Global Trends by Martin Khor

Monday 22 January 2007

WTO talks to resume soon?

The United States and European Union are expected to do their own deal, then pull others along.  But the developing countries are not that easy to roll over.

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Are the stalled talks at the World Trade Negotiations about to start again in earnest in

a last-ditch attempt to meet a deadline set by a United States trade law?

It would appear so, as the two giants – the United States and European Union – seem to be close to a deal between themselves.

If and when they agree, they could call a few other major countries to join the game and then try for a rush to the finishing line before the end of March.

Many developing countries are worried about this scenario.  Firstly, they feel left out of the action and fear they will be pressurized to sign on to something cooked up by just a few countries.

And secondly, they are suspicious that the content of the package will suit the big trading powers but be against their own interests.  The effects of such a deal would be tremendously bad.

Earlier this month, US and EU trade negotiators met in Washington and made progress to narrow their gaps on agriculture.

Although they did not make the outcome public, the media has speculated that the US was conditionally willing to bring down the maximum level of its “trade-distorting” domestic farm subsidies from its present offer of US$ 23 billion to $15-17 billion.  

The EU reportedly could agree to reduce its agricultural tariffs on average by more that 54%.   The EU however wants more lenient treatment on “sensitive products”, and the talks are now on how many goods can be so designated.

The EU has demanded that 8% of products can be designated sensitive, and the US wants this restricted to 1-2 per cent.  If a compromise (say, around 4%) is reached, then the two sides could be close to a deal.

They are then likely to press developing countries like India and Indonesia to open up their agricultural markets to imports.  There are 44 developing countries (known as the G33) that give top priority to defending their farmers from steep tariff cuts that would cause local products to be overwhelmed by imports.

Till now they have stood firm in demanding the use of two concepts:  “special products” (no or small tariff cuts will be applied to these) and special safeguard mechanism (tariffs can be raised temporarily if there is a surge in volume or a fall in prices of specific farm imports).

The US wants the G33 to back down by agreeing to designate only very few products as “special” and to use the safeguard mechanism only under very stringent conditions.

Last week, WTO Director-General Pascal Lamy met the Indian premier Manmohan Singh in Delhi in a bid to persuade India to scale back its demand. 

A joint demand that the US and EU will make is that developing countries also agree to drastically cut their industrial tariffs so that there will be “real” increases in imports of industrial goods in these countries.

Also, they will resume pressing the developing countries to open up their services (especially finance and telecommunications) to the multinational companies.

The US in particular is arguing that unless their firms get more business by exporting more agricultural and industrial products to developing countries and by gaining more access to their lucrative service sectors, they will not be able to make a new offer to reduce the cap on their domestic farm subsidies.

But most developing countries are very weary of further opening their markets, as their firms and farms have already faced problems from past liberalization.  Moreover, except for a few advanced countries, few think they have the capacity to increase their exports even if their trading partners open their markets.

This is the pressure that developing countries will come under.  The US negotiators say that if there is no deal on the “modalities” (the formulae and measures to cut import tariffs) by the end of March, then they cannot persuade Congress to extend the US President’s “fast track authority” in trade.

Under this authority, Congress can only vote for or against trade agreements but cannot amend them.  Without it, other countries would not have confidence that the US administration will be able to honour whatever deals it enters into.

The WTO talks are thus held hostage to what some delegations call an “artificial deadline” fixed by US domestic politics.  The same deadline applies to the bilateral trade deals the US is negotiating with Malaysia and other countries.

If the end-of-March deadline is missed, it will take many years before a new fast-track authority is obtained, and the talks at the WTO and in bilateral trade deals with the US will then linger.

At the Davos meeting of the World Economic Forum at the end of this month, many Trade Ministers will gather.  No miracles are expected, but more momentum could be built to get the WTO talks re-started.

In particular, if the “big boys” – the US and EU – agree on their own deal, we can expect lots of pressure to get developing countries to accept their terms and rush into an overall deal.

But given the increased awareness and strength of developing countries these days at the WTO, it will not be easy to roll them over.