1.

Comment

World

Americas

A BLEND OF STRONG MEASURES PUTS TRADE TALKS BACK TOGETHER
By Jagdish Bhagwati

Financial Times (UK)
December 20, 2005

http://news.ft.com/cms/s/17171e90-70fe-11da-89d3-0000779e2340.html

As the World Trade Organization meeting neared the end on Sunday, the resolve of negotiators to agree on a declaration on which the completion of the Doha round next year might be based was manifest. Six days and sleepless nights in Hong Kong characterized their determination not to fail.

As the draft agreement said: "You don't close divergences by taking time off to have a cup of tea," a metaphor rich in allusion to the magical "China drink" that the Dutch East India Company introduced to Europe in an earlier age of globalization. The interesting questions now are: why did the meeting not end in failure and where do we go from here?

Most strikingly, the protesters, carrying placards that screamed "Sink the WTO," failed in their objective. The violence at the end threatened a return to the chaos of Seattle in November 1999, when demonstrators wrested the opportunity to launch the WTO's first round of multilateral trade negotiations from the hands of delegates. But these tactics did not work this time. Hong Kong was prepared where Seattle was not. The opening of the Seattle meeting had been postponed by bomb threats and the demonstrators had blocked delegates' access to theconference hall, but the Hong Kong demonstrators never managed that. The size of the demonstrations was also nowhere near the scale that Seattle witnessed. Indeed, even the last World Bank and International Monetary Fund meetings this year saw demonstrators in a sorry state. Many focused instead on protesting against the Iraq war, seeking to get at the World Bank indirectly by attacking Paul Wolfowitz, its president.

It is now evident that the protesters and the non-governmental organizations are no more a monolithic bloc than are the negotiating governments. The South Korean farmers who constituted the majority of demonstrators in Hong Kong were protesting against the reduction of agricultural protectionism in South Korea, a member of the Organization for Economic Co-operation and Development. Likewise, José Bové, the French anti-globalization farmer who featured prominently in the protests, is a defender of European Union agricultural protectionism. They were pitted against the British charities, such as Oxfam and Action Aid, whose anti-protectionist agitation is doubtless colored by the fact that Britain is the loser in the EU's common agricultural policy.

But if these groups no longer had the coherence that could kill the Hong Kong meeting, the negotiating governments had every incentive to save it. Those among us who thought that there were arguments for cautious optimism at Hong Kong, and for the Doha round's success, turned out to be right. The previous ministerial conference in Cancún had taken out the contentious Singapore issues -- competition policy, investment, and transparency in government procurement -- and paved the way for a reform of the agreement on trade-related aspects of intellectual property. But in Hong Kong, there was more progress on the key issues still before it.

First, on agriculture, an agreement to eliminate export subsidies -- which amount to no more than about $5bn (£2.8bn) anyway -- was much desired. The EU correctly insisted that food aid, which is obviously trade-distorting, be included, as should most forms of export credits and even state trading practices in so far as they distort trade. With the support of India and China, which have generally refrained from targeting the EU, an agreement was reached to eliminate export subsidies, not by 2010 but by the end of 2013. This is a big addition to the early harvest for the Doha round.

Second, while there is no commitment on the rest of trade-distorting agricultural subsidies and on tariffs and quotas -- though progress has been made on who should cut subsidies more -- and on the reciprocal concessions by Brazil and India on market access in manufactured goods, no line has been drawn in the sand either against commitments to such concessions in the further negotiations.

There is every indication that India will play ball: its socialist and communist opposition is tied up with opposing privatization and labor reforms. Indian industry has come of age and has now moved, thanks to its success in information technology, from a defeatist embrace of protectionism to a "can do" attitude. Manmohan Singh, the Indian prime minister, and Kamal Nath, his commerce and industry minister, both see protectionism as a relic of the past. Brazil and the Cairns Group of agricultural exporters recognize that the success of the Doha round is their best hope of getting trade-distorting subsidies and trade restrictions on market access removed. Given the high value they attach to the reform of agriculture in the trading system, surely they are prepared to make concessions in market access for manufactured goods. There is plenty of indication that they will do so.

Third, the 50 least developed countries have now been bought off with duty-free and quota-free access on 97 per cent of import lines by the EU, Japan, and the U.S. by 2008. In truth, this is an approach that is harmful to these countries in many ways. The preferences it implies are a wasting asset: their value, already small, declines as most favored nation tariffs decline. Besides, it cynically helps these countries' exports at the expense of their poor competitors in the developing countries just above the qualifying line. Yet, the least developed countries are keen on this folly and since their consent is necessary before Doha can conclude, that is one more obstacle removed.

Fourth, the declaration endorses what many of us have argued for some years now: that aid should be given for trade to enable the poor countries to take advantage of the improved opportunities resulting from the reduction of trade barriers, both abroad and at home. Offers in that direction were made by the EU, U.S., and Japan. I am glad to see that my suggestion that Pascal Lamy, the WTO's director-general, set up a task force to channel these funds in appropriate ways has been endorsed.

So, we have now taken significant steps towards the conclusion of the Doha round. The urgency of reaching the contours of the final agreement by the end of 2006 (because of the expiry of fast-track authority in the U.S.) has led the 149 governments, which have little doubt about the value of the Doha round, to set April 30 as the new deadline. We can fully expect that the governments, and the WTO secretariat, will be consuming a lot of tea as they make this final dash to a successful completion of Doha.

--The writer is university professor of economics and law at Columbia University and senior fellow in international economics at the Council on Foreign Relations. He is the author of In Defense of Globalization (Oxford).

2.

Country Briefing

USA/Latin American Economy

SINKING DOHA

Economist Intelligence Unit
November 11, 2005

http://www.viewswire.com/index.asp?layout=VWPrintVW3&article_id=209579606

Despite U.S. efforts to reach a deal, disputes over farm subsidies are threatening to undermine global trade liberalization via the Doha round of negotiations. Unless agreement on agricultural trade can be reached this year, the entire round is under threat. Already, a contagion effect is apparent, as the row over farm subsidies has cast a pall over non-WTO trade initiatives in the Americas.

The Doha round, given that name because talks began in 2001 in Doha, Qatar, is supposed to result in the first major world trade agreement in ten years. But negotiations have faltered during the last two years because of discord over agricultural trade. The last ministerial meeting in Cancún, Mexico in 2003 collapsed over the issue.

The members of the Group of 20, a bloc of developing nations led by Brazil and India that are large exporters of agricultural goods, insist they will not open their manufacturing and services sectors without developing countries also agreeing to lift or reduce entry barriers to their agricultural markets. France has been the most resistant to meeting this demand.

The U.S. in October made a last-ditch effort to salvage the agricultural talks by proposing to cut its tariffs on farm goods by 55-90% over five years, an average reduction of 75% -- but on the condition that the EU did the same. The European Commission has countered that cuts of this magnitude would devastate sections of Europe’s own farming communities, as well as farmers in developing countries who currently enjoy preferential access to EU markets. Describing its own latest offer as at “the limit of what is socially tolerable” in Europe, the EU has proposed to reduce its tariffs between 35-60%, an average reduction of 46% (on the U.S. estimate, the figure is 39%). It also wants to exempt many “sensitive” products. Brazil and its allied countries find this unacceptable, and seem ready to walk away from the talks.

Tariffs are not the only controversial issue, of course. The U.S.’s direct subsidies to farmers are considered by some to be an even more serious problem than Europe’s tariffs. Yet it is mostly the EU nations that are being blamed for the current impasse, which is now recognized as being of critical importance. Without a deal on farm trade at the December 13th-18th meeting of trade ministers in Hong Kong, there will probably be no agreement on trade in manufactured goods and services. Failure to reach consensus on these issues in Hong Kong would probably doom the entire Doha round.

TICKING CLOCK

The Hong Kong meeting is widely seen as a last chance to advance the agreement and meet a proposed deadline of end-2006 for completion. For the U.S., that is critical because there is only a narrow window of opportunity to make use of President George Bush’s so-called trade promotion authority, which allows him to sign trade accords without the risk of amendment by Congress. Although Mr Bush has that authority now, in practice he will only be able to use it after the November 2006 mid-term elections and before the authority expires in mid-2007. For this reason, a pact must be signed by the end of 2006 or very early in 2007.

The matter is urgent because there is very little chance that Congress will once again grant Mr. Bush such fast-track authority. Protectionist sentiment is rising in the U.S., not only among labor unions, Democrats and others traditionally wary of free trade, but also among many pro-business Republicans who support Mr. Bush and have backed trade pacts in the past. The Dominican Republic Central America Free-Trade Agreement (DR-CAFTA) was ratified by the U.S. Congress earlier this year by a very slim margin and only after a very tough fight. It was pushed through, moreover, largely on the basis of national security arguments -- rather than out of a commitment to the principle of free trade on the part of many lawmakers who voted in favor.

In addition, Mr. Bush will probably have a smaller Republican majority in both houses following the 2006 mid-term elections, and by the middle of 2007 he will, in effect, be a lame-duck president. These factors, taken together, all but guarantee that Mr. Bush’s authority to cut a trade deal without congressional interference will not be extended.

BAD VIBRATIONS

These same domestic U.S. factors bode ill for other trade initiatives. Anxiety over import competition has hit U.S.’s relations with China. Under pressure from domestic constituencies, Washington only days ago concluded a new textile agreement with China to limit competition from its clothing manufacturers over the next several years.

The increasingly protectionist trend within U.S. politics, together with the very gloomy prospects for a Doha deal on farm trade, could undermine efforts well under way in the Americas. Many U.S. politicians, workers, and manufacturers are wary of the proposed Free-Trade Area of the Americas (FTAA). The FTAA is not only being assaulted from the U.S. side, however: several Latin American governments have withdrawn backing because the FTAA does not address the farm-trade controversy (though others, notably Venezuela, do not support it for more political reasons). Indeed, at a November 5th-6th Summit of the Americas meeting in Argentina, the 34 heads of state present could not concur on a date to resume stalled FTAA talks.

A trade treaty between the EU and the members of Mercosur -- Argentina, Brazil, Uruguay, and Paraguay -- has not been completed either. Negotiations began six years ago but have dragged on amid Latin American concerns about opening up public procurement contracts and services. The EU, for its part, has been unwilling to concede the unrestricted access sought by Latin American producers of beef, poultry, and some other agricultural products. With Latin America much lower on the EU’s political agenda than it was when these talks began in 1999, prospects for conclusion of a trans-Atlantic deal any time soon are poor.

ON THE BRINK

It seems certain that the success of the Doha round will now hinge on farm trade talks, which are currently on hold. It may be that the U.S. and EU trade negotiators are now concentrating on other areas, such as market access for industrial goods, in the hope that progress here will create incentives for the Europeans to be more flexible on the agriculture question.

This does not offer grounds for great optimism. There is now a very serious risk that a final trade accord will not be ready by end-2006, resulting not only in missed trade opportunities but perhaps also increased protectionist sentiment in Europe and the U.S. If that gains hold, global trade liberalization would certainly shift into a lower gear -- if not come entirely to a halt.

3.

Business

NO EASY WAY OUT AS AN ENCORE LOOMS
By Larry Elliott

** After a week of trench warfare, the idea of a spring trade pact looks far-fetched **

Guardian (UK)
December 19, 2005

http://business.guardian.co.uk/story/0,,1670289,00.html

Jean-Paul Sartre famously said that hell is other people, and after six days at the trade talks in Hong Kong you could see his point. Were Sartre writing Huis Clos (or No Exit) today, he would probably set it at a World Trade Organization ministerial meeting, with negotiators snapping and snarling at each other, day after day, but making no apparent advance.

As a French intellectual, Pascal Lamy, the WTO’s director general, knows a thing or two about Sartre. For Lamy, the fact that his members are still talking meant Hong Kong was a success -- of sorts. He was terrified that the meeting would be another Seattle or Cancun, and it wasn’t. But in all other respects, the meeting was a failure.

The notion that Hong Kong would be a staging post to an all-but-final deal by the end of April looks far-fetched after the trench warfare of the past week. None of the big issues -- agriculture, industrial tariffs, or services -- was advanced, and the so-called package of special help for developing countries proved to be an exercise in cynicism by the developed world.

Take the agreement to allow the very poorest countries to export their products to the west, duty-free and quota-free. The European Union pushed this very hard, perhaps because it already has such a program up and running under the Everything But Arms deal. Although the least-developed countries (LDCs) account for a tiny fraction of world trade, the United States and Japan insisted that duty- and quota-free could not apply to all products. As Adriano Soares of Action Aid put it, this means that Bangladesh will be able to export all its non-existent nuclear submarines to the U.S., but not the textiles that make up more than 80 per cent of what it sells overseas.

The deal for LDCs was supposed to be an early Hong Kong harvest -- a sign of goodwill from the West to set a positive tone for the rest of the talks. No such galvanization took place. All that the endless wrangling achieved was to expose the hollowness of the notion that the talks launched in Doha four years ago constitute a development round.

The whole point about the concept of a development round was to redress the legitimate grievances of developing countries following the end of the last batch of negotiations between 1986 and 1993. The Uruguay Round was so biased in favor of the EU and U.S. that poorer countries vowed they would not sign up to a new set of liberalization talks unless their interests were given special attention. In particular, they demanded real cuts in the protection granted by Brussels and Washington to their farmers.

It became clear in Hong Kong that any notion of a ‘round for free’ for developing states was not remotely on the table. The Americans offered the four cotton-producing west African nations a minor concession -- an end to export subsidies -- but were less forthcoming about the vastly more significant handouts that Washington gives to southern U.S. farmers when the world price falls.

Peter Mandelson, Europe’s trade commissioner, was refreshingly frank about his mercantilist approach. It would be politically untenable, he said, for Brussels to give way on agriculture without getting something in return. The whole point about a negotiation was give and take. Brazil, India, and some of the other bigger developing countries could not expect to gain access to the EU market unless they were prepared to concede ground on industrial goods and services. With the French and Irish determined to defend European farmers’ interests, Mandelson’s negotiating approach was, perhaps, understandable. But so was the argument of Brazil’s foreign minister, Celso Amorim, that developing nations were being told to pay Europe for something it was supposed to do anyway.

The EU also sought to drive a wedge through the developing world by seeking to differentiate between countries that were really poor and those that were not. In other words, Brussels had no demands of Benin, but it was not prepared to give a free ride to Brazil.

But as the campaigning World Development Movement pointed out, even ‘advanced’ developing countries have problems of poverty and inequality that would be inconceivable in Europe, and so to brand them as quasi-developed is a nonsense. In India, for example, 80 per cent of people live on less than $2 a day.

Developing countries certainly don’t share all the same economic interests, but one feature of Hong Kong was the willingness of the non-developed world to band together in the G110 -- comprising all WTO member states apart from the advanced countries of Europe, North America, and Japan. While Washington and Brussels would love meetings to be conducted in the old manner -- carving up a deal between them and foisting it on everyone else -- the reality is that the WTO’s dynamics have changed.

The new political reality will become evident if Tony Blair manages to convene his special trade summit in the new year, which would include the leading wealthy and developing states. The feeling in Downing Street is that trade is now too big an issue to be left to trade ministers, and that if the Doha round is to get anywhere, people with a more strategic perspective must be involved.

As one official put it, there is a case for saying that it would be in the interests of the West’s counter-terrorism and immigration policies to be more generous to poor countries, but that sort of trade-off is not one that is recognized by negotiators at WTO meetings.

The prime minister has two reasons for seeking a re-invigoration of the talks in the new year. Blair is disappointed that Britain’s twin presidencies of the G8 and EU have ended on such a discordant note. More importantly, however, the expiry in mid-2007 of the U.S. fast-track mandate -- under which trade bills are presented to congress on a take-it-or-leave-it basis -- means there is real pressure to get a move on. With protectionist sentiment rising there, a renewal of the fast-track looks unlikely, and any further delay on global trade talks would allow a bill to be picked to pieces on Capitol Hill.

It is hard, however, to envisage this round of talks being completed early next year, even assuming that a special summit can be convened. It is clear that the WTO is a dysfunctional organisation and, unless its 150 members are happy to settle for the lowest common denominator, it will take years to complete this round. It should then be the last. Donald Johnston, the secretary-general of the Organization for Economic Cooperation and Development, made one of the more useful contributions to Hong Kong when he said countries may need to abandon the mercantilist thinking of "I’ll only give you this if you give me that" and recognize that the interests of everybody may be advanced by individual states being brave enough to go it alone.

But that’s for the future. Meanwhile, the unfinished business from Hong Kong means we could be in for a Hong Kong 2 in the spring. As Sartre might have said:  Merde!