WTO negotiators settle for half a loaf

Trade talks participants arrived at a deal by scaling back on ambition in reforming and liberalising agricultural markets, writes Marc Coleman, Economics Editor, in Hong Kong

If the WTO is an agent of globalisation, its latest ministerial meeting has taken place in the veritable Vatican of the globalisation movement.

But before it even began, the conclave was shrouded in gloom. The fact that the previous Seattle round of talks ended in disagreement and riots in 1999 gave little grounds for hope. But it was the subject matter that really cast a shadow over the Hong Kong conference before it started.

In its 50-year history up to 1999, the WTO successfully reduced tariffs and non-tariff barriers on a wide range of goods and services. In these areas, the gains of lower prices and increased production were easy to see and came with few costs.

But the latest, so-called Doha round of talks began in 2001, bravely announcing its intention to take on the most daunting reform of them all, liberalisation of agricultural markets. In return for opening up their markets for services and non-agricultural goods, developing countries would gain access to Europe's markets for their agricultural products.

Most tariffs, subsidies and other market supports would be done away with. As with manufactured goods, this would lower prices and benefit consumers.

But agriculture is not just an economic activity, but a way of life, handed down from generation to generation. Europe's 11 million farmers had already swallowed reform of the CAP and convincing them to buy into further reform wasn't going to be easy.

Caught between the most powerful and the most deserving, the WTO negotiators had their work cut out for them. How did they succeed? By scaling back the degree of ambition in the original Doha objectives.

Does this mean the agreement really achieved? Firstly, it has agreed that export subsidies will end by 2013. US efforts to get an earlier date than 2013, without offering anything in return, met with stiff and ultimately successful EU resistance.

This resulted in some parallel commitments from the US to open up its own markets, which in turn created some of the agreement's other gains. Chief among these is the abolition by 2006 of export subsidies for cotton, a particular bone of contention for West African states. Abuses of food aid to developing countries, which the EU accuses the US of using to subsidise its own farmers, will also be curbed.

And state trading agencies, through which Canada, Australia and New Zealand export most of their agricultural produce, will be policed to ensure they are not distorting market prices at the expense of poorer countries.

On top of this developed countries have agreed to give the 48 poorest countries of the world duty- and quota-free access to their markets. To help them exploit this opportunity, some €14 billion has been committed by Japan, the EU and US to help them build the infrastructure they need to export successfully.

The Doha round set out with brave intentions in 2001. The World Bank estimates that its full implementation would have netted the world economy around €300 billion in increased wealth. A fraction, albeit a significant fraction, of that may be achieved.

But as Pascal Lamy said yesterday, striving for perfection sometimes prevents you from achieving something good. Had it collapsed because of over-ambition, this could have finished the WTO as a credible institution, setting the cause of free trade and its benefits to poor countries back by decades.