AMBASSADOR SCHWAB:  Good afternoon, everyone.  Thank you for coming.  As you may have heard, there is a Green Room -- actually it's not called a "Green Room" these days, is it?  There is a conversation going on that Ambassador Portman and Secretary Johanns are attending.  They are talking about cotton and duty-free, quota-free, and we understand that the conversation on cotton ended a little while ago, and they are now just starting duty-free, quota-free.

Obviously, if the group breaks up and they come in here, we will welcome them and we will step aside.  But in the interim, we are here primarily to answer your questions.

The United States continues to stress that unless and until we see progress in agriculture, it's very hard to imagine us being able to make the kind of progress across the board in services, in NAMA, and in other areas that will be necessary for a truly robust and comprehensive multilateral trade agreement.

The Doha Development Agenda is critical for developing countries, but also critical for developed countries.  So we all have a lot at stake here.  The World Bank has noted that over 90% of the gains from reductions in trade barriers around the world would occur in agriculture from the expanded market access with a decline in barriers in agriculture.

The United States and the G20 have been calling on the European Union to move on market access in agriculture, but we also share the interest that the European Union has expressed in a more ambitious outcome in services and in non-agricultural manufactured goods.  And I think I will stop there.  There is a lot going on, and I suspect you are in a better position to ask those questions that articulate your interest.

QUESTION:  Melbourne Age, Australia:  In terms of agricultural market access, the focus, I gather, has been largely on sensitive products and firstly, how many of them are to be and, secondly, what disciplines should be applied to them.  If we could get an agreement on that coming out of this meeting, would you regard that as meeting the criteria you've put that we need to get a deal on agriculture to make this meeting a success?

SENIOR U.S. OFFICIAL:  Thanks, great question because this is one of our priorities -- to move on the issue of sensitive products in agriculture.  You will recall that we've got an agreement to use a tiered formula with substantial tariff cuts.  For some products, the cuts are not going to be as deep.  These sensitive products will have to provide access through expanding tariff-rate quotas.

The negotiations in Geneva over the past couple of months have been held up exactly on that issue.  How can we ensure real, meaningful improvements in access for these sensitive products by having sizeable quotas established?  We don't have agreement on that yet.  There has been some informal work in the past couple of days on this topic.  In fact, even this morning, there was a group of experts meeting to try and come up with a solution to this.

We have seen a little bit of marginal progress on it, particularly on the question of the treatment of these products:  how you would expand the quota, whether you do it on a consumption basis or some other basis.  And we are seeing more and more countries starting to converge around the concept of the size of the quota should be based on the size of your market and consumption is a good indicator for that.  Unfortunately there is one important player who has not yet agreed to use this basis, and so we will keep working with them.

To answer your question, if we were able to get progress on this question of sensitive products -- how many products, how you would expand the quotas -- that would be a real meaningful move forward in these negotiations.  Not the same as if we had established full modalities in agriculture, not the same as if we had agreed on how deep the cuts are to be, not the same as if we had made some of the other formula decisions -- but it would sure be a big help.  And so here, that is exactly what we are trying to do, find ways we can move forward even when in some areas we are blocked.  So we have three days left and we will see what we can do.

AMBASSADOR SCHWAB:  Yes sir:

QUESTION (in French):  I have two questions on market access and on delocalization of textiles in the U.S.  The French translation is not working, either?  So today we have two problems, for English and French (laughter).

INTERPRETER:  We heard lots of people talk about market access, and I don't believe that African cotton goes to the United States because what we see there is that factories are moving out of there.  So market access isn't going to have any effect on what we are discussing here since factories are moving out of the United States.  The WTO question is, "What is the United States doing?"

SENIOR U.S. OFFICIAL:  Okay, thanks.  I think I got the gist of it.  Thanks for your help.  There are two elements to the question:  what is the market access for cotton and how does that relate to the United States.  The second was what is the United States doing to comply with the WTO ruling in the Brazil cotton case.

On the first one, on market access, there are several layers to this.  The West African countries have put forward a comprehensive proposal to deal with cotton in the negotiations.  One of those elements is market access, where they have proposed the global elimination of tariffs on cotton.  What Ambassador Portman said yesterday is that the United States is prepared to support that initiative.  Now remember, we also support global tariff elimination.  That's the U.S. proposal.  What we said yesterday is that we're prepared to do that also with respect to cotton in the context of the discussions that are underway on improving access for least-developed countries.

So the United States, which has a 21% out of quota duty on cotton, is prepared to eliminate that duty when the round is implemented.  We would call on all other countries as well to eliminate their duties on cotton.  These duties can be quite substantial, 40% [shout from audience].  Let me finish my answer here.  There are other countries who have barriers to cotton trade.  These in fact, as the speaker suggested, is where the growing markets are.  The countries where textiles are produced, where cotton is demanded, is where the increased market access is going to be of most interest.  We import some African cotton, removing these barriers will help facilitate more imports in the U.S.  But certainly the Chinese market, India, other countries, is where the most gains are to be had here.  That's one element of the African proposal.

Another element has to do with export subsidies, elimination of export subsidies.  The United States has an export subsidy program, the Step 2 program. It was implicated in the cotton finding, and we are moving, even now, with our Congress, to try and eliminate this program -- a $300, $400 million a year program that, if we can work our way through the political process at home, will be off the books, even this year.  So we are certainly trying to move in that area as well.

Finally, as you know, there's a domestic support element to the West African's proposal.  We have a proposal on the table broadly in agriculture to substantially reduce trade-distorting domestic support and ultimately phase it out.  That certainly would have the same end point as these countries.  We are in discussions with them now about how we can address some of their concerns in the context of our interests also in moving the round forward.  We do think we are engaged with these countries.  We have made moves, even yesterday, to try and address specific elements of their proposal and we will continue to work with them.

QUESTION:  Reuters:  I just wondered if there were any new ideas that the U.S. had in terms of food aid in order to help get to this goal of setting a deadline to eliminate export subsidies.  Have you made any proposals in regards to getting rid of the trade-distorting effects of food aid?  Secondly, service industries are concerned about a proposal being put forward by the G90 countries, which they say would weaken the mandate for the services negotiations.  I just wondered what comments you would have on that?

AMBASSADOR SCHWAB: Doug, let me respond first to your question on services. There is, starting ten minutes ago, what is called an open-ended discussion on services at a technical level to discuss what proposals may or may not be out there.  There are some proposals circulating informally, as distinct from formally. That situation should clarify somewhat later on this afternoon.

We understand that there are a number of countries that have an interest in changing some "shalls" to "shoulds," and that kind of thing to perhaps water down some of the language that was here when we arrived.  There are also a number of countries that feel that the current text and annex are insufficient and should be strengthened.  It will be interesting to see during this open-ended dialogue what the outcome is about the text.

Ambassador Portman has noted that the United States would like to see the services text topped off, meaning strengthened, but we will see how the progress works.  The EU has a stronger position related to perhaps some numerical targets. At this technical meeting this afternoon, we'll have a better sense of which countries are where in the equation.

SENIOR U.S. OFFICIAL:  On the food aid side, in early October, I think October 5th, the United States made a specific proposal to our trading partners on food aid disciplines we recognize as part of the framework.  We're willing to work here. We have a framework that would deal with emergencies very carefully, deal with the chronic food deficit countries very carefully, and impose more rigorous disciplines on all other types of food aid.

It's a framework that we've been talking with other members on. We're prepared to negotiate from it, take others' ideas and see what sort of appropriate disciplines can be imposed that do treat very cautiously an issue of life or death.

One of the big obstacles in making progress on food aid is that one of our main interlocutors has stuck to a very hard line position – that food aid should be provided only through cash. It's a position that is not broadly supported in the WTO among food aid experts or food aid deliverers.  So we're running to the ground on food aid because of this intransigence.

We certainly are prepared and eager to intensify this discussion if it helps unblock the discussions on export competition. That's what was the focus of WTO meetings last night. We were prepared to engage and negotiate from our proposal, and deal with all reasonable positions, as long as we safeguard the needs of the poorest here.

AMBASSADOR SCHWAB: Let me suggest, for those of you who were here yesterday when Ambassador Portman was speaking, he noted the fundamental importance of U.S. food aid for feeding starving people, and he also noted our commitment to address the trade-distorting effects of food aid.

Let me step back a minute, though, and note that given the potential for development gains for the developing world, from a robust and comprehensive multilateral Doha Development round, this is something of a distraction.  It's unfortunate that all of the potential gains – the question earlier that was raised about market access for cotton.  If there were tariff eliminations by developed and major developing countries alike in cotton, the potential gains for cotton producers, West African cotton producers, could be substantially greater than the conversation going on – the narrower, more narrowly-focused conversation going on on cotton.

So quite honestly, the best kind of development agenda – the most robust, the most successful, the most sustainable development agenda we could and should be talking about -- has to do with market access, not some narrowly drawn definition of food aid.

QUESTION:  National Journalist Congress Daily:  Today, the National Cotton Council in Memphis put out a news release opposing the offer to eliminate cotton tariffs.  They say that it would be a unilateral action for which the United States would not get anything in return.  What is your reaction to the U.S. industry opposing this?  And also, what would be the process for the entire duty-free, quota-free proposal going in to effect? 

SENIOR U.S. OFFICIAL:  Let me let my colleague handle that one.

AMBASSADOR BHATIA:  Why don't I address the cotton issue.  First of all, I haven't seen the press release coming out, but let me just step back on cotton for a second.  We have been engaged in some pretty intensive discussions with the C4 countries this week.  You know, people use the phrase "good and constructive discussions."  These really have been good and constructive discussions.

We started out this week, I think, positions substantially far apart and without really a common understanding, notwithstanding the fact that there has been a lot of discussion.  I think we've moved a long way this week.  I think – you know, I'd be so bold as to say I'm cautiously optimistic that we will find a common way forward with the C4 countries because I think we share a common interest in seeing a successful Doha round.  I think you see the C4 countries realize that the gains that they stand to realize from both market access liberalization as well as from the elimination of trade-distorting subsidies – and that would be gain from the U.S. proposal – are substantial, and that they should not be lost.

The source of the frustration there that they have and that we have is that things have not gone fast enough.  And they have not gone fast enough.  They haven't gone fast enough because we have been awaiting agreement on overall agricultural modalities, which is what was agreed to in the July framework and which is the only way it makes sense to handle this issue.  You cannot allow these negotiations to break down into sector-specific negotiations.  You've got to reach overall ag modalities and then start dealing with specific sectors. And I think there is increasingly a common appreciation that we're going to need to move forward with these negotiations after Hong Kong.  So I'm very, very pleased with how our discussions have gone.

There has been a flurry in the media that, frankly, has been stirred up by folks who would rather distract attention from what is the principle impediment to moving the Doha round forward, and that is the inability to reach agreement on agricultural market access at large.  But I can tell you, that is not affecting the nature of the conversations that we are having with the C4.  Those are good, constructive conversations.  And to those who suggest that we are holding hostage cotton to everything else, I would first of all suggest that in fact what is happening is the entire round is being held hostage to a failure for our developed country partners to come forward with ambitious offers in agricultural market access, which is what we need to close the round.

Now, with respect to the Cotton Council position, we have stated all along that our agricultural market access proposal is a very bold proposal.  We're getting criticism from our agricultural interests.  We've been getting it for a long time.  But to bring this round to a successful conclusion, there is going to have to be some political courage here.  We've taken that, we've demonstrated that, and frankly we're leaning forward again in the area of cotton.

Now there's a balance to be struck here, and at a certain point in time, to be able to get this entire package through, we're going to have to see greater agricultural market access.  That's where the substantial gains stand to be realized for the developing world as well.

So I just want to be very clear.  This is shaped by conversations that we're having, on-going, but those who would portray this as being a blow-up I think are not in the discussions, they are not being part of those conversations which have been good, cordial and constructive.  Thank you.

I'm sorry, you had another question there.

QUESTION:  Yes, I asked what will be the process for actually achieving this duty-free, quota-free program?  Can you do it in the Administration or do you have to send this through Congress?

SENIOR U.S. OFFICIAL:  Yes, the answer is that our tariffs in the United States are set through Congressional action.  So any change in tariffs is going to have to require Congressional action and change of laws. Our expectation is that when we send up a Doha agreement across all of the areas to implement the final package, it would include whatever commitments we've made on tariffs, which would include for least-developed countries.  And so this would be part of the implementing commitments that we undertake then.

QUESTION (in French):  I hope the translation problem has been resolved?   I will try to explain with my bad English as translation is difficult for me.  I am Ibrahim Maloum, President of the African Cotton Association. [Various remarks summarized:]  African cotton-producing countries have nothing except cotton to export in the world market. Since we introduced the cotton initiative, world cotton prices have been dropping annually, mainly due to U.S. and EU subsidies.  We are really waiting for subsidies to be cut, or we will be out of the world market and take ourselves out of the WTO.  The U.S. and EU must propose and find a reasonable and concrete position to fulfill the Doha round.

AMBASSADOR BHATIA:  I know Mr Malloum well.  We've had the chance to meet on many occasions, and he's a very very articulate spokesman for the West African cotton producers.  Someone in an earlier question referenced our Cotton Council and the pressures that they put on the U.S. government.  I can tell you Mr Malloum is equally effective in putting similar pressure on the C4 countries, and again he's a very very eloquent spokesman.

I would just simply say, Mr Malloum, I agree with you.  We want to eliminate subsidies.  We do.  That's been the nature of our proposal put forward.  We would like to eliminate them across the board.  We are doing everything we can to liberalize agricultural trade. The plan all along, going back to the July 2004 declaration, was that we would reach broader ag modalities on how to liberalize -- not just for cotton.

And I acknowledge that the cotton trade needs to be reformed.  But the cotton trade, even in Africa, even in sub-Saharan Africa, you're talking about fewer than 7% of Africa's farmers in sub-Saharan Africa are engaged in the cultivation of cotton.  93% are going to be waiting for liberalization of other commodities, of cocoa, of coffee, of tea.  We can't allow this round to degenerate into just a number of sector-specific negotiations.

In terms of having an agreement on cotton, we are all for moving forward, and we're all for achieving an ambitious outcome.  We need overall ag modalities to allow us to get there.  But in the interim, we have been working, as you know, assiduously with the C4 countries to try and figure out what can be done to address both the development side and -- you put forward some numbers there that I've heard references to this $450 million number.  I literally have never seen that study.  We have seen eleven studies here, FAO studies, studies by the IMF as well.  In terms of assessing the impact of U.S. cotton programs on worldwide price, they range from a low of 2% to a high of 12.6%.  The principle cause of the differential is what the assessment is in terms of the demand elasticity.  We believe that the lower studies are probably more accurate.

Even if you just take the median number, just the middle number, seeing as they've all got different perspectives, you're looking at 4%.  That's roughly a $40 million impact on the four C4 countries, which is not to suggest that we support subsidies.  We don't.  We want to eliminate them.  But it does suggest that this is a broader problem.  It's got to be addressed not just by looking at subsidies, but also by expanding market access to allow West African cotton growers, as well as coffee and cocoa and everybody else, to expand their access to global markets to allow for real development there.  Thanks.

QUESTION:  Bloomberg News:  We've heard this morning from different industry groups that not only are the NAMA talks and the service talks stalled out as they're waiting for agriculture, but actually the positions are hardening on all different sides.  In fact, we see this next text on services.  Is it your understanding or your feeling that talks are moving backwards on NAMA and services, or are they just not going anywhere?

AMBASSADOR SCHWAB: I think at this stage of the talks, it's too early to know.  We are in Day 4, Day 5.  A lot of senior officials have had a little bit of sleep, and there are some folks getting grumpy along the way.  Right now, I think you're seeing more posturing than you're seeing substance, and it really is too early to tell. We are still optimistic that the outcome of this week can be a movement forward to a successful Doha round, and that includes on NAMA and on services.

The deterioration that you're describing has not -- it's too early to know whether deterioration has in fact occurred, and it is much too early to know what the outcome will be by the end of the week.  We are still cautiously optimistic that this stage of this round can have a successful outcome where we move the ball forward.

QUESTION:  The message we seemed to be getting is that progress on big issues seems to be stalled and that small issues seemed to be raised such as, for example, cotton or food aid.  If I could come back to food aid, because if that is the case, progress on the small issues perhaps is taking place in negotiation.

On food aid, we were told this morning by the World Food Program that in principal they would prefer cash, but the problem is that there isn't enough cash being put forward.  And that secondly, they themselves, on the commercial displacement issue, have guidelines to deal with commercial displacement.  Now my question is, is the U.S. willing to move forward on food aid, first by relaxing its apparent insistence on broad exemptions for emergencies and net food importing countries; and secondly by using the World Food Program guidelines, which I understand are accepted by all UN nations, as a basis for WTO disciplines on commercial displacement?

AMBASSADOR SCHWAB:  Let me suggest that what is holding up the talks is not the small issues.  What is holding up the talks is the big issue, and the big issue is market access and agriculture.  If my colleagues would like to answer on the food aid.

U.S. OFFICIAL:  Just briefly, the World Food Program, in fact, has recently done very interesting studies.  You all should look into them because I think they, in many ways, buttress a number of our concerns about the need to protect food aid.  But commercial displacement is a real trade issue.  We're prepared to negotiate it here because we don't want the distraction to stop progress on big issues.  So we're completely prepared to negotiate on a reasonable basis.  The problem is we haven't found our negotiating partner prepared to do that with us.

QUESTION:  21st Century Business Herald:  Just have to follow-up on Annex C.  Just seems to be there are four or five alternative proposals here now.  One of the G90 meeting suggests that this should be the second round of a revised offer and they have a very big difference  between the plural-lateral suggestion posed by EU, and the EU wants to introduce another alternative.  Seems to be the difference between (inaudible) Annex C is very great.  Are you suggesting that you should put the whole Annex C aside and let the meeting go ahead, or let it break down?

AMBASSADOR SCHWAB:  The question relates to the services sector negotiations and the status of Annex C.  There are technical level conversations going on right now as we speak.  There are differences about the text and Annex C, but those differences appear to be both from countries that would like to see them watered down and from countries that would like to see them strengthened.  I don't think anyone has talked about setting aside Annex C.  We'll see more developments in the services area going forward.

QUESTION (follow on):  Is it the fact of just like two years before the Cancun meeting that African country just walked out and put down the talks.

AMBASSADOR SCHWAB:  I have not -- my understanding is in the case of the services discussions that countries are engaging in a very constructive dialogue.  I am told that there are two texts that are being floated informally, not formally, but that there are other potential amendments that are also being considered.  Some would weaken, some would strengthen.  Thank you.

QUESTION (started in French):  From the Ivorian Commission:  What I want to say is that when the C4 countries put down their proposal to eliminate all subsidies and domestic support on cotton, they were told that this will not solve their problem and that they will better work on the development aspect of the problem, which means that they should work on promoting the transformation of the cotton.  But do you think honestly that it is wise to make these suggestions to them when you know that most of the American manufacturers which was transforming cotton have been let down?  And that most of the American production of cotton is exported abroad.  Do you think that it's wise to propose to African countries to work on the transformation of the cotton since they will not be efficient in this transformation.  That is my question.

AMBASSADOR BHATIA:  Again, I would just reiterate what we have said before, which is that we do not challenge at all the legitimacy of the point of view that has been put forward by the C4.  Indeed, we have been spending a good chunk of this week speaking with the C4 countries about the issues of subsidies, and we look forward to continuing to do so.

Moreover, as we have said, our proposal is the most forward-leaning proposal in favor of illuminating trade distorting subsidies, as well as reducing tariffs.  The only point that we have made is that the cotton market internationally appears to be a highly competitive market.  And the elimination of subsidies may not be – trade distorting subsidies -- may not be the only element that is needed to fulfill the development goals of the C4 countries.

To that end, we have been working -- the United States and others -- have been working very hard this week to put forward ideas for development for aid for trade, for other things to help ensure that the goals of the Doha round are achieved.  We have also been working to try and eliminate tariffs, in cotton and in other areas.

So if the answer is whether there is any suggestion of whether it is wise or unwise, I simply want to point out that there is no question about the legitimacy of the cause.  We agree with you that the trade-distorting subsidies should be eliminated.  We would hope to get there.  And for that we need, frankly, your support and the support of the other countries here in moving us towards an agricultural package, a negotiations package, something that we had hoped would be agreed here this week.  The original concept was that was what we were going to do this week.  And so we need you assistance, we need your help.

QUESTION:  We are hearing a lot of concern from delegates about how the blame-game has already begun and shifting blame onto different countries in the event of collapse here in Hong Kong.  And I am wondering  -- we already see, you know, beyond just the expected blaming of the French farmers, given the fact that in the U.S. right now, the reduction of tariffs for the aid package will have to get through Congress that wants to cut revenues -- wants to cut our budget, not to cut tariffs -- given the fact that we have gotten a letter form senators that are in no mood to deliver on Mode 4 in services, given the fact that Congressman Thomas chairs the Committee on Ways and Means, oversees trade, and comes from a district with the largest cotton subsidies, how do you really see that this is going to move?  And really the question is, how much responsibility is the U.S. willing to assume in the event of failure here in Hong Kong?

AMBASSADOR SCHWAB:  Let me suggest that evidence of the U.S. willingness to lean forward and be forthcoming rests in our October 10 agriculture proposal, and you articulated the political circumstances that we are addressing back home in the United States.  Every country that comes to this kind of a trade negotiation is dealing with pressures from import-sensitive sectors: industry, agriculture, services.  We are all dealing with that.  And the question is one of leadership and one of being forthcoming and being ambitious and taking a chance and doing what is right.

And I think it's been very, very clear in terms of the U.S. approach in agriculture, clearly our commitment in NAMA and services, trade facilitation -- all of those areas where these conversations are going on, we're here and we're ready to negotiate and we are prepared to come up with an answer that is good for developing countries.  This is the Doha Development Agenda.  But also, we know that by helping developing countries, developed countries and the global trading system, the global economy will be helped.

We have the trade promotions authority – it used to be called fast-track legislation -- available to the United States through the middle of 2007.  That would require the round being wrapped up, pretty much, by the end of 2006 for us to be able to enact legislation.  It would be impossible, or virtually impossible, for the United States to implement an agreement coming out of this round of negotiations absent trade promotion authority.  So that is a very, very real, drop-dead deadline for us.

But in the meantime, we're here, ready, willing and able to lean forward and to negotiate and to exhibit the leadership to do so.

QUESTION (follow on):  Does that mean that the U.S. would also accept some responsibility that maybe our "leaning forward" is too far ahead of where a lot of Americans are, seeing the sagging support for the trade agenda in the U.S.?

AMBASSADOR SCHWAB: Americans have been willing to accept trade-liberalizing agreements since 1934.  If you look at the history of U.S. trade policy and trade negotiations after the Smoot-Hawley Bill was enacted in 1930 and we raised our tariffs and other countries raised theirs and the world drifted into a depression -- a lesson was learned and that lesson has stuck. The United States and the American people have been consistently willing to accept trade-liberalizing agreements.

I don't see that changing. It gets tougher. I think we all hear more from our import-sensitive sectors than we hear from our export-ambitious sectors.  But the Congress has provided trade promotion authority to the United States Government for the purpose of implementing a successful round.  We hope to see a successful round and look forward to implementing such a round or moving such a round through legislation.

QUESTION (in French):  Since the beginning of the conference, it seems to be a question on statistics.  Statistics depend on the database and sources.  If we don't have the same database and we don't have the same figures, we certainly won't have the same conclusion.  We have a statistic of the International Cotton Advisory Committee.  This figure shows that the elimination of U.S. subsidies could maybe improve the world price of cotton around 29.7%.  The Brazilian statistic which was based on the dispute settlement body between Brazil and the U.S. shows that the improvement in world price on cotton could be 12.6%.  If we are discussing nowadays subsidies, it's certainly because everybody has agreed nowadays subsidies is a big problem for international trade. We do not agree when Americans use statistics that say cotton producers only receive 15% of the international prices given for the cotton producer price (inaudible) in Africa.

INTERPRETER:  He just wants to show that the figures which have been used by the U.S. are not good figures and that the remuneration of the African cotton producer is certainly [inaudible] that was shown by the figure used in the U.S.

AMBASSADOR BHATIA:  I thank the gentleman for his comments. Again, I think we share a common objective at the end of the day, which is to promote the development of cotton in the framework of a broad trade-liberalizing agreement, and to see the end of trade-distorting domestic subsidies. We want the same end.

Thank you.