USTR - United States and Europe Reach Agreement on U.S. Rice Exports: Expanding U.S. Access to European Markets
                 
The Office of the United States Trade Representative

United States and Europe Reach Agreement on U.S. Rice Exports: Expanding U.S. Access to European Markets
02/28/2005


WASHINGTON – The Office of the United States Trade Representative announced today that the United States has reached an agreement with the European Union (EU) ensuring market access for U.S. brown (husked) rice exports to the EU, resolving a major trade dispute and preventing the March 1 withdrawal of tariff concessions.

The U.S.-EU rice agreement will enhance and strengthen market access opportunities for U.S brown rice exports into the EU market, valued at $33 million a year, on average, since 1999. The EU is the top market for U.S. brown rice exports.

"I am pleased we have been able to resolve this dispute with Europe in a way that expands market opportunities for U.S. rice exporters. We felt that the new European system was unfair, and working with our industry, we have been actively discussing how to solve this problem with our European counterparts for a number of months," said Acting U.S. Trade Representative Peter Allgeier. "While we were ready to exercise our WTO rights to withdraw concessions, resolving this issue bilaterally is a much better outcome for everyone."

Ambassador Allen F. Johnson, Chief U.S. Agriculture Negotiator, expressed appreciation to his counterpart, EU Director General of Agriculture Jose Manuel Silva, for his efforts to find a resolution. "This is a very good agreement for U.S. rice farmers, as well as European consumers, who will enjoy better access to our high quality rice," said Johnson. "I also want to thank the U.S. Department of Agriculture for its invaluable assistance in these negotiations."

On September 1, 2004, the EU changed its rice import system by raising tariffs on brown rice imports above the rate to which it had agreed as part of the EU’s WTO obligations. Under WTO rules, when a member makes a change in its tariff obligations, its major trading partners in the affected products are able to negotiate offsetting benefits. The EU has substantially increased tariffs on U.S. rice exports. If the U.S. and the EU had not been able to reach this agreement, the U.S. had the right to raise tariffs on an offsetting amount of imports of products of which the EU is the dominant supplier in order to compensate for the higher EU tariff.

Key elements of the agreement include:

- An applied tariff adjustment mechanism that will facilitate trade: If EU imports of brown rice, excluding basmati rice, fall below a certain reference level, the applied tariff will automatically be lowered to 30 euros per metric ton. If there is little change in trade, the applied tariff will be set at 42.5 euros per metric ton. The adjustment mechanism also allows the EU tariff to return to the bound rate of 65 euros per metric ton if imports substantially increase. The adjustment mechanism will be applied starting March 1, 2005.

- Allowance for growth: The import reference levels will be adjusted in the future to provide for growth.

- New consultative/transparency mechanisms: Consultation and transparency provisions will facilitate administration of the new import regime.

- U.S. maintains its WTO rights: A key component of the agreement is that the United States maintains its WTO (Article XXVIIII) rights.

Background:

Until September 1, 2004, the EU had determined the tariff for brown rice imports under the margin of preference (MOP) regime negotiated during the Uruguay Round. The MOP regime allowed the EU’s applied tariff rate to be set lower than the bound tariff rate, based on the differential between the EU intervention (support) price and the reference import price, taking into account an adjustment factor. EU reforms to the Common Agricultural Policy (CAP) in 2003 significantly lowered the intervention price for rice, which would have led to a substantial reduction in the EU rice tariff under the MOP. As part of the CAP reform package, the EU received a mandate from the Council to renegotiate the MOP under the terms of Article XXVIII of the General Agreement on Tariffs and Trade 1994.

Pursuant to WTO rules, the EU has been negotiating with the United States since 2003 with respect to trade compensation. On January 28, 2005, the United States notified the WTO of its intent to withdraw substantially equivalent concessions by March 1 if an agreement could not be reached.

An important part of the agreement between the United States and EU is the extension of the deadline for withdrawing concessions under GATT Article XXVIII, which will safeguard U.S. WTO rights. The United States and EU asked the General Council of the WTO, on February 28, 2005, formally to agree to the extension of the Article XXVIII deadline. The General Council has approved this extension. Given the positive General Council decision, the United States will not withdraw concessions on the products notified to the WTO on March 1.