Talk about your no-win situations. That’s what the Bush administration found itself in at the Doha Round negotiations that collapsed when China and India demanded the United States make “unacceptable” concessions on market access and farm subsidies.
Although U.S. officials appeared willing to make even more reductions in U.S. farm subsidies going into the negotiations in Geneva in late July, the governments of China and India and other developing countries were unwilling to match those with increases in access to their markets.
In fact, says Bill Gillon, the National Cotton Council’s trade counsel, WTO officials seemed intent on forcing the U.S. to cut its subsidies by 70 percent while allowing developing countries to have special product exemptions from tariff reductions for up to 13 percent of their product lines.
“The special products provision alone could effectively negate any market access gains that might occur from a formula tariff cut,” Gillon said. “It allows developing countries to designate 12 percent to 13 percent of their tariff lines as special, to take no tariff cuts on 5 percent of lines, and to take only a 10 percent cut in tariffs on special products overall.
“To put this in perspective, a 10 percent cut in a 40 percent ad valorem tariff leaves a 36 percent ad valorem tariff. Most economists agree that a developing country could use this level of special product provisions to shield virtually all economically significant tariff lines.”
This one provision effectively gutted all hope of significant market access gains in developing country markets for the United States, said Gillon.
Speaking at the NCC’s mid-year board of directors meeting, Gillon said the proposal was part of a compromise paper tabled by WTO Director-General Pascal Lamy that supposedly included the “middle” position on many of the areas of disagreement in the negotiations.
The special products exemption was not the worst of the Lamy paper and was not at the center of the collapse of the late-July ministerial that was supposed to get the seven-year-old Doha Round back on track, said Gillon.
“In addition to this and other loopholes, the Lamy proposal would have allowed developing countries to use a special safeguard mechanism to increase tariffs in some instances to levels that are higher than the bound tariff rates currently in place,” he noted. “In other words, the proposal could decrease market access for agriculture.
“It would have been a bizarre outcome if the United States brought back a negotiating text that actually decreased market access for some US agriculture exports.”
Despite the broad concessions offered in the Lamy paper, India and some other developing countries were still not satisfied. China also refused to participate in any meaningful way.
To their credit, Bush administration officials refused to cave in to India and China’s demands although it meant that negotiators came away from the mini-ministerial meeting with no breakthrough in the talks.
“U.S. agriculture’s message to U.S. negotiators was clear,” said Gillon “The United States is giving up $34 billion in allowable domestic support while getting virtually no market access in return and while allowing China to essentially take a free ride through these negotiations. This is unacceptable.”
Ambassador Susan Schwab, with the help of Chief USDA Economist Joe Glauber, refused to make any more concessions to India and demanded that China not be allowed to take a pass on market access commitments in either agriculture or NAMA.”
Gillon said that if the United States had left Geneva with the Lamy proposal intact, “there would be no credible argument that there was a balance between U.S. domestic support reductions and market access gains. The Lamy proposal seems to prove that a Doha Agreement based on the Falconer Text will leave worldwide agriculture with a skewed set of trade rules substantially in favor of large developing countries such as China and Brazil (named for New Zealand’s Crawford Falconer, chairman of the Doha Agricultural Committee).”
Lamy decided to schedule the mini-ministerial conference in Geneva because of concerns the coming U.S. election could delay further progress in the Doha Round negotiations until mid-to-late 2009.
“The fact he almost succeeded is a testament to Lamy’s considerable influence and determination,” said Gillon. “The fact that the United States almost found itself with a Doha Agreement that no segment of the U.S. economy could root for demonstrates how far off course this negotiation has gone.”
Gillon said the Lamy paper called for far greater cuts in U.S. domestic support, but contained far less in discernable market access. Exceptions to market access requirements have been built upon exceptions.
“As a result, the United States entered the Geneva meetings with little chance of closing enough of these loopholes to make a difference. Still, Administration negotiators went to Geneva with optimism and worked extremely hard for a deal.”
Lamy’s compromise paper called for:
• Greater reductions in US domestic support – a 70 percent cut from $48 billion to $14.4 billion in allowable support.
• Sensitive product exemptions from full tariff reductions on up to 6 percent of tariff lines for developed countries and by implication up to 8 percent for developing countries.
• Special product exemptions for developing countries for up to 13 percent of tariff lines, with 5 percent of tariff lines eligible for no tariff cut at all.
• A Special Safeguard Mechanism for developing countries that would allow developing countries to use safeguards to increase some tariffs above the levels that existed before the Doha negotiation began.
• Significant flexibility in tariff reductions for developing countries in the Non-Agricultural Market Access negotiations, along with a promise that the most important trading countries would agree to participate in at least two non-mandatory sectoral initiatives. Just participating in the sectoral would have allowed developing members to attain greater flexibilities from reductions in manufacturing tariffs.
“The Lamy paper crossed two lines the US had vowed it would not cross,” said Gillon. “No exemption that would allow some lines to be exempt from tariff cut and no provision that would allow a country to increase tariffs above currently negotiated bound rates.”