World trade talks. In the rough

The Doha trade round needs some bold strokes to get back on the fairway

"WE'RE in deep rough with a partially obstructed shot to the green." Thus one American negotiator sums up the state of the Doha trade negotiations. You do not need to be a golfer to get his point. On December 13th, the world's trade ministers are due to gather in Hong Kong, supposedly to finalise the broad outlines of a World Trade Organisation (WTO) agreement. But despite four years of haggling, the negotiators are at loggerheads over how to free farm trade, have made scant progress on liberalising trade in services and have done virtually nothing on cutting industrial tariffs.

Most attention is focused on farm trade. Although agriculture accounts for only 3% of global output and less than 10% of global trade, it is easily the most distorted sector of the world economy. Slashing trade barriers and subsidies in farming would therefore produce disproportionately large gains, particularly for poorer countries. Of all liberalising measures, cutting tariffs would bring the most benefits. According to the World Bank, over 60% of the gains that Doha promises in goods trade would come from agriculture. The vast majority of this would be won by cutting tariffs.

After months of drift, America's trade negotiators energised the talks on October 10th with a bold proposal: slash the highest tariffs on agricultural goods by 90% and the most trade-distorting farm subsidies by 60%. In response, the European Union made a solid offer to hack back trade-distorting domestic subsidies. However, its proposal on tariffs was so feeble that most negotiators refused to take it seriously.

On October 28th, Peter Mandelson, Europe's trade negotiator, returned with a new offer. He proposed to cut top farm tariffs by 60%, put a ceiling of 100% on any single tariff and reduce the average tariff by 46% (the average cut in farm tariffs, a measure preferred by the Americans, was 39%). This plan is still far less ambitious than that of the Americans or the G20, a group representing big developing countries that includes Brazil and India, which wants rich countries to lop 75% from their top farm tariffs. Worse, the Europeans left themselves acres of wiggle room. For instance, they want to be allowed to classify up to 8% of all farm products as "sensitive" and therefore subject to different rules. According to analysts at the World Bank, if you excuse more than 2% of farm products from the tariff cuts, you lose over 75% of the benefits.

Unsurprisingly, the EU's new offer got a cool reception. The Americans said they were "disappointed". The G20 was furious at the discrepancy between the Europeans' timidity on cutting farm tariffs and the ambition of their demands for reductions in developing countries' tariffs on industrial goods. The Europeans want levies on agricultural goods to be capped at 100%, but those on industrial products to be at most 15%. Among the poorer countries, this asymmetry caused uproar.

Although Mr Mandelson may be the villain of the moment, he does not deserve all the blame. His room for manoeuvre is narrow. Unlike other WTO negotiators, who can strike deals first and sell them domestically later, Europe's trade tsar can only work within the mandate agreed by the EU's member governments. Several European governments - especially the French - are complaining that he has already exceeded his brief. Jacques Chirac, France's president, warned darkly last week that he would veto any Doha deal that demanded more changes to the common agricultural policy (see page 52).

Whatsoever a man soweth

Mr Mandelson also has precious little to show for his concessions on agriculture. The Doha negotiators have made even less progress in services and industrial goods than they have on farm trade. That is largely thanks to the big developing countries, such as Brazil and India, which have refused to budge unless they see serious progress on agriculture.

Most negotiators agree that the highest industrial tariffs should be cut by more than the lowest ones. However, there is no common position on how this should be done, let alone on the exemptions that are likely to be granted to developing countries. The Brazilians, Indians and Argentinians reckon that each country should set an individual level of ambition, based on its own average tariff level. Others have scoffed at this idea.

Services are just as disappointing. Even though many of the biggest economic gains from a Doha round will come from freer trade in areas such as financial services, medical services or accountancy, negotiations there are sluggish. Unlike other aspects of the talks, the services deals are decentralised. Each country says what it is prepared to liberalise and lays out what it would like others to do. Most offers have been paltry.

Here, the Europeans have made some bold suggestions. They want agreement that rich countries would offer to liberalise trade in more than 80% of service industries while developing countries should make offers in half. The Europeans also want clear benchmarks against which liberalisation in services can be measured. Although some developing countries, especially India, are keen on far freer trade in services, the impasse on agriculture has stymied progress here too.

The road to Hong Kong

For Hong Kong to be a success, the Europeans must move further on farm tariffs and the G20 must offer something on industrial goods and services. This is still possible. The most important negotiators are meeting in London on November 7th; more will gather in Geneva the next day. There is too little time before Hong Kong to agree every detail of the Doha negotiating framework. But there is enough to make some broad political deals.

Will that happen? Optimists point out that although all sides bluster about the inadequacy of others' proposals, nobody seems to have given up. Importantly, no one has yet talked publicly about downgrading expectations for Hong Kong. Even the most intransigent negotiators will want to avoid a repeat of the acrimony in which two of the past three ministerial gatherings ended, in Seattle in 1999 and Cancun in 2003. A similar collapse in Hong Kong could spell the end, not just of the Doha round, but of the WTO as an effective negotiating forum.

Although necessary, broad agreement between America, the EU and the G20 would not guarantee success. The WTO has 148 members, many of which are deeply sceptical of more trade liberalisation and any of which could cause trouble. The biggest farm protectionists, such as Japan or Norway, have been hiding behind the EU. If Europe offers more, they may still balk. Equally, many poorer countries enjoy preferential access to Europe's markets for farm products, such as bananas. If the Europeans lower their tariffs, these preferences are eroded. They, too, must be coaxed into agreement. Progress between the big players might get the Doha round out of the rough. But it will still be a long way to the hole.

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