Report from Geneva: The End of the Beginning?

By December 2, 2009Trade

(Frank Vargo, the National Association of Manufacturers’s vice president for international economic affairs, is blogging from Geneva this week at the ministerial meeting of the WTO. )

You know, the process here in Geneva is really interesting. It’s like a plane that forever flies at 50,000 feet and can never get lower. The WTO Doha process just can’t seem to get below the big picture. Ministers from WTO countries are gathered here this week to take stock of the Doha Round, state their political will for a conclusion in 2010, and think of what can be done to move forward. And guess what some of them have come up with? Another ministerial meeting!

They would gather together in Geneva in a couple of months to take stock of where things are, issue serious statements about how things have to move faster –- and probably call for yet another ministerial. If the process were facilitated by ministerial meetings and “mini-ministerials,” we could have had three trade rounds by now.

Fortunately, calling another ministerial meeting in a couple of months is an idea that does not seem to have elicited broad support –- and hopefully won’t before the ministers leave Geneva tomorrow. The U.S. Trade Representative, Ron Kirk, has the right idea – let’s do some work, some eyeball-to-eyeball negotiating and horse-trading, with support from the WTO process. You have to have produce something for the stockroom before you can take stock.

It is rather remarkable, I think, that the gulfs that have prevented agreement are well-known, very visible, have obvious solutions, and yet keep being ignored in terms of a work plan. The WTO negotiating process is a managerial nightmare, lacking substantive goals, management strategies, and tactical plans for achievement. Frankly, the process could benefit from fewer PhD’s and more MBA’s.

The goal of negotiating rounds is to liberalize trade by reducing trade barriers. The Doha Round, in addition, has the goal of creating the maximum new market access for the poorest countries. This is not rocket science. You identify where the market access obstacles are, and you devise plans for reducing or eliminating them.

In the industrial trade negotiations, one thing you have to do is cut tariffs. And if you are going to cut tariffs, you have to go where the tariffs are. And by the WTO staff’s own calculus, about 2/3rds of the tariffs assessed on global industrial trade are collected by the advanced developing countries – especially Brazil, China, and India.

Yet instead of pinpointing reduction of those barriers as a key objective back in 2001, when the round started, as the years passed by, the WTO negotiating process continuously reduced the pressure to cut those tariffs. The consequence has been the prospect of less and less market access for everyone – for the least developed countries, the United States, and everyone in between.

As I noted in yesterday’s blog, Brazil, for example, would cut its average industrial tariffs from 11 percent to 9.7 percent — but not until 2019 even if the Round were concluded next year. That’s not a lot of market access, and not really much to show after eight years of the Doha Round.

Not surprisingly, the United States, which has been the demandeur for trade liberalization in every trade round since they were invented in 1946, is again demanding that trade barriers come down. Given the convoluted nature of the WTO Doha process, or non-process, the only feasible way of achieving that goal is through a combination of the weak tariff-cutting formulas and more robust sector-specific agreements (“sectorals”) that would slash tariffs in key industrial areas. The United States has always been up-front about this: There is no deal unless the major emerging economies participate in sectoral agreements that will generate real market access for all.

And for a brief period, in July 2008, it looked like that might be the case. But then the major emerging countries walked away from that possibility, leading the Bush Administration to say, “no deal.” Since then, the name of the game has been to persuade the Obama Administration to settle even though there is virtually no “there” there.

But that drive seems to be running out of steam, and one of the things that I think emerged this week is a growing recognition among more country delegations that the United States is just not going to go for the weak outline that many others seem content with –- even though they acknowledge they don’t see much there either.

The U.S. has been firm and direct. “The U.S. has been clear that we will need to achieve meaningful market openings that result in significant new trade flows, particularly in the world’s fastest-growing economies —China, India, Brazil, and South Africa,” is what Ambassador Kirk said when the ministerial meeting opened, and has been repeating that in every meeting he has had with individual countries.

In my own meetings with official delegations and business groups, I have seen a change in attitude -– away from pressure, “just take the deal!” to a recognition there is going to have to be more. People didn’t tell me I was a pain in the you-know-where this time, though they shake their heads and say they don’t see how the job can get done.

There’s a lot of worry about how China, Brazil, and India can be persuaded to do more -– and not yet a lot of offers of assistance to help increase the pressure. But I think the Geneva Ministerial has marked the end of the “get the U.S. to cave” strategy. And changing that mindset was absolutely essential if we are really to get a deal.

OK, so how best to move forward? Building on what I once learned from one of my mentors, I propose that WTO Director-General Lamy bring the key countries to a building on a remote site, provide all the beer they want, and then announce the bathrooms are locked until a deal is reached.

Final thoughts tomorrow.

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