America tries to get things moving

Oct 12th 2005
From The Economist Global Agenda

America has tried to get world trade talks moving again by proposing new cuts to agricultural subsidies. With a crucial meeting in Hong Kong fast approaching, rich countries need to get serious about farm-support reforms, or risk walking away from the Doha round with only token advances in global trade liberalisation.

LIKE a group of students eyeing comfortably distant exams, the members of the World Trade Organisation (WTO) have long paid lip service to the approaching deadline for settling the Doha round of global trade negotiations. Much in the way that students attempt to reassure their anxious parents, the various governments have frequently reiterated the importance of Doha, implying that they are planning to make a big splash in the “ministerial” in Hong Kong this coming December.

So far, however, there are few signs that this admirable sentiment is being translated into action. The last breakthrough came in May, when negotiators from America, the European Union (EU), Brazil, India and Australia settled on a formula for converting existing tariffs into “ad valorem” levies, which are assessed as a percentage of value. But a wide gulf still divides the parties on crucial matters like agricultural protections.

Unfortunately, each of the participants is loth to take the plunge into liberalised markets for agriculture and services unless all its peers are doing it too. This has stalled negotiations as everyone wrangles about who will lead the group into the brave new world. With labour markets lacklustre in most rich nations, and protectionist sentiment on the rise, no politician wants to be the first through the door. The talks are now well behind schedule.

But the window for procrastination is closing fast. If the Doha round is to be successfully concluded, it must be largely wrapped up at the Hong Kong meeting in two months’ time. Any later than that, and the final agreement may not be ready before President George Bush’s “fast track” authority—which forces Congress to vote on trade agreements as they stand, without amendment—expires in mid-2007. Even before the recent dip in Mr Bush’s approval ratings, it seemed almost impossible that such authority would be renewed; the president fought a bitter battle to get it in the first place, and Congress has taken a turn towards protectionism since then. This makes it crucial that negotiations be concluded before Congress regains the power to put the agreement to death by a thousand amendments.

Crash course

This week, America finally began to prepare for the imminent reckoning. On Monday October 10th, Rob Portman, the country’s trade representative, proposed substantial cuts to rich-world agricultural supports at a meeting of ministers from 15 key members of the WTO. Such cuts are long overdue. Developing countries nearly derailed the Doha round in 2003 by forming a bloc whose intransigent demands for cuts in rich-country agricultural supports brought an important meeting in Cancún, Mexico to a screeching halt. Though both rich and poor countries have been working to get the talks back on track since then, a substantial reduction of the rich world’s bloated farm subsidies is crucial to bringing their poorer brethren back into the fold.

On the face of it, America now seems prepared to put its money where its mouth is. Mr Portman’s proposal includes a 60% reduction in the levels of farm supports and a 53% reduction in trade-distorting subsidies, as well as steep cuts to tariffs. However, this will face stiff resistance in Congress unless substantial concessions are made in other wealthy countries. The document calls for reductions in farm subsidies elsewhere in the developed world that are even steeper than those proposed for America: an 83% reduction in aggregate support levels in Japan and the EU, and a reduction in trade-distorting support of 75% (53% for Japan). This, America claims, would reduce the EU’s allowed subsidies to a mere twice what the United States is permitted, down from four times as much presently.

Needless to say, this proposal has not gone down well across the Atlantic and Pacific. The EU countered with a plan calling for smaller reductions, particularly on tariffs, which are also much higher in Europe than America. According to the Financial Times, Japan stated that America’s proposals are “not a basis for negotiation”.

Meanwhile, Dominique Bussereau, the French agriculture minister, has circulated a petition among EU member states calling for Peter Mandelson, the Union's trade commissioner, to hold off on making any concessions until he consults with the national governments. So far, 13 out of the EU’s 25 members have signed this. If the Brussels negotiators have to ask advance permission from member states for every compromise, it is hard to see how they can hope to make substantial progress before the December deadline.

On Wednesday, two days after America had made its latest offer, a meeting of trade ministers from key WTO members broke up with few signs of progress. Mr Portman blamed the EU, expressing disappointment that there had been “no significant moves on farm market access”. The ministers agreed to meet again next week.

Even if America and the EU manage to find some middle ground, some are saying it will still not be enough. Oxfam, one of the loudest non-governmental voices calling for trade liberalisation to help reduce poverty in the developing world, has been harshly critical of the new American proposal, calling it “smoke and mirrors”. The planned cuts, the organisation says, would actually produce only trivial decreases in America’s spending on its farmers, and would be little help to farmers in the developing world. Lowering tariffs would help poor-country farmers most, but this is a tough sell to rich-world governments.

If there is a ray of hope, it is that none of the governments involved wants to see Doha fail. Negotiators will be searching energetically in coming weeks for a combination of concessions that will allow them to come back from Hong Kong with an agreement in hand.

So Doha is unlikely to come off the tracks completely in Hong Kong. The real risk is that the conclave produces a document with enough token reforms to allow member governments to claim victory, but little substantial liberalisation. If that happens, it is hard to see where the impetus will come from for another, deeper round of reforms later. The world must wait to see whether the work presented in Hong Kong will merit a passing grade.

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