WTO: Day Two of the Hong Kong WTO Ministerial–Maneuvering on Agriculture

By December 14, 2005Trade

hongkonglogo_85pxls.gifHere is part three of Frank Vargo’s daily update–from the front lines–in Hong Kong for the Sixth WTO Ministerial Conference:

Strange day. It isn’t every day you open the newspaper and see an ad placed by the United Nations urging WTO trade ministers not to cut food aid to devastated nations. This set off a round of shots between the European Union (EU), which told the UN to mind its own business, and the United States — which criticized the EU for not doing enough in food aid.

The EU, you see, views U.S. donations of food to starving countries as a form of trade distortion — and says that rather than giving food, the U.S. should give cash, which the local authorities could use to buy food — presumably much of it from the EU. The EU complaint is part of a continuing effort to divert attention from the fact that everyone is saying the EU has to make a much better offer to allow market access to its own domestic agricultural market.

The EU, in turn, criticized the United States for being unwilling to offer duty-free and quota-free access to its markets for all products made or grown in the world’s poorest countries. And both the EU and the U.S. announced a doubling in their financial aid to the world’s poorest countries.

All this is part of the development focus of the Doha Round. The Round is actually called “the Doha Development Agenda” and is intended to result in a set of trade rules that helps the poorest countries develop more rapidly. There is no question that the best thing the WTO could do for them would be to end rich-country agricultural trade barriers and subsidies. The U.S. has put a strong offer on the table to cut subsidies and offer access to the U.S. market, but can’t hold to that unless the EU ends the stranglehold on its own market. You can’t tell American farmers that they have to compete on their own, but then tell them that the largest market in the world for them will stay off limits.

Much of the EU’s maneuvering is clearly aimed at deflecting criticism of the fact that it won’t move further on agriculture. And the acrimony is heating up. The EU, though, is right on one point. If it is going to do more on agriculture, it has to have access to other markets for manufactured goods and for services. The U.S. agrees, and has put suggestions on the table for ways that the trade rules can both benefit development and increase world trade.

I participated today in two discussions with representatives of India, international organizations advising developing countries, and other groups — and listened to speaker after speaker explain why continued protectionism was the only way for poor developing countries to grow. Without high tariffs, they explained, there is no way poor countries can develop their own industries. It was wrong, therefore, for the U.S. and Europe to expect them to cut their tariffs. How, they demanded to know, does the U.S. proposal for tariff cuts help development?

How ironic, I thought, to be here in Hong Kong — the most open market in the world, an economy that owes its wealth and prosperity to the free market — and listen to all the reasons why markets allegedly don’t work.

How does the U.S. tariff-cutting proposal help the poorest countries? Simple, really. The U.S. approach is to turn to the 15-20 advanced developing countries — countries like China, Brazil, Korea and India — and seek significant cuts in their manufactured goods tariffs and obtain genuine access to their markets for services. These are the countries with which the United States has about 60 percent of its trade deficit. And these are the countries with the highest tariffs — tariffs, which limit the trade of other poor countries as well. In fact, about 70 percent of the tariffs paid by poor countries are paid to these 15-20 advanced developing countries. If those countries opened their markets, that would allow the poorest countries to be able to sell more to them.

The U.S. proposal would not only help level the playing field for U.S. companies but also would promote faster global economic growth and more opportunities for the poorest countries. And the U.S. is not seeking to have the poorest countries cut their tariffs at all. We want the commercially-meaningful countries that are already well established global traders to make significant cuts, not the 50 or so poorest who only account for about 1 percent of world trade.

This is a good proposal, and one strongly supported by the NAM. But why would the developing countries oppose this proposal? Two reasons — a bargain in return for getting the agricultural market access to rich markets, and a public recognition that they themselves would benefit from tariff cuts rather than continued protectionism. We’re not there yet. We are now in the posturing and deflecting stage of the wash cycle. We’ll see if we can get beyond that tomorrow.

Join the discussion 3 Comments

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  • Suneel padale says:

    Why the excessive focus on the so-called advanced developing countries? Is it to deflect criticism of the traditionally protectionist US and EU economies?
    Offers of increase in aid should be ignored by the poorest countries. They will not be without the usual conditinalities. They should stress on ‘trade rather than aid’

  • China, India and Brazil have more sway with the 50 poorest countries then the US does- remember Cancun? The advanced developing countries are not going to cut their tariffs or give in on market access unless they get significant concessions from the EU and US on agricultural subsidies. If Mr. Vargo is right, and the EU “won’t move”, then the US proposal won’t either.

    Also- the author writes “US farmers”- that’s an endearing term for US agribusiness, which receives the bulk of the subsidy support. Drop the euphemism.