Global Trends by Martin Khor

Monday 20 November 2006

“Soft re-opening” in WTO talks

After a dramatic suspension of the World Trade Organisation’s negotiations, a decision was made last week to have a soft re-opening of the trade talks, in the hope that the United States, after its mid-term elections, will now be able to make a fresh offer for cutting its farm subsidies.  But there are also increasing signs that the new Democrat-controlled Congress will be more protectionist and make trade deals more difficult.

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Negotiations at the World Trade Organisation are set to start again after almost four months of "suspension", and a new flurry of activities can be expected in the next few weeks.

A WTO meeting in Geneva last week decided on something like a  “soft re-opening” of the trade talks, after a long break since the end of July when the talks broke down.

The summit meeting of APEC in Vietnam could add to the impetus, as political leaders call for a swift resumption and conclusion of the WTO’s Doha Round.

The new action is prompted by the conclusion of the mid-term elections in the United States.  Before that, the talks were “frozen” because the US trade diplomats were unable to give a better offer to reduce the ceilings of the massive American farm subsidies.

The Bush administration did not want to alienate voters in states where agriculture is significant, and thus the US could not participate seriously at the WTO.

With the elections out of the way, the US can now show its hand.  Some press reports say the US has a plan that offers to cut its allowed trade-distorting subsidies to US$18 billion, compared to the US$23 billion it offered last October.

But the US Trade Representative Susan Schwab strenuously denied that it was making this  offer.  She reiterated the old US line that others have to do much more (in opening their agricultural and industrial markets) before the US moves an inch.

While there have been optimistic smoke signals now that the US elections are over, there have also been pessimistic signals, perhaps even more.

The Democrats have captured both houses in Congress, and many of the new members of Congress ran on a ticket of anti trade liberalization.

The Democrats correctly perceive that the public mood in the United States is swinging against liberalization, as the trade deficit climbs to new heights and as millions of manufacturing jobs are lost to imports and companies shifting abroad.

Rightly or wrongly (and mostly wrongly) the public increasingly blames trade for taking away American jobs.  The Democrats, looking towards the 2008 Presidential elections, is moving with this tide of public opinion.

A sign of protectionist times ahead was last week’s refusal by the US Congress to approve of a bilateral trade deal between the US and Vietnam.

Thus, most analysts are of the view that it will be even more difficult for the US to make better  

offers in the WTO, or to have bilateral free trade agreements (such as the ones being negotiated with Malaysia and Korea) until after the 2008 Presidential elections.

Most analysts believe the Democrats are not in a mood to give President Bush a new fast track authority after the present one expires at the end of June.  Without that, other countries will not have confidence that what his administration agrees to in negotiations will be passed by Congress, and this will effectively put a stop to trade talks.

Referring indirectly to this, President Bush, in Singapore en route to the APEC Summit in Vietnam, pledged that the United States would reject protectionist calls.  But more people are wondering if he has the power to stem the expected moves by the Democrats to put the pressure against any free-trade initiatives Bush may come up with. 

While this pessimism swirls around the trade arena, the WTO members are planning to put the theories about American politics to the test have a last go at revitalizing the Doha Round.

There is a sense of urgency to finish off at least key elements of a WTO deal by around March next year, in an attempt to persuade the US Congress to approve a deal by June, or to give Bush a new short-period fast-track authority.

At a WTO meeting last Thursday, WTO Director General Pascal Lamy said “we are somewhere between the quiet diplomacy of the last months and the fully-fledged negotiations which will only come when members are ready to put numbers to the flexibilities they have already expressed.”

The negotiating groups on various topics (including agriculture, market access for industrial products, services, intellectual property) are now expected to hold meetings. 

Many developing countries stressed however that the resumed talks must remain faithful to development principles.

India said that the resumption can only be successful if it is unconditionally faithful to the development mandate of the Doha Round.

For India, the key issues are two-fold: "Firstly, how can we address the inequities of the past and the distortions of the past and present in a meaningful manner. Secondly, how can we provide the necessary space in the various negotiations to developing countries to enable them to pursue their development strategies as mandated by their people."

Bangladesh on behalf of the least developed countries said the renewed talks must be “inclusive”, a code for saying that small and poor countries should not be excluded from key meetings. It warned against a 'false start', saying that this will destroy the credibility of the multilateral trading system.

The United States said its recent elections do not change its strong commitment to a successful Doha Round.  It agreed that members are now somewhere between intensified quiet diplomacy and fully-fledged negotiations. It is important to get back to work.

Indonesia said that it supported the relaunch of negotiations and a “transparent and inclusive approach” (again a code for not conducting talks among only a few while keeping out most countries).

It added a strong warning that “There is also need to assure developing countries that the negotiations are not being designed to subvert their development interests.”

Thus, the WTO talks will resume in Geneva amidst caution and concerns of the developing countries, and continuing doubts on whether the United States can deliver anything better, especially on reducing its agricultural subsidies.