WASHINGTON — The stage is set but expectations have dimmed as trade ministers from around the world gather in Cancún, Mexico, Wednesday to decide the fate of a global trade accord designed to further open markets to foreign trade.
Trade ministers and diplomats from 146 countries, still sharply divided over opening markets in agriculture and industrial goods, will kick off the crucial five-day World Trade Organization meeting Wednesday amid a cloud of uncertainty, thousands of expected antiglobalization protesters and fissures in the global round, especially in farm trade talks.
Cancún is the midway point in the Doha Round of global talks launched in the Qatari capital in 2001 that aim to create new trading rules in a global accord by early 2005. Nepal and Cambodia are expected to join the WTO in Cancún, which would bring the total number of countries to 148.
This watershed conference promises to be a contentious affair and a battle of wills that could affect how U.S. apparel and textile makers, as well as retailers, operate around the globe in the years to come. It comes at a time when the world economy is flagging and many countries are coping with internal strife and their own market reforms.
Trade officials have set modest goals for Cancún as they struggle to make ground on missed deadlines and keep the talks on track. The top trade chiefs of the U.S. and European Union have already lowered their expectations and claim they will settle for a blueprint for reducing subsidies and tariffs on agriculture products and industrial goods in Cancún, as reported.
The Bush administration is even threatening to forge ahead with free-trade agreements on a country-by-country or regional basis if the WTO round collapses.
“We will find countries that want to open up markets with the United States,” U.S.Trade Representative Robert Zoellick told an audience at a trade forum in Washington last week. “I hope they will be in the WTO, but if they are not, we are not stopping. We are moving with the countries that are willing to go.”
Domestic constituencies and politics could have the biggest influence on the outcome of the Doha Round, which was billed as a development round to give credence to the priorities of the Third World. To that end, rich countries led by the U.S. and European Union have pledged to give “special and differential treatment” to developing countries.
The make-or-break issue will be agriculture, but negotiations are currently at an impasse. Developing countries, which dominate the Doha round in terms of numbers, maintain they will not move on other issues, such as tariff reduction, in industrial products until developed countries make more progress on agriculture. China, Brazil and India have said the developed world needs to do more to slash farm supports and give up protections for politically sensitive crops, such as grain, cotton, rice and sugar.
In Cancún, trade envoys will decide whether to agree to blueprints on how to move negotiations forward in agriculture and industrial goods, but the skeletal blueprints will not contain details such as deadlines or formulas on reducing subsidies and tariffs. If the countries fail to reach a consensus on the frameworks, the entire Doha Round could be in jeopardy.
Apparel and textile issues will figure prominently in the talks in Cancún because many economies in the developing world are inextricably tied to those exports. For the U.S. apparel and textile industries, the big questions are whether industrial tariffs will be reduced or eliminated, whether rules blocking U.S. retailers in foreign countries will be loosened and whether subsidies for cotton farmers will be eliminated.
The paramount WTO issues for the U.S. apparel and textile industries in Cancún can be reduced to six:
- Market access and tariffs: whether to completely eliminate tariffs on apparel and textiles, make sharpest cuts on the highest tariffs and bring developing countries, many of which have excessively high tariffs in the 60 percent range, in line with developed countries. The blueprint on the table in Cancún also calls for giving developing countries “special and differential treatment,” which means longer tariff phaseout schedules and special treatment for sensitive products.
- Quotas: Quotas are not officially on the agenda in Cancún and are not up for negotiation. The WTO sanctioned the elimination of textile and apparel quotas in a previous trade round and they are set to expire at the end of 2004. However, developing countries and U.S. textile groups could raise the issue in a bid to extend quotas in Cancún. It appears that an earlier bid to accelerate the phaseout has been abandoned.
- Antidumping/countervailing duties: whether to loosen these trade provisions that permit nations to apply hefty duties to products sold at unfairly low prices with the aim of undercutting domestic and other foreign manufacturers. Importers are concerned the domestic textile industry will bring scores of these cases once quotas are removed because prices, which they claim have been kept artificially high by quotas, will drop dramatically. Domestic textile groups oppose any weakening of the laws, which could be their only protection against cheap imports if tariffs are reduced and eliminated.
- Agriculture: various proposals that would end farmer and export subsidies. These could affect U.S. cotton production, and the export and import of cotton textiles and apparel.
- Intellectual property rights protection: whether to strengthen rules governing intellectual property rights, which are pirated in many countries.
- Trade facilitation and customs harmonization: whether countries will agree to uniform customs rules that govern how to bring products in and out of a country. Complex customs procedures often act as a barrier to trade.
The global talks could define trade for the next decade and executives from several major retail and apparel manufacturing companies, including J.C. Penney, The Limited, Gap Inc., Wal-Mart, Liz Claiborne and Sara Lee Corp. plan to attend the Cancún meeting. Trade and lobbying groups from all sectors of the twin industries also will be in Cancún to angle for important issues and concerns.
In general, importers and retailers favor a quick elimination of tariffs on apparel, textiles and footwear, and will be on hand to ensure those sectors remain in the blueprint on industrial market access. The textile industry is resisting such changes and is insisting the U.S. demand other countries lower their tariffs to U.S. levels before it makes any more reductions.
Textile makers appear to have an ally in Zoellick, at least on the issue of tariffs. Zoellick said last week that the U.S. sides with the views of the domestic textile industry in demanding that other countries lower excessively high tariffs on apparel and textiles to U.S. levels. However, calls by the domestic industry and some developing countries to extend quotas beyond 2004 — an issue that could be raised in Cancún — is not supported by the Bush administration.
“We’ve heard that, but that is something the U.S. government is not involved in,” said Jim Leonard, deputy assistant secretary of textiles, apparel and consumer goods at the Commerce Department.
Importers will apparently not have an ally in the Bush administration on the issue of quotas in 2004, which they plan to raise in Cancún. This is not officially on the agenda, so importers will discuss it in side meetings with U.S. officials and other foreign officials.
Quotas on apparel and textiles will be tight in 2004 because countries will not be allowed to borrow quotas from the next year through a provision known as carry forward. On average, countries have been allowed to borrow up to 6 percent of the following year’s quotas on apparel and textile categories.
“There should be flexibility to ensure we don’t have a more restrictive situation in 2004 that goes back from the concept of gradual elimination,” said Brenda Jacobs, trade counsel for the U.S. Association of Importers of Textiles & Apparel.
Jacobs said importers advocate the use of a “fictional” carry forward provision to ensure quotas are not smaller in 2004 than they were in 2003. Leonard said the position at Commerce is that in 2004, there will be no carry forward.
“Everyone knew that going in and if countries made conscious decisions in 2003 to use carry forward from 2004, which would reduce their base limits in 2004, that was a decision they made,” Leonard said.
In addition to tariff and quota elimination, the other major issue concerning importers is antidumping rules, which are on the WTO agenda and under negotiation.
“One of our goals is to make sure there is a clear understanding that the quota phaseout…could be interpreted by some to create a situation of dumping, because there will be price decreases when quota and administration costs are eliminated in 2005,” said Julia Hughes, vice president of international trade at USA-ITA. “There should be a moratorium of some sort on the table.”
At the National Retail Federation, Erik Autor, vice president and international trade counsel, said the association’s priorities fall under five broad categories, including: the quota phaseout, which NRF does not want to see disrupted; the quick elimination of tariffs; strengthening intellectual property right protection; harmonizing customs rules and practices, and reforming antidumping rules to give importing interests a say in administrative proceedings.
The American Textile Manufacturers Institute’s principle concern is tariffs, although any weakening of antidumping rules is also a top issue.
“We insist our government open other markets before it contemplates opening ours further,” said Cass Johnson, interim president at the ATMI. “You can conceive of an instance of major textile export countries hardly cutting tariffs at all where the U.S. is required to cut its in half.”
Augustine Tantillo, Washington Coordinator of the American Manufacturing Trade Action Coalition, said he will work in Cancún to encourage developing countries to raise the issue of a quota extension.
“There should be a healthy discussion on China’s massive and devastating impact on world markets in the textile and apparel fields and other sectors,” Tantillo said. “Small developing countries will not be able to compete in 2005 any more than we will be able to in the U.S., so this is a classic test of whether the WTO will serve the interest of two or three big players or serve the interests of 146 players.”
He said developing countries will have the power to push their agenda in Cancún, and added: “The question is whether or not they will exercise it or realize it.”
Jock Nash, Washington counsel for Milliken & Co., said he also will meet with many developing countries to “suggest to them that this [quota elimination] will be the biggest disaster.”
“This is supposed to be a development round for developing countries, but this is going to be development for a few counties such as China, Pakistan and India,” Nash said.
Still, he is unsure whether anything will come out of Cancún.
“There are decreased expectations because they have wanted to have blueprints since they launched the round in Doha in 2001, and obviously they have not been able to come up with an idea about what to do with agriculture, industrial tariffs or trade remedies,” Nash added.
Mark Levinson, chief economist at Unite, who also will be on hand in Cancún, said the issue of quotas is the most significant.
“If this is raised in a serious way in Cancún, countries will be put on notice about what is at stake and there will still be time to do something about it,” Levinson said. “I think there should be a permanent system that manages and spreads production around the world. I’m not trying to stop the change. Quotas can increase over time, but they should not just be eliminated.”