Bridges Weekly Trade News Digest • Volume 12 • Number 7 • 27th February 2008
Divide over ‘exchange rate’ stymies progress in Doha round talks
For any commercial exchange to work out, buyers and sellers need to be able to agree on a price. Without overlap between what a carpet salesman is willing to accept and what a wily customer deems to be a fair bargain, there will be no deal.
This also holds true for the long-running Doha Round of global trade talks. WTO Members currently differ deeply on what constitutes a reasonable ‘exchange rate’ between the price they are willing to pay on farm subsidies, agricultural tariffs, or manufacturing duties, and the concessions they want in return from their trading partners.
The exchange rate is significant in political as much as commercial terms: apart from seeking expanded access for their competitive industries, governments are loath to be perceived as selling out vulnerable sectors while other countries get off easier. It is far from clear whether they will be able to strike a compromise.
The divisions have been brought into sharp relief by Members’ reactions to draft deals released earlier this month on agriculture and industrial goods trade by the chairs of the respective negotiating committees. The drafts, released on 8 February, included various potential parameters that would help determine Members’ future tariff and subsidy levels.
Many governments say the two draft agreements ‘lack balance’, but for diametrically opposed reasons. Officials from the EU and Switzerland complain that they are being asked to do too much to open their heavily protected farm sectors to more foreign competition, while developing countries are being let off easily on industrial tariff reduction.
Argentina, Brazil, and India argue the precise opposite: that the industrial tariff cuts demanded of developing countries are disproportionate to the modest farm reforms required of the industrialised world.
“Right now you cannot see any intersection” between the principal players’ respective views on the exchange rate, one trade diplomat told Bridges this week. “Our hope lies in movement that will produce convergence. We don’t see it right now, but we hope to.”
Movement of any kind was in short supply during informal consultations last week on both agriculture and non-agricultural market access.
Ag: little movement
New Zealand Ambassador Crawford Falconer, who chairs the agriculture talks, told a 22 February meeting of the negotiating committee that delegates had failed to move beyond their established positions. As a result, he was not in a position to revise his 8 February text.
Trade negotiators in Geneva echoed Falconer’s assessment. There had been “no advance at all” said one delegate familiar with the discussions.
In particular, the import-sensitive EU and the G-10 alliance that includes Japan, Switzerland and Norway were vigorously opposed to a provision in the 8 February agriculture text that would require all developing countries to cut farm tariffs by an average of at least 54 percent, even if the tiered reduction formula would require lower reductions. Exporters and the G-20 bloc of developing countries, on the other hand, expressed support for the idea. Falconer claimed that the measure would not greatly affect countries’ tariff levels, and suggested that opposition was political rather than ‘mathematical’.
The agriculture chair reminded delegates that a revised text was necessary “in order to meet the kind of timeframe people are talking about and to make it manageable for ministers.”
Falconer’s latest text still contains different figures and options currently in square brackets, indicating lack of consensus on several dozen issues in the talks. Many of these must be resolved if trade ministers are to be presented with a limited number of issues to improve their chances of success if and when they meet to strike a framework deal on agriculture and industrial goods trade this spring. A ‘modalities’ deal would include formulae and figures that will determine how countries cut tariffs and subsidies, as well as exceptions to these cuts.
The unofficial timeframe Members have been working on since late January calls for a ‘mini-ministerial’ to try to reach a modalities deal ‘around Easter’, which falls on 23 March this year. Delegates have privately conceded that this is overly ambitious, and that April is more realistic. The EU last week acknowledged this in the negotiating committee, when it called for modalities on agriculture and NAMA by the end of April.
NAMA at standstill
As for NAMA, Chair Ambassador Don Stephenson (Canada) also said that little had changed in Members’ positions since he tabled his draft text, or indeed even in the months before that.
Unlike agriculture concessions, industrial goods liberalisation depends on a handful of numbers: the formula ‘coefficients’ that will determine future tariff ceilings for industrialised and developing countries, and the ‘flexibility’ figures that will determine how many products the latter will be able to shield from liberalisation.
Stephenson’s text suggested that given the utter deadlock in the talks, Members might try to pursue consensus by exploring ways to trade off higher coefficients against lower flexibilities and vice versa, since countries might be willing to consider lower coefficients if they have more latitude to shield sensitive sectors from steep tariff cuts (see BRIDGES Weekly, 13 February 2008). However, several countries, including the EU and the US, have complained that this would increase uncertainty in the negotiation.
At the 20-21 February meeting of the NAMA negotiating committee, Argentina and Brazil complained that the NAMA text demanded liberalisation far out of proportion to the reforms provided for in the agriculture text. Switzerland said that the agriculture price was high, and that the NAMA one should be correspondingly so. “The more you push us in agriculture, the more we’ll push you in NAMA,” it said.
Argentina said that the gaps between the two texts made it impossible to start the ‘horizontal’ process of cross-sectoral tradeoffs that would ultimately culminate in a ministerial modalities deal.
Despite the differences, the same source who said that there was no overlap on the exchange rate right now said that a horizontal process starting in the second half of March was “not impossible,” following revised agriculture and NAMA texts in the second week of the month.
US Trade Representative Susan Schwab told a Chicago audience last week that “a lot of [trade ministers] are reserving chunks of time on our calendars for late March, early April.” She stressed, however, that “there’s more work that needs to be done,” reports Reuters.
In the meantime, Falconer has said that he is planning to continue ‘room E’ consultations with officials from some 37 representative delegations, possibly until 3 March, when he will pause to allow Members to reflect and consult amongst each other. He will then decide how to proceed.
NAMA Chair Stephenson, for his part, said that Members’ widely shared discomfort might be salutary for the negotiations. “You have to change this text,” he said. “You need to change something and nobody changes anything when he is comfortable.”
ICTSD reporting; “Top US trade rep sounds upbeat note on Doha talks,” REUTERS, 21 February 2008.