WTO TALKS IN "CRISIS" AS HIGH-LEVEL MEETING FAILS; LAMY TO TRY TO FACILITATE CONSENSUS

Trade ministers from key WTO Member countries have failed once again to strike a framework Doha Round deal on cutting farm subsidies as well as tariffs on both industrial and agricultural products. The high-level talks ended on 1 July -- a day earlier than anticipated -- after it became clear that they were yielding little movement.

In the wake of the breakdown, Members have formally asked Director-General Pascal Lamy to step up consultations with governments in an attempt to identify possible compromises and facilitate an agreement as soon as possible.

"We are now in a crisis," Lamy told the Trade Negotiations Committee (TNC) on 1 July. "We are far from the necessary convergence to be able to establish modalities in agriculture and NAMA [non-agricultural market access]." The end-June summit had been called for the express purpose of breaking the deadlock on these 'modalities,' which are the formulae and figures which will specify the extent of tariff and subsidy reduction, as well as deviations from the standard cuts.

Lamy said that the only positive signs were that the gaps were "not unbridgeable," and that Members remained committed to concluding the talks by the end of the year -- in time for the Bush administration to put a final Doha Round package to Congress before the expiry of the president's trade promotion authority.

In addition to looming deadlines in other negotiating areas such as services, rules, and trade facilitation, Members had been hoping to finalise an agriculture and NAMA modalities deal now since as many as six months might be necessary for them to first translate the modalities into specific liberalisation commitments for their thousands of products, and then verify each other's 'schedules of commitments.' Lamy insisted that in spite of the shrinking time window, an agreement remained possible from this technical standpoint.

Lamy to be 'catalyst' for agreement

On 1 July, the TNC endorsed a suggestion that emerged from a smaller 'green room' meeting of about 30 ministers for Lamy to "conduct intensive and wide-ranging consultations with the aim of facilitating the urgent establishment of modalities in agriculture and NAMA," and report to the TNC "as soon as possible." The next TNC meeting is tentatively scheduled for 29 July.

The WTO chief has long held that unblocking the negotiations would require parallel progress on a 'triangle' of issues: the US would have to agree to make deeper cuts to domestic farm support; the EU to offer increased agricultural market access, and developing countries such as Brazil and India to offer more on industrial tariffs. However, no such concessions materialised during the recent gathering. Lamy believes that the central players in the negotiations are still waiting for each other to move first, and have not "put all their numbers on the table." He will now attempt to probe further to find out what these still-concealed numbers might be.

As Director-General, Lamy is already empowered to act as a facilitator and 'honest broker' between WTO Members. Sources say that the recent decision gives him a specific mandate to consult with the highest levels of government to help produce a compromise. EU Trade Commissioner Peter Mandelson described it as an "upgrade from facilitator to catalyst." One trade source suggested that the decision effectively recognised that the approach of simply bringing ministers together and encouraging them to negotiate had not succeeded at pushing Members all the way to an agreement.

Lamy said that he planned to pursue "shuttle diplomacy, high-level consultations, [and] testing of numbers... so that we can fill the gaps between the big players." He added that he would run different "what-ifs" -- potential options for compromise -- by them.

Some trade officials have suggested that governments might be more willing to reveal their true 'red lines' to Lamy, as compared to in a meeting with other delegations, where negotiators fear that any concessions might be immediately taken for granted and treated as a new basis for ramped-up demands. This would help Lamy assist Members in transcending the brinkmanship that has characterised the talks.

Declaring his willingness to "crack heads together," Lamy said that he would start with the G-6 -- influential Members Australia, Brazil, India, Japan, the EU, and the US -- before proceeding to other countries. He is scheduled to go to Japan this week.

During a press conference, Lamy dismissed the suggestion that he had engineered the "crisis" precisely in order to be given the mandate to push for consensus more actively. He also rejected the notion that he would prepare a comprehensive text under his own authority. He said that his talks would be based on the texts prepared recently by the chairs of the negotiating groups -- texts in which a vast number of issues remain to be finalised (see BRIDGES Weekly, 28 June 2006). "We've got plenty of [text] on the table… what we do not have on the table is numbers," he emphasised.

No progress on ag, NAMA

A series of meetings of the G-6 on 29-30 June produced so little movement that Lamy felt prompted to upbraid them for not negotiating seriously.

US officials continue to insist that the G-20's proposed tariff cuts are insufficient. The G-20 has asked developed countries to slash their farm tariffs by an average of 54 percent, while developing countries do so by 36 percent. The US has sought a 66 percent reduction from rich countries, and an unspecified but lower cut from developing ones.

US Trade Representative Susan Schwab and US Agriculture Secretary Mike Johanns both argued that the different market access flexibilities under negotiation could serve as "loopholes" that erode potential market access gains, calling them the "three S's -- sensitive products, special products, and special safeguard mechanisms." All Members will be able to slate some 'sensitive products' for lower tariff cuts in return for expanded import quotas. Developing countries alone will be able to shelter 'special products' (SPs) from tariff cuts based on food security, livelihood security and rural development concerns, and use a 'special safeguard mechanism' (SSM) to provide farmers with a measure of protection against import surges. Schwab said that the three types of flexibilities constituted a sort of "black box... until we figure out what's in it, this is not a negotiation that is going to come together."

Indonesian Trade Minister Mari Pangestu, who coordinates the G-33 group of developing countries, described the focus on the market-opening effects of the flexibilities as "unhelpful." Both SPs and the SSM "are certainly not about market access, but about protecting vulnerable sectors" as they open up for freer trade, she said. She emphasised the need to ensure that each type of flexibility was a "useful instrument." "We cannot negotiate subsistence and livelihood security," added Indian Commerce and Industry Minister Kamal Nath.

Although Schwab reiterated on 1 July that the US' proposed tariff and subsidy cuts in the farm trade talks have "always been a negotiable offer," sources report that during the meetings, she insisted that Washington could simply not go beyond its offer of a 53 percent cut to its own overall trade-distorting support (OTDS). This would bring its permissible ceiling level for such grants from about USD 48 billion to USD 22.5 billion, compared to the USD 19.67 billion that it currently disburses (see BRIDGES Weekly, 24 May 2006). Mandelson said that the US' OTDS ceiling should be USD 15 billion as an "absolute minimum." This would amount to a reduction of roughly 69 percent -- just shy of the 70 percent cut that the EU has proposed for its own farm subsidies, as well as higher than the 60 percent it had originally asked of Washington.

Little changed in the NAMA negotiations, which are generally believed to depend on the outcome on agriculture. Canada, Switzerland, and the US have called for the coefficient associated with the 'Swiss' tariff reduction formula to be no more than five points higher for developing countries than for developed ones. According to this, Doha Round liberalisation would leave developing countries with most industrial tariff ceilings no more than 5 percent higher than those of rich nations. On 29 June, the NAMA-11 group of developing countries said that this gap between the coefficients must be no less than 25 points.

Rob Davies, South Africa's deputy-minister of trade and industry, criticised the developed countries' proposals, arguing that they would impose a level of social dislocation and adjustment on developing countries far out of proportion to what they were willing to accept for themselves.

Way forward

Although no new deadlines have been set, several ministers believe that the end of July is the latest possible date for a modalities deal in order to finish the round by the end of the year. Nath and Australian Trade Minister Mark Vaile have both talked about the possibility of another ministerial-level meeting at the end of July.

Mandelson told journalists on 1 July that the G-6 could spend the first two weeks of the month building consensus, and then give Members two weeks to "digest" the outcome, "so that we can all come back together in negotiating mode by the end of July." He suggested that the G-6 heads of state could potentially meet alongside the summit of the Group of Eight (G8) industrialised nations in Russia set to kick off on 15 July. However, Lamy later questioned the appropriateness of a G8 gathering for trade talks, noting that the European Commission -- not the four European G8 members (which include reluctant liberaliser France) -- was responsible for trade, and that G-6 countries like Australia, Brazil, and India were not part of the G8. Russia, he added, was not even part of the WTO yet.

Sources report that there is considerable pressure on the G-6 from other WTO Members to come to a compromise. Ministers from several developing country groups -- including the G-20, the G-33, the ACP Group, the Least-Developed Country (LDC) group, the group of small and vulnerable economies (SVEs), the Caribbean Community (CARICOM), and the NAMA-11 -- held a joint press conference on 1 July, where many of them stressed the development component of the Doha Round talks, and called on rich countries to show leadership in the negotiations.

Following the 1 July TNC meeting, Lamy said that he had not yet decided specifically how to proceed with the negotiations -- for instance, whether to convene a group of ministers or to see them individually.

Some trade officials question whether the concessions necessary for an agreement are likely to be any more forthcoming a few weeks from now. Others, however, believe that a deal remains doable.

ICTSD reporting; "'We are now in crisis.' Director-General to try to break impasse," WTO NEWS, 1 July 2006; "WTO's marathon man must turn sprinter to win deal," REUTERS, 2 July 2006; "WTO chief Lamy to visit Japan on July 5-6," KYODO NEWS, 29 June 2006; "WTO mini ministerial meet soon: Nath," NDTV Profit.com, 2 July 2006.