Trade talks failure will have negative impact

WTO Doha round collapse mean a stay of execution for Irish agriculture, but long-term the effects will be almost universally bad, writes Marc Coleman, Economics Editor

If it is a plus for the Irish economy, the collapse of the world trade talks this week is a very pyrrhic plus.

Ours is one of the world's most open economies, with three-quarters of our output exported, according to OECD data, making it the fourth-highest share of any other OECD country. (Ireland actually comes second if you exclude Luxembourg and Belgium, whose shares are distorted by financial transactions and the port of Antwerp, respectively).

The conclusion of the so-called Uruguay round of World Trade Organisation (WTO) negotiations in 1994 resulted in important industrial tariffs being scrapped. In the subsequent six years, the volume of our exports more than doubled, taking industrial employment in this country to new highs.

Over 10 years later we had created a modern diverse economy. The share of agriculture in our economy had shrunk to 3 per cent as measured by Gross Domestic Product. From one in eight of the workforce employed in agriculture in 1994, the sector now accounts for one in 14 Irish workers.

For the economy as a whole, the phased end of agricultural subsidies, promised last December when the so-called Hong Kong ministerial round of WTO negotiations appeared to conclude successfully, was not life-threatening.

Despite its relative decline, agriculture still accounts for 115,000 workers. In rural communities where employment possibilities are less diverse, it remains a significant sector. The latest WTO talks in Geneva, intended to copper-fasten the Hong Kong ministerial round agreement, held out the prospect or the threat, depending on your viewpoint, of eliminating subsidies for agricultural exports.

A 75 per cent cut in trade-distorting domestic support was also in prospect, as was a 50 per cent cut in tariffs.

Agreement to reform would have been painful for Europe's 11 million farmers. By 2013, the date envisaged for reforms to be well under way, many would have to undergo transition to new jobs and farm closure, or retirement.

Ireland has shown that this is possible. But it is painful.

EU trade commissioner Peter Mandelson noted that the EU had given more than others in terms of concessions. He might have added that the EU had more to give in the first place. Compared with 11 per cent in the US, EU tariff rates on agricultural produce were 17.3 per cent heading into the talks. Compared with US agricultural subsidies amounting to 20 per cent of the cost of producing affected products, EU subsidies amount to 49 per cent.

Their gain is somebody else's loss. A staggering fact - which Doha was designed to end - is that OECD countries (which include the US, EU and Japan) provide over $300 billion (€235 billion) a year in subsidies to their farmers - more than enough to feed the world's starving.

Nonetheless, in static terms and in the short-term, the balance is in Ireland's favour - a stay of execution for the agricultural sector, but no reprieve. Unfortunately, we do not live in a static world. The dynamic consequences of the collapse are almost universally negative, and potentially devastating. Only one of these is positive. In Ireland's growing pharmaceutical and biochemical sector companies will be that bit more able to enforce old WTO rules against infringing intellectual property.

Those rules prevented abuse of patent and copyright. But their reform was needed to allow poorer countries to produce cheaper generic versions of essential drugs.

As in agriculture, the collapse of Doha may be good for profits, but it is a bad result for people.

As leading international economist Jeffrey Sachs has pointed out, and as we know more than most in this country, the development of agriculture is the first baby step that poor countries need to take to create functioning economies.

In 2002 the WTO estimated that by abolishing agricultural supports in developed countries, the benefit from growth in trade to the world's least developed economies would be three times what they currently receive in aid.

The collapse is not good for the world's developed economies either. Consumers in the industrial countries will continue to pay significantly more - at least one-fifth according to some estimates - for a wide range of food produce. Swaddled from competitive forces, European agriculture will remain relatively uncompetitive and stagnant.

At a time when, through the Lisbon agenda, EU leaders are attempting to shift employment towards high technology and research and development, support for the agricultural sector - which accounts for barely 4 per cent of jobs in the EU - continues to account for the lion's share of the EU's budget.

As the balance of economic power shifts to the Pacific, they need the stimulus of greater competition to move up the value chain. In Ireland, internationally traded services has been identified as a critical source of alternative employment by a recent Forfás report. The chance to improve access to such markets is now lost.

The rules of global trade, which badly needed a cohesive and level playing field, will now be determined by a dog's dinner of bilateral agreements.

Poorer nations will be strong-armed into unfair trading arrangements. Worse still, market access could be made conditional on the stance their governments take on global political issues, or environmental ones.

When interviewed by this paper last December, former WTO chairman Peter Sutherland mentioned this month as a crucial deadline for progress.

"The reality is that if it - in terms of this stage of its development - is not concluded by June or July it will be fatally damaged. That is when US fast track authority expires and you will require another six months in the latter part of next year to put in train whatever agreements are going to be made."

But from a US point of view, progress in the latter part of this year is impossible. The abolition of some $20 billion worth of subsidies to US producers of cotton, wheat, corn and soya bean was an essential part of the Doha deal.

With mid-term elections due in the US this November and with President Bush's opinion poll ratings weak, there are two chances of this happening. It didn't help matters either that two of Europe's most influential nations in terms of agriculture policy, France and Ireland, both have forthcoming elections in which farmers are crucial supporters of the sitting governments.

As Peter Mandelson put it yesterday: "We have missed the last exit on the motorway."