World trade: Deadlocked in Doha

Date: 29/03/03

The Doha round of trade talks is in deep trouble - thanks mainly to the European Union

MISSED deadlines are a hardy perennial of world trade talks. The Doha round, launched in November 2001, is no exception: a deadline of end-2002 for agreement on the compulsory licensing of patented drugs has already passed. So the failure of trade negotiators to agree by March 31st on how to cut trade-distorting farm subsidies seems almost routine. After all, say the optimists, the real deadline is a ministerial meeting in Cancun, Mexico, in September. Even then, the round is not due to finish until January 2005, and all trade rounds end in a flurry of last-minute bargaining.

Yet it would be a mistake to be sanguine about the prospects for Doha. The launch of the round took compromise on all sides, which is why a first attempt in Seattle in 1999 came notoriously unstuck. The Doha deal was struck in the wake of September 11th 2001; the Americans successfully pressed other countries to see support for the World Trade Organisation (WTO) and further trade liberalisation as, in effect, part of the response to global terrorism. Today's background of bitter divisions over war with Iraq could hardly be more different.

Besides, the round's troubles concern more than just missed deadlines. Almost no progress has been made since it began, for one big reason. Although the Doha agenda is broad, embracing industrial tariffs, services, anti-dumping rules and so on, one issue lies at its heart: agriculture. Developing countries feel that they were short-changed in the previous Uruguay round, and are determined not to let it happen again. Their priority is farm-trade liberalisation. But rich countries are not ready to cut subsidies to farmers.

America is at best hypocritical over this: the monstrous farm bill signed by George Bush last May raised subsidies to farmers by 80%. But the Americans have since proposed to cut all farm subsidies to no more than 5% of the value of production, and to abolish all export subsidies. Japan has, as usual, been wholly unhelpful: unbelievably, it has proposed in the Doha talks to reduce its already tiny quota on imported rice. But the real villain of the piece is the European Union, which has failed to produce any serious proposals to reform its disgraceful common agricultural policy (CAP).

The European Commission, with support from such countries as Britain and the Netherlands, is doing its best. But last October the French president, Jacques Chirac, made a deal with the German chancellor, Gerhard Schröder, to keep CAP spending broadly unchanged until 2013. The French interpret this as putting off substantial CAP reform. France has resisted efforts to reopen the deal, even though the commission has suggested ways of redirecting CAP spending to less trade-distorting subsidies paid direct to farmers.

If agriculture is blocked, could Doha go ahead with the rest of its agenda and exclude farm trade? No. Developing countries have rightly made clear that, if there is no farm-trade liberalisation, there can be no round. So might the Doha deadline be extended? Probably, yes: the Uruguay round overran by three years, until final agreement was reached in April 1994. But France wants to retain the CAP unreformed until 2013. There is no way the Doha round could be prolonged that far without the entire system falling into disrepute.

Capping the damage

The fall-out from a Doha failure would be immense. Bilateral disputes that are now on hold, such as America's tax regime for exports or the EU's ban on imports of genetically modified food, would return. The quarrel over America's steel tariffs (ruled illegal this week by the WTO) could worsen. America could lose faith in the multilateral WTO altogether, and switch its attention wholly to trade-diverting bilateral or regional trade deals. That would seriously damage the health of the world economy, and especially that of its biggest exporter: the EU. Even Mr Chirac might balk at the colossal price that would mean paying - and all for the sake of a few coddled farmers, who make up less than 3% of the EU's population.