DOHA ROUND SUSPENDED INDEFINITELY AFTER G-6 TALKS COLLAPSE

The Doha Round of trade negotiations was put into deep freeze on 24 July, after a meeting of ministers from six key trading nations collapsed over divisions on how to cut farm subsidies and tariffs.

It is not clear when -- or if -- the talks, which started nearly five years ago, will resume. There is no timetable for doing so. Kamal Nath, India's commerce minister, said that the round, though not dead, "is between intensive care and the crematorium."

"It will not be possible to finish the round by the end of 2006," WTO Director-General Pascal Lamy told an informal meeting of all Member delegations the day after ministers from the EU, the US, Australia, Brazil, India and Japan -- the so-called G-6 -- failed once again to bridge their differences. Saying that "the gaps remain too wide," he recommended suspending the talks indefinitely. This "time-out," Lamy suggested, would be an opportunity for Members to examine what was at stake, and reconsider their positions. Ambassadors at the meeting agreed with his recommendation, saying that they shared his disappointment and remained committed to reaching an agreement.

The suspension halts all negotiations currently underway at the WTO. Another G-6 ministerial meeting, which had been scheduled for the end of this week, has been cancelled. Lamy said that the end of the timeout would depend on Members.

Furious recriminations have followed the breakdown, particularly between the EU and the US. Brussels blames Washington for refusing to offer any new cuts to farm subsidies; the latter counters that the EU gave too little on market access to make any such movement possible.

Many of the ministers maintained that the divisions were not insurmountable. Brazilian Foreign Minister Celso Amorim attributed the collapse to a lack of "political will."

It was widely believed that Members needed to agree on agriculture and industrial goods 'modalities' -- formulae and figures for tariff and subsidy cuts, as well as exceptions to them -- by the end of July, in order to finalise a Doha Round package of legal agreements before the mid-2007 expiry of the Bush administration's Congressional mandate to negotiate trade agreements. US Trade Representative Susan Schwab indicated in a conference call that she no longer thought this possible.

Agriculture reason for breakdown

What many are calling the most serious crisis in the WTO's decade-long history comes little over a week after heads of state from leading industrialised and developing countries vowed at the G8 summit in St. Petersburg to show greater flexibility in the trade talks (see BRIDGES Weekly, 19 July 2006).

Lamy has long held that unblocking the negotiations would require parallel progress on a 'triangle' of issues: the US would have to agree to deeper cuts to domestic farm support; the EU to increased agricultural market access, and developing countries such as Brazil and India to lower industrial tariffs. Each group has been urging the others to budge first. Following the St. Petersburg summit, G-6 ministers set up the two meetings in Geneva to attempt to translate the promises of increased flexibility into a modalities deal.

This did not happen. Even though Lamy said that some potential compromise numbers were informally floated at the 14-hour long G-6 meeting on 23 July, the divisions on agriculture were so pronounced that industrial tariffs were not even directly addressed.

In the wake of the latest setback, many governments have promised to step up efforts to pursue bilateral and regional trade agreements, which already stand accused of weakening the multilateral trading system.

EU, US blame game over subsidies, market access

The EU openly blamed US intransigence for the collapse. "Having been mandated by heads of government at the G8 to come together to indicate further flexibility, I felt that each of us did, except the United States," EU Trade Commissioner Peter Mandelson told the press after the talks were halted. "The United States was unwilling to accept, or indeed to acknowledge, the flexibility being shown by others in the room and, as a result, felt unable to show any flexibility on the issue of farm subsidies."

The US' proposal to cut trade-distorting farm subsidies by 53 percent is projected to slash its current spending limit from USD 48.2 billion to roughly USD 22.5 billion -- which is still higher than the USD 19.7 billion that it actually doled out in such payments last year.

Trade diplomats from other delegations also expressed disappointment that the US, alone among the G-6, did not come up with any new proposals during the meeting.

Washington hit back with accusations of its own. The US trade mission in Geneva issued a statement on 25 July describing the EU's views as "false and misleading," warning that Brussels' "blamesmanship and finger pointing" risked jeopardising "the few chances we have left to save the Doha Round."

US officials insist that they had come to Geneva prepared to offer further cuts to their domestic subsidies, but did not do so only because the EU and India failed to table meaningful improvements on agricultural market access. Schwab claimed that when she communicated the US' flexibilities privately to Lamy, he conceded that the differences between Members' positions remained irreconcilable.

The US continued its criticism of the exceptions to farm tariff cuts that the EU and many developing countries have been seeking, arguing that they were looking for loopholes to avoid liberalisation.

Mandelson rubbished the US' complaints, saying that the EU had, during the G-6 meeting, offered to go from its original proposal of a 39 percent average cut to farm tariffs to about 51 percent -- "close to the [54 percent] level requested by the G-20 group of developing countries." He also said that he had indicated that he was "ready to talk about the number and treatment of sensitive products," which will be subject to lower tariff cuts in exchange for expanded import quotas. US Agriculture Secretary Mike Johanns argued that Brussels was exaggerating the extent to which these quotas were likely to expand under its proposal.

Washington has asked for tariff cuts of close to 66 percent. It wants the EU to agree to deeper tariff cuts since they will serve as the basis for calculating increased access to growing developing country markets like China and India.

US farm and business groups, as well as members of Congress, lauded Schwab and Johanns for refusing to budge on domestic support in the absence of gains in market access.

Nath blames 'gap in mindset'

The Indian minister was incensed at the US' demands, saying that Washington was seeking to displace millions of subsistence farmers with subsidised products. Nath said that the notion that subsidy cuts should be paid for in market access represented a 'gap in mindset' that would need to be transcended for the round to succeed. Trade-distorting subsidies "should not be there to start off with," Nath added, and "if developing countries are asked 'please pay us to remove these distortions,' I'm afraid that's not going to work."

He emphasised that the US' position was tantamount to renegotiating the July 2004 Framework and the Hong Kong Declaration, which provided for allowing developing countries to assign 'special products' lenient tariff treatment based on food security, livelihood security, and rural development concerns. India has been seeking to designate as many as 20 percent of products as 'special,' but sources suggest that Nath had indicated some flexibility on the issue during the discussions.

Brazil, India: EU moved, domestic support was the obstacle

Both Nath and Amorim recognised "movement" by the EU on market access. Amorim said that Brussels was nevertheless still short of the G-20 proposal, especially in terms of the significantly lower cuts it was proposing for the highest tariffs.

Speaking in Geneva immediately after the meeting, the two leaders of the G-20 hinted that Washington's refusal to move on domestic support was the principal reason for the stalemate, though they refused to point fingers explicitly. "Everybody put something on the table, except one country which said 'we can't see anything on the table,'" said Nath. Amorim, too, admitted that domestic support was "the area in which we were lagging behind more clearly."

Preserving what is on the table

Lamy warned Members of the risk that existing proposals on the negotiating table might disappear, such as the elimination of agricultural export subsidies, duty- and quota-free market access for least-developed country (LDC) exports (albeit with significant exceptions), and hastened cuts to cotton subsidies. The suspension of the negotiations put this progress "on hold," he said.

He has previously indicated his belief that the existing proposals would make the Doha Round worth two to three times more than previous trade rounds. Urging Members not to withdraw their proposals, Lamy suggested that reflecting on what stood to be lost in the talks might help change different groups' positions.

Political deadlines complicate resuscitation

Breakdowns are not new to global trade negotiations. The Uruguay Round talks fell apart in December 1990 and only resumed a year later when the then-Director-General of the GATT took the controversial step of coming up with a potential compromise agreement, better known as the 'Dunkel draft.' Following the collapse of the Cancun Ministerial Conference in September 2003, the Doha Round itself saw negotiating work frozen for about four months, before the US helped revive the talks in early 2004.

Officials from many countries have suggested that the US' firm opposition to further subsidy cuts may have been motivated by the Bush administration's desire not to antagonise the influential farm lobby before the closely-fought mid-term Congressional elections in November.

Mandelson has urged President George W. Bush to ask Congress to extend his trade promotion authority past mid-2007, which is thought to be unlikely. He also asked Bush to veto attempts to renew existing farm subsidy programmes, since doing so would weaken the US' ability to make concessions at the WTO.

Some trade analysts believe that the negotiations might be able to resume after the US elections this fall. Others think that the round may be frozen until 2009, when a new presidential administration takes over in Washington with a better chance of receiving trade promotion authority. Without it, the US is not considered to be a credible negotiating partner -- multilaterally or bilaterally -- since Congress would then be able to pick apart carefully-assembled deals provision-by-provision, instead of having to give each package a straight up or down vote.

Political changes are also due elsewhere, with a new prime minister in Japan expected later this year and presidential elections in Brazil and France in 2007.

Amorim nevertheless told delegations on 24 July that "we must set our sights at the resumption of negotiations in the near, rather than remote, future."

Schwab is set to travel to Brazil from 27-29 July to discuss how to push the negotiations forward. She has also said that on her way to meet counterparts in Southeast Asia in August, she would "probably make one or two stops along the way to talk about the Doha Round negotiations and how we might resuscitate them in September." A Cairns Group meeting in September and a November summit of Asia-Pacific Economic Cooperation (APEC) provided further opportunities for seeing "where there is potential for breaking loose the logjam."

Nevertheless, South Africa's lead negotiator Xavier Carim told Johannesburg daily Business Day that prospects looked "quite bleak." One trade observer said that while the attitude among negotiators was almost surprisingly measured immediately after the collapse, the increasingly vitriolic blame game might make it harder for countries to come back to the bargaining table.

If a negotiated deal on reducing farm payments seems increasingly unlikely, there is a possibility that developing countries may turn increasingly towards litigation to address their grievances against rich country subsidy schemes. This might in turn weaken governmental support for the WTO dispute settlement mechanism, according to several trade experts.

International charity Oxfam believes that resurrecting the talks will be impossible unless the US and the EU agree to cut their agricultural subsidies without demanding extensive market opening from developing countries in return. "Give them four more months, give them four more years, give them four more centuries -- but unless the EU and the US make fundamental changes to their offers then these talks will fail development," said Celine Charveriat, head of Oxfam's Make Trade Fair campaign. EU business group Unice called the collapse "unacceptable," and warned of a "return to protectionism." US textiles groups, however, appeared to be relieved at the breakdown.

Meanwhile, in a speech on 25 May, Mandelson called for proceeding with a 'development package' in spite of the overall suspension. This, he suggested, would entail continuing negotiations on issues such as aid for trade, trade facilitation, duty- and quota- free access for LDC exports, and special and differential treatment (S&D). Preliminary reactions to the proposal have been lukewarm (see related story, this issue).

The informal agreement to suspend the Doha Round still needs to be approved by the General Council, the WTO's highest permanent decision-making body, which is set to meet on 27-28 July.

ICTSD reporting; "Mandelson hopes Bush will seek extended trade power," REUTERS, 25 July 2006; "WTO talks may take months to resume," THE HINDU, 25 July 2006; "WTO talks -- the end?," BUSINESSDAY.CO.ZA, 24 July 2006; "Collapse of WTO trade talks adds to global woes," DEUTSCHE PRESSE AGENTUR, 25 July 2006; "US, EU swap blame for trade talks failure," REUTERS, 25 July 2006; "World trade talks fail over impasse on farm tariffs," INTERNATIONAL HERALD TRIBUNE, 25 July 2006; "US was unwilling to move, so talks failed," TIMES OF INDIA, 25 July 2006; "Africa 'to feel brunt of Doha collapse,' BUSINESS DAY, 25 July 2006.