Hope at last over Doha Round of trade talks financial scene

MAKE-OR-BREAK: World Trade Organization Director-General Pascal Lamy of France arriving in Geneva, Switzerland, for the WTO ministerial summit on trade liberalisation last week.

MAKE-OR-BREAK: World Trade Organization Director-General Pascal Lamy of France arriving in Geneva, Switzerland, for the WTO ministerial summit on trade liberalisation last week.   | Photo Credit: — PHOTO: AP

The outcome depends as much on politics as on economic considerations

The Doha round of trade talks has lurched from hope to despair and back to reasonable optimism. Only over the next few days we will know if there will be a fair deal.

Trade talks, even if they involve all major trading countries and are convened specifically to achieve a breakthrough after seven long years of logjam, seldom excite lay people in the same way a trust vote to re-establish a government’s credentials does. It is, therefore, not surprising that last week’s meeting at the WTO headquarters of some 40 trade ministers and officials hardly elicited the kind of media attention it deserves.

After all, the meeting was intended to be a make-or-break effort whose outcome would have far reaching repercussions on global trade. These are not something far removed from our day-to-day life.

For a number of well-known reasons — the main one being, both the rich and the developing countries are not willing to climb down from their entrenched positions — the Doha round talks, culminating in last week’s make-or-break efforts in Geneva, seemed doomed. Even after five days of intense discussions, the deadlock could not be resolved. However, on Friday, a compromise deal seemed possible.

Compromise proposal

According to reports, representatives from the U.S., the E.U., Australia, Brazil, India, China and Japan worked out the compromise after a marathon meeting. The proposed settlement calls for cutting limits of European farm subsidies by 80 per cent and U.S. payments by 70 per cent to around $14.5 billion. While further details are awaited, it looks as though the U.S. need not reduce the amount it spent on its farmers. Last year, it was $9 billion.

The compromise proposal also involves cuts in tariffs on agricultural and industrial products. Developing countries including India will be able to protect their strategic industries and sensitive products. If the trade pact does go through, and it is still a big if, it will be a big step forward for trade liberalisation. Interestingly, the global economy was reeling under great uncertainty when the Doha round was launched way back in November 2001. The context in which the trade talks were launched then is significant. There were enormous tensions in the wake of the terrorist attacks on the U.S. The dotcom bubble had burst. With admirable boldness the negotiators launched the round with the objective of liberalising world trade.

Almost seven years later, there is a pressing need for a pact that will help achieve those objectives. Global trade and the global economy will be much better off with a definitive pact backed by rules. The global economy has been slowing down recently. There is a resurgence of inflation everywhere. Protectionist sentiment is on the rise in the U.S. where the looming presidential elections create further uncertainty. A new president may be much less eager for a trade deal. If there were so many desirable outcomes to be had, why have the talks progressed so little until now? The Doha round has lurched from hope to despair and back to some reasonable optimism. There have been occasions, as for instance after the abrupt termination of the Cancun ministerial meeting in 2003, when the talks appeared doomed. However, all WTO members have consistently espoused multilateralism, even if that meant for most merely continuing with the talks.

Countries such as India have complained that the development aspects had been ignored. Specifically, trade in agricultural products and non-agricultural market access (NAMA) have been contentious issues right from the beginning. Broadly speaking, from the developing countries point of view, the U.S. and the E.U. have been slow or reluctant to reduce trade distorting subsidies and tariffs in agriculture. In NAMA, developing countries are expected to open their markets even wider to imports from the rich countries. India’s position on special safeguards has also come under criticism for being too ambitious.

Of course, trade negotiations are never as simplistic as the above may sound. The negotiators have to reckon with a number of extraneous factors. But it is the lack of consensus over agriculture and NAMA that had prevented a breakthrough. Over the past one year or so trade officials have helped narrow the differences. But there were still differences.

A new anti-concentration rule, which purports to prevent an entire sector from being shielded from tariff cuts, has understandably met with resistance from developing countries. The developed countries are also keen on clarifying whether any of the developing countries’ special products can be completely exempt from tariff cuts.

So in focus is the special safeguards mechanism to deal with import surge or price slump. It is likely that the complexity of these discussions has automatically ruled out a wider audience participation even in the core debates. Trade liberalisation, one may understand, but the terminologies can baffle all except the seasoned negotiators. Besides, even a successful outcome will result in a framework agreement — a consensus over cuts in allowable subsidies to farmers and lower tariff ceilings for both farm and industrial products. Individual countries will have to take it from there: the agreement’s basic formulae will have to be converted into tariff schedules for thousands of products. Trade negotiations on other areas such as services will have to be given their due importance.

A third reason why the talks have not progressed might have to do with the simple fact that there is often a considerable lag before the benefits of trade liberalisation are seen. The agreed tariff cuts, for instance, will come into effect after considerable delay. Trade negotiators who championed the deal are unlikely to be on the scene when the liberalised regime kicks in. More immediately, they and their governments will face flak from the local parties directly affected.

The outcome of talks such as the Doha round depends as much on politics as on economic considerations. That is especially true after last week’s talks at Geneva.

Recommended for you