European Affairs

Edit

WTO: Caught In a Minefield?     Print Email
François Clemenceau

François ClemenceauIt has been 12 years since that the GATT (General Agreement on Tariffs and Trade) was replaced by the World Trade Organization. The change that can now be seen as a milestone marking the end of what can now be seen as an era— perhaps the good old days—in the modern history of international negotiations to liberalize trade. The GATT framework dated from the post-World War II Bretton Woods agreement to reduce barriers to international trade as part of a larger plan for economic recovery. It was an agreement, not an organization and its history can be viewed as three periods: initially, it focused on commodities and freezing existing tariff levels, then on reducing tariffs and finally, in a phase that consisted only of the Uruguay Round from 1986 to 1994, it extended the agreement fully to new areas such as intellectual property, services, capital and agriculture. Out of this successful round the WTO was born out of a feeling that it was now time to institutionalize trade negotiations in an organization.

 

The shift was seen as a mark of progress, but since the WTO’s inception in 1995, trade talks have been marked by a series of negotiating stalemates that summit meetings have failed to resolve. This dismal record is partly to blame on the determination of nations and blocs to pursue their national and sectoral interests at the expense of a larger agreement designed to generate more wealth that can help float everyone’s boats. But part of the blame falls on technical problems in the new negotiating mechanisms, mainly the emergence (and often untimely convergence) of so many deadlines imposed by institutional calendars. Looking back, we can see that the Uruguay Round was a cakewalk compared to the obstacle-course facing trade negotiators today. Back then in the 1990s, concessions and deals required tooth and nail bargaining, but the process finally produced a successful accord after eight years. The current Doha round has proved even tougher, hampered by its own built-in timescale. Right now, no one can be confident that the process this time will be crowned with success.

In 2001, when WTO officials and member states launched the Doha round of trade talks (and simultaneously the Doha development agenda), they gave themselves a deadline of three years in which to reach an accord. The central objective was to take further steps in liberalizing global trade on terms that would avoid doing any damage to the prospects of poor nations with “emerging economies.” In practice, this meant putting agricultural issues at the heart of the agenda because of the importance of farming in the economies of the least developed countries and of key developing countries. The prime objective was to open the markets of the rich countries (the North) to agricultural exports from the poor nations (the South) and, as part of the deal, start phasing out the export subsidies and domestic price supports for farmers in the rich countries—essentially, the European Union, the United States and Japan.

In negotiations of this nature, it is often appropriate at the outset to set the bar for success very high. But in this case, it seems clear that this approach was too ambitious about its goals. People failed to look ahead at the context in which a deal would have to be found. If they had, it would have been easy to see that, sooner or later, the bloc of developing nations would adopt an assertive posture in pursuing their own claims and using power plays based on their shifting alliances to upset the chances of consensus. And, indeed, starting at the follow-up Cancun summit conference in 2003 the rich countries found themselves confronting a revolt by the Group of 22 nations, led by Brazil.

Despite this stand-off, a substantial breakthrough emerged two years later at the Hong Kong summit meeting, where governments agreed to eliminate all agricultural subsidies by 2013. The accord stipulated that negotiators would work out the practical modalities of this process by 2006—a deadline that passed without agreement on how to implement the idea. The farm dossier is a prime example of the adage about the devil lurking in the details. As negotiators worked on the specifics—product by product, lobby by lobby, country by country—the growing list of deadlocks, the instances of political arm-twisting and even some instances of extreme demands that seemed to be acts of provocation poisoned the climate. Many people succumbed to an acrimonious general impression— which was wrong in many respects—that somehow the EU and the U.S. were blocking the bargaining process because they put their own narrow nationally-conceived national interests, and sometimes electoral interests, above any other consideration.

As far as the EU is concerned as an actor in the negotiations, a key difficulty about bargaining flexibility lies in the fact that each of the 27 member states has given its mandate to the EU trade commissioner, Peter Mandelson, to negotiate on behalf of itself and the other 26 countries. Once it has been formulated, the mandate cannot be modified unless all 27 member states agree to the change and new instructions. Naturally, there are strong divergences within the ranks of the 27 between countries with big national agricultures (e.g. France, Spain, Germany) and countries whose economies are centered more on manufactured goods or services (e.g. Britain or Italy). Their interests have to be reconciled with the needs and legitimate ambitions of new member states from the former Soviet-run bloc in Eastern Europe (e.g. Poland, the Czech Republic) whose economies are still weakly developed.

Throughout the international trade talks during the last few decades, the Common Agricultural Policy (and France’s high-profile role in championing it) has been a prime complaint voiced by the EU’s rivals in the negotiation. In turn, most European governments single out U.S. farm support programs and export subsidies for the farm lobby practiced by successive administrations as the main sticking point preventing an overall agreement. Obviously, the truth lies somewhere between these opposing views. Ominously, however, the Doha round has reached an impasse where both the heavyweight players seem to feel they have passed a point of no-return in the sense that each side feels it has made all the concessions and new offers that it can afford.

The EU maintains that it has agreed to cut its trade-distorting subsidies by 70 percent and, under certain conditions, it is ready to lower its highest customs duties by 60 percent. EU officials point to the strong reduction in market-support payments to its farming sector: amounting to 90 percent of the EU agricultural budget in 1993, today the figure has dropped to nine percent. And the negotiators from Brussels tirelessly remind people about another major fact: the EU imports six times more farm products from Brazil than the U.S. does. The EU alone absorbs 85 percent of all African agricultural exports—more than the total amount of such products imported by the G-8 countries, Australia and New Zealand combined. The EU negotiators buttress their case by reiterating that since 2002 the Bush administration and Congress have channeled between $10 billion and $20 billion a year in agricultural subsidies to American farmers. Current announcements of U.S. determination to stay below a ceiling of $22.5 billion are derided by European officials as “completely un-serious.”

Another of the many obstacles at this point is timing. The three year deadline set in the initial calendar was obviously too short and misjudged as a way of getting a quick success. In the period since—a sense of deadlock was recognized all around in 2006—two main theories have been circulating among governments.

One view is that the WTO needs to strengthen its credibility among countries that are part of the organization and with the growing list of other countries that want to join it and that, for this reason, the WTO absolutely must be able to show evidence of a breakthrough that promises very tangible benefits in a foreseeable future. In this camp, people constantly refer to the fact that the Bush administration’s negotiator, Susan Schwab, the United States Trade Representative, only has a few months left (until July 1) to continue operating under “fast-track” negotiating authority. (That arrangement, delegated by Congress, allows the President to negotiate agreements that Congress can approve or disapprove but cannot amend or filibuster to delay passage of the deal.) As the Wall Street Journal recently reported, the administration knows that “showing even modest progress on Doha could give the Democrat controlled Congress reason to renew the president’s trade-negotiating authority.” Otherwise, any new extension of the fast-track authority by the new Congress with a majority from the Democratic Party might include the imposition of a changed mandate for the U.S. negotiating approach. Pressure for a quick deal is also coming from another calendar date, September 30, when the Trade Adjustment Act runs out. This legislation provides aid for workers whose jobs have been impacted by trade—for example, financial assistance for farm workers laid off because of trade-liberalization agreements. And, of course, the Bush administration seems eager to kick-start prospects for a trade breakthrough to help burnish the presidential record before the present incumbent has to leave the White House in 18 months. As the Irish Examiner has reported:

 

Any thoughts that having the Democrats in control in the U.S. would favour Europe in the Doha WTO negotiations have been quickly shattered.

The party is putting more emphasis on labour and environmental standards in bi-lateral agreements.

“If they put them into Doha they will run into difficulties as new matter on labour standards was excluded at the beginning of the Doha round. It would involve going back to first base in the negotiations and this is not viable,” John Bruton told the [Irish] Institute of European Affairs in Brussels.

Other experts acknowledge that the U.S. is insisting on labour standards being part of their bi-lateral trade deals with other countries.

Europe’s best chance to conclude the Doha round depends on U.S. President George Bush retaining his mandate that gives him a free hand to negotiate on trade, and allows the Senate to only agree or disagree with the final outcome.

The EU side seems to be under fewer time constraints. Of course, France is having its presidential election in the late spring this year. After that date, if there is no quick deal, another event will loom on the horizon—the overall review of the CAP scheduled for 2008. With further slippage in the Doha process, some EU countries may be tempted to wait for the review process in hopes of using it to seek even more radical changes in the agricultural pillar of EU policy.

With all these obstacles accumulating around the prospects for the Doha round, a second theory has emerged about how to proceed, this one among the pessimists. In this view, so many complex political and even legal deadlines are piling up for the camps on both sides of the Atlantic that it is unrealistic to expect a breakthrough until some major shifts have worked their way through and changed the overall outlook for the better. Of course, just focusing on the Transatlantic couple is artificial and misleading: other players—Japan, emerging powers such as Australia and India, the least-developed countries in Africa that have created a bloc of their own—will continue making their voices heard in pressing for progress on trade.

These gloomy prospects have galvanized leading governments—and certainly the U.S. and the EU—into a last minute bid for a breakthrough before it is too late. But the American side presents major unanswered questions with the shift in the control of Congress.

In the European camp, one person in the hot seat is Peter Mandelson, the EU Trade Commissioner, who has the lead in the EU’s negotiating strategy. His relations with the French government have become strained since January when French officials (along with officials from some other EU countries) accused him of “going too far on his personal authority” in publicly hinting at EU readiness to make deeper concessions (notably on farm tariffs) than the levels set by EU governments in his negotiating mandate.

Another person feeling the heat is Pascal Lamy, a former French high civil servant who became Director-General of the WTO in 2005. As WTO head, Lamy has the unique asset of having already been in Mandelson’s shoes as a previous Trade Commissioner for the European Commission. So he is perfectly familiar with the EU negotiator’s need for room to maneuver as he juggles the pressures and incentives constantly deluging Brussels from national capitals.

But even Lamy himself faces a deadline: his current term expires in 2009.

Given the rate the WTO clock is ticking these days, that date sounds like tomorrow.

 

This article was published in European Affairs: Volume number 8, Issue number 1 in the Spring of 2007.