By  on May 16, 2006

GENEVA — The global trade talks aimed at lowering tariff barriers are threatening to collapse this summer unless the major players — the U.S., the European Union, Brazil, India and Japan — can find enough common ground to secure a deal for the Doha round to finish by the end of the year.

Right now, the World Trade Organization-sponsored talks are clouded by uncertainty and as one senior WTO trade diplomat put it: "The future of the Doha round is sitting on a knife's edge."

A global accord in the more than four-year-old talks would lower tariffs and subsidies on a wide range of goods and services worth $12 trillion a year.

Pascal Lamy, WTO director general, has given the 149 member countries effectively until mid-June to narrow their differences sufficiently to be able to come up with a broad "modalities" deal on agriculture and industrial goods, also known as non-agricultural market access or NAMA. If clinched, that would serve as a blueprint to help put the talks back on track.

Recently, Lamy was forced to instill a sense of urgency when it became apparent members would miss the April 30 deadline trade ministers had agreed upon during a WTO summit in Hong Kong in December to agree on modalities, or a tariff-reduction formula, for agriculture and NAMA.

"It is simply not possible to backload the modalities on agriculture and NAMA to July, that would guarantee failure," Lamy warned chief negotiators in late April and a week later cautioned delegates "we really have no more time to spare."

So, negotiators are working on a tight six-week schedule to try and break the impasse. In addition, a host of other issues in the talks are also required to be finalized and submitted by the end of July. This includes revised offers in commercial services and new rules on trade remedies and facilitation.

Some senior WTO trade diplomats are skeptical, however, whether countries will abandon entrenched positions and move in earnest toward a tariff-formula deal in the next month.

Rob Portman, the outgoing U.S. Trade Representative, after holding talks in Geneva with about 75 percent of WTO members, said on May 3 that: "It's hard to avoid the conclusion that unless there is a more ambitious result in market access than is currently on the table in other countries, that there's not going to be a successful round. We will continue to show leadership through these negotiations, but I will also say that no one player, however large the economy, can deliver success."Brazil's foreign minister Celso Amorim said, "Agreement has to be in the neighborhood that combines realism and ambition."

Similarly, EU trade commissioner Peter Mandelson said, "We either find a feasible, balanced grand bargain ... or face the consequences of putting off agreement for some time."

In the absence of advances toward a modalities package, it will require behind-the-scenes high-level diplomacy by Lamy to avert a meltdown.

The New Zealand chairman of the agriculture talks, ambassador Crawford Falconer, and his Canadian counterpart in the NAMA talks, ambassador Don Stephenson, are expected to come up with negotiated texts that iron out some contentious issues and narrow the range of where a deal might be doable, and then hopefully get ministers to negotiate the final details.

However, if ministers meet and fail to agree on tariff formulas, the talks could spiral into a new crisis in July, putting in serious jeopardy the prospects of a final deal this year and casting the round into an aimless drift, diplomats said.

NAMA chairman Stephenson said last week, "We are in the last weeks of genuinely being able to resolve the issues in time to complete the round in 2006."

Senior trade envoys said presidential elections in Brazil this October and Congressional elections in the U.S. in November make it difficult to broker a deal after the summer break. A change of power to Democrats from Republicans in the House and/or Senate could also have a policy impact on the talks. Plus, the doubt that presidential Trade Promotion Authority will be renewed when it terminates in mid-2007 adds to the pressure to try and close a Doha deal this year.

"It's very difficult to imagine extension of TPA, I just don't see it," said Christopher Wenk, director for international trade policy at the National Association of Manufacturers. "That's why by February, March 2007 a WTO package has to be ready and scrubbed to be sent to Congress," for an up-or-down vote.

What's on the table at the moment is considered by many as "Doha Lite" and not acceptable to the respective key players to close a deal. The World's Bank's lead economist, Will Martin, estimates a worthwhile Doha deal would deliver potential benefits of about $290 billion per year or about 0.8 percent of world gross domestic product, but adds this is a conservative estimate and does not capture the dynamic benefits. He said earlier global trade rounds delivered broad-based liberalization, such as the end of the quota regime, "that changed the world and created enormous opportunities in trade."A less optimistic assessment by a Carnegie Endowment study, however, estimated the gains "on the order of a one-time increase in world income of $40 billion to $60 billion."

U.S. negotiators are under pressure from the farming and manufacturing communities to deliver a big package.

"We've been quite vocal we will not accept a 'Doha Lite,'" Wenk said. "If we think the round does not produce new market access and adds to business we will tell our negotiators to walk away from a deal."

There are about 20 emerging countries for which NAM wants to see industrial tariffs to U.S. exporters sharply reduced, including India, Brazil, Pakistan, South Africa, China, Egypt, South Korea, Taiwan, Thailand, Malaysia, Indonesia, Venezuela, Colombia, Peru and Nigeria, he said.

There are those, however, who feel a collapse would be worse than a deal with diminished results.

Jeremy Hobbs, executive director of the advocacy group Oxfam International, said "a slow round is far from ideal, but when it is a choice between collapse, a slow round and a bad deal, then going slow is the best option."

He said rich countries are making hugely inadequate offers and at the same time demanding concessions from developing countries that could be devastating.

"No deal is better than a bad deal," said India's minister of commerce, Kamal Nath.

Many developing countries, spearheaded by the Brazil-led G20, which includes India, South Africa and Argentina, have made movement on the demands by rich countries on NAMA conditional on a better agricultural package, in particular from the EU on market access and the U.S. on deeper cuts in farm subsidies.

For their part, the U.S. and EU feel what the major emerging countries are offering on cutting import tariffs on industrial goods is too small for a deal to fall in place.

The EU's Mandelson insists that in the case of industrial goods, "The bigger developing countries are not giving the rest of us the signal we need that they are serious about eliminating their high industrial tariff peaks that currently shut out trade. We cannot get to the end result unless there is balanced gain, balanced pain. Not equivalent pain, but proportionate."The World Bank's Martin believes there's potential for a valuable agreement on NAMA. He said, "The top-down approach would bring down the most costly tariffs and peak tariffs," such as textiles, apparel and footwear.

In late April, the EU proposed sectorial talks that would result in deeper cuts for textiles, apparel and footwear than what would be achieved under the NAMA formula. Brussels said the objective is "bringing these tariffs within a common range as close to zero as possible."

Francesco Marchi, economic affairs director at the European apparel and textiles association, said, "The only way for our industry to survive is to secure access to fast-growing markets," such as China, India, Brazil, Pakistan, Argentina, South Africa, South Korea and Southeast Asian economies.

The EU text is considered an improvement on the Turkish sectorial proposal in March and strongly supported by U.S. textile manufacturer groups that called for the sector to be treated separately and for tariff harmonization of product categories from silk to home furnishings.

The U.S. and some small exporters welcomed the EU move, but some Asian envoys said it would not tackle the peaks as ambitiously and was seen as "another means to achieve harmonization" where poor countries would have to make bigger cuts then rich nations.

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