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Fri Feb 24 11:55:10 PST 2006

Efforts to liberalise world trade have suffered a setback, after large
trading powers admitted that a self-imposed deadline of April 30th for
preparing a deal on farm and industrial goods will be missed. Ministerial
talks planned for this weekend have been called off. Although more
negotiations are expected in May and June, and there will be renewed efforts
to get a deal by the end of July, there is every reason to be gloomy about
the Doha round

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THE gloom is gathering over the Doha round of trade talks. It may be in the
nature of such protracted negotiations that they all seem, at some point or
other, to be doomed to fail. But this time the signs‹many in the past few
days‹are consistently gloomy. The main negotiating partners have
acknowledged that a self-imposed deadline for an early agreement on farm and
industrial goods, set for April 30th, will not be met. A ministerial meeting
scheduled for representatives of 25 countries later this week has been
cancelled. This week Pascal Lamy, the boss of the World Trade Organisation
(WTO), was expected to ask members of the group to try for a deal by
mid-summer instead.

Europe and America are both to blame for the latest setback, and each is
making strenuous efforts to hold the other responsible. But the failure to
get a deal on the controversial question of cutting subsidies for farmers
casts doubt on the chances of getting agreement in other areas. Negotiations
on the liberalisation of trade in services may prove as impossibly tricky to
achieve as a deal on farm and industrial goods.

There are other indications that major trading powers do not expect the Doha
round to be a success. Free traders cheered in March last year when George
Bush named Rob Portman as his trade representative. Mr Portman, then a
Republican congressman, was expected to be an able promoter of free trade
with his former congressional colleagues. He was also expected to push hard
for freer trade in international negotiations, notably in the Doha round.
But last week, as part of a general reshuffle of White House staff aimed at
rescuing Mr Bush¹s foundering second term, Mr Portman was shifted to manage
the White House Office of Management and Budget. Moving him after less than
a year in his office suggests, to pessimists, that Mr Bush has given up any
hopes of rescuing the round.

If so, there is every reason to be gloomy. Despite early protectionist
moves, such as introducing steel tariffs, the Bush administration has pushed
hard for trade liberalisation in the past few years. In contrast the
European Union has appeared divided and ineffective. Its trade commissioner,
Peter Mandelson, has so far failed to persuade sceptical member states that
the benefits of new export markets will outweigh the costs of allowing
greater competition at home, especially in agriculture. Though some members,
notably Britain and other north Europeans, favour a more liberal approach,
it has proved all but impossible to get agreement from France and other more
protected economies with vociferous farmers. Europe¹s general position has
been to refuse any more lowering of agricultural barriers until poorer
countries agree to liberalise trade in goods and services.

Nor is the G20 group of developing nations giving much impetus to the talks.
Led by India and Brazil, the G20 is refusing to negotiate without deeper
concessions on agriculture. India, with its large population, may turn out
to be a big problem. Its government worries that competition from Chinese
factories and American farms represents too great a threat, while gaining
more access to world markets is of only limited attraction.

Other poor countries are also unsure what they would gain. There is general
talk of hopeful prospects for poor farmers gaining greater access to
rich-world markets. But the benefits will not flow evenly from rich to poor.
The World Bank estimates that removing current agricultural distortions
would produce a general benefit of more than $300 billion a year. Relative
to national income, poor countries would enjoy a third more of this benefit
than rich, industrialised, ones. However, nearly half of that benefit would
come from reforms by the developing countries themselves, something
governments might do anyway were it not for the serious problem of the
political pain the reforms are bound to cause.

The impasse first led to the deadline for an agreement, which was originally
supposed to be settled at the Hong Kong ministerial meeting in December last
year, to slip to the end of April. Now, in theory, this is to be resolved by
the middle of the summer. Missed deadlines may be nothing new for the WTO,
but these ones matter. There is no further room for them to slide. The
American government¹s Trade Promotion Authority, which forces Congress to
accept or reject a trade bill without introducing amendments, is thought to
be essential if America is to take part in talks. That authority expires in
2007 and few expect it to be renewed. Too many American politicians are once
again turning protectionist. Congress only barely passed the Bush
administration¹s Central America Free Trade Agreement, even though its
impact on the American economy will be tiny compared to the ambitions
contemplated for Doha. And as it will take roughly a year to work out the
finer details of any world trade agreement, the outstanding issues must be
resolved early enough so the Bush administration can get a deal through
Congress.

What comes next?

In America, the administration has nominated Susan Schwab, who was Mr
Portman¹s deputy, is to take over. An experienced trade specialist, she says
the American government still considers Doha and other trade negotiations
matter greatly. But some observers suspect that Mr Bush¹s team is worried,
given already low poll ratings, that talk of removing agricultural
protection could prove unpopular in some states ahead of mid-term elections
this year. The chance for a significant deal on agriculture may have been
lost.

If Doha does die, the focus of attention may switch to regional trade talks
instead. But these are a poor substitute for global deals reached through
the WTO; indeed they may distort markets in much the same way as national
protectionism. The EU has struggled to absorb its ten new members, for
example seeing its services directive‹which was supposed to free up trade in
services the way the EU has already done with goods‹considerably weakened.
The prospects for regional co-operation in the Americas are limited. Several
Latin American governments are now promoting a form of leftist nationalism
that would not sit easily with wider liberalisation. The gathering clouds,
it seems, have no silver lining.