Bridges Weekly Trade News Digest • Volume 11 • Number 1 • 17th January 2007

Doha: Members Sound More Optimistic, But Will It Lead To Anything?


Trade officials from the world’s major economies are sounding more optimistic about the Doha Round than at any point since talks broke down last July, even though governments have yet to openly shift their bargaining positions.

An EU-US summit in Washington last week was notable for the absence of the finger-pointing that has marked exchanges on trade in recent months. EU Trade Commissioner Peter Mandelson indicated that meetings with the administration and Congressional officials had given him cause to believe "there is fresh hope for the Doha Round." US Trade Representative Susan Schwab, though sounding somewhat less enthusiastic, also suggested that there had been progress.

US President George W Bush had been particularly emphatic about his desire to see an agreement, the EU trade chief said, telling him and Schwab "’Go to it, Susan. Go to it, Mandelson. Just get it done."

The rhetoric has sparked hopes that the two sides were moving towards bridging their differences on farm subsidies and agricultural market access - the issues on which the negotiations have foundered.

In the same week, Schwab and Mandelson met separately with their Japanese counterpart Akira Amari. All stressed the importance of achieving quick progress in the multilateral trade talks. Earlier in January, Schwab and Celso Amorim, Brazil’s foreign minister, had some ‘preliminary’ discussions to explore how the deadlock might be broken.

As discussions resume at WTO headquarters in Geneva following the holiday season, negotiators appear cautiously optimistic that the improved atmospherics will translate into concrete progress in the talks. One warned against over-enthusiasm, saying that this could make failure even more disappointing. Informal meetings on agriculture and non-agricultural market access are set to start next week.

Window of opportunity open, breakthrough uncertain

Most countries believe that they have until early April to demonstrate that a deal is within reach. This ‘window of opportunity’ arises from the end-June expiry of the US presidential administration’s ‘trade promotion authority’ (TPA), and with it, the ability to submit trade deals to Congress for a yes-or-no vote without the possibility of amendment.

It is not clear whether the new Democratic Congress will agree to extend TPA, although Bush administration officials have described securing renewal as a high priority. Speaking in Geneva on 12 January following a meeting with WTO Director-General Pascal Lamy, Schwab reiterated that substantive progress in the Doha talks would likely make "Congress and US constituencies much more enthusiastic" about TPA. However, she warned that a deadlock-breaking accord was far from imminent. "Are we near a breakthrough? No. We’ve got a long way to go for a breakthrough," she said.

Schwab: focus less on "bumper sticker numbers"

A breakthrough would require governments to wriggle out of the rhetorical corners that many have painted themselves into by vehemently vowing not to make further concessions. The EU and many developing countries, including India and Brazil, insist that the US should lower its proposed future ceiling level on trade-distorting subsidies. Washington has thus far maintained that it would not agree to further cuts unless they offer substantially deeper reductions to their agricultural import tariffs.

In Geneva, Schwab pointed to one potential way to soften the tenor of the debate. Downplaying the significance of the "bumper sticker numbers that hung us up in July," she called for a wider focus on clarifying the "many moving parts" in the negotiations. This would entail concentrating less on the overall average percentage cuts to tariffs and subsidies, and more on the various exceptions and rules that will determine how import volumes might expand for some products but not for others, or how governments will be prevented from making certain payments to farmers.

Schwab indicated that such technical discussions are now taking place bilaterally between several countries. Greater clarity about Members’ specific export goals and import sensitivities might help them cobble together a package that is ambitious but not politically explosive, she suggested.

The agriculture negotiations had a particularly high number of "moving parts," Schwab said. These include the ’sensitive products’ that all Members will be able to shield from standard tariff reductions in exchange for the expansion of import quotas, as well as the ’special products’ that developing countries alone will be able to slate for lenient tariff treatment based on food security, livelihood security, and rural development concerns. The US has been a staunch proponent of minimising the extent of both types of flexibilities in the agriculture negotiations, particularly the ’special products’ for developing countries.

The "bumper sticker numbers" are well known. The G-20 group of developing countries want rich countries to slash the binding caps on their farm tariffs by an average of 54 percent. The EU initially offered an average reduction of roughly 39 percent. Mandelson has hinted - albeit without ever tabling a formal offer - that it could go as high as about 51 percent, but no further. Led by France, several EU member states insist that even this might already go too far. All the same, Washington has been seeking tariff cuts of close to 66 percent, offering in return subsidy cuts that both the EU and the G-20 have deemed insufficient.

New paper urges US to moderate demands

The US’ focus on deep tariff cuts and minimal exceptions is misguided, argues a new paper by Sandra Polaski, a researcher at the Carnegie Endowment for International Peace. She points out that not only do farm products account for less than 5 percent of US exports, there is "not a close relationship between agricultural imports and applied tariff rates." Instead, she contends, the main factor in driving up a country’s demand for farm imports is domestic income growth. Chinese and Indian agricultural imports have increased with the rise in per capita income, irrespective of shifts in each country’s agricultural tariff levels. The study notes that the US is already the world’s top exporter of farm products to developing countries. Polaski suggests that Washington’s demands could have the perverse effect of lowering incomes in poor households in developing countries - thus impeding future demand for US farm products. She urged Washington to moderate its proposal in order to break the stalemate in the negotiations.

Nevertheless, market access remains at the heart of US political debates on the Doha Round. Max Baucus, the Montana Democrat who chairs the Senate committee with jurisdiction over trade, said last week that "enhanced market access in agriculture is a key priority," and that existing proposals appeared to be inadequate. Baucus is not a reflexive opponent of trade agreements: earlier this month, he wrote in the Wall Street Journal calling for TPA to be extended, accompanied by beefed-up adjustment measures to help workers affected by liberalisation.

Meanwhile, US lawmakers need to write new legislation mapping out future agricultural spending to replace the subsidy-rich 2002 farm bill, which expires this year. Coupled with high commodity prices, this would in theory be an opportunity to scale down farm payments in the face of the overall budget deficit, the threat of WTO lawsuits, and the demands of a potential Doha Round deal. However, the powerful farm lobby has been pushing Congress to maintain spending levels, and House Agriculture Committee Collin Peterson, a Democrat from Minnesota, is advocating only minor changes to the current farm bill (see BRIDGES Weekly, 15 November 2006).

Davos meeting to produce another road map?

Ministers from some 30-odd influential WTO Member countries are set to meet in Davos on 27 January, on the sidelines of the World Economic Forum conference there. The Swiss government said that the session would give ministers a chance to discuss the talks and exchange ideas on "how to advance the process." Reuters reports that WTO head Lamy has indicated that the meeting would probably focus more on procedural issues such as a schedule for future talks, rather than on Members’ substantive differences. Such ‘mini-ministerials’ have become a standard feature of the annual summit of government and business leaders. Last’s year’s gathering produced a ‘road map’ of deadlines for resolving different issues in the negotiations, almost all of which were missed.

What if governments fail to bridge their differences during the ‘window of opportunity’?

Lamy said late last year that the Doha Round would fail without "some sort of extension" to the Bush administration’s TPA (see BRIDGES Weekly, 6 December 2006). In the course of his ongoing shuttle diplomacy with governments around the world, he has continued to argue that even the more conservative offers currently on the negotiating table would be of unprecedented commercial value.

Schwab thinks that a lapse in TPA would not be fatal to the WTO negotiations. "There are various things we use trade promotion authority for," she told a press conference in Geneva. "It will ultimately get extended. Again, we’d like to see it sooner. It would not be the end of the Doha Round."

One option that Lamy has not definitively ruled out would be to come up with a compromise agreement of his own, based on where he thinks agreement might be found. In 1991, the then-Director-General of the GATT, Arthur Dunkel, drafted a comprehensive agreement text in an ultimately successful attempt to break a deadlock in the Uruguay Round negotiations. However, Lamy has maintained that he has no plans to do so, insisting that it is a "last resort option" (see BRIDGES Weekly, 20 December 2006). In a recent comment to the Financial Times, he likened the so-called ‘nuclear option’ of international trade negotiations to "performing surgery on a patient who is already in a bad way. If the patient is going to die the next day anyway then it may be worth it, but not at this stage."

The Carnegie Endowment paper, "Breaking the Doha Deadlock," is available online at: http://www.carnegieendowment.org/files/Polaski_final_formatted.pdf.

ICTSD reporting; "U.S., Japan agree quick action needed for Doha: USTR," REUTERS, 11 January 2007; "’Preliminary’ WTO discussions between US and Brazil," MERCOPRESS, 3 January 2007; "Devil is in the detail amid Doha détente," FINANCIAL TIMES, 11 January 2007; "Trade ministers seek revive WTO talks at Davos," REUTERS, 16 January 2007; "A Democratic Trade Agenda," WALL STREET JOURNAL, 4 January 2007.