Apr 7, 2007

Action Needed to Save Global Trade Talks

Free trade, wrote Richard Cobden in 1857, “is God’s diplomacy, and there is no more certain way of uniting people.”

You can’t help wondering what he would have made of the Doha “development round” of world trade talks.

After four years of what passes for negotiations, the scorecard for delivery remains a blank sheet. While the Group of Eight summit meeting in July marked a quantum shift in rich-country commitments to aid, when it comes to trade, inertia is the order of the day. The World Trade Organization’s (WTO) ministerial meeting in Hong Kong in December now represents high noon for the Doha round – and the odds on outright failure are shortening by the day.

Such an outcome would be a disaster. Success in the Doha round would give a powerful impetus to global poverty reduction efforts. Improved access to markets and an end to unfair trade practices in agriculture could help lift millions of the world’s poorest people out of destitution. Failure would signal that rich countries were unwilling to undertake the reforms needed to achieve a more equitable pattern of globalization. More than that, it would threaten global prosperity, weaken the legitimacy of the WTO and undermine the rules-based trading multilateral system, opening the door to a resurgence of unilateralism.

To avert failure, northern governments need to ask for a lot less and give a lot more. Instead of demanding deep liberalization in developing countries, they should be offering deep liberalization in their own backyards. And they should start by getting serious about agriculture – the litmus test for a successful Doha round.

The problem in agricultural trade can be summarized in three words: rich-country subsidies. This year, northern governments will allocate about $1 billion a day to domestic agricultural subsidies. These subsidies, reinforced by high tariffs, systematically reinforce poverty among farmers in poor countries, flooding markets with cheap surpluses.

The European Union and the United States bear primary responsibility for tackling the problem. This year, America will spend more than $4 billion in payments to cotton producers. That sum exceeds the national income of a country like Burkina Faso, where some of the world’s poorest farmers pick up the bill for U.S. subsidies in the form of lower prices. Not to be outdone, the EU produces sugar at three times the world market price and keeps imports out with a tariff in excess of 300 percent.

Having spent most of the past four years locked in mutual recrimination and finger-pointing, the trans-Atlantic mood music in the agricultural trade negotiations has started to change. In July, the G-8 pledged to phase out export subsidies, albeit at an unspecified future date. More recently, the EU and the United States have been competing to offer grandstanding statements promising deep cuts in “trade-distorting subsidies.” Developing countries would be well advised, however, to read the small print.

Under the current negotiating framework, subsidies deemed “distorting” will be subject to the full rigor of any WTO agreement, but “non-distorting” subsidies are effectively exempt.

Therein lies the rub. Less than half of European Union and U.S. support to agriculture is now covered by effective WTO rules, and that share is shrinking. Under the reformed Common Agricultural Policy (CAP), the European Union will still be spending more than 40 percent of its total budget on agricultural subsidies.

The danger now is that a WTO agreement will stamp a multilateral seal of approval on an elaborate subsidy reshuffling exercise. This would be a perversion of the “development round.” From the perspective of smallholder farmers growing rice, cotton or sugar in developing countries, reclassification of subsidies at the WTO to accommodate EU and U.S. interests is hardly a substitute for a real deal to end unfair competition.

What is needed at the Hong Kong meeting in December is an agreement to get back to basics. Instead of maintaining the current subsidy classification system, a ceiling should be set on the overall level of support to agriculture. An early phase-out of export subsidies would help, but this should not be a substitute for deep cuts in tariffs or in direct payments to large-scale farmers. In practice, this implies biting the bullet on a fundamental revision of both the 2002 U.S. farm legislation and the EU’s lamentable excuse for CAP reform in 2003.

After four years of going nowhere fast, and with the stakes as high as they are, the Doha round of agricultural negotiations can no longer be left to trade ministers. Political leaders need to provide leadership – and they need to start now.

Kevin Watkins is the director of the United Nations Development Program’s Human Development Report office. This editorial was published in the International Herald Tribune on Oct. 6, 2005.