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.

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

Sorry to be posting this so late, but the U.S. Government briefing on today’s developments occurred very late, and I stuck around after that to get some more of my points in.

What happened today is that Director-General Lamy worked with the “Group of Seven” (G7) core countries to agree on an outline of points where there have been key differences. The text is a positive development, but “breakthrough” is too strong a word because at this stage it is only being forwarded to the broader group of countries participating in the “green room.”  They may or may not endorse it, and will probably seek some changes.  In addition, while of the Group of Seven core countries, India did not veto the text it indicated it was being forwarded without India’s approval. Moreover, the text is really only an outline of key points. It is not a self-contained text and if agreed by all, its points would be incorporated into the existing agricultural and NAMA texts.

That the text was developed and passed the Group of Seven hurdle, however, is a very positive step – and without this development the Mini-Ministerial quite probably would be coming to an end.  The text allows forward movement to the next step, and of course each step has its own perils.

Regarding the content of the Non-Agricultural Market Access (NAMA) text, the content of the three alternative tariff formulas and the amount of product exclusions remains a problem.  The anti-concentration content also remains a problem.   I will go into greater detail tomorrow.

The non-tariff barrier part of the existing negotiating text was not altered in any way, which is fine since it has not been controversial or opposed by anyone and actually ha  ne of the best chances of being approved pretty much as is – including the auto industry component.

The sectoral part was strengthened significantly by noting that certain (undesignated) countries will agree to participate in at least two sectorals. That is a big change from the vague “maybe we will, maybe we won’t” earlier position. Also, an incentive was put into the language that developing countries could be allowed to have a slightly weaker tariff cutting formula for the rest of their imports if they participated in a sectoral. This is to the U.S. advantage since so much more market access is gained by having countries participate in sectorals than is lost by a one-point tariff formula change.

The sectoral component is only worth something if key countries participate. The idea is to have Brazil, China, and India participate in sectorals. If they do not, the sectoral in itself will produce relatively little. The idea behind the sectorals is to produce more balance for the United States. If the country participation or the industry sectors included do not give the United States enough balance at the “end of the day” when the results of formula cuts, NTBs, and sectorals are added up, then there is no deal.  And the tariff cutting formulas are pretty weak.

Don’t forget that what is being discussed in Geneva now are just the “modalities,” the guidelines for the negotiations – not the negotiations themselves. Trade negotiations never follow a straight line, and their various upward and downward movements should not be seen too dramatically.

However, today’s development was positive and indicates for at least six of the seven “Group of Seven” countries a desire to try to reach an agreement.  That counts for a lot. But the outlier – India, could still take the whole thing down.

NAM’s Man in Geneva
Frank Vargo

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