Tuesday, July 04, 2006

Doha Round in crisis

'Crisis' is an overworked word in relation to trade talks, but the Doha Round now appears to be in serious trouble after a failure to make any progress on agriculture in Geneva at the end of last week. The talks petered out on Saturday, having reached no conclusion on modalities,the next step towards an actual agreement.

The Group of Six (the US, EU, Japan, Brazil and Australia) have asked WTO director-general Pascal Lamy if he can mediate between them and he will report back in two weeks, but is unlikely to produce his own text which would serve as the equivalent of the Dunkel draft in the Uruguay Round.

The EU was prepared to give some ground on tariffs, moving its position closer to that of the G-20 group of emerging countries. They were privately indicating that they would prepared to cut tariffs by an average 51 per cent compared with their original offer of 39 per cent. This is very close to the 54 per cent cut asked for by G-20 which the EU calculates as actually nearer 52 per cent.

Much of their G-20's fire is now concentrated on what they see as the intransigence of the United States with a new rift appearing between Brazil and the States. For the United States, new trade supremo Susan Schwab said that the problem was the three S's, not the two in her name, but the 'sensitive' and 'special' products which would enjoy lower tariff cuts and the 'special safeguard mechanism' that allows poor countries to block sudden surges in imports.

The fact is that ministers or other representatives, whether they are from India or the United States, get few domestic points for pushing for trade liberalisation which can disadvantage politically influential groups in their societies. India's trade minister Kamal Nath turned up late for a green room discussion on Friday evening. His excuse was the Argentina v. Germany match in the World Cup which had not delayed the Argentine delegation. Nath's problem is that he and his prime minister are under pressure from Sonia Gandhi to protect poor farmers. The agri-business interests, principally based in the US, that pushed for liberalisation in the 1990s are more divided or less effective a decade later.

It might be possible for the G-8 and national political leaders to intervene, but these 'deus ex machina' interventions have had little lasting impact in the past. Moreover, leaders from most G-8 countries at the moment are either coming towards the end of their tenures (France, Japan, the UK and the US) or lead governments that are coalitions or have fragile political majorities (Canada, Italy, Germany), while Russia can hardly sort out the problems even if it was that much interested in them.

Does it matter? For two reasons it does. First, an agreement in the Round would bring some advances for developing countries, although far short of what they could hope for. Second, a failure of the Round would remove the key exogenous pressure that has led the EU in particular to at least start down the road of dismantling the CAP in its present form.

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