EU in the Media

A Deal Can Still Be Salvaged from the Doha Ashes
By Peter Mandelson

Financial Times; Published: July 30, 2006; 19:37

Now that the smoke and fire have cleared from the suspension of the Doha talks, we should ask what phoenix can be summoned from the ashes. The current stalemate is due more to politics than personalities. All parties are exporting domestic political constraints into the negotiations.

Europe will go as far as its 2003 agricultural reform programme will allow. Some in Europe would like to go further. But there is no political consensus for this – certainly not when people see what is being offered in return. The US, which has not yet embarked on reform of its farm subsidies, does not want its changes to be prescribed by the World Trade Organisation. Some advanced developing countries are demanding more access to others’ farm markets. The rest insist on maintaining tariffs so as to protect farm markets. Both demand an end to trade distorting subsidies in the rich world.

It is a complex political picture – even before we get to the equally important questions of industrial tariffs and liberalisation of services, where the bulk of the economic gains exist.

Yet the positions in agriculture are not irreconcilable. They require that the European Union lift its average tariff cut close to that requested by the developing countries and ensure that we offer real new market access on our most sensitive import products. This is difficult but doable.

In farm subsidies, where the EU’s reforms are already cutting historically high payments, the US has to cut no more than a few billion dollars worth of trade-distorting support from what it presently spends. Again, politically hard with mid-term elections in November, but not impossible.

The talks broke down on the US belief that it was being short-changed by the flexibility in agricultural market access indicated by the EU and developing countries. This led it to decline to offer an effective cut to its subsidies.

Commitment to farm reform in the US is fragile. American negotiators believe that their ability to persuade Congress to cut subsidies depends on others’ markets being opened extensively to US crop producers. But developing countries say they are prepared to import more US farm goods but not US farm subsidies. As Kamal Nath, the Indian commerce minister, has said: “We don’t mind competing with American farmers but we cannot take on the US Treasury.” The US needs to show what it is willing to do if it wants clearer answers on market access.

The EU in turn has an obligation to say exactly how its offer will benefit US and other exporters, but the effect of a 100 per cent elimination of export subsidies, a 75 per cent reduction in trade-distorting farm support and a 50 per cent tariff cut cannot be dismissed. All three numbers count, because subsidy cuts will see EU producers withdraw dramatically from global export markets. It is wrong to claim that this offer will be emptied of content by recourse to “sensitive products”. The EU can reduce the number of sensitive products and offer improved market access even in this category.

Doha is now losing the race against time. It cannot now be concluded by the end of 2006. This means that the fast-track negotiating authority granted to the US president by Congress will probably expire before a final deal can be approved. As things stand, unless George W. Bush persuades Congress to renew his negotiators’ mandate, the talks have little prospect of concluding for some years.

There are reasons – partly economic and partly political – why Mr Bush may choose to put this to Congress. He is a free trader. He believes in expanding trade and opening markets as the best way to generate and distribute wealth in the global economy. He is not ideologically committed to subsidies, nor is Mike Johanns, his pro-reform agriculture secretary.

Politically, Mr Bush will know that the death of the round would be cheered by the wrong people. A failure of Doha would strengthen those who want to turn their backs on globalisation and retreat into protectionism. It would undermine the WTO system, which has brought stability and predictability to the global economy. It would make it much harder to anchor China, India and other growing economies into an open, fair and multilateral trade system. What is at stake if we fail greatly outweighs the relatively small gaps that divide us.

We must avoid burning our bridges. We should try to find a way back to the table. None of us will get all we desire and, indeed, Europe has already dropped many of its aspirations for the round. But the costs of no agreement are far greater than the inconveniences of a less than perfect one.


The writer is EU Trade Commissioner.