Global Trends by Martin Khor

Monday 1 October 2007

Conflicting signs on WTO talks

Last week, there were conflicting signals as to whether the World Trade Organisation’s negotiations will revive or continue to decline.  The US government is making some positive noises, but the US Congress is not keen for a deal.

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Will the World Trade Organisation’s troubled Doha Round suddenly kick back into life, or go on to a new impasse and a possible slow death?

It’s still difficult to predict, and the next few weeks should clarify the situation.

Last week, mixed signals were coming from the United States, the WTO’s biggest member, on which the Round hinges.

On one hand is the optimism emanating from a New York meeting between the Presidents of the United States and Brazil. On the other hand is the pessimistic view arising from how Congress leaders view the Doha Round.

Brazil’s President Lula and the United States’ President Bush came out beaming from their meeting on the sidelines of the United Nations General Assembly.

Bush said:  "We had a good discussion on Doha, a shared commitment to a successful round of trade talks.  I assured the (Brazilian) president that the United States would show flexibility, particularly on our agricultural differences, in order to help achieve a breakthrough.”

Lula said positive news on the world trade talks could be announced in the next few days. "On the Doha round, Brazil is willing to do whatever is necessary so that we reach agreement," he said.

And Brazil’s Foreign Minister Celso Amorim told the press that Bush confirmed the US was ready to cut its maximum trade-distorting agricultural subsidies to between $13 billion and $16.5 billion a year.

Amorim said this is enough to encourage us to deeply engage in negotiations, but added that an agreement would require subsidies to be cut to closer to $13 billion.  

However the US demands a high price for its apparent offer.   It wants the developing countries to open their markets wide in agricultural and industrial goods, as well as in services, otherwise there is no deal.

Most developing countries don’t mind making some commitments, even significant ones, but not to the extent the US and other developed countries are demanding of them.

If their industrial tariffs are cut to the bone (for example to 5 to 15 per cent), they fear their local firms will not survive the competition from cheap imports.  Nor will their farmers escape revenue losses when imports intrude into their market.

The US Trade Representative Susan Schwab has already signaled a “blame game” should the talks fail.  She has pointed a finger at countries like Brazil, India, South Africa as “spoilers” who won’t agree to the steep tariff cuts the US is demanding.

Some diplomats think Schwab’s aggressive stance is due to the difficulty she has in delivering, because at the end it is Congress that adopts trade deals. 

The US President has lost his fast-track trade authority, and the Democrat-controlled House and Senate are not in a mood to approve trade deals.

In an article titled “Doha success needs new US president”, the Financial Times said there is skepticism in Washington about a breakthrough in the Doha talks.

Success in global trade negotiations will most likely have to wait until a new president is in the White House, according to senior Congress members interviewed by the FT.

Charles Rangel, the chair of the House ways and means committee, which regulates foreign trade, said:  "At this point in time I don't think we have to deal with Doha, unfortunately…I think President Clinton is going to have to deal with it."  (He was referring to the Democrat presidential hopeful, Hillary Clinton). 

Underscoring the difficulties that the US Congress will pose for the Doha negotiations is a letter that ten Senators (seven Republicans and three Democrats) have sent to Schwab asking her to oppose the text on cotton in a draft deal on agriculture before the WTO.

The text wants US subsidies on cotton to be cut deeper than on other products, because of the campaign by African farmers to get a fair deal for their cotton.   But the Senators want to continue high protection for US cotton growers. The Senators threatened to reject the whole Doha deal if the cotton text remains.

Cotton is a highly emotional issue of high priority, especially with African delegations. Thus, a move to change the text may cause a lot of dissatisfaction.

In the next two weeks, how the talks go at the WTO will clarify if a deal is possible at the end of this year.  If not, the negotiations may shift to “slow motion” until a new US President, with a new trade mandate, enters.