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The EU and the Doha Round of World Trade Talks

Background

On the 24th July 2006 the World Trade Organisation suspended talks on a new world trade treaty because no agreement could be reached between the parties. This briefing note complements the briefing note on external trade by describing the Doha round talks and the reason for the failure to reach a new world trade agreement.

Since 1948, in the GATT/WTO, there have been nine ‘rounds’ of negotiation to secure market opening and to free up world trade by reducing or abolishing import tariffs. In the Uruguay Round, for example, the EU was instrumental in securing an average reduction of 40% in industrial customs tariffs among the participants. Following the completion of the Uruguay round in 1994, there was a pause before a new round began in November 2001 at Doha. A particular aim of the Doha round was to ensure that trade liberalisation benefited developing countries, especially the least developed countries. The Doha round was thus sometimes referred to as the ‘Doha Development Agenda’. Talks continued after the initial meeting in Doha, for example at Cancun in 2003 and in Hong Kong in December 2005.

The Aims of the Doha Round

The main aim of the Doha round of trade negotiations was to improve the economic circumstances of developing countries. To achieve that overall aim, developed countries would have to reduce tariffs on agricultural and industrial goods from developing countries and eliminate their trade distorting subsidies to agricultural goods. For its part, the developing world would have to be prepared to allow developed countries better access to the service sector of their economies, respect intellectual property rights and reduce their tariffs on imports. But it was accepted from the outset that the poorest developing countries would not be asked to make as large a contribution as the more advanced ones.

There were always going to be many difficulties in achieving the agreed aims of the Doha round. The industrialised world has developed a complex system of direct and indirect support to agriculture since 1945. Farmers are often a noisy and influential group in national politics (especially in Europe and the United States). The removal of subsidies to agricultural production, the ending of dumping surplus food stocks in the developing world and the removal of export subsidies would all create significant economic and social consequences for the food and farming sector in the developed world.

The developing world had concerns about the ambitions of the Doha round. The pace of development varies widely amongst this group of countries, with their trade policies often reflecting those differences. Many developing countries were keen on an end to agricultural subsidies in the developed world and to the removal of barriers to developing world produce being sold in developed countries but were hostile to the notion they should open up their own economies to imports of other goods and services. Some developing countries saw increased competition from the developed world as inherently unfair and unreasonable.

Doha to Cancun

After the Doha Ministerial meeting of the World Trade Organisation triggered the start of detailed talks, the EU put forward in July 2002 proposals for improved market access in many services to WTO members. The purpose of these proposals is to open up the services market in WTO countries, removing restrictions and allowing a wide range of service industries to expand. The service sectors that would benefit would include professional services, engineering and construction, distribution, financial services, postal services, tourism and energy services. Health and audio-visual services were excluded from the list and the aim was not to dismantle public services or to force the privatisation of state-owned companies.

Before the EU could negotiate in the WTO on agricultural issues, it needed to reach agreement on reform of the Common Agricultural Policy. Agreement was reached in June 2003 to keep farming spending constant until 2013 and to separate support for farmers from production. This removal of trade distorting production subsidies was crucial to achieving agreement with countries in the Doha round. The concessions embodied in the 2003 CAP reform package were not enough for countries in the developing world; they wanted bigger cuts in EU subsidies and in EU tariffs on imported agricultural produce from the developing world.

The Cancun Ministerial meeting in 2003 was not an attempt at a final agreement but meant to be a stocktaking meeting deciding the direction of future negotiations. Even so it ended without agreement being reached before it even started discussions on agriculture. Cancun saw a new political development within the WTO as groups of developing countries came together to try to match the negotiating power of the developed world. The G20 group was created by the more economically advanced developing countries, such as Brazil, India and China with the aim of opening up the negotiations on agriculture. The G90 came together to promote the interests of the less well-developed countries. With members from Africa, Asia and the Caribbean, the G90 includes the 32 least-developed countries in the world. The creation of these groups reflected the substantial differences in view between differing types of developing country; these varying views complicated negotiations further.

The 2004 Framework Agreement

In May 2004 the EU told all the members of the WTO that it was prepared to eliminate all agricultural export subsidies by an agreed date. The EU also proposed tariff reductions, a reduction in all forms of trade distorting subsidies and the elimination of all forms of export subsidy for cotton. This offer kick-started the talks and in July 2004, after intensive discussions in Geneva, a framework for continued negotiations was agreed.

During subsequent rounds of negotiations in Mombassa in March 2005 the EU tabled a package of proposals to meet the development goals of the Doha Round, including reduced tariffs for imports from the least developed countries. In October 2005 the USA offered to cut its domestic agricultural subsidies by 60 per cent and to phase out some of its export subsidies. Later the same month the EU said it would cut trade-distorting domestic farm support by 70 per cent, cut its highest tariffs by 60 per cent and halve the average agricultural tariff to 12 per cent. This offer was conditional on concessions from other participants in the talks.

Hong Kong to Geneva

The agenda for the Hong Kong Ministerial meeting of the WTO in December 2005 included seeking agreement on a further reduction in agricultural subsidies, the target of eliminating export subsidies altogether (the greatest reductions to come in the EU and the USA); and a major opening up of services to competition. On agriculture, agreement was reached to the phasing out of all export subsidies by 2013. This would cover hidden subsidies, such as US food aid, as well as the overt subsidies operated by the EU. This was good progress but in other areas, such as services, less was achieved. Nonetheless, it was agreed that that meeting was a stage on the road to a final agreement, hoped for in April 2006.

Despite negotiations at regular intervals in the winter and spring of 2006, little progress was made. In April the EU said it would improve its offer on agriculture further if others would do the same. In June the G20 group sought bigger cuts in US agricultural subsidies in return for cutting tariffs on industrial goods; the EU said it would table a better offer if Washington would do so. The EU offer was to cut farm tariffs by more than the 39 per cent originally promised. Existing EU agricultural reform would mean many EU producers withdrawing from exporting milk and poultry and major cuts in grain production because of the fall in the number of farm animals. The effect of these cuts in subsidy and tariffs would have been a reduction in EU agriculture of up to $20 billion a year. Despite the G8 leaders agreeing in St. Petersburg in July that their negotiators would return to the table with increased flexibility, the US declined to make any further cuts in their own agricultural subsidies or to reduce their demands for agricultural tariffs which even exceeded those of the G20 group and the talks were suspended on 24 July.

Moving Forward

In all the details of the negotiations it is easy to forget the central economic purpose behind the Doha round: to boost the economies of developing countries by removing barriers to trade. Whilst economic studies show that the average income per household in the UK would be boosted by £500 a year if trade protection could be halved, the same measures would boost the developing countries by around $150 billion every year.

The urgency to get an agreement in 2006 reflected in part the difficulty of getting a new trade agreement ratified by the US Congress. The US Trade Promotion Authority Act expires on 31 July 2007; after this date Congress would be able to pick apart any new agreement rather than being forced to accept it or reject it as a whole. It was thought that an agreement had to be reached by the end of July 2006 in order to allow time for the final treaty to begin its ratifying process under the Trade Promotion Act; there might now be a window of opportunity to achieve agreement before the Act expires.

It is still unclear what the prospects are for getting the Doha Round restarted (the Uruguay Round was similarly suspended at one stage but was then restarted and successfully concluded in 1995). If the Doha round cannot be successfully concluded, the EU, and others such as the USA, are likely to try and negotiate bilateral trade agreements with a number of countries. But these will not offer the same boost to world trade nor provide benefits to the developing countries as successfully as a multilateral trade round. CAP reform will continue according to the previously agreed timetable with a major review of CAP spending expected in 2008; but without the pressure of world trade negotiations may be less far-reaching than would otherwise be the case. These considerations will not however be enough to restart world trade talks without there also being a willingness on all sides to make more concessions and without the US Government having adequate trade negotiating authority. The final detailed stages of the negotiation would take time, even after the main points were settled between the principal participants. Discussions continued behind the scenes in the margin of the IMF/World Bank meetings in Singapore on 16/17 September 2006, but time is rapidly running out. The restarting and successful completion of the Doha Round remains the best option for Britain, for the EU and for the developing countries.

September 2006

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