TCS Daily

Trading Places

By Laurence Frost - December 3, 2002 12:00 AM

President George W Bush has just scored a significant public relations victory against the European Union as Washington jostles to reclaim the moral high ground of world trade liberalization from Brussels.

The timing of a US proposal for a major global tariff phase-out - just days after the European Commission issued a stinging criticism of Bush's trade protectionism - might have been coincidental. But the plan to remove all tariffs on consumer and industrial goods by 2015, starting in just over two years, was nevertheless one of the best imaginable responses to the latest charges from Brussels.

The November 20 publication of the EU's annual report on US trade barriers came as concern was growing among members of the World Trade Organization (WTO) that a lack of progress was threatening to scupper the marathon Doha round of global trade talks already under way.

In its report, the Commission slammed alleged US trade unilateralism, accusing Washington of continuing to take measures "based on an exclusive US appreciation of trade-related behavior ... without reference to, and sometimes in defiance of, mutually agreed rules."

The report highlighted new disputes that have arisen over the past year as a result of "developments in US trade policy" - chief among them the decisions to slap safeguard duties on steel and go ahead with the Farm Security and Rural Investment Act, boosting subsidies to US farmers.

It singled out the Sarbanes-Oxley Act, a piece of post-Enron legislation imposing tougher accountancy standards on all firms doing business in the US, said by EU Financial Services Commissioner Frits Bolkestein to have been "drafted in a hurry - and it shows."

A catalogue of older trade disputes, pre-dating the year in question, was thrown in for good measure, including the "extra-territorial" Helms-Burton Act imposing sanctions on firms doing business with Cuba, and the similar Iran-Libya Sanctions Act.

"One of the most disquieting aspects of US policy is that domestic pressure to adopt protectionist measures appears to be stronger than willingness to seek internationally agreed solutions," concluded the report - whose accompanying press release made no mention of Doha.

Some such willingness was nevertheless in evidence six days later, when US Trade Representative Robert Zoellick unveiled his new proposals for the global trade round.

Under Washington's proposal, WTO members would begin a five-year phase-out of their lowest tariffs on manufactured goods in 2005 and reduce all other tariffs to 8 percent, in preparation for their total elimination by 2015.

The plan drew immediate criticism from Brussels, anxious to defend its own proposals for much smaller cuts.

"It may be a very ambitious proposal," said Commission spokeswoman Arancha Gonzalez. "But we already know it's a target that would be very difficult for developing countries to meet."

True, some poorer countries could find it hard to accept the scrapping of their goods tariffs of around 40 percent in exchange for the abolition of European and US tariffs averaging just 4 percent.

But whatever the potential drawbacks of the proposals - the fine print of which can be thrashed out later - Washington's move stands in sharp contrast to the EU stance.

Behind the retrospective finger-pointing from Europe's representatives lie some deep divisions about liberalization, especially in agriculture, where the deadlock over the future of its own farm policy has crippled its trade negotiators.

It is also risks undermining the credibility of its rhetoric about the need for developing countries to get a larger share of the benefits of trade liberalization.

Under fire from anti-globalization campaigners, EU negotiators seized on intellectual property talks early on as an opportunity to establish their development credentials, supporting concessions allowing poor countries to bypass drug patents by importing generic copies of pharmaceuticals.

But on farm trade - which dwarfs intellectual property in terms of the potential gains it offers the poorest countries - there is less compassion on display.

The Brussels position has not evolved appreciably since Pascal Lamy, the trade commissioner, was forced last year into an embarrassing backtrack on his proposal to cut tariffs for developing countries on "everything but arms". Liberally watered down by national - mainly French - agricultural interests, the initiative was henceforth more accurately described as "everything but farms".

Brussels has since remained unable to table any WTO proposals at all on agriculture, threatening to scupper the Doha timetable and its March 2003 deadline for agreement on a framework for farm trade negotiations.

Caught napping - or scrapping - by the US proposal, the EU now has some catching up to do if it is to avoid giving the impression that it Brussels, not Washington, is the main brake on global trade liberalization.

It was probably with Europe in mind that WTO Director-General Supachai Panitchpakdi warned recently that "more clarity in negotiating positions" was needed if the Doha round was to produce a deal by its December 2004 close.

"There is a real risk that if the early deadlines are not met, then the agenda for ministers will be overloaded," Panitchpakdi said, just days after the Brussels statement. "If [next September's] Cancun ministerial conference is not a success then I believe the whole round will be in jeopardy."

Rather than harping on about past conflicts, the EU should look to Doha's precarious future, accepting the Washington proposals as a starting point and an opportunity to inject new vigor into the 1.1-trillion-dollar EU-US trade relationship and the global markets it underpins.

At stake is the next stage of global trade liberalization and, yet again, the credibility of the EU's own decision-making.



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