Ambassador Schwab: Good morning everyone.

We came to Geneva this week seeking a breakthrough to keep the Doha negotiations moving forward by breaking the impasse in agriculture and in industrial market access. The big task this week has been to deliver on the Doha promise to substantially improve market access in agriculture through programs of fundamental reform and by reducing barriers to industrial goods.

We came here as a leader in the system. Just last October the United States took a risk that's associated with leadership by putting on the table a major agricultural offer expecting that it would be matched by similar bold moves by others. Regrettably, that hasn't happened yet.

We have been similarly bold in terms of access proposals in the manufacturing sector. Unfortunately, we have not seen the necessary progress and the focus has been on loopholes up to this point, or exemptions to liberalization, rather than to the offers that deliver the kind of market opening needed to spur new trade flows and to realize the promise of a true development round.

For agriculture there are two principal shortcomings. First of all the tariff cutting formulas that are currently on the table do not really deliver the kinds of cuts that are required to expand trade flows. Second, possible gains from tariff formulas are undermined by loopholes proposed by both developed and developing countries. These are the three S's -- sensitive products, special products, and special safeguards for agriculture.

For industrial goods the blockage is due to a combination of an unambitious formula with ambitious flexibilities.

Until we improve these flaws we will not fulfill our promise in Doha and our responsibility to create a more market-oriented environment for the world's farmers and ranchers, manufacturers, workers, service providers, and obviously consumers.

We will be continuing our discussions this morning. The Green Room reconvenes at 11:00 o'clock, and we will be working hard for a strong result. Market access contributes fundamentally to development and we all know that trade can be a powerful tool to generate income gains that dwarf foreign assistance. We have a handout that will be distributed that articulates some of the key relationships between development and market access.

We've done good work in other areas of Doha up to this point, but the core contribution to development comes from global market opening. In other words, creating new flows that will be the yardstick that is used to measure our success.

Let me stop there and turn the microphone over to Secretary Johanns, and then we will both be happy to answer any questions.

Secretary Johanns: Thank you very much, Ambassador. The Ambassador's comments were quite thorough so I'll offer only a couple of thoughts just to maybe fill in a few things that have occurred that are very important over the last 48 hours.

The first thing I want to say again, and it always bears repeating. We are here for a purpose. We want this round to be successful. We are very very committed to the round. And even though it has oftentimes been very difficult sledding, we are still optimistic that this round can come together and can move the world forward when it comes to world trade.

As I reminded you yesterday, in October of last year we took a very very significant risk. We exceeded the expectations of the world with the offer that we tabled in October of 2005 and it truly did jump-start the round. All of a sudden the buzz was that we had a round and that we were off and going. But that was based upon the notion that we had to achieve market access as a condition to that proposal. Market access is not only important to the United States but important to the rest of the world. As has been said so many times, you can review about any study and the conclusion reached is that the opportunity for real advancement will come out of the market access pillar.

Over the last 24 hours, the last 48 hours, we've had an opportunity to debate three areas that have always been out there. We knew at some point we would come to a debate on those areas, and that happened this weekend. Those three areas are what we have come to refer to as the three S's -- sensitive products, special products, and special safeguard mechanisms. I will be very very candid with you. After that debate I am worried. We had an extensive discussion about those loopholes and what they mean.

The advanced developing countries would benefit from a piece of this in a very significant way. In fact listen to this, if you will. Under the G33 proposal, 94 to 98 percent of their market, the developing countries would be blocked to our producers. I don't know of anybody that could make a case that that turns out to be a fair result when it comes to market access.

Then you add into that the potential for sensitive product designation by developed countries. Then you add into that special safeguard mechanisms available to developing countries, and you can begin to understand why I am worried.

In fact in some of the discussion there was an analysis done of the G20 proposal, which as you know has gotten some additional discussion over the past 48 hours because of the EU's thoughts on that. You add in these factors and literally your market access drops to about 40 percent. That would be concerning to anyone.

That is not robust market access. That will not even meet the Uruguay round. That doesn't even meet the lowest expectations of just about anybody who has participated in these discussions.

In some conversation I had last night I was asked maybe a rather loaded question about whether that means that what has happened is that there's been a back-tracking on market access and that sort of thing. I would never judge a round or its result by one day of meetings. That would be unfair to the round. We've been working on this, after all, for four and a half years. But these are very very critical issues.

We will do our part. We will cut our subsidies as we have proposed, and dramatically so as our October offer has proposed. But in return, we have to see market access. This weekend, quite honestly, there certainly was not a step forward in that regard.

With that, I appreciate the opportunity to offer a few thoughts, and as the Ambassador indicated, we would be happy to entertain a few questions before we go on to our next meeting.

Question: Could you give us a sense of how you see things unfolding over the next month if it's clear that there's going to be no breakthrough at this meeting this weekend? And do you think it's worth coming back here in July to try to make progress if there's been no progress here?

Ambassador Schwab: Obviously the path forward is the topic of the conversations that we're going to be having in the Green Room and subsequently the TNC, Trade Negotiating Committee, presumably later on today. At the request of the Green Room participants, the G6 countries, the G6 Ministers met last night with Director General Lamie and the outcome of that needs to be shared with the Green Room participants before it's shared with the media. However, we were talking clearly about what is the way forward. When we have clearly reached something of an impasse here, does that mean that the round is dead? The answer is no. We don't believe so. And as Mike Johanns indicated, we remain fully committed to an ambitious, robust round and have no intention of giving up hope.

There are plenty of examples of trade rounds that have faltered and ultimately been resurrected. The Uruguay round being the most recent, where there was in essence a collapse in 1990 and then in 1993 the round was ultimately closed. That's not to imply a timeframe, but I don't think anyone is prepared to, or certainly we're not prepared to give up.

Some of the critical issues, though, how can you have a multilateral trade round without market access? I think in agriculture it's very clear that with respect to domestic subsidies, for example we have well-defined parameters. The Amber Box, the Green Box, the Blue Box. When it comes to the loopholes we find we really have a Black Box. Until we figure out what's in it, this is not a negotiation that is going to come together.

Question: If I could follow up, is there any reason in thinking that things will change in four weeks?

Ambassador Schwab: I would say it's too early to tell. We would hope so, but it's too early to tell and the United States is prepared to engage in this in the most constructive manner possible, working with trading partners. But obviously the experience of the last several days has been somewhat disheartening.

Question: There is a general feeling among many Ministers here who have privately and publicly said that you are going back to Washington as a hero in terms of what has happened. How would you like to ensure that the perception that is there among Ministers that the US is not part of the problem in terms of coming up with a fresh offer on domestic support in the coming days to ensure that there is a success in this round?

Ambassador Schwab: The US was very forthcoming in October and put an offer on the table that quite frankly, by any measure, is the most ambitious offer that is sitting on the table in terms of agriculture. Certainly in terms of market access, with very very significant implications in terms of cuts in domestic subsidies in the United States.

It's something that we're committed to do, and in our offer we're talking about significant cuts, 60 percent in the Amber Box; 53 percent overall; and as Secretary Johanns can articulate, this would require significant major reforms in US farm programs.

We have never taken the position that this offer was the be all and end all. It has always been a negotiable offer. You can't come to the table and say this is our offer, take it or leave it. However, the United States is not in a position, nor should our trading partners be in a position to settle for some mediocre version of a trade round that doesn't deliver real market access and new trade flows. Therefore, there is a calibration that is necessary, and until and unless there is more market access on the table, it's hard to imagine having a further dialogue on domestic support.

Secretary Johanns: Susan has outlined it very very well. The offer in October was very bold. It's still regarded as a very bold offer. It has tremendous impact no our farm program. It changes our farm program. You can't have the same farm program because it doesn't fit any more. You just don't have the available money in the appropriate boxes to have the same farm program.

But again, the important point is, and we made no bones about this when we put the offer out there, is that market access to us was a key, but it's not only key to us, it's the key to this round. The success of this round will be judged by how much trade occurs between countries in the world.

So unfortunately this weekend with the three S's that I mentioned, the loopholes, we all of a sudden begin to realize that the market access even under the most minimum approach wasn't there. If you in effect allow for developing countries, for example, to have a process that shields 94-98 percent of their market, my goodness, how could you possibly argue that you made progress?

So like I said, I would not judge the round by one meeting or one day's worth of meetings, but these are very very worrisome developments, and developments that have to be resolved.

So now our offer even looks more bold compared to what we're seeing in market access. My hope is that over the next month here, we can come to a resolution on these really key, important issues.

Ambassador Schwab: Let me just add one thing about the entire conversation about domestic support. The United States is by no means the largest user of domestic subsidies in agriculture. In fact the European Union, for example, subsidizes at a rate that is three times that of the United States. So to put into perspective the US offer, I mentioned that under our proposal we would cut 60 percent in the Amber Box. If the US subsidized, at the end of this round, at the same rate as the EU, adjusted for differences in production, obviously, and the EU did a 75 percent cut in its Amber Box so that at the end of the process we weren't at a 3 to 1 ratio or a 2 to 1 ratio, we were at a 1 go 1 ratio, the US cut in the Amber Box would be 34 percent, not 60 percent. So to give you a sense of how incredibly committed we are and how it's reflected in the statistics, that is a specific example relative to where, for example, the EU's domestic subsidies are.

Question: You emphasized the necessity for US producers to achieve better market access. At the same time in the beginning of this press conference you said that market access is the key for developing, poor countries. How sure are you that the poor developing countries will be able to compete with US exports on these new markets that you are talking about?

Ambassador Schwab: I would edit slightly your question. When we were talking about market access in agriculture we're not just talking about potential markets for US agricultural exporters, we're talking about potential markets for all agricultural exporters, and in particular, and if you look at the development implications of enhanced agricultural market access, you find the developing countries stand the most to gain.

Here you're talking about not just increases in north/south trade, you're also talking about increases in south/south trade. So for example, and this is agriculture and non-agriculture, but 70 percent of the tariffs paid by, the duties paid by developing countries, are paid to other developing countries.

One of the wonderful things about trade policy and trade negotiations is that you can in fact have a win/win. You can have the economic pie grow. There are going to be segments of any of our economies that are hurt, and I think it is important that we not dismiss this notion that there are sensitive products, there are special products. We fully accept that they need to be there. The question is at what point are you moving beyond reasonable and just using this as an excuse, as a loophole, to block market access?

Secretary Johanns: A couple of things I would mention. Our growth in imports in agricultural products is faster than our growth in exports. We used to have a very very large trade imbalance in favor of the United States when it came to agriculture. We exported far more than we imported. Now it's about even and a lot of that is coming from developing countries. I can name countries, for example Brazil and India, who have a trade surplus with us in the agricultural area.

What we are finding is that developing countries actually are very very successful in competing for our marketplace and they're seeing in many areas good growth.

So the advanced developing countries in some respects are world class competitors. I would point to Brazil on soybeans. Let me just be honest with you, and I'm speaking as the Secretary of Agriculture for the United States, they are world class competitors. They are very very good at what they do.

So these advanced developing countries, they continue to see growth, they continue to see growth not only in our market but around the world. They are true beneficiaries of the opportunity to trade, and it improves their economies.

So it's an interesting thing, but when you study the figures, the advanced developing countries have really done very well with trade.

Question: I was just wondering, you've stressed the differences over these Black Box issues, the three S's. I was wondering whether during your discussions, which took up a lot of the G6's time yesterday, whether you saw any narrowing of differences, particularly on the numbers, what the G33 has proposed in terms of the 20 percent, the [inaudible], narrowing which could serve as a basis for further negotiations through the month of July and which could result in an agreement.

Ambassador Schwab: Unfortunately not. The short version of the answer is we tried, this was a concerted effort over a number of hours to say all right, let's step back from the tiers and the cuts. The US proposal is for a 66 percent average cut. The EU's proposal is for a 39 percent average cut. The G20 proposal, depending on how you do the calculation, is about a 52 percent average cut.

We said let's step back from that and see if maybe we can at least narrow the differences on the loopholes, on the exceptions. And we went through every one of these very specific and very arcane treatment of sensitive products, what is the basis for Tariff Rate Quotas, the growth rates for Tariff Rate Quotas, the maximum deviation if you're going to have a sensitive product, the number of lines or proportion of your trade that would be covered by special products, all those things that you're talking about. And we did not find closure or even narrow the range in any one of those. I think that was really sort of a turning point for us because we came here thinking okay, let's see if we can push forward in terms of the market access side of the equation to sort of loosen things up so that we can get into a negotiation on all the other items. That was, as Mike said, not a step backwards, but it was a real eye opener. If you look at the G20 proposal on cuts and you apply these loopholes, you could be talking about a 40 percent, not a 52 percent cut, and that takes you well below what was accomplished in the Uruguay round, and let us note for the record that the Uruguay round was not applauded for its outcomes in agriculture.

Question: Some of your trading partners are basically saying here that the United States is being held at gun point by the US Congress on cotton, textiles, movement on special professionals and maritime. Could you respond to that? Thank you.

Ambassador Schwab: I would say that all of the democracies represented here have their own political equation that they deal with, and in our case the administration is committed to a bold, ambitious, robust outcome for a variety of reasons. First and foremost, it's the right thing to do. But it also happens to fit in terms of a political equation where the politics of trade are such, and this is every country. This isn't just the United States. Every single country. The politics of trade are such that individual commodity groups or producers that could be negatively impacted from trade liberalization in your market are going to be very active and very vocal and very focused in their opposition. And the support of the proponents tends to be more diffused. The most obvious being consumers. When was the last time you saw consumers rise up to support a major trade enhancing negotiation? It doesn't happen. And yet consumers are the biggest beneficiaries. Other manufacturers or producers in terms of changes in the competitive landscape and enhancements in productivity also gain.

So in terms of a political equation, most of us find that the larger the package, the more beneficiaries and proponents you pull together and the more enthusiastic they are so as to help balance politically those who would rather not see barriers come down or see subsidies come down.

Secretary Johanns: If I might just offer a thought on that, when we built our October offer we consulted with the United States Congress, both sides of the aisle, both the House and the Senate. We literally went to them with a proposal that said if we table this we will be cutting money out of key farm programs. Now that's one heck of a message to take up to any legislative body. We said to them in return for that we're going to be asking for market access and described for them what we were going to do. To the credit of the United States Congress, understanding the importance of trade to the world, they said go ahead and table the offer and we will back you up.

Now to this day, and at the end of this weekend, the Ambassador and I cannot go back home and say to our Congress that we've delivered on market access. In fact when we have to explain to them what the three S's mean, we will be asked over and over again, isn't this a retreat from market access? And we'll have to answer that. We'll have to deal with that issue.

But even today our United States Congress is backing us up on this proposal. Now are they very clear about the need for market access? Absolutely, just like we are. Just like we are. Because that's the key to the round. That's what's going to make this round successful. That's what's going to give the world opportunity. That's what's going to allow developing countries to continue to grow and expand. That's what's going to improve the world economy for least developed countries. So even today the United States Congress is with us.

So to suggest that they're out there doing anything but supporting us is just unfair to them. They are taking a tremendous, tremendous step for the world here in backing us up on this proposal. No one was saying to us as we left Washington last week, pull the offer. Go to Geneva and pull the offer. We haven't seen the market access. Pull the offer. They're saying do everything you can to try to make this round successful. And I just think to suggest that they're headed in a different direction is unfair to them. They've hung in there with us and even today want this round to be successful.

Ambassador Schwab: I would add to that, Mike is absolutely right. Congress has been very patient with us and this is fully bipartisan. The letters, the press conferences, the briefings. We really do enjoy bipartisan support for the potential of a large round. And I would also say in the Congress's defense, if you look at what this Congress has accomplished on trade in the last several years, it includes not just enactment of trade liberalizing FTAs. It also includes repeal of the Byrd Amendment, it includes repeal of the Foreign Sales Corporation tax. So there have been some good moves on trade in terms of the Congress.