Following the meeting on the G-20 nations last weekend in Washington, the National Association of Manufacturers and Business Europe have sent a letter to the U.S. Trade Representative and the European Commissioner for Trade urging renewed attention to Doha. The letter is available here as a .pdf file. Excerpt:

The G-20 summit participants should follow-up on their commitment expressed at the summit on November 15 by participating in major sectoral tariff negotiations. The G-20 nations represent well over half of global trade in those sectors, and a comprehensive agreement by all G-20 on sectorals would send a strong signal to the world that they are committed to economic growth and a rapid conclusion of the Doha Round.

In order for modalities to offer the promise of substantial market openings to the world, however, there will need to be additional reductions in tariff and non-tariff barriers by the advanced emerging countries like China, Brazil, and India. The current formula and flexibility proposals do not lead to enough market opening opportunities in many WTO members. However, broad participation in the sectoral agreements would reduce this gap as advanced emerging countries would take up their responsibilities and could not benefit as free-riders of a sectorals outcome.

As this handy USDA trade glossary explains, the term “modalities” in WTO negotiations refers  to the nuts and bolts—such as formulas or approaches for tariff reductions—that underpin each country’s final commitments.”

Reuters story, “EU-U.S. businesses: Doha needs sector breakthrough”

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.

Looking at U.S. trade data, we’re a little suprised to see that even with its energy resources, Russia’s economy is still second tier. In 2007, Russia ranked 30th among countries in the value of U.S. exports shipped there, $7.3 billion, right behind the Philippines, Chile and Thailand. Granted, U.S. exports to Russia jumped 57 percent from 2006 to 2007.

Here’s the breakdown of U.S. exports to Russia in 2007 from TradeStatsExpress:

So what happens now after the invasion of Georgia?

From the BBC’s world news roundup:

MIKHAIL SERGEYEV IN RUSSIA’S NEZAVISIMAYA GAZETA

The threat of economic sanctions against Russia over its policy in relation to Georgia is becoming increasingly real. Threats of postponing our country’s accession to the WTO were voiced in the US yesterday. Experts think that should Washington and the EU decide to impose economic sanctions on our country, it could be metals companies that will sustain the heaviest losses. Gas and oilmen are not afraid of sanctions because right now the West cannot do without their supplies.

And Reuters:

MOSCOW (Reuters) - Blocking Russia from joining the World Trade Organization because of the conflict in Georgia would defy common sense and break Western promises, a Russian official said on Thursday in response to U.S. warnings.

A senior U.S. official said on Tuesday Russian integration into international institutions such as the WTO was in question because of Moscow’s military operations in Georgia. President George W. Bush said on Wednesday the fighting was hurting Russia’s efforts to join global economic and security bodies.

“There are no formal reasons to stop these (accession) talks,” the senior Russian official, who is close to the WTO membership negotiations, told Reuters.

Charles Krauthammer writes that Russia’s goal is the Finlandinization of Georgia and reviews non-military steps that the United States and its allies can take, including the dissolution of the G-8 and Russia’s barring from the WTO.

UPDATE: (5:10 p.m.) Imports from Russia, 2007. Energy dependence, insecurity, in action:

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.