WTO Roundup

4 September 2008

Doha Round on ice as mini-ministerial ends in collapse

International trade ministers and negotiators were unable to broker a Doha Round deal to cut tariffs and farm subsidies, despite major progress towards an accord at a high-profile summit in Geneva at the end of July. WTO negotiations collapsed on the evening of July 29, after the world's biggest economies proved unable to resolve a dispute over agricultural safeguards. The failure to reach a compromise agreement after nine days of intensive talks has left global trade liberalisation prospects facing an uncertain and frosty future.

"We were very close to finalising modalities in agriculture and [non-agricultural market access]," WTO Director General Pascal Lamy told the Trade Negotiations Committee on July 30, in a reference to the framework deals that governments had hoped to strike. He acknowledged that "a huge amount of problems which had remained intractable for years have found solutions," even though the talks ultimately ran aground on when and to what extent developing countries would be able to protect farmers from import surges under a ‘special safeguard mechanism' (SSM).1

The collapse, which boiled down to a stand-off between the US on one hand and India and China on the other, was followed by shock and dismay. Lamy announced his own disappointment that "members have simply not been able to bridge their differences." He said that failure would not strengthen the multilateral trading system, which he hoped would be resilient and would be able to resist the bumpy road ahead. "We will need to let the dust settle. It is probably difficult to look too far into the future at this point. WTO members will need to have a sober look at if and how they bring the pieces back together."2

SSM fight causes collapse

If any topic had been likely to bring the Doha Round crashing down it was supposed to have been differences over cuts to farm subsidies and industrial tariffs. However, in the event, the main culprit turned out to be deadlock over the issue of the special safeguard mechanism at the so called G7 level (Australia, Brazil, China, EU, India, Japan and the US).  The issue neatly splits the interests of import- sensitive developing countries and competitive farm exporters: the former want to have recourse to protection, the latter want predictable access to overseas markets. 

The SSM is intended to allow developing countries to protect their farmers against import surges or price declines by allowing them to raise tariffs beyond bound levels, in principle to stall inflows of cheap imports. Throughout the negotiations, the main bone of contention has been whether, and by how much, countries should be allowed to use SSM to impose safeguard duties in excess of current (i.e. pre-Doha) tariff ceilings. The G33 block (which includes China and India) has always insisted this may be necessary for safeguard measures to actually protect farmers. Other exporters (including the US) believe that allowing tariffs to breach current levels would upset "the balance of rights and obligations" agreed under the previous Uruguay Round.  They fear the SSM could be triggered by normal trade growth, inviting potential safeguard duties that would reduce agriculture exports important to their own economic growth and development.

The road to break down

Lamy said that despite "more than 60 hours" spent trying to resolve differences, the divide over how high import surges needed to be in order to justify the highest safeguard measures proved irreconcilable.3 "Those who feared that the safeguard would lead to a disruption of normal trade wanted this safeguard as high as possible. Those who feared that the safeguard would not be operational if it was too burdensome wanted a lower trigger," he said. 

The US was prepared to accept an SSM along the lines of Lamy's own compromise proposal, which would allow SMM remedies to surpass pre-Doha tariff levels by up to 15%, when import volumes rose by 40% over a three year average. The number of tariff lines that could be used was limited to 2.5%. US trade negotiator Susan Schwab said she would not accept a ‘trigger' lower than 40% because it could interrupt normal trade flows and would guarantee a new de facto tariff on US exports like soy and cotton.

However, India and China supported the G33's more beefed-up proposal. The G33 said the ‘trigger' in Lamy's proposal was too high to ensure that farmers would not be hurt by surges of "subsidised" agricultural imports from developed countries. They wanted SSM remedies to be able to surpass pre-Doha levels by up to 30%, with the highest levels triggered by import volume increases of 10% which would be applicable for up to 7% of tariff lines.  Indian negotiator Kamal Nath warned repeatedly that he would not negotiate livelihoods. "I am not willing to negotiate livelihood security, I am not willing to negotiate subsistence, I am not willing to negotiate poverty," he said.4

Underlying concerns and unresolved issues

While the EU, Brazil, Australia and Japan all pronounced a willingness to accept various SSM combinations, the talks broke down over this technical operation of a single safeguard. But the SSM debate revealed other underlying concerns. At the forefront were developing country concerns with the level of cuts to US subsidies, which even after a 70% reduction, were still viewed as a big threat. Overall, the SSM debate exposed the philosophical divide between reaching a ‘development' outcome and achieving global liberalisation.

The SSM snag prevented the G7 from resolving the other controversial issues that were of particular interest to the African WTO members, including cotton, preference erosion, bananas and tropical products. Uhuru Kenyatta, Kenya's deputy prime minister, told journalists after the breakdown that "most of the key issues of interest to the African
continent were not even discussed," at the summit, especially cotton, which is slated to receive deeper-than-normal subsidy cuts. "Africa critically needs to realise development and get itself out of poverty through the establishment of fair trade rather than aid," he said. "Africa's opportunity to achieve fair trade has therefore been gravely undermined by the lack of progress in these negotiations."5

Cotton talks remain at impasse

Cotton specific subsidy and tariff cut talks remained at stalemate, as the US refused to put forward a specific offer before it knew what it stood to gain in terms of market access from broader agreements. Mali, Benin, Burkina and Chad, the so-called Cotton 4, have long been calling for cuts to developed country cotton subsidies, which they say undermine otherwise competitive small-scale producers in Africa.

The tricky issue of preference erosion - the phasing out of ACP preferential access to the EU market - was reportedly close to resolution but not yet finalised. Sources claim a ten-year timetable remained the most likely framework. Crawford Falconer, Chair of the agriculture talks, also said on July 28 that there was "emerging consensus" on the treatment of tropical products. The most recent proposal would see tropical products with tariffs less than 20% reduced to zero. Those with tariffs over 20% would be cut by 80% over five years. It is understood that ACP countries could retain zero-duty EU market preference for key products like sugar, in compensation for loss of banana market share to Latin producers.

In a banana trade ‘deal' struck between a group of 11 Latin American countries and the EU, the latter agreed to slash tariffs by €62 over seven years. ACP acceptance of the pact is thought to have been contingent on new EU aid commitments. However, the EU subsequently claimed that the accord was tied to an overall Doha deal and that the overall collapse of talks rendered the understanding null and void (see the two articles on bananas in this issue of TNI for further details and analysis).

The single undertaking

Over the nine days, negotiators managed to produce an impressive list of points for which there was provisional agreement in agriculture and NAMA. This included Overall Trade Distorting Domestic Support, where the EU had agreed to an 80% cut and the US to a 70% cut, bringing the US ceiling down to around $14.5 billion. Percentages were essentially agreed for tariff cuts and caps, sensitive and special products.  There was also considerable progress on the coefficients and flexibilities for tariff cuts on industrial goods. The problem of the anti-concentration clause, a provision that would restrain developing countries from clustering their tariff-reduction ‘flexibilities' on a limited number of industrial sectors, also seemed to be settled.6 

According to EU Trade Commissioner Peter Mandelson, total progress represented 90-95% of an overall deal. However, given than under the WTO's single undertaking principle, "nothing is agreed until everything is agreed," this progress was not enough.

Salvage or sink; a future for Doha?

Following the breakdown in Geneva, there were immediate calls to try to steer the Doha Round negotiations back on track. Lamy urged members to preserve the progress made: "This represents thousands of hours of negotiation and serious political investment by all members of the WTO," he said. "This should not be wasted." But it remains uncertain whether what was put on the table during the talks would be placed back again if negotiations recommenced. Lamy almost immediately embarked on personal visits to both India and the US in the second half of August, in a bid to broker a new compromise on the SSM. Here, the Indian government told the WTO Director General it would return to global trade talks if the US signals it believes the deadlock can be broken. Schwab subsequently said she had "encouraged" Lamy "to convene senior officials sooner rather than later" in Geneva, mentioning a possible meeting in September.7

But the abrupt end to the mini-ministerial was the third such collapse over the past three summers. With the approaching US elections, many believe Doha will stay in the deep freeze for some time to come. Brazil's foreign minister Celso Amorim claims this will lead to "a real fragmentation of world trade," with more bilateral agreements and dispute settlement procedures at the WTO.8 Indeed, Brazil has already threatened that in the absence of a deal, it will challenge US farm subsidies at the WTO. "We will see them in court," Amorim told the Financial Times.9

While some remain hopeful that one more window of opportunity can be found, others are more stoical. In the words of the Indonesian Trade Minister Mari Pangestu: "Multilateral talks never fail, they just continue."10

 

1 To read complete daily accounts of the Geneva mini-ministerial July 2008, see www.ictsd.net 

2 See: Day 9: Talks collapse despite progress on a list of issues, WTO News, DDA July 2008 package, Summary July 29, www.wto.org

3 Tariffs: WTO talks collapse after India and China clash with America over farm products, Heather Stewart, The Guardian, July 30 2008, www.guardian.co.uk

4 Perpetuating Poverty by Protecting Livelihoods, Ronald Bailey, Reason Magazine, August 5 2008.

5 WTO mini-ministerial: The day after, ICTSD, July 31 2008 www.ictsd.net

6 India firm over sectoral tariffs, Rituparna Bhuyan, Business Standard, August 25 2008.

7 WTO, US trade chiefs in bid to revive Doha Round, AFP, August 22 2008.

8 Bleak outlook after the collapse of Doha, Jonathon Wheatley, the Financial Times, August 3 2008.

9 Brazilian minister threatens court action on US subsidies, AFP, August 4 2008.

10 Multilateral talks never fail, Pradeep S Mehta, The Economic Times, India Times, August 9 2008.

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