The 2006 negotiations on a new WTO trade policy agreement will unofficially begin January 25-29 on the sidelines of the annual World Economic Forum gathering of world political and economic leaders in Davos, Switzerland. Trade officials from over 30 countries are expected to be represented at the informal gathering. The week of January 23-27 is also “Agriculture Week” at WTO headquarters in Geneva, Switzerland. Everyone agrees that agriculture is the key issue, but it may not be the one that unlocks the gridlock.
The Davos gathering is much more conducive to making progress on specific industry issues than the larger ministerial meeting last month in Hong Kong. Negotiators will have had six weeks to consult with political and business leaders back home to decide what moves can be made next. The meeting is close to the WTO staff in Geneva who can be called on to provide technical support on issue details. Also, the Indian Trade Minister has announced he will hold bilateral talks with the EU after the Davos meeting.
Some country will have to get the ball rolling. The U.S. laid down a major proposal in October on market access and domestic support reforms for agriculture. It set the outer limit on market access and a middle of the road position on domestic support programs. The U.S. government is not likely to make any new suggestions until another country makes a move, but the U.S. cannot be passive. The U.S. needs a new agriculture agreement with some type of “peace clause” to avoid cases being brought to the WTO against existing programs for corn, rice and soybeans. Since a new agreement will pass in the House and the Senate on the strength of the agreement for industrial goods and services, the needs of businesses may become more of an issue for U.S. negotiators if the talks remain deadlocked on agriculture.
The EU also does not appear to be a likely candidate to break the gridlock. The EU position on agriculture has caused enough internal dissension that another proposal is not likely to be made. Peter Mandelson, the EU Trade Minister, said recently that even though a new agreement would be good for economic growth for the EU, “Europe could settle for a minimalist outcome if that was what other countries wanted.” Political conditions in the EU have undergone some changes since Hong Kong. The new German government coalition under Chancellor Angela Merkel appears to have tempered her country’s close policy relationship with France. With an export-oriented economy, she may be willing and able to push for non-agricultural business interests in the EU. The recent dispute between Russian and Ukraine over natural gas prices has reminded the EU that it lives in an uncertain world and becoming more engaged in world trade may now be considered more to its advantage.
India and Brazil, the unofficial leaders of the G20 and other developing countries, have generally stuck to the script that it is the developed countries that must first change on agriculture market access and domestic support issues. That has played well back home and among international groups that supposedly represent the interests of developing countries, but the reality is that both countries have a huge stake in a successful outcome of the talks. India wants more access to the service sectors of developed countries and high growth developing countries. Brazil wants access to agricultural markets in those same countries. Those will not happen without greater access to industrial markets in both countries. Brazil has talked about providing more market access, but has yet to offer a concrete proposal for discussions.
The G10 developed and almost developed countries like Japan, South Korea and Switzerland have benefited from open markets for industrial products, but continue to protect farmers behind high tariff walls. They have generally resisted efforts to lower trade barriers for agriculture while hoping to gain from further reductions in trade barriers for industrial products. If the talks continue to stall over agricultural market access, business interest may push for a change of position. A recent comment by Japanese Prime Minister Koizumi about increasing food exports is probably not a signal of a change in Japan’s position on agricultural tariffs. The President of South Korea, the tenth largest economy in the world and the seventh largest U.S. trading partner, recently announced that talks are close to beginning on a free trade agreement with the U.S. An agreement would certainly include increased market access for agricultural products from the U.S. The South Korean farmers who protested in Hong Kong and the current dispute over U.S. bone-in-beef movement to South Korea are good indicators of how contentious agricultural trade issues are in South Korea. An agreement at the WTO would be a good first step toward a U.S.-South Korea free trade agreement.
All of the key players have a stake in the agricultural negotiations, but only the U.S. and Brazil want to increase market access. The U.S. has the lowest average tariffs on industrial products and has much to gain from market access on industrial products. Brazil and India have relatively high industrial tariffs that hamper consumer access to industrial goods. A common denominator for all of the countries is still missing.
There does not now appear to be a compelling reason for any country to make a new proposal. That could change for one of three reasons. First, the political leaders of one of the governments could decide to unilaterally move to break the gridlock on agriculture, industrial goods or services. Second, the business groups in developed countries who have much to gain from increased trade in industrial good and services could force one of the governments to offer a deal that would break the agricultural deadlock. Third, some factor outside traditional trade concerns could encourage a government to look at the world in a new light. Once the gridlock breaks, there will be an opportunity for all countries to move toward an agreement.