Final round for global trade deal

With the world economy ever more dependent on trade for economic growth, the year 2006 will be a crucial one for the global trading system. The Doha Round of world trade talks are entering their crucial final year, with little sign as yet that the world's leading economies are prepared to reach the bargain that will unlock a new round of trade liberalisation.

And the growing economic imbalances - the US trade deficit is approaching $700bn annually, while China's growing surplus is fuelling a continuing economic boom - are adding to protectionist pressures in leading countries. With European economies still suffering from slow growth, expanding trade could be the key to an economic revival. But in return, Europe's highly protected farmers would have to open their markets to developing country exporters like Brazil and agree to weaken the Common Agricultural Policy. Meanwhile, as trade talks falter, countries like the US and China are pursuing their own separate free trade deals with their political allies.

The World Trade Organisation ministerial meeting in Hong Kong in December made only modest progress towards the goal of expansion of free trade. Trade ministers from 149 countries were unable to firm up any definite plans for how to open up markets - but pledged to come up with a definitive plan by April. The talks, which began in 2001, have a practical deadline of the end of 2006 to reach a deal to open up agricultural markets in rich countries, and markets for industrial goods and services in some developing countries.

Rich countries offered several concessions to poor countries, including a promise to end all agricultural export subsidies by 2013, and an offer of duty-free, quota-free access for products from the poorest (least developed) countries - but with some strings attached. Although trade ministers often call trade liberalisation a "win-win" situation, a new World Bank study shows that the gains of a trade deal are more limited than previously thought and not equally distributed. The widely-quoted study suggests that complete trade liberalisation - something more than is on offer in the trade talks - could increase worldwide economic growth by $287bn per year by 2015. But two-thirds of those gains would go to the industrialised countries. And while big agricultural exporters like Brazil would be big winners, many developing countries who are food importers - like Bangladesh, Cameroon, and Mozambique - would lose out in the early years of any deal, the report shows.

The problem is that for a trade deal to gain political support in the north (especially the US Congress), it will have to include such significant market openings in agriculture, industry and services. And key developing countries have very different views in each of these areas, depending on where their competitive advantage lies. Brazil prioritises agriculture, India focuses on services and China stresses manufacturing.

As global trade talks have stalled, key countries are moving to establish regional or bilateral trade deals to meet their own political and economic objectives. In the eyes of many economists, such deals are much less desirable than a global agreement because the countries negotiating them have unequal bargaining power. Although it failed to push through a plan for a Free Trade Agreement for the Americas, a new free trade deal with the five central American nations and the Dominican Republic is due to start on 1 January 2006. China, too, is ploughing its own furrow. Beijing aims to build an East Asian free trade bloc, and has signed bilateral deals with the Asean countries and is in negotiations with New Zealand and Australia possibly Korea and Japan in the future.

And the EU is looking to bring in a new economic partnership agreement with the 69 African, Caribbean and Pacific nations who were former colonies, alongside tightening ties around the Mediterranean. The emergence of rival trade blocs could increase tensions over a number of simmering trade disputes - including the rapidly growing Chinese imports to the US and the EU, the EU-US row over state aid to Airbus, and the EU worries about the import of GM food.

Underlying the political difficulties of the trade talks is a growing public ambivalence about the benefits of free trade. Recent opinion polls show that in the US and five major European countries - France, Germany, Italy, the UK and Poland - only 46% of Americans and 45% of Europeans are in favour of globalisation. In contrast, big majorities in developing countries want the fruits of free trade. Only 9% of Africans and 10% in developing Asia say that globalisation has a negative effect on their countries. The biggest fear in industrial countries is the effect of trade on jobs. Less than half of respondents say they will personally benefit from trade liberalisation - but a majority in these countries think that multinational companies and rapidly growing countries like China will benefit most. However, the Western public are not isolationist. Two thirds support global trade, and three quarters say trade contributes to global stability. But there is very little in here for developing countries. That's why the poorest countries have found it hard to make headway in these talks.

The key concrete concession they won in Hong Kong, which dominated the conference, was an agreement that rich countries should end export subsidies to farmers by 2013. Their claim that the cuts would remedy inequalities of the past does not carry any weight at the negotiating table. But most of these subsidies were being phased out anyway. The US had already promised to abolish export subsidies before coming to Hong Kong. A separate requirement to reduce US domestic support for cotton farmers in the final Hong Kong text is not mandatory. US cotton farmers receive funding worth more than the entire GDP of any of the four west African countries who are campaigning on this - Benin, Burkina Faso, Chad and Mali.

In return for modest gains in agriculture, the poorest countries have made modest concessions in the other two pillars of the WTO process, services and non-agricultural manufactured goods. But there was significant disappointment among interests in the richest countries that these did not go further towards a more comprehensive free trade treaty. Most countries united against Japan, the European Union and the US on farm subsidies, in an alliance of four-fifths of the population of the world. This unity did not extend to services and non-farm manufactured goods. Larger developing countries like Brazil and India want more liberalisation in these sectors and liked the progress made. Poorer countries still want to be protect their economies while they grow, and are concerned that they may have given away too much.

The key new element gives them the right to sell their goods into developed countries without paying tariffs or being limited by quotas. But it is too full of exemptions to make a real difference. America is expected to continue to put obstacles in the way of textile imports, while Japan has proposed to exempt rice, fish, sugar and maize. The offer should, however, allow the poorest countries to sell goods with added value at the tariff-free rate, enabling them to develop

food-processing industries. At the moment they have to pay high tariffs to sell processed food. But in Hong Kong it was opposition to any deal on agriculture, the subject being pushed by developing countries, that was the centre of the anti-globalisation protests. Many of the protesters are small farmers from Asia who are worried that free trade will ruin their livelihood. The largest group of protesters were South Korean rice farmers, who among the most heavily subsidised in the world - and the most militant. Over 1,000 - dressed in white peasant clothes - chanted "Down with WTO". They fear that new agreements Korea says it is prepared to sign will lead to the disappearance of the 3.5 million farming jobs and an end to food security for the country. But it is the fact that the fears of the losers in any global trade round are outweighing the hopes of the potential winners that is paralysing the talks. But unless the world trading system finds a better way to compensate the losers in any trade deals, especially in developing countries, it could find further trade liberalisation an uphill struggle.

In May 2006, in Geneva WTO trade ministers are hoping to revive the ongoing Doha round of talks that have stalled over problem areas such as agriculture. Poorer nations want greater access to richer markets, while the US and Europe are fighting over subsidy levels. US trade chief Rob Portman said the sides are now "relatively close". However, added the outgoing US representative in a joint statement with Australian Deputy Prime Minister Mark Vaile: "We now have a short time to make necessary breakthroughs. To take this round forward we urgently need flexibility on all sides."

The US and the European Union have disagreed over the extent to which they should reduce the levels of support they offer their own farmers, and the import tariffs they put on food and other agricultural products from the developing world. Mr Portman said that the EU has indicated that it is "prepared to strengthen its offer on agricultural market access". "This has been and will continue to be the key to resolving outstanding differences," he added. EU Trade commissioner Peter Mandelson had earlier said that the US was not willing to match the EU and was "demanding completely unrealistic tariff reductions in agriculture".

Accusations of intransigence have come from all sides and there have been growing concerns that the Doha round of talks- which was meant to be finished by 2004 - will fail to produce an agreement. US negotiating authority to agree a deal in Congress expires in July 2007. On Monday, WTO boss Pascal Lamy said a deal was still possible and called for all nations to do their utmost to end the logjam.

THE GLOBE AND MAIL, 5.05.06.

Date: 2015-12-11; view: 943