffs and a minimum reduction per tariff

line using the approach followed in the Uruguay Round agricultural negotiations. The

proposal cites the article 20 reference to “progressive” tariff reductions, which the EU

interprets as allowing countries flexibility in lowering tariffs. Although the EU would not

offer any product exclusions, the proposal endorses the right of individual countries to take

into account the particular situation of certain sensitive agriculture sectors. The EU views

improved market access as including the right to use geographical indications or designations

of origin in order to ensure fair competition, asserting that discussions of geographical

indications be addressed within the agricultural negotiations as well as under the WTO’s

Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement.

For the EU, certain policy objectives, such as protecting the environment, sustaining the

vitality of rural areas, and ensuring the humane treatment of animals, are considered

justification for government financial assistance to agriculture. Therefore, the EU would

maintain blue and green box support payments, and even expand them, while examining the

criteria for these policies to ensure that measures for achieving the objectives of

multifunctional agriculture are maintained. The EU proposal views countercyclical payments

for products destined for export, however, as particularly trade distorting and would subject

them to specific disciplines.

With respect to nontrade concerns, food safety is of particular interest to the EU. In its

proposals, the EU notes that consumer interest in food safety has noticeably increased;

consequently, the EU asserts that a reexamination of the WTO Agreement on

Sanitary/Phytosanitary (SPS) Measures is necessary to clarify the relationship between

precaution and WTO rules in the new round of negotiations.27 The EU also calls for

establishment of the right of countries to introduce mandatory labeling requirements that

would not be considered technical barriers to trade. The specific guidelines laid out by the

EU for use in implementing labeling schemes at the national level include the requirement

that they be non-trade-distorting and transparent, and that they include information on

process and production methods of a product as well as the ways animals or plants are raised

or grown, or the modified properties of agricultural products. 

Japan

Japan submitted a comprehensive proposal to the Agriculture Committee in December

2000.28 Although currently implementing domestic policy reforms in agriculture, Japan’s

proposal is characterized by one observer as cautious and defensive in its approach to
MARCH 2002

WTO Negotiations on Agriculture Industry Trade and Technology Review

 29 Miner, W. M., “An overview of the issues and position of the major countries in the WTO

negotiations,” Estey Centre Journal of International Law and Trade Policy, Vol. 2, No. 1, 2001. 

 30 For example, WTO CASS, Special and Differential Treatment for Developing Countries in

World Agricultural Trade, Proposal by ASEAN Countries, G/AG/NG/W/55, Nov. 10, 2000,

found at http://www.wto.org/english/tratop_e/agric_e/ngw55_e.doc

16

agricultural trade negotiations.29 The central themes of the Japanese proposal, reportedly

consistent with its position in all aspects of the negotiations on agriculture to date, are the

multifunctionality (see glossary) of agriculture and the notion of food security (that each

government has the right to secure its own stable food supply and to provide for sustainable

production within its own borders).

Japan’s proposal maintains that increasing market access should proceed in a manner that

provides flexibility to accommodate an individual country’s current situation of production

and consumption for each product. The proposal calls for slow, manageable reductions in

tariffs and increases in TRQ levels, and considers the reduction of in-quota and overquota

tariff rates inappropriate for all agricultural products. The proposal defends a country’s right

to practice tariff escalation, citing the justification to protect its domestic food industry.

Japan’s proposal does not support further sector-specific reductions in tariff levels (zero-forzero), noting that such initiatives do not equally benefit both food-importing and

food-exporting countries. Japan also calls for maintaining the special safeguard mechanism

under the URAA and the introduction of a new safeguard mechanism for seasonal and

perishable agricultural products. With regard to domestic support, the Japanese propose that

green box policies be re-examined to allow for payments that support the concept of

multifunctionality as well as serving as safety-net programs necessary for promoting marketoriented policy conversion. Japan’s proposal suggests that only modest reductions in amberbox support payments should be negotiated, and supports the strengthening of export credit

disciplines in light of the discussions being held on the subject in the OECD.

The Japanese comprehensive proposal also calls for STEs to notify WTO members of the

amount and price of exports, as well as their procurement price on a quarterly basis, and for

the prohibition of financial assistance from the government to the STE. On food safety, the

Japanese proposal articulates the notion of precaution, indicating that providing safe food

to the public may necessitate the restriction of genetically modified products, and supports

reexamining the current SPS agreement to determine whether it can sufficiently respond to

new food safety issues.

Developing Countries

Throughout the negotiations on agriculture, developing countries, which form a majority of

the WTO membership, reportedly have displayed a determination to influence the

discussions and to redress what they consider as deficiencies of previous negotiating Rounds.

Overall, proposals by these countries seek improved access for products they supply to world

markets, namely textiles and agriculture products. Developing countries have submitted

proposals as part of the Cairns Group, as part of Mercosur, and as part of other informal

groupings of countries. The emphasis of these varied submissions can be generally

summarized by the need for special and differential treatment for developing countries.30
MARCH 2002

Industry Trade and Technology Review WTO Negotiations on Agriculture

 31 For example, WTO CASS, Legitimate Non-Trade Concerns, Technical submission by

Argentina, G/AG/NG/W/88, Jan. 25, 2002, found at http://wto.org/english/tratrop_e/

agric_e/ngw88_e.doc

 32 For example, WTO CASS, Negotiating proposal by Mauritius, G/AG/NG/W/96, Jan. 25,

2002, found at http://wto.org/english/tratrop_e/agric_e/ngw96_e.doc

 33 WTO CASS, State Trading Enterprises, Proposal by Argentina, Brazil, Paraguay, Uruguay,

Chile and Columbia, G/AG/NG/W/104, Jan. 23, 2001, found at http://www.wto.org/english/

tratop_e/agric_e/ngw104_e.doc.

 34 WTO CASS., Proposals by small-island developing states (SIDS), Barbados, Cuba,

Dominica, Jamaica, Mauritius, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and

Trinidad and Tobago, G/AG/NG/W/97, Jan. 25, 2002, found at http://wto.org/english/tratrop_e/ 

agric_e/ngw97_e.doc

 35 WTO CASS., Market Access, Proposal by Caricom, G/AG/NG/W/100, January 25, 2002,

found at http://wto.org/english/tratrop_e/agric_e/ngw100_e.doc

 36 WTO CASS., Special and Differential Treatment and a Development Box, Proposal by

Cuba, Dominican Republic, Honduras, Pakistan, Haiti, Nicaragua, Kenya, Uganda, Zimbabwe, Sri

Lanka, and El Salvador, G/AG/NG/W/13, June 23, 2000, found at http://www.wto.org/english/

tratop_e/agric_e/ngw13_e.doc

 37 WTO CASS, Green box measures: approach for a work program, off-the-record “nonpaper,” Proposal by Argentina.

 38 WTO CASS, Proposal by India on Areas of (i) Food Security, (ii) Market Access, (iii)

Domestic Support, and (iv) Export Competition, G/AG/NG/W/102, Jan. 15, 2001, found at

http://www.wto.org/english/tratop_e/agric_e/ngw102_e.doc

17

In terms of market access, some developing countries stress the need to address tariff peaks

and tariff escalation that they believe particularly impede market access for developingcountry goods.31 Others highlight the need for technical assistance in meeting SPS

requirements.32 Some Latin American developing countries belonging to the Cairns Group

submitted a proposal calling for new disciplines on STEs, despite the fact that fellow Cairns

Group members Canada and Australia defend their use of STEs.33 A group of small-island

nations in the Caribbean is proposing that they retain preferential access for their exports,

mainly sugar and bananas, and that they be exempt from the WTO requirement that

free-trade agreements cover substantially all trade.34 Likewise, developing countries in Latin

America that also produce sugar and bananas are pushing for the reduction of trade barriers

on these items.35

With respect to domestic support, developing nations generally view the green box policies

as serving developed nations at the expense of developing countries. To remedy this, a group

of nine developing countries (including Pakistan, Kenya, Cuba, and Zimbabwe) propose a

development box of support payments within the green box which would apply only to

developing countries.36 Taking the opposite view, Argentina calls for scaling back support

in the green box and removing provisions for (1) direct producer payments, (2) decoupled

income support (see glossary), and (3) income insurance.37 Despite the disparate proposals

on green box support payments, developing countries generally agree that even if individual

green box measures are not trade distorting, their cumulative effect is considered damaging.

A detailed proposal submitted by India is believed by observers to be fairly indicative of

where the positions of developing countries might be headed in future negotiations; this

submission conditions any tariff reductions by developing countries on substantial reductions

of developed nations’ trade-distorting domestic support and on elimination of export

subsidies.38 India’s proposal calls on developed countries to reduce their high tariffs
MARCH 2002

WTO Negotiations on Agriculture Industry Trade and Technology Review

 39 Ann Veneman, U.S. Secretary of Agriculture, in speech to National Association of Farm

Broadcasters, Washington, D.C., Nov. 16, 2001, found at http://www.usda.gov/news/releases/

2001/11/0236.htm, retrieved Jan. 10, 2002.

 40 Pascal Lamy, EU Trade Commissioner, in comments following EU trade Ministers’ meeting,

Brussels, Sept. 7, 2001.

18

on certain developing-country exports such as dairy, sugar, and rice; and to reduce all

domestic support by one-half in 2001 and to 5 percent of the value of production by 2004.

According to India’s submission, developing countries would have 5 years to lower some

green box support, such as income safety-net programs and income insurance, to 10 percent

of production value.

The Doha Ministerial

According to the WTO, the main purpose of the Doha Ministerial (November 2001) was to

launch a new comprehensive round of trade negotiations, covering a wide range of topics

including agriculture, industrial products, services, environmental issues, so-called Singapore

issues (investment, competition, trade facilitation, and transparency in government

procurement), implementation of WTO agreements, rules (including antidumping/subsidies

and regional pacts), and intellectual property. Agreement on a broad agenda for future trade

talks was seen by agriculture interests as crucial for progress because it would allow

concessions gained in agriculture to offset benefits achieved in other areas. A successful

outcome of the meeting, according to WTO officials, would involve unanimous agreement

on a Ministerial declaration—a document outlining the scope and timing a new round of

trade negotiations. 

The run-up to Doha

As indicated by the foregoing discussion, the negotiating positions of several key WTO

members remained far apart in the few months prior to the Doha meeting. A U.S.

Government official expressed concern that a second failure to launch a new round could

deliver a severe blow to the credibility of the WTO as an institution and to the feasibility of

multilateral trade negotiations, given the many unresolved issues on the table and the many

countries participating.39 In spite of existing differences, a draft Ministerial declaration was

put forward by the WTO General Council chairman, Ambassador Stuart Harbinson, of Hong

Kong, in late October 2001. The Harbinson draft (box 1) contains few specifics, while

attempting to balance the conflicting views of all WTO members; reportedly, most countries

both liked and disliked aspects of the text. The general view on the draft was summed up by

Canadian Ambassador Sergio Marchi who noted “I don’t think anybody is fully happy, but

I think it is a good basis for further discussion.”

The EU reportedly voiced concern that the Harbinson text on agriculture went too far in the

direction of trade liberalization, especially in calling for the elimination of export subsidies;

the stated position of the EU had always been that a text calling for the elimination of export

subsidies would not be accepted.40 The EU, as well as Japan, also noted the draft was too

weak on how nontrade concerns (such as animal welfare, food security, environmental

protection, and rural development) should be treated in future negotiations; for example, the

EU expressed the need for clearer language indicating that nontrade concerns would be
MARCH 2002

Industry Trade and Technology Review WTO Negotiations on Agriculture

 41 Franz Fischler, EU Commissioner for Agriculture, in briefing for trade journalists, Brussels,

Oct. 18, 2001.

 42 “No flesh on the agriculture bones in WTO’s Doha draft,” Agra Europe Weekly, Sept. 28,

2001.

19

Box 1

Draft Ministerial Declaration Text on Agriculture ( Harbinson Text)

13. We recognize the work already undertaken in the negotiations initiated early in 2000 under Article

20 of the Agreement on Agriculture, including the large number of negotiating proposals submitted on

behalf of 121 Members. We recall the long-term objective referred to in the Agreement to establish a

fair and market-orientated trading system through a program of fundamental reform encompassing

strengthening rules and specific commitments on support and protection in order to correct and prevent

restrictions and distortions in world agricultural markets. We reconfirm our commitment to this

program. Building on the work carried out to date, we commit ourselves to comprehensive negotiations

aimed at: substantial improvements in market access; reduction of, with a view to phasing out, all

forms of export subsidies; and substantial reductions in trade-distorting domestic support. We agree

that special and differential treatment for developing countries shall be an integral part of all elements

of the negotiations and shall be embodied in the Schedules of concessions and commitments and as

appropriate in the rules and disciplines to be negotiated, so as to be operationally effective and to

enable developing countries to effectively take account of their development needs, including food

security and rural development. We take note of the non-trade concerns reflected in the negotiating

proposals submitted by Members and confirm that non-trade concerns will be taken into account in the

negotiations as provided for in the Agreement on Agriculture.

14. Modalities for the further commitments, including provisions for special and differential treatment,

shall be established no later than ... Participants shall submit their comprehensive draft Schedules based

on these modalities no later than ... The negotiations, including with respect to rules and disciplines and

related legal texts, shall be concluded as part and at the date of conclusion of the negotiating agenda as

a whole.

Source: WTO, General Council Preparations for the Fourth Session of the Ministerial Conference,

Draft Ministerial Declaration, Revision, Job(01)/140/Rev.1, Oct. 27, 2001.

respected and that the process of trade negotiations would not prejudice its ability to meet

such concerns.41 The EU reportedly also wanted the text to contain a commitment for

negotiations on environmental issues.

Meanwhile, the Cairns Group expressed the view that the text did not go far enough in the

direction of trade liberalization, and desired specific language requiring deep cuts in tariffs,

curtailment of tariff peaks, substantial increases in all tariff quota volumes, strengthened

rules on TRQ administration, and elimination of nontariff barriers.42 The Cairns Group

reportedly pushed for text proposing substantial reductions, leading to elimination, of tradeand production-distorting domestic support. In addition, several developing countries wanted

the draft to more adequately reflect their push for greater exemptions from agricultural trade

disciplines and for the elimination of tariff peaks (typically those above 25 percent), tariff

escalation (higher tariffs on more processed products), and nontariff barriers.
MARCH 2002

WTO Negotiations on Agriculture Industry Trade and Technology Review

 43 “Zoellick’s Trade Concession Wins WTO Talks But Could Cost Bush Fast-Track

Authority,” Wall Street Journal, Nov. 16, 2001.

 44 American Textile Manufacturers Institute in letter to United States Trade Representative

Robert Zoellick and Commerce Secretary Don Evans, Nov. 1, 2001.

 45 For example, one procedure that received considerable criticism following the talks was the

so-called Green Room process which typically involves negotiations among roughly the same 25

major trading countries aimed at resolving issues of disagreement prior to wider discussion among

all members. Developing countries, in particular, claimed that this process marginalized and

excluded them from discussing issues of vital importance to them. “WTO negotiators push

towards deal,” Agra Europe Weekly, Dec. 3, 1999. 

20

Concern by U.S. negotiators over the Harbinson draft centered mainly on issues other than

agriculture; in particular, the draft language which could limit the use of U.S. antidumping

and countervailing duty laws. For several months prior to the Ministerial, the administration

had come under increasing pressure from lawmakers in Congress not to bring these issues

into the negotiations.43 U.S. negotiators also raised concerns about draft language regarding

negotiations on market access for nonagricultural products, which called for the reduction

or elimination of tariff peaks, high tariffs, and tariff escalation. These provisions, according

to certain U.S. manufacturers, could potentially lead to a substantial influx of textile and

apparel imports from developing countries.44

Negotiations

In spite of concerns about security and the ability of countries to focus on trade issues

following the events of September 11, the Fourth WTO Ministerial began in Doha, Qatar,

on November 9, 2001, as scheduled. After 6 days of intensive talks, the WTO members

unanimously adopted a Ministerial declaration (the Doha Development Agenda, or DDA)

which launches a new comprehensive round of trade negotiations. The Ministerial was

universally viewed as a success by member countries, not only in terms of paving the way

for opening world trade in goods and services, but also in salvaging the credibility of the

WTO as an institution. For agriculture, countries consented to negotiations that will further

liberalize trade and lower domestic support, with an ambitious timetable for a new agreement

to be in place by January 1, 2005.

Part of the success attributed to the Ministerial in Doha resulted from how negotiation

sessions were structured, in contrast to the failure in Seattle that largely has been attributed

to institutional procedures that were seen to be nontransparent and exclusionary.45 In

response, conference organizers at Doha established six working groups—agriculture,

implementation (developing countries’ concerns about difficulties in implementing current

WTO agreements), environment, rules issues (mainly involving antidumping/subsidy

negotiations and regional trade agreements), Singapore issues and intellectual

property—which reported back to all members. In order to ensure openness and

transparency, the chairperson of each working group reported back to the heads of each

country delegation, and any country was welcome to be part of the working group meetings.

The agriculture discussions were chaired by Singapore’s Trade and Industry Minister,

George Yeo, who served the same role in Seattle. Midway through the Doha Ministerial,

final agreement had not been reached on agriculture. Chairmen Yeo reportedly described the

agricultural text as a “house of cards,” suggesting that the entire negotiation could collapse

with the slightest change in position of any of the parties. According to observers, some

participants at Doha desired a declaration stating stronger concessions in favor of developing
MARCH 2002

Industry Trade and Technology Review WTO Negotiations on Agriculture

 46 “Real work for WTO to begin in 2002,” Feedstuffs, Nov 19, 2001.

 47 Ann Veneman, U.S. Secretary of Agriculture, in comments to journalists, Doha, Qatar,

Nov. 14, 2001.

 48 The complete text of the DDA can be found on the WTO website, at http://www.wto.org/

english/thewto_e/minist_e/min01_e/mindecl_e.htm.

 49 Ann Veneman, U.S. Secretary of Agriculture, in speech to National Association of Farm

Broadcasters, Washington, D.C., Nov. 16, 2001, found at http://www.usda.gov/news/releases/

2001/11/0236.htm, retrieved Jan. 10, 2002.

21

countries, while others desired more specific language on nontrade concerns. However, the

key impasse reportedly occurred over the treatment of export subsidies in the Harbinson

draft of the Ministerial declaration. At issue was the EU concern about the text “reduction

of, with a view to phasing out, all forms of export subsidies” (see box 1, line 8) which,

according to French officials, was a “deal breaker.”46 Concerned about political pressure at

home, the French and Irish delegations reportedly were adamant that the EU should not

commit to the eventual elimination of export subsidies even before negotiations started, and

that future changes to policy on EU export subsidies should be made in the context of

Common Agricultural Policy (CAP) reform rather than in response to WTO commitments.

Observers note that agreement was eventually reached when U.S. and Canadian officials

suggested the following text (italics added for emphasis) dealing with market access, export

subsidies, and domestic support: “Building on the work carried out to date, and without

prejudging the outcome of the negotiations, we commit ourselves to comprehensive

negotiations aimed at: substantial improvements in market access; reduction of, with a view

to phasing out, all forms of export subsidies; and substantial reductions in trade-distorting

domestic support.” According to a U.S. official, the additional wording provided a solution

giving EU politicians cover from criticism by agricultural interests, while in practice, not

giving any extra latitude on subsidies.47 The modified Harbinson agriculture text was carried

over to the final Ministerial declaration.48

The final Ministerial declaration establishes an ambitious timetable for completing the

agricultural negotiations as set forth in paragraph 14 of the final text: “Modalities for the

further commitments, including provisions for special and differential treatment, shall be

established no later than March 31, 2003. Participants shall submit their comprehensive draft

Schedules based on these modalities no later than the date of the Fifth Session of the

Ministerial Conference.” (To be held in autumn 2003.) “The negotiations, including with

respect to rules and disciplines and related legal texts, shall be concluded as part and at the

date of conclusion of the negotiating agenda as a whole.” (January 1, 2005). WTO members

also decided that the negotiations will be a “single undertaking,” meaning that individual

parts of the negotiations cannot be finalized until agreement is reached on all parts of the

agenda.

The Outcome

Although all sides put the result of the Doha meeting in a positive light, observers indicate

that the outcome reflected considerable compromise by all parties. On the outcome of the

Doha Ministerial, U.S. Agriculture Secretary Veneman commented “just absolutely a great

victory, that we were able to come away from with the launch of a round, and it's a great

victory for America's farmers and ranchers.”49 The United States reportedly achieved most

of its objectives with respect to agriculture going into the meetings; most importantly, a

commitment by the EU to negotiate the eventual phaseout of export subsidies, as well as

agreement for substantial improvements in market access and reductions in domestic
MARCH 2002

WTO Negotiations on Agriculture Industry Trade and Technology Review

 50 Currently, export credit disciplines, both agricultural and nonagricultural, are being

considered in discussions at the OECD.

 51 John Sweeney, President of the AFL-CIO, in statement on WTO meeting in Doha, Nov. 14,

2001.

 52 Franz Fischler, EU Agriculture Commissioner, in briefing to journalists, Doha, Nov. 14,

2001.

 53 The importance of nontrade concerns to the EU negotiating position is indicated by

comments made by EU Agriculture Commissioner Franz Fischler. “Many countries share the

[EU] view that agriculture is not an industry like any other. Producing milk is not the same as

making ball bearings. Those who wish to reduce the WTO to a mere trade liberalization machine

have not learned the lessons from Seattle. Those who criticize the EU for insisting that food safety

or the environment be taken into account in the agriculture negotiations are not only ignoring the

legitimate interests of our society, but have also failed to comprehend the Uruguay Round.”

“Farming fairly in Europe. The EU has reformed its agricultural subsidies and will push forward

with trade liberalization in Doha, says Franz Fischler,” Financial Times, Nov. 1, 2001.

 54 Franz Fischler, EU Agriculture Commissioner, in briefing to journalists, Doha, Nov. 14,

2001.

22

supports. In addition, the United States was pleased with general language addressing

nontrade concerns, that environmental issues were not widely included in negotiations, and

that the agreement on SPS measures was left untouched.

To gain these commitments, U.S. negotiators agreed to text calling for the phaseout of all

forms of export subsidies. This is expected to lead to negotiating disciplines on export credits

and food aid within the WTO, something long resisted by the United States.50 U.S.

concessions were also made in areas beyond agriculture. In particular, the DDA calls for

negotiations on antidumping and subsidy provisions, which, according to some U.S.

interests, may weaken U.S. trade laws.51 The final text covering market access for

nonagricultural products also requires negotiations to reduce or eliminate tariff peaks. U.S.

tariffs are high for some of its import-sensitive sectors, such as textiles and apparel. At the

start of the Ministerial, the United States had objected to this language on tariff peaks.

Meanwhile, the EU Agriculture Commissioner Franz Fischler, commenting on the outcome

of the Doha Ministerial, noted “good news not only for Europe, but for all the members of

the WTO. A new trade round is a slap in the face for isolationism.”52 The EU has claimed

benefits on several fronts. For example, the agricultural text requires that nontrade concerns

be taken into account in future negotiations.53 Also, with the Ministerial declaration requiring

negotiations covering all forms of export subsidy, the EU sees an opportunity to introduce

disciplines on U.S. export credits and food aid, as well as the subsidy element of the STEs

that some Cairns Groups countries employ.54 The EU has also welcomed the opportunity to

negotiate protection of “geographical indications” (see glossary) for wine and spirits under

the TRIPS Agreement. The EU supported the text dealing with trade and the environment

that required negotiations on the relationship between existing WTO rules and specific trade

obligations set out in multilateral environmental agreements (MEAs). The United States,

going into the Ministerial, had opposed negotiations between WTO rules and MEAs.

However, the EU left Doha having clearly made several concessions of its own. The revised

Harbinson text requiring the phaseout of export subsidies (despite the added language not

to prejudge the outcome of negotiations) reportedly was not to the EU’s liking. The EU also

expressed a desire for the SPS agreement to be renegotiated in the next round and for more

clarity on how nontrade concerns will play into future negotiations. Further, observers note

that the final text also gives no basis for the EU to introduce the “precautionary principle”

into the agricultural negotiations.
MARCH 2002

Industry Trade and Technology Review WTO Negotiations on Agriculture

 55 Mark Vaile, Australian Trade Minister, in comments to journalists, Doha, Qatar, Nov. 15,

2001.

 56 Junichiro Koizumi, Japanese Prime Minister, in comments to journalists, Doha, Qatar,

Nov. 15, 2001.

 57 See paragraph 12 of final text.

23

The outcome was welcomed by the Cairns Group, according to Australian Minister of Trade

Mark Vaille, who stated “the Declaration's strong language to phaseout export subsidies,

achieve major reductions in domestic agricultural support levels and secure significant

improvement in market access is a tremendous outcome for Australia. It will go a long way

to ensuring agriculture and processed foods receive the long overdue attention they deserve

in international trade negotiations.”55 Going into Doha, the top priority of the group

reportedly was to reach agreement to eliminate export subsidies, and the text addressing

export subsidies was considered a key success. However, the text also calls for disciplines

on all forms of export subsidies, which will include the subsidy element seen to exist in the

operations of the STEs of some Cairns Group members.

For a period prior to the Ministerial, Japanese officials had stated serious reservations about

agreeing to a text that was seen to threaten Japan’s farm sector. However, one official said

that Japan considered the pre-Ministerial draft declaration a reasonable basis for negotiation

but that its position on agriculture relates to the overall package that will emerge from Doha,

particularly the language on antidumping. In the end, Japan did not insist on changing the

agricultural text in Doha, reportedly leaving the EU isolated on several issues. Japanese

Prime Minister Junichiro Koizumi noted that “Japan's views have been reflected in the

declaration for the most part, including on agriculture.”56 The Japanese reportedly consider

the requirement that negotiations take into account nontrade concerns as allowing them to

protect their rice growers as a food security measure. Further, Japan achieved a key demand

with the inclusion on the negotiation agenda of antidumping and countervailing duty laws.

Finally, the developing countries reportedly were generally pleased with the text on

agriculture, particularly the inclusion of special and differential treatment for market access,

domestic support, and export competition. Developing countries supported the commitment

to phaseout all forms of export subsidy and the text relating to implementation of the existing

WTO agreements, especially in the areas of textiles and apparel, agriculture, SPS measures,

subsidies and countervailing measures, and antidumping. The decision on

implementation-related issues means that negotiations on unresolved implementation issues

will be an integral part of the work program being established and will be addressed on a

priority basis by the relevant WTO bodies.57 Some developing countries, led by India,

reached agreement to postpone negotiations of the Singapore issues until the next Ministerial

conference in 2003, but only if all countries agree to undertake such negotiations. Prior to

Doha, Japan and the EU had asserted that these issues must be part of the negotiating

mandate. Developing countries also obtained a separate declaration on the TRIPS Agreement

and public health in which WTO members agreed that the TRIPS Agreement does not and

should not prevent members from taking measures to protect public health.
MARCH 2002

WTO Negotiations on Agriculture Industry Trade and Technology Review

 58 “Real work for WTO to begin in 2002,” Feedstuffs, Nov 19, 2001.

 59 Mark Vaile, Australian Trade Minister in comments to journalists, Doha, Qatar, Nov. 15,

2001.

 60 Lyle Vanclief, Canadian Minister of Agriculture, in comments to journalists, Doha, Qatar,

Nov. 15, 2001.

 61 Franz Fischler, EU Agriculture Commissioner, in comments to journalists, Doha, Qatar,

Nov. 15, 2001.

 62 EU dairy and sugar policies are based on export subsidies. “CAP under pressure as new

WTO trade round launched,” Agra Europe Weekly, Nov. 16, 2001.

24

Looking Ahead

The Agricultural Negotiations

With the Doha Ministerial completed, countries are now focusing on transforming the DDA

into action. A Trade Negotiations Committee (TNC) has been set up to guide the overall

conduct of the negotiations under the authority of the General Council. The TNC met in late

January, 2002 at which the structure and protocol for the negotiations were decided. The

meeting also set a time frame for the talks. Each WTO member has a seat on the TNC, with

decisions made by consensus of all members. Agricultural negotiations will take place under

the current structure involving special sessions of the WTO Agriculture Committee.

Although all parties have claimed success in the outcome of Doha, industry observers

consider the real work is still ahead.58 The DDA for agriculture says very little in terms of

specific modalities, leaving considerable room for different interpretations as to what

countries are actually committed to implement.

Negotiations on export subsidies likely will be highly contentious. Countries agreed to

reduce subsidies “with a view to phasing out.” For the United States, Cairns Group, and

developing countries, this is a mandate for the elimination of export subsidies. According

to the Australian Minister of Trade “this is the beginning of the end of export subsidies,”59

while Canada's Minister of Agriculture noted that “inclusion (in the final text of the phrase

“without prejudging the outcome”) gives France no additional negotiating latitude on export

subsidies.”60 Meanwhile, the EU Agriculture Commissioner emphasized “The final text

refers to the objective of ultimately “phasing out” all forms of export subsidies, but this is

neutralized by a statement that this is ‘without prejudice to the final outcome of the

negotiations.’”61 The Commissioner pointed out that “the objective of the ministerial was to

set the agenda for coming negotiations, not what their outcome should be. We wanted this

to be clear, black on white in the text, that there was no intention to pre-judge the outcome.

After a long struggle, we obtained this.” Similarly, French President Jacques Chirac noted

"As far as agriculture is concerned, the French authorities have made sure that the tenets of

the CAP will not be endangered." His statement continued "It is the reform of the CAP

which will determine what our position will be in the future negotiations.” Thus, the EU sees

no requirement in the text for the elimination of subsidies.62 Also, countries will have to

agree on what exactly is meant by “all forms of export subsidy.” Does this mean disciplines

will be introduced on export credits, food aid, and STEs; and over what time period will

reductions or phaseout take place?

Similarly, the DDA calls for negotiations aimed at substantial improvements in market

access although what is meant by “substantial” is yet to be determined. Several low-tariff
MARCH 2002

Industry Trade and Technology Review WTO Negotiations on Agriculture

 63 “Doha. A qualified success,” Agra Europe Weekly, Nov. 16, 2001.

 64 The DDA includes agreement to negotiate protections for geographical indications on wine

and spirits by the end of 2003 under the WTO TRIPS Agreement.

 65 “CAP under pressure as new WTO trade round launched,” Agra Europe Weekly, Nov. 16,

2001.

25

countries, including the United States, reportedly will likely argue against employing a

straight-line formula (as used in the URAA) and that other formulas, such as the Swiss

formula (see glossary), should be explored. There has also been discussion of establishing

a maximum tariff (for example, 25 percent ad valorem) for all products, and then making

future reductions from that level. Other issues to be resolved include whether special

agricultural safeguards should be retained, by how much TRQ levels should be increased and

over what time frame, and how TRQs should be administered.

Agreement among WTO members on substantial reductions in trade-distorting domestic

support will also be highly contentious and open to interpretation. For example, should

existing support categories be maintained; and if so, by how much should amber box policies

be cut, over what period; with what base period, and should a straight percentage reduction

in the AMS be continued? Also, should the blue box be abolished or preserved, and should

the list of allowable (green box) policies be adjusted so that only truly trade-neutral policies

are included?

The DDA also requires that special and differential treatment for developing countries be an

integral part of all elements of the negotiations, and that negotiated rules and disciplines

should enable developing countries to accommodate their development needs. However, the

issue of how far the concessions should go remains unanswered.

Finally, the DDA calls for nontrade concerns, including those reflected in the negotiating

proposals already submitted by members, to be taken into account in the negotiations. Again,

this language is open to differing interpretations. Some observers see this language as

providing the EU and Japan with an avenue to avoid agreeing to the substantial reforms in

market access, domestic support, and export subsidies that others see called for in the DDA.63

The DDA also requires that negotiations recognize the work already undertaken, initiated

early in 2000 under Article 20, including the large number of negotiating proposals

submitted by WTO members. The EU submitted several proposals involving nontrade

concerns, including animal welfare; food safety; environmental issues; and the precautionary

principle, including geographical indications in the agricultural negotiations,64 which the EU

will likely want to bring into the negotiating agenda. Similarly, issues of food security will

likely be brought up by Japan in an effort to protect domestic rice growers. It is unclear

exactly how taking into consideration nontrade concerns will impact the negotiation in the

coming months, although the issue clearly has the potential to generate intense arguments

in the months ahead.65

Impact of Domestic Policy Reform

Debate on domestic farm and trade policy in the United States and EU will likely influence

how WTO agricultural negotiations proceed in the coming years. Given a deadline of March

2003 for proposed modalities for a new agricultural agreement, progress in negotiations will

have to occur in the WTO Agriculture Committee this year at the same time a new farm bill

is being formulated in the United States and a major review of the CAP is being conducted
MARCH 2002

WTO Negotiations on Agriculture Industry Trade and Technology Review

 66 The House farm bill (H.R. 2646) which passed by a significant margin (291-120), sharply

increases U.S. government payments to traditional farm groups. The bill keeps crop support at

current levels, offers a larger guaranteed annual subsidy to farmers, and employs a target-price

scheme. 

 67 The Senate version raises support prices for grains and cotton; increases spending on land

and water conservation; and provides supplemental subsidies to grain, cotton, and soybean

growers when returns from sales and subsidies are below targets set by law.

 68 U.S. agriculture representatives have noted that while the United States relinquishes the high

ground in trade liberalization talks with the current farm bill proposals, WTO disciplines should

be enough to guide the 2002 farm bill debate. Industry officials point to the example of sugar as a

case where WTO disciplines have been followed despite strong domestic opposition, noting that

the United States probably would not be accepting any imports of sugar were it not for the

minimum access commitments the United States made during the Uruguay Round.

 69 The United States met its commitments in its notification to the WTO for marketing years

1995 to 1998. Information for 1999 and 2000 is still being reviewed by the U.S. Government and

has not yet been notified to the WTO. In the last 2 years, direct payments to producers in the form

of larger loan-deficiency payments, marketing loan gains, and payments related to emergency

programs for various commodities have increased significantly, due to low market prices. USDA

(continued...)

26

in the EU. Trade negotiators on both sides reportedly have committed to further trade

liberalization through increases in market access and reductions in domestic support and

export subsidies, which will influence reforms of domestic policy, particularly policies that

provide price and income support. At the same time, new domestic farm policies will likely

affect how far negotiators may be willing to go in making concessions to liberalize trade

under a new WTO agriculture agreement.

The United States

The 1996 “Freedom to Farm” Act, the current U.S. farm bill, expires in September 2002. The

House version of a new farm bill (Farm Security Act of 2001), passed by the U.S. House

of Representatives in October 2001, proposes an increase in spending of $73 billion on farm

subsidies over the next 10 years.66 The U.S. Senate approved comparable legislation

(Agriculture, Conservation, and Rural Enhancement Act of 2002) in mid-February 2002.67

Currently, the House and Senate versions of the farm bill are being reconciled in conference;

both the House and Senate will need to approve a final conference report agreement before

the final bill is sent to the President for signature. U.S. industry representatives have

expressed concern about the overall message the legislation sends to trading partners with

respect to the U.S. commitment to free and open trade in agriculture under the WTO.68 The

uncertainty regarding the administration’s success in securing Trade Promotion Authority

(TPA) could also be seen as providing mixed signals about the U.S. commitment to a new

WTO trade round (box 2).

The significant commitment of funding in the House and Senate versions of the farm bill

reportedly has raised concerns among trade partners about the U.S. ability to keep within its

WTO commitments on domestic support, even though both the House and Senate legislation

contain provisions for the U.S. secretary of agriculture to reduce payments to avoid WTO

violations. Under the URAA, the United States committed to keeping its expenditure on

trade-distorting domestic supports to less than $19.1 billion annually, and this limit likely

will be progressively lowered under a new WTO agricultural agreement. Although the

United States is still reviewing whether its commitments to the ceiling set in the WTO were

met in 1999 and 2000,69 a University of Missouri analysis of the Senate
MARCH 2002

Industry Trade and Technology Review WTO Negotiations on Agriculture

 69 (...continued)

has noted that in light of the increase in noncommodity specific payments since 1998, the payment

levels for 1999 and 2000 could potentially exceed the de minimis ceiling set in the WTO of 5

percent of the value of domestic production. As a result, the full value of the expenditures would

have to be included in the U.S. calculation of AMS and would push the United States well above

its WTO commitments. “Food and Agricultural Policy: Taking Stock for the New Century,”

USDA, Sept. 2001, p. 57.

27

Box 2

Trade Promotion Authority

Trade Promotion Authority (TPA) legislation—previously referred to as “fast track”

authority—was passed by the U.S. House of Representatives. A Senate bill approved by the Senate

Finance Committee is not yet scheduled for action by the full U.S. Senate, although reported likely to

be considered in April. If a Senate bill is passed, House /Senate conferees would need to work out

differences for approval by the House and Senate if a final bill is to be passed in the current session of

the U.S. Congress (scheduled to end on October 4, 2002). TPA grants Congress the authority to

approve or reject a negotiated trade agreement within strict time limits and without amendments. This

authority expired in 1994 and has not been renewed since then, mainly due to disagreements between

the administration and the Congress over the handling of labor and environment issues.

Several provisions of the House-approved TPA legislation have been flagged by industry

observers as possible impediments to trade liberalization. On import-sensitive agriculture products, the

TPA bill requires that U.S. negotiators identify products targeted for market access talks and consult

with the relevant congressional committees on how increased access for imports would affect U.S.

industry. This concept of congressional prenotification is expanded in the Senate Finance Committee

bill, which would require negotiators to consider whether a country potentially benefitting from

increased market access maintains “export subsidies or other programs, policies, or practices that

distort world trade in such products.” 

According to the legislation, U.S. negotiators are to ensure that tariff cuts for import-sensitive

products are provided with “reasonable” adjustment periods and that the negotiation is done “in close

consultation with Congress on such products before initiating tariff reduction negotiations.” The list of

potentially affected agriculture products covers hundreds of items that were considered import

sensitive in the Uruguay Round negotiations. The bill also directs negotiators to maintain “bona fide

food assistance programs and U.S. market development and export credit programs.” 

Some trade partners have indicated that language in the bill regarding “import-sensitive”

products will hamper negotiations on key agricultural products in international trade. Despite assurance

from U.S. trade officials that the United States will have the authority to negotiate “fully and

completely,” trade partners reportedly view this language as effectively excluding sensitive agricultural

products from trade negotiations.

Source: USDA, FAS, “Trade Promotion Authority and Agriculture,” found at http://www.fas.usda.gov/

info/factsheets/TPA, retrieved Jan 16. 2002. 
MARCH 2002

WTO Negotiations on Agriculture Industry Trade and Technology Review

 70 “Analysis of the Agriculture, Conservation and Rural Enhancement Act of 2001, S. 1731,”

Food and Policy Research Institute, University of Missouri, Nov. 2001.

 71 “Aligning U.S. Farm Policy with World Trade Commitments,” Economic Research Service,

Agricultural Outlook, Jan.-Feb. 2002.

 72 “EU critical of U.S. farm bill,” WTO Watch, Oct. 12, 2001.

 73 “Other countries confused over Washington’s farm, trade bills,” Feedstuffs, Dec. 24, 2001.

 74 Ann Veneman, U.S. Secretary of Agriculture, on link between U.S. farm bill and WTO talks,

Doha, Nov. 10, 2001, WTO Watch, Dec. 7, 2001.

 75 The CAP under Agenda 2000 costs $35 billion annually, or about one-half of the EU’s total

budget. “Seeds of Change,” Financial Times, Jan. 30, 2002.

28

version of the farm bill predicted a 30-percent chance of breaking the WTO spending limit

in 2002, and a higher probability in future years due to its countercyclical features that

increase farm payments in times of low commodity prices.70 The Economic Research Service

of the USDA found that the continuation of current farm programs would keep U.S. support

below its URAA-established ceiling, however, increases in support under new programs

could push the United States above its commitments.71

Several WTO members have noted that the additional spending provided for in the Housepassed farm bill undermines U.S. credibility as committed to trade liberalization in

agriculture. For example, EU Agriculture Commissioner Fischler noted that the House bill

is in stark contrast to what the United States is currently proposing in the WTO and

questioned the current validity of the U.S. comprehensive negotiating proposal tabled in June

2000, which had the unanimous backing of the U.S. farm community and the U.S.

Congress.72 Australian Agriculture Minister Truss added to the criticism by stating “It is

obvious that the United States, which once proudly boasted it had the most efficient farmers

in the world, has now degenerated to a situation where U.S. farmers are dependent upon the

taxpayers for around half of their income.” Canadian Agriculture Minister Vanclief also

observed that the United States would be hard pressed to defend internationally the level of

farm subsidies included in the House legislation.73 U.S. Agriculture Secretary Veneman

states that much of the additional funds being proposed for U.S. agriculture could be spent

in nontrade distorting ways and that the United States is fully committed to its obligations

in the WTO made during the Uruguay Round.74

The European Union

Reforms of the EU’s CAP under the Agenda 2000 (see glossary) are being implemented over

the period 2000-06.75 The Agenda 2000 called for the EU Commission to report on the

implementation of the reform package and to provide proposals for adjustments if necessary

in a “Midterm Review” (MTR) slated for June 2002. More specifically, the MTR reportedly

will consist of a package of proposed reforms which will be presented by EU Agriculture

Commissioner Fischler to the Council of Agriculture Ministers. The MTR proposals are

likely to center around rural development and agroenvironmental issues, as well as several

sector-specific support reforms (such as beef and rye). Some EU-member governments view

the MTR as an opportunity to make profound changes to the CAP, including deep cuts in

support for European agriculture sectors which would allow trade negotiators significant

leverage in demanding corresponding disciplines in other areas of the WTO agriculture talks.

The reactions of agriculture Ministers to the June review package should offer some insights

into the EU stance in WTO agriculture negotiations as they go forward.
MARCH 2002

Industry Trade and Technology Review WTO Negotiations on Agriculture

 76 “Fischler outlines vision for new EU rural policy,” Agra Europe Weekly, May 11, 2001.

 77 The concept was proposed during the Agenda 2000 reforms but ended up being approved as

an optional measure. Since then, only France, the United Kingdom, and Portugal have actually

chosen to put this into practice. 

 78 Bovine Spongiform Encephelopathy (more commonly known as BSE or “mad-cow disease”)

emerged in the United Kingdom in the late 1980s. BSE results in progressive degeneration of the

nervous system and belongs to a family of diseases known as Creutzfeldt-Jakob Disease (CJD)

and Gerstmann-Sträussler-Scheinker syndrome (GSS) in humans. The primary route of

transmission among cattle has been identified as consumption of infected brain and nervous

system tissue from one animal by another animal, typically in the form of meat and bone meal

used as a protein source in ruminant feeds. In the 1990s, BSE was associated with New Variant

CJD in humans. It is believed that BSE is transmitted from cows to humans through consumption

of infected brain and nervous system tissue. This discovery, and the subsequent discovery that the

disease had spread to other European countries, had a significant negative effect on both domestic

and export demand for EU beef. Consequently, the EU has purchased significant quantities of

beef and meat and bone meal to sustain internal prices. Much of this product has been deemed

unsafe for human or animal consumption and is targeted for destruction. A substantial portion,

however, is considered safe and is being stored and considered for later sale.

 79 “Fischler sets out stall for focused ‘mid-term review’” Agra Europe Weekly, Nov. 23, 2001.

 80 “2002: a year of quiet drama for the CAP?” Agra Europe Weekly, Jan. 11, 2002. U.S.

agriculture industry representatives have noted that progress in the WTO agriculture negotiations

depends mainly on the EU enlargement schedule, which necessitates an ambitious CAP reform.

One U.S. industry representative stated that if the process proceeds rapidly, a 2005 date for

completion of a comprehensive agreement in the WTO is realistic.

29

Observers expect the concept of “compulsory modulation” to be featured in the proposals.76

This involves transferring a portion of direct aid payments to fund rural development

measures, which would be co-financed by national governments.77 Since 90 percent of CAP

funds currently go to traditional farm support measures and 10 percent to the rural sector,

modulation is a way to increase the funds available for rural development. It also has

implications in the WTO context, according to informal sources, because the money that is

diverted for use in the rural sector would be applied to green box policies and, therefore, not

be counted toward the AMS calculation. The introduction of decoupled, lump-sum payments

to small farmers and stricter environmental preconditions for receiving farm aid are two

other less trade distorting reforms that are likely to be included in the reform package.

Currently, the buildup of government stocks of certain commodities reportedly is threatening

to push the EU above its WTO cap on domestic support. EU agriculture commissioner

Fischler has identified the sectors most in need of reform in this area to be beef, rye, and

durum wheat; beef stockpiles have occurred owing to the bovine spongiform encephelopathy

(BSE) crisis;78 and European rye has typically been less competitive than other grains. Wheat

has been singled out as a commodity that currently benefits from a very generous subsidy

program and, therefore, is a prime candidate for trimming.79

The EU position in the new WTO agricultural talks may also be influenced by the

negotiations on EU enlargement, scheduled to be completed by the end of 2002. Successful

negotiations reportedly would lead to the addition of 10 more countries to EU membership.

If a decision is made to support the agriculture sectors of Eastern European countries to the

same extent current EU members are supported, the enlargement would put considerable

pressure on CAP funds, as well as on EU WTO support limits. Some observers believe that

Agriculture Commissioner Fischler will try to persuade the Council of Agriculture Ministers

that a fundamental shift of resources in the CAP is the only way to deal with that pressure.80
MARCH 2002

WTO Negotiations on Agriculture Industry Trade and Technology Review

 81 “Explaining Enlargement-A progress report on the communication strategy for

enlargement,” EU Enlargement Directorate, Brussels, Mar. 2002, found at http://europa.eu.int/

comm/enlargement/communication/pdf/explaining_enlargement.pdf, retrieved Jan. 20, 2002.

 82 “2002: a year of quiet drama for the CAP?” Agra Europe Weekly, Jan. 11, 2002; and “Main

German party embraces ‘green’ vision for CAP,” Agra Europe Weekly, Oct. 19, 2001.

 83 “Domestic ag issues likely will dominate for exporters in 2002,” Feedstuffs, Dec. 31, 2001.

 84 Ibid.

30

Fischler has recently indicated that successful enlargement will require that more resources

be channeled into increased rural development programs and infrastructure aid for Eastern

European countries instead of immediate direct-aid payments.81

Also potentially affecting the WTO agricultural negotiations are national elections to be held

this year in France and Germany. Observers suggest that not only it is possible that national

attitudes toward trade in agriculture may change in those countries, but the elections could

also lead to a change in composition of the Council of Agriculture Ministers who will review

the MTR package. The influence of the German “green alliance” reportedly has been

strengthening over the last year and has exerted pressure to reform the CAP.82 The United

Kingdom, the Netherlands, and Sweden have also called for more market-oriented reforms

of the CAP. Resistance to a complete CAP overhaul reportedly has come mainly from

France.

Recent statements attributed to Agriculture Commissioner Fischler indicate that the midterm

review of the CAP will be limited.83 According to industry sources, if resistance to CAP

reforms by the majority of member governments eased, however, the EU position on export

subsidies and domestic support could soften significantly in WTO talks. Until EU officials

know what is politically feasible domestically with regards to CAP reform, they will not

know how far they can go in making concessions on agriculture in the WTO.84

Conclusion

The Doha Ministerial was a significant achievement. In the wake of September 11 and

concern that a second failure to launch a new round would inflict a fatal wound to the WTO

as an institution, member countries found a common purpose. The intransigence displayed

at the Seattle Ministerial was averted and a new round of WTO trade negotiations was

launched. Yet most agree the real work is still ahead. With few exceptions, the fundamental

negotiating positions of the major participants have changed little from where they were

prior to the Seattle Ministerial. Thus, the issues are sufficiently complex and differences

sufficiently deep that the deadline of January 1, 2005, to complete the Round could be quite

ambitious.
MARCH 2002

Industry Trade and Technology Review WTO Negotiations on Agriculture

31

Glossary

Agenda 2000. A set of proposals put forth in July 1997 by the European Commission for the reform of

existing EU policies, in particular the Common Agriculture Policy (CAP), the process of enlargement,

and the financial framework for the period 2000-06. The proposals were adopted at the Berlin Summit in

March 1999 and put into force new regulations concerning the arable crops, beef, milk, and wine sectors;

the new rural development framework; the horizontal rules for direct support schemes; and the financing

of the CAP.

Aggregate Measure of Support (AMS). A measure of the value of support for agriculture, aggregated

across all commodities, that includes government payments and producer transfers from consumers. The

measure was established under the Uruguay Round Agreement on Agriculture (URAA) and is the

maximum countries can spend on amber box, trade-distorting support.

Amber box policies. In WTO terminology, domestic support policies considered to be trade distorting

and subject to careful review and reductions over time under the URAA (e.g., commodity-specific market

price supports, nonexempt direct payments to farmers, input subsidies, storage payments, interest

subsidies, insurance price subsidies). Such policies are “actionable,” meaning other members may raise

sanctions against them if they can prove they have sustained injury as a result. 

Article 20. Text of the URAA required that a new round of talks should be initiated by the final year of

the implementation period (January 1, 2000).

Blue box policies. In WTO terminology, domestic support policies that include direct payments under

production-limiting programs and that are not subject to reduction commitments. A blue box designation,

which typically benefits the United States and EU, indicates policies are excluded from the AMS

reduction commitment during 1995-2000, but not from the 1986-88 base year AMS calculation. To be

blue box policies, payments must be made on fixed area and yields on 85 percent or less of the base level

of production, or on a fixed number of head (of livestock).

Bound tariffs. The maximum tariff that can be imposed on a product as established in the WTO

commitment schedule of a country.

Cairns Group. Eighteen medium-sized agricultural-exporting countries with the shared goal of

liberalizing global commodity markets. Members include Australia, Argentina, Bolivia, Brazil, Canada,

Chile, Colombia, Costa Rica, Fiji, Guatemala, Indonesia, Malaysia, New Zealand, Paraguay, the

Philippines, South Africa, Thailand, and Uruguay.

Caricom. Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, Grenada, Guyana, Jamaica,

Montserrat, St. Kitts and Nevis, Saint Lucia, St. Vincent and the Grenadines, Suriname, and Trinidad and

Tobago.

Common Agricultural Policy (CAP). The agriculture policy of the European Union. Established under

Article 33 of the EC Treaty (formerly Article 39), its aims are to ensure reasonable prices for European

consumers and fair incomes for farmers through common agricultural market organizations and by

applying the principles of single prices, financial solidarity, and Community preference.

Compulsory modulation. The transfer of a portion of direct aid payments to fund rural development

measures. The concept of modulation is currently being used by some EU member states under the
MARCH 2002

WTO Negotiations on Agriculture Industry Trade and Technology Review

32

Common Agriculture Policy (CAP) but it is not mandatory. Since most CAP funds go to traditional farm

support measures, modulation is a way to increase the funds available for rural development. The concept

of making the transfer mandatory is likely to be part of the midterm review of the EU Agenda 2000.

Countervailing duties. A duty on imports applied when the government of an exporting country has

been found to provide countervailable support to its domestic producers that materially injures producers

in an importing country. The duty on the imported product can be up to the amount of the domestic

subsidy.

Decoupled income support. Government support to farmers that is not linked to production.

Doha Development Agenda (DDA). The agenda for a new round of WTO trade negotiations launched in

November 2001 as contained in the Doha Ministerial Declaration.

Domestic (internal ) supports. Domestic support, determined by the Aggregate Measure of Support

(AMS) that provides an estimation of expenditure on trade distorting programs, was reduced over a

period of 6 years by 20 percent compared to the 1986-88 base period. Reductions are being made on

support across all commodities, as opposed to a commodity-by-commodity basis as in the case of market

access and export subsidy provisions. Policies considered non-trade-distorting and some forms of direct

payments for production-limiting programs were excluded from the AMS calculation.

Export credits and guarantees. Credit with generous repayment schedules extended to a foreign buyer

for the purchase of agricultural products. Guarantees are provided by the exporter, its bank, or by a

government-funded export credit program.

Export restrictions. Restrictions on how much of a product can be exported from a country for the

purpose of protecting a domestic industry or for national security. Restricting the export of a primary

commodity assists the domestic processing industry for that commodity. Advanced technologies are also

targets for export restrictions to prohibit rogue states from using the technology for the creation of

weapons of mass destruction. Food embargoes due to sanctions are also another type of export restriction.

Export subsidies. Subsidies provided to encourage exports. In the WTO, over a 6-year implementation

period (1995-2000), budget outlays for export subsidies are being reduced by 36 percent, and volume by

21 percent, compared with a 1986-90 base period average level. Products not receiving subsidy in the

base period were made not eligible for future export subsidies.

Export taxes. Taxes on products exported, mostly as a means of raising government revenue or to

discourage exports, assisting domestic users of the exported product.

Food safety. A concept used in negotiations to justify quarantine and inspection measures for agricultural

products. The concept of food safety can involve mandatory labeling of products and the traceability of

their ingredients and manufacturing processes.

Food security. A concept used in negotiations to describe a government’s ability to ensure a stable food

supply for its citizens. The concept, of particular importance to developing nations and other net foodimporting countries, includes the assistance to countries with populations suffering from starvation and

malnutrition. 
MARCH 2002

Industry Trade and Technology Review WTO Negotiations on Agriculture

33

Geographical indications. Nomenclature used in the description of foods and beverages that indicates

the region in which they are made, such as Indian “Basmati” rice, Greek “Kalamata” olives, Italian

“Parmigiano” cheese, and French “Champagne.” Protection extended to such products would prohibit the

use of the descriptive term for similar products produced outside of the particular region.

Green box policies. In WTO terminology, domestic support policies considered non-trade-distorting and

not subject to limitations (e.g., conservation programs, research and extension, marketing and promotion

programs, inspection and grading policies, domestic food aid, disaster relief, revenue insurance programs,

and direct payments not linked to production). Such policies are not “actionable,” meaning other members

may not raise sanctions against them.

Implementation-related issues and concerns. Concerns that have been raised by developing countries

about difficulties, due to a lack of financial, human, and institutional resources, in implementing present

WTO agreements. Small countries maintain that they need increased technical assistance from other

WTO members to participate fully in the negotiations. Developing countries also indicate that certain

measures set in place during the Uruguay Round do not adequately reflect their interests and concerns,

nor have they delivered the expected economic benefits and therefore need to be readdressed.

In-quota tariff. The tariff applied to imports up to the tariff-rate-quota quantity.

Mercosur. A customs union between Argentina, Brazil, Paraguay, and Uruguay, signed in December

1994, with Chile and Bolivia currently as associate members. 

Midterm review. A package of adjustment proposals to the European Common Agriculture Policy 

Agenda 2000 (covering years 2000-06). The proposals for this review will be submitted to member states

for discussion in June 2002 and are likely to deal with rural development, agroenvironmental issues, and

sector-specific support reform.

Minimum access. Where imports into a country were already taking place, this level of access was

preserved within the tariff quota. However, if import access was less than 3-percent of the market for each

product (based on 1986-90 consumption), countries were required immediately to provide access of 3

percent. Minimum access is to be increased to 5 percent within 6 years.

Modalities. The formulas and procedures used to calculate various indicators and commitments for trade

liberalization in agriculture. For example, the modalities for export subsidies in the URAA were: budget

outlays must be reduced by 36 percent, and volume by 21 percent (compared with a 1986-90 base-period

average level), during the period 1995-2000.

Multifuctionality. This is a term applied to the goods and services provided by primary agriculture which

are difficult to quantify in monetary terms. Multifunctionality treats agriculture as an economic activity

that not only produces food and fiber but also creates both tangible and intangible values important in

different countries (e.g., see “nontrade concerns”). This is used as a justification for some forms of policy

intervention in agriculture.

Multilateral environmental agreements (MEAs). Currently there are close to 200 international

agreements that deal with environmental issues. Several MEAs include provisions that influence

international trade, such as trade bans on certain products, or allowing countries to restrict trade in certain

circumstances. Examples include the Montreal Protocol for the protection of the ozone layer, the Basel

Convention on the trade or transportation of hazardous waste across international borders, and the

Convention on International Trade in Endangered Species (CITES).
MARCH 2002

WTO Negotiations on Agriculture Industry Trade and Technology Review

34

Nontariff barriers. Policies and regulations, excluding tariffs, that restrict trade. Examples include

standards, labeling and licensing requirements, tariff-rate-quota administration, and embargoes.

Nontrade concerns. Issues related to agriculture’s “multifunctionality” brought up in the negotiations

that are tangentially related to international trade in goods and services, traditionally including food

security, food safety, environmental concerns, resource conservation, and rural development. Some newer

nontrade concerns proposed by WTO members are animal welfare, biotechnology, species preservation,

safeguarding the landscape, poverty reduction, and preservation of rural culture.

Over-quota tariff. The tariff applied to imports beyond the tariff-rate-quota quantity.

Peace clause (or Due Restraint Article 13). Text of the URAA which states that nontrade-distorting

policies, provided they do not directly contravene the provisions of the URAA, are not subject to General

Agreement on Tariffs and Trade (GATT) challenges for up to 3 years beyond the 6-year duration of the

URAA. This restricts the use of countervailing duties to counteract domestic support measures deemed to

conform to the Agreement on Agriculture for the period that the peace clause is in effect. The clause is

due to expire on January 1, 2003 and if it is not extended, some currently existing domestic support

measures and export subsidies could be deemed countervailable. 

Precautionary principle. A principle advocated mainly by the EU, which says that when risks are

uncertain or science is incomplete, countries should exercise caution in accepting products developed by

new technologies. Some countries have expressed concern that this position could provide the EU with

justification to restrict imports of genetically modified organisms (GMOs).

Red box policies. In WTO terminology, a theoretical category for domestic support policies that are

prohibited. Due to lack of agreement by WTO members during negotiations, no domestic supports fall

into this category. 

Rural development. A nontrade concern which involves the concept that a sustainable agriculture sector

is dependent on economically viable rural communities. Rural development is enhanced by investing in

infrastructure, promoting economic development, and providing technical assistance. It will also help to

prevent the rural poor of some countries from migrating into already over-congested cities.

Sectoral initiatives. Approaches for increased trade liberalization in which specific sectors are targeted

for greater multilateral access. Such initiatives can include the elimination of tariffs, export subsidies,

export taxes, or trade-distorting domestic support for a specific range of products. Zero-for-zero is one

such sectoral initiative. 

Singapore issues. Investment, competition, trade facilitation, and transparency in government

procurement.

Single-desk traders. A public or private entity that has sole authority to export or import a product. 

Special and differential treatment (special concessions) for developing countries. Provisions which

require developing countries to be subject to only two-thirds of the cuts in tariffs, domestic support, and

export subsidies that developed countries are committed to over a 10-year period. Least developed

countries are exempt from all reduction commitments, although they must bind tariffs and domestic

supports.
MARCH 2002

Industry Trade and Technology Review WTO Negotiations on Agriculture

35

Special safeguards. Provisions that enable countries to temporarily apply extra duties for products

specified in their schedules of concessions if import prices should fall below a certain level or if the

quantity of imports rises too quickly in relation to an average over the previous 3 years.

State trading enterprises. A body given rights by a government to influence the level of trade of the

country in a particular sector.

Straight-line formula. A formula involving equal annual reductions in tariffs over the implementation

period. This method was used in the URAA. Assuming a bound tariff of 50 percent and a final tariff of 25

percent and a 5-year implementation period, applying the straight-line formula would result in annual

tariff reductions of 5 percent.

Swiss formula. A formula used for industrial tariff reduction in the Tokyo Round that reduced higher

tariffs proportionally more than lower tariffs. Under the formula, the final tariff = (base tariff * technical

factor) / (base tariff + technical factor). Assuming a technical factor (which is also the tariff ceiling) of 15,

a base tariff of 10 percent would be reduced to 6 percent, whereas a base tariff of 60 percent would be

reduced to 12 percent.

Tariffs. Border charges applied to imports. Tariffs can be either specific (dollar/unit), ad valorem

(percent) or some combination of the two. In order to compare tariffs across commodities and countries,

specific tariffs can be converted to their "ad valorem equivalents" by dividing the specific tariff by the

unit value of the imported product. Bound tariffs specify the maximum tariff a country can impose on

imports, but the tariff actually applied is often lower than the bound tariff.

Tariff escalation. The application of low tariffs on raw agricultural products and high tariffs on

processed foods made from the raw products.

Tariff peaks. Tariffs that are substantially higher than average tariffs for other products (typically those

above 25 percent).

Tariff-rate quota (TRQ). A two-tiered tariff structure in which a low (in-quota) tariff is applied to

imports up to a quota level. Once the quota level is reached, additional imports are assess a higher (overquota) tariff.

Tariff-rate quota administration. The method by which quotas are allocated to importers. Methods

include licensing; first-come, first-served; and auctioning.

Tariffication. The process by which nontariff barriers (such as quotas, embargoes, and licensing) are

converted to tariffs. These tariffs, as well as preexisting tariffs, are being reduced over 6 years by a

minimum of 15 percent and on average 36 percent (simple, unweighted average).

Trade preferences for developing countries. Preferential access for developing countries’ exports,

currently extended on a unilateral basis by many developed nations. Many developing countries depend

on trade preferences because they are unable to become competitive in the world market. However, as

tariff levels decrease across the board, the benefits of trade preferences will decrease. 

Trade Promotion Authority (TPA). Legislation that must be passed by the U.S. Congress in order for

the executive branch of government to negotiate international trade agreements with trade partners which

are then ratified by the U.S. Congress with an up-or-down vote, within strict time limits and without

amendments.
MARCH 2002

WTO Negotiations on Agriculture Industry Trade and Technology Review

36

Transition economies. Albania, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Hungary, Kyrgyz

Republic, Latvia, Lithuania, Mongolia, Slovak Republic, and Slovenia.

Uruguay Round Agreement on Agriculture (URAA). One portion of the legal text, dealing with trade

in agriculture, which was the outcome of multilateral trade negotiations under the GATT launched in

1986 and concluded in April 1994.

WTO Agreement on Sanitary/Phytosanitary (SPS). An agreement which entered into force after the

Uruguay Round in 1995 with the establishment of the World Trade Organization to limit technical

barriers to trade for human health protection or animal- and plant-disease control. According to the

agreement, countries are permitted to set their own food safety and animal- and plant-health standards,

but they must be based on science.

WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). An agreement

which entered into force after the Uruguay Round in 1995 with the establishment of the World Trade

Organization to give adequate, harmonized protection and enforcement for intellectual property rights. 

Zero-for-zero initiatives. These specific sectoral initiatives are agreements to liberalize trade in a

specific range of products by eliminating all border measures, export subsidies, and trade-distorting

domestic support for those particular products.#
MARCH 2002

Industry Trade and Technology Review Aluminum MMCs

 1 The views expressed in this article are the author’s, and are not the views of the U.S.

International Trade Commission (USITC) as a whole or of any individual Commissioner.

 2

 For more information on early application attempts, see David Lundy, “Metal Matrix

Composites May Be Key to More Efficient Automobiles,” Industry Trade and Technology

Review, May 1993, pp. 1-4; and David Lundy, “U.S. Bicycle Industry Creates Innovative

Products using Metal Matrix Composites,” Industry Trade and Technology Review, May 1994,

pp. 9-15.

 3

 D.R. Herling, G.J. Grant, and M.T. Smith, “Mechanical and Physical Property Evaluation of a

359/SiC/20p MMC Prepared by a Novel Rapid Mixing Technique,” Pacific Northwest National

Laboratory, 2001.

 4

 Stiffness refers to the amount of deflection of a material when a load is applied. The less a

material deflects, the greater the stiffness and resistance to physical deformation. An MMC 

automobile driveshaft demonstrates the stiffness-to-density concept. To perform efficiently, a

driveshaft must not twist excessively in response to loads from the automobile engine. 

(continued...)

37

Aluminum Metal Matrix Composites Gaining

Greater Market Acceptance 

Vincent DeSapio1

desapio@usitc.gov

(202) 205-3435

Despite extensive research, product development, and rapid consumption

growth during the past 10 years, the volume of metal matrix composites

(MMCs) used in nonmilitary commercial applications2

 still remains modest.

Such critical industries as automotive and aerospace have long been

interested in the commercial applications of MMCs because they combine

desirable physical properties of both metals and ceramic materials, and

typically have greater stiffness, better wear resistance, lower density, and

other advantages, compared to metal components. Progress in reducing

the cost of MMC components would greatly accelerate their use,

particularly in cost-sensitive industries such as transportation, where the

relatively high cost of parts made from these materials has impeded

widespread application of MMCs. This article describes attempts to

improve the prospects for MMC commercialization over the last 10 years,

examines the main current aluminum MMC markets and product

applications, barriers to their further commercialization, private-industry

and public-private initiatives to reduce some barriers to MMC use, and

their likely future use.

MMCs are engineered materials composed of two separate phases. The primary phase is the

matrix material, typically a metal alloy that establishes the general physical and mechanical

properties of the MMC, and a secondary dispersed phase within the matrix, selected to alter

and reinforce the matrix alloy properties.3

 The properties of composite materials can usually

be altered to achieve a particular balance of properties, depending on the specific application.

The most commonly used MMCs are aluminum based because of the metal’s light weight.

In addition to their lightness, aluminum MMCs are finding greater acceptance because of–

• High strength-to-density and stiffness-to-density ratios;4
MARCH 2002

Aluminum MMCs Industry Trade and Technology Review

 4 (...continued)

Substituting an aluminum MMC in place of steel yields a driveshaft that is less dense compared to

the density of steel driveshafts (the most common type), but within stiffness requirements for

automobile applications. Density is the weight of a given volume of material, usually expressed

in English units as pounds per cubic foot.

 5

 These particles alter the mechanical and physical properties of the matrix alloy by affecting

material stiffness, strength, toughness, wear resistance, thermal conductivity, heat capacity, etc.

 6

 The cost of discontinuous fibers is significantly less than the use of continuous fibers, which

must be carefully handled and oriented within the matrix during the layup and the MMC

fabrication process. 

 7

 Aluminum Metal Matrix Composites Consortium (ALMMC), “Aluminum Metal Matrix

Composites Technology Roadmap,” Jan. 2002, p. 7. 

38

• High thermal and electrical conductivity; 

• Low-coefficient of thermal expansion, which can be controlled to match

adjoining components better by varying the volume of reinforcement;

• High mechanical stability, including high resistance to deformation under

load (creep resistance) which can be controlled by varying the size of the

reinforcement particles; and

• High fatigue and wear resistance.

Composites using other metals as a matrix material are also beginning to gain greater market

acceptance. Titanium and magnesium (box 1) are the most promising, but copper, beryllium,

and silver are also used because they have excellent electrical and thermal properties.

Typically, the dispersed phase in MMCs today tend to be of fine ceramic or intermetallic

particles homogeneously distributed throughout the matrix alloy. These particles typically

range from 10 to 70 percent by volume of the composite, whereas the size and distribution

of the reinforcing particles can be altered to change the properties of the composite.5

 The

most widely used MMC casting alloy is composed of aluminum and silicon carbide particles.

Most high-performance, high-value MMC applications, such as those for military uses, tend

to require MMC reinforcement with continuous fibers. All other MMCs are reinforced with

discontinuous, or chopped fibers.6

 Discontinuous fiber MMCs are lower in cost than

continuous fiber MMCs, but they are also inferior in terms of strength and processing

requirements. However, discontinuous-fiber reinforced MMCs are adequate for most

applications that require specific strength and stiffness characteristics and which experience

material costs are a critical factor.

According to a recent study, worldwide 1999 sales of all MMCs reached $103 million (2,495

metric tons), concentrated in transportation and aerospace applications, with projected

average annual growth over the next 5 years of 14 percent to $173 million in 2004.7

 Growth

of 17 percent annually is expected in the transportation sector alone during the next 5 years,

due, in large part, to increased use of MMC components in lightweight, fuel-efficient

vehicles.
MARCH 2002

Industry Trade and Technology Review Aluminum MMCs

39

Box 1

Titanium and magnesium metal matrix composites (MMCs) 

Titanium MMCs 

Most titanium matrix composites today tend to be continuously reinforced with silicon carbide

fibers and are increasingly viewed as a structural material option in advanced aerospace applications,

particularly for use in high-performance gas-turbine engines. These composites possess high specific

strength and stiffness at both room and elevated temperatures, enabling advanced compressor design

with reduced component weight, thereby increasing significantly the performance-to-weight capability

of the aircraft. However, the high melting temperature and work-hardening characteristics make some

titanium alloys difficult to process as a composite, thereby limiting its application. In addition, because

titanium is a highly reactive element it is somewhat difficult to handle and process at higher

temperatures. Titanium MMCs have been used since 1998 in automotive valves in certain Toyota

engines and are presently being considered for use in high-temperature applications in the National

Aerospace Plane (NASP).1

Magnesium MMCs

Die-cast magnesium alloys are attractive substitutes for steel and cast iron because of their

light weight, particularly for use in automotive housings and frames of complex shapes, often

permitting a weight savings of as much as 30 percent compared to an aluminum-based component. 

Despite these advantages, magnesium is still not widely used in high-volume applications because of

insufficient strength and low wear and creep resistance. Magnesium MMCs are magnesium alloys

selectively reinforced by silicon carbide particles, giving these materials high strengths at ambient

temperatures and sufficient strengths at elevated temperatures to overcome the deficiencies of die-cast

magnesium alloys. Magnesium MMCs can be produced using both powder metallurgy and casting

methods.

 1

 The NASP program, initiated by NASA and the Defense Department, proposes to design and

develop an aircraft that is able to take off and land like a conventional aircraft and would be capable of

accelerating directly into orbit. 

Source: J. Kumpfert, “Titanium Matrix Composites,” found at http://www.kp.dlr.de/WBWF/e_mmc.htm, retrieved Jan. 10, 2002. Composite Materials Handbook: Volume 4: Metal Matrix

Composites, U.S. Department of Defense Handbook, 1999, p. 35. K.U. Kainer and Barry L. Mordike,

“High-Temperature and Thermal Stability of Particle Reinforced Magnesium-Matrix-Composites,”

found at http://www.iw.uni-hannover.de/sfb/sfb390/englischc2_e.html, retrieved Jan. 10, 2002.
MARCH 2002

Aluminum MMCs Industry Trade and Technology Review

 8 Warren H. Hunt, Jr., and Daniel B. Miracle, “Automotive Applications of Metal-Matrix

Composites,” ASM Handbook, Vol. 21, Composites, 2001, p. 1029.

 9

 Aluminum Metal Matrix (ALMMC) Consortium, p. 10. 

 10 Nearly 17 pounds of aluminum MMC were projected for use in certain PNGV prototype

vehicles originally scheduled for introduction in 2004. 

 11 Hunt and Miracle, p. 1032.

 12 Venkatesan Sundararajan, “Aluminum Composites in Aerospace Applications,” Aug. 1998,

found at http://home.att.net/~s-prasad/almmc.htm, retrieved Jan. 7, 2002.

 13 Daniel B. Miracle, “Aeronautical Applications of Metal-Matrix Composites,” ASM

Handbook, Volume 21, Composites, 2001, p. 1048.

40

Current Uses for Aluminum MMCs

The principal end-use markets for aluminum MMCs in terms of actual volumes sold and

future potential are the automotive and aerospace markets.

Automotive Applications

Although MMCs have been used in the commercial production of automobiles for nearly 20

years, interest in these materials has accelerated in recent years because of their weightsavings characteristics. In 1999, the world market for MMCs in ground transport applications

(automotive and railway) totaled nearly 1,600 metric tons, valued at over $7 million, and

accounted for nearly 62 percent of the total MMC world market by volume.8

 In the near

term, the most promising areas for aluminum MMC application will continue to be engine

components, which are presently served by iron and steel, and brake system components. In

the longer term, the automotive industry could potentially seek to replace steel and aluminum

sheet with aluminum MMC sheet in applications requiring higher specific stiffness.9

Aluminum MMCs have been identified as a lightweight materials technology of interest to

the Partnership for New Generation Vehicles (PNGV) program due to its weight-savings

potential, particularly in brake and engine applications.10 Current aluminum MMC uses in

automotive applications are shown in table 1.

The last decade has already witnessed significant increases in acceptance of MMC

components in production vehicles. Performance benefits, including reduced weight and

improved wear resistance, have overcome the added component cost. In the future,

applications are likely to continue to grow because of the continuing pressures to reduce

vehicle weight and to reduce levels of environmental emissions and increase fuel

efficiency.11

Aerospace Applications

The principal factor driving the aerospace industry search for advanced materials possessing

enhanced properties is the goal of enhancing the performance of commercial and military

aircraft, particularly in terms of weight and cost savings on aircraft structures.12 In nearly all

component applications to date, aluminum MMCs have been called upon to replace other

material that had been originally specified.13 Significant advances in material and process

development, design, manufacturing scale-up, and certification of materials have created

important applications for MMCs in aerospace structural components and propulsion
MARCH 2002

Industry Trade and Technology Review Aluminum MMCs

41

Table 1

Aluminum metal matrix composite automotive applications

Application Product uses Advantage Application in U.S. market

Engine

 Pistons Selectively reinforced

pistons in Toyota Motor

Co. diesel engines for sale

in Japan and Western

Europe. First developed in

1983.

Resistance to severe

dynamic thermal and

mechanical environments

with piston dome

temperatures reaching 570

degrees F.

Not currently used in the U.S.

market due to lower wear and

fatigue requirements for U.S.

diesel engines which are larger

and operate at lower rotational

speeds.

 Cylinder liners Aluminum MMC cylinder

liners have been used in

Honda Prelude 2.3-liter

engine since 1990. Other

uses include the Honda

S2000 sports car, the

Acura NSX, and the 2000

Toyota Celica.

Wear resistance is superior

to cast iron with a 20-

percent weight reduction of

the engine block.

Products sold in the U.S. market.

 Pushrods Used in various highperformance overheadvalve racing engines.

Higher bending stiffness;

double the damping

capacity of competitive

steel pushrods, thus

allowing increased valve

spring life; one-half the

density of steel allowing an

increase in engine RPM.

Products sold in the U.S. market.

Other systems 

 Brake

 components

Aluminum MMC brake

drums and rotors have

been used in light-weight

vehicles such as Lotus

Elise (1996-98),

Volkswagen Lupo 3L, Audi

A2, and the Toyota hybrid

car. 

Weight savings of 50 to 60

percent, higher wear

resistance, and higher

thermal conductivity. 

Specialty Plymouth Prowler, Ford

Prodigy and General Motors

Precept hybrid cars.

 Driveshaft MMC driveshafts were

introduced in 1996 on the

Chevrolet S-10 and GMC

Sonomo pickup trucks.

MMC driveshafts are now

standard on Chevrolet

Corvette and on “Police

Interceptor” version of the

Ford Crown Victoria.

Increased specific stiffness

and elimination of need for

2-piece driveshafts.

Products sold in the U.S. market.

Source: Warren H. Hunt, Jr. and Daniel B. Miracle, “Automotive Applications of Metal-Matrix Composites,” ASM

Handbook, Vol. 21, Composites, 2001, p. 1029.
MARCH 2002

Aluminum MMCs Industry Trade and Technology Review

 14 Ibid., p. 1043.

 15 Daniel B. Miracle and Steven L. Donaldson, “Introduction to Composites,” 2001, p. 16. 

42

systems parts and subsystems.14 Although these applications are typically low in terms of

volume, unit values of components tend to be high. Further aerospace use will depend

greatly on the design of components with greatly enhanced performance characteristics.

Increases in the durability and damage tolerance of aluminum MMCs could expand

applications in aircraft structural parts, while increasing the higher temperature capabilities

of these products would encourage substitution for titanium in engine applications, where

the operating temperatures exceed 3000 F, the current limit for aluminum alloys.15 Table 2

describes the most significant aeronautical applications of MMCs.

Table 2

Aluminum metal matrix composite aerospace applications

Application Product uses Advantage

Ventral fin Aluminum MMC sheet has replaced the

aluminum alloy steel contained in the ventral

fins of the F-16 aircraft.

The MMC sheet provides a 40- percent

increase in specific stiffness, peak tip

deflections have been reduced by 50 percent.

Improvement in service life of 400 percent is

expected, resulting in reduced maintenance,

inspection, and downtime costs. 

Fuel access door

covers

The U.S. Air Force is replacing the 26

aluminum access doors in F-16 aircraft with

aluminum MMC doors. Location of fuel

access doors caused bending stresses to

be concentrated in this area resulting in

cracking of the fuselage skin.

U.S. Air Force tests have shown that peak and

average skin stresses have been reduced by

38 percent and 10 percent, respectively,

eliminating the cracking of the fuselage skin

and extending the durability life of the plane

fuselage to over 8,000 flight hours.

Helicopter blade

sleeve

This component holds the rotor blade to the

drive shaft and is considered a critical

rotating component because failure would

mean loss of the craft and passengers.

Forged aluminum MMC has replaced the

wrought titanium alloy component in

Eurocopter France EC120 and N4

helicopters.

Reduction in rotating mass of the aircraft and

the high cost associated with the original

titanium component.

Fan exit guide

vanes

The fan exit guide vanes on Pratt & Whitney

4084, 4090, and 4098 engines remove the

swirling component of bypass air, thereby

maximizing thrust obtained from air flow into

engine. The first use of aluminum MMC to

replace original graphite/epoxy vanes was

in Boeing 777 aircraft and represented the

first commercial aerospace application of

aluminum MMC.

The original vanes suffered ballistic damage

from foreign objects and susceptibility to

erosion from airborne particulates and rain.

Use of the MMC vanes has resulted in a

sevenfold reduction in erosion rates and

significant increases in resistance to ballistic

damage, an overall increase in service life of

300 percent and reduced maintenance and

repair costs.

Source: Daniel B. Miracle, “Aeronautical Applications of Metal-Matrix Composites,” ASM Handbook, Vol. 21,

Composites, 2000.
MARCH 2002

Industry Trade and Technology Review Aluminum MMCs

 16 Miracle, p. 1048.

 17 Because an aluminum MMC component weighs 45 percent less than steel, cost comparisons

are actually narrower than apparent from the stated prices of ingot.

 18 Mark R. van den Bergh, “Discontinuously Reinforced Aluminum (DRA)”, DWA Aluminum

Composites, Nov. 2001.

43

Barriers to Further Material Use

The principal barriers to substitution of MMCs for competitive materials already in use in

major application areas are the following.16

High Costs of Production

Widespread application of MMCs for use primarily in the on-highway transport industry has

been limited due to availability and cost, relative to competing materials. The two primary

factors accounting for the high cost of MMCs are raw material cost, which includes both the

aluminum matrix material and the ceramic reinforcement particles, and the high costs related

to the “compositing” and mixing processes used to make the aluminum MMC materials. The

most common methods for compositing MMCs are presented in table 3 by order of

increasing production costs. In general, MMCs with higher production costs have better

physical properties.

The cost disadvantage of aluminum MMCs is most apparent in a highly competitive end-user

market such as the automotive industry, where parts suppliers are constantly pressured to

keep their prices low. Cost is also a critical factor in aerospace applications where the high

cost of aluminum MMCs have often put these materials at a competitive disadvantage

relative to titanium alloys. The raw material cost of a cast iron or steel component is

approximately $0.25 per pound compared to the cost of a competitive discontinuously

reinforced aluminum cast ingot of $1.50-$2.00 per pound.17 The cost of an aerospace-grade

aluminum MMC billet ranges between $16-$60 per pound.18 Typically, aluminum MMCs

contain a reinforcement particle phase that is more expensive than the aluminum alloy used

in the matrix. In addition, the presence of the ceramic reinforcement produces a material that

is often more difficult to machine than unreinforced aluminum, adding further to the cost of

the final component. The industry is now weighing a number of processing technologies that

can produce a range of product cost and performance characteristic improvements. 

Concern about Material Availability and

 Depth of the Supply Chain

The principal aspect of aluminum MMCs that have attracted great interest among end-users

is the ability of producers to tailor physical and mechanical properties through selection and

manipulation of matrix and reinforcement characteristics. However, this feature has also led

to a great number of specialty material formulations that apply only to particular niche

applications and add to the cost of certifying new materials for product use. This is

particularly true of composites manufactured for the aerospace industry where aluminum

MMCs are often produced in limited quantities to address specific material needs. As a

result, development of a physical infrastructure for producing limited volumes of multiple

products has proven to be an expensive process, often not justified by the size of the
MARCH 2002

Aluminum MMCs Industry Trade and Technology Review

44

Table 3

Common methods for compositing (forming) metal matrix composites (MMCs)

Method Background and details of process

Vortex (“stir”) casting A significant development in the commercial production of MMCs came with the

development in the 1980s of a vortex casting process (referred to by Alcan USA as

“stir casting”), that combined a relatively low-cost liquid metal-based casting process

with a relatively inexpensive silicon carbide reinforcement material. Vortex casting

techniques are currently the most commonly used method1

 to manufacture

discontinuous MMC materials and are considered the most appropriate compositing

method for high-volume automotive-related production of MMCs. Both engine cylinder

liners and brake components use cast aluminum MMCs.2

This method uses mechanical mixing of the reinforcement particulate into a molten

metal bath, typically a heated crucible containing molten aluminum metal, with a motor

located above the crucible to drive a mixing impeller that is submerged in the melt.

The reinforcement material is poured into the crucible above the melt surface at a

controlled rate to insure a smooth and continuous feed. Proper mixing techniques and

impeller design are important to produce a homogeneous distribution of the

reinforcement material throughout the matrix material. After mixing, the composite is

cast into ingots and sold to foundries for remelting and casting. 

There have been few, if any, significant changes in vortex process technology for the

production of large volumes of castings during the last 10 years. The sole

manufacturer using this technology does not anticipate greatly expanded applications

of aluminum MMCs beyond present application areas and feels that increased

investment in new technology is not economically justified at present.3

 As a result, the

cost of producing cast aluminum MMCs for the automotive market has varied little

during the last 10 years.

Pressure (“squeeze”)

casting

In this process, a fixed volume of molten metal alloy is introduced and is pressed by

mechanical force into a ceramic preform. After solidification, the part is ejected from

the mold and the process repeated. As pressure casting of MMCs is very rapid, it is

suited for high-volume applications in the automotive industry, such as for the

production of selectively-reinforced MMC pistons, which achieve production rates of

more than 100,000 per month. The Toyota Motor Co. has used pressure-cast,

selectively-reinforced MMC pistons since 1983.4

The greatest factor currently limiting the use of squeeze casting technology tends to

be its high cost. In recent years, the cost of producing squeeze cast components has

declined somewhat due to improved quality and reduced costs of the ceramic

preforms used in the process. In addition, improvements in press technology have

resulted in reductions in the cost of presses, increases in production rates, and

subsequent reductions in product unit costs.5

 However, squeeze casting technology is

still more widely used in Japan and Europe than in the United States. There is

presently no U.S. production of aluminum composites using squeeze casting

technology.

Powder metallurgy Initial research efforts focused on the powder metallurgy process because this

process tends to produce a material with superior chemical properties, more ideally

suited to subsequent machining operations. Powder metallurgy techniques are used

in the production of both continuous and discontinuous MMCs and involve blending

metal and ceramic powders that are pressed and sintered to create a solid, dense

form. Powder metallurgy methods offer the benefit of being able to produce unique

MMC chemistries, with very fine particle reinforcement size distributions that are not

possible with other compositing techniques. In addition, powder metallurgy has proven

to be an effective process for forming precision net-shape metal components,6

 thereby

reducing scrap creation and elimination of costly secondary machining steps.

See footnotes at end of table.
MARCH 2002

Industry Trade and Technology Review Aluminum MMCs

 19 Aluminum Metal Matrix (ALMMC) Consortium, p. 9. 

 20 Miracle p. 1048.

45

Table 3–Continued

Common methods for compositing (forming) metal matrix composites (MMCs)

Method Background and details of process

Powder metallurgy–

 Continued

Typically, powder metallurgy processes produce MMCs with the greatest combinations

of properties suitable for use in high-performance applications, especially in the

aerospace market.7

 A more recently developed method for producing powder

metallurgy billets is the vacuum hot pressing process8

 which develops a composite

with greater stiffness and wear resistance, as well as increased fatigue resistance and

fracture toughness than through the conventional press and sinter process.9

The principal areas where improvements in powder metallurgy processing are needed

are the ability to produce thermally stable matrix alloys capable of performing under a

wide range of temperatures, and the need for improved secondary and final fabrication

processes to permit these composites to be economically extruded and machined.10

U.S. manufacturers are presently seeking to improve the material properties of powder

metallurgy-produced components by varying the concentration and the shape of the

reinforcement material; research indicates that these factors have a direct bearing on

the quality of the composite, and improving the purity of the aluminum matrix by

reducing the iron content, as the presence of iron contributes to the formation of

cracks.11

 1 Nearly two-thirds of all aluminum MMCs are produced using vortex methods.

 2

 Information on stir-casting is contained in D.R. Herling, G.J. Grant, and M.T. Smith, “Mechanical and Physical

Property Evaluation of a 359/SiC/20p MMC Prepared by a Novel Rapid Mixing Technique,” Pacific Northwest

National Laboratory, 2001.

 3

 Industry representative, telephone interview by USITC staff, Feb. 4, 2002.

 4

 Daniel B. Miracle and Steven L. Donaldson, “Introduction to Composites,” ASM Handbook, Volume 21,

Composites, 2001, p. 12.

 5

 USITC staff interview with Robert Coleman, Saffo Corp., Mar. 11, 2002.

 6

 Warren H. Hunt, Jr. “Aluminum Metal Matrix Composites Today,” Materials Science Forum, Vols, 331-337,

p. 75, 2000.

 7

 Aluminum Metal Matrix (ALMMC) Consortium, “Aluminum Metal Matrix Composites Technology Roadmap,”

Jan. 2002, p. 32.

 8

 Vacuum hot pressing is a process developed by DWA Aluminum Composites Inc, Chatsworth, CA, the leading

producer of aluminum MMCs for the aerospace industry.

 9

 Published interview with Warren H. Hunt, Jr., The International Journal of Powder Metallurgy, Volume 35, No. 2,

1999, p. 24.

 10 Darrel R. Herling, Glenn J. Grant, and Warren Hunt, Jr., “Low-cost Aluminum Metal Matrix Composites,”

Advanced Materials & Processes, July 2001, p. 37.

 11 USITC staff interview with Mark R. van den Bergh, President and CEO, DWA Aluminum Composites Inc.,

Mar. 8, 2002.

prospective market.19 Finally, the lack of an extensive supply chain limits the amount of

detailed information available to users and design engineers regarding material capability

and limitations.20
MARCH 2002

Aluminum MMCs Industry Trade and Technology Review

 21 Such standardized data might include published results of fatigue, creep, and impact testing

at various operating temperatures, as well as information on thermal expansion; wear resistance;

compatibility with hydraulic fluids, fuels, and antifreeze; and corrosion characteristics.

 22 Warren H. Hunt, Jr., and Benji Maruyama, “The World Still Won’t Beat a Path to Your

Door: Transitioning DRA to the Marketplace,” JOM (Journal of Metallurgy), Nov. 1999, p. 62. 

 23 Aluminum Metal Matrix (ALMMC) Consortium, p. 15. 

 24 E-mail communication from Daniel B. Miracle, Air Force Research Laboratory, Dayton,

OH, Feb. 14, 2002

 25 Aluminum Metal Matrix (ALMMC) Consortium, p. 9. 

 26 Information on some of the more prominent U.S. Government initiatives was provided by

Manish Mehta, Director, Aluminum Metal Matrix Composites Consortium (ALMMC), in a

telephone conversation with industry analyst, Dec. 18, 2001.

46

Material Property Databases Unavailable to

 Design Engineers

Material property databases are essential to providing engineers with the necessary data21

demonstrating the reliability of MMCs, as well as assurance that material properties can be

consistently produced by a commercial-scale process.22 Thus far, the development of MILHNBK-5 (Military Handbook-5) data base for selected aluminum MMCs produced through

powder metallurgy has been useful in accelerating the use of MMCs in some military

applications. MIL-HDBK-5 publishes strength properties of metallic materials and elements

widely used in military structures. The document also contains information on some of the

more commonly used methods for calculating the strengths of various structural elements

and components. Alcan has also developed a data base for automotive-related products using

its stir-casting process. However, as yet there is not a systematic productwide database that

relates material properties to processing parameters or between laboratory test data and

actual performance.23 When data are generated for an application, such data are often held

as proprietary and not generally made available in an open forum for others to use.24 In

addition, product-testing standards and guidelines regarding acceptable structural

performance of recognized MMC materials must also be furthered.25 The goal of such efforts

is to provide design engineers with the information necessary to design product applications

incorporating MMCs.

High Costs of Finishing

A significant cost component, often accounting for nearly one-half of final product cost,

occurs as the result of difficulties in finishing MMC parts. Because ceramic particles are

much harder than typical tool steels or carbide tools used to machine them, they often cause

premature tool wear. Harder, more expensive diamond tool material is often needed to

machine metal composites, thereby adding to final product cost. Further adding to final cost

is the fact that today’s producers of metal composites produce in small lots and cannot take

advantage of volume discounts offered by machine shops to steel or aluminum producers.

Major Private-Sector and Government Initiatives26

MMC materials have been of interest to the aerospace and defense markets due to their

potential to increase the stiffness and high-temperature strength of light-weight metals (such

as aluminum and titanium). Thereforer, they have been the focus of considerable industry

and government research funding since the 1970s, to improve the compositing methods of
MARCH 2002

Industry Trade and Technology Review Aluminum MMCs

 27 The rapid mixing process has been used to produce prototype automotive brake rotors.

 28 These include MC-21 Inc., Visteon Corp., Aluminum Consultants Group, Pacific Northwest

National Laboratory, and Rockwell Science Center.

 29 Other goals of the USDOE program are to (1) focus on cost-effective downstream

processing and finishing methods; (2) develop powertrain component designs that exploit the

properties of aluminum MMCs; and (3) engage leading automotive suppliers and foundries for

transfer of technology.

 30 During rapid mixing, aluminum and reinforcement materials are mixed at near atmospheric

conditions. Ambient air is used during the process, resulting in potentially lower capitalequipment costs by eliminating the need for the expensive vacuum system used in traditional stircasting. Reinforcement material is metered into an area below the melt through a hollow mixing

shaft. The mixing head attached to the end of the mixing shaft is designed to promote the breakup

of particle agglomerations and effectively distribute the reinforcement throughout the melt. 

Herling, Grant, and Smith, “Mechanical and Physical Property Evaluation.”

 31 Ibid.

 32 Ibid.

 33 Ibid.

 34 The F-500 designation refers to the sorting and classification of the silicon carbide particles.

47

these materials. Inasmuch as the total market for aluminum MMCs remains small, processing

technology for these materials is still evolving, and costs for all processing methods still

relatively high. Highlights of efforts currently underway to reduce the cost of MMCs in the

more promising areas are noted below. 

Cast Aluminum MMCs

Both industry and government have devoted much effort into developing the rapid mixing

process, an alternative compositing process aimed at addressing the need for low-cost, highquality discontinuous aluminum MMC materials. Because the process is designed to produce

large volumes at low cost, it is considered to be particularly well-suited to automotive-related

MMC production.27 Since 1997, the U.S. Department of Energy (USDOE) and a number of

private firms and research institutions28 have been funding a low-cost cast MMC Project to

promote rapid mixing technology.29 A key advantage of the rapid mixing process is its ability

to quickly and efficiently integrate the ceramic reinforcement particles into the matrix

material.30 In addition to reductions in capital equipment costs associated with the

elimination of the traditional vacuum system for mixing aluminum and reinforcement

materials, utilization of a rapid mixing technique reportedly reduces the time required to cast

aluminum MMC materials by nearly 80 percent, thus, helping to significantly reduce labor

costs associated with MMC production. Initial cost estimates indicate that the process could

enable aluminum MMC to be produced for nearly $1 per pound.31 Another potential

advantage of the rapid mixing process is that the process steps are sequenced, and can

possibly be automated, resulting in a semicontinuous, or with certain modifications, a

continuous process, considerably increasing output.32

Because primary aluminum and its alloys are traded as commodities, their costs are not

easily subject to control by users.33 As a result, USDOE’s Low-Cost Cast MMC Project has

also concentrated on efforts to reduce the costs of reinforcement particles as a means to

enable more widespread use of MMCs. Current cast aluminum MMCs typically use a F50034 grade of high-purity green silicon carbide as reinforcement particles. However, some

research has suggested that use of a black silicon carbide particulate material that is 50-

percent lower in cost than the F-500 type presently in use, for a cost saving of $0.30 per
MARCH 2002

Aluminum MMCs Industry Trade and Technology Review

 35 Herling, Grant, and Smith, “Mechanical and Physical Property Evaluation.” 

 36 Industry participants include the three major U.S. automakers and also include Masco

Technology Inc., Aluminum Consultants Group, Oak Ridge National Laboratory, and Ames

Laboratory.

 37 Potential applications for both powder aluminum, powder aluminum MMCs, or intermetallic

alloys include cylinder liners, pulley sprockets, camshaft bearing caps, valves, piston cap inserts,

balance shaft gear sets, electronic base plates, rocker arms, oil pump gears, piston pins, and

brackets.

 38 “Low-Cost Powder Metallurgy for Particle-Reinforced Aluminum Composites,” FY 2000

Progress Report, U.S. Department of Energy, p.52, 2001. 

 39 Information received from Russell Chernenkoff, Ford Motor Co., Feb. 11, 2002.

 40 “Low-Cost Powder Metallurgy for Particle-Reinforced Aluminum Composites,” FY 2000

Progress Report, U.S. Department of Energy, p.54, 2001. 

 41 Defense Advanced Research Projects Agency of the U.S. Department of Defense.

 42 The program is anticipated to expire in 2005, and the total budget is estimated at $30 million.

48

pound for an aluminum MMC with 20 percent silicon carbide. This cost savings results from

the lower sorting and pretreatment requirements of the lower cost material.35

Aluminum MMC Powder

Since 1994, USDOE and private industry36 have contributed funds under the Low-Cost

Powder Metallurgy for Particle-Reinforced Aluminum Composites program to develop lowcost powder metallurgy manufacturing methods and machining technology for the

production of light-weight, complex-shaped components, principally in the form of

connecting rods, for the automotive industry.37 The process technology used in the program

consists of conventional compaction of aluminum alloy powder and silicon carbide particles

into a preform shape, sintering of the preform to establish interparticle bonding, followed by

hot forging and heat treatment to achieve a near-net shape.38 Information generated from the

program willbe available to enable firms in the automotive industry to make

commercialization decisions. It is anticipated that powder aluminum MMC will still remain

more costly than currently used ferrous material. However, cost savings could result from

reducing the weight of the drivetrain system and consequent fuel-efficiency improvements.39

Preliminary project conclusions indicate that the use of aluminum MMC connecting rods in

certain automobiles could eliminate the need for the balance shaft, further reducing engine

weight and complexity.40 

DARPA41 Structural Amorphous Aluminum for

Aerospace Applications Program

DARPA’s new interdisciplinary program,42 Structural Amorphous Aluminum for Aerospace

Applications Program, initiated in September 2001, involves university researchers, Boeing,

and Pratt & Whitney, whose aim is to develop processing methods to produce quantities of

aluminum MMCs on a scale to meet the requirements of targeted airframe and engine

components. In addition, the program seeks to produce materials that would extend the hightemperature capabilities of aluminum composites and generate data on the properties of these

materials that would be useful design engineers contemplating their use in aerospace

applications. The DARPA effort is also intended to design, fabricate, and test actual
MARCH 2002

Industry Trade and Technology Review Aluminum MMCs

 43 USITC staff interview with David Bowden, The Boeing Company, Mar. 11, 2002.

49

prototype airframe and engine components to demonstrate the feasibility of the technology

developed.43 

Future Uses

Although progress in the commercialization of aluminum MMCs has been rapid over the last

10 years, MMC use is still generally limited to a number of niche applications, primarily in

the automotive and aerospace markets. Before these materials can find greater use in these

industries, a number of economic and technical issues need to be addressed. Several

development programs are currently in place that seek to address the cost disparity between

composites versus steel, cast iron, and aluminum. Other obstacles include the need to

develop a supplier base large enough to supply aluminum MMCs at a competitive price and

the need to develop a data base to encourage design engineers to incorporate aluminum

MMC components into their product designs. These obstacles will likely only be resolved

over time as the industry evolves and both suppliers and users gain greater familiarity with

the capabilities and limitations of these products and overcome their reluctance to share

product data in an open forum.#

MARCH 2002

Industry Trade and Technology Review Key Performance Indicators

 1 The data and views presented for the following indicators are compiled from the industry sources noted and are

those of the authors. They are not the views of the United States International Trade Commission as a whole or of

any individual Commissioner. Nothing contained in this information based on published sources should be

construed to indicate how the Commission would find in an investigation conducted under any statutory authority.

A-1

APPENDIX A

Key Performance Indicators of Selected

Industries and Regions1

Title Author1 Page

Steel Harry Lenchitz

(202) 205-2737

lenchitz@usitc.gov

A-2

A-3

Automobiles Laura A. Polly

(202) 205-3408

polly@usitc.gov

A-4

Unwrought Aluminum Judith-Anne Webster

(202) 205-3489

webster@usitc.gov

A-5

Flat Glass James Lukes

(202) 205-3426

lukes@usitc.gov

A-6

Services Tsedale Assefa

(202) 205-2374

asefa@usitc.gov

A-7

North American Trade Ruben Mata

(202) 205-3403

mata@usitc.gov

A-8

A-9
MARCH 2002

Key Performance Indicators Industry Trade and Technology Review

A-2

STEEL

• Losses at integrated producers increased in the fourth quarter 2001. Declining sales and low capacity utilization

coincided with a bankruptcy filing by Bethlehem Steel, idling of facilities by LTV and Geneva, and shutdown of

Acme Metals. 

• Fourth quarter 2001 was also bleak for specialty producers, processors, and distributors with the shutdown of

Allegheny Technologies and bankruptcy filings by Metals USA, Sheffield Steel, and Action Steel. 

• First quarter 2002 brought additional bankruptcy filings by Huntco and National Steel, but also the announcement

by President Bush of temporary safeguards for the steel industry. Response to this action by other nations has

included requests for consultations, tariff increases, and institution of safeguard investigations. Details of the

U.S. safeguards, including exclusions, are available on the Office of the U.S. Trade Representative website:

www.ustr.gov/sectors/industry/steel201/background.htm. 

• Imports of finished products during the fourth quarter 2001 increased slightly compared with the third quarter

2001 level of 5.9 million tons, and also compared with the fourth quarter 2000 (table A-1). Semifinished imports

declined slightly from the third quarter 2001 level of 1.9 million tons but were up 24 percent compared with the

fourth quarter 2000. Yet a year-to-year comparison shows a significant decline in finished and semifinished

imports in 2001. 

Table A-1

Finished and semifinished imports decreased significantly in 2001 compared with the previous

year

Item Q4 2001

Percentage

change, Q4

2001 from 

Q4 20001 YTD 2001

Percentage

change, YTD

2001 from 

YTD 20001

Producers’ shipments (1,000 short tons) . . . . . . . . . . . . . 23,282 -6.5 99,448 -8.8

Finished imports (1,000 short tons) . . . . . . . . . . . . . . . . . 6,157 2.4 23,640 -19.6

Ingots, blooms, billets, and slabs (1,000 short tons) . . . . . 1,826 24.0 6,440 -24.7

Exports (1,000 short tons) . . . . . . . . . . . . . . . . . . . . . . . . 1,526 -5.2 6,144 -5.9

Apparent supply, finished (1,000 short tons) ........ 27,913 -12.2 116,944 -13.5

Ratio of finished imports to apparent supply (percent) . . . 22.1 21.6 20.2 2-2.1 1

 Based on unrounded numbers.

2

 Percentage point change.

Note.–Because of rounding, figures may not add to the totals shown.

Source: American Iron and Steel Institute.
MARCH 2002

Industry Trade and Technology Review Key Performance Indicators

A-3

STEEL

Table A-2

Fourth quarter 2001 service center shipments decreased by nearly 17 percent from third quarter

2001, and by 14 percent from fourth quarter 2000

Item Sept. 2001 Dec. 2001

Percentage

change, Dec.

2001 from

 Sept. 20011 Q4 2000 Q4 2001

Percentage

change, Q4

2001 from

 Q4 20001

Shipments (1,000 short tons) . . . . . . . . 1,923 1,600 -16.8 5,280 4,526 -14.3

Ending inventories (1,000 short tons) . . 7,677 7,556 1.6 8,557 7,556 -11.7

Inventories on hand (months) . . . . . . . . 3.6 4.0 (2

) 3.9 4.0 (2)

 1 Based on unrounded numbers.

 2

 Not applicable.

Source: Steel Service Center Institute.

• According to the Metals Service Center Institute (formerly Steel Service Center Institute), U.S. service centers

shipped only 4.5 million tons of finished steel products during the fourth quarter 2001, a decline of more than 30

percent from the third quarter 2001 level of 6.2 million tons and more than 14 percent from the fourth quarter

2000 (table A-2). Although inventory volume was down slightly at the end of the fourth quarter (Dec. 2001)

compared with the end of the third quarter, inventories on hand represented four months of sales at current

levels.

 

• The most recent survey of business conditions (March 8, 2002) by the Metals Service Center Institute

(www.ssci.org) predicted an increasing trend in general economic activity, and in steel orders and shipments,

during the March through May 2002 time period. During March 2002, coincident with the announcement of

temporary safeguards for the U.S. steel industry, there were measurable increases in spot steel prices both in the

U.S. and in other steel consuming and exporting countries. 

• Domestic capacity utilization dropped to less than 73 percent during the fourth quarter 2001(Figure A-2). 

Although domestic consumption of steel declined significantly during the fourth quarter 2001 compared with the

third quarter level, the American Iron and Steel Institute (www.steel.org) attributed the decrease in domestic

capacity utilization to low price levels for steel imports caused by excess foreign steel capacity. 
MARCH 2002

Key Performance Indicators Industry Trade and Technology Review

A-4

AUTOMOBILES

Table A-3

U.S. sales of new automobiles, domestic and imported, and share of U.S. market accounted for by

sales of total imports and Japanese imports, by specified periods, January 2000-December 2001

 Percentage change 

Item

Oct.-Dec.

2001

Jan.-Dec.

2001

Oct.-Dec. 2001

from 

Jul.-Sept. 2001

Jan.-Dec. 2001

from 

Jan.-Dec. 2000

U.S. sales of domestic autos

(1,000 units)

1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,505 6,488 -2.1 -6.5

U.S. sales of imported autos

(1,000 units)

2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 548 2,167 -0.7 4.7

Total U.S. sales (1,000 units)

1, 2 . . . . . . . . . . . . . . . . 2,053 8,655 -1.7 -3.9

Ratio of U.S. sales of imported autos to 

total U.S. sales (percent)

1, 2 . . . . . . . . . . . . . . . . . . 26.7 25.0 1.0 9.0

U.S. sales of Japanese imports as a 

share of the total U.S. market (percent)

1, 2 . . . . . . . 11.9 10.6 7.7 1.6

1

 Domestic automobile sales include U.S.-, Canadian-, and Mexican-built automobiles sold in the United States. 2

 Imports do not include automobiles imported from Canada and Mexico.

Source: Compiled from data obtained from Automotive News.
MARCH 2002

Industry Trade and Technology Review Key Performance Indicators

A-5

UNWROUGHT ALUMINUM1

 

• Energy related production cutbacks significantly impacted both the U.S. and Brazilian aluminum markets in 2001. (See

related article in Dec. 2001 ITTR for details.) U.S. production of primary aluminum decreased 28 percent (to 2.6 million metric

tons) and Brazilian production dropped 12 percent. Due to improved availability of low-cost electrical energy, production in

both countries is expected to increase marginally in 2002 as capacity comes back on line. Slated for production returns in

the near-term are the Albras smelter in Brazil and Longview Aluminum Smelter in the United States. 

 

• Restructuring is underway in the U.S. aluminum industry as companies react to pressure from falling prices, production

decreases, and increased competition from foreign producers. Kaiser recently announced its intention to restructure its debt

under Chapter 11 proceedings. Secondary production is accounting for an increasing portion of aluminum production. In

another development, Alcoa announced its first quarterly loss in 6 years. 

Table A-4

Prices reached their lowest levels in 2.5 years while surpluses in LME warehouses continued to

accumulate, reflecting weakness of the market

 Percentage change

Item Q4 2000 Q3 2001 Q4 2001

Q4 2001

from 

 Q4 2000

Q4 2001

from 

Q3 2001

Primary production (1,000 metric tons) . . . . . . . . . . . . 880 632 627 -28.8 -0.8

Secondary recovery (1,000 metric tons) ........... 756r 795r 771 2.0 -3.1

Imports (1,000 metric tons) . . . . . . . . . . . . . . . . . . . . . 542 689 721 33.0 4.6

Import penetration (percent)

1 . . . . . . . . . . . . . . . . . . . 26.1 34 35.5 2

9.4 21.7

Exports (1,000 metric tons) . . . . . . . . . . . . . . . . . . . . . 101 78 86 -14.9 10.3

Average nominal price (cents/lb) . . . . . . . . . . . . . . . . 72.2 65.4 63.2 -12.5 -4.8

LME inventory level (1,000 metric tons) . . . . . . . . . . . 322 722 821 155.0 13.7

1

 Calculations based on unrounded data

2

 Percentage point change

Note.–Revised data indicated by “r.”

Sources: Compiled from data obtained from U.S. Geological Survey and World Bureau of Metal Statistics.

1

 Product coverage includes only unwrought aluminum and certain aluminum alloys for improved data comparability. 
MARCH 2002

Key Performance Indicators Industry Trade and Technology Review

A-6

FLAT GLASS

Background

• The U.S.-Japanese agreement on Japanese market access for imports of flat glass sought to

increase access and sales of foreign flat glass in Japan through such means as increased adoption

of nondiscriminatory standards and expanded promotion of safety and insulating glass. The

agreement covered the 1995-99 period and expired on December 31, 1999.1

• Japanese demand for imported glass improved in 2000. The average monthly quantity of Japanese

imports from all countries increased by 57 percent during 2000 to 2.9 million square meters, while

the average monthly value of such imports increased by 89 percent to $25.7 million. Imports from

the United States increased by 30 percent to 561,000 square meters and by 93 percent to $13.7

million, respectively, but the U.S. share of the market declined.

 

Current

 

• The Japanese economy slowed in 2001, which further diminished demand for imported flat glass. 

The average monthly quantity of Japanese imports from all countries decreased by 13 percent

during 2001 to 2.5 million square meters, while the average monthly value of such imports

decreased by 25 percent to $19.4 million. However, imports from the United States decreased by

30 percent to 392,000 square meters and by 28 percent to $9.9 million, respectively, with the U.S.

share of the market declining in terms of quantity; imports from the United States lost market share

to less expensive imports from Thailand, Korea, and Taiwan during 2001. 

 

1

 Office of the U.S. Trade Representative (USTR), The President’s 1999 Annual Report on the Trade Agreements

Program, p. 227, downloaded from http://www.ustr.gov/reports/tpa/2000/index.html on Mar. 3, 2000.
MARCH 2002

Industry Trade and Technology Review Key Performance Indicators

A-7

SERVICES
MARCH 2002

Key Performance Indicators Industry Trade and Technology Review

A-8

NORTH AMERICAN TRADE HIGHLIGHTS

U.S. trade with its North American partners is highlighted in table A-5. The following is a summary of key developments

for year 2001.

 

• Reflecting the sluggish U.S. economy, U.S. trade with its NAFTA partners in 2001 ($583 billion) decreased by 6 percent

($37 billion) from 2000. The U.S. merchandise trade deficit with Canada ($-72.2 billion) and Mexico ($-40 billion)

continued to rise, expanding by 4.3 percent to $112.2 billion in 2001. 

• Two-way trade with Canada declined 6 percent ($23.2 billion) to $361.5 billion in 2001. Leading factors in the reduced

trade with Canada were slackening U.S. demand, border delays caused by heightened security, and lower Canadian

petroleum prices. 

• U.S. imports from Canada decreased by 5.3 percent ($12.2 billion) to $216.9 billion in 2001. Lessened U.S. demand

for petroleum, motor-vehicles, electrical machinery, and electronic products were largely responsible for the

decrease in total imports from Canada. Eighty-six percent of Canada’s total exports were destined for the United

States in 2001. 

• Although Canada posted an estimated 1.5 percent increase in economic growth in 2001, slackening demand in

certain manufacturing and consumer sectors combined with a strong U.S. dollar resulted in a 7-percent decrease ($11

billion) in U.S. exports to Canada in 2001. Industries showing the largest decreases in U.S. exports to Canada were

certain motor-vehicle parts; motor vehicles; electronic products, such as telephone equipment and semiconductors;

and copper and steel mill products. 

• Significant growth in U.S. exports to Canada occurred for electrical energy, rising by 217 percent ($861 million) to

1.3 billion; and for motors and generators, increasing by 31 percent ($267 million) to $1.1 billion. The surge in

electrical energy exports to Canada was due partly to unseasonably warm weather nationwide that boosted airconditioning usage and imports over the electrical power transmission network that Canada shares with the United

States. 

• Two-way trade with Mexico decreased 6 percent ($14.1 billion) to $221 billion in 2001. The decrease was partly due to

a slowing down of the U.S. economy along with a Mexican economy that contracted 0.3 percent in 2001, the first

decline in Mexico’s GDP since the peso crisis of 1995, and a sharp reversal from its 6.9 economic growth registered in

2000. 

• U.S. exports to Mexico declined by 10 percent ($9.9 billion) in 2001 to $90.5 billion. Industry sectors with the

largest decreases were auto parts and engines, miscellaneous plastic and petroleum products, semiconductors and

integrated circuits, telephone apparatus, electrical capacitors and resistors. The majority of these products are

typically destined for assembly plants operating under Mexico’s two temporary import programs: the Maquiladora

Program and PITEX. 

• Intense competition between Boeing and Airbus Industries in the major civil aircraft market and between

Bombardier and Embraer in the regional jet aircraft market has influenced these companies to demand lower costs

from their suppliers to remain globally competitive. In response, numerous U.S. producers and subcontractors for

aircraft engines and other parts (i.e., wire harnesses and valve assemblies) have established facilities in Mexico,

making aircraft components and parts the fastest growing maquiladora sector. As a result, U.S. exports to Mexico of

aircraft and related equipment increased by 103 percent ($278 million) to $549 million in 2001. 

• Mexico’s exports to the United States and its employment under the Maquiladora Program also fell by 10 percent in

2001, while direct foreign investment in Mexico’s export assembly industry decreased by 27 percent ($813 million)

to $2.17 billion. The contraction of Mexico’s assembly industry was caused, in part, by the appreciation of the

Mexican peso against the U.S. dollar in 2001. That same strong peso, however, has increased the purchasing power

of Mexico’s emerging middle class and led to a sharp rise in sales of new homes and consumer durables.

Commensurate with this trend, U.S. exports of motor-vehicles to Mexico in 2001increased by 12.5 percent ($402

billion) to $3.6 billion. 

 

• The economic and foreign exchange factors in play during 2001 resulted in a decline in imports from Mexico by 3

percent ($4.2 billion) to $131 billion in 2001. Countering this trend, however, U.S. imports from Mexico of

computers rose by 15 percent ($1.3 billion) to $10.4 billion, and residential and commercial appliances rose by 33

percent ($655 million) to $2.7 billion. In 2001, the U.S. market accounted for approximately 88 percent of Mexico’s

total exports and for 25 percent of Mexico’s GDP.
MARCH 2002

Industry Trade and Technology Review Key Performance Indicators

A-9

NORTH AMERICAN TRADE

Table A-5

North American trade, 1996-2001

 Percent

 change

Item 1996 1997 1998 1999 2000 2001 2000/01

---------------------------Value (million dollars)-----------------------

U.S.-Mexico trade:

Total imports from Mexico . . . . . 74,179 85,005 93,017 109,018 134,734 130,509 -3

U.S. imports under NAFTA

Total value . . . . . . . . . . . . . . 55,076 62,837 68,326 71,317 83,995 81,162 -3

Percent of total imports . . . . 74 74 73 65 62 62 -

Total exports to Mexico . . . . 54,686 68,393 75,369 81,381 100,442 90,537 -10

U.S. merchandise trade balance

with Mexico1 . . . . . . . . . . . . . -19,493 -16,612 -17,648 -27,637 -34,292 -39,971 -17

U.S. -Canada trade:

Total imports from Canada .... 156,299 167,881 174,685 198,242 229,060 216,836 -5

U.S. imports under NAFTA

Total value . . . . . . . . . . . . . . 84,245 88,949 111,675 115,715 123,052 113,179 -8

Percent of total imports . . . . 54 53 64 58 54 52 -

Total exports to Canada ...... 119,123 134,794 137,768 145,731 155,601 144,621 -7

U.S. merchandise trade balance 

with Canada2 . . . . . . . . . . . . -37,176 -33,087 -36,918 -52,511 -73,459 -72,215 2

1

 The hyphen (-) symbol indicates a loss or trade deficit, or not applicable. The $34.3 billion deficit in

U.S. merchandise trade with Mexico in 2000 was partially offset by a $2.9 billion U.S. surplus in bilateral

services trade (latest available services trade data for Mexico). 2

 The $72.2 billion deficit in U.S. merchandise trade with Canada in 2001 was partially offset by a $7.3

billion U.S. surplus in bilateral services trade.

Source: Compiled by U.S. International Trade Commission staff from official statistics of the U.S.

Department of Commerce. Statistics on U.S. services trade with Canada and Mexico are based on

preliminary data provided in U.S. Department of Commerce, Bureau of Economic Analysis, U.S.

International Transactions Accounts Data, tables 10 and 10a, found at http://www.BEA.DOC.GOV/

BEA/International/BP_web/list.CFM?ANON=92.