Bridges Weekly Trade News Digest • Volume 10 • Number 25 • 12th July 2006

Doha Round: Can St. Petersburg Summit Yield A Breakthrough?

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As WTO Director-General Pascal Lamy continues his attempts to promote consensus in the troubled Doha Round negotiations, several trade diplomats are looking to the upcoming G8 summit in St. Petersburg for major trading nations to come up with a way out of the deadlock.

The group of eight leading industrialised nations (G8) is holding its annual leaders’ meeting from 15-17 July. Although the gathering’s focus will be on energy security, education, and infectious diseases, the heads of state - from Canada, France, Germany, Italy, Japan, Russia, the UK, and the US, in addition to European Commission President Jose Manuel Barroso - are expected to discuss trade as well.

Their counterparts from developing countries Brazil, China, India, Mexico, and South Africa - all members of the G-20 group at the WTO - will also be in St. Petersburg, thus bringing together several of the key players in the Doha Round talks. Sources report that Lamy, too, will be present.

Many think that WTO Members have to strike a framework deal on cutting farm subsidies as well as tariffs on both industrial and agricultural products by the end of July in order to meet their goal of concluding the round by the end of the year. After failing to do so at a high-profile ministerial-level meeting in Geneva at the end of June, Members asked Lamy to step up consultations with governments in an attempt to facilitate an agreement as soon as possible (see BRIDGES Weekly, 3 July 2006).

The WTO chief believes that a ‘modalities’ agreement - formulae and figures to determine the extent of reductions and exceptions to them - would require parallel concessions on a ‘triangle’ of issues: the US would have to agree to make deeper cuts to domestic farm support, the EU to increased agricultural market access, and developing countries such as Brazil and India to offer more on industrial tariffs.

During the recent meeting in Geneva, the US in particular was insistent that it would not budge on farm subsidy cuts unless other countries agreed to slash agricultural tariffs more deeply. The US has been seeking an average farm tariff cut of 66 percent from developed countries, compared to the G-20’s favoured 54 percent and the 39-46 percent proposed by the EU. Speaking in Washington on 7 July, US Trade Representative Susan Schwab ruled out the possibility that the US would downgrade its demands on market access, suggesting that this would "risk generating a downward spiral" in the negotiations.

Lamy in Japan

Lamy started his ’shuttle diplomacy’ in Japan last week, where he met with several members of Prime Minister Junichiro Koizumi’s cabinet. Japan, which is a member of the G-10 group of countries with highly-protected farm sectors, is also part of the all-important G-6 along with the EU, the US, Australia, Brazil, and India. According to Kyodo News, Koizumi hinted at willingness to move on his country’s traditionally high agricultural tariffs, telling Lamy that ‘aggressive action’ was necessary in the sector.

Following his meetings in Tokyo, Lamy said on 6 July that he was "encouraged by the commitment to the round" that he had seen from top Japanese officials, though his new role as "confidante to Member governments" prevented him from responding to questions about the evolution of any country’s positions.

Lamy added that he would continue his consultations with other G-6 countries, during which he would "try to test with them different hypotheses and different numbers" in an attempt to discern their "red lines." He suggested that he would ask questions such as "What if your trading partners moved more in this direction? What if they asked you to do more in that direction? What if you gained more market access for product ‘x’ but less for product ‘y’? What if this type of agriculture subsidy was reduced more than that one?" The answers to such questions, he said, would help determine the shape of a modalities compromise.

Indian Commerce and Industry Minister Kamal Nath arrived in Geneva on 12 July to meet with Lamy as well as to hold talks with other Members. Prior to his departure, he told journalists in New Delhi that the onus remained on developed countries to initiate the moves necessary to push the talks forward.

Can G8 summit break the deadlock?

Some Geneva-based negotiators have expressed scepticism about whether the discussions at and around the G8 summit will be able to address some of the technically complex issues that must be addressed for a modalities deal to be possible. Heads of state meetings, they suggest, often tend to focus on broad generalities.

Foremost among these technical issues is the specific nature of various exceptions to farm tariff disciplines — the ’sensitive products’ that all Members will be able to designate for lower tariff cuts; the ’special products’ that developing countries alone will slate for special tariff treatment based on food security, livelihood security, and rural development concerns; and the ’special safeguard mechanism’ for developing countries.

US officials have complained that these flexibilities make up a "black box" of loopholes that render it impossible to measure the true extent of market access offers. For example, Schwab said during her recent speech that the EU’s favoured approach to sensitive products would have the effect of diluting the G-20’s proposed farm tariff cut from 54 percent to 40 percent. Sources suggest that the exceptions will figure prominently in Lamy’s consultations, since they will need to be clarified prior to any modalities deal.

Nevertheless, Brazilian President Luiz Inacio ‘Lula’ da Silva has vowed to try to give a boost to the Doha Round talks at the St. Petersburg summit. He told the Financial Times that with trade negotiators deadlocked, governments could use the meeting to send a clear signal that they want progress.

World Bank President Paul Wolfowitz, for his part, sent a letter on 9 July to the leaders going to St. Petersburg, urging the US, the EU, and developing countries to take advantage of a "unique opportunity" to make "a collective pledge" to move towards the controversial ‘20-20-20′ targets for a potential deal outlined by Lamy in late June (see BRIDGES Weekly, 28 June 2006). This would require the EU to accept the G-20’s farm tariff proposal, countries like Brazil and India to assent to a 20 percent ceiling on industrial tariffs, and the US to agree to limit overall trade-distorting farm subsidies at a level below USD 20 billion.

Lull in ag, NAMA negotiations

Meanwhile, at WTO headquarters in Geneva, the negotiating groups on both agriculture and non-agricultural market access (NAMA) have not been holding meetings. Agriculture Chair Ambassador Crawford Falconer (New Zealand) told Members that this was to leave "sufficient time and space" for Lamy’s consultations. Both he and the NAMA chair are available to meet with Members in the capacity of ‘friends’ of TNC Chair Lamy.

Work in other negotiating areas is continuing, albeit with an eye on progress on farm and manufactureds trade. Bilateral market access talks on services are currently underway.

EU Trade Commissioner Peter Mandelson and his Indian counterpart Nath, so often at odds in the negotiations, recently co-wrote an article in the International Herald Tribune urging Members not to neglect the trade facilitation talks, in which a preliminary agreement is due by the end of the month. They steered pointedly clear of addressing agriculture and NAMA.

ICTSD reporting; "Lamy says WTO in ‘red zone,’ seeks urgent action to save process," KYODO NEWS, 6 July 2006; "Developed countries must take initiative to push WTO talks," TIMES OF INDIA, 12 July 2006; "Brazil’s Lula to promote Doha trade talks during G8 summit," FINANCIAL TIMES, 12 July 2006; "Doha round: It’s not only what we trade, but how," INTERNATIONAL HERALD TRIBUNE, 5 July 2006; "G8 may hold key to WTO deal," REUTERS, 7 July 2006.