After a six-month total break-down in WTO negotiations on freeing up global trade, world leaders agreed, in January 2007, to revive the talks, but hopes to clinch a deal ahead of crucial US elections - are waning as hardliners refuse to soften their stance. Some fear talks may collapse completely if a breakthrough is not achieved by then.

Overview

Time is running out for a multilateral deal on liberalising global trade. The fast-track trade authority granted under the Trade Promotion Act of 2002 (TPA) to US President George W. Bush, allowing him to adopt international trade agreements without Congress altering them, already expired on 1st July 2007.

Without the TPA, the now Democratic and less pro-free trade Congress would have amending power, making it less attractive for other WTO members to participate in a deal as they are unsure of obtaining any real commitments from the US. 

Furthermore, with the US Presidential elections scheduled for November 2008, the likelihood is that, if a global agreement is not concluded by early 2008, the Doha Round would be postponed until after the new US President is instated, and possibly even after European Parliament elections and the nomination of a new European Commission in 2009. 

Despite this time pressure, positions still appear as polarised as ever. Any breakthrough would require the EU and US to agree on the depth of cuts that should be applied to their agricultural tariffs and subsidies. While both sides have lately signalled readiness to soften their stances (EurActiv 08/10/07), this could prove difficult, with France insisting that it will block any agreement in which the EU has to cut average farm tariffs by more than 39% (EurActiv 30/05/07), despite US insistence that no less than a 60% cut would be acceptable.

What's more, the EU and the US are also locking horns with advanced developing countries like Brazil and India, which they insist have to open their markets to more foreign manufactured goods in exchange for more agricultural market access (EurActiv 22/06/07).

Issues

WTO chief Pascal Lamy believes that the Round fell apart in July 2006 (EurActiv 25/07/06) because “too many negotiators focused on the small picture, forgetting the bigger one”. He said that countries must shift their focus away from domestic politics and broaden their vision. 

However, supporters and opponents of the WTO find it difficult to agree on exactly what the broader picture is. 

Economic impact:

Numerous studies have attempted to assess the economic impact of the Doha Round, but their results vary enormously. 

According to the Carnegie Institute: “Any of the plausible trade scenarios will produce only modest gains, on the order of a one-time increase in world income of $40 to $60 billion. This represents an increase of less than 0.2% of current global gross domestic product.” 

The World Bank, on the other hand, foresees that liberalising trade in a manner consistent with the Hong Kong Ministerial Declaration would lead to “global gains of the order of $95-120 billion per year”. 

Nevertheless, NGOs opposed to the WTO point out that even this staunch supporter of the Doha Round has downsized its original projections; in 2003, the World Bank had forecast an $832 billion-per-year boost to the global economy from the total elimination of trade barriers; the majority – $539 billion – going to the developing world. In 2006, new projections estimated potential overall welfare gains at only $287 billion – just one-third the original forecast. Furthermore, developing country gains dropped to $90 billion, a “loss” of more than 80%. 

Despite contradictions between the figures, most opponents of the WTO do agree that a deal would increase overall economic welfare. However, they underline that these benefits will not fall to those who most need them. They say poorer countries would lose out, whether from the erosion of preferences they enjoy in third markets or from the direct impact on their own agricultural, industrial and services sectors. 

Despite this, there is a general consensus that renouncing a global deal now would result in losses all around. 

Market access:

  • The recent agreement that would ensure that all developed countries grant duty- and quota-free market access to all Least Developed Countries would be lost. 
  • Agricultural exporters will miss out on the largest farm-tariff cuts ever offered by the EU. 
  • Europe and the US would lose new access to the markets of emerging economies such China and Brazil for their exported industrial goods and services.  

Trade-distorting subsidies:

The US and the EU will be able to continue subsidising their agricultural production, thereby artificially enhancing their competitiveness, leading to over-production and dumping, which hurts poor farmers in developing countries. 

WTO credibility:

Failure could inflict a serious blow to the credibility of the international trading system and the WTO as an institution. The Dispute Settlement Body, which is currently the only supranational body capable of rendering compulsory judgements on disputes between countries, could be undermined. 

Return of bilateralism:

The lack of a global trade deal will accelerate a return to a system of bilateral agreements and FTAs in which the large would be able to strong-arm the small and where the multiplication of trade rules and tariffs would generate higher transaction costs and damage the trading and investment environment. The EU has already announced the launch of bilateral negotiations with the ten member states of ASEAN as well as with South Korea and India (EurActiv 23/04/07), revealing a shift towards bilateralism that Pascal Lamy has said will "harm the poor" (EurActiv 18/10/06).

Positions

WTO chief Pascal Lamy noted that failure of the trade talks would “not be a major economic shock that would precipitate any particular market crisis...but rather as a slowly developing disease that would progressively sap the strength of the multilateral trading system built up over the past 50 years". He said that the trade pact on the table would be "a quantum leap for economies", adding: "It is pretty unfortunate that the negotiations broke down over a few thousand tonnes of beef, a few thousand tonnes of poultry and a few billion dollars of trade-distorting subsidies."  He asked: "Are these problems insurmountable? Probably not." 

IMF chief Rodrigo de Rato said: "The stakes are far too high to accept failure," stressing that removing trade barriers would raise prosperity around the globe. 

World Bank President Paul Wolfowitz added: "The promise of a better future is in peril…We must consider new ideas - and accept that every party in this deal needs to compromise. The United States needs to accept further cuts in spending on trade-distorting agricultural subsidies. The European Union needs to reduce barriers to market access. And developing countries such as China, India and Brazil need to cut their tariffs on manufactures. Developing countries also need to remove trade barriers that make it harder for low-income countries to trade directly with each other." 

The American Chamber of Commerce to the European Union (AmCham EU)  urged the EU and the US to be 'creative and flexible' on agricultural-policy change, reminding that agriculture represents no more than respectively 2.2% and 1% of European and American GDP; 7.52% and 6.99% of their trade and; 4.4% and 0.7% of their total labour force. “Maintaining market-distorting agricultural policies and fighting over beef quotas neither secures our economic future nor helps to achieve global development goals,” it stated, adding that the much-needed boost for businesses around the globe will come from securing significant reductions in tariffs and non-tariff barriers for manufactured goods and services and urging the EU and the US to concentrate on new developing markets such as biofuels rather than on agriculture. “This is a tough political challenge”, stated AmCham, “but current agricultural programmes are not sustainable.” 

US Secretary for Agriculture Mike Johanns said: "We're willing to be at the table and negotiate our way through this.” He added that “the United States is willing to improve its existing offer, but Europe had to break out of its "1930s mentality". He said: “They cannot continue to maintain very high tariffs. Even at the end of this, they'll still be able to subsidise their farmers at twice the level the US would.”  

But the EU's Ambassador to the WTO, Carlo Trojan, said: "We are certainly not prepared...to go north of G20 as far as market access is concerned." He said that Commissioner Mandelson remained in touch with Washington but that the EU and US were “not much in a negotiating mode” ahead of the US mid-term elections in November. 

This could please a number of NGOs more critical of the WTO, such as War on Want, Greenpeace and Friends of the Earth, which all viewed the collapse of talks as good news for the world’s poor and the environment. 

John Hilary, Director of campaigns and policy at War on Want, explains: “The WTO has shown itself unfit for purpose when it comes to addressing the needs of the world's poorest communities, and the ‘deal’ on the table in Geneva would have exposed developing countries to immense damage…Abandoning the negotiations was the only positive option left, and we should be thankful for it.” He added: “It didn't have to be this way. The WTO could have focused its energies on brokering a deal to stop the dumping of EU and US farm-produce on developing-country markets, one of the very worst abuses of the international trading system.” But this did not happen, he said: “In place of a development agenda, the talks degenerated into an unapologetic market access agenda.” 

 

Timeline

  • 24 Jul. 2006: WTO chief Pascal Lamy suspended the multilateral trade negotiations after a series of failed ministerial meetings.
  • 27 Jan. 2007: Trade ministers from 30 key nations, meeting in Davos (EurActiv 29/01/07), agreed to restart the Doha Round talks, with the aim of finalising a deal by end 2007. 
  • 21 Jul. 2008:  Key WTO trade ministers to meet in Geneva in a bid to bridge the remaining gaps in draft modalities for freeing up global trade on agricultural and industrial goods.