Archive for November, 2010

Waiting for Doha

Could currency concerns poison WTO progress?

World leaders have set themselves yet another deadline for completing the World Trade Organisation’s Doha Round. The trade talks, launched in 2001 and tipped for completion in 2005, 2008 and then 2010, should now be wrapped up in 2011, according to last week’s G20 declaration.

Doha is fast becoming the global economy’s answer to Waiting for Godot. Like Beckett’s absent hero, a Doha deal is constantly talked about but never comes around. And as with Godot, you begin to wonder whether those who talk about Doha really know what it will look like when it finally arrives.

On the surface the signs are now good. The G20 – comprising all of the key players at the Doha table – identified 2011 as a window for completing the talks. Presumably the prospect of US elections in 2012 is enough to convince leaders that America’s wavering commitment to Doha must be tapped before pre-election posturing snuffs it out.

Leaders also voiced a willingness to pick up where they left off in 2008, the last serious round of talks between trade ministers. At that point, a fortnight of negotiations in Geneva yielded a complex web of trade-offs which all parties were willing to work from. The gist of it was big domestic subsidy and tariff reductions for the EU and the US, and significant slashing of industrial duties in the developing world (a term taken to include the likes of China and India in WTO parlance). For the world’s very poorest there would be only minimal tariff reductions, in order to ensure that Doha remains the development round it was initially branded as.

While the Seoul G20 meeting sent the political signal, the technical groundwork is thought to be moving ahead in Geneva, allowing officials to tidy up the edges of the 2008 compromise and work out how to agree the outstanding issues.

Exiting crisis is key incentive

So will the G20 countries be as good as their word when they sit down with other WTO members at the Doha negotiating table? Will they be willing to hammer out the necessary end-game compromises in order to get a wide-reaching, multilateral trade deal through? On one hand the world’s current economic woes in the wake of the financial crisis appear to be working in favour of Doha. Developed countries have tried a host of remedies since the crisis, but American unemployment remains high, European government debts are still undermining confidence, and Japan’s fledgling growth is predicted to grind to a halt as a strong yen curtails its exports. Governments across the world are insisting that once their stimulus packages subside and domestic spending incentives disappear, the real recovery must be export-led. With little prospect for raising domestic demand in the advanced economies, the prospect of multilateral tariff reduction, and fresh access to a host of foreign markets, should be mouthwatering.

And striking a world trade deal is not impossible. It was done in 1994 between the 123 members of the WTO (the organisation has subsequently expanded to 153 members). The current climate may not seem conducive to multilateralism, but that did not stop some 190 countries signing up to landmark biodiversity and genetic resource sharing deals in Nagoya last month.

Clash over currencies

So what would stop the big economies following through on their pledge to wrap up Doha next year? The reasons are in fact manifold. While penning last week’s commitment to finish Doha, G20 leaders were in fact busy haggling over competitive currency devaluations. The issue holds major potential to sour the trade climate. China stands accused of keeping the renminbi artificially low in order to boost its exports, while the US – principal prosecutor of China – is now in the firing line after the Fed’s decision to inject some $600 billion into the US economy, a move which could further weaken the dollar.

With this level of distrust circling around exchange rates, countries will be loathe to agree to tariff cuts and state aid reductions which would could pit their own producers against foreign competitors who are suspected of receiving the biggest export subsidy of all: a permanently undervalued currency. The logic was exposed recently when French agricultural think tank Momagri claimed that undervaluation of the dollar and advantageous central bank rates handed American farmers the equivalent of a €25 billion subsidy over their eurozone counterparts from 2008-2009. French farmers net some €10 billion of EU support annually; when criticism of trade distorting farm subsidies emerges from Paris, it is clear that something is up.

Currency fears destroy the vision of a level playing field once border duties are whittled away; in doing so they devalue Doha’s biggest prize: tariff cuts.

EU priorities diverging from Doha

Exchange rate fluctuations are by no means the only non-tariff issue which could hold back WTO progress. The EU has been one of the biggest proponents of a Doha deal, but even Brussels now appears to be turning its attention elsewhere. A new Commission ideas paper entitled Trade, Growth and World Affairs states: “Cutting tariffs on industrial and agricultural goods is still important, but the brunt of the challenge lies elsewhere. What will make a bigger difference is market access for services and investment, opening public procurement, better agreements on and enforcement of protection of IPR (intellectual property rights), unrestricted supply of raw materials and energy, and, not in the least, overcoming regulator barriers including via the promotion of international standards.”

Achieving any of these things is difficult at the WTO. Most of all IPR. The EU prides itself on its regional food specialties such as Parma Ham and Roquefort cheese, and uses a system of geographical indications (GIs) to reserve each term for foodstufs meeting defined production conditions in the region in question. Gaining international recognition of GIs is near the top of the EU’s Doha wish-list, but remained one of the major unresolved issues in 2008, coming up against resistance from the US, Australia and a host of other countries who are keen to prevent what they see as generic food terms being put out of bounds for their own producers.

Bilateral benefits

Making progress on this type of issue is more likely in the remit of a bilateral trade deal, where the EU can offer its own specific concessions as a quid pro quo for GI recognition. Country to country, or region to region agreements, not least the current attempts to strike a deal between the EU and Mercosur (Brazil, Argentina, Uruguay and Paraguay), appear to offer more scope for tackling the non-tariff issues which specifically bother each side. In the EU/Mercosur case, it may help the negotiating mood that the competitive devaluation charge has not been seriously levelled at the euro, the pound, the real or the Argentine peso.

Bilateral trade deals do not make a global accord more complicated, but only less urgent; they cannot deliver the same aggregate market openings as Doha, but are nonetheless seen as capable of delivering a key economic boost, and are far easier to complete in a period of diversifying trade concerns and general distrust over currency manipulation. For these reasons the G20′s latest WTO deadline may be simply another act in the Waiting For Doha saga.

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