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Impasse Over Agriculture Threatens WTO’s Hong Kong Meeting

BY Anna Shoup  December 9, 2005 at 5:30 PM EST

Attempts in recent weeks to hammer out a deal on agriculture trade — the sticking point of the round’s negotiations — have not made significant headway. Economists say they cannot predict whether the meeting will pave the way for a successful conclusion to Doha or go the way of the 2003 talks in Cancun that collapsed without a consensus.

The Doha Round, launched at a ministerial conference in Doha, Qatar in 2001, focuses on the development of poorer countries by establishing a fair, open, market-oriented system that economists say will give a much-needed boost to emerging markets.

Agriculture trade accounted for $783 billion in 2004 — only 8.8 percent of global trade by WTO calculations — but remains the sector with the highest protection and trade distortion.

The Hong Kong conference was originally expected to seal the deal on Doha, but the impasse over agriculture has placed significant strain on negotiations, enough that some economists consider the upcoming talks a make or break for Doha and possibly the future of the WTO.

“If there’s not a deal at Hong Kong, Doha’s dead,” said Robert Dunn, an economics professor at the George Washington University’s Elliot School of International Affairs.

Negotiators missed the original Jan. 1, 2005 deadline to conclude the Doha Round and have unofficially pushed it back to the end of 2006.

“Hong Kong can push the negotiations forward to stimulate more negotiating activity in 2006 but will not provide the breakthrough that was hoped would be made by this time,” said Jeffrey Schott, a senior fellow of international trade policy at the Institute for International Economics. “Hong Kong is one meeting, a weigh station on the road to a final agreement but it’s important because the progress to date has been insufficient.”

Under the WTO’s Agriculture Agreement, members committed to improve market access and reduce trade-distorting subsidies. The foundation of current agricultural negotiations rests on three pillars: market access, domestic support and export subsidies, as established in the July 2004 framework for agricultural negotiations.

At the WTO meeting in Hong Kong, many developing countries with an advantage in food production will push for farm reform before even considering deals on services and manufacturing goods, placing intense pressure on a deal, some economists say. “If there are not substantial results on agriculture, there will not be substantial results anywhere,” said Schott.

As a trading bloc of 25 member states, the European Union accounts for nearly half of the world’s agriculture trade. It exported around $344 billion and imported $373 billion in 2004, including trade between EU member states. The United States remains a distant second accounting for around $79 billion in exports, or a 10 percent share in the world, according to the WTO.

Despite the large figures, agriculture accounts for less than 10 percent of the U.S. and EU total merchandise exports. Emerging markets pushing for reform, such as Brazil, India and Argentina, rely much more heavily on income from agricultural exports. Brazil’s farm exports alone equate to more than 30 percent of its total merchandise exports; Argentina’s almost 50 percent. In Ethiopia, Belize, Nicaragua and Paraguay, more than 80 percent of exports come from agriculture sales.

In early October, U.S. Trade Representative Rob Portman released the American proposal for global agriculture reform. It called for WTO members to aggressively reduce tariffs by 90 percent in the most developed countries within the next five years. The G20 group of developing countries proposed a 75 percent cut.

The U.S. plan also calls for the elimination of export subsidies by 2010. Critics complain the U.S. timeline is too slow and the current system will put producers in poor countries out of business before reforms kick in.

Portman will be hard-pressed to sell his proposal to Congress without significant change in manufacturing and services trade. While the plan has the support of President Bush, all trade agreements must be approved by a Congress that has passed bills with large subsidies for American farmers.

Adding even more pressure to the Hong Kong talks is the looming expiration of President Bush’s “fast track” negotiating authority. With the fast track mandate, the president’s administration can negotiate trade deals and submit them to Congress for an up-or-down vote without the possibility of facing amendments. It is set to expire on July 1, 2007, meaning Doha could be the last chance to finalize a deal using fast track authority.

In response to Portman’s plan, the EU proposed tariff cuts of 60 percent for rich countries, an offer the United States and the G20 called substandard. It also marked 8 percent of all tariff goods as “sensitive products” including beef, chicken and sugar that would be untouched by reform.

The United States and the G20 proposed cutting sensitive items to 1 percent.

But in the most contentious area of reform — subsidies — the EU agreed to cut only 70 percent equating to $26.7 billion in payments to farmers. The U.S. plan cuts American subsidies 60 percent to $7.6 billion.

Peter Mandelson, the EU’s trade representative, also could face problems convincing EU members to agree on further cuts in its Common Agricultural Policy that was already scaled back in 2003 and 2004. Though Mandelson holds a mandate to negotiate for all 25 member states, he must balance an internal divide between protectionist countries led by France and countries calling for CAP reform in exchange for progress in industrial goods and services trade.

Though farmers represent only 4 percent of its workforce, France has said it will veto a deal that contains significant subsidy cuts.

“The internal challenge that Commissioner Mandelson faces is that of convincing France and other that the promises he has already made on agriculture do not imply any further reform of the CAP,” said Alan Swinbank, the director of the Center for Agriculture Strategy at the University of Reading in Britain.

Because the EU cannot change major agreements such as the CAP without a consensus, France could block an unwanted trade deal, leading to what Swinbank calls a “constitutional crisis in the EU.”

France and other farming nations in the EU receive large subsidy payments through the CAP — payments developing countries see as excessive and want eliminated.

“It is completely unfair for our farmers to compete with the treasury of wealthy countries,” said Brazil Minister of Foreign Relations Celso Amorium in an interview with Agencia Brasil. “This is the reason why agriculture is at the heart of the Doha Development Agenda, and is so important for developing nations.”

Even developing countries meant to be the main beneficiaries of agricultural reform and liberalized trade have differing interests depending on their relationship with richer nations. Small developing countries with preferential treatment from the EU, especially in the sugar market, are resistant to any changes in the CAP that would eliminate their advantages to European market access.

But most poor countries want serious changes in the current system that will benefit their economies. Without a deal on agriculture, Brazil, India, China and the group of Least Developed Countries that depend heavily on agricultural production won’t offer proposals to open their services and manufactured goods markets to foreign trade. The G20, led by Brazil and India, is pleased with the U.S. proposal but called on the EU to improve its offer.

“Without a deal on agriculture, the LDCs will walk away,” said Dunn, who said he fears that Hong Kong has the potential to be the first GATT/WTO round to fail. “It could be a terrible failure for the system. The French have painted themselves into a corner and it’s going to be hard to extricate them.”