Global Trends by Martin Khor

Monday 3 July 2006


Crisis as WTO talks fail 

The World Trade Organisation was plunged into a new crisis as a meeting of some 60 Ministers closed early after failing to come up with any results. The United States was blamed for not improving on its offer to cut domestic farm subsidies, and it blamed others for not agreeing to cut their tariffs further.

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Global trade talks reached crisis point when a Ministerial-level meeting of the World Trade Organisation in Geneva fell apart after major countries could not agree on how to cut subsidies and tariffs in agriculture.

The meeting ended a day earlier last Saturday after it became clear that no progress could be made on the agriculture issue.  Also on hold was the issue of liberalization of industrial products.

“There has been no progress, so we are in a crisis, we have to admit it,” said WTO Director General Pascal Lamy.

About 60 Ministers of trade and agriculture had gathered on Friday in an effort to agree on the “modalities” (formulae and numbers) for cutting agricultural tariffs and subsidies and industrial tariffs, as well as for exceptions, or reduced rates of liberalization, for certain goods and for some countries.

The meeting was planned for at least three days.  But it became clear on the first evening that the positions were too far apart, and a decision was made to call off the talks without any progress made.

The negotiations have been held under the WTO’s Doha programme which was launched in November 2001.  The talks have been plagued with problems.  They were to have ended in 2004 but went through many failed deadlines.

The Hong Kong Ministerial conference last December gave it new life and directions, but the new deadlines of April and now June have passed without a basic agreement on how much to cut tariffs and subsidies, and what exceptions (or “flexibilities”, in WTO jargon) to give.

The urgency for completing the Round is due to the expiry next July of the “fast track authority” of the United States President.  Without this authority it would be difficult to have a trade agreement passed by the US Congress.

The WTO needs to agree on the “modalities” by the end of June if the talks are to be wrapped up in December, in time for the US to prepare for the passage of its bill before the fast track authority expires.

Lamy has been asked by the WTO members to “facilitate and catalyse” more talks to see whether a new deadline of the end of July can be met. If that passes without success, the WTO talks may hibernate for years until a new fast track authority is renewed.

The immediate cause of the meeting’s collapse was the inability of the United States to improve on its offer to reduce its domestic farm subsidies, which distorts world trade and puts developing countries at a disadvantage.

It had already agreed to bring the ceiling (the level that is allowed) of overall trade-distorting subsidies to US$23 billion.  But as its actual subsidies were slightly below $20 billion last year, other countries considered the US offer to be inadequate, as it allowed the US to expand (rather than decrease) its actual subsidies.

The Group of 20 developing countries asked that the allowed subsidies be brought down to $12 billion, with others suggesting $15-17 billion.

The US was expected to make a renewed offer, even if to go down by a few billions.  But due to pressures from its farm lobby and from the US Congress, it was unable to make even a small gesture, and stuck to its position.

Instead it blamed other countries for not going far enough in opening their markets on both agricultural and industrial goods, saying that this was a pre-requisite for it to retain (let alone increase) its existing offer on subsidies.

This blame shifting did not work because the European Union had agreed to lower its farm tariffs by 51%, an improvement from the 39% it had earlier suggested.  Some countries thought that was not good enough (the G20 wanted 54%, the US wanted 66%), but almost everyone (except the US) said it was a good start.

The ball then went to the US court for it to match the EU move by telling by how much it would improve its subsidies offer. A whole day was spent waiting for the US to move.  When it did not, the Ministers present agreed to call off the talks early.

Meanwhile, an overwhelming number of developing countries expressed their frustration not only at the inadequate US offer but at how the developed countries are now putting pressure on them to steeply cut their tariffs.

The pressure is greatest in industrial goods.  The developed countries have proposed a formula by which they themselves reduce their industrial tariffs by about 20-30%, whereas the developing countries must cut their tariffs by 60-80%.

At a press briefing to show the solidarity of developing countries, ten Ministers representing various groupings of the South (including the G20, the Group of 33, Africa, the Caribbean and the least developed countries) urged the developed countries to do more, and asked for fairness in their demands on what the South can do.

“After all this is a Development Round,” said Indian Minister Kamal Nath.  “The mandate is for developed countries to cut their farm subsidies and open their markets to developing countries.

“But if the developed countries come to Geneva and hope to put the shoe in the other foot, asking developing countries to provide market access to them while they retain their subsidies, then there is no negotiating space possible.”

Speaking on industrial tariffs, the South African Minister Rob Davies said:  “What is being demanded of us is that we cut our tariffs to such an extent that our industries are dislocated.  We are asked to make a commitment in cutting tariffs in industry that the developed countries will not do in agriculture.  We have to reclaim the development essence of this Round.”

Lamy is now given the mandate to facilitate further talks. Few believe that the new deadline of end of July can be met.