September 2008: The WTO Doha Round Breakdown

Developing nations are blamed, but they blame the U.S.
September 1, 2008

The World Trade Organization’s meeting in Geneva in July, as it opened, was described by WTO Director-General Pascal Lamy as a “moment of truth” in the negotiations for a new global trade deal. But, after nine days of talks among a select group of trade ministers, the meeting ended with no deal—and some surprisingly undiplomatic statements about who was to blame.

This latest failure to reach an agreement on the “Doha Round”--the multilateral negotiations launched in 2001 to expand the WTO—created a sense of deja vu. Scrolling through Lamy’s speeches of previous years, you find he has warned about “moments of truth” before. In March 2006, he gave the Doha talks 40 days to succeed or fail. When no agreement emerged, a June 2006 meeting of ministers in Geneva became the next do-or-die event, with Lamy declaring “now is clearly a moment of truth.” So the hype about how this summer’s meeting seems like an overused ploy to get negotiators to resolve their differences.

Walden Bello and Mary Lou Malig of Focus on the Global South caution that “just as Dracula could get resurrected in a B-movie sequel, there is no 100% guarantee that the Doha Round and the WTO will not rise again.” Ample resources are available to try to inject new blood into the negotiations. Transnational corporations have legions of lobbyists who have been instrumental in the past in getting countries back to the WTO table after previous talks broke down. In addition, the WTO has 700 staff and a budget of $183 million that fuel an institutional momentum for expansion.

This time, though, the negotiators’ inability to reach a deal seems more serious, with key figures appearing genuinely deflated at the outcome. Lamy said that “there is no escaping the fact that this meeting has failed,” and that the multilateral trading system came out of it “dented.”

The recriminations over who was to blame for the failure were so venomous that they may poison the atmosphere for a resumption of multilateral talks for some time to come. U.S. trade representative Susan Schwab claimed negotiators had actually reached an agreement, but that two of the seven members of the core negotiating group--a clear reference to India and China--had scuttled it by rejecting a carefully crafted deal on the issue of a safeguard mechanism for agriculture.

India’s trade negotiator, Kamal Nath, argued that it was just one country--the United States--that was responsible for the collapse for refusing to accept compromise wording on the agricultural safeguard. This safeguard would have allowed countries to temporarily increase tariffs in the event of a surge in agricultural imports. Nath said the security of the livelihoods of small farmers “cannot be traded off for the commercial interests of the North.” He offered to have lunch with Schwab to try to advance the talks, but she walked away.

The European Union’s trade chief, Peter Mandelson, slammed the grandstanding the U.S. negotiators had done with the media and hinted that,rather than working for success, the U.S. was actually preparing for the failure of the talks. The U.S. delegation shot back that the “The EU's anger is misdirected, misguided, and being misused,” accusing Mandelson of trying to divert attention from the fact that the European Union’s position on agriculture was under attack by some of its own member states.

Basically sidelined from the negotiations, along with the majority of WTO members, the Canadian government did not have to show its cards. If the negotiations had not foundered on the issue of how to safeguard farmers from surges in agricultural imports, Canada’s delegation could have been caught in a politically dicey position over agricultural marketing boards.

The Canadian Wheat Board is one of the last obstacles to total dominance of world grain markets by agribusiness, and was targeted by the U.S. and the EU for elimination in the Doha round. Saskatchewan’s Agriculture Minister Bob Bjornrud undermined Canada’s ability to defend all agricultural marketing boards by stating publicly in Geneva that Canada might have to make concessions in this area.

The Harper government has repeatedly demonstrated its hostility to the Canadian Wheat Board. At the end of June, a federal court judge ruled that the Conservative government had violated the Charter of Rights and Freedoms by imposing a gag order on the Wheat Board’s directors to prevent them from defending the organization. On August 1, the Conservatives removed spending limits on third parties so that agribusiness companies like Cargill will now be able to spend unlimited amounts on trying to persuade farmers to switch their votes in Wheat Board elections. Harper has threatened that anyone who gets in the way of changes to the Wheat Board “is going to get walked over."

But Harper would probably have been reluctant to go into an election this fall after having just traded away the dairy and poultry marketing boards supported by farmers in Quebec and Ontario. Trade Minister Michael Fortier claimed at the negotiations that “Our position on supply management will not change,” an assertion that was not put to the test because the key players walked away from the table.

What are the consequences of this year’s ministerial collapse? If the only news you got about the latest WTO failure came from the business press, you would think that it was a major blow to the world’s poor. An editorial in the Wall Street Journal titled “The End of Free Trade?” said the meeting had historic significance because, “for the first time since the multilateral trading rounds began after World War II, a trade expansion effort has ended in failure.” The Journal said the Indian trade minister was the “main villain” and blamed him for allegedly blocking progress for the impoverished people in his country.

But organizations around the world who work on behalf of the disadvantaged have been celebrating the collapse of the Doha Development Round. Studies have shown that, even if developed countries did actually cut their agricultural subsidies as they were claiming they would, it would make an insignificant difference to world poverty. A World Bank report projected that developing countries would likely get only $16 billion in benefits from a Doha deal, in contrast to the $80 billion developed countries stood to gain.

In exchange for cuts to U.S. and EU agricultural subsidies, developing countries were being asked to open their markets even further to the manufactured goods and services of developed countries. Basically, they were expected to permanently block their own path to development by eliminating the capacity to protect new industries with tariffs--the path that the U.S. and Europe had followed to industrialize their own economies.

A report from the United Nations Conference on Trade and Development concluded that a Doha agreement could cost developing countries $64 billion in lost tariff revenue, four times as much as the World Bank’s estimates for their projected gains. This loss of revenue would have resulted in a further erosion of developing countries’ ability to provide their people with basic services.

The idea to call the Doha negotiations a “development” round may actually have originated as a marketing tool. Harry Freeman, who was hired in the 1980s by American Express to get services covered by a WTO agreement, claims to have come up with the name. The current round of negotiations was originally called the “Millennium Round,” but Freeman objected that this gave the impression a deal would take a long time, so he “suggested that people might like to have a Development Round instead.”

Not even registering on the radar of the mainstream media were the consequences of a WTO package deal that would have included the “liberalization” of services. It is remarkable that, in the midst of a major financial crisis, with shockwaves continuing to be felt from the U.S. subprime mortgage disaster, that journalists did not cover the financial services aspects of the WTO negotiations.

In what Director General Lamy reported as a bright spot in the talks, countries met on July 26 to announce the major concessions they were prepared to make on services. Apparently oblivious to the shaky state of international banks, some countries proposed that they would eliminate deposit requirements for foreign bank branches. They said they would open up to increased trade in financial derivatives, even though these products are a prime source of financial instability. The trade ministers’ cheery attitude towards further financial liberalization begs the question of how bad the financial crisis would have to get before they thought twice about permanently deregulating the sector through trade commitments.

Under the WTO services agreement, if countries commit to the complete opening of a sector, they have to allow unlimited foreign ownership in that sector. Some of the trade ministers at the services meeting said their countries were willing to allow total foreign control of key areas like banking, telecommunications, health, and postal services. While Lamy’s report of the services meeting names Canada as one of the 27 countries represented, he does not identify who made which offer to liberalize. So Lamy’s report does not tell us what new offers Canada may have made.

Canada’s David Robinson, in his capacity as trade and education consultant for Education International, met with WTO negotiators during the ministerial to discuss potential impacts on public education. Robinson said his organization’s principal concern is that “commitments taken could lead to locking in the forces of privatization.” Commitments to allow the establishment of foreign for-profit institutions, for example, could undermine domestic efforts to build a strong public education system.

Education International also objects to the development of new WTO “disciplines” restricting how services are regulated, particularly in relation to requirements for education qualifications. In an interview, Robinson said that, if governments tried to strengthen education qualifications for teachers, the proposed WTO restrictions on regulation could mean these governments would be challenged for putting a restriction on trade in education services. These WTO restrictions on the right to regulate still may be imposed, despite the collapse of the Doha round.

Although the ministerial meeting ended in failure, it is already clear how different delegations are manoeuvring for advantage in the post-Doha era. Brazil, which jumped ship in Geneva on the developing country coalition opposing deep cuts to industrial tariffs, has since told the U.S. it is still willing to negotiate. New Zealand trade officials have said that negotiations to impose new WTO restrictions on how governments regulate services will proceed.

The U.S. is questioning the fundamental premise of a comprehensive trade package, one that covers agriculture, market access for industrial goods, and services. The U.S. trade negotiator said at her last news conference: “Why should it have to come together at exactly the same time? We need to reflect on how we move forward, but there are ways of moving forward, certainly with pieces of this, both in the near term and longer term.” The U.S. would probably like to salvage the services and industrial commitments that were made without having to give up anything in the area of agriculture.

The Indian trade minister, however, has rejected this option, saying that the WTO is not a “buffet” where countries can just take what they want without making concessions. And, while Pascal Lamy is claiming the WTO could proceed in all the areas where there was agreement, this view is categorically rejected by countries like Argentina that were excluded from the inner circle of seven countries that did most of the negotiating.

In their debriefing on a services meeting held as part of the ministerial, WTO staff described it as "dreadful." At this meeting, Bolivia, Venezuela, Cuba, and Nicaragua blasted the chair of the services negotiations for the text of a report he had drafted on how the negotiations would proceed.

Among other things, this report would have had governments commit to locking in existing liberalization so that they would not be able to undo privatization and deregulation without risking a WTO challenge. Surprisingly, the group of countries that had previously given their okay to this language--a group that included Canada, the U.S., and the EU--mostly sat on their hands at the meeting and did not come to the chair's defence.

While Bolivia is marginalized by the powers-that-be at the WTO, its views probably are more mainstream than those of most trade negotiators. Bolivia contends that services like health, education, and water should be excluded from commercial trade negotiations because they are basic human rights, and that local food production should be given priority over imports because the environmental costs of transporting foreign food have to be taken into account. The patenting of all life forms should also be prohibited.

These positions were sent in a letter to Lamy from Bolivian President Evo Morales, and provide a glimpse of what a real “development” round of negotiations might look like.

The WTO is now striving to reach an agreement by the end of the year, but, under the organization's rules, it must be approved by a consensus that could be blocked by even a single dissenting voice.

(Ellen Gould—[email protected]--is a Vancouver-based researcher and consultant who specializes in analyzing the potential impacts of trade agreements.)