The ‘half-time’ agreement on the current World Trade Organisation (WTO) round struck last month (July) in Geneva was about building confidence worldwide, so that a final deal can be struck. It was an exercise in setting red lines, enabling rich and poor countries sufficiently to protect their key interests to be comfortable with bargaining over hard figures in duty and subsidy cuts. Keith Nuthall reports back.
As ever with the Doha Development Round, food and drink were at the heart of matters. This ‘framework’ deal struck by the WTO general council includes just enough numbers to guarantee poor countries a significant reduction in developed world food production subsidies. Similarly, it will allow richer countries – especially the EU – to continue paying millions of euros and pounds to producers. Crucially, developed countries have promised to slash 20% from all “trade distorting support” in the first year following the striking of a final agreement, and this covers schemes limiting production too, such as the EU’s set-aside grants. But the future of such subsidies would be protected. The framework deal allows them to continue if they “are made on a fixed and unchanging” yield of particular crops or numbers of livestock, or if they cover 85% or less of current production levels in a certain sector.
So far so good, but many more details must be agreed for a WTO ‘modalities’ agreement, that includes universal numeric goals for capping all food production and tariff supports. Doha round watchers will remember of course that such an agreement should have been struck last year and some cynics say the framework deal is about allowing WTO members to at least strike a deal about something, especially after last year’s barren summit at Cancun.
Just how “historic” is the Doha achievement?
This suspicion will only have been enhanced by the jubilant claims made about the deal by WTO director general Dr Supachai Panitchpakdi, who hailed it as a “truly historic” achievement. He added: “WTO governments have sharpened the focus of the Doha round and provided a foundation which will enable negotiators to continue these talks from significantly higher level; greatly enhancing our chances for successful completion of these important talks.” In truth, he will be hoping that a half-baked agreement will give member governments enough enthusiasm to cook up a Michelin-starred final free trade deal.
That said, it would be churlish to deny that member countries have made progress, notably underlining their resolve to ban export subsidies, even those paid by developing countries. Here members agreed that there would be a firm deadline for eliminating such payments and close relatives such as export credits, export credit guarantees or insurance programmes that have repayment periods exceeding 180 days. Although shorter-term programmes of this type will be spared the Geneva guillotine, they will have to abide by rules on interest payments, (including minimum rates), minimum premium requirements and other elements. Furthermore, special foreign trade enterprises, (such as those that have landed the USA in hot water at the WTO), will have to abide by rules opposing export subsidies, receiving government financing, and having losses underwritten. There was also a commitment to outlaw certain kinds of food aid as disguised subsidies, although further negotiations will be needed to define right and wrongs.
Developing countries must be reasonable
Crucially, developing countries will have to play ball. Although they will “benefit from longer implementation periods for the phasing out of all forms of export subsidies,” the key point here is that export subsidies must die, everywhere.
Cloudier language is used for the less stark forms of export support, where “appropriate provision for differential treatment in favour of least-developed and net food-importing developing countries,” will be made.
Blue, green boxes under intense scrutiny
And what of the WTO’s production subsidy ‘boxes’, as they are known in Geneva’s often baffling jargon? There are two being haggled over here. First the blue box, beloved of Europe as the home of set aside. Here, the European Commission – negotiating for all 25 EU member states – has agreed for the manacles to be slapped on and to come quietly. It conceded that subsidies linked to limiting production will not exceed 5% of a WTO member’s “total value of agricultural production during an historical period”, although the dates will be set later. That said, some featherbedding for Europe has been secured in that the deal allows “some flexibility” for members with “an exceptionally large percentage of its trade-distorting support in the blue box”.
On the green box – beloved of the United States, which takes pride in
claiming these direct payment subsidies do not corrupt free markets – Washington has accepted that its definition can be “reviewed and clarified … (to ensure they) have no, or at most minimal, trade-distorting effects or effects on production.” This is the trade off for Brussels, which has grumbled that US direct farm payments can indeed inflate prices and production. Furthermore, the review will allow “non-trade concerns” to be considered. This is a real sweetie for the EU, because it would allow farmers to be subsidised for such pet European concerns as taking care of beautiful countryside and being nice to animals.
Vague language on tariff reduction
As for reducing tariffs, there are weaker commitments in the framework agreement, although there is a general agreement about “substantial overall tariff reductions as a final result from negotiations”, the end of the Doha round is a long way off and “substantial” covers a multitude of sins. The devil is most certainly in the detail in this crucial area, and WTO members have yet to even agree how a formula for cutting tariffs might work. The number of tariff bands included in a deal, thresholds for such bands and the type of reduction within each group remains under negotiation.
This large amount of work underlines that a resolution to the round is a long way off: a modalities deal may not come until next summer, when the new (or re-elected) US administration has bedded in. Then would come at least two years of bilateral horse-trading to translate global goals principles into the nitty-gritty detail of which tariffs and subsidies, and when. One thing, however, was underlined by the framework deal, and that is that poor countries will reduce their tariffs by smaller amounts than rich nations, and will keep tighter limits on their import quotas for food. It is and remains the Doha Development Round, after all.