The EU is often criticised for protecting its farmers at the expense of more far-sighted international trade liberalisations. But Ricardo Meléndez-Ortiz and Trineesh Biswas argue that Europe isn’t to blame for the Doha Round’s stalemate, and should move to unblock it
The European Union is not the main obstacle to an agreement in the Doha Round of trade negotiations. Yes, Europe is still very attached to subsiding and protecting its farm sector and the EU’s resistance to agricultural reform undoubtedly helped set the tone for the relatively modest depth of tariff and subsidy cuts now under consideration. But Europe is not at the centre of the impasse that has stalled the long-running World Trade Organisation (WTO) talks for more than two years. This impasse is due to a deep divide between the United States and large developing countries like China, India and Brazil.
Washington thinks that what is needed to bring the Doha Round to a close is more market opening by these and other fast-growing emerging economies, particularly in key industrial sectors like chemicals, electrical equipment and forest products. China, India and Brazil are equally clear in their view that the demands of the U.S. are unrealistic, especially when set against the limited concessions Washington has offered on farm subsidies.
Brazilian officials now say that their government is at the boundaries of what it could agree to in terms of industrial market access. China has called the U.S. demands excessive, saying they are tantamount to a rejection of the negotiating mandate WTO members agreed on when launching the trade liberalisation round back in 2001. Indian trade diplomats warn that if WTO members walk away from the terms for subsidy and tariff cuts currently on the table, it could take another decade before a global trade deal is concluded.
The EU is not a central player in this blame game, even though it wouldn’t object the greater market access that the U.S. is seeking. Nor was it part of the breakdown of the high-profile ministerial meeting in July 2008 that came close to hammering out framework Doha deals on tariff and subsidy cuts. That negotiation foundered on U.S. differences with India and China over the extent to which developing countries would be allowed under a proposed ‘special safeguard mechanism’ to raise tariffs beyond legal limits so as to protect their farmers from import surges.
So if the EU isn’t part of the Doha Round problem, can it be part of the solution? Not alone, clearly, but it can help. There are many ways the Doha Round might die, ranging from a shared decision to simply give up, to a slow drift into oblivion. However, there remain two broad ways for WTO members to strike a deal. One would be to finalise an agreement broadly based on the terms governments missed agreeing on in 2008, which are captured in draft texts put together late that year by the chairs of the negotiating committees on agriculture and industrial goods. The second way would be through a fresh round of major concessions from all the main players.
This latter approach seems less likely to succeed, given that there is little apparent appetite for such new concessions. Nevertheless, it would offer the EU an opportunity to play a leadership role by accepting difficult (though self-benefiting) new concessions on agriculture – if the member states will let it.
The unexpectedly long duration of the Doha Round negotiations has meant that even if an agreement is struck in the next two years, the time period for implementing subsidy and tariff cuts will extend well into the post-2013 reform of the EU’s common agricultural policy (CAP). This creates a chance for Europe to offer parameters for future caps on trade-distorting farm subsidy spending that would entail bold reforms – reforms that could, if appropriately structured, help the environment, the global food system and all the smaller farmers who currently receive such a small share of CAP payments. It's also a proposal that would strengthen Brussels’ hand in seeking liberalisations elsewhere around the world.
This sort of démarche would represent a departure from Europe’s strategy for both farm policy reform and global trade negotiations, which for the past 20 years has consisted of determining changes to the CAP for internal reasons of expense and overproduction and then trying to barter these reductions for concessions by its WTO trading partners. This strategy has in any case been yielding diminishing returns, for other countries are well aware that the EU has been dressing up necessity as virtue, and are acting accordingly.
In the first and more feasible scenario for a Doha deal – an agreement that involves more modest improvements to the parameters currently under consideration – the EU could play a constructive role in both political and substantive terms. Politically, Europe could serve as an honest broker to try to reduce the fundamental mismatch of opinion that has become such an obstacle to concluding the round. Above all, this would mean using its longstanding economic and diplomatic connections to try to help shift U.S. perceptions that there is nothing of interest to it on offer at the WTO.
This will not be easy. There seems a virtual consensus in Washington D.C., from the White House to the Congress and from industry lobby groups to think tanks, that the United States is being asked to do a great deal in the Doha Round talks in return for precious little.
This opinion is not shared by many of America's trading partners. They note that the U.S. will not have to lower current levels of trade-distorting farm spending, and the vast majority of its farm payments would go scot-free as the deal now stands. The U.S. is only being asked to make deep cuts on things like cotton subsidies and clothing tariffs, sectors the world’s most sophisticated economy should not have been propping up anyway.
The view that Europe could put to Washington would in sum be: Mix some water with your wine. A Doha Round deal, even a modest one, would be an extraordinarily low-cost investment in the multi-lateral trading system. The EU argument should be that China, India and Brazil would have to lock in over a decade’s worth of economic reforms. More broadly, they would commit to playing by a refreshed set of global economic rules – something of great value to the industrialised West since emerging markets will drive economic demand and therefore growth in the decades to come. In addition, concluding a Doha deal would free up governments and their negotiators at the WTO to address challenges that are not the residue of the late 20th century, from exchange rates and energy prices to the trade policy ramifications of efforts to curb climate change.
Europe is better positioned than any other actor to present this more nuanced view to Washington. It would of course, not be an easy sell.
Trade policy, always contentious in the U.S., has been low on the Obama Administration's priority list, confronted as it has been with more immediate problems. On the other hand, trade has been pointed to as one of relatively few issues on which co-operation seems possible between the Obama administration and the incoming Republican Congress. In U.S. politics, the Doha Round has become hostage to a coalition of protectionists, who want no liberalisation at all and ‘perfectionists’ who want more liberalisation than trading partners can give. The Doha Round’s salvation depends on strengthening the hand of the pragmatists,
Beyond an honest broker role, Europe could help by showing greater substantive leadership in both the Doha negotiations and other trade-related policy spheres. Services trade is the most commercially significant example, because although many governments and companies were happy with the signals of future liberalisation sent by trade ministers in July 2008, no country has yet come forward to table an improved formal offer of market access. The EU could become the first to do so, and could propose committing to substantially improved access for foreign competitors across a wide range of services sectors and modes of supply (including temporary labour movement that could help ease Europe’s skills shortage). The EU could then use this moral high ground to urge other major economies to follow suit.
Another area in which Europe could make a significant contribution is fisheries subsidies. The Doha Round negotiations offer the prospect of strong rules limiting state aids for fishing industries. The EU has already come a long way on this. But it could take an even stronger position at the WTO on broadly prohibiting fisheries subsidy payments, with only very focused exceptions. Accordingly, the upcoming reform of the EU's common fisheries policy could be used to bring capacity and catches into line with resource levels.
Outside the WTO, Europe could send positive signals by leading the rollback of protectionist and trade-distorting measures introduced by governments around the world after the financial and economic crisis deepened in late 2008. One place to start would be the repeal of various export subsidies for dairy products that the EU re-introduced in the summer of 2009. Export subsidies are, after all, slated to be banned under the Doha Round, so greater restraint in the use of trade remedies would set an excellent example.
With its single market for goods, services and labour, its fiscal transfers and its shared institutions, the European Union at its finest has been a microcosm of the best that globalisation could be. As its share of the global economy goes into relative decline, Europe should do everything in its power to bolster the WTO as a beleaguered but useful institution for managing globalisation by helping to bring the Doha Round to a successful close.