November 14, 2005 8:21 pm

How to resolve the world trade talks

With agricultural trade negotiations deadlocked, the Doha round of trade talks may appear dead in the water. But every round of trade talks in recent memory has oscillated between near breakthroughs and near breakdowns. Trade negotiations can be like a ride on a roller coaster but, while the roller coaster returns to where it started, multilateral trade negotiations have generally gone on to close successfully. Will this happen with the Doha round? Surprisingly, the answer is yes. Prospects for concluding the round in Hong Kong next month, at the World Trade Organisation Ministerial meeting, are indeed bleak; but not the prospects for finishing later.

For a start, the history so far of the Doha round is more encouraging than conventionally believed. The initial attempt to launch the WTO’s first round of multilateral trade negotiations, at biennial ministerial talks in Seattle in November 1999, collapsed amid violent demonstrations. The round was finally launched in Doha, Qatar, two years later, as negotiators brilliantly exploited the tragedy of the September 11 terrorist attacks on the US by arguing that the twin virtues of democracy and openness to the world economy would be re-affirmed by the launch of a WTO round.

By the next WTO meeting in Cancun, Mexico, anti-globalisation activists were diminished in numbers and their passions seemed somewhat spent. Since then, however, dissent among the negotiating nations has been at the heart of the inability to conclude the Doha round. But then everyone, 148 member states today, has returned to the drawing board. Doha is still in play. Besides, Cancun did clear the decks for eventual success of the Doha round by settling some thorny and divisive questions. Pascal Lamy, then the European Union’s trade commissioner, had been wedded to the so-called “Singapore issues”, first proposed at a ministerial trade meeting in 1996 – competition policy, investment, transparency in government procurement and trade facilitation – but many others objected strenuously. Mr Lamy, who is now the WTO’s director-general, gave them up except for the innocuous issue of trade facilitation. Then again, the US pharmaceutical industry had been holding out against demands for easing restrictions imposed under the earlier trade-related intellectual property rights (or Trips) agreement, on the production of generics by developing countries and their use by other developing countries. But the industry was cajoled into compliance and Robert Zoellick, then US trade representative, came to Cancun with the concession in hand. Today, the Trips agreement is not regarded as a stumbling block and negotiations are mainly over residual matters such as exclusive access to geographical “brand” names such as Parma ham and Darjeeling tea.

If this historical perspective suggests that panic is not warranted, there are also reasons to hope the current round can be finished in time to avoid the danger posed by the expiry of President George W. Bush’s fast track trade-negotiating authority in mid-2007 – a danger that is unusually great as general support erodes in the US for freeing trade.

In agriculture, widespread condemnation of rich-country subsidies as running at “$1bn a day” and “causing overproduction” is a massive exaggeration that makes the task of reducing subsidies seem politically intractable.

In fact, when one omits the subsidies that are “decoupled” from production and trade, the “coupled” subsidies that distort production and trade and that alone should matter to other countries, are less than $100bn (€85bn); and here, too, the export subsidies are in the range of $3bn-$5bn annually. Clearly, the export subsidies are small enough to be negotiated away and a dent could surely be made in the “coupled” subsidies. The opposition of France and its allies to further cuts in EU tariffs and quotas (called “market access” in the negotiations) beyond what Peter Mandelson, EU trade commissioner, has offered so far could be a bottleneck. But it is likely that more could be squeezed from the EU in return for more reciprocal concessions in the final deal. The EU knows it has no comparative advantage in agriculture, so the reciprocity it needs has to come in manufactures and services.

It has to be said, however, that the Group of 20 countries, which includes the bigger developing countries such as India and Brazil, have tariffs on manufactures that are significantly higher than the Organisation for Economic Co-operation and Development average, cuts in which can be put on the table. Brazil has already indicated willingness to do so and India is also likely to play.

But then, the US has comparative advantage in agriculture, so it cannot ignore the demands of US farmers for “sectoral reciprocity” within agriculture itself from the Cairns group countries of agricultural producers such as Brazil and Mexico, which also have high tariff barriers on agriculture. The Cairns group should be willing to support a deal that cuts its members’ agricultural trade barriers in return for long-desired market access to the US.

What about services? The main drivers in the US and the EU are insurance companies and the banks. Their services, however, actually lubricate trade and the developing countries can surely be persuaded to take more quantitative commitments here, providing the EU and the US with additional quid pro quo for their agricultural concessions. The poorest countries must also be brought on board, although some hesitate to liberalise trade for fear they may lose tariff revenues on which they rely for public spending.

Others are afraid to liberalise because they lack adjustment assistance programmes to assist workers who may be laid off due to import competition. Then again, many enjoy preferences and fear “most favoured nation” tariff liberalisation under the Doha round because that would erode the value of their preferences. For all these problems, an “aid for trade” programme could be devised to provide aid funds systematically to respond to these tasks. Mr Lamy has endorsed the idea. It should bring many of the least-developed countries on board for Doha and must be acted upon forthwith.

The outlines of such a deal that would close the Doha round are therefore clear. It remains for Mr Lamy to present them forcefully (in the tradition of the “Dunkel draft” that rescued the Uruguay round of talks) in Hong Kong, and to get the member states to follow with an extraordinary meeting within six months, in a pro-globalisation country such as Denmark, where the penultimate steps to finalising a deal by the end of 2006 and its approval by early 2007 would be taken. It can be done. It is up to us all to do it.

The writer is a professor at Columbia University and senior fellow at the Council on Foreign Relations. This article draws on an essay in the forthcoming Foreign Affairs’ special issue for the WTO Hong Kong talks next month

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