Towards Hong Kong: History as farce C.P. Chandrasekhar

It is history repeating itself as farce. Negotiators meeting in London, Geneva and elsewhere await an acceptable agreement between the US and the EC on agriculture, before working out a deal that would help salvage the next major step in the Doha Round of trade negotiations: the Hong Kong Ministerial starting December 13. The US seeks to appear reasonable by putting out an offer that sounds path-breaking. The offer includes the following: First, in US Trade Representative Rob Portman’s words (Financial Times, October 10, 2005), the deal should involve “steep tariff cuts over the next five years, starting from 55 per cent up to 90 per cent in the highest tariffs in rich countries”. This is to be followed by a second stage in which tariffs would be brought down to zero. Further, there should be very limited scope for alternative treatment of sensitive products, and the creation of this list should not be used to undermine market access.

Second, “a 60 per cent cut in “amber box” support – the most distorting type of subsidies – over the next five years” and a fifty per cent reduction in the cap on the less trade-distorting support under the “blue box”, which needs to be further defined. Here too, there is to be a second stage in which all trade distorting support is to be eliminated.

And, third, setting a deadline of 2010 for the agreed elimination of export subsidies, combined with a tightening of “rules on the donation of food aid to guard against possible commercial displacement but not at the risk of further reducing already inadequate food aid for those who need it most.”

Based on this offer, the US wants the EU to make matching concessions in agriculture and developing countries to offer substantial concessions in non-agricultural areas. In fact, the US seeks to achieve two goals: occupy the moral high ground in talks on trade liberalisation; and use this position to get developing countries to be more reasonable with regard to liberalisation of trade in non-agricultural goods and services unlike the EU on agriculture. It appears that with regard to agriculture, the US is expecting an EU offer that would involve a 54 per cent minimum average tariff cut and a reduction in the list of sensitive products to from 10 per cent to 1 per cent of the total.

What is missed, however, is the US offer does not go even part of the way in meeting expectations that were generated during the Uruguay Round negotiations. The Blue Box which was expected to have disappeared at the end of the Uruguay Round implementation period would still remain (even if trimmed) and the huge support which the US provides its farmers in the form of ostensibly “non-trade distorting” Green Box payments would not be questioned. The net result is that, as in the wake of the Uruguay Round, neither would developing countries’ share in global agricultural trade increase nor would they obtain any benefits in terms of better prices for their products.

These issues have however disappeared from the debate, and the US offer becomes the upper bound for the liberalisation that the talks on agriculture can realise. Needless to say, upper bounds are not realised ever. Negotiations involve compromise. And in this instance the compromise must be with a reluctant EU, held back by a recalcitrant France.

Over the last few months, Peter Mandelson, the EU Trade Commissioner, has been portrayed as a hardworking negotiator cajoling his membership to accept more liberalisation in order to prevent the Doha ‘Development’ Round negotiations from collapsing, ostensibly with disturbing implications for the ‘poor’ developing countries. In a first step in this charade, in early October, the EU made an “amended” agricultural market access offer that envisaged a maximum reduction of 50 per cent for very high tariffs compared with the 90 per cent proposed by the US. The percentage of so-called sensitive products, subject to smaller tariff reductions, was to be cut from 10 to 8 per cent of tariff lines, against the US proposal of 1 per cent. This would leave 180 EU products in the “sensitive” category. When recently question as to which products would be covered by what the US has described as “the large number of exceptions for so-called sensitive products”, the EU’s agriculture commissioner, Mariann Fischer Boel, replied: “It is obvious that beef, poultry, sugar and some fruit and vegetables might be in groups that need a sensitive treatment.”

Mr Portman had responded that the EU proposal “doesn’t come close to meeting the expectations all of us have on market access”, since according to US calculations, it implied only an average reduction of 24.5 per cent in EU farm tariffs, which was even less than the 36 per cent average agreed in the 1986-93 Uruguay round. And clearly the number of exceptions under the category of sensitive products was seen as too large.

Since developing countries could not but reject this non-offer, the scare of a collapse of the Hong Kong Ministerial and of the Doha Round began to be raised. EU, everybody had to agree, must go much further. But then, given the distance between what was expected of the EU and what it had placed on the table, some reduction in “ambition” appeared necessary.

In step-two of this drama, at the end of October, Peter Mandelson put out a revised offer to “revive” the Doha Round. The offer promises to reduce the highest tariffs by 60 per cent, against the 50 per cent cut tabled earlier, which with other reductions, the EU claimed, would cut European farm tariffs by an average of 46 per cent. But there was no movement on the inclusion of 8 per cent of products in the sensitive list. Once again the US response showed disappointment. In its view, the average tariff cut would actually amount to 39 per cent, and this level of concession would mean that agreement in other areas would be short of potential as well.

But there was no shortage of people to welcome the revised EU offer, especially since Peter Mandelson appeared to have placed his job on the line by exceeding his brief to save the Round. A day before the revised offer was made, Jacques Chirac, the French president, was reported to have told a meeting of EU leaders that it was “out of the question for us to make another step”, beyond the reform of the EU’s common agricultural policy agreed in 2003. A French diplomat is reported to have said that Mandelson’s negotiating tactics would prove fruitless, since: “A negotiator can only offer what he can deliver.” Above all, the controversial  French interior minister, Nicolas Sarkozy, who seen as an advocate of freer markets, wrote in the newspaper Les Echos that Mandelson had accepted a “fool’s bargain” and assured French and European farmers that they can count on his commitment “to save what is left of one of the first and principal common policies.”

Mandelson on his part argued that ” the ticking of the clock is a very hard constraint”, that it was necessary to “unblock the round”, and that he looks forward to being able “to demonstrate convincingly to France that what we’re doing is negotiating in Europe’s, and that includes France’s, best interests.”

To read the meaning in this unnecessary last minute drama in negotiations which have been under way for years now, and which should be informed by the failures at Seattle and Cancun, we need to return to the events that preceded the conclusion of the Uruguay Round negotiations. Then too, agriculture, which like many other areas was being subjected to the discipline of a multilateral agreement, was the principal bone of contention. Then too, it was presented as an area in which agreement was first needed between the US and EU. Then too, a deal was struck between the two in the infamous Blair House accord of November 1992, in which a range of EU demands were accommodated. Among other things, it legalized the EC’s Common Agricultural Policy with a “peace clause” that ruled out any attack on the policy in an international forum for a period of six years.

But then too, France opposed the agreement on a wide range of counts. It threatened to veto the Uruguay Round negotiations unless Washington agrees to soften the terms of the accord. E.C. Trade Commissioner Leon Brittan and U.S. Trade Representative Mickey Kantor eventually took on the task of seeking a way out of a French-U.S. deadlock over agricultural subsidies in order to meet a December deadline. Their brief was to work out a compromise somewhere between the demands of France and the US on the subsidy issue in order to salvage a GATT agreement. Yet, as late as December 1993, French Foreign Minister Alain Juppe declared that GATT negotiators should aim to reach an interim and partial trade accord that year, leaving out difficult issues such as agriculture and audiovisual broadcasting.

Finally, the Americans did “blink first”, in the words of one contemporary observer. Among other things, they agreed to spread out a 21 percent cut in subsidized exports over a six-year period, and postpone the year the cuts are to begin, allowing the EC to export an estimated additional 8.1 million tons of grain. They also extended the six-year “peace clause” in the Blair House accord by a further three years. To pretend that the US had not compromised fully, some adjustments were made in its favour.

The point of this exercise was, however, not in the detail. It ensured two things: first, that US-EU agreement was central to a deal in agriculture needed to save a round that was seen as collapsing; and second, once this agreement was arrived at, it put pressure on the negotiators from developing countries to give more than they needed to in areas outside agriculture in order to be seen as reasonable and in tune with the global ethos of liberalisation.

It is precisely this act which is being replayed again. Expectations are high that the EU would move a little further from its second offer, but would not just ensure that its agricultural interests would be well looked after, but also demand that developing countries make major concessions in non-agricultural market access (NAMA) and services. If they resist the latter demand, the burden of wrecking the Round would at the last minute be shifted onto the shoulders of the developing countries. And the danger is that in the scramble to get as much as they can without being forced to shoulder that responsibility, countries like India and Brazil would make large concessions that hurt not just their producers but those in Africa and elsewhere.

The issue is not to declare that France does not need its protection or that the US is wrong to use barriers of all kinds in international trade, as for example its recent initiatives against textiles and clothing imports from China. The issue is to call the bluff on the myth that trade negotiations are about free trade, and not about using political and economic power to ensure reasonable protection at home and substantial market access abroad. It is also to make clear that a process in which the US and EU take months and years to work out an agreement on agriculture, declare at the last minute that they have saved the round and then require developing to negotiate on areas outside agriculture in a few days, is an unacceptable farce. It is to say that there is nothing lost if Hong Kong fails.