The Hong Kong WTO Ministerial: the ingredients are there, but will world leaders find the political will to combine them?
David Kernohan
Next week’s WTO ministerial in Hong Kong is likely to mark a difficult stage in EU trade diplomacy. The most recent multilateral trade round, the Uruguay Round, concluded in 1994 and took eight years to negotiate. Importantly the Uruguay round set the scene for the present extension of interest to the developing world, since it cut rich country agriculture tariffs for the first time (by 36%, a figure that holds to this day).
Now eleven years later the WTO is attempting to conclude the most ambitious round yet. The Doha Development Round is specifically designed to help poor countries, but unfortunately it is not going too well.
Most noticeably, the recent mood of the EU & US leadership is less cohesive and contrasts with the joint action that motivated the round in the early stages. More troubling still is the fact that, despite the enormous progress in the ‘offers’ on the table from the EU & US at the WTO’s offices in Geneva, the developing world is expressing differing levels of enthusiasm for achieving an agreement.
In some ways this is inevitable, the biggest developing countries gain little from anything but total dismantling of rich country agriculture – and must give such countries reciprocal access to their fledgling markets for manufacture goods in return. Meanwhile the poorest countries are too small to profit from any expanded agricultural opportunities – and cannot even take full advantage of the preferential treatment they already get under schemes such as the EU’s ‘everything but arms’. Worse still, the smallest LDCs may lose out even amongst themselves as their valuable preferences are ‘eroded’ in value when other countries gain similar levels of rich country access via reduced protection offered to all under the WTO.
Fortunately there are a few reasons for remaining optimistic. First the WTO negotiations are far from being just about agriculture, which is of diminishing importance as countries evolve. Yet agriculture often appears the key to achieving broad agreement, since all the WTO packages (such as agriculture, merchandise trade, services etc) must be agreed jointly by all WTO parties in a so-called ‘single undertaking’.
Second, any gains from a deal – while in absolute terms always tilted in the rich countries direction because they are so large – benefit the small liberalizing country far more in relative terms. Of the estimated $44 bn world gain from increased market access around one quarter would go to developing countries, which account for only one sixth of world GDP.
So some way should be found to persuade these vulnerable countries that a ‘headline’ deal in agriculture will not make them worse off. Already proposed are an adjustment assistance programme to assist LDC workers who lose jobs due to import competition, and an ‘aid for trade’ programme to provide funds for those who fear that tariff liberalisation under Doha would erode the value of their existing preferences. So the outlines of a deal that would close the Doha round are now discernible.
Better still, it is finally being acknowledge that another failure at Hong Kong might lose for ever the developing world’s best vehicle for advancement. For in the absence of multilateralism there will not be a vacuum but a rapid acceleration of bilateral and regional deals in which the strong prevail outside the collegiality of the WTO.
Fortunately the historical perspective suggests that severe pessimism is not warranted. In agriculture for example, the widespread condemnation of rich-country subsidies as running at ‘$1bn a day’ and ‘causing overproduction’ is an exaggeration that only makes the task of actually reducing subsidies more difficult.
For here the fair assessment should be that EU and US are making dramatic progress. In fact, when one omits the subsidies that are ‘decoupled’ from production and trade, the ‘coupled’ subsidies that distort production and trade are less than $100bn (€85bn). Within these, the export subsidies are in the range of $3bn-$5bn annually and both the EU and US are now prepared to negotiated their abolition. The argument has now moved on to tackling the ‘coupled’ subsidies.
The EU, which spends more on farm support than the US (albeit deemed less trade distorting) is presently only committed to cuts in domestic subsidies of 70 per cent and only on items believed to be trade distorting, while also offering a 60 per cent cut in agricultural tariffs. Meanwhile, the US is asking the EU for an 83 percent cut in domestic farm support, taking into account the higher base of domestic subsidy in the EU.
In return the US proposals now offer a 60% reduction in their domestic farm support for trade distorting payments and are offering a 90 per cent cut in tariffs. This former will require significant reform of the US Farm Bill due in 2007, while the EU proposals are made on the basis of an actual CAP reform package made last year. Nevertheless, these positions are far from being irreconcilable and the concessions presently on offer by US/EU would have been completely unimaginable two or three years ago.
It must also be said, however, that the bigger developing countries such as India and Brazil have tariffs on manufactures that are significantly higher than the OECD average. Brazil has already indicated willingness to put cuts on the table and India appears likely to follow.
In addition big, efficient food producers such as Brazil and Mexico should be willing to support a deal that cuts their own high agricultural tariffs in return for long-desired access to the US market, in return for ‘sectoral reciprocity’ for US farmers to export to them.
It remains to be seen if the political will exists to assemble the ingredients of a round in Hong Kong later this month, sufficient at least to set out a path towards a final WTO deal by the end of 2006 or early 2007.
An edited version of this commentary was first published in the European Voice.
Dieser Beitrag erscheint mit freundlicher Genehmigung des CEPS.
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