TWN Info Service on WTO and Trade Issues (Sept08/05)
24 September 2008
Third World Network

Trade: Doha talks re-start in small group, but task is truly uphill
Published in SUNS #6546 dated 10 September 2008

Penang, 9 Sep (Martin Khor*) -- It seems that the Doha Work programme of the WTO has more than the proverbial nine lives of the cat. It was widely believed that the failure of the "Mini-Ministerial" negotiations in Geneva on 21-29 July would put the Doha talks on the back-burner until the new United States President and Congress have settled in and had the chance to assess their positions.

But, instead, the talks resume in Geneva this week, in informal mode of course. Senior officials from capitals of a few countries, presumably members of the "G7" group that was newly established during the July talks, are gathering today to re-open the discussion on agriculture modalities.

The first agenda item, reportedly, is special safeguard mechanism, the issue on which the July talks foundered. According to media reports, Brazil and Australia have a new proposal on how to break the SSM deadlock and this will most likely be the basis of the new talks.

The meeting starting this week appears to be a last-gasp attempt to salvage victory from the jaws of defeat. Most observers are understandably skeptical of the chances of a breakthrough, since so many "do-or-die" deadlines have previously been set and broken. The odds are that this will be another attempt that will end in another failure.

The meeting has been convened apparently under the impression that there is just one more very narrow "window of opportunity" to do something before the handover from President Bush to President Obama or McCain.

What that something is, is not clear: Bush to sign on to a WTO modalities deal and send it to Congress? Congress to approve it? Bush to sign on and leave it to Obama or McCain to take the baton and run with it, and submit to Congress? What is the use of this, when the present US negotiators have little if any mandate left to negotiate?

What the organizers of this week's meeting hope to achieve, and how realistic that is, is clouded in great uncertainty.

Nevertheless, the show has to go on. Diplomats engage in diplomacy and negotiators do negotiating work. If there is no negotiation, the negotiators will be at a loss as to what to do with their time.

Immediately after the Geneva talks collapsed, many Ministers who were present were downbeat as to the prospects of the Doha Round ever concluding. They indicated that the United States' presidential elections campaign would make it impossible for any new serious negotiations to take place now, and it will be a year into the new President's term before the US can meaningfully engage again.

By that time, many of the other key players may also no longer be in office, and the new Commerce Ministers and their leaders may not be committed to the basic elements in the emerging package of agriculture, non-agricultural market access (NAMA) and services that have been worked out by their predecessors. When the negotiations resume in earnest, in one or two years' time, some of the aspects already agreed to may no longer be acceptable or so acceptable. The Doha deal may unravel beyond repair, according to this view.

In the days immediately following the failure, many WTO members called for the preservation of the agreements already made, and for some technical work to be resumed in September, as a prelude to creating the conditions for another Mini-Ministerial that could perhaps still complete the "modalities" for agriculture and NAMA before the end of the year.

There is now a desperate attempt to salvage the Doha Round from complete ruin. If the modalities (not the whole deal, which is now impossible) can be agreed to by all before year's end, then whoever is elected to the US Presidency and the US Congress will face tremendous pressure to endorse these, since going against the multilateral consensus would throw such a bad light on the new administration and Congress. And if the WTO modalities are incompatible with, for example, the 2008 Farm Bill, then the US would amend this bill to make it Doha-compatible.

So the argument goes. Others, however, believe that it is wishing for too much to expect a new President and a new Congress to simply agree to amending a Farm Bill that took so much political effort to draw up. Nor would the powerful agriculture lobbies simply keep quiet and accept the loss of the benefits they managed to gain, just so that the new administration will keep to the word of the previous administration, with which it has many disagreements.

Thus, some long-time observers of the WTO scene believe that the Geneva collapse in July may prove to be the final end to the Doha Round's design.

But that too is not certain, for Doha has survived many a collapse before (Cancun in 2003, the mini-Ministerial in Geneva in 2006, the G4 Potsdam meeting in 2007), only to rise again towards a new stage in the formulation of the modalities.

In August, WTO Director-General Pascal Lamy visited India and the United States in a bid to get political leaders in these countries to try one more time to reach an agreement on the unresolved issues that prevented a deal in Geneva. Others, notably President Lula of Brazil, also actively pursued a quick revival of the talks. These efforts have led to this week's resumption.

The new September negotiations will face a really uphill battle, given the many issues that are unresolved, and the many complex factors that led to the collapse. These issues and factors remain, and it is hard to envision how they can now be disentangled in so short a time.

The collapse of the July talks had many sources. The process was one factor. In the tradition of the WTO, the configuration of players and participants of the drama was ever fluid and ever changing, causing not only confusion and instability but also great frustration.

It was a roller-coaster experience of nine days. Only 30-40 Ministers (of an organization of 152 members) were invited to the so-called "Green Room" meetings. Until today, there is no publicly available list of which countries were in the Green Room, nor the criteria for their selection, nor how they were invited (by letter, or by phone call only?) or by who.

All members were invited to the "informal Trade Negotiations Committee (TNC)" meetings each morning, where views could be aired. However, in the first two days, the real negotiations took place in the Green Room of 30-40 Ministers. But then, Lamy controversially created an inner group of seven members (the US, European Union, Brazil, India, China, Australia and Japan), which then hijacked the negotiations.

For many days the non-G7 Ministers were simply kept waiting in frustration. The mini-Ministerial of 30-40 delegations had become a "micro-Ministerial" of 7 Ministers plus WTO Director-General Pascal Lamy, as some diplomats put it.

Progress had been made on a number of issues, but on several of the key issues in agriculture and NAMA the talks had been stuck. A draft by Lamy on Friday 25 July to the G7 had a fragile status. While it was presented to the Green Room as having emerged from the G7, the ownership and authorship was always in doubt. Indian Commerce Minister Kamal Nath told a G33 meeting on 26 July that he had objected to the language on special safeguard mechanism (SSM) and was walking out of the G7 meeting when he was persuaded to stay so as to avoid the impression that the talks had failed.

It had always been understood that India had not agreed to the Lamy draft. Within a few days, it was also clear that China was not in agreement. The "breakthrough" of that draft was that Brazil, perhaps the leading advocate of concluding the modalities this week and the Round this year, was clearly backing it. The talk in the corridors (and in the press) was that it had "broken ranks" with India (its old G4 partner), and also with its Mercosur partner Argentina (known to be a major critic of the NAMA text).

Meanwhile, frustration was building up among the 30-plus non-G7 Ministers who were specially invited by Lamy to the Green Room, only to find themselves waiting for days in the wayside, while the G7 kept meeting at odd hours of the day and night, and with hardly a trickle of news on what was happening.

Many of the Ministers complained strongly at a TNC meeting that they had been invited to Geneva to do important work, only to be "kept in the dark" in the waiting room. Several Ministers left, with one complaining that "I have a government to run back home." The meeting could not continue indefinitely. Thus, while progress was reportedly made on some issues, there were still too many unresolved after nine days. The Geneva week, which had extended into three extra days, collapsed under its own weight.

When the end came, the major developed-country players, especially the US, pinpointed Special Safeguard Mechanism (SSM) in agriculture as the sticking point of the entire negotiations. This is a new safeguard that a majority of the developing countries, led by the G33, had advocated to allow them to raise tariffs above the bound levels in the event that the volume of imports rise above a certain level, or if the prices of imports fall below a certain level.

The SSM was seen by the developing countries as essential to protect their food security and farmers' livelihoods from import surges that in the past had already damaged the local agriculture sector as local products ranging from tomato and onion to rice and chicken lost out to cheaper imports. What was more galling was that many of the imports are artificially cheapened by the huge agricultural subsidies granted by developed countries.

Under the normal safeguard (the WTO's Agreement on Safeguards), a country has to prove serious injury or threat of serious injury before it is allowed to take action (raise the tariff above the bound level). For agriculture, this is inappropriate; once damage is done, it is difficult to get farming going again, unlike industry. Thus, the need for a special safeguard, where action can be taken before there is serious damage.

There is already a special agriculture safeguard (SSG) set up in the Uruguay Round, but it is mainly used by developed countries as the condition is that it can be used only for products that underwent a "tariffication process" in that Round. The developing countries wanted the use of a special safeguard to be extended to them, through the SSM.

While all the WTO members have agreed to the principle of the SSM, most developed countries led by the US and Australia and a few agricultural-exporting developing countries have been fighting the G33 on the terms of the SSM. The former want to impose stringent conditions for the trigger (the degree to which prices or volumes change before the SSM can be used) and the remedy (the extent to which duties can be raised), so stringent as to make the instrument ineffective.

The call by the G33 was thus for an "effective SSM", with fair rather than absurd conditions. The G33 proposed a set of triggers and ranges of tariff increases above the bound rates. In their latest compromise, they were even willing to set limits to the degree to which the extra tariff could exceed the bound levels of the previous Round (i. e. the Uruguay Round, or the levels when countries like China acceded to the WTO).

The US Trade Representative Susan Schwab tried to take the high ground by proclaiming that it was preserving the past 5, 10, 30 years' gains of the trading system from the protectionists led by India and China which it accused of wanting to hike up agricultural tariffs above what they had already agreed to in the Uruguay Round.

It was part of a concerted attempt by the US to shift the blame of any collapse onto India and China, by portraying them as selfishly seeking new protectionist devices. Its unexpected and strong attack especially on China on Monday 28 July morning at the informal TNC meeting gave an inkling to some observers that the US did not want a deal, and was already preparing the ground to shift blame from itself.

Insiders from India and China at the G7 meeting were surprised at the tenacity of Schwab in insisting on an extra trigger if a country wanted to impose a duty that went beyond the rate of the Uruguay Round. This would make it much more difficult to use the SSM. In the text on modalities of the Chair of the agriculture negotiations (issued 10 July), there is no such extra trigger; only the normal triggers would apply. Besides, the US wanted this extra trigger to be set at an unreasonably high level of 150% (of the base import volume) before the SSM could be allowed to raise duties above the pre-Doha bound levels.

To cater to the US, Lamy in his 25 July draft proposed an extra trigger, to be set at
140%. This was rejected by India, China and the G33 (and several other supporting groups of developing countries) as being far too high and indeed absurd as it would render the SSM toothless and useless in all but name. The normal safeguard (the Agreement on Safeguards) and the existing SSG (special agricultural safeguard) do not impose any such restrictive condition that the bound levels of the previous Round cannot be exceeded, or that there must be a specially high trigger in case they are exceeded.

Lamy tried to break the SSM deadlock in the G7 (between US-Australia and India-China) by proposing a new set of principles, which threw out the SSM model and replaced it with what seemed similar to the normal safeguard (the existing WTO Agreement on Safeguards).

The Lamy text required "demonstrable harm" to food security, livelihoods and rural development before the SSM could be used, which undermined the rationale of a special safeguard (that action can be taken before serious harm occurs). Its fast-track binding dispute procedure of 60 days also makes the new SSM far less attractive than the usual dispute system (which would take much longer than 60 days to complete) under which the normal safeguard operates.

Despite these major negative elements, the Indian Commerce Minister Kamal Nath told the media that he had accepted the Lamy text (at least as the basis for negotiations), but that the US had rejected it. The next morning (29 July), officials of the G7 laboured for three hours to produce an alternative SSM model, which they agreed to, and presented to the G7 Ministers. According to Nath, it was Schwab again who rejected the new draft. That final rejection by the US sank the talks.

Many Ministers, officials and diplomats have been speculating that the SSM was not the real issue that was irreconcilable. In the most widespread view, the US really did not want to face the cotton issue, which was the next item on the G7 agenda once SSM was settled. Since the US had agreed to cut its overall trade distorting support by 70%, it would have to agree to reduce cotton subsidies by more than that as the mandate is that these subsidies be cut more deeply and faster than the normal or the average rate.

The 2008 US Farm Bill having planned that cotton subsidies be maintained or increased in the next five years, it would have been difficult politically or diplomatically for Schwab to offer a plus-70% cotton subsidy cut.

The failure of the Geneva talks would then have been placed squarely on the United States, and it would really have been seen as a villain protecting the wealth of a few thousand cotton farms while millions of African cotton farmers would continue to languish in poverty under the continuing unfair rules of the trading system epitomized by the US Farm Bill.

This suspicion that the US wanted to avoid the cotton embarrassment is the backdrop to the comments made by several Ministers of developing countries in their press conferences that SSM could not have been the real cause of the talks breaking down, but rather the scapegoat picked on by a major player in an attempt to shift the blame on to another issue and on other countries.

After all, despite Schwab's portrayal of the protectionist potential of the SSM, the US itself is a frequent user of the existing special agricultural safeguard (SSG) on which the G33's SSM proposal is based. WTO data show that in the 8 years from 1995 to 2002, the US invoked the SSG on a total of 396 tariff lines.

The EC in the same period used the SSG on 296 tariff lines. Fewer than 30 developing countries qualify to use the SSG and they hardly make use of this facility. Neither India nor China are eligible to use the SSG.

On top of this, the US has also used the normal safeguard, for example, on textiles imports. When the USTR chastised India and China for wanting to use the SSM to protect their farmers, it was a case of the pot calling the kettle (or rather the potential future kettle, since the SSM does not even exist yet) black. As the Indonesian Trade Minister Mari Pangestu, coordinator of the G33, put it: "It is like accusing us of a crime that we did not commit."

(* This is the first part of a two-part article analysing the issues and factors that led to the failure of the "Mini-Ministerial" Doha talks at the WTO at the end of July. The second part will appear in the next issue of SUNS.) +