The WTO – Faltering on Its Way to Success?

WASHINGTON: Headlines about last month’s breakdown in finishing the trade-liberalization talks known as the “Doha Round” offered a story line of failure. But rather than simply break up in disorder, the Geneva talks tentatively settled many long-blocked debates and clarified others.

In fact the talks could be failing their way to success.

To understand the WTO’s difficulty, one must examine three background issues: the legacy of past success, the current agenda and participants in the talks.

The past: The Doha Round is the newest in a series of trade negotiations dating back six decades. Between 1947 and 1998, a continuously growing set of members of the General Agreement on Tariffs and Trade, or GATT system, and its successor, the WTO, concluded 12 agreements. These agreements, plus dozens of “accessions” bringing countries like China, Saudi Arabia, Vietnam and Ukraine into the WTO, leave a remarkably open world. In 2005, the world’s tariff average was 3.3 percent of the $10.5 trillion in imports – while freight costs came to 6.2 percent. Overall, therefore, simple shipping and trucking costs are now almost twice as high as tariffs. And trade in some particular areas – natural resources like oil, wood and metal ore, or sophisticated technological products like computers and satellites – is almost completely free.

The agenda: The Doha Round’s job is to clear up the issues earlier agreements missed. For example, they mostly skipped textile and agricultural policies as too sensitive. This neglect, plus low participation by big developing countries in earlier rounds, means many of the Doha Round issues are priorities for the poor. With food and clothing tariffs especially high, success will mean most to farmers, textile-reliant developing countries and low-income shoppers in the rich world.

Reform of agricultural trade is considered the Round’s central pillar. Trade in farm products and food amounts to about 7 percent of world trade. But farm exports are the source of income for tens of millions of people – cotton-growers in the Sahel, Thais and Vietnamese in their sunny green rice-paddies, American wheat families on the plains and more. Reforming the high tariffs they face and reducing rich-country subsidies and quota limits is the top goal of big developing-nation exporters like Brazil and Thailand and a principal goal for Canada, Australia and some other rich countries. But farming remains the largest part of the economy for dozens of large lower-income countries which fear the disturbance created by opening up and is culturally central to places like France and Japan with their small, but influential farm lobbies.

Agriculture alone makes the Doha talks tough, and the other issues aren’t easy either. The other two pillars are manufacturing tariffs – usually now highest in labor-intensive businesses like clothing, and therefore sensitive – and services trade, a fast-growing field but arcane topic demanding very specialized knowledge. Beyond them are smaller bits of architecture with their own complexities, such as a trade-and-environment negotiation designed to eliminate resource-pillaging fishery subsidies.

The participants: Third, the difficulty of policy challenges is magnified by the fact that no negotiation can be finished until all WTO members agree. The group has 153 members, ranging from giants like China and the European Union to small island states like Tonga and Grenada to oil exporters, least-developed states, small high-tech entrepots and more. About 70 – roughly 40 rich countries and 30 larger developing countries – are fully engaged in the talks, making demands of others and fending off demands on themselves.

The remaining 80 members are very poor and small, exempted from requirement by virtue of deep poverty and a small share of trade, but hoping for relatively small concessions. Nepal needs duty-free treatment of carpets and shirts in India, China, Europe and the US. Small Sahelian states like Mali, Burkina Faso and Benin earn almost half their export money through cotton sales to textile-manufacturers in other developing countries. They hope the Doha talks will reduce subsidies to American and Chinese cotton farmers, and make it easier for them to compete.

A mostly open world, plus difficult issues and a large pack of negotiators, makes agreement difficult and posturing easy. Over last seven years, Indians and Brazilians happily bashed richer countries for subsidies and policies slanted against the poor, Americans and Europeans responded by criticizing large, fast-growing countries for attempting to avoid responsibility and hide among their small neighbors. Punctuated by breakdowns in Cancun in 2003, Hong Kong in 2005 and Potsdam in 2006, their debates achieved little.

This time the headlines are the same, but the storyline is different. WTO Director-General Pascal Lamy brought a list of 20 disputed issues to the meeting. Members found tentative solutions to 17. One was rich-country farm subsidies – the US subsidy limit, for example, would drop from $20 billion to $14.5 billion. Another, if a bit less firmly, was manufacturing tariffs, with formulas for tariff cuts generally and progress toward specific industrial “sectoral” agreements. Some smaller issues were settled as well. At his generally gloomy closing press conference, Lamy could accurately say that “across a wide range of problems which had remained intractable for years we have found solutions,” with the round 80 percent complete.

Even on issues where they could not agree, the delegates’ disagreements at least clarified a path forward. The 18th issue, which broke up the talks, is known as a “Special Safeguard Mechanism” for developing countries, or SSM. In concept, it’s a device to let low-income countries with large rural populations limit food imports when the volume suddenly rises. India’s Commerce Minister Kamal Nath is the most enthusiastic advocate of the concept, backed by China. Here, though the loudest arguments were between India and the US, the fissures are not between rich and poor countries alone, but also among different types of low-income and middle-income states.

India’s trade patterns illustrate the point. Though Nath’s arguments target rich-world subsidies, only about 5 percent of India’s $8 billion worth of foreign food in 2006 – less than the $8.5 billion for Malaysia, with its population of 25 million – comes from the US in the form of non-subsidized almonds and peas; another 15 percent comes from Europe, Canada and Australia. Most Indian imports are goods from other poor or middle-income countries – palm oil from Indonesia and Malaysia, soybean oil from Brazil, nuts and grains from Africa. Trade ministers from other developing countries are well aware of the implication of such facts: Uruguay and Paraguay argued, probably correctly, that the SSM “would be used by big and stronger developing countries against smaller and vulnerable” developing-country agricultural exporters, leaving them “worse off than 15 years ago.”

Such gaps aren’t easy to close, but pose questions of judgment and careful compromise rather than ideological divides suited to North-South polemic. After the breakdown, most members expressed a realization of how much they achieved and reacted accordingly. Downcast Brazilian president Lula, seeing Brazil’s hopes of farm-subsidy reform recede, embarked on a round of calls to Washington, Delhi and Beijing, hoping to revive the talks. Burkina Faso’s Commerce Minister Sansanou Amadou, irate over the failure to finish the agreement – “we cannot control our anger” over the delay in cotton reform – called for quick resumption. Uhuru Kenyatta, Kenya's trade minister, suggests the delay "gravely undermines" the fight against poverty.

The Geneva talks, therefore, ended in failure – but one that disguised broadening areas of consensus and growing demands for a speedy conclusion to the talks. At a time of generalized worry – high energy prices, food spikes, inflation and slowing growth – this is a rare good omen for the future.