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