In the November 4, 2009, Toronto Globe and Mail, World Trade Organization (WTO) Director General Pascal Lamy was quoted as saying that a Doha round deal can be concluded soon: “We are nearly there,” he said, “but there remain a few nuts to crack, mostly the U.S.”

The National Association of Manufacturers (NAM) finds this comment unfortunate and distressing. The United States, which was instrumental in creating the post-World War II trading system that has served the world so well, which has led other nations - sometimes kicking and screaming - to liberalize world trade and open their markets in every negotiation since the Geneva Round of 1947, and which is pressing so hard for global market opening in the Doha Round, is not a “nut to be cracked.”

Rather than singling out the United States and seeking to pressure the Obama Administration to accept a deal the Bush Administration had already rejected, Mr. Lamy should focus his efforts on those WTO members who are still reluctant to offer substantial new market access. U.S. negotiators have been working tirelessly for a deal that creates significant and genuine new market openings that would benefit not just American firms, but firms in all countries - including in the poorest countries, who are key intended beneficiaries of the Doha Round.

Based on the recent estimates of the prestigious Institute for International Economics, without the sectoral tariff cutting agreements the U.S. is working so hard to achieve, the current (un-agreed) Doha Round text would barely increase world manufactured goods exports one percent. Furthermore, most of that gain would not occur for up to 10 years. And the situation in the services negotiations is even worse.

For over eight years the U.S. has been consistent in saying that only a balanced and ambitious outcome - not just for U.S. producers, but for all producers globally — is acceptable. The Doha Round is not there yet, and will not get there if Mr. Lamy continues to view the U.S. as a nut to be cracked rather than reinforcing the U.S. effort to obtain more trade liberalization globally.

Frank Vargo is Vice President, International Economic Affairs, National Association of Manufacturers

Washington Post, “WTO Says Protectionism Could Prolong Recession“:

Facing pressure to keep jobs at home, leaders around the world have edged closer to protectionism, which could eventually choke global trade and prolong the recession, the head of the World Trade Organization warned yesterday.

Addressing protectionism ranks high on the agenda of the G20 summit next week in London. At their last meeting in November, the leaders of 20 industrialized and developing nations pledged to fight anti-trade policies. In January, the WTO reported no significant increase in protectionism. But a World Bank report released last week found that of the G20 members, 17 have failed to keep that promise, prompting calls by world leaders and others for the group to adopt a tougher stance this time.

Earlier in the week, the WTO also issued a news release, “WTO sees 9% global trade decline in 2009 as recession strikes.” Excerpt:

“For the last 30 years trade has been an ever increasing part of economic activity, with trade growth often outpacing gains in output. Production for many products is sourced around the world so there is a multiplier effect — as demand falls sharply overall, trade will fall even further. The depleted pool of funds available for trade finance has contributed to the significant decline in trade flows, in particular in developing countries,” said Director-General Pascal Lamy.

“As a consequence, many thousands of trade related jobs are being lost. Governments must avoid making this bad situation worse by reverting to protectionist measures which in reality protect no nation and threaten the loss of more jobs. We are carefully monitoring trade policy developments. The use of protectionist measures is on the rise. The risk is increasing of such measures choking off trade as an engine of recovery. We must be vigilant because we know that restricting imports only leads your trade partner to follow suit and hit your exports. Trade can be a potent tool in lifting the world from these economic doldrums. In London G20 leaders will have a unique opportunity to unite in moving from pledges to action and refrain from any further protectionist measure which will render global recovery efforts less effective,” Mr. Lamy said.

From Reuters, “WTO’s Lamy presses US manufacturers on Doha deal“:

WASHINGTON (Reuters) - World Trade Organization Director General Pascal Lamy urged U.S. manufacturers demanding deeper tariff cuts in world trade talks on Friday to consider the billions of dollars of savings that would come from proposals already on the table.

“We understand how important it is to have U.S. companies favorably disposed to the Doha round, and the director general made his case,” Keith Rockwell, a spokesman for the Geneva-based World Trade Organization, told Reuters.

Reuters’ diligent Doug Palmer reports that Lamy met with the NAM, making the case that the tariff concessions already on the table are substantial — the equivalent of an annual tax cut of $7 billion to $8 billion on U.s. exports. The NAM’s Frank Vargo outlined manufacturers’ objections, according to Reuters:

In too many cases, U.S. exporters would get no new market access because the bound tariff cuts are not deep enough to affect the applied tariff, said Frank Vargo, vice president at the National Association of Manufacturers.

“The new market access we get from the formula is inadequate. It’s got to be bolstered by good participation in sectorals,” Vargo said, even after Lamy presented figures showing 86 percent of India’s applied tariffs would be cut by an average of 14 percent under the proposed formula.

For more on the NAM’s position on the Doha round, please see Vargo’s commentary from the last round of WTO negotiations in Geneva — and the NAM’s position papers on the WTO negotiations.

WTO Director General Pascal Lamy’s speech Wednesday at the University of California Berkeley is an outstanding survey of the value of global trade, even more valuable when the financial crisis is shaking global economies and public confidence. Facts, figures, history and the proper emphasis on multilateral trade negotiations (with only a passing nod to the shibboleth of global climate regulation, a guaranteed economy-killer):

From “Restoring citizens’ confidence in trade requires sound domestic policies“:

Among the most disastrous political decisions taken in the wake of the Crash of 1929 was the passage of the Smoot-Hawley Act, signed into law on June 17, 1930. The idea of this ill-conceived legislation was to protect US farmers - a notion popular in many WTO member governments to this day. As farmers pressed to have greater protection from imports, many other industries joined the queue of lobbyists and as they often do, these lobbyists succeeded in gaining protection for their industries. Duties of more than 60% were slapped on 3,200 imported products, lifting overall average tariffs by about 20%. If the idea was to curb imports, Smoot-Hawley was a fantastic success - by 1933 imports had fallen from $4.4 billion to $1.3 billion while exports fell 69% over that same period to $1.6 billion. But there was an unintended consequence to Smoot-Hawley - its contribution to an economic depression. Smoot-Hawley touched off a domino effect of retaliation and counter-retaliation among trading partners which provoked a severe contraction of international trade, depressed growth and rising unemployment around the industrial world. From 1930 to 1932 the unemployment rate soared from 8.7% to 23.6% and remained at more than 14% for the remainder of the decade.

How did the collapse of trade contribute to this? One reason is that contrary to the conventional wisdom, imports are good for you. A great many Americans were then and are today employed in sectors linked to imports. Parts needed for manufacturing became dearer if they could be found at all. The soaring jobless rate was also a product of the response from other countries which were anything but pleased to be the target of trade sanctions. Predictably, these countries retaliated. US exports to Europe, for instance, declined from $2.3 billion in 1929 to $784 million in 1932. Globally trade contracted by 60% between 1929 and 1932.

If there’s anything good to be found in the financial crisis, it’s that it encourages a study of history, a study that study destroys the arguments for protectionism when economies fall into recession or depression.

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.

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.