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WTO Odds Slim For Hong Kong Breakthrough

posted on December 9, 2005

The spin doctors are hard at work in advance of next week's World Trade Organization summit in Hong Kong. Representatives of each WTO nation have their own take on what's needed in a new global trade deal.

For U.S. farm interests, the goal at the summit is opening markets around the world without giving away too much at home. But in a forum that requires unanimous approval on any and all trade agreements, there may be too much self-interest to satisfy all the partners.

And while the potential for trillions of dollars in expanded trade is an enticing goal, the chances of realizing that potential are slim unless negotiators resolve the most pressing issue they'll face in Hong Kong ... farm trade. John Nichols has this preview.


WTO Odds Slim For Hong Kong Breakthrough

The intricacies of trying to negotiate a worldwide treaty on trade are ultra-complex, not to mention politically and economically sensitive. But hammering out a framework for a global trade pact is exactly what the 148 members of the World Trade Organization will try to do next week at a six-day ministerial summit in Hong Kong.

It's been an arduous process just to get to Hong Kong. The start of the so-called Doha Round of negotiations in 2001 brought high hopes that WTO members could boost the world's economy by knocking down trade barriers and opening access to foreign markets. Advocates of free trade said that, in turn, would help reduce world poverty and hunger.

Rob Portman, U.S. Trade Representative: "Even moreso than aid, trade has the potential to be able to lift millions of people out of poverty. It has the potential to be able to increase global economic growth. That's in the interest of all citizens, including those of the United States."

But repeated setbacks and disagreements over the past five years have scrapped all the original timetables ... and shattered any illusions about easily forging a universal trade policy.

At the center of the chaos is farm trade. Developing nations in the WTO, and there are a lot of them, want farm subsidies eliminated in wealthy nations like the United States. They claim the subsidies are trade-distorting because they allow cheap farm goods to flood the world market at the expense of their own non-subsidized commodities.

In exchange for eliminating farm subsidies, initial WTO proposals suggested the developing nations remove import tariffs and other trade barriers.

But the proposal proved too extreme. Powerful political voices on both sides of the economic divide objected ... and subsequent offers from the U.S. and the European Union to reduce, but not eliminate, farm subsidies, have been rejected.

Bob Stallman, President, American Farm Bureau Federation: "The main crux of the issue at this point is the tradeoffs between reducing trade-distorting domestic supports and having real economically meaningful market access for agricultural products."

The chief critics of the proposed subsidy cuts are located in a powerful new quarter. The negotiations have created new levels of partnership. The formation of the G20 is an example.

Spearheaded by the emerging economic powers of China, Brazil and India, the group includes five countries from Africa, six from Asia, and eight from Latin America. Though loosely classified as "developing nations," few members of the G20 could be regarded as underprivileged. The group's rallying point since its formation has been farm trade reform, which makes the G20 a formidable opponent to U.S. interests at the talks.

That was evident at the birthplace of the G20 in Cancun, Mexico. It was there in 2003 that WTO talks collapsed over disagreements on farm trade. Then-U.S. Trade Representative Robert Zoellick laid the blame for the collapse on trade meetings filled with too much "pontificating" and not enough "negotiating."

Robert Zoellick, United States Trade Representative: "Whether developed or developing, there were "can-do" countries here and there were "won't-do." The harsh rhetoric of the "won't-do" overwhelmed the concerted efforts of the "can-do."

Over the next two years, the rhetoric escalated. Individual disputes between the U.S. and Brazil over cotton subsidies ... and the U.S. and China over textiles played out both unilaterally and in front of formal WTO judgment panels.

U.S. efforts to jump start the Doha Round were stepped up this October with an offer to cut its most trade-distorting subsidies by 60 percent over the next five years. It also pledged to limit some of its less trade-distorting programs. But U.S. officials stressed the offer was NOT unilateral. It hinged on the European Union agreeing to cut its most trade-distorting subsidies by up to 83 percent ... and on rich and poor nations alike slashing tariffs to allow more access to foreign markets.

SLUG: Harvest

Just which U.S. programs would be cut under the proposal is open to debate. In WTO terminology, subsidies are identified by boxes that are given certain colors. Subsidy programs considered the most trade-distorting fall into the "amber box" and include all direct payments to farmers, marketing loan gains, loan deficiency payments, and some dairy subsidies.

U.S. trade officials hope to define counter-cyclical payments ... which allow aid to farmers when prices on some commodities fall below certain levels ... as a "blue box" subsidy. That's a category of payments considered by WTO to be less trade-distorting.

Together, the reductions in U.S. amber and blue box payouts would total 53 percent of current U.S. subsidies. The demanded cut in European subsidies from the same categories would be 75 percent.

A third category -- so-called "green box" programs of research and conservation subsidies -- would be unaffected, since they are not viewed by WTO as trade-distorting. In the U.S., green box programs include the Conservation Reserve Program and the Conservation Security Program.

European counter-offers on subsidy cuts have been derided as insufficient, but the EU is adamant it will go no further than its current proposal. To date, the EU has offered 70 percent cuts in trade-distorting farm and export subsidies ... and up to 23 percent reductions in agricultural tariffs.

Peter Corish, President, Australian National Farmers' Federation: "We look to the United States and European Union to show the necessary leadership in this vital part of the round. If we don't see substantial movement in the Hong Kong ministerial, the chances of success in this round are very limited."

To be sure, there's little optimism for success in Hong Kong, a must-win trade summit taking place 16 months behind schedule.

For Market To Market, I'm John Nichols.


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