In late July, global trade talks at the World Trade Organization (WTO) were suspended indefinitely because key countries could not agree on how deeply to reduce tariffs on farm products and farm subsidies. Efforts to revive the negotiations thus far have come up short. EU Trade Minister Peter Mandelson and U.S. Trade Representative Susan Schwab continued their dialogue this week in Washington—a promising sign that now must be followed by tangible concessions by the United States and EU, as well as India and other major players, on the sensitive subject of agriculture. Without real concessions, these talks will fail, and the world will lose an important opportunity to integrate the poorest and most marginalized countries into the global economy.
For the first time in the 50–plus–year history of the multilateral trading system, development is a primary focus of global trade talks. While the promised development intentions have not always been evident, overall there have been some clear developing country wins. These include a commitment by wealthy countries to open their markets to exports from the poorest countries, which, if fully realized, would raise income by an extra $7 billion in countries such as Bangladesh, Tanzania, and Cambodia. It includes a commitment on Aid for Trade—a promise by wealthy countries to provide more money to help developing countries to boost their export competitiveness with new ports and better communications infrastructure. It also includes a commitment to focus extra attention on distortions in global cotton production, which if addressed, would raise incomes in sub-Saharan Africa.
These development wins will likely be lost if the talks fail. Others under consideration, such as further opening developed countries to the temporary migration of workers, are jeopardized. Of greater concern is that wealthy countries may shift their attention to negotiating bilateral and regional trade deals with other wealthy trading partners. These deals not only leave out poor countries, but also undermine the multilateral trading system, where they have the most to gain.
Developed countries also stand to lose. The agriculture divide has stalled important parallel negotiations on services and industrial goods, where new liberalization promises to spur global growth and job creation among developed and developing countries alike.
Given what is at stake, walking away is not an option. The key to the Doha Round has always been, and remains, breaking the agricultural impasse. We propose three steps that could lead to doing so.
First, the United States must make deeper cuts to its farm subsidies, a priority for big agricultural exporters like the EU and Brazil. The United States put forward an offer last year. However, the U.S. offer is less far reaching than its billing because it shields some current spending on trade distorting subsidies by redefining and reallocating certain U.S. programs into a new category of spending. This is not sustainable for many reasons, including the fact that it flies in the face of the stated U.S. commitment to free trade. An easy place to start is for the United States to forgo its proposal to reclassify existing trade distorting subsidies in order to protect them. The United States should also shift more of its spending into conservation and rural development, much as the EU has started to do. Finally, as a gesture of goodwill, the United States should offer to fully conform to a recent WTO ruling that certain U.S. farm subsidies are illegal.
Second, demands by wealthy countries to exempt certain farming sectors must be rejected. This effort, which protects Swiss dairy farmers, Japanese and South Korean beef and rice producers, among others, hurts developing country agricultural exporters like Thailand that could sell to these lucrative markets. In addition, the overall EU proposal to essentially shield its market from meaningful liberalization should be rejected. The EU proposal, which would deny access to the EU market for developed and developing countries alike, also provides cover for other wealthy and middle-income countries to do the same. Such exemptions make it less likely that the Bush administration will make politically difficult cuts to farm spending.
Third, creative solutions are needed to address India’s concerns about its 600 million rural poor. India has sought to protect subsistence farmers and their families by exempting a large swath of farm products from tariff cuts. That position is understandable in the short term, but it is not a long-term path to growth. Economic expansion and modernization in India will result from a transition from farming to manufacturing and services, and will require a commitment to fundamental reform. One way through this thicket is to allow some exemptions and, for the remaining products, allow India to avoid tariff cuts for a significant period, at least fifteen years. During that transition period, India should receive targeted Aid for Trade assistance aimed at helping small farmers either increase productivity or transition into other sectors.
Of course, the aforementioned proposals are difficult for the key players and other WTO members. Farmers are a politically powerful constituency, even in a country like the United States, where they account for less than 2 percent of the workforce and GDP. They present a compelling story in India, where even in poverty, they dominate the economy because of their sheer numbers. Yet the status quo is unacceptable because it not only fails to address the real needs of farmers, but also is blocking further progress on broader trade liberalization, including in areas beneficial to the poor. The key players should look at the steps outlined above, both for their own good, and to advance the goal of sustainable global development.
Viji Rangaswami is with the Trade, Equity and Development Project at the Carnegie Endowment for International Peace, and is a former professional staff member of the House Ways and Means Trade Subcommittee.
Lionel C. Johnson is Vice President and Director, International Government Affairs at Citigroup, and is a former U.S. Deputy Assistant Secretary of the Treasury for International Development, Debt and Environment Policy.