TCS Daily

Crisis? What Crisis?

By Alan Oxley - October 26, 2005 12:00 AM

The World Trade Organization had another crisis this week. John Tsang, Hong Kong's Secretary of Commerce, declared the WTO was at risk of destruction. He cares because he will chair a conference of WTO Ministers in December.

WTO groupies may recall the Organization was also declared to be at the point of destruction in Seattle in 1999 and at Cancun in Mexico in 2003. Last time I rang the WTO switchboard in Geneva, the phone was answered. It is still there.

Talk of crisis is common in the WTO. When I first went to the GATT, the WTO's predecessor, as Australia's Ambassador in 1986, I used to puzzled at how frequently the then Swiss Director General Arthur Dunkel used to say, "We will need to manufacture a crisis" when agreement looked hard to reach.

We Australians are raised to see things simply -- if people want to agree, they will; and if they don't, they won't. The story of "The Boy who cried Wolf" was an object lesson and alarmists like "Chicken Little" were to be suspected.

Bemused, I watched fake crisis after fake crisis declared, only to see little change. Over time I learned that progress only occurred when Governments in capitals were in reform mode. The on ground indicator that trade officials in Geneva were serious was when they cut back the sacred European summer holiday the August before a WTO conference of Ministers.

What was the excitement this month? The Bush Administration declared it would cut subsidies on agriculture by 60 percent and challenged the EU to match this. Peter Mandelson, the EU Trade Commissioner counterchallenged he would cut high EU tariffs by just over 50 percent. France's Interior Minister, Nicolas Sarkozy, denounced Mandelson's offer as "a fool's bargain". France tried to have Mandelson pulled into line but the rest of the EU blocked the move.

Mandelson's offer didn't amount to much; it was just a good start, more was expected. By the end of the week he couldn't deliver. So there was no agreement on a broad strategy to reform agricultural trade, just predictions time had all but run out and forecasts the sky would fall in at the Hong Kong meeting. But the phones still answer at the WTO.

Why is this a crisis? Because negotiators have said it is. The formal deadline to end the negotiations is the end of 2006. WTO Ministers are to meet in Hong Kong to move things along. Trade officials wanted agreement there on the broad targets to cut tariffs and subsidies so a schedule could be adopted to get them over the wire by the end of 2006.

The real deadline in these negotiations, it is alleged, is when the Bush Administration's trade promotion authority expires. That is mid 2007. The belief is the Administration will not be able to get Congress to renew trade promotion authority the year before a Presidential election year. So if the EU and the US cannot do a deal on agriculture by the end of 2006, a "golden opportunity" to cut global protection of farm trade will be lost.

But this is another manufactured crisis. No one believes either the Bush Administration or Brussels is in a position to negotiate serious cuts. If either one said "We are cutting, regardless of whatever the rest of you do", the failure to leverage agreement off that in the WTO so everyone else cut as well would be a genuine lost opportunity. But the Bush Administration's position is "We will if you will. If you don't, don't blame us, we offered."

Of course the real blocker is the EU. Its protection of farming is double that in the US. But the US is not taking a position that will unlock this. Many developing countries are complicit as well. They say they also should not cut their own trade barriers.

In truth, there is plenty of time left, if officials believed that deep cuts could be made. And if serious cuts were in prospect, they would expect trade negotiating authority would be renewed at some time and would not worry about letting the negotiations run on into the term of the next Administration. There has been no overall liberalization in agriculture for over 20 years. Another two won't matter.

Officials in all capitals expect only modest cuts, as well as a myriad of caveats, special rules and exceptions. That is what they need the time for between Hong Kong and the end of 2006: to negotiate that myriad.

World Bank analyses show that the actual cuts in protection of farm trade in the round of global trade negotiations which finished in 1994 (tariffs by about one third, subsidies by between 20 and 33 percent) resulted in only little or no overall reduction in protection. The reason was that a complicated set of sub rules and exemptions undermined those broad commitments to cut tariffs and subsidies.

Negotiators have set themselves up to repeat that.

Oh, and by the way, trade officials at the WTO enjoyed their full summer holiday this August.

Alan Oxley was Australia's Ambassador the GATT during the beginning of the Uruguay Round of trade negotiations.


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