The Doha trade round

A stopped clock ticks again

Oct 13th 2005
From The Economist print edition

But time is running out

THIS week, Zurich played host to ministers from five of the most important players in world trade negotiations: America, Australia, Brazil, the European Union and India. Next week, these same guests will grace Geneva. The ministers do not need one of Switzerland's expensively engineered timepieces to know that it is very late in the day for the Doha round of trade talks. A crucial summit, in Hong Kong in December, is fast approaching.

Fear of a flop brings out one of two responses in politicians. Either they push harder for success; or they start running from the blame for failure. Both motivations probably played a part in America's encouraging proposal this week to America can currently spend up to $19.1 billion on farm-production subsidies, which heavily distort trade. The EU can spend over $75 billion. Robert Portman, America's trade representative, offered to cut his country's limit by 60%, if the EU agreed to cut its permitted subsidies by 80%. Mr Portman also suggested limiting other subsidies, which do not distort trade as heavily, to 2.5% of the value of agricultural production. These two limits provide plenty of scope for creative accounting. Even as America lowers the ceiling on the most trade-distorting subsidies, some of this money will be reclassified as something else.

To the big agricultural exporters, such as Brazil, handouts to rich-world farmers, however galling, matter less than access to rich-world consumers. The trade powers appear to have settled on how to cut farm tariffs, if not by how much. Following a scheme outlined in July, tariffs will be divided into four “tiers”, according to their height. Those in the top tiers will be cut by more than those in the bottom. This week, Mr Portman proposed that rich countries should cut any tariff over 60% by as much as 90%, and any under 20% by more than half. No rich country should impose a tariff above 75%, he said.

These are big numbers. But they refer to internationally agreed ceilings, above which countries cannot raise their tariffs. Since most tariffs are currently set well below these limits, lower ceilings may not result in many actual reductions.

Nonetheless, the EU was unable to match the offer. The cuts its trade commissioner, Peter Mandelson, proposed in response were less deep, and their scope less wide. Only tariff ceilings above 90% would be lowered by more than half; and the maximum tariff would be set at 100%. The EU also wants to spare 8% of its products from tariff-cutting. According to research at the World Bank, if even 2% escape the chop, 75% of the benefits of a successful round would be wiped out.

Mr Mandelson did push things forward on industrial tariffs and insists that services should not be the “Cinderella” at the Hong Kong ball. His position is not easy. France's trade minister thinks he has already gone too far. Meanwhile, America's farm lobby and its placemen in Congress complain that a trade deal would tie their hands when they write the next farm bill, before the current act expires in 2007. Hong Kong is imminent, and success still distant. But for the first time in a while the protectionists sound a bit nervous. That should give everyone else a bit of hope.

FINANCE & ECONOMICS

World trade

Hard truths

Dec 20th 2005 | HONG KONG
From The Economist print edition

AFP

The Doha trade round is still alive, but hardly healthy

OFFICIALS had done their best to lower expectations about what might be achieved, and it was just as well. The ministerial meeting of the World Trade Organisation in Hong Kong on December 13th-18th amounted to little more than an expensive experiment in sleep deprivation. For six days (and quite a few nights) politicians from 149 countries haggled, accompanied by almost 6,000 officials and watched by nearly 3,000 journalists and more than 1,000 people from non-governmental organisations. Large parts of the host city were shut down as police were attacked by demonstrators, most prominently South Korean rice farmers furious at the prospect of freer trade in their markets. As everyone left, there was not much to show for all their efforts.

The meeting's most notable accomplishment was that it did not collapse as previous gatherings had in Seattle, in 1999, and Cancún, in 2003. The main new achievement was to agree on a date, the end of 2013, for the elimination of export subsidies on farm goods. There was also a much vaunted package of goodies for the world's least developed countries, which gained promises of free access to rich-countries' markets for at least 97% of their goods. America gave West Africa's cotton producers some vague pledges that it would reduce domestic cotton subsidies more quickly and ambitiously than other farm supports. And rich countries were eager to sound generous about promises of new “aid for trade”.

However, on the issues at the heart of the Doha round of trade talks—cutting farm tariffs, freeing trade in industrial goods and opening services markets—almost no progress was made. The ministers managed only to set themselves a new deadline, the end of April, for making decisions they have long ducked.

Before leaving Hong Kong, bleary-eyed officials tried to put on a brave face. Pascal Lamy, the WTO's director-general, argued that the Doha round was “back on track” after a “period of hibernation”. Though conceding that real progress was modest, he claimed with admirable precision that the Doha round was now 60% complete, compared with 55% at the start of the week. More important, he argued, the Hong Kong gathering had “rebalanced” the WTO's agenda in favour of poor countries and created the “political energy” needed to make progress next year.

For all the grandiloquence, however, there is no hiding that last week's meeting did little to promote free trade. Even the agreement to ditch agricultural export subsidies by 2013 is less impressive than it sounds. The WTO's members have long promised to get rid of them; the only question has been when. Although export subsidies are a potent symbol of the rich world's iniquitous farm policies, they have little impact on global commerce. According to the World Bank, their abolition would yield only 2% of the theoretical gains from free trade in agriculture. And they are shrinking anyway. The European Union is the biggest user, subsidising its exports, mainly of dairy products and sugar, to the tune of €2.8 billion ($3.4 billion) a year. Reform of the EU's Common Agricultural Policy, particularly of sugar supports, will reduce these subsidies sharply and by 2013 most will have gone.

The attention given in Hong Kong to the promises made to the poorest countries was in part a symptom of the lack of progress elsewhere. The promises are in any case less altruistic and generous than they might look. For some, they were a handy way to score political points. The EU, which already gives duty-free and quota-free access to the poorest countries and which produces little cotton, saw a chance to embarrass the Americans and divert attention from Europe's own refusal to make deeper cuts in farm tariffs. The Americans offered just enough on cotton and on duty-free access to avoid being painted as enemies of the poor.

For all that, the focus on the poorest members is a prerequisite for moving forward in other areas. The WTO works by consensus, so the poorest countries in effect have a veto, even though their share of world trade is tiny. A cynical view might be that the promises made in Hong Kong are an effort to buy them off now so that they will not block a bigger deal later.

Whatever the motivation, the strategy is risky. The WTO's purpose is to free up trade on a non-discriminatory basis, not to make special deals for a few countries. Such deals are blunt anti-poverty weapons, because many of the world's poorest people do not live in the 32 member countries officially deemed “least developed”. At some point other poor countries may start demanding similar terms.

Rich countries may also have oversold what they intend to do. America has left itself plenty of room to exclude sensitive products such as textiles and sugar from its duty-free, quota-free pledge. Japan will also be able to exclude some things, such as rice or leather.

Pledges of aid for trade also sounded grand: an extra $10 billion from Japan; a doubling of America's annual commitment, to $2.7 billion, by 2010; a big rise from the EU, too. However, no one seems to know if this truly is new money or what it will be used for. This leaves plenty of room for disappointment—and therefore for obstruction from the poorest countries if a broader deal looks likely.

For the moment, an agreement still seems an awfully long way off. The gaps remain wide between the WTO's most important members—America, the EU and the big emerging economies, such as Brazil, India and China. America and the big developing countries regard Europe's proposed cuts in farm tariffs as hopelessly inadequate. Brazil, India and others refuse to discuss reducing their own industrial tariffs until there is more progress on agricultural trade. The EU, in turn, says that its farm-trade offer is substantial and that it will not budge further until emerging economies do more to open their markets for industrial goods and services.

To break this deadlock, more will be needed from all, but particularly the EU and the big emerging economies. As Mr Lamy told journalists in Hong Kong, “The EU will have to move. They all will have to move. They know that; you know that; I know that.” The trouble is that the political will to make the necessary compromises has long been missing. Despite six days of talk, there was scant sign of it this week. That is why, for all the blather about helping the poorest and putting the trade talks back on track, the meeting in Hong Kong was a disappointment.

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