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.”

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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.

From the NAM’s perspective it was a mixed day at the WTO negotiations in Geneva. Contrary to some predictions, nobody walked out. Also Indian Trade Minister Nath rethought his rather critical initial comments on the U.S. offer to cap total agricultural subsides at $15 billion and said it was a useful thing for the United States to do.  Additionally, Brazil is understood to have said they could work within the present NAMA text. NAM has said the same thing, but we have low end developing coefficients in mind, along with reasonable flexibilities not excluding too many products, and of course participating in major sectorals. I don’t think Brazil is in the same corner as we are.

On the other hand, some mid-range developing countries were understood to step forward and say they could do sectorals. That is very good, and hopefully a bandwagon could develop that might develop some momentum. However, Argentina dumped all over the NAMA text and South Africa had major problems as well, being concerned that cutting their tariffs would allow China to decimate their manufacturing industry.

The U.S delegation began advancing some thoughts about how sectorals might be made more attractive, but I think it is too early to expect a reaction to that, and I should not get into details at this point.

Director General Lamy decided that the “Green Room” process with 30 or more ministers in the room was not helping narrow differences and was locking things into their already established positions. So he decided to move to “Small Group Meetings,” for example, with the U.S., EU, Japan, Brazil, India, and Australia, to see if these groups could do a better job of narrowing differences.

In my experience from previous negotiations, that is the right thing to do at this time. I don’t read any backward movement into it all. This is a good thing, and we will see where it goes.

NAM had a good session with Commerce Under Secretary Padilla today on sectorals. Chris is totally convinced that without sectorals there cannot be enough balance to move forward with NAMA, as is Ambassador Schwab and key White House advisor Dan Price. Conversation with Chris came up with some additional ideas, and they may work their way into the U.S. position.

Also met with Japanese officials, who said they have been advocating sectorals in their bilateral meetings, and with the Federation of Indian Chambers of Commerce and Industry, who are certainly not supportive of sectorals. We had a good and friendly talk, though, to try to understand each other’s positions better. My view is that India’s position is not wholly based on hard economic analysis, but also reflects a strong legal view that they do not want to be committed to things to which they did not agree in the Doha or Hong Kong ministerial text. But they certainly made their point that they are an immovable object on sectorals, and I made the point we are an irresistible force. So who knows where this will turn out.

Also had discussions with Business Europe, who is increasingly on board with sectorals, but also wants the anti-concentration clause which would limit the proportion of any import category that could be exempted from tariff cuts on the part of developing countries.

Finally, had detailed discussion with a key Congressional staffer to explain NAM’s views on sectorals from top to bottom.

All in all, a busy day. No wheels fell off the cart, and we are off to Thursday.

Frank Vargo
NAM’s Man in Geneva, July 23, 2008

Negotiations at the World Trade Organization (WTO) “Mini-Ministerial” meeting called by Secretary-General Lamy technically started Monday, but real negotiations did not start until today. Lamy called the meeting in a gamble to break the deadlock between industrial and developing countries over agriculture and industrial trade.

In what is called “Green Room” meetings, ministers from key countries negotiate with each other in an attempt to narrow differences and increase the points of agreement. These green room negotiations have started on agricultural trade, and will move to industrial trade (Non-Agricultural Market Access – NAMA) later today. Then, on Thursday, there will be a “signaling conference” for services in which countries are expected to signal what more they are willing to do to liberalize trade in services – which, until now has been virtually nothing.

Both the European Union and the United States advanced new agricultural offers – the EU raising the amount of its subsidy cut to 60 percent, and the United States cutting its agricultural subsidy ceiling to $15 billion. (Ambassador Schwab statement.) Unfortunately, neither of these offers appeared to have the desired effect—kickstart this week’s negotiations. Brazil sneered at them, and that pretty much set the tone. Things will become even more fun when the other developing country leader – India’s Trade Minister Kamal Nath arrives tomorrow. He was in India today to participate in a Parliamentary vote of confidence, which the government won.

The NAM’s principal activities in Geneva have been to work close in with U.S. NAMA negotiators, and I discussed NAMA strategy with Dan Price (Assistant to the President for International Economic Affairs and Deputy National Security Advisor for International Economic Affairs), and Deputy USTRs Peter Allgeier and John Veroneau. We all agree that the key to a NAMA deal that would provide new market access for U.S. manufacturers is the sectoral agreements. The overall tariff-cutting formula options that have been proposed are simply too weak to cut deeply into the tariffs of the high-tariff countries, particularly Brazil, China, and India. In rough terms, the formula deal would have the United States cut its industrial tariffs in half, while the high-tariff countries would cut theirs one-tenth – and even that would not occur in some cases until 10 years out.

Sectoral agreements, on the other hand, particularly if they take tariffs to zero, would provide real market access. The NAM has been pushing sectorals for seven years, initiating the zero tariff coalition years ago, constructing a tariff model to simulate the results of various negotiating formulas, and buttonholing anyone who would listen.

Now, sectorals have finally become the name of the game. The big news is that the European Union has come on board and insisted there have to be sectorals in order to get enough balance.

But the key high-tariff countries say “no”. They want to stick to a weak formula cut that will shelter them from cutting tariffs a lot. And that is where the dividing line is on NAMA. The Industrial countries are insisting there have to be sectorals if there is to be a deal, and the developing countries are insisting there can be no deal with sectorals. Something like the irresistible force meeting the immovable object.

The negotiating strategy on sectorals that will be played out by the U.S. negotiators is a good one. Can’t discuss it at this point, but it is good, and has a reasonable chance of succeeding. And our negotiating team is the best. So with a great team and a great game plan, it can work. But if the other team simply does not want to play, then nothing can work.

We will know more tomorrow.

Frank Vargo, NAM’s man in Geneva
July 22, 2008

USTR passes on the tip that the WTO is webcasting the Doha sessions in Geneva this week. Go here, logically enough: www.wto.org

Director-General Pascal Lamy opened the sessions at an informal meetings of the heads of delegations where the talk turned to the establishment of modalities in Agriculture and NAMA, “modalities” being the “nuts and bolts—such as formulas or approaches for tariff reductions—that underpin each country’s final commitments.” (From a USDA set of trade definitions.) NAMA is the Non-Agricultural Market Access talks, the portion of the negotiations that manufacturers are focusing on.

That being explained, here’s Lamy:

I can think of no stronger spur for our action than the threats which are facing the world economy across several fronts, including rises in food prices and energy prices and financial market turbulences. There is widespread recognition that a balanced outcome of the Doha Round could in these circumstances provide a strong push to stimulate economic growth, providing better prospects for development and ensuring a stable and more predictable trading system. Heads of State and Government across the world have repeatedly expressed their overwhelming commitment to this endeavour, and we must not let this opportunity slip.

And from Barron’s, two apt and accurate paragraphs:

U.S. EXPORTS ARE AT AN ALL-TIME HIGH, thanks to a weak dollar. But keeping exports growing will require more than a flabby currency. This is why Ambassador Susan Schwab, the U.S. trade representative, will be in Geneva this week to urge the world’s fastest-growing economies — China, Brazil, India, and Taiwan — to reduce their high tariffs in key sectors like machinery, electronics, medical devices, cars, chemicals and agricultural goods. A final agreement is far off — as long as seven to 10 years, according to trade experts.

As a crucial first step, Schwab will try to get the developing economies simply to agree to negotiate deals sector by sector in the years ahead. That could be a hard sell. Frank Vargo, vice president for international affairs at the National Association of Manufacturers, says that thus far, the developing countries have only showed an interest in lowering tariffs on chemicals.