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Wednesday, July 30, 2008

Why did the Doha talks collapse?

Most news reports on the breakdown of Doha have focussed on the issue of so-called safeguard mechanisms as an explanation for failure. These mechanisms are designed to allow developing countries to protect their farmers from surges in imports. India, China and the US could not reach agreement on the issue.

The safeguard mechanisms are widely acknowledged to be a comparatively small part of the talks. So why have they been assigned such prominence? This is in part because media analysis, at least in the short-term, will generally tend to look at the more immediate factors for a given event. And it is certainly true that the issue of safeguard mechanisms was an important factor in the immediate term.

However, there are longer-term factors that offer a more useful explanation for the demise of Doha. Trade negotiations are inevitably based on reciprocity – large developing countries will quite reasonably expect significant commitments on market access from the developed world as the corollary to opening up their own markets.

Viewed in these terms, a large portion of the blame must be assigned to the EU.

From the start, the EU negotiating position has been characterised by a toxic combination of stinginess and inflexibility. During the Geneva talks, the EU did not make any new concessions on tariff reductions relative to the 2006 position. Last week, Mandelson attempted to spin that the EU had proposed reducing farm tariffs by 60% - up from the pre-existing offer of 54%, calling it a "a very considerable improvement on our own part." However, EU Agriculture Commissioner Mariann Fischer-Boel and French Trade Minister Anne-Marie Idrac admitted that the offer was "nothing new" - the difference between the two figures was merely down to whether tropical products were included in the tariff cut calculations or not.

Even during this round of the talks, it was very unclear that Mandelson had a firm negotiating mandate from EU member states, let alone the ability to make any improved offer on market access. French Trade Minister Anne-Marie Idrac stated that the EU would refuse to compromise on opening its markets for farm goods: “We can’t go further; we won’t go further on agriculture and we expect more open market access from emerging countries”. The explicit threat from Nicolas Sarkozy to veto even the current deal went even further in undermining the credibility of Mandelson’s position. Combined with significant pressure being applied by politically important Irish farmers, these factors meant that the EU offer could never inspire much confidence amongst the other negotiating parties at the Doha talks.

Although the EU tried to spin that it was offering to reduce farm subsidies under the CAP, this was simply untrue. EU Agriculture Commissioner Mariann Fischer Boel gave categorical assurances to farmers that the negotiating text under discussion at the WTO talks would not affect EU farm payments now or in the future. "The EU has complete freedom to do what it wants with single-farm payments from the Common Agricultural Policy [CAP] before and after 2013 under the current negotiating text," said Ms Boel's spokesman. The Commission confirmed to EU ministers that the proposed Doha text would have no impact on the levels of EU payments to farmers because of reform of the CAP in 2003, which reduced production-linked subsidies to farmers – the type of farm support the Doha proposals refer to.

Given the intransigence of the EU on market access and farm subsidies, it's understandable that large developing countries were unwilling to take a more accommodating stance on opening their own markets. India and China would have no doubt taken a less defensive approach to the question of safeguard mechanisms if they felt they were being given a fair deal on market access from the developed countries, especially the EU, the largest of these markets. In the event, these countries knew they were being sold a pup – so it’s hardly surprising that they were unwilling to roll over and do as they were told when the safeguard mechanisms came up for discussion.

The question of safeguard mechanisms was merely the final straw that led to the collapse of talks. The real underlying reasons go far deeper.


3 comments:

Jack Thurston said...

Nice try, but not so.

The Commission has conducted it's negotiations in the Doha round rather well, both in terms of helping developing countries within the limits of political feasibility and in terms of getting a much more pro free trade policy than would be the expected sum of the 27 member states positions. It is a case of the EU leveling up rather than leveling down and should be welcomed.

In the Doha Round the EU learned the lessons of its disastrously defensive posture in the Uruguay Round. In taking two important unilateral steps the EU was able to get onto the front foot for much of the negotiations, and it is fair that the US and India should shoulder much of any blame for yesterday's collapse.

Those two steps were:

1. Unilaterally opening EU markets to 'everything but arms' from the world's poorest countries. While there is some ironing out of rules of origin still needed, this was a big and positive move.

2. Decoupling farm support from production, thus freeing farmers to farm the market and reducing much of the CAP to a residual farmer welfare policy that is unlikely to survive the EU's own internal budgetary process and the WTO's dispute settlement process.

Significant further market opening and binding of tariffs plus a firm pledge on ending export subsidies were subsequently agreed in the negotiations.

I know Open Europe's mission is to try to find a way to make every world event a pretext for bashing the EU, but on this one, as with many others, I fear you've over-reached yourselves.

Open Europe blog team said...

Hi Jack,

We're not so sure that these unilateral steps you refer to would have been really sufficient to get the EU on to the front foot, or to convince other negotiating parties of the EU's willingness to make a valuable offer.

Take the Everything But Arms arrangements. As you'll be aware, the EBA does not apply to many large developing countries (Nigeria, India, China, Pakistan, even Kenya..) where most of the world's poor live.

One of the other intrinsic flaws in EBA is its very restrictive Rules of Origin requirements, which a) prevent EBA beneficiaries moving up the value chain by processing inputs from larger developing countries (contrast with US African Growth and Opportunity Act allowing textile manufacturers in Lesotho to benefit from denim imports from China); b) mean that export opportunities from large developing countries to EBA beneficiaries are comeasurately reduced, thus meaning EBA brings little benefit to the former. For this reason, there is little reason why the big WTO players like China and India should see EBA as a valuable market opening move on the part of the EU.

As for CAP decoupling, this hasn't really reduced the amount of money farmers are actually receiving, and (on the basis of the CAP healthcheck) there seems little evidence that there is (as you suggest) much of a threat to the continuation of this state of affairs... In any case, as the OECD and World Bank point out, most of the 'real' subsidies European farmers enjoy are the result of tariffs rather than income support.

As for the EU's offer on market access on farm goods, this was lower than that offered by other WTO parties (the US offered 66%), and (crucially) was peppered with special conditions for 'sensitive' products which eroded the value of the offer still further.

For a more detailed critique of the EU position at Doha, see our earlier paper:

http://www.openeurope.org.uk/research/fiveways.pdf

Our criticism of the EU's negotiating position at Doha isn't borne of some sort of visceral urge to 'bash the EU' at every opportunity, as you suggest (!)...
We have long been arguing that the EU stance on trade represents a major policy failure on the part of the bloc, and we think the facts back us up on this...

Jack Thurston said...

I recognised in my comment the problems of EBA in relation to rules of origin. As to India and China, well I think you can see the problems there. The 50 LDCs was a very good start.

And on decoupling, I'm not suggesting that EU farm policy is a whole lot better than before rather that it is a whole lot less trade-distorting (a whole lot more WTO-compliant) and that this was a smart move by Franz Fischler.

But I put the question to you directly: is the EU negotiating position in the DDA more to the free trade or or more to the protectionist stance than your guess as to the 'weighted sum' of the positions of all 27 member states? My strong suspicion is that the Commission is very much leaning against a protectionist wind in many member state capitals.

If the EU's negotiating position on Doha had been put to a referendum in each member state, I am certain it would have been rejected by the vast majority on the grounds of being too free-market. Perhaps the only two countries that would have accepted it are the UK and Sweden. Maybe Denmark and maybe the Netherlands. But otherwise I think it would have been sunk.

Fortunately we don't put the EU's WTO negotiating position to referenda... Although you lot seem to be big fans of referenda so maybe in future we should!