30th July 2008

WTO Mini-Ministerial Ends in Collapse

Governments’ latest attempt to salvage a deal in the Doha Round of trade talks broke down on Tuesday, as ministers acknowledged that they were unable to reach a compromise after nine days of a high-level summit at the WTO. The multilateral negotiations now face an even more uncertain future, despite considerable headway towards an accord.

Officials expressed surprise and disbelief that, in the end, the negotiations foundered on an issue that had never been the stuff of news headlines before this week: the extent to which developing countries would be able to raise tariffs to protect farmers from import surges under a ’special safeguard mechanism’ (SSM). Differences over cuts to farm subsidies and industrial tariffs, which had long seemed virtually intractable, appeared to be bridged to a significant extent during the ‘mini-ministerial’ gathering in Geneva. Even the always tricky issue of preference erosion was reportedly close to being finalised.

One of the main sticking points about the SSM has been whether, and by how much, countries should be allowed to impose safeguard duties in excess of current (i.e., pre-Doha) tariff ceilings. The group of seven leading trade powers that was at the centre of the talks met much of the day Tuesday, as they had the day before, to see if they could find common ground.

Import-sensitive China, and especially India, were pitted against the US’ demands for predictable market access for farm products. Some time around 5pm, they gave up.

“I think it’s no use beating around the bush,” WTO Director-General Pascal Lamy told journalists after announcing the failure to WTO Members. “This meeting has collapsed. Members have simply not been able to bridge their differences.”

Initial reactions to the collapse of the summit, which started on 21 July, do not seem to have been marked by as much acrimony and finger-pointing as that which surrounded the breakdown of pushes for framework Doha Round deals in each of the past two years.

More than anything, ministers expressed disappointment, sounding rueful that the talks had fallen apart despite coming very close to agreement. EU Trade Commissioner Peter Mandelson called it a “collective failure,” a sentiment echoed by Lamy.

“Never, never, before have we been so close just to see everything fall apart,” EU Agriculture Commissioner Mariann Fischer Boel said at a press conference.

Any outside observer “would not believe that after the progress made here, we could not conclude,” said Celso Amorim, Brazil’s foreign minister.

So close did some Members feel to an agreement that some delegations expressed willingness to continue consultations late Tuesday night, Lamy said.

There were nevertheless insinuations of intransigence on the part of others.

A “disappointed” Kamal Nath, India’s commerce minister, said “it is unfortunate that in a development round we couldn’t run the last mile because of an issue concerning livelihood security.”

“Even today, 5 of the 7 countries in the leadership group were prepared to accept the Friday proposal by Director-General Lamy,” said US Trade Representative Susan Schwab on Tuesday, in a reference to India’s and China’s rejection of some provisions in a compromise package that the WTO chief put to Members on 25 July. In a statement, she said that market access-creating “ambition is not evident” in other countries’ offers.

The full G-7 includes Australia, Brazil, China, the EU, Japan, India, and the US.

How it broke down

While the special safeguard mechanism was widely seen as the proximate cause of the collapse, the deadlock on the SSM meant that other contentious issues, notably cotton-specific subsidy cuts and protections for location-based food names like Parma ham, never even got their turn in the spotlight.

On the SSM, Lamy said, differences on how big import surges need to be in order to justify the highest safeguard remedies ultimately proved irreconcilable, despite “more than 60 hours” spent trying to bridge the gaps. “Those who feared that the safeguard would lead to a disruption of normal trade wanted this safeguard as high as possible. Those who feared that the safeguard would be not operational if it was too burdensome wanted a lower trigger,” he said.

Lamy’s own proposed compromise would have allowed SSM remedies to surpass pre-Doha tariff bindings by up to 15 percent (or percentage points) when import volumes rose by 40 percent over a three-year average. The freedom to exceed current bound levels would have been limited to 2.5 percent of tariff lines, with remedies unavailable if prices were not actually declining.

The G-33, which includes India and China, said that this ‘trigger’ was too high to ensure that farmers would not be hurt by surges of subsidised agricultural imports from developed countries. They wanted the highest SSM remedies to be triggered by import volume increases of 10 percent and more, with safeguard duties capped at 30 percent (or 30 percentage points) above bound levels.

On Monday night, the US rejected a proposal from Lamy that included no numerical triggers and remedy caps, but would have instead constrained the use of the SSM by linking it to “demonstrable harm” to users’ food and livelihood security and rural development needs, and by making remedies subject to expert review. India accepted it, according to one G-33 official.

G-7 ministers and officials on Tuesday looked for more acceptable numbers to plug into the model proposed by Lamy. Sources say that one option would have involved a ‘trigger’ import volume increase of 15 to 20 percent, with remedies equal to either 30 percent of current bound tariffs or 8 percentage points. A subsequent trigger of a 35 to 40 percent increase in import volumes would have been linked to remedies of either 50 percent of bound tariff levels or 12 percentage points. The difference between the percentage of bound tariffs and the number of percentage points would be particularly relevant for countries looking to export to China, which has low tariff levels because of its accession conditions (adding 8 percentage points to a tariff capped at 8 percent amounts to a 100 percent increase; adding 30 percentage points, to yield 38 percent, represents a far higher increase).

The US reportedly did not budge from its position that a 40 percent increase in import volume was the lowest possible trigger it could accept for SSM remedies that would go beyond current tariff ceilings.

Mandelson said that it was “heartbreaking” that a small difference on numbers related to the SSM trigger had tripped up the talks. “An irresistible force met an unmovable object in the negotiating room, and the rest is history,” said Mandelson of the clash between India and the US.

A future for Doha?

With the failure of the summit, the next step for the Doha Round, already in its seventh year, is not yet clear. Any real movement in world trade talks may be a long time coming. US elections in November will constrain trade policymaking for the rest of this year, and many fear that in 2009, amid political changes in the US and Europe, and elections in India, global trade will be put on the political backburner.

“We will need to let the dust settle a bit,” Lamy said at a press conference following the collapse. “It’s probably difficult to look too far into the future at this point. WTO Members will need to have a sober look at if and how they bring the pieces back together.”

Ministers also expressed a general desire to somehow capture the progress that was made this week. “US commitments remain on the table,” Schwab said. But Brazilian minister Amorim was doubtful about whether non-binding commitments offered in the course of the negotiations would be honoured in the future: “It’s not in our power,” he said. “Life goes on, and not always in the best way.”

Trade ministers said they were not opposed to continuing negotiations at a later date. “We should not preclude the possibility of returning to the table,” Mandelson said, although he added that he did not think that there was “any chance” of modalities being agreed either this year “or in the foreseeable future.”

Schwab shared that sentiment, saying that the US remained “committed to and supportive of the WTO.” Likewise, Indian minister Nath said that his confidence in both the global trade body and the multilateral system as a whole, remained “intact.”

Despite the ministerial expressions of confidence, Paul Blustein, a trade specialist at the Brookings Institution who is writing a book about the WTO, said that “looking back in history, we might see this as a big blow to the multilateral trading system.” Tuesday’s collapse, he suggested, risked hurting “the credibility of the WTO, which is already losing its place as the central rule-maker and dispute settler” in global trade, due to the growing number of bilateral trade agreements around the world.

Blustein suggested that actions taken by the next US presidential administration would do much to determine whether the breakdown could have a silver lining for the WTO. A new president — if interested in multilateral trade, which is not a given — could decide to launch a serious push to revamp the Doha negotiations in ways that would in the long term be good for the multilateral trading system, addressing issues of the future such as climate change and high food prices.

The WTO, for its part, will carry on with its day-to-day work enforcing the existing set of global trade rules. The negotiations, too, are likely to drag on, if not at the highest political levels for some time.

Indonesian Trade Minister Mari Pangestu summed up the situation: “Multilateral talks never fail, they just continue.”

ICTSD reporting.

World trade

Dried up

Jul 29th 2008

From The Economist print edition

Talks over the Doha round of global trade talks have collapsed

AP

AFTER nine days, Pascal Lamy’s gamble has failed. On Tuesday July 29th talks on the Doha round of global trade negotiations broke up in Geneva without agreement. The director-general of the World Trade Organisation (WTO) will find little consolation in the fact that ministers kept talking for so long, or that they ultimately stumbled over an apparently small detail of new rules on agricultural trade. Mr Lamy says that the WTO’s 153 members will have to wait “for the dust to settle” before deciding what to do next: a formal meeting of the WTO’s trade-negotiating committee is due on Wednesday. But the chances of completing the round this year, as Mr Lamy had hoped, now look negligible. The chances of completing it at all do not look good.

When Mr Lamy invited trade ministers to the WTO’s lakeside headquarters to try and shape an agreement, the odds were no better than evens. Despite a year of painstaking effort by trade officials to resolve differences between the organisation’s members on the main business of the round—agricultural tariffs and subsidies, and non-farm tariffs—there were still plenty of gaps to be bridged. But with an American presidential election looming, time was of the essence. Unless a new president could be handed a virtually complete deal, the reasoning went, his administration would have more pressing things to do than try to complete a complicated global trade deal—and then present it to a Congress that may have little appetite for more open trade.

At the outset, the likeliest stumbling block seemed to be America’s unwillingness to reduce the ceiling on its agricultural subsidies to somewhere close to the amount it actually spends. (In the parallel universe of the WTO, members negotiate over maximum tariffs and subsidies, not the actual rates and sums.) In the end, it was a dispute over protection for developing countries’ farmers that proved the deal-breaker. The draft text envisaged a “special safeguard mechanism”—a right for developing countries to raise tariffs to protect their farmers against a surge of imports. America wanted the import volume that triggered the mechanism set relatively high; India wanted it low. Deadlock ensued; and that was that. Trade ministers did not even get around to discussing another contentious issue—cotton—although Mr Lamy said that there had been “convergence” in the 18 other areas under discussion.

The direct costs of the loss of a deal to the world economy are not all that large: one study puts the eventual value of a draft agreement at around $70 billion. But benefits have gone begging all the same. Mr Lamy listed lots, from cuts and caps on trade-distorting farm subsidies, to a reduction in tariff escalation—the levying of higher tariffs on more processed goods, which deters developing countries from moving along the industrial value chain.

Harder to quantify are the indirect costs to the world economy. The general trend in recent years has been towards more open trade. Big developing countries such as Brazil, India and China have cut tariffs and become more welcoming to foreign investors, even without a Doha agreement. The rate of growth of commerce has outstripped that of global GDP.

The failure of the Geneva talks will not send that into reverse. But with the world economy slowing, it is singularly ill-timed nonetheless. The best that can be said for the collapse of negotiations is that, after all the difficulties and acrimony that have plagued the Doha round for much of its seven-year life, few outside Geneva (and perhaps not many on the lake’s shore) expected a deal. But bad news, even when it is entirely predictable, is bad news all the same.

What’s at stake in Doha talks

By Alan Beattie

So what exactly is the Doha round?

The talks, named after the capital of the Gulf state of Qatar in which it was launched in 2001, are broad-ranging negotiations to liberalise trade in agriculture, industrial goods and services among the World Trade Organisation’s 153 member countries. The talks also cover some smaller issues such as tightening up the rules under which international trade is conducted and making it easier for exporters to get goods across borders.

Why did it break down?

Fundamentally, the same problems that have bedevilled the talks for years: the desire of some big emerging market countries, particularly India and China, to retain the right to protect farmers and manufacturers they say are vulnerable to international competition. On the other side, the US – and to some extent the EU – have demanded access to those markets in return for cutting their own support for farmers. All sides could not agree an acceptable trade-off.

So it’s just a rich versus poor thing?

No. The developing world is split on some of these issues. Highly efficient agricultural exporters such as Brazil and Uruguay also want access to farm markets in countries such as India, but tend to be less vocal about it than the US.

What happens now?

Some officials put on a brave face and said they would come back in the autumn. But with the US election fast approaching, it seems unlikely that a substantial meeting of ministers could take place before a new president enters the White House.

Would a successful deal make much difference?

Not much, at least immediately. Most estimates of the impact of a Doha agreement on the global economy are of the order of $100bn (€64bn, £50bn), or about 0.1 per cent. And because the very poorest countries in the world already have special access to the markets of the rich world, the value of which would be reduced by a general cut in import tariffs, they might actually lose out as a result of a deal.

Why so little effect?

WTO negotiations cover the “bound rates” – the legal maximum to which countries can raise their import tariffs or farm subsidies – rather than the “applied rates” they are actually using at present. The gap between the two is known as “water”. Since applied rates are often a long way below bound rates, WTO agreements often “cut water” rather than immediately reducing real-world tariffs and subsidies. The US, for example, is offering a $14.4bn ceiling on those farm subsidies deemed to distort international trade. But because those payments are linked to prices and commodity markets have boomed recently, the US is currently paying out only $7bn-$9bn to farmers.

So why bother signing it?

One good reason is as an insurance policy. Agreeing new “bound rate” ceilings for tariffs stops them being raised suddenly, thus reducing the risk that the world could slide back into the kind of tit-for-tat protectionism that it saw in the 1930s. Patrick Messerlin, an economics professor at Sciences-Politiques, the Paris-based university and research institute, says that Doha should be thought of as the “binding round”. At the moment, he says, big emerging economies such as India, Mexico and Brazil could more than triple their tariffs on farm products and industrial goods at any time without breaking WTO rules.

Will the WTO itself suffer without a deal?

Immediately, no. In the medium term, possibly yes. The WTO does more than just negotiate liberalisation deals. It also runs a dispute settlement system which adjudicates whether countries are breaking existing rules. This has, for example, forced reform of the EU’s complex and expensive sugar support regime and compelled the US Congress to repeal rules on corporation tax. If governments cannot agree trade pacts through negotiation under the WTO, they may be more reluctant to abide by the rules already in place.

Alan Beattie

WTO Members Move Forward on Bananas, Tropical Products, but Major Differences Loom.

From bananas and cotton to trade preference erosion and liberalisation for tropical products, officials at the WTO on 27 July addressed a range of issues in the Doha Round talks that will need to be resolved alongside higher-profile differences on tariff and subsidy cuts if governments are to strike framework deals on agricultural and manufacturing trade this week.

Ministers from about 30 countries discussed the issues — which were not among those addressed by WTO Director-General Pascal Lamy in a package of potential compromise parameters he put to Members on 25 July — at a ‘green room’ meeting Sunday evening. Several participants described the meeting as constructive, hailing progress on tropical products and banana trade.

But part of the reason for the relative harmony might have been that ministers simply held off discussing some issues that divide them sharply, such as protections for developing country farmers under a ’special safeguard mechanism’ (SSM).

“In the last 24 hours we have resolved or very nearly resolved issues that have been on the table for a very long time,” said Keith Rockwell , the WTO’s lead spokesperson. He said that the three key issues left to be resolved are the SSM, special treatment for cotton, and sector-specific liberalisation initiatives for manufactured goods.

Updated draft deals on agricultural and industrial goods are expected from the chairs of the two negotiating committees at some point on Monday. Rockwell said that these would contain “no surprises,” suggesting that they would only reflect widely accepted convergence. An informal session of the Trade Negotiations Committee (TNC), the WTO body that oversees the Doha Round negotiations, has been scheduled for 9am Monday. This will be followed by a noon meeting of ministers from seven leading trade powers, the so-called G-7, with whom Lamy has been consulting intensively since Wednesday. A larger ‘green room’ meeting may be called later in the afternoon.

Lamy has stressed that he wants to ensure that delegations have sufficient time to consult before calling on them to deliver official opinions on the proposals on the table. Thus, assuming that the talks do not break down, a formal gathering of the TNC — necessary for any modalities package to be presented to the full Membership — would probably not be held before Wednesday.

EU, Latins agree on bananas — ACP next?

In a significant development, eleven Latin American banana exporters and the US on Saturday reached an agreement with the EU on the latter’s import regime for bananas. As per the compromise, based on a proposal by Lamy, the EU would cut its MFN tariffs on bananas to 114 euros per tonne by the beginning of 2016, with a 28 euro per tonne ‘down payment’ reduction in the first year. The pact would exempt the EU from having to cut banana tariffs under a Doha deal.

Brussels has long maintained a complicated banana import regime involving quotas and tariffs, allowing it to provide preferential access to bananas from former colonies in the African, Caribbean, and Pacific (ACP) group. Despite various reforms, its import rules - including the current tariff, equivalent to 176 euros/tonne - have been repeatedly ruled to violate WTO rules, in cases dating back to the early 1990s. Under the agreement signed Saturday, the Latin Americans and the US effectively committed to not resuming their dispute against EU banana import policies until the new tariff is fully phased in.

In theory, the agreement between the EU and the Latin American exporters is a bilateral issue, springing from their long legal fight. In practice, there is a third party whose acquiescence must also be secured: the ACP group, which wants to minimise the erosion of its access to the EU market.

ACP officials have expressed discomfort with the EU-Latin American deal.

Clifford Paul Marica, Suriname’s minister for trade and industry, told Bridges that the terms of the agreement “would put our banana industry in serious difficulty.” He said that the ACP had put a new counter-proposal to Brussels, under which the EU’s MFN banana tariffs would actually end up lower than 114 euros per tonne, albeit with duty reductions spread over a greater number of years, including a grace period. He stopped short of threatening not to accept a modalities agreement if unhappy with the outcome on bananas, but suggested that “if there are no eyes and ears for our proposal, it would be difficult for us.”

Marica and other ACP delegates suggested that EU adjustment assistance to promote economic diversification and compensate for lost income might help make the banana deal more palatable.

Last-minute horse-trading over banana trade has marked WTO decision-making from the start, from the Marrakesh agreement establishing the global trade body to the launch of the Doha Round in 2001. True to form, bananas were called a potential deal-breaker for the current mini-ministerial as recently as last week.

WTO spokesperson Rockwell told journalists Saturday that the banana negotiations were “close to an overall agreement.”

“Emerging consensus” on tropical products

An issue closely linked to banana trade — the Doha mandate for the “fullest liberalisation” of trade in tropical products and those that might be grown in the place of narcotic crops — has also pitted the interests of Latin American exporters against the ACP group, which fears preference erosion. But following years of inconclusive negotiations on the two groups’ conflicting demands, New Zealand Ambassador Crawford Falconer, who chairs the agriculture talks, told the Sunday evening green room meeting that there was an “emerging consensus” on the treatment of tropical products.

Under this, tropical products with tariffs less than 20 percent would be reduced to zero. Those with tariffs over 20 percent would be cut by 80 percent over five years. The hotly debated question of what constitutes a tropical product would be rendered moot by providing Members with an ‘indicative list’ of potential tropical products, with the stipulation that developed countries apply tropical product tariff treatment to a certain percentage of commodities on the list.

All countries will treat bananas as a tropical product, apart from the EU (which otherwise would have been obliged to cut banana tariffs to about 35 euros per tonne). Sugar, another crucially important product to both groups, is likely to be designated as ’sensitive’ and slated for gentler-than-normal tariff cuts in many major markets, thus softening the blow of preference erosion.

In an attempt to win the ACP group’s support for banana tariff cuts and the agreement with the EU, the Latin Americans have agreed to allow most of the products where the two groups’ interests overlap to receive the longer implementation period assigned to products subject to preference erosion. Compromises on two remaining products — rum and arrowroot — are still under negotiation.

Potential tradeoff on GI extension, TRIPS-CBD?

As resolutely as the EU has pursued the extension of geographical indication (GI) protections already available to spirits and wines like Champagne to regional food names such as Parma ham and Roquefort cheese, the US has opposed it. During the ongoing mini-ministerial meeting, Lamy entrusted the long-stalemated debate on ‘GI extension’ to Norwegian Foreign Minister Jonas Gahr Støre for mediation, along with two other intellectual property issues: a proposed amendment of WTO intellectual property rules to require patent applicants to disclose biodiversity or traditional knowledge used in inventions, and the functioning of a ‘register’ of GIs for wines and spirits that Members have already agreed to negotiate.

With countries’ positions on the issues remaining diametrically opposed, one delegate said that Støre has been exploring a possible compromise under which Members would agree as part of a modalities deal to intensify discussions on the three issues, with the aim of identifying common objectives. These talks would be set to coincide with the scheduling of product-specific liberalisation commitments on agriculture and NAMA in October. Discussions on GI extension and a disclosure amendment would not take place in the Special Session of the TRIPS Council, the committee established for the negotiations on the GI registry, but could be chaired by the same person, thus establishing a link with the Doha ’single undertaking’.

Such a ‘process agreement’ may not be enough to satisfy some EU member states, which have insisted that their farmers need the price premiums that would result from GI extension to make up for subsidy and tariff cuts under the Doha Round.

Sources close to the discussions have suggested that a potential tradeoff might be in the offing, under which Brussels would agree to the US demand for a ‘peace clause’ insulating its farm subsidies from many types of legal challenge at the WTO, and Washington would drop its opposition to GI extension. Meanwhile, developing countries like Brazil, India, Cuba, and Peru, among many others, would tolerate a US peace clause in return for getting the disclosure amendment they claim is necessary to prevent ‘biopiracy’.

Cotton talks still at an impasse

Negotiations on the mandate for “expeditious and ambitious” cotton-specific subsidy and tariff cuts have also been stuck in a stalemate. Like a meeting among senior officials the day before, a Sunday gathering of US and several African ministers yielded no movement. Sources report that US Trade Representative Susan Schwab maintained that Washington could not put forward a specific offer on cotton subsidy reduction until it knows what it stands to gain in broader agreements on agriculture and NAMA, particularly with regard to market access.

Abdoulaye Sanoko, a Malian trade official familiar with the discussions, said that Schwab suggested that the depth of cotton subsidy cuts would be linked to market access for cotton that the US gains elsewhere, particularly in China. This was an argument that US officials had not made in prior talks on the issue. “It seems suspect to us,” he said.

Along with Benin, Burkina, and Chad — making up the so-called C-4 — Mali has long called for cuts to developed country cotton subsidies, which they say undermine otherwise competitive small-scale producers in Africa. Sanoko said that for the C-4, the main problem is “subsidies that hurt prices,” far more than access to other markets.

A C-4 country delegate told Bridges Sunday evening that, without an agreement on cotton, his country would be unable to accept a Doha deal.

Substantial differences on SSM

Lamy’s compromise parameters for the ’special safeguard mechanism’ (SSM), a device intended to help developing countries protect farmers from import surges and price collapses by temporarily raising tariffs on affected products beyond bound ceiling rates, would allow remedies to exceed current bound tariff levels by 15 percent (or 15 percentage points), but only when import volumes surge by 40 percent or more. SSM duties would be allowed to breach current tariff ceilings for 2.5 percent of tariff lines in a given year.

Import-sensitive developing countries have complained that the threshold is too high, the remedies too low, and the number of tariff lines too limited. India, which sees the SSM as an essential tool to protect vulnerable farmers, warned that the issue was a potential “deal-breaker.” A delegate from a different G-33 country said that Lamy’s parameters should be subject to negotiation, not “take it or leave it.”

The G-33 met with Falconer on Sunday to explore alternatives. Later that day, developing countries and LDCs accounting for about half of the WTO’s membership — the G-33, the African Group, the ACP Group, and the group of Small and Vulnerable Economies — tabled an alternative set of SSM parameters, saying it reflected “the limits of the flexibility” they could show on those issues. For 7 percent of tariff lines, they would allow larger developing countries to raise tariffs as high as 30 percent (or 30 percentage points) above current bound levels under the SSM, triggered by volume increases starting at 10 percent. For the remaining 93 percent of tariff lines, remedies would be added to post-Doha bound rather than applied rates, and would not breach pre-Doha tariff ceilings. SVEs and LDCs would receive higher remedies, for more tariff lines.

Meanwhile, farm exporters in the developed and developing world fear that the SSM already on the table could close off market opportunities. Developing country agriculture exporters stress that selling farm products abroad is central to their growth and development. Uruguay’s WTO ambassador, Guillermo Valles Galmes, said that a 10 percent trigger would mean that some 82 percent of China’s food imports, and 64 percent of India’s, could be slapped with safeguard duties. Uruguay is “gravely concerned about the way the SSM is crafted,” he said.

Ministers did not focus on the issue in Sunday’s green room session. But it will have to be addressed this week.

ICTSD reporting.

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