Why Doha died
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Emerging Markets

Why Doha died

Emerging Markets asks US trade negotiator Susan Schwab and India’s trade minister Kamal Nath how the battle lines have been redrawn – and what happens next

To some, this summer’s breakdown of global trade talks after five tumultuous years marked one of the biggest threats yet to the post-war trading system. To others, the consequences of exaggerating the failure could be far worse than the failure itself. But Doha’s demise has brought into sharp relief the radically opposed positions of its principal mediators.


For the United States’ top trade envoy, the differences run deep – and could mean that a final deal is a long way off. “There are fundamental differences here,” Susan Schwab told Emerging Markets in an interview at the end of August. “If you had to put money on this, it is more likely that the Doha Round will not close this year or next, or perhaps two or three years from now because of these differences.”


This seemingly glum note does not, however, mean she thinks the talks are dead. On the contrary, she says, it’s the way these things work: “We’ve been through this before in major trade rounds. Generally they take on average eight years to negotiate, and we’re only in year five of the Doha Round, so one could argue this is sort of a normal course of events.”


When she returned from Geneva in July, Schwab made it clear she wouldn’t back away from the din of international negotiation. Since then she has thrown herself into a flurry of shuttle-diplomacy, travelling to Asia and Latin America – in an apparent bid to breathe some life back into the moribund trade round – and gearing up for a trip to Australia. “My travel and phone schedule is proof enough,” she says.


Schwab was brought in earlier this year when it was already clear that the global trade talks were in serious trouble. Her predecessor, Rob Portman, was moved over to head the Office of Management and Budget after just 11 months on the trade portfolio – during which time he reportedly impressed his counterparts with his political savvy and mastery of detail.


By switching his chief trade negotiator, US president George Bush sent what many trade experts took to be an ominous signal about the prospects for achieving significant gains in trade talks any time soon – even though Schwab is a seasoned trade expert and negotiator herself, and was Portman’s deputy between 2005 and 2006.


Missed opportunity

Now, with the talks suspended, trade diplomats seem able to agree on only one thing: they could be dashing their best hope yet of helping poor countries trade their way out of poverty. “The biggest impact is the opportunity forgone,” Schwab says. The cost of failure is a “major missed opportunity to have an impact on global economic growth and poverty alleviation.”


Yet much of the criticism has rounded on the United States and in particular the thorny question of farm subsidies – the main source of the dispute that dissolved the recent Geneva meeting. A widely held belief is that, by stubbornly refusing to budge on its trade distorting support for domestic agriculture, the US reduced the chances of success at Doha. Critics say that, by keeping prices artificially low and encouraging production, its domestic subsidies make it the world’s worst offender in dumping cheap exports on foreign markets while protecting its own market.


Schwab had insisted instead that other countries should open their markets wider to the United States’ highly efficient agricultural producers, a demand rejected by the European Union and India, whose governments face enormous pressure from farmers who are anxious to keep foreign competition at bay.


But Schwab bluntly dismisses focus on farm subsidies as being a “diversion” from the real issue. “If you’re serious about a development round then the first, second, third and fourth issues that should come to mind as priorities are market access, not cuts in domestic subsidies.”


Real issue

“The real issue is that these talks are in trouble,” Schwab says. She adds that the question for any country, but for advanced developing countries like India, China or Brazil in particular, is: “What are we prepared to do on market access that will generate new trade flows?”


The problem is that developing countries disagree with Schwab – vehemently. “Development does not mean market access for developed countries into developing countries, which destabilizes their farmers and kills infant industry,” Kamal Nath, India’s trade minister, told Emerging Markets [see interview opposite].


Indonesia’s trade minister Mari Pangestu who chairs the so-called G33 group of developing countries in the WTO, said last month that it is up to the US to make concessions to get trade talks back on track.


In the wake of this summer’s impasse, Peter Mandelson, the EU trade commissioner, also accused America of trying to squeeze a “disproportionate” price from developing countries. Mandelson said Washington should have been prepared to accept cuts in support for its farmers against gains elsewhere in the talks – such as new markets for US manufacturers and other firms.


Schwab, however, strenuously denies that the US position runs contrary to the needs of developing countries. “This is not a north-south debate,” she says, pointing out that on the question of market access, Brazil, Mexico, Chile and Thailand as well as other advanced developing countries believe a larger market access component is beneficial, whereas India and the EU do not.


On the other hand, she notes, the EU has resisted US demands for deep agricultural tariffs cuts itself, while India has insisted developing countries be spared from making substantial market openings in agriculture and manufacturing as part of a deal.


Fundamental

“The differences are truly fundamental on this,” says Schwab. “Do you have a development round or don’t you have one worthy of its name without any dramatic cuts in trade barriers?” The potential gains are immense. A World Bank study last year found that dismantling global trade barriers would generate a further $300 billion a year for the world economy, much of it in developing countries.


Schwab is especially keen to stress the role of special products – exemptions or waivers that are allowed within the framework and which she believes can be abused. Many developing countries have championed these concepts to protect their fragile industries, whereas the US and other exporters have been trying to limit their use. “The question is how do you treat those special products so that you don’t negate the impact of your tariff cuts?” she asks.


Yet there are genuine differences over whether the interests of the poor are best served by lower tariffs or more special protection. “I think there is an intellectual disconnect here over the nature of development and what will contribute to development,” says Schwab. “If there is an overemphasis in the Doha Round on subsidy cuts and preference erosion, then I think we’re in danger of going off on the wrong path and missing a really important opportunity.”


Indian trade minister Nath has called on developed world leadership in the trade round. But, says Schwab, one of the things that distinguishes Doha is the fact that so many advanced developing countries are at the table. “The question for them is: what is the role of leadership? How do they intend to exercise that responsibility as leaders among both developed and developing countries?”


How far, then?

Still, the question remains how far the US is prepared to go today in reducing support for its farmers. “We are prepared to go very far in exchange for market access,” says Schwab. “The US is prepared to do more than what was in our October 2005 proposal if and only if there is more market access on the table.”


“We are fully on board an agenda that includes substantial cuts in domestic agricultural subsidies, but we cannot imagine a successful Doha Round outcome that’s not huge and ambitious when it comes to market access and generating new trade flows,” she says.


The G20 group of developing countries, for example, is asking that the US shows flexibility to cut overall trade distorting subsidies – the “amber box” – by 70%. Is this a no-go in principle? “I’m obviously not going to negotiate this with you,” Schwab says. “The G20 proposal is just a proposal.”


Schwab turns the question on its head: “What is the G20 prepared to do in terms of agricultural market access and in terms of non-agricultural markets access? This is the challenge.”


But the “bottom line” as far as Schwab is concerned is this: no deal is better than a bad deal. “If you are only going to do this once in a generation, you need to make it big, bold and ambitious,” she says.


There is probably not enough time left to get an agreement before George Bush’s fast-track trade authority expires at the end of June next year. Without it, no substantial agreement is likely to survive the congressional approval process.

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