United States urges ambitious cut in agricultural subsidies

Upcoming WTO negotiations, formally known as the Doha Development Agenda, have reached a critical moment that will test whether nations have the will and ambition to reduce agricultural subsidies and other trade barriers in ways that encourage global economic growth, according to US Trade Representative Rob Portman.

Portman spoke to the Federation of Indian Chambers of Commerce and Industry in New Delhi on November 12.

"Unless we can see a coming-together of not just reductions of subsidies but also of reductions of barriers in agriculture," Portman said, "it will be very difficult to have a coming-together in the Doha round."

Portman, with Secretary of Agriculture Mike Johanns, made the same point to reporters in a November 9 teleconference.

Many developing countries have a comparative advantage in agriculture, Portman said, and significant reductions in agricultural subsidies and other barriers would enable many of them to sell products more successfully in developed-country markets.

Portman said that even though the United States has relatively low agricultural tariffs, the European Union "has had great difficulty agreeing to a proposal that reduces the tariff barriers in agriculture to the point where there is real market access."

The United States and India now are cooperating at unprecedented levels in such areas of anti-terrorism, military-to-military cooperation, and a new civilian nuclear agreement, Portman noted. Bilateral trade in goods and services will reach $30 billion in 2005, he added.

This bilateral cooperation, Portman added, will move to a new level with the inauguration of the India-United States Trade Policy Forum, an initiative begun with Prime Minister Singh's US visit.

Following are Portman's remarks and the question-and-answer session that followed:

AMBASSADOR PORTMAN: Thank you very much. We are fortunate to have Ambassador Mulford here representing the United States' interests. He also has an unusual background, in the sense that when I was in the first Bush administration, he was at the Treasury Department as the top international economics official, and then he went into the private sector, where he had a very distinguished career, and now for him to come back to take this very important post is indeed a blessing for us. And I think that it's fortunate for India, too, because you have somebody here in Ambassador Mulford, who is very respected, not just by me, but more importantly by our President, and by those in the legislature in Washington. So, thank you, David, and thank you for your good service here.

This is my first trip to India, as was said, and it will not be my last. It's been fascinating. I've thoroughly enjoyed it. I appreciated some good meetings today with the Minister of Agriculture and the Minister of Finance, also meeting with the American Chamber business groups, and I'm really looking forward to continued discussions with the group of Federation members who are here today. It's a distinguished group, and I appreciated hearing from Dr. Mitra already, and also from Mr. Kanwar. I leaned over to my friend Kamal Nath, and I said, "You must be using the same talking points as Mr. Kanwar, when he talked about mode four. But sincerely, it was good to hear that perspective, and, as you know, I've heard it delivered very eloquently by my friend Kamal Nath, over the last several months.

India's diverse cultures, traditions, rich history, and its vibrant democracy are all reasons that so many Americans have such a strong interest in India. To be here with Kamal, for me, is very special, because we have talked a lot about coming to India, we've talked a lot about the challenges that India faces in terms of its economic development, in terms of its subsistence farmers, who I have heard about this morning Ð Kamal, I want you to know Ð from some of your colleagues, and about the concerns of being sure that as the economy grows and liberalizes, that it's done in a way that's sensitive to India's special needs.

When I became trade representative, I immediately went to Europe for trade meetings, and on my first day on the job, Minister Nath invited me to his hotel for breakfast Ð I don't know if he remembers this or not Ð but, I was a little hesitant, because I thought, I'm just getting broken-in, getting to know some of the ministers, I'm not sure that I'll have much to talk about at breakfast with Kamal Nath until I understand all the issues better. But of course, he immediately put me at ease. He was exceedingly polite, as he always is, but he also was good in terms of directing me a little bit, and focusing me a little bit. And of course, even in that first meeting, he was articulating well the needs and concerns of India. He does so very effectively. He represents his country well. He is viewed as somebody who also has the interests of the WTO round at heart; in other words, he believes in the power of trade, and therefore he has a lot of respect among his peers. Above all, I consider him a good friend, and I'm glad to be with him today.

It's good that we are friends, because we have had some tough issues to deal with in the Doha round. This was mentioned earlier, but the current state of the Doha round is one of those tough issues we've had to work through. We are both, I think it's fair to say, quite concerned about the direction of the round. We stand at a critical point in the negotiations. I think what is fundamentally at issue is what will the level of ambition be, how much are we going to be able to reduce tariffs and other barriers to trade. How much are we going to be able to reduce trade-distorting subsidies? Will this be a round where we can really say to our constituencies that there's something powerful here that will help to encourage economic growth in our countries, and indeed, to encourage global economic growth, and to help those countries who are the poorest of the poor, which is part of the objective of this development agenda round?

This may sound counterintuitive to some of you, but I actually strongly believe it's easier to sell a more aggressive round back home. Why do I say that? In the United States, and I won't speak for India, but in the United States, there are forces who are against liberalization, against the reduction of barriers, and their voices will be heard, one way or the other, whether it's a weak result, or whether it's a strong result. Unless it's a strong result, I'm not sure who's going to be standing with me. I would hope if it's a strong result, that everyone in this room will stand with Kamal Nath, and will be able to tell their constituencies Ð their employees, their shareholders, their directors, indeed the people of India Ð that this offers India opportunity and hope. Because India, as a growing economic power, has a strong interest in a global trading system that is fairer, that has a more level playing field. This is one reason that I believe that it's important to have an ambitious result to this round, in addition to it being, I believe, in the interests of the global economy and consistent with the Doha round spirit.

The United States, in order to make this round ambitious, delivered last month a proposal to try to jump-start the agriculture negotiations. In my first several months on the job, I heard a lot about how the United States needed to step forward and do more in terms of the reduction of domestic subsidies and export subsidies, and so we did that. And we did that, not without some price. Because back home, this is a very difficult issue. Our farmers and those legislators who support the agriculture community are very concerned that our proposal to reduce the domestic support be accompanied by also a reduction of the tariffs and other barriers to trade so that those same farmers who are being told they will now receive less in terms of support will be able to sell their products abroad. The United States, as you know, has relatively low tariffs. We have low tariffs across the board. On average, our tariffs are about 4%. In agriculture, our tariffs are also relatively low. Other countries have much higher tariffs, and other non-tariff barriers.

Right now, we are in a position where, unless we can see a coming-together of not just reductions of subsidies but also of reductions of barriers in agriculture Ð taking the tax out, taking the tariffs out Ð it will be very difficult to have a coming-together in the Doha round. And it's not just the United States. Yes, for me it's important, because in order to have the subsidy reductions, we need to have the market access. But for so many other countries, including those represented by the G20 group of developing countries Ð of which Kamal is a leader Ð they, too, are pressuring hard for market access in agriculture. After all, this round, this once-in-a-generation opportunity to reduce tariffs, put agriculture in the center. Agriculture had been addressed in the previous round, the Uruguay round, but frankly, agriculture had never been much considered in these global trade talks. And so many developing countries have a comparative advantage in agriculture. I believe that this is an opportunity for them to be able to sell some of their products, particularly in the developed country markets, but also into other developing country markets. So unless we can solve this problem on agriculture, it is difficult to move on and to have a successful conclusion to the other very important aspects of the round, including reducing industrial tariffs under the so-called NAMA discussions. Including reducing barriers to services, where India has played a leadership role. Minister Nath and I co-chair the core group on services, where we are trying to be sure that the barriers to services trade Ð where India has a comparative advantage now, and will have even more of an advantage over the next decade Ð will have a fair shake.

The European Union has had great difficulty agreeing to a proposal that reduces the tariff barriers in agriculture to the point where there is real market access. Until they can do that, until they can come up with a proposal that is balanced, that reduces their subsidies, but also reduces their tariff barriers, I think it will be very difficult as a practical matter for us to come together and have a successful round.

On our bilateral relationship, India and the United States are also working very closely together. Today, in fact, at our Trade Policy Forum, we will be talking about these multilateral issues I just discussed, with the WTO, but also our bilateral relationship. And in my view, the India-US relationship has never been stronger. Over the past four years, the United States and India have reached unprecedented levels of cooperation in so many areas Ð anti-terrorism is one, military-to-military relations, and regional cooperation. Ambassador Mulford mentioned the two countries having reached a landmark civilian nuclear agreement. We are now working through those implementation issues.

Our partnership, I think, is reinforced by the close personal relationship we have now between our President and Prime Minister Singh, and also his very successful visit to Washington in July. I was there, and I got to see first-hand the warmth of that relationship, and not just between the President and Prime Minister, but also the senior officials who accompanied each of them.

Upon completion of that visit, the President and Prime Minister together identified bilateral priorities on a range of issues. And one of the key issues was our strengthened cooperation in the area of our economic relationship. The two leaders agreed that India and the United States should support and accelerate economic growth in both countries through greater trade, investment, and technological collaboration.

Visits from a variety of Indian cabinet officials to the United States and by senior US officials here to India, including most recently Secretary Snow, are helping to focus attention on this bilateral relationship as we have not seen before. As many of you in this room can personally attest, contacts among our corporate executives of both countries have also increased, in part through the CEO Forum, but also just through the enhanced business relationship.

And it is paying dividends. Trade between our two countries is growing, as Kamal said. Foreign direct investment has increased in both directions, and total bilateral trade in services and goods will reach about $30 billion this year, when you include services and goods. That's up from about $12 billion only ten years ago. So from $12 billion to $30 billion over the last decade. India is now one of the United States' great export markets, and India enjoys an overall $9.5 billion trade surplus with the United States.

While we have made progress in building and strengthening these economic links, there is more to be done. I would draw your attention to one agreement that's been very successful, and that's the recent Open Skies agreement, opening trade in aviation services between our two countries. I would also mention the CEO Forum, and other private sector initiatives as being good examples.

That's all good news. But I believe Ð compared with the size and potential of both of our economies Ð that trade and investment flows should be much greater than they are.

The conditions are there. We share so much in common. We are two of the world's foremost democracies, two of the largest market economies. We share a common language Ð although some of my Indian friends tell me that we Americans don't really speak English. (laughter) We share a common belief in the rule of law. And the two cultures that once seemed far apart are growing closer, partly as more Americans are doing business in India, and living in India, and partly as the community of Indians is growing in the United States. In fact, Americans of Indian descent is not just growing in the United States, there are some very successful entrepreneurs, academicians, and even government officials. One of those is with us today. I'd like to introduce to you formally, if you haven't met him already, the new Deputy US Trade Representative, who is an Ambassador, who has just been confirmed by the United States Senate, I'm delighted that he was able to join me on this trip, and that's Karan Bhatia. (applause) He will have day-to-day responsibility for our relationship with India, among other things, and I hope that some of you will get to know him very well, indeed.

I think we should have a trade relationship with India that supports and reinforces the relationship we have talked about. The amount of our bilateral trade, I think should be far higher than current levels. Kamal Nath just gave us a very ambitious goal, of doubling our trade in three years. I was going to say four years, but now, thanks to Kamal and our friendship, I will have to shift and be more ambitious Ð just as we are trying to be in the Doha round Ð and say that I, too, agreed that over the next three years, we should undertake to double our trade between India and the United States.

I believe it's achievable. Later today, we will officially inaugurate the India-United States Trade Policy Forum. Again, this is a new initiative that was started in connection with Prime Minister Singh's visit to the United States. I will tell you it's one of only three that I am involved with. One is with China, where we have a much larger trading relationship, and where, frankly, we also have a lot of trade issues to work out every year through our forum. The other is with the European Union, which as you know, with the 25 member countries is the largest economic entity now, their economy being even larger than the United States. The fact that India is the third is a testament to the importance with which we attach the economic relationship and the importance to which we attach our overall relationship with India. Kamal talked about it as the "missing link." It is, in many respects, a missing link, when you think about the larger relationship that we have. We need to be sure that we do a better job encouraging trade by resolving our issues.

I think the Forum can be a hub around which we raise and resolve our bilateral trade issues, opportunities and challenges alike. It can be an open channel of communication, to help us head off trade issues, even before they become trade problems, sort of an early warning system. I appreciate the willingness of the Singh Government to host the Forum this year, and I look forward to hosting the session in the future.

As we prepare to take stock of where we stand on specific issues, I would like to applaud Minister Nath again and the Singh Government on the steps that they have already taken to reduce barriers to free trade. We view those efforts as a sign that the two countries can do even more going forward.

Let me conclude by restating what I said at the outset. And that is, that on this first trip to India, I have come to listen, to learn, to help grow a new bilateral trade relationship. But in many respects, I feel like I'm at home here in India.

As the world's oldest and largest democracies, and as countries committed to economic growth, to more open markets, the United States and India have a lot in common. And because our people share a sense of dynamism, optimism, innovation, creativity, I believe India and the United States will become even closer partners and critical players in the competitive global environment of the 21stcentury. I look forward to this being the first of many visits to India. Thank you all.

Question and Answer Session

With Ambassador Rob Portman, United States Trade Representative

And Minister Kamal Nath

Hosted by Federation of Indian Chambers of Commerce and Industry

Hotel Intercontinental, New Delhi, India

November 12, 2005

Moderator:Ladies and gentlemen, Ambassador Portman and Minister Nath have agreed to take some questions before we close the meeting. Mr. Ray Vicory, former assistant secretary of United States, Department of Commerce, who is now with US India Business Council and therefore representing it.

Q: I am indeed Mr. Minister and Mr. Ambassador, the US India Business Council represents 140 of the largest investors from the United States and India and we have just completed an executive mission along with Secretary Snow, twenty members that have had a very good week and I congratulate you both on inaugurating the trade policy forum. I want to pick up on something that Minister Nath has said in terms of imports from the United States, which will drive manufacturing investment, and also why levels are so low. I would raise with you, and I don't know how this issue will ought to be handled, but the problem of policies which are agreed to at the national level at the center and then are frustrated at a state level by unelected officials. I will give you a concrete example: one of our members Dell agro sciences has, since 1997, had authority to sell a product throughout India and it is being sold every where in India except in one state in Punjab. Unfortunately for 3 years the ability to sell this particular product has been withdrawn. There have been letters from the Ministry of Agriculture, from the Ministry of Chemicals, there is even then a state court ruling saying that it should be instituted. The Ambassador himself has met with the Chief Minister and I would submit to you it is that kind of working level problem which is holding down, in terms of both investment and trade. I don't know what the answer is and I wouldn't raise it if I felt that it was isolated kind of a situation but there are others and I will be very interested Mr. Minister in any response you might have and direction as to how you might go in such a situation?

Minister Nath: Thank you for bringing it to my notice. There is a background to evolving trade talk in India where trade was considered, foreign trade was considered merely an activity of the central government and state governments were never on board, they never really comprehended the importance of this trade in terms of the employment, the industry etc. This transition is now taking place where states are getting on board but still there are many areas as you mentioned one of them which need to be ironed out undoubtedly and because of that, we have now set up interstate trade council so that there is commonality and the states are on board of the foreign trade policy, they are comprehending issues, some contentious issues, because we are finding this in some other cases where one state reacts differently another state and just as in your case. So we are going to resolve many of these issues through this inter state trade council which is going to look at these issues and I was going to suggest to Rob that today in the afternoon we also make a point for the future that we exchange, we didn't discuss it, we did exchange issues which relate to specific issues, I don't, and I think it will be useful which Indian industry may have in the US and the US may have in India. Just as an exchange of paper so that we can, then government can look at it more incisively at my level and his level and he can sort of alert and flag it for his amongst the various department in the US and the various departments. That's how even US industry will feel much more involved in the trade policy forum, in fact I was going to suggest it to Rob when we met this afternoon at the inauguration. So thank you for bringing it to my notice and I am absolutely on board with you on this. And I will take this up with the government of Punjab.

Ambassador Portman: Thank you very much Mr. Minister and if we can do anything with US-India Business Council in that regard, we will be happy to do so. Thank you

Moderator: Thank you very much. There was a direct answer to that with inter-state council and we will certainly keep this process going.

Q:..I would like to address that issue what he said there has to be a greater interaction between SMEs of the two countries. I would like to address two points, which are for the respective governments to address. One is when you want to involve SMEs you need to be get greater access to the professionals-- you know getting into US, getting out of the US and the same thing from India, so I have two suggestions in this point right now the Department of Immigration and INS, you know if you want to get a green card you have to invest a one million dollars you have to do so many things so if you bring threshold down you will see a lot of movement of professionals of SME level coming into US setting up businesses and then reciprocal business. Same way if RBI allows, like free transfer of capital if they lift the capital flow controls from India.

Moderator: You mean the Reserve Bank of India.

Kamal Gupta: Yes, the Reserve Bank of India so that 20 billion--40 billion you said it can jump to 100 billions in five years it's a possibility it's a big possibility.

Moderator: Thank you very much. The suggestion of greater movement of natural persons along with Indian response from the Reserve Bank of India for greater movement of capital in order to stimulate SMEs... Honorable Minister.

Minister Nath: Where the reserve bank issue is concerned about the limits of capital, the government is callibering (sic) this from time to time, is looking at it from time to time and obviously this is built in with other such foreign investment policies, in fact conversely I must tell you that have raised this, one of the points which is raised to me by some parts of industry is that, why is Indian business investing abroad? They should be investing in India. Why do you allow them to go and invest in abroad? They ask me this question if they are going and putting up so much money why shouldn't they invest that in India and create jobs? So all these have to be married. In fact there have been some huge Indian investments but I see your point you are talking about smaller investments in the US, which stimulate trade. Really, the context which I said is in terms of SMEs was of trade because what I was saying was that SMEs in the United States have been looking at South America, Central America, they really don't look at India so much, though India is a huge market. While India is now coming into the radar in the United States, there is that small medium sector where it is not so much in the radar and we need to do that. Rob will answer your question on immigration, but I really think that today, for enhancing trade, immigration is not a stimulant to enhancing trade. What we really need is what the business community sometimes tells me is about the business visas and three months visas or what ever they are called, some extended three months visas rather than what I am talking about-- the non immigration visas, the non immigration aspect of it which can enhance trade to a large extent.

Ambassador Portman: Oh yes, I mentioned earlier Mode 4 for those who don't follow the WTO trade language; you are lucky if you don't by the way. Mode 4 refers to the movement of people, in particular intra company transfers and other business visas.

There are non-immigrant visas like the H1B in the United States. Kamal's right, they are immigration. Unfortunately they are viewed that way by many in the United States because in the past, taking India out of the equation altogether, in the past there has been lax enforcement and many over stays and it has resulted in, as you know, a large immigration problem in the United States that we are now grappling with, so it is an issue that's very difficult to deal with unless we can increase our own enforcement, which we are starting to do and unless we can began to focus more on its impact on business.

I think you will find there is more sympathy for exactly what you are talking about, which is helping the SMEs but also helping with regard to contracts on both sides, by permitting temporary non-immigrant visas to be issued. It's recently come up in a number of contexts, our business community is now more interested in it, and the administration is looking at ways to deal with it. I am talking to members of Congress about it, including the judiciary committees, where there is jurisdiction, and I hopeful that we can make progress. I will say that when you look at the United States as compared to other countries around the world, we do have a relatively open system.

We do allow for a relatively large number of non-immigrant visas, as compared to countries that are in the developed world, as a proportion to our population or GNP or other criteria. We actually are fairly generous already, but to the extent there is a need for more of this intra business activity in order to generate the kind of trade we all think is necessary, I do believe we need to figure out a way to balance the issues. One of the balances in addition to the general concern about immigration of course is security and since 9/11 that has been the other factor here-- is to be sure again that we have a system where there is adequate enforcement and I think that's something again, that because we have made progress on the enforcement side that we should be able to see progress on in terms of these visas opening up more. But thank you for your comment. I think it's an interesting angle that it will also help with regard to SMEs.

Q:..The Executive Director of the American Chamber of Commerce. I am grateful that Mr Kamal Nath mentioned about the SMEs involvement in India, he mentioned about their involvement in Latin America and Europe. Mr. Minister, the SMEs of the United States are hyperactive in South East Asia and Far East Asia at this moment. There are almost a 1000 SMEs operating in this region but not in India. AMCHAM has taken on the task of interacting with these SME s, in the month of January we will be hosting an Indo-US economic summit and therefore the support of our office is with the summit. We are taking a delegation to these countries in sometime in March next year. Interacting with the SMEs of these countries, exposing to them what India offers, in terms of what opportunities India offers in terms of investment and trade and hopefully in the next year or so we should be able to encourage more. We would be approaching your Minister Ministry to look at the some of the policies which impact and I will grateful if you could give attention to them sir. Thank you.

Minister Nath: Certainly I will because that's what something I have been highlighting and I will be happy to partner with you in any way.

Moderator: You will be interested to know Ambassador Portman that the Germans brought a hundred-member "Mittelstein" delegation to FICCI last year. And it was very very successful because again that first step is very important and I think we will join the American Chamber of Commerce in promoting this very important event.

Q: Honorable Mr. Ambassador, our Minister made a very breezy and lofty statement that if you want to know India you should taste the dust of India. I would humbly add...

Ambassador Portman: I was going to respond to that by saying I can't wait to taste the food of India.

Q: You just took the words out of my mouth. I was about to say that I humbly wish to add please also taste the lovely food and culture of India to know humanity. Now sir, so we are from the trading community, from the business community I represent the silk and textile merchandise association. We do not understand these complicated big things but we understand simple things because we invest money and we are interested in seeing that the money is well invested and it gives returns.

In simple things I want to know, recently what happened with China? When the US, England and France and other countries, despite as we understand, as we perceive it, despite certain WTO understandings of Non Quota systems, if they could produce a product which was much cheaper than anywhere in the world and if there is a sense and feeling that they should be level playing and if the Chinese want to come and play in America and if you would like to go and play in China, then why are they barred from doing this and whether this will not happen to us Indians if sometimes we also like to play in your countries? Thank you.

Ambassador Portman: That's a very good question and I will answer it relatively briefly so we can get on to taste India in terms of its food. When China acceded to the WTO there were certain undertakings and one was that there would be a specific safe guard for textiles after the textile quotas ended to the beginning of this year and frankly, that was how the agreement was passed in the US Congress, so as you know it was a very close vote and one of the reasons it was passed we explicitly told members of Congress that the US textile industry would have some level of transition after the quotas were up.

Incidentally the quota arrangement was over a ten year period and China came in, I think, at about the 6th year of that quota, so in a sense it was fair because China had not fit into WTO until that last 4 years, I believe it was. But in any case it was a right that the United States and other countries were able to obtain as part of our willingness to support the WTO accession to China and in the United States in particular that had to go through the legislature so was a particularly important point.

So I feel very strongly that we ought to be transitioning in terms of agriculture, textiles, and other issues but I also feel strongly that when there is WTO obligation that is made by us to our textile industry that we must respect that so what happened. In the first few months of this year Chinese textiles increased dramatically, in some cases as you over 1500 percent, crowding out not just US textile producers but of course textiles from other countries including India. So what we did is we invoked the safeguards that were permitted under the WTO accession. These are individual safeguards for different categories of textiles and it is rather cumbersome process because we said in our own law that had to be done every year, had to be reviewed with certain criteria, you had to demonstrate that there was a surge, meaning that there was damage to the US industry and that there was a high increase or the threat of damage. The trade lawyers were making a lot of money on it because these were cases that were brought in and had to be adjudicated. So we went to China as did the EU and said why don't we come in with a comprehensive agreement that regularizes this trade more. And so with regard to about 46 per cent of the Chinese textile exports to the United States, not all of them, but about 46 per cent of them, which is about 34 categories, I believe, we reached an agreement last week, saying that they would continue to have access to our market, increases every year, and those increases would be between 8 percent, and it goes up to 17 per cent, which is a healthy increase. And every year there'd be an increase; under the safeguards it would have been 7.5 percent.

So I think it is fair agreement in the sense that it gives some certainty and predictability to the Chinese exporters and their producers and also gives certainty, frankly, to our manufacturers and of course the retailers in the United States-- those who import these textiles were pleased to have the certainty that comes with it. After the conclusion of this agreement which is only 3 years because the textile safeguards were lasting 4 years we are almost through the first year so three years, 2006, 2007, 2008, then we are back to where we are with regard to India and other countries, where there will no longer be quotas in place. So I know it is complicated and I know from someone in the business communities, it is like: what's going on here? What is it? But actually I think this agreement is beneficial to the stability of the market; it helps with regard to countries like India that can now plan a bit better and it helps to have frankly a more managed transition. Those levels do increase every year in the United States and the EU also in recent agreement with India*, which is similar to ours although for the years 2006 and 2007.

Moderator: Thank you very much.

Minister Nath: I must assure you that there is no such provision we have. China had a special provision because they acceded to the WTO later and their accession--like many countries, which acceded, they had certain special conditions attached to them. India did not and we have no such conditions, so your fear that this can be imposed on us, you need not have that fear at all.

Moderator: Thank you very much.

*The agreements that USTR Portman was referencing are with China, not India.