Negotiators from key countries in the WTO have continued to work on convergence of trade policy changes in preparation for the WTO ministerial meeting in Hong Kong beginning on December 13. While these efforts will not result in major breakthroughs at the meeting, they lay the groundwork for additional steps in Hong Kong and in early 2006.

The overall negotiations are challenging because they require true liberalization of trade rules by both developed and developing countries. That means that industries that are protected by high tariffs, be they French farmers or Brazilian auto plant workers, have a stake in opposing change. Their opposition has to be offset by gains in other areas. Managing complex policy trade-offs in a real time negotiating process requires building consensus on numerous complementary trade issues while creating pressure for breakthroughs on major issues.

Most of the recent negotiations have involved the U.S., EU, Australia, Japan, India and Brazil. This is a very diverse group of countries. Japan is a new addition to what had previously been known as the “five interested parties.” Japan is part of the G10 group of developed countries that are major food importers and have resisted lowering tariffs on those products. India and Brazil are leaders of the G20 group of developing countries that have been the most active in the negotiations. Australia represents the interest of smaller developed countries and some developing countries that have comparative advantages in agricultural trade.

The business consulting firm A.T. Kearney, Inc. measured 62 countries for a globalization index based on economic, personal, technological and political factors. These countries produce 96 percent of the world’s GDP and account for 85 percent of the world’s population. The U.S. ranked number four on the list, mostly because of its number one ranking in technology. Australia ranked 13th. About two thirds of the individual countries of the EU were ranked; the EU would have ranked about 15th-20th if it had been one country. Japan ranked 28th, but was last in the economic category of trade and foreign direct investment. Brazil ranked 57th overall, while its economic ranking was also 57th. India ranked 61st overall and 59th in economics.

Average bound agricultural tariffs show the magnitude of the differences between the countries. The average agricultural tariff allowed under the current WTO rules is 12 percent for the U.S., 51 percent for Japan and 114 percent for India. The U.S. proposal for WTO reforms would lower the average allowed agricultural tariff for the U.S. to 3 percent, Japan to 7 percent and India to 28 percent.

The negotiators have spent considerable time on policies for the 50 least developed countries (LDCs) as part of the “development” agenda for the Doha round. This is consistent with the belief by the U.S. that all developing countries should not be treated alike. The EU has pushed a program of no tariffs or quota restrictions for LDC products sold to developed countries. The LDCs also would not be required to make reductions in their import tariffs or increase market access through tariff rate quotas, and developed countries would increase aid to the LDCs. The negotiators are near a common platform for these issues.

Progress has also been made on the erosion of preferences that will occur as trade barriers are reduced. Developed countries have arrangements with a few developing countries to pay above market prices for some commodities or to allow imports at lower tariffs. As tariffs are reduced and import quota volumes are expanded, these preferences will have less value. Efforts are being made to develop a way to help offset the income lost by the LDCs.

By one estimate, 113 countries in the WTO (out of a total of 149 with Saudi Arabia becoming the newest member effective December 11)) are considered to be developing countries. With 50 countries considered as LDCs that leaves 63 countries as non-LDC developing countries. This is the group represented by Brazil and India.

The negotiators have also agreed to have a complete discussion on agricultural export subsidies before March 1 of next year. This is considered to be the part of the agricultural negotiations that can be most easily concluded. The EU uses about 90 percent of the world’s agricultural export subsidies and has agreed to eliminate them over a few years. The U.S. government has already proposed to Congress the elimination of the Step 2 cotton program. Working out differences on state trading enterprises, food aid and export credits will take more negotiations.

The total results of recent discussions are relatively small in the larger agenda of a comprehensive trade agreement, but they should not be dismissed as meaningless. Any final agreement has to be reached by consensus of the 149 countries. The LDC issues needed to be addressed and recognizing the LDC concerns up front rather than as an afterthought is simply good politics for building a consensus for the entire package.

Until some country makes a blockbuster proposal, the only way the negotiations can move forward is by working around the margins of the existing proposals. If a major bargain were reached on a key issue, the smaller issues would still need to be addressed. By addressing many of the minor issues, momentum is maintained and negotiators gain confidence in their abilities and relationships for achieving success on the major issues. With the overall expectations reduced for Hong Kong, the ministers have the opportunity to work on real issues were progress can be made.