Monday, July 24, 2006

Real World Trade Lost

Trade ministers from six key countries have reached an impasse in Geneva after marathon negotiations failed to make headway. This is not only unfortunate, but considering whom this impasse effects it is CRIMINAL. Such a failure jeopardizes the four-year effort to liberalize world trade.

The world has been trying to reach a new deal to expand free trade, with a special emphasis on helping poor countries. Talks have been going on since 2001, but predictably, progress has been very slow. A key meeting in Hong Kong in December 2005 failed to make a breakthrough.

In brief, advocates of a trade deal say it would help end poverty in developing countries, while rich countries could also benefit if they can sell more goods and services abroad.
Moreover, a deal would boost global growth and increase jobs, though critics say it would cost jobs in developing countries and hurt poor people.

Why have the talks broken down? The key issue is how far the US and the European Union will reduce their barriers to agricultural exports from developing countries, including both subsidies and tariffs. In return for this the rich countries want larger developing countries like Brazil and India to lower their barriers to imports of manufactured goods. This sounds reasonable, but after four years of talking, it appears that none of the key parties is prepared to compromise enough to push the talks to a conclusion. In particular, the US and the European Union are both facing strong pressure from their domestic farm lobbies not to go too far in reducing protection for the agricultural sector.

As the prospects for a deal have receded, each side has sought to blame the other.
The EU saying that the US has been too ambitious and has not shown enough flexibility to reach agreement, while the US blames protectionist pressures around the EU Common Agricultural Policy. There is validity to both claims but the best complaint comes from the developing countries who say that the rich nations were never serious about opening up their markets, and until they do, they are in no hurry to open their own. This is the truth, this is the hurdle and must be overcome.

The key problem has been that free trade in agriculture, the centerpiece of this trade round. Although small, the agricultural lobbies are powerful, and the industrial lobbies in rich countries have not exercised much leverage to push through a trade deal. Until then, the talks are facing a major obstacle in the US, since "fast track" negotiating authority by Congress expires in July 2007. This means that Congress must vote the deal up or down as a whole, otherwise opponents could add wrecking amendments and force the US to renegotiate the whole deal.

In the current political climate mid-term elections and with trade deals already unpopular because of the huge trade deficit, an extension is unlikely to be agreed and any trade deal without the participation of the world's largest economy would be meaningless.

The main losers would be the larger developing countries like Brazil, India, and South Africa, who have many agricultural products they would like to export to rich countries.
The poorest countries who have been offered free market access as part of any trade deal, have less capacity to benefit from any market opening. It is this reason that some
NGOs say that no deal is better than a bad deal for the poor, and that it would be better to start from scratch to redesign the world trading system in a fairer way.

The fact that negotiations of this magnitude has gone on for so long and now have effectively been stalled indefinitely is truly sad. The opportunity to help has been lost.

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