World trade. Now harvest it

At last, deadlock in the global trade talks has been broken

PERHAPS the imminence of summer holidays focused their minds. In Geneva on July 31st, the world's trade negotiators succeeded where they had failed in Cancun last September. Around midnight, after days of round-the-clock wrangling, the ministers knocked together a “framework” for the rest of the Doha trade round. They thus broke months of deadlock and saved the round from collapse. Bravo. But how much momentum will the Geneva deal provide?

There are reasons for optimism. One, of course, is that a deal was reached at all - no easy task in the World Trade Organisation (WTO), each of whose 147 members has a veto. The atmosphere in Geneva was far friendlier than in Cancun, where many poor countries preferred grandstanding about the inequities of globalisation to negotiation. As the leader of the G20, a group of developing countries that includes India, China and South Africa, Brazil proved a keen and capable negotiator. Its foreign minister, Celso Amorim, has become one of the pivotal figures of the Doha round, alongside Europe's trade commissioner, Pascal Lamy, and America's trade representative, Robert Zoellick. Even the G90, a group of the poorest countries, played its part, with Rwanda taking the lead: after months of stand-off, African countries cut a deal with America on cotton. The non-governmental organisations that had long incited poor countries not to budge were left ranting on the sidelines.

The big achievement in Geneva was a seven-page “framework for establishing modalities in agriculture”. Translated, that means targets and rules for negotiations on freeing farm trade. The bare bones - scrap export subsidies, cut trade-distorting domestic subsidies and reduce tariffs - were agreed on at the Doha round's launch in 2001. The Geneva deal put flesh on these. There is a commitment to eliminate export subsidies, to which the European Union only recently agreed. Equally important are promises to rein in other forms of export support, such as export credits (used by America) and state trading organisations (used by Canada).

Pushed by the G20, rich countries also agreed to deeper cuts in trade-distorting domestic subsidies. The plan is to make “substantial” cuts, with the biggest subsidisers slashing most. The rich have promised a 20% cut in the year after the Doha round comes into effect (whenever that is). This is less impressive than it sounds, because the cut applies to subsidies allowed under WTO rules, not the actual amounts. America, for instance, spends only around half its permitted $49.1 billion. However, there may be further cuts in store. Mr Zoellick talked of cutting subsidies by 50%, if he were promised a big opening of foreign markets to American farmers.

On tariffs, the Geneva deal also promises “substantial” reductions. All countries, except the very poorest, have to make some cuts. In general, the highest tariffs must be cut by most. However, poor countries will have longer to trim their tariffs and will have leeway on some “special” farm goods. Rich countries have an escape clause too, for “sensitive” products, although they must open their markets for these goods to some degree. This fudge was needed to secure the agreement of countries such as Japan, which has an exorbitant tariff on rice.

Outside agriculture, much less of substance was agreed. There is a “framework” for freeing trade in industrial goods, which also contains a commitment to cut higher tariffs more. However, extra, watery language was added after some poor countries objected. The document now burbles on about “initial elements for future work” and the need for more talks about talks. There was little new in services trade, beyond a worthy call for more ambitious liberalisation and a new deadline - May 2005 - by which to achieve it. The ministers also agreed to start new negotiations on rules for simplifying customs procedures, which in many countries add 5% or more to the cost of trade.

Grading this agreement overall is hard. Jeffrey Schott, of the Institute for International Economics in Washington, DC, says that the Geneva agreement “leaves the door open” for an ambitious Doha deal. But that is a long way from securing either an ambitious or a successful conclusion. The farm text, in particular, is welcome; yet the agreement as a whole is suffused with special treatment for poor countries. The 50 poorest are excused virtually everything. Richer developing countries have long implementation periods and plenty of exceptions. If all this special treatment restricts tariff-cutting by poor countries, it will limit the benefits of the Doha round. According to the World Bank, over half of the potential economic gains would consist of the benefits to poor countries of their own liberalisation.

Nor is it clear that the Geneva deal gives the Doha negotiations enough political momentum to reach a final agreement. The original deadline of January 1st 2005 has been discarded, and no new date has been set. A ministerial meeting in Hong Kong in December 2005 is the next big gathering. The round might be finished in 2006 or 2007. There will probably be more gridlock and missed deadlines, with the occasional breakthrough, as in all past trade rounds. The previous one, the Uruguay round, took eight years to complete.

Leaving the stage

The departure of several leading players is no help. Mr Lamy's term ends in October. His good relationship with Mr Zoellick has been an important factor in keeping the round alive. Even if George Bush wins America's presidential election in November, Mr Zoellick may well move on too. In addition, Supachai Panitchpakdi, the WTO's director-general, is due to stand down in September 2005. Much of next year will be taken up with political machinations about his successor.

Politically, the European Union is likely to remain keen on a successful completion of the Doha round. With its common agricultural policy now shifting away from production subsidies, the Doha round offers the Europeans a way to lock America into similar farm reform. The Americans' position is much less clear. Although Mr Bush's trade team has worked hard to keep Doha going, future Congresses may be less well-disposed to freer trade. And for all Mr Zoellick's talk of reform, it was Mr Bush who signed an illiberal farm bill, boosting subsidies, in 2002.

As for John Kerry, he has shown little enthusiasm for freer trade. Far from touting Doha, he has talked about tying labour and environmental standards to trade deals and has promised to review all existing trade agreements. Whoever is president must, by June 2005, ask Congress to extend his trade-promotion authority, which is needed to negotiate the Doha round. That could be a bruising battle. Doha needs American leadership. It cannot be taken for granted.

At last, deadlock in the global trade talks has been broken.

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