The Doha Round of trade negotiations was put into deep freeze on 24 July, after a meeting of ministers from six key trading nations collapsed over divisions on how to cut farm subsidies and tariffs. Even though Lamy said that some potential compromise numbers were informally floated at the 14-hour long G-6 meeting on 23 July, the divisions on agriculture were so pronounced that industrial tariffs were not even directly addressed.

“It will not be possible to finish the round by the end of 2006,” WTO Director-General Pascal Lamy told an informal meeting of all Member delegations the day after ministers from the EU, the US, Australia, Brazil, India and Japan – the so-called G-6 – failed once again to bridge their differences. Saying that “the gaps remain too wide,” he recommended suspending the talks indefinitely.

The suspension halts all negotiations currently underway at the WTO. Another G-6 ministerial meeting, which had been scheduled for the end of this week, has been canceled. Lamy said that the end of the timeout would depend on Members.

Agriculture Subsidies, Market Access
This is the most serious crisis in the WTO’s decade-long history. The WTO was also discussed in the G8 summit in St. Petersburg which called for greater flexibility in the trade talks.

The Triangle without a center point
Lamy has long held that unblocking the negotiations would require parallel progress on a ‘triangle’ of issues: the US would have to agree to deeper cuts to domestic farm support; the EU to increased agricultural market access, and developing countries such as Brazil and India to lower industrial tariffs. Each group has been urging the others to budge first. Following the St. Petersburg summit, G-6 ministers set up the two meetings in Geneva to attempt to translate the promises of increased flexibility into a modalities deal.

Bilaterals too substitute WTO
In the wake of the latest setback, many governments have promised to step up efforts to pursue bilateral and regional trade agreements, which already stand accused of weakening the multilateral trading system.

The blame game – who did it.
The EU openly blamed US intransigence for the collapse. “Having been mandated by heads of government at the G8 to come together to indicate further flexibility, I felt that each of us did, except the United States,” EU Trade Commissioner Peter Mandelson told the press after the talks were halted. “The United States was unwilling to accept, or indeed to acknowledge, the flexibility being shown by others in the room and, as a result, felt unable to show any flexibility on the issue of farm subsidies.”

The US’ proposal to cut trade-distorting farm subsidies by 53 percent is projected to slash its current spending limit from USD 48.2 billion to roughly USD 22.5 billion – which is still higher than the USD 19.7 billion that it actually doled out in such payments last year.

Washington hit back with accusations of its own. The US trade mission in Geneva issued a statement on 25 July describing the EU’s views as “false and misleading,” warning that Brussels’ “blamesmanship and finger pointing” risked jeopardising “the few chances we have left to save the Doha Round.”

US officials insist that they had come to Geneva prepared to offer further cuts to their domestic subsidies, but did not do so only because the EU and India failed to table meaningful improvements on agricultural market access. Schwab claimed that when she communicated the US’ flexibilities privately to Lamy, he conceded that the differences between Members’ positions remained irreconcilable.

The US continued its criticism of the exceptions to farm tariff cuts that the EU and many developing countries have been seeking, arguing that they were looking for loopholes to avoid liberalisation.

Mandelson rubbished the US’ complaints, saying that the EU had, during the G-6 meeting, offered to go from its original proposal of a 39 percent average cut to farm tariffs to about 51 percent – “close to the [54 percent] level requested by the G-20 group of developing countries.” He also said that he had indicated that he was “ready to talk about the number and treatment of sensitive products,” which will be subject to lower tariff cuts in exchange for expanded import quotas. US Agriculture Secretary Mike Johanns argued that Brussels was exaggerating the extent to which these quotas were likely to expand under its proposal.

Washington has asked for tariff cuts of close to 66 percent. It wants the EU to agree to deeper tariff cuts since they will serve as the basis for calculating increased access to growing developing country markets like China and India.

US farm and business groups, as well as members of Congress, lauded Schwab and Johanns for refusing to budge on domestic support in the absence of gains in market access.

Kamal Nath Says No Compromise on Subsidies
The Indian minister was incensed at the US’ demands, saying that Washington was seeking to displace millions of subsistence farmers with subsidised products. Nath said that the notion that subsidy cuts should be paid for in market access represented a ‘gap in mindset’ that would need to be transcended for the round to succeed. Trade-distorting subsidies “should not be there to start off with,” Nath added, and “if developing countries are asked ‘please pay us to remove these distortions,’ I’m afraid that’s not going to work.”

He emphasised that the US’ position was tantamount to renegotiating the July 2004 Framework and the Hong Kong Declaration, which provided for allowing developing countries to assign ‘special products’ lenient tariff treatment based on food security, livelihood security, and rural development concerns. India has been seeking to designate as many as 20 percent of products as ‘special,’ but sources suggest that Nath had indicated some flexibility on the issue during the discussions.

EU Budges on Market Access but US Firm
Both Nath and Amorim recognised “movement” by the EU on market access. Amorim said that Brussels was nevertheless still short of the G-20 proposal, especially in terms of the significantly lower cuts it was proposing for the highest tariffs.

Preserving what is on the table
Lamy warned Members of the risk that existing proposals on the negotiating table might disappear, such as the elimination of agricultural export subsidies, duty- and quota-free market access for least-developed country (LDC) exports (albeit with significant exceptions), and hastened cuts to cotton subsidies. The suspension of the negotiations put this progress “on hold,” he said.

He has previously indicated his belief that the existing proposals would make the Doha Round worth two to three times more than previous trade rounds. Urging Members not to withdraw their proposals, Lamy suggested that reflecting on what stood to be lost in the talks might help change different groups’ positions.

Political deadlines complicate resuscitation
Breakdowns are not new to global trade negotiations. The Uruguay Round talks fell apart in December 1990 and only resumed a year later when the then-Director-General of the GATT took the controversial step of coming up with a potential compromise agreement, better known as the ‘Dunkel draft.’ Following the collapse of the Cancun Ministerial Conference in September 2003, the Doha Round itself saw negotiating work frozen for about four months, before the US helped revive the talks in early 2004.

Implications for India
India was one among the six in the group in which negotiations collapsed. It cannot escape its responsibility in the sinking of the Doha round. Its commodity and services exporters had great expectations from Doha and the loss of potential trade will not be easy to make up in the bilaterals. WTO has greatly benefited Indian exports. India must find a way revising the Doha process, it can give in on a number of issues without hurting the local economy. A round of “give” will create the atmosphere for the subsequent stage of “take”. We should not fall prey in the culture activism on non issues in the name of security to the farmer and protection of local industry.

Dispute Settlement Emerges as the New Lobby
If a negotiated deal on reducing farm payments seems increasingly unlikely, there is a possibility that developing countries may turn increasingly towards litigation to address their grievances against rich country subsidy schemes. This might in turn weaken governmental support for the WTO dispute settlement mechanism, according to several trade experts.

EU Anti-dumping Investigation on Leather Shoes from China and Vietnam Enters Final Phase

DG External Trade’s investigation into complaints of dumping of leather shoes from China and Vietnam is now reaching its conclusion. The investigation confirms the finding of dumping at the provisional stage. A confidential provisional final analysis and provisional proposals for definitive measures have now been circulated to Member States and parties to the case.

Both Member States and parties will comment on the analysis and on the basis of these comments DG Trade will prepare a proposal for a course of action that will need to be adopted by the College of Commissioners in September and would then go to Member States for adoption by early October.

A deferred duty system
DG Trade has floated the possibility of a deferred duty system that would allow a specified number of Chinese and Vietnamese shoes to enter the European Union free of any anti-dumping duty. Shoes entering above that allowance would be subject to a duty, which would correct the injurious effects of dumping.

A deferred duty system would provide a substantial allowance of shoes to enter the EU before the anti-dumping duty would apply. The ad valorem duty for shoes outside the allowance would be set so as only to correct the trade-distorting effects of dumping, not to make imports uncompetitive on the European market.

A deferred duty system would involve a single import license, issued by EU authorities - with no administrative burden on either China or Vietnam. The system would ensure predictability with the necessary certainty for manufacturers and importers. It would balance the needs of producers, retailers, importers and consumers. However, it is very important to be clear that DG Trade is still consulting with legal experts on the technical detail and practicability of such a system and it remains a provisional proposal.

Import data: leather shoes from China and Vietnam