PREFACE

The Industry Trade and Technology Review (ITTR) is a periodic 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 provides analysis of important issues and insights regarding the global position of U.S. industries, 

the technological competitiveness of the United States, and how trade and policy developments affect U.S. 

business. 

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 

U. S. International Trade Commission 

500 E Street, SW 

Washington, DC 20436 

Fax: 202-205-3161 

Industry Trade and Technology Review is posted on the Commission=s Internet site at 

www.usitc.gov (Publications). 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. 

Review Staff

Larry Brookhart 

Karl Tsuji 

assisted by

Monica Reed 

Sharon Greenfield 

Contributing Authors

George Serletis 

Jonathan Coleman 

Joanna Bonarriva 

Robert A. Rogowsky

Director of Operations

Karen Laney-Cummings 

Director of Industries

SEPTEMBER/OCTOBER 2004

Industry Trade and Technology Review Contents

i 

Listing of Published Articles

(June 1999 B October 2004) 

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 recoveryCImplications 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 

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 
SEPTEMBER/OCTOBER 2004

Index of Articles Industry Trade and Technology Review

ii 

Listing of Published ArticlesCContinued

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 

July 2002

U.S. telecommunication services: Industry and trade outlook 

Mexico versus China: Factors affecting export and investment competition 

Production-sharing update: Developments in 2001 

October 2002

International trade in commercial equipment leasing services 

International telecommunication markets: Accounting rate reform 

December 2002

Major contraction of the domestic refined copper industry 

Power generation and transmission equipment in the Latin American market 

April 2003

WTO agricultural trade negotiations: Third update recapping the Doha Ministerial 

Catalysts: An innovative industry responds to technological and competitive challenges 

August 2003 

Global copyright protection and the challenge of digital piracy 

The measurement and effects of nontariff barriers to trade in basic telecommunication services 

November 2003 

Global trends in the information technology outsourcing services market

Production-sharing update: Developments in 2002 

March/April 2004 

International steel capacity and subsidy negotiations

Solid and hazardous waste services markets in Asia and the Pacific
SEPTEMBER/OCTOBER 2004

Industry Trade and Technology Review Contents

iii 

Listing of Published ArticlesCContinued

June/July 2004 

Logistic services: Industry overview and issues for negotiation 

 Powder metallurgy and advanced aluminum sheet processing: Applications of advanced technology in 

 the automotive industry 

September/October 2004 

 U.S. tobacco quota buyout: Issues and analysis 

 WTO agricultural trade negotiations: A fourth update 

#
 SEPTEMBER/OCTOBER 2004 

Contents Industry Trade and Technology Review

iv 

CONTENTS 

Page

U.S. Tobacco Quota Buyout: Issues and Analysis.................. 1

The U.S. tobacco price support program..................................................................................... 2 

U.S. tobacco demand factors....................................................................................................... 4 

 Trade and competition .................................................................................................. 4 

 Cigarette consumption and manufacturing trends ........................................................ 7 

Tobacco program elimination model simulation......................................................................... 9 

WTO Agriculture Trade Negotiations: A 

 Fourth Update.......................................................................................................... 15 

Recapping the Doha Ministerial.................................................................................................. 15 

 The run-up to Cancun.................................................................................................................. 15 

 Comparison of proposals in the three major pillars...................................................... 17 

 The EU-U.S. Joint Paper .............................................................................................. 17 

 The G-20 Framework Proposal..................................................................................... 19 

 The Perez del Castillo Text........................................................................................... 21 

 The Cancun Ministerial ............................................................................................................... 24 

 Proceedings................................................................................................................... 24 

 The Derbez Text ........................................................................................................... 26

 Outcome........................................................................................................................ 29 

After Cancun ............................................................................................................................... 29 

Relaunch of negotiations, January-July 2004.............................................................................. 29 

The July 2004 framework for establishing modalities in agriculture.......................................... 32 

 The July 2004 Framework ............................................................................................ 32 

Looking ahead ............................................................................................................................. 34 

Appendix A: Key performance indicators of selected 

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

Steel:

 Figure A-1 Operating income for all sectors continues positive trend during second 

 quarter 2004..................................................................................................... A-2 

 Table A-1 Producers’ shipments increase, but imports increase more, during second 

 quarter 2004 compared to second quarter 2003 and first quarter 2004 ........... A-2 

Table A-2 Steel service centers: Second quarter 2004 shipments increase by more than 

10 percent compared with second quarter 2003, but decline by 15 percent 

from record level of first quarter 2004............................................................. A-3 

Figure A-2 Steel mill products, all grades: Capacity utilization continues upward trend 

 during second quarter 2004............................................................................... A-3 

Automobiles:

Table A-3 U.S. sales of new passenger vehicles (cars and light trucks), domestic 

and imported, and share of U.S. market accounted for by sales 

of total imports and Japanese imports, by specified periods, 

January 2003-June 2004 .................................................................................. A-4 
SEPTEMBER/OCTOBER 2004

Industry Trade and Technology Review Contents

v 

CONTENTSCContinued

Page

Appendix A: Key performance indicators of selected 

industries and regionsCContinued

Automobiles--Continued

Figure A-3 U.S. sales of new passenger vehicles (cars and light trucks) increased 

in the second quarter 2004............................................................................... A-4 

Unwrought aluminum: 

Figure A-4 Price of primary aluminum rises 3 percent during second quarter 2004, due 

 to tight supplies of alumina for smelters early in the quarter, along with 

capacity shutdown at one facility .................................................................... A-5 

Table A-4 Continued robust worldwide demand in second quarter 2004 reflects continued 

drawdown of London Metal Exchange (LME) inventories from the peak 

level of fourth quarter 2003 and rising prices for primary aluminum since 

second quarter 2003......................................................................................... A-5 

 

Flat glass:

Figure A-5 Japanese monthly average imports from U.S. and World increased during first 

7 months of 2004 ............................................................................................. A-6 

Services:

Figure A-6 Balance on U.S. service trade accounts, by select quarters, 2003-04................... A-7 

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

partners, by select quarters, 2002-04 ............................................................... A-7 

North American trade:

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

Table A-5 North American trade, 1999-2003, January-June 2003, and January-June 2004. A-9 

#

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TECHNOLOGY REVIEW (ITTR)
September/October 2004

Industry Trade and Technology Review Tobacco Quota Buyout

1 

U.S. Tobacco Quota Buyout: Issues and 

Analysis 

George Serletis* 

george.serletis@usitc.gov

(202) 205-3315 

Plummeting domestic and international demand for U.S. leaf tobacco has led to a 

sharp reduction in U.S. production and farm receipts, resulting in an 

Aunprecedented crisis@ on the U.S. tobacco farming sector.1 Since 1997, U.S. 

tobacco output has fallen by one-half, from 1.7 billion pounds to 844 million 

pounds in 2003,2

 whereas the value of production has declined from $3 billion to 

$1.6 billion over that period. 3

 A variety of factors have led to the decline, 

including strong competition from low-cost international tobacco suppliers, a 

steady fall in domestic cigarette consumption, and technological advancements 

in cigarette manufacturing that use less and lower-priced tobacco per cigarette. 

The Federal tobacco price support program, which restricts U.S. output and 

prices from adjusting to current world market conditions has been a major 

contributing factor to the declining price competitiveness of U.S. tobacco. This 

article provides brief overviews of the U.S. tobacco industry and the Federal 

tobacco program, examines market factors that have made the Federal tobacco 

program unsustainable, and presents quantitative insights from partial 

equilibrium modeling. The analysis indicates that the elimination of the tobacco 

program likely would increase U.S. production and exports of U.S. leaf tobacco. 

Author’s note: On October 22, 2004, President Bush signed into law, HR 4520, 

The American Jobs Creation Act, that included a buyout of the Federal tobacco 

program. Under this law (PL 108357), the Federal tobacco quota and price 

support program will be terminated after the 2004 marketing year. Owners of 

tobacco marketing quota and farmers will be provided with buyout and transition 

payments estimated at $10 billion and funded by assessments on the tobacco 

products industry. 

The Federal tobacco program was established to maintain high and stable prices for 

tobacco farmers by restricting output through a system of marketing (production) quotas to 

correspond with anticipated demand. Under this supply management system, production is set 

annually through quotas that specify the number of pounds of tobacco that can be produced by a 

tobacco farm.4

 In return for limiting production, farmers were provided support prices. Marketing 

quotas were allocated to farms in 1938 based on historical production levels. The right to produce 

and market tobacco conferred economic value to the quotas which, under certain rules, can be 

leased or rented. Today, over one-half of these quotas are held by nonproducing absentee owners. 

* The views expressed in this article are those of the author. They are not the views of the U.S. 

International Trade Commission (USITC) or of any individual Commissioner. The author is an 

international trade analyst in the Agriculture and Forest Products Division, Office of Industries.
September/October 2004

Tobacco Quota Buyout Industry Trade and Technology Review

2 

Active tobacco farmers who do not own quotas or wish to plant and sell more tobacco than their 

marketing quotas allow, must rent or lease additional quotas. Currently, quota lease expenses account for 

as much as one-third of the price of tobacco, a significant cost to U.S. tobacco farmers. The rising cost of 

production for active farmers has been exacerbated in recent years as rental or lease costs have increased 

dramatically in response to falling demand. Moreover, while the number of U.S. tobacco farmers has 

contracted substantially since the price support program was established, the program encourages a large 

number of less-efficient farmers to continue producing. 

The Federal tobacco program functioned as intended as long as U.S. tobacco could command 

premium prices based on superior quality; however, as low-cost foreign suppliers, particularly Brazil, 

improved the quality of their output, relatively high-priced U.S. tobacco steadily lost market share in the 

United States and in key export markets. The sharp decline in production since the mid 1990s brought the 

supply management system to the breaking point. A Presidential Commission established in 2000 to 

examine issues facing the U.S. tobacco-growing sector concluded that the U.S. tobacco program is no 

longer capable of providing sufficient income for the number of farmers and nonproductive quota owners 

who participate in the system.5

 The President=s Commission recommended a buyout of the price support 

program coupled with U.S. Food and Drug Administration (FDA) regulation of tobacco products. The 

proposalBembraced by both tobacco farmers, whose income has dwindled in recent years, and absentee 

owners, who foresee their quota assets potentially becoming worthless if the program collapsesBwould 

eliminate the Federal tobacco program by compensating quota holders for the value of their marketing 

rights, and paying tobacco farmers to either transition out of tobacco farming or make substantial new 

investments to participate in a more competitive free-market environment.6

 

More than 90 percent of U.S. tobacco production consists of the flue-cured and burley tobacco 

varieties that combined with imported Oriental tobacco7

 are the basic tobacco ingredients of the American 

blend cigarette.8

 Flue-cured leaves are cured9 by supplemental heat in enclosed barns.10 In contrast to 

flue-cured tobacco, where only the leaves are cured, the entire burley stalk is hung in open-air barns for 

curing.11 U.S. flue-cured and burley tobaccos have been regarded among the highest quality Aflavor@

12

tobacco produced worldwide. Among the world=s flue-cured producers, only the United States, Brazil, 

and Zimbabwe are significant producers and exporters of high-quality flavor tobacco. In recent years, the 

quality gap has narrowed markedly between U.S. flue-cured and its competitors= leaf. U.S. burley tobacco, 

however, is still regarded as the highest quality type produced worldwide, but other world suppliers are 

likewise improving their leaf quality.13

The U.S. Tobacco Price Support Program

Since the Great Depression, flue-cured and burley tobaccos have been produced under the supply 

management system of the Federal tobacco program administered by the Farm Service Agency (FSA) of 

the U.S. Department of Agriculture (USDA).14 Under this program (box 1), subject to grower (quota 

holder) referendum every 3 years,15 output is restricted in order to maintain market prices16 above support 

level prices. The FSA sets the total quantity of flue-cured and burley tobaccos that can be produced and 

sold in each marketing year, to correspond with anticipated domestic and international demand. The 

annual supply (National marketing quotas) for each tobacco type is based on a formula of domestic 

cigarette manufacturers purchasing intentions, the preceding 3-year average of exports, and a reserve 

stock adjustment. The National quotas are then subdivided among quota holders apportioning the number 

of pounds/acreage corresponding to the quantity of flue-cured and burley tobaccos that can be sold during 

the annual marketing season.17 
September/October 2004

Industry Trade and Technology Review Tobacco Quota Buyout

3 

Box 1 

 Basic features of the U.S. Federal tobacco program 

 Background

 $ Established in 1938 to maintain high and stable prices for tobacco farmers. 

 $ Program must be approved by referendum every 3 years. 

 

 Supply Management

 $ Farmers limit the amount of tobacco they will produce and market in return for price support. 

 $ Production is restricted through marketing quotas (rights to produce and sell), which are allocated 

to each farm. 

 $ The national marketing quota is set by the U.S. Department of Agriculture=s (USDA), Farm 

Service Agency, and is based on cigarette manufacturers purchasing intentions, a 3-year 

weighted average of exports, and a stock adjustment factor. 

 $ Transfer of quota is restricted: the flue-cured quota can only be sold or leased through the farm 

on which the quota is assigned. 

 $ The burley quota may be sold or leased to other growers within the same county. Since 1991, 

growers in Tennessee have been allowed to transfer quota across county lines. 

 

 Price Support

 $ Minimum support prices are applied to USDA graded tobacco based on type and quality.1 

 $ Tobacco that is not purchased at the support price may be delivered to grower cooperatives in 

return for nonrecourse commodity loans. 

 $ Nonrecourse loans are provided by the USDA, Commodity Credit Corporation which contracts 

with the cooperatives to administer the price stabilization programs. Cooperatives process, store, 

and market all tobacco under loan. 

 $ The program operates on the basis of no-net-cost to the Government.2 Assessments are charged 

to buyers and sellers for all tobacco marketed in the United States including imported tobacco. 

 $ Fees cover the costs of processing and storage of the tobacco and any shortfalls when the 

cooperative sells the tobacco it has stored under loan. 

 _____________________________ 1

 Quality is determined by stalk position, color, aroma, consistency, and other factors. 2

 Some administrative costs of the program are included in the USDA budget.

Sources: U.S. Department of Agriculture, Farm Services Agency, Fact Sheets Burley Tobacco, 2002 

Support Program and Related Information, Mar. 2003; U.S. Department of Agriculture, Farm Services 

Agency, Fact Sheets Flue-cured Tobacco, 2002 Support Program and Related Information, Mar. 2003.

When the Federal tobacco program was initiated in 1938, only active farmers held marketing 

quotas. Today, more than 60 years later, a substantial portion of marketing quotas are held by 

nonproducers, such as retired farmers, farm widows, nonfarming heirs of quota owners, and purchasers of 

land with assigned quota. In 2002, the U.S. national flue-cured quota comprised 36,850 individual fluecured quotas, with owners estimated to number between 25,000 to 30,000.18 Of these quota holders, only 

between one-third and one-half reportedly are estimated to be active farmers.19 Similarly for burley leaf, 

which is planted on much smaller parcels, there were 224,308 quotas held by an estimated 170,000 quota 

holders in 2002. Active burley farmers are estimated to possess only between 45 to 50 percent of the total 

burley quota.20

The erosion of demand for U.S. flue-cured and burley tobaccos has had a dramatic effect on the 

National flue-cured and burley marketing quotas. Since 1997, the effective quota21 for flue-cured tobacco 

fell by 46 percent, and the effective quota for burley tobacco dropped by over 60 percent (figure 1). 

Tobacco farmers needing to maintain incomes and cover substantial fixed-cost investments, including 

new equipment required by cigarette manufacturers,22 have been compelled to acquire additional quotas 

to compensate for the falling levels that each quota allows them to produce and market. This cost-squeeze 
September/October 2004

Tobacco Quota Buyout Industry Trade and Technology Review

4 

has resulted in farmers bidding up the price of quotas to historic highs, and according to most industry 

observers, unsustainable levels. 

Surveys of cooperative extension agents conducted by tobacco extension economists indicate that 

burley and flue-cured quota lease rates have increased sharply in response to the dramatic declines in the 

National marketing quotas.23 In Tennessee, burley quota lease rates surged between 5- and 10-fold from 

an average rate between $0.05 and $0.10 per pound during most of the 1980s to over $0.50 per pound 

after 1999.24 In Kentucky, average burley quota lease rates were reported to average an estimated $0.65 in 

2002, more than doubling from the previous decade.25 Although quota lease rates for flue-cured tobacco 

are less transparent than burley rates (because flue-cured quotas, unlike burley quotas, cannot be 

transferred from one farm to another), survey results suggest that lease rates also have escalated 

dramatically.26 

Another factor contributing to the substantial rise in marketing quota lease rates has been 

supplemental payments provided to U.S. tobacco farmers under a Master Settlement Agreement (MSA) 

between the tobacco products industry and state governments.27 Under the MSA (phase II payments), U.S. 

farmers and absentee quota holders have received $5 billion.28 In addition, market loss and disaster relief 

funds provided to farmers have totaled $1 billion since 1998.29 Without this supplemental income, many

growers and economists question the industry’s ability to sustain such high lease rates. Moreover, 

according to a North Carolina State University (NCSU) economist, quota lease and rental prices have also 

risen on expectations that buyout payments and other farm payments related to the MSA may be linked to 

output.30

U.S. Tobacco Demand Factors 

 Trade and Competition 

 The deteriorating position of the U.S. tobacco growing industry relative to the rest of the world is 

illustrated by figure 2. In 1980, U.S. leaf represented nearly 1 in every 5 pounds of tobacco harvested 

globally; by 2003, the U.S. share accounted for just 6 percent of global output. Likewise, the United 

100

200

300

400

500

600

700

800

900

1000

1100

1200

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Years

Million pounds

Flue-cured type 11-14 Burley type 31

Figure 1

Flue-cured and burley tobacco: National marketing quotas, 1980-20031

 1Effective quota, includes basic quota plus carryover.

Source: Compiled from official statistics of the U.S. Department of Ariculture, (USDA) Farm Service Agency, 

Tobacco and Peanuts Division; and USDA, Economic Research Service, Tobacco Situation and Outlook , Dec. 

2003

September/October 2004

Tobacco Quota Buyout Industry Trade and Technology Review

6 

States was once the worlds= dominant tobacco exporter, supplying one-quarter of world exports in 1980, 

but its share declined to 8 percent in 2003. During 1999-2003, U.S. exports of flue-cured and burly 

tobacco have trended downwards (table 1). U.S. flue-cured exports to Japan, one of the largest U.S. 

markets for flue- cured leaf, fell by more than one-half during the period as Japanese manufacturers began 

to import tobacco from lower-cost alternative suppliers. U.S. burley exports declined by more than 

11 percent during 1999-2003, with exports to European Union markets falling by over one-third. Not only 

did U.S. tobacco lose market share abroad, but demand in the domestic market also contracted as U.S. 

cigarette manufacturers increasingly switched to lower-priced imported tobacco. U.S. tobacco imports 

more than doubled during the early 1990s, before moderating by the end of the period. 

Table 1 

U.S. exports: Flue-cured and burley tobacco to selected markets, 1999-20031

Market 1999 2000 2001 2002 2003 Percent change 

1999-2003

----------------------------metric tons-------------------------- 

Flue cured tobacco: 

 European Union ...................................... 36,745 39,893 47,078 31,758 40,474 10

 Japan ...................................................... 16,914 18,916 16,028 12,650 8,139 -52

 Other....................................................... 22,723 26,978 24,613 27,016 20,383 -10

 Total.................................................. 76,382 85,787 87,719 71,424 68,996 -10

Burley tobacco: 

 European Union ...................................... 30,915 17,288 25,226 21,535 19,355 -37

 Japan ...................................................... 5,773 6,267 4,948 5,571 5,912 2

 Other....................................................... 8,482 11,948 11,057 11,950 14,833 75

 Total................................................. 45,170 35,503 41,231 39,056 40,100 -11 1

 Schedule B subheadings: flue-cured stemmed and stripped, 2401.20.80.10; and burley stemmed and stripped 

2401.20.80.20. 

Source: Compiled from official statistics of the U.S. Department of Commerce. 

Strong competition from other world tobacco suppliers has been a significant reason for the 

decline in U.S. tobacco exports. U.S. leaf, once the world’s preeminent flavor tobacco, no longer has the 

market power to command high price premiums relative to other suppliers. Flavor and semiflavor 

tobacco-producing countries such as Brazil, Zimbabwe, Malawi and Argentina have narrowed the quality 

gap and are producing good-quality tobacco at much lower prices (table 2). Grower prices in Brazil and 

other countries may be understated as farmers reportedly receive support on inputs such as fertilizer and 

seeds;31 however, even accounting for any such distortion in prices, U.S. leaf is still significantly more 

costly than tobacco from other world suppliers. 

Table 2 

Flue-cured and burley grower prices: Selected world producers, 2001- 2003 

Flue-cured Burley 

Country 2001 2002 20031 2001 2002 20031

 BBBBBBBBBBBBBBB Dollar/kilogram (farm weight) BBBBBBBBBBBBBBBBB

United States............................................. 4.07 4.11 4.03 4.35 4.36 4.32

Brazil ......................................................... 1.16 1.18 1.19 1.04 1.12 1.01

Zimbabwe ................................................. 2.59 2.12 2.15 (1

) (1) (1)

Malawi....................................................... 1.87 1.86 1.60 1.10 1.14 1.13

Argentina................................................... 1.18 0.83 1.16 1.09 0.66 1.12 1 Not available. 

Source: Universal Leaf Tobacco Co., Supply & Demand, Sept. 2002 and Aug. 2003.
September/October 2004

Industry Trade and Technology Review Tobacco Quota Buyout

7 

Among international tobacco suppliers, Brazil has supplanted the United States as the world=s 

leading tobacco producer and exporter of flavor and semi-flavor tobacco.32 From 1990 to 2003, Brazil=s 

flue-cured production, its largest tobacco crop, more than doubled.33 As exports of U.S. leaf declined 

steadily over the last 2 decades to just over 400 million pounds in 2003, shipments from Brazil rose by 150 

percent to over 1 billion pounds (figure 3). Although Brazilian exports trended slightly downwards in 2003, 

expanded planting and increased yields are expected to increase Brazilian tobacco output substantially (by 

40 percent) in 2004 with exports forecast to reach over 1.6 billion pounds.34 The development of Brazil=s 

tobacco industry and certain other tobacco exporting countries has been facilitated by a handful of 

international tobacco dealers, many based in the United States, that have sought to diversify their sources 

of supply in order to provide the international tobacco industry with a wide variety of tobacco qualities at 

various prices. 

 In addition to strong competition from low-cost international suppliers, an important factor 

limiting U.S. tobacco exports is their concentration in just a few high-income markets, particularly Japan 

and the EU. In 2003, nearly two-thirds of U.S. flue-cured and 70 percent of U.S. burley exports were 

shipped to these high-income mature markets, which also are experiencing declining rates of cigarette 

consumption similar to the United States. In addition to requiring less tobacco as consumption falls, 

cigarette manufacturers in these markets are increasingly turning to lower-cost international tobacco 

suppliers. For example, the quantity of U.S. flue-cured tobacco exported to Japan declined by 75 percent 

over the last decade,35 and in 2002, Japan reportedly imported tobacco from Brazil for the first time.36 In 

most other nontraditional tobacco markets, importers are very price sensitive, and tend not purchase 

relatively expensive U.S. leaf. Consequently, the growth potential for U.S. tobacco exports to new markets 

where smoking rates are not declining is limited. 

 Cigarette Consumption and Manufacturing Trends 

The decline in U.S. cigarette exports also has negatively affected demand for U.S.-produced 

tobacco. Although the United States still remains the world=s leading exporter of cigarettes, U.S. exports 

have steadily declined since reaching their peak at over 200 billion units in 1996 (figure 4). U.S. exports 

have decreased to just over 100 billion units in 2003 and manufacturers are increasingly using higher 

proportions of more economical imported leaf combined with domestic tobacco, thus, further limiting 

demand for U.S. leaf tobacco. 

 In addition, declining U.S. cigarette consumption has been an important factor affecting the U.S. 

tobacco growing industry. By most measures, U.S. cigarette consumption has declined significantly during 

the last 2 decades. Since 1980, total domestic consumption of cigarettes fell by 200 billion units, a drop of 

one-third during 1980-2003. Per capita cigarette consumption similarly declined, falling from just under 

4,000 cigarettes per adult in 1980, to roughly 1,900 in 2003. 37 Further, the percentage of the U.S. 

population that smokes has also decreased, from well over one-third of the population in 1980 to about 

23 percent in 2001.38 

 Declining rates of U.S. cigarette consumption can be attributed to a variety of factors such as 

overwhelming scientific evidence that smoking causes disease, 39 increasing restrictions on cigarette 

marketing, prohibitions on smoking in public places, and a steep increase in cigarette prices. Rising 

cigarette prices are viewed by both the cigarette industry and antismoking advocates as having a critical 

dampening effect on smoking rates. During the last 2 decades, the average U.S. price for a pack of 

cigarettes increased 5-fold, rising from $0.60 in 1980 to $3.65 in 2002.40 Increased state and Federal excise 

taxes, and manufacturer price increases, have contributed to the escalation of cigarette prices.41

Cigarettes are one of the most highly taxed consumer products in the United States. During the last decade 

alone, Federal taxes increased by 62 percent to $0.39 per pack, generating revenues over $6 billion.42 State 
September/October 2004

Tobacco Quota Buyout Industry Trade and Technology Review

8 

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

1,000 pounds dry weight

United States Brazil

Figure 3

Unmanufactured tobacco: U.S. and Brazilian exports, 1980-2003

Source: U.S. Department of Agriculture (USDA), Economic Research Service (ERS), U.S.Tobacco Statistics, table 165: World 

tobacco leaf exports, selected countries, d-95, found at http://www.ers.usda.gov/data/sdp/view.asp?f=specialty/94012/, retrieved 

June 8, 2004; USDA, ERS, Tobacco Situation and Outlook, table 31: U.S. and world production and exports of flue-cured, burley, 

and all unmanufactured tobacco, 1955-99, TBS-248, Dec. 2000, pp. 43-44; USDA, ERS, Tobacco Situation and Outlook, table 9: 

U.S. exports of unmanufactured tobacco by types and to principal importing countries, TBS-2003, Dec. 2003, p. 25; USDA, 

Foreign Agriculture Service (FAS), Tobacco: World Markets and Trade, table 1: World's Leading Unmanufactured Tobacco 

Producing, Trading and Consuming Countries, FT-06-04, June 2004; and USDA, FAS, Tobacco: World Market and Trade 

Archives, table A: World Leaf Exports by Exporting Country, FT-12-00, Dec. 2000, found at 

http://www.fas.usda.gov/tobacco_arc.html, retrieved June 8, 2004.

0

100

200

300

400

500

600

700

800

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2003

Billion of units

Production Consumption Exports

Figure 4

Cigarettes: U.S. production, consumption, and exports, 1980-2003

Source: U.S. Department of Agriculture (USDA), Economic Research Service (ERS), Tobacco 

Situation and Outlook , table 1: Cigarettes: U.S. output, removals, and consumption, TBS-2003, 

Dec. 2003, p. 18.
September/October 2004

Industry Trade and Technology Review Tobacco Quota Buyout

9 

excise taxes have also risen markedly, more than doubling in the last 10 years to an average of $0.71 per 

pack in 2003.43 During 2002 and 2003, 26 states raised cigarette excise taxes,44 which ranged from a low 

of $0.03 in tobacco-producing Kentucky to a high of $2.05 in New Jersey.45 Sixteen states impose taxes of 

$1.00 per pack or more. Local jurisdictions, including cities and counties also levy cigarette excise taxes. 

New York City, for example, boosted its cigarette tax from $0.08 per pack in 2002 to $1.50, making the 

average retail pack of cigarettes cost $7.00. The twin goals of raising much needed revenues, while 

discouraging cigarette consumption, have made raising cigarette taxes an attractive policy instrument for 

state governments and local jurisdictions. 

Cigarette manufacturers have also contributed to the rising price of cigarettes, particularly after 

1998, due in part to fund the multibillion dollar MSA with state governments.46 Between, June 1990 and 

April 2002 (latest available), manufacturers increased wholesale cigarette prices approximately 30 times,47

with the price rising from $1.02 in 1990 to $2.76 in 2002 per 20 cigarettes.48 The combination of rising 

excise taxes and manufacturer wholesale price increases has led to a near doubling of the Consumer Price 

Index for cigarettes during the last 5 years.49 

Recent technological advancements in tobacco leaf processing and cigarette manufacturing have 

also made lower-cost imported tobacco more competitive with higher-cost and relatively higher-quality 

U.S. tobacco. Technological advancements include innovative tobacco flavoring and blending techniques, 

and the use of highly sophisticated filler products called “blend enhancers.”50 Lower-cost imported tobacco 

is often used in these new blends and to produce these filler products, and Ais considered an integral part of 

any quality and cost-effective American Blended cigarette.@

51 Consequently, the content of imported leaf 

in U.S. cigarettes has increased steadily, from 10 percent in 1960 to nearly one-half today. Moreover, 

whereas the classic American blended cigarette was composed of 80 percent flue-cured and burley 

tobaccos, cigarettes made with current manufacturing technology use as little as 53 percent of the leaf 

combined. Advances in cigarette manufacturing technology have not only affected the demand for U.S. 

leaf by domestic cigarette manufacturers, but have also contributed to declining U.S. tobacco exports as 

foreign manufacturers are using the same cost-saving manufacturing technologies. 

Tobacco Program Elimination Model Simulation52

Eliminating the Federal tobacco program likely would lower the price of U.S. tobacco, making it 

more competitive in the United States and world markets. Quantitative insights from economic modeling 

suggest how U.S. output and trade likely would be affected if the program were eliminated. 

 A partial equilibrium model was used to examine the effect on U.S. flue-cured and burley 

production and trade from eliminating the U.S. Federal tobacco program, which is simulated by removing 

quota license fees from the costs of tobacco production. The removal of the licence fee is modeled as the 

removal of a production tax equivalent to the price gap (price wedge) generated by the licence fee, 

estimated to be 32 percent for flue-cured and 26 percent for burley.53 As in Brown, Snell, and Tiller,54 the 

sensitivity in demand to price changes (price elasticity of demand) for U.S.-produced flue-cured tobacco is 

assumed to be -0.9 for the domestic market and -3.0 for the export market. For U.S. burley tobacco, the 

price elasticities are assumed to be lower at -0.1 and -1.5 for domestic and export demand, respectively.55

Price elasticities of demand are measures of price sensitivity, i.e. the percent change in quantity demanded 

when price changes by 1 percent. These demand elasticities were used along with the value of market 

shares in the base year of 2002 to derive the substitution and aggregate demand elasticities for flue-cured 

and burley tobacco. The modeling simulations also assume that the supply of flue-cured and burley 

tobacco in the long term is highly responsive to price changes (highly elastic), which is consistent with 

most industries, including the tobacco-growing sector.56
September/October 2004

Tobacco Quota Buyout Industry Trade and Technology Review

10 

The modeling simulation results suggest that elimination of the quota rental fees (e.g. eliminating 

the Federal tobacco program) would lead to a significant fall in the market price of U.S. flue-cured tobacco, 

and to a lesser extent, burley tobacco. The price of flue-cured would be anticipated to drop by 24 percent, 

while the price of burley would be anticipated to decline by 20 percent (table 3). Prices paid to growers 

(producer prices), however, would remain relatively unchanged according to the modeling simulations, 

owing to the assumption that tobacco producers are highly responsive to changes in price. 

Table 3 

U.S. flue-cured and burley tobacco: Anticipated economic results based on modeling simulations of quota 

license fee elimination from the 2002 baseline

Item Flue-cured Burley

––––––––––Percent change –––––––––

Market price ........................................................................................ -24.0 -20.5

Producer price..................................................................................... 0.3 0.1

Production........................................................................................... 25.9 11.2

Domestic shipments............................................................................ 21.6 2.0

Exports................................................................................................ 71.9 30.7

Imports ............................................................................................... -52.7 -36.0

The modeling results suggest that for flue-cured tobacco, the quantity produced would increase by 

26 percent from the 2002 baseline level. Domestic shipments would rise by 22 percent in quantity to meet 

higher demand from U.S. cigarette manufacturers because of the lower relative cost of U.S. flue-cured 

tobacco compared to imported leaf. The model results indicate that imports of flue-cured would fall by 

one-half as domestic cigarette manufacturers would replace some imports with more competitively priced 

domestically produced flue-cured. The drop in the market price of U.S. flue-cured would also make U.S. 

tobacco more competitive in price-sensitive world markets, such that the quantity of flue-cured exports 

would expand by an estimated 72 percent from the baseline 2002 level. 

Demand for burley tobacco is less responsive to price changes compared with flue-cured tobacco 

because it maintains a higher quality premium in the United States and world markets. Therefore, the 

changes from the baseline case are less dramatic. The model simulation suggests that the quantity of U.S. 

burley production would increase by 11 percent. However, because domestic demand for burley tobacco is 

less sensitive to changes in price (e.g. price inelastic), U.S. shipments to domestic cigarette manufacturers 

would increase by only 2 percent, resulting in an anticipated decline in imported burley of about 36 percent. 

Export markets for burley are also less price sensitive than flue-cured because of the quality premium. 

Consequently, although the quantity of U.S. exports of burley would rise by nearly one-third, the 

magnitude in export growth likely would be less than one-half the anticipated export growth for flue-cured 

tobacco. 

The model examines U.S. tobacco production and trade as a whole and does not specifically 

examine the variable cost structures of individual growers. It therefore does not provide implications on 

the number or size of tobacco farms that would remain by terminating the Federal tobacco program. 

However, assuming the price of U.S. tobacco approaches the marginal cost of production, many of the 

less-efficient farmers would be expected to exit the industry. Under a free market scenario, tobacco 

growing would likely shift away from high-cost production regions to lower-cost areas. Tobacco farm 

sizes would increase to take advantage of economies of scale, suggesting that consolidation would occur.57

In addition, the modeling simulation only considers relative price changes and market shares. Other 

relevant factors are difficult to assess in this quantitative analysis, for example, in export markets such as 

Japan, which have begun to import tobacco from Brazil, cigarette manufacturers may continue to import 

lower-cost leaf from alternative suppliers, even with U.S. tobacco becoming more price competitive under 

a free-market scenario.#
11

ENDNOTES

1. President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco 

Production while Protecting Public Health, Tobacco at a Crossroad, A Call for Action, Final Report, 

May 14, 2001. 

2. Thomas Capehart, U.S. Department of Agriculture (USDA), Economic Research Service (ERS), 

Tobacco Situation and Outlook Yearbook, Dec. 2003, table 29, p. 42. 

3. USDA, National Agricultural Statistics Service (NASS) Agricultural Statistics, 1998 and 2003. 

4. Marketing quotas are tied to the land. For more information, see the U.S. Tobacco Price Support 

Program section. 

5. President’s Commission on Improving Economic Opportunity in Communities Dependent on Tobacco 

Production while Protecting Public Health, Tobacco at a Crossroad, A Call for Action, Final Report, 

May 14, 2001. 

6. Tobacco quota buyout legislation passed both the House of Representatives and Senate in the Summer 

of 2004. The buyout legislation, attached to a major tax restructuring bill, “The American Jobs Creation 

Act of 2004,” HR 4520, passed out of conference committee and was signed by the President on October 

22, 2004 and became Public Law 108357. Under the law, termination of the Federal quota and price 

support system will be accompanied by buyout payments to quota owners and transition payments to 

tobacco farmers over a 10-year period. Owners of quota will be compensated $7 per pound based on the 

2002 marketing quota year. Tobacco farmers will also be compensated at a variable rate of between $3 and 

$1 per pound of quota during 2002-2004. The final buyout legislation did not include FDA regulation of 

the tobacco products industry. See Jasper Womach, summary of “Fair and Equitable Tobacco Reform Act 

of 2004” found at http://www.house.gov/agriculture/info/fsc%20eti%tobacco%20Summary.pdf, retrieved 

Nov. 11, 2004; and A. Blake Brown, “Summary of Tobacco Buyout in HR 4520,” Oct. 11, 2004, found at 

http://www.ces.ncsu.edu/depts/agecon/tobacco_econom/Buyout.html, retrieved Nov. 4, 2004. For full text 

of HR 4520, Title VI “Fair and Equitable Tobacco Reform” see http://frwebgate.access.gpo.gov/cgibin/getdoc.cgi?dbname=108_cong_bills&docid=f:h4520enr.txt.pdf, retrieved Nov. 9, 2004. 

7. Most Oriental tobacco used in American blend cigarettes originates from Turkey and to a lesser extent, 

the European Union (primarily Greece). 

8. Includes the world’s leading brand, Marlboro. Flue-cured tobacco is grown primarily in the sandy soils 

of the coastal and Piedmont areas of North Carolina and Virginia. Production of burley tobacco is centered 

in the limestone-rich soils of Kentucky and Tennessee. 

9. Curing is the process which removes moisture from the tobacco plant. 

10. Flue-cured tobacco derives its name from the traditional method of curing that relies on flues to 

circulate heat and remove smoke from the curing barn. U.S.-produced flue-cured is now cured with heat 

exchange technology to minimize the effects of carcinogenic tobacco-specific nitrosamines that were 

caused by the direct heat-source curing method. The addition of retrofitting barns with this expensive 

technology has added to the fiscal exposure of tobacco farmers in recent years. 

11. Flue-cured is also produced in South Carolina, Georgia, and Florida. Burley tobacco is also grown in 

North Carolina, Virginia, Ohio, Indiana, West Virginia, and Missouri. 

12. Flavor tobacco imparts taste and aroma characteristics to cigarettes and is contrasted with lower quality, 

filler-type tobacco. 

13. Primary competitors are Brazil and Argentina, which produce flavor and semi-flavor quality burley 

tobacco. 

14. This program is based on the first commodity support legislation enacted by Congress, the Agricultural 

Adjustment Act of 1933. The marketing quota and price support legislation was included in the 

Agricultural Adjustment Act of 1938 (P.L. 75-430). Jasper Womach, Tobacco Price Support: An Overview 

of the Program, Congressional Research Service (CRS) Report to Congress, updated June 10, 2004. 

15. Over 90 percent of growers (quota holders) regularly vote in favor of restricting output in exchange for 

price support. Will Snell, U.S. Tobacco Grower Issues, presentation to the USDA, Agricultural Outlook 

Forum 2003, Washington, DC, Feb. 2003. As the quota production rights represent economic rents, owners 

of quota have a vested interest in voting for continuation of the program. A. Blake Brown, William M. 

Snell, and Kelly Tiller, The Changing Political Environment For Tobacco - Implications for Southern 

Tobacco Farmers, Rural Economies, Taxpayers and Consumers, presented at the Southern Agricultural 

Economics Association annual meeting, Memphis, TN, Feb. 2, 1999. 
12

16. The traditional auction system has largely been replaced by direct contract production. Tobacco 

farmers are directly contracted by cigarette manufacturers and international leaf dealers. For both tobacco 

varieties, over 80 percent of production in 2003 was direct contracted. 

17. Flue-cured tobacco marketing quotas are based on acreage-poundage quotas; burley tobacco marketing 

quotas are based solely on poundage quotas. 

18. USDA, FSA staff, telephone interview by USITC staff, June 16, 2003. 

19. Ibid.; and Linda F. Foreman, “Tobacco Farmers’ Ownership and Rental of Tobacco Quota,” special 

article, Tobacco Situation and Outlook, Sept. 2001, pp. 43-51. 

20. USDA, FSA staff, telephone interview by USITC staff, June 16, 2003. 

21. The effective marketing quota is the amount that producers can sell during the marketing year. It is 

the basic quota adjusted for over or under marketings during previous marketing seasons. 

22. Tobacco farmers were required to invest in expensive new processing technology. Particularly for 

flue-cured tobacco, farmers were required to retro-fit curing barns with new heat-exchange technology as 

requested by cigarette manufacturers to reduce carcinogenic compounds created during the curing process. 

23. The U.S. Government does not collect data on tobacco quota lease rates. 

24. Kelly H. Tiller and Jennifer Brown, Proposed Tobacco Quota Buyout Legislation: Effects on 

Tennessee Tobacco Farms, presented at the Southern Agricultural Economics Association, annual meeting, 

Mobile, AL, Feb. 2-5, 2003. 

25. Will Snell, “Average Kentucky Burley Quota Lease Prices,” found at

http://www.uky.edu/Agriculture/TobaccoEcon/ slideshows/aug02ts0/aug02tso.ppt, retrieved June 18, 2003. 

26. A. Blake Brown, North Carolina State University (NCSU), e-mail message sent to USITC staff, 

July 29, 2003. 

27. The 1998 MSA between the tobacco products industry and state governments was a multibillion 

dollar settlement of a lawsuit brought about by 46 state attorneys general to compensate each participating 

state for health care costs incurred from disease caused by tobacco products. 

28. Phase II payments are funds paid by cigarette manufacturers and other tobacco products companies to 

tobacco producing states. These funds have been provided to active growers and quota holders as part of 

the MSA. 

29. Jasper Womach, Tobacco Quota Buyout Proposals in the 108th Congress, CRS, Aug. 4, 2003. 

30. A. Blake Brown, NCSU, interview by USITC staff, Washington, DC, July 1, 2003. 

31. USITC staff telephone conversation with industry representative, Mar. 12, 2004. 

32. China and India produce more tobacco, but most of this production is low-quality output for domestic 

consumption. 

33. Universal Leaf Tobacco Corp., “Supply and Demand,” Aug. 2002, found at 

http://www.universalcorp.com/Reports/SelectReport.asp?ID=725&Menu=Tob, retrieved July 16, 2003. 

34. USDA, Foreign Agriculture Service (FAS), Brazil Tobacco Products Annual 2004, GAIN Report No. 

BR4010, July 2, 2004. 

35. Compiled from official statistics of the U.S. Department of Commerce. 

36. Thomas Capehart, USDA, ERS, “U.S. Tobacco Industry Responding to New Competitors, New 

Challenges,” Amber Waves, Sept. 2003, p. 15. 

37. For the population 18-years-and-older, USDA, ERS, Table 2, AU.S. cigarette consumption per capita 

by persons 18 years and older and pounds of tobacco used in cigarettes (including overseas forces), 

1935-94,@ found at http://www.ers.usda.gov/data/sdp/view.asp?f=specialty/94012/, retrieved 

Sept. 17, 2004; and USDA, ERS, Tobacco Situation and Outlook, table 2, Apr. 23, 2003. 

38. Latest available data. Median smoking prevalence for states and the District of Columbia. Smoking 

prevalence by state ranged from 13.3 percent to 30.9 percent. Compiled from official statistics of the U.S. 

Centers for Disease Control, found at http://www.cdc.gov/tobacco/adultprv.htm, retrieved July 10, 2003. 

39. Cigarette manufacturers now acknowledge that cigarette consumption causes disease. Philip Morris, 

the largest U.S. and world cigarette manufacturer states that there is “overwhelming medical and scientific 

consensus that cigarette smoking causes lung cancer, heart disease, emphysema and other serious diseases 

in smokers. Smokers are far more likely to develop serious diseases, like lung cancer, than non-smokers. 

There is no “safe” cigarette.” Philip Morris, found at http://www.philipmorrisusa.com/-health, retrieved 

June 10, 2003. 

40. Inclusive of state tax but not local and sales taxes. 1980 data from “U.S. Historical Data, the Tax 

Burden on Tobacco, 1955-1997,” found at http://www.drugs.indiana.edu/drug_stats/cigtax_burden.html, 
13

retrieved July 10, 2003. Data on 2003 price per pack found at 

http://tobaccofreekids.org/research/factsheets/pdf/0097.pdf, retrieved July 10, 2003. 

41. Although the price of tobacco rose over the same period, tobacco’s share of the final cost of cigarettes 

is estimated to be only about 2 percent. Tommy J. Payne, R.J. Reynolds Tobacco Holdings, Inc., testimony 

before the House Committee on Agriculture, July 24, 2003. 

42. Tax Policy Center data found at 

http://www.taxpolicycenter.org/taxfacts/excise/excise_type.cfm#Page2, retrieved July 15, 2003. 

43. Thomas Capehart, USDA, ERS, Tobacco Situation and Outlook, Apr. 23, 2003. 

44. National Association of State Legislatures, data from the National Association of Convenience Stores, 

found at http://www.nacsonline.com/NACS/News/Daily_News_Archives/July2003/nd0703031.htm, 

retrieved Aug. 12, 2003. 

45. Federation of Tax Administrators, State Excise Tax Rates On Cigarettes, July 2003. 

46. For a summary and full text of the agreement see CRS, Report for Congress, 

http://www.ncseonline.org/NLE/CRSreports/Agriculture/ag-55.cfm, retrieved May 12, 2004. 

47. USDA, ERS, Tobacco Situation and Outlook, table 4, Apr. 23, 2003. 

48. Calculated with data from Thomas Capehart, USDA, ERS, Tobacco Situation and Outlook, table 4, 

Apr. 23, 2003. 

49. The Producer Price Index rose over 70 percent during the same period. U.S. Bureau of Labor 

Statistics, CPI series Id: CUUR0000SEGA0, PPI Series Id: WPS1521. 

50. These filler products include reconstituted tobacco, expanded tobacco, and cut-rolled expanded stems. 

“This trend in blending has allowed for optimum use of a wider range of leaf types and grades as well as 

maximum utilization of by-products-mixed stems, fines, scraps, slivers, reclaim shorts, and dust.” Fawky 

Abdullah, “Know-How Transfer,” Tobacco Reporter, Mar. 2003, pp. 60-65. 

51. Fawky Abdullah, ARecon=s New Role,@ Tobacco Reporter, May 2003. 

52. Based on modeling simulations conducted by George Serletis (Office of Industries, 202-205-3315) 

and James Fetzer (Office of Economics, 202-708-5403) unpublished USITC working paper. 

53. Calculated with data from Linda F. Forman, Production Costs and Returns for Tobacco in 2002, 

USDA, ERS, June 2004. 

54. Brown, Snell, and Tiller, The Changing Political Environment for Tobacco.

55. These elasticities were also assumed for foreign-produced tobacco in the U.S. and foreign markets. 

56. Long-run high elasticity of supply means that in the long-run, the factors of production, including 

capital and labor are highly mobile across economic sectors and will move in or out of industries in 

response to price changes. 

57. A. Blake Brown, Farm Level Effects an Increase in Federal Cigarette Taxes under Two Scenarios: 

Keep vs. Eliminate the Tobacco Program, p. 3, Mar. 9, 1998, found at 

http://www.ces.ncsu.edu/depts/agecon/tobacco_econ/-policy/Settlemen(3).pdf, retrieved June 10, 2004. 

September/October 2004

Industry Trade and Technology Review WTO Negotiations on Agriculture

15

WTO Agricultural Trade Negotiations: A

Fourth Update1

Jonathan R. Coleman* Joanna L. Bonarriva*

jonathan.coleman@usitc.gov joanna.bonarriva@usitc.gov

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

After 4 years of setbacks and intense negotiation beyond final implementation of the

Uruguay Round Agreement on Agriculture (URAA), a framework for further trade

liberalization of world agriculture among World Trade Organization (WTO) members has

been developed. The specific details on how quickly and to what extent reforms will be

undertaken are yet to be negotiated however, and a long period of discussion and debate is

anticipated before a final new WTO Agreement on Agriculture is reached. This article,

another in a series tracing the developments in the agricultural negotiations, covers the

period from the Doha Ministerial in November 2001 up to agreement in July 2004 on a

framework for opening markets to foreign competition, and reducing export subsidies and

trade-distorting domestic supports.

Recapping the Doha Ministerial

At the Fourth World Trade Organization (WTO) Ministerial2 in Doha, Qatar, on November 9-14,

2001, WTO members unanimously adopted a Ministerial declaration (the Doha Development Agenda, or

DDA) which launched a new comprehensive round of trade negotiations. Specifically, the DDA for

agriculture (box 1) included 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.”3

 The members also agreed that special and differential (S&D) treatment

for developing countries should be part of all elements of the negotiations, and that nontrade concerns

expressed in the negotiating proposals be taken into account in the negotiations.4

 The final Ministerial

declaration from Doha established an ambitious timetable for completing the agricultural negotiations. It was

agreed that modalities (trade rules)5

 for further commitments should be setup no later than March 31, 2003,

with the final negotiations to be completed by January 1, 2005.

The Run-Up to Cancun

Even though the discussions missed the March 31, 2003,6 deadline, discussions continued at a

technical level, aimed at ironing out differences. Technical discussions were held during April 2003-June

2003 on most key areas, including domestic support categories, tariffs, tariff-rate quotas (TRQs), export

credits, food aid, and S&D treatment for developing countries. In the July 2003 report of the Trade

Negotiations Committee (TNC), Chairman Stuart Harbinson noted that 11 technical consultations had taken

place and that progress had been made on several issues concerning rules and a framework for future 

* The views expressed in this article are those of the authors. They are not the views of the USITC as whole or of

any individual Commissioner. The authors are international trade analysts in the Agriculture and Forest Products

Division, Office of Industries. 
September/October 2004

WTO Negotiations on Agriculture Industry Trade and Technology Review

16

Box 1: 

Final Declaration from Doha Ministerial Conference, November 9-14, 2001.

Agriculture

13. We recognize the work already undertaken in the negotiations initiated in early 2000 under article 20 of the

Agreement on Agriculture, including the large number of negotiating proposals submitted on behalf of a total of 121

Members. We recall the long-term objective referred to in the Agreement to establish a fair and market-oriented trading

system through a program of fundamental reform encompassing strengthened 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 and without prejudging the outcome

of the negotiations we commit ourselves to comprehensive negotiations aimed at: substantial improvements in market

access; reductions 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 nontrade concerns reflected in the negotiating proposals submitted by Members

and confirm that nontrade 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 31 March 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. 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: World Trade Organization, Final Declaration from Doha Ministerial Conference, Nov. 9-14, found at 

http://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.htm#agriculture.

modalities. Progress had also been made at several “mini-Ministerials,” that brought together trade negotiators

from key countries to discuss proposals and policy differences.7

 However, no consensus was reached on

specific targets for trade reform. Several observers indicated that this was a period when there was a lack of

political direction as to how far and how fast governments would be willing to go.8

 Progress also was slow

as a result of the delayed announcement by the European Union (EU) of Common Agricultural Policy (CAP)

reform (box 2), which would greatly affect the EU negotiating position in the WTO agricultural negotiations.9

With no agreement on the Harbinson modalities document, the Chairman of the WTO General

Council, Carlos Pérez de Castillo, released on July 18, 2003 an initial draft of the Cancun Ministerial

declaration.10 The draft covered all areas in the Doha declaration, but contained no modalities or schedule for

trade reforms, and it was agreed that a modalities framework be attached to the draft Cancun Ministerial text

once agreement on these points had been reached.

Reaching agreement on such a modalities framework proved elusive. The Cancun Ministerial

concluded with both developing and developed countries reportedly unwilling to move from their positions

(see “The Cancun Ministerial” summarized later), and agreement on a framework for establishing modalities

could be reached only at the end of the WTO General Council Meeting and adopted on August 1, 2004 (see

later section describing the framework).
September/October 2004

Industry Trade and Technology Review WTO Negotiations on Agriculture

17

Box 2: 

Reform of the European Union’s Common Agricultural Policy

On June 23, 2003, major reforms of the Common Agricultural Policy (CAP) were announced that would significantly

alter how farmers are supported in the European Union (EU). The main thrust of the reforms involve decoupling the

majority of farm payments from production, thereby providing farmers flexibility to produce for the market rather than

in response to government programs. Under this reform, a new single farm payment (SFP) scheme will be introduced,

where payments are linked to farm practices, such as maintaining environmental, food safety, and animal welfare

standards. In addition, reforms in the CAP with respect to certain commodities were also introduced. The legal texts

were formally adopted at the Agriculture Council of September 2003, and most of the new programs will be introduced

during 2004 and 2005, with some countries being allowed flexibility to complete implementation by 2007.

The reforms were made in order to control production and the budgetary cost of the CAP and to strengthen the EU’s

negotiating position within the agricultural negotiations. In particular, most of the SFP would be considered a “greenbox” (non-trade-distorting) payment under WTO rules. Thus the trade-distorting domestic supports by the EU will be

significantly curtailed, allowing EU negotiators more flexibility to gain concessions in other areas.

Specific elements of the CAP reform include:

 (i) SFP for EU farmers, mostly decoupled from production; 

 (ii) Part of the SFP may be linked to production, provided farmers comply with environmental, food safety,

 animal and plant health, and animal welfare standards, and that they keep farm land in good condition;

 (iii) Widening of rural development schemes to assist farmers in meeting environment, quality, and animal

 welfare production standards by 2005;

 (iv) Expanded rural development programs to be financed by reductions in direct payments ("modulation")

 received by larger farms;

 (v) A mechanism to control farm spending in order to meet EU agricultural budget targets (farm budget is

 fixed until 2013); and

 (vi) Revisions to the market policy of the CAP: 

 (a) intervention prices for butter and skim milk powder cut by 25 and 15 percent, respectively, over 4

 years;

 (b) A 50-percent reduction of the monthly increments in the cereals sector, while maintaining current

 intervention prices; and

 (c) Rice, durum wheat, nuts, starch potatoes, and dried fodder sectors also subject to reform.

Source: European Commission, “CAP Reform—a Long-Term Perspective for Sustainable Agriculture,” found at 

http://europa.eu.int/comm/agriculture/capreform/index_en.htm.

Comparison of Proposals in the Three Major Pillars

The EU-U.S. Joint Paper11

A breakthrough in negotiations came on August 13, 2003, when the EU and United States released

a joint proposal was released. This paper covered approaches to trade reform that would fulfil the DDA

mandate for “substantial improvements in market access; reductions, with a view to phasing out, all forms

of export subsidies; and substantial reductions in trade-distorting domestic support.” The paper also provided

a negotiating framework for these three major pillars (market access, export competition, and domestic

support), but it did not include specific numbers or deadlines. It also identified “issues of interest but not

agreed,” including the peace clause, nontrade concerns, implementation period, sectoral initiatives,

continuation clause, and geographical indications.12, 13

Specific details of the EU-U.S. joint paper are outlined below, and a comparison of its treatment of

key issues with other specific proposals in each of the three major pillars is summarized in tables A1-A3 in

the Annex at the end of this article.
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Market Access

Tariff reduction formula

• A combination (or blend) of methods for increasing market access that would apply to both developed

and developing countries. Specifically:

(i) [ ]14 percent of tariff lines to face a [ ]-percent average tariff cut and a minimum of [ ] percent, with

the most import-sensitive products (i.e., those facing the minimum tariff cut) market access to

increase through both tariff cuts and TRQ quantity increases;15

(ii) [ ] percent of tariff lines to face cuts determined by a Swiss formula with a coefficient of [ ];16 and

(iii) [ ] percent of tariff lines to become duty-free. 

Other tariff issues

• To address tariff peaks,17 tariffs exceeding a maximum of [ ] percent to be either lowered to that

maximum, or countries to provide increased market access through a request/offer approach that might

include TRQs.

• Tariff escalation not mentioned.

• Special agricultural safeguards (SSGs)18 to remain open for discussion.

S&D treatment for developing countries

• Special agricultural safeguard mechanism (SSM) to be created for import-sensitive products of

developing countries.

• Developed countries to provide duty-free access for at least [ ] percent of imports from developing

countries.

• Developing countries to be subject to lower tariff-reduction commitments and longer periods to

implementing reforms (as in the URAA).

Export Competition

Export subsidies

• Export subsidies to be eliminated over a [ ]-year period for those products of particular interest to

developing countries.

• For other products, subsidy quantities and budgetary outlays to be reduced (although not eliminated).19

Export credits

• Subsidy component of export credits to be phased out (by requiring repayment terms to conform with

commercial practice) for those same products of particular interest to developing countries and over the

same implementation period as export subsidies.

• For other products, export credit subsidies to be subject to trade rules in a manner consistent with

reductions in export subsidies. 

State trading enterprises

• Controls to be placed on the practices of export-oriented state trading enterprises (STEs) (such as ending

financing and single-desk export privileges, and monopoly pricing) that might result in providing

subsidies to exports. 

Food aid

• Provisions to be introduced that would prevent food aid shipments from displacing commercial sales.
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S&D treatment for developing countries

• S&D treatment with respect to export subsidies to be recognized, however, some net food-exporting

countries to be required to face less comprehensive S&D treatment.

Domestic Support

The EU-U.S. joint paper called for developed countries to reduced their levels of domestic support for

their farmers significantly below the levels under the URAA, and that countries that provide greater support

be required to make greater commitments to cut such supports.

Amber box

• Amber box (trade-distorting) domestic support to be reduced within a range of [ ] to [ ] percent.

Blue box

• Blue-box programs (referred to in the EU/U.S. paper as less trade-distorting domestic support) to be

redefined to include:

(i) payments based on fixed areas and yields,

(ii) Payments made on 85 percent or less of the base level of production, and

(iii) Livestock payments made on a fixed number of head.20

• Less trade-distorting domestic support expenditures to be reduced to no more than 5 percent of the value

of agricultural production by the end of the implementation period.

De minimis21

• De minimis support to be reduced by [ ] percent.

Combined support

• The sum of trade-distorting domestic support, less trade-distorting domestic support, and de minimis to

be reduced significantly below the 2004 level of support under the existing amber box, blue box, and de

minimis.

Green box22

• Green-box (non-trade-distorting) support not mentioned.

S&D treatment for developing countries

• S&D treatment for domestic support not specified.

The G-20 Framework Proposal23

On August 20, 2003, a group of 20 developing countries released a counter proposal to the EU-U.S.

paper. Like the EU-U.S. proposal, the G-20 framework covered the three pillars, but also included more

specific detail on S&D treatment for developing countries. Specific details of the G-20 framework proposal

are outlined below, and a comparison of its treatment of key issues with other specific proposals in each of

the three major pillars is summarized in tables A1-A3 in the annex at the end of this article.

Market Access

The G-20 framework captured several aspects of the EU-U.S. text for market access modalities, except

that it made strong distinctions between developed and developing country commitments. 
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Tariff reduction formula

• For developed countries, tariff reduction to be based on a blend approach, including:

(i) [ ] percent of tariff lines to be subject to a [ ]-percent tariff cut,24

(ii) [ ] percent of tariff lines to be reduced through a Swiss formula with a coefficient of [ ], and

(iii) [ ] percent of tariffs to be made duty-free. 

Other tariff issues

• To address tariff escalation, a factor of [ ] to be applied to the tariff-rate cut of any processed product, if

the tariff on the processed products is higher than the tariff of the product in its unprocessed form.

• Tariffs exceeding a maximum of [ ] percent to be lowered to that maximum.

• TRQ quantities to be increased to [ ] percent of domestic consumption.

• In-quota tariffs to be eliminated.

• Rules governing TRQ administration to be introduced.

• SSGs for developed countries to be eliminated.

S&D treatment for developing countries

• Developing countries to face lower tariff reductions and longer implementation periods. 

• Special products (SPs) to be designated that would receive exemption or relief from the reforms. The

formula applicable for tariff reductions to be as follows:

(i) all tariffs would face a [ ]-percent cut on average, with a minimum of [ ] percent; and

(ii) developing countries not required to increase TRQ quantities or eliminate in-quota tariffs. 

• For developing countries, SSM to be established.

• For developed countries, duty-free access to be provided to agricultural products that account for no less

than [ ] percent of their imports from developing countries.

• For developed countries, tariffs to be removed on all tropical product imports (and others mentioned in

the Preamble of the URAA). 

Export Competition

Export subsidies

• Export subsidies on products of particular interest to developing countries to be phased out over [ ] years.

• Export subsidies on other products to be phased out over [ ] years.

Export credits

• Export credits, guarantees, and insurance programs to be subject to a rules-based approach that would

include identification and elimination of the subsidy component of these programs.

State trading enterprises

• STEs to be subject to disciplines. 

Food aid (same as EU-U.S. joint paper)

• Provisions to be introduced that would prevent food aid shipments from displacing commercial sales.

S&D treatment for developing countries

• Continuation of the URAA provisions (paragraph 9.4) that developing countries be exempt from

commitments on export subsidies that:

(i) Reduce the costs of marketing exports of agricultural products (other than widely available export

promotion and advisory services), including handling, upgrading and other processing and

international transport and freight, and

(ii) Reduce the internal transport and freight charges on export shipments, provided or mandated by

governments, on terms more favorable than for domestic shipments.
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Domestic Support

Amber box

• All forms of trade-distorting domestic support to be reduced on a product-by-product basis by between

[ ] and [ ] percent, with the range of no more than [ ] percentage points.

• Products subject to above-average domestic supports to face the upper levels of reduction requirements.

• Exported products receiving domestic support and accounting for more than a specified share of world

exports, to face domestic support reductions at the upper levels of the reduction range, and such support

to be phased out over time.

• In the first year of implementation, trade-distorting domestic-support reductions would be at least

[ ] percent, regardless of the product category.

Blue box

• Blue box to be eliminated.

De minimis (same as EU-U.S. joint paper)

• Developed countries to reduce their de minimis support by [ ] percent.

Combined support

• The sum of amber box and de minimis support to be cut at least [ ] percent.

Green box

• Green-box payments by developed countries to be capped and/or cut. 

S&D treatment for developing countries

• The scope of Article 6.2 of the URAA25 to be widened to include focused and targeted programs.

• Developing countries exempt from de minimis reduction requirements.

The Pérez del Castillo Text26

On August 24, 2003, Chairman Carlos Pérez del Castillo and WTO Director-General Supachai

Panitchpakdi submitted their draft Cancun Ministerial Declaration to ministers, that included a framework

for establishing modalities in agriculture. This text was based largely on the EU-U.S. paper and the G-20

proposal, as well as other proposals from WTO members.27 Specific details of the Castillo text are outlined

below, and a comparison of its treatment of key issues with other specific proposals in each of the three major

pillars is summarized in tables A1-A3 in the annex at the end of this article.

Market Access

The Castillo text used many of the market access provisions included in the EU-U.S. paper, while

incorporating the strong distinction between developed and developing countries from the G-20 framework.

Tariff reduction formula (same as EU-U.S. joint paper)

• For developed countries, tariffs to be reduced based on a blended-formula approach, including:

(i) [ ] percent of tariff lines to be lowered by an average of [ ] percent, with a minimum cut for each tariff

line of [ ] percent, and for these most import-sensitive items, market access increases to be a result

of both tariff cuts and TRQ increases;

(ii) [ ] percent of tariffs to be cut based on a Swiss formula with a coefficient of [ ]; and

(iii) A certain percent of tariff lines to be made duty-free. 
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Other tariff issues

• For developed countries, tariffs above a maximum of [ ] percent to be lowered to that maximum or

additional market access to be provided through an expansion of TRQ quantities.

• Tariff escalation to be addressed (no specific modalities mentioned).

• SSGs use and duration to be negotiated (no specific modalities mentioned).

S&D treatment for developing countries

• For developing countries, tariff reduction to be based on a three-tiered approach involving:

(i) [ ] percent of tariffs to face a [ ]-percent average cut and [ ]-percent minimum cut; and for the importsensitive products subject to the minimum cuts, growth in market access to result from both tariff cuts

and TRQ increases. In this tier, developing countries to be allowed to designate SPs on which tariffs

would not have to be lowered beyond a minimum of [ ] percent, and for which commitments on

additional TRQs quantities would not be required;

(ii) [ ] percent of tariffs to face a [ ]-percent average cut and [ ]-percent minimum cut; and

(iii) [ ] percent of tariffs to face a [ ]-percent average cut and [ ]-percent minimum cut.28

As an alternative to (ii) and (iii) above, [ ] percent of tariff lines to be subject to a Swiss formula with a

coefficient of [ ]. 

• SSM to be established for use by developing countries for specified products, under unspecified

conditions.

• For developed countries, tariffs to be removed from at least [ ] percent of imports from developing

countries.

Export Competition

Export subsidies (same as EU-U.S. joint paper)

• Export subsidies to be eliminated over a [ ]-year period on products that are of special interest to

developing countries.

• For other products, export subsidy reduction, with a view to phasing out29 budgetary and quantity subsidy

allowances.

Export credits

• Subsidy component of export credits to be phased out (by requiring repayment terms to conform with

commercial practice) for those same products of particular interest to developing countries and over the

same implementation period as export subsidies.

• For other products, export credit to be disciplined in order to reduce, with a view to phasing out, the

subsidy element of export credit programs.

State trading enterprises

• Disciplines on export subsidies and credits would also apply when such measures are provided either

directly or indirectly through STEs.

Food aid (same as EU-U.S. joint paper)

• Provisions to be introduced that would prevent food aid shipments from displacing commercial sales.

Other provisions

• Measures covering export restrictions and prohibitions (Article 12 of the URAA) to be introduced.
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S&D treatment for developing countries

• The S&D component for export competition to include a longer implementation period for reducing and

phasing out of export subsidies by developing countries.

• Continuation of the URAA provisions that developing countries be exempt from commitments on export

subsidies that:

(i) Reduce the costs of marketing exports of agricultural products (other than widely available export

promotion and advisory services), including handling, upgrading and other processing, and

international transport and freight; and

(ii) Reduce the internal transport and freight charges on export shipments, provided or mandated by

governments, on terms more favorable than for domestic shipments.

• Export credit disciplines to be established that provide for differential treatment in favor of

least-developed and net food-importing developing countries. 

Domestic Support

For domestic support, the Castillo text followed the EU-U.S. paper rather closely with a few

exceptions. Castillo proposed that all developed countries should reduce amber box support by significantly

more than during the Uruguay Round. 

Amber box

• Under the proposal, the bound total Aggregate Measure of Support (AMS) would be lowered by a range

between [ ] and [ ] percent.

Blue box

• Blue-box programs to be redefined to include:

(i) Payments based on fixed areas and yields,

(ii) Payments made on 85 percent or less of the base level of production, and

(iii) Livestock payments made on a fixed number of head.

• Blue box-type support would be lowered in two steps. First it would be reduced to 5 percent of the 2000-

02 average value of agricultural production by the year [ ], and then, second, it would be reduced by

[ ] percent annually for a further period of [ ] years.30

De minimis (same as EU-U.S. joint paper)

• De minimis to be lowered by [ ] percent.

Combined support

• Total AMS support, blue box, and de minimis support to be lowered in an initial period to a level

substantially lower than the sum of these three from their 2000 levels (compared with 2004 levels in the

EU-U.S. paper). 

Green box

• Green-box payments to remain under negotiation. 

S&D treatment for developing countries

• Allowance for lower amber-box reductions and longer implementation periods.

• Special treatment to be provided as in Article 6.2 of the URAA31 and with respect to the green box.

• Exemption from lowering the de minimis level of support.
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Other Provisions

Among other provisions, the Castillo text proposed that least-developed countries should be exempt

from reduction commitments, and that the goal of duty-free and quota-free market access for products

originating from least-developed countries should be expedited. The Castillo text also identified several issues

of interest by not agreed upon, such as product-specific AMS commitments, mechanisms for increasing TRQ

quantities, in-quota tariff rates, single-desk export privileges, export taxes, nontrade concerns, implementation

period, sectoral initiatives, peace clause, and geographical indications.

The Cancun Ministerial

Proceedings

The Cancun Ministerial, the fifth official Ministerial-level conference to be held since the WTO was

created in 1995, took place in Cancun, Mexico, during September 10-14, 2003. The mandate for this meeting,

established at Doha, was to assess the progress to date in the DDA negotiations, provide political guidance,

and make decisions as necessary to move forward. The structure of the 5-day Ministerial provided for

working groups covering the following areas: agriculture; nonagricultural market access; development;

Singapore issues (i.e., trade facilitation, investment, competition, and transparency in government

procurement); and miscellaneous issues.32 Each working group was led by a facilitator who met daily with

Heads of Delegations to provide substantive reports on progress. While all working groups met

simultaneously, events leading up to the Ministerial made it clear that the pace of the overall negotiations

would be set by the progress made in the agriculture working group.33 For example, on the eve of the meeting,

a group of 21 developing countries (G-21)34 declared that success in Cancun would depend on the progress

made according to their specified goals for agriculture,35 and as the Ministerial got underway, several

Members indicated that their offers in other areas of the negotiations were contingent on progress in the

agricultural talks.

The Castillo text developed prior to the Ministerial outlined the decisions that needed to be made in

all areas of the negotiations and served as the basis for the talks. Recall that the portion of that draft dealing

with agriculture, drawn largely from the August 2003 EU-U.S. joint paper, instructed the agriculture working

group to reach agreement on the parameters for negotiating new formulas for cutting tariffs and subsidies for

agriculture products. Additional agriculture issues, such as the extension of the peace clause and provisions

for geographical indications, were also identified for possible discussion.36

The day before the Ministerial officially began, the G-21 formally requested that the G-20 proposal37

be circulated as a formal document to the Ministerial. As mentioned above, this proposal called for more

restrictions on trade-distorting subsidies for developed countries and less significant market access

concessions for developing countries. The G-21 submission was the only formal counterproposal to the

Castillo text, and thus the significant differences between the two documents served as a starting point for

negotiations on agriculture. As the Ministerial got underway, G-21 representatives met with their U.S. and

EU counterparts separately to provide them with a better understanding of their position. Subsequently, the

United States raise the concern that whereas the G-21 countries had articulated many demands, they had not

indicated where they were willing to move on their own positions.38 For its part, the EU rejected the G-21

proposal as imbalanced and indicated that strong developing-country agricultural exporters (such as Brazil)

benefit too much from the proposal.39

Another key development at the start of the Ministerial was the “cotton initiative” proposed by four

West and Central African (WCA) countries of Benin, Mali, Chad, and Burkino Faso.40 Prior to the start of
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the Ministerial, these countries had proposed that the WTO address the rapid elimination of cotton subsidies

that distort prices and negatively affect the livelihoods of millions of poor African farmers who depend on

the commodity for export.41 As a result, a sectoral initiative on cotton became a formal item on the Ministerial

Agenda by being included in the draft Ministerial declaration.42 During Cancun, the initiative was

successfully linked to the overall agricultural discussions when Director-General Supachai led discussion of

the topic in the Ministerial=s opening plenary session. In the following days, he served as facilitator for

negotiations on the topic between WCA countries and other key players, namely the United States and the

EU.43

In its discussions with WCA countries, the United States refused to focus on cotton subsidies directly

but instead suggested that the solution lay in addressing distortions in the cotton/man-made

fibers/textiles/clothing sector as a whole.44 The U.S. position was that by making efforts to diversify their

economies into textiles, WCA countries could benefit from preferential access to the U.S. market under the

African Growth and Opportunity Act (AGOA).45 The EU, on the other hand, showed some early support for

the WCA cotton initiative by stating its willingness to consider the elimination of trade-distorting domestic

support and export subsidies for cotton and offering duty-free and quota-free market access for all cotton

products from developing countries. This EU position reflected its existing leverage in this area owing to its

lack of export subsidies for cotton and the recent CAP reforms that shift cotton subsidies to the green box.

In addition, the EU already provides quota-free and duty-free access to most developing-country exports.46

In the various agriculture working group sessions, members generally restated their positions with

respect to market access, export assistance, and domestic support.47 The United States indicated its willingness

to adjust domestic support in return for increased market access to the EU, Japan, and other developed

countries. The EU also reiterated its position on increased protections for geographic-specific product names

(geographical indications), and the recognition that direct payments for upholding environmental production

standards be considered non-trade-distorting. Other Members, such as Canada, expressed some sympathy for

the G-21 position that developing countries should not have to further open their markets. Canada also

stressed the elimination of export subsidies by an agreed upon date, the reduction of trade-distorting domestic

support, and improved market access. However, Canada indicated that it was not interested in providing for

special status for products with geographical indications.48 After 2 days of talks, Members had shown little

movement from their originally stated positions in agriculture and consensus in any area remained elusive.49

This early lack of progress in agriculture, combined with the WCA country demands on cotton and G-21

insistence on S&D treatment, began to affect other areas of the negotiations, where Members held back

concessions pending movement in the agriculture talks. 

Marked divisions between the United States and the EU continued on the third day of the 5-day

ministerial.50 In an effort to move negotiations forward, the United States agreed to the EU position on

extending the peace clause, although significant divisions remained in other areas. For instance, the EU called

on the United States to agree to domestic support reductions from the 2002 Farm Bill that would match those

of the CAP reform, and to put disciplines on export credit programs comparable to EU reductions on export

subsidies. Conversely, the United States called for worldwide domestic support to be harmonized which

would require the EU to make steeper cuts because the EU subsidy ceiling is higher than that of the United

States as a result of the URAA.

Bolstered by the success of the G-21 and the WCA in gaining sympathy for their negotiating

positions, two other alliances emerged on the fourth day of the Ministerial. First, a group of 33 developing

countries (including the Dominican Republic, Honduras, Kenya, Nicaragua, Panama, and Sri Lanka) formed

around an initiative to include a list of protected and self-designated SPs and a SSM for developing

countries.51 Second, countries belonging to the African Union (AU), the African, Caribbean, and Pacific

(ACP) countries (former EU colonies enjoying preferences in the EU market), and other least-developed

countries joined a proposal for the introduction of self-designated SPs, a SSM, the preservation of existing
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preferential access schemes, as well as a market access formula to target high tariffs, tariff peaks, and tariff

escalation.52

The Derbez Text53

On the penultimate day of the Ministerial, Conference Chairman, Mexican Foreign Minister Luís

Ernesto Derbez issued a new draft declaration that contained a revised annex outlining a framework for

establishing modalities in agriculture.54 This text was based on the Castillo text, although it also contained

revisions that reflected discussions at Cancun, as well as new papers covering specific aspects of the Castillo

draft.55 However, it contained no numerical targets or timeframes.

Changes to the text reflected an approach to provide something for everyone. For instance, in

response to key demands of the G-21, it was proposed that domestic support be capped on a product-specific

basis and measures for S&D treatment of certain SPs given to developing countries. On domestic support,

the new text favored the EU by retaining the concept of the blue box, while favoring large agricultural

exporters (such as Brazil and the Cairns Group countries) by calling for green-box criteria to be reviewed and

disciplined. Flexibility would be given to developed countries with respect to products designated on the basis

of non-trade concerns, a position of the G-10 countries.56 The Derbez text proposed extending the peace

clause in the short term, which had been advocated by the EU and recently agreed to by the United States.

Specific details of the Derbez text are outlined below, and a comparison of its treatment of key issues with

other specific proposals in each of the three major pillars is summarized in tables A1-A3 in the Annex at the

end of this article.

Market Access

Tariff reduction formula

• For developed countries, tariff reduction to be based on a three-tiered approach:

(i) [ ] percent of tariff lines to be reduced an average of [ ] percent and a minimum of [ ] percent

(market access expansion for such import-sensitive tariff lines to be from both tariff cuts and

TRQ volume increases),

(ii) [ ] percent of tariff lines to be lowered according to a Swiss formula with a coefficient [ ], and

(iii) [ ] percent of tariff lines would to become duty-free.

• For developed countries, tariff cuts to result in a simple average tariff reduction for all agricultural

products of not less than [ ] percent.57

Other tariff issues

• A maximum tariff of [ ] percent to be imposed on developed countries, who must either lower tariffs

to the maximum, or ensure additional market access in these or other areas through a request/offer

process that could include TRQs.

• Members to be allowed to designate a very limited number of products on the basis of nontrade

concerns that would only be exempt from the maximum tariff commitment. 

• To address tariff escalation, a factor of [ ] to be applied to the tariff reduction required for a processed

product in situations where the tariff on the processed products is higher than the product in its

unprocessed form. 

• In-quota tariffs to be reduced by [ ] percent.

• SSGs use and duration to be negotiated (no specific modalities mentioned).
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S&D treatment for developing countries

For developing countries, tariff reduction to be based on a three-tiered approach involving:

(i) [ ] percent of tariffs to face a [ ]-percent average cut and [ ]-percent minimum cut; and for the

import-sensitive products subject to the minimum cuts, growth in market access to result from

both tariff cuts and TRQ increases. In this tier, developing countries would be allowed to

designate SPs on which tariffs would not have to be lower beyond a minimum of [ ] percent, and

for which commitments on additional TRQs quantities would be not required; where tariffs are

very low (less than [ ] percent) no tariff reductions would be required;

(ii) [ ] percent of tariff lines to be reduced according to a Swiss formula with a coefficient of [ ]; and

(iii) [ ] percent of tariff lines to be bound between 0 and 5 percent, taking into account the importance

of tariffs as a source of revenue for developing countries.

• For developing countries, additional time period of [ ] years to be allowed for implementing tariff

cuts in (ii) and (iii) above.

• SSM to be established for use by developing countries for specified products.

• All developed countries to provide duty-free access for no less than [ ] percent of imports from

developing countries (in particular tropical products).

• Members required to consider the importance of preferential access arrangements for developing

countries.

Export Competition

Export subsidies

• Export subsidies to be eliminated over a [ ]-year period for those products of particular interest to

developing countries. A list of these products to be established that would be part of the a country’s

comprehensive draft of commitment schedules. Export subsidy elimination of these specific products

would take place over [ ] years. 

• For other products, export subsidy reduction, with a view to phasing out58 budgetary and quantity

subsidy allowances.

Export credits (same as Castillo text)

• Subsidy component of export credits to be phased out (by requiring repayment terms to conform with

commercial practice) for those same products of particular interest to developing countries and over

the same implementation period as export subsidies.

• For other products, export credit to be disciplined in order to reduce, with a view to phasing out, the

subsidy element of export credit programs.

State trading enterprises (same as Castillo text)

• Disciplines on export subsidies and credits to be applied when such measures are provided either

directly or indirectly through STEs.

Food aid (same as EU-U.S. joint paper)

• Provisions to be introduced that would prevent food aid shipments from displacing commercial sales.

Other provisions

• Measures covering export restrictions and prohibitions (Article 12 of the URAA) to be introduced.

S&D treatment for developing countries (same as Castillo text)

• The S&D component for export competition to include a longer implementation period for reducing

and phasing out export subsidies by developing countries.
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• Continuation of the URAA provisions that developing countries be exempt from commitments on

export subsidies that:

(i) reduce the costs of marketing exports of agricultural products (other than widely available export

promotion and advisory services), including handling, upgrading and other processing, and

international transport and freight; and

(ii) reduce the internal transport and freight charges on export shipments, provided or mandated by

governments, on terms more favorable than for domestic shipments.

• Export credit disciplines to be established that provide for differential treatment in favor of

least-developed and net food-importing developing countries. 

Domestic Support

The Derbez text called for developed countries to reduce their domestic support significantly more

than in the Uruguay Round, and that Members with the higher trade-distorting subsidies make greater cuts.

Amber box

• For developed countries, amber-box expenditures to be reduced to a range of [ ] to [ ] percent.

• Amber box support for individual products to be capped at their levels during the period of [ ] years.

Blue box (same as Castillo text)

• Blue-box payments59 to be lowered to 5 percent or less than the total value of agriculture production

in the 2000-2002 period by the year [ ], and thereafter blue-box support to face linear annual

reductions of [ ] percent for [ ] years. 

De minimis (same as EU/U.S. joint paper)

• De minimis to be reduced by [ ] percent. 

Combined support

• The sum amber-box, blue-box, and de minimis support in 2000 to be reduced no less than [ ] percent,

including a reduction of [ ] percent during the first implementation year. 

Green box

• Green-box criteria to be revised in order to ensure that the trade-distorting impact on production

of such measures is minimal. 

S&D treatment for developing countries (same as Castillo text)

• Allowance for lower amber-box reductions and longer implementation periods.

• Special treatment to be provided as in Article 6.2 of the URAA60 and with respect to the green box.

• Exemption from lowering the de minimis level of support.

Other Provisions

The Derbez text would allow least-developed countries to be exempt from reduction commitments,

and would require developed countries to afford duty-free and quota-free market access to products exported

from least-developed countries. The text provided for continuation of the peace clause for [ ] months. Several

issues which countries continue to have substantial disagreement were identified in the Derbez text. They

include single-desk export privileges, export taxes, proposals for flexibility for certain groupings, certain

non-trade concerns, implementation period, sectoral initiatives, inter-pillar linkages, continuation clause,

geographical indications, and other detailed rules.
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The Cotton Initiative

All Members disagreed strongly with at least some aspects of the agriculture draft, especially WCA

countries concerned that the draft adopted the U.S. position regarding the sector initiative on cotton.61 The

text called on developing-country cotton producers to address the market distortions in the cotton/synthetic

fibers/textiles/clothing sector as a whole, and for compensation in the form of resources from relevant

international organizations to encourage economic diversification. The section contained nonbinding language

urging cotton-subsidizing countries not to use the discretion provided for on domestic subsidy allocation to

avoid reducing supports for cotton. Strong dissent expressed by WCA countries and their supporters lead to

overnight negotiations resulting in a complete redraft of the cotton text, which required Members, within 3

months, to take measures to eliminate export subsidies for cotton in 3 years and production subsidies for

cotton in 4 years starting in 2005. It also provided for the creation of a transitional fund for cotton-producing

and -exporting least-developed countries with a working group to explore methods of financing.62

Outcome

On the last day, sessions were scheduled to discuss whether and how to address the Singapore issues

to be followed by a session on agriculture. Chairman Derbez reportedly determined that more of a consensus

existed on agriculture and therefore decided to address Singapore issues first.63 However, this approach did

not anticipate the resolve of certain countries to proceed with all four Singapore issues as a package and of

certain other Members (particularly developing countries) to exclude one or more of the four issues from the

talks altogether. After different developing countries expressed unwillingness to move from their positions,

Chairman Derbez formally closed the Ministerial with no agreement on Singapore issue text and no further

discussions on agriculture.64

After Cancun

After the breakdown of the talks in Cancun, the momentum of the negotiations appeared all but lost

according to many observers.65 The EU made public statements that it would enter an “internal period of

reflection” regarding its trade policy, whereas the United States publicly stated that it would focus on its own

regional and bilateral agreements with countries that were willing to constructively negotiate.66 Without the

momentum of the two largest trading blocks, the WTO process appeared to be at a standstill. Throughout

November and December, the EU and United States made public statements calling on other WTO members

(particularly major agriculture-exporting, developing countries) to make concessions.67 However, there was

little movement on country positions throughout the rest of the year. In fact, a November 2003 proposal by

the G-22 (formerly the G-21) included the concept of a “free-round” for developing countries in which their

borders would be closed to agricultural imports while having considerably more latitude than developed

countries to subsidize their farmers.68 Developed countries indicated that there was little incentive for them

to reduce domestic subsidies for agriculture if developing countries were not willing to increase market

access. In addition, during this time period, Governments of the United States, EU, Japan, and Canada were

focused on other issues, such as the conflict in Iraq and domestic macroeconomic policies.

Relaunch of Negotiations, January-July 2004

During the December 15 meeting of the WTO General Council, Chairman Castillo proposed that

negotiations should begin in all negotiating areas (including agriculture) in early 2004, following appointment

of the new Chairs to each of the negotiating committees. In February 2004, Ambassador Tim Groser of New

Zealand was selected to chair the WTO Committee on Agriculture (CoA). Agricultural negotiations resumed

in a series of six special negotiating sessions of the CoA in Geneva during March-July, 2004.69 The Derbez

text formed the starting point for these discussions.70 However, given the divergence of views, it also became
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clear at the March session that an immediate goal for the negotiations was to reach agreement on a negotiating

framework by the end of July, with agreement on modalities left for negotiation during 2005.71 Meaningful

negotiations would be put on hold after July until early 2005, because of the U.S. Presidential election and

new EU Commission taking office, in early November 2004.

The March and April negotiating sessions of the CoA were dominated by two pillars—export

competition and market access. In the area of export competition, the United States, the Cairns Group, and

G-22 held firm to the position that a certain date be set to end traditional export subsidies.72 The EU was alone

in its opposition to this point as it only wanted to agree to eliminate them on products of interest to developing

countries. The EU position also included the concept of “parallelism”—that any reduction or elimination by

the EU of traditional export subsidies must be matched by the United States on all government-funded export

credit programs and food aid, and matched by other WTO members on disciplining exporting STEs.73

The major stumbling block during these sessions was in the area of market access, and specifically

on reaching a consensus on the methodology for reducing tariffs.74 The “blended approach,” advocated by

the United States and the EU, was strongly criticized by the G-10 and G-22 and many developing countries.75

Under the blend approach, tariffs are lowered using a combination of Uruguay Round linear cuts with

minimum reduction per tariff line, the Swiss formula (cutting higher tariffs more with a maximum ceiling),

and zero duties. Some members, such as the Cairns Group, questioned whether this approach would really

improve market access, whereas others, such as the G-10, were concerned that the approach would not

provide sufficient flexibility to shield certain sensitive products from tariff cuts.76 Exacerbating the divisions

was the statement by U.S. negotiators that only 2-3 percent of tariff lines ought to be cut using the Uruguay

Round approach, with up to 10 percent for developing countries. Most other countries wanted a much larger

portion (as high as 25 percent) of tariffs to face linear cuts.77 The United States stated its firmness on this

point owing to the fact that domestic political support on reduction of domestic support would be heavily

dependent on getting much improved market access from other countries in return.78 At this time, two

significant developments outside the special CoA negotiating sessions took place (box 3).

The third special negotiating session of the CoA, during June 2-4, continued to focus on the issues

of market access and export competition. On market access, developing countries submitted a proposal that

outlined the essential elements that an acceptable formula must have: progressivity (higher tariff cuts more

than lower ones), flexibility (to take SP into account), neutrality (formula should not be biased against the

tariff structures of certain Members), and proportionality (less than full reciprocity between developed and

developing countries as in the URAA). Although the proposal was criticized by some for lack of detail, other

Members considered it as a constructive piece that could move the negotiations forward.79 Differences

remained among members on how to deal with SPs (i.e., those with increasing market access would present

political problems for governments, such as sugar and dairy in the United States, and rice in Japan). In the

area of export competition, the United States and EU continued to demonstrate divergent positions. According

to the EU view of parallelism, the elimination of export subsidies by the EU should be countered by the

elimination of export credits by the United States. The U.S. view was that parallelism should be between

export subsidies and the export subsidy component of export credits. On domestic support, there appeared

to be considerable consensus on substantial reduction of amber-box support and a cap on blue-box support,

although differences emerged from discussions over whether U.S. counter-cyclical payments under the Farm

Bill should be treated as blue box,80 as the U.S. contended, or as amber box.81 Despite the differences, in

particular over market access, Chairman Groser described the session as generally positive, and there was a

sense of renewed political momentum to make progress on tough issues.82
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Box 3:

Significant Developments Outside the Special Committee on Agriculture Negotiating Sessions

In late April 2004, a WTO dispute settlement panel handed down its interim decision on whether the U.S. cotton

program violates its obligations under the WTO Agreement on Agriculture, the Agreement on Subsidies and

Countervailing Measures, and the General Agreement on Tariffs and Trade of 1994. Brazil (along with third-parties

Argentina, Australia, Benin, Canada, Chad, China, the EU, India, New Zealand, Pakistan, Paraguay, Taiwan, and

Venezuela ) had challenged that the support provided to U.S. agribusiness during 1999-2000 to purchase American

cotton and those authorized to farmers in the 2002 Farm Bill, encouraged over-production. The United States had

argued that its program did not encourage over-production because they were provided independent of the yield of

farmers. Based on the interim report and the report detailing the final decision (which was issued to Brazilian and U.S.

officials on June 18, but not made public), Brazil claimed victory on this point and the United States conceded that the

subsidies were found to be in violation of international trade obligations. It is the view of the United States that its

commodity programs are fully consistent with its WTO commitments and it has committed to appeal the decision, a

process that would take up to a year or more. The United States has stated that distortion in world cotton markets

should be addressed through the WTO agriculture negotiations. U.S. Government officials and lawmakers defended

U.S. practices and criticized Brazil’s tactic to single out U.S. cotton support when many other countries maintain

allegedly unfair trading practices which should all be dealt with as part of WTO negotiations, not through litigation. U.S.

officials stated that they had no intention of unilaterally cutting the payments to cotton farmers. Observers have stated

that the decision could pressure the United States and other countries with major domestic support programs (such

as the EU) to be more flexible in the Doha Round of negotiations.

The second development occurred in early May 2004 when a letter sent from the EU Commissioners of Agriculture

and Trade, Franz Fischler and Pascal Lamy, to all WTO members offered to eliminate all EU export subsidies for all

agricultural products in return for a balanced deal on market access, domestic support, non-trade concerns, and strict

parallelism on export competition. Despite protests from France, the EU Commissioners signaled that they were willing

to negotiate on this point. While this was encouraging for the future of the talks, some observers viewed that the

conditions placed on the offer somewhat mitigated its impact.

Source: “WTO Interim Report on U.S. Cotton Case: Brazil Claims Victory,” Bridges Weekly Trade News Digest,

Apr. 28, 2004; “WTO Cotton Case Goes Against U.S.,” Feedstuffs, May 3, 2004; “WTO Rules Against US Cotton

Subsidies,” New York Times, June 19, 2004; “Cotton Ruling Could Affect Farm Subsidies,” Financial Times,

Apr. 28, 2004; “EU Offers to Abolish Export Subsidies,” agranet.com, May 13, 2004; and, “EU Proposes Eliminating

Subsidies,” Wall Street Journal, May 11, 2004.

A fourth special negotiating session of the CoA, June 23-25, again focused on the issues of export

competition, domestic support, and market access. On export competition, there was a convergence of the

view on the need to end export subsidies and to discipline other export support, however a potential deal

breaker continued to be the EU’s demand that if the EU eliminates export subsidies, then the United States

must end its government support of export credit programs. The United States continued to argue that only

the subsidies element of export credit programs ought to be disciplined (such as by shortening the period of

credit repayment).83 By the end of the session, no agreement had been reached on this issue. On domestic

support, disagreement remained over amendments in the definition of the blue box. The United States

proposed changes that would allow direct payments that do not limit production but meet other blue-box

criteria. This change would qualify U.S. counter-cyclical payments as blue box and thus exempt from

limitations. Meanwhile, developing countries called for an overall cap to blue box, as well as product-specific

caps in the blue box.84 The market access debate centered on how to structure tariff reductions that provide

greater access, while at the same time allow members to protect sensitive products. A U.S. proposal involved

a band approach, in which the higher the band, the deeper the required tariff cuts. Within each band the U.S.

proposed a Swiss formula approach. However this idea was rejected by India. China suggested that in each

band, a blend approach be adopted in which products would be subject to either a straight-line tariff reduction

or Swiss formula.85 At the end of the session, the assessment of Chairman Groser was that considerable

progress had been made at the political level, but at a technical level more work was needed before specific

language on a modalities framework could be drafted.
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The July 2004 Framework for Establishing Modalities in

Agriculture

The July 2004 Framework

After an intense period of negotiations among WTO members in Geneva during the July negotiating

session, a “Framework for Establishing Modalities in Agriculture”86 (July 2004 framework) was finally

agreed upon at the end of the WTO General Council meeting, July 27-30. The framework was adopted by

the WTO General Council on August 1, 2004. Specific details of the framework are outlined below, and a

comparison of its treatment of key issues with other specific proposals in each of the three major pillars is

summarized in tables A1-A3 in the annex at the end of this article.

Market Access

The framework calls for substantial overall tariff reductions as a final result from negotiations.

Tariff reduction formula 

• Tariff reduction for most products to be based on a tiered formula approach, in which different tariffs

bands are created with separate tariff reduction formulas established for each band. No specific

modalities were identified. For example, not specified were the number of bands, the thresholds for

defining the bands, the type of tariff reduction in each band, and the role of a tariff cap in a tiered

formula.

• Tariff reductions to be based on bound rates.

• In-quota tariff rates to be reduced or eliminated.

Other tariff issues

• SPs to be designate by members and which would not be subject to the tiered approach. For SPs, the

framework calls for substantial improvement in market access via a combination of TRQ increases

and tariff reductions applying to each product, based on an agreed-upon formula with some TRQ

expansion required for all such products.

• TRQ administration to be improved.

• Tariff simplification to be addressed.

• Tariff escalation to be addressed.

• SSGs to be addressed.

S&D treatment for developing countries

• S&D provisions to cover tariff reduction formulas, the number and treatment of SPs, expansion of

TRQs, and implementation period.

• Developing countries to face lesser tariff reduction commitments and TRQ expansion commitments.

• Developing countries to designate SPs (based on criteria of food security, livelihood security and

rural development needs) that would face more flexible treatment.

• SSM to be established.

• Long-standing trade preference arrangements for developing countries to be recognized.

Export Competition

The framework calls for the establishment of modalities on export competition that encompass

parallelism, such that all forms of export assistance that result in subsidized exports would be eliminated by

“a credible end date.” 
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Export subsidies

• All export subsidies to be eliminated.

Export credits

• Export credits, export credit guarantees, or insurance programs with repayment periods of more than

180 days to be eliminated.

• Export credit guarantees and insurance programs with less than 180 days repayment to be subject to

disciplines covering such elements as payment of interest, minimum interest rates, minimum

premium requirements, and other elements which can constitute subsidies or distort trade. 

State trading enterprises

• Trade-distorting practices of STEs, such as government subsidies, financing, and the

underwriting of losses, to be subject to disciplines. 

Food aid (same as EU-U.S. joint paper)

• Measures to be put in place to prevent the displacement of commercial sales of agricultural

products by food aid.

S&D treatment for developing countries

• Developing countries to receive S&D treatment in terms of longer implementation periods for the

phasing out of all forms of export subsidies.

• Continuation of the URAA provisions that developing countries be exempt from commitments on

export subsidies that:

(i) Reduce the costs of marketing exports of agricultural products (other than widely available

export promotion and advisory services), including handling, upgrading and other processing,

and international transport and freight; and

(ii) Reduce the internal transport and freight charges on export shipments, provided or mandated by

governments, on terms more favorable than for domestic shipments.

• Disciplines on export credits, export credit guarantees, or insurance programs to also include

differential treatment favoring least-developed and net food-importing developing countries.

• STEs with monopoly status in developing countries that facilitate domestic consumer-price stability

and to ensure food security to benefit from special concessions.

• In special cases where food aid, commercial export credits, or preferential international financing

facilities are inadequate, concessions to be made for ad hoc temporary financing arrangements

relating to exports to developing countries. 

Domestic Support 

Domestic support provisions were based on the DDA call for “substantial reductions in tradedistorting domestic support,” taking into account S&D treatment for developing countries, harmonizing

reductions made by developed countries from bound AMS level so that countries with high support levels

must make deeper cuts. 

Amber box

• To ensure that support is cut for all products, product-specific, amber-box payments to be capped

at to be agreed-upon average levels.
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Blue box

• Blue-box definition to be revised to include direct payments under production limiting programs87

or direct payments that do not require production.88

• Blue-box payments not to exceed 5 percent of a Member’s average total value of agricultural

production during a to be negotiated historical period. 

De minimis (same as EU-U.S. joint paper)

• De minimis support to be lowered.

Combined support

• The overall base level of all trade-distorting domestic support (including the sum of total amber-box,

permitted de minimis level, and blue-box payments) to be lowered based on a tiered formula. In the

first year and throughout the implementation period, countries to cut support by at least 20 percent.

• Support to be cut progressively over the implementation period in a manner that ensures countries

with high support levels be required to make deeper cuts.

Green box (same as Derbez text)

• Green-box criteria to be revised in order to ensure that the trade-distorting impact on production of

such measures is minimal. 

S&D treatment for developing countries (same as Castillo text)

• Allowance for lower amber-box reductions and longer implementation periods.

• Special treatment to be provided as in Article 6.2 of the URAA89 and with respect to the green box.

• Exemption from lowering the de minimis level of support.

Looking Ahead

The August 1 agreement on the framework was considered by all sides to be an important

achievement, especially after the failure to reach an accord 10 months earlier in Cancun. U.S. Trade

Representative Robert Zoellick stated that “today’s decision is a crucial step for global trade... after the detour

in Cancun we have put these WTO negotiations back on track,” while EU Trade Commissioner, Pascal Lamy

noted that “I said in Cancun that the WTO was in intensive care. Today I can say that it is not only out of

intensive care but well and running.” Leaders from developing countries hailed the agreement as a success.

Argentina’s chief trade negotiator, Martin Redrado, said that “there’s been tremendous advance (that) assures

substantial reform in world agricultural trade,” and India’s Minister of Commerce and Industry claimed that

“the developed nations have comprehended more the concerns of the developing countries.”

Negotiators only have developed a framework for further negotiations. Nothing has been agreed

regarding how far and how fast trade liberalization should take place. Much of the text is deliberately vague,

especially the text covering market access provisions. Thus, when negotiations start up in early 2005, most

observers anticipate very slow progress in reaching consensus among 147 WTO Members. Similarly, some

officials foresee that a final agreement may take several years to complete, perhaps extending as late as 2007

or 2008.#
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Annex A

Summary of Proposals: Market Access, Export Competition, and

Domestic Support

Table A1:

Summary of proposals: Market access

Issue EU/U.S. joint paper

(08/13/2003)

G-20 framework

(08/20/2003)

Castillo text

(08/24/2003)

Derbez text

(09/13/2003)

July 2004

framework

(07/27-30/2004)

Tariff

reduction

formula

Blend approach

applicable to both

developed and

developing countries.

Specifically: (i) [ ]-

percent of tariffs to face

a [ ] percent average

tariff cut and a minimum

of [ ] percent; for most

import-sensitive

products market access

to grow through both

tariff cuts and tariff-rate

quota (TRQ) quantity

increases; (ii) [ ] percent

of tariffs to face Swiss

formula with a

coefficient [ ]; and, (iii)

[ ] percent of tariffs to

be duty-free.

Blend approach

applicable to developed

countries only.

Specifically: (i) [ ]

percent of tariffs to be

subject to a [ ]-percent

tariff cut; (ii) [ ] percent

of tariffs to face Swiss

formula with a

coefficient of [ ]; and,

(iii) [ ] percent of tariffs

to become duty-free.

Same as EU/U.S. joint

paper.

Same as EU/U.S. joint

paper.

For developed

countries, tariff cuts to

result in a simple

average tariff reduction

for all agricultural

products of no less than

[ ] percent.

Tariff reduction for most

products to be based on

a tiered formula

approach, in which

different tariffs bands

are created with

separate tariff reduction

formulas established for

each band. No specific

modalities identified.

Tariff reductions to be

based on bound rates.

In-quota tariff rates to

be reduced or

eliminated.

Other

tariff

issues

Tariffs exceeding a

maximum of [ ] percent

to be either lowered to

that maximum, or

countries to provide

increased market

access through a

request/offer approach

that might include

TRQs.

Special agricultural

safeguards (SSGs)

open for discussion.

Tariffs exceeding a

maximum of [ ] percent

to be lowered to that

maximum.

Factor of [ ] to be

applied to the tariff cut

of any processed

product, if the tariff on

the processed products

is higher than the tariff

of the product in its

unprocessed form.

TRQ quantities to be

increased to [ ] percent

of domestic

consumption.

In-quota tariffs to be

eliminated.

Introduce rules for TRQ

administration.

SSGs for developed

countries to be

eliminated.

For developed

countries, Tariffs

exceeding a maximum

of [ ] percent to be

lowered to that

maximum, or additional

market access to be

provided through an

expansion of TRQ

quantities.

Tariff escalation to be

addressed.

SSGs use and duration

to be negotiated.

For developed

countries, tariffs

exceeding a maximum

of [ ] percent to be

lowered to that

maximum, or additional

market access to be

provided through an

expansion of TRQ

quantities.

Very limited number of

products on the basis of

nontrade concerns to

be exempt from the

maximum tariff

commitment. 

Factor of [ ] to be

applied to the tariff cut

of any processed

product, if the tariff on

the processed products

is higher than the tariff

of the product in its

unprocessed form.

In-quota tariffs to be

reduced by [ ] percent.

SSGs use and duration

to be negotiated.

Special products to be

designated that would

not be subject to the

tiered approach, with

improvement in market

access via a

combination of TRQ

increases and tariff cuts

applying to each

product, based on an

agreed-upon formula

with some TRQ

expansion required for

all such products.

TRQ administration to

be improved.

Tariff simplification to

be addressed.

Tariff escalation to be

addressed.

 SSGs to be addressed.
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Table A1– (continued)

Summary of proposals: Market access

Issue EU/U.S. joint

paper (08/13/2003)

G-20 framework

(08/20/2003)

Castillo text

(08/24/2003)

Derbez text

(09/13/2003)

July 2004

framework

(07/27-30/2004)

Special

and

differential

(S&D)

treatment

for

developing

countries

Special agricultural

safeguard

mechanism (SSM) to

be created for importsensitive products of

developing countries.

Developed countries

to provide duty-free

access for at least [ ]

percent of imports

from developing

countries.

Developing countries

to be subject to lower

tariff-reduction

commitments and

longer periods for to

implementing

reforms.

The formula applicable

for tariff reductions to

be as follows: (i) all

tariffs would face a [ ]-

percent cut on average,

with a minimum of [ ]

percent; and

(ii)developing countries

not required to increase

TRQ quantities or

eliminate in-quota

tariffs. 

For developing

countries, SSM to be

established.

For developed

countries, duty-free

access to be provided

to agricultural products

that account for no less

than [ ] percent of their

imports from developing

countries.

For developed

countries, tariffs to be

removed on all tropical

product imports.

Developing countries to

face lower tariff

reductions and longer

implementation periods. 

Special products (SPs)

to receive exemption or

relief from the reforms. 

For developing

countries, tariff cuts to

be based on a threetiered approach

involving: (i) [ ] percent

of tariffs to face a [ ]-

percent average cut

and [ ] percent minimum

cut; and for the importsensitive products

subject to the minimum

cuts, growth in market

access to result from

both tariff cuts and TRQ

increases. In this tier,

developing countries to

be allowed to

exemption designated

SPs. (ii) [ ] percent of

tariffs to face a [ ]-

percent average cut

and [ ]- percent

minimum cut; and (iii) [ ]

percent of tariffs to face

a [ ]- percent average

cut and [ ] percent

minimum cut. As an

alternative to (ii) and (iii)

above, [ ] percent of

tariff lines to be subject

to a Swiss formula with

a coefficient of [ ]. 

SSM to be established

for use by developing

countries for specified

products, under

unspecified conditions.

For developed

countries, tariffs to be

removed from at least

[ ] percent of imports

from developing

countries.

For developing

countries, tariff cuts to

be based on a threetiered approach

involving:

(i) [ ] percent of tariffs to

face a [ ]-percent

average cut and [ ]-

percent minimum cut;

import-sensitive product

market access growth

to result from both tariff

cuts and TRQ

increases. In this tier,

developing countries

allowed to designate

SPs on which tariffs

would not have to be

lower beyond a

minimum of [ ] percent,

and for which

commitments on

additional TRQs

quantities would be not

required; where tariffs

are very low (less than

[ ] percent) no tariff

reductions would be

required.

(ii) [ ] percent of tariff

lines to be cut using a

Swiss formula with a

coefficient of [ ]; and,

(iii) [ ] percent of tariff

lines to be bound

between 0 and

5 percent, taking into

account the importance

of tariffs as a source of

revenue for developing

countries.

For developing

countries, time period of

[ ] years to be allowed

for implementing tariff

cuts in (ii) and (iii)

above.

SSM to be established

for use by developing

countries for specified

products.

All developed countries

to provide duty-free

access for no less than

[ ] percent of imports

from developing

countries (in particular

tropical products).

Members to consider

the importance of

preferential access

arrangements for

developing countries.

S&D provisions to cover

tariff reduction formulas,

the number and

treatment of SPs,

expansion of TRQs,

and implementation

period.

Developing country to

face lesser tariffreduction commitments

and TRQ expansion

commitments.

Developing countries to

designate SPs that

would face more flexible

treatment.

SSM to be established.

Long-standing trade

preference

arrangements for

developing countries to

be recognized.
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Table A2:

Summary of proposals: Export competition

Issue EU/U.S. joint

paper (08/13/2003)

G-20 framework

(08/20/2003)

Castillo text

(08/24/2003)

Derbez text

(09/13/2003)

July 2004

framework

(07/27-30/2004)

Export

subsidies

Export subsidies to

be eliminated over a

[ ]-year period for

those products of

particular interest to

developing countries.

For other products,

subsidy quantities

and budgetary

outlays to be reduced

(although not

eliminated).

Export subsidies on

products of particular

interest to developing

countries to be phased

out over [ ] years.

Export subsidies on

other products to be

phased out of [ ] years.

Same as EU/U.S. joint

paper

Export subsidies to be

eliminated over a [ ]-

year period for those

products of particular

interest to developing

countries. A list of these

products to be

established that would

be part of the a

country’s

comprehensive draft of

commitment schedules.

Export subsidy

elimination of these

specific products would

take place over [ ]

years. 

For other products,

export subsidy

reduction, with a view to

phasing out, budgetary

and quantity subsidy

allowances.

All export subsidies to

be eliminated.

Export

credits

Subsidy component

of export credits to be

phased out (by

requiring repayment

terms to conform with

commercial practice)

for those same

products of particular

interest to developing

countries and over

the same

implementation

period as export

subsidies.

For other products,

export credit

subsidies to be

disciplined in a

manner consistent

with reductions in

export subsidies. 

Export credits,

guarantees and

insurance programs to

be subject to a rulesbased approach that

would include

identification and

elimination of the

subsidy component of

these programs.

Subsidy component of

export credits to be

phased out (by

requiring repayment

terms to conform with

commercial practice) for

those same products of

particular interest to

developing countries

and over the same

implementation period

as export subsidies.

For other products,

export credit to be

disciplined in order to

reduce, with a view to

phasing out, the

subsidy element of

export credit programs.

Same as Castillo text. Export credits, export

credit guarantees or

insurance programs

with repayment periods

of more than 180 days

to be eliminated.

Export credit

guarantees and

insurance programs

with less than 180 days

repayment to be subject

to disciplines covering

such elements as

payment of interest,

minimum interest rates,

minimum premium

requirements, and other

elements which can

constitute subsidies or

distort trade. 

Statetrading

enterprises

(STEs)

Controls to be put on

the practices of

export-oriented STEs

(such as ending

financing and singledesk export

privileges, and

monopoly pricing)

that might result in

providing subsidies to

exports. 

STEs to be subject to

disciplines. 

Disciplines on export

subsidies and credits

would also apply when

such measures are

provided either directly

or indirectly through

STEs

Same as Castillo text. Trade-distorting

practices of STEs, such

as government

subsidies, financing,

and the underwriting of

losses, to be subject to

disciplines. 
September/October 2004

WTO Negotiations on Agriculture Industry Trade and Technology Review

38

Table A2– (continued)

Summary of proposals: Export competition

Issue EU/U.S. joint

paper (08/13/2003)

G-20 framework

(08/20/2003)

Castillo text

(08/24/2003)

Derbez text

(09/13/2003)

July 2004

framework

(07/27-30/2004)

Food aid Provisions to be

introduced to prevent

food aid shipments

from displacing

commercial sales.

Same as EU/U.S. joint

paper.

Same as EU/U.S. joint

paper.

Same as EU/U.S. joint

paper.

Same as EU/U.S. joint

paper.

Special

and

differential

(S&D)

treatment

for

developing

countries

S&D treatment with

respect to export

subsidies to be

recognized, however,

some net foodexporting countries to

be required to face

less comprehensive

S&D treatment.

Continuation of the

Uruguay Round

Agreement on

Agriculture (URAA)

provisions (paragraph

9.4) that developing

countries be exempt

from commitments on

export subsidies that: (i)

reduce the costs of

marketing exports of

agricultural products

(other than widely

available export

promotion and advisory

services), including

handling, upgrading and

other processing, and

international transport

and freight; and (ii)

reduce the internal

transport and freight

charges on export

shipments, provided or

mandated by

governments, on terms

more favorable than for

domestic shipments.

The S&D component for

export competition to

include a longer

implementation period

for reducing and

phasing out of export

subsidies by developing

countries.

Continuation of the

URAA provisions that

developing countries be

exempt from

commitments on export

subsidies that: (i)

reduce the costs of

marketing exports of

agricultural products

(other than widely

available export

promotion and advisory

services), including

handling, upgrading and

other processing costs,

and the costs of

international transport

and freight; and (ii)

reduce the internal

transport and freight

charges on export

shipments, provided or

mandated by

governments, on terms

more favorable than for

domestic shipments.

Export credit disciplines

to be established that

provide for differential

treatment in favor of

least-developed and net

food-importing

developing countries. 

Same as Castillo text. Developing countries to

receive S&D treatment

in terms of longer

implementation periods

for the phasing out of all

forms of export

subsidies.

Continuation of the

URAA provisions that

developing countries be

exempt from certain

commitments on export

subsidies.

Disciplines on export

credits, export credit

guarantees, or

insurance programs to

also include differential

treatment favoring

least-developed and net

food-importing

developing countries.

STEs with monopoly

status in developing

countries that facilitate

domestic consumerprice stability and to

ensure food security to

benefit from special

concessions.

In special cases where

food aid, commercial

export credits, or

preferential international

financing facilities are

inadequate,

concessions to be

made for ad hoc

temporary financing

arrangements relating

to exports to developing

countries. 
September/October 2004

Industry Trade and Technology Review WTO Negotiations on Agriculture

39

Table A3:

Summary of proposals: Domestic support

Issue EU/U.S. joint paper

(08/13/2003)

G-20 framework

(08/20/2003)

Castillo text

(08/24/2003)

Derbez text

(09/13/2003)

July 2004

framework

(07/27-30/2004)

Amber

box

(trade

distorting)

Trade-distorting

domestic support to be

reduced within a range

of [ ] to [ ] percent.

All forms of tradedistorting domestic

support to be reduced

on a product-by-product

basis by between [ ]

and [ ] percent, with a 

range of no more than [ 

] percent.

Exported products

receiving domestic

support and account for

more than a specified

share of world exports,

to face domestic

support reductions at

the upper levels of the

reduction range. In year

1, trade-distorting

domestic support

reductions to be at least

[ ] percent, regardless

of the product category.

Under the proposal, the

bound total Aggregate

Measure of Support

(AMS) would be

lowered by a range

between [ ] and [ ]

percent.

For developed

countries, amber- box

expenditures to be

reduced to a range of [ ]

to [ ] percent.

Amber-box support for

individual products to

be capped at their

levels during the period

[ ]. 

To ensure that support

is cut for all products,

product-specific amberbox payments to be

capped at to be agreedupon average levels.

Blue box

(less

tradedistorting)

Less trade-distorting

domestic support) to

be redefined to

include: (i) payments

based on fixed areas

and yields; (ii)

payments made on 85

percent or less of the

base level of

production; and (iii)

livestock payments

made on a fixed

number of head.

Less trade-distorting

domestic support

expenditures to be

reduced to no more

than 5 percent of the

value of agricultural

production by the end

of the implementation

period.

Blue box to be

eliminated.

Blue-box programs to

be redefined to include:

(i) payments based on

fixed areas and yields;

(ii) payments made on

85 percent or less of the

base level of

production; and (iii)

livestock payments

made on a fixed

number of head.

Blue box-type support

to be lowered in two

steps. First it would be

reduced to 5 percent of

the 2000-02 average

value of agricultural

production by the year [

], and then, reduced by

[ ] percent annually for a

further period of [ ]

years.

Same as Castillo text. Blue-box definition to be

revised to include direct

payments under

production limiting

programs or direct

payments that do not

require production.

Blue-box payments not

to exceed 5 percent of a

Member’s average total

value of agricultural

production during a to

be negotiated historical

period. 

De

minimis

De minimis support to

be reduced by [ ]

percent.

Same as EU/U.S. joint

paper.

Same as EU/U.S. joint

paper.

Same as EU/U.S. joint

paper.

Same as EU/U.S. joint

paper.
September/October 2004

WTO Negotiations on Agriculture Industry Trade and Technology Review

40

Table A3– (continued)

Summary of proposals: Domestic support

Issue EU/U.S. joint

paper (08/13/2003)

G-20 framework

(08/20/2003)

Castillo text

(08/24/2003)

Derbez text

(09/13/2003)

July 2004

framework

(07/27-30/2004)

Combined

support

The sum of tradedistorting domestic

support, less tradedistorting domestic

support, and de

minimis to be

reduced significantly

below the 2004 level

of support under the

existing amber box,

blue box, and de

minimis.

The sum of amber box

and de minimis support

to be cut at least [ ]

percent.

Total AMS support, blue

box, and de minimis

support to be lowered in

an initial period to a

level substantially lower

than the sum of these

three from their 2000

levels.

The sum amber box,

blue box, and de

minimis support in 2000

to be reduced no less

than [ ] percent,

including a reduction of

[ ] percent during the

first implementation

year. 

Base level of all tradedistorting domestic

support to be lowered

based on a tiered

formula. In the first year

and throughout the

implementation period,

countries to cut support

by at least 20 percent.

Support to be cut

progressively over the

implementation period

in a manner that

ensures countries with

high support levels be

required to make

deeper cuts.

Green box

(non-tradedistorting)

Not mentioned. Green-box payments by

developed countries to

be capped and/or cut. 

Green-box payments to

remain under

negotiation. 

Green-box criteria

revised to ensure

minimal impact of

programs on

production. 

Same as Derbez text. 

Special

and

differential

(S&D)

treatment

for

developing

countries

S&D treatment for

domestic support not

specified.

The scope of Article 6.2

of the Uruguay Round

Agreement on

Agriculture (URAA) to

be widened to include

focused and targeted

programs.

Developing countries

exempt from de minimis

reduction requirements

Allowance for lower

amber-box reductions

and longer

implementation periods.

Special treatment to be

provided as in Article

6.2 of the URAA and

with respect to the

green box.

Exemption from

lowering the de minimis

level of support.

Same as Castillo text. Same as Castillo text.
September/October 2004

Industry Trade and Technology Review WTO Negotiations on Agriculture

41

1. Four earlier Industry Trade and Technology Review articles about multilateral trade negotiations for agriculture,

are Jonathan R. Coleman, “Agriculture in the WTO: The Seattle Ministerial and Beyond,” Industry Trade and

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

Negotiations: An Update,” Industry Trade and Technology Review, USITC publication 3363, Oct. 2000, pp. 1-

6; Joanna Bonarriva and Jonathan R. Coleman, “WTO Agricultural Negotiations: A Second Update,” Industry

Trade and Technology Review, USITC publication 3501, Mar. 2002, pp. 7-36; and Jonathan R. Coleman and

Joanna Bonarriva, “WTO Agricultural Negotiations: A Third Update,” Industry Trade and Technology Review,

USITC publication 3602, Apr. 2003, pp. 1-24. All articles are posted on the USITC Internet site at

www.usitc.gov/webpubs.htm.

2. Ministerial conferences are the WTO=s highest level decision-making body.

3. WTO, Final Declaration from Doha Ministerial Conference,

http://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_e.htm#agriculture.

4. U.S. Department of Agriculture (USDA), Foreign Agricultural Service (FAS), “Doha Ministerial Provides New

Impetus for Multilateral Negotiations on Agriculture,” AgExporter, Feb. 2003, pp. 4-6.

5. The term “modalities” refers to trade rules governing how far and how fast countries reduce export subsidies

and trade-distorting domestic supports, and open markets to foreign competition.

6. A discussion of developments in the WTO agricultural negotiations during November 2001-March 2003 is

provided in Coleman and Bonarriva, “WTO Agricultural Negotiations: A Third Update.”

7. Mini-Ministerials took place in Sharm El-Shek, Egypt; Montreal; Sydney; and Tokyo.

8. “WTO Negotiators Wait for Political Direction,” Feedstuffs, May 26, 2003; and “WTO Members Fail to Make

Progress at Mini-Ministerial,” Bridges Weekly Trade News Digest, June 25, 2003.

9. “Meetings Abound Ahead of Key Trade Negotiations,” Feedstuffs, July 28, 2003.

10. This draft declaration can be found at,

http://www.ictsd.org/ministerial/cancun/docs/draft_cancun_minist_text.pdf.

11. Joint EC.U.S. Paper, Job(03) 157, Aug. 13, 2003, found at,

http://usinfo.state.gov/topical/econ/wto/ag030813.htm.

12. For details of these issues, see Coleman and Bonarriva, “WTO Agricultural Negotiations: A Third Update.”

13. Although agreement on a framework between the EU and United States was lauded as a necessary step in the

process, criticism of the plan was voiced from several sides. The Cairns Group (18 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) indicated disappointment that the

plan did not call for the elimination of all export subsidies, and that the proposals on market access were vague.

Concerns were also expressed about the proposed changes of blue-box payments and the lack of changes to the

green box, that, according the Cairns Group countries, would allow the EU and United States to continue to

maintain high levels of domestic support. Developing countries were critical of the plan because it failed to

mention special products, and had not included provisions for least-developed countries. There was also concern

that significant net food-exporting developing countries would face less stringent S&D treatment compared with

net-importing developing countries, and that developing countries should not be subject to differentiation. Japan

reacted to the paper with caution, noting concern over the market-access provisions, especially the proposal to

place a ceiling on tariff levels. “Agricultural Negotiations at the WTO, Post-Cancun Outlook Report,”

International Center for Trade and Sustainable Development, Geneva, Switzerland, Nov. 2003, found at

http://www.agtradepolicy.org/output/resource/agriculturenegotiations9.pdf; and Josling, Tim, and Dale

Hathaway, “This Far and No Farther? Nudging Agricultural Reform Forward,” Institute for International

Economics, International Economics Policy Brief, No. PB04-1, Mar. 2004, found at

http://www.iie.com/publications/pb/pb04-1.pdf. For description of domestic support boxes under the URAA, see

Coleman, “Agriculture in the WTO: The Seattle Ministerial and Beyond.”

14. The [ ] denotes an unspecified amount, to be determined in the negotiations.

15. This method was applied under the URAA and advocated by the EU.

16. The Swiss formula for industrial tariff reduction in the Tokyo Round reduced higher tariffs proportionally more

than lower tariffs. Under the formula, the final tariff = (base tariff * coefficient) / (base tariff + coefficient).

Assuming a coefficient (which is also the tariff ceiling) of 15, a base tariff of 10 percent would be reduced to 

ENDNOTES
September/October 2004

WTO Negotiations on Agriculture Industry Trade and Technology Review

42

6 percent, whereas a base tariff of 60 percent would be reduced to 12 percent. The Swiss formula approach was

advocated by the United States.

17. Tariffs that are substantially higher than average tariffs for other products.

18. Introduced in the Uruguay Round, SSGs 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.

19. This method was applied under the URAA.

20. This definition differs from the blue box under the URAA in that it does not require production limitations, such

as set asides, or other supply management. The definition would allow U.S. countercyclical payments, as under

the 2002 Farm Bill, to qualify as less trade-distorting domestic support. “Agriculture: Real Negotiations Start as

EC, U.S. Table Joint Modalities,” Bridges Weekly Trade News Digest, Aug. 21, 2003.

21. De minimis is currently 5 percent for developed countries and 10 percent for developing countries.

22. Green box policies are those domestic support policies considered not to be 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).

23. WTO, “Agriculture - Framework Proposals,” joint proposal by Argentina, Bolivia, Brazil, Chile, China,

Colombia, Costa Rica, Cuba, Ecuador, El Salvador, Guatemala, India, Mexico, Pakistan, Paraguay, Peru, the

Philippines, South Africa, Thailand, and Venezuela, Job (03)/162, Aug. 20, 2003, found at

http://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd21_props3_e.htm.

24. Note, that under the EU-U.S. proposal, tariffs in this first category are cut by both an average and minimum

amount, as in the URAA.

25. Under Article 6.2 of the URAA, certain types of domestic support by developing countries are not countered

toward the Aggregate Measure of Support (AMS). Exempt from the AMS are programs such as government

support to promote agricultural and rural development that are part of development programs, investment

subsidies which are generally available to agriculture, agricultural input subsidies generally available to lowincome or resource-poor producers, and domestic support to producers to encourage diversification away from

growing illicit narcotic crops. 

26. For text see, http://www.wto.org/english/thewto_e/minist_e/min03_e/draft_decl_annex_e.htm.

27. For example, proposals were also received from the African Union (AU); African, Caribbean and Pacific (ACP)

countries, and least-developed countries (Aug. 24, 2003); Joint text from the Dominican Republic, Honduras,

Kenya, Nicaragua, Panama, and Sri Lanka (See “Agricultural Negotiations at the WTO, Post-Cancun Outlook

Report,” International Center for Trade and Sustainable Development).

28. The three-tiered approach based on the URAA average and minimum tariff cuts requirement was first proposed

for all countries in the Harbinson text.

29. Note, the Castillo text included the phrase “with a view to phasing out.” This was not part of the EU-U.S text.

30. Note in the EU-U.S. paper, support would be lowered to 5 percent of the value of agricultural production by the

end of the implementation period.

31. Under Article 6.2 of the URAA, certain types of domestic support by developing countries are not counted

toward the AMS. Exempt from the AMS are programs such as government support to promote agricultural and

rural development that are part of development programs, investment subsidies which are generally available to

agriculture, agricultural input subsidies generally available to low-income or resource-poor producers, and

domestic support to producers to encourage diversification away from growing illicit narcotic crops. 

32. WTO, “Summary of 10 September 2003. Day 1: Conference Kicks Off with ‘Facilitators’ Named and Cotton

Debated,” press release, Sept. 10, 2003, found at

http://www.wto.org/english/thewto_e/minist_e/min03_e/min03_10sept_e.htm.

33. “Cotton - the ‘Trips and Health’ of Cancun?” Bridges Daily Update, Sept. 11, 2003.

34. Argentina, Bolivia, Brazil, Chile, China, Colombia, Costa Rica, Cuba, Ecuador, Egypt, El Salvador, Guatemala,

India, Mexico, Pakistan, Paraguay, Peru, the Philippines, South Africa, Thailand, and Venezuela.

35. “Cancun Ministerial: Setting the Stage.”

36. These issues were identified in the draft as “of interest but not agreed” by the membership for discussion in

Cancun.

37. Egypt joined the G-20.

38. “New Ministerial Text to be Issued Today,” Bridges Daily Update, Sept. 13, 2003.

39. “Cotton - the ‘Trips and Health’ of Cancun?” Bridges Daily Update.

40. WTO, “Summary of 10 September 2003.”
September/October 2004

Industry Trade and Technology Review WTO Negotiations on Agriculture

43

41. “Poverty Reduction: Sectoral Initiative in Favor of Cotton,” joint proposal by Benin, Burkina Faso, Chad, and

Mali, WTO document WT/MIN(03)/W/2*, Aug. 15, 2003.

42. WTO, “Agricultural Backgrounder: Cotton Initiative,” found at

http://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd20_cotton_e.htm.

43. “Will Chair’s Ag. Text Warm Up Frozen Talks? Bridges Daily Update, Sept. 12, 2003.

44. “Cotton - the ‘Trips and Health’ of Cancun?” Bridges Daily Update.

45. AGOA was signed into law in 2000, and designates 34 sub-Saharan African countries as eligible for duty-free

access to the U.S. market through the General System of Preferences program. For more background

information on AGOA, see http://www.ustr.gov/regions/africa/factsheet.pdf, retrieved July 14, 2003.

46. “New Ministerial Text to be Issued Today” Bridges Daily Update, Sept. 13, 2003.

47. “Cancun Ministerial: Setting the Stage,” Bridges Daily Update, Sept. 10, 2003.

48. “Cotton - the ‘Trips and Health’ of Cancun?” Bridges Daily Update.

49. WTO, “Summary of 12 September 2003. Day 3: Facilitators Start Work on New Draft Declaration,” press

release, Sept. 12, 2003, found at http://www.wto.org/english/thewto_e/minist_e/min03_e/min03_12sept_e.htm.

50. WTO, “Summary of 13 September 2003. Day 4: As Ministers Comment on New Draft, Chairman Warns of

Dangers of Failure,” press release, Sept. 13, 2003, found at

http://www.wto.org/english/thewto_e/minist_e/min03_e/min03_13sept_e.htm.

51. “New Ministerial Text to be Issued Today.”

52. Ibid.

53. For text see, http://www.wto.org/english/thewto_e/minist_e/min03_e/draft_decl_annex_rev2_e.htm.

54. “At the Eleventh Hour, Divergence All Over Again,” Bridges Daily Update, Sept. 14, 2003.

55. “Agricultural Negotiations at the WTO, Post-Cancun Outlook Report,” International Center for Trade and

Sustainable Development.

56. The G-10 are Bulgaria, Taiwan, Iceland, Israel, Japan, Korea, Lichtenstien, Mauritius, Norway, and

Switzerland.

57. This proposal was included in “Consolidated African Union/ACP/LDC Position on Agriculture,”

WT/MIN(03)/W/17, Sept. 12, 2003, found at http://docsonline.wto.org/DDFDocuments/t/WT/MIN03/W17.doc.

58. Note, the Castillo text included the phrase “with a view to phasing out.” This was not part of the EU-U.S joint

paper.

59. Payments based on fixed areas and yields; payments made on 85 percent or less of the base level of production;

or livestock payments made on a fixed number of head.

60. Under Article 6.2 of the URAA, certain types of domestic support by developing countries are not countered

toward the AMS. Exempt from the AMS are programs such as government support to promote agricultural and

rural development that are part of development programs, investment subsidies which are generally available to

agriculture, agricultural input subsidies generally available to low-income or resource-poor producers, and

domestic support to producers to encourage diversification away from growing illicit narcotic crops. 

61. “At the Eleventh Hour, Divergence All Over Again, Bridges Daily Update, Sept. 14, 2003.

62. Ibid.

63. “Cancun Collapse: Where There’s No Will There’s No Way,” Bridges Daily Update, Sept. 16, 2003.

64. WTO, “Summary of 14 September 2003. Day 5: Conference Ends Without Consensus,” press release, Sept. 14,

2003, found at http://www.wto.org/english/thewto_e/minist_e/min03_e/min03_14sept_e.htm.

65. For instance, an October 6 negotiating session, planned prior to the Cancun Ministerial, was postponed in the

wake of the failed talks.

66. EC, “European Commission Proposes to Put Doha Round of Trade Talks Back on Track,” press release, Nov.

26, 2003, found at http://europa.eu.int/comm/trade/issues/newround/pr261103_en.htm.

67. Ibid.

68. “Doha Round Agriculture Talks Show No Sign of Breakthrough,” Feedstuffs, Dec. 8, 2003.

69. WTO, “Agriculture Negotiations: Backgrounder, the Issues, and Where We Are Now,” Apr., 2004, found at

http://www.wto.org/english/tratop_e/agric_e/negs_bkgrnd00_contents_e.htm.

70. “Key WTO Talks to Open March 22,” Feedstuffs, Mar. 22, 2004.

71. “WTO Agriculture Week: No Negotiating Breakthrough Expected,” Bridges Weekly Trade News Digest, Mar.

31, 2004.

72. “Agricultural Negotiations at the WTO. Framework Phase Update Report,” International Center for Trade and

Sustainable Development, Geneva, Switzerland, June 2004, found at

http://www.agtradepolicy.org/output/resource/agriculturenegotiations11.pdf.

73. “Key WTO Talks to Open March 22,” Feedstuffs.
September/October 2004

WTO Negotiations on Agriculture Industry Trade and Technology Review

44

74. “Negotiators Reach Consensus to Aim for Framework Accord in WTO Talks,” Feedstuffs, Apr. 12, 2004.

75. “WTO Agriculture Week: No Negotiating Breakthrough Expected,” Bridges Weekly Trade News Digest.

76. “Negotiators Reach Consensus to Aim for Framework Accord in WTO Talks,” Feedstuffs, Apr. 12, 2004.

77. “WTO Agriculture Week: No Negotiating Breakthrough Expected.”

78. “US Negotiator ‘Encouraged’ by Last Week’s WTO Talks,” Feedstuffs, Mar. 29, 2004.

79. “Agriculture Negotiations: Members Still Divided Over Market Access,” Bridges Weekly Trade News Digest,

June 9, 2004.

80. Payments—compensation for farmers for the difference between market prices and target prices determined by

the government—are proposed to be put in the blue box when they had been in the amber box.

81. “Negotiators Upbeat After WTO Talks,” Feedstuffs, June 14, 2004.

82. “Trade Groups’ Pledge Over Farm Talks Rules,” Financial Times, June 15, 2004.

83. “WTO Ag Chair Sees Shift on Market Access, But U.S., EU Still Split on Export Competition,” International

Trade Daily, June, 25, 2004.

84. “Latest WTO Ag Talks Off to Rocky Start; Chairman ‘Nowhere Near Ready’ with Draft,” International Trade

Daily, June, 24, 2004.

85. Ibid.

86. WTO, “Framework for Establishing Modalities in Agriculture,” found at

http://www.wto.org/english/tratop_e/dda_e/draft_text_gc_dg_31july04_e.htm.

87. The URAA blue-box criteria would still apply, i.e., payments based on fixed and unchanging bases and yields;

or livestock payments made on a fixed and unchanging number of head; and such payments are made on 85

percent or less of a fixed and unchanging base level of production. 

88. So long as payments are based on fixed and unchanging bases and yields; or livestock payments made on a

fixed and unchanging number of head; and such payments are made on 85 percent or less of a fixed and

unchanging base level of production. 

89. Under Article 6.2 of the URAA, certain types of domestic support by developing countries are not countered

toward the AMS. Exempt from the AMS are programs such as government support to promote agricultural and

rural development that are part of development programs, investment subsidies which are generally available to

agriculture, agricultural input subsidies generally available to low-income or resource-poor producers, and

domestic support to producers to encourage diversification away from growing illicit narcotic crops. 
SEPTEMBER/OCTOBER 2004 

Industry Trade and Technology Review Key Performance Indicators 

A-1 

APPENDIX A 

Key Performance Indicators of Selected 

Industries and Regions1

Title Author1 Page

Steel Harry Lenchitz 

(202) 205-2737 

harry.lenchitz@usitc.gov

A-2

A-3

Automobiles Laura A. Polly 

(202) 205-3408 

laura.polly@usitc.gov

A-4

Unwrought Aluminum Karl Tsuji 

Judith-Anne Webster 

(202) 205-3489 

judith-anne.webster@usitc.gov

A-5

Flat Glass Vincent DeSapio 

(202) 205-3435 

vincent.desapio@usitc.gov

A-6

Services Cynthia Payne 

(202) 205-3410 

cynthia.payne@usitc.gov

A-7

North American Trade Audry Tafoya 

Ralph Watkins 

(202) 205-3492 

ralph.watkins@usitc.gov

A-8

A-9

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.
SEPTEMBER/OCTOBER 2004 

Industry Trade and Technology Review Key Performance Indicators 

A-2 

STEEL 

-30

-20

-10

0

10

20

Q1

2000

Q1

2001

Q1

2002

Q1

2003

Q1

2004

Percent

Integrated Minimill Specialty

Figure A-1

Operating income1

 for all sectors continues positive trend during second quarter 2004

 1 Operating income (loss) as a percent of sales. Integrated group comprises 4 firms. Minimill group 

comprises 7 firms. Specialty group comprises 4 firms.

Note.--Beginning in first quarter 2004 integrated group includes l previously untracked firm, and no longer 

includes l previously tracked firm, reflecting ownership changes in the industry.

Source: Individual company financial statements.

 

• Wheeling-Pittsburgh Corp. closed its public offering of 3,650,000 shares of common stock on September 21, 2004, netting 

approximately $100 million. Proceeds repaid outstanding debt and funded capital projects. A new ladle metallurgy furnace went

operational in October 2004, 14 months after project start. Wheeling-Pitt emerged from Chapter 11 bankruptcy in August 2003. 

See http://www.wpsc.com 

 

• Trade sources report that senior Commerce and USTR officials met with their counterparts in Russia and Ukraine on September 

23-24, 2004 to press for the elimination of export taxes and other barriers restricting scrap exports from those countries. Ukraine 

imposes a 30 euro-per-ton tax on ferrous scrap exports while Russia has a 15-percent ferrous scrap export tax. 

 See http://www.insidetrade.com

• The American Iron and Steel Institute, along with five other steel trade associations and the United Steel Workers of America,

submitted a joint response to Commerce on September 24, 2004 strongly supporting continuation of the Steel Import Monitoring 

and Analysis (SIMA) system. The domestic industry called for indefinite extension and enhancement of the SIMA. 

 See http://www.steel.org

• Ispat International N.V. announced on October 25, 2004 that it had agreed to acquire LNM Holdings N.V. On the same day, Ispat

International and International Steel Group Inc. announced a definitive agreement to merge. The combined firm, Mittal Steel N.V., 

would be the world=s largest steel producer. See http://www.ispat.com and http://www.intlsteel.com 

• Gerdau Ameristeel US Inc. acquired the fixed assets and working capital of North Star Steel from Cargill Inc. on November 1, 2004, 

including four long-product minimills and three wire-rod processing facilities. See http://www.gerdauameristeel.com

Table AB1 

Producers’ shipments increase, but imports increase more, during second quarter 2004 compared 

to second quarter 2003 and first quarter 2004 

Item Q1 2004

Percentage 

change, Q2 2004

from Q1 2004 Q2 20041

Percentage 

change, Q2 2004

from Q2 2003

Producers= shipments (1,000 short tons)........................ 28,265 3.7 29,308 13.2

Finished imports (1,000 short tons)................................ 5,197 34.2 6,974 58.8

Semifinished imports (1,000 short tons)......................... 1,559 18.2 1,843 77.4

Exports (1,000 short tons).............................................. 2,105 -7.7 1,942 -27.3

Apparent supply, finished (1,000 short tons).................. 31,357 9.5 34,340 24.4

Ratio of finished imports to apparent supply (percent) ... 16.6 2

3.7 20.3 24.4 1

 Preliminary. 

2

 Percentage-point change. 

Note.BBecause of rounding, figures may not add to the totals shown. 

Source: American Iron and Steel Institute. 
SEPTEMBER/OCTOBER 2004 

Industry Trade and Technology Review Key Performance Indicators 

A-3 

STEEL

Table AB2 

Steel service centers: Second quarter 2004 shipments increase by more than 10 percent compared

with second quarter 2003, but decline by 15 percent from the record level of first quarter 2004

Item Mar. 2004 June 2004

Percentage 

change, June

2004 from

Mar. 2003 Q2 2003 Q2 2004

Percentage 

change, Q2

2004 from

 Q2 2003

Shipments (1,000 short tons) .................. 5,441 4,605 -15.4 12,641 13,957 10.4

Ending inventories (1,000 short tons)...... 12,890 13,809 7.1 12,836 13,809 7.6

Inventories on hand (months).................. 2.4 3.0 (

1

) 3.2 3.0 (

1

)

 1

 Not applicable. 

Source: Metals Service Center Institute. 

• U.S. steel service centers rebuilt their inventories during second quarter 2004, following record-setting shipments in 

March (table A-2). Second quarter 2004 steel shipments exceeded year-earlier shipments during each month of the 

quarter according to the Metals Service Center Institute. See http://www.msci.org

• The American Institute for International Steel import market survey (June 2004) predicts increased imports of 

cut-to-length plate and merchant bar during the next 3 to 5 months. The survey predicts no significant changes in 

imports of semifinished, hot- or cold-rolled sheet, corrosion resistant, wire rod, structural, pipe and tube, and 

stainless sheet. See http://www.aiis.org 

• The 62 countries reporting to the International Iron and Steel Institute produced 745 million tons of crude steel during 

the first 8 months of 2004, an 8.5-percent increase over the same period in 2003. More than 25 percent of the total 

(188 million tons) was produced in China. Chinese production increased more than 21 percent compared to the first 

8 months of 2003. See http://www.worldsteel.org

• Domestic steel mill capability utilization increased for the third consecutive quarter due to strong demand, even as 

imports increased during second quarter 2004 (figure A-2). See http://www.steel.org

0

20

40

60

80

100

Q1 2003 Q1 2004

Percent

0

2

4

6

8

Percent

Capability utilization (left scale) Import penetration (left scale)

Finished imports (right scale) Exports (right scale)

Figure A-2

Steel mill products, all grades: Capability utilization continues upward trend during second 

quarter 2004

Note.--Capability utilization is the raw steel tonnage produced divided by the tonnage capability to produce raw steel 

for a sustained full order book

Source: American Iron and Steel Institute. 
SEPTEMBER/OCTOBER 2004 

Industry Trade and Technology Review Key Performance Indicators 

A-4 

AUTOMOBILES 

Table A-3 

U.S. sales of new passenger vehicles (cars and light trucks), domestic and imported, and share of U.S. 

market accounted for by sales of total imports and Japanese imports, by specified periods, January 

2003-June 2004 

 Percentage change 

Item 

Apr.-June 

2004 

Jan.-June 

2004 

Apr.-June 2004 

from 

Jan.-Mar. 2004 

Jan.-June 

2004 from 

Jan.-June 2003 

U.S. sales of domestic passenger vehicles (1,000 units) ..... 3,606 6,755 14.5 2.5 

U.S. sales of imported passenger vehicles (1,000 units)...... 895 1,657 17.4 1.0 

Total U.S. sales (1,000 units) ............................................. 4,501 8,412 15.1 2.2 

Ratio of U.S. sales of imported passenger vehicles to 

 total U.S. (percent) ........................................................... 19.9 19.7 1

0.4 1-0.2 

U.S. sales of Japanese imports as a share of the total 

 U.S. sales.......................................................................... 9.6 9.8 1

-0.5 10.7 1

 Percentage point change. 

Note.—Domestic passenger vehicles include U.S.-, Canadian-, and Mexican-built cars and light trucks sold in the United 

States. Imported passenger vehicles do not include cars and light trucks supplied by Canada and Mexico. 

• Despite high gasoline prices, U.S. passenger vehicle sales were at their highest for the year in May, up 

15 percent over April sales, and up 3 percent over the year-ago May level. 

• Sales of passenger vehicles were off in June, the first month in 2004 in which passenger vehicle sales fell 

below the year-ago month level. June was particularly disappointing for GM and Ford; their sales were 

down by 12 percent and 8 percent, respectively, over the year-ago month. By contrast, Honda was up 

by 5 percent, Nissan was up by 14 percent, and Toyota was up by 10 percent. 

• Despite the June setback, the industry's sales were up 2.2 percent for the first 6 months of this year. 

However, this increase did not meet industry expectations, particularly in light of the fact that disposable 

income and consumer spending both grew by over 3.5 percent during the first half of 2004. 

0

1000

2000

3000

4000

5000

Q1

2000

Q3 Q1

2001

Q3 Q1

2002

Q3 Q1

2003

Q3 Q1

2004

1,000 units

Total sales--cars Total sales--cars/light trucks

Domestic sales--cars Domestic sales--cars/light trucks

Import sales--cars Import sales--cars/light trucks

Figure A-3

U.S. sales of new passenger vehicles (cars and light trucks) increased in the second quarter 2004

Note.—Domestic sales include U.S.- and Mexican-built vehicles sold in the United States; these same units are not 

included in import sales.

Source: Automotive News ; prepared by the Office of Industries. 

3,606,208

4,501,019

593,433

894,811

2,096,292

1,502,859

Dollars
SEPTEMBER/OCTOBER 2004 

Industry Trade and Technology Review Key Performance Indicators 

A-5 

UNWROUGHT ALUMINUM1 

0

200

400

600

800

1000

Q2 Q3 Q4 Q1

2002

Q2 Q3 Q4 Q1

2003

Q2 Q3 Q4 Q1

2004

Q2

l,000 metric tons

0

20

40

60

80

100

Cents per pound

Imports (Y1) Exports(Y1) Price (Y2)

Figure A-4

Price of primary aluminum rises 3 percent during second quarter 2004, due to tight supplies of 

alumina for smelters early in the quarter, along with capacity shutdown at one facility

1 1 2

 1 Unwrought aluminum and aluminum alloys.

 2 Quarterly average of the monthly U.S. market price of primary aluminum ingots.

Source: Compiled by USITC staff based on data obtained from the U.S. Geological Survey. 

• Chinese aluminum production was further constrained in mid-second quarter 2004, as the central government 

tightened credit and refused loans to industrial sectors deemed Aoverheated.@ These steps helped ease the global 

supply-demand imbalance and contributed to lower prices for both alumina and aluminum scrap later in the quarter. 

• Aluminum scrap prices came under further downward pressure; Western smelters took advantage of wider margins 

between scrap and ingot prices to accumulate larger-than-normal scrap inventories this past spring, and planned to 

buy less scrap in anticipation of the summer=s seasonal slow-down and economic uncertainty for fall. 

 

• In May 2004, Alcan Inc. announced plans to divest substantially all of its global rolled-products operations as a 

separate company to meet regulatory requirements of the U.S. Department of Justice for merging with Pechiney SA 

(France). Alcan will retain the smelting, refining, and packaging operations, along with certain former-Pechiney 

rolling operations, with ownership of the Ravenswood, WV, rolling mill yet to be resolved. 

Table A-4 

Continued robust worldwide demand in second quarter 2004 reflects continued drawdown of 

London Metal Exchange (LME) inventories from the peak level of fourth quarter 2003 and rising 

prices for primary aluminum since second quarter 2003

 Percentage change

Item 

Q2

2003

Q1

2004

Q2 

2004 

Q2 2004 

from 

 Q2 2003 

Q2 2004

from 

Q1 2004

Primary production (1,000 metric tons) ....................... 674 635 630 -6.5 -0.8

Secondary recovery (1,000 metric tons) ..................... 738r 741r 755r 2.3 1.9

Imports (1,000 metric tons) ......................................... 746 763 864 15.8 13.2

Import penetration (percent)........................................ 35.5 36.9 39.9 1

4.4 13.0

Exports (1,000 metric tons)......................................... 56 69 84 50.0 21.7

Average nominal price (cents/lb)................................. 66.5 79.9 82.5 24.2 3.3

LME inventory level (1,000 metric tons)...................... 1,142 1,227 940 -17.7 -23.4

 1 Percent-point change. 

Note.BRevised data indicated by Ar.@

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. 
SEPTEMBER/OCTOBER 2004 

Industry Trade and Technology Review Key Performance Indicators 

A-6 

FLAT GLASS

0

500

1000

1500

2000

2500

3000

1999 2000 2001 2002 2003 2004

1,000 square meters

0

5

10

15

20

25

30

Million dollars

United States (quantity) All countries (quantity)

United States (value) All countries (value)

Figure A-5

Japanese monthly average imports from U.S. and World increased during first 7 months of 2004

 1 Data for Jan-July (Latest available data).

Source: Compiled from "World Trade Atlas: Japan" at http://www.globaltradeatlas.com, using official statistics 

provided by the Government of Japan. 

1

Background 

• Although the U.S.-Japanese agreement on Japanese market access for imports of flat glass, which 

sought to increase access and sales of foreign flat glass in Japan, expired on December 31, 1999,1

 the 

U.S. Government continues to engage the Japanese Government in discussions over access to the 

Japanese market. Most recently, in the 2003 Trade Forum discussion held in July 2003 under the 

U.S.-Japan Partnership for Economic Growth, the U.S. Government Ahighlighted the continuing 

problems that prevent market entry, including the need for tighter enforcement of rules against 

anticompetitive behavior.@

2

 The U.S. Government also urged Japan to modify regulations to facilitate 

use of energy-efficient glass in Japan.

• U.S. and Japanese negotiators have agreed that Japan=s Ministry of Trade and Industry (now Ministry of 

Economy, Trade, and Industry (METI)), in conjunction with the Japan Fair Trade Commission (JFTC), 

should monitor Japanese flat-glass manufacturers and the glass distribution system in Japan to promote 

competition in the sector.3

 

Current

• As a result of increased economic growth in 2004, Japanese average monthly consumption for imported 

flat glass from all countries increased 5 percent for the first 7 months of 2004, to 2.6 million square meters, 

compared with the same period in 2003. The average monthly value of all Japanese flat-glass imports for 

the first 7 months of 2004 increased 20 percent, to $21.3 million, compared with the same period in 2003. 

In full-year 2003, the quantity of average monthly Japanese imports increased 8 percent compared with 

the same imports in 2002, and increased 7 percent in value during the same period. 

• Average monthly Japanese imports from the United States increased by quantity and value during the 

first 7 months of 2004 compared with the same period in 2003 (up 28 percent to 409,000 square meters 

and up 56 percent to $9.3 million, respectively) due largely to increased demand in Japan for 

higher-value, architectural-grade coated and ultra-clear flat glass products from the United States, for 

construction-related applications. In full-year 2003, average monthly imports from the United States 

increased 10 percent in quantity and 16 percent in value compared with the same imports for 2002. 

 1

Office of the United States Trade Representative (USTR), The President=s 1999 Annual Report on the Trade 

Agreements Program, p. 227, found at http://www.ustr.gov/reports/tpa/2000index.html, retrieved Mar. 3, 2004. 2

USTR, 2004 Trade Policy Agenda and 2003 Annual Report of the President of the United States on the Trade 

Agreements Program, Mar. 2004, p. 182. 3

USTR, Fourth Annual Submission by the Government of the United States to the Government of Japan on 

Deregulation and Competition Policy, Oct. 12, 2000, p. 32. 
SEPTEMBER/OCTOBER 2004 

Industry Trade and Technology Review Key Performance Indicators 

A-7 

SERVICES

Business 

Education 

Insurance

Finance 

Other

Royalties 

and 

license 

fees

Tourism 

Transportation

-8

-6

-4

-2

0

2

4

6

8

10

Billion dollars

Second quarter 2003 Third quarter 2003 Fourth quarter 2003 First quarter 2004

 1 Data for telecommunication services are to small to be revealed graphically. 

 2 Includes passenger fares, freight, and port services.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Survey of Current Business, July 2004,

pp. 94-95. 

Figure A-6

Balance on U.S. service trade accounts,1

 by select quarters, 2003-04

2

0

2

4

6

8

10

Q2-2002 Q3-2002 Q4-2002 Q1-2003 Q-2-2003 Q-3-2003 Q4-2003 Q1-2004

Billion dollars

European Union Japan Canada

Figure A-7

Surpluses on cross-border U.S. services transactions with selected partners, by select quarters, 2002-041

 1 Private-sector transactions only; military shipments and other public-sector transactions have been excluded. 

Source: U.S. Department of Commerce, Bueau of Economic Analysis, Survey of Current Business , July 2004, pp. 106-111.
SEPTEMBER/OCTOBER 2004 

Industry Trade and Technology Review Key Performance Indicators 

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 

during the first half of 2004. Trade shifts during the first half of 2004 are compared with the same period a year ago. 

• Continued robust growth in the U.S. economy and escalating prices in the energy sector were the principal factors 

contributing to the 13-percent ($22.4-billion) rise in U.S. imports from NAFTA partners in the first half of 2004. Prices 

for U.S. imports of petroleum products rose by an average of 3.5 percent per month during January-June 2004, 

compared with 0.3 percent for non-petroleum products.1

 Petroleum price increases reflected temporary supply 

disruptions from Nigeria and Venezuela; concern about the security of Middle East petroleum fields; robust global 

demand, particularly in China and the United States; and constraints in world petroleum refining capacity. 

• Canada and Mexico supply about one-third of U.S. imports of crude petroleum. The increased value of petroleum 

imports from Canada (by $2.3 billion, or 19 percent) and Mexico (by $1.8 billion, or 25 percent) accounted for 16 

percent and 21 percent, respectively, of the rise in total U.S. imports from these NAFTA partners in the first 6 months 

of 2004. 

• Rapid economic expansion in China contributed to tight supplies of raw materials and other industrial inputs 

worldwide, leading to higher commodity prices as reflected by increased import values from Canada of lumber, 

particle board, aluminum, nickel, gold, and copper. Imports of lumber, for example, rose by $1.1 billion (48 percent) 

in the first half of 2004 and particle board, by $1.0 billion (141 percent). 

• Relatively low U.S. interest rates also sustained U.S. demand for Canadian lumber and particle board, as well as for 

manufactured goods. U.S. imports of passenger vehicles (primarily full-sized sedans) from Canada rose by $2.3 

billion (16 percent) as did Canadian motor vehicle parts and internal combustion engines, by $890 million (14 

percent).2

 However, concerns about the spread of “mad cow disease” muted the growth in U.S. imports of live cattle 

from Canada, which declined from $395 million to $1 million in the first half of 2004. 

• By contrast, U.S. imports of passenger vehicles from Mexico fell by $607 million (10 percent) in the first half of 2004. 

The reduction in imports of passenger vehicles from Mexico, largely attributable to waning popularity of 

smaller-sized passenger models, was nearly offset by a $522-million (15-percent) increase in imports of 

Mexican-produced trucks and tractors. Given the North American industry=s emphasis on reducing overall assembly 

costs, U.S. imports from Mexico (like Canada) of certain motor vehicle parts and of internal combustion engines and 

parts grew by $968 million (24 percent) during the period. 

• North American television producers, whose plants are concentrated along the U.S.-Mexico border in San Diego, 

Tijuana, Mexicali, Ciudad Juarez, and Reynosa, have responded to increased competition from China by placing 

greater emphasis on higher value-added televisions with flat-screen, high-definition, LCD, and plasma 

technologies.3

 U.S. imports of televisions from Mexico grew by $1.1 billion (59 percent) in the first half of 2004, 

whereas imports of parts and related equipment, including cable boxes, nearly doubled, rising by $302 million. 

 

 1 Calculated by USITC staff from monthly indices published by the U.S. Bureau of Labor Statistics, found at 

http://www.bls.gov/news.release/ximpim.nr0.htm, retrieved Nov. 16, 2004. 2 Canada traditionally has been a net exporter of assembled vehicles and a net importer of automotive components. 

Despite the recent upturn in U.S. imports of finished vehicles from Canada, exports of assembled vehicles from Canada 

generally have been on the decline since 1999. In an Oct. 2004 industry report, the Canadian Automotive Partnership 

Council recommended increased innovation and efforts to attract investment in the automotive industry so that Canada 

can restore its status as a major net exporter of finished vehicles. The report can be viewed at

http://capcinfo.ca/english/home-accueil.html. Peter Menyasz, “Group Urges Canadian Government to End Barriers to 

Auto Trade With U.S.,” International Trade Daily, Oct. 29, 2004, pp. 1-2. 3 For examples of recent investments in production of higher-technology televisions, see “Maquiladora Focus: 

Factories Are Finally Out of the Woods, but the Export Landscape Has Changed,” Mexico Watch, July 1, 2004, p. 8.
SEPTEMBER/OCTOBER 2004 

Industry Trade and Technology Review Key Performance Indicators 

A-9 

NORTH AMERICAN TRADE HIGHLIGHTS 

Table A-5 

North American trade, 1999-2003, January-June 2003, and January-June 2004

 Percent

 ___January-June change

Item 1999 2000 2001 2002 2003 2003 2004 2003/04

CCCCCCCCCCValue (million dollars)CCCCCCCCCC

U.S.-Mexico trade: 

Total imports from Mexico ............... 109,018 134,734 130,509 134,121 137,199 67,194 75,557 12

U.S. imports under NAFTA: 

Total value ................................. 71,317 83,995 81,162 84,747 87,750 43,111 46,997 9

Percent of total imports .............. 65 62 62 63 64 64 62 1-2

Total exports to Mexico ................... 81,381 100,442 90,537 86,076 83,108 40,395 44,944 11

U.S. merchandise trade balance 

with Mexico2 ............................... -27,637 -34,292 -39,971 -48,045 -54,091 -26,799 -30,614 -14

U.S. -Canada trade: 

Total imports from Canada .............. 198,242 229,060 216,836 210,518 224,016 111,878 125,900 13

U.S. imports under NAFTA: 

Total value ................................. 115,715 123,052 113,179 115,807 119,416 59,204 65,190 10

Percent of total imports .............. 58 54 52 55 53 53 52 1-1

Total exports to Canada .................. 145,731 155,601 144,621 142,543 148,749 75,965 81,533 7

U.S. merchandise trade balance 

with Canada3 .............................. -52,511 -73,459 -72,215 -67,975 -75,267 -35,913 -44,367 -24

1 Percentage-point change. 

2

 The negative (-) symbol indicates a loss or trade deficit. The $54.1-billion deficit in U.S. merchandise trade with Mexico in 

2003 was partially offset by a $4.7-billion U.S. surplus in bilateral services trade, not seasonally adjusted. 3

 The $75.3-billion deficit in U.S. merchandise trade with Canada in 2003 was partially offset by a $7.6-billion U.S. surplus in

bilateral services trade. During the first 2 quarters of 2004 the U.S. surplus in bilateral services trade totaled approximately $6.1

billion, not seasonally adjusted. 

Source: Compiled by USITC 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, AU.S. International Transactions Accounts Data,@ table 11, found at 

http://www.BEA.DOC.GOV/BEA/International/BP_web/list.CFM?ANON=92.

• U.S. export growth to NAFTA partners reflects the region=s manufacturing integration, with production inputs for 

goods marketed throughout North America leading the expansion in U.S. exports to Canada (by $5.6 billion, or 7 

percent)

4 and Mexico (by $4.5 billion, or 11 percent) in the first half of 2004 compared with the same period in 2003: 

$ Leading the first-half rise in U.S. exports to Canada were certain motor vehicle parts, including engines and 

seats, which increased by $1.3 billion (12 percent). Exports of semiconductors and computer parts rose by 

$604 million (32 percent), and exports of natural gas and electricity expanded by $510 million (50 percent). 

$ Computers and parts topped the growth in U.S. exports to Mexico, rising by $768 million (68 percent), as 

semiconductors increased by $436 million (24 percent) and parts of television and radio equipment, by $207 

million (32 percent). Exports to Mexico of finished passenger vehicles and trucks rose by $440 million (27 

percent), as exports of certain motor vehicle parts and parts of internal combustion engines climbed by $457 

million (13 percent). 

 

 4 U.S. exports increased despite a slight depreciation of the Canadian dollar versus the U.S. dollar during the first 

half of 2004. The Canadian dollar depreciated 0.1 percent and 3 percent, respectively, in the first and second quarters 

of 2004, representing a reversal of the trend in valuation during 2003, but rebounded in the third quarter of 2004 to an 

11-year high of 79.27 U.S. cents in Oct. 2004. Canadian Department of Foreign Affairs and International Trade, ATrade 

and Economic Analysis,@ Quarterly Canadian Trade Review, available at http://www.dfait-maeci.gc.ca; and Wojciech 

Szadurski, AWhat=s Up With the Canadian Dollar?,@ found at http://www.globalinsight.com retrieved Oct. 15, 2004.