With the world on the cusp of a serious recession, last weekend’s G20 summit of the leaders of the richest industrial and emerging economies pledged to maintain an open global economy in the face of the economic downturn. In addition to a raft of statements responding to the financial crisis, the leaders’ 47-point action plan included a pledge to keep free trade and to liberalize it further through a renewed effort to conclude the Doha Round of multilateral negotiations at the World Trade Organization (WTO).

Together, the G20 represents 85 percent of the world economy. In the build up to the summit, newspapers were full of comparisons to the Wall Street Crash of 1929 and the Great Depression, and political leaders were reminded of the hard lessons of the 1930s, when the “beggar thy neighbor” policies adopted by the major trading powers led to a collapse of global trade. In 1930, even as the League of Nations was attempting to negotiate a tariff truce in Geneva, the U.S. Congress passed the infamous Smoot-Hawley Tariff Act, which was greeted as “a virtual declaration of economic war on the rest of the world” and responded to in kind by America’s trading partners. A downward spiral began as countries sought to export their economic difficulties to each other, stifling trade and hampering economic recovery. Financial crises come and go, but once the business networks around trade are destroyed they can take a long time to rebuild.

As the negative effects of the current financial crisis bleed into the real economy, there is a perceived danger of a resort to protectionist trade policies, as governments are tempted to shield struggling domestic producers from foreign competition or seek much-needed revenue by raising tariffs.  In the current global context, even a modest return to protectionism could have serious economic consequences. In a unique study released on the eve of the G20 summit, noted trade modelers Antoine Bouët and David Laborde of the International Food Policy Research Institute (IFPRI) have shown that more than $1 trillion worth of trade—7.7 percent of total world trade in goods—is potentially at risk, living on borrowed time in the gap between bound and applied tariff rates. Even if we assume that countries would only impose very limited new trade restrictions, raising tariffs no further than the highest applied levels of the past decade, this still results in a contraction of world trade by 3.2 percent.

To guard against all this, the G20 leaders in their communiqué made two commitments on trade. First, they pledged that:

within the next 12 months, we will refrain from raising new barriers to investment or to trade in goods and services, imposing new export restrictions, or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports.

Second, they agreed to:

strive to reach agreement this year on modalities that leads to a successful conclusion to the WTO’s Doha Development Agenda with an ambitious and balanced outcome.

Both of these statements are laudable, and have been greeted as such. The problem is that in political terms the first commitment, essentially a “standstill” agreement, may actually work against the second, a successful conclusion of the Doha Round. To understand why, it is necessary to go back to the dynamics of the WTO negotiations.

Trade ministers meeting in Geneva this past July failed once again to reach agreement on elusive modalities in agriculture and manufactured products, without which the negotiations cannot move ahead. While the proximate cause for the July collapse was a stand-off between India and the United States over the arcane details of the so-called Special Safeguard Mechanism, it is becoming ever clearer that the U.S. business community has been a significant obstacle behind the scenes. Normally a reliable source of support for trade agreements, influential business groups like the National Association of Manufacturers have adopted a high-risk strategy that no Doha deal at all is better than a Doha deal that falls short of their demands. Back in July, they besieged the United States Trade Representative with calls to walk away from the package that was on the table in Geneva.

The changed context of a full-blown financial crisis and worsening global economic outlook should have given pause to these business groups. Even small increases in tariffs can have a major impact on globalized companies with distributed supply chains making products from components that are sourced in multiple countries and have to cross multiple borders. One argument for agreeing the Doha Round package as it stands is that by making deep cuts in tariff bindings it provides a global insurance policy against protectionism—as renowned trade economist Patrick Messerlin has been arguing convincingly, and as European Trade Commissioner Catherine Ashton repeated in the run up to the summit.

The problem with the commitment not to raise trade barriers in the G20 communiqué is that, in the logic of WTO negotiations, some countries have just given away something for nothing—and at a time when the market value of that ‘something’ (certainty, predictability, a global insurance policy against protectionism) has just risen exponentially. The United States, like the European Union and a small group of other WTO members, has given up nothing by making this commitment. U.S. applied tariffs are either at or very close to their bound levels. The systemic risk to global trade stems from the large gap between bound and applied tariff rates—the so-called ‘binding overhang’ or ‘tariff water’—that is available to a host of developing and emerging economies. Emerging economies bear all the ‘costs’ of the G20 commitment not to raise trade barriers, because they are the ones surrendering their policy space.  With recession in the United States and European Union, these countries will also be providing close to 100% of global economic growth next year. The U.S. business community just got an insurance policy against protectionism for free, without having to pay anything for it at the WTO.

To be clear, the fact that the emerging economies set their faces against protectionism is to be applauded. By taking the high road, they have recognized the truth that, by putting up trade barriers, they would in fact only be hurting their own interests—as was the case for many of the countries who rushed to impose export bans in response to the food crisis earlier this year. Trade is a positive-sum game, and the benefits it confers on countries (better prices, lower interest rates, improvements in competitiveness and productivity) come not just from enhanced export opportunities but substantially from their own domestic liberalization. In the argot of trade economists, it is the WYGIWYG principle: “What You Get Is What You Give.”

 As an institution, the WTO generally helps to advance this positive-sum view of trade. Unfortunately, however, multilateral trade talks are still conducted along the lines of a mercantilist bargaining logic in which opening up to trading partners is about making ‘concessions.’ That logic is pretty much at the end of its useful life. But for now it is the only negotiating technology we have at the WTO. The fact that leaders of emerging economies just gave up an important bargaining chip at the G20 summit in Washington could be problematic for moving forward at the WTO. It would be a sad outcome if this act of leadership were simply pocketed by the U.S. business lobby, allowing them to continue their mercantilist foot-dragging.

In fulfilling the mandate their heads of state gave to them to complete the Doha Round, trade negotiators from emerging economies would do well to point out that the G20 “standstill” guarantee is a fragile and temporary political commitment, and is in no way legally binding. If the business community in the United States wants real insurance against protectionism, then they will have to buy an insurance policy. And right now, the only place to get such a policy is at the WTO—through the successful completion of the Doha Round.

A joint initiative of The German Marshall Fund of the United States (GMF) and the International Food & Agriculture Trade Policy Council (IPC), this blog collaboration aims to provide insight on concluding the Doha Round and pursuing trade liberalization in the future. 

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When the subprime crisis started to turn into a full-blown financial crisis for the United States, German Finance Minister Peer Steinbrück claimed that the crisis was principally a U.S. problem and that Germany’s banking system was robust enough to cope with potential losses. Unfortunately, Mr. Steinbrück was wrong and the financial crisis shortly after swept across Europe and now even has global implications with banks all over the world unable to service foreign debt and stock markets reeling due to fear of a worldwide recession.

After attempts aimed at stemming the failure of domestic banks through unilateral actions failed to calm fears of investors, restore trust into the banking system, and end the credit freeze, leaders of the major industrial countries – including U.S. President Bush and French President Sarkozy – soon claimed that a global crisis needed a global response. And following the recent annual IMF meetings, U.S. and EU leaders indeed announced coordinated policy responses, including the partial nationalization of banks and the guarantee of inter-bank lending until the end of next year.  

In addition to coordinating policy responses across national borders, there have also been a number of calls from policy makers to completely overhaul the Bretton Woods institutions; institutions created in 1945 with the goal to establish rules for commercial and financial relations among the world’s major industrial countries. At the beginning of the 21^st century, these institutions don’t seem to be equipped anymore to effectively address new economic challenges, deal with increasingly complex financial structures, and appropriately integrate new powers like India and China into the international architecture. While reforming the Bretton Woods organizations should therefore indeed be a policy priority for governments in the United States and Europe, it will most likely take months if not years to develop concrete policy proposal and finally implement reform – too long of a time to stabilize economic cross-border activities and to restore citizens’ trust into the international economy.

But in a commentary in the Financial Times last Friday, Stuart Eizenstat, former U.S. Ambassador to the EU, alluded to a low hanging fruit that would not only provide a much needed stimulus to the global economy but also provide some continuity in these times of turmoil. The low hanging fruit Ambassador Eizenstat is talking about is the conclusion of the Doha Development Round.

As Joe Guinan, senior program officer, and Courtney Phillips-Youman, program associate at the German Marshall Fund, point out in a GMF opinion piece, economic modelers including Yvan Decreux and Lionel Fontagné from the Centre d’Etudes Prospectives et d’Informations Internationales estimate the economic gains of the Doha Round to be at least $43 billion a year, or $73 billion if a modest liberalization of services is included. While this doesn’t seem to be much compared to a seven hundred billion U.S. bailout package, these are also not trivial numbers. And as Guinan and Phillips-Youman stress, they are conservative estimates because they don’t include the full benefits of services liberalization, an agreement on trade facilitation, additional gains from the Aid for Trade initiative, and other dynamic gains that cannot be captured by trade models. But maybe more important than the financial gains to be had from a Doha agreement would be the significant cuts made to bound tariff rates. Renowned trade economist Patrick Messerlin only recently pointed out that a huge share of current trade is living on borrowed time due to the gap between bound and applied tariffs. Now, without an agreement, average tariffs across a range of the largest economies in the WTO could surge at any time by up to three-and-a-half times. Quoting Guinan and Phillips-Youman, “many foolhardy observers are eager to dismiss such a scenario as unlikely.” But one only has to contemplate the reactions of governments to the recent food crisis, with almost 30 countries rushing to impose export bans, to understand how quickly policy makers grasp at economically unviable solutions in order to appease domestic constituencies.

As many have pointed out, the World Trade Organization is not perfect. Many systemic problems – including the WTO’s mandates for unanimity and the concept of the single undertaking – have hindered the conclusion of Doha Round for years. And there is no question that this institution – similar to the World Bank, IMF, and the UN – needs reform in order to adjust to changing economic and political realities of the 21^st century.  But given how close negotiators were in July to reaching an agreement, policy makers in both industrial, emerging, and developing countries should show real leadership now in this time of economic uncertainty, overcome the last obstacles to a Doha deal, and sign-off on a broad agreement before the end of the year: that indeed would be a global response to a global crisis. online casino in usa

A joint initiative of The German Marshall Fund of the United States (GMF) and the International Food & Agriculture Trade Policy Council (IPC), this blog collaboration aims to provide insight on concluding the Doha Round and pursuing trade liberalization in the future.

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History tells us that multilateral trade rounds never die, and Doha is no exception. If the negotiations cannot be concluded this year, they will enter a period of hibernation, and things will pick up again when conditions are ripe to engage in a meaningful negotiation (probably during the second half of 2009 at the earliest). We will have to wait for the U.S. election, the nomination of a new USTR, and trade promotion authority from Congress.  India’s upcoming elections and changes in the EU presidency will also delay negotiations.

Despite the slow progress, there are a number of good reasons to continue to support a successful conclusion of the Round.  First, a strong multilateral trading system is essential for world economic growth, stable international trade, continuing agricultural reform and above all, for defending the interests of developing countries. Second, there are issues that can only be solved in a multilateral context; particularly given the agriculture industry’s challenge of increasing production with limited resources in order to meet growing demand for food, feed and fuel.

Looking ahead, a number of options exist for promoting trade liberalization in a post-Doha environment.

Sectoral Negotiations

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When the WTO was created, the idea was for the organization to become a permanent negotiating forum that would successively tackle issues of interest to the Membership. It was to start with the agreements on agriculture and services reached in the Uruguay Round.  The recourse to new Rounds of trade negotiations was, at least temporarily, shelved.  However, the EU soon made it clear that if there was to be a high level of ambition in the mandated negotiations, particularly in agriculture, Members would have to agree to launch a new Round that would incorporate their interests:  industrial products, intellectual property, rules, environmental goods and the so called Singapore issues, namely, investment, competition, government procurement and trade facilitation. This finally occurred in Doha in September 2001.

In light of the difficulties experienced since the launching of the Round, including the recent breakdown, it would be desirable—at least once the Doha Round is completed—to return to the original idea of sectoral negotiations.  Reform of trade-distorting policies requires that negotiations in agriculture continue after Doha. In the absence of a new trade round, the only way to proceed would be through the launching, within the WTO, of sectoral negotiations following the implementation phase of the obligations agreed in the Doha Round.

In order to be successful, sectoral approaches should ensure the participation of all Members, regardless of whether they have offensive or defensive concerns on the subjects under negotiation. This is particularly important with regard to agriculture in view of the protectionist and defensive attitudes of so many Members in the WTO (both developed and developing). I am afraid that unless one can have all members on board, one will not be able to properly address important issues such as subsidies, particularly domestic support.  Improved market access can more easily be obtained through other means such as bilateral, regional or preferential trade agreements.

Consensus among members on how to achieve the long-term reform envisaged in the Agreement on Agriculture is a prerequisite.  For example, priority could be given to the elimination of all distorting forms of domestic support (amber box, blue box and de minimis). A possible approach could be to first eliminate the amber box, say over a period of 8 to 10 years, then proceed with the elimination of the blue box, and so on. Similarly, we could agree on the level of reduction and eventual elimination of tariffs (and expansion until then of TRQ´s)

In order to monitor implementation progress of such agreements, we could have special sessions of the Agriculture Committee or eventually the General Council every two years. Alternatively, progress and compliance with the agreed objectives could be analyzed during sessions of the Trade Policy Review, which should be strengthened for that purpose. If countries are not complying or violating their obligations, a role could be envisaged for the Dispute Settlement Body.

Plurilateral Negotiations

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I am not convinced that plurilateral approaches are a convenient way out, although I acknowledge that they would be easier to implement. Plurilateral approaches create different categories of Members, undermine even further the multilateral nature of the WTO, and are likely to discriminate against the interests of developing countries. They could also further marginalize the poorest countries in discussions on major new issues of the international trade agenda.

Preferential Trade Agreements

 Regional and bilateral trade agreements may well be the main vehicle for trade liberalization in the foreseeable future.  In agriculture, these agreements can provide improved market access for participating countries. They may also improve the situation with regard to some non-tariff barriers such as sanitary and phytosanitary regulations. However, these agreements will not be able to effectively address domestic support issues.

I believe that the proliferation of preferential agreements—with different product coverage, rules of origin, private standards, exceptions, and measures that are not necessarily in line with multilaterally agreed rules and disciplines—will become overly complex and costly for private enterprises involved in international trade.  Moreover, trade agreements between major trading partners are likely to involve considerable trade diversion, enhancing tensions, disputes, retaliation, and a return to protectionist practices.  These agreements may also further exclude developing countries from the international trading system.

Carlos Perez del Castillo is a member of the International Food & Agricultural Trade Policy Council (IPC) and an independent consultant.  He is the former permanent representative of Uruguay to the WTO and was chairman of the WTO General Council in 2003 and 2004.

A joint initiative of The German Marshall Fund of the United States (GMF) and the International Food & Agriculture Trade Policy Council (IPC), this blog collaboration aims to provide insight on concluding the Doha Round and pursuing trade liberalization in the future.

Cross-posted at GMF

Making progress in multilateral trade negotiations involving more than 150 countries is very difficult. Negotiations require exchanges - offering something for what you want. Given the widely discrepant wealth of developed and developing countries, the poorest countries must, in relative terms, offer a great deal more.

Negotiations can advance because the internal interests of the countries are not homogeneous. Societies are divided and a trade negotiator, who must represent the interest of the country, is subject to pressure from more than one group.   It is sometimes necessary to mobilize interest groups across countries.  This requires a sound communication strategy.

When we started the development of the cotton dispute against the US and sugar against the European Union (EU) in 2001, an important objective was to demonstrate to the world the unfairness of international agricultural trade. The litigation should not only seek a favorable WTO ruling, but also help communicate the implicit unfairness of US and EU countries’ policies vis-a-vis developing ones. Even in case of an unfavorable WTO ruling, the communication objective of seeking litigation would still have been valid.

The decision taken to litigate provided a great communication opportunity. The international media sided with Brazil. Large sectors of society, possibly the majority, in the US and EU supported Brazil in the need for change.  The first result of the arbitration panel concerning the cotton litigation occurred in June 2004. We scored more victories than anybody had foreseen. The US appealed, using all possible delay tactics. We continued to win. This groundbreaking case certainly helped to establish Brazil as a global agricultural leader.  But still, the Brazilian government neglected an important communication aspect of this WTO case. The panels were administered discreetly in Geneva - too discreetly.

The Brazilian government did not sufficiently use the cotton case to create alliances for greater progress in the Doha Round. Even worse, Brazil reached an informal agreement with the US, and accepted the US argument that the Doha Round would lead to a cut in US cotton subsidies. What Brazil should have done was to use the panel finding to press more forcefully for progress in the Doha Round.

They did not use the result of the dispute in the WTO ministerial meeting in Hong Kong, in 2005. Cotton was not even on the Brazilian agenda. The African countries, with whom an alliance was never sought by Brazil, and which had opted for a political route to solve the issue of cotton subsidies, were abandoned. Again, in the recent failed mini-ministerial meeting in Geneva, Brazil did not make cotton a priority.  In short, the tremendous leverage the WTO ruling on US cotton subsidies could have had on the Doha Round was wasted on several occasions.

It is not a question of singling out a product for special treatment, but rather of understanding that it can serve as an important communication tool on unfair subsidy practices. Greater progress in subsidies would have translated into greater progress on market access. The cotton case ruling – which is arguably of greater political than economic significance - should have been used by Brazil to push for a better outcome in Geneva.

With the breakdown, or delay, of the Doha negotiations, the Brazilian government is now boasting that it will retaliate against the US for noncompliance with the panel decision. WTO rules allow such retaliation when compliance with a WTO ruling is not forthcoming.   Retaliation requires authorization from the WTO, and could take the form of increased import duties on products imported from the US.  Such an increase in tariffs will hurt US exporters as well as Brazilian consumers, since US imports will become more expensive.  Retaliation may also take the form of ending payments of intellectual property royalties.  These types of retaliation are warranted and unfortunately, necessary. In the strong rules-based system we all desire, the rules that take so many years of negotiation must be followed. Retaliation can also create the political momentum to finally push the decision to lower cotton subsidies, which is a step in the right direction to correct unfair practices in international agricultural trade.

Pedro de Camargo Neto is a member of the International Food & Agricultural Trade Policy Council, president of ABIPECS Brazilian Association of Pork Producers and Exporters, and an agricultural trade policy consultant. He was the Secretary of Production and Trade in the Brazilian Ministry of Agriculture from 2000-2002.

A joint initiative of The German Marshall Fund of the United States (GMF) and the International Food & Agriculture Trade Policy Council (IPC), this blog collaboration aims to provide insight on concluding the Doha Round and pursuing trade liberalization in the future.

Cross-posted at GMF

The gains from a Doha Round would greatly exceed those of the Uruguay Round. It would be a shame if an inability to find a solution to the SSM on the one hand, and further reduce trade distorting support on the other, derails the Doha Round, Such a failure would reflect a serious lack of political will and could fundamentally undermine the credibility of the WTO.

Background

The "special safeguard mechanism" (SSM) has been cited as the main reason why the July 2008 WTO mini-ministerial meeting negotiations broke down. However, it is not self-evident why differences over the design of the SSM (mainly between the U.S. and India) should be a deal breaker, particularly when it looked like much more intractable issues, such as “sensitive” and “special” products were in the process of being resolved.

Special import safeguards are traditionally used to assure import-sensitive sectors that if tariff reductions result in injurious imports, emergency action will be taken. In the WTO, all members have access to Article XIX of the GATT, which permits additional import duties or quotas to be applied on a temporary basis if injury or threat of injury is formally demonstrated and compensation negotiated.

Some observers claim that the Article XIX procedures are too cumbersome and slow to be used effectively in agriculture.  They argue that simple triggers such as import volumes and prices should be used as a proxy for “serious” injury and that there should be no requirement to provide offsetting compensation, as Article XIX currently stipulates.  Exporters, not surprisingly, are concerned that if special import safeguards are permitted to be too easily triggered, the value of tariff reductions and bindings will be eroded.  They also point out that Article XIX permits provisional action on an emergency basis.

In the Uruguay Round, countries who converted their non-tariff barriers into tariffs ("tariffication") were entitled to apply a "special agricultural safeguard" (SSG), which allows temporary  tariff increases if import volumes exceed or prices fall below certain thresholds and does not require formal determination of injury or negotiation of compensation. Although the permitted remedies (tariff increases only) were relatively modest and rarely if ever would result in the sum of the applied and temporary tariffs exceeding the (relatively few) pre-Uruguay Round bindings,  the establishment of the SSG helped governments "sell" the Uruguay Round results to their import sensitive sectors. The SSG was regarded by many as a necessary "carrot" to encourage countries to tariffy.

Most developing countries could not make use of the SSG because, having relied on unbound tariffs rather than non-tariff barriers prior to the Uruguay Round, they did not tariffy.  Justifiably, import-sensitive developing countries have thus argued that they require access to a SSM that takes into account their development status and the particular vulnerabity of small subsistence farmers to import volume surges or sharp drops in prices.

Many developing countries, i.e. India have high bound tariffs but considerably lower applied tariffs, which gives them considerable flexibility to increase applied tariffs up to the ceiling binding if imports cause or threaten to cause market disruption. However, a few developing countries, i.e. China have relatively low bound tariffs and thus do not have this flexibility, since their applied and bound tariffs are the same.

Principles for Resolving the SSM Impasse

The forgoing background suggests a number of principles that could be used to find a way out of the SSM impasse:

• Only developing country tariffs reduced in the Doha Round should be eligible for SSM treatment
• The sum of the SSM remedy and the applied tariff should not normally exceed the pre-Doha tariff binding. In exceptional circumstances, tariff bindings could be exceeded but this would require a formal determination of serious injury
• Remedies should be applied on a discretionary and not an automatic basis.
• Remedies should be roughly proportional to the potential for market disruption once a certain threshold is reached. (For example, import volume increases in excess of [30%] could trigger a [30%] increase in the applied tariff or a percentage point increase equal to one-half of the import volume increase, whichever is higher. Similarly, a [40%] import volume increase could trigger a [40%] increase in the applied tariff or a [20] percentage point increase, whichever is higher).
• The SSM should be a transition measure, which would expire after [20] years but would be subject to review after [5] years. (The case for an end by date is strengthened considerably if the SSM allows Uruguay Round bindings to be broken).

The above principles are predicated on the assumption that in any one year the SSM could not apply to more than a certain percentage of tariff lines, i.e. limited to those tariff lines allowed to be designated “sensitive.”

Many developing countries are worried that developed countries would remain able to increase non-green support, even after the conclusion of a Doha Round, and thus cause price suppression and other trade distortions in world markets. While such post-Doha concerns could arguably be addressed through litigation or trade remedies, many developing countries would prefer clearer disciplines imposed through the Doha Round. This suggests that a deal can be concluded, which would include more significant cuts in overall levels of trade-distorting domestic support in exchange for a SSM that would only allow temporary tariff increases on an exceptional basis.

Only the more advanced developing countries are being asked (for the first time) to make comprehensive tariff reductions in agriculture, since the least developed developing countries will not be required to make any tariff reductions. Tariff cuts for developing countries will be substantially lower than those of developed countries and developing countries will also have access to the "sensitive" and "special" product provisions. As a consequence, the more advanced developing countries will only be required to undertake very modest, and perhaps no, tariff reductions on their most import-sensitive tariffs. A SSM that can be triggered frequently and extensively thus constitutes unnecessary overkill, particularly if developed country non-green domestic support is further reduced below the levels in play in July.

Mike Gifford is a member of the International Food & Agricultural Trade Policy Council (IPC) and served as Canada’s chief agricultural trade negotiator and principal agricultural trade policy advisor to the ministers of agriculture and trade.

A joint initiative of The German Marshall Fund of the United States (GMF) and the International Food & Agriculture Trade Policy Council (IPC), this blog collaboration aims to provide insight on concluding the Doha Round and pursuing trade liberalization in the future. 

Cross-posted at GMF

In my view a failed Ministerial is not a failed Round. I am not aware that any of the negotiators have indicated that the Round has failed, and it is important as talks move forward to remain committed to sound agricultural policy, both in international trade and on a domestic level.

Regarding agricultural trade policy, I strongly believe that a multilateral approach is the best. Bilateral agreements cannot substitute for a multilateral system. Standards and dispute settlement are just two examples of issues that must be addressed on a multilateral level.

Domestically, good agricultural policy should not depend on WTO negotiations. The EU has shown that developing a modern agricultural policy is possible without first having a completed WTO Round. While former Agriculture Commissioner Fischler used the WTO to sell the new policy to the farmers, the origin of the new policy was domestic and related to the attitude of the general public toward agriculture and the costs of the old policy.

It may be necessary to rethink the global food trade system and agriculture trade agreements in the light of recent external factors, including rising food prices, new biofuel policies, and fear of globalization. The Doha Round began before these developments occurred, therefore they are not part of the negotiations. However, rethinking the system could well take 5 years or more, given the slow progress in the Doha Round.

Negotiations certainly have not moved quickly, but the fact that much has already ‘provisionally’ been agreed upon should not be neglected. The agreement "on the table" — areas where consensus has already been reached — is a step forward for trade liberalization compared to the Uruguay Round. Even in the failed Ministerial much progress was made, unfortunately without being formalized in a final outcome. All that has been agreed upon in the Doha Round thus far should not be lost but consolidated. All efforts should be directed towards finishing this Round, even if it takes a few more years. There is too much to lose and much to gain.

Jan-Maarten Vrij is the Director of the Nederlandse Zuivel Organisatie (Dutch Dairy Association) and a Member Affiliate of the International Food & Agricultural Trade Policy Council (IPC).

A joint initiative of The German Marshall Fund of the United States (GMF) and the International Food & Agriculture Trade Policy Council (IPC), this blog collaboration aims to provide insight on concluding the Doha Round and pursuing trade liberalization in the future.

Cross-posted at GMF 

Significant progress occurred during the July negotiations in Geneva. However, many differences remained, both within the issues included in the Lamy package and in other areas that were never seriously tackled, such as cotton and geographical indications. As a result, I believe that it is an over- simplification to place sole responsibility on the Special Safeguard Mechanism (SSM) for derailing the negotiations. If that issue had been resolved, I can think of a number of other points in both the agriculture and NAMA negotiations that would have subsequently threatened to prevent an agreement on the modalities.

At this juncture, I would like to voice my concern about the dramatic erosion of multilateralism. Close scrutiny of the texts produced by both the Ag and NAMA chairs reveals that there is very little multilateralism left in them. Efforts were constantly made to accommodate the interests, concerns and sensitivities of individual countries or groups of countries - both developed and developing.  Beyond the special and differential treatment for developing countries, particularly LDCs, small and vulnerable economies (SVEs) and recently acceded members (RAMs), the texts also introduce different treatments for a large number of other cases: the U.S. on domestic support; Switzerland and Norway on sensitive products; Venezuela, Mercosur and SADC countries in the NAMA text.

Equally worrisome are the multiple flexibilities that have been introduced in the market access pillar of the agriculture negotiations. The acceptance of sensitive products, special products, the Special Agricultural Safeguard (SSG), the SSM, and other provisions for exemptions will allow substantial deviations from the full application of the tariff reduction formula (up to two-thirds). This will seriously reduce and in many cases prevent the possibility of real market access.  Of even greater concern are the long term implications for agricultural market access embodied in such flexibilities. They are not temporal in nature and will likely become permanent features of the Agreement on Agriculture. As such, they are not in line with the long term interests of trade liberalization and fundamental agricultural reform.  Some people will defend this strategy as a pragmatic approach to help attain convergence among Members and finally a successful outcome. It may well be so, but, in my mind, the costs are too high.

Moreover, the approach chosen at the July Ministerial—to agree on modalities on Agriculture and NAMA first, and then to continue negotiations on other issues—seriously challenges the important concept of the “single undertaking.”  The benefit of a Round encompassing a wide range of members and sectors is the creation of trade-offs. The name of the game is to look for an overall balance in the wide context of the negotiations rather than in each sector or issue that is being negotiated.   While the concept of single undertaking remains “theoretically” alive in these negotiations, the reality is that Members have been looking for balances in each individual sector. Agriculture and NAMA are two prime examples.

Carlos Perez del Castillo is a member of the International Food & Agricultural Trade Policy Council (IPC) and an independent consultant.  He is the former permanent representative of Uruguay to the WTO and was chairman of the WTO General Council in 2003 and 2004.

A joint initiative of The German Marshall Fund of the United States (GMF) and the International Food & Agriculture Trade Policy Council (IPC), this blog collaboration aims to provide insight on concluding the Doha Round and pursuing trade liberalization in the future. 

Q: The WTO negotiations are about yesterday’s problems, namely how to address trade-distorting policies and overproduction in developed countries.  They are irrelevant since what we need today is more, not less, production.

A:  Increased production is indeed required, but is most important in developing countries, whose agricultural sectors have suffered from chronic underinvestment.  The best way to stimulate investment and production in these countries is to remove distortions, such as high tariffs and trade-distorting support in developed counties, which disadvantage producers in developing countries.  It would be shortsighted to argue that production incentives in developed countries need to remain in place.

Q:  If the Doha Round will not lead to a decrease in prices, why should we still worry about concluding it?

A:  It is true that the Doha Round will not lower prices in the short run. But it would be erroneous to focus solely on short-term efforts that reduce prices, since higher prices send an important signal that the world needs to increase production to meet growing demand.  A non-distorted trading regime will facilitate the required supply response, which will - in the long run - allow prices to even out.

Q:  Aren’t WTO members simply haggling over things that are no longer relevant in today’s price environment?

A:  Certainly, there is some truth to this.  It should be easy for the U.S. to agree to a $13 billion ceiling for overall trade-distorting support when actual outlays only total around $7-8 billion.  Likewise, it should be easy for the G-33 to agree to more substantial cuts to bound tariffs and less market access exceptions when applied tariffs have acutally been significantly reduced as a response to high food prices.

At the same time, however, we should not dismiss the importance of reducing the caps on allowable tariffs and levels of domestic support, as they will imply significant disciplines should prices decrease in the future.  As such, they send an important signal to agricultural investors and producers.

Q:  The Doha Round is about ensuring market access.  What really matters today is adequate supply.

A:  There is indeed a need for strengthened WTO rules on export restrections, which have increased concerns about inadequate food supplies, contributed to higher food prices, and hampered the procurement of food aid for needy countries.  The Doha Round should address the present imbalance between rights of exporters and importers.

As far as renewables are concerned the proposals provide for a fair distribution of efforts across Member States establishing national overall targets for each of them (GDP per capita being the main criterion). Three sectors are concerned: electricity, heating and cooling, and transport. Member States retain discretion as to the mix of these sectors except for transport where a minimum binding target of 10% in 2020 has to be achieved.Transport produces nearly one-third of CO₂ emissions presenting the most rapid increase of all sectors of the economy. Moreover, the transport sector relies heavily on imported oil. The objectives set in the biofuel directive of 2003 (2% in 2005 and 5.75% in 2010) are far from being met. The biofuel share in 2005 was less than 1%.

Specifically for biofuels and bioliquids the draft Directive establishes stringent environmental sustainability criteria to ensure that biofuels that are to count towards the target are sustainable. They must achieve a minimum level of greenhouse gas emission reductions (35%) and respect a number of requirements related to environmental impact and biodiversity. The draft Directive aims for a complete harmonization of biofuel sustainability criteria in order to ensure that no national criteria may constitute an obstacle to trade. This implies also that no additional sustainability criteria may be set by Member States in relation to third countries. The fuel quality Directive of 1998 will be adapted to allow for a higher incorporation of biofuels blended with fossil fuels.The choice of support instruments to achieve the biofuel mandate is left to Member States under supervision of the Commission. They can take the form of tax exceptions, biofuel obligations, farming subsidies, and subsidies for the development of renewable energy technologies. Member States may encourage the use of second-generation biofuels (such as wastes, crop residues, and lingo-cellulosic material), which offer greater energy potential and more environmental benefits. The contribution made by second-generation biofuels towards the target will be considered to be twice that made by other biofuels.An EU wide policy on biofuels with harmonized sustainability criteria is certainly an important step forward. It maintains however a great variety in support measures and incentives amongst Member States and fails to address the question of border protection.(MFN tariffs on bioethanol are relatively high: between 40 and 60% ad valorem equivalent).

There remain, however, serious question marks on the level of ambition and adequacy of the sustainability criteria.For a foreseeable future the EU will have to rely on first-generation biofuel to achieve the 10% target in 2020: vegetable oils for biodiesel and sugar and starch crops for bioethanol. The target cannot be met by domestic EU production; imports from outside the EU will be needed (notably bioethanol from Brazil). As far as bioethanol is concerned there are question marks on the domestic availability as prices for corn and wheat have gone through the roof. Investments - and even current production - of ethanol have been put on hold in many instances.In the longer term there is concern that ambitious biofuel mandates, combined with trade barriers, will give too much incentive to the production of first-generation biofuels, slowing down the development of the second-generation and risking to affect food security.As far as the sustainability criteria are concerned, many would argue that these criteria are not sufficiently stringent. The impact on water availability, soil fertility, and air quality is not taken into account. The default values for greenhouse gas emission savings can be questioned. The biodiversity criteria will be difficult to enforce due to substitution effects. Nonetheless, harmonized EU sustainability criteria are good for starters. They will certainly need to be strengthened in the future and will require to be complemented by international agreements.  

Assuming that higher prices are here to stay for some time, what are the implications of higher food prices from a policy perspective? IPC members have worked tirelessly over the last twenty years to promote a more open and equitable global food system. In a nutshell, IPC has advocated for removing distortions in global food and agricultural trade, whether these take the forms of export subsidies, trade-distorting domestic support, or high tariffs. Moreover, IPC members stress the importance of agricultural production and trade to development and poverty alleviation and have always called for greater investment in the agricultural sector both by developing countries and by donors and multilateral development banks. Another core belief of IPC is that research and sound and safe technological innovations are hugely important to enable the agricultural sector to meet what is expected to be a doubling of global food demand by 2050.

IPC’s key messages remain utterly if not more valid in this new environment of high prices. We wholeheartedly endorse IFPRI’s recommendation in its recently released The World Food Situation: New Driving Forces and Required Actions. "A world confronted with more scarcity of food needs to trade more - not less - to spread opportunities fairly." Equally, investment in the agricultural sector and investment in agricultural science and technology become even greater priorities so as to ensure a significant production response to the increased demand and high prices.

One could speak of some positive implications of higher food prices, but this risks minimizing the hardship that rising food prices pose to the poor, particularly when they are across the board and sudden. If government measures are targeted at providing the poor with means to attain food security in this environment of steep and sudden price increases, it may not be disrespectful to point to two obvious positive implications:

• Farmers are benefiting from higher prices. The major complaint of the last decades has been that global prices are too low due to overproduction in subsidizing OECD countries, which causes distortions in the market and prevents developing country producers from benefiting from their comparative advantage. Higher prices mean new export opportunities and higher incomes for farmers, also in developing countries.
• Importantly, high food prices present a big opportunity to agree on a reform-minded Doha Agenda: with prices significantly higher than they were at the beginning of the negotiations, arguments in favor of border protection and market prices support are no longer valid. The US should have no difficulty whatsoever in meeting the domestic support cuts suggested in the modalities text released by Crawford Falconer on February 8. The EU commitment to phasing out export subsidies is also quite painless in this environment of high prices. Countries with high bound tariffs on agricultural goods, such as India, have already significantly lowered their applied tariffs in an effort to increase imports and decrease prices, and making further commitments at the level of bound tariffs should not prove overly controversial.

Given that the increase in biofuel production from agricultural feedstock is contributing to the rapid rise in prices, thought should also be given to the very ambitious mandates and tax incentives that are being put into place in many countries. Groups such as IPC have called for the elimination or substantial reduction of trade-distorting agricultural support in the past so as to increase commodity prices. We may need to consider whether to call for an elimination or substantial reduction in biofuels incentives (and tariffs) so as to decrease commodity prices.