Trade blocs square up ahead of Millenium Round

Date: 11/02/1999

The EU is preparing to fight its corner in the next round of global trade negotiations, amid predictions that they will be less ambitious than previous rounds. Simon Taylor reports on the forces likely to shape the outcome of the talks which begin later this year

While the last round of global trade talks promised to enrich the world economy by €160 billion, the next series looks set to be a much more modest affair.

Amid all the mud-slinging of his impeachment trial, US President Bill Clinton used his recent State of the Union address to call for a comprehensive set of international trade negotiations - an idea long espoused by Trade Commissioner Sir Leon Brittan.

In his speech, Clinton sought to rally support for a new free trade consensus, brushing aside the nay-sayers among populist Republicans and sceptical Democrats. "Trade has divided Americans for too long. We must find the common ground on which business, workers, environmentalists, farmers and government can stand together," he told Congress.

But even if the US president achieves his ambition of getting the forthcoming Millennium Round of global trade talks named after him, emulating his political idol John F Kennedy, he may find that the final accord will be just a shadow of its predecessors.

As the wave of countries being forced to devalue their currencies spreads to Latin America, the EU and the US - the world's two largest trading blocs - are confronted with a torrent of cheap imports.

At the same time, the effectiveness of the World Trade Organisation, the structure set up to police global commercial flows, has been tested to the limit by the transatlantic battle over the Union's banana regime.

Both these factors have contributed to a lowering of expectations for the forthcoming round, which is due to be launched amid much fanfare at a ministerial meeting in Seattle this November.

Trade officials say that the hard work on thrashing out the agenda for the next round will be done in the coming months, with a major push ahead of the May meeting of WTO ministers in Paris.

For the EU and the US, the priorities for the forthcoming round are to a great extent a continuation of what was agreed under the Uruguay Round in 1994: further reductions in industrial tariffs and bigger cuts in farm protection. They have also agreed to work towards a three-year deadline for getting a deal rather than letting talks drag on for eight years, as happened in the Uruguay Round.

Beyond that, both of the major trading powers are looking for uncontroversial improvements in what is known as 'trade facilitation'. This means things like reducing customs checks or pre-shipment inspections which slow up trade and increase exporters' costs with none of the political benefits that, say, restrictions on imports of cheap toys or grain bring.

While these may sound like trivial issues compared to the 'glamorous' topics and table-thumping tactics normally associated with international trade negotiations, such measures are very popular with industry, which sees large gains to be made for little sacrifice.

Although lowering industrial tariffs is important for both the Europeans and the Americans, the two blocs differ about how to go about it.

The EU favours an across-the-board approach to cutting duties, while the US prefers to target specific sectors where countries maintain high tariffs. Trade experts attribute this difference in approach to the EU's need to sell the eventual deal to all 15 member governments, which makes it difficult to get support for cuts which hit one country harder than others.

Another area where WTO members have already decided to press ahead in the forthcoming talks is the liberalisation of services. Both the EU and the US are keen to see improved access for their companies to provide services in other countries. This will mainly involve making it easier for firms like insurance houses and advertising agencies to set up and operate abroad.

The biggest question mark at the moment hangs over whether there will be any progress on some of the issues which have been left out of the WTO's ambit in the past, such as competition and investment rules.

Getting agreement in these areas in Geneva will be far from easy. Washington has so far resisted EU overtures to try to agree minimum basic rules for competition policy in a multilateral forum such as the WTO. US officials doubt that national competition rules can be easily translated into internationally binding standards.

Rules to ensure fair treatment of investment by foreign companies also pose problems.

Talks on a multilateral agreement in the Organisation for Economic Cooperation and Development (OECD) broke down in Paris last October in the face of French opposition to the proposed rules.

Again, this is an area where the EU thinks the WTO is the best forum for agreeing global standards, while Washington is sceptical that talks in Geneva can produce a result and would prefer to stick to topics where it thinks progress is easier to achieve. It wants to focus on issues such as electronic commerce, public procurement and intellectual property rights.

But everyone agrees that liberalising agriculture will undoubtedly be top of the agenda at the trade talks.

US Vice-President Al Gore issued Washington's perennial challenge to the EU to cut subsidies at the World Economic Forum meeting in Davos last week, calling for a "broad and deep reduction" in tariffs.

The EU has always been seen as a sitting duck when it comes to farm trade liberalisation, forced to defend its generous system of supports and protection against the attacks of the free-marketeer US.

But as Brittan pointed out in a bullish speech to the Oxford Farming Conference last month, Clinton's decision to bale out crisis-hit US farmers with more than h5 billion of taxpayers' money raises doubts about the US' commitment to free market agriculture in the next round. The main way that this will help the Union is by allowing it to defend its direct 'Blue Box' payments, because the US itself will want to retain the right to sanction similar hand-outs in future.

US Agriculture Secretary Dan Glickman has also singled out export refunds as a major issue for the next round. But provided that EU governments do not make too many changes to Farm Commissioner Franz Fischler's plans for reforming the Common Agricultural Policy, export refunds will be more or less eliminated in the EU.

As ever-growing numbers of US farmers plant genetically modified crops, Washington is also keen to beef up the WTO's rules on product safety to prevent countries from blocking trade in biotechnology products.

US Trade Representative Charlene Barshevsky has also raised the stakes in the battle over the Union's ban on beef hormones.

EU officials point out that the WTO already has special arrangements in place in the form of the Sanitary and Phytosanitary System (SPS), setting out what constitutes adequate scientific justification for banning imports of products on public health grounds.

It is difficult to see how the US can tighten up these rules to its advantage. After all, the EU is holding up approval of new biotech varieties because of a lack of political will to stand up to public opinion, not because its procedures for deciding whether to authorise GMOs are unscientific.

Part of Clinton's bid to build a pro-free trade consensus involves putting a greater emphasis on environmental and labour standards at the WTO. As Clinton said in his Union speech: "We have to put a human face on the global economy."

Nevertheless, the Millennium (or 'Clinton') Round promises to be a much less ambitious affair than its predecessors.

To an extent, this is due to the work put into the previous deal, which involved an estimated 2,500 days of negotiations.

The battle to include the hitherto sacred realm of agriculture in the liberalising drive was won last time round. That is why the debate can move on in the forthcoming talks from the classical issues of tariffs and subsidies to questions of health and safety.

The world's trade professionals created an international rules-based body for thrashing out trade disputes, making a gigantic leap from the toothless beast which was the General Agreement on Tariffs and Trade (GATT). Now all that remains is to fine-tune the engine, using the knowledge and experience gleaned from the bananas dispute and other rows.

Despite warnings that the financial crises of the last 18 months would drive governments back into the comfort of protectionist fortresses, the global commitment to freeing up trade remains strong. Giving everybody a little time to catch their breath cannot do any harm.

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