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.

The headline was so grim, we had to read the whole article. The Handelsblatt is a German daily newspaper that often partners with the Wall Street Journal. Today’s column from Helmut Hauschild, European correspondent, is headlined,  Das Debakel von Genf, “The Debacle of Geneva.”

Excerpt:

In the long term, however, the Geneva debacle represents a divide of far-reaching consequence. It begins with the reality that the rules of trade will become less transparent. The new norm will be now trade agreements between individual countries, rather than the previously accepted global standard. 

The World Trade Organization will lose its ability to influence and referee disputes. The negative impact on the export economy will manifest itself only gradually, but it will be high. The climate for trade will be markedly more rough than before.

The failure of the WTO talks is at the same time an expression of new complexities. Long gone is the time of a bipolar world economy, in which the United States and Europe set the tone and world trade agreements were then developed accordingly. China and India have taken the stage, powerfully. They represent their own interests, hard as stone, and will support free trade only as far as it benefits them. The former industrial powers will come to rue the day, bitterly. Geneva was just a taste of what’s to come.

 

And that assumes that countries are willing to negotiate bilateral trade agreements. That’s no so clear here in the United States these days.

Full translation follows in the extended section… 

Statement from Ambassador Susan C. Schwab, U.S. Trade Representative

“While we made good progress during the past week, it is clear that despite our best efforts we will not be able to reach a breakthrough at this time.

“There should be no question, we made important progress. Even today, 5 of the 7 countries in the leadership group were prepared to accept the Friday proposal by Director General Lamy. We gained insights into what members are prepared to offer on services at the signaling conference this weekend, greater clarity on what a modalities package might look like, and saw a constructive attitude in attempting to solve many other issues that have been preventing progress in the negotiations.

“To ensure that the advances we made this week are not lost, the United States will continue to stand by our current offers, but we maintain that they are still contingent on others coming forward with ambitious offers that will create new market access. So far, that ambition is not evident.

“Regrettably, our negotiations deadlocked on the scope of a safeguard mechanism to remedy surges in imported agricultural products.

“Any safeguard mechanism must distinguish between the legitimate need to address exceptional situations involving sudden and extreme import surges and a mechanism that can be abused.

“In the face of a global food price crisis, we simply could not agree to a result that would raise more barriers to world food trade.

“Certain members sought increased flexibilities that would have allowed them to apply tariffs that, in some cases, would exceed their current WTO bindings. This would have moved the global trading system backwards – exactly contrary to the purposes of a negotiation intended to expand trade and economic growth.

“Throughout these negotiations, the United States has been strongly committed and willing to make the tough choices necessary to achieve an ambitious breakthrough. Since the launch of the Round, we have worked tirelessly, traveling hundreds of thousands of miles, spending countless hours negotiating in good faith, all to sustain the Round and bring together a development outcome that would open new markets and create new trade flows.

“The United States remains committed to demonstrating the leadership necessary to achieve an ambitious result. I look forward to conferring with my counterparts in the coming weeks as we work to achieve that outcome.”

-# # #

Updated and bumped to the top.

From a statement from NAM President and CEO John Engler:

I regret to say that, despite incredible efforts on the part of U.S. Trade Representative Susan Schwab, Assistant to the President Dan Price and the entire U.S. negotiating team, WTO members declined to agree on terms that could have provided greater opportunities for trade of manufactured goods.

Time and again at the Geneva meetings, China and India reiterated how they could not lower their barriers, but insisted we must lower ours. Revealing the sort of negotiation he had in mind, Indian Trade Minister Nath, for example, remarked that cars will no longer be made in Detroit and Düsseldorf but in Asia, a process he seeks to foster by maintaining India’s impenetrable barriers against U.S. cars while having virtually open access to our car markets.

The “Special Safeguard Mechanism” demanded by China and India for their agricultural sectors was the final straw. That mechanism would have violated one of the most basic tenets of the world trading system: nations do not violate their tariff bindings by raising tariffs above the legally-bound levels. Once an exception is made, no matter how small, the entire world trading system could begin to unravel. The Doha Round was supposed to move world trade forward, not backwards.

 It is regrettable that China and India in the end refused to stick with the rules and wishes of the majority of countries. However, we must face the reality of what they did. It is important to note, however, that other developing countries, especially Brazil, made it plain during the Geneva talks that they were prepared to enter into give and take negotiations, and that is a positive development.

For Frank Vargo’s reports from Geneva, please go here.

See also USTR statement, news coverage.

Not good news.

• Bloomberg: “WTO Talks in Geneva Collapse, Trade Negotiator Says”
• Reuters: “INSTANT VIEW - WTO talks collapse amid farm stand-off“
• Reuters: “FACTBOX-Winners and losers after WTO talks collapse“
• Reuters, Germany: “USA und Indien bringen WTO-Verhandlung zum Scheitern” (We just include this because of the headline: “U.S. and India cause failure of WTO talks”)

NAM President John Engler will have a statement this afternoon and we expect to hear from the NAM’s man in Geneva, Frank Vargo, in the evening.

Two steps forward, and one step back. Or is it one step forward and two back? At any rate there was no forward movement in the WTO talks today. This morning, the U.S. had some very pointed words for India and China, stressing that the Lamy text was the only way forward. If countries were to reject the text or backtrack, there is no chance for a deal. Nobody is completely happy with the Lamy text (including the NAM), but if there are to be negotiations, the Lamy text is really the only basis on which to have the terms of negotiation. (Lamy’s update for July 28 is available here.)

The U.S. is not the only delegation concerned. Press reports indicate that France continues to pressure the EU delegation to resist agricultural changes and Germany is now understood to be pressing on the industrial side, saying German industry is not getting enough market access. China and India pushed back, saying they are being asked to do too much, and then they all went back into a “Group of Seven” (G-7) meeting - ministers only this time, no note takers or observers, so the ministers could frankly exchange views.

The G-7 met most of the day, broke up, and reconvened. So far, without resolution. The big issue is “SSMs - special safeguard mechanisms by which developing countries can clamp down on agricultural imports if there is a surge. They want, in fact, to be able to slap tariffs on that are higher than their legal WTO bound rates. Wow! That would in essence destroy one of the longest-standing pillars of the WTO, going back to 1946-47 when the GATT was first agreed. Big issue. But not just a theoretical issue. U.S. farm interests are extremely concerned about the protectionist possibilities here.

The issue is so serious that the whole Ministerial meeting could come unwound. We’ll see.

The other hot issue is the question of whether Brazil, India, and China will sign on to Annex Z and participate in sectoral negotiations. Brazil doesn’t seem to have a serious problem here, but China and India are still very resistant. My tea leaf readings, though, indicate that the degree of loudness of “no” is diminishing. Some questions are being asked about the nature of sectoral negotiations, whether if you start the process you are bound to finish it, etc. These are good and useful questions.

But first we have to get past the SSM issue, and that seems to be as big as Mont Blanc, which looms in the distance from Geneva.

NAM’s Man in Geneva
Frank Vargo

I sympathize with journalists who have to fill a newspaper even when there is nothing to report. There is a lot going on here in Geneva, but most of it has continued to be the small group meetings and one-on-one bilaterals. And that’s really how things get done in trade negotiations. You cannot have 30 people sitting around a table and get anything agreed. You have to get the most interested parties to meet with each other, see what they can swap, get them to agree on some language, and then to out and sell it to the rest.

There are 153 countries in the WTO and theoretically any one of them could hold up a deal. That’s very unlikely, but there are probably 40-50 countries who absolutely have to be in accord with an agreement.

WTO Director General Pascal Lamy’s text, which I reported on in an earlier blog, is the basis of the agreement, if there is one. After a full day of bilateral discussions on this, a “Green Room” was convened about 7 p.m. Geneva time and could run quite late tonight - it is 11 p.m. as I write this, and I don’t know if the Green Room is running or not.

Lamy’s plan is to have his text - really his outline - incorporated into the ag and NAMA chairmen’s’ texts and given out for approval tomorrow. Then there will be another day of discussion and angst, and hopefully we will be done Wednesday - although I was asked to be prepared to be here through Thursday (groan). You know, you can only eat so much raclette.

My activities today involved meeting with General Director Lamy’s Chief of Staff, meeting with Commerce staff to discuss some technical details, and trading rumors with some of the press. And I did get to take a long walk along the beautiful lake. It is very warm in Geneva, and thousands of people were out in the lakeside parks or out on sailing boats.

I had earlier promised to discuss in somewhat greater detail the “anti-concentration clause (ACC),” so let me do that now. Developing countries are allowed to exclude up to 14 percent of their tariff line items from making cuts, and there is concern that they will cluster these tariff lines in sensitive areas, particularly textiles and autos. So, the European Union came up with the idea that no more than half of a tariff category could be excluded - or 40 percent, depending upon the breadth of the category definition. That would ensure that at least half the items in the tariff category (4-digit HS, for those of you who do that sort of thing) would have to take the formula cut.

Well, this set off a cacophony among the developing countries, who precisely want to concentrate their exemptions in key sectors. The result was that Lamy’s text says that at least 20 percent of a tariff category must take the full percentage cuts - meaning a country can exclude up to 80 percent. That’s not very helpful in spreading the flexibilities and keeping them from being clustered, and is one more problem we face on the road to trying to cobble out a deal that looks reasonably balanced for us.

NAM’s Man in Geneva
Frank Vargo

For previous posts from Geneva, please go here.

A quiet day in Geneva, at least on the surface. The major event today was the long-anticipated “signaling conference” on services, in which countries indicated what they were prepared to do in liberalizing services. The Coalition of Services Industries indicated it was very pleased, and hoped that substantial new offers would be made as a result.

On NAMA, this has been a day of very intensive bilateral negotiations. The U.S. has been working in close tandem with the EU, and both have been pressing for China, Brazil, and India to step up to the plate. There seems, for the time being at least, to be some distance opening up between Brazil and India - in which Brazil is making some reasonable statements, indicating willingness to move ahead, and not being shrill in its tone. India, on the other hand, continues to be extremely difficult and critical.

Not too much to report. NAM was asked to speak for manufacturers at a meeting of Congressional staff who are here in Geneva, along with the Farm Bureau for agricultural interests. There is a lot of congressional concern for what this deal might do to affect import-sensitive industries and a lot of questions as to how there can be enough gain for export-oriented industries.

Also met again with U.S. negotiators, and continue to admire the job they are doing. It is not easy to be in bilateral meetings all day, be in green room and other WTO meetings, plan the next day, examine strategies, report back to Washington, etc.

Tomorrow will bring more bilateral meetings, and probably a meeting of the Green Room in which about 30 countries will give their reactions to the Lamy text developed yesterday. Most of them apparently will say in general it is OK, but they have problems in that the U.S. and Europe aren’t doing enough in agriculture. Many of them also oppose the anti-concentration language in the text for NAMA and the provision for sectorals.

Could be an interesting day tomorrow.

NAM’s Man in Geneva
Frank Vargo

Reuters:

GENEVA, July 26 (Reuters) - U.S. manufacturers will not back a proposed compromise in world trade talks unless leading developing countries like Brazil, India and China agree to sharply cut tariffs in key industrial sectors, a top industry official said on Saturday.

“If they don’t commit to sectorals, I see no way we can get behind this,” Frank Vargo, vice president of the National Association of Manufacturers, told Reuters one day after a compromise shaped by World Trade Organization Pascal Lamy broke a deadlock in the long-running Doha round.

And…

The compromise plan for cutting overall tariffs in developing countries is “so weak” U.S. manufacturers can only support the package if top emerging markets join in negotiations to slash tariffs to zero in specific sectors such as electronics and industrial machinery, Vargo said.