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TRADE
The Doha Round, Undead
After seeming buried for nearly a year, the multilateral trade talks might actually rise from the grave.
What if negotiators conclude a major trade agreement even though no one expects them to? Will Congress believe it is meaningful?
This is the dilemma facing the Bush administration and the World Trade Organization. At a time when many in Washington have lost hope that the Doha Round of multilateral trade negotiations will conclude successfully, a breakthrough in the six-year-old talks now seems distinctly possible, maybe even imminent.
“We have it within our means, politically and technically, to finish the Doha Round this year,” WTO Director General Pascal Lamy told National Journal in an interview during his recent visit to Washington. The administration shares his optimism. And K Street lobbyists now expect a rush to complete an agreement.
This does not yet mean that a deal is certain. The first test will come at a meeting of trade ministers in Geneva in mid-May to bless plans for cutting farm and manufacturing tariffs. Then negotiators will pursue a similar breakthrough on the international trade in services.
The obstacles, as usual, will be in the details. Frank Vargo, vice president of international economic affairs at the National Association of Manufacturers, cautioned that the deal must have some real substance if it is to pass. “This is about trade liberalization, not about getting to the finish line,” he said. Without tangible market gains abroad for key U.S. companies, congressional approval of a final Doha agreement—which, given the negotiating calendar and the U.S. election, cannot take place until next year—may prove impossible.
In all trade negotiations, however, there comes a time to cut a deal. And that day of reckoning appears to be at hand. President Bush wants an agreement before he leaves office. Aides say that he genuinely believes in the advantages of freer trade; cynics say that Bush wants a deal to burnish his legacy. Whatever the reason, some of the foot-draggers in the negotiations—Brazil is one—now think that it is more advantageous to make a deal with a lame-duck Bush administration than to take their chances with the next U.S. president, who may be less inclined to push new trade deals and certainly will be distracted by a long list of other problems.
In addition, rising food prices are forcing some developing countries to cut import duties on agricultural commodities to make them cheap enough for their people to buy. If these countries are going to liberalize their trade anyway—just to feed their people—they figure, why not get something in return in the Doha negotiations?
Moreover, Lamy said, the various players “are starting to realize that there is something they will get if the round is concluded and that they won’t get if it is not concluded.” In particular, Lamy argues that lowering the worldwide ceilings on allowable tariffs will make it harder for countries to raise import barriers in tough times, and that will make the trading system more predictable.
The collective definition of success seems to have changed recently, too. For years, the Bush administration said that no deal was better than one that lacked “high ambition.” Now the definition of success seems to be modest improvement in trade liberalization.
Reports out of Geneva, home to the 151-member World Trade Organization, indicate that major agricultural exporters and importers have agreed to a formula for cutting duties on foodstuffs, while granting exemptions for some farm products that are politically sensitive in individual countries. The steeper the overall tariff cuts a country agrees to, the more generous the exemption on individual food items. But nations will still have to allow some increase in agricultural imports.
Observers say that the Bush administration has already previewed the outline of this deal for powerful U.S. farm lobbies, whose support will be necessary if the ultimate agreement is to pass muster on Capitol Hill. The groups seem satisfied, so far, with the increased market access they will receive for poultry, beef, and pork. “They are at least 90 percent there,” said Clayton Yeutter, a former U.S. trade representative who also served as Agriculture secretary.
The U.S. farm bill now awaiting action in Congress may not be as great an obstacle as experts originally predicted. Yes, the legislation is likely to increase American agricultural subsidies. But with the high prices that U.S. farmers get for their crops now, Washington may never have to spend that money. So trade negotiators believe that any contradiction between a Doha agreement that cuts subsidies and U.S. farm legislation that raises them may prove moot.
But the Bush administration will have to agree to more cutbacks in subsidies for politically powerful cotton interests in Texas and the rest of the South. The WTO ruled the American cotton-support program illegal, and subsequent U.S. reforms have yet to fix the problem to the organization’s satisfaction.
A potential breakthrough in liberalizing the trade in manufactured goods is more tenuous. Conceptually, the proposed trade-off—deeper overall tariff cuts and greater flexibility on exemptions for individual products—parallels that in agriculture. But in many emerging markets, the industrial tariff that already applies to imports is far lower than the duty that countries are legally allowed to charge. The deal will have to cut into the actual applied rates, Lamy said, not just reduce the legal upper limit, especially if politically influential manufacturers in Europe, Japan, and the United States are to gain new market access.
However, Vargo warned, “getting some cuts in some applied rates will not be enough.” He wants any deal to include zero tariffs for some key industrial sectors, such as electrical machinery and chemicals. U.S. negotiators have signaled that other nations’ willingness to engage in such industrial-sector agreements would make Washington more flexible on how deep the overall tariff cuts have to be.
China, too, may be a sticking point. South Africa and others want to shield their domestic manufacturers from some Chinese competition. It’s not clear whether China will be forthcoming.
The final stumbling block could be a deal on the trade in services—legal, financial, insurance, and other cross-border services—at which the United States and Europe excel and for which they want greater access in emerging markets. Developing nations have withheld liberalizing offers in the services negotiations until they see what they stand to gain from industrial nations in the manufacturing and farm talks. As a result, said Bob Vastine, president of the U.S. Coalition of Service Industries, “the offers on the table in services are of virtually no commercial value.”
Around the time that trade officials are expected to meet in Geneva in May, Lamy will host a “signaling conference,” at which countries will give one another a peek at their bargaining positions on the services talks. If that goes well, WTO officials hope to see real progress by the end of August. “The final round of offers will only take place when nations are convinced the train is going to leave the station,” Lamy said.
With fewer than two dozen countries seriously involved in the services talks, those negotiations are manageable. But tough issues, such as India’s demand for liberalizing immigration so it can send more of its trained workers abroad, remain unresolved.
Congress might still balk at last-minute changes in trade enforcement rules, such as the antidumping code, which lets American companies sue foreign firms they allege are selling products in the United States for less than their cost of production. So far, the talks on these issues have made no progress. “Anything that is seen as significantly weakening the trade rules will have hard going on Capitol Hill,” Vargo said.
Given the amount of time it will take to iron out all of these details, the best the Bush administration can hope for is to sign a Doha deal by December. It will probably be up to the next administration to gain congressional approval.
If the Democrats win the White House, leaving the final WTO negotiations to the next administration may offer some advantage. The new president will have ownership of the agreement and thus may be more willing to spend political capital to get it passed. This is exactly what happened in 1993, when the Clinton administration inherited a Uruguay Round trade agreement on the 5-yard line and drove it into the end zone.
But whoever carries the ball on this deal on Capitol Hill next year, the White House will need the help of U.S. businesses. Right now, the Doha accord looks modest at best, will undoubtedly antagonize some interests, and will face a Congress that is decidedly skeptical about new trade agreements. Observers agree that the final deal has to create a few big-time, headline-grabbing winners—such as Federal Express getting new express mail access abroad—to ease what could be a bruising fight for passage.
After years of stalemate, a breakthrough in the Doha Round now appears on the horizon. Whether it is real or just another mirage should be apparent by summer.