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

Ah well, the strangeness and wonder of the WTO negotiating process continues. Consider, for example, the Chairman’s report at the conclusion of the 7th WTO Ministerial meeting that ended yesterday. (Report available here as .doc.)

The report states, “There was wide support for building on progress made to date. There was also support for not attempting to reopen stabilized texts.” (My emphasis.) This statement refers, among other texts, to the Non-Agricultural Market Access (NAMA) text that the U.S. has not accepted. The clear implication from yesterday, though, is that many consider the text to be done, agreed, and not to be revisited.

Stabilized texts? Excuse me, but when the NAMA chairman Luzius Wasescha wrote that text at the end of last year, he stated right in his own text that, “Even though the included text is accepted as a basis for further work, we are far from a consensus among Members.” He also added “Anyhow, everything is conditional in the deepest sense.”

Whoa! By what magic elixir do we move from that December statement to the Ministerial Chairman’s statement yesterday that there is strong support for considering the text wrapped up and immutable? Is this sleight of hand? Or does the WTO have all the collective memory of a computer with a fried hard drive?

Example two: Press reports indicate at the end of the conference European officials lamented, “Doha does not seem to be fully on the agenda of the United States … there is no sign today that the Americans are ready to go forward.” (AFP report.) One said, “They want more concessions for a more acceptable package for the US Congress. Now, the problem is to find a way without damaging what has been achieved so far.”

What hypocrisy! In private, European government officials and business representatives are quite free in admitting their analysis conforms perfectly with the U.S. view - they are getting virtually no new market access out of the proposal so far. But they are willing to accept that, because they believe if they were to press for more industrial market access, the developing countries would turn right around and demand more European concessions in agriculture.

That has the Europeans terrified, for they feel they have given all they possibly can in agriculture. One more grain of wheat will break the European back and result in a revolt that will cause them to pull out of the whole deal. So they would rather build Fortress Europe around their agriculture and forgo market access gains in the rest of the world.

Example three: Indian officials still indicate a reluctance to have India participate in sectorals (but not the same degree of “shut-the-door” resistance I saw last year). But at the same time, India has free trade agreements cooking or under discussion with China, Japan, the European Union and Canada - and when India’s Prime Minister visited Washington recently, he indicated a free trade agreement could be possible with the United States as well. So my question is, who’s left? Why can’t you make cuts in the Doha Round?

The problem isn’t that the United States isn’t showing leadership, for it is. I spoke with Ambassador Ron Kirk a couple of times in Geneva this week. He knows the point to the Doha Round is getting meaningful market opening, and he knows the road to Doha goes through Beijing, New Delhi, and Brasilia. The problem isn’t U.S. leadership. The problem is getting others to get off their defensive agendas and join the United States is a commitment to open markets and grow world trade.

(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.

(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. )

The WTO 7th Ministerial Meeting opened yesterday afternoon, with Director General Lamy calling for unity (remarks), and minister after minister urging that the Doha Round conclude in 2010. U.S. Trade Representative Ron Kirk told the gathering not to confuse process for substance and urged countries to call for a round that would generate greater market access for all. (Kirk’s remarks.) There were some signs of support for this, with some ministers referring to ambition and balance, and some suggesting that we should consider different approaches, since we really hadn’t gotten very far. But despite these welcome signs, there has not been what one could call a rising tide demanding a stronger outcome.

Instead of unity, the gulf between those who want a strong outcome and those who want to hold back became even more obvious. Rather than offering any indications the time had come to begin serious negotiations, Brazil’s Minister Amorim instead chose to come out attacking the United States and re-writing history. Amorim accused the United States of “delaying the conclusion of the round because they want to have some few dollars more in some specific sections.” Wrapping Brazil in the flag of the least developed countries, he said that reducing trade barriers would hurt tariff revenues in the poorest countries and impair their ability to cope with climate change obligations. (Reuters coverage.)

What’s wrong with this picture? Well, first, once again Amorim implied that the least developed countries will have to cut their tariffs, which is untrue. Aside from the advanced developing countries like Brazil that have become global export figures, the developing countries don’t have to do anything in the Round.

Second, Amorim again is seeking to promote his revisionist view of Doha history by stating the United States is asking for new concessions, ignoring the multitude of negotiating sessions over the past eight years in which the United States has consistently said the industrial package had to be viewed as a whole - the tariff cutting formula, sectoral agreements, and exceptions from tariff cuts.

There is nothing new here. The United States has pressed consistently for both industrial and advanced developing countries to cut their barriers, while Brazil has wanted to keep its tariff protection. Amorim expressed horror that the United States thinks the Doha Round is about opening markets.

Third, Amorim stated that under what’s on the table now, Brazil is already committed to cut its applied tariff rates more than the United States, so “it is unreasonable to expect that concluding the round would involve additional unilateral concessions from developing countries.” That’s not so.

WTO data show that the formulas would have the United States cut its applied tariffs in half, while Brazil would cut its applied tariffs only by about 1/8 - from an average of 11 percent to about 9.7 percent. Moreover, Brazil’s tariffs would stay at an average of 11 percent for nine years, and only ten years out would fall to 9.7 percent. And, get this - even then only about 40% of Brazil’s tariffs would take any cut at all. What kind of market access is that?

This is what caused former Deputy U.S. Trade Representative Peter Allgeier to once quip that he finally understood what NAMA (Non-Agricultural Market Access) stood for - it meant “No Additional Market Access.”

It is time for Brazil to stop the rhetoric, show the leadership worthy of a major global player, and sit down and negotiate a deal that will have Brazil grant significant new market access and get significant new market access in return - and do this in services as well. You think?

(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. This is his first report.)

This afternoon, Monday, November 30, 2009, marks the official start of the 2009 Geneva Ministerial Meeting of the World Trade Organization (WTO). Whether by design or coincidence, the Ministerial starts on the 10th anniversary of the failed Seattle Ministerial, which opened on November 30th, 1999. November 2009 is also the 8th anniversary of the launch of the Doha Round of trade negotiations.

I am in Geneva, and I was at Seattle. There are similarities and differences. The anti-globalization protests at Seattle were vicious, lengthy, and very destructive. So far, the protests in Geneva have been relatively mild, with some destruction, but limited to a small minority of the demonstrators. We’ll see what happens today.

There are also similarities in the status of the negotiations. The Seattle Ministerial failed not because of the demonstrators but because of failure to reach agreement - principally between the United States and Europe over agriculture and sectoral agreements in industrial trade. Agriculture seems, after eight years of negotiation, to be agreed but for a handful (albeit a difficult handful) of issues, but the sectoral trade agreements (eliminating tariffs in major industrial sectors) is still an unresolved issue.

The Ministerial meeting that starts today ostensibly is not for the purpose of negotiating the Doha Round. Instead the official focus is on reviewing the WTO’s activities and its contribution to development. In talking with people, though, it is clear that Doha is the big undercurrent. The hope is that with so many trade ministers gathered in one place, informal discussions can lead to a narrowing of differences among countries that can clear the way for negotiations early next year.

If those differences are not narrowed, it will be extremely difficult to wrap up the Doha Round in 2010, which is the current objective (the first goal was 2005). The differences are still profound. In the key area of manufactured goods, which comprise about 70 percent of world trade in goods and services, the gulf that has been there since the round started is still there: The advanced developing countries are unwilling to provide major cuts in their tariffs and trade barriers.

From Reuters, “Business Groups tell Lamy need more for Doha“:

WASHINGTON (Reuters) - Leading U.S. business groups told World Trade Organization Director General Pascal Lamy on Tuesday they can not support current proposals for finishing seven years of talks on a global trade deal.

“We stressed repeatedly that our three organizations want this to work. We’re not throwing up roadblocks,” said Frank Vargo, vice president for international economic affairs at the National Association of Manufacturers.

“But what we want is for it to produce results (by increasing trade). We’re the organizations that are going to have to get this through Congress,” Vargo told reporters.

Lamy met with leaders from the manufacturers groups, the American Farm Bureau Federation and the Coalition of Service Industries near the end of two days of meetings with members of Congress and Obama administration officials.

NAM President John Engler, Bob Stallman of the AFBF and Bob Vastine of the services group sent a joint leter to President Obama last month providing more detail on the steps and substance necessary to revive the Doha negotiations and anticipating next month’s meeting of the G-20. Key excerpt:

[In] order to realize some tangible benefits from the efforts to date, we recommend that your Administration consider alternative paths forward, including whether some parts of the Round should be considered for a separate agreement in the near-term, rather than waiting for an overall conclusion. In particular, the ongoing trade facilitation negotiations enjoy broad support by developed and developing countries - including the least developed countries. A trade facilitation and capacity building deal in the near-term could bring much needed benefits to all nations if rapidly implemented on a separate track. Industrial non-tariff barrier negotiations have also languished and need renewed emphasis.

Trade has been a crucial component of U.S. and global economic growth, and will be central to the recovery of both. U.S. leadership is essential to bringing the Round to a successful conclusion, and the United States must continue to press for the ambitious outcome that would create new trade flows that will stimulate growth. Similarly, at the April G-20 meeting in London the United States must take a strong position against the global slide toward protectionism.

U.S. Secretary of Agriculture Ed Schafer appears on this week’s NAM radio program, “America’s Business with Mike Hambrick,” talking trade issues.

Some key excerpts:

Schafer on the pending free trade agreements with Colombia, Panama and Korea, and his expectation that the first two will be voted on next year in Congress:

We have the votes in Congress to do so, but the leadership won’t let it on the floor to get those votes. So, that’s very disappointing. But I understand now, that come the new Congress here in January, that Colombia and Panama will be put on the floor. So I’ve been told.

Korea’s a little tougher one, that’s a very important market for us, a huge market for us, but there are some issues there that members of Congress are concerned about that they are looking into. But again, for the economic well-being of the United States of America, and for Korea, for the relationships between our countries socially and militarily, and importantly, for the opportunities for producers in both countries, Korea and the United States, that agreement should be signed.

Program host Mike Hambrick notes that other countries are still negotiating bilateral trade agreements, even as the United States sits on the sidelines and asks if that’s a concern. Schafer:

That IS a concern. Right now Colombia is building trading relationships with Australia, with Canada, who are offering competing products to ours. As you know how business works, is you develop relationships. Say we finally got around to ratifying our Colombian Free Trade Agreement a year from now, well, Colombia has already established relationships — shipping relationships, inspection relationships, company to company, banking relationships – with Canada, Australia, and now instead of being in an open free market, you’re competing to gain market share where it’s already been in place, and that’s a tougher prospect.

Secretary Schafer also talks about the threat of rising protectionist sentiment and the importance of a Doha Round of WTO negotiations.
 
You can listen to the full interview here. (7MB .mp3 file.)

The entire episode of “America’s Business” will be available later in the day at the program’s website and as a downloadable podcast.

Following the meeting on the G-20 nations last weekend in Washington, the National Association of Manufacturers and Business Europe have sent a letter to the U.S. Trade Representative and the European Commissioner for Trade urging renewed attention to Doha. The letter is available here as a .pdf file. Excerpt:

The G-20 summit participants should follow-up on their commitment expressed at the summit on November 15 by participating in major sectoral tariff negotiations. The G-20 nations represent well over half of global trade in those sectors, and a comprehensive agreement by all G-20 on sectorals would send a strong signal to the world that they are committed to economic growth and a rapid conclusion of the Doha Round.

In order for modalities to offer the promise of substantial market openings to the world, however, there will need to be additional reductions in tariff and non-tariff barriers by the advanced emerging countries like China, Brazil, and India. The current formula and flexibility proposals do not lead to enough market opening opportunities in many WTO members. However, broad participation in the sectoral agreements would reduce this gap as advanced emerging countries would take up their responsibilities and could not benefit as free-riders of a sectorals outcome.

As this handy USDA trade glossary explains, the term “modalities” in WTO negotiations refers  to the nuts and bolts—such as formulas or approaches for tariff reductions—that underpin each country’s final commitments.”

Reuters story, “EU-U.S. businesses: Doha needs sector breakthrough”

Reuters, “Hopes fading for Doha breakthrough: Canadian aide“:

WASHINGTON (Reuters) - Prospects are dimming for a breakthrough in world trade talks before President George W. Bush leaves office in January, but a meeting of world leaders next month might be able to restore some momentum, a Canadian trade official said on Thursday.

“It’s all moving a little too slowly,” said Don Stephenson, a Canadian assistant deputy trade minister who stepped down in August as chairman of the manufactured goods negotiations in the World Trade Organization talks. “The hope is frankly beginning to fade.”

WTO Director Pascal Lamy has been in Washington Thursday and today, exploring possibilities. In a speech Wednesday at Berkeley, he restated the compelling case for a completed Doha round.

We know the benefits that will accrue from a successful Doha Round. We understand as well the opportunity costs of no deal. Failure to conclude the Round will not mean the demise of the WTO. We will still administer rules agreed over 60 years of negotiations. We will still adjudicate commercial disputes among members. We will still engage in monitoring and surveillance of government trade policies to ensure the most transparent trading system possible. But be in no doubt that such an outcome would hurt the credibility of our organization and the multilateral negotiating process that we oversee. Governments have said they will seek recourse to their trade problems through the dispute settlement system if they cannot negotiate rule changes. In my view, rule making through the judiciary rather than the legislature, as it were, is something which would not be sustainable.

Governments will also turn to regional or bilateral agreements rather than continue along the admittedly more difficult multilateral path. Such agreements have their place. I, myself, have negotiated a few of them in a previous life. But they are no substitute for a Doha deal. There are 430 regional and bilateral agreements in place today, 300 of these have been struck in the last eight years, and I can assure you that not one of them addresses the problem of excessive, trade-distorting farm subsidies. Not one of them will reduce the fisheries subsidies that threaten to empty our oceans. None will lead to the creation of global rules to facilitate trade or open globally trade in services.

Looks like the Wall Street Journal editorial writers and Helmut Hauschild of the Handelsblatt are on the same page, very, very discouraged about the failure of the Geneva WTO negotiations. From today’s WSJ editorial, “The End of Free Trade?”

Having defeated Doha, the world’s protectionists will now press forward with their special-interest agendas, hoping to build a lattice-work of cartels and managed trade. One way to push back is with bilateral or regional trade pacts, but these also risk establishing regional cartels and a web of conflicting trade rules that raise business costs.

Doha’s failure is a lost opportunity, but it could become much worse if it galvanizes even part of the world to resort to the tariffs and currency devaluations that led to and exacerbated the Great Depression. It was precisely the bitter memory of that era that led the world’s postwar statesmen to build the GATT, the European Common Market, and the rest of free-trade system we now take for granted at our peril.

What the world really needs now is a fresh burst of global economic leadership — on currency movements, pro-growth tax policies, and free trade.

At least they put a question mark on their headline.

So what happened? Well, the proximate cause of the failure was the hang-up on India’s and China’s insistence that they and other developing countries be able to break their WTO tariff bindings if they felt they had to protect themselves against surges of food imports if prices fall.

Why was that such an important issue? Because tariff bindings are one of the pillars of the GATT-WTO system ever since 1947. A binding is an inalterable promise that you will never ever raise tariffs above that bound rate. You exchange concessions with other countries and bargain on rates, and what you end up with is the rate at which you will lock your tariff in.

If the Doha Round had permitted bindings to be violated for some food products, it would have meant loss of market access for existing food exports, but would also have meant that a basic premise of the WTO had been undone - with the inevitability that this undoing would spread.

The issue was so central that it really consumed full attention, a fire so intense that it drew the air out of other issues. Everything else halted. And in the end, the two sides could not agree. Those wanting protection just would not be satisfied with something within the present rules.

But more broadly, there was little meeting of minds here. Pascal Lamy, the Director-General, took a real risk in calling this meeting. He figured if there was any chance of doing a deal this year, the agreement on terms of negotiation had to be done now. If the basketball was going to go through the hoop, there had to be a backboard off which to bounce it - and that was this meeting of ministers.

But, to be trite, it was a bridge too far. Issues just weren’t ready, whether they were in manufactured goods or agriculture. Ministers were being asked to make decisions on matters on which their deputies had been unwilling to agree - and based on my experience, just because you bring in someone with a higher title, that country’s position is not going to change.

On NAMA - Non-Agricultural Market Access - we actually made a little progress. The non-tariff barrier text was so non-controversial that no one even mentioned it. On tariffs, we have known the tariff cutting formula is too weak to open markets for us, so we had to look for deeper cuts in major industrial sectors. The goal here in Geneva was to move Brazil, China, and India away from absolute refusal to even talk about sectorals and to a position where they would at least be willing to enter into beginning to negotiate sectorals.

This was the NAM’s bottom line. I don’t know if, had the Ministerial gotten to that point, we would actually have achieved that objective, but all three of the countries were moving somewhat in that direction. On the other hand, the terms were weakening somewhat, so we don’t know what would have come of this.

Where do we go from here? NAM President Governor Engler has called for a cooling-off period. Everyone must recognize that there is now no way to conclude these negotiations before the end of this Administration. The new Administration needs to come on board and begin looking at this, and there will also be a new EU Commission.

There is no point in picking up where we left off. People need to think about what they really want and what they are willing to give up for it. But we must resist the wags who can’t wait to pronounce this the end of the WTO. Absolutely not. And here I am going to agree with Indian Trade Minister Kamal Nath, who said, “My confidence in the institution of the WTO remains intact, and we will take this up and move forward.”

The World Trade system should actually be viewed the stronger for having just gone through a difficult process of disagreement. It is flexible enough to withstand this, so long as we do not become its enemies and accuse the institution of failure, rather than a failure of some large new countries to realize that it is give and take, not take and take.

The NAM will certainly be looking at ideas on how to move ahead. One excellent idea that perhaps can gather traction is that of an environmental sectoral that would reduce or eliminate tariffs on products meant to help clean the environment. There are other possibilities as well. Since non-tariff barriers were non-controversial, maybe some of those could move ahead - so long as we get away from the idea nothing can happen outside a huge round.

I want to end my last blog from Geneva by saying how proud I am of Amb. Susan Schwab, Presidential Assistant Dan Price, Commerce Under Secretary Padilla, Ambassadors John Veroneau and Peter Allegeier, and the entire U.S. interagency negotiating team. They worked ceaselessly, with little sleep, looking for ways to make this thing work. If anyone could have made it happen, it was them. But even they couldn’t make it work when others just said no.

Thanks for reading these blog posts, and I look forward to coming back to Washington and to home.
NAM’s Man in Geneva
Frank Vargo

For the previous reports from Frank Vargo, NAM’s vice president for international economic affairs, please click here.