In the Chinese port of Dalian in mid-July, 30 trade ministers tried to get the stalled negotiations on trade in agriculture back on track. They failed, and with that failure went the last hope of keeping to the Doha trade round timetable. The goal, to have a draft agreement before the summer break, came and went.
After the break, WTO negotiators have 30 working days to thrash out basic compromises before the mid-term ministerial meeting in mid-October (check this), and in preparation for the Hong Kong WTO ministerial meeting in December. Should talks collapse in Hong Kong, the conclusion of the Doha round faces a delay of several years. But a breakdown could also encourage new thinking about the global trade regime and the role of the WTO.
Although no one thinks a wholesale return to protectionism is an immediate threat, it is worth remembering that during the 1930s, a highly liberalized global economy saw the volume of world trade fall by 26% and protectionism spread like wildfire. The WTO, set up with this in mind, and designed to prevent such a situation from recurring, looks increasingly embattled today. Rising membership and the growing negotiation savvy of previously marginalized countries has meant it is ever more difficult to find agreement.
The fragility of global trade, reflected in recent trade disputes between the US and the EU, means that it is crucial to find a trading system that can deliver the wealth, while protecting poorer, developing economies. Today, the world's trade negotiators could hardly be further from finding such a compromise.
The main protagonists
The main battle lines are drawn between the wealthier developing countries, such as Brazil and Argentina, and the EU and the US. Both sides want access to the other side's markets, while giving away as little access as possible to their own economies.
The lynchpin is agriculture. It is the single sector in which developing countries can easily compete in the global market, but it is also the area where wealthier countries are finding it difficult to make concessions. "Once there is movement in agriculture, there will be movement in the rest of the issues," says Kipkorir Rana, one of the four deputy directors at the WTO.
But beyond this central stand-off, there lurks a much more complicated collection of positions, interests and alignments. Rich country Australia has teamed up with developing country Brazil to fight high EU tariffs. Another developing country, Kenya, fears that lower EU tariffs will erode the preferential market access for Kenyan flowers, which could be out-competed by Colombian flowers. "It's a much more complicated picture than the slogans suggest, and there are many contradictory views," explains a spokesperson for the WTO's agricultural group.
The relationship between the US and the EU, which held common ground at the last WTO ministerial meeting in Cancun, has become strained after recent trade disputes. Whether they will be able to see eye to eye in time for the next WTO meeting in December, or instead form other alliances elsewhere, is still unclear.
Agricultural subsidies
The EU spends 40% of its €98 billion budget on helping out European farmers, who make up less than 3% of the EU's labour force. The US government pays around $1,000 annually for every cow in America. Agricultural subsidies represent an enormous annual cost, yet governments remain reluctant to let them go.
EU farmers are well organized and have a powerful political voice. They argue that ending subsidies and liberalizing trade in agriculture would not only destroy their livelihoods, but have disastrous consequences globally. The Belgian farmers' union states: "It is not European export subsidies that chase developing country farmers away from their fields."
Instead, the farmers' union points to the global coffee market, which is completely liberalized and has experienced drastic price fluctuation and overproduction, resulting in falling income and insecurity for coffee producers. A global free market for all agricultural produce could lead to a similar situation for all foodstuffs and create insecurity for farmers everywhere, says the union.
But poor farmers in developing countries want subsidies abolished. "Here, people spend all day working on their farm but live below $1 a day," says Semshak Gompil, chair of Cooperation for Fair Trade in Africa (Cofta) in Nigeria. "We want a situation where subsidies are completely removed."
Trade and Poverty
The extent to which trade liberalization can alleviate poverty is the highly controversial question at the heart of the debate surrounding the WTO. Those in favour of liberalization say that an increase in global trade could deliver at least $500 billion to developing countries, ten times as much as the $50 billion additional aid promised by the G8. "The protectionist policies of the 70s and 80s balkanized developing countries and did not create the most efficient use of their resources," says Rana.
"The poor are not the ones that will have access to the markets in the north," says John Hilary, director of trade policy at War on Want, a London-based NGO. "The World Bank knows this but continues to be deliberately deceptive about this issue." Hilary argues that trade liberalization can only serve as a useful tool as part of a managed trade policy. Blanket liberalization has led to de-industrialization, unemployment and higher poverty levels in many countries in Africa, he says.
Free traders admit that before trade can deliver widespread wealth, developing countries need to improve their supply-side, which in turn means better infrastructure, better products and better technical know-how. The WTO has a programme to help the least developed countries build knowledge about the importance of trade policies and gives technical and negotiation assistance. "Addressing supply-side constraints and raising human resource capacity has to be part of the process," says Rana.
Problems at the WTO
The WTO was designed as a member-driven organization and has no more than 630 employed staff. Country membership stands at 148, a number that has more than doubled since the WTO's foundation in 1995. Despite the inclusion of poorer countries into the negotiating body, the WTO is struggling to gain broader legitimacy.
"The main issue is that people don't feel consulted; small producers are not talked to at the domestic level," says Liz Dodd, director at Traidcraft, an organization that assists fair trade producers access European markets. The highly technical nature of the trade negotiations, which often take place behind closed doors, make the WTO inaccessible for the wider public. "There are different levels of meetings; some are informal meetings with no record," says the WTO spokesman.
Stalling talks and ever-slower progress are also turning away formerly committed members. The US has shown frustration with the lack of movement at the WTO, where negotiations have become more complicated with larger membership. This development raises fears that larger players will prefer bilateral agreements, where they can set the agenda. "Since Cancun, countries started dealing with the tough issues outside the WTO," Rana says, who nevertheless believes that the successful passing of the Central American Free Trade Area (Cafta) will give the Doha talks a boost.
Still, says Dodd: "There is too much dogma at the negotiations. The problem is the way that liberalization has become a dogma."
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DOHA DEVELOPMENT TIMELINE
Timeline
Nov 2001
Doha: 4th WTO Ministerial Conference launched round of negotiations; January 2005 deadline agreed
Sept 2003
Cancun: 5th Ministerial Conference to evaluate progress; deadlock; deadline now seen as unrealistic
July 2004
Framework Meeting on proceeding post-Cancun. Current negotiations based on Framework language
Dec 2005
Hong Kong Ministerial for decisions on all aspects of Doha so far negotiated; crucial to concluding Doha round
July 2007
Trade Promotion Authority (TPA) expires
The Negotiator
Can Rob Portman stop the US turning its back on world trade? In an exclusive interview with Emerging Markets the new US trade representative sets out the "ambitious new reforms" he has in store for the multilateral trade agenda
EM:What do you see as the biggest challenges facing the global trading system today?
RP: Helping to enable all countries to participate in the global economy. We are hoping to achieve ambitious reforms through the Doha Development Agenda (DDA), and this process is an extraordinary challenge for all countries.
This is an historic opportunity we cannot let pass. According to the World Bank, almost two-thirds of the income gains from worldwide elimination of barriers to trade in goods goes to African and other
developing countries, and three-quarters of these gains (amounting to $404 billion) result from increased trade among developing countries.
EM: What are the benefits of multilateralism for the US, as opposed to bilateral or regional agreements? Do US policy-makers still attach enough importance to multilateral trade negotiations?
RP: Promoting bilateral or regional agreements, or what is called competitive liberalization, is not an abandonment of multilateralism. To the contrary, the president's pursuit of bilateral and regional trade
agreements supports efforts for global reform in the WTO.
Obviously, worldwide reductions in trade barriers have a larger economic impact for Americans than individual bilateral agreements. According to a study by the University of Michigan, global free trade in goods and services could ultimately increase incomes to the average US family of four by an estimated $7,800 every year. If the resulting agreement only lowers existing barriers by one-third, the increase in annual incomes would be an estimated $2,500 a year. This is why the US attaches such importance to the multilateral negotiations in the WTO.
EM: How does the emergence of new, major traders such as Brazil and China affect the US position in the world economy?
RP: As large countries like Brazil and China open up their economies to the world, they have a predictably enormous impact. I would also add India to this list. These markets represent both opportunities for our exporters and opportunities for those countries to raise their living standards. As these countries' opportunities increase, so do their responsibilities to open their own markets.
EM: The G20 has developed into a sophisticated and important voice in WTO negotiations. How do you evaluate the grouping's role?
RP: We share with the G20 a commitment to succeeding in the Doha Development Agenda. We look forward to continuing to work with members of the G20 to achieve real reform in agricultural trade, including new market access opportunities, which are so important to developing countries.
EM: How far is the US prepared to go on the issue of reducing support for its agricultural sector?
RP: President Bush has made clear that all countries should eliminate trade-distorting subsidies. However, that is achievable for us only if other countries will do the same, and will provide real market access to their markets.
EM: As a congressman of Ohio, you have represented the interests of US citizens working in agriculture. How can the government convince this constituency to accept cuts in state support and how can it minimize the negative impact on farmers?
RP: I continue to represent the interests of US farmers and ranchers as the USTR. The United States is not going to reform subsidies without getting something in return. That means other countries – including
those that subsidize far more than we do – joining us. It also means increased market access. As this process moves forward, we are in very close consultation with our agriculture community and members of
Congress.
Our farmers currently face European trade distorting subsidies that are three to four times the level of subsidies that we provide. And other countries' agricultural tariffs are, on average, 62% versus US
tariffs of 12%. American farmers and ranchers have much to gain from a successful WTO negotiation.
EM: Why are many less developed countries opposed to the so-called Singapore issues of trade facilitation and competition?
RP: Competition policy is no longer a part of the Doha negotiations. It was dropped at the Cancun Ministerial in 2003. And, actually, many developing countries actively support the negotiations on trade facilitation, which are negotiations about better customs procedures. For example, India joined the US in presenting a proposal on trade facilitation. And the chairman of the negotiating group is the Malaysian ambassador to the WTO.
EM: What makes you optimistic about progress in the Doha round at the HK ministerial in December? What are the costs of failure to close negotiations in Hong Kong and a delay of the round?
RP: I am optimistic in large measure because I believe the world understands the historic opportunity available to us. Open markets have empirically, time and time again, raised people from poverty, improved
working and living standards, and in general made the world a better place to live. We all have the same end-goal in mind. The process for how we arrive at that goal is, of course, challenging, but given the
potential impact of what we can accomplish with the DDA, I am confident that everyone will work hard to get there.
EM: How do you sum up the US trade strategy? What are the strategy's long-term goals?
RP: The United States wants to open markets for American workers, businesses and farmers, expand consumers' choices and enforce commitments with our trading partners. Freer trade leads to more open, transparent markets, creates new opportunities for people, and undercuts corruption and cronyism. Trade is an underpinning of freedom and democracy, and it is one of our most potent weapons against the scourge of global poverty.
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CAFTA Key Facts
Central American Free Trade Agreement (CAFTA) covers Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua and the US
Agreement approval is still pending in Costa Rica, the Dominican Republic and Nicaragua
Following approval, 80% of US exports of consumer and industrial goods to the region will immediately become duty free; remaining tariffs will be phased out over 10 years
The US will eliminate tariffs on most farm products within 15 years, with all tariffs ended in 20 years
Over half current US farm exports will become duty free immediately
The US exports more than $15 billion annually to the region, making it their 10th-largest export market worldwide