The United States and the European Union (EU) "are seeking to work together" to narrow their differences on reforming agriculture trade in advance of a World Trade Organization (WTO) ministerial meeting in mid-September, U.S. Trade Representative Robert Zoellick says.

"I think the issue that is going to be the most challenging in the agriculture area is that of market access, or to put it in more plain language, cutting tariffs so you can open markets," he said July 30 in Montreal after meetings with 27 other trade ministers to discuss the Doha Development Agenda negotiations launched by the WTO in November 2001.

The Montreal meeting was labeled a "mini-ministerial" in preparation for the formal WTO ministerial conference scheduled for September 10-14, in Cancun, Mexico. Zoellick said U.S. officials see the Cancun talks as a "mid-term meeting" at which they will "try to give some impetus" to the WTO negotiations and move toward the goal of opening markets to promote economic growth and development.

In an effort to advance those talks, the United States has made "bold" proposals in the agricultural sector, Zoellick said, including the elimination of export subsidies, a $100 billion reduction in domestic subsidies, and a reduction in tariffs that would leave the highest agriculture tariff at 25 percent.

While he complimented the EU for undertaking some reform of its common agricultural policy (CAP), Zoellick said the United States and other countries were disappointed that the EU had not yet agreed to eliminate agriculture export subsidies. "The European Union has about $2 to $5 billion of export subsidies. We have $15 million, and I would be happy to eliminate them tomorrow if we could get the Europeans to eliminate theirs," he said.

He also said the United States might agree to put disciplines on its export credit programs for agriculture if such an action would help move the EU towards eliminating export subsidies.

"If we can help create the elimination of export subsidies, that would be a big plus forward, and that is something now that I hope will push the Europeans forward because there really isn't anyone else in that category at this point," Zoellick said.

Regarding market access, Zoellick said U.S. and EU officials advocate different approaches to tariffs cuts, with the United States favoring a formula that would cut higher tariffs more than lower ones, and the EU seeking a more flexible approach.

Zoellick also discussed the issue of pharmaceuticals within the WTO system and the need to ensure that the world's poorest countries have access to medicines for HIV/AIDS, malaria and other infectious diseases. He said the United States is willing to permit third countries to produce and export life-saving pharmaceuticals to poor countries, but only if safeguards are in place to ensure that the generic drugs cannot be diverted and re-sold to wealthier countries. Zoellick said those safeguards also would have to ensure that such a program "is used for humanitarian purpose as opposed to becoming a loophole for creating a commercial export industry."

MR. ZOELLICK: First, I would like to thank the people of Canada and the people of Montreal for being so kind to host us.

I found this tie in my closet on the way up. Pascal [EU Trade Commissioner Pascal Lamy] told me it has a different meaning in France, but it seems appropriate here.

I want to thank [Canadian Minister for International Trade] Pierre Pettigrew for his excellent job in hosting this meeting. He is a good friend and he is a good partner.

Just a couple of introductory points. One is that, at least for us, we think it's very important to keep our eye on the purpose of the Doha Development Agenda in the WTO which is to open markets to help promote growth and development.

Now, in the discussions over the past couple of days it came back to me again and again, that I think the simple formula to do that is to be ambitious, but to combine it with flexibility so we can all move forward, particularly in the areas for agriculture and non-agriculture, which are the goods negotiations. We spent a lot of time on those two topics.

Now, some countries are reluctant to move on agriculture, to open their markets. That's the case for the European Union. There are some countries that are reluctant to open their markets to goods. The United States has tried to move forward aggressive proposals in both agriculture and goods because we believe if everybody opens their markets it benefits everyone. We know it's not politically easy, but we think that has to be the combination that works to move the system forward.

That's why we put forward some very bold proposals. In the area of goods, just to remind you, we have called for the total elimination of tariffs, so all tariffs and goods. The area that started to be negotiated some 50 years ago, we think it's time to finish the job.

In agriculture, we have called for the elimination of export subsidies. We have called for a drastic reduction in domestic subsidies that would take about $100 billion out of the international system, and a very drastic reduction in tariffs so that the highest tariff in agriculture would be 25 per cent and we used the formula that would bring down the averages very significantly.

Now, to put this meeting in the context, as Pierre said, and Pascal and Franz [EU Farm Commissioner Franz Fischler] said, we don't have much time before Cancun. Cancun itself is a mid-term meeting. The goal of Cancun, in our view, is to try to give some impetus to these Doha negotiations -- it's not to conclude them -- and it won't be easy.

I think all the discussions that you have been covering over the months recognize that there are significant differences, but it's not surprising because as you get closer to narrowing differences and get into greater substance and get into greater specifics, it gets harder to pursue.

In our view, the core issues will be agriculture, goods, the TRIPS [WTO agreement on Trade Related Aspects of Intellectual Property] and medicine issue, and how all of these relate to the overall development agenda.

The United States and the EU are seeking to work together, but I want to hasten to add I was encouraged just this morning by both my Australian colleague and my South African colleague saying that they are encouraging us to try to make this effort. This is not the role of just the United States and the EU. We are trying to do this in a transparent process and, in many ways, we are trying to play a bridging role.

As I have said in other contexts, we compliment the efforts that the European Union has undertaken to reform its own domestic support, its internal subsidies, through its reform of the Common Agricultural Policy. We know that took a lot of work, it's a big political challenge. We think it's good for the system as a whole.

I would be less than frank with you if I didn't say that I think a number of countries were pretty disappointed that we don't have yet the European Union eliminating export subsidies. The European Union has about $2 to $5 billion of export subsidies. We have $15 million, and I would be happy to eliminate them tomorrow if we could get the Europeans to eliminate theirs.

But as you heard them say, they are talking about partial elimination and, frankly, I think a lot of countries are now trying to get a better sense of what does partial elimination mean.

You heard Mr. Fischler use the term "parallelism." Well, if we can help them eliminate subsidies, we will do it, and one of the things that I suggested was that if they are concerned about export credits, we would try to put disciplines on export credits to deal with the reduction of their term, risk sharing, and others, on a parallel frame. If they can do that in five years, we will make those disciplines in five years. If they do it in ten years, we will do it in ten years.

If we can help create the elimination of export subsidies, that would be a big plus forward, and that is something now that I hope will push the Europeans forward because there really isn't anyone else in that category at this point.

I think the issue that is going to be the most challenging in the agriculture area is that of market access, or to put it in more plain language, cutting tariffs so you can open markets. That is an area where, at least so far, we don't really have a sense of how the EU's reform of CAP [common agriculture policy] can be translated into opening markets.

As Pierre Pettigrew mentioned in his opening statement, we made a suggestion to try to close the gap and say well, the Europeans have applied what is called the Uruguay Round formula. It's a series of percentage cuts. They mentioned a number of countries support that. I note that at least a third of those countries are already members of the EU or EU accession countries. So sometimes the EU counts one and sometimes they count 25. It's convenient.

We believe, and I think this is certainly the view of the significant agriculture exporters, that we have to figure out some way to get a blend between what we and others have proposed, which is a harmonizing formula -- a harmonizing formula means you cut the highest tariffs the most -- with those that just need the additional flexibility.

So we put forward some ideas on that. That's what Pierre referred to. That is an area where we are hoping the European Union can give a positive response, at least to the concept. We don't have that yet, but we are going to discuss it a little bit more further this afternoon.

So where does that leave us on the critical issue of agriculture? Well, I think there is goodwill by the European Union and the United States to try to see whether we can create a framework for further reduction or elimination of subsidies and tariffs over time. We are going to do it in a transparent fashion and I have no doubt in the good faith and goodwill of my European colleagues, but we also plan to try to do this in a timeframe that will allow us to share ideas more specifically with our colleagues from around the world in Geneva by mid-August.

In the area of goods, it's really the same formula: How do you combine ambition and flexibility? This is one where the EU and the United States are working closely together as there are many other countries that have ambition around the world to cut tariffs, but some are still more reluctant.

On the TRIPS [Trade Related Aspects of Intellectual Property Rights agreement] and medicine issue -- just to make sure one again has the context of this -- we put together a declaration at Doha that really deals with the ability of countries to compulsory license to deal with public health crises and other emergencies.

There is one element left called the Paragraph 6 Element which is what if your country is so poor that it doesn't have the ability to produce licenses within its own country through compulsory licensing so you have to go get it from somebody else?

That is the last issue we are working on. I outlined what I thought were some of the reasonable issues that if we dealt with, we could close this out. I told them that I would certainly make my best efforts and I think we have a positive response to that and I am hopeful that we can.

And that leads to my penultimate point, which is that while there is a lot of talk about the United States and the EU, all countries have ownership of the WTO and all countries will have to make efforts to move this process forward together. There are 146 participants. The system works for all of them. We all have to figure out how we open markets and liberalize together recognizing that for developing countries, of course, it is appropriate to do this in a way that recognizes their special situation and gives them differential treatment.

My final point is that I was delighted to be here today and the past couple of days with my closest colleagues and friends from Singapore and Chile because I have been spending a fair amount of time last week trying to get those two free trade agreements through the House of Representatives. We got them through with very strong votes.

While I have been here, I understood there has been an agreement for a Senate debate this week and we hope we will be able to finish those votes before the end of the week so we will have both agreements completed.

Both [Singapore Trade Minister] George Yeo and [Chilean Foreign Minister] Minister Alvear, Soledad Alvear, are good partners in this and so it is good to be able to see them and look at their progress, as well as many countries in the room who will be our future free trade agreements partners.

Q: Sylvain Larocque, la Presse canadienne.

Mr. Zoellick, the Europeans feel that by presenting their reform here in Montreal they really made a big step forward.

Do you feel that way or do you think they really still have to give more concessions so that you really can move forward in the agriculture talks?

MR. ZOELLICK: I think it is a constructive action, as I said.

I think -- and this is why I went into a little detail -- one has to put it in the context that at Doha we agreed to try to have substantial liberalization in three pillars: Export subsidies, domestic support, and market access, opening markets.

At least from what we have learned so far, the European reforms would enable them to make the biggest difference in the domestic support area and, as I outlined, I think the world is still looking to see if Europe can eliminate export subsidies and, as I outlined, in an effort to be constructive, we agreed to try to add disciplines to our export credits and food aid and we urge those that have state trading enterprises to do further disciplines on them so we can try to push that to elimination.

In the area of market access, I described I think that it the knottiest issue. What we tried to do here is to suggest that the Europeans have said they want to use the "Uruguay Round formula" which is a percentage cut as a minimum. Many countries around the world, and you certainly could hear their voices in the room, felt that the Uruguay Round formula really didn't open markets. Many of them are developing countries. Many of them are members of the Cairns Group. They have been pushing for a harmonizing formula like what we described as the "Swiss 25" -- really cut tariffs.

This probably wasn't an exercise in brilliance. It was rather obvious to say: So how can we create a hybrid of those two? I was pleased that many of the other aggressive agricultural exporters support us in that effort. We are waiting for the European Union to say that we can create a hybrid. We hope they will.

On domestic support, I wouldn't expect you to all get lost in the weeds of details of this, but it is important you have the context. The Uruguay Round was the first effort, which was concluded in 1995 -- Pascal and Franz referred to it -- that tried to put limits on domestic subsidies. And, as all compromises, it accepted some of the imperfections of the world and its basic model was those that have a lot of subsidies, we will kind of cap them and we will start to reduce them by a percentage.

Well, the effect for the United States is that the European ceiling on those domestic subsidies is about $70 billion. Our ceiling is $19.1 billion even though our farm economies are about the same percentage of our GDP. That's a little hard for me to explain at home why they should have a number that much higher.

The good news is you hear that the European Union is now talking about a 60 per cent cut. I hope it can be more than that because their proposal was 55 per cent and after the very strong effort of CAP reform -- and I know they really put a lot of effort in it -- I hope they can produce more than 5 per cent. But, nevertheless, it is very important.

Now, the 60 per cent gets them down to $27.9, which is still well above our limit. So what we have said and our proposal said is - we don't expect total equality -- although, frankly, we don't see why we couldn't -- but if they can cut, we will cut in a way but we need to harmonize. And this is a principle whether it be tariffs or subsidies, goods, or agriculture, the way we are really going to open up the system is to harmonize.

So I think it was a good step. I certainly know it took a lot of work by Franz Fischler in particular and Pascal Lamy, but it is one out of three pillars. Frankly, I think we can make some pretty good progress. The United States actually put out a proposal where we would have cut our $19.1 billion down to $10.5 billion.

So we have shown we are willing to cut, but the problem is all three pillars have to move together. As I mentioned, I think we still have some work to do on the other two pillars.

I hope between now and Cancun, first the United States and the European Union can get a framework for this and maybe some sense of what the key variables are -- not necessarily have the precise numbers -- but then we have to share it with others.

Q: Thank you.

Q: The first step after Montreal -- or even here in Montreal -- will be the negotiations between the United States and the European Union to try to advance agriculture negotiations, but as you heard from the Europeans they say that they have made their homework and now it is up to the United States. You have said that the European Union were reluctant to open in agriculture and you also added that developing countries are complaining about the exports subsidies from the European Union.

So it seems to be the same situation that before Montreal except eventually for the kind of good will from delegates. What was the real change here in Montreal?

And, if you allow me to ask a question about FTAA [Free Trade Area of the Americas], did you discuss the FTAA with the Brazilian delegation yesterday and what is your impression about the new proposal from Brazil, the three tracks?

Thank you.

MR. ZOELLICK: As for your first question, I heard and read the European comments about doing their homework. I am glad because now it is time for the test.

When I used to do my homework, we then had to go in and try to come up with the right answers. So now that they have done their homework, it is time for the test. I have tried to outline that to everybody else in the world that I know of that wants them to eliminate export subsidies. So how are we doing on that test?

We have to clearly come up with something in between in market access. Brazil, as you know, is very strong on this to sort of open up tariffs. You know, the first step is a modest one and is try to say let us recognize that the Uruguay Round approach is not sufficient and the aggressive harmonizing approach that we have put forward won't be accepted by the European Union.

So can we kind of try to come up with something in between? That is what we are trying to do.

On the domestic subsidies -- that is an important step. You know, that is the part where I guess they studied the hardest in doing their homework. So now again, I think we would like to help the trading system by taking advantage of that. As we have said, we are willing to cut as well, but it has got to be part of an overall system. The test has three parts.

And on the FTAA or the ALCA, yes, I discussed with Minister Amorim [Brazilian Foreign Affairs Minister Celso Amorim] and his team about the ideas. What we discussed at this point is that after the ideas that I shared in Brazil and were discussed by Vice-Ministers at the last trade negotiating committee meeting, the United States and Brazil as co-chairs have asked the other countries to submit their ideas on some of the ideas we have thought about. We as co-chairs will have to try to figure out a way to put those together. What I discussed with Minister Amorim is kind of procedural ways to try to do that. It was a brief meeting so we really used it for that purpose.

But I will make this more general point. I emphasized that we feel that President Lula and his new team have done a very impressive job on the economic front under challenging circumstances because Brazil has a high debt and came in with a very heavy debt burden. Brazil is running a very large budget surplus to help pay for that debt. It's going to need export-led growth and so at the strategic level what I emphasized is we want Brazil to succeed, we want Argentina to succeed, we want others in the region to succeed, and so what we are partly trying to do to make the ALCA work is create a framework where they can have the exports and the trade-led growth.

This is, as you know, a little different for Brazil. Brazil is like the United States. It's a continental-sized country. It has relied on its internal market. And so I just emphasized that because I think sometimes people look at trade as a zero-sum negotiation. I really don't and the question is: How can we help people grow, whether in the hemisphere or whether globally?

Q: Hi. Doug Palmer with Reuters News Service.

You said that you would be willing to work with the EU towards the goal of eliminating export subsidies by putting disciplines on export credits. I wonder if when you say "export credits" if that includes food aid as well.

Then, just in terms of the domestic support, the EU has made a lot of its CAP reforms saying that it is now in a position to make a 60 per cent cut in both amber and blue box payments.

Does the U.S. see that as sufficient and is it willing also to make a 60 per cent cut as well, or does it still need to see some sort of harmonization even if it's not at the precise number that you have in your proposal?

MR. ZOELLICK: There are a lot of things embedded in there.

On the export credit piece --

Q: Does that include food aid?

MR. ZOELLICK: We offered to put in disciplines on food aid as well, and there are some that are discussed in the [WTO Agriculture Negotiations Chairman Stuart] Harbinson text that we believe we could work with.

It's important to remember though that there was a recent OECD study that tried to compare the effect of export credits with export subsidies. For a dollar-to-dollar amount, their calculation was it was about 3.6 per cent of the effects. So we are really trying to do this not because it has a big market effect, but because any way we can help the Europeans with their own domestic public to finally eliminate export subsidies, which have been eliminated in the industrial goods area. We are willing to try to help.

That includes food aid but, obviously, there are places in the world that need humanitarian food aid and so we don't want to foreclose our ability to do that.

The second part of your question...? The domestic support.

Q: Right.

MR. ZOELLICK: I think it's a constructive step, as I said. I was going around European capitals trying to get member states to support Franz Fischler's proposal. I think it's a very important step to move forward.

Do we need to see harmonization? Yes, we need to see harmonization. It's not an acceptable result to have your farm sector at about the same size as your overall economy and the other partner have three or four times the amount of subsidies.

You mentioned the blue box. From what we have learned, there has been some -- part of what the CAP reform did was shift some of the subsidies from blue box to green box and that's a good step. It doesn't appear that the Europeans are able to eliminate the blue box. That was one of the other options. So that's another issue we will have to discuss with them. It's used as part of their decoupling strategy. As you may recall from the debate, this is where they have the partial decoupling payment.

But, look, it's an important step for the international agricultural trading system if we can cut these subsidies, but, as the Doha text said, it has to be part of three elements and so we will try to work with them and work closely with our friends in the agricultural export community to move that forward.

Q: Suzanne Ouellet, Radio-Canada.

Mr. Zoellick, on TRIPS and medicine, up to a point the proposal you are going to make in a few weeks will modify the agreement reached last December by all the countries except the United States and I am trying to understand what is the particular concern of the pharmaceutical industry you are trying to advance by that?

MR. ZOELLICK: Well, again, let me give you one reason why we are in the position we are. Seventy per cent of the research pharmaceutical industry is in the United States so it is not surprising that this is one that falls on us. I think Pierre Pettigrew made a very good distinction, which is that we all agree on the importance of intellectual property. Indeed, one of the Chairmen of the major pharmaceutical companies is a Canadian and another is from Morocco. People come from all over the world because this is the center of the research and development. It costs about $500 million to $1 billion to develop one of these drugs.

What everyone agreed was the fact that under the TRIPS Accord, under certain conditions, which were described in the Doha text, people have the right to compulsory license.

Here is why this is now a trickier issue: You are going beyond the idea you are compulsory license in your own country and you say well now we are going to have somebody else have the ability under a compulsory license to do it for export. So now you run the risk of leakage.

So what we have been trying to focus on are the following items:

One, anti-diversion. Why would anybody want these drugs to be diverted back? I have talked with some African countries that say they put in these programs because these drugs are so valuable they never get to the poor people. They become sold on the marketplace or they get sold back. So that is a very reasonable effort.

We just want to try to see if we can work with other countries to get further assurance that -- these are things like making sure that the pills are a different color or that the packaging is different. That is sort of one type of talks.

The second is to make sure that what everyone says is designed for humanitarian purpose is used for humanitarian purpose as opposed to becoming a loophole for creating a commercial export industry. Again, we don't think that that is the intention of countries, but since this would involve an amendment of the TRIPS Accord, what can we try to do to have reassurance on that?

Third, is there some mechanism by which this can be reviewed? Right now it goes back to the TRIPS Council. Is there a way in which, you know, if there is really a question, that that can be dealt with. I guess what this all comes together is that let us make sure this is really used for the countries that need it. Remember, that was the purpose coming out of Paragraph 6. But, you know, there is this system in the WTO where once something is offered to one country, everybody says, "Oh, I need that." Well, you know, the purpose of Paragraph 6 was for countries that couldn't compulsory license in their own country.

Some countries have been very helpful: Singapore, Hong Kong, which is a special economic region, not a country, and Korea and others have said, "Look, we don't think we are going to need to use this except under an emergency circumstance. So make that sort of statement". Well, there may be others that make those sorts of statements.

What I am pleased with is that I have been working, as Pierre Pettigrew mentioned, with a full range of companies not just the U.S. companies but European companies as well. I believe they really believe it is their interest to try to get this resolved. As I think Pierre put it very well, there is a problem of trust and we have been trying to bridge that gap in terms of trust.

We have been trying to work with other countries to get a sense of what could be done at this point to give those assurances? You mentioned a U.S. proposal. In fact, in the spirit of which the WTO works, we are trying to do this back through the TRIPS Council. So this will really have to go back to the Chairman of the TRIPS Council.

Q: Would it be before the August meeting?

MR. ZOELLICK: August meeting? You mean the Cancun meeting?

Q: In Geneva.

MR. ZOELLICK: Well, we will try to use the meeting in Geneva to move this process forward.

Q: Okay.

Q: Participants at this meeting, including yourselves and the EU, began to suggest a certain flexibility on foreign trade by offering ideas.

Did you see any flexibility from Japan? How do assess Japan's response at this meeting?

MR. ZOELLICK: Boy, this is tempting!

--- Laughter

MR. ZOELLICK: If there were flexibility, it escaped me, but I know sometimes these work in subtle ways.

What was your second question? How did I assess their participation?

Q: Yes.

MR. ZOELLICK: Precise in stating their national views.

Q: Do you think that Japan needs to take leadership, a more active role in pushing forward this negotiation?

MR. ZOELLICK: As a good partner of the United States and an ally of the United States, it's the second largest economy, it's a developed economy, we all need to make our efforts. I hope Japan can help.

Q: My question is regarding the market access in agriculture. You said that you are presenting some ideas like the branded formula between harmonization and flexibility.

Is there something that has common ground to something like --

MR. ZOELLICK: I'm sorry. I didn't hear the last part.

Q: Does your new formula, the branding formula, have common ground with Mr. Harbinson's text?

MR. ZOELLICK: So you don't conclude it's a new formula, it's simply a concept. It's simply trying to say: We, and many other countries, would like a very strong harmonizing formula. Others just want to have a percentage cut. How can we put these together? We offered a suggestion that one conceptual way to do so would be to have a limited number of most sensitive items that would be given more flexibility.

We still have to open up tariff cuts, increase in tariff rate quotas, but for those of us that really want to have open agricultural markets, if we do that, we need to have other ideas to make sure your get harmonization and we proposed something that I think is long overdue, which should be a cap on the highest agricultural tariffs. Maybe 100, maybe 150, maybe 200, but why should you have tariffs that increase the price of the goods two or three times?

So that was another suggestion we had because if you create flexibility for the most sensitive products, you want to make sure that you still have some ceiling on those ideas, and that would apply to us and everybody else.

MODERATOR: I think we have time for one more question.

Q: Hi, Ian Swanson from Inside U.S. Trade.

Mr. Zoellick, when Franz Fischler was in Washington on Monday he said that the EU needed protection for geographic indicators to be a part of a modalities package and he said that they had to have GI to agree to a total deal.

Does the U.S. see any room for protection for geographic indicators in a final agriculture deal?

MR. ZOELLICK: What we have tried to point to is -- and this is an item that I think Pierre mentioned too -- the role that trademarks can play in the system because here is part of the conceptual difference. Trademarks are a government-sponsored system to protect trade or certification marks, particular associations that help with the marking of products, but it's up to the private parties to register them and pursue them. That makes sense. The private parties are getting the benefit of them.

The GI proposal really takes a whole different approach. It basically says that governments should not only set up the system, but they should regulate the system and prosecute the system and, frankly, given the experience that we have seen in many developing countries struggling to deal with intellectual property in pharmaceutical areas, we just think that this would be an onerous burden.

Now, one other idea that we proposed was to say if there are some products in Europe that people worry about come from small associations or other things like that, well maybe Europe can take some of those subsidies that it has been using for negative things and use them to kind of subsidize the trademark application or pursuit, and maybe that could go into the green box.

I will point out that we are in the process of bringing a WTO action against the EU because right now the EU doesn't give the protection to us or others around the world that it's seeking. So we can't get Idaho potatoes with a geographic indicator.

We try to exchange ideas on how to try to help with this issue, but it's a problem because, as one of my colleagues I think from Mexico said, European countries spent 500 years colonizing us and then we finally get free and now they want to have us pay for the names.

I noticed a lot of the names are in English too and I thought that was my language, not some of theirs. So I don't know. It's a troublesome area.

MODERATOR: Thank you all.